As filed with the Securities and Exchange Commission on March 30, 2000
Securities Act File No. 2-10685
Investment Company Act File No. 811-214
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. |_|
Post-Effective Amendment No. 89 |X|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. |X|
(Check Appropriate Box or Boxes)
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SENTINEL GROUP FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
National Life Drive
Montpelier, Vermont 05604
(Address of Principal Executive Offices) (Zip Code)
(802) 229-3900
(Registrant's Telephone Number, including Area Code)
------
D. Russell Morgan, Esq. Copy to:
c/o Sentinel Group Funds, Inc. John A. MacKinnon, Esq.
National Life Drive Brown & Wood LLP
Montpelier, Vermont 05604 One World Trade Center
(Name and Address of Agent for Service) New York, New York 10048-0557
----------------
It is proposed that this filing will become effective (check appropriate box)
|X| immediately upon filing pursuant to paragraph (b)
|_| on (date) pursuant to paragraph (b)
|_| 60 days after filing pursuant to paragraph (a)(1)
|_| on (date) pursuant to paragraph (a)(1)
|_| 75 days after filing pursuant to paragraph (a)(2)
|_| on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
|_| this post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
---------------
Title of Securities Being Registered: Common Stock, par value $.01 per share.
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<PAGE>
Sentinel Funds
P R O S P E C T U S
Dated March 30, 2000
<PAGE>
Sentinel Flex Cap Opportunity Fund
Sentinel Small Company Fund
Sentinel Mid Cap Growth Fund
Sentinel World Fund
Sentinel Growth Index 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 Pennsylvania Tax-Free Trust
Sentinel Government Securities Fund
Sentinel Short Maturity Government Fund
Sentinel U.S. Treasury Money Market Fund
<PAGE>
This prospectus contains information you should know before investing, including
information about risks. Please read it before you invest and keep it for future
reference.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
Sentinel Funds o National Life Drive o Montpelier, VT 05604
<PAGE>
Table of Contents
Key Facts About the Sentinel Funds........................3
Details About the Funds' Investment
Objectives, Principal Investment Strategies
and Related Risks.....................................14
Purchase Options..........................................28
How to Buy, Sell, Exchange and Transfer Shares............37
How the Funds are Priced..................................41
Dividends, Capital Gains and Taxes........................41
Management of the Funds...................................43
Financial Highlights......................................46
For information and assistance call your Financial Advisor or Investor Services
at 1-800-282-FUND (3863) Visit us online at www.sentinelfunds.com
<PAGE>
Key Facts about the Sentinel Funds
What are the main goals and investment strategies of each of the Sentinel Funds?
This prospectus contains information about the fifteen mutual funds that
comprise the Sentinel Family of Funds.
In this prospectus, each Sentinel Fund is referred to individually as a "Fund".
Sentinel Advisors Company is the investment advisor for each Fund. We cannot
guarantee that any Fund will achieve its goals.
A brief description of each Fund follows:
Sentinel Flex Cap Opportunity Fund seeks long-term capital appreciation. The
Fund will invest primarily in equity securities, such as common or preferred
stocks, which are listed on U.S. exchanges or in the over-the-counter market.
The Fund invests primarily in "growth" stocks of companies of all sizes. The
Fund may borrow money to purchase additional investments. Income is not an
important factor in selecting investments. [Pie Chart]
Sentinel Small Company Fund seeks growth of capital, by investing mainly in
common stocks of small and medium-sized companies that Sentinel Advisors
believes have attractive growth potential and are attractively valued. Income is
not a factor in selecting stocks. [Pie Chart]
Sentinel Mid Cap Growth Fund seeks growth of capital, by focusing its
investments on common stocks of mid-sized growing companies. Income is not a
factor in selecting stocks. [Pie Chart]
Sentinel World Fund seeks growth of capital, by investing in common stocks of
established non-U.S. companies, or in U.S. companies that conduct their business
mainly outside the United States. [Pie Chart]
Sentinel Growth Index Fund seeks to match, as closely as possible before
expenses, the performance of the S&P 500/BARRA Growth Index, by investing in
common stocks of the companies comprising the Index in approximately the same
weightings as the Index. [Pie Chart]
Sentinel Common Stock Fund seeks a combination of growth of capital, current
income, growth of income and relatively low risk as compared with the stock
market as a whole, by investing in a diverse group of common stocks of
well-established companies. [Pie Chart]
Sentinel Balanced Fund seeks a combination of growth of capital and current
income, with relatively low risk and relatively low fluctuations in value, by
investing in both common stocks and bonds. [Pie Chart]
Sentinel High Yield Bond Fund seeks high current income and total return by
investing mainly in lower rated corporate bonds, sometimes called "junk bonds",
that have higher effective interest rates than investment grade bonds. These
lower rated bonds are more speculative and more likely to default than
investment grade bonds. [Pie Chart]
Sentinel Bond Fund seeks high current income while seeking to control risk by
investing mainly in investment grade bonds. [Pie Chart]
Sentinel Tax-Free Income Fund seeks high current income exempt from federal
income taxes while seeking to control risk by investing mainly in investment
grade municipal bonds. [Pie Chart]
Sentinel New York Tax-Free Income Fund seeks high current income exempt from
federal income tax and New York State and City personal income taxes, while
seeking to control risk, by investing in investment grade municipal bonds of New
York issuers. [Pie Chart]
Sentinel Pennsylvania Tax-Free Trust seeks high current income exempt from
federal and Pennsylvania income taxes, while seeking to control risk, by
investing in investment grade municipal bonds of Pennsylvania issuers. [Pie
Chart]
Sentinel Government Securities Fund seeks high current income while seeking to
control risk by investing mainly in U.S. government bonds. [Pie Chart]
Sentinel Short Maturity Government Fund seeks high current income and limited
fluctuations in principal value by investing mainly in a portfolio of U.S.
government bonds with a weighted average maturity of three years or less.
[Pie Chart]
Sentinel U.S. Treasury Money Market Fund seeks as high a level of current income
as is consistent with stable principal values by investing primarily in
short-term direct obligations of the U.S. Treasury. [Pie Chart]
<PAGE>
What are the main risks of investing in the Funds?
Investment in each Fund is subject to certain risks. Some of the risk factors
described below affect more than one Fund; others are specific to certain Funds.
More information on each Fund's risk factors is described under "Details About
the Funds' Investment Objectives, Principal Investment Strategies, and Related
Risks". We cannot guarantee that any of the Funds will achieve its goals.
<PAGE>
Equity Fund Risks
The value of all equity funds, including the the Flex Cap Opportunity Fund,
the Small Company Fund, the Mid Cap Growth Fund, the World Fund, the Growth
Index Fund, the Common Stock Fund, and the Balanced Fund, , may go up or down as
the prices of the stocks held by these Funds go up or down. Changes in value may
occur because the U.S. or other stock markets are rising or falling or due to
business developments or other factors that affect the value of particular
companies. Stock markets tend to move in cycles, with periods of rising prices
and periods of falling prices. Stocks could decline generally or underperform
other types of investment assets. If the value of the stocks held in these Funds
goes down, you may lose money. The stocks of smaller companies may be subject to
greater changes in value than the stocks of larger, more established companies,
because they generally have more limited financial resources, narrower product
lines, and may have less seasoned managers. In addition, small company stocks
may trade less frequently and in lower share volumes, which could contribute to
wider price fluctuations.
The equity Funds are also subject to investment style risk, which is the
chance that returns from the portion of the stock market on which they focus,
for example large capitalization growth stocks for the Growth Index Fund, will
trail returns from other asset classes or the overall stock market. Growth
stocks and value stocks, and large company stocks and smaller company stocks,
tend to go through cycles of performing better, or worse, than the stock market
in general. These periods have, in the past, lasted for as long as several
years. Growth stocks, and the Funds that focus on them (particularly the Flex
Cap Opportunity Fund, the Mid Cap Growth Fund and the Growth Index Fund), also
have a tendency to be more volatile than other investments. Because the Flex Cap
Opportunity Fund has the flexibility to invest in companies of all sizes, there
is a risk that the Fund may focus on a size category that does worse than the
overall stock market.
In the case of the Growth Index Fund, there is the risk that the Fund will
not track closely the performance of the S&P 500/BARRA Growth Index for a number
of reasons, including the Fund's costs of buying and selling securities and the
flow of money into and out of the Fund.
By tracking the composition of the S&P500/BARRA Growth Index, the Growth
Index Fund may be "non-diversified" under SEC standards, if a few large
companies remain large components of the index. A fund's risk grows as its
holdings become less diversified.
Since the Flex Cap Opportunity Fund has the ability to borrow money to
leverage the Fund's assets, it is subject to the additional risk that the cost
of borrowing will exceed the returns for the securities purchased or that the
securities purchased may actually go down in value; thus, the Fund's net asset
value could decrease more quickly than if it had not borrowed. An investment in
the Flex Cap Opportunity Fund is best suited for investors who seek long-term
capital growth and can tolerate substantial fluctuations in their investment's
value. Compared with the other Sentinel Funds, the Flex Cap Opportunity Fund is
likely to have the greatest price volatility, and may subject you to the highest
risk of loss of your investment.
Because the World Fund invests mainly in foreign countries, it is
subject to additional risks. The World Fund's foreign stock investments may go
up or down in value depending on the rise or fall of foreign stock markets,
fluctuations in foreign exchange rates, foreign political and economic
developments and U.S. and foreign laws relating to foreign investment. Non-U.S.
securities also may be less liquid, more volatile and harder to value than U.S.
securities. The World Fund may invest up to 15% of its total assets in emerging
markets, where the above risks may be greater. If the value of the stocks held
by the World Fund goes down, you may lose money.
Fixed Income Fund Risks
The High Yield, Bond, Tax-Free Income, New York, Pennsylvania, Government
Securities and Short Maturity Government Funds, and the bond portion of the
Balanced Fund, primarily invest in bonds. Bonds are subject to several types of
risk. A bond's issuer may default on payments of interest or repayments of
principal. The market also may judge that the odds that an issuer of bonds could
default in the future have increased. Interest rates available in the market may
increase, which would reduce the present value of the fixed payments to be
received from outstanding bonds. Any of these factors could cause the value of
bonds held by these Funds to fall. If the value of the portfolio investments
falls, you could lose money.
U.S. government bonds are very unlikely to default or to decline in
credit quality. However, the value of U.S. government bonds generally will rise
if interest rates fall, and fall if interest rates rise. The longer the
remaining term of a bond, the more its value will tend to fluctuate as interest
rates change. As a result, the Short Maturity Government Fund is subject to the
least risk of the fixed-income Funds, since it invests mainly in U.S. government
securities with relatively shorter maturities. However, the value of the shares
of the Short Maturity Government Fund will fluctuate, and you could lose money
in this Fund. The Government Securities Fund also faces very little credit
quality risk, but since it invests in longer term securities, it faces more
interest rate risk than the Short Maturity Government Fund. Both of these Funds,
as well as the Bond Fund and the bond portion of the Balanced Fund, also invest
in mortgage-backed securities, which have varying rates of principal repayments.
When interest rates fall, mortgage prepayments generally increase, which may
cause mortgage-backed securities to lose value. To the extent these Funds invest
in mortgage-backed securities, they also are subject to extension risk.
Extension risk is the possibility that when interest rates rise, prepayments
occur at a slower than expected rate.
In that event, a security that was considered short or
intermediate-term at the time of purchase may effectively become a long-term
security. Long-term securities generally tend to fluctuate more widely in
response to changes in interest rates than shorter-term securities.
The bonds in which the High Yield, Bond, Tax-Free Income, New York and
Pennsylvania Funds, and the bond portion of the Balanced Fund invest are subject
to default risk, or credit quality risk, as well as interest rate risk.
Generally, the degree of default risk is reflected in the ratings of the
securities. Investment grade rated securities generally are less subject to
default risk than, for example, the lower rated securities in which the High
Yield Fund invests. While any corporate or municipal security is subject to the
risk of default, the lower the rating of a bond the more speculative it is and
the more likely it is that the issuer may default or that the security may be
downgraded.
The High Yield Fund involves significantly more risk than the other
fixed-income Funds, since it primarily invests in lower rated bonds while the
other Funds primarily invest in higher quality bonds. In addition to greater
default risk, lower rated bond values may experience greater fluctuations in
value for several other reasons. An economic downturn is more likely to affect
the ability of issuers who are less financially strong to make their bond
payments. There may be less active trading in lower rated bond issues, and lower
rated bond prices are more responsive to negative publicity or changes in
investor perceptions. The risk of loss if a lower rated bond defaults also may
be greater than for investment grade bonds because lower rated bonds are more
likely to be unsecured and may be subordinated to other creditors.
Because the New York and Pennsylvania Funds invest only in bonds of
issuers in a single state, these Funds are more susceptible to the risk factors
affecting municipal issuers in those states than funds which are more
diversified geographically. These Funds are more sensitive to changes in the
economic condition and governmental policies of their respective states. For
example, the economic condition of a single significant industry within one of
these states may impact municipal issuers in that state or that state's
revenues.
Money Market Fund
The Money Market Fund invests primarily in short-term securities issued
directly by the U.S. Treasury. It may also invest up to 25% of its total assets
in repurchase agreements with respect to U.S. Treasury securities, and up to 10%
of its total assets in shares of institutional money market funds which invest
primarily in U.S. government securities. Repurchase agreements may subject the
Fund to risk of loss if the other party to the repurchase agreement defaults on
its obligation, and the proceeds from the sale of the U.S. Treasury securities
held as collateral turn out to be less than the repurchase price stated in the
agreement. The Fund is designed to maintain a stable net asset value and declare
daily dividends. An investment in the Money Market Fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Money Market
Fund.
<PAGE>
Risk/Return Bar Charts
The bar charts below and tables shown on page__ provide indications of the risks
of investing in each Fund. The bar charts show changes in each Fund's
performance for Class A shares for each calendar year over a ten year period, or
for a shorter period for those Funds that have been in existence for less than
ten years. No bar chart is provided for the Growth Index Fund or for the Flex
Cap Opportunity Fund because the registration statements for those Funds became
effective on September 15, 1999 and February 29 , 2000, respectively.
Sales charges are not reflected in the bar charts. If sales charges were
reflected, returns would be less than those shown. . How each Fund performed in
the past is not necessarily an indication of how that Fund will perform in the
future.
Sentinel Small Company
Inception: 1993
[Risk Return Bar Chart]
During the 6 year period shown in the above bar chart, the highest return for a
quarter for the Small Company Fund was 18.3% (quarter ended December, 1998) and
the lowest return for a quarter was (15.3)% (quarter ended September, 1998).
Sentinel Mid Cap Growth
Inception: 1969
[Risk Return Bar Chart]
During the 10 year period shown in the above bar chart, the highest return for a
quarter for the Mid Cap Growth Fund was 29.5% (quarter ended December, 1999) and
the lowest return for a quarter was (14.7)% (quarter ended September, 1990).
Sentinel World
Inception: 1993
[Risk Return Bar Chart]
During the 6 year period shown in the above bar chart, the highest return for a
quarter for the World Fund was 16.9% (quarter ended December, 1999) and the
lowest return for a quarter was (14.9)% (quarter ended September, 1998).
Sentinel Common Stock
Inception: 1934
[Risk Return Bar Chart]
During the 10 year period shown in the above bar chart, the highest return for a
quarter for the Common Stock Fund was 16.5% (quarter ended December, 1998) and
the lowest return for a quarter was (11.7)% (quarter ended September, 1998).
Sentinel Balanced
Inception: 1938
[Risk Return Bar Chart]
During the 10 year period shown in the above bar chart, the highest return for a
quarter for the Balanced Fund was 9.9% (quarter ended December, 1998) and the
lowest return for a quarter was (6.5)% (quarter ended September, 1990).
Sentinel High Yield Bond
Inception: 1997
[Risk Return Bar Chart]
During the 2 year period shown in the above bar chart, the highest return for a
quarter for the High Yield Fund was 5.1% (quarter ended March, 1998) and the
lowest return for a quarter was (6.6)% (quarter ended September, 1998).
Sentinel Bond
Inception: 1969
[Risk Return Bar Chart]
During the 10 year period shown in the above bar chart, the highest return for a
quarter for the Bond Fund was 6.9% (quarter ended June, 1995, ) and the lowest
return for a quarter was (3.8)% (quarter ended March, 1994).
Sentinel Tax-Free Income
Inception: 1990
[Risk Return Bar Chart]
During the 9 year period shown in the above bar chart, the highest return for a
quarter for the Tax-Free Income Fund was 6.2% (quarter ended September, 1995)
and the lowest return for a quarter was (4.9)% (quarter ended March, 1994).
Sentinel New York Tax-Free
Inception: 1995
[Risk Return Bar Chart]
During the 4 year period shown in the above bar chart, the highest return for a
quarter for the New York Tax-Free Income Fund was 4.1% (quarter ended June,
1997) and the lowest return for a quarter was (2.5)% (quarter ended June, 1999).
Sentinel Pennsylvania Tax-Free
Inception: 1986
[Risk Return Bar Chart]
During the 10 year period shown in the above bar chart, the highest return for a
quarter for the Pennsylvania Tax-Free Trust was 5.0% (quarter ended March, 1995)
and the lowest return for a quarter was (4.3)% (quarter ended March, 1994).
Sentinel Government Securities
Inception: 1986
[Risk Return Bar Chart]
During the 10 year period shown in the above bar chart, the highest return for a
quarter for the Government Securities Fund was 5.7% (quarter ended June, 1995)
and the lowest return for a quarter was (3.6)% (quarter ended March, 1994).
Sentinel Short Maturity Government
Inception: 1995
[Risk Return Bar Chart]
During the 4 year period shown in the above bar chart, the highest return for a
quarter for the Short Maturity Government Fund was 2.5% (quarter ended June,
1997) and the lowest return for a quarter was (0.01)% (quarter ended March,
1996)
Sentinel U.S. Treasury
Money Market
Inception: 1993
[Risk Return Bar Chart]
During the 6 year period shown in the above bar chart, the highest return for a
quarter for the US Treasury Money Market Fund was 1.3% (quarter ended December,
1995) and the lowest return for a quarter was 0.6% (quarter ended March, 1994).
Average Annual Total Return Tables
The tables below show the average annual total returns that were achieved by
each class of shares of each Fund for the year ended December 31, 1999, the 5
years ended December 31, 1999, and the 10 years ended December 31, 1999, unless
the Fund or class of shares did not exist for a full time period (in that case,
average annual total returns since inception are shown). All returns include the
effect of the maximum sales charge, including any contingent deferred sales
charge that would apply to a redemption at the end of the period, in the case of
the Class B and Class C shares. An appropriate broad-based securities market
index is also included for each Fund. No information is provided for the Growth
Index Fund because it began operations on September 10, 1999, or for the Flex
Cap Opportunity Fund, because it began operations on February , 2000.
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Past Past Past 10 Years/
One Year 5 Years Since Inception
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
<S> <C> <C> <C>
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Small Company Fund Class A 9.35 14.15 11.98(1)
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Russell 2000 Index 21.36 15.05 14.40
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Small Company Fund Class B 10.08 12.43(2)
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Russell 2000 Index 21.36 13.51
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Mid Cap Growth Fund Class A 31.39 24.50 14.41
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
S&P 500 Index 21.06 28.55 18.20
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Mid Cap Growth Fund Class B 32.73 27.99(3)
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
S&P Index500 21.06 27.34
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Mid Cap Growth Fund Class C*
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
World Fund Class A 20.96 14.22 15.10(1)
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Morgan StanleyInternational "EAFE" (Europe, Australia, Far East) Index 26.96 12.83 14.59
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
World Fund Class B 22.21 14.18(2)
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Morgan StanleyInternational "EAFE" (Europe, Australia, Far East) Index 26.96 13.33
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
World Fund Class C 25.94 10.65(8)
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Morgan StanleyInternational "EAFE" (Europe, Australia, Far East) Index 26.96 15.48
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Common Stock Fund Class A (2.04) 18.33 12.92
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
S&P 500 Index 21.06 28.55 18.20
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Common Stock Fund Class B (1.72) 13.48(2)
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
S&P 500 Index 21.06 27.45
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Common Stock Fund Class C 1.18 1.67(8)
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
S&P 500 Index 21.06 20.29
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Balanced Fund Class A (4.57) 12.57 9.81
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Lehman Aggregate Bond Index (0.82) 7.73 7.70
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
S&P 500 Index 21.06 28.55 18.20
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Balanced Fund Class B (4.31) 9.00(2)
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Lehman Aggregate Bond Index (0.82) 2.64
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
S&P 500 Index 21.06 27.45
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Balanced Fund Class C (1.69) 0.72(8)
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Lehman Aggregate Bond Index (0.82) 3.32
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
S&P 500 Index 21.06 20.29
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Balanced Fund Class D*
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
High Yield Bond Fund Class A 0.71 4.23(4)
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Lehman High Yield Index 2.39 4.31
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Past Past Past 10 Years/
One Year 5 Years Since Inception
------------------ -------------- ------------------
High Yield Bond Fund Class B 0.41 4.08(4)
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Lehman High Yield Index 2.39 4.31
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
High Yield Bond Fund Class C 2.72 (1.34)(8)
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Lehman High Yield Index 2.39 0.31
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Bond Fund Class A (6.58) 5.91 6.85
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Lehman Aggregate Bond Index (0.82) 7.43 7.70
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Bond Fund Class B (7.56) 2.64(2)
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Lehman Aggregate Bond Index (0.82) 6.07
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Tax-Free Income Fund Class A (7.66) 4.78 5.94(5)
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Lehman Municipal Bond Index (2.06) 6.91 7.14
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
New York Fund Class A (8.51) 4.10(6)
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Lehman Municipal Bond Index (2.06) 5.74
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Pennsylvania Fund Class A (8.03) 4.35 5.13
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Lehman Municipal Bond Index (2.06) 6.91 6.89
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Government Securities Fund Class A (7.32) 5.78 6.65
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Lehman Government Bond Index (2.23) 7.44 7.48
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Short Maturity Government Fund Class A 1.98 5.63(7)
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Lehman 1-3 Yr. Gov't Bond Index 2.97 6.05
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
U.S. Treasury Money Market Fund Class A 4.14 4.60 4.00(1)
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
U.S. Treasury Money Market Fund Class B 3.90 4.40(2)
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
Lipper US Treasury Money Market Funds 4.23 4.75 5.25
- ----------------------------------------------------------------------------- ------------------ -------------- ------------------
</TABLE>
*No information is provided for the Class C shares of the Mid Cap Growth Fund,
or the Class D shares of the Balanced Fund because those classes began
operations less than one year prior to December 31, 1999.
1 From inception on March 1, 1993
2 From inception on April 1, 1996
3 From inception on January 12, 1998
4 From inception on June 23, 1997
5 From inception on October 1, 1990
6 From inception on March 27, 1995
7 From inception on March 24, 1995
8 From inception on May 4, 1998
<PAGE>
Fees and Expenses
These tables describe the fees and expenses that you pay if you buy and hold
shares of the Funds:
Shareholder Fees (fees paid directly from your investment):
Class A Shares (available for all Funds):
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) -
Flex Cap Opportunity, Small Company, Mid Cap Growth, World ,
Common Stock and Balanced Funds........................5.00% maximum
High Yield, Tax-Free Income, New York,
Pennsylvania and Government Securities Funds...........4.00% maximum
Growth Index Fund .....................................2.50% maximum
Short Maturity Government Fund.........................1.00% maximum
Money Market Fund......................................None
Maximum Deferred Sales Charge (Load)..........................None1
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends.......................................None
Redemption Fees...............................................None\1
Exchange Fees.................................................None\2
1 If you redeem by wire transfer, we assess a wire charge of $25.00. In
addition, you pay a deferred sales charge of up to 1% on certain redemptions of
Class A shares made within two years of purchase if you bought them without an
initial sales charge as part of an investment of $1,000,000 or more.
2 If you exchange Class A shares of the Money Market Fund for Class A shares of
another Fund, and you did not acquire the Money Market Fund shares in an
exchange from another Fund's Class A shares, then you pay a sales charge equal
to the sales charge imposed on new purchases of the new Fund.
Class B Shares
(available for the Flex Cap Opportunity, Small Company, Mid Cap Growth,
World, Growth Index, Common Stock, Balanced, High Yield, Bond and Money Market
Funds):
Maximum Sales Charge (Load) Imposed on Purchases.............None
Maximum Deferred Sales Charge (Load) (as a percentage of
the lower of the purchase price or net asset value of shares being
redeemed) All except Growth Index Fund.....................4.00% maximum\3
Growth Index Fund..........................................2.50% maximum\4
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends......................................None
Exchange Fees................................................None
3 The maximum deferred sales charge is imposed on shares redeemed in the first
year after purchase. For shares held longer than one year, the deferred sales
charge declines.
4 The maximum deferred sales charge is imposed on shares redeemed in the first
two years after purchase. For shares held longer than two years, the deferred
sales charge declines.
Class C Shares
(available for the Flex Cap Opportunity, Mid Cap Growth, World, Grwoth Index,
Common Stock, Balanced and High Yield Funds):
Maximum Sales Charge (Load)
Imposed on Purchases.......................................None
Maximum Deferred Sales Charge (Load) (as a percentage of
the lower of the purchase price or net asset value of shares
being redeemed)..........................................1.00% for one year
after purchase
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends....................................None
Exchange Fees..............................................None
Class D Shares
(available for the Balanced Fund only)
Maximum Sales Charge (Load)
Imposed on Purchases..........................................None
Maximum Deferred Sales Charge (Load) (as a percentage of the lower of the
purchase price or net asset value of shares being redeemed)
..............................................................6.00% maximum(5)
Maximum Sales Charge (Load) Imposed
on Reinvested Dividends.......................................None
Exchange Fees.................................................None
5 The maximum deferred sales charge is imposed on shares redeemed in the first
two years after purchase. For shares held longer than two years, the deferred
sales charge declines.
<PAGE>
Annual Fund Operating Expenses
(as a percentage of average net assets)
Class A:
<TABLE>
<CAPTION>
High
Flex Cap Small Mid Cap Growth Common Yield
Opportunity Company Growth World Index Stock Balanced Bond Bond
----------- ------- ------ ----- ------ ----- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees 0.90% 0.61% 0.61% 0.61% 0.30% 0.55% 0.61% 0.75% 0.53%
Rule 12b-1 Fees
(includes service fee and 0.30 0.30 0.30 0.30 0.11 0.30 0.30 0.20 0.20
distribution fee)
Other Expenses:
Accounting and
Administrative Costs 0.03(a) 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03
Other 0.22(a) 0.37 0.28 0.31 0.67 0.12 0.18 0.24 0.18
---- ---- ---- ---- ---- ---- ---- ---- ----
Total Other Expenses 0.25(a) 0.40% 0.31% 0.34% 0.70% 0.15% 0.21 0.27% 0.21%
Total Fund Operating
Expense 1.45% 1.31% 1.22% 1.25% 1.11%(b) 1.00% 1.12% 1.22% 0.94%(b)
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
<TABLE>
<CAPTION>
Short
Tax-Free New York Penna. Government Maturity Money
Income Tax-Free Tax-Free Securities Government Market
------- --------- -------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Management Fees 0.53% 0.53% 0.55% 0.53% 0.53% 0.40%
Rule 12b-1 Fees
(includes service fee and
distribution fee) 0.20 0.20 0.20 0.20 0.35 None
Other Expenses:
Accounting and
Administrative Costs 0.03 0.03 0.04(c) 0.03 0.03 0.03
Other 0.15 0.20 0.26 0.22 0.20 0.20
---- ---- ---- ---- ---- ----
Total Other Expenses 0.18 0.23 0.30(c) 0.25 0.23 0.30
Total Fund Operating Expense 0.91%(b) 0.96%(b) 1.05%(c) 0.98%(b) 1.11%(b) 0.70%
==== ==== ==== ==== ==== =====
</TABLE>
<TABLE>
<CAPTION>
Class B: High
Flex Cap Small Mid Cap Growth Common Yield Money
Opportunity Company Growth World Index Stock Balanced Bond Bond Market
----------- ------- ------ ------ ------ ------ -------- ------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees 0.90% 0.61% 0.61% 0.61% 0.30% 0.55% 0.61% 0.75% 0.53% 0.40%
Rule 12b-1 Fees
(includes service fee and 1.00 1.00 1.00 1.00 0.75 1.00 1.00 0.68 1.00 None
distribution fee)
Other Expenses:
Accounting and
Administrative Costs 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03 0.03
Other 0.22 0.64 0.65 0.52 0.58 0.23 0.23 0.20 0.25 0.50
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total Other Expenses 0.25 0.67% 0.68% 0.55% 0.61% 0.26% 0.26 0.23% 0.28% 0.53%
Total Fund Operating
Expense 2.15% 2.28% 2.29% 2.16% 1.66%(b) 1.81% 1.87% 1.66% 1.81%(b) 0.93%
==== ==== ==== ==== ==== =====
</TABLE>
Class C:
<TABLE>
<CAPTION>
High
Flex Cap Mid Cap Growth Common Yield
Opportunity Growth World Index Stock Balanced Bond
---------- -------- -------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees 0.90% 0.61% 0.61% 0.30% 0.55% 0.61% 0.75%
Rule 12b-1 Fees
(includes service fee and
distribution fee) 1.00 1.00 1.00 1.00 1.00 1.00 1.00
Other Expenses:
Accounting and
Administrative Costs 0.03 0.03 0.03 0.03 0.03 0.03 0.03
Other 0.22 0.65 0.65 0.58 0.32 0.61 0.64
---- ---- ---- ---- ---- ---- ----
Total Other Expenses 0.25 0.68 0.68 0.61 0.35 0.64 0.67
Total Fund Operating Expense 2.15% 2.29% 2.29% 1.91%(b) 1.90% 2.25% 2.42%
==== ==== ==== ==== ====
Class D:
Balanced
--------
Management Fees 0.61%
Rule 12b-1 Fees
(includes service fee and
distribution fee) 0.75
Other Expenses:
Accounting and
Administrative Costs 0.03
Other 0.69
----
Total Other Expenses 0.72
Total Fund Operating Expense 2.08%
=====
</TABLE>
(a) Based on estimated amoutns for the current fiscal year
(b Current Expense Ratios
The above expense ratios do not reflect waivers or reimbursements of
expenses by Sentinel Advisors.
<PAGE>
Currently Sentinel Advisors voluntarily waives or reimburses expenses of
the Funds shown below to the extent necessary to cap expense ratios at the
amounts shown. These waivers or reimbursements will continue at least until
November 30, 2000.
Growth Index Fund Class A shares................0.65%
Bond Fund Class A shares........................0.75%
Tax-Free Income Fund Class A shares.............0.77%
New York Fund Class A shares....................0.00%
Pennsylvania Fund Class A share.................0.76%
Government Securities Fund Class A shares.......0.84%
Short Maturity Government Fund Class A shares...0.75%
Because the Growth Index and Bond Funds also have Class B shares, and the
Growth Index Fund has Class C shares, the waiver of advisory fees of the Growth
Index and Bond Funds also benefits the Class B shares of the Growth Index and
Bond Funds, and the Class C shares of the Growth Index Fund. The Class B shares
of the Growth Index and Bond Funds, and the Class C shares of the Growth Index
Fund, will experience the same reduced effective advisory fee rate as the Class
A shares of the Growth Index and Bond Funds. In the case of the Growth Index
Fund, Sentinel Advisors currently intends to continue this arrangement
indefinitely. In the case of the other Funds (except the New Y ork Fund),
Sentinel Advisors intends to reset these expense caps annually to amounts
approximately equal to 90% of the average expense ratios of the Class A shares
of the Funds' peer groups (except that in the case of the Short Maturity
Government Fund, the expense cap is to be increased by approximately 0.15% to
take that Fund's higher Rule 12b-1 fee into account). However, these
arrangements may be changed or terminated at any time after November 30, 2000.
<PAGE>
(c) For the Pennsylvania Fund, actual 1999 expenses have been adjusted to
reflect a reduction in the Fund's fund accounting and financial administration
fee effective December 1, 1999.
<PAGE>
Examples:
<PAGE>
These examples are intended to help you compare the cost of investing in
the Funds with the cost of investing in other mutual funds.
These examples assume that you invest $10,000 in each Fund for the time
periods indicated, that you pay the maximum sales charge that applies to a
particular class, that the Fund's operating expenses remain the same, and that
your investment has a 5% return each year. This assumption is not meant to
indicate that you will receive a 5% annual rate of return.
Your annual return may be more or less than the 5% used in these examples.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be as shown below.
Note that the amounts shown do not reflect any of the waivers or
reimbursements that limit expense ratios to the levels shown in footnote (a) on
page __.
Class A: 1 year 3 years 5 years 10 years
Flex Cap Opp. 640 936 -- --
Small Company 627 894 1182 2000
Mid Cap Growth 618 868 1137 1903
World 621 877 1152 1936
Growth Index 361 600 -- --
Common Stock 597 802 1025 1663
Balanced 608 838 1086 1795
High Yield 519 772 1044 1818
Bond 492 688 899 1509
Tax-Free Income 489 679 884 1475
NY Tax-Free 494 694 910 1531
PA Tax-Free 529 802 1095 1927
Gov't Sec. 496 700 920 1553
Short Mat. Gov't. 212 449 705 1438
Money Market 72 224 390 871
Class B (if you redeem at the end of the period):
1 year 3 years 5 years 10 years
Flex Cap Opp. 618 973 -- --
Small Company 631 1012 1420 2147
Mid Cap Growth 632 1015 1425 2108
World 619 976 1359 2049
Growth Index 419 723 -- --
Common Stock 584 869 1180 1718
Balanced 590 888 1211 1815
High Yield 569 823 1102 1742
Bond 584 869 1180 1687
Money Market 495 596 715 1018
Class B (if you do not redeem):
1 year 3 years 5 years 10 years
Flex Cap Opp. 218 673 -- --
Small Company 231 712 1220 2147
Mid Cap Growth 232 715 1225 2108
World 219 676 1159 2049
Growth Index 169 523 -- --
Common Stock 184 569 980 1718
Balanced 190 588 1011 1815
High Yield 169 523 902 1742
Bond 184 569 980 1687
Money Market 95 296 515 1018
Class C: (if you redeem at the end of the period):
1 year 3 years 5 years 10 years
Flex Cap Opp. 318 673 -- --
Mid Cap Growth 332 715 1225 2626
World 332 715 1225 2626
Growth Index 294 600 -- --
Common Stock 293 597 1026 2222
Balanced 328 703 1205 2585
High Yield 345 755 1291 2756
Class C (if you do not redeem):
1 year 3 years5 years 10 years
Flex Cap Opp. 218 673 -- --
Mid Cap Growth 232 715 1225 2626
World 232 715 1225 2626
Growth Index 194 600 -- --
Common Stock 193 597 1026 2222
Balanced 228 703 1205 2585
High Yield 245 755 1291 2756
Class D: (if you redeem at the end of the period):
1 year 3 years5 years 10 years
Balanced $ 811 $1152 $ 1619 $1938
Class D: (if you do not redeem):
1 year 3 years5 years 10 years
Balanced $ 211 $ 652 $1119 $ 1938
<PAGE>
Details About the Funds' Investment Objectives,
Principal Investment Strategies, and Related Risks
<PAGE>
Each Fund has distinct investment objectives and policies. Investment objectives
are fundamental policies of each Fund that may only be changed by a majority
vote of the outstanding shares of that Fund. We cannot guarantee that these
objectives will be achieved.
Each Fund's investment objectives and policies are described in this section. A
general discussion of the Funds' investment policies and associated risks
follows. All of the Funds other than the Growth Index, New York and Pennsylvania
Funds, are "diversified" funds as defined in the Investment Company Act.
The Flex Cap Opportunity Fund invests in growth stocks of companies of all
sizes.
The Flex Cap Opportunity Fund seeks long-term capital appreciation. The
Fund will invest primarily in equity securities, such as common or preferred
stocks, which are listed on U.S. exchanges or the over-the-counter market. The
Fund invests primarily in "growth" stocks. The Fund's subadvisor, Fred Alger
Management, Inc. ("Alger"), believes that these companies tend to fall into one
of two categories:
o High Unit Volume Growth
Vital, creative companies which offer goods or services to a rapidly
expanding marketplace. They include both established and emerging firms that
offer new or improved products, or firms simply fulfilling an increased demand
for an existing product line.
o Positive Life Cycle Change
Companies experiencing a major change which is expected to produce
advantageous results. These changes may be as varied as new management,
products or technologies; restructuring or reorganization; or merger or
acquisition.
The Fund invests in companies of all sizes. The Fund can leverage its
assets, that is, borrow money, to buy additional securities for its portfolio.
By borrowing money, the Fund has the potential to increase its returns if the
increase in the value of the securities purchased exceeds the cost of borrowing,
including interest paid on the money borrowed. However, this subjects the Fund
to the risk that the cost of borrowing money to leverage its assets may exceed
the returns for the securities purchased or that the securities purchased may
actually go down in value; thus, the Fund's net asset value could decrease more
quickly than if it had not borrowed. However, the Fund is not required to use
leverage and there is no assurance that the Fund will use leverage.
Although the Fund does not intend to concentrate in any one industry,
the companies which satisfy Alger's investment criteria may be focused in
certain broad sectors, such as technology. This may increase the volatility of
the Fund's share price.
The Fund's trading in some stocks may be relatively short-term, meaning
that the Fund may buy a security and sell it a short time later to take
advantage of current gains if it is believed that an alternative investment may
provide greater future growth. This activity may create higher transaction costs
due to commissions and other expenses. In addition, a high level of short-term
trading may increase the Fund's realized gains, thereby increasing the amount of
taxable distributions to shareholders at the end of the year.
The Fund may invest up to 100% of its assets in cash, commercial paper,
high-grade bonds, or cash equivalents for temporary defensive reasons if Alger
believes that adverse market or other conditions warrant such investment. Such
action is an attempt to protect the Fund's assets from a temporary unacceptable
risk of loss, rather than directly to promote the Fund's investment objective.
The Flex Cap Opportunity Fund may invest up to 15% of its net assets in
illiquid securities and invest in portfolio depositary receipts up to 5% of its
total assets.
The Small Company Fund invests in stocks of small and medium-sized companies
The Small Company Fund seeks growth of capital, by investing mainly in
common stocks of small and medium-sized companies that Sentinel Advisors
believes have attractive growth potential and are attractively valued. Income is
not a factor in selecting stocks. The Fund invests at least 65% of its assets in
stocks of small companies, which have market capitalizations of less than $2
billion. The median market capitalization of the Fund's holdings is currently
less than $1 billion. Market capitalization is the total value of all the
outstanding shares of common stock of a company. Up to 25% of the Fund's assets
may be invested in securities within a single industry.
The Small Company Fund's policy is to avoid short-term trading. However,
the Fund may sell a security without regard to its holding period if Sentinel
Advisors believes it is in the Fund's best interest to do so. The Fund's
turnover rate is not expected to exceed 100% annually. The Fund is intended for
long-term investors willing to accept more risk in order to seek above-average
gains.
The Mid Cap Growth Fund invests in stocks of mid-sized companies
The Mid Cap Growth Fund seeks growth of capital by focusing its investments
on common stocks of mid-sized growing companies. Sentinel Advisors tries to
invest in companies with favorable growth potential with attractive pricing in
relation to this growth potential, and experienced and capable managements. The
Fund will invest at least 65% of its assets in stocks whose market
capitalizations are within the range of the stocks comprising the Standard &
Poor's 400 Midcap index. Income is not a factor in selecting investments.
Sentinel Advisors emphasizes stocks it believes to have superior potential
for growth, rather than wide diversification. The Fund may invest up to 25% of
its assets in stocks of companies within a single industry. The Fund is actively
managed. It is possible that the Fund's turnover rate may exceed 100% annually.
High turnover would cause the Fund to incur higher trading costs, including more
brokerage commissions, and may reduce returns. It may also cause the Fund to
recognize capital gains and capital losses for tax purposes earlier than it
would if its turnover rate was lower.
The World Fund invests in stocks of non-U.S. companies
The World Fund seeks growth of capital by investing mainly in common stocks
of established non-U.S. companies, or in U.S. companies that conduct their
business mainly outside the United States. INVESCO Global Asset Management
(N.A.), Inc. ("INVESCO") manages the World Fund under a sub-advisory
arrangement. The World Fund will normally spread its assets over many different
countries, and will normally not concentrate its investments in any one country.
The Fund generally will not invest more than 25% of its assets in any one
country, but the Fund may invest up to 40% of its assets in any one country if
INVESCO feels that economic and business conditions make it appropriate to do
so.
The Fund focuses its investments on developed foreign countries, but may
invest up to 15% of its total assets in emerging markets. It normally will have
substantial investments in European countries. See page for a discussion of the
European Economic and Monetary Union.
Normally, at least 75% of the Fund's total assets are invested in
securities of non-U.S. issuers selected by INVESCO mainly for their long-term
capital growth prospects. The remaining 25% may be invested in companies
organized in the United States that have at least 50% of their assets and/or
revenues outside the United States. The Fund also may invest in convertible or
debt securities rated Baa or higher by Moody's Investors Service, Inc. or BBB or
higher by Standard & Poor's.
The majority of the Fund's trading of stocks occur on established stock
exchanges or in the over-the-counter markets in the countries in which
investments are being made. The Fund also expects to purchase American
Depositary Receipts and European Depositary Receipts in bearer form, which are
designed for use in European securities markets. ADRs trade on U.S. exchanges or
in the U.S. over-the-counter markets, and represent foreign stocks. To expedite
settlement of portfolio transactions and minimize currency value fluctuations,
the Fund may purchase foreign currencies and/or engage in forward foreign
currency transactions. Normally, however, the Fund does not hedge its foreign
currency exposure.
You should note that investing in foreign stocks involves some risks which
normally are not associated with investing in U.S. securities, including those
described on page .
The Growth Index Fund invests in stocks comprising the S&P500/BARRA Growth Index
The Growth Index Fund seeks to match, as closely as possible before
expenses, the performance of the S&P 500/BARRA Growth Index. The S&P 500/BARRA
Growth Index includes those stocks of the S&P 500 Index with higher than average
price to book value ratios. The S&P 500 is an unmanaged index and typically
includes companies that are the largest and most dominant in their industries.
There can be no assurance that the Fund will achieve its objective.
The Fund will invest at all times at least 80% of its total assets in the
common stocks of the companies that comprise the S&P 500/BARRA Growth Index. It
intends normally to invest substantially all its total assets in these common
stocks, in approximately the same weightings as the S&P 500/BARRA Growth Index.
The Fund also may hold up to 20% of its assets in money market instruments and
stock index options and futures. Futures and options are considered
"derivatives" because they "derive" their value from a traditional security
(like a stock or bond) or index. The Fund intends to buy index options or
futures, if at all, only in anticipation of buying stocks.
The Growth Index Fund is not "actively managed," which would involve the
investment advisor buying and selling securities based on research and analysis.
Rather, the Growth Index Fund tries to match, as closely as possible, before
expenses, the performance of its target index, the S&P 500/BARRA Growth Index.
It does this by holding, under normal circumstances, all of the common stocks
included in the target index, in approximately the same weightings as in the
index.
The Growth Index Fund invests broadly in the stocks of those large numbers
of companies included in the S&P 500/BARRA Growth Index. However, if the S&P
500/BARRA Growth Index is concentrated in a handful of very large companies, the
Fund will be required to invest a substantial portion of its assets in those few
companies in order to track the index. Due to the recent, rapid appreciation of
certain stocks, beginning in late January 2000 the Growth Index Fund's top four
holdings (Microsoft, General Electric, Cisco Systems and Intel), represented
more than 25% of its total assets, consistent with the composition of the S&P
500/BARRA Growth Index. By tracking the composition of the S&P 500/BARRA Growth
Index, the Growth Index Fund may be "nondiversified" under SEC standards,
although it continues to hold more than 100 stock positions. A fund's risk grows
as its holdings become less diversified. This is because the poor performance of
just a few stocks can cause a large decline in the price of a less-diversified
fund.
The Growth Index Fund by itself is not a balanced investment program. The
Growth Index Fund generally holds the stocks of companies among the 500 largest
U.S. publicly owned corporations. Of these stocks, the stocks included in the
S&P 500/BARRA Growth Index have been valued in the stock market at levels which
indicate that the market expects their issuers to have better than average
prospects for growth of revenue and earnings. These stocks are sometimes
referred to as "large capitalization growth stocks". The Growth Index Fund will
not invest in other types of stocks, including the stocks of small companies, or
so-called "value stocks", from which the market does not expect as much growth
in revenue and earnings, but which can be purchased at lower valuations.
Diversifying your investments beyond "large capitalization growth stocks" may
lower the volatility of your overall investment portfolio, and could improve
your long-term investment return.
It is anticipated that the Growth Index Fund will have relatively small
portfolio turnover. However, it may have to sell securities from time to time to
meet redemption requests, and adjustments will be made in the portfolio from
time to time because of changes in the composition of the S&P/BARRA Growth
Index.
The Common Stock Fund invests in common stocks of well-established companies
The Common Stock Fund seeks a combination of growth of capital, current
income, growth of income, and relatively low risk as compared with the stock
market as a whole. It seeks this goal by investing mainly in a diverse group of
common stocks of well-established companies, most of which pay regular
dividends. Sentinel Advisors tries to select stocks of leading companies that
are financially strong and are selling at attractive prices in relation to their
values. When appropriate, the Fund also may invest in preferred stocks or
debentures convertible into common stocks.
The Balanced Fund invests in a combination of stocks and bonds
The Balanced Fund seeks a combination of growth of capital and current
income, with relatively low risk and relatively low fluctuations in value. It
seeks this goal by investing in common stocks similar to those in the Common
Stock Fund and in investment grade bonds similar to those in the Bond Fund, with
at least 25% of its assets in bonds. When determining this percentage,
convertible bonds and/or preferred stocks are considered common stocks, unless
these securities are held primarily for income. Sentinel Advisors will divide
the Fund's assets among stocks and bonds based on whether it believes stocks or
bonds offer a better value at the time. More bonds normally enhance price
stability, and more stocks usually enhance growth potential.
The High Yield Bond Fund invests in lower rated corporate bonds
The High Yield Bond Fund seeks high current income and total return by
investing mainly in lower rated corporate bonds, sometimes called "junk bonds".
The High Yield Fund is managed by a sub-advisor, Evergreen Investment Management
Company. The High Yield Fund normally invests at least 80% of its total assets
in lower rated bonds. These bonds, because of the greater possibility that the
issuers will default, are not investment grade - that is, they are rated below
BBB by Standard & Poor's or below Baa by Moody's, or are unrated but considered
by Evergreen to be of comparable credit quality. The High Yield Fund may invest
in debt securities of any maturity. No more than 25% of the High Yield Fund's
assets are invested in a single industry and no more than 5% of its assets in a
single issuer. Lower rated debt securities and their associated risks are
described in more detail on page __.
The High Yield Fund also may invest up to 20% of its total assets in common
stocks, usually as a result of warrants associated with its bond holdings but
also, under certain circumstances, to seek capital appreciation. The Fund also
may invest in bonds convertible into common stock.
The High Yield Fund, when aggregated with the holdings of other mutual
funds advised by Evergreen, will not own more than 20% of the outstanding debt
securities of any issuer.
The High Yield Fund may invest up to 15% of its net assets in illiquid
securities.
The High Yield Fund may invest in corporate loans made by banks or other
financial institutions. The Fund may not be readily able to resell some of these
corporate loans and they may be subject to restrictions on resale. If so, they
would be subject to the Fund's limitation on illiquid securities. The value of a
corporate loan will depend mainly on the borrower's ability to repay its debts.
The High Yield Fund will invest in a corporate loan only if, in Evergreen's
judgment, the borrower is capable of repaying the loan. However, Evergreen does
not have any set minimum credit rating criteria regarding these borrowers.
Evergreen will monitor the creditworthiness of the borrowers of corporate loans
in which the High Yield Fund invests, but there can be no assurance that
Evergreen will recognize factors that might ultimately impair the value of a
corporate loan in time to protect the High Yield Fund from loss.
The High Yield Fund may invest up to 25% of net assets in the securities of
foreign issuers, if they are denominated in U.S. dollars and are purchased and
held by the High Yield Fund in the United States. You should note that investing
in foreign securities involves certain special risk considerations which
normally are not associated with investing in U.S. securities, including those
described on page __ and __.
The High Yield Fund does not expect to invest in futures and options, or
other derivatives contracts during the coming year. However, if derivative
securities are developed which permit effective hedging of a lower quality bond
portfolio, the High Yield Fund may, for hedging purposes only, buy or sell
derivative securities contracts. The total market value of any of these
derivatives contracts at the time a position is taken will not exceed 5% of the
High Yield Fund's net assets.
The Bond Fund invests in investment grade bonds
The Bond Fund seeks high current income while seeking to control risk by
investing mainly in investment grade bonds. The Fund will invest exclusively in
fixed-income securities. At least 80% of the Fund's assets will normally be
invested in the following types of bonds:
1. Corporate bonds which at the time of purchase are rated within the four
highest rating categories of Moody's, Standard & Poor's or any other
nationally recognized statistical rating organization;
2. Debt securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, including the mortgage-backed securities
described in the section on the Government Securities Fund on page __;
3. Debt securities (payable in U.S. dollars) issued or guaranteed by
Canadian governmental entities; and
4. Debt obligations of domestic banks or bank holding companies, even
though not rated by Moody's or Standard & Poor's, that Sentinel
Advisors believes have investment qualities comparable to investment
grade corporate securities.
The remainder of the Fund's assets may be invested in other fixed income
securities, such as straight or convertible debt securities and straight or
convertible preferred stocks.
The Fund will invest no more than 20% of its total assets in lower quality
bonds. These bonds are described in more detail in the discussion of the High
Yield Fund. The risks inherent in these lower rated bonds are discussed on page
__.
The Bond Fund may not invest more than 25% of its total assets in any one
industry, except for U.S. Government Securities. In applying this limitation,
Sentinel Advisors classifies utility companies according to their services, and
financial services companies according to the end users of their services. For
example, natural gas, electric, and telephone will each be considered a separate
industry, as will auto finance, bank finance, and diversified finance.
The Tax-Free Income Fund invests in investment grade municipal bonds
The Tax-Free Income Fund seeks high current income exempt from federal
income taxes while seeking to control risk by investing mainly in investment
grade municipal bonds. The interest earned from these municipal bonds, in the
opinion of the issuer's bond counsel, is exempt from federal income tax. These
investments may include municipal bonds issued by states, territories and
possessions of the United States and their political subdivisions, agencies,
authorities and instrumentalities. The Fund seeks to spread its holdings out
broadly among municipal bonds of different states and regions, and among
different types of issuing authorities.
Normally at least 80% of the total assets of the Tax-Free Income Fund
will be invested in municipal bonds rated within the four highest rating
categories of either Moody's or Standard & Poor's. The Fund also may invest in
unrated municipal bonds if Sentinel Advisors believes the credit
characteristics are at least equivalent to those of municipal bonds ranked in
the fourth highest rating category of either Moody's or Standard & Poor's.
Although this is not a fundamental policy, no more than 5% of the Fund's total
assets may be invested in lower rated municipal bonds.
The New York Fund invests in investment grade municipal bonds of New York
issuers
The New York Tax-Free Fund seeks high current interest income exempt from
federal and New York State and City personal income taxes, while seeking to
control risk, by investing in investment grade municipal bonds of New York
issuers. The interest on these municipal bonds will be, in the opinion of the
issuer's bond counsel, exempt from federal income tax and New York State and
City personal income tax. Normally these bonds will have remaining maturities of
more than one year at the time of investment.
The Fund may, however, invest up to 20% of its net assets in short-term New
York municipal bonds. Normally, at least 80% of the total assets of the New York
Fund will be invested in municipal bonds rated within the four highest rating
categories of either Moody's or Standard & Poor's. The New York Fund also may
invest in unrated municipal bonds if Sentinel Advisors believes the credit
characteristics are at least equivalent to those of municipal bonds ranked in
the fourth highest rating category of either Moody's or Standard & Poor's.
Although this is not a fundamental policy, no more than 5% of the New York
Fund's total assets may be invested in lower rated New York municipal bonds.
The Pennsylvania Fund invests in investment grade municipal bonds of
Pennsylvania issuers
The Pennsylvania Tax-Free Trust seeks high current interest income exempt
from federal and Pennsylvania personal income taxes, while seeking to control
risk, by investing in investment grade municipal bonds of Pennsylvania
issuers. The interest on these municipal bonds is, in the opinion of the
issuer's bond counsel, exempt from federal income tax and Pennsylvania
personal income tax.
The Pennsylvania Fund normally will invest substantially all of its net
assets in Pennsylvania municipal bonds with maturities of more than one year.
The Fund may, however, invest up to 20% of its net assets in short-term
Pennsylvania municipal bonds. All of the Pennsylvania municipal bonds in which
the Pennsylvania Fund invests will be rated in the top four rating categories by
Moody's or Standard & Poor's or, if unrated, will have equivalent investment
characteristics, as determined by Sentinel Advisors.
At least 75% of the Pennsylvania Fund's assets will always be invested in
municipal obligations rated "A" or higher by Moody's or by Standard & Poor's or,
if not rated, bonds that, in the opinion of Sentinel Advisors, have equivalent
investment characteristics, or highly rated municipal notes or tax-exempt
commercial paper. The Pennsylvania Fund cannot invest in "junk" municipal
obligations.
If Sentinel Advisors anticipates a rise in interest rates, the Pennsylvania
Fund may temporarily invest up to 20% of its total assets in securities other
than Pennsylvania municipal bonds and will invest in non-governmental issuers
only where the bonds are rated in one of the two highest categories of either
Standard & Poor's or Moody's.
Temporary defensive investments may prevent the Pennsylvania Fund from
achieving its investment objective.
The Government Securities Fund invests in U.S. government bonds
The Government Securities Fund seeks high current income while seeking to
control risk by investing mainly in U.S. government bonds. These bonds include
direct obligations of the U.S. Treasury, obligations guaranteed by the U.S.
government, and obligations of U.S. government agencies and instrumentalities.
The Fund is not required to invest set amounts in any of the various types of
U.S. government securities. Sentinel Advisors will choose the types of U.S.
government securities that it believes will provide the best return with the
least risk in light of its analysis of current market conditions and its outlook
for interest rates and the economy.
The Fund may make unlimited investments in mortgage-backed U.S. government
securities, including pass-through certificates guaranteed by the Government
National Mortgage Association. Each GNMA certificate is backed by a pool of
mortgage loans insured by the Federal Housing Administration and/or the Veterans
Administration, and provides for the payment of fixed monthly installments of
principal and interest. Timely repayment of principal and payment of interest is
guaranteed by the full faith and credit of the U.S. government. The Fund may
invest in mortgage-backed securities guaranteed by the Federal National Mortgage
Association and by the Federal Home Loan Mortgage Corporation. In all of these
mortgage-backed securities, the actual maturity of and realized yield will vary
based on the prepayment experience of the underlying pool of mortgages.
Securities guaranteed by FNMA and FHLMC are not backed by the full faith and
credit of the United States.
While the maximum life of a mortgage-backed security is typically 30 years,
its average life is likely to be substantially less than the original maturity
of the underlying mortgages, because the mortgages in these pools may be
prepaid, refinanced, or foreclosed. Prepayments are passed through to the
mortgage-backed securityholder along with regularly scheduled repayments of
principal and payments of interest. If prevailing interest rates are below the
rates on the mortgages, the mortgage borrowers are more likely to refinance
their mortgages than if interest rates are at or above the interest rates on the
mortgages. Faster prepayments will reduce the potential of the mortgage-backed
securities to rise in value during periods of falling interest rates, while the
risk of falling value during periods of rising interest rates may be comparable
to other bonds of similar maturities.
The Fund may engage in the "dollar roll" transactions described on page __.
The Fund also may use repurchase agreements as a means of making short-term
investments. It will invest only in repurchase agreements with durations of
seven days or less, only where the collateral securities are U.S. government
securities, and only in aggregate amounts of not more than 25% of the Fund's net
assets. The Fund might incur time delays or losses if the other party to the
agreement defaults on the repurchase of the securities.
In addition, the Fund may invest up to 20% of its net assets in high
quality money market instruments which are not issued or guaranteed by the U.S.
government or its agencies or instrumentalities. These include bank money market
instruments, commercial paper or other short-term corporate obligations listed
in the highest rating categories by nationally recognized statistical rating
organizations. These money market instruments may be used as a means of making
short-term investments.
The Short Maturity Government Fund invests in U.S. government bonds with
limited maturities
The Short Maturity Government Fund seeks high current income and limited
fluctuations in principal value by investing mainly in U.S. government bonds
that have average maturities from two to five years. Under normal circumstances,
the dollar weighted average maturity of the portfolio will be three years or
less. This Fund invests at least 65% of its assets in U.S. Government Securities
with average maturities of from two to five years. The remainder of the Fund's
assets may be invested in U.S. government securities with other maturities. The
U.S. government securities in which the Fund invests include the same types of
securities in which the Government Securities Fund will invest.
The Fund is not required to invest set amounts in any type of U.S.
government securities. Sentinel Advisors chooses the types of U.S. government
securities that it believes will provide the best return with the least risk in
light of its analysis of current market conditions and its outlook for interest
rates and the economy. Like the Government Securities Fund, the Short maturity
Government Fund may make unlimited investments in mortgage-backed U.S.
government securities.
The Fund may engage in the "dollar roll" transactions described on page __.
In addition, like the Government Securities Fund, the Short Maturity
Government Fund may invest up to 20% of its net assets in high quality money
market instruments which are not issued or guaranteed by the U.S. government or
its agencies or instrumentalities. The Fund may also use repurchase agreements
as a means of making short-term investments, in the same way as described for
the Government Securities Fund above.
The Fund is not guaranteed or insured by the U.S. Government, and the value
of the Fund's shares will fluctuate.
The Money Market Fund invests primarily in short-term U.S. Treasury
securities
The U.S. Treasury Money Market Fund seeks as high a level of current income
as is consistent with stable principal values by investing primarily in
short-term direct obligations of the U.S. Treasury. These obligations include
U.S. Treasury bills, notes and bonds with remaining maturities of 397 days or
less. The Fund may also invest up to 25% of its total assets in repurchase
agreements with respect to U.S. Treasury securities, and up to 10% of its total
assets in shares of institutional money market funds which invest primarily in
securities of the U.S. Treasury, U.S. government agencies and instrumentalities
and repurchase agreements with respect to such securities. The Fund may earn
less income than funds owning longer term securities or lower quality securities
that have less liquidity, greater market risk and greater market value
fluctuations.
The Fund seeks to maintain a net asset value of $1.00 per share, by using
the amortized cost method of valuing its securities. The Fund is required to
maintain a dollar-weighted average portfolio maturity of 90 days or less.
In many states, the Fund's income dividends may be largely exempt from
state and local income taxes, but subject to federal income taxes. For more
information on state and local tax exemption, consult a tax advisor.
<PAGE>
General Information Relevant to the Investment Practices of the Funds, and
Associated Risks
We cannot guarantee that any Fund's investment objective will be achieved.
You can find additional information about the securities and investment
techniques used by the Funds in the Sentinel Funds' Statement of Additional
Information, which is incorporated by reference into (is legally made a part of)
this Prospectus. You can get a free copy of the Statement of Additional
Information by calling 1-800-282-FUND (3863), or by writing to Sentinel
Administrative Service Company at P.O. Box 1499, Montpelier, VT 05601-1499.
<PAGE>
Risks you face by investing in the Equity Funds Information Relevant to the
Equity Funds
Stock Market and Selection Risk. The Flex Cap Opportunity, Small Company,
Mid Cap Growth, World, Growth Index, Common Stock and Balanced Funds are subject
to stock market and selection risk. Stock market risk is the risk that the stock
market will go down in value, including the possibility that the market will go
down sharply and unpredictably. Selection risk is the risk that that the
investments that Sentinel Advisors, Alger or INVESCO select will underperform
that stock market or other funds with similar investment objectives and
investment strategies.
Risks of Stocks of Smaller Companies. The stocks of small and medium-sized
companies typically involve more risk than the stocks of larger companies. These
smaller companies may have more limited financial resources, narrower product
lines, and may have less seasoned managers. In addition, these stocks may trade
less frequently and in lower share volumes, making them subject to wider price
fluctuations.
Risks of Growth Stocks. Prices of growth stocks tend to be higher in
relation to their companies' earnings, and may be more sensitive to market,
political and economic developments than other stocks, making their prices more
volatile.
Investment Style Risk. The S&P 500/BARRA Growth Index is comprised of
larger companies which in general are perceived by the stock market to have
higher growth potential. The Growth Index Fund thus focuses on so-called "large
capitalization growth stocks". The Common Stock Fund has more of a focus on
"large capitalization value stocks", although it may also invest in growth
stocks. The Mid Cap Growth Fund focuses on "mid capitalization growth stocks",
while the Small Company Fund focuses on the stocks of smaller companies. The
Flex Cap Opportunity Fund has considerable flexibility to invest in any or all
of these groups. Changes in investment style may cause any of these groups to
underperform the stock market in general, or other asset classes.
Tracking Error Risk. There are several reasons why the Growth Index Fund's
performance may not match the S&P 500/BARRA Growth Index. First, the Fund incurs
administrative expenses and transaction costs in trading stocks. Second, the
composition of the S&P 500/BARRA Growth Index and the stocks held in the Fund
may diverge, due to cash flows into or out of the Fund and changes in the
composition of the index. Third, the timing and magnitude of cash flows into and
out of the Fund may result in temporarily uninvested cash, or may lead to
weightings of stocks held by the Fund which are not precisely the same as in the
S&P 500/BARRA Growth Index.
Futures and Options. If the Growth Index Fund invests in stock index futures or
options contracts, the Fund will be subject to the risks that:
o the future or option will not fully offset the underlying positions,
o the Fund cannot sell the future or option because of
an illiquid secondary market, and
o the intended risk management purpose of the future
or option may not be achieved, and may produce losses or missed opportunities.
Risks applicable most directly to the World Fund
Risks of Investing in Foreign Securities
The World Fund invests in securities traded in foreign markets and
denominated in foreign currencies. The Small Company, Mid Cap Growth, Growth
Index, Common Stock, Balanced, High Yield and Bond Funds may invest in
securities of foreign issuers, although only where they are trading in the
United States (or in the case of the High Yield and Bond Funds, on the
Eurodollar market), and only where trading is denominated in U.S. dollars.
Investing in foreign securities involves certain special risks in addition
to those associated with U.S. securities. For example, the Funds may be affected
favorably or unfavorably by changes in currency rates or exchange control
regulations. Foreign markets may have less active trading volume than those in
the United States, and values may fluctuate more as a result. If the Funds, most
particularly the World Fund, had to sell securities to meet unanticipated cash
requirements, it may be forced to accept lower prices. There may be less
supervision and regulation of foreign exchanges. Foreign companies generally
release less financial information than comparable U.S. companies. Furthermore,
foreign companies generally are not subject to uniform accounting, auditing and
financial reporting requirements. Other possible risks include seizing of assets
by foreign governments, high and changing taxes, difficulty enforcing judgments
against foreign issuers, withholding taxes imposed by foreign governments on
dividend and/or interest payments, political or social instability, or
diplomatic developments that could affect U.S. investments in those countries.
European Economic and Monetary Union ("EMU"). A number of European
countries have entered into EMU in an effort to reduce trade barriers between
themselves and eliminate fluctuations in their currencies. EMU established a
single European currency (the euro), which was introduced on January 1, 1999 and
is expected to replace the existing national currencies of all initial EMU
participants by July 1, 2002. Certain securities (beginning with government and
corporate bonds) have been redenominated in the euro and are traded and make
dividend and other payments only in euros. Like other investment companies and
business organizations, including the companies in which the Fund invests, the
Fund could be adversely affected if the transition to the euro, or EMU as a
whole, does not proceed as planned or if a participating country withdraws from
EMU.
Risks of Holding Fund Assets Outside the United States. The World Fund
generally holds its foreign securities outside the United States in foreign
banks and securities depositories. Some foreign banks and securities
depositories may be recently organized or new to the foreign custody business.
In addition, there may be limited or no regulatory oversight over their
operations. Also, the laws of certain countries may put limits on the World
Fund's ability to recover its assets if a foreign bank, depository or issuer of
a security, or any of their agents, goes bankrupt. Also, brokerage commissions,
and other costs of buying, selling or holding securities in foreign markets are
often higher than in the United States. This can reduce amounts the World Fund
can earn on its investments. Foreign settlement and clearance procedures and
trade regulations also may involve certain risks (such as delays in payment for
or delivery of securities) not typically involved with the settlement of U.S.
investments. Communications between the United States and emerging market
countries may be unreliable, increasing the risk of delayed settlements or
losses of security certificates. Settlements in certain foreign countries at
times have not kept pace with the number of securities transactions. These
problems may make it difficult for the World Fund to carry out transactions.
Emerging Markets Risk. The World Fund may invest up to 15% of its total
assets in emerging markets. The risks of foreign investments are usually much
greater for emerging markets. Investments in emerging markets may be considered
speculative. Emerging markets include those in countries defined as emerging or
developing by the World Bank, the International Finance Corporation or the
United Nations. Emerging markets are riskier because they develop unevenly and
may never fully develop. They are more likely to experience hyperinflation and
currency devaluations, which adversely affects returns to U.S. investors. In
addition, the securities markets in many of these countries have far lower
trading volumes and less liquidity than developed markets. Since these markets
are so small, investments in them may be more likely to suffer sharp and
frequent price changes or long term price depression because of adverse
publicity, investor perceptions or the actions of a few large investors. In
addition, traditional measures of investment values used in the United States,
such as price to earnings ratios, may not apply to certain small markets.
Many emerging markets have histories of political instability and abrupt
changes in policies. As a result, their governments are more likely to take
actions that are hostile or detrimental to private enterprise or foreign
investment than those of more developed countries. Certain emerging markets may
also face other significant internal or external risks, including the risk of
war, and ethnic, religious and racial conflicts. In addition, governments in
many emerging market countries participate to a significant degree in their
economies and securities markets, which may impair investment and economic
growth.
Information Regarding the S&P 500/BARRA Growth Index
The Growth Index Fund is not sponsored, endorsed, sold or promoted by
Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P"). S&P
makes no representation or warranty, express or implied, to the owners of the
Growth Index Fund or any member of the public regarding the advisability of
investing in securities generally or in the Growth Index Fund particularly or
the ability of the S&P 500/BARRA Growth Index to track general stock market
performance. S&P's only relationship to the Sentinel Funds is the licensing of
certain trademarks and trade names of S&P and the S&P 500/BARRA Growth Index,
which is determined, composed, and calculated without regard to the Growth Index
Fund. S&P has no obligation to take the needs of the Sentinel Funds or the
owners of the Growth Index Fund into consideration in determining, composing or
calculating the S&P 500/BARRA Growth Index. S&P is not responsible for and has
not participated in the determination of the prices at which the Growth Index
Fund shares are sold, the timing of the offering of Growth Index Fund shares, or
the determination of the prices at which Growth Index Fund shares may be
redeemed. S&P has no obligation or liability in connection with the
administration or marketing of the Growth Index Fund. S&P DOES NOT GUARANTEE THE
ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500/BARRA GROWTH INDEX OR ANY DATA
INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR
INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE
RESULTS TO BE OBTAINED BY THE GROWTH INDEX FUND, OWNERS OF THE GROWTH INDEX
FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P 500/BARRA GROWTH
INDEX OR ANY DATA INCLUDED THEREIN. S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES
AND HEREBY EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR
A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE S&P 500/BARRA GROWTH INDEX OR
ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT
SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE, INDIRECT, OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE
POSSIBILITY OF SUCH DAMAGES.
Information Relevant to the Fixed-Income Funds
The market prices of bonds, including those issued by the U.S. government,
go up as interest rates fall, and go down as interest rates rise. As a result,
the net asset value of the shares of Funds holding bonds will fluctuate with
conditions in the bond markets. Bonds with longer maturities and longer
durations (a measure of a bond's sensitivity to changes in interest rates)
generally have higher yields and are subject to greater price fluctuation due to
interest rate changes than bonds with shorter maturities or shorter durations.
The Bond, Tax-Free Income and New York Funds, and the bond portion of the
Balanced Fund, may invest without limitation in bonds in the fourth highest
rating category of Moody's and Standard & Poor's. The Pennsylvania Fund may
invest up to 25% of its assets in these bonds. While considered
investment-grade, these bonds may have more speculative characteristics and may
be more likely to be downgraded than bonds rated in the three highest rating
categories. If a bond is downgraded below investment-grade, Sentinel Advisors
will determine whether selling it is in the shareholders' best interest. To
arrive at this decision, Sentinel Advisors will consider, among other things,
the market price, credit risk, and general market conditions.
Lower quality bonds are more risky than highly rated bonds
Risks of Lower Quality Bonds. The High Yield Fund may invest without
limitation, and the Bond Fund and the bond portion of the Balanced Fund may
invest up to 20% of total assets in lower rated bonds. The Tax-Free Income and
New York Funds may invest up to 5% of total assets in lower quality bonds.
Because of the increased risk of default, these bonds generally have higher
nominal or effective interest rates than higher quality bonds. The Funds may
purchase bonds in the lowest rating categories (D for S&P and C for Moody's) and
comparable unrated securities. However, the Funds will only purchase securities
rated lower than B- by S&P or B3 or lower by Moody's if Sentinel Advisors or
Evergreen believes the quality of the bonds is higher than indicated by the
rating.
Lower quality bonds may pay interest at fixed, floating or adjustable
rates. The value of floating or adjustable rate bonds is less likely to be
adversely affected by interest rate changes than fixed rate bonds. However, if
interest rates fall, the Funds may earn less income if they hold floating or
adjustable rate bonds. Lower rated bonds are more speculative and likely to
default than higher quality bonds.
Lower rated bond values also tend to fluctuate more widely in value, for
several reasons. An economic downturn may have a greater impact on the ability
of issuers with less financial strength to make their bond payments. These bonds
may not be traded as actively. Their prices may respond more adversely to
negative publicity and investor perceptions. If trading in lower rated bonds
becomes less active, the Funds may have more difficulty in valuing these bonds.
Success in investing in junk bonds depends heavily on Sentinel Advisors' or
Evergreen's credit analysis. Lower rated bonds are also more sensitive than
other debt securities to adverse business developments affecting specific
issuers. The risk of loss due to default by the issuer of a lower quality bond
may be significantly greater than the risk for higher rated bonds because lower
quality bonds are more likely to be unsecured and may be subordinated to other
creditors. If a bond defaults, the Funds may incur additional expenses in
seeking a recovery or participating in a restructuring. Lower quality bonds also
may have call features that permit the issuer to repurchase the securities from
the Funds before their maturity. If a call is exercised during a period of
declining interest rates, the affected Fund would probably have to replace the
called bonds with lower yielding bonds, and the Fund's investment income would
go down.
Zero Coupon and Similar Bonds. The High Yield and Bond Funds, and the bond
portion of the Balanced Fund, also may invest in bonds that do not pay interest,
but instead are issued at a significant discount to their maturity values
(referred to as zero coupon securities), that pay interest in additional
securities instead of cash (referred to as pay-in-kind securities) or that pay
interest at predetermined rates that increase over time (referred to as step
coupon bonds). Even though the Funds may not get cash interest payments on these
bonds, under existing tax law the Funds nevertheless must accrue and distribute
the income deemed to be earned on a current basis. This may cause a Fund to have
to sell other investments to raise the cash needed to make its required income
distributions.
Restricted and Illiquid Securities. The High Yield and Bond Funds and the
bond portion of the Balanced Fund may purchase certain restricted bonds, often
called Rule 144A bonds, for which trading is limited to qualified institutional
buyers. Sentinel Advisors or Evergreen may determine that Rule 144A bonds are
liquid securities under guidelines approved by the Funds' Board of Directors,
and these Rule 144A bonds will not be subject to the High Yield Fund's
limitation on illiquid securities, or the prohibition on illiquid securities for
the Bond Fund and bond portion of the Balanced Fund. These liquid Rule 144A
Securities may become illiquid if qualified institutional buyers are
unavailable.
The Funds will not be able to readily resell illiquid securities and resale
of some of these securities may be restricted by law or contractual provisions.
The inability to sell these securities at the most opportune time may cause the
net asset value of a Fund to go down.
Portfolio Turnover. In the fiscal year ended November 30, 1999, the fixed
income Funds shown below had the following rates of portfolio turnover:
High Yield Fund...................................144%
Bond Fund.........................................207%
Government Securities Fund........................330%
Short Maturity Government Fund....................203%
In addition, the Balanced Fund had portfolio turnover of 35% for the equity
portion, and 209% for the bond portion. These Funds are actively managed, and
their portfolios are constantly monitored and adjusted to try to increase
income, protect the income stream or improve the quality of the holdings. This
investment policy results in higher portfolio turnover, but this need not
adversely affect performance because these Funds generally do not pay
commissions. They deal directly with dealers acting as principals when buying or
selling. The trading price may include a profit to the dealer, but the Funds
will only make these trades when Sentinel Advisors or Evergreen believes it will
help the Funds to achieve their investment objectives. This higher portfolio
turnover may cause the Funds to recognize capital gains or capital losses for
tax purposes earlier than they otherwise would.
Dollar Rolls. The Balanced, Bond, Government Securities and Short Maturity
Government Funds may also enter into "dollar rolls". In a dollar roll, a Fund
sells mortgage-backed or U.S. Treasury securities for delivery in the current
month, and simultaneously contracts to buy back securities of the same type,
coupon and maturity on a predetermined future date. During the roll period, a
Fund foregoes principal and interest paid on the mortgage-backed or U.S.
Treasury securities. In return, a Fund receives the difference between the
current sales price and the lower forward price for the future purchase (often
referred to as the "drop"), and interest earned on the cash proceeds of the
initial sale. A "covered roll" is a specific type of dollar roll in which the
proceeds of a dollar roll are held in a separate account and invested only in
high grade money market instruments. The Funds may only invest in covered rolls.
The use of dollar rolls tends to increase the portfolio turnover of the Funds,
and increases portfolio income without increasing the risk levels of the Funds.
Information Relevant to the Tax-Exempt Funds Alternative Minimum Tax.
Interest income on certain "private activity" bonds is a preference item for
shareholders subject to the alternative minimum tax. Municipal bonds whose
interest is a preference item for federal alternative minimum tax purposes will
comprise less than 20% of each of the Tax-Free Income and New York Funds' total
assets.
Possible Taxability of Temporary Defensive Investments. If Sentinel
Advisors anticipates a rise in interest rates, the Tax-Free Income, New York and
Pennsylvania Funds may invest temporarily in short-term debt obligations,
including taxable investments, to help protect shareholder capital. These
investments may include notes of municipal issuers, U.S. government securities,
and money market instruments.
The interest on municipal bonds issued by states other than your state of
residence is exempt only from federal income tax. Interest on certain types of
U.S. government securities is exempt only from state personal income tax.
Interest on money market instruments is generally fully subject to both federal
and any applicable state income taxes.
Use of Financial Futures Contracts and Related Options. The Tax-Free
Income, New York and Pennsylvania Funds may purchase and sell certain
exchange-traded financial futures contracts and related options only to hedge
against adverse changes in interest rates, to protect against declines in the
value of municipal bonds held by the Funds, or to hedge against increases in the
cost of municipal bonds to be purchased for the Funds in the future.
None of the Tax-Free Income, New York or Pennsylvania Funds will purchase
and sell financial futures contracts or related options if, immediately after
purchase, the sum of the initial margin on existing futures positions plus the
premiums paid for outstanding options exceeds 5% of the Fund's total assets.
Risks Associated with Options and Futures Transactions. Options and futures
transactions involve certain risks. However, Sentinel Advisors believes that
since the Tax-Free Income, New York and Pennsylvania Funds would use these
investments for hedging purposes only, their use would not subject these Funds
to the risks frequently associated with the speculative use of options and
futures. However, there are certain risks related to futures transactions used
for hedging purposes that you should understand. One is that the hedge would be
ineffective if Sentinel Advisors' forecasts of interest rates prove to be
incorrect. Another is that the secondary market for a financial futures contract
may become illiquid. This may happen, for example, if the particular market
exceeds its daily price fluctuation limit. If this happens, the Funds may not be
able to close out futures positions. The change in the market value of a Fund's
municipal bonds also may not be perfectly correlated with the prices paid for
futures contracts, which may cause the hedge to be ineffective. From their
inceptions through March 30, 2000, none of the Tax-Free Income, New York or
Pennsylvania Funds engaged in any hedging transactions involving financial
futures and related options.
Information Relevant to the New York and Pennsylvania Funds
Since each of the New York and Pennsylvania Funds concentrates in state
municipal bonds, these Funds are more susceptible to factors adversely affecting
New York or Pennsylvania governmental entities than a municipal bond fund that
is diversified nationally. Each of these Funds' net asset value is particularly
sensitive to changes in the economic condition and governmental policies of the
state in which it invests. For example, if the economic condition of a single
significant industry within New York or Pennsylvania deteriorates, specific
governmental issuers within the state or the anticipated revenues to the state
may be weakened, and the net asset value of the Fund's shares may fall as a
result. Adverse changes in employment rates, federal revenue sharing or laws on
tax-exempt financing may also cause the value of the Funds' shares to fall.
Sentinel Advisors does not believe that the current economic conditions in
New York State, New York City or Pennsylvania will have a significant adverse
effect on the Funds' ability to invest in high quality New York or Pennsylvania
municipal bonds. Since these Funds focus on investment grade bonds, the Funds
expect to be less subject to market and credit risks than a fund that invests
mainly in lower quality New York or Pennsylvania municipal bonds.
Periodically the Funds may be less than fully invested
Information Relevant to All Funds
Temporary Defensive Positions. Each of the Funds, other than the Government
Securities Fund, the Short Maturity Government Fund and the U.S. Treasury Money
Market Fund, may be less than fully invested in securities called for by its
principal investment strategies at any time. If the investment advisor feels
that it is necessary under adverse market conditions to take a temporary
defensive position, these Funds may depart significantly or completely from
their principal investment strategies. If a Fund takes a temporary defensive
position, it may not achieve its investment objective.
Repurchase Agreements. All of the Funds may invest in repurchase agreements,
provided the counterparty maintains the value of the underlying securities at a
value not less than the repurchase price stated in the agreement. Under a
repurchase agreement, a Fund purchases bonds and simultaneously agrees to resell
these bonds to a counterparty at a prearranged time and specific price. If the
counterparty defaults on its repurchase obligation, the Fund would have the
bonds and be able to sell them to another party, but it could suffer a loss if
the proceeds from a sale of the bonds turns out to be less than the repurchase
price stated in the agreement. If the counterparty becomes insolvent or goes
bankrupt, a Fund may be delayed in being able to sell bonds that were subject to
the repurchase agreement. For more information about repurchase agreements,
please refer to the Statement of Additional Information.
<PAGE>
Purchase Options
The Balanced Fund offers Class A, Class B, Class C and Class D
shares.
The Flex Cap Opportunity, Mid Cap Growth, World, Growth Index, Common Stock, and
High Yield Funds offer Class A, Class B and Class C shares. The Small Company
and Bond Funds offer Class A shares and Class B shares.
The Tax-Free Income, New York, Pennsylvania, Government Securities and Short
Matuirty Funds offer only Class A shares.
This prospectus frequently uses the term CDSC, which stands for Contingent
Deferred Sales Charge. This type of charge is assessed when you redeem shares
subject to a CDSC, if none of the waivers listed on page__ apply. If you do not
redeem shares during the time periods in which an investment is subject to a
CDSC, you will not pay this charge.
You can compare the differences among the four classes of shares using the table
below.
<TABLE>
<CAPTION>
Total 12b-1 Fee,
Class Sales Charge Service Fee Including Service Fee Conversion Feature
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum Maximum Maximum of 0.30% No
5.00% initial of 0.20% (Maximum 0.20% for
sales charge (Maximum of fixed income funds
(Maximum 0.10% for and the Growth
4% for fixed fixed income Index Fund)
income funds, funds)
and 2.5% for
the Growth
Index Fund)
B CDSC of up to 0.25% 1.00% Class B Shares convert
4.00% (2.50% to Class A Shares
for the Growth automatically after the
Index Fund) for applicable CDSC period
a maximum of
six years
C CDSC of 0.25% 1.00% No
1.00% for the
first year only
D CDSC of None 0.75% Class D Shares convert
up to 6% for to Class A Shares
seven years automatically at the end
of the end of the
tenth year after
purchase
</TABLE>
The Short Maturity Government Fund currently only offers Class A Shares as
described below.
<TABLE>
<CAPTION>
Total 12b-1 Fee,
Class Sales Charge Service Fee Including Service Fee Conversion Feature
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A Maximum Maximum Maximum of 0.35% None
1.00% initial of 0.25%
sales charge
</TABLE>
The U.S. Treasury Money Market Fund offers Class A and Class B Shares. Initial
purchases of Class A Shares of the Money Market Fund are not subject to any
initial sales charge, CDSC or Rule 12b-1 fees. Class B shares of the Money
Market Fund are not offered for direct purchase, except where the investment is
to be exchanged into Class B shares of other Funds within 90 days, or in
dollar-cost averaging programs into Class B shares of other Funds where you
invest a minimum of $10,000, each dollar-cost averaging transaction is at least
$1,000, and the program is completed within 24 months. They may also be acquired
in exchange for the Class B shares of another Fund.
More detailed information about each class of shares is included in the
descriptions of each class below.
If you hold your shares for an extended period of time, you may pay more in Rule
12b-1 distribution fees than the economic equivalent of the maximum front-end
sales charges permitted under the Conduct Rules of the National Association of
Securities Dealers, Inc.
Things to Think About When Choosing Which Share Class to Buy
The Funds' purchase options are designed to enable you to choose the method of
purchasing Fund shares that is most beneficial to you.
<PAGE>
Factors you should consider include:
o the amount of the investment,
o the intended length of the investment,
o the type of Fund you want,
o whether you are eligible for a waiver or reduction of an initial sales charge
or CDSC, and
o whether you intend to utilize the exchange privilege.
Class A shares have the advantage of lower ongoing distribution expenses. The
disadvantage of the Class A shares is that you pay an initial sales charge. If
in your circumstances the lower ongoing expenses outweigh the impact of the
initial sales charge, Class A shares may be appropriate for you.
Class B shares have the advantage that you pay no initial sales charge. The
disadvantages are that you pay higher ongoing distribution fees for a fixed
period of time, and during this time you may pay a CDSC if you redeem.
Class B shares ultimately convert to Class A shares, so long term investors
eventually also obtain the benefit of the Class A shares' lower ongoing
expenses. Class B shares are appropriate for those for whom the benefit of
avoiding an initial sales charge outweighs the higher ongoing expenses and
possible CDSCs incurred prior to the conversion to Class A shares.
Class C shares have the advantages of no initial sales charge and a relatively
small CDSC that applies only in the first year. You pay higher ongoing
distribution fees for the entire period of your investment, however. This class
may be appropriate for you if the benefits of avoiding both an initial sales
charge and a significant CSDC outweigh the continuing higher distribution fees.
Over long periods, however, the other share classes may outperform Class C
shares.
Class D shares, available for the Balanced Fund only, are similar to the Class B
shares, except that you are subject to a higher CDSC, that applies for seven
years instead of six, and conversion to Class A shares does not occur until the
tenth year. The benefit to you is that the ongoing distribution fees are lower
than for Class B shares. Class D shares may appeal to Balanced Fund investors
who want to avoid paying an initial sales charge, are willing to pay ongoing
distribution fees higher than those on Class A shares until they convert, but
want to benefit from lower ongoing distribution fees than those on Class B or C
shares.
Purchase and Exchange Considerations
There is no size limit on purchases of Class A shares. The maximum purchase
of Class B shares or Class C shares accepted is $1,000,000. The maximum purchase
of Class D shares of the Balanced Fund is $250,000.
You should also consider that exchange privileges into other Funds are more
limited for classes other than Class A shares. Class B shares may only be
exchanged among the other funds offering Class B shares - the Flex Cap
Opportunity, Small Company, Mid Cap Growth, World Growth Index, Common Stock,
Balanced, High Yield, Bond and Money Market Funds. For Class C shareholders,
only the Class C shares of the Flex Cap Opportunity, Mid Cap Growth, World,
Growth Index, Common Stock, Balanced and High Yield Funds, and the Class A
shares of the Money Market Fund, are available for exchanges. In the case of the
Class D shares of the Balanced Fund, the only possible exchange is into the
Class A shares of the Money Market Fund, and back into the Class D shares of the
Balanced Fund.
<PAGE>
Class A shares are generally subject to a front-end sales charge
Class A Shares
For all purchases of Class A shares, you pay the public offering price, which
includes the front-end sales charge, next computed after we receive your order.
The sales charge ranges from 5.0% of the offering price (5.3% of the net amount
invested) to zero. Your sales charge will depend on the size of your purchase.
Sales Charges
Flex Cap Opportunity, Small Company, Mid Cap Growth, World, Common Stock, and
Balanced Funds:
Sales charge as
a percentage of:
-----------------------------------------------
offering net amount Dealer
Sale Size price invested Reallowance
- ---- ----- -----------------------------------------------
$0 to $99,999 5.00% 5.26% 4.50%
$100,000 to $249,999 4.00% 4.17% 3.75%
$250,000 to $499,999 2.50% 2.56% 2.25%
$500,000 to $999,999 2.00% 2.04% 1.75%
$1,000,000 or more -0- -0- -0-
High Yield, Bond, Tax-Free Income, New York, Pennsylvania and Government
Securities Funds:
Sales charge as
a percentage of:
----------------------------------------------
offering net amount Dealer
Sale Size price invested Reallowance
- ---- ----- -----------------------------------------------
$0 to $99,999 4.00% 4.17% 4.00%
$100,000 to $249,999 3.50% 3.63% 3.25%
$250,000 to $499,999 2.50% 2.56% 2.25%
$500,000 to $999,999 2.00% 2.04% 1.75%
$1,000,000 or more -0- -0- -0-
Growth Index Fund
Sales charge as
a percentage of:
-----------------------------------------------
offering net amount Dealer
Sale Size price invested Reallowance
- ---- ------ -----------------------------------------------
$0 to $499,999 2.50% 2.56% 2.25%
$500,000 to $999,999 2.00% 2.04% 1.75%
$1,000,000 or more -0- -0- -0-
For the Short Maturity Government Fund, the sales charge for sales of up to
$999,999 is 1.00% of the offering price (1.01% of the net amount invested), with
a dealer reallowance of 0.75% of the offering price. For sales of $1,000,000 and
over, there is no initial sales charge.
There is no sales charge on purchases of shares of the Money Market Fund.
<PAGE>
In cases in which there is no sales charge because your purchase was $1,000,000
or more, the Funds' distributor, Sentinel Financial Services Company, will pay
dealers compensation of 1.00% for sales of up to $14,999,999 (for the Small
Company, Mid Cap Growth, Common Stock, and Balanced Funds) and for sales of up
to $4,999,999 for sales of the other Funds. In these cases, if you redeem the
shares in the first year after the purchase, a 1.0% CDSC will be imposed, and if
you redeem in the second year, a 0.5% CDSC will be imposed. For sales in excess
of these amounts, Sentinel Financial will individually negotiate dealer
compensation and CDSCs. After the second year, there will be no CDSC. Any CDSC
is imposed on the lower of the cost or the current net asset value of the shares
redeemed. If you redeem part of your shares, your redemption request will be
increased by the amount of any CDSC due. If you redeem your entire account, we
will deduct any CDSC due from the redemption proceeds. Sentinel Financial
receives the entire amount of any CDSC paid. The CDSC is waived in the
circumstances described on page __. In determining whether a CDSC is payable, we
will first redeem shares not subject to any charge.
You can receive a reduced sales charge for a number of reasons
Reduced Sales Charges
Sales charges on Class A shares may be reduced or eliminated in certain
situations. Please note that, to take advantage of any reduced or eliminated
sales charge, you must advise Sentinel Financial or your representative of your
eligibility at the time of purchase, and provide any necessary information about
the accounts involved.
Right of Accumulation. Quantity discounts begin with investments in Class A
shares of $100,000 ($500,000 in the case of the Growth Index Fund). You may
qualify for quantity discounts based on the total of all classes of shares
purchased, on purchases made at different times, and on purchases made by you,
your spouse and minor children, or a fiduciary for these persons. Contact
Sentinel Service for help in combining accounts for purposes of obtaining
quantity discounts by combining accounts or purchases.
Letter of Intent. You may use a letter of intent to obtain a reduced sales
charge if you plan to make investments of $100,000 ($500,000 in the case of the
Growth Index Fund) or more in Class A shares or of $250,000 or more in Class B
shares over a 13 month period (30 months in the case of corporate qualified
plans). The letter of intent is not a binding commitment by you to complete the
intended purchases. All your purchases made under the letter of intent during
the period covered will be made at the reduced sales charge for your intended
total purchase. Dividends and distributions will be reinvested without a sales
charge and will not count as purchases under the letter of intent. We will hold
in escrow 2% of the shares you purchase under the letter of intent, and release
these shares when you have completed the intended purchases. If by the end of
the period covered by the letter of intent you have not made the intended
purchases, an additional sales charge may be due. The additional amount will be
equal to what the initial sales charge would have been on the amount actually
invested, minus the sales charges already paid. We will notify you if an
additional sales charges is due. You may pay this additional sales charge within
20 days after our notification is sent, or we may redeem shares held in escrow
to the extent necessary to pay this charge. Then we will release any remaining
escrow shares. The redemption of shares for this purpose will be a taxable event
to you.
Group Investments. Any group of investors which notifies Sentinel Financial that
it will act as a group in purchasing Fund shares, in order to reduce selling
expenses, will be treated as a single entity for purposes of the reduced sales
charges for quantity purchases, including the right of accumulation and letter
of intent.
AG&T Advantage Program. Employers establishing either SIMPLE IRA plans under the
Small Business Protection Act of 1996 or Section 403(b) plans, for which
American Guaranty & Trust Company is the custodian, may group participating
employee accounts together in such a way as to result in reduced sales charges
for quantity purchases. Quantity discounts under this program are based upon
amounts previously invested in the Funds.
Net Asset Value Purchases. You may purchase Class A shares of the Funds at net
asset value if you are included in the following list.
o current and former Directors of the Funds and predecessors to the Funds;
o current and retired employees of the general partners of Sentinel Advisors and
their affiliates;
o directors, employees and clients of the Funds' sub-advisors;
o directors and employees of Beneficial Life Insurance Company, and other
strategic partners of Sentinel Advisors and/or Sentinel Financial;
o registered representatives of securities dealers that have entered into a
sales agreement with Sentinel Financial;
o members of the immediate families of, or survivors of, all of these
individuals;
o non-profit organizations with which any of these persons are actively
involved;
o investment advisors, financial planners, bank trust departments or
broker-dealers who place trades for their own accounts or the accounts of their
clients, and who charge a management, consulting or other fee for their
services, and clients of these investment advisors, financial planners, bank
trust departments or broker-dealers who place trades for their own accounts, if
the accounts are linked to the master account of the investment advisor,
financial planner or broker-dealer;
o purchasers who are investing section 403(b) loan principal repayments;
o purchasers who are buying with the redemption proceeds from other mutual fund
shares for which a sales charge or CDSC has been paid;
o investments being transferred from individually managed trust accounts at
American Guaranty & Trust Company; and
o qualified pension, profit-sharing or other employee benefit plans, if the
total amount invested in the plan is at least $1,000,000, the sponsor signs a
$1,000,000 letter of intent, or the shares are purchased by an
employer-sponsored plan with at least 100 eligible employees, and all of the
plan's transactions are executed through a single financial institution or
service organization who has entered into an agreement with Sentinel Financial
to use the Funds in connection with the accounts.
Sentinel Financial may pay dealers for share purchases of the Funds
(other than the Money Market Fund) sold at net asset value to an employee
benefit plan in accordance with the last item on the list above, as follows: 1%
of the first $2 million of these purchases, plus 0.80% of the next $1 million of
these purchases, plus 0.50% of the next $17 million of these purchases, plus
0.25% of amounts in excess of $20 million of these purchases.
American Guaranty and Trust Company may also invest short-term balances of trust
accounts in the Short Maturity Government Fund at net asset value. If more than
one person owns an account, all owners must qualify for the lower sales charge.
Please also note you may be charged a transaction fee by a broker or agent if
you effect transactions in Fund shares through a broker or agent.
Reinstatement. If you sell shares or receive dividends or capital gains
distributions in cash and subsequently want to reinvest your proceeds, you may
do so within 365 days at net asset value, without paying any additional sales
charge.
Distribution Plans
The Class A shares of each Fund, other than the Money Market Fund, have adopted
plans under Rule 12b-1 that allow the Funds to pay distribution fees for the
sale and distribution of their shares, and for services provided to
shareholders. The Class A shares of the Funds will pay to Sentinel Financial a
monthly fee at the maximum annual rate of (a) .30% of average daily net assets
in the case of the Flex Cap Opportunity, Small Company, Mid Cap Growth, World,
Common Stock and Balanced Funds, (b) .20% of average daily net assets in the
case of the Growth Index, High Yield, Bond, Tax-Free Income, New York,
Pennsylvania and Government Securities Funds, or (c) .35% of average daily net
assets in the case of the Short Maturity Government Fund.
Sentinel Financial uses a portion of these fees to pay service fees to
dealers. For the Class A shares of the Flex Cap Opportunity, Small Company, Mid
Cap Growth, World, Growth Index, Common Stock and Balanced Funds, annual service
fees are 0.20% of the average net assets owned by the dealer's clients. For the
Class A shares of the High Yield Bond, Bond, Tax-Free Income, New York,
Pennsylvania and Government Securities Funds, annual service fees are 0.10% per
annum of the average net assets owned by the dealer's clients. For the Short
Maturity Government Fund, annual service fees are 0.25% of the average net
assets owned by the dealer's clients. No service fee is paid with respect to
Fund accounts opened prior to March 1, 1993.
<PAGE>
There is no initial sales charge on Class B shares, but they are subject to
a CDSC
<PAGE>
Class B Shares
For all purchases of Class B shares, you pay the current net asset value. There
is no initial sales charge.
A CDSC will be imposed on Class B shares (including Class B shares of the
Money Market Fund) if you redeem shares during the CDSC period, unless you can
use one of the CDSC waivers listed on page __.
CDSC. Whether you pay a CDSC upon a redemption of Class B shares and how much it
is depends on the amount of your purchases and the number of years since you
made the purchase. The CDSC schedules for Class B shares are shown below:
<PAGE>
CDSC schedule - Class B shares
Flex Cap Opportunity, Small Company, Mid Cap Growth, World, Common Stock,
Balanced, High Yield and Bond Funds
<TABLE>
<CAPTION>
CDSC Percentage
-----------------------------------------------------------
Year Since Purchase Payment Was Made
<S> <C> <C> <C> <C> <C> <C>
Purchase amount 1st 2nd 3rd 4th 5th 6th
- --------------- ----------------------------------------------------------
up to $249,999 4% 4% 3% 2% 2% 1%
- -------------- ---------------------------------------------------------
$250,000 to $499,999 3.5% 3% 2% 1% 1%
- -------------------- ----------------------------------------------
$500,000 to $999,999 3% 2% 1% 1%
- -------------------- -----------------------------------
Growth Index Fund
up to $500,000 2.5% 2.5% 2% 1.5% 1.25% 0.50%
- -------------- ------------------------------------------------------------
$500,000 to $999,999 2% 2% 1% 1% - -
- -------------------- ---------------------------------------------------------
</TABLE>
<PAGE>
In determining whether a CDSC is payable, we will take redemptions first from
shares acquired through reinvestment of distributions, or any other shares as to
which a CDSC is waived. We will next take redemptions from the earliest purchase
payment from which a redemption or exchange has not already been taken. The
amount of the CDSC will be equal to the CDSC percentage from the schedules
above, multiplied by the lower of the purchase price or the net asset value of
the shares being redeemed. If you redeem part of your shares, you may choose
whether any CDSC due is deducted from the redemption proceeds or your redemption
request is increased by the amount of any CDSC due. Sentinel Financial receives
any CDSC imposed on a redemption of Class B shares.
Because the CDSC may be lower and the conversion to Class A shares may be
faster for purchases of over $250,000, you should consider whether you would
benefit from the right of accumulation or a letter of intent in connection with
the purchase of Class B shares. These privileges operate in the same way as the
similar privileges which permit reduced sales charges on Class A shares.
Distribution Plan. The Class B shares of the Flex Cap Opportunity, Small
Company, Mid Cap Growth, World, Common Stock, Balanced, High Yield and Bond
Funds, have adopted a plan under Rule 12b-1 that allows these Funds to pay
distribution fees for the sale and distribution of their shares, and services
provided to shareholders. The Class B shares of each Fund will pay to Sentinel
Financial a fee of up to a total of 1.00% annually of average daily net assets,
(0.75% for the Growth Index Fund) of which up to 0.25% shall be for service fees
to broker-dealers. The Growth Index and High Yield Fund Class B shares are not
assessed a distribution fee on the shares owned by National Life Insurance
Company or Penn Mutual Life Insurance Company, which will result in an overall
distribution fee to the Class B shares of the Growth Index and High Yield Funds
of less than 0.75% or 1.00%, for so long as National Life or Penn Mutual
maintains its investment.
Sentinel Financial pays to dealers a service fee which varies based on
the average daily assets in Class B shares of the Funds (other than the Money
Market Fund) for which each registered representative of the dealer is the
registered representative of record at the time service fees are paid. The
current service fees at various asset levels are show below.
<PAGE>
- -------------------------------------------------------------------------------
Average Daily Assets in Class B Shares of Annual
the Funds for which a Particular Individual Broker-Dealer
is the Registered Representative of Record Service Fee
$0 - $99,999..................................................-0-
$100,000 - $199,999...........................................0.10%
$200,000 - $999,999...........................................0.25%
$1,000,000 and over...........................................0.50%
Sentinel Financial has announced that it will increase the asset requirements
for the various service fee levels, effective April 1, 2001,
to the following:
Average Daily Assets in Class B Shares of Annual
the Funds for which a Particular Individual Broker-Dealer
is the Registered Representative of Record Service Fee
$0 - $199,999.................................................-0-
$200,000 - $399,999...........................................0.10%
$400,000 - $1,999,999.........................................0.25%
$2,000,000 and over...........................................0.50%
<PAGE>
Sentinel Financial anticipates that the asset requirements for the various
levels of service fees on Class B shares may increase 20% or more annually.
A selling dealer may elect a service fee of 0.25% per annum, instead of the
above arrangement. Class B shares will not pay service fees which total more
than 0.25% per year. If the above schedule requires a payment from Sentinel
Financial which exceeds 0.25% of average daily assets of the Class B shares of
any Fund, then Sentinel Financial will not be able to recover the excess from
the Funds. Sentinel Financial may change the amounts of assets needed to qualify
for the 0.10%, 0.25% and 0.50% service fee rates from time to time. Sentinel
Financial intends to manage these asset levels with the goal of producing an
average service fee on Class B shares of 0.25%. The Class B share service fee
for the first year after a purchase will be used to recover a portion of the
cost of the dealer concession paid by SFSC to the selling dealer, which portion
of the dealer concession is considered the service fee for the first year. No
service fee is paid on Class B shares in house accounts, accounts in nominee
name, or accounts in dealer street name.
Conversion to Class A Shares. The Class B shares automatically convert to Class
A shares after a fixed period of time, which depends upon the size of your
purchase. For purchases up to $250,000 ($500,000 for the Growth Index Fund), the
automatic conversion occurs at the end of the sixth year; for purchases from
$250,001 to $500,000 (except for the Growth Index Fund), the automatic
conversion occurs at the end of the fifth year; and for purchases from $500,001
to $999,999, the automatic conversion occurs at the end of the fourth year. The
holding period for Class B shares will include the holding period of Class B
shares of another Fund from which they were exchanged.
Payments to Dealers. Sentinel Financial pays selling broker-dealers, at the time
you purchase Class B shares, the percentages of the aggregate purchase amount
shown below (including purchases of Class A, Class C and Class D shares under a
right of accumulation or letter of intent):
Amount of Purchase Payment Broker-Dealer Payment
All Funds Growth
other than Index Fund
Growth Index Fund
Up to $249,999................ 4.0% ............ 2.5%
$250,000 to $499,999.......... 2.5% ............ 2.5%
$500,000 to $999,999.......... 2.0% ............ 2.0%
Class B Shares of the U.S. Treasury Money Market Fund. The Class B shares of the
Money Market Fund do not bear the higher ongoing distribution expenses normally
associated with the Class B shares. However, time during which assets are in the
Class B shares of the Money Market Fund will not count either toward the time
that must elapse before Class B shares are automatically converted to Class A
shares of the same Fund, or toward the time that results in a declining CDSC.
Therefore, if the Class B shares of the Money Market Fund are ultimately
redeemed, you will pay a CDSC in the same amount as would have been due on the
date the assets were exchanged into the Class B shares of the Money Market Fund,
regardless of how long you hold the Class B shares of the Money Market Fund.
Also, if you exchange the Money Market Fund Class B shares back into Class B
shares of another Fund, and then later redeem those shares, your CDSC, if any,
will not reflect the time you held the Money Market Fund Class B shares. The
automatic conversion into Class A shares will occur only after you hold Class B
shares of Funds other than the Money Market Fund for the six, five or four year
period.
<PAGE>
There is no initial sales charge on Class C shares, but they remain subject to
higher ongoing fees for the entire investment period
Class C Shares
For all purchases of Class C shares, you pay the current net asset value. There
is no initial sales charge. A CDSC in the amount of 1.00% of the purchase price
will be imposed on Class C shares if you redeem shares during the first year
after their purchase, unless you can use one of the CDSC waivers listed on page
__. Similar to the Class B shares, Class C shares are subject to higher
distribution fees than Class A shares. However, since Class C shares never
convert to Class A shares, investments in Class C shares remain subject to these
higher distribution fees for the entire holding period of the investment.
CDSC. You will pay a CDSC if you redeem Class C shares in the first year after
purchase, in the amount of 1.00% of the lower of the purchase price or the net
asset value of the shares redeemed, unless a waiver applies. We apply the same
rules in determining a CDSC as we do for Class B shares. Sentinel Financial
receives the entire amount of any CDSC paid.
Distribution Plan. The Class C shares of the Flex Cap Opportunity, Mid Cap
Growth, World, Growth Index, Common Stock, Balanced and High Yield Funds have
adopted a plan under Rule 12b-1 that allows these Funds to pay distribution fees
for the sale and distribution of their shares, and services provided to
shareholders. These Funds pay to Sentinel Financial a monthly fee at an annual
rate of up to a total of 1.00% of average daily net assets. In the first year
after the purchase Sentinel Financial keeps this fee to recover the initial
sales commission of 1.00% that it pays to the selling dealer. In subsequent
years, the entire distribution fee will be paid to the selling dealer.
Exchanges. If you purchase Class C shares, you will have the ability to exchange
at net asset value only for the Class C shares of other Funds, except that you
may also exchange into Class A shares of the Money Market Fund. However, if you
exchange Class C shares into Money Market Fund Class A shares within one year of
your purchase of the Class C shares, and then subsequently redeem the Money
Market Fund shares, you may pay a CDSC. If you exchange Class C shares into
Money Market Fund Class A shares, you may exchange back into Class C shares at
any time, but may not exchange at net asset value into Class A shares or Class B
shares of any Fund.
Payments to Dealers. For all sales of Class C shares, Sentinel Financial intends
to make payments to selling broker-dealers, at the time you purchase Class C
shares, of amounts equal to 1% of the aggregate purchase amount.
There is no initial sales charge on Class D shares, but they are subject to a
CDSC
Class D Shares (Balanced Fund only)
For all purchases of Class D shares of the Balanced Fund, you pay the current
net asset value. There is no initial sales charge. A CDSC will be imposed on
Class D shares (including Class A shares of the Money Market Fund, if you
exchange Class D shares into the Money Market Fund), if you redeem shares during
the seven years after their purchase, unless you can use one of the CDSC waivers
listed on page __.
CDSC. Whether you pay a CDSC upon a redemption of Class D shares and how much it
is depends on the number of years since you made the purchase. The CDSC schedule
for Class D shares is shown below:
<PAGE>
- -------------------------------------------------------------------------------
CDSC schedule - Class D shares
CDSC Percentage
------------------------------------------------------------------
Purchase Year Since Purchase Payment Was Made
amount 1st 2nd 3rd 4th 5th 6th 7th
------------------------------------------------------------------
Any amount 6% 6% 5% 4% 4% 3% 2%
<PAGE>
The above schedule is higher than the schedules of CDSCs for Class B shares,
which start at maximums of 4% and extend for a maximum of six years. The CDSC
waivers, which are listed on page __, are the same as those available for Class
B shares, except that the annual CDSC-free percentage redemption amount is 8%
instead of 10%. We apply the same rules in determining a CDSC as we do for Class
B shares. Sentinel Financial receives the entire amount of any CDSC paid.
Distribution Plan. The Class D shares of the Balanced Fund have adopted a plan
under Rule 12b-1 that allows it to pay distribution fees for the sale and
distribution of their shares. The Fund pays a fee to Sentinel Financial at a
maximum annual rate of 0.75% of average daily net assets of the Class D shares
of the Balanced Fund. The Class D Distribution Plan is similar in its operation
to the Class B Distribution Plan, except that there is no service fee of up to
0.25%, and no asset-based service fee payable to dealers. These distribution
fees are lower than those that apply to Class B shares, but they are higher than
those that apply to Class A shares.
Conversion to Class A Shares. The Class D shares automatically convert to Class
A shares after 10 years.
Exchanges into Class A Shares of the Money Market Fund. You may exchange Class D
shares of the Balanced Fund into Class A shares of the Money Market Fund.
However, if you do so within seven years of the purchase of the Class D shares,
and subsequently redeem the Money Market Fund shares, you may pay a CDSC. You
may exchange back into Class D shares of the Balanced Fund at any time, but in
this case the time your investment was in the Money Market Fund will not count
toward the time for conversion to Class A shares of the Balanced Fund, or for
reduction or elimination of the CDSC.
Payments to Dealers. For sales of Class D shares of the Balanced Fund, Sentinel
Financial intends to make payments to selling broker-dealers, at the time you
purchase Class D shares, of amounts equal to 6% of the aggregate purchase
amount. If a selling broker-dealer has entered into agreements required by
Sentinel Financial, Sentinel Financial may pay annualized commissions in advance
with respect to Class D accounts which are set up to make, and are expected to
make monthly automated additional purchases.
Waiver or Reduction of a CDSC
A CDSC will be waived in the following situations if you notify us at the time
of redemption that a waiver applies:
1. Redemptions of shares you acquire from the reinvestment of income
distributions and/or capital gains distributions;
2. Redemptions from your account (including when you own the shares as
joint tenant with your spouse) following your death, or from the
account of a trust whose primary income beneficiary has died, if the
redemption occurs within one year of your death or the beneficiary's
death;
3. Redemptions from qualified retirement accounts taken in equal or
substantially equal periodic payments not to exceed life, or joint life
expectancy and not otherwise subject to the 10% penalty tax for early
withdrawal of Code section 72(t);
4. Redemptions that occur as a result of a loan taken from an account
established as a retirement plan account for an employee of a
tax-exempt organization under section 403(b)(7) of the Code;
5. The CDSC will be waived on redemption of shares acquired prior to
September 13, 1999 in amounts up to 10% annually of the account's then
current net asset value. Note that in the case of Class D shares this
amount is up to 8% annually instead of up to 10% annually. The CDSC
will be waived on redemptions made under Systematic Withdrawal Plans
for shares acquired on or after September 13, 1999 in amounts up to
10% annually of the account's then net asset value. Again in the case
of Class D shares this amount is up to 8% annually instead of up to 10%
annually. We have also enhanced our systematic withdrawal plan
administration to permit Systematic Withdrawal Plans to be either a
fixed dollar amount or a percentage of the account's value, rather
than only a percentage of the account's value; and
6. For Class B share 401(k) plans administered by BYSIS, redemptions
resulting from the termination of a participant's participation in the
plan.
The waivers described above may be useful in a wide variety of situations.
These may include, but are not limited to, funding of expenses for persons
fulfilling certain religious missionary obligations, educational expenses and
the purchase of a new home.
Sentinel Financial may require documentation to show a waiver applies, such
as certifications by plan administrators, applicable tax forms, or death
certificates. The waiver provisions will not apply to Class B shares initially
invested in the Money Market Fund as part of the program described on page __.
No CDSC will apply to Class B, Class C or Class D share accounts owned by
affiliates of Sentinel Advisors if Sentinel Financial has not paid an initial
commission to a selling dealer.
<PAGE>
Other Matters Relating to Distribution Of Fund Shares
Equity Services, Inc., 1717 Capital Management Company, Janney Montgomery
Scott, Inc., and Hornor, Townsend & Kent, Inc., which are wholly-owned
subsidiaries of the partners of Sentinel Advisors, receive a dealer reallowance
equal to the entire sales charge on their sales of Fund shares. As a result,
they may be considered underwriters of the Funds' shares.
Sentinel Financial will reimburse all broker-dealers who agree with
Sentinel Financial to undertake activities designed to specifically promote the
Funds, for costs incurred by these broker-dealers in the course of these
activities. Sentinel Advisors may consider sales of shares of the Funds in the
selection of broker-dealers to execute portfolio transactions for the Funds, as
long as commissions paid are no higher than would otherwise be paid and the
prices are, in Sentinel Advisors' judgment, the best then available.
How to Buy, Sell, Exchange and Transfer Shares
Buying Shares
There are several convenient
ways to buy shares
<PAGE>
The minimum initial investment for all Funds except the Growth Index Fund and
certain retirement plan accounts is $1,000. The minimum subsequent investment
for all Funds except the Growth Index Fund is $50. You may also invest in any of
these same funds with as little as $50 using the Automatic Investment Plan. The
minimum initial and subsequent investments for the Growth Index Fund are $5,000
and $100, respectively. You can also invest in the Growth Index Fund with as
little as $100 using the Automatic Investment Plan. For all Funds, the minimum
initial investment for IRA and other qualified retirement plan accounts is
$1,000.
Purchasing Shares by Check
To purchase shares by check, make your check payable to "Sentinel Administrative
Service Company" and mail it to:
Sentinel Administrative Service Company
P. O. Box 1499
Montpelier, VT 05601-1499
To make your initial purchase by check, please also fill out an application
(one is attached to this prospectus) and return the application with your check.
All checks must be drawn in U.S. dollars on a U.S. bank. The Funds reserve the
right to withhold the proceeds of a redemption of shares purchased by check
until the check has cleared, which may take up to 15 days after the purchase
date.
Your purchase will be effected on the day when federal funds are made
available to a Fund, usually within one business day after Sentinel Service
receives the check. We may charge a fee of $25 for each check returned unpaid
due to insufficient funds.
Purchasing Shares by Wire
You may purchase shares by wiring federal funds directly to Sentinel Service on
any day when both the New York Stock Exchange and Federal Reserve banks are open
for business.
To make your initial purchase by wire, call our toll-free number noted
below and obtain an account number. Complete the application and return it
promptly to Sentinel Service.
Your bank may charge you a fee to wire funds. Payments made by wire and
received by Sentinel Service on any business day are available to the Fund on
the next business day.
Dealer Wire Purchase Orders
As a convenience to shareholders, Sentinel Financial will, acting for the Funds
without charge, ordinarily accept orders from dealers who have sales agreements
with the Funds for the purchase of shares at the applicable offering price.
Purchasing Shares Online
If you already have an account and have elected to do so, you may purchase
shares of the Funds over the Internet by accessing the Funds' website at
www.sentinelfunds.com.
Automatic Investment Plan
This feature affords you the opportunity to dollar-cost average using periodic
electronic funds transfer from your bank account to the Fund(s) of your choice.
Telephone Investment Service
This feature enables you to purchase Fund shares via electronic funds transfers
from your bank account simply by phoning Sentinel Service, or accessing our
automated telephone system known as "Call 24".
Government Direct Deposit Privilege
You may purchase Fund shares (minimum of $50.00 per transaction) by having
local, state or Federal salary, Social Security, or certain veterans', military
or other payments from the Federal government automatically deposited into your
account. You may deposit as much of the payments as you elect. To enroll in
Government Direct Deposit, please contact Sentinel Service.
Payroll Savings Plan
You may purchase Fund shares (minimum of $50.00 per transaction) automatically
on a regular basis by having money withheld from your paycheck, if your employer
permits this. You may have part or all of your paycheck transferred to your
existing Sentinel account electronically each pay period. To establish a
Sentinel Payroll Savings Plan account, please contact Sentinel Service.
You may sell your shares in
a number of convenient ways
Selling Shares
You may sell your shares back to the Funds at net asset value, less any
applicable CDSC, as of the close of business on the day your instructions are
received, prior to 4:00 p.m. on a day that the NYSE is open for business. If
your shares are held by Sentinel Service, you can sell your shares in the
following ways.
By Mail
You may sell your shares by providing Sentinel Service with the appropriate
instructions by mail. Your instructions must be signed by the registered
owner(s) exactly as the shares are registered. If the proceeds of the redemption
exceed $50,000, if the check is not made payable to the registered owner(s) and
mailed to the record address, or if the record address has been changed within
the past 30 days, the signatures of the registered owner(s) must be guaranteed
by an eligible financial institution that meets Sentinel Service's requirements.
Dealer Wire Redemption Orders
For the convenience of shareholders, Sentinel Financial, acting for the Funds
without charge, ordinarily accepts orders from dealers who have sales agreements
with the Funds for the repurchase of shares based on net asset value, less any
applicable CDSC. Brokers are not prohibited from charging for their service on
these redemptions.
Telephone Redemption
You may redeem up to $1,000,000 from your account each business day by providing
instructions to do so over the telephone, by calling Sentinel Service at
1-800-282-FUND(3863). You may request that a check made payable to the
registered owners be sent their address of record, or you may request that the
proceeds be sent directly to a predesignated commercial bank account. If
proceeds are wired to your bank, we will deduct a fee of $25 from the proceeds.
In addition, it is possible that your bank may charge a fee for receiving wire
transfers. You may request a redemption on the Funds' automated voice response
system.
Neither the Funds, Sentinel Advisors nor Sentinel Service is responsible
for the authenticity of exchange or redemption instructions received by
telephone, and they are not liable in the event of an unauthorized telephone
exchange or redemption, provided that, in the case of the Funds, the Funds have
followed procedures reasonably designed to prevent losses. In processing
telephone exchange or redemption requests, the Funds will use reasonable
procedures to confirm that telephone instructions are genuine, and if these
procedures are not employed, the Funds may be liable for any resulting losses.
These procedures include receiving all calls for telephone redemptions and
exchanges on a recorded telephone line, and screening callers through a series
of questions regarding specific account information.
You may indicate on your purchase application that you do not wish to have
telephone transaction privileges.
Online Redemption
You may also request a redemption over the Internet by accessing the Funds'
website at www.sentinelfunds.com.
By Checkwriting
If you own Class A shares of the High Yield, Tax-Free Income, New York,
Pennsylvania, Government Securities, Short Maturity Government and Money Market
Funds, you may sell shares by writing a check against your account. This check
writing privilege is free. If you write a check to redeem shares, we normally
will not honor the redemption check if those shares have been purchased less
than 15 days prior to the date the check is presented to Sentinel Service.
Redemptions by checkwriting are taxable transactions.
Sentinel Service provides overdraft protection by automatically transferring
available funds from your other identically registered accounts if you have
available balances. A fee of $10.00 will be charged to the account when funds
are transferred from protecting account(s) to cover an overdraft.
By Systematic Withdrawals
You may arrange to receive automatic regular withdrawals from your account. Each
withdrawal will be a taxable event. You must reinvest dividends and capital
gains distributions to use systematic withdrawals. No interest will accrue on
amounts represented by uncashed checks sent under a systematic withdrawal plan.
If You Hold Share Certificates
If you are the shareholder of record and have a certificate representing
ownership in a Fund, you can redeem your shares by mailing the certificate to
Sentinel Administrative Service Company, P. O. Box 1499, Montpelier, VT
05601-1499, with appropriate instructions to redeem. Your instructions should be
signed by the registered owner(s) exactly as the shares are registered. The
signatures of the registered owner(s) must be guaranteed by an eligible
financial institution which meets Sentinel Service's requirements if the
proceeds of the redemption exceed $50,000, if the check is not made payable to
the registered owner(s) and mailed to the record address, or if the record
address has been changed within the past 30 days. We suggest sending
certificates by certified mail. You may also redeem share certificates by
presenting them in person to Sentinel Service at its office at National Life
Drive, Montpelier, Vermont.
Other Information on Redeeming Shares
Normally, Sentinel Service will mail you a check in payment for your shares
within seven days after it receives all documents required to process the
redemption. We may delay payment during any period in which the right of
redemption is suspended or date of payment is postponed because the NYSE is
closed, trading on the NYSE is restricted, or the Securities and Exchange
Commission deems an emergency to exist. No interest will accrue on amounts
represented by uncashed redemption checks.
We may require additional documentation to redeem shares that are
registered in the name of a corporation, trust, company retirement plan, agent
or fiduciary, or if a shareholder is deceased. We will not honor redemption
requests if you have bought the shares by check within 15 days of the redemption
request, unless we have confirmed that your check has been cleared for payment.
Distributions from retirement plans may be subject to withholding by the
Internal Revenue Service under the Code.
Certain Account Fees
Due to the expense of maintaining accounts with small balances, we reserve the
right to liquidate, and/or to charge an annual maintenance fee of up to $25 to
any account that has a current value less than $1,000 and that has been open for
at least 24 months.
Pension, 401(k) and profit-sharing plans which elect to have individually
registered accounts for the benefit of plan participants will be assessed an
annual service fee for each participant account, in the amounts shown below.
Fee
Per Average Account Value Participating Account
$0 - $1000...................$20.00
$1000 - $2999................$10.00
$3000 and over...............No fee
This fee will be deducted automatically from each participant account in June of
each year unless it is prepaid.
Miscellaneous Fees
AG&T Custodial Accounts
Annual Custodial Fee per Social Security Number....$15.00
Closeout Fee per Account...........................$15.00
Transfer of Assets Fee per Transaction.............$25.00
Service Fees
Express Mail Deliveries............................$15.00
Federal Funds Wire.................................$15.00
<PAGE>
Exchanges from One Fund to Another
<PAGE>
You may exchange shares of one Fund for shares of the same class of another
Fund, without charge, by phoning Sentinel Service or by providing appropriate
instructions in writing to Sentinel Service. Initial purchases of less than $1
million of the Growth Index Fund and the Short Maturity Government Fund must
remain in the account for 90 days before they are eligible for an exchange.
Shares of other Sentinel Funds also may not be exchanged into shares of the same
class of the Growth Index Fund within the first 90 days after the initial
purchase of those other Sentinel Fund Shares.
Because Class B shares in the Tax-Free Income, New York, Pennsylvania,
Government Securities and Short Maturity Government Funds are not currently
offered, holders of Class B shares may not exchange into these Funds. Similarly,
because Class C shares of the Small Company, Bond, Tax-Free Income, New York,
Pennsylvania, Government Securities and Short Maturity Government Funds are not
currently offered, holders of Class C shares may not exchange into these Funds.
Class C shares may be exchanged for Class A shares of the Money Market Fund (but
if the Class C shares had not been held for a year before the exchange into the
Money Market Fund, a 1.00% CDSC may apply if the Money Market Fund shares are
then redeemed). The Money Market Fund shares may be exchanged back into Class C
shares at any time.
Holders of Class D shares of the Balanced Fund may not make exchanges into
other Funds, except that Class D shares may be exchanged for Class A shares of
the Money Market Fund. The Money Market Fund shares may be exchanged back into
Class D shares of the Balanced Fund at any time. If these Money Market Fund
shares are subsequently redeemed, however, we will assess a CDSC in the amount
which would have applied to the Class D shares of the Balanced Fund on the date
of the exchange into the Money Market Fund.
Funds are only available for exchange for residents of states in which
these Funds are registered. If you initially buy Class A shares in the Money
Market Fund, you may not exchange into other Funds without being treated as an
initial purchaser of the other Fund's shares. Holding periods for shares which
have been exchanged for the currently held shares will be included in the
holding period of the current shares, except that time in the Money Market Fund
will not count toward the holding period necessary to reduce or eliminate any
applicable CDSC, or to be converted into Class A shares. The normal minimum
account sizes apply to new accounts opened by exchange.
New purchases must remain in an account for 15 days before they can be
exchanged to another Fund. The Funds disclaim liability for unauthorized
telephone instructions under the same policy that applies to telephone
redemption instructions, discussed on page __. We currently do not limit the
number of times you may exercise the exchange privilege. We may modify or
terminate the exchange privilege in accordance with the rules of the Securities
and Exchange Commission (the current rules require 60 days advance notice to
shareholders prior to the modification or termination of the exchange
privilege).
You may also set up your account to exchange automatically a specified
number or dollar-value of shares in one of the Funds into shares of the same
class in another Fund at regular intervals.
Transfers of Ownership of Shares
When you need to change ownership of your shares or change the name on an
account, a Sentinel Service representative will assist you.
<PAGE>
How the Funds Are Priced
How the value of Fund shares is
determined
Net asset value for each Fund is calculated once each business day that the New
York Stock Exchange is open, at 4:00 p.m. Eastern Time, and becomes effective
immediately upon its determination. The net asset value per share is computed by
dividing the total value of the assets of each Fund, less its liabilities, by
the total number of each Fund's outstanding shares. The Funds' investments are
valued as shown below:
o Equity securities are valued at the latest transaction prices on the
principal stock exchanges on which they are traded.
o Unlisted and listed securities for which there were no sales during the
day are valued at the mean between the latest available bid and asked
prices.
o Fixed-income securities are valued daily on the basis of valuations
furnished by an independent pricing service.
o Financial futures are valued at the settlement price established each
day by the board of trade or exchange on which they are traded.
o Exchange-traded options are valued at the last sale price unless there
is no timely sale price, in which event current prices provided by
market makers are used.
The Money Market Fund's assets are valued on the basis of amortized cost,
which involves valuing a portfolio instrument at its cost initially and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument.
The per share net asset value of Class A shares generally will be higher
than the per share net asset value of Class B, Class C or Class D shares,
reflecting the higher daily expense accruals of Class B, Class C and Class D
shares. It is expected, however, that the per share net asset value of the
classes will tend to converge (although not necessarily meet) immediately after
the payment of dividends or distributions. Dividends and distributions will
differ by the appropriate amount of the expense accrual differences between the
classes.
Dividends, Capital Gains and Taxes
When the Funds
pay dividends
The Funds distribute their net investment
income as follows:
Fund Dividends Paid
Flex Cap Opportunity Fund Annually
Small Company Fund Annually
Mid Cap Growth Fund Annually
World Fund Annually
Growth Index Fund Annually
Common Stock Fund Quarterly
Balanced Fund Quarterly
High Yield Fund Monthly
Bond Fund Monthly
Tax-Free Income Fund Monthly
New York Tax-Free Income Fund Monthly
Pennsylvania Tax-Free Income Trust Monthly
Government Securities Fund Monthly
Short Maturity Government Fund Monthly
The Money Market Fund's net income is determined as of the close of
business, 4:00 p.m. Eastern Time, on each day the NYSE is open. The Fund
declares dividends of all of its daily net income to shareholders of record as
of the close of business the preceding business day. Dividends are declared and
accrued each day the NYSE is open and are payable monthly. The amount of the
dividend may fluctuate daily and dividends will not be paid on days when net
realized losses on securities in the portfolio or expenses exceed the Fund's
income.
For each Fund, distributions of any net realized capital gains for a fiscal
year are paid in December, following the November 30th fiscal year-end.
You may elect to receive all or any part of your dividends and/or capital
gains distributions in cash, shares of your Fund, or shares of another Fund of
the same class. Unless you elect otherwise, your dividends will be reinvested in
shares of the same Fund. Any dividend or distribution of less than $10.00 must
be reinvested. If you elect to receive dividends and/or capital gain
distributions in cash and the postal or other delivery service is unable to
deliver checks to your address of record, your distribution option will
automatically be converted to having all dividend and other distributions
reinvested in additional shares. No interest will accrue on amounts represented
by uncashed dividend or other distribution checks.
You will pay tax on dividends (other than "exempt-interest dividends"
discussed below) and capital gains distributions from the Funds whether you
receive them in cash or additional shares. If you redeem Fund shares or exchange
them for shares of another Fund, any gain or the transaction may be subject to
tax. Except for the Tax-Free Income, New York and Pennsylvania Funds, the Funds
intend to make distributions that will be taxed either as ordinary income or
capital gains.
If you are neither a lawful permanent resident nor a citizen of the U.S. or
if you are a foreign entity, the Funds' ordinary income dividends (which include
distributions of net short-term capital gains) will generally be subject to a
30% U.S. withholding tax, unless a lower treaty rate applies.
Dividends and interest received by the World Fund may give rise to
withholding and other taxes imposed by foreign countries. Tax conventions
between certain countries and the United States may reduce or eliminate these
taxes. You may be able to claim a credit or deduction with respect to such taxes
if certain requirements are met.
By law, the Funds must withhold 31% of your distributions and
redemption proceeds if you have not provided a taxpayer identification number or
social security number or if the number you have provided is incorrect.
Tax-Free Income, New York and Pennsylvania Funds
Each of the Tax-Free Income, New York and Pennsylvania Funds intends to invest a
sufficient portion of its assets in municipal bonds and notes to qualify to pay
"exempt-interest dividends" to shareholders. These exempt-interest dividends are
generally not subject to federal income tax. However, these Funds may invest
portions of their assets in investments which generate income that is not exempt
for federal income tax. Some of the Funds' investments may subject certain
investors to the federal alternative minimum tax. Most of the income from the
Tax-Free Income Fund will be subject to any state income tax to which you are
subject. Any capital gains distributed by the these Funds will normally be
taxable as capital gains. In addition, gain from the sale of municipal bonds
purchased at a market discount will be treated as ordinary income for federal
income tax purposes rather than capital gain. This rule may increase the amount
of ordinary income dividends you receive.
Distributions from the New York Fund which are attributable to interest
income received from New York municipal bonds also will be exempt from New York
State and New York City personal income tax for New York State and City
residents. Distributions from the Pennsylvania Fund which are attributable to
interest income received from Pennsylvania municipal bonds also will be exempt
from Pennsylvania personal income tax.
Distributions from the Pennsylvania Fund will be exempt from the
Philadelphia School District investment income tax for individual residents of
the City of Philadelphia if they are attributable to interest received from
Pennsylvania municipal bonds or from qualifying U.S. government obligations, or
if they are capital gain dividends for federal income tax purposes. Shares of
the Pennsylvania Fund will be exempt from Pennsylvania county personal property
tax to the extent Pennsylvania Fund holds Pennsylvania municipal bonds and
qualifying U.S. government obligations on the annual assessment date.
If the New York and Pennsylvania Funds invest in investments other than New
York municipal bonds and Pennsylvania municipal bonds, respectively, a portion
of their income distributions may be subject to state and local taxes, and
possibly federal income tax. The Funds will inform shareholders annually as to
the portions of their distributions which are exempt-interest dividends and
which are exempt from state and local income taxes.
This section summarizes some of the consequences under current federal tax
law and relevant state and local tax laws of investments in the Funds. It is not
a substitute for personal tax advice. Consult your personal tax advisor about
the potential tax consequences of investments in the Funds under all applicable
tax laws.
<PAGE>
Management of the Funds
Alger acts as subadvisor to the Flex Cap Opportunity Fund
INVESCO acts as subadvisor to the World Fund Evergreen acts as subadvisor to
the High Yield Fund
Sentinel Advisors Company manages the Funds' investments and their
business operations under the overall supervision of the Board of Directors of
Sentinel Group Funds, Inc. (for all Funds except the Pennsylvania Fund) and
the Board of Trustees of Sentinel Pennsylvania Tax-Free Trust. Sentinel
Advisors has the responsibility for making all investment decisions for the
Funds, except where it has retained a subadvisor to make the investment
decisions for a Fund. Sentinel Advisors has retained Fred Alger Management,
Inc. as the subadvisor to manage the investments of the Flex Cap Opportunity
Fund, INVESCO as the subadvisor to manage the investments of the World Fund,
and Evergreen Investment Management Company as the subadvisor to manage the
investments of the High Yield Fund. Sentinel Advisors is a partnership of
affiliates of three major insurance companies, National Life Insurance
Company, Provident Life Insurance Company, and Penn Mutual Life Insurance
Company. Its principal business address is National Life Drive, Montpelier,
Vermont 05604. Alger is located at 1 World Trade Center, Suite 9333, New York,
New York 10048. INVESCO is located at 1315 Peachtree Street, Atlanta, Georgia
30309. Evergreen is located at 200 Berkeley Street, Boston, Massachusetts
02116.
The Funds' investment advisory contracts call for the Funds to pay Sentinel
Advisors fees, which were, for the fiscal year ended November 30, 1999, (in the
case of the Flex Cap Opportunity Fund, anticipated for the fiscal year ended
November 30, 2000) equal to the following percentages of the Funds' average
daily net assets:
Flex Cap Opportunity Fund 0.90%
Small Company Fund 0.61%
Mid Cap Growth Fund 0.61%
World Fund 0.61%
Growth Index Fund 0.30%
Common Stock Fund 0.55%
Balanced Fund 0.61%
High Yield Bond Fund 0.75%
Bond Fund 0.53%
Tax-Free Income Fund 0.53%
New York Tax-Free Income Fund 0.53%
Pennsylvania Tax-Free Trust 0.55%
Government Securities Fund 0.53%
Short Maturity Government Fund 0.53%
U.S. Treasury Money Market Fund 0.40%
Sentinel Advisors currently waives all or a portion of its advisory fees
for some of the Funds. The effective advisory fee rates (as a percentage of each
Fund's average daily net assets) that these Funds paid in the fiscal year ended
November 30, 1999, after taking these waivers into account, were as follows:
Growth Index Fund 0%
Bond Fund 0.35 %
Tax-Free Income Fund 0.35 %
New York Tax-Free Income Fund 0%
Pennsylvania Tax-Free Trust 0%
Government Securities Fund 0.38%
Short Maturity Government Fund 0.17%
Portfolio Managers
Sentinel Advisors employs a team approach in managing the Funds. The management
teams are comprised of a lead portfolio manager, other portfolio managers and
research analysts. Each team includes members with one or more areas of
expertise and shares the responsibility for providing ideas, information and
knowledge in managing the Funds. Rodney A. Buck, the Chief Executive Officer of
Sentinel Advisors, is also Chairman and Chief Executive Officer of National Life
Investment Management Company, Inc., and Executive Vice President and Chief
Investment Officer of National Life. Mr. Buck has been employed by Sentinel
Advisors or its affiliates since 1972. There are three investment management
teams: an Equity Value Team, headed by Van Harissis, Senior Vice President of
Sentinel Advisors; an Equity Growth Team, headed by Robert L. Lee, Senior Vice
President of Sentinel Advisors; and a Fixed Income Team, headed by David M.
Brownlee, Senior Vice President of Sentinel Advisors.
Each of Messrs. Buck, Lee, Brownlee and Harissis is a Chartered Financial
Analyst. Mr. Lee and Mr. Brownlee have each been associated with Sentinel
Advisors since 1993. Mr. Harissis joined Sentinel Advisors in June 1999.
The Common Stock Fund is managed by the Equity Value Team, led by Mr.
Harissis. Mr. Harissis was a managing director and portfolio manager at Phoenix
Investment Partners from 1995 to 1999, and previously was a portfolio manager at
Howe & Rusling. Mr. Lee has been the portfolio manager for the Mid Cap Growth
Fund since November, 1993 and for the Growth Index Fund since its inception in
September, 1999. The Small Company Fund is managed by Scott T. Brayman, Vice
President of Sentinel Advisors, and Mr. Lee. Mr. Brayman is a Chartered
Financial Analyst, and has been with Sentinel Advisors since 1995. He has been
involved with the Small Company Fund since he joined Sentinel Advisors. Prior to
joining Sentinel Advisors, he was associated with Argyle Capital Management,
Inc.
The Balanced Fund is managed by a team consisting of Mr. Buck, Mr. Harissis
and William C. Kane, Vice President of Sentinel Advisors. Mr. Buck has been the
Fund's lead portfolio manager since 1982. Mr. Kane is a Chartered Financial
Analyst, and has been employed by Sentinel Advisors or its affiliates since
1992.
The portfolio manager for the Bond Fund is Mr. Kane. The portfolio manager
of the Government Securities and Short Maturity Government Funds is Mr.
Brownlee. The portfolio manager of the Tax-Free Income, New York and
Pennsylvania Funds is Kenneth J. Hart, Vice President of Sentinel Advisors. Mr.
Hart has been with Sentinel Advisors or its affiliates since 1990. The portfolio
managers of the Money Market Fund are Mr. Temple and Darlene Coppola, Money
Market Trader of Sentinel Advisors. Ms. Coppola has been employed by Sentinel
Advisors or its affiliates since 1974.
David Alger and David Hyun are the individuals responsible for the
day-to-day management of the Flex Cap Opportunity Fund's portfolio and have
served in that capacity since the inception of the Fund. Mr. Alger has been
employed by Alger as Executive Vice President and Director of Research since
1971, and as President since 1995. Mr. Hyun has been employed by Alger as an
Analyst since 1991 and as a Senior Vice President and co-manager since 1998.
Erik B. Granade, International Equity Portfolio Manager of INVESCO, has
been the lead manager of the World Fund since June 1994. Michele T. Garren has
been the fund's co-manager since September, 1997. Mr. Granade is a Chartered
Financial Analyst. He was associated with Cashman Farrell and Associates from
June, 1994 to March 31, 1996, when he moved to INVESCO. Prior to June, 1994 he
was an International Portfolio Manager with Provident Capital Management, Inc.
Ms. Garren is a Chartered Financial Analyst. She was associated with AIG Global
Investment Corp. from August, 1993 to July, 1996.
The portfolio manager for the High Yield Fund is Prescott B. Crocker,
Senior Vice President and Group Head of Corporate Fixed Income at Evergreen. Mr.
Crocker is a Chartered Financial Analyst, and has been the High Yield Fund's
portfolio manager since its inception on June 20, 1997. Mr. Crocker joined
Evergreen in February, 1997. Prior to that he was President of Boston Security
Counselors, the investment management subsidiary of the brokerage firm Advest
Co. Inc. He had joined Boston Security Counselors in November of 1993 as Senior
Vice President- Fixed Income, where he managed among others the Advest Advantage
series High Yield Trust. Upon the sale of the Advest Advantage funds to
Northstar Investment Management Co. in July of 1995, Mr. Crocker joined that
company as Fund Manager. He returned to Boston Security Counselors in August of
1996 as President.
Performance Data
The Funds may from time to time include average annual total return figures in
advertisements or other material the Funds send to existing or prospective
shareholders. The Funds calculate these figures by determining the average
annual compounded rates of return that would produce the redeemable value of the
Fund being shown at the end of each period for a given initial investment. All
recurring and nonrecurring expenses are included in the calculation. It is
assumed that all dividends and distributions are reinvested. In addition, to
better illustrate the performance of money already invested in the Funds, the
Funds may also periodically advertise total return without subtracting sales
charges.
The fixed income Funds also may quote yields in advertisements. Yields are
computed by dividing net investment income for a recent 30-day (or one month)
period by the product of the average daily number of shares outstanding during
that period and the maximum offering price per share on the last day of the
period. The result is then annualized. These Funds may also show comparable
yields to those shareholders already invested in the Funds by using the net
asset value per share instead of maximum offering price in the above
calculations. This has the effect of raising the quoted yields. The Tax-Free
Income, New York and Pennsylvania Funds may also include tax-equivalent yields
in advertisements. Tax-equivalent yields increase the yield as calculated above
to make it comparable on an after-tax basis to an investment which produces
taxable income.
The Funds also may compare their performance to relevant indices in
advertisements. The equity Funds may compare their performance to stock indices,
including the Dow Jones Industrial Average, the S&P 500 Index, the S&P 500/BARRA
Growth Index, and the Russell 2000 Index. The World Fund may compare its
performance to the "EAFE" (Europe, Australia, Far East) Index. The High Yield
Fund may compare its performance to the Chase Manhattan Bank Index. The fixed
income Funds may compare their performance to bond or money market indices,
including the Lehman Aggregate Bond Index, Municipal Bond Index, or Government
Bond Index, and Donoghue's Money Fund Report.
The Funds also may refer to rankings and ratings published by independent
tracking services and publications of general interest including Lipper
Analytical Services, Inc., CDA/Wiesenberger, Morningstar, Donoghue's; magazines
such as Money, Forbes, Kiplinger's Personal Finance Magazine, Financial World,
Consumer Reports, Business Week, Time, Newsweek, U.S. News and World Report; and
other publications such as the Wall Street Journal, Barron's, Investor's Daily,
and Standard & Poor's Outlook. These ranking services and publications may rank
the performance of the Funds against all other mutual funds or against funds in
specified categories. The rankings may or may not include the effects of sales
or other charges.
A Note About Year 2000. As the year 2000 began, there were few problems
caused by the inability of certain computer systems to tell the difference
between the year 2000 and the year 1900 (commonly known as the "Year 2000
Problem"). It is still possible that some computer systems could malfunction in
the future because of the Year 2000 Problem or as a result of actions taken to
address the Year 2000 Problem. We do not anticipate that our services or those
of the other service providers will be adversely affected, but we will continue
to monitor the situation. If malfunctions related to the Year 2000 Problem do
arise, your investment could be negatively affected.
<PAGE>
FINANCIAL HIGHLIGHTS CHART IS IN J:SGF:PROSPECT:2000331FHBL
<PAGE>
The Sentinel Funds
Shareholder Reports
Additional information about the Funds' investments is available in the Funds'
annual and semi-annual reports to shareholders. In the Funds' annual report you
will find a discussion of the market conditions and investment strategies that
significantly affected investment performance of each of the Funds during its
last fiscal year. You may obtain copies of these reports at no cost by calling
1-800-282-FUND (3863).
The Funds will send you one copy of each shareholder report and certain
other mailings, regardless of the number of Fund accounts you have. To receive
separate shareholder reports for each account at no cost, call Sentinel Service
at 1-800-282-FUND (3863).
Statement of Additional Information
The Funds' Statement of Additional Information contains further information
about the Funds and is incorporated by reference (legally considered to be part
of this Prospectus). You may request a free copy by writing the Funds at the
address shown below or by calling 1-800-282-FUND (3863). Please contact your
registered representative or the Funds if you have any questions.
The Funds' Statement of Additional Information is also available at the
Funds' website at www.sentinelfunds.com. Information about the Funds (including
the Statement of Additional Information) can also be reviewed and copied at the
SEC's Public Reference Room in Washington, D.C. Call 1-202-942-8090 for
information on the operation of the public reference room. This information is
also available on the SEC's Internet site at http://www.sec.gov and copies may
be obtained upon payment of a duplicating fee, by electronic request at the
following E-mail address: [email protected], or by writing the Public Reference
Section of the SEC, Washington, D.C. 20549-0102.
You should rely only on the information contained in this prospectus. No one is
authorized to provide you with information that is different.
The Sentinel Funds
National Life Drive
Montpelier, VT 05604
Investment Advisor Counsel
Sentinel Advisors Company Brown & Wood LLP
National Life Drive One World Trade Center
Montpelier, VT 05604 New York, NY 10048
Principal Independent
Underwriter Accountants
Sentinel Financial Pricewaterhouse-
Services Company Coopers LLP
National Life Drive 1177 Avenue of the Americas
Montpelier, VT 05604 New York, NY 10036
Transfer Agent, Custodian
Shareholder Servicing and Dividend
and Administrator Agent Paying Agent
Sentinel Administrative State Street Bank & Trust - Kansas City*
Service Company Company
National Life Drive* 801 Pennsylvania Avenue
Montpelier, VT 05604 Kansas City, MO 64105
800-282-FUND (3863)
*All mail and correspondence
should be sent to:
Sentinel Administrative Service Company
P. O. Box 1499
Montpelier, VT 05601-1499
Investment Company Act files #811- 214, and #811- 4781.
Financial Highlights table for 3/31/2000 prospectus
For information and assistance call your Financial Advisor or Investor Services
at 1-800-282-FUND (3863)
Visit us online at www.sentinelfunds.com
<PAGE>
Financial Highlights
The financial highlights table is intended to help you understand each Fund's
financial performance for the past five years, or for the period of the Fund's
operations, in the case of the Growth Index, High Yield, Short Maturity
Government, and New York Funds. Certain information reflects financial results
for a single Fund share. The total returns in the table represent the rate
that an investor would have earned on an investment in each Fund, assuming
reinvestment of all dividends and distributions. No information is included
for the Flex Cap Opportunity Fund, since it did not begin operations until
February 29, 2000.
This information has been audited by PricewaterhouseCoopers LLP, whose report,
along with the financial statements of the Funds, are included in the Funds'
Annual Report to Shareholders, which is available upon request.
<TABLE>
<CAPTION>
Income From Investment Operations Less Distributions
--------------------------------- ------------------
Net gains or
Losses on
Fiscal Net asset Net Securities Dividends
year value, investment both Realized Total From from net Distributions
(period) beginning income and Investment investment from capital Total
Fund ended of period (loss) Unrealized Operations income gains Distributions
- ---- -------- --------- ---------- ------------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Small 11/30/95 5.53 0.02 0.56 0.58 -.- 0.91 0.91
Company 11/30/96 5.20 0.01 0.95 0.96 0.03 0.96 0.99
A 11/30/97 5.17 0.02 1.16 1.18 0.01 0.04 0.05
11/30/98 6.30 -.- 0.14 0.14 0.02 0.75 0.77
11/30/99 5.67 (0.01) 0.69 0.68 - - 0.61 0.61
Mid Cap 11/30/95 16.15 0.07 3.33 3.40 0.05 2.57 2.62
Growth 11/30/96 16.93 0.03 3.23 3.26 0.07 2.55 2.62
A 11/30/97 17.57 (0.02) 4.00 3.98 0.02 2.80 2.82
11/30/98 18.73 (0.03) 1.08 1.05 -.- 5.13 5.13
11/30/99 14.65 (0.06) 4.29 4.23 - - 1.08 1.08
World 11/30/95 12.74 0.14 1.14 1.28 0.09 0.15 0.24
A 11/30/96 13.78 0.12 1.99 2.11 0.13 0.07 0.20
11/30/97 15.69 0.11 1.80 1.91 0.11 0.24 0.35
11/30/98 17.25 0.18 1.52 1.70 0.12 0.64 0.76
11/30/99 18.19 0.28 2.98 3.26 0.17 - - 0.17
Growth Index A 11/30/99(G) $20.00 $0.02 $1.28 $1.30 -- -- --
Common 11/30/95 28.25 0.72 8.09 8.81 0.74 1.11 1.85
Stock 11/30/96 35.21 0.59 8.18 8.77 0.61 2.77 3.38
A 11/30/97 40.60 0.57 7.03 7.60 0.57 3.54 4.11
11/30/98 44.09 0.42 5.19 5.61 0.45 4.69 5.14
11/30/99 44.56 0.37 2.17 2.54 0.38 3.81 4.19
(table continued)
Ratios/Supplemental Data
------------------------
Ratio of Ratio of
Expenses to Ratio Net Investment
Net asset Net assets Ratio of Average net of Net Income to Avg.
value, Total at end of Expenses to Assets before Income to net assets before Portfolio
end of return* period average net Expense Avg. net voluntary expense - turnover
Fund period (%) (000 omitted) assets (%) Reduction**(%) assets (%) reimbursements Rate (%)
- ---- --------- ------- ------------- ----------- -------------- ---------- ------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Small 5.20 12.2 $ 89,321 1.56 1.60 0.26 -.- 79
Company 5.17 22.0 99,393 1.47 1.51 0.23 -.- 60
A 6.30 23.0 115,532 1.34 1.36 0.38 -.- 45
5.67 2.7 109,598 1.31 1.33 (0.07) -.- 45
5.74 13.3 107.919 1.30 1.31 (0.14) - - 43
Mid Cap 16.93 24.9 $ 60,446 1.50 1.54 0.42 -.- 84
Growth 17.57 22.6 69,816 1.40 1.43 0.16 -.- 98
A 18.73 27.3 88,184 1.29 1.32 (0.15) -.- 161
14.65 8.3 97,895 1.26 1.29 (0.23) -.- 97
17.80 30.5 140,633 1.20 1.22 (0.41) - - 118
World 13.78 10.2 $ 47,702 1.56 1.63 0.79 -.- 32
A 15.69 15.5 71,458 1.43 1.48 0.94 -.- 14
17.25 12.5 89,740 1.29 1.32 1.14 -.- 21
18.19 10.3 100,790 1.24 1.26 1.18 -.- 12
21.28 18.1 107,413 1.24 1.25 1.86 - - 35
Growth Index A $21.30 6.5# $ 28,530 0.63+ 1.11+ 0.46+ (0.01)+ 2.5#
Common 35.21 32.8 $1,057,944 1.09 1.10 2.29 -.- 22
Stock 40.60 27.2 1,306,592 1.06 1.07 1.64 -.- 22
A 44.09 20.9 1,509,999 1.04 1.05 1.41 -.- 24
44.56 14.3 1,610,630 1.01 1.02 0.98 -.- 28
42.91 6.0 1,538,671 1.00 1.00 0.85 - - 37
</TABLE>
For information and assistance call your Financial Advisor or Investor Services
at 1-800-282-FUND (3863)
Visit us online at www.sentinelfunds.com
<PAGE>
<TABLE>
<CAPTION>
Net gains or
Losses on
Fiscal Net asset Net Securities Dividends
year value, investment both Realized Total From from net Distributions
(period) beginning income and Investment investment from capital Total
Fund ended of period (loss) Unrealized Operations income gains Distributions
- ---- -------- --------- ---------- ------------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balanced 11/30/95 14.08 0.58 2.78 3.36 0.59 0.01 0.60
A 11/30/96 16.84 0.54 2.13 2.67 0.54 0.42 0.96
11/30/97 18.55 0.56 2.18 2.74 0.55 0.45 1.00
11/30/98 20.29 0.54 1.76 2.30 0.55 1.16 1.71
11/30/99 20.88 0.55 (0.03) 0.52 0.54 1.48 2.02
High Yield 5 Mo. To
A 11/30/97(C) $10.00 $0.32 $ 0.41 $ 0.73 $ 0.32 $ -.- $ 0.32
11/30/98 10.41 0.87 (0.58) 0.29 0.86 0.09 0.95
11/30/99 9.75 0.84 (0.56) 0.28 0.84 - - 0.84
$ 0.35
Bond 11/30/95 5.85 0.42 0.64 1.06 0.42 -.- 0.42
A 11/30/96 6.49 0.41 (0.14) 0.27 0.41 -.- 0.41
11/30/97 6.35 0.40 0.01 0.41 0.40 -.- 0.40
11/30/98 6.36 0.40 0.09 0.49 0.40 -.- 0.40
11/30/99 6.45 0.39 (0.51) (0.12) 0.39 - - 0.39
Tax-Free 11/30/95 12.35 0.67 1.27 1.94 0.67 -.- 0.67
A 11/30/96 13.62 0.65 (0.09) 0.56 0.65 -.- 0.65
11/30/97 13.53 0.65 0.24 0.89 0.65 0.13 0.78
11/30/98 13.64 0.65 0.33 0.98 0.65 0.19 0.84
11/30/99 13.78 0.64 (1.01) (0.37) 0.64 0.17 0.81
New York 8 Mo. to
Tax-Free 11/30/95(A) $11.19 $0.36 $ 0.53 $ 0.89 $ 0.36 $ -.- $ 0.36
A 11/30/96 11.72 0.53 -.- 0.53 0.53 -.- 0.53
11/30/97 11.72 0.60 0.25 0.85 0.60 0.09 0.69
11/30/98 11.88 0.62 0.34 0.96 0.62 0.03 0.65
11/30/99 12.19 0.60 (0.99) (0.39) 0.60 - - 0.60
Pennsylvania 11/30/95 12.29 0.66 1.11 1.77 0.66 -.- 0.66
Tax-Free 11/30/96 13.40 0.66 (0.03) 0.63 0.66 0.08 0.74
A 11/30/97 13.29 0.64 0.13 0.77 0.64 0.08 0.72
11/30/98 13.34 0.63 0.26 0.89 0.63 0.12 0.75
11/30/99 13.48 0.62 (1.04) (0.42) 0.62 0.29 0.91
(table contineud)
Ratio of Ratio of
Expenses to Ratio Net Investment
Net asset Net assets Ratio of Average net of Net Income to Avg.
value, Total at end of Expenses to Assets before Income to net assets before Portfolio
end of return* period average net Expense Avg. net voluntary expense - turnover
Fund period (%) (000 omitted) assets (%) Reduction**(%) assets (%) reimbursements Rate (%)
- ---- --------- ------- ------------- ----------- -------------- ---------- ------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balanced 16.84 24.4 $ 267,103 1.27 1.29 3.77 -.- 110
A 18.55 16.6 297,288 1.20 1.22 3.13 -.- 83
20.29 15.4 314,948 1.16 1.17 2.93 -.- 63
20.88 12.2 330,067 1.12 1.13 2.69 -.- 81
19.38 2.6 297,027 1.10 1.12 2.73 - - 110
High Yield
A $10.41 7.3# $ 11,084 1.20+ 1.26+ 7.80+ -.- 133
9.75 2.7 31,120 1.26 1.28 8.42 -.- 139
9.19 3.0 28,253 1.21 1.22 8.83 - - 144
Bond 6.49 18.8 $ 108,755 0.99 1.03 6.81 6.81 237
A 6.35 4.5 99,408 0.98 1.00 6.46 6.46 176
6.36 6.7 88,756 0.97 0.99 6.37 6.37 130
6.45 8.0 91,297 0.77 0.95 6.26 6.11 147
5.94 (1.9) 82,017 0.73 0.94 6.29 6.10 207
Tax-Free 13.62 16.0 $ 110,506 0.90 0.99 5.06 5.00 112
A 13.53 4.3 99,967 0.94 0.97 4.86 4.86 112
13.64 6.9 87,935 0.91 0.95 4.84 4.84 47
13.78 7.4 88,683 0.74 0.92 4.77 4.59 37
12.60 (2.8) 85,975 0.73 0.91 4.84 4.66 34
New York
Tax-Free $11.72 8.1# $ 5,332 1.22+ 1.29+ 4.60+ 4.60+ 32
A 11.72 4.8 5,749 1.04 1.10 4.65 4.65 48
11.88 7.7 7,704 0.30 1.09 5.31 4.57 21
12.19 8.3 11,978 -.- 1.01 5.17 4.19 6
11.20 (3.3) 16,175 - - 0.96 5.13 4.20 31
Pennsylvania 13.40 14.8 $ 34,975 0.97 1.36 5.14 4.78 80
Tax-Free 13.29 5.0 35,545 0.75 1.37 5.07 4.48 56
A 13.34 6.1 34,844 0.85 1.34 4.86 4.41 28
13.48 6.9 34,720 0.77 1.31 4.65 4.14 50
12.15 (3.3) 30,630 0.69 1.32 4.82 4.21 21
</TABLE>
For information and assistance call your Financial Advisor or Investor Services
at 1-800-282-FUND (3863)
Visit us online at www.sentinelfunds.com
<PAGE>
<TABLE>
<CAPTION>
Net gains or
Losses on
Fiscal Net asset Net Securities Dividends
year value, investment both Realized Total From from net Distributions
(period) beginning income and Investment investment from capital Total
Fund ended of period (loss) Unrealized Operations income gains Distributions
- ---- -------- --------- ---------- ------------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Government 11/30/95 9.31 0.63 0.99 1.62 0.63 -.- 0.63
Securities 11/30/96 10.30 0.61 (0.30) 0.31 0.61 -.- 0.61
A 11/30/97 10.00 0.59 0.09 0.68 0.59 -.- 0.59
11/30/98 10.09 0.61 0.37 0.98 0.61 -.- 0.61
11/30/99 10.46 0.64 (0.90) (0.26) 0.64 - - 0.64
Short Maturity 8 Mo. to
Gov't. 11/30/95(A) $ 9.64 $0.40 $ 0.20 $ 0.60 $ 0.40 $ -.- $0.40
A 11/30/96 9.84 0.57 (0.03) 0.54 0.57 -.- 0.57
11/30/97 9.81 0.56 0.01 0.57 0.56 -.- 0.56
11/30/98 9.82 0.57 0.06 0.63 0.57 -.- 0.57
11/30/99 9.98 0.60 (0.30) 0.30 0.60 - - 0.60
Money 11/30/95 1.00 0.05 -.- 0.05 0.05 -.- 0.05
Market 11/30/96 1.00 0.04 -.- 0.04 0.04 -.- 0.04
A 11/30/97 1.00 0.04 -.- 0.04 0.04 -.- 0.04
11/30/98 1.00 0.04 -.- 0.04 0.04 -.- 0.04
11/30/99 1.00 0.04 -- 0.04 0.04 - - 0.04
Small 8 Mo. To
Company 11/30/96(B) $ 4.82 $(0.03) $ 0.33 $ 0.30 $ -.- $ -.- $ -.-
B 11/30/97 5.12 (0.03) 1.13 1.10 -.- 0.04 0.04
11/30/98 6.18 (0.03) 0.11 0.08 -.- 0.75 0.75
11/30/99 5.51 (0.06) 0.67 0.61 - - 0.61 0.61
Mid Cap 11 Mo. to
Growth 11/30/98(E) $13.08 $(0.17) $ 1.61 $ 1.44 $ -.- $ -.- $ -.-
B 11/30/99 14.52 (0.23) 4.22 3.99 - - 1.08 1.08
World 8 Mo. To
B 11/30/96(B) $14.49 $(0.08) $ 1.17 $ 1.09 $ -.- $ -.- $ -.-
11/30/97 15.58 0.01 1.74 1.75 0.04 0.24 0.28
11/30/98 17.05 0.04 1.47 1.51 -.- 0.64 0.64
11/30/99 17.92 0.10 2.95 3.05 0.02 - - 0.02
Growth Index B 11/30/99(G) $20. $(0.01) $1.29 $1.28 - - - - - -
Common 8 Mo. To
Stock 11/30/96(B) $35.43 $ 0.22 $ 5.05 $ 5.27 $ 0.13 $ -.- $ 0.13
B 11/30/97 40.57 0.27 6.99 7.26 0.26 3.54 3.80
11/30/98 44.03 0.07 5.19 5.26 0.13 4.69 4.82
11/30/99 44.47 0.03 2.18 2.21 0.05 3.81 3.86
(table contineud)
Ratio of Ratio of
Expenses to Ratio Net Investment
Net asset Net assets Ratio of Average net of Net Income to Avg.
value, Total at end of Expenses to Assets before Income to net assets before Portfolio
end of return* period average net Expense Avg. net voluntary expense - turnover
Fund period (%) (000 omitted) assets (%) Reduction**(%) assets (%) reimbursements Rate (%)
- ---- --------- ------- ------------- ----------- -------------- ---------- ------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Government 10.30 17.9 $ 108,100 1.03 1.04 6.50 6.50 367
Securities 10.00 3.2 92,299 1.00 1.01 6.18 6.18 614
A 10.09 7.2 75,810 0.98 0.99 6.15 6.15 249
10.46 10.0 76,498 0.91 0.99 6.02 5.94 355
9.56 (2.5) 65,136 0.84 0.98 6.46 6.34 330
Short Maturity
Gov't. $ 9.84 6.3# $ 28,417 1.00+ 1.38+ 6.07+ 5.76 58
A 9.81 5.6 36,474 1.00 1.20 6.09 5.93 120
9.82 6.0 45,044 1.00 1.18 6.20 6.14 61
9.88 6.6 68,346 0.82 1.12 6.04 5.76 229
9.58 3.2 67,647 0.76 1.11 6.28 5.94 203
Money 1.00 5.0 $ 80,664 0.81 0.82 4.83 -.- - -.
Market 1.00 4.6 80,804 0.78 0.78 4.38 -.- - -.
A 1.00 4.6 85,911 0.76 0.77 4.46 -.- - -.
1.00 4.6 98,115 0.72 0.73 4.47 -.- - -.
1.00 4.1 121,884 0.69 0.70 4.01 - - - -
Small
Company $ 5.12 6.2# $ 1,943 2.62+ 2.64+ (0.91)+ -.- 60
B 6.18 21.6 7,656 2.35 2.36 (0.62) -.- 45
5.51 1.7 12,103 2.24 2.25 (1.00) -.- 45
5.51 12.3 14,285 2.27 2.28 (1.11) - - 43
Mid Cap
Growth $14.52 11.0# $ 3,841 2.27+ 2.29+ (1.24)+ -.- 97
B 17.43 29.0 14,891 2.27 2.29 (1.53) - - 118
World
B $15.58 7.5# $ 3,188 2.56+ 2.59+ (0.19)+ -.- 14
17.05 11.5 10,121 2.16 2.18 0.23 -.- 21
17.92 9.2 18,163 2.23 2.25 0.19 -.- 12
20.95 17.1 23,536 2.15 2.16 0.98 - - 35
Growth Index B $21.28 6.4# $8,452 1.17+ 1.66+ (0.14)+ (0.62)+ 2.5#
Common
Stock $40.57 14.9# $ 27,257 1.91+ 1.92+ 0.80+ -.- 22
B 44.03 19.9 77,299 1.79 1.80 0.66 -.- 24
44.47 13.4 129,966 1.81 1.81 0.19 -.- 28
42.82 5.1 149,586 1.80 1.81 0.05 - - 37
</TABLE>
For information and assistance call your Financial Advisor or Investor Services
at 1-800-282-FUND (3863)
Visit us online at www.sentinelfunds.com
<PAGE>
<TABLE>
<CAPTION>
Net gains or
Losses on
Fiscal Net asset Net Securities Dividends
year value, investment both Realized Total From from net Distributions
(period) beginning income and Investment investment from capital Total
Fund ended of period (loss) Unrealized Operations income gains Distributions
- ---- -------- --------- ---------- ------------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balanced 8 Mo. To
B 11/30/96(B) $17.09 $ 0.26 $ 1.37 $ 1.63 $ 0.14 $ -.- $ 0.14
11/30/97 18.58 0.42 2.18 2.60 0.41 0.45 0.86
11/30/98 20.32 0.38 1.77 2.15 0.40 1.16 1.56
11/30/99 20.91 0.39 (0.02) 0.37 0.39 1.48 1.87
High Yield 5 Mo. To
B 11/30/97(C) $10.00 $ 0.32 $ 0.39 $ 0.71 $ 0.31 $ -.- $ 0.31
11/30/98 10.40 0.84 (0.57) 0.27 0.84 0.09 0.93
11/30/99 9.74 0.79 (0.56) 0.23 0.79 - - 0.79
Bond 8 Mo. To
B 11/30/96(B) $ 6.30 $ 0.21 $ 0.06 $ 0.27 $ 0.21 $ -.- $ 0.21
11/30/97 6.36 0.34 0.02 0.36 0.34 -.- 0.34
11/30/98 6.38 0.34 0.08 0.42 0.34 -.- 0.34
11/30/99 6.46 0.33 (0.50) (0.17) 0.33 - - 0.33
Money 8 Mo. To
Market 11/30/96(B) $ 1.00 $ 0.03 $ -.- $ 0.03 $ 0.03 $ -.- $ 0.03
B 11/30/97 1.00 0.05 -.- 0.05 0.05 -.- 0.05
11/30/98 1.00 0.04 -.- 0.04 0.04 -.- 0.04
11/30/99 1.00 0.04 - - 0.04 0.04 - - 0.04
World 7 mo. to
C 11/30/98(D) $19.57 $(0.02) $(1.50) $ (1.52) $ -.- $ -.- $ -.-
11/30/99 18.05 0.09 2.94 3.03 - - - - - -
Common Stock 7 mo. to
C 11/30/98(D) $45.23 $ 0.06 $(0.71) $ (0.65) $ 0.03 $ -.- $ 0.03
11/30/99 44.55 (0.03) 2.20 2.17 0.01 3.81 3.82
Balanced 7 mo. to
C 11/30/98(D) $20.87 $ 0.20 $( 0.01) $ 0.19 $ 0.16 $ -.- $ 0.16
11/30/99 20.90 0.32 (0.03) 0.29 0.32 1.48 1.80
(table contineud)
Ratio of Ratio of
Expenses to Ratio Net Investment
Net asset Net assets Ratio of Average net of Net Income to Avg.
value, Total at end of Expenses to Assets before Income to net assets before Portfolio
end of return* period average net Expense Avg. net voluntary expense - turnover
Fund period (%) (000 omitted) assets (%) Reduction**(%) assets (%) reimbursements Rate (%)
- ---- --------- ------- ------------- ----------- -------------- ---------- ------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balanced $ 18.58 9.6# $ 10,948 2.12+ 2.13+ 2.21+ -.- 83
B 20.32 14.6 26,593 1.88 1.89 2.21 -.- 63
20.91 11.3 46,946 1.89 1.90 1.91 -.- 81
19.41 1.8 52,086 1.86 1.87 2.00 - - 110
High Yield $ 10.40 7.2# $ 33,808 1.30+ 1.34+ 7.70+ -.- 133
B 9.74 2.4 55,911 1.49 1.52 8.19 -.- 139
9.18 2.5 59,518 1.65 1.66 8.40 - - 144
Bond $ 6.36 4.5# $ 4,714 2.16+ 2.18+ 5.28+ 5.28+ 176
B 6.38 5.9 8,115 1.87 1.90 5.46 5.46 130
6.46 6.8 16,601 1.64 1.84 5.40 5.22 147
5.96 (2.6) 20,703 1.63 1.81 5.41 5.25 207
Money $ 1.00 3.0# $ 3,160 0.76+ 0.77+ 4.40+ -.- - -.
Market 1.00 4.7 3,434 0.73 0.73 4.50 -.- - -.
B 1.00 4.5 4,422 0.77 0.78 4.42 -.- - -.
1.00 3.8 5,378 0.92 0.93 3.79 - - - -
World $ 18.05 (7.8)# $ 1,013 2.20+ 2.21+ 0.23+ -.- 12
C 21.08 16.8 1,820 2.28 2.29 0.85 - - 35
Common Stock $ 44.55 (1.4)# $ 5,358 1.92+ 1.92+ 0.08+ -.- 28
C 42.90 5.0 7323 1.90 1.90 (0.04) - - 37
Balanced $ 20.90 0.9# $ 1,523 2.17+ 2.18+ 1.63+ -.- 81
C 19.39 1.4 3,350 2.24 2.25 1.65 - - 110
</TABLE>
For information and assistance call your Financial Advisor or Investor Services
at 1-800-282-FUND (3863)
Visit us online at www.sentinelfunds.com
<PAGE>
<TABLE>
<CAPTION>
Net gains or
Losses on
Fiscal Net asset Net Securities Dividends
year value, investment both Realized Total From from net Distributions
(period) beginning income and Investment investment from capital Total
Fund ended of period (loss) Unrealized Operations income gains Distributions
- ---- -------- --------- ---------- ------------- ---------- ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield 7 mo. to
C 11/30/98(D) $10.70 $ 0.41 $(0.91) $ (0.50) $ 0.45 $ -.- $ 0.45
11/30/99 9.75 0.72 (0.56) 0.16 0.72 -- 0.72
Balanced 11 mo. to
D 11/30/99 (F) $19.68 $0.33 $(0.38) $ (0.05) $ 0.31 $ - - $ 0.31
(table contineud)
Ratio of Ratio of
Expenses to Ratio Net Investment
Net asset Net assets Ratio of Average net of Net Income to Avg.
value, Total at end of Expenses to Assets before Income to net assets before Portfolio
end of return* period average net Expense Avg. net voluntary expense - turnover
Fund period (%) (000 omitted) assets (%) Reduction**(%) assets (%) reimbursements Rate (%)
- ---- --------- ------- ------------- ----------- -------------- ---------- ------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High Yield $ 9.75 (4.7)# $ 1,956 2.05+ 2.06+ 7.63+ -.- 139
C 9.19 1.7 4,001 2.41 2.42 7.69 - - 144
Balanced $ 19.32 (0.2)# $ 1,138 2.07+ 2.08+ 1.93+ - - 110
D
</TABLE>
(A) Commenced operations March 27, 1995.
(B) Commenced operations April 1, 1996.
(C) Commenced operations June 23, 1997.
(D) Commenced operations May 4, 1998.
(E) Commenced operations January 12, 1998.
(F) Commenced operations January 4, 1999
(G) Commended operations September 13, 1999
+ 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, the earnings credits that are
received from the custodian and dividend paying agent on
cash balances.
For information and assistance call your Financial Advisor or Investor Services
at 1-800-282-FUND (3863)
Visit us online at www.sentinelfunds.com
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
March 30, 2000
THE SENTINEL FUNDS
National Life Drive
Montpelier, Vermont 05604
(800) 282-FUND (3863)
Sentinel Common Stock Fund (the "Common Stock Fund")
Sentinel Balanced Fund (the "Balanced Fund")
Sentinel Mid Cap Growth Fund (the "Mid Cap Growth Fund")
Sentinel Small Company Fund (the "Small Company Fund")
Sentinel Growth Index Fund (the "Growth Index Fund")
Sentinel Flex Cap Opportunity Fund (the "Flex Cap Opportunity Fund")
Sentinel World Fund (the "World Fund")
Sentinel High Yield Bond Fund (the "High Yield Fund")
Sentinel Bond Fund (the "Bond Fund")
Sentinel Government Securities Fund (the "Government Securities Fund")
Sentinel Short Maturity Government Fund (the "Short Maturity Government Fund")
Sentinel U.S. Treasury Money Market Fund (the "Money Market Fund")
Sentinel Tax-Free Income Fund (the "Tax-Free Income Fund")
Sentinel New York Tax-Free Income Fund (the "New York Fund")
Sentinel Pennsylvania Tax-Free Trust (the "Pennsylvania Fund")
Each of SENTINEL GROUP FUNDS, INC. (the "Company") and the Pennsylvania Fund
is a managed, open-end investment company, which continuously offers its
shares to investors. The Company consists of fourteen separate and distinct
funds, twelve of which are diversified (the Growth Index and New York Funds
being non-diversified), and the Pennsylvania Fund is a separate,
non-diversified fund. The fourteen funds of the Company and the Pennsylvania
Fund are referred to hereinafter collectively as the "Funds", and individually
as a "Fund". The Funds are described in a Prospectus of the Funds dated March
30, 2000 (the "Prospectus"). Each of the Funds has different investment
objectives and risk characteristics.
Sentinel Advisors Company (the "Advisor") acts as the investment advisor to
the Funds. Shares of the Funds are distributed by Sentinel Financial Services
Company ("SFSC"). Both the Advisor and SFSC are partnerships whose partners
are affiliates of National Life Insurance Company ("National Life"), Provident
Life Insurance Company ("Provident") and The Penn Mutual Life Insurance
Company ("Penn Mutual").
This Statement of Additional Information is not a Prospectus and should be
read in conjunction with the Prospectus. The Prospectus, which has been filed
with the Securities and Exchange Commission (the "SEC"), can be obtained upon
request and without charge by writing to the Funds at the above address, or by
calling 1-800-282-FUND(3863). The Financial Statements of the Funds that are
included in the Annual Report of the Funds dated November 30, 1999 have been
incorporated by reference into this Statement of Additional Information. This
Annual Report can be obtained in the same way as the Prospectus of the Funds.
This Statement of Additional Information has been incorporated by reference
into the Prospectus.
<PAGE>
TABLE OF CONTENTS
Page
The Funds................................................................. 4
Investment Objectives and Policies........................................ 5
Investment Restrictions...................................................17
Management of the Funds...................................................19
Principal Shareholders....................................................24
The Investment Advisor....................................................24
Principal Underwriter.....................................................28
The Distribution Plans....................................................28
The Fund Services Agreements..............................................30
Portfolio Transactions and Brokerage Commissions..........................31
Portfolio Turnover........................................................34
Capitalization............................................................34
How To Purchase Shares and Reduce Sales Charges...........................35
Issuance of Shares at Net Asset Value.....................................35
Determination of Net Asset Value..........................................35
Computation of Maximum Offering and Redemption Prices.....................37
Taxes.....................................................................38
Shareholder Services......................................................43
Total Return, Yield and Tax-Equivalent Yield Information..................44
General Information.......................................................47
Financial Statements......................................................48
Appendix A - Description of Bond Ratings..................................49
Appendix B - Economic and Other Conditions in New York....................53
Appendix C - Economic and Financial Conditions in Pennsylvania............70
<PAGE>
THE FUNDS
Originally incorporated in the State of Delaware on December 5, 1933 as
Group Securities, Inc., the Company became a Maryland corporation on February
28, 1973. On November 30, 1973, the Company's name was changed to USLIFE
Funds, Inc. On September 30, 1976, the Company's name was changed to Sentinel
Group Funds, Inc.
On March 31, 1978, Sentinel Bond Fund, Inc. (formerly Sentinel Income
Fund, Inc.) and Sentinel Mid Cap Growth Fund, Inc., both managed, open-end,
diversified investment companies incorporated in Maryland on October 24, 1968,
were merged into the Company as separate classes of stock. On March 27, 1986,
the Board of Directors created, as a new class of stock of the Company, the
Government Securities Fund. The Board of Directors created the Tax-Free Income
Fund as a new class of the Company's stock on June 14, 1990.
The Pennsylvania Fund is a trust formed under the laws of Pennsylvania in
1986. The Fund became a member of the Sentinel Family of Funds on March 1,
1993. On that date the Advisor and SFSC became the investment advisor and
distributor, respectively, to the Fund. Immediately prior to March 1, 1993,
the investment advisor to the Fund was ProvidentMutual Management Co., Inc.
("PMMC"), and its distributor was ProvidentMutual Financial Services, Inc.,
both of which are affiliates of Provident.
On March 1, 1993, the Company completed the acquisition of substantially
all of the assets of eight ProvidentMutual Funds, and Sentinel Cash Management
Fund, Inc., ("SCMF") in exchange solely for common stock of the corresponding
Funds of the Company that acquired such assets. In order to facilitate the
acquisitions, on August 13, 1992 the Board of Directors authorized the
creation of three new classes of stock of the Company, namely, the Small
Company, World and Money Market Funds. From March 1, 1993 to March 29, 1994,
the Small Company Fund's name was Sentinel Aggressive Growth Fund, and from
March 29, 1994 to March 31, 1997, the Small Company Fund's name was Sentinel
Emerging Growth Fund. Also on March 1, 1993, the Investment Advisory Agreement
between the Company and Sentinel Advisors, Inc., ("Sentinel Advisors"), an
indirect wholly-owned subsidiary of National Life, and the Distribution
Agreement between the Company and Equity Services, Inc. ("ESI"), also an
indirect wholly-owned subsidiary of National Life, terminated, and were
replaced by the arrangements described in the Prospectus under "Management of
the Funds" and "Purchase Options".
On March 27, 1995, the Company completed the acquisition of substantially
all of the assets of seven funds of The Independence Capital Group of Funds,
Inc., in exchange solely for common stock of the corresponding Funds of the
Company that acquired such assets. In order to facilitate the acquisitions, on
December 15, 1994, the Board of Directors authorized the creation of two new
classes of stock of the Company, namely, the New York and Short Maturity
Government Funds. From March 27, 1995 to February 3, 1997, the Short Maturity
Government Fund's name was Sentinel Short-Intermediate Government Fund.
On March 14, 1997, the Board of Directors of the Company authorized the
creation of the High Yield Fund as a new series of the Company. On June 10,
1999, the Board of Directors of the Company authorized the creation of the
Growth Index Fund as a new series of the Company. On December 9, 1999, the
Board of Directors of the Company authorized the creation of the Flex Cap
Opportunity Fund as a new series of the Company.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and certain fundamental policies of each of the
Funds are set forth in the Prospectus.
General Considerations and Risks
Each Fund is an open-end, management investment company. All Funds are
diversified investment companies except the Growth Index, New York and
Pennsylvania Funds, which are non-diversified investment companies.
Each Fund's fundamental policies and investment objectives as they affect
each such Fund cannot be changed without the approval of the lesser of (i) 67
percent or more of the voting securities of each such Fund present at a
meeting if the holders of more than 50 percent of the outstanding voting
securities of each such Fund are present or represented by proxy, or (ii) more
than 50 percent of the outstanding voting securities of each such Fund. With
respect to the submission of a change in fundamental policy or investment
objective of each such Fund, such matter shall be deemed to have been
effectively acted upon with respect to any such Fund if a majority of the
outstanding voting securities of such Fund vote for the approval of such
matters, notwithstanding (1) that such matter has not been approved by a
majority of the outstanding voting securities of any other Fund affected by
such matter and (2) that such matter has not been approved by a majority of
the outstanding voting securities of the Company. Fundamental policies adopted
with respect to each Fund, except the Pennsylvania Fund and the New York Fund,
provide that no Fund shall concentrate its investments in a particular
industry or, except for the Flex Cap Opportunity Fund, group of industries,
nor will it purchase a security if, as a result of such purchase, more than
25% of its assets will be invested in a particular industry.
Repurchase Agreements. Each of the Funds to a limited extent may enter
into repurchase agreements with selected banks and broker-dealers under which
the Fund purchases securities issued or guaranteed by the U.S. Government or
its agencies or instrumentalities ("U.S. Government Securities") and agrees to
resell the securities at an agreed upon time and at an agreed upon price. The
difference between the amount a Fund pays for securities and the amount it
receives upon resale is interest income to a Fund. Failure of the seller to
repurchase the securities as agreed may result in a loss to a Fund if the
market value of the securities has fallen to less than the repurchase price.
In the event of such a default, a Fund may also experience certain costs and
be delayed or prevented from recovering or liquidating the collateral
securities, which could result in further loss to a Fund. The Funds (except
for the Flex Cap Opportunity Fund, whose investments in repurchase agreements
are discussed separately below) will use repurchase agreements as a means of
making short-term investments of seven days or less and in aggregate amounts
of not more than 25% of the net assets of the Fund. All repurchase agreements
used by the Funds, except for the Flex Cap Opportunity Fund, will provide that
the value of the collateral underlying the repurchase agreement always will be
at least equal to 102% of the repurchase price. The Advisor will monitor on a
continuing basis the creditworthiness of all parties with which it might enter
into repurchase agreements and will enter into repurchase agreements only if
it determines that the credit risk of such a transaction is minimal.
Illiquid and Restricted Securities. As stated in the Prospectus, the High
Yield Fund may invest in Rule 144A Securities and corporate loans; however,
the High Yield Fund's investment in illiquid securities is limited to 15% of
its net assets. The Bond Fund may not invest in illiquid securities, but may
invest Rule 144A Securities to the extent deemed to be liquid under the
policies and procedures discussed below. The Flex Cap Opportunity Fund may
also invest up to 15% of its net assets in illiquid securities, which include
restricted securities, securities for which there is readily available market,
and repurchase agreements with maturities of greater than 7 days. In
promulgating Rule 144A under the Securities Act of 1933 (the "Securities
Act"), the Securities and Exchange Commission ("SEC") stated that although the
ultimate responsibility for liquidity determinations rests with a fund's board
of directors, the board may delegate the day-to-day function of determining
liquidity to the investment advisor or subadvisor provided the board retains
sufficient oversight. The Board of Directors of the Company will consider the
adoption of policies and procedures for the Bond Fund, the High Yield Fund and
the Flex Cap Opportunity Fund for the purpose of determining whether Rule 144A
Securities and, in the case of the High Yield Fund only, corporate loans, in
which such Fund proposes to invest are liquid or illiquid and will consider
guidelines under these policies and procedures pursuant to which the Advisor
or applicable subadvisor will make these determinations on an ongoing basis.
In making these determinations, consideration will be given to, among other
things, the frequency of trades and quotes for the investment, the number of
dealers willing to sell the investment and the number of potential purchasers,
dealer undertakings to make a market in the investment, the nature of the
investment, the time needed to dispose of the investment, the method of
soliciting offers, and the mechanics of transfer. The Board of Directors will
review periodically purchases and sales of Rule 144A Securities by the Bond
Fund, the High Yield Fund and the Flex Cap Opportunity Fund, and corporate
loans by the High Yield Fund.
To the extent that liquid Rule 144A Securities or corporate loans or
other securities in which the Funds invest become illiquid, due to the lack of
sufficient qualified institutional buyers or market or other conditions, the
Advisor (or the subadvisor), under the supervision of the Board of Directors,
will consider appropriate measures to enable the Fund to maintain sufficient
liquidity for operating purposes and to meet redemption requests. If
institutional trading in restricted securities were to decline to limited
levels, the liquidity of these Funds could be adversely affected.
If an investment becomes illiquid, the affected Fund's Advisor or
subadvisor will determine the best course of action to permit the Fund to
realize maximum value, which could include, among other possibilities,
continuing to hold or seeking a private sale.
Considerations and Risks Applicable to the Fixed-Income Funds
Each of the Bond Fund and the fixed income portion of the Balanced Fund
may invest up to 20% of its total assets, and each of the New York Fund and
the Tax-Free Income Fund may invest up to 5% of its total assets, in debt
securities which are rated below "investment grade", i.e., lower than "Baa" by
Moody's Investors Service, Inc. ("Moody's") or lower than "BBB" by Standard &
Poor's Ratings Services ("Standard & Poor's") or which, in the Advisor's
judgment, possess similar credit characteristics. See Appendix A -
"Description of Bond Ratings" for additional information regarding ratings of
debt securities. The Advisor considers the ratings assigned by Standard &
Poor's or Moody's as one of several factors in its independent credit analysis
of issuers. Such securities are considered by Standard & Poor's and Moody's to
have varying degrees of speculative characteristics. Consequently, although
securities rated below investment grade can be expected to provide higher
yields, such securities may be subject to greater market price fluctuations
and risk of loss of principal than lower yielding, higher rated debt
securities. Investments in such securities will be made only when in the
judgment of the Advisor, such securities provide attractive total return
potential relative to the risk of such securities, as compared to higher
quality debt securities. The Funds do not intend to purchase debt securities
that are in default or which the Advisor believes will be in default. The
risks of below-investment grade securities are described further in the
Prospectus under "Details About the Funds' Investment Objectives, Principal
Investment Strategies and Related Risks - General Information Relevant to the
Investment Practices of the Funds, and Associated Risks - Information Relevant
to the Fixed Income Funds - Risks of Lower Quality Bonds" on pages .
When Issued Purchases. The High Yield, Bond, New York, Pennsylvania,
Tax-Free Income, Government Securities and Short Maturity Government Funds and
the bond portion of the Balanced Fund may purchase bonds on a when issued or
delayed-delivery basis. Delivery of and payment for these bonds could take
place a month or more after the date of the transaction. During this time, the
value of the purchase commitment will fluctuate with the market for these
bonds. However, when a Fund makes a commitment to purchase the bonds, the
payment and interest terms of these issues are fixed. A Fund will make these
commitments only with the intention of acquiring the bonds, but may sell those
bonds before settlement date if Sentinel Advisors or Evergreen Investment
Management Company ("Evergreen"), the subadvisor to the High Yield Fund,
believes that would benefit shareholders. When a Fund purchases bonds on a
when issued or delayed-delivery basis, it will provide its custodian with
enough cash or short-term investments to pay the purchase price of these bonds
upon delivery. This policy ensures that when issued or delayed-delivery
purchases will not be used as a form of borrowing to make investments.
Considerations and Risks Applicable to the Tax-Exempt Funds
As described in the Prospectus, the Tax-Free Income Fund, the
Pennsylvania Fund and the New York Fund (together, the "Tax-Exempt Funds") may
purchase and sell exchange-traded financial futures contracts ("financial
futures contracts") to hedge their portfolios of municipal bonds against
declines in the value of such securities and to hedge against increases in the
cost of securities they intend to purchase. This is not a principal investment
strategy of the Funds. To hedge their portfolios, the Tax-Exempt Funds may
take an investment position in a financial futures contract which will move in
the opposite direction from the portfolio position being hedged. While the use
of hedging strategies is intended to moderate fluctuations in market value of
portfolio holdings and thereby reduce the volatility of the net asset value of
Fund shares, the Tax-Exempt Funds anticipate that their net asset values will
fluctuate. Set forth below is information concerning financial futures
transactions.
Description of Financial Futures Contracts. A financial futures contract
is an agreement between two parties to buy and sell a security, or in the case
of an index-based financial futures contract, to make and accept a cash
settlement for a set price on a future date. A majority of transactions in
financial futures contracts, however, do not result in the actual delivery of
the underlying instrument or cash settlement, but are settled through
liquidation, i.e., by entering into an offsetting transaction. Financial
futures contracts have been designed by boards of trade which have been
designated "contracts markets" by the Commodity Futures Trading Commission
(the "CFTC").
The purchase or sale of a financial futures contract differs from the
purchase or sale of a security in that no price or premium is paid or
received. Instead, an amount of cash or securities acceptable to the broker
and the relevant contract market, which varies but is generally about 5% of
the contract amount, must be deposited with the broker. This amount is known
as "initial margin" and represents a "good faith" deposit assuring the
performance of both the purchaser and seller under the financial futures
contract. Subsequent payments to and from the broker, called "variation
margin", are required to be made on a daily basis as the price for the futures
contract fluctuates and makes the long and short positions in the futures
contract more or less valuable, a process known as "mark to the market". At
any time prior to the settlement date of the futures contract, the position
may be closed out by taking an opposite position which will operate to
terminate the position in the futures contract. A final determination of
variation margin is then made, additional cash is required to be paid to or
released by the broker and the position generates a loss or a gain. In
addition, a nominal commission is paid on each completed sale transaction.
The Tax-Exempt Funds may deal in financial futures contracts based on a
long-term municipal bond index developed by the Chicago Board of Trade (the
"CBT") and The Bond Buyer (the "Municipal Bond Index"). The Municipal Bond
Index is comprised of 40 tax-exempt municipal revenue bonds and general
obligations bonds. Each bond included in the Municipal Bond Index must be
rated "A" or higher by Moody's or Standard & Poor's and must have a remaining
maturity of 19 years or more. Twice a month new issues satisfying the
eligibility requirements are added to, and an equal number of old issues are
deleted from, the Municipal Bond Index. The value of the Municipal Bond Index
is computed daily according to a formula based on the price of each bond in
the Municipal Bond Index, as evaluated by six dealer-to-dealer brokers.
The Municipal Bond Index financial futures contract is traded only on the
CBT. Like other contract markets, the CBT assures performance under financial
futures contracts through a clearing corporation, a non-profit organization
managed by the exchange membership which is also responsible for handling
daily accounting of deposits or withdrawals of margin.
The Tax-Exempt Funds may purchase and sell financial futures contracts on
U.S. Government Securities as a hedge against adverse changes in interest
rates as described below. With respect to U.S. Government Securities,
currently there are financial futures contracts based on long-term U.S.
Treasury bonds, U.S. Treasury notes, Government National Mortgage Association
("GNMA") Certificates and three-month U.S. Treasury bills. The Tax-Exempt
Funds may purchase and write call and put options on financial futures
contracts on U.S. Government Securities in connection with their hedging
strategies.
The Tax-Exempt Funds also may engage in other financial futures contracts
transactions, such as financial futures contracts on other municipal bond
indices which may become available, if the Advisor should determine that there
is normally a sufficient correlation between the prices of such financial
futures contracts and the municipal bonds in which the Tax-Exempt Funds invest
to make such hedging appropriate.
Futures Strategies. A Tax-Exempt Fund may sell a financial futures
contract (i.e., assume a short position) in anticipation of a decline in the
value of their investments in municipal bonds resulting from an increase in
interest rates or otherwise. The risk of decline could be reduced without
employing futures as a hedge by selling such municipal bonds and either
reinvesting the proceeds in securities with shorter maturities or by holding
assets in cash. This strategy, however, entails increased transaction costs in
the form of dealer spreads and typically would reduce the average yield of the
Funds' portfolio securities as a result of the shortening of maturities. The
sale of financial futures contracts provides an alternative means of hedging
against declines in the value of their investments in municipal bonds. As such
values decline, the value of the Funds' positions in the financial futures
contracts will tend to increase, thus offsetting all or a portion of the
depreciation in the market value of the Funds' municipal bond investments
which are being hedged. While the Tax-Exempt Funds will incur commission
expenses in selling and closing out financial futures contract positions,
commissions on financial futures contract transactions are lower than
transaction costs incurred in the purchase and sale of municipal bonds. In
addition, the ability to trade in the standardized contracts available in the
futures markets may offer a more effective defensive position than a program
to reduce the average maturity of the portfolio securities, due to the unique
and varied credit and technical characteristics of the municipal debt
instruments available to the Funds. Employing futures as a hedge also may
permit the Tax-Exempt Funds to assume a defensive posture without reducing the
yield on their investments beyond any amounts required to engage in futures
trading.
When the Tax-Exempt Funds intend to purchase municipal bonds, they may
purchase financial futures contracts as a hedge against any increase in the
cost of such municipal bonds, resulting from a decrease in interest rates or
otherwise, that may occur before such purchases can be effected. Subject to
the degree of correlation between the municipal bonds and the financial
futures contracts, subsequent increases in the cost of municipal bonds should
be reflected in the value of the futures held by the Tax-Exempt Funds. As such
purchases are made, an equivalent amount of financial futures contracts will
be closed out. Due to changing market conditions and interest rate forecasts,
however, a financial futures contract position may be terminated without a
corresponding purchase of portfolio securities.
Call Options on Financial Futures Contracts. The Tax-Exempt Funds also
may purchase and sell exchange-traded call and put options on financial
futures contracts on U.S. Government Securities. The purchase of a call option
on a financial futures contract is analogous to the purchase of a call option
on an individual security. Depending on the pricing of the option compared to
either the financial futures contract on which it is based, or the price of
the underlying debt securities, it may or may not be less risky than ownership
of the financial futures contract or the underlying debt securities. Like the
purchase of a financial futures contract, a Tax-Exempt Fund will purchase a
call option on a financial futures contract to hedge against a margin advance
when it is not fully invested.
The writing of a call option on a financial futures contract constitutes
a partial hedge against declining prices of the securities which are
deliverable upon exercise of the financial futures contract. If the futures
price at expiration is below the exercise price, the Tax-Exempt Fund will
retain the full amount of the option premium which provides a partial hedge
against any decline that may have occurred in the Fund's portfolio holdings.
Put Options on Financial Futures Contracts. The purchase of a put option
on a financial futures contract is analogous to the purchase of a protective
put option on a portfolio security. The Tax-Exempt Funds may purchase put
options on financial futures contracts to hedge the Funds' portfolios against
the risk of rising interest rates.
The writing of a put option on a financial futures contract constitutes a
partial hedge against increasing prices of the securities which are
deliverable upon exercise of the futures contract. If the futures price at
expiration is higher than the exercise price, the Tax-Exempt Funds will retain
the full amount of the option premium which provides a partial hedge against
any increase in the price of municipal bonds which the Funds intend to
purchase.
The writer of an option on a financial futures contract is required to
deposit initial and variation margin pursuant to requirements similar to those
applicable to financial futures contracts. Premiums received from the writing
of an option will be included in initial margin. The writing of an option on a
financial futures contract involves risks similar to those relating to
financial futures contracts.
Restrictions on Use of Futures Transactions. Regulations of the CFTC
applicable to the Tax-Exempt Funds provide that the Tax-Exempt Funds may
purchase and sell financial futures contracts and options thereon either (a)
for bona fide hedging purposes or (b) for non-hedging purposes, provided that
the aggregate initial margins and premiums required to establish positions in
such contracts and options do not exceed 5% of the liquidation value of a
Tax-Exempt Fund's portfolio assets after taking into account any unrealized
profits and losses on such contracts or options. (However, as stated above,
the Tax-Exempt Funds intend to engage in futures and options transactions for
hedging purposes only.) Margin deposits may consist of cash or securities
acceptable to the broker and the relevant contract market.
When the Tax-Exempt Funds purchase a financial futures contract or a call
option with respect thereto or write a put option on a financial futures
contract, an amount of cash, cash equivalents or short-term, high-grade,
fixed-income securities will be deposited in a segregated account with the
Funds' custodian so that the amount so segregated, plus the amount of initial
and variation margin held in the account of their broker, equals the market
value of the financial futures contract, thereby ensuring that the use of such
futures is unleveraged.
Risk Factors in Futures and Options Transactions. Investment in financial
futures contracts involves the risk of imperfect correlation between movements
in the price of the financial futures contract and the price of the security
being hedged. The hedge will not be fully effective when there is imperfect
correlation between the movements in the prices of two financial instruments.
For example, if the price of the financial futures contract moves more than
the price of the hedged security, the Tax-Exempt Funds will experience either
a loss or gain on the financial futures contract which is not completely
offset by movements in the price of the hedged securities. To compensate for
imperfect correlations, the Tax-Exempt Funds may purchase or sell financial
futures contracts in a greater dollar amount than the hedged securities if the
volatility of the price of the hedged securities is historically greater than
that of the financial futures contracts. Conversely, the Tax-Exempt Funds may
purchase or sell fewer financial futures contracts if the volatility of the
price of the hedged securities is historically less than that of the financial
futures contracts.
The particular municipal bonds comprising the index underlying the
Municipal Bond Index financial futures contract may vary from the bonds held
by the Tax-Exempt Funds. As a result, each Fund's ability to hedge effectively
all or a portion of the value of its municipal bonds through the use of such
financial futures contracts will depend in part on the degree to which price
movements in the index underlying the financial futures contract correlate
with the price movements of the municipal bonds held by that Fund. The
correlation may be affected by disparities in the average maturity, ratings,
geographic mix or structure of such Fund's investments as compared to those
comprising the Municipal Bond Index, and general economic or political
factors. In addition, the correlation between movements in the value of the
Municipal Bond Index may be subject to change over time as additions to and
deletions from the Municipal Bond Index alter its structure. The correlation
between financial futures contracts on U.S. Government Securities and the
municipal bonds held by the Tax-Exempt Funds may be adversely affected by
similar factors and the risk of imperfect correlation between movements in the
prices of such financial futures contracts and the prices of the municipal
bonds held by the Tax-Exempt Funds may be greater.
The Tax-Exempt Funds expect to liquidate a majority of the financial
futures contracts they enter into through offsetting transactions on the
applicable contract market. There can be no assurance, however, that a liquid
secondary market will exist for any particular financial futures contract at
any specific time. Thus, it may not be possible to close out a financial
futures contract position. In the event of adverse price movements, the
Tax-Exempt Funds would continue to be required to make daily cash payments of
variation margin. In such situations, if a Fund has insufficient cash, it may
be required to sell portfolio securities to meet daily variation margin
requirements at a time when it may be disadvantageous to do so. The inability
to close out financial futures contract positions also could have an adverse
impact on a Fund's ability to hedge effectively its investments in municipal
bonds. The Tax-Exempt Funds will enter into a financial futures contract
position only if, in the judgment of the Advisor, there appears to be an
actively traded secondary market for such financial futures contracts.
The liquidity of a secondary market in a financial futures contract may
be adversely affected by "daily price fluctuation limits" established by
commodity exchanges which limit the amount of fluctuation in a futures
contract price during a single trading day. Once the daily limit has been
reached in the contract, no trades may be entered into at a price beyond the
limit, thus preventing the liquidation of open financial futures contract
positions. Prices have in the past reached or exceeded the daily limit on a
number of consecutive trading days.
The successful use of transactions in futures and related options also
depends on the ability of the Advisor to forecast correctly the direction and
extent of interest rate movements within a given time frame. To the extent
interest rates remain stable during the period in which a financial futures
contract or option is held by the Tax-Exempt Funds or such rates move in a
direction opposite to that anticipated, a Fund may realize a loss on the
hedging transaction which is not fully or partially offset by an increase in
the value of portfolio securities. As a result, a Fund's total return for such
period may be less than if it had not engaged in the hedging transaction.
Because of low initial margin deposits made on the opening of a financial
futures contract position, futures transactions involve substantial leverage.
As a result, relatively small movements in the price of the financial futures
contracts can result in substantial unrealized gains or losses. Because the
Tax-Exempt Funds will engage in the purchase and sale of financial futures
contracts solely for hedging purposes, however, any losses incurred in
connection therewith should, if the hedging strategy is successful, be offset
in whole or in part by increases in the value of securities held by the Funds
or decreases in the price of securities that the Funds intend to acquire.
The amount of risk the Tax-Exempt Funds assume when they purchase an
option on a financial futures contract is the premium paid for the option plus
related transaction costs. In addition to the correlation risks discussed
above, the purchase of an option on a financial futures contract also entails
the risk that changes in the value of the underlying financial futures
contract will not be fully reflected in the value of the option purchased.
Municipal Bond Index financial futures contracts only recently have been
approved for trading and therefore have little trading history. It is possible
that trading in such financial futures contracts will be less liquid than
trading in other futures contracts. The trading of financial futures contracts
also is subject to certain market risks, such as inadequate trading activity,
which could at times make it difficult or impossible to liquidate existing
positions.
Tax-Exempt Obligations. The Tax-Exempt Funds may invest in municipal
obligations that constitute "private activity bonds" under the Internal
Revenue Code of 1986, as amended (the "Code") which may subject certain
investors to a federal alternative minimum tax ("AMT"). The provisions of the
Code relating to private activity bonds generally apply to bonds issued after
August 15, 1986, with certain transitional rule exemptions. Private activity
bonds are eligible for purchase by the Tax-Exempt Funds provided that the
interest paid thereon qualifies as exempt from federal income taxes (and in
the case of the New York and Pennsylvania Funds, New York State and City, and
Pennsylvania, personal income taxes, respectively). It is the position of the
SEC and the Funds that municipal obligations that generate income subject to
the AMT should not be counted as tax-exempt for the purpose of determining
whether 80% of a Fund's net assets are invested in tax-exempt obligations.
Tax-exempt obligations held by the Tax-Exempt Funds generally will
consist of investment grade municipal obligations with maturities of longer
than one year. Long-term obligations normally are subject to greater market
fluctuations as a result of changes in interest rates and market conditions
than are short-term obligations. The two principal classifications of
municipal obligations which may be held by the Tax-Exempt Funds are "general
obligation" bonds and "revenue" bonds. General obligation bonds are secured by
the issuer's pledge of its full faith, credit and taxing power in support of
the payment of principal and interest. Revenue bonds are payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the proceeds of a special excise tax or other specific revenue
source such as the user of the facility being financed. Tax-exempt private
activity bonds (including industrial development bonds) are in most cases
revenue bonds and are not payable from the unrestricted revenues of the
issuer. Consequently, the credit quality of private activity bonds usually is
related directly to the credit standing of the corporate user of the facility
involved. In addition, the Tax-Exempt Funds may invest in short-term municipal
obligations (commonly referred to as municipal notes). Municipal notes often
are used to provide for short-term capital needs and generally have maturities
of one year or less. Municipal notes include variable and floating rate demand
obligations, tax anticipation notes, revenue anticipation notes, construction
loan notes and bond anticipation notes.
The Pennsylvania Fund will attempt to invest 100% of its assets in
Pennsylvania obligations, and the New York Fund will attempt to invest 100% of
its assets in New York obligations. As a matter of fundamental policy, the
Pennsylvania and New York Funds, under normal market conditions, will invest
at least 80% of their net assets in tax-exempt Pennsylvania obligations or New
York obligations, respectively, in each case which are rated within the top
four rating categories by a nationally recognized statistical rating
organization or, if not rated, which, in the opinion of the Advisor, possess
equivalent investment characteristics. The fourth grade is considered
medium-grade and has speculative characteristics. The Pennsylvania Fund may
invest up to 25% of its assets in securities rated at this fourth grade, and
the New York Fund may invest without limitation in securities rated at this
fourth grade. These bond ratings are described in Appendix A.
During temporary defensive periods when, in the Advisor's opinion,
suitable Pennsylvania or New York obligations are unavailable, or the Advisor
anticipates an increase in interest rates, the Pennsylvania and New York Funds
may invest not more than 20% of their assets in obligations, the interest on
which is exempt only from federal income taxes (such as obligations issued by
states other than Pennsylvania or New York, respectively) or is exempt only
from Pennsylvania or New York personal income taxes, respectively (such as
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities). Moreover, under such conditions, all three Tax-Exempt
Funds may make temporary investments in high-quality obligations, the interest
on which is not exempt from either federal or any state personal income taxes.
Such investments will consist of debt securities (including commercial paper)
of issuers having, at the time of purchase, a quality rating within the two
highest categories of either Standard & Poor's or Moody's, certificates of
deposit, banker's acceptances, or repurchase agreements.
Variable or Floating Rate Notes. The Tax-Exempt Funds may invest in
variable or floating rate demand obligations, which are securities that
provide for adjustment in their interest rates at intervals ranging from daily
to up to one year based upon prevailing market rates for similar investments
and an adjustment formula that is intended to maintain the market value of the
security at par. These obligations normally have a stated maturity in excess
of one year but permit the holder to demand repayment of principal plus
payment of accrued interest at any time upon a specified number of days'
notice. The Tax-Exempt Funds will have the right to receive repayment of
principal and payment of accrued interest within seven days. Some notes may be
rated by credit rating agencies but unrated notes purchased by the Funds, in
the Advisor's opinion, will be of comparable quality at the time of purchase
to instruments that are rated as high quality. Where necessary to ensure that
an unrated note is of high quality, the Funds will require that the issuer's
obligation to pay the principal of the note be backed by an unconditional
domestic or foreign bank letter or line of credit, guarantee or commitment to
lend. In such a case, the quality of the bank will be looked to for purposes
of satisfying the Funds' quality standards. In addition, the Advisor will
consider that foreign banks are not subject to the same regulations as are
domestic banks and may be involved in different business activities and have
different risks. Although there may be no active secondary market for a
particular instrument, the Funds may, upon notice, exercise a note's demand
feature or resell the note at any time to a third party. If a significant
portion of a Fund's assets were invested in notes of a single issuer, however,
the issuer's ability to meet the demand feature could affect that Fund's
liquidity. Included in the variable and floating rate demand instruments that
the Tax-Exempt Funds may purchase are participations in municipal obligations
purchased from and owned by financial institutions, primarily banks, the
interest on which, in the opinion of counsel to the issuer, is exempt from
federal income taxes and in the case of the New York and Pennsylvania Funds,
New York State and City, and Pennsylvania, personal income taxes,
respectively. In determining average weighted portfolio maturity, an
instrument will be deemed to have a maturity equal to the longer of the period
remaining to the next interest rate adjustment or the demand notice period.
Municipal Bond Insurance. Certain of the municipal obligations held in
the portfolios of the Tax-Exempt Funds may be insured. Different types of such
insurance include a "New Issue Insurance Policy", a "Mutual Fund Insurance
Policy" or a "Secondary Market Insurance Policy".
A New Issue Insurance Policy is obtained by the issuer of the securities,
and all premiums for such a policy are paid in advance by the issuer. Such
policies are generally used by an issuer to increase the credit rating of a
lower-rated security, and therefore may increase both the purchase price and
the subsequent resale value of a security for a Fund's portfolio. They are
non-cancellable and continue in force as long as the securities are
outstanding and the respective insurers remain in business. Premiums for
issuer insurance are paid in advance by the issuer and are reflected in a
somewhat higher purchase price paid by the Tax-Exempt Funds for these
obligations. The creditworthiness of the issuer will be evaluated in order to
determine its ability to meet its obligations to pay interest and repay
principal. The insurance covers the event that the issuer defaults on an
interest payment or principal repayment; if this occurs, the insurer will be
notified and will make payment to the bondholders. There is, however, no
guarantee that the insurer will meet its obligations. These insurance policies
do not protect bondholders from adverse changes in interest rates.
A Mutual Fund Insurance Policy is used to guarantee specific bonds only
while owned by a mutual fund. If a Fund were to purchase such a policy,
payment of the annual premiums would reduce such Fund's current yield. The
Tax-Exempt Funds have no plans to purchase a Mutual Fund Insurance Policy at
this time.
A Secondary Market Insurance Policy is purchased by an investor
subsequent to a security's issuance and generally insures a particular
security for the remainder of its term. The Tax-Exempt Funds may purchase
securities which already have been insured under a Secondary Market Insurance
Policy by a prior investor, or such Funds may purchase such a policy from a
vendor providing such a service.
Other Matters Specific to the New York Fund. The New York Fund is a
non-diversified series of the Company under the Investment Company Act of
1940, as amended (the "1940 Act"). Therefore, the New York Fund could invest
all of its assets in securities of a single issuer. However, as the Fund
intends to comply with Subchapter M of the Code, at least 50% of its total
assets must be comprised of individual issues, each of which represents no
more than 5% of such Fund's total assets and not more than 10% of the issuer's
outstanding voting securities. Those issues which represent more than 5% of
the New York Fund's total assets must be limited in the aggregate to 50% of
such Fund's total assets, provided, however, that no more than 25% of the
Fund's total assets may be invested in any one issuer. For these purposes, a
security is considered to be issued by the governmental entity (or entities)
whose assets or revenues back the security, or with respect to a private
activity bond that is backed only by the assets and revenues of a
non-governmental user, a security is considered to be issued by such
non-governmental user. In accordance with SEC regulations, the guarantor of a
guaranteed security may be considered to be an issuer in connection with such
guarantee. Since investment return on a non-diversified portfolio typically is
dependent upon the performance of a smaller number of securities relative to
the number held in a diversified portfolio, the New York Fund is more
susceptible to economic, political and regulatory developments and the change
in value of any one security will affect the overall value of a
non-diversified portfolio and thereby subject its net asset value per share to
greater fluctuations.
Because the New York Fund invests at least 80% of its assets in New York
obligations, its net asset value is particularly sensitive to changes in the
economic conditions and governmental policies of the State of New York. See
Appendix B - "Economic Conditions in New York" for additional information
regarding these factors.
Other Matters Specific to the Pennsylvania Fund. The Pennsylvania Fund is
registered as a non-diversified, open-end investment company under the 1940
Act. Therefore, the Pennsylvania Fund could invest all of its assets in
securities of a single issuer. However, as the Pennsylvania Fund also intends
to comply with Subchapter M of the Code, it must observe the same
diversification restrictions set forth in the preceding section for the New
York Fund. Since investment return on a non-diversified portfolio typically is
dependent upon the performance of a smaller number of securities relative to
the number held in a diversified portfolio, the Pennsylvania Fund is also more
susceptible to economic, political and regulatory developments, and the change
in value of any one security will affect the overall value of a
non-diversified portfolio and thereby subject the Pennsylvania Fund's net
asset value per share to greater fluctuations.
Because the Pennsylvania Fund invests at least 80% of its assets in
Pennsylvania obligations, its net asset value is particularly sensitive to
changes in the economic conditions and governmental policies of the
Commonwealth of Pennsylvania. See Appendix C - "Economic Conditions in
Pennsylvania" for additional information regarding these factors.
The Pennsylvania Fund's portfolio turnover rate generally will not exceed
100%. A portfolio turnover rate of 100% or higher will result in higher
transaction costs, which must be borne directly by the Pennsylvania Fund and
ultimately by its shareholders. High portfolio turnover may result in the
realization of substantial net capital gains, and possibly interest income,
representing accrued market discount. To the extent net short-term capital
gains are realized, any distributions resulting from such gains are considered
ordinary income for federal income tax purposes.
In addition, the Pennsylvania Fund does not intend to (i) invest in
securities secured by real estate or interests therein or issued by companies
or investment trusts which invest in real estate or interests therein, or (ii)
invest in securities issued by companies which, together with any predecessor,
have been in continuous operation for fewer than three years. The Pennsylvania
Fund would seek to notify shareholders before changing any of these policies.
Considerations Applicable to the Flex Cap Opportunity Fund
Cash Position. In order to afford the Flex Cap Opportunity Fund the
flexibility to take advantage of new opportunities for investments in
accordance with its investment objective or to meet redemptions, it may, under
normal circumstances, hold up to 15% of its total assets in money market
instruments including, but not limited to, certificates of deposit, time
deposits and bankers' acceptances issued by domestic bank and thrift
institutions, U.S. Government securities, commercial paper and repurchase
agreements. When the analysis of economic and technical market factors by the
subadvisor, Fred Alger Management, Inc. ("Alger") suggests that common stock
prices will decline sufficiently that a temporary defensive position is deemed
advisable, the Fund may invest in high-grade senior securities or U.S.
Government securities or retain cash or cash equivalents, all without
limitation.
Small Capitalization Investments. Certain companies in which the Flex Cap
Opportunity Fund will invest may still be in the developmental stage, may be
older companies that appear to be entering a new stage of growth progress
owing to factors such as management changes or development of new technology,
products or markets or may be companies providing products or services with a
high unit volume growth rate. Investing in smaller, newer issuers generally
involves greater risk than investing in larger, more established issuers. Such
companies may have limited product lines, markets or financial resources and
may lack management depth. Their securities may have limited marketability,
and may be subject to more abrupt or erratic market movements than securities
of larger, more established companies or the market averages in general.
Repurchase Agreements. Like the other Funds, the Flex Cap Opportunity
Fund may invest in repurchase agreements. Repurchase agreements the Fund will
enter into will usually be for periods of one week or less, and the value of
the underlying securities, including accrued interest, will be at least equal
at all times to the total amount of the repurchase obligation, including
interest. The Fund bears the same risk of loss in the event that the other
party to a repurchase agreement declares bankruptcy or defaults on its
obligations that is discussed on page of this Statement of Additional
Information. Alger reviews the creditworthiness of the banks and dealers with
which the Fund enters into repurchase agreements to evaluate these risks and
monitors on an ongoing basis the value of the securities subject to repurchase
agreements to ensure that the value is maintained at the required level.
Warrants and Rights. The Flex Cap Opportunity Fund may invest in
securities convertible into or exchangeable for equity securities including
warrants and rights. A warrant is a type of security that entitles the holder
to buy a proportionate amount of common stock at a specified price, usually
higher than the market price at the time of issuance, for a period of years or
to perpetuity. In contrast, rights, which also represent the right to buy
common shares, normally have a subscription price lower than the current
market value of the common stock and a life of two to four weeks. Warrants are
freely transferable and are traded on the major securities exchanges.
Portfolio Depositary Receipts. To the extent otherwise consistent with
its investment policies and applicable law, the Flex Cap Opportunity Fund may
invest up to 5% of its total assets in Portfolio Depositary Receipts, which
are exchange-traded shares issued by investment companies, typically unit
investment trusts, holding portfolios of common stocks designed to replicate
and, therefore, track the performance of various broad securities indexes or
sectors of such indexes. For example, the Fund may invest in Standard & Poor's
Depositary Receipts(R) (SPDRs), issued by a unit investment trust whose
portfolio tracks the S&P 500 Composite Stock Price Index, or Standard & Poor's
MidCap 400 Depositary Receipts(R) (MidCap SPDRs), similarly linked to the S&P
MidCap 400 Index.
Foreign Securities. The Flex Cap Opportunity Fund may invest up to 20% of
the value of its total assets in foreign securities (not including American
Depositary Receipts ("ADRs"), American Depositary Shares ("ADSs") or U.S.
dollar denominated securities of foreign issuers). Foreign securities
investments may be affected by changes in currency, rates or exchange control
regulations, changes in governmental administration or economic or monetary
policy (in the United States and abroad) or changed circumstances in dealings
between nations. Dividends paid by foreign issuers may be subject to
withholding and other foreign taxes that may decrease the net return on these
investments as compared to dividends paid to the Fund by domestic
corporations. There may be less publicly available information about foreign
issuers than about domestic issuers, and foreign issuers are not subject to
uniform accounting, auditing and financial reporting standards and
requirements comparable to those of domestic issuers. Securities of some
foreign issuers are less liquid and more volatile than securities of
comparable domestic issuers and foreign brokerage commissions are generally
higher than commissions in the United States. Foreign securities markets may
also be less liquid, more volatile and subject to less government supervision
than those in the United States. Investments in foreign countries could be
affected by other factors not present in the United States, including
expropriation, confiscatory taxation and potential difficulties in enforcing
contractual obligations. Securities purchased on foreign exchanges may be held
in custody by a foreign bank or a foreign branch of a domestic bank.
The Flex Cap Opportunity Fund may purchase ADRs, ADSs or U.S.
dollar-denominated securities of foreign issuers which are not subject to the
20% foreign securities limitation. ADRs and ADSs are traded in U.S. securities
markets and represent the securities of foreign issuers. While ADRs and ADSs
may not necessarily be denominated in the same currency as the foreign
securities they represent, many of the risks associated with foreign
securities may also apply to ADRs and ADSs.
Borrowing. The Flex Cap Opportunity Fund may borrow money from banks and
use it to purchase additional securities. This borrowing is known as
leveraging. Leveraging increases both investment opportunity and investment
risk. If the investment gains on securities purchased with borrowed money
exceed the cost of borrowing, including interest paid on the borrowing, the
net asset value of the Flex Cap Opportunity Fund's shares will rise faster
than would otherwise be the case. On the other hand, if the investment gains
fail to cover the cost (including interest) of borrowings, or if there are
losses, the net asset value of the Flex Cap Opportunity Fund's shares will
decrease faster than would otherwise be the case. The Flex Cap Opportunity
Fund may also borrow from banks for temporary or emergency purposes. The Fund
is required to maintain continuous asset coverage (that is, total assets
including borrowings, less liabilities exclusive of borrowings) of 300% of the
amount borrowed. If such asset coverage should decline below 300% as a result
of market fluctuations or other reasons, the Flex Cap Opportunity Fund may be
required to sell some of its portfolio holdings within three business days to
reduce the debt and restore the 300% asset coverage, even though it may be
disadvantageous from an investment standpoint to sell securities at that time.
Considerations and Risks Applicable to the World Fund
Foreign Currency Transactions. The value of the assets of the World Fund
as measured in U.S. dollars may be affected favorably or unfavorably by
changes in foreign currency exchange rates and exchange control regulations,
and the Fund may incur costs in connection with conversions between various
currencies.
The Fund will conduct its foreign currency exchange transactions either
on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market or through the use of forward contracts to purchase
or sell foreign currencies. A forward foreign currency exchange contract
involves an obligation by the Fund to purchase or sell a specific amount of
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are transferable in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirements, and no
commissions are charged at any stage for trades. Neither type of foreign
currency transaction will eliminate fluctuations in the prices of the Fund's
portfolio securities or prevent loss if the prices of such securities should
decline.
The World Fund may enter into forward foreign currency exchange contracts
only under two circumstances. First, when the Fund enters into a contract for
the purchase or sale of a security denominated in a foreign currency, it may
desire to "lock in" the U.S. dollar price of the security. The Fund will then
enter into a forward contract for the purchase or sale, for a fixed amount of
dollars, of the amount of foreign currency involved in the underlying
securities transactions; in this manner the Fund will be better able to
protect itself against a possible loss resulting from an adverse change in the
relationship between the U.S. dollar and the subject foreign currency during
the period between the date the securities are purchased or sold and the date
on which payment is made or received.
Second, when the Advisor or INVESCO Global Asset Management (N.A.), Inc.,
the World Fund's subadvisor ("INVESCO") believes that the currency of a
particular foreign country may suffer a substantial decline against the U.S.
dollar, the Fund may enter into a forward contract to sell, for a fixed amount
of dollars, the amount of foreign currency approximating the value of some or
all of the Fund's securities denominated in such foreign currency. The precise
matching of the forward contract amounts and the value of the securities
involved generally will not be possible since the future value of those
securities may change between the date the forward contract is entered into
and the date it matures. The projection of short-term currency market movement
is extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain. The Advisor does not intend to enter into such
forward contracts under this second circumstance on a regular or continuous
basis. The Fund will not enter into such forward contracts or maintain a net
exposure to such contracts when the consummation of the contracts would
obligate the Fund to deliver an amount of foreign currency in excess of the
value of the Fund's securities or other assets denominated in that currency.
The Advisor believes that it is important to have the flexibility to enter
into such forward contracts when it determines that to do so is in the best
interest of the Fund. The Fund's custodian bank segregates cash or equity or
debt securities in an amount not less than the value of the Fund's total
assets committed to forward foreign currency exchange contracts entered into
under the second circumstance. If the value of the securities segregated
declines, additional cash or securities are added so that the segregated
amount is not less than the amount of the Fund's commitments with respect to
such contracts. Under normal circumstances, the Fund expects that any
appreciation (depreciation) on such forward exchange contracts will be offset
approximately by the (depreciation) appreciation in translation of the
underlying foreign investment arising from fluctuations in foreign currency
exchange rates.
The Fund will experience the unrealized appreciation or depreciation from
the fluctuation in a foreign currency forward contract as an increase or
decrease in the Fund's net assets on a daily basis, thereby providing an
appropriate measure of the Fund's financial position and changes in financial
position.
Foreign Securities for Funds other than the World Fund
Before foreign securities are purchased for Funds other than the World
Fund, the differences between them and U.S. securities are considered. This
includes possible differences in taxation, regulation, trading volume and
currency controls, the possibility of expropriation and lack of uniform
accounting and reporting standards. While there may be investment
opportunities in foreign securities, there also may be investment risks not
usually associated with U.S. securities.
INVESTMENT RESTRICTIONS
The Company. Certain By-Laws of the Company, which may be changed only by
a shareholder vote, prohibit the purchase by any Fund other than the Flex Cap
Opportunity Fund of the securities of any company not in operation
continuously for at least three years (including any predecessor company) and,
except for U.S. Government Securities and obligations of the government of
Canada, forbid the purchase of the securities of any one issuer, if the market
value of such securities exceeds 5% of the total market value of all of the
Company's securities and cash.
The Company's Board of Directors has also adopted a policy under which
each of the Common Stock Fund, Balanced Fund, Mid Cap Growth Fund and Bond
Fund cannot purchase securities of any one issuer if the market value of such
securities exceeds 5% of the total market value of each such Fund's securities
and cash.
It is also a fundamental policy of the Company and the Pennsylvania Fund
that they may not borrow money, except as otherwise described above for the Flex
Cap Opportunity Fund and except, for all Funds, from banks in an amount up to
5% of a Fund's total assets for temporary or emergency purposes or to meet
redemption requests which might otherwise require the untimely disposition of
securities, and it may not purchase securities on margin. Also, the Company
may not lend its cash or securities, may not deal in real estate, may not act
as underwriter of securities issued by others, and may not purchase from or
sell to any officer, director or employee of the Company, the Advisor, a
subadvisor or underwriter, or any of their officers or directors, any
securities other than shares of the Company's capital stock. None of its Funds
may deal in options, commodities or commodities contracts, except as otherwise
described in the Prospectus for the Growth Index Fund, and except further to
the extent the Tax-Exempt Funds or the High Yield Fund may enter into futures
transactions and related options for hedging purposes as described above. None
of the Funds may invest in oil, gas or other mineral exploration or
development programs or leases. None of the Funds, except for the Flex Cap
Opportunity Fund, are able to invest more than 5% of its net assets in
warrants valued at the lower of cost or market, or more than 2% of its net
assets in warrants which are not listed on either the New York Stock Exchange
or the American Stock Exchange.
The Company's By-Laws also prohibit the purchase or retention of the
securities of any one issuer if officers and directors of the Company, its
Advisor or underwriter owning individually more than .5% of the securities of
such issuer together own more than 5% of the securities of such issuer.
The Company may not purchase more than 10% of the voting securities of
any issuer. The Company may not invest in companies for purposes of exercising
control or management and, except to the extent described above for the Flex
Cap Opportunity Fund, the High Yield Bond Fund and the Bond Fund, may not
invest in any securities of any issuer which the Company is restricted from
selling to the public without registration under the Securities Act. It also
may not purchase for any Fund securities of any issuer beyond a market value
of 5% of such Fund's net assets, except for the Growth Index Fund and the Flex
Cap Opportunity Fund, and may not invest in securities which are not readily
marketable, except to the extent described above for the High Yield Bond Fund
and the Flex Cap Opportunity Fund. The Company may not make short sales of
securities, except to the extent described above for the Flex Cap Opportunity
Fund.
Although not a fundamental policy, so long as the Common Stock Fund is
used as the underlying investment vehicle for a National Life separate
account, it is the view of management that its investment policies will be
affected by insurance laws of certain states, principally New York, which,
among other things, may limit most of the Common Stock Fund's investment in
common stocks to the common stocks of listed companies meeting certain
earnings tests. These essentially are qualitative limitations imposed upon the
investments of life insurance companies in order to reduce the risk of loss.
Restrictions and policies established by resolution of the directors may
be changed by the Board, with any material changes to be reported to
shareholders. The securities of foreign companies or governments may be
selected as being suitable for one or more of the Funds.
The Pennsylvania Fund. The following investment limitations are
applicable to the Pennsylvania Fund, and may not be changed without a vote of
the Pennsylvania Fund's shareholders.
The Pennsylvania Fund may not:
1. Purchase or sell real estate, except that the Fund may invest in
municipal obligations which are secured by real estate or interests therein.
2. Make loans, except that the Fund may purchase or hold debt instruments
and enter into repurchase agreements pursuant to its investment objective and
policies.
3. Underwrite the securities of other issuers, except to the extent that
the acquisition or disposition of municipal obligations or other securities
directly from the issuer thereof in accordance with the Fund's investment
objective and policies might be deemed to be an underwriting.
4. Purchase securities of companies for the purpose of exercising
control.
5. Acquire any other investment company or investment company security,
except in connection with a merger, consolidation, reorganization or
acquisition of assets.
6. Purchase securities on margin, make short sales of securities or
maintain a short position, provided that the Fund may enter into futures
contracts.
7. Issue senior securities except insofar as borrowing in accordance with
the Fund's investment objective and policies might be considered to result in
the issuance of a senior security; provided that the Fund may enter into
futures contracts.
8. Invest in or sell interests in oil, gas or other mineral exploration
development programs.
9. Invest in private activity bonds where the payment of principal and
interest are the responsibility of a company (including its predecessors) with
less than three years of continuous operations.
The above investment limitations are considered at the time that
portfolio securities are purchased.
If a percentage restriction is satisfied at the time of investment, a
later increase or decrease in such percentage resulting from a change in asset
value will not constitute a violation of the restriction.
In order to permit the sale of Pennsylvania Fund shares in certain
states, the Pennsylvania Fund may make commitments more restrictive than the
investment policies and limitations described above. Should the Pennsylvania
Fund determine that any such commitment is no longer in the best interests of
the Fund, it will revoke the commitment by terminating sales of its shares in
the state involved.
MANAGEMENT OF THE FUNDS
Management is made up of (i) the Company's Board of Directors and the
Pennsylvania Fund's Board of Trustees, which consist of the same twelve
individuals and which are responsible for the Funds' operations; (ii) the
officers of the Company and the Pennsylvania Funds, who are responsible to the
Boards; and (iii) the Advisor which, under agreements with the Company and the
Pennsylvania Fund, supervises and assists in the management of the Funds and
the purchase and sale of securities. In addition, the Advisor has retained the
services of INVESCO with respect to the World Fund, Evergreen with respect to
the High Yield Fund, and Alger with respect to the Flex Cap Opportunity Fund.
See the "The Investment Advisor", below. Set forth below is information
regarding the directors/trustees and officers of the Company and the
Pennsylvania Fund, their ages and their principal occupations during the past
five years. In the case of those persons who also hold positions with
affiliated persons of the Funds, such positions are also indicated.
PATRICK E. WELCH * - CHAIRMAN AND DIRECTOR/TRUSTEE
National Life Drive
Montpelier, VT 05604
Age 53
National Life - Chairman and Chief Executive Officer, 1997 to present; GNA
Corporation (Insurance) - Chairman of the Board, Chief Executive Officer and
President of GNA Corporation - 1992 to 1996; LSW National Holdings, Inc. -
Chairman and Director; National Financial Services, Inc. - President and
Director; Administrative Services - Director - 1997 to present, National Life
Investment Management Company, Inc., - Director - 1997 to present; Equity
Services, Inc. - Director - 1997 to present; Sentinel Administrative Service
Corporation - Director - 1997 to present; and National Retirement Plan
Advisors, Inc.- Director - 1997 to present.
JOSEPH M. ROB* - PRESIDENT AND DIRECTOR/TRUSTEE
National Life Drive
Montpelier, Vermont 05604
Age 57
Sentinel Management Company - Chief Executive Officer, 1993 to present;
Sentinel Financial Services Company - Chief Executive Officer, 1993 to
present; Sentinel Administrative Services Company - Chief Executive Officer,
1993 to present; ESI - Chairman, Chief Executive Officer, and Director, 1985
to present, President, 1997 to present; American Guaranty & Trust Company -
Director, 1993 to present; LSW National Holdings, Inc. - Director, 1996 to
present; Life Insurance Company of the Southwest - Director, 1996 to present.
RICHARD J. BORDA - DIRECTOR/TRUSTEE
P. O. Box 6091
Carmel, California 93923
Age 68
National Life - Former Vice Chairman of the Board, 1985 to 1990, Director,
1975 to 1991; The Monterey Institute for International Studies - Vice
Chairman, Director and Trustee, 1991 to present; Air Force Aid Society -
President, 1980 to 1995.
DR. KALMAN J. COHEN - DIRECTOR/TRUSTEE
2312 Honeysuckle Court
Chapel Hill, North Carolina 27514-1711
Age 69
Distinguished Bank Research Professor Emeritus, The Fuqua School of Business,
Duke University, 1993 to present; USLIFE Income Fund, Inc. - Director, 1973 to
present; Sentinel Cash Management Fund, Inc. - Director, 1981 to 1993.
JOHN D. FEERICK - DIRECTOR/TRUSTEE
140 West 62nd Street
New York, New York 10023
Age 63
Fordham University School of Law - Dean, 1982 to present; American Home
Products Corporation - Director, 1987 to present.
RICHARD I. JOHANNESEN, JR. - DIRECTOR/TRUSTEE
87 Whitney Lane
Stowe, Vermont 05672
Age 65
Retired; Former Vice President and Manager - Bond Market Research Department,
Salomon Brothers Inc.
ROBERT B. MATHIAS - DIRECTOR/TRUSTEE
7469 East Pine Avenue
Fresno, California 93727
Age 69
Sports Consultant; formerly Executive Director- National Fitness Foundation;
former U.S. Congressman.
KENISTON P. MERRILL* - DIRECTOR/TRUSTEE
Brainstorm Farm, P. O. Box 404
Randolph, Vermont 05060
Age 63
Chairman of the Board of the Company, 1990 to 1997; Chairman of the Board of
the Pennsylvania Fund, 1990 to 1997; Sentinel Advisors Company - Chairman and
Chief Executive Officer, 1993 to 1997; National Life - Executive Vice
President and Chief Investment Officer, 1994 to 1995; National Life Investment
Management Company, Inc. - Chairman and Chief Executive Officer, 1990 to 1995;
American Guaranty & Trust Company - Director, 1993 to 1997.
DEBORAH G. MILLER - DIRECTOR/TRUSTEE
1117 Hamilton Avenue
Palo Alto, CA 94301
Age 50
Digital Equipment Corporation - Vice President-Americas Systems Business Unit,
1995 to present; Miller Van Buren, Inc. - Chief Executive Officer, 1994 to
1995.
<PAGE>
JOHN RAISIAN, Ph.D. - DIRECTOR/TRUSTEE
Hoover Institution, Stanford University
Serra and Galvey Streets
Stanford, California 94305-6010
Age 50
Director and Senior Fellow - Hoover Institution (academic institution), 1991
to present; Director, Stanford Faculty Club, 1994 to present; Member of the
Editorial Board, Journal of Labor Research, 1983 to present; Member, American
Economic Association, World Affairs Council, Council of Foreign Relations,
National Association of Scholars.
SUSAN M. STERNE - DIRECTOR/TRUSTEE
5 Glen Court
Greenwich, Connecticut 06830-4505
Age 54
Economic Analysis Associates, Inc. - President and Chief Economist, 1979
to present.
ANGELA E. VALLOT - DIRECTOR/TRUSTEE
Director of Stakeholder Relations
Texaco, Inc.
200 Westchester Avenue
White Plains, New York 10650
Age 43
Texaco, Inc. (major oil company) - Director of Stakeholder Relations, 1997 to
present; Arent Fox Kintner Plotkin & Kahn (law firm) - Lawyer, 1990 to 1997;
Trustee, District of Columbia Retirement Board; Member of the Steering
Committee of the NAACP Legal Defense Fund.
JOHN M. GRAB, JR., C.P.A.* - VICE PRESIDENT
National Life Drive
Montpelier, Vermont 05604
Age 53
Sentinel Management Company - Senior Vice President, 1993 to present; Sentinel
Administrative Service Company - Senior Vice President, 1993 to present; ESI -
Senior Vice President and Chief Financial Officer, 1988 to present; American
Institute of Certified Public Accountants; The Vermont Society of Certified
Public Accountants.
THOMAS P. MALONE* - VICE PRESIDENT & TREASURER
National Life Drive
Montpelier, Vermont 05604
Age 44
Sentinel Administrative Service Company - Vice President, 1997 to present;
Assistant Vice President, 1990 to 1997; Sentinel Group Funds, Inc. - Vice
President & Treasurer, 1997 to present; Assistant Vice President, 1990 to 1997
D. RUSSELL MORGAN* - SECRETARY
National Life Drive
Montpelier, Vermont 05604
Age 44
National Life - Senior Counsel, 2000 to present; Counsel, 1994 to 2000;; ESI -
Counsel, 1986 to present; Sentinel Advisors Company - Sentinel Financial
Services Company - Sentinel Administrative Service Company - Counsel, 1993 to
present; LSW National Holdings, Inc. - Secretary, 1996 to present.
*"Interested Persons" (as defined in the 1940 Act).
The officers and directors/trustees of the Funds who are employees of
National Life, Provident, Penn Mutual, or their respective subsidiaries do not
receive any compensation from the Funds. The Company pays to each director who
is not an affiliate of the Advisor an annual fee of $16,000 plus $1,500 for
each meeting of the Board of Directors attended by the director, and the
Pennsylvania Fund pays to each such trustee an annual fee of $2,500 plus $200
for each meeting of the Board of Trustees attended by such trustee. The
Company and the Pennsylvania Fund also reimburse directors/trustees for travel
and other out-of-pocket expenses incurred by them in connection with attending
such meetings. The aggregate remuneration paid by the Funds during the fiscal
year ended November 30, 1999 to the officers and directors/trustees of the
Funds as a group was $313,278.
The following table sets forth for the fiscal year ended November 30,
1999 compensation paid by the Company and by the Pennsylvania Fund to the
directors/trustees who are not affiliated with the Advisor:
<TABLE>
<CAPTION>
Pension or Total
Aggregate Retirement Compensation
Compensation Benefits from Fund
Name of Aggregate From Accrued as and Sentinel
Director/ Compensation Pennsylvania Part of Fund Pennsylvania
Trustee from Company Tax-Free Trust Expense Tax-Free Trust
- ------- ------------ -------------- ------- --------------
<S> <C> <C> <C>
Richard J. Borda $23,500 $3,500 None $27,000
Kalman J. Cohen $23,500 $3,500 None $27,000
Richard D. Farman $ 5,500 $ 825 None $ 6,325
John D. Feerick $23,500 $3,500 None $27,000
Richard I. Johannesen $23,500 $3,500 None $27,000
Robert B. Mathias $23,500 $ 3,500 None $27,000
Deborah G. Miller $23,500 $ 3,500 None $27,000
John Raisian $23,500 $ 3,500 None $27,000
Susan M. Sterne $23,500 $3,500 None $27,000
Angela E. Vallot $23,500 $3,500 None $27,000
</TABLE>
Code of Ethics
The Boards of the Funds have adopted a Code of Ethics pursuant to Rule
17j-1 under the 1940 Act, and the Advisor has adopted a similar Code of Ethics
(together, the "Codes of Ethics"). The Codes of Ethics significantly restrict
the personal investing activities of all employees of the Advisor.
The Codes of Ethics require that all employees preclear any personal
securities transaction (with limited exceptions, such as mutual funds and
government securities). The preclearance requirement and associated procedures
are designed to identify any substantive prohibition or limitation applicable
to the proposed transaction. The substantive restrictions include a ban on
acquiring any securities in an initial public offering, and a prohibition on
profiting from short-term trading in securities (with certain exceptions). In
addition, no employee may purchase or sell any security which at the time is
being purchased or sold by any mutual fund advised by the Advisor.
Furthermore, the Codes of Ethics provide for seven day trading "blackout
periods" which prohibit trading by employees of the Advisor in proximity to
periods of trading by mutual funds managed by the Advisor in the same (or
equivalent) security unless certain conditions are present.
PRINCIPAL SHAREHOLDERS
As of February 29, 2000, the Company's and the Pennsylvania Fund's
directors/trustees and officers as a group owned less than 1% of the
outstanding shares of each Fund. In addition, as of such date, National Life
and its affiliates, each of whose address is National Life Drive, Montpelier,
Vermont 05604, except for American Guaranty & Trust Company, whose address is
220 Continental Drive, Newark, Delaware 19713 owned of record and beneficially
58,168,774.544 shares amounting to 21.3% of the outstanding shares of the
Company (13% of the voting power) which included 3,057,959.833 shares of the
Common Stock Fund amounting to 7.7% of such Fund, 2,054,507.504 shares of the
Balanced Fund amounting to 11.6% of such Fund, 2,074,317.286 shares of the Mid
Cap Growth Fund amounting to 18.9% of such Fund, 2,058,873.528 shares of the
Small Company Fund amounting to 8.5% of such Fund, 1,851,719.630 shares of the
World Fund amounting to 25.7% of such Fund, 2,781,981.106 shares of the High
Yield Fund amounting to 28.8% of such Fund, 4,118,496.682 shares of the Bond
Fund amounting to 24.8% of such Fund, 715,797.596 shares of the Government
Securities Fund amounting to 11.1% of such Fund, 224,345.892 shares of Short
Maturity Fund amounting to 3.4% of such Fund, 36,915,551.510 shares of the
Money Market Fund amounting to 30.9% of such Fund, 423,226.422 shares of the
Tax-Free Income Fund amounting to 6.7% of such Fund, and 68,320.253 shares of
the New York Fund amounting to 4.7% of such Fund. National Life and its
affiliates also owned 52,526.201 shares of the Pennsylvania Fund amounting to
2.2% of the outstanding shares on such date.
As of February 29, 2000, none of the approximately 116,599 shareholders
owns as much as 5% of the voting stock of any Fund except National Life and
its affiliates, and except for the following shareholders of the New York
Fund: Mr. Louis P. Dicerbo, 261 Madison Avenue, New York, New York 10016-2303
- - 157,838.527 shares amounting to 10.8% of the class; Donaldson, Lufkin &
Jenrette Securities Corporation Inc., P. O. Box 2052, Jersey City, New Jersey
07303-2052, 122,448.980 shares amounting to 8.4% of the class; Mr. John Kenny
Carlin and Mary Anne Carlin, 6110 South County Line Road, Burr Ridge, Illinois
60521-5220 - 178,524.924 shares amounting to 12.2% of the class; and Ms.
Arlene Federico, 39 Fruitledge Road, Brookville, New York 11545-3315 -
74,008.919 shares amounting to 5.1% of the class.
In the case of the High Yield Fund, the World Fund and the Money Market
Fund, the ownership by National Life and its affiliates may be deemed to be a
controlling interest in the Fund. As a result, on matters in which these Funds
vote separately as a class, it may be difficult for the other shareholders to
adopt resolutions opposed by National Life, or to defeat proposed resolutions
supported by National Life. National Life is organized under the laws of the
State of Vermont.
THE INVESTMENT ADVISOR
The Advisor provides general supervision of the Funds' investments as
well as certain administrative and related services. The Advisor is a Vermont
general partnership, the general partners of which are affiliates of National
Life, Provident, and Penn Mutual. National Life's affiliate is the majority
partner of the Advisor. Patrick E. Welch, the Chairman and Chief Executive
Officer of the Funds, is also Chairman and Chief Executive Officer of National
Life. As such, he may be deemed to control the Advisor. Joseph M. Rob, the
President of the Funds, is also Chief Executive Officer of SFSC, the Funds'
distributor, Sentinel Administrative Service Company, the Funds' transfer
agent and fund accounting service provider, and Sentinel Management Company,
an umbrella partnership which coordinates the activities of the other
partnerships. SFSC, Sentinel Administrative Service Company and Sentinel
Management Company are all also Vermont general partnerships of which the
general partners are affiliates of National Life, Provident and Penn Mutual,
with National Life being the majority partner in each case. Mr. Rob is also
Chairman & Chief Executive Officer of Equity Services, Inc., a broker-dealer
which is wholly owned by National Life. John M. Grab, Jr., Thomas P. Malone,
and D. Russell Morgan, the Vice President, Vice President and Treasurer, and
Secretary of the Funds, respectively, also hold the positions with the
affiliates of the Advisor shown on pages ____ .
As compensation in full for services rendered under its advisory
agreement applicable to all Funds other than the High Yield Fund, the Growth
Index Fund and the Flex Cap Opportunity Fund, the Company will pay to the
Advisor a monthly fee determined as follows: (1) With respect to the Small
Company, Mid Cap Growth, World and Balanced Funds: 0.70% per annum on the
first $200 million of aggregate average daily net assets of such funds in the
aggregate; 0.65% per annum on the next $100 million of such assets; 0.60% per
annum on the next $100 million of such assets; and 0.55% per annum on such
assets in excess of $400 million. (2) With respect to the Common Stock Fund:
0.55% per annum on the aggregate average daily net assets of the Fund. (3)
With respect to the Bond, New York, Tax-Free Income, Government Securities and
Short Maturity Government Funds: 0.55% per annum on the first $200 million of
aggregate average daily net assets of such funds in the aggregate; 0.50% per
annum on the next $200 million of such assets; and 0.45% per annum on such
assets in excess of $400 million. (4) With respect to the Money Market Fund:
0.40% per annum on the first $300 million of aggregate average daily net
assets; and 0.35% per annum on such assets in excess of $300 million. Under a
separate advisory agreement with the High Yield Fund, the Advisor receives
from the High Yield Fund a fee based on the average daily value of the net
assets of the High Yield Fund in accordance with the following schedule: 0.75%
per annum on the first $100 million of average daily net assets of the High
Yield Fund; 0.70% per annum on the next $100 million of such assets; 0.65% per
annum on the next $100 million of such assets; and 0.60% per annum on such
assets in excess of $300 million. Under a separate advisory agreement with the
Growth Index Fund, the Advisor receives from the Growth Index Fund a fee based
on the average daily value of the net assets of the Growth Index Fund equal to
0.30% per annum on such average daily net assets. Under a separate advisory
agreement with the Flex Cap Opportunity Fund, the Advisor receives from the
Flex Cap Opportunity Fund a fee based on the average daily value of the net
assets of the Flex Cap Opportunity Fund equal to 0.90% per annum on such
average daily net assets. Before waivers of advisory fees, for the fiscal year
ended November 30, 1999, such fees aggregated $17,372,950, for the fiscal year
ended November 30, 1998, such fees aggregated $16,207,972, and for the fiscal
year ended November 30, 1997, such fees aggregated $13,907,812. Of the above
advisory fees, $_______ were waived in the fiscal year ended November 30,
1999.
As compensation in full for services rendered under its advisory
agreement, the Pennsylvania Fund pays to the Advisor a monthly fee of 0.55%
per annum on the first $50 million of aggregate average daily net assets of
the Fund; 0.50% per annum on the next $50 million of such assets; and 0.45%
per annum on such assets in excess of $100 million. For the fiscal years ended
November 30, 1999, November 30, 1998 and November 30, 1997, the Pennsylvania
Fund paid advisory fees of $180,302, $190,754 and $188,819, respectively. Of
these advisory fees, $ ______ were waived in the fiscal year ended November
30, 1999.
Under the Company's advisory agreement applicable to all Funds other than
the High Yield Fund, the Growth Index Fund and the Flex Cap Opportunity Fund,
fees are allocated to the various Funds of the Company which share common fee
schedules in proportion to such Funds' net assets.
Effective March 31, 2000, the Advisor has voluntarily agreed for a period
at least until November 30, 2000, to waive the following Funds' advisory fees
or other expenses necessary to limit these Funds' overall expense ratios to
the amounts shown below:
Bond Fund Class A shares.....................................0.75%
Government Securities Fund Class A shares....................0.84%
Short Maturity Government Fund Class A shares................0.75%
Tax-Free Income Fund Class A shares..........................0.77%
Pennsylvania Fund Class A shares.............................0.76%
New York Fund Class A shares.................................0.00%
Growth Index Class A shares..................................0.65%
In the case of the Bond Fund, the waiver of advisory fees also benefits the
Class B shares of the Bond Fund, which will experience the same reduced
effective advisory fee rate as the Class A shares of the Bond Fund. The
Advisor currently intends to reset the above expense caps annually to amounts
approximately equal to 90% of the average expense ratios of the Class A shares
of such Funds' peer groups (except that in the case of the Short Maturity
Government Fund, the expense cap is expected to be increased by approximately
0.15% to take that Fund's higher Rule 12b-1 fee into account). However, these
arrangements may be changed or terminated at any time after November 30, 2000.
Effective September 10, 1999, the Advisor has voluntarily agreed for a
period at least until November 30, 2000, to waive advisory fees or other
expenses necessary to cap the expense ratio of the Growth Index Fund at 0.65%.
In addition to the above waiver program, the Advisor has a policy of
waiving advisory fees to the extent, if any, necessary to maintain the
aggregate expense ratios of the Class A shares of all of the Funds, except for
the World Fund, to 1.30%. In the event that a waiver were required under this
policy, the waiver would apply to the same extent across all classes of shares
of these Funds, and the aggregate expense ratios of the Class B and Class C
shares of these Funds, and the Class D shares of the Balanced Fund, would be
reduced proportionately. Although the Advisor has no present intention to do
so, this arrangement may be terminated at any time. The aggregate expense
ratio of the Class A shares of the Funds was less than 1.30% during fiscal
1999, and no reimbursement was required under this policy.
The Company's advisory agreement applicable to all Funds other than the
High Yield Fund, the Growth Index Fund and the Flex Cap Opportunity Fundwhich
was approved by the Company's shareholders on November 30, 1992, the advisory
agreement applicable to the High Yield Fund, which was approved by the
Company's Board of Directors on March 14, 1997 and the High Yield Fund's
shareholders on June 20, 1997, the advisory agreement applicable to the Growth
Index Fund, which was approved by the Company's Board of Directors on June 10,
1999 and the Growth Index Fund's shareholders on September 13, 1999, and the
advisory agreement applicable to the Flex Cap Opportunity Fund, which was
approved by the Company's Board of Directors on December 9, 1999 and the Flex
Cap Opportunity Fund's shareholders on February 25, 2000, must each be
approved annually by vote of the Board of Directors of the Company or by the
vote of a majority of the outstanding voting securities of the applicable
Fund, but in either event it must also be approved by a vote of a majority of
the directors who are not parties to the contract, or "interested persons", as
defined in the 1940 Act, of any such party cast in person at a meeting called
for the purpose of voting on such approval. With respect to the submission of
the Company's advisory agreement applicable to all Funds other than the High
Yield Fund, Growth Index Fund and Flex Cap Opportunity Fund, for approval by
the shareholders, such matters shall be deemed to be acted upon effectively
with respect to any class of the Company if a majority of the outstanding
voting securities of such class vote for approval of such matter,
notwithstanding (A) that such matter has not been approved by a majority of
the outstanding voting securities of any other class affected by such matter,
and (B) that such matter has not been approved by a vote of a majority of the
outstanding voting securities of the Company.
The Pennsylvania Fund's advisory agreement, which was approved by the
shareholders of the Fund on February 19, 1993, must be approved annually by
vote of the Board of Trustees or by the vote of a majority of the outstanding
voting securities of the Pennsylvania Fund, but in either event it must also
be approved by a vote of a majority of the trustees who are not parties to the
contract, or "interested persons", as defined in the 1940 Act, of any such
party cast in person at a meeting called for the purpose of voting on such
approval.
Each advisory agreement will terminate automatically in the event of its
assignment and is terminable at any time without penalty by the Board, or,
with respect to a particular Fund, by a majority of the Fund's outstanding
voting securities on not more than 60 days' written notice to the Advisor and
by the Advisor on 60 days' written notice to the Fund.
As described in the Prospectus, with respect to the World Fund only, the
Advisor has entered into a sub-advisory agreement with INVESCO dated July 1,
1999. In accordance with this sub-advisory agreement, INVESCO provides the
World Fund with a continuous investment program consistent with its stated
investment objectives and policies. The Advisor pays to INVESCO a fee equal to
the greater of (i) 0.375% per annum of the World Fund's aggregate average
daily net assets up to $500 million, and 0.30% per annum of such net assets in
excess of $500 million, or (ii) $20,000 per year. Such fee is paid monthly in
arrears. The sub-advisory agreement must be approved annually in one of the
same ways as for the Company's advisory agreement as described above. The
sub-advisory agreement also may be terminated by either INVESCO or by action
of the Board of Directors of the Company or the shareholders of the World Fund
on 60 days' written notice, without penalty, and terminates automatically in
the event of its assignment. For the period April 1, 1996 to June 30, 1999,
INVESCO provided the same services under identical sub-advisory agreements and
prior to that, Cashman Farrell & Associates was the subadvisor under a similar
sub-advisory agreement.
Also as described in the Prospectus, the Advisor has entered into a
sub-advisory agreement with Evergreen with respect to the High Yield Fund.
Pursuant to this agreement, Evergreen provides the Advisor with a continuous
investment program consistent with the High Yield Fund's stated investment
objectives and policies. Under this agreement, the Advisor pays a fee to
Evergreen equal to one half of the fee paid by the High Yield Fund to the
Advisor, provided that the fee paid by the Advisor to Evergreen will always be
at least 0.35% per annum of the average daily net assets of the High Yield
Fund. This agreement became effective June 20, 1997. This sub-advisory
agreement also may be terminated by either of the Advisor or Evergreen or by
action of the Board of Directors of the Company or the shareholders of the
High Yield Fund on 60 days' written notice, without penalty, and terminates
automatically in the event of its assignment.
Also, as described in the Prospectus, the Advisor has entered into a
sub-advisory agreement with Alger with respect to the Flex Cap Opportunity
Fund. Pursuant to this agreement, Alger provides the Advisor with a continuous
investment program consistent with the Flex Cap Opportunity Fund's stated
investment objective and policies. Under this agreement, the Advisor pays a
fee to Alger equal to 0.50% per annum of the average daily net assets of the
Flex Cap Opportunity Fund. This agreement became effective February 29, 2000.
This sub-advisory agreement also may be terminated by either of the Advisor or
Alger or by action of the Board of Directors of the Company or the
shareholders of the Flex Cap Opportunity Fund on 60 days' written notice,
without penalty, and terminates automatically in the event of its assignment.
The fees paid to INVESCO and Evergreen by the Advisor for the fiscal year
ended November 30, 1999 were $465,054 and $346,694, respectively. The fees
paid to INVESCO and Evergreen by the Advisor for the fiscal year ended
November 30, 1998 were $430,058 and $253,092, respectively; and the fees paid
to INVESCO and Evergreen by the Advisor for the fiscal year ended November 30,
1997 were $329,200 and $52,589, respectively.
PRINCIPAL UNDERWRITER
SFSC acts as the principal underwriter of shares of the Funds. Its
principal business address is National Life Drive, Montpelier, Vermont 05604.
The Funds receive the net asset value, as determined for the purpose of
establishing the offering price, of each share sold. SFSC has advised the
Funds that it allows dealer concessions as shown in the Prospectus, except
that items of a promotional nature amounting in value to not more than $100
may be given from time to time as a sales incentive to registered
representatives. SFSC has advised the Funds that the total amount of
underwriting commissions paid to it in the fiscal years ended November 30,
1999, 1998 and 1997 were $3,382,541, $4,834,945 and $4,790,051, respectively.
Of this amount, SFSC retained, in the fiscal years ended November 30, 1999,
1998 and 1997, $157,275, $153,177 and $148,883.
During the fiscal year ended November 30, 1999, SFSC also received
$785,304 in contingent deferred sales loads. It did not receive any brokerage
commissions or other compensation from the Funds. The distribution contracts
of the Company and the Pennsylvania Fund provide that SFSC use its best
efforts to continuously offer the Funds' shares. These contracts may be
terminated by either party thereto on 60 days' written notice, without
penalty, and they terminate automatically in the event of their assignment.
The distribution contracts must be approved annually in one of the same ways
as described above for the advisory agreements.
THE DISTRIBUTION PLANS
The Company and the Pennsylvania Fund have adopted several plans pursuant
to Rule 12b-1 under the 1940 Act. One such plan applies to the Class A shares
of the Company's Funds (other than the Money Market Fund). In addition, the
Short Maturity Government Fund has a separate Supplemental Distribution Plan
applicable only to it. The Pennsylvania Fund has a Distribution Plan
applicable only to it. The Class B shares of the Small Company, World, Common
Stock, Balanced, and Bond Funds have adopted a Class B Distribution Plan,
effective April 1, 1996. The Plans were extended to include the High Yield
Fund's Class A and Class B shares on March 14, 1997, and the Class B
Distribution Plan was extended to include the Class B shares of the Mid Cap
Growth Fund effective January 12, 1998. The Plans were extended to include the
Class A shares and Class B shares of the Growth Index Fund on June 10, 1999.
Effective May 4, 1998, the Class C shares of the Common Stock, Balanced, World
and High Yield Funds have adopted a Class C Distribution. The Class D shares
of the Balanced Fund adopted a Class D Distribution Plan on August 21, 1998
Plan (all of these plans are collectively hereinafter referred to as the
"Plans"). The Plans were further extended to include the Class A, Class B and
Class C shares of the Flex Cap Opportunity Fund on December 9, 1999. In all
cases, the Plans reimburse SFSC for expenses actually incurred.
The Class A, Class B and Class C shares of each Fund (except for the
Money Market Fund) paid fees for the various activities shown below under the
Plans in the amounts set forth below for the fiscal year ended November 30,
1999.
<TABLE>
<CAPTION>
RECOVERY OF SALARY RENT
SERVICE FEES PREPAID SALES AND & OTHER
FUND PAID TO DEALERS COMMISSION BENEFITS MISC. EXP.
<S> <C> <C> <C> <C>
Common $ 2,572,400 $ 1,059,634 $1,398,354 272,248
Balanced 631,092 388,919 298,428 57,867
Mid Cap Growth 196,125 60,856 98,496 19,828
Small Company 202,588 87,064 94,707 18,403
World 93,750 151,269 98,103 19,459
High Yield 58,200 316,445 58,147 11,362
Bond 101,511 135,418 82,651 16,098
Government 60,032 - 56,106 10,832
Short Maturity 63,117 - 56,727 11,066
Tax Free 166,316 - 69,484 13,521
NY Tax Free 27,413 - 12,541 2,484
PA Tax Free 17,625 - 25,877 5,000
Growth Index - 4,518 1,562 605
TOTAL $ 4,190,169 $ 2,204,123 $2,351,183 $ 458,773
</TABLE>
FUND PROSPECTUS TOTAL
PRINTING & TRAVEL & 12B-1
SALES ENTERTAINMENT ACCRUAL
PROMOTION
Common $ 752,231 $ 236,461 $ 9,952
Balanced 166,176 50,442 6,347,823
Mid Cap Growth 61,711 16,692 1,528,854
Small Company 65,369 15,990 438,285
World 59,286 16,616 452,477
High Yield 31,911 9,831 536,938
Bond 45,904 13,975 494,567
Government 31,729 9,484 363,256
Short Maturity 30,391 9,597 142,162
Tax Free 36,725 11,760 253,042
NY Tax Free 6,263 2,122 177,146
PA Tax Free 13,991 4,369 32,161
Growth Index 1,226 284 65,572
$ 1,302,913 $ 397,623 $10,842,235
Under the Plan applicable to the Class B shares of the Funds, it is
expected that the amounts payable to SFSC will be equal to 1.00% of the net
assets of the Class B shares of the relevant Funds (except that this amount
will be less for the High Yield Fun Class B shares for so long as National
Life maintains a significant investment in High Yield Fund Class B shares).
SFSC will use such payments to recoup the cost of commissions paid to brokers
at the time of sale of the Class B shares, service fees to brokers with
respect to the Class B shares, and the same types of other marketing expenses
for which SFSC receives reimbursement under the Plans applicable to the Class
A shares.
Under the Plan applicable to the Class C shares of the Funds, it is
expected that the amounts payable to SFSC will be equal to 1.00% of the net
assets of the Class C shares of the relevant Funds. SFSC will use such
payments to recoup the cost of commissions paid to brokers at the time of sale
of the Class C shares, and pay continuing commissions and service fees to
brokers with respect to the Class C shares.
Under the Plan applicable to the Class D shares of the Balanced Fund, it
is expected that the amounts payable to SFSC will be equal to 0.75% of the net
assets of the Class D shares of the Balanced Fund. SFSC will use such payments
to recoup the cost of commissions paid to brokers at the time of sale of the
Class D shares.
The Boards of the Funds believe that a consistent cash flow resulting
from the sale of new shares is necessary and appropriate to meet redemptions
and for the Funds to take advantage of buying opportunities without having to
make unwarranted liquidations of portfolio securities. Since SFSC receives no
other compensation from the Funds, the Boards believe it would benefit the
Funds to have monies available for the direct distribution activities of SFSC
in promoting the sale of shares of the Funds.
The Plans have been approved by the Company's Board of Directors and the
Pennsylvania Fund's Board of Trustees, including all of the directors/trustees
who are not interested persons as defined in the 1940 Act. The Plans must be
renewed annually by the Boards, including a majority of the directors/trustees
who are not interested persons and who have no direct or indirect financial
interest in the operation of the Plans. It is also required that the selection
and nomination of such directors/trustees be done by the disinterested
directors/trustees. The Plans and any distribution agreement may be terminated
at any time, without penalty, by such directors/trustees on 60 days' written
notice. SFSC or any dealer may also terminate their respective distribution
agreement at any time upon written notice.
The Plans and any distribution agreement may not be amended to increase
materially the amount spent for distribution expenses or in any other material
way without approval by a majority of the Funds' outstanding shares, and all
such material amendments to any Plan or any distribution agreement also shall
be approved by a vote of a majority of the disinterested directors/trustees,
cast in person at a meeting called for the purpose of voting on any such
amendment.
SFSC is required to report in writing to the Board of Directors of the
Company and the Board of Trustees of the Pennsylvania Fund at least quarterly
on the amounts and purpose of any payments made under the Plans and any
distribution agreement, as well as to furnish the Boards with such other
information as reasonably may be requested in order to enable the Boards to
make informed determinations of whether the Plans should be continued.
THE FUND SERVICES AGREEMENTS
Sentinel Administrative Service Company ("Sentinel Service"), in
accordance with its Fund Services Agreements with the Funds, provides the
Funds with certain fund accounting, financial administration, transfer agency
and shareholder relations services. Sentinel Service performs the transfer
agency responsibilities utilizing, through State Street Bank & Trust - Kansas
City ("State Street"), the computer system of DST Systems, Inc. ("DST") on a
remote basis.
For these services, the Fund Services Agreements currently provide for
the Funds to pay to Sentinel Service fixed fees totalling $896,625 per year
for fund accounting and financial administration services. The Agreements also
provide for an annual fee for transfer agency and shareholder relations
services to the Company and the Pennsylvania Fund of $2,563,000 and $37,000,
respectively, plus amounts equal to annual rates of $15 per shareholder
account in excess of 106,500 and 1,500, respectively, in each case as of the
last day of the month preceding the installment due date. Each Fund also is
responsible for the charges for remote access to the computer system of DST.
Generally, this is a fixed annual charge per shareholder account, plus certain
out-of-pocket expenses, minus certain credits. The fixed fees are subject to
increase under inflation clauses for fiscal years beginning December 1, 1994,
and thereafter, to the extent approved by the Board of Directors or Board of
Trustees. Fees are payable monthly in arrears.
Total fees payable to Sentinel Service under the Fund Services Agreements
for the years ended November 30, 1999, 1998 and 1997 were $3,660,697,
$3,596,581 and $3,526,500, respectively.
Sentinel Service is a Vermont general partnership of which affiliates of
National Life, Provident and Penn Mutual are the general partners.
The Company's Fund Services Agreement was approved by the Company's
shareholders on November 30, 1992, and the Pennsylvania Fund's Fund Services
Agreement was approved by that Fund's shareholders on February 19, 1993. The
agreements were approved by the Company's Board of Directors and the
Pennsylvania Fund's Board of Trustees on August 13, 1992 and August 14, 1992,
respectively. Each agreement must be approved annually by vote of the Board or
by the vote of a majority of the outstanding voting securities of each Fund,
but in either event it must also be approved by a vote of a majority of the
directors/trustees who are not parties to the contract, or interested persons,
as defined in the 1940 Act, of any such party, cast in person at a meeting
called for the purpose of voting on such approval. The Fund Services
Agreements will terminate automatically in the event of their assignment and
are terminable at any time without penalty by the applicable Board or, as to a
particular Fund, by a majority of the applicable Fund's outstanding voting
securities on not more than 60 days' written notice to Sentinel Service and by
Sentinel Service on 60 days' notice to the Fund.
PORTFOLIO TRANSACTIONS
AND BROKERAGE COMMISSIONS
The Funds' policy, other than for the Flex Cap Opportunity Fund, in the
case of listed securities is to place its orders with firms that are members
of a stock exchange on which such securities are listed or traded and in the
case of securities traded in the over-the-counter market to deal directly with
dealers who are primary market makers in such securities, without the use of a
broker unless the Funds can obtain better price or execution through the use
of a broker. Purchases are made for investment and not for trading purposes,
except for the fixed income Funds where trading may be an important factor.
Subject to the direction and control of the Boards and in accordance with its
advisory agreements, the Advisor supervises the investments of the Funds and,
as an essential feature thereof, places orders for the purchase and sale of
portfolio securities and supervises their execution, including negotiating the
amount of the commission rate paid, in each case at prices it believes to be
the best then available, taking into consideration such factors as price,
commission, size of order, difficulty of execution and skill required of the
executing broker-dealer as well as the extent to which a broker capable of
satisfactory execution may provide research information and statistical and
other services to the Advisor. Sales of shares of the Funds may also be
considered as a factor in the selection of broker-dealers to execute portfolio
transactions for the Funds, subject to the conditions that commissions paid to
such broker-dealers be no higher than would otherwise be paid, and that the
prices be, in the judgment of the Advisor, the best then available.
To the extent consistent with applicable provisions of the 1940 Act and
the rules and exemptions adopted by the SEC thereunder, as well as other
regulatory requirements, portfolio transactions for the Flex Cap Opportunity
Fund will be executed through Fred Alger & Company, Incorporated (the "Alger
Broker"), if in the judgment of Alger, the use of the Alger Broker is likely
to result in price and execution at least as favorable as those of other
qualified broker-dealers and if, in particular transactions, the Alger Broker
charges the Flex Cap Opportunity Fund a rate consistent with that charged to
comparable unaffiliated customers in similar transactions. Over-the-counter
purchases and sales are transacted directly with principal market makers
except in those cases in which better prices and executions may be obtained
elsewhere. Principal transactions are not entered into with affiliates of the
Fund except pursuant to exemptive rules or orders adopted by the SEC.
In selecting brokers or dealers to execute portfolio transactions for the
Flex Cap Opportunity Fund, Alger seeks the best overall terms available. In
assessing the best overall terms available for any transaction, Alger will
consider the factors it deems relevant, including the breadth of the market in
the investment, the price of the investment, the financial condition and
execution capability of the broker or dealer and the reasonableness of the
commission, if any, for the specific transaction and on a continuing basis.
In making such purchases and sales, the brokerage commissions are paid by
the Funds. The Funds may also buy or sell securities from, or to, dealers
acting as principals.
Section 28(e) of the 1934 Act, which was enacted by Congress in
connection with the elimination of fixed commission rates on May 1, 1975,
provides that, except as agreements such as investment advisory contracts
otherwise provide, money managers such as the Advisor and the Funds'
subadvisors will not be deemed to have acted unlawfully or to have breached a
fiduciary duty if, subject to certain conditions, a broker-dealer is paid in
return for brokerage and research services an amount of commission for
effecting transactions for accounts, such as the Funds, in excess of the
amount of commission another broker-dealer would charge for effecting the
transaction. In order to cause the Funds to pay such greater commissions, the
Advisor or subadvisor has to determine in good faith that the greater
commission is reasonable in relation to the value of the brokerage and
research services provided by the broker-dealer viewed in terms of either a
particular transaction or the Advisor's or subadvisor's overall
responsibilities to the Funds and to its other clients.
Brokerage and research services, as provided in Section 28(e) of the 1934
Act, include advice as to the value of securities, the advisability of
investing in, purchasing or selling securities, the availability of securities
or purchasers or sellers of securities; furnishing analyses and reports
concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts and effecting securities
transactions and performing functions incidental thereto (such as clearance,
settlement and custody).
Although research and market and statistical information from brokers and
dealers can be useful to the Funds, to the Advisor, and to the subadvisors, it
is the opinion of the management of the Funds that such information is only
supplementary to the Advisor's and the subadvisors' own research effort since
the information must still be analyzed, weighed and reviewed by the Advisor's
staff or the subadvisors' staffs.
The Advisor obtains several research services specifically in exchange
for commissions paid by the Funds and its other clients. These services
primarily consist of electronic research services from Bloomberg, ILX,
Factset, and First Call. The Funds also obtain Lipper Directors' Analytical
Data from Lipper Analytical Distributors, Inc., in exchange for Fund brokerage
commissions. This service is available only for brokerage commissions.
The research services provided by brokers through which the Funds effect
securities transactions may be used by the Advisor or the subadvisors in
managing its other client accounts, as well as the Funds. However, the Advisor
and the subadvisors use the commissions paid by most of their other client
accounts to obtain research services as well, and this research is also useful
in managing the Funds' accounts, as well those of other clients.
Except for implementing the policies stated above, there is no commitment
to place portfolio transactions with brokers or dealers who provide investment
research. The Advisor has advised the Funds that it is not feasible to assign
any precise value to services provided by such brokers and dealers to it, nor
does the use of such services reduce its expense by any measurable or
significant amount. For the years ended November 30, 1999, 1998 and 1997 the
Funds paid total brokerage commissions of $1,895,116, $1,804,189 and
$1,467,627, respectively. Brokerage commissions paid by each Fund were as
follows:
<TABLE>
<CAPTION>
Year Ended
Fund 11/30/99 11/30/98 11/30/97
- ---- -------- --------
<S> <C> <C> <C>
Common Stock 1,820,575 $1,152,082 $860,093
Balanced 258,922 194,922 119,380
Mid Cap Growth 254,820 255,666 222,905
Small Company 128,898 201,520 128,474
World 156,812 90,926 136,775
High Yield(1) --- --- ---
Bond --- --- ---
Government Securities --- --- ---
Short Maturity Gov't (2) --- --- ---
Money Market --- --- ---
Tax-Free Income --- --- ---
New York (3) --- --- ---
Pennsylvania --- --- ---
Growth Index (4) --- --- ---
Flex Cap Opportunity(5) --- --- ---
</TABLE>
(1) Commenced operations on June 23, 1997
(2) Commenced operations on March 24, 1995.
(3) Commenced operations on March 27, 1995.
(4) Commenced operations on September 10, 1999.
(5) Commenced operations on February 29, 2000.
The Funds paid brokerage commissions of $54,684, $28,702 and $24,384 to
Janney Montgomery Scott Inc. for the fiscal years ended November 30, 1999,
November 30, 1998 and 1997, respectively. Janney Montgomery Scott, Inc. is
wholly owned by Penn Mutual, an affiliate of a general partner of the Advisor.
These commissions were 2.1% of the Funds' aggregate brokerage commissions paid
in the fiscal year ended November 30, 1999. The commission rate applicable to
all such transactions was $.06 per share, the same commission rate paid by the
Funds in all its transactions.
Such commissions were allocated on the basis of research and statistical
or other services provided by the dealer, although selling group dealers may
have participated therein. Of the total commissions paid by the Funds, 100%
was allocated in 1999, 1998 and 1997 to brokers or dealers whose furnishing of
research information was a factor in their selection.
PORTFOLIO TURNOVER
Purchases for the Small Company, Common Stock, Growth Index, World,
Balanced and Pennsylvania Funds are made for long-term investment, and not for
short-term trading profits. However, during rapidly changing conditions, there
necessarily may be more portfolio changes than in a more stable period and
these may result in short-term gains or short-term losses.
The Mid Cap Growth, and Flex Cap Opportunity Funds may have a high level
of portfolio turnover. These Funds may engage in relatively short term trading
in some stocks. This activity may create higher transaction costs due to
commissions and other expenses. In addition, a high level of short term
trading may increase the Mid Cap Growth Fund's and the Flex Cap Opportunity
Fund's realized gains, thereby increasing the amount of taxable distributions
to shareholders at the end of the year.
In pursuit of the investment objectives of the High Yield, Bond,
Government Securities, Short Maturity Government, Tax-Free Income and New York
Funds and the bond portion of the Balanced Fund, it is expected that assets
will be managed actively. In order to maximize income and protect the income
stream or improve the quality of the portfolio, in light of market and
economic conditions as interpreted or anticipated by the Advisor, these Funds'
portfolios will be monitored constantly and will be adjusted when deemed
appropriate in furtherance of the Funds' investment objectives. Portfolio
turnover is the ratio of the lesser of annual purchases or sales of portfolio
securities to average monthly market value, not including short-term
securities.
There were no significant variations in the Funds' portfolio turnover
rates over the two most recently completed fiscal years, or any anticipated
variations in these portfolio turnover rates from those in the fiscal year
ended November 30, 1999, except that portfolio turnover for the Balanced Fund
increased from 81% to 110% due to more active management of the bond portion
of the Fund, and that portoflio turnover increased from 147% to 207% for the
Bond Fund, again due to more active management of the Fund's bond investments.
CAPITALIZATION
Shares of the Company's common stock and shares of beneficial interest in
the Pennsylvania Fund are fully paid and non-assessable. Each such share is
freely assignable to another bona fide investor by way of pledge (as, for
example, for collateral purposes), gift, settlement of an estate and, also, by
an investor who has held such Fund shares for not less than 30 days. Each
share of the Company is entitled to one vote per dollar of net asset value per
share, on matters on which all Funds of the Company vote as a single class.
Each share of the Pennsylvania Fund entitles the holder to one vote for all
purposes.
The proceeds from the sale of shares of each Fund or class of shares of
the Company and all income, earnings and profits therefrom irrevocably
appertain to the Fund or class of shares. Each such Fund or class of shares
records all liabilities (including accrued expenses) in respect of such Fund
or class of shares, as well as a share of such liabilities (including general
liabilities of the Company) in respect to two or more Funds or classes of
shares, in proportion to their average net assets, or in proportion to the
number of their respective shareholders. The Company's Board has adopted an
"Amended Rule 18f-3 Plan" under which the methods of allocating income and
expenses among classes of shares of each Fund which has multiple classes, is
specified, and the Company intends to comply fully with the provisions of Rule
18f-3 under the 1940 Act in allocating income and expenses among the classes
of such Funds. If any reasonable doubt exists as to the Fund or class of
shares to which any asset or liability appertains, the Board may resolve such
doubt by resolution.
In the case of dissolution or liquidation of the Company, the
shareholders of each Fund of the Company are entitled to receive ratably per
share the net assets of such Fund, with any general assets of the Company
distributed ratably per share, regardless of the Fund.
Voting rights are non-cumulative, meaning that the holders of more than
50% of the shares voting for the election of directors/trustees can elect 100%
of the directors/trustees being voted upon if they choose to do so, and, in
such event the holders of the remaining minority of the shares voting for the
election of directors/trustees will not be able to elect any person or persons
to the Board.
HOW TO PURCHASE SHARES
and
REDUCE SALES CHARGES
Shares of the Funds may be purchased at the public offering price from
any authorized investment dealer as described in the Prospectus. The public
offering price of Class A shares, which are offered by every Fund, is the sum
of the current net asset value per share plus a sales charge which ranges from
5.0% to 0% of the purchase price. The public offering price of Class B shares,
which are offered by the Common Stock, Balanced, Mid Cap Growth, Small
Company, World, High Yield and Bond Funds, is equal to the current net asset
value per share. The public offering price of Class C shares, which are
offered by the Common Stock, Balanced, World and High Yield Funds, and the
Class D shares offered by the Balanced Fund, is also equal to the current net
asset value per share. A contingent deferred sales charge ("CDSC") may apply
to redemptions of Class B and Class D shares, redemption of Class C shares in
the first year after purchase, or to redemptions of Class A shares where the
initial sales charge was zero based on a purchase of $1,000,000 or more. See
"Purchase Options" in the Prospectus.
The Group Purchase Program - Clients of a single registered
representative or group of affiliated registered representatives who make
purchases by opening new accounts within a 60-day period and whose funds for
such purchases all originate from a single other source may aggregate such
purchases for purposes of determining the applicable sales charge level or
CDSC schedule for such purchases.
ISSUANCE OF SHARES AT NET ASSET VALUE
Subject to the applicable provisions of the 1940 Act, certain investors
may purchase Class A shares of the Funds at net asset value. Such investors
are listed in the Prospectus. Such investors include officers, directors and
employees of the Funds, the Advisor, and the Advisors' affiliates. See
"Purchase Options - Class A Shares - Reduced Sales Charges" in the Prospectus.
The Funds normally will buy back your shares on demand on any business
day (as defined below). Class A shares generally are repurchased at current
net asset value; a CDSC may be payable on redemptions of Class B, Class C or
Class D shares, or Class A shares of the Money Market Fund received in
exchange for Class C shares of another Fund or Class D shares of the Balanced
Fund, and will be deducted from the redemption proceeds. For further
information, please refer to the Prospectus.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Fund or class of shares is computed
by dividing the total value of the assets of that Fund or class of shares,
less its liabilities, by the total number of such Fund's or class of shares'
outstanding shares. Equity securities which are traded on a national
securities exchange are valued at the last reported sale price each business
day at the regular close of trading, currently 4:00 p.m. Eastern time. Equity
securities for which there were no sales during the day are valued at the mean
between the latest available bid and asked prices. Fixed-income securities are
valued daily on the basis of valuations furnished by a pricing service which
determines valuations for normal institutional-sized trading units of debt
securities, without exclusive reliance upon quoted prices. These valuations by
the pricing service are believed to reflect more accurately the fair market
value of such securities than the last reported sale. Net asset value is
calculated once each business day, at 4:00 p.m. Eastern time, and becomes
effective immediately upon its determination. Orders to purchase shares of the
Funds received by dealers prior to 4:00 p.m. Eastern time will be confirmed on
the basis of such closing price, provided they are received by the Distributor
prior to the close of its business day. Orders received by dealers after 4:00
p.m. Eastern time will be confirmed on the same basis as previously stated
with respect to the next business day. "Business day" means a day on which the
New York Stock Exchange is open. The New York Stock Exchange is not open on
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
The Money Market Fund values its portfolio securities based on their
amortized cost in accordance with SEC regulations. The amortized cost method
of valuation involves valuing a security at its cost at the time of purchase
and thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. During such periods the yield to investors in the
Money Market Fund may differ somewhat from that obtained in a similar
investment company which uses mark-to-market value for all of its portfolio
securities. For example, if the use of amortized cost resulted in a lower
(higher) aggregate portfolio value on a particular day, a prospective investor
in the Money Market Fund would be able to obtain a somewhat higher (lower)
yield than would result from investment in such a similar company which
utilizes mark-to-market values and existing investors would receive less
(more) investment income. The purpose of this method of calculation is to
attempt to maintain a constant net asset value per share of $1.00.
In accordance with the SEC rule permitting the use of the amortized cost
method of valuation, the Money Market Fund will maintain a dollar-weighted
average portfolio maturity of 90 days or less, and must purchase instruments
having remaining maturities of 397 days (13 months) or less. In addition, the
Directors of the Company have established procedures designed to stabilize, to
the extent reasonably possible, the Money Market Fund's price per share as
computed for the purpose of sales and redemptions at $1.00. The Company's
Directors will review periodically the Money Market Fund's portfolio holdings
to determine whether a deviation exists between the net asset value calculated
using market quotations and that calculated on an amortized cost basis. In the
event the directors determine that a deviation exists which may result in
material dilution or other unfair results to existing shareholders, the Money
Market Fund will take such corrective action as it regards as necessary and
appropriate, including (i) the reduction of the number of outstanding shares
of the Money Market Fund by having each shareholder proportionately contribute
shares to the Money Market Fund's capital, (ii) the sale of portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity, (iii) the withholding of dividends or (iv) the
establishment of a net asset value per share by using available market
quotations. If the number of outstanding shares is reduced in order to
maintain a constant net asset value of $1.00 per share, the shareholders will
contribute proportionately to the Money Market Fund's capital the number of
shares which represent the difference between the amortized cost valuation and
the market valuation of the portfolio. Each shareholder will be deemed to have
agreed to such contribution by such shareholder's investment in the Money
Market Fund.
Since the net income of the Money Market Fund is determined and declared
as a dividend immediately prior to each time the asset value of the Money
Market Fund is determined, the net asset value per share of the Money Market
Fund normally remains at $1.00 per share immediately after each such dividend
declaration. Any increase in the value of a shareholder's investment in the
Money Market Fund, representing the reinvestment of dividend income, is
reflected by an increase in the number of shares of the Money Market Fund in
that shareholder's account and any decrease in the value of a shareholder's
investment may be reflected by a reduction in the number of shares in the
account. See "Taxes" below.
COMPUTATION OF MAXIMUM OFFERING PRICES AT NOVEMBER 30, 1999
Class A Shares:
(Reduced offering prices apply on purchases of $100,000 or more of shares of
the Funds, as described in the Prospectus.)
<TABLE>
<CAPTION>
Common Mid Cap Small
Stock Balanced Growth Company World
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Net assets $1,538,670,516 $297,027,373 $140,632,815 $107,919,194 $107,413,034
Shares outstanding 35,854,259 15,326,401 7,902,012 18,785,106 5,047,081
Net asset value per
share (redemption
price) $42.91 $19.38 $17.80 $5.74 $21.28
Maximum offering
price per share* $45.17 $20.40 $18.74 $6.04 $22.40
============================================================================================================
Government Short Maturity
Bond Securities Gov't. Money Market Growth Index
Fund Fund Fund Fund Fund
Net assets $82,106,965 $65,136,283 $67,647,478 $121,884,133 $28,530,231
Shares outstanding 13,816,817 6,813,609 7,061,732 121,884,133 $ 1,339,455
Net asset value per
share (redemption
price) $5.94 $9.56 $9.58 $1.00 $21.30
Maximum offering
price per share* $6.19 $9.96 $9.68 $1.00 $21.85
============================================================================================================
Tax-Free
Income New York Pennsylvania High Yield
Fund Fund Fund Bond Fund
Net assets $85,974,722 $16,175,014 $30,630,106 $28,252,770
Shares outstanding 6,822,312 1,444,375 2,521,307 3,074,099
Net asset value per
share (redemption
price) $12.60 $11.20 $12.15 $9.19
Maximum offering
price per share* $13.13 $11.67 $12.66 $9.57
===========================================================================================================
</TABLE>
The Flex Cap Opportunity Fund did not exist as of November 30, 1999.
For the Common Stock Fund, Balanced Fund, Mid Cap Growth Fund, Small Company
Fund and World Fund, the maximum offering price is 1000/950 times the net
asset value per share. For the High Yield Bond Fund, Bond Fund, Government
Securities Fund, Tax-Free Income Fund, New York Tax-Free Income Fund and
Pennsylvania Tax-Free Trust, the maximum offering price is 1000/960 times the
net asset value per share. For the Short Maturity Government Fund, the maximum
offering price is 1000/990 times the net asset value per share. For the Money
Market Fund, the maximum offering price per share is equal to the net asset
value per share for the Growth Index Fund, the maximum offering price is
1000/975 times the net asset value per share.
In the case of Class B, Class C shares and Class D shares, the maximum
offering price is equal to the net asset value per share.
TAXES
General
Each Fund intends to continue to qualify (and the Flex Cap Opportunity
Fund intends to elect and to qualify) for the special tax treatment afforded
regulated investment companies ("RICs") under the Code. As long as it so
qualifies, a Fund will not be subject to federal income tax on the part of its
net ordinary income and net realized capital gains which it distributes to
Class A, Class B Class C and Class D shareholders, as applicable. Each Fund
intends to distribute substantially all of such income.
As discussed in the Prospectus, the Company consists of fourteen separate
Funds. Each such Fund is treated as a separate corporation for federal income
tax purposes and is thus considered to be a separate entity in determining its
treatment under the rules for RICs described in the Prospectus. Losses in one
Fund do not offset gains in another Fund, and the requirements (other than
certain organizational requirements) for qualifying for RIC status are
determined at the Fund level rather than at the Company level.
Dividends paid by a Fund from its ordinary income or from an excess of
net short-term capital gains over net long-term capital losses (together
referred to hereafter as "ordinary income dividends") are taxable to
shareholders as ordinary income for federal income tax purposes. However,
"exempt-interest dividends" (as defined in Section 852(b)(5) of the Code) not
subject to federal income tax are expected to be paid by the Tax-Free Income
Fund, "exempt-interest dividends" not subject to either federal income tax or
Pennsylvania personal income tax are expected to be paid by the Pennsylvania
Fund, and "exempt-interest dividends" not subject to either federal income tax
or New York State and City personal income tax are expected to be paid by the
New York Fund, as described in the Prospectus. Distributions made from an
excess of net long-term capital gains over net short-term capital losses
(hereinafter referred to as "capital gain dividends") are taxable to
shareholders as long-term capital gains for federal income tax purposes,
regardless of the length of time the shareholder has owned such Fund's shares.
Certain categories of capital gains are taxable at different rates. Generally
not later than 60 days after the close of its taxable year, each Fund will
provide its shareholders with a written notice designating the amounts of any
exempt-interest dividends and capital gain dividends, (as well as any amount
of capital gain dividends in the different categories of capital gain referred
to above), and the portion of any ordinary income dividends eligible for the
dividends received deduction allowed to corporations under the Code. Any loss
upon the sale or exchange of Fund shares held for six months or less will be
disallowed for federal income tax purposes to the extent of any capital gain
dividends received by the shareholder. Distributions in excess of a Fund's
earnings and profits will first reduce the adjusted tax basis of a holder's
shares and, after such adjusted tax basis is reduced to zero, will constitute
capital gains to such holder for federal income tax purposes (assuming the
shares are held as a capital asset).
With the exception of exempt-interest dividends paid by the Tax-Exempt
Funds, dividends are taxable to shareholders for federal income tax purposes
even though they are reinvested in additional shares of the Funds. Generally,
distributions by the Tax-Exempt Funds, the World Fund, the Bond Fund, the
Government Securities Fund, the High Yield Fund, the Short Maturity Government
Fund and the Money Market Fund will not be eligible for the dividends received
deduction allowed to corporations under the Code. The Funds will allocate any
dividends eligible for dividends received deduction among theClass A, Class B,
Class C and Class D shareholders as applicable according to a method (which
they believe is consistent with SEC Rule 18f-3 which authorizes the issuance
and sale of multiple classes of shares) that is based on the gross income
allocable to Class A, Class B, Class C and Class D shares during the taxable
year, or such other method as the Internal Revenue Service may prescribe. If a
Fund pays a dividend in January which was declared in the previous October,
November or December to shareholders of record on a specified date in one of
such months, then such dividend will be treated for federal income tax
purposes as having been paid by the RIC and received by its shareholders on
December 31st of the year in which the dividend was declared.
If the value of assets held by the Money Market Fund declines, the Board
of Directors may authorize a reduction in the number of outstanding shares in
shareholders' accounts so as to preserve a net asset value of $1.00 per share.
After such a reduction, the basis of eliminated shares will, for federal
income tax purposes, be added to the basis of shareholders' remaining Fund
shares, and any shareholders disposing of shares at that time may recognize a
capital loss. Distributions, including distributions reinvested in additional
shares of the Fund, will nonetheless be fully taxable for federal income tax
purposes, even if the number of shares in shareholders' accounts has been
reduced as described above.
Under certain provisions of the Code, some shareholders may be subject to
a 31% withholding tax on most ordinary income dividends and on capital gain
dividends and redemption payments ("backup withholding"). Generally,
shareholders subject to backup withholding will be those for whom no certified
taxpayer identification number is on file with the Company or the Pennsylvania
Fund, as the case may be, or who, to the Company's or Pennsylvania Fund's
knowledge, have furnished an incorrect number. When establishing an account,
an investor must certify under penalty of perjury that such number is correct
and that such investor is not otherwise subject to backup withholding.
Ordinary income dividends paid to shareholders who are nonresident aliens
or foreign entities will be subject to a 30% United States withholding tax
under existing provisions of the Code applicable to foreign individuals and
entities, unless a reduced rate of withholding or a withholding exemption is
provided under applicable treaty law. Nonresident shareholders are urged to
consult their own tax advisors concerning the applicability of the United
States withholding tax.
Dividends and interest received by the World Fund (and to a lesser
extent, some of the other Funds) may give rise to withholding and other taxes
imposed by foreign countries. Tax conventions between certain countries and
the United States may reduce or eliminate such taxes. Shareholders of the
World Fund may be able to claim United States foreign tax credits with respect
to such taxes, subject to certain conditions and limitations contained in the
Code. A foreign tax credit to be claimed with respect to withholding tax on a
dividend only if the shareholder meets certain holding period requirements. A
Fund also must meet these holding period requirements, and if the Fund fails
to do so, it will not be able to "pass through" to shareholders the ability to
claim a credit or a deduction for the related foreign taxes paid by such Fund.
If a Fund satisfies the holding period requirements and if more than 50% in
value of a Fund's total assets at the close of its taxable year consists of
securities of foreign corporations, such Fund will be eligible to file an
election with the Internal Revenue Service pursuant to which shareholders of
the Fund will be required to include their proportionate shares of such
withholding taxes in their United States income tax returns as gross income,
treat such proportionate shares as taxes paid by them, and deduct such
proportionate shares in computing their taxable incomes or, alternatively, use
them as foreign tax credits against their United States income taxes. No
deductions for foreign taxes, moreover, may be claimed by noncorporate
shareholders who do not itemize deductions. A shareholder that is a
nonresident alien individual or a foreign corporation may be subject to United
States withholding tax on the income resulting from a Fund's election
described in this paragraph but may not be able to claim a credit or deduction
against such United States tax for the foreign taxes treated as having been
paid by such shareholder. Additionally, certain retirement accounts cannot
claim foreign tax credits on investments in foreign securities held in a Fund.
The World Fund, and other Funds to the extent applicable, will report annually
to shareholders the amount per share of such withholding taxes and other
information needed to claim the foreign tax credit. For purposes of passing
through the foreign tax credit, the World Fund will allocate foreign taxes and
foreign source income among the Class A, Class B and Class C shares according
to a method similar to that described above for the allocation of dividends
eligible for the dividends received deduction.
No gain or loss will be recognized for federal income tax purposes by
Class B shareholders on the conversion of their Class B shares into Class A
shares. A shareholder's basis in the Class A shares acquired will be the same
as such shareholder's basis in the Class B shares converted, and the holding
period of the acquired Class A shares will include the holding period for the
converted Class B shares.
If a shareholder exercises an Exchange Privilege as described below
within 90 days of acquiring such shares, then the loss such shareholder can
recognize on the exchange for federal income tax purposes will be reduced (or
the gain increased) to the extent any sales charge paid to the Company (or
Pennsylvania Fund) reduces any sales charge such shareholder would have owed
for the shares of the new Fund in the absence of the Exchange Privilege.
Instead, such sales charge will be treated as an amount paid for the new
shares. Shareholders should consult their tax advisers regarding the state and
local tax consequences of exchanging or converting classes of shares.
A loss realized on a sale or exchange of shares of a Fund will be
disallowed for federal income tax purposes if other Fund shares are acquired
(whether through the automatic reinvestment of dividends or otherwise) within
a 61-day period beginning 30 days before and ending 30 days after the date the
shares are disposed of. In such a case, the basis of the shares acquired will
be adjusted to reflect the disallowed loss.
The Code requires each Fund to pay a non-deductible 4% excise tax to the
extent it does not distribute, during each calendar year, 98% of its ordinary
income, determined on a calendar year basis, and 98% of its capital gains and
foreign currency gains, determined on a November 30th year end, plus certain
undistributed amounts from previous years. The Company and the Pennsylvania
Fund anticipate that the Funds will make sufficient timely distributions to
avoid the imposition of the excise tax. Since the required distributions are
based only on taxable income, the excise tax generally will not apply to the
Tax-Exempt Funds, discussed below.
At November 30, 1999, the Bond, Government Securities, Short Maturity
Government, High Yield, Tax-Free, New York Tax-Free and Pennsylvania Tax-Free
Funds had capital loss carryforwards for federal income tax purposes of
$6,920,574, $7,707,369, $2,856,394, $6,033,602, $668,431, $310,230 and
$96,951, respectively.
Tax-Exempt Funds
The Tax-Exempt Funds intend to continue to qualify to pay exempt-interest
dividends. The relevant Code provision states that if, at the close of each
quarter of the respective Fund's taxable year, at least 50% of the value of
its total assets consists of obligations exempt from federal income tax
("tax-exempt obligations") under Section 103(a) of the Code (relating
generally to obligations of a state or local governmental unit), such Fund
shall be qualified to pay exempt-interest dividends to its shareholders.
Exempt-interest dividends are dividends or any part thereof paid by a
Tax-Exempt Fund which are attributable to interest on tax-exempt obligations
and designated by the Company or the Pennsylvania Fund, as the case may be, as
exempt-interest dividends in a written notice mailed to shareholders within 60
days after the close of the Fund's taxable year. Exempt-interest dividends may
be treated by shareholders for all purposes as items of interest excludable
from their federal gross income under Code Section 103(a). Exempt-interest
dividends are included, however, in determining the portion, if any, of a
person's social security benefits and railroad retirement benefits subject to
federal income taxes. Interest on indebtedness incurred or continued to
purchase or carry shares of a RIC paying exempt-interest dividends will not be
deductible by the shareholder for federal income tax purposes to the extent
attributable to exempt-interest dividends. Each shareholder is advised to
consult a tax advisor with respect to whether exempt-interest dividends retain
the exclusion under Code Section 103(a) if such shareholder were to be treated
as a "substantial user" or "related person" under Code Section 147(a) with
respect to property financed with the proceeds of an issue of "industrial
development bonds" or "private activity bonds", if any, held by the Tax-Exempt
Funds.
All or a portion of the Tax-Exempt Funds' gain from the sale or
redemption of tax-exempt obligations purchased at a market discount will be
treated as ordinary income for federal income tax purposes rather than capital
gain. This rule may increase the amount of ordinary income dividends received
by shareholders of these Funds.
Any loss upon the sale or exchange of Tax-Exempt Fund shares held for six
months or less will be disallowed for federal income tax purposes to the
extent of any exempt-interest dividends received by the shareholder. In
addition, any such loss that is not disallowed under the rule stated above
will be treated as long-term capital loss to the extent of any capital gain
dividends received by the shareholder.
The Code subjects interest received on certain otherwise tax-exempt
securities to a federal AMT. The AMT applies to interest received on private
activity bonds issued after August 7, 1986. Private activity bonds are bonds
which, although tax-exempt, are used for purposes other than those generally
performed by governmental units and which benefit non-governmental entities
(e.g., bonds used for industrial development or housing purposes). Income
received on such bonds is classified as an item of "tax preference" which
could subject investors in such bonds, including shareholders of the
Tax-Exempt Funds, to an AMT. The Tax-Exempt Funds may purchase such private
activity bonds, and will report to shareholders before February 1 of each year
the portion of such Fund's dividends declared during the preceding calendar
year which constitutes an item of tax preference for AMT purposes. The Code
further provides that corporations are subject to an AMT based, in part, on
certain differences between taxable income as adjusted for other tax
preferences and the corporation's "adjusted current earnings", which more
closely reflect a corporation's economic income. Because an exempt-interest
dividend paid by a Tax-Exempt Fund will be included in adjusted current
earnings, a corporate shareholder may be required to pay the AMT on
exempt-interest dividends paid by such Funds.
The Code provides that every person required to file a tax return must
include on such return the amount of exempt-interest dividends received from
the Tax-Exempt Funds during the taxable year.
Tax Treatment of Options and Futures Transactions
The Tax-Exempt Funds may purchase or sell financial futures contracts and
call and put options on financial futures contracts. In general, unless an
election is available to a Fund or an exception applies, such options and
futures contracts that are "Section 1256 contracts" will be "marked to market"
for federal income tax purposes at the end of each taxable year, i.e., each
such option or financial futures contract will be treated as having been sold
for its fair market value on the last day of the taxable year, and any gain or
loss attributable to Section 1256 contracts will be 60% long-term and 40%
short-term capital gain or loss. Application of these rules to Section 1256
contracts held by the Tax-Exempt Funds may alter the timing and character of
distributions to shareholders. The mark-to-market rules outlined above,
however, will not apply to certain transactions entered into by the Tax-Exempt
Funds solely to reduce the risk of changes in price or interest rates with
respect to their investments.
Code Section 1092, which applies to certain "straddles", may affect the
taxation of the Tax-Exempt Funds' sales of securities and transactions in
financial futures contracts or options thereon and the World Fund's sales of
securities and transactions in forward foreign exchange contracts, discussed
below. Under Section 1092, the Tax-Exempt Funds may be required to postpone
recognition for tax purposes of losses incurred in certain sales of securities
and closing transactions in financial futures contracts or options thereon.
The World Fund likewise may be required to postpone recognition of losses in
connection with its forward foreign exchange contracts.
Foreign Currency Transactions
In general, gains from "foreign currencies" and from foreign currency
options, foreign currency futures and forward foreign exchange contracts
relating to investments in stock, securities or foreign currencies will be
qualifying income for purposes of determining whether a Fund qualifies as a
RIC. It is currently unclear, however, who will be treated as the issuer of a
foreign currency instrument or how foreign currency options, foreign currency
futures and forward foreign exchange contracts will be valued for purposes of
the diversification requirements applicable to RICs.
A forward foreign exchange contract held by the World Fund that is a
Section 1256 contract will be marked to market, as described under "Tax
Treatment of Options and Futures Transactions". However, the character of gain
or loss from such a contract will generally be ordinary under Code Section
988, as discussed below. The World Fund may, nonetheless, elect to treat the
gain or loss from certain forward foreign exchange contracts as capital. In
this case, gain or loss realized in connection with a forward foreign exchange
contract that is a Section 1256 contract will be characterized as 60%
long-term and 40% short-term capital gain or loss.
Under the Code Section 988, special rules are provided for certain
transactions in a currency other than the taxpayer's functional currency
(i.e., unless certain special rules apply, currencies other than the U. S.
dollar). In general, foreign currency gains or losses from certain debt
instruments, from certain forward contracts, from futures contracts that are
not "regulated futures contracts" and from unlisted options will be treated as
ordinary income or loss under Code Section 988. In certain circumstances, a
Fund may elect capital gain or loss treatment for such transactions. In
general, however, Code Section 988 gains or losses will increase or decrease
the amount of a Fund's investment company taxable income available to be
distributed to shareholders as ordinary income. Additionally, if Code Section
988 losses exceed other investment company taxable income during a taxable
year, a Fund would not be able to make any ordinary income dividend
distributions, and all or a portion of distributions made before the losses
were realized but in the same taxable year would be recharacterized as a
return of capital to shareholders, thereby reducing the basis of a
shareholder's Fund shares and resulting in a capital gain for any shareholder
who received a distribution greater than such shareholder's basis in the Fund
shares (assuming the shares were held as a capital asset). These rules,
however, will not apply to certain transactions entered into by a Fund solely
to reduce the risk of currency fluctuations with respect to its investments.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations presently in effect. For the
complete provisions, reference should be made to the pertinent Code section
and the Treasury Regulations promulgated thereunder. The Code and the Treasury
Regulations are subject to change by legislative, judicial or administrative
action either prospectively or retroactively.
Ordinary income and capital gain dividends may also be subject to state
and local taxes.
Certain states exempt from state income taxation dividends paid by RICs
that are derived from interest on U.S. Government Securities. State law varies
as to whether dividend income attributable to U.S. Government Securities is
exempt from state income taxes.
Shareholders are urged to consult their tax advisors regarding specific
questions as to federal, foreign, state or local taxes. Foreign investors
should consider applicable foreign taxes in their evaluation of an investment
in the Funds.
SHAREHOLDER SERVICES
Open Account An open account is established automatically for each new
investor, unless elected otherwise, in which all income dividends and any
capital gains distributions are reinvested in additional shares, without
charge, at the then current net asset value. Purchases made in this account
will be made at the offering price on the day federal funds are available to
the Funds as described in the Prospectus.
The Funds reserve the right at any time to vary the initial and
subsequent investment minimums of any Fund and to reject any purchase order.
Policyowners of National Life, Provident or Penn Mutual who invest policy
dividends may open an account in any of the Funds with a minimum initial
purchase of $50 or more of policy dividends and subsequent assignment of
dividends to the Funds.
Stock certificates will be issued upon written request and without
charge.
Except for confirmation of purchases made under the Open Account, the
cost of these shareholder services are borne by the Funds.
Automated Clearing House ("ACH") The ACH Network expedites the transfer
of monies by electronically transmitting funds between member financial
institutions. To take advantage of this convenient fund transfer method, you
must provide Sentinel Service with a pre-designated destination. There is no
charge for this service.
Distribution Options Shareholders of the Funds may elect to reinvest
automatically their income dividends and any capital gains distributions in
additional full and fractional shares of any one of the other Funds at the net
asset value of the selected Fund at the close of business on the valuation
date for the dividend, without the payment of any charge. Before exercising
this option, shareholders should read the portions of the Prospectus relating
to the selected Fund's objectives and policies. The target and original
accounts for dividends must be in different Funds.
Automatic Investment Plan See the Prospectus for information and an
application. The minimum initial investment and subsequent investment is $50.
Telephone Investment Service See the Prospectus for information and an
application.
Check Writing Service (Class A shares of the High Yield, Bond, Government
Securities, Short Maturity Government, Money Market, Tax-Free Income, New York
and Pennsylvania Funds) A special feature of the Class A shares of these Funds
is the Check Writing privilege available through State Street. Any shareholder
who would like to draw checks on his account should check the box on the
application captioned "Check Writing Service" or subsequently, make a written
request to the Funds. Checks then will be provided by State Street. These
checks may be made payable in any amount not less than $500, except for the
Money Market Fund which has a minimum amount of not less than $250.
Withdrawals by check may not be made until shares have been in the account for
at least fifteen (15) days. The price at which shares will be redeemed to
cover a check will be the net asset value determined on the day the check
clears. Potential fluctuations in net asset value of the Funds' shares should
be taken into account when writing checks. If a dividend or capital gains
distribution is paid during the period between writing and clearing of a
check, the shareholder will be entitled to the dividend or distribution, but
the net asset value of the shares will be reduced by the amount of the
dividend payment. Because shareholders cannot determine the exact redemption
price of their shares at the time a check is written, closing an account
through check writing is not possible.
Sentinel Service provides overdraft protection by automatically
transferring available funds from your other identically registered accounts
if you have available balances. A fee of $10.00 will be charged to the account
when funds are transferred from protecting account(s) to cover an overdraft.
There is no fee for check writing, but, upon notice, a fee for this
service may be charged in the future. Fees are charged for stop payments,
insufficient funds or other valid reasons.
Exchange Privilege This privilege also permits a shareholder whose
financial needs have changed to transfer an investment from a National Life
Variable Annuity account (presently the only such entity is the Variable
Annuity Account I). Such transfers from a National Life Variable Annuity
account are made without a sales charge on the basis of respective net asset
values after payment of a fee of $75 (in addition to any applicable transfer
taxes) to Sentinel Service for such transfer.
An exchange is a taxable transaction for income tax purposes and any gain
or loss realized is recognizable for such purposes.
Reinstatement Privilege Shareholders who have redeemed all or part of
their shares may reinvest all or part of the redemption proceeds at the
current net asset value without charge if a written request is received or is
postmarked within one year after the redemption. Short Maturity Government
Fund shareholders who have held their shares for 90 days or less, however, may
only use the reinstatement privilege to reinvest in the Short Maturity
Government Fund. The privilege may be exercised only once by a shareholder as
to any of the Funds except where the sole purpose of the transaction is to
transfer the shareholder's interest or a portion thereof in the Funds to a
trustee or custodian for such shareholder's Self-Employed Retirement Plan or
IRA. If the shareholder realizes a gain on redemption, the transaction is
taxable and reinvestment will not alter any capital gains tax payable. If the
shareholder realizes a loss on redemption and subsequently uses the
reinstatement privilege, some or all of the loss may not be allowed as a tax
deduction depending upon the amount reinvested.
If the reinstatement is made for the purpose of effecting a rollover into
an IRA, as described in Section 408(d)(3) of the Code, of a distribution from
a tax sheltered retirement plan which had been invested in shares of the
Funds, such reinvestment of redemption proceeds may be made any time within 60
days from the date on which the investor received the distribution.
TOTAL RETURN, YIELD AND TAX-EQUIVALENT YIELD INFORMATION
Each of the Funds (except the Money Market Fund) from time to time may
include its average annual total return in advertisements or information
furnished to present or prospective shareholders. The average annual total
return for each of the Funds for the one, five and ten year periods ended
November 30, 1999 were:
NOTE: UPDATE ALL THESE #'S
<TABLE>
<CAPTION>
Average Annual Total Return for the
-----------------------------------
One Year Ended Five Years Ended Ten Years Ended
November 30, 1999 November 30, 1999 November 30, 1999
----------------- ----------------- -----------------
<S> <C> <C> <C>
Common Stock Fund-A 0.6% 18.6% 13.2%
Common Stock Fund-B 1.1% 13.7%(6)
Common Stock Fund-C 4.0 1.6 (10)
Balanced Fund-A -2.6% 12.9% 10.0%
Balanced Fund-B -2.2% 9.3%(6)
Balanced Fund-C 0.4 0.8(10)
Balanced Fund-D(9) N/A N/A N/A
Mid Cap Growth Fund-A 23.9% 21.2% 12.8%
Mid Cap Growth Fund-B 25.0 19.1(11)
Small Company Fund-A -2.5% 10.9% 10.5%(2)
Small Company Fund-B -1.8% 9.9%(6)
World Fund-A 12.2% 12.1% 13.7%(2)
World Fund-B 13.1% 11.6%(6)
World Fund-C 15.8 4,2
High Yield Fund - A -1.2% 3.6%(1) N/A
High Yield Fund - B -1.51.1% 3.4%(1) N/A
High Yield Fund - C 0.7% -2.6
Bond Fund-A -5.9% 6.1% 6.9%
Bond Fund-B -6.7% 2.9%(6)
Gov. Sec. Fund-A -6.4% 6.1% 6.6%
Short Maturity Fund-A 2.1% 5.7%(3) N/A
Tax-Free Income Fund-A -6.7% 5.3% 6.1%(4)
New York Fund-A -7.2% 4.4%(5) N/A
Pennsylvania Fund-A -7.1% 4.9% 5.3%
Growth Index Fund-A(7) N/A N/A N/A
Growth Index Fund-B(7) N/A N/A N/A
Flex Cap Opp. Fund-A(8) N/A N/A N/A
Flex Cap Opp. Fund-B(8) N/A N/A N/A
Flex Cap Opp. Fund-C(8) N/A N/A N/A
</TABLE>
(1) For the period June 23, 1997 (commencement of operations) through
November 30, 1999.
(2) For the period from March 1, 1993 (commencement of operations) through
November 30, 1999.
(3) For the period from March 24, 1995 (commencement of operations) through
November 30, 1999.
(4) For the period from October 1, 1990, when Sentinel Tax-Free Income Fund
commenced operations, through November 30, 1999.
(5) For the period from March 27, 1995 (commencement of operations) through
November 30, 1999.
(6) For the period from April 1, 1996 (commencement of operations) through
November 30, 1999 .
(7) Commenced operations on September 10, 1999.
(8) Commenced operations on February 25, 2000.
(9) Commended operations on January 4, 1999.
(10) For the period May 4, 1998 through November 30, 1999
(11) For the period January 12, 1998 through November 30, 1999.
The above amounts were computed by assuming a hypothetical initial
payment of $1,000. From this $1,000 the maximum sales load of $50 (5.0% of the
public offering price for the Class A shares of the Common Stock, Balanced,
Mid Cap Growth, Small Company and World Funds; $40 (4.0% of the public
offering price for the Class A shares of the Bond, Government Securities,
Tax-Free Income, New York and Pennsylvania Funds); and $10 (1% for the Class A
shares of the Short Maturity Government Fund) was deducted. It then was
assumed that all of the dividends and distributions by each of the Funds over
the relevant time period were reinvested. It then was assumed that at the end
of the one-, five- or ten-year period, after taking into account all
applicable recurring and nonrecurring expenses, the entire amount was
redeemed. The average annual total return then was calculated by calculating
the annual rate required for the initial payment to grow to the amount which
would have been received upon redemption (i.e., the average annual compound
rate of return). For the Class B shares, the maximum offering price is equal
to the net asset value, and it is assumed that the investment is redeemed at
the end of the period. No information is shown for the Class D shares of the
Balanced Fund and the Class A and B shares of the Growth Index Fund,, , since
they had less than one year of results as of November 30, 1999, or for the
Class A, B and C shares of the Flex Cap Opportunity Fund, which had not begun
operations as of November 30, 1999.
Each Fund's average annual total return and current yield will vary
depending upon market conditions, the securities comprising such Fund's
portfolio, such Fund's operating expenses and the amount of net capital gains
or losses realized by such Fund during the period. An investment in any of the
Funds will fluctuate and an investor's shares, when redeemed, may be worth
more or less than their original cost.
Each of the Funds also from time to time may advertise its total return
for specified periods without subtracting the sales load, to illustrate better
the performance of money already invested in the Fund during those periods.
On occasion, the Funds may compare their average annual total return
figures to mutual fund averages such as those compiled by Lipper Analytical
Services, Inc., and to market indices such as the Dow Jones Industrial
Average, the Standard & Poor's 500, the Standard & Poors 500 BARRA Growth
Index, the Standard & Poors 500 BARRA Value Index, the Standard and Poors 400
Midcap Index, the Russell 2000 Index and the Shearson Lehman Aggregate Bond
Index.
The High Yield, Bond, Tax-Free Income, Pennsylvania, New York, Government
Securities and Short Maturity Government Funds' annualized yields for the
30-day period ended November 30, 1999 were:
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C shares
-------------- -------------- --------------
<S> <C> <C> <C>
High Yield 9.51% 9.25% 9.717%
Bond Fund 6.55% 5.93%
Tax-Free Income 4.68% NA
Pennsylvania 4.63% N/A
New York 5.28% N/A
Gov.'t Securities 6.74% N/A
Short Maturity 6.18% N/A
</TABLE>
The average daily number of shares outstanding during the period that were
eligible to receive dividends were:
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
<S> <C> <C> <C>
High Yield 3,110,715 6,500,475 386,340
Bond Fund 13,704,465 3,413,556
Tax-Free Income 6,849,094 N/A
Pennsylvania 2,526,913 N/A
New York 1,444,874 N/A
Gov.'t Securities 6,879,850 N/A
Short Maturity 7,193,612 N/A
</TABLE>
Income was computed by totalling the interest earned on all debt obligations
during the 30-day period and subtracting from that amount the total of all
recurring expenses incurred during the period. The 30-day yield then was
annualized on a bond equivalent basis assuming semi-annual reinvestment and
compounding of net investment income.
These Funds also may show yield to those already invested in the Funds by
using the net asset value per share instead of the maximum offering price per
share in the above calculations, which has the effect of raising the quoted
yields. Using net asset values, the yields of the Class A shares of the High
Yield, Bond, Tax-Free Income, Pennsylvania, New York, Government Securities
and Short Maturity Government Funds as of November 30, 1999 were $9.91%,
6.83%, 4.88%, 4.82%, 5.51%, 7.02% and 6.25%, respectively.
In addition, the Tax-Free Income, Pennsylvania and New York Funds may
quote tax-equivalent yield in advertisements. The calculation of
tax-equivalent yield is done by multiplying the tax-exempt part of the Fund's
yield by an amount which is one minus a stated tax rate, and adding the result
to that part, if any, of the Fund's yield that is taxable. As of November 30,
1999, the tax-equivalent yield of the Tax-Free Income Fund was 8.08 %, the
tax-equivalent yield of the Pennsylvania Fund was 8.21%, and the
tax-equivalent yield of the New York Fund was 9.79%. For purposes of the above
tax-equivalent yield calculations the assumed federal tax rate is 39.6%. In
the case of the New York and Pennsylvania Funds, the assumed combined federal
and state tax rates are 43.74% and 41.29%, respectively.
The Money Market Fund normally computes its annualized yield by
determining the net income for a seven-day base period for a hypothetical
pre-existing account having a balance of one share at the beginning of the
base period, dividing the net income by the net asset value of the account at
the beginning of the base period to obtain the base period return, multiplying
the result by 365 and then dividing by seven. In accordance with regulations
adopted by the SEC, the Money Market Fund is required to disclose its
annualized yield for certain seven-day base periods in a standardized manner
which does not take into consideration any realized or unrealized gains or
losses on portfolio securities. The SEC also permits the calculation of a
standardized effective or compounded yield. This is computed by compounding
the unannualized base period return which is done by adding one to the base
period return, raising the sum to a power equal to 365 divided by seven and
subtracting one from the result.
The yield quoted should not be considered a representation of the yield
of the Money Market Fund in the future since the yield is not fixed. Actual
yields will depend not only on the type, quality and maturities of the
investments held by the Money Market Fund and changes in interest rates on
such investments, but also on changes in the Money Market Fund's expenses
during the period.
Yield information may be useful in reviewing the performance of the Money
Market Fund and for providing a basis for comparison with other investment
alternatives. However, the Money Market Fund's yield fluctuates, unlike bank
deposits or other investments which typically pay a fixed yield for a stated
period of time.
GENERAL INFORMATION
Copies of the Amended and Restated Articles of Incorporation and the
By-Laws of the Company, each as amended and supplemented, the Amended and
Restated Declaration of Trust and the Code of Regulations of the Pennsylvania
Fund, and various agreements referred to in the Prospectus and this Statement
of Additional Information are filed with the registration statement at the SEC
to which reference is made for their full terms. Such documents and other
information filed with the SEC may be obtained from the SEC upon payment of
the fees prescribed by the Rules of the SEC and are also now available at the
SEC's Internet Web site at http://www.sec.gov. All cash and securities of the
Funds, except for U.S. Government Securities which are represented only in
book entry form at the Federal Reserve Bank, are held by State Street or in a
central depository system in the name of State Street Bank & Trust - Kansas
City, 801 Pennsylvania Avenue, Kansas City, Missouri 64105 as the Funds'
Custodian. State Street is also Dividend Disbursing Agent for the Funds'
shares. Sentinel Service is Transfer Agent and Registrar for the Funds'
shares. All correspondence regarding the Funds should be mailed to Sentinel
Administrative Service Company, P.O. Box 1499, Montpelier, Vermont 05601-1499.
The independent accountants for the Funds are PricewaterhouseCoopers LLP,
located at 1177 Avenue of the Americas, New York, New York 10036. The
independent accountants are responsible for auditing the annual financial
statements of the Company and the Pennsylvania Fund.
Counsel for the Funds is Brown & Wood LLP, One World Trade Center, New
York, New York 10048-0557.
FINANCIAL STATEMENTS
Audited financial statements for the Company and for the Pennsylvania
Fund at November 30, 1999 and for the year then ended are incorporated by
reference to the Funds' 1999 Annual Report to Shareholders.
<PAGE>
Appendix A
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Description of Moody's Investor Service, Inc.'s
-----------------------------------------------
("Moody's") Municipal Bond Ratings
----------------------------------
Long-Term Ratings
Debt Ratings--U.S. Tax-Exempt Municipals
There are nine basic rating categories for long-term obligations. They range
from Aaa (highest quality) to C (lowest quality). Moody's applies numerical
modifiers 1, 2, and 3 in each generic rating classification from Aa to Caa.
The Modifier 1 indicates that the issue ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier3 indicates that the issue ranks in the lower end of its generic
category. Advance refunded issues that are secured by escrowed funds held in
cash, held in trust, reinvested in direct non-callable United States
government obligations or non-callable obligations unconditionally guaranteed
by the U.S. government are identified with a # (hatchmark) symbol, eg. # Aaa.
Aaa Bonds that are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa Bonds that are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present that make the long-term risks appear somewhat larger than in Aaa
securities.
A Bonds that are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
that suggest a susceptibility to impairment some time in the future.
Baa Bonds that are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba Bonds that are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B Bonds that are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or maintenance of
other terms of the contract over any long period of time may be small.
Caa Bonds that are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal
or interest.
Ca Bonds that are rated Ca represent obligations that are speculative in a
high degree. Such issues are often in default or have other marked
shortcomings.
C Bonds that are rated C are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Con. (...) Bonds for which the security depends upon the completion of some
act or the fulfillment of some condition are rated conditionally. These are
bonds secured by: (a) earnings of projects under construction, (b) earnings of
projects unseasoned in operating experience, (c) rentals that begin when
facilities are completed, or (d) payments to which some other limiting
condition attaches. Parenthetical rating denotes probable credit stature upon
completion of construction or elimination of basis of condition.
Description of Standard & Poor's Municipal Issue Ratings
Municipal Issue Rating Definitions
A Standard & Poor's issue credit rating is a current opinion of the
creditworthiness of an obligor with respect to a specific financial
obligation, a specific class of financial obligations, or a specific financial
program. It takes into consideration the creditworthiness of guarantors,
insurers, or other forms of credit enhancement on the obligation. The issue
credit rating is not a recommendation to purchase, sell, or hold a financial
obligation, inasmuch as it does not comment as to market price or suitability
for a particular investor.
Issue credit ratings are based on current information furnished by the
obligors or obtained by Standard & Poor's from other sources it considers
reliable. Standard & Poor's does not perform an audit in connection with any
credit rating and may, on occasion, rely on unaudited financial information.
Credit ratings may be changed, suspended, or withdrawn as a result of changes
in, or unavailability of, such information, or based on other circumstances.
Issue credit ratings can be either
Long-term Issue Credit Ratings
Issue credit ratings are based in varying degrees, on the following
considerations:
1. Likelihood of payment - capacity and willingness of the obligor to
meet its financial commitment on an obligation in accordance with the
terms of the obligation;
2. Nature of and provisions of the obligation; and
3. Protection afforded by, and relative position of, the obligation in
the event of bankruptcy, reorganization, or other arrangement under
the laws of bankruptcy and other laws affecting creditors' rights.
The issue ratings definitions are expressed in terms of default risk. As such,
they pertain to senior obligations of an entity. Junior obligations are
typically rated lower than senior obligations, to reflect the lower priority
in bankruptcy, as noted above.
AAA
An obligation rated 'AAA' has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA
An obligation rated 'AA' differs from the highest-rated obligations only in
small degree. The obligor's capacity to meet its financial commitment on the
obligation is very strong.
A
An obligation rated 'A' is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than obligations in
higher-rated categories. However, the obligor's capacity to meet its financial
commitment on the obligation is still strong.
BBB
An obligation rated 'BBB' exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity of the obligor to meet its financial commitment on the
obligation.
BB, B, CCC, CC, And C
Obligations rated 'BB', 'B', 'CCC', 'CC', and 'C' are regarded as having
significant speculative characteristics. 'BB' indicates the least degree of
speculation and 'C' the highest. While such obligations will likely have some
quality and protective characteristics, these may be outweighed by large
uncertainties or major exposures to adverse conditions.
BB
An obligation rated 'BB' is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions, which could lead to
the obligor's inadequate capacity to meet its financial commitment on the
obligation.
B
An obligation rated 'B' is more vulnerable to nonpayment than obligations
rated 'BB', but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet
its financial commitment on the obligation.
CCC
An obligation rated 'CCC' is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC
An obligation rated 'CC' is currently highly vulnerable to nonpayment.
C
The 'C' rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this
obligation are being continued.
D
An obligation rated 'D' is in payment default. The 'D' rating category is used
when payments on an obligation are not made on the date due even if the
applicable grace period has not expired, unless Standard & Poor's believes
that such payments will be made during such grace period. The 'D' rating also
will be used upon the filing of a bankruptcy petition or the taking of a
similar action if payments on an obligation are jeopardized.
Plus (+) or minus (-)
The ratings from 'AA' to 'CCC' may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
c
The 'c' subscript is used to provide additional information to investors that
the bank may terminate its obligation to purchase tendered bonds if the
long-term credit rating of the issuer is below an investment-grade level
and/or the issuer's bonds are deemed taxable.
p
The letter 'p' indicates that the rating is provisional. A provisional rating
assumes the successful completion of the project financed by the debt being
rated and indicates that payment of debt service requirements is largely or
entirely dependent upon the successful, timely completion of the project. This
rating, however, while addressing credit quality subsequent to completion of
the project, makes no comment on the likelihood of or the risk of default upon
failure of such completion. The investor should exercise his own judgment with
respect to such likelihood and risk.
*
Continuance of the ratings is contingent upon Standard & Poor's receipt of an
executed copy of the escrow agreement or closing documentation confirming
investments and cash flows.
r
The 'r' highlights derivative, hybrid, and certain other obligations that
Standard & Poor's believes may experience high volatility or high variability
in expected returns as a result of noncredit risks. Examples of such
obligations are securities with principal or interest return indexed to
equities, commodities, or currencies; certain swaps and options; and
interest-only and principal-only mortgage securities. The absence of an 'r'
symbol should not be taken as an indication that an obligation will exhibit no
volatility or variability in total return.
N.R.
Not rated.
Debt obligations of issuers outside the United States and its territories are
rated on the same basis as domestic corporate and municipal issues. The
ratings measure the creditworthiness of the obligor but do not take into
account currency exchange and related uncertainties.
Bond Investment Quality Standards
Under present commercial bank regulations issued by the Comptroller of the
Currency, bonds rated in the top four categories ('AAA', 'AA', 'A', 'BBB',
commonly known as investment-grade ratings) generally are regarded as eligible
for bank investment. Also, the laws of various states governing legal
investments impose certain rating or other standards for obligations eligible
for investment by savings banks, trust companies, insurance companies, and
fiduciaries in general.
<PAGE>
APPENDIX B
SPECIAL CONSIDERATIONS RELATING TO NEW YORK
-------------------------------------------
The following information is a brief summary of factors affecting the economy
of New York City (the "City") or New York State (the "State" or "New York").
Other factors will affect issuers. The summary is based primarily upon one or
more of the most recent publicly available offering statements relating to
debt offerings of State issuers, however, it has not been updated. The Fund
has not independently verified this information.
The State, some of its agencies, instrumentalities and public authorities and
certain of its municipalities have sometimes faced serious financial
difficulties that could have an adverse effect on the sources of payment for
or the market value of the New York Municipal Bonds in which the Fund invests.
New York City
General. More than any other municipality, the fiscal health of the City has a
significant effect on the fiscal health of the State. The City's current
financial plan assumes that, after strong growth in 1999 and 2000, moderate
economic growth will exist through calendar year 2004, with moderating job
growth and wage increases.
For each of the 1981 through 1999 fiscal years, the City had an operating
surplus, before discretionary and other transfers, and achieved balanced
operating results as reported in accordance with generally accepted accounting
principles ("GAAP"), after discretionary and other transfers. The City has
been required to close substantial gaps between forecast revenues and forecast
expenditures in order to maintain balanced operating results. There can be no
assurance that the City will continue to maintain balanced operating results
as required by State law without tax or other revenue increases or reductions
in City services or entitlement programs, which could adversely affect the
City's economic base.
The Mayor is responsible for preparing the City's financial plan, including
the City's financial plan for the 2000 through 2003 fiscal years released on
June 14, 1999 (the "2000-2003 Financial Plan", "Financial Plan" or "City
Financial Plan"). The City's projections set forth in the City Financial Plan
are based on various assumptions and contingencies that are uncertain and may
not materialize. Changes in major assumptions could significantly affect the
City's ability to balance its budget as required by State law and to meet its
annual cash flow and financing requirements.
As required by law, the City prepares a four-year annual financial plan, which
is reviewed and revised on a quarterly basis and which includes the City's
capital, revenue and expense projections and outlines proposed gap-closing
programs for years with projected budget gaps. The City Financial Plan
projects a surplus in the 2000 fiscal year, before discretionary transfers,
and budget gaps for each of the 2001, 2002 and 2003 fiscal years. This pattern
of current year surplus operating results and projected subsequent year budget
gaps has been consistent through the entire period since 1982, during which
the City has achieved surplus operating results, before discretionary
transfers, for each fiscal year.
City's Financing Program. Implementation of the City Financial Plan is
dependent upon the City's ability to market its securities successfully. The
City's program for financing capital projects for fiscal years 2000 through
2003 contemplates the issuance of $7.449 billion of general obligation bonds
and $3.35 billion of bonds to be issued by the New York City Transitional
Finance Authority (the "Transitional Finance Authority"). In addition, the
Financial Plan anticipates access to approximately $2.4 billion in financing
capacity of the TSASC, Inc. ("TSASC"), the debt of which is secured by
revenues derived from the settlement of litigation with tobacco companies
selling cigarettes in the United States. The Transitional Finance Authority
and TSASC were created to assist the City in financing its capital program
while keeping City indebtedness within the forecast level of the
constitutional restrictions on the amount of debt the City is authorized to
incur.
Limitations on sources of capital funding first affect the City's capital
program by limiting the amount of capital contract liability within which the
City may enter to the amount of authorized long-term financing then available.
By this standard, the City will have fully invoked its own, the Transitional
Finance Authority's and TSASC's financing capacity to support contract
liability (and therefore would be unable to enter into new capital contracts)
during the City's fiscal year 2001, which begins on July 1, 2000. The City
expects that it will be required to postpone part of its capital program from
the latter part of fiscal year 2001 to fiscal year 2002. In fiscal year 2002,
a State constitutional amendment increasing the City's capacity to issue
general obligation debt could become effective. If a constitutional amendment
increasing the City's general obligation debt limit does not pass, an
additional $2.2 billion of financing capacity for the City would be needed for
the period from January 2002 through the end of the City's ten-year capital
strategy in fiscal year 2009. In that case, the Transitional Finance
Authority's debt-incurring power would need to be increased or some other
financing mechanism would need to be established. In addition, the City issues
revenue notes and tax anticipation notes to finance its seasonal working
capital requirements (See "Seasonal Financing Requirements" within). The
success of projected public sales of City bonds and notes, New York City
Municipal Water Finance Authority (the "Water Authority") bonds and
Transitional Finance Authority and other bonds will be subject to prevailing
market conditions. The City's planned capital and operating expenditures are
dependent upon the sale of its general obligation bonds and notes, as well as
Water Authority, Transitional Finance Authority and TSASC bonds.
2000-2003 Financial Plan. On June 14, 1999, the City released the Financial
Plan for the 2000 through 2003 fiscal years, which relates to the City and
certain entities which receive funds from the City. The Financial Plan
projects revenues and expenditures for the 2000 fiscal year balanced in
accordance with GAAP, and project gaps of $1.8 billion, $1.9 billion and $1.8
billion for fiscal years 2001 through 2003, respectively.
The Financial Plan includes a proposed discretionary transfer in fiscal year
2000 to pay debt service due in fiscal year 2001 totaling $429 million, and a
proposed discretionary transfer in fiscal year 2001 to pay debt service due in
fiscal year 2002 totaling $345 million.
In addition, the Financial Plan sets forth gap-closing actions to eliminate a
previously projected gap for the 2000 fiscal year and to reduce projected gaps
for fiscal years 2001 through 2003. The gap-closing actions for the 2000
through 2003 fiscal years include: (i) additional City agency actions totaling
$502 million, $371 million, $293 million and $283 million for fiscal years
2000 through 2003, respectively; (ii) additional Federal aid of $75 million in
each of fiscal years 2000 through 2003, which include the proposed restoration
of $25 million of Federal revenue sharing and $50 million of increased Federal
Medicaid aid; and (iii) additional State actions totaling approximately $125
million in each of fiscal years 2000 through 2003. The Financial Plan also
reflects a tax reduction program, which includes the elimination of the City's
non-residents earning tax, the extension of current tax reductions for owners
of cooperative and condominium apartments and a proposed income tax credit for
low income wage earners.
Assumptions. The 2000-2003 Financial Plan is based on numerous assumptions,
including the condition of the City's and the region's economies and modest
employment growth and the concomitant receipt of economically sensitive tax
revenues in the amounts projected. The 2000-2003 Financial Plan is subject to
various other uncertainties and contingencies relating to, among other
factors, the extent, if any, to which wage increases for City employees exceed
the annual wage costs assumed for the 1999 through 2003 fiscal years;
continuation of projected interest earnings assumptions for pension fund
assets and current assumptions with respect to wages for City employees
affecting the City's required pension fund contributions; the willingness and
ability of the State to provide the aid contemplated by the Financial Plan and
to take various other actions to assist the City; the ability of Health and
Hospitals Corporation (the "HHC"), the Board of Education (the "BOE") and
other such agencies to maintain balanced budgets; the willingness of the
Federal government to provide the amount of Federal aid contemplated in the
Financial Plan; the impact on City revenues and expenditures of Federal and
State welfare reform and any future legislation affecting Medicare or other
entitlement programs; adoption of the City's budgets by the City Council in
substantially the forms submitted by the Mayor; the ability of the City to
implement cost reduction initiatives, and the success with which the City
controls expenditures; the impact of conditions in the real estate market on
real estate tax revenues; and unanticipated expenditures that may be incurred
as a result of the need to maintain the City's infrastructure. Certain of
these assumptions have been questioned by the City Comptroller and other
public officials.
The Financial Plan assumes: (i) approval by the Governor and the State
Legislature of the extension of the 14% personal income tax surcharge, (which
has subsequently been extended to December 31, 2001 through enacted
legislation), and which is projected to provide revenue of $572 million, $585
million, $600 million and $638 million in the 2000 through 2003 fiscal years,
respectively; (ii) collection of projected rent payments for the City's
airports, totaling $365 million, $185 million and $155 million in the 2001
through 2003 fiscal years, respectively, a substantial portion of which may
depend on the successful completion of negotiations with The Port Authority of
New York and New Jersey (the "Port Authority") or the enforcement of the
City's rights under the existing leases through pending legal action; (iii)
State and Federal approval of the State and Federal gap-closing actions
proposed by the City in the Financial Plan; and (iv) receipt of the tobacco
settlement funds providing revenues or expenditure offsets in annual amounts
ranging between $250 million and $300 million. In addition, the economic and
financial condition of the City may be affected by various financial, social,
economic and political factors which could have a material effect on the City.
Municipal Unions. The Financial Plan reflects the costs of the settlements and
arbitration awards with certain municipal unions and other bargaining units,
which together represent approximately 98% of the City's workforce, and
assumes that the City will reach agreement with its remaining municipal unions
under terms which are generally consistent with such settlements and
arbitration awards. These contracts are approximately five years in length and
have a total cumulative net increase of 13%. Assuming the City reaches similar
settlements with its remaining municipal unions, the cost of all settlements
for all City-funded employees would exceed $2 billion annually, during fiscal
years 2000 through 2003. The Financial Plan provides no additional wage
increases for City employees after their contracts expire in fiscal years 2000
and 2001.
Intergovernmental Aid. The City depends on aid from the State both to enable
the City to balance its budget and to meet its cash requirements. There can be
no assurance that there will not be reductions in State aid to the City from
amounts projected; that State budgets will be adopted by the April 1 statutory
deadline, or interim appropriations enacted; or that any such reductions or
delays will not have adverse effects on the City's cash flow or expenditures.
In addition, the Federal budget negotiation process could result in reductions
or delays in the receipt of Federal grants which could have additional adverse
effects on the City's cash flow or revenues.
Year 2000 Computer Matters (as of November 3, 1999). The year 2000 presents
potential operational problems for computerized data files and computer
programs which may recognize the year 2000 as the year 1900, resulting in
possible system failures or miscalculations. The Mayor's Office of Operations
has stated that work has been completed, and all or part of the necessary
testing has been performed, on approximately 99% of the mission-critical and
high priority systems of Mayoral agencies. The City's computer systems may not
all be year 2000 compliant in a timely manner and there could be an adverse
impact on City operations or revenues as a result. The City is developing
contingency plans for all mission-critical and high priority systems of
Mayoral agencies to be used if such systems are not year 2000 compliant. The
City is also in the process of contacting its significant third party vendors
regarding the status of their compliance. Such compliance is not within the
City's control, and therefore the City cannot assure that there will not be
any adverse effects on the City resulting from any failure of these third
parties.
Certain Reports. The City's financial plans have been the subject of extensive
public comment and criticism. From time to time, the staff of the New York
State Financial Control Board (the "Control Board"), the Office of the State
Deputy Comptroller (the "OSDC"), the City Comptroller, the City's Independent
Budget Office (the "IBO") and others issue reports and make public statements
regarding the City's financial condition, commenting on, among other matters,
the City's financial plans, projected revenues and expenditures and actions by
the City to eliminate projected operating deficits. Some of these reports and
statements have warned that the City may have underestimated certain
expenditures and overestimated certain revenues and have suggested that the
City may not have adequately provided for future contingencies. Certain of
these reports have analyzed the City's future economic and social conditions
and have questioned whether the City has the capacity to generate sufficient
revenues in the future to meet the costs of its expenditure increases and to
provide necessary services.
On July 14, 1999, the City Comptroller issued a report on the adopted budget
for fiscal year 2000 and the Financial Plan. Taking into account the risks and
additional resources identified in the report, the report projected a surplus
for fiscal year 2000 of between $223 million and $891 million, including the
$429 million surplus allocated to the Budget Stabilization Account. In
addition, taking into account the risks and additional resources identified in
the report and the budget gaps projected in the Financial Plan, the report
projected budget gaps of between $1.8 billion and $3.5 billion, $1.7 billion
and $3.6 billion, and $1.7 billion and $4.1 billion in fiscal years 2001
through 2003, respectively.
With respect to fiscal years 2000 through 2003, the report identified baseline
risks of between $338 million and $998 million, $654 million and $2.4 billion,
$600 million and $2.4 billion and $719 million and $2.9 billion, respectively,
depending upon whether (i) the State approves the extension of the 14%
personal income tax surcharge; (ii) the City incurs additional labor costs as
a result of the expiration of labor contracts starting in fiscal year 2001
which, if settled at the current forecast level of inflation, would result in
additional costs totaling $345 million in fiscal year 2001, $713 million in
fiscal year 2002 and $1.1 billion in fiscal year 2003; (iii) the State
approves the continuation in fiscal years 2000 through 2003 of temporary State
Medicaid cost containment; and (iv) the City receives $300 million, $250
million, $300 million and $300 million in fiscal years 2000 through 2003,
respectively, from the tobacco settlement. Additional risks identified in the
report for fiscal years 2000 through 2003 include payments from the Port
Authority relating to the City's claim for back rentals, which are the subject
of arbitration; State and Federal gap-closing actions proposed in the
Financial Plan; possible increased overtime expenditures; the sale of the New
York City Coliseum in fiscal year 2001; the writedown of outstanding education
aid receivables of approximately $100 million in each of fiscal years 2002 and
2003; and a possible $149 million shortfall in tax revenues in fiscal year
2003. The report noted that these risks may be offset by additional resources
of between $659 million and $873 million in fiscal years 2000 through 2003 due
to the potential for higher than forecast tax revenues, lower than forecast
payables for prior years, possible debt service savings, additional State
education aid, the possible failure to spend funds for the construction of
three sports facilities and lower pension costs resulting from excess earnings
on pension assets in the 1999 fiscal year.
In his report, the City Comptroller also noted that possible changes to the
assumptions and methods used to compute actuarial liabilities, including
changes in the mortality, disability, investment return and wage assumptions,
could increase the City's pension expenditures by up to $600 million annually,
and that the Financial Plan has provided reserves of $65 million, $250
million, $300 million and $260 million in fiscal years 2000 through 2003 to
absorb some of the anticipated cost increases. The report further noted that
the City Comptroller's forecast is contingent on the continued growth of the
City economy and that the fear of renewed inflationary pressures has created
uncertainty in the bond market which may dampen economic growth in the future.
The report also indicated that a possible negotiated settlement of a class
action, filed on behalf of approximately 65,000 persons challenging the
Department of Corrections policy of strip searching detainees arrested for
nonfelony offenses, may expose the City to substantial costs from the
settlement of litigation. The report noted that, while settlement negotiations
with representatives of the class are being conducted and, therefore,
estimates of the potential cost of this litigation cannot be determined, the
City has recently settled four cases for $25,000 each.
On August 25, 1998, the City Comptroller issued a report reviewing the current
condition of the City's major physical assets and the capital expenditures
required to bring them to a state of good repair. The report's findings relate
only to current infrastructure and do not address future capacity or
technology needs. The report estimated that the expenditure of approximately
$91.83 billion would be required over the next decade to bring the City's
infrastructure to a systematic state of good repair and address new capital
needs already identified. The report stated that the City's current Ten-Year
Capital Strategy, together with funding received from other sources, is
projected to provide approximately $52.08 billion. The report noted that the
City's ability to meet all capital obligations is limited by law, as well as
funding capacity, and that the issue for the City is how best to set
priorities and manage limited resources.
On July 15, 1999, the staff of the OSDC issued a report on the Financial Plan.
With respect to fiscal year 2000, the report identified a possible gap of $13
million, reflecting revenues which could exceed projections in the Financial
Plan by $290 million, a $200 million shortfall in anticipated Federal and
State assistance, a possible $70 million increase in overtime costs and the
writedown of approximately $33 million of outstanding education aid
receivables. With respect to fiscal years 2001 through 2003, the report
identified net risks of $530 million, $447 million and $266 million which,
when added to gaps projected in the Financial Plan, would result in gaps of
$2.4 billion, $2.3 billion and $2.1 billion in fiscal years 2001 through 2003,
respectively. The risks identified in the report included a $200 million
shortfall in anticipated Federal and State assistance in each of fiscal years
2001 through 2003, the potential for increased overtime costs, the writedown
of outstanding State education aid receivables of approximately $100 million
in each of fiscal years 2002 and 2003, $100 million of unspecified asset sales
in fiscal year 2002 and delays in the receipt of Port Authority lease payments
assumed in the Financial Plan. However, the report noted that tax revenues
could be greater than forecast by the City by $155 million, $210 million and
$255 million in fiscal years 2001 through 2003, respectively. The report also
identified a number of other issues, including a possible delay in the receipt
of the City's share of the proceeds under the settlement with the nation's
tobacco companies; the extension of the 14% personal income tax surcharge; the
possibility of pension costs being $250 million greater than assumed in the
Financial Plan in each of fiscal years 2001 through 2003, as a result of
changed actuarial assumptions; and the potential for wage increases which, at
the projected inflation rate, would increase gaps by $285 million, $635
million and $1.0 billion in fiscal years 2001 through 2003, respectively. The
report also noted the possibility that the Federal Reserve will raise interest
rates and slow the economy, which could depress Wall Street profits below the
levels projected by the City and have the potential to seriously impact the
City's nonproperty tax revenue forecasts.
On July 15, 1999, the staff of the Control Board issued a report reviewing the
Financial Plan. The report noted that the City is likely to end fiscal year
2000 in balance. However, the report identified risks of $562 million, $293
million, $640 million and $499 million for fiscal years 2000 through 2003,
respectively, which, when combined with the City's projected gaps, results in
estimated gaps of $562 million, $2.1 billion, $2.5 billion and $2.3 billion
for fiscal years 2000 through 2003, respectively, before making provision for
any increased labor costs which may occur when the current contracts with City
employees expire in calendar year 2000. The report noted the possibility that
non-property taxes in fiscal year 2000 could be $250 million greater than
forecast in the Financial Plan. However, the report also identified risks for
fiscal years 2000 through 2003, which include (i) the possibility that the
City may decide to fund the $63 million annual cost of teachers' salary
supplementation for fiscal years 2000 through 2003, which the State failed to
fund in the 1999 fiscal year, and an additional risk of approximately $100
million in each of fiscal years 2002 and 2003 for BOE resulting from the
write-down of funds owed to BOE by the State which have been outstanding for
ten or more years; (ii) the receipt of assumed rental payments from the Port
Authority relating to the City's claim for back rents, which are the subject
of arbitration; (iii) a possible delay in the receipt of $300 million from the
tobacco settlement in fiscal years 2000 and 2001; (iv) $200 million of Federal
and State gap-closing actions assumed in the Financial Plan for each of fiscal
years 2000 through 2003; and (v) $177 million in fiscal year 2000 from the
lapse of State Medicaid cost containment, which has been extended subsequent
to the report.
In its report, the staff of the Control Board noted that total debt service is
expected to increase from 9.2% of total revenues and 15.8% of tax revenues in
the 1999 fiscal year to 11.6% of total revenues and 19% of tax revenues in
fiscal year 2003, and that the City's capital plant will require additional
resources at the same time that a rising debt service burden must be
contained. With respect to HHC, the report noted that HHC revenues are
expected to fall during the Financial Plan period, primarily due to falling
Medicaid receipts, that HHC will face increasing financial pressure when the
State implements mandatory Medicaid managed care beginning in fiscal year 2000
and that the eventual size of the projected gaps for HHC in fiscal years 2002
and 2003 may change substantially from current projections, as the revenue
impact of proposed State and Federal reforms, growth in managed care and
shifting utilization patterns remain largely uncertain. Finally, the report
noted that, given the length of the current expansion, there is an increasing
probability that a recession related to the end of the long bull market will
occur by the end of the Financial Plan period, and it is likely that the next
downturn, if and when it occurs, will have a disproportionately great impact
on the City because of its dependence on income flows from financial services.
Seasonal Financing Requirements. The City since 1981 has fully satisfied its
seasonal financing needs in the public credit markets, repaying all short-term
obligations within their fiscal year of issuance. The City has issued $750
million of short-term obligations in the 2000 fiscal year to finance the
City's cash flow needs for the 2000 fiscal year. The City issued $500 million
of short-term obligations in the 1999 fiscal year to finance the City's cash
flow needs for the 1999 fiscal year. The City issued $1.075 billion in
short-term obligations in fiscal year 1998 to finance the City's projected
cash flow needs for the 1998 fiscal year. The City issued $2.4 billion of
short-term obligations in fiscal year 1997. Seasonal financing requirements
for the 1996 fiscal year increased to $2.4 billion from $2.2 billion and $1.75
billion in the 1995 and 1994 fiscal years, respectively. The delay in the
adoption of the State's budget in certain past fiscal years has required the
City to issue short-term notes in amounts exceeding those expected early in
such fiscal years.
Ratings. As of November 3, 1999, Moody's rated the City's outstanding general
obligation bonds A3, Standard & Poor's rated such bonds A- and Fitch rated
such bonds A. In July 1995, Standard & Poor's revised downward its ratings on
outstanding general obligation bonds of the City from A- to BBB+. In July
1998, Standard & Poor's revised its rating of City bonds upward to A-. Moody's
rating of City bonds was revised in February 1998 to A3 from Baa1. On March 8,
1999, Fitch revised its rating of City bonds upward to A. Such ratings reflect
only the view of Moody's, Standard & Poor's and Fitch, from which an
explanation of the significance of such ratings may be obtained. There is no
assurance that such ratings will continue for any given period of time or that
they will not be revised downward or withdrawn entirely. Any such downward
revision or withdrawal could have an adverse effect on the market prices of
City bonds.
Outstanding Indebtedness. As of September 30, 1999, the City and the Municipal
Assistance Corporation for the City of New York had respectively approximately
$26.3 and $2.8 billion of outstanding net long-term debt. As of September 30,
1999, the Water Authority had approximately $8.6 billion aggregate principal
amount of outstanding bonds, inclusive of subordinate second resolution bonds,
and a $600 million commercial paper program.
Water, Sewer and Waste. Debt service on Water Authority obligations is secured
by fees and charges collected from the users of the City's water and sewer
system. State and Federal regulations require the City's water supply to meet
certain standards to avoid filtration. The City's water supply now meets all
technical standards and the City has taken the position that increased
regulatory, enforcement and other efforts to protect its water supply, will
prevent the need for filtration. On May 6, 1997, the U.S. Environmental
Protection Agency granted the City a filtration avoidance waiver through April
15, 2002 in response to the City's adoption of certain watershed regulations.
The estimated incremental cost to the City of implementing this Watershed
Memorandum of Agreement, beyond investments in the watershed which were
planned independently, is approximately $400 million. The City has estimated
that if filtration of the upstate water supply system is ultimately required,
the construction expenditures required could be between $4 billion and $5
billion.
Legislation has been passed by the State which prohibits the disposal of solid
waste in any landfill located within the City after December 31, 2001. The
Financial Plan includes the estimated costs of phasing out the use of
landfills located within the City. A suit has been commenced against the City
by private individuals under the Resource Conservation and Recovery Act
seeking to compel the City to take certain measures or, alternatively, to
close the Fresh Kills landfill. If as a result of such litigation, the City is
required to close the landfill earlier than required by State legislation, the
City could incur additional costs during the Financial Plan period. Pursuant
to court order, the City is currently required to recycle 3,400 tons per day
of solid waste and is required to recycle 4,250 tons per day by July 2001. The
City as of November 3, 1999 was recycling slightly over 2,600 tons per day of
solid waste. The City may seek to obtain amendments to Local Law No. 19 to
modify this requirement. If the City is unable to obtain such amendments and
is required to fully implement Local Law No. 19, the City may incur
substantial costs.
Litigation. The City is a defendant in a significant number of lawsuits. Such
litigation includes, but is not limited to, routine litigation incidental to
the performance of its governmental and other functions, actions commenced and
claims asserted against the City arising out of alleged constitutional
violations, alleged torts, alleged breaches of contracts and other alleged
violations of law and condemnation proceedings and other tax and miscellaneous
actions. While the ultimate outcome and fiscal impact, if any, on the City of
the proceedings and claims are not currently predictable, adverse
determinations in certain of them might have a material adverse effect upon
the City's ability to carry out the City Financial Plan. The City has
estimated that its potential future liability on account of outstanding claims
against it as of June 30, 1999 amounted to approximately $3.5 billion.
New York State
Current Economic Outlook. The information in this section was obtained from
the State's Annual Information Statement, updated as of February 3, 2000.
Growth in domestic consumption, which has been a major driving force behind
the nation's strong economic performance in recent years, is expected to slow
in 2000 as consumer confidence retreats from historic highs and the stock
market ceases to provide added stimulus to consumption spending. Real Gross
Domestic Product ("GDP") growth is projected to be 4.0 percent in 1999. In
2000 and 2001, real GDP growth is expected to be 3.5 percent and 2.9 percent,
respectively.
The forecast of the State's economy shows continued growth projected in the
2000 and 2001 calendar years for employment, wages and personal income,
although the growth in employment will moderate from the 1999 pace. Personal
income is estimated to have grown by 4.7 percent in 1999, fueled in part by a
large increase in financial sector bonus payments at the year's end. Total
bonus payments are projected to increase by 11 percent in 2000 and 10.5
percent in 2001. Overall employment growth is expected to continue at a more
modest pace than in 1999, reflecting the slower growth in the national
economy, continued spending restraint by government employers, and
restructuring in the manufacturing, health care, social service, and banking
sectors.
Many uncertainties exist in any forecast of the national and State economies.
Given the recent volatility in the international and domestic financial
markets, such uncertainties are particularly present at this time. The timing
and impact of changes in economic conditions are difficult to estimate with a
high degree of accuracy. Unforeseeable events may occur. The actual rate of
change in any, or all, of the concepts that are forecasted may differ
substantially and adversely from the outlook described herein.
Overall employment growth in the State is projected to be 2.3 percent in 1999,
1.7 percent in 2000 and 1.3 percent in 2001. On the national level, employment
growth is projected to be 2.2 percent for 1999, 1.7 percent for 2000 and 1.5
percent for 2001.
On an average annual basis, the State unemployment rate is projected to be 5.1
percent in each of 1999, 2000 and 2001. For the nation as a whole, the
unemployment rate is projected to be 4.2 percent for 1999, 4.1 percent for
2000 and 4.2 percent for 2001.
Personal income in the State is projected to grow by 4.7 percent in 1999, 5.5
percent in 2000 and 4.8 percent in 2001. For the nation, personal income is
projected to grow by 5.8 percent, 5.5 percent and 5.0 percent for 1999, 2000
and 2001, respectively.
The New York Economy. New York is the third most populous state in the nation
and has a relatively high level of personal wealth. The State's economy is
diverse, with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small share
of the nation's farming and mining activity. The services sector accounts for
more than three of every ten nonagricultural jobs in New York and has a
noticeably higher proportion of total jobs than does the rest of the nation.
Manufacturing employment continues to decline in importance in New York, as in
most other states, and New York's economy is less reliant on this sector than
is the nation. Wholesale and retail trade is the second largest sector in
terms of nonagricultural jobs in New York but is considerably smaller when
measured by income share. The finance, insurance and real estate sector is far
more important in the State than in the nation as a whole. Although this
sector accounts for under one-tenth of all nonagricultural jobs in the State,
it contributes about one-fifth of all nonfarm labor and proprietors' income.
Farming is an important part of large regions of the State, although it
constitutes a very minor part of total State output. Federal, State and local
government together are the third largest sector in terms of nonagricultural
jobs, with the bulk of the employment accounted for by local governments. The
State is likely to be less affected than the nation as a whole during an
economic recession that is concentrated in manufacturing and construction, but
likely to be more affected during a recession that is concentrated in the
service-producing sector.
The 1999-2000 Fiscal Year. The State's 1999-2000 fiscal year began on April 1,
1999 and ends on March 31, 2000. On March 31, 1999, the State adopted the debt
service portion of the State budget for the 1999-2000 fiscal year; four months
later, on August 4, 1999, it enacted the remainder of the budget. The Governor
approved the budget as passed by the Legislature. Prior to passing the budget
in its entirety for the 1999-2000 fiscal year, the State enacted
appropriations that permitted the State to continue its operations. Following
the enactment of the budget, the State prepared a Financial Plan for the
1999-2000 fiscal year (the "1999-2000 Financial Plan" or the "State Financial
Plan") that sets forth projected receipts and disbursements based on the
actions taken by the Legislature.
General Fund receipts, including transfers from other funds, are projected to
be $37.341 billion. General Fund disbursements, including transfers to other
funds, are estimated at $37.063 billion. The 1999-2000 Financial Plan projects
the State to close the 1999-2000 fiscal year with a closing balance of $1.17
billion in the General Fund after a tax refund reserve transaction. The
balance is comprised of $548 million in the Tax Stabilization Reserve Fund
after a $75 million deposit in 1999-2000; $265 million in the Community
Projects Fund, which pays for Legislative initiatives; $250 million in the
Debt Reduction Reserve Fund (DRRF); and $107 million in the Contingency
Reserve Fund (which guards against litigation risks).
In addition to the General Fund closing balance of $1.17 billion, the State
will have a projected $3.09 billion in the tax refund reserve account at the
end of 1999-2000. The refund reserve account is used to adjust personal income
tax collections across fiscal years to pay for tax refunds, as well as to
accomplish other Financial Plan objectives. The projected balance of $3.09
billion is comprised of $1.82 billion in tax reduction reserves from the
1998-99 surplus; $683 million from the 1999-2000 surplus; $521 million from
the Local Government Assistance Corporation (see Local Government Assistance
Corporation within) that may be used to pay tax refunds during 2000-01 but
must be on deposit at the close of the fiscal year; $50 million in collective
bargaining reserves from 1999-2000; and $25 million in reserves for tax
credits.
Receipts. General Fund receipts include $33.783 billion in tax receipts,
$1.474 billion in miscellaneous receipts and $2.084 billion in transfers from
other funds. The transfer of the $1.82 billion surplus recorded in the
1998-1999 fiscal year to the 1999-2000 fiscal period has the effect of
exaggerating the growth in State receipts from year to year by depressing
reported 1998-1999 figures and inflating 1999-2000 figures.
Personal income taxes are imposed on the income of individuals, estates and
trusts and are based, with certain modifications, on Federal definitions of
income and deductions. Potential changes to Federal tax law could alter the
Federal definitions of income on which certain State taxes rely. Such changes
could have a significant impact on State revenues in the future. Net General
Fund personal income tax collections (after refund reserve transactions) are
projected to reach $20.71 billion in the 1999-2000 fiscal year. In contrast,
net total General Fund personal income tax receipts (i.e. gross receipts less
refunds) are estimated to be $22.693 billion. To make a portion of these
receipts and other funds available for use in the 2000-2001 fiscal year, the
Governor proposes to deposit $3.09 billion in the tax refund reserve at the
close of the 1999-2000 fiscal year. This action has the effect of decreasing
reported receipts in the 1999-2000 fiscal year, while increasing available
receipts in the 2000-2001 fiscal year.
User taxes and fees are comprised of three-quarters of the State's four
percent sales and use tax, cigarette, alcoholic beverage, container, and auto
rental taxes, and a portion of the motor fuel excise levies. This category
also includes receipts from the motor vehicle registration fees and alcoholic
beverage license fees. Dedicated transportation funds outside of the General
Fund receive a portion of motor fuel tax and motor vehicle registration fees
and all of the highway use taxes. User taxes and fees are projected to total
$7.44 billion in 1999-2000.
Business taxes include franchise taxes based generally on net income of
general business, bank and insurance corporations, as well as
gross-receipts-based taxes on utilities and gallonage-based petroleum business
taxes. Business tax receipts are expected to total approximately $4.57 billion
in 1999-2000.
Transfers from other funds to the General Fund consist primarily of tax
revenues in excess of debt service requirements, including the one percent
sales tax used to support payments to the Local Government Assistance
Corporation (see Local Government Assistance Corporation within). Transfers
from other funds are expected to total approximately $2.08 billion.
Miscellaneous receipts include investment income, abandoned property receipts,
medical provider assessments, minor federal grants, receipts from public
authorities, and certain other license and fee revenues. Miscellaneous
receipts are expected to total $1.47 billion in the 1999-2000 fiscal year.
Other taxes include the estate and gift tax, the real property gains tax and
pari-mutuel taxes. Taxes in this category are projected to total approximately
$1.05 billion for 1999-2000. Disbursements. Grants to Local Governments are
projected to constitute approximately 69.0 percent of all 1999-2000 fiscal
year General Fund disbursements, and includes payments to local governments,
non-profit providers and entitlement benefits to individuals. It is projected
to be approximately $25.60 billion for the 1999-2000 fiscal year.
State Operations is projected to constitute approximately 17.9 percent of all
1999-2000 fiscal year General Fund disbursements. State Operations reflects
the costs of running the Executive, Legislative and Judicial branches of
government, including the prison system, mental hygiene institutions, and the
State University system (SUNY). It is projected to be approximately $6.63
billion for the 1999-2000 fiscal year. The State's overall workforce, as of
the State's Annual Information Statement, dated August 24, 1999, is projected
to remain stable at approximately 191,300 persons.
General State Charges is projected to constitute approximately 5.6 percent of
all 1999-2000 fiscal year General Fund disbursements. This category accounts
primarily for the costs of providing fringe benefits to State employees and
retirees of the Executive, Legislature and Judiciary. It includes employer
contributions for pensions, social security, health insurance, workers'
compensation and unemployment insurance. This category also covers State
payments-in-lieu-of-taxes to local governments for certain State-owned lands,
and the costs of defending lawsuits against the State and its public officers.
Disbursements in this category are estimated at $2.09 billion for the
1999-2000 fiscal year.
Transfers to Other Funds from the General Fund are made primarily to finance
certain portions of State capital projects spending and debt service on
long-term bonds where these costs are not funded from other sources. State
Debt Service is projected to constitute approximately 6.0 percent of all
1999-2000 fiscal year General Fund disbursements. Capital/Other is projected
to constitute approximately 1.4 percent of all such General Fund
disbursements. Long-term debt service transfers are projected at $2.23 billion
in the 1999-2000 fiscal year. Transfers for capital projects are projected to
total $143 million in 1999-2000.
2000-2001 Executive Budget Forecast and Future Fiscal Years. State law
requires the Governor to propose a balanced budget each year. The Governor
presented his 2000-2001 Executive Budget to the State Legislature on January
20, 2000 which was amended on January 31, 2000. The Executive Budget contains
financial projections for the State's 1999-2000 through 2002-2003 fiscal
years. There can be no assurance that the Legislature will enact into law the
Governor's Executive Budget, as amended, or that the State's adopted budget
projections will not differ materially and adversely from the projections set
forth in the State Division of Budget's February 3, 2000 update to the State's
Annual Information Statement for the 1999-2000 fiscal year.
The State projects a closing balance of $1.61 billion in the General Fund at
the end of the 2000-2001 fiscal year (March 31, 2001). This balance is
comprised of a $433 million reserve set aside from the 1999-2000 surplus to
finance the estimated costs of the Governor's proposed tax reduction package
in 2001-2002 and 2002-2003, $475 million in cumulative reserves for collective
bargaining, $548 million in the Tax Stabilization Reserve Fund, and $150
million in the Contingency Reserve Fund after a proposed $43 million deposit
in 2000-2001.
The State's draft 2000-2001 Financial Plan projects General Fund receipts,
including transfers from other funds, of $38.62 billion, an increase of $1.28
billion (3.4 percent) over the 1999-2000 fiscal year. After adjusting for tax
law and administrative changes, recurring growth in the General Fund tax base
is projected to be approximately 5 percent during the 2000-2001 fiscal year.
The forecast of General Fund receipts in 2000-2001 includes the next stage of
the School Tax Relief (STAR) program, as well as the continuing impact of
earlier enacted tax reductions totaling approximately $2.3 billion. The
Executive Budget, as amended, also proposes several new tax reductions that
would have only a modest cost in the 2000-2001 fiscal year, but reduce
receipts by roughly $700 million annually when they are fully phased in by the
end of the 2004-2005 fiscal year. The State's draft 2000-2001 Financial Plan
reserves $433 million from the 1999-2000 surplus to fund the estimated cost of
new tax cuts, including the reduction of gross receipts taxes on energy
companies, in the 2001-2002 and 2002-2003 fiscal years.
The Governor's Executive Budget recommends General Fund disbursements of
$37.93 billion in the 2000-2001 fiscal year, an increase of $869 million (2.3
percent) over the 1999-2000 fiscal year. The Executive Budget, as amended,
includes approximately $300 million in resources from HCRA 2000, the successor
legislation to the Health Care Reform Act of 1996. HCRA 2000 continues the
negotiated reimbursement system for non-governmental payors, and provides
funding for, among other things, graduate medical education, indigent care,
and the expansion of health insurance coverage for uninsured adults and
children. HCRA 2000 will help finance several health-related programs,
including prescription drug assistance for the elderly, supplemental Medicare
insurance, and other public health services that were previously funded from
the General Fund. Programs under HCRA 2000 will be financed with revenues
generated from the financing mechanisms continued from HCRA 1996, a share of
the State's tobacco settlement and revenue from an increased excise tax on
cigarettes.
General Fund spending for school aid is projected at $10.86 billion in the
2000-2001 fiscal year, an increase of $250 million (2.4 percent). Medicaid
spending is estimated at $5.68 billion in 2000-2001, an increase of $65
million (1.2 percent) from the 1999-2000 fiscal year. Spending growth in
Medicaid is projected at 5.5 percent, but is offset by the HCRA 2000 actions
noted above, including continuation of cost containment actions from prior
fiscal years, and efforts to maximize Federal aid that moderate spending
growth.
Spending on welfare is projected at $1.25 billion, a decrease of $11 million
from the 1999-2000 fiscal year. Since the 1994-1995 fiscal year, State
spending on welfare has fallen by one-third, driven by the State's strong
economic performance over the past four years, welfare changes initiated at
the State and federal levels, and aggressive fraud prevention measures.
Although the number of people on welfare is expected to decline from the
1999-2000 fiscal year, General Fund support in the 2000-2001 fiscal year is
expected to remain nearly unchanged primarily to satisfy federal
maintenance-of-effort requirements.
The State's Division of the Budget estimates that the draft State 2000-2001
Financial Plan utilizes $32 million in new non-recurring resources to finance
operations.
The State's Division of the Budget projects cash-basis General Fund budget
gaps of $1.23 billion in the 2001-2002 fiscal year and $2.65 billion in the
2002-2003 fiscal year. These gaps assume that the Legislature will enact the
2000-2001 Executive Budget, as amended, and accompanying legislation in its
entirety, and that reserves proposed by the Governor for current and proposed
tax reductions are used to offset these costs in the outyears.
The draft Financial Plan estimates include the use of the $1.2 billion STAR
tax reduction reserve to offset the cost of that program in 2001-2002. The
draft Financial Plan also assumes that a new $433 million tax reduction
reserve will be created to pay for the estimated costs of the Governor's
proposed 2000-2001 tax reduction, with $123 million applied in 2001-2002 and
the remaining $310 million in 2002-2003.
These projections also assume that the Debt Reduction Reserve Fund will be
used to decrease high-cost State supported debt and increase pay-as-you-go
spending for capital projects, which will produce recurring debt service
savings of $70 million annually. The gap projections contain reserves for a
possible collective bargaining agreement, and do not assume any annual
spending efficiencies to reduce the size of the gaps. If the projected budget
gap for the 2001-2002 fiscal year is closed with recurring actions, the
2002-2003 budget gap would be reduced to $1.42 billion. In recent years, the
State has closed projected budget gaps which the State Division of the Budget
estimates at $5.0 billion (1995-96), $3.9 billion (1996-97), $2.3 billion
(1997-98), and less than $1 billion (1998-99).
Special Considerations. Many complex political, social and economic forces
influence the State's economy and finances, which may in turn affect the
State's Financial Plan. These forces may affect the State unpredictably from
fiscal year to fiscal year and are influenced by governments, institutions,
and events that are not subject to the State's control. The Financial Plan is
also necessarily based upon forecasts of national and State economic activity.
Economic forecasts have frequently failed to predict accurately the timing and
magnitude of changes in the national and State economies. The projections
assume no changes in federal tax law, which could substantially alter the
current receipts forecast.
Many uncertainties exist in forecasts of both the national and the State
economies, including consumer attitudes toward spending, the extent of
corporate and governmental restructuring, the condition of the financial
sector, Federal fiscal and monetary policies, the level of interest rates, and
the condition of the world economy, which could have an adverse effect on the
State. There can be no assurance that the State economy will not experience
results in the current or any future fiscal year that are worse than
predicted, with corresponding material and adverse effects on the State's
projections of receipts and disbursements.
Projections of total State receipts in the State Financial Plan are based on
the State tax structure in effect during the fiscal year and on assumptions
relating to basic economic factors and their historical relationships to State
tax receipts. Projections of total State disbursements are based on
assumptions relating to economic and demographic factors, potential collective
bargaining agreements, levels of disbursements for various services provided
by local governments (where the cost is partially reimbursed by the State),
and the results of various administrative and statutory mechanisms in
controlling disbursements for State operations.
An ongoing risk to the State Financial Plan arises from the potential impact
of certain litigation and federal disallowances now pending against the State,
which could produce adverse effects on the State's projections of receipts and
disbursements. The draft Financial Plan contains projected reserves of $150
million in 2000-01 for such events, but assumes no significant federal
disallowances or other federal actions that could affect State finances.
The Personal Responsibility and Work Opportunity Reconciliation Act of 1996
created a new Temporary Assistance to Needy Families program (TANF) partially
funded with a fixed federal block grant to states. States are required to meet
work activity participation targets for their TANF caseload and conform with
certain other federal standards or face potential sanctions in the form of a
reduced federal block grant and increased State/local funding requirements.
Any future reduction could have an adverse impact on the State's Financial
Plan. However, the State has been able to demonstrate compliance with TANF
work requirements to mid-year 1999-2000 and did not at such time expect to be
subject to associated federal fiscal penalties.
Over the long-term, uncertainties with regard to the economy present the
largest potential risk to future budget balance in New York State. For
example, a downturn in the financial markets or the wider economy is possible,
a risk that is heightened by the lengthy expansion currently underway. The
securities industry is more important to the New York economy than the
national economy as a whole, potentially amplifying the impact of an economic
downturn. A large change in stock market performance during the forecast
horizon could result in wage and unemployment levels that are significantly
different from those embodied in the Financial Plan forecast. Merging and
downsizing by firms, as a consequence of deregulation or continued foreign
competition, may also have more significant adverse effects on employment than
expected.
Despite recent budgetary surpluses recorded by the State, actions affecting
the level of receipts and disbursements, the relative strength of the State
and regional economy, and actions by the Federal Government could impact
projected budget gaps for the State. To address a potential imbalance in any
given fiscal year, the State would be required to take actions to increase
receipts and/or reduce disbursements as it enacts the budget for that year,
and under the State Constitution, the Governor is required to propose a
balanced budget each year. There can be no assurance, however, that the State
Legislature will enact the Governor's proposals or that the State's actions
will be sufficient to preserve budgetary balance in any given fiscal year or
to align recurring receipts and disbursements in any given fiscal year.
Additional risks to the Financial Plan may arise from the enactment of
legislation by the U.S. Congress. For example, Congress has recently debated
proposals under which the Federal Government would take a portion of state
reserves from the TANF block grant for use in funding other federal programs.
It has also considered proposals that would lower the State's share of mass
transit operating assistance. Finally, several proposals to alter federal tax
law that have surfaced in recent years could adversely affect State revenues,
since many State taxes depend on federal definitions of income. While Congress
has not enacted these proposals, it may do so in the future, or it may take
other actions that could have an adverse effect on State finances.
Year 2000 Computer Matters (as of February 3, 2000). To date, the State has
experienced no significant Year 2000 computer disruptions. Monitoring will
continue over the next few months to identify and correct any problems that
may arise. However, there can be no assurance that outside parties who provide
goods and services to the State will not experience computer problems related
to Year 2000 programming in the future, or that such disruptions, if they
occur, will not have an adverse impact on State operations or finances.
Prior Fiscal Years (GAAP-Basis). GAAP requires fund accounting for all
government resources and the modified accrual basis of accounting for
measuring the financial position and changes therein of governmental funds.
The modified accrual basis of accounting recognizes revenues when they become
measurable and available to finance expenditures, and expenditures when a
liability to pay for goods or services is incurred or a commitment to make aid
payments is made, regardless of when actually paid. There are four
GAAP-defined Governmental Fund types. The General Fund is the major operating
fund of the State and receives all receipts that are not required by law to be
deposited in another fund. Debt Service Funds account for the accumulation of
resources for the payment of general long-term debt service and related costs
and payments under lease-purchase and contractual-obligation financing
arrangements. Capital Project Funds account for financial resources of the
State to be used for the acquisition or construction of major capital
facilities (other than those financed by Special Revenue Funds, Proprietary
Funds and Fiduciary Funds). Special Revenue Funds account for the proceeds of
specific revenue sources (other than expendable trusts or major capital
projects), such as Federal grants, that are legally restricted to specified
purposes.
The State completed its 1998-1999 fiscal year with a combined governmental
funds operating surplus of $1.32 billion, which included operating surpluses
in the General Fund ($1.078 billion), in the Debt Service Funds ($209 million)
and in the Capital Projects Funds ($154 million) offset, in part, by an
operating deficit in Special Revenue Funds ($117 million). The State reported
an accumulated surplus of $1.645 billion in the General Fund.
The State completed its 1997-1998 fiscal year with a combined Governmental
Funds operating surplus of $1.80 billion, which included an operating surplus
in the General Fund of $1.56 billion, in Capital Projects Funds of $232
million and in Special Revenue Funds of $49 million, offset in part by an
operating deficit of $43 million in Debt Service Funds. The State reported an
accumulated surplus of $567 million in the General Fund for the first time
since it began reporting its operations on a GAAP-basis.
The State completed its 1996-1997 fiscal year with a combined Governmental
Funds operating surplus of $2.1 billion, which included an operating surplus
in the General Fund of $1.9 billion, in the Capital Projects Funds of $98
million and in the Special Revenue Funds of $65 million, offset in part by an
operating deficit of $37 million in the Debt Service Funds. The State reported
an accumulated deficit of $995 million in the General Fund.
Prior Fiscal Years (Cash Basis). Cash basis accounting results in the
recording of receipts at the time money or checks are deposited in the State
Treasury and the recording of disbursements at the time a check is drawn,
regardless of the fiscal period to which the receipts or disbursements relate.
The State ended its 1998-1999 fiscal year on March 31, 1999 in balance on a
cash basis, with a General Fund cash surplus as reported by the State Division
of the Budget of $1.82 billion. The cash surplus was derived primarily from
higher-than-projected tax collections as a result of continued economic
growth, particularly in the financial markets and the securities industries.
General Fund receipts and transfers from other funds (net of tax refund
reserve account activity) for the 1998-1999 fiscal year totaled $36.74
billion, an increase of 6.34 percent from the 1997-1998 fiscal year levels.
General Fund disbursements and transfers to other funds totaled $36.49 billion
for the 1998-1999 fiscal year, an increase of 6.23 percent from the 1997-1998
fiscal year levels.
The State reported a General Fund closing cash balance of $892 million. The
closing fund balance excludes $2.31 billion that the State deposited into the
tax refund reserve account at the close of the 1998-1999 fiscal year to pay
for tax refunds in the 1999-2000 fiscal year. The tax refund reserve account
transaction has the effect of decreasing reported personal income tax receipts
in the 1998-1999 fiscal year, while increasing reported receipts in the
1999-2000 fiscal year.
The State ended its 1997-1998 fiscal year balanced on a cash basis, with a
reported General Fund cash surplus of $2.04 billion resulting from revenue
growth and lower spending on welfare, Medicaid, and other entitlement
programs. General Fund receipts and transfers from other funds for the
1997-1998 fiscal year (including net tax refund reserve account activity)
totaled $34.55 billion, an annual increase of $1.51 billion, or 4.57 percent
over the 1996-1997 fiscal year. General Fund disbursements and transfers to
other funds were $34.35 billion, an annual increase of $1.45 billion or 4.41
percent. The State closed a budget gap of approximately $2.3 billion for the
1997-1998 fiscal year. Gap-closing actions included cost containment in State
Medicaid, the use of the $1.4 billion 1996-1997 fiscal year budget surplus to
finance 1997-1998 fiscal year spending, control on State agency spending and
other actions.
The State ended its 1996-1997 fiscal year balanced on a cash basis, with a
1996-1997 General Fund cash surplus as reported by the State Division of the
Budget of approximately $1.4 billion that was used to finance the 1997-1998
Financial Plan. The surplus resulted primarily from higher-than-expected
revenues and lower-than-expected spending for social service programs. General
Fund receipts and transfers from other funds for the 1996-1997 fiscal year
totaled $33.04 billion, an increase of 0.7 percent from the 1995-1996 fiscal
year (excluding deposits into the tax refund reserve account). General Fund
disbursements and transfers to other funds totaled $32.90 billion for the
1996-1997 fiscal year, an increase of 0.7 percent from the 1995-1996 fiscal
year.
Local Government Assistance Corporation. In 1990, as part of a State fiscal
reform program, legislation was enacted creating the Local Government
Assistance Corporation (the "LGAC"), a public benefit corporation empowered to
issue long-term obligations to fund certain payments to local governments
traditionally funded through the State's annual seasonal borrowing. The
legislation imposed a cap on the annual seasonal borrowing of the State at
$4.7 billion, except in cases where the Governor and the legislative leaders
have certified the need for additional borrowing and provided a schedule for
reducing it to the cap. If borrowing above the cap is thus permitted in any
fiscal year, it is required by law to be reduced to the cap by the fourth
fiscal year after the limit was first exceeded. This provision capping the
seasonal borrowing was included as a covenant with LGAC's bondholders in the
resolutions authorizing such bonds. As of June 1995, LGAC had issued bonds to
provide net proceeds of $4.7 billion, completing the program. The impact of
LGAC's borrowing, as well as other changes in revenue and spending patterns,
is that the State has been able to meet its cash flow needs throughout the
fiscal year without relying on short-term seasonal borrowing.
Financing Activities. State financing activities include general obligation
debt of the State and State-guaranteed debt, to which the full faith and
credit of the State has been pledged, as well as lease-purchase and
contractual-obligation financings, moral obligation financings and other
financings through public authorities and municipalities, where the State's
obligation to make payments for debt service is generally subject to annual
appropriation by the State Legislature.
As of March 31, 1999, the total amount of outstanding general obligation debt
was approximately $4.825 billion, including $185 million in bond anticipation
notes. The total amount of moral obligation debt was $629 million (down from
$1.39 billion as of March 31, 1998). $25.902 billion of bonds issued primarily
in connection with lease-purchase and contractual-obligation financing of
State capital programs were outstanding.
For purposes of analyzing the financial condition of the State, debt of the
State and of certain public authorities may be classified as State-supported
debt, which includes general obligation debt of the State, LGAC debt and lease
purchase and contractual obligations of public authorities (and
municipalities) where debt service is paid from State appropriations
(including dedicated tax sources, and other revenues such as patient charges
and dormitory facilities rentals). In addition, a broader classification,
referred to as State-related debt, includes State-supported debt, as well as
certain types of contingent obligations, including moral obligation financing,
certain contingent contractual-obligation financing arrangements, and
State-guaranteed debt, where debt service is expected to be paid from other
sources and State appropriations are contingent in that they may be made and
used only under certain circumstances.
The total amount of State-supported debt outstanding grew from 3.48 percent of
personal income in the State in the 1989-1990 fiscal year to 6.21 percent for
the 1998-1999 fiscal year while State-related debt outstanding remained
relatively stable at 6.53 percent of personal income for the same period.
Thus, State-supported debt grew at a faster rate than personal income while
State-related obligations grew at approximately the same rate. At the end of
the 1998-1999 fiscal year, there was $37.74 billion of outstanding
State-related debt and $35.84 billion of outstanding State-supported debt.
During the prior ten years, State-supported long-term debt service increased
on an average annual basis by 8.8 percent to $3.39 billion by the 1998-1999
fiscal year while all governmental funds receipts increased on an average
annual basis of 5.3 percent. This resulted in a general trend of increases in
the ratio of debt service to receipts from fiscal year 1989-1990 to fiscal
year 1998-1999.
The proposed 1999-2000 through 2004-05 Capital Program and Financing Plan was
released with the Executive Budget on January 11, 2000. The recommended
five-year Capital Program and Financing Plan reflects debt reduction
initiatives that would reduce State-supported debt and reform the State's
borrowing practices. The Executive Budget, as amended, proposes to triple the
size of the Debt Reduction Reserve Fund (DRRF) to $750 million ($250 million
from current-year deposits; $250 million from the 1999-2000 surplus; and $250
million from one-time receipts from the tobacco settlement). Two-thirds, or
$500 million, of the moneys will be used in 2000-01 to retire the State's
existing high cost debt and increase pay-as-you-go spending for previously
bond-financed programs. The balance, $250 million, will remain in DRRF in
2000-01, and will be used to further reduce debt in 2001-02. The Executive
Budget, as amended, also includes constitutional and statutory debt reform
proposals that, if enacted, would ban "back door" borrowing, impose caps on
new debt outstanding and debt service costs, and restrict the use of debt to
capital purposes only. The statutory proposal would apply to new debt issued
after April 1, 2000. The earliest the constitutional proposal can take effect,
after passage by two separately-elected Legislatures and approval by the
voters, is January 1, 2002.
Public Authorities. The fiscal stability of the State is related, in part, to
the fiscal stability of its public authorities. Public authorities are not
subject to the constitutional restrictions on the incurring of debt which
apply to the State itself, and may issue bonds and notes within the amounts
of, and as otherwise restricted by, their legislative authorization. As of
December 31, 1998, there were 17 public authorities that had outstanding debt
of $100 million or more, and the aggregate outstanding debt, including
refunding bonds, of all State public authorities was $94 billion, up from $84
billion as of December 31, 1997. The State's access to the public credit
markets could be impaired and the market price of its outstanding debt may be
adversely affected if any of its public authorities were to default on their
respective obligations.
Ratings. As of June 15, 1999, Moody's and Standard & Poor's rated the State's
outstanding general obligation bonds A2 and A, respectively. Standard & Poor's
revised its ratings upward from A- to A on August 28, 1997. Ratings reflect
only the respective views of such organizations, and explanation of the
significance of such ratings must be obtained from the rating agency
furnishing the same. There is no assurance that a particular rating will
continue for any given period of time or that any such rating will not be
revised downward or withdrawn entirely if, in the judgment of the agency
originally establishing the rating, circumstances so warrant. A downward
revision or withdrawal of such ratings may have an effect on the market price
of the New York Municipal Bonds in which the Fund invests.
Litigation. The State is a defendant in numerous legal proceedings including,
but not limited to, claims asserted against the State arising from alleged
torts, alleged breaches of contracts, condemnation proceedings and other
alleged violations of State and Federal laws. State programs are frequently
challenged on State and Federal constitutional grounds. Adverse developments
in legal proceedings or the initiation of new proceedings could affect the
ability of the State to maintain a balanced State Financial Plan in any given
fiscal year. There can be no assurance that an adverse decision in one or more
legal proceedings would not exceed the amount the State reserves for the
payment of judgments or materially impair the State's financial operations. In
its audited financial statements for the fiscal year ended March 31, 1999, the
State reported its estimated liability for awarded and anticipated unfavorable
judgments at $895 million.
Other Localities. Certain localities outside the City have experienced
financial problems and have requested and received additional State assistance
during the last several State fiscal years. The potential impact on the State
of such actions by localities is not included in the projections of the State
receipts and disbursements for the State's 1999-2000 fiscal year.
In 1997, the total indebtedness of all localities in the State, other than the
City, was approximately $21.0 billion. A small portion (approximately $80
million) of that indebtedness represented borrowing to finance budgetary
deficits and was issued pursuant to enabling State legislation.
<PAGE>
Appendix C
ECONOMIC AND FINANCIAL CONDITIONS IN PENNSYLVANIA
-------------------------------------------------
The following information is a brief summary of factors affecting the
economy of the Commonwealth of Pennsylvania and does not purport to be a
complete description of such factors. Other factors will affect issuers. The
summary is based upon one or more of the most recent publicly available
offering statements relating to debt offerings of Pennsylvania issuers. The
Funds have not independently verified the information.
Many factors affect the financial condition of the Commonwealth of
Pennsylvania (also referred to herein as the "Commonwealth") and its political
subdivisions, such as social, environmental and economic conditions, many of
which are not within the control of such entities. Pennsylvania and certain of
its counties, cities and school districts and public bodies (most notably the
City of Philadelphia, sometimes referred to herein as the "City") have from
time to time in the past encountered financial difficulties which have
adversely affected their respective credit standings. Such difficulties could
affect outstanding obligations of such entities, including obligations held by
the Fund.
The General Fund, the Commonwealth's largest fund, receives all tax
revenues, non-tax revenues and federal grants and entitlements that are not
specified by law to be deposited elsewhere. The majority of the Commonwealth's
operating and administrative expenses are payable from the General Fund. Debt
service on all bonded indebtedness of the Commonwealth, except that issued for
highway purposes or for the benefit of other special revenue funds, is payable
from the General Fund.
The five-year period ending with fiscal 1999 was a time of economic
growth with modest rates of growth at the beginning of the period and larger
increases during the most recent years. Throughout the period, inflation has
remained relatively low, helping to restrain expenditure growth. Favorable
economic conditions have helped total revenues and other sources rise at an
average annual rate of 5.8% (6% on a "GAAP" basis) during the five-year
period. Taxes increased at an average annual rate of 4.3% (4.2% on a "GAAP"
basis) during the period. Expenditures and other uses during the fiscal 1995
through fiscal 1999 period rose at a 4.8% (5% on a "GAAP" basis) average
annual rate.
The fund balance at June 30, 1999 (determined on a "Generally Accepted
Accounting Principles" basis) totaled $2,863.4 million, a $905 million
increase over the $1,958.9 million balance at June 30, 1998.
Operations during the 1998 fiscal year increased the unappropriated
balance of Commonwealth revenues during that period by $86.4 million to $488.7
million at June 30, 1998 (prior to reserves for transfer to the Tax
Stabilization Reserve Fund). Higher than estimated revenues, offset in part by
increased reserves for tax refunds, and by slightly lower expenditures than
budgeted were responsible for the increase. Transfers to the Tax Stabilization
Reserve Fund for fiscal 1998 operations total $223.3 million consisting of
$73.3 million representing the required transfer of 15% of the ending
unappropriated surplus balance, plus an additional $150 million authorized by
the General Assembly when it enacted the fiscal 1999 budget. With these
transfers, the balance in the Tax Stabilization Reserve Fund exceeds $668
million and represent 3.7% of fiscal 1998 revenues.
Commonwealth revenues (prior to tax refunds) during the fiscal year
totaled $18,123.2 million, $676.1 million (3.9%) above the estimate made at
the time the budget was enacted. Tax revenue received in fiscal 1998 grew 4.8%
over tax revenues received during fiscal 1997. This rate of increase includes
the effect of legislated tax reductions that affected receipts during both
fiscal years and therefore understates the actual underlying rate of growth of
tax revenue during fiscal 1998. Receipts from the personal income tax produced
the largest single component of higher revenues during fiscal 1998.
Expenditures from all fiscal 1998 appropriations of Commonwealth revenues
totaled $17,229.8 million (excluding pooled financing expenditures and net of
current year lapses). This amount represents an increase of 4.5% over
fiscal1997 appropriation expenditures. Lapses of appropriation authority
during the fiscal year totaled $161.8 million including $58.8 million from
fiscal 1998 appropriations. These appropriation lapses were used to fund
$120.5 million of supplemental fiscal 1998 appropriations.
For GAAP purposes, assets increased $705.1 million and liabilities rose
by$111.1 million during the fiscal year. These changes contributed to a
$310.3million dollar rise in the undesignated-unreserved balance for June 30,
1998 to $497.6 million, the highest level achieved since audited GAAP
reporting was instituted in 1984.
The 1999 fiscal year ended with an unappropriated surplus (prior to the
transfer to the Tax Stabilization Reserve Fund) of $702.9 million, an increase
of $214.2 million from June 30, 1998. Transfers to the Tax Stabilization
Reserve Fund total $255.4 million for fiscal year 1999 consisting of $105.4
million representing the statutory 15% of the fiscal year-end unappropriated
surplus and an additional $150 million from the unappropriated surplus
authorized by the General Assembly. The $447.5 million balance of the
unappropriated surplus was carried over to fiscal year 2000. The higher
unappropriated surplus was generated by tax revenues that were $712.0 million
(3.9%) above estimate and $61.0 million of non-tax revenue (18.4%) above
estimate. Higher than anticipated appropriation lapses also contributed to the
higher surplus. A portion of the higher revenues and appropriation lapses were
used for supplemental fiscal 1999 appropriations totaling $357.8 million.
These supplemental appropriations represent expected one-time obligations.
Including the supplemental appropriations and net of appropriation lapses,
expenditures for fiscal 1999 totaled $18,144.9 million, a 5.9% increase over
expenditures during fiscal 1998.
For GAAP purposes, assets increased $1,024 million in fiscal 1999 and
liabilities rose $119.5 million. The increase in assets over liabilities for
fiscal 1999 caused the fund balance as of June 30,1999 to increase by $904.5
million over the fund balance as of June 30,1998. The total fund balance as of
June 30, 1999 was $2,863.4, the largest fund balance since audited GAAP
reporting was instituted in 1984.
The General Fund budget for the 2000 fiscal year was approved by the General
Assembly in May 1999. The budget as adopted at that time included
appropriations from Commonwealth revenues of $19,061.5 million and estimated
revenues (net of estimated tax refunds and enacted tax changes) of $18,699.9
million. A partial draw down of the fiscal 1999 year-end balance is intended
to fund the $361.6 million difference between estimated revenues and projected
spending.
The estimate of Commonwealth revenues for fiscal 2000 is based on an
economic forecast for real gross domestic product to grow at a 1.4 % rate from
the second quarter of 1999 to the second quarter of 2000. Growth of real gross
domestic product is expected to be restrained by a slowing of the rate of
consumer spending to a level consistent with personal income gains and by
smaller gains in business investment in response to falling capacity
utilization and profits. Slowing economic growth is expected to cause the
unemployment rate to rise through the fiscal year but inflation is expected to
remain moderate. Trends for the Pennsylvania economy are expected to maintain
their close association with national economic trends. Personal income growth
is anticipated to remain slightly below that of the U.S. while the
Pennsylvania unemployment rate is anticipated to be very close to the national
rate.
Commonwealth revenues (excluding the estimated cost of enacted tax
reductions) are projected to increase by 2.8 % over fiscal 1999 receipts.
Appropriations from Commonwealth funds in the originally enacted budget
increase by 3.8 % over fiscal 1999 appropriations. Enacted tax cuts for fiscal
2000 total an estimated $380.2 million in the General fund. Subsequent to the
enactment of the fiscal 2000 budget, $153.6 million of additional
appropriations were authorized. In addition, the need for additional
appropriations during the fiscal year of approximately $58.5 million has been
identified but has not yet been authorized. All additional appropriations are
anticipated to be able to be funded from lapses of appropriation authority
during the fiscal year.
Through December 1999, actual General Fund revenues have exceeded
estimated receipts by $177 million (2.1%).
According to a Pennsylvania Department of Revenue News Release, dated
January 31, 2000, the state collected $1.7 billion in General Fund revenues in
January, 2000, $112.8 million (7%) more than anticipated. Fiscal years-to-date
General Fund collections total $10.3 billion, which is $289.8 million, (2.9%)
above estimate.
On February 8, 2000, Governor Ridge delivered his proposed 2001 General
Fund budget. The proposed General Fund budget is $19.7 billion, an increase of
$399 million (2.1%). The proposed budget includes $643.5 million in tax
reductions and rebates. This is the largest proposed tax cut in Pennsylvania
history.
Pennsylvania is one of the most populous states, ranking fifth behind
California, New York, Texas and Florida. Pennsylvania is an established yet
growing state with a diversified economy. It is the headquarters for many
major corporations.
Pennsylvania has historically been identified as a heavy industry state
although that reputation has changed over the last thirty years as the coal,
steel and railroad industries declined and the Commonwealth's business
environment readjusted to reflect a more diversified economic base. This
economic readjustment was a direct result of a long-term shift in jobs,
investment and workers away from the northeast part of the nation. Currently,
the major sources of growth in Pennsylvania are in the service sector,
including trade, medical and health services, education and financial
institutions.
Nonagricultural employment in Pennsylvania over the ten year period that
ended in 1998 increased at an annual rate of 0.75%. This compares to a
0.29%rate for the Middle Atlantic region and a 1.72% rate for the United
States as a whole during the period 1989 through 1998. For the five years
ended with1998, employment in the Commonwealth has increased 7.0%. The growth
in employment during this period is higher than the 2.7% growth in the Middle
Atlantic region. The unemployment rate in Pennsylvania December, 1999 stood at
a seasonably adjusted rate of 4.1%. The seasonably adjusted national
unemployment rate for December, 1999 was also 4.1%.
The current Constitutional provisions pertaining to Commonwealth debt
permit the issuance of the following types of debt: (i) debt to suppress
insurrection or rehabilitate areas affected by disaster, (ii)
electorate-approved debt, (iii) debt for capital projects subject to an
aggregate debt limit of 1.75 times the annual average tax revenues of the
preceding five fiscal years and (iv) tax anticipation notes payable in the
fiscal year of issuance. All debt except tax anticipation notes must be
amortized in substantial and regular amounts.
Debt service on all bonded indebtedness of Pennsylvania, except that
issued for highway purposes or the benefit of other special revenue funds, is
payable from Pennsylvania's General Fund, which receives all Commonwealth
revenues that are not specified by law to be deposited elsewhere. As of June
30, 1999,the Commonwealth had $4,924.5 million of general obligation debt
outstanding.
Other state-related obligations include "moral obligations." Moral
obligation indebtedness may be issued by the Pennsylvania Housing Finance
Agency (the "PHFA"), a state-created agency which provides financing for
housing for lower and moderate income families, and The Hospitals and Higher
Education Facilities Authority of Philadelphia, a municipal authority
organized by the City of Philadelphia to, among other things, acquire and
prepare various sites for use as intermediate care facilities for the mentally
retarded. PHFA's bonds, but not its notes, are partially secured by a capital
reserve fund required to be maintained by PHFA in an amount equal to the
maximum annual debt service on its outstanding bonds in any succeeding
calendar year. PHFA is not permitted to borrow additional funds as long as any
deficiency exists in the capital reserve fund.
The Commonwealth, through several of its departments and agencies, leases
real property and equipment. Some of those leases and their respective lease
payments are, with the Commonwealth's approval, pledged as security for debt
obligations issued by certain public authorities or other entities within the
state. All lease payments payable by Commonwealth departments and agencies are
subject to and dependent upon an annual spending authorization approved
through the Commonwealth's annual budget process. The Commonwealth is not
required by law to appropriate or otherwise provide monies from which the
lease payments are to be made. The obligations to be paid from such lease
payments are not bonded debt of the Commonwealth.
Certain state-created organizations have statutory authorization to issue
debt for which state appropriations to pay debt service thereon are not
required. The debt of these organizations is funded by assets of, or revenues
derived from, the various projects financed and is not a statutory or moral
obligation of the Commonwealth. Some of these agencies, however, are
indirectly dependent on Commonwealth operating appropriations. In addition,
the Commonwealth may choose to take action to financially assist these
organizations. The Commonwealth also maintains pension plans covering all
state employees, public school employees and employees of certain
state-related organizations.
The Pennsylvania Intergovernmental Cooperation Authority (the "PICA") was
created by Commonwealth legislation in 1991 to assist Philadelphia in
remedying fiscal emergencies. PICA is designed to provide assistance through
the issuance of funding debt and to make factual findings and recommendations
to Philadelphia concerning its budgetary and fiscal affairs. At this time,
Philadelphia is operating under a five year fiscal plan approved by PICA on
June 15, 1999.
No further bonds are to be issued by PICA for the purpose of financing a
capital project or deficit as the authority for such bond sales expired
December 31, 1994. PICA's authority to issue debt for the purpose of financing
a cash flow deficit expired on December 31, 1996. Its ability to refund
existing outstanding debt is unrestricted. PICA had $1,014.1 million in
Special Revenue bonds outstanding as of June 30, 1999.
There is various litigation pending against the Commonwealth, its
officers and employees. In 1978, the Pennsylvania General Assembly approved a
limited waiver of sovereign immunity. Damages for any loss are limited to
$250,000 for each person and $1 million for each accident. The Supreme Court
held that this limitation is constitutional. Approximately 3,500 suits against
the Commonwealth remain open. An adverse decision in one or more of these
cases could adversely affect governmental operations and/or economic
conditions in Pennsylvania. Pennsylvania Association of Rural and Small
Schools (PARSS) v. Ridge
As of January 15, 2000, Pennsylvania general obligation bonds were
currently rated AA by Standard & Poor's, AA by Fitch and Aa3 by Moody's. There
can be no assurance that the economic conditions on which these ratings are
based will continue or that particular bond issues will not be adversely
affected by changes in economic or political conditions.
<PAGE>
Part C
Other Information
Item 23. Exhibits
1.(a) Amended and Restated Articles of Incorporation of the
Registrant.(3)
1.(b) Articles of Amendment reclassifying capital stock as
Class A shares.(1)
1.(c) Articles Supplementary creating Class B shares of capital
stock.(1)
1.(d) Articles of Amendment relating to name change of Sentinel
Short Maturity Government Fund.(2)
1.(e) Articles of Amendment relating to name change of Sentinel
Small Company Fund.(2)
1.(f) Articles of Amendment relating to name change of Sentinel
Emerging Growth Fund.(3)
1.(g) Articles Supplementary creating Class C shares of capital
stock.(1)
1.(h) Articles Supplementary creating Class D shares of Sentinel
Balanced Fund.(6)
1.(i) Articles of Amendment relating to name change of Sentinel
Mid Cap Growth.(4)
1.(j) Articles Supplementary creating Class A shares and Class B
shares of Sentinel Growth Index Fund.(5)
1.(k) Form of Articles Supplementary creating Class A shares,
Class B shares and Class C shares of Sentinel Flex Cap
Opportunity Fund.(7)
1.(l) Form of Articles Supplementary creating Class C shares of
capital stock of Sentinel MidCap Growth Fund and Sentinel Growth
Index Fund.
2. By-Laws of the Registrant, as amended.(1)
3. Portion of the Articles of Incorporation and the By-Laws of
the Registrant defining the rights of holders of Class A shares of
each Fund as series of the Registrant.(10)
4.(a) Investment Advisory Agreement between the Registrant and
Sentinel Advisors Company (the "Advisor"), dated as of March 1,
1993.
4.(b) Investment Subadvisory Agreement between the Advisor and
INVESCO Capital Management, Inc.(8)
4.(c) Investment Subadvisory Agreement between the Advisor and
Evergreen Investment Management Company.(8)
4.(de) Investment Advisory Agreement between the Registrant and
the Advisor relating to Sentinel Growth Index Fund.(5)
4.(e) Sub-Investment Advisory Agreement between the Advisor and
INVESCO Global Asset Management (N.A.), Inc. relating to Sentinel
Growth Index Fund.(5)
4.(f) Form of Investment Advisory Agreement between the
Registrant and the Advisor relating to Sentinel Flex Cap
Opportunity Fund.(7)
4.(g) Form of Sub-Investment Advisory Agreement between the
Advisor and Fred Alger Management, Inc. relating to Sentinel Flex
Cap Opportunity Fund.(7)
4.(h) Investment Advisory Agreement between the Registrant and
the Advisor relating to Sentinel High Yield Bond Fund, dated as of
June 1, 1997.
5.(a) Distribution Agreement between the Registrant and Sentinel
Financial Services Company ("SFSC"), dated as of March 1, 1993.
5.(b) Form of Dealer Agreement.
6. None.
7. Custody Agreement between the Registrant and Investors
Fiduciary Trust Company ("IFTC"), dated December 1, 1989.(1)
8.(a) Dividend Paying Agent Agreement between the Registrant and
IFTC, dated December 1, 1989.(1)
8.(b) Service Agreement between Sentinel Administrative Service
Corporation and IFTC, dated December 1, 1989.(1)
8.(c) Administrative Services Agreement between Sentinel
Administrative Service Corporation and IFTC, dated December 1,
1989.(1)
8.(d) Fund Services Agreement between the Registrant and Sentinel
Administrative Services Company ("SASC"), dated as of March 1,
1993.
9. Opinion of Brown & Wood LLP, counsel to the Registrant.(2)
10. Consent of PricewaterhouseCoopers LLP, independent
accountants for the Registrant.
11.(a) Financial Statements included in Part A:
- Selected Per Share Data and Ratios for the five
years ended November 30, 1999*
11.(b) Financial Statements incorporated by reference in Part B:
- Selected Per Share Data and Ratios for the five
years ended November 30, 1999*
- Statement of Assets and Liabilities at November 30,
1999*
- Statement of Operations for the year ended November
30, 1999*
- Statement of Changes in Net Assets for the years ended
November 30, 1999 and 1998*
- Notes to Financial Statements*
- Report of Independent Accountants*
12.(a) None.
13.(a) Class A Distribution Plan pursuant to Rule 12b-1
under the 1940 Act.(5)
13.(b) Amended Class B Distribution Plan pursuant to Rule
12b-1 under the 1940 Act.(5)
13.(c) Amended Class C Distribution Plan pursuant to Rule 12b-1
under the 1940 Act.
13.(d) Class D Distribution Plan pursuant to Rule 12b-1 under
the 1940 Act.(6)
14. Amended Plan pursuant to Rule 18f-3 under the 1940 Act.
15. Code of Ethics.
- ------------------------
(1) Incorporated by reference to Post-Effective Amendment No.80 to the
Registration Statement filed on January 12, 1998.
(2) Incorporated by reference to Post-Effective Amendment No.77 to the
Registration Statement filed on March 28, 1997.
(3) Incorporated by reference to Post-Effective Amendment No.76 to the
Registration Statement filed on March 29, 1996.
(4) Incorporated by reference to Post-Effective Amendment 86 to the
Registration Statement filed on March 31, 1999.
(5) Incorporated by reference to Post-Effective Amendment No.87 to the
Registration Statement filed on June 30, 1999.
(6) Incorporated by reference to Post-Effective Amendment No.84 to the
Registration Statement filed on October 28, 1998.
(7) Incorporated by reference to Post-Effective Amendment No.88 to the
Registration Statement filed on December 16, 1999.
(8) Incorporated by reference to Post-Effective Amendment No.85 to the
Registration Statement filed on January 25, 1999.
(9) Incorporated by reference to Post-Effective Amendment No.83 to the
Registration Statement filed on April 2, 1998.
(10) Reference is made to Articles Fifth, Sixth, Seventh and Eighth of the
Registrant's Articles of Incorporation, which is incorporated by
reference as it was previously filed as Exhibit 1 to the Registration
Statement; and to Paragraphs 4 through 12, 35 through 39, 43 through
45, 50 and 52 through 54 of the Registrant's By-Laws, previously
filed as Exhibit 2 to the Registration Statement.
* Incorporated by reference to the Registrant's 1999 Annual Report to
shareholders filed with the Securities and Exchange Commission for the year
ended November 30, 1999 pursuant to Rule 30b2-1 under the Investment Company
Act of 1940, as amended ("1940 Act").
Item 24. Persons Controlled by or under Common Control
With The Registrant
None.
Item 25. Indemnification
See paragraphs 3, 4, 5 and 6 of Article SEVENTH of the Amended and
Restated Articles of Amendment of the Registrant, incorporated by
reference to Exhibit 1(a) to this Registration Statement.
The existing Advisory Agreements (Exhibit 4 hereof) provides that in
the absence of willful malfeasance, bad faith, gross negligence or
reckless disregard of the obligations or duties thereunder on the
part of the Advisor, the Advisor shall not be liable to the
Registrant or to any shareholder of the Registrant for any act or
omission in the course of, or connected with rendering services
thereunder or for any losses that may be sustained in the purchase,
holding or selling of any security.
In addition, the Registrant maintains a directors and officers
liability insurance policy with maximum coverage of $15 million under
which the directors and officers of the Registrant are named
insureds.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "1933 Act"), may be permitted
to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed
in the 1933 Act and therefore is unenforceable. In the event that a
claim for indemnification against such liabilities (other than for
expenses paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant, unless the matter has been settled by controlling
precedent in the opinion of its counsel, will submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the 1933 Act and will be
governed by the final adjudication of such issue.
Item 26. Business and Other Connections of the Investment Adviser
Information on the Advisor is incorporated by reference to the
Prospectus included in this Registration Statement.
Partners of the Advisor
-----------------------
Sentinel Management Co. - Managing General Partner
Sentinel Advisors, Inc. - General Partner
Provident Mutual Management Co., Inc. - General Partner
HTK of Delaware, Inc. - General Partner
Officers of the Advisor
-----------------------
Rodney A. Buck, Chief Executive Officer
David M. Brownlee, Senior Vice President
Van Harissis, Senior Vice President
Robert L. Lee, Senior Vice President
Kenneth J. Hart, Vice President
Bruce R. Bottamini, Vice President
Thomas H. Brownell, Vice President
William C. Kane, Vice President
Kay L. Edson, Vice President
Henry J. Restaino, Vice President
Dean R. Howe, Vice President and Treasurer
Scott T. Brayman, Vice President
Daniel J. Manion, Vice President
Steven P. Flynn, Vice President
Daniel E. Gass, Vice President
Stephen S. Rauh, Vice President
Lisa M. Pettrey, Secretary
Each of the above officers is also an officer or employee of
National Life Insurance Company or its subsidiary, National
Life Investment Management Company, Inc. The principal
business address of each such company is National Life
Drive, Montpelier, Vermont 05604.
Item 27. Principal Underwriters
(a) The Registrant's principal underwriter, SFSC, also serves as
principal underwriter for Sentinel Pennsylvania Tax-Free Trust.
(b) As to each officer of SFSC:
<TABLE>
<CAPTION>
Positions and
Name and Principal Positions and Offices Offices with Business Address
with SFSC the Registrant ----------------
- --------------------- ---------------
<S> <C> <C>
Joseph M. Rob Chief Executive Officer President
Julie A. Hendrickson President and Chief None
Operating Officer
John M. Grab, Jr. Senior Vice President, Vice President
Chief Financial Officer,
and Treasurer
</TABLE>
The principal business address of all such persons is National Life
Drive, Montpelier, Vermont 05604.
(c) Not applicable.
Item 28. Location of Accounts and Records
The following maintain physical possession of each account book or
other documents required by Section 31(a) of the 1940 Act and the
Rules promulgated thereunder.
(a) Sentinel Administrative Service Company
National Life Drive
Montpelier, Vermont 05604
Rule 31a-1(a)
Rule 31a-1(b)(1)(2)(3)(4)(5)(6)(7)(8)
Rule 31a-2(a)(b)(c)(f)
(b) Sentinel Advisors Company
National Life Drive
Montpelier, Vermont 05604
Rule 31a-1(a)(9)(10)(11)
Rule 31a-1(d)(f)
Rule 31a-2(a)(c)(f)
(c) Sentinel Financial Services Company
National Life Drive
Montpelier, Vermont 05604
Rule 31a-1(d)
Rule 31a-2(c)
Item 30. Management Services
Not applicable.
Item 32. Undertakings
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act and the Investment
Company Act, the Registrant certifies that it meets all of the requirements
for effectiveness of this registration statement under Rule 485(b) under the
Securities Act and has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Montpelier and State of Vermont, on the 30th day of March, 2000.
SENTINEL GROUP FUNDS, INC.
(Registrant)
By: /s/ Patrick E. Welch
------------------------
Patrick E. Welch
Chairman
As required by the Securities Act of 1933, this post-effective
amendment to the Registration Statement has been signed by the following
persons in the capacities on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Patrick E. Welch Chairman March 30, 2000
- ------------------------------------------- (Chief Executive
Patrick E. Welch Officer)
Richard J. Borda* Director
- --------------------------------------------
Richard J. Borda
Kalman J. Cohen* Director
- ----------------------------------------
Kalman J. Cohen
John D. Feerick* Director
- -------------------------------------------
John D. Feerick
Richard J. Johannesen, Jr.* Director
- -------------------------------------
Richard J. Johannesen, Jr.
Robert B. Mathias* Director
- ---------------------------------------
Robert B. Mathias
- ---------------------------------------
Keniston P. Merrill Director
Deborah G. Miller* Director
- -------------------------------------
Deborah G. Miller
John Raisian* Director
- -------------------------------------
John Raisian
/s/ Joseph M. Rob Director March 30, 2000
- ----------------------------------------
Joseph M. Rob
Susan M. Sterne* Director
- --------------------------------------
Susan M. Sterne
Angela E. Vallot* Director
- --------------------------------------
Angela E. Vallot
/s/ John M. Grab, Jr. Vice President March 30, 2000
- --------------------------------------- and Principal Financial and
John M. Grab, Jr. Accounting Officer
*By /s/ Joseph M. Rob March 30, 2000
-------------------------------
Joseph M. Rob
Attorney-in-Fact
</TABLE>
Exhibit Index
Exhibit Number
1(l) Form of Articles Supplementary creating Class C
shares of capital stock of Sentinel MidCap Growth
Fund an Sentinel Growth Index Fund.
4.(a) Investment Advisory Agreement between the Registrant
and Sentinel Advisors Company (the "Advisor") dated
as of March 1, 1993.
4.(h) Investment Advisory Agreement between the Registrant
and the Advisor relating to Sentinel High Yield Bond
Fund dated as of June 1, 1997.
5.(a) Distribution Agreement between the Registrant and
Sentinel Financial Services Company ("SFSC") dated
as of March 1, 1993.
5.(b) Form of Dealer Agreement
8.(d) Fund Services Agreement between the Registrant and
Sentinel Administrative Services Company, dated as
of March 1, 1993.
10 Consent of PricewaterhouseCoopers LLP, independent
accountants for the Registrant.
13(c) Amended Class C Distribution Plan pursuant to Rule
12b-1 under the 1940 Act.
14 Amended Plan pursuant to Rule 18f-3 under the 1940
Act.
15 Code of Ethics
Exhibit 1(l)
SENTINEL GROUP FUNDS, INC.
ARTICLES SUPPLEMENTARY
CREATING ADDITIONAL CLASSES OF COMMON STOCK
SENTINEL GROUP FUNDS, INC., a Maryland corporation having its
principal Maryland office c/o The Corporation Trust Incorporated, 300 East
Lombard Street, Baltimore, Maryland 21202 (hereinafter called the
"Corporation"), hereby certifies to the State Department of Assessments and
Taxation of Maryland that:
FIRST: Pursuant to authority expressly vested in the Board of
Directors of the Corporation (the "Board of Directors") by its Amended and
Restated Articles of Incorporation, as amended (the "Charter"), the Board of
Directors, at a meeting duly convened and held on December 9, 1999, adopted
resolutions reclassifying forty million (40,000,000) of the authorized but
unissued shares of common stock as Class C shares of common stock, par value
$0.01 per share and of the aggregate par value of four hundred thousand
dollars ($400,000) to be allocated as set forth below to each of the following
investment portfolios of the Corporation (such classes being hereinafter
referred to as the "Class C Classes"):
Number of Shares
Reclassified
Class C shares of Sentinel Mid Cap Growth Fund 20,000,000
Class C shares of Sentinel Growth Index Fund 20,000,000
SECOND: The preferences, designations, conversion or other rights,
voting powers, restrictions, limitations as to dividends, qualifications or
terms or conditions of redemption are as follows, which upon any restatement
of the Charter shall be made part of Article SIXTH, with any necessary or
appropriate changes to the enumeration or lettering of sections or subsections
hereof:
The Class C Classes shall represent the same interest in the
Corporation and have identical preferences, designations, conversion
or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, or terms or conditions of redemption as
the shares of common stock as of the date of these Articles
Supplementary, except as otherwise set forth in the Charter and
further except that:
(i) Expenses related to the distribution of the Class C
Classes shall be borne solely by such class and such class shall have
exclusive voting rights with respect to matters relating to the
expenses being borne solely by such class; and
(ii) Such distribution expenses borne solely by Class C
Classes shall be appropriately reflected (in the manner determined by
the Board of Directors) in the net asset value, dividends,
distribution and liquidation rights of the shares of such class.
IN WITNESS WHEREOF, SENTINEL GROUP FUNDS, INC. has caused these
Articles Supplementary to be signed in its name and on its behalf by its
President and attested by its Secretary on the day of March, 2000.
SENTINEL GROUP FUNDS, INC.
By /s/ Joseph M. Rob
--------------------------------
Joseph M. Rob
President
Attest:
/s/ D. Russell Morgan
- --------------------------
D. Russell Morgan
Secretary
THE UNDERSIGNED, President of SENTINEL GROUP FUNDS, INC. (the
"Corporation"), who executed on behalf of the Corporation the foregoing
Articles Supplementary, of which this certificate is made a part, hereby
acknowledges, in the name and on behalf of the Corporation, the foregoing
Articles Supplementary to be the corporate act of the Corporation and, as to
all matters or facts required to be verified under oath, further certifies
that, to the best of his knowledge, information and belief, these matters and
facts contained are true in all material respects and that this statement is
made under the penalties for perjury.
/s/ Joseph M. Rob
---------------------------
Joseph M. Rob
President
Exhibit 4(a)
INVESTMENT ADVISORY AGREEMENT
Agreement made as of this first day of March, 1993, by and between
Sentinel Group Funds, Inc., a Maryland corporation and a registered series
investment company under the Investment Company Act of 1940 (hereinafter
called "Funds"), and Sentinel Advisors Company, a Vermont general partnership,
and a registered investment adviser under the Investment Advisers Act of 1940
(hereinafter called "Advisor").
WITNESSETH:
In consideration of the mutual promises and agreements herein
contained and other good and valuable considerations, the receipt of which is
hereby acknowledged, it is hereby agreed by and between the parties hereto as
follows:
1. Management of Securities Portfolios
Advisor agrees to act as investment adviser to Funds with respect to
the investment of its assets and in general to supervise the investments of
several portfolios of Funds, subject at all times to the direction and control
of the Board of Directors of Funds, all as more fully set forth herein. In
connection therewith, Advisor shall regularly provide investment advice to
Funds, and shall, subject to the succeeding provisions of this section,
continuously supervise the investment and reinvestment of cash, securities or
other property comprising the assets of the several investment portfolios of
Funds, and Advisor shall accordingly:
(a) obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic or
foreign, affecting the economy generally, the several portfolios of Funds, the
individual companies whose securities are included in Funds' portfolios, the
industries in which they engage, and securities which Advisor considers may be
suitable for inclusion in any of Funds' portfolios, and regularly report
thereon to the Board of Directors of Funds; and
(b) provide continuously an investment program for each portfolio of
Funds consistent, in its opinion, with the investment policy and objectives
for which such portfolio is designed; and
(c) determine what securities shall be purchased or sold by Funds,
and regularly report thereon to the Board of Directors of Funds; and
(d) take, on behalf of Funds, all actions which appear to Advisor
necessary to carry into effect such investment programs and supervisory
functions as aforesaid including the placing of purchase and sale orders.
Any investment program provided by Advisor under this section, or any
supervisory functions taken hereunder by it shall at all times conform to, and
be in accordance with, any requirements imposed by: the provisions of the
Investment Company Act of 1940 (the "1940 Act"), and any rules or regulations
in force thereunder, any other applicable provision of law, the provisions of
the Articles of Incorporation of Funds as amended from time to time, the
provisions of the By-Laws of Funds as amended from time to time, resolutions
as adopted and/or amended from time to time by the Board of Directors of
Funds, and the terms of the registration statements of Funds, as amended from
time to time, under the Securities Act of 1933 and the 1940 Act.
In furtherance of these duties, Advisor will make its principal
executive officers available as principal executive officers of Funds at no
expense to Funds.
2. Funds to Bear Other Expenses
It is understood and agreed that Funds, in addition to the advisory
fee paid to Advisors set forth in Article 3 below, will bear and pay for its
expenses of operation including its (i) rent and office equipment, if any;
(ii) salaries and employee benefits including applicable employment and
payroll taxes, of its own administrative and executive personnel who are not
affiliated with Advisor, if any; (iii) brokerage commissions and other costs
in connection with the purchase or sale of securities; (iv) all taxes and
corporate fees payable by Funds to federal, state or other governmental
agencies; (v) fees and costs of its transfer agent, fund accounting and
financial administration service provider, custodian, registrar, independent
legal counsel and auditors; (vi) expenses of printing and mailing stock
certificates, dividends, reports, notices and proxy materials to its
shareholders; (vii) fees and expenses incident to the registration and
maintenance of registration under the Securities Act of 1933 of shares of
Funds for public sale (other than costs of printing prospectuses for
prospective new shareholders) and the qualification of its shares for offering
and sale under state or other securities laws; (viii) fees and expenses
imposed on Funds under the 1940 Act; (ix) insurance premiums for fidelity
bonds and other coverage to its operations; (x) all expenses incident to
holding of meetings of its shareholders; (xi) fees and expenses of directors
who are not affiliated with Advisor; (xii) its pro rata share of fees and dues
of the Investment Company Institute; and(xiii) such non-recurring expenses as
may arise, including actions, suits or proceedings, affecting Funds and the
legal obligation which Funds may have to indemnify its officers and directors
with respect thereto.
3. Compensation of Advisors
As compensation in full for services rendered under this Agreement,
Funds will pay to Advisor a monthly fee determined as follows:
(1) With respect to all equity funds in the aggregate, other than the
Common Stock Fund:
0.70% per annum on the first $200 million of aggregate daily average net
assets of the equity funds in the aggregate, other than the Common Stock Fund;
0.65% per annum on the next $100 million of such assets;
0.60% per annum on the next $100 million of such assets;
0.55% per annum on such assets in excess of $400 million;
(2) With respect to the Common Stock Fund:
0.55% per annum on the aggregate daily average net assets of the Fund;
(3) With respect to all fixed income funds in the aggregate:
0.55% per annum on the first $200 million of aggregate daily average net
assets of the fixed income funds in the aggregate;
0.50% per annum on the next $200 million of such assets; and
0.45% per annum on such assets in excess of $400 million;
(4) With respect to all money market funds in the aggregate:
0.40% per annum on the first $300 million of daily average net assets of the
money market funds in the aggregate; and
0.35% per annum on such assets in excess of $300 million;
Of the initial portfolios, the Aggressive Growth, Growth, Common
Stock, Balanced, and World Funds shall for purposes of this Agreement, be
deemed to be "equity funds", and the Bond, Government Securities, and Tax-Free
Income Funds shall for purposes of this Agreement, be deemed to be "fixed
income funds", and the 100% U.S. Treasury Money Market Fund shall be a money
market fund. New funds shall be placed into one of the above classifications
by agreement of Funds' Board of Directors and Advisor at the time the new fund
becomes subject to this agreement.
The amounts payable to Advisors shall be based upon the value of the
net assets as of the close of business each day, computed in accordance with
the Articles of Incorporation of Funds. Such amounts shall be prorated among
the several classes of shares of Funds in proportion to their respective daily
net asset values and shall be paid monthly.
4. Guarantee of Expense Limitation
If, for any fiscal year of Funds, expenses (including management fee
and costs incident to its regular and executive personnel, but excluding
interest, taxes, brokerage fees and, where permitted, extraordinary expense)
borne by Funds exceed expense limitations applicable to each class of shares
of Funds which are imposed by state securities regulators as such limitations
may be lowered or raised from time to time, Advisor guarantees that it will
reimburse Funds for any excess. The portion of any such reduction to be borne
by Advisor shall be deducted from the monthly investment advisory fee
otherwise payable to Advisor and, if such amount should exceed such monthly
investment advisory fees, Advisor agrees to repay to Fund annually before
publication of Funds' annual report to shareholders such sum as may be
required to make up the deficiency. For the purpose of this article, the term
"fiscal year" shall include the portion of the then current fiscal year which
shall have elapsed at the date of termination of this Investment Advisory
Agreement.
5. Placing of Purchase and Sale Orders
Advisor shall not deal as principal with Funds in the purchase and
sale of portfolio securities nor shall it receive any commissions or other
remuneration on the purchase or sale of portfolio securities by Funds.
Advisor is authorized and directed to place the orders for the
purchase and sale of portfolio securities by Funds and to supervise the
executions thereof. With respect to such transactions, whether through a
broker as agent or with a dealer as principal, Advisor's primary objective is
to both obtain the best price and execution of each transaction. Such orders
may be placed with qualified brokers and/or dealers who also provide
investment information or other services to Funds. Management shall report to
the Directors of Funds at least quarterly on said allocations of order and on
the brokerage commissions and/or dealer concessions involved, indicating to
whom such allocations are made and the basis thereof.
6. Nonexclusivity
Advisor's services to Funds hereunder are not to be deemed exclusive
and Advisor shall be free to render similar services to others, so long as its
services hereunder are not impaired thereby.
7. National Life Services
National Life Insurance Company and its subsidiaries may furnish to
Advisor, in order to better enable it to fulfill its obligations hereunder,
office space, personnel and other services as are requested by Advisor, in all
cases for a reasonable charge. Advisor will present the details of any such
arrangements to the Board of Directors of Funds.
8. Affiliations of Advisor
It is understood that the directors and officers of Funds may be
directors or officers of Advisor or an entity under common control, including
National Life Insurance Company, Provident Mutual Life Insurance Company of
Philadelphia, or any affiliate of either, or otherwise be interested in
Advisor, and that the existence of such dual interest shall not affect the
validity of this Agreement or any transactions hereunder.
9. Liability of Advisor
In the absence of willful misfeasance, bad faith, gross negligence,
or reckless disregard of obligations or duties hereunder on the part of
Advisor, it shall not be subject to liability to Funds or to any stockholder
of Funds for any act or omission in the course of, or in connection with,
rendering services hereunder or for any losses that may be sustained in the
purchase, holding or sale of any security.
10. Duration of this Agreement
This Agreement shall become effective upon the date set forth above
and shall continue in force and effect, unless terminated as hereinafter
provided, until November 30, 1993, and from year to year thereafter, provided
such continuance is specifically approved at least annually by the Board of
Directors of Funds, including specific approval (i) by a majority of the
Directors who are not interested persons of a party to this Agreement (other
than as Directors of Funds) by votes cast in person at a meeting specifically
called for such purpose (Director vote) or (ii) as to each class of the issued
and outstanding voting securities (as defined in Section 2(a)(42) of the 1940
Act) of Funds by a vote of a majority of such class and a Director vote.
11. Termination
This Agreement may be terminated by Advisor at any time without
penalty upon giving Funds sixty (60) days' written notice (which notice may be
waived by Funds) and may be terminated by Funds, in its entirety or as to a
specific series of Funds, at any time without penalty upon giving Advisors
sixty (60) days' written notice (which notice may be waived by Advisor),
provided that such termination by Funds shall be approved by the vote of a
majority of the Board of Directors of Funds in office at the time or by the
vote of a majority of the outstanding voting securities of Funds, if such
termination relates to the investment advisory arrangements for all series of
Funds, or by the vote of a majority of the outstanding voting securities of a
specific series of Funds, if such termination relates to that series only.
This Agreement shall automatically terminate in the event of its assignment,
the term "assignment" for this purpose having the meaning defined in Section
2(a)(4) of the 1940 Act.
12. Notification of Changes in Advisor
Advisor will notify Funds of any change in the identities of the
partners of Advisor within a reasonable time after such change.
IN WITNESS WHEREOF, the parties hereto have caused the foregoing
instrument to be executed by their duly authorized officers and their
corporate seals to be hereunder affixed, all as of the day and year first
above written.
Attest: SENTINEL GROUP FUNDS, INC.
/s/ D. Russell Morgan BY: /s/ Keniston P. Merrill
- ---------------------------------- ------------------------
D. Russell Morgan Keniston P. Merrill
Secretary Chairman
Attest: SENTINEL ADVISORS COMPANY
/s/ Lisa M. Marcoux By: /s/ Christopher E. Martin
- ----------------------------------- --------------------------
Lisa M. Marcoux Christopher E. Martin
Exhibit 4(h)
INVESTMENT ADVISORY AGREEMENT
Agreement made as of this first day of June, 1997, by and between
Sentinel Group Funds, Inc., a Maryland corporation and a registered series
investment company under the Investment Company Act of 1940, one series of
which is the Sentinel High Yield Bond Fund (hereinafter called the "Fund"),
and Sentinel Advisors Company, a Vermont general partnership, and a registered
investment adviser under the Investment Advisers Act of 1940 (hereinafter
called "Advisor").
WITNESSETH:
In consideration of the mutual promises and agreements herein
contained and other good and valuable considerations, the receipt of which is
hereby acknowledged, it is hereby agreed by and between the parties hereto as
follows:
1. Management of High Yield Bond Fund Portfolio
Advisor agrees to act as investment adviser to the Fund with respect
to the investment of its assets and in general to supervise the investments of
the portfolio of the Fund, subject at all times to the direction and control
of the Board of Directors of Sentinel Group Funds, Inc. all as more fully set
forth herein. In connection therewith, Advisor shall regularly provide
investment advice to the Fund, and shall, subject to the succeeding provisions
of this section, continuously supervise the investment and reinvestment of
cash, securities or other property comprising the assets of the investment
portfolio of the Fund, and Advisor shall accordingly:
(a) obtain and evaluate pertinent information about significant
developments and economic, statistical and financial data, domestic or foreign,
affecting the economy generally, the portfolio of the Fund, the individual
companies whose securities are included in the Fund's portfolio, the industries
in which they engage, and securities which Advisor considers may be suitable
for inclusion in the Fund's portfolio, and regularly report thereon to the
Board of Directors of Sentinel Group Funds, Inc.; and
(b) provide continuously an investment program for the Fund
consistent, in its opinion, with its investment policy and objectives; and
(c) determine what securities shall be purchased or sold by the Fund,
and regularly report thereon to the Board of Directors of Sentinel Group
Funds, Inc.; and
(d) take, on behalf of the Fund, all actions which appear to Advisor
necessary to carry into effect such investment programs and supervisory
functions as aforesaid including the placing of purchase and sale orders.
The investment program provided by Advisor under this section, or any
supervisory functions taken hereunder by it shall at all times conform to, and
be in accordance with, any requirements imposed by: the provisions of the
Investment Company Act of 1940 (the "1940 Act"), and any rules or regulations
in force thereunder, any other applicable provision of law, the provisions of
the Articles of Incorporation of Sentinel Group Funds, Inc. as amended from
time to time, the provisions of the By-Laws of Sentinel Group Funds, Inc. as
amended from time to time, resolutions as adopted and/or amended from time to
time by the Board of Directors of Sentinel Group Funds, Inc., and the terms of
the registration statements of Sentinel Group Funds, Inc., as amended from
time to time, under the Securities Act of 1933 and the 1940 Act.
2. The Fund to Bear Other Expenses
It is understood and agreed that the Fund, in addition to the
advisory fee paid to Advisor set forth in Article 3 below, will bear and pay
for its expenses of operation including its (i) rent and office equipment, if
any; (ii) salaries and employee benefits including applicable employment and
payroll taxes of its own administrative and executive personnel who are not
affiliated with Advisor, if any; (iii) brokerage commissions and other costs
in connection with the purchase or sale of securities; (iv) all taxes and
corporate fees payable by the Fund to federal, state or other governmental
agencies; (v) fees and costs of its transfer agent, fund accounting and
financial administration service provider, custodian, registrar, independent
legal counsel and auditors; (vi) expenses of printing and mailing stock
certificates, dividends, reports, notices and proxy materials to its
shareholders; (vii) fees and expenses incident to the registration and
maintenance of registration under the Securities Act of 1933 of shares of the
Fund for public sale (other than costs of printing prospectuses for
prospective new shareholders) and the qualification of its shares for offering
and sale under state or other securities laws; (viii) fees and expenses
imposed on the Fund under the 1940 Act; (ix) insurance premiums for fidelity
bonds and other coverage to its operations; (x) all expenses incident to
holding of meetings of its shareholders; (xi) fees and expenses of directors
who are not affiliated with Advisor; (xii) its pro rata share of fees and dues
of the Investment Company Institute; and (xiii) such non-recurring expenses as
may arise, including actions, suits or proceedings, affecting the Fund and the
legal obligation which the Fund may have to indemnify its officers and
directors with respect thereto.
3. Compensation of Advisors
As compensation in full for services rendered under this Agreement,
the Fund will pay to Advisor a monthly fee determined as follows:
0.75% per annum on the first $100 million of aggregate daily average net
assets of the Fund;
0.70% per annum on the next $100 million of such assets;
0.65% per annum on the next $100 million of such assets;
0.60% per annum on such assets in excess of $300 million
4. Guarantee of Expense Limitation
If, for any fiscal year of the Fund, expenses (including management
fee and costs incident to its regular and executive personnel, but excluding
interest, taxes, brokerage fees and, where permitted, extraordinary expense)
borne by the Fund exceed expense limitations applicable to each class of
shares of the Fund which are imposed by state securities regulators as such
limitations may be lowered or raised from time to time, Advisor guarantees
that it will reimburse the Fund for any excess. The portion of any such
reduction to be borne by Advisor shall be deducted from the monthly investment
advisory fee otherwise payable to Advisor and, if such amount should exceed
such monthly investment advisory fees, Advisor agrees to repay to the Fund
annually before publication of Sentinel Group Funds, Inc.'s annual report to
shareholders such sum as may be required to make up the deficiency. For the
purpose of this article, the term "fiscal year" shall include the portion of
the then current fiscal year which shall have elapsed at the date of
termination of this Investment Advisory Agreement.
5. Placing of Purchase and Sale Orders
Advisor shall not deal as principal with the Fund in the purchase and
sale of portfolio securities nor shall it receive any commissions or other
remuneration on the purchase or sale of portfolio securities by the Fund.
Advisor is authorized and directed to place the orders for the
purchase and sale of portfolio securities by the Fund and to supervise the
executions thereof. With respect to such transactions, whether through a
broker as agent or with a dealer as principal, Advisor's primary objective is
to both obtain the best price and execution of each transaction. Such orders
may be placed with qualified brokers and/or dealers who also provide
investment information or other services to the Fund. Management shall report
to the Directors of Sentinel Group Funds, Inc. at least quarterly on said
allocations of order and on the brokerage commissions and/or dealer
concessions involved, indicating to whom such allocations are made and the
basis thereof.
6. Nonexclusivity
Advisor's services to the Fund hereunder are not to be deemed
exclusive and Advisor shall be free to render similar services to others, so
long as its services hereunder are not impaired thereby.
7. National Life Services
National Life Insurance Company and its subsidiaries may furnish to
Advisor, in order to better enable it to fulfill its obligations hereunder,
office space, personnel and other services as are requested by Advisor, in all
cases for a reasonable charge. Advisor will present the details of any such
arrangements to the Board of Directors of Sentinel Group Funds, Inc.
8. Affiliations of Advisor
It is understood that the directors and officers of Sentinel Group
Funds, Inc. may be directors or officers of Advisor or an entity under common
control, including National Life Insurance Company, Provident Mutual Life
Insurance Company of Philadelphia, or any affiliate of either, or otherwise be
interested in Advisor, and that the existence of such dual interest shall not
affect the validity of this Agreement or any transactions hereunder.
9. Liability of Advisor
In the absence of willful misfeasance, bad faith, gross negligence,
or reckless disregard of obligations or duties hereunder on the part of
Advisor, it shall not be subject to liability to the Fund or Sentinel Group
Funds, Inc., or to any stockholder of the Fund or Sentinel Group Funds, Inc.
for any act or omission in the course of, or in connection with, rendering
services hereunder or for any losses that may be sustained in the purchase,
holding or sale of any security.
10. Duration of this Agreement
This Agreement shall become effective upon the date set forth above
and shall continue in force and effect, unless terminated as hereinafter
provided, until November 30, 1997, and from year to year thereafter, provided
such continuance is specifically approved at least annually by the Board of
Directors of Sentinel Group Funds, Inc., including specific approval (i) by a
majority of the Directors who are not interested persons of a party to this
Agreement (other than as Directors of Sentinel Group Funds, Inc.) by votes
cast in person at a meeting specifically called for such purpose (Director
vote) or (ii) as to the Fund by a vote of a majority of each class of shares
of the Fund and a Director vote.
11. Termination
This Agreement may be terminated by Advisor at any time without
penalty upon giving Sentinel Group Funds, Inc. sixty (60) days' written notice
(which notice may be waived by Sentinel Group Funds, Inc.) and may be
terminated by Sentinel Group Funds, Inc. at any time without penalty upon
giving Advisors sixty (60) days' written notice (which notice may be waived by
Advisor), provided that such termination by Sentinel Group Funds, Inc. shall
be approved by the vote of a majority of the Board of Directors of Sentinel
Group Funds, Inc. in office at the time or by the vote of a majority of the
outstanding voting securities of the Fund. This Agreement shall automatically
terminate in the event of its assignment, the term "assignment" for this
purpose having the meaning defined in Section 2(a)(4) of the 1940 Act.
12. Notification of Changes in Advisor
Advisor will notify Sentinel Group Funds, Inc. of any change in the
identities of the partners of Advisor within a reasonable time after such
change.
IN WITNESS WHEREOF, the parties hereto have caused the foregoing
instrument to be executed by their duly authorized officers and their
corporate seals to be hereunder affixed, all as of the day and year first
above written.
Attest: SENTINEL GROUP FUNDS, INC.
BY:_________________________
- ------------------------------- Keniston P. Merrill
D. Russell Morgan Chairman
Secretary
Attest: SENTINEL ADVISORS COMPANY
By:__________________________
- ------------------------------- Christopher E. Martin
Lisa M. Marcoux
Exhibit 5(a)
DISTRIBUTION AGREEMENT
This Distribution Agreement is made as of this first day of March,
1993, by and between Sentinel Group Funds, Inc., a Maryland corporation and a
registered series investment company under the Investment Company Act of 1940
(herein called the "Company") and Sentinel Financial Services Company, a
Vermont general partnership and a registered broker-dealer under the
Securities Exchange Act of 1934 (herein called "Distributor"):
WHEREAS, the Company is desirous of engaging the services of
Distributor as principal underwriter for the purpose of selling its
securities; and
WHEREAS, Distributor is willing to undertake to furnish such service;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt of which is
hereby mutually acknowledged, it is understood and agreed as follows:
1. The Company hereby appoints Distributor as the principal
underwriter to sell the securities of the Company, and Distributor hereby
accepts such appointment, and agrees to exert its best efforts to effectuate
such sales.
2. Distributor agrees that for each share sold by it, the Company
will receive not less than the asset value thereof, computed with respect to
changes during each market day on behalf of Company, which shall notify
Distributor of such asset values, for purposes of determining a new offering
price. Distributor agrees that, except as hereinafter noted, the asset value
of the shares of any class will constitute not less than 91.5% of the selling
price upon the sale of such shares to the public, and that the total amount of
all sales charges shall be within the limits established by applicable law
from time to time, and as provided in the Company's prospectus from time to
time. Distributor shall be entitled to retain for its own use and benefit and
as compensation for its services hereunder all monies received by it upon the
sale of the securities of the Company over and above the asset values to which
the Company is entitled as hereinabove provided.
3. In the event that Distributor shall sponsor contractual plans for
investment in shares of the Company's stock, the selling price of such plans
shall not, for the purposes hereof, be deemed the selling price of such shares
which will be sold to the Custodian for such plans at their asset value. In
such event, Distributor and the Custodian shall be entitled to retain for
their own use and benefit as compensation for their services the sales and
creation charges and other deductions duly authorized by such plans and the
custodian agreement for such plans notwithstanding that the asset value of the
shares purchased for such plans is less than 91.5% of the selling price of
such plans.
4. Distributor agrees to assume all sales expense incident to its
activities relating to the sale, confirmation and delivery of securities of
the Company, but shall not pay the expenses which are enumerated in paragraph
5 below as payable by the Company. Such expenses assumed by the Distributor
may be reimbursed by the Company to the Distributor to the extent, if any,
provided in a Distribution Plan adopted pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as such Distribution Plan is in effect from
time to time.
5. The Company shall pay its corporate expenses and expenses incident
to the making of good legal delivery of shares of the Company to the public
such as (but not by way of limitation) fees and expenses incident to
registration under the Securities Act of 1933 (as amended), costs of preparing
and printing reports, notices and announcements to the Company's shareholders,
expenses and fees of "Blue Skying" shares of the Company in the various states
of the Union, costs of certificates of stock, Federal and state taxes
(including taxes, if any, incident to such sale, confirmation or delivery of
shares to the public), fees of transfer agents and registrars. The Company
shall pay the cost of setting the type for prospectuses and Distributor shall
pay the cost of printing the same in such quantities as it may require.
Distributor shall also pay the cost of printing company reports in quantities
in excess of those normally required for the information of dealers. The
expenses assumed by the Distributor under the preceding two sentences may be
reimbursed to Distributor to the extent, if any, provided by any distribution
plan pursuant to Rule 12b-1 under the Investment Company Act of 1940 that may
at the time be applicable.
6. Distributor guarantees to the Company that all sales confirmed by
it for the Company will represent bona fide orders received, and that it will
not take a long or short position as agent for the Company or otherwise in the
securities of the Company, except that Distributor from time to time may buy
shares of the Company for the Company at a price based on the current net
asset value of such shares computed in accordance with Rule 22c-1 as now in
effect or hereafter amended. Distributor shall accept and pay for such shares
at the price confirmed by Distributor, upon delivery of the certificates
representing such shares to the Company by Distributor.
7. Distributor hereby represents that it is a member of the National
Association of Securities Dealers, Inc., and agrees to abide by its Rules of
Fair Practice.
8. Distributor agrees that so long as it is responsible for the sale
of the securities of the Company, it will refrain from taking long or short
positions against the Company in securities of the same issues as the issues
which constitute the assets of the Company, and that it will require its
officers, directors and employees to commit not to take any such long or short
positions against the Company and not, knowingly or intentionally, to enter
into, advise or permit any security transaction inconsistent with the best
interests of the Company.
9. This agreement shall become effective upon the date hereof and
shall continue in effect until November 30, 1993, and thereafter from year to
year provided that such continuance and renewal is specifically approved
annually in the manner required by the Investment Company Act of 1940, unless
sooner terminated as to any or all series of the Company as follows:
a) By Distributor at any time by sixty days' written notice to
the Company, or
b) By the Company at any time by sixty days' written notice to
Distributor of a vote to terminate of the Board of Directors or of the
Stockholders of the affected series of the Company, either vote having been
taken at any meeting called for the purpose.
10. This agreement may be amended only in writing signed by both
parties upon due authorization of such amendment by vote of the Directors or
Stockholders of the Company and, in either case, by the vote of a majority of
directors of the Company, who are not parties to this agreement or interested
persons of any such party, cast in person at a meeting called for the purpose
of voting on such approval.
11. This agreement shall be automatically terminated in the event of
its assignment. This agreement shall supercede the Distribution Agreement
between the Company and Equity Services, Inc. dated June 30, 1989, and such
prior agreement is hereby terminated by mutual agreement.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to
be duly executed by an authorized officer of each party hereto.
SENTINEL GROUP FUNDS, INC.
By: /s/ Keniston P. Merrill
-----------------------
Keniston P. Merrill
Chairman
ATTEST:
/s/ D. Russell Morgan
- ----------------------
Secretary
SENTINEL FINANCIAL SERVICES COMPANY
By: /s/ Joseph M. Rob
------------------
Joseph M. Rob
ATTEST:
/s/ Lisa M. Marcoux
- --------------------
Lisa M. Marcoux
Exhibit 5(b)
DEALER AGREEMENT
<TABLE>
<CAPTION>
[LOGO OMITTED] Sentinel Financial Services Company
One National Life Drive
Montpelier, Vermont 05604
Tel: 800-233-4332
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Sentinel Financial Services Company ("Sentinel receive continuing service fees to the extent described
Financial") is the principal underwriter and distributor of in Schedule A hereto.
the shares of common stock of each of the funds
in Sentinel Group Funds, Inc. and the shares of beneficial Letter of Intent:
interest of the Sentinel Pennsylvania Tax-Free Trust (the Quantity discounts also apply on investments of
"Funds"). Such Funds are those enumerated in $100,000 or more spread over 13 months, or in the case
Schedule A hereto which may be amended from time to of qualified plans, spread over 30 months, under a Letter
time by Sentinel Financial by written notice to you. of Intent dated within 90 calendar days of the first
Sentinel Financial invites your participation, under the purchase to be included. An investor may combine the
following terms and conditions, in the distribution of the value at the offering price of all shares of the Funds (not
Funds, described in the prospectus, Shareholder Guide, including the Sentinel U.S. Treasury Money Market
and Statement of Additional Information to which Fund) owned at the time the Letter of Intent is signed
reference is hereby made for a full description of the with the amount intended to be purchased through the
securities. duration of the Letter of Intent, to determine the quantity
discount which applies.
Reference is also specifically made to Conduct Rule
2830 of the National Association of Securities Dealers, Right of Accumulation:
Inc. which is incorporated herein as if set forth in full. It Quantity discounts also apply to subsequent purchases
is agreed that all of the requirements of such section, which, including shares of the Funds already owned (not
and all other federal and state laws, rules and including the Sentinel U.S. Treasury Money Market
regulations that are now or may become applicable to Fund), would bring the total to an applicable breakpoint
transactions hereunder, will be fully met. or more. The value of "shares already owned" will be
computed at the current offering price. We must be
Sales Commissions and Dealer Concessions: notified at the time an order is placed which would
The price at which shares shall be offered by you at qualify for a quantity discount under the Right of
retail is based upon and varies with the market value of Accumulation.
the underlying securities and other assets pertaining
thereto, and includes the following distribution charges The calculation of the net asset value of each Fund will
expressed as a percentage of the retail sales price. become immediately effective upon its determination.
Such shares will be confirmed to dealers at the retail Orders to purchase shares of the Funds received by
sales price less the concessions shown on Schedule A, dealers prior to 4:00 p.m. will be confirmed, subject to
if any. The offering prices used for general release will our acceptance, on the basis of the net asset value
be those applying to orders for less than the initial determined on that day provided they are received by us
breakpoint. The reduced charges shown for larger prior to the close of our business day. Orders received
orders apply to purchases of one or more Funds at one by dealers after 4:00 p.m. will be confirmed, subject to
time by an individual, his spouse and children under 21, our acceptance, on the same basis as previously stated
a trustee or other fiduciary of a single trust or fiduciary with respect to the next day on which the net asset
account, charitable, religious, educational and similar value of the Fund is determined.
corporations, associations or foundations exempt from
taxation under Section 501(c)(3) or (13) of the Internal All sales must be made subject to our acceptance and
Revenue Code and employee benefit plans, and confirmation. We reserve the right to reject any order
retirement plans established under the Self-Employed for any reason. See the prospectus for the minimum
Individuals Tax Retirement Act of 1962, exempt from dollar amounts for which orders will be accepted.
taxation under Section 401 of the Internal Revenue
Code, and any groups who qualify for reduced sales Exchange Between Funds:
charges as described under the terms of the Funds' Upon the Funds' receipt of the necessary form, any
prospectus and Statement of Additional Information. shareholder may exchange their investment, in whole or
in part, from one Sentinel Fund to another Sentinel Fund
Under ordinary circumstances, the rentail offering price of the same class of shares, without the payment of the
for the Funds will be computed once each business day, sales or any other charge provided that if the shares
as of 4:00 p.m. A "business day" is deemed to mean being exchanged have been newly purchased, that they
all Mondays, Tuesdays, Wednesdays, Thursdays, and have been in the account for a minimum of 15 calendar
Fridays, except those on which banks and brokerage days, except that assets originally invested in Sentinel
firms in New York City are generally closed for the Short Maturity Government Fund or Sentinel Growth
observance of holidays. Index Fund must remain in the account for 90 days
before they are eligible for the exchange privilege, and
Certain Funds have adopted plans under Investment except that shares may not be exchanged into the
Company Act Rule 12b-1 ("Distribution Plans" as Sentinel Growth Index Fund until at least 90 days after
described in the prospectus). You may be entitled to the assets represented by such shares were originally
invested in the Sentinel Funds. Also, for the assets
<PAGE>
originally invested in the Class A shares of the Sentinel Placement:
U.S. Treasury Money Market Fund, an exchange fee If any shares confirmed to you hereunder are
equal to the sales charge on initial purchase of Class A repurchased or are tendered for liquidation to the Funds
shares of the same dollar amount of the Fund being within seven (7) days after such confirmation of your
changed into, will be assessed. original order, then you shall forthwith repay to the
Funds, the full concession allowed to you on such sale
Reinstatement Privilege: and we shall forthwith repay to the Funds, our share of
A shareholder who has redeemed all or part of his or the sales charge thereon. We shall notify you of such
her shares may reinvest all or part of the redemption repurchase or liquidation within ten (10) days from the
proceeds at the then current net asset value without day on which the instructions to liquidate are delivered to
charge in Class A shares of any Fund (except that us or to the Funds. You shall make no purchases except
redemption proceeds from shares of the Sentinel Short for the purpose of covering orders received by you and
Maturity Government Fund and Sentinel Growth Index then such purchases must be made only at the offering
Fund held less than 90 days may not reinvest in other price (less your concession) at which such orders were
Sentinel Funds under this provision) if the shareholder's taken, provided, however, that the foregoing does not
written request is received or is postmarked within 365 prevent the purchase of shares by you for your own bona
days after the request for redemption was received by fide investment. In no event shall you withhold placing
the Funds. Unless we agree to waive this restriction, orders so as to profit yourself, as a result of such
the privilege may be exercised only once by a withholding, by a change in the net asset value from that
shareholder as to any of the Funds except where the used in determining the price to your customer, or
sole purpose is to transfer shares into a Self-Employed otherwise. Neither you nor any other person has been
Retirement Plan or Individual Retirement Account. authorized to give any information or to make
representations in connection with the sale of shares
Payment and Deliveries: hereunder other than as contained in the prospectus.
Payment for shares purchased will be due on the
settlement date, as set forth on the confirmation, at Dealer's Status:
which time complete registration instructions should be Sales will be confirmed directly by us to dealers. By
supplied to us. entering into this Dealer Agreement, Sentinel Financial
Services Company is acting on its own behalf as
Repurchase of Shares: principal, and in no sense as agent for Sentinel Groups
Sentinel Financial, acting for the Funds, intends to Funds, Inc. or Sentinel Pennsylvania Tax-Free Trust. No
maintain bids for Fund shares on business days, dealer is in any sense the agent of us or the Funds in the
although not required to do so and under no liability for sale or repurchase of shares under this Dealer
failure to maintain such a bid. Agreement.
The basis on which such shares will be so General:
repurchased when the order has been received by the This agreement shall be construed in accordance with
dealer prior to 4:00 p.m. on a business day is the net the laws of the State of Vermont. The terms of this
asset value computed as of 4:00 p.m. on such day, agreement supersede any other previously in effect and
less any applicable contingent deferred sales charge, are subject to further modification or to cancellation by
provided that orders so received by a dealer shall have us without previous notice.
been transmitted to us prior to the close of our
business day. Orders received by dealers after each
day's market close will be confirmed, subject to our
acceptance, on the same basis as previously stated Sincerely,
with respect to the next day on which the Fund's net
asset value will be determined.
It should be noted that any record holder of the Funds
may surrender all or any part of their holdings to the
Funds and the Funds are required to redeem such
shares at a price equal to net asset value, less any Sentinel Financial Services Company
applicable contingent deferred sales charge,
determined in the manner and on the terms described
in the prospectus.
</TABLE>
<PAGE>
[LOGO OMITTED] Sentinel Financial Services Company
One National Life Drive
Montpelier, Vermont 05604 Schedule A to
Tel: 800-233-4332 Dealer Agreement
- -------------------------------------------------------------------------------
Class A Shares:
For the Class A shares of Sentinel Common Stock Fund, Sentinel Balanced Fund,
Sentinel Mid Cap Growth Fund, Sentinel Small Company Fund, and Sentinel World
Fund, the sales charge as a percentage of the offering price and the payment to
the dealer are shown below:
Sale Size Sales Charge Payment to Dealer
$0 to $99,999 5.00% 4.50%
$100,000 to $249,999 4.00% 3.75%
$250,000 to $499,999 2.50% 2.25%
$500,000 to $999,999 2.00% 1.75%
$1,000,000 to $14,999,999 * 1.00%
$15,000,000 or more * **
*Contingent deferred sales charge, as described in the Prospectus
**Individually negotiated
For the Class A shares of the Sentinel High Yield Bond Fund, Sentinel Bond Fund,
Sentinel Government Securities Fund, Sentinel Tax-Free Income Fund, Sentinel New
York Tax-Free Income Fund and Sentinel Pennsylvania Tax-Free Trust, the sales
charge as a percentage of the offering price and the payment to the dealer are
shown below:
Sale Size Sales Charge Payment to Dealer
$0 to $99,999 4.00% 4.00%
$100,000 to $249,999 3.50% 3.25%
$250,000 to $499,999 2.50% 2.25%
$500,000 to $999,999 2.00% 1.75%
$1,000,000 to $4,999,999 * 1.00%
$5,000,000 or more * **
* Contingent deferred sales charge, as described in the Prospectus
**Individually negotiated
For the Class A shares of the Sentinel Growth Index Fund, the sales charge as a
percentage of the offering price and the payment to the dealer are shown below:
Sale Size Sales Charge Payment to Dealer
$0 to $499,999 2.50% 2.25%
$500,000 to $999,999 2.00% 1.75%
$1,000,000 to $4,999,999 * 1.00%
$5,000,000 or more * **
* Contingent deferred sales charge, as described in the Prospectus
**Individually negotiated
For the Class A shares of the Sentinel Short Maturity Government Fund, the sales
charge as a percentage of the offering price and the payment to the dealer are
shown below:
Sale Size Sales Charge Payment to Dealer
$0 to $999,999 1.00% 0.75%
$1,000,000 to $4,999,999 * 1.00%
$5,000,000 or more * **
* Contingent deferred sales charge, as described in the Prospectus
**Individually negotiated
There is no sales charge on purchases of Class A shares of the Sentinel U.S.
Treasury Money Market Fund, and no payment to the dealer.
Class B Shares:
For the Class B shares of the Sentinel Common Stock Fund, Sentinel Balanced
Fund, Sentinel Mid Cap Growth Fund, Sentinel Small Company Fund, Sentinel World
Fund, Sentinel High Yield Bond Fund, Sentinel Bond Fund, and Sentinel U.S.
Treasury Money Market Fund, the following table sets forth the dealer
concession:
Sale Size Dealer Concession
$0 to $249,999 4.00%
$250,000 to $499,999 2.50%
$500,000 to $999,999 2.00%
For the Class B shares of the Sentinel Growth Index Fund, the following table
sets forth the dealer concession:
Sale Size Dealer Concession
$0 to $499,999 2.50%
$500,000 to $999,999 2.00%
Of these concessions, 0.25% shall be the service fee for the first twelve months
after the sale. The maximum purchase for Class B shares is $1,000,000. Class B
shares will be subject to varying contingent deferred sales charges, and
conversion rights into Class A shares of the same Fund, as described in the
Prospectus.
Class C Shares:
For the Class C shares of the Sentinel Common Stock Fund, Sentinel Balanced
Fund, Sentinel World Fund, and Sentinel High Yield Bond Fund, the dealer
concession is 1% of the aggregate purchase amount. The maximum purchase of Class
C shares is $1,000,000. Class C shares do not convert into any other class of
the Funds.
Class D Shares:
For the Class D shares of the Sentinel Balanced Bund, the dealer concession is
6% of the aggregate purchase amount. The maximum purchase for the Class D shares
of Sentinel Balanced Fund is $250,000. Class D shares of Sentinel Balanced Fund
will be subject to varying contingent deferred sales charges, and conversion
rights into Class A shares of the same Fund, as described in the Prospectus.
Service Fees:
Pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended,
Sentinel Financial Services Company ("Sentinel Financial") is authorized to pay
you certain service fees for providing services, advice and information to your
clients who are invested in certain Sentinel Funds, subject to the terms set
forth in this schedule which may be revised by us from time to time. Your
participation in this service fee program will be evaluated at specific time
intervals. Initial qualification does not assure continued participation. The
Prospectus, Statement of Additional Information and this Schedule A set forth
the terms applicable for service fees with respect to the various classes of
Sentinel Funds shares.
For the Class A shares of the Sentinel Common Stock Fund, Sentinel Balanced
Fund, Sentinel Growth Index Fund, Sentinel Mid Cap Growth Fund, Sentinel Small
Company Fund, and Sentinel World Fund, annual service fees are 0.20% of the
average net assets owned by the dealer's clients. For the Class A shares of the
Sentinel High Yield Bond Fund, Sentinel Bond Fund, Sentinel Tax-Free Income
Fund, Sentinel New York Tax-Free Income Fund, Sentinel Pennsylvania Tax-Free
Trust, and Sentinel Government Securities Fund, annual service fees are 0.10%
per annum of the average net assets owned by the dealer's clients. For the Class
A shares of the Sentinel Short Maturity Government Fund, annual service fees are
0.25% of the average net assets owned by the dealer's clients. No service fee is
paid with respect to Fund accounts opened prior to March 1, 1993, and no service
fee is paid with respect to Class A shares of the Sentinel U.S. Treasury Money
Market Fund.
In the case of Class B shares of the Sentinel Common Stock Fund, Sentinel
Balanced Fund, Sentinel Growth Index Fund, Sentinel Mid Cap Growth Fund,
Sentinel Small Company Fund, Sentinel World Fund, Sentinel High Yield Bond Fund,
and Sentinel Bond Fund, Sentinel Financial will pay to dealers an annual service
fee which varies based on the total assets in Class B shares of such Funds for
which each registered representative of such dealer is the original registered
representative of record at the time an account is opened, as follows:
Assets in Class B Shares of
the Funds for which a
Particular Individual is Annual
Registered Representative Broker-Dealer
of Record Service Fee
$0 to $99,999 -0-
$100,000 to $199,999 0.10%
$200,000 to $999,999 0.25%
$1,000,000 and over 0.50%
In each case, this service fee will begin to accrue on the first day to the
thirteenth month after the purchase of the Class B shares. There is no service
fee on the Class B shares of the Sentinel U.S. Treasury Money Market Fund.
In the case of Class C shares of the Sentinel Common Stock Fund, Sentinel
Balanced Fund, Sentinel World Fund and Sentinel High Yield Bond Fund, Sentinel
Financial will pay to dealers annual service fees of 1.00% of the average net
assets owned by the dealer's clients. These service fees also begin to accrue on
the first day of the thirteenth month after the purchase of the Class C shares.
There is no service fee payable with respect to Class D shares of Sentinel
Balanced Fund.
Payments of all of the above service fees will be made quarterly in March, June,
September and December and pro-rated at the applicable annual rates. The minimum
payment is $25 per payment period. Quarterly accruals of less than $25 will
neither be paid out nor accumulated. House accounts and street name accounts are
not paid a service fee under this agreement. Services fee payments will
terminate when this Dealer Agreement terminates. These service fee payments may
also be terminated by Sentinel Financial on 60 days written notice without
payment of a penalty when:
(i) a majority of the Directors who are not interested persons, or a
majority of shares of a Fund or a class of shares of a Fund, vote to
discontinue "12b-1" payments from that Fund or class of shares of that
Fund, or to terminate the investment advisory agreement with Sentinel
Advisors Company, or the Distribution Agreement with Sentinel
Financial; or
(ii) Sentinel Financial finds that termination would be in the best
interests of the Fund or class of shares of such Fund.
Consistent with NASD policies as amended or interpreted from time to time (i)
you waive payment of amounts due from Sentinel Financial which are funded by
fees Sentinel Financial receives under the Funds' 12b-1 plans until Sentinel
Financial is in receipt of the fees on the relevant shares of a Fund, and (ii)
Sentinel Financial's liability for amounts payable to you is limited solely to
the proceeds of the fees receivable to Sentinel Financial on the relevant
shares.
Other:
Sentinel Financial, as principal underwriter and distributor of the Sentinel
Funds, may offer additional funds for sale. These funds will automatically
become part of this Dealer Agreement and its provisions, with payment and other
terms governed by the Prospectus, unless otherwise stated by Sentinel Financial.
We hereby indicate our interest in the distribution of the Funds, acknowledge
receipt of the official prospectus describing these securities, and agree to the
terms of your Dealer Agreement.
Name of Firm accepting the terms of this Agreement: (Print or type name of Firm)
- -------------------------------------------------------------------------------
Firm Address: (City, State and Zip Code)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Telephone Number: Fax Number: B/D Number:
( )
- -------------------------------------------------------------------------------
Authorized Signature: Date: (mm/dd/yyyy)
- ---------------------------------- --------------------------------------
Print Name and Title:
- ----------------------------------
Member of SIPC:(Check one.) __Yes __No Member of FDIC: (Check one.) __Yes __No
Please send us ____________ Sentinel Funds prospectus(es) and/or ______________
sales kits.
To be completed by Sentinel Financial Services Company
By:___________________________________________________
B/D Number:___________________________________________
Exhibit 8(d)
FUND SERVICES AGREEMENT
AGREEMENT, dated as of the first day of March, 1993, made by and
between SENTINEL GROUP FUNDS, INC., a Maryland corporation and a registered
open-end investment company (the "Fund"), and SENTINEL ADMINISTRATIVE SERVICE
COMPANY, a Vermont general partnership ("SASC").
WITNESSETH:
WHEREAS, the Fund desires to engage SASC to provide it with various
fund accounting and financial administration services, transfer agent services
and shareholder relations services; and
WHEREAS, SASC is willing to perform such functions upon terms and
conditions set forth below.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto, intending to be legally bound,
do hereby agree as follows:
1. Engagement; Effective Date. The Fund hereby engages SASC to
provide the services described in sections 2 and 3 below, subject to the
supervision and control of the Board of Directors of the Fund. SASC hereby
accepts such engagement and agrees, at its own expense, to render such
services and assume the obligations herein set forth, for the compensation
described in section 6 below. This Agreement will be effective as of the
effective date of the merger of The ProvidentMutual Funds into the Fund.
2. Fund Accounting and Financial Administration Services.
(a) The Fund shall promptly turn over to SASC all the accounts and
records previously maintained on behalf of the ProvidentMutual Funds. The Fund
authorizes SASC to rely on the accounts and records turned over to it or its
predecessor, Sentinel Administrative Service Corporation, by the Fund, either
under the preceding sentence or under the Fund Service Agreements between the
Fund and Sentinel Cash Management Fund, Inc., on the one hand, and Sentinel
Administrative Service Corporation, on the other hand, each dated as of June
30, 1988, and hereby indemnifies and holds harmless SASC and its successors
and assigns from any and all expenses, damages, claims, suits, liabilities,
actions, demands and losses whatsoever arising out of or in connection with
any error, omission, inaccuracy, or other deficiency of such accounts and
records or in the failure of the Fund to provide any portion of such or to
provide any information needed by SASC to knowledgeably perform its functions.
(b) SASC shall maintain and keep current all books, records, accounts
and other documents required by Rule 31a-1 and Rule 31a-2 under the Investment
Company Act of 1940, as amended (the "Act"), or otherwise necessary or
advisable for compliance with applicable regulations, with respect to all
portfolios of the Fund except for Sentinel World Fund, including but not
limited to the following:
(1) Cash Receipts Journal
(2) Cash Disbursements Journal
(3) Dividend Record
(4) Purchase and Sales - Portfolio Securities Journal
(5) Subscription and Redemption Journals
(6) Security Ledgers
(7) Broker Ledger
(8) General Ledger
(9) Daily Expense Accruals
(10) Daily Income Accruals
(11) Securities and Monies borrowed or loaned and collateral
therefor
(12) Trial Balances
(c) With respect to all portfolios of the Fund except for Sentinel
World Fund, SASC will make the proper accounting entries and notify the Fund's
Custodian of all cash and portfolio items. The Fund or its investment advisor
shall see that confirmations of all transactions are sent to SASC, which will
verify the confirmations against information supplied by the Fund or its
investment advisor and forward them to the Custodian. SASC shall notify the
Fund and its investment advisor of any discrepancy but shall incur no
responsibility or liability for such discrepancy, and the Fund or its
investment advisor shall cause any necessary corrections to be made.
(d) SASC shall calculate the net asset values of each series of the
Fund, except for Sentinel World Fund, in accordance with the Fund's then
current prospectus, once daily. SASC shall have no responsibility or liability
for prices quoted by recognized financial information services or
broker-dealers, or for prices developed from information supplied by the Fund
or its investment advisor or upon the instructions of the Fund or its
investment advisor.
(e) At the end of each month, the Fund or its investment advisor will
require the Custodian to forward to SASC a monthly statement of cash and
portfolio transactions, which will be reconciled with the Fund's books and
records maintained by SASC. SASC will report any discrepancies to the
Custodian, and report any unreconciled items to the Fund and its investment
advisor.
(f) SASC shall supply daily and periodic reports to the Fund and its
investment advisor, with respect to all portfolios except Sentinel World Fund,
as required by regulation for the Fund to maintain, or as reasonably requested
by the Fund or its investment advisor.
(g) With respect to all portfolios of the Fund except for Sentinel
World Fund, SASC shall reconcile periodically its records of share purchases,
redemptions and total shares outstanding with those of the transfer agent
(which may be SASC acting pursuant to section 3 below), and certify at least
monthly to the Fund the reconciled share balance outstanding.
(h) SASC shall supervise relations between the Fund and the Custodian
generally.
(i) SASC shall maintain the qualification of the Fund's shares under
the so-called "blue sky" laws of each state, unless the Fund informs it of its
decision not to qualify under the laws of a specified state or states.
(j) SASC shall make its personnel available to attend all meetings of
the Board of Directors of the Fund, to provide financial information to the
Board, and to develop and present recommended dividends and capital gains
distributions for each series of the Fund to the Board.
(k) SASC shall participate at its own expense in investment company
industry activities on behalf of the Fund.
(l) SASC shall monitor legal and other developments applicable to
investment companies, consulting with outside counsel and independent
accountants when necessary.
(m) SASC shall prepare, with the assistance of the Fund's investment
advisor, the Fund's registration statement amendments, prospectuses, annual
and semi-annual reports to shareholders, and proxy statements, including
without limitation preparation of annual and semi-annual financial statements
and other financial information relating to the Fund for inclusion in such
documents.
(n) SASC shall monitor and facilitate auditing and other services
provided by independent accountants, and review with them any recommendations
or changes in accounting records or controls, and monitor and facilitate
regulatory examinations.
3. Transfer Agency and Shareholder Relations Services.
(a) SASC shall provide telephone lines, personnel and equipment to
answer telephone or written inquiries from current and prospective
shareholders, to take telephone or written exchange or redemption instructions
from properly authorized shareholders and process such transactions, to
explain the various rights and privileges the Fund accords to its
shareholders, to resolve any problems with shareholder accounts, and to
otherwise provide information and assistance to shareholders. In this respect
SASC shall not be obligated to provide shareholders with information with
respect to the purchase of shares more than seven years prior to a request,
unless required by law. SASC shall report regularly to the Board of Directors
of the Fund with respect to the services it provides under this section.
(b) SASC shall serve as the transfer agent for the Fund, initially
utilizing the computer facilities of DST Systems, Inc. on a fully remote
basis. Its duties as transfer agent shall include all the services listed in
paragraphs (c), (d) and (e) below. SASC shall report regularly to the Board of
Directors of the Fund with respect to the services provided under this
section.
(c) SASC shall service the Fund's shareholder accounts in accordance
with the Fund's prospectus and statement of additional information, including
all the following functions:
(1) Receive and process shareholder account application forms and
open, maintain and close shareholder accounts.
(2) Purchase shares for shareholders (including purchases
pursuant to automatic investment plans) and countersign and issue
certificates therefor to shareholders requesting certificates.
(3) Out of the money received in payment for share sales, pay to
the Fund's custodian the net asset value per share, and pay to the
underwriter and dealers on a periodic basis as agreed to from time to
time, their respective commissions, if any.
(4) Maintain records showing the name, address, taxpayer
identification number, certificate numbers and number of shares held
for each shareholder.
(5) Deposit certificates when furnished with such documents as
SASC deems necessary to authorize the deposit.
(6) Reinvest or disburse in cash, as directed by the shareholder,
dividends and other distributions.
(7) Establish the proper registration of ownership of shares.
(8) Pass upon the adequacy of documents submitted by a
shareholder or his legal representative to substantiate the transfer
of ownership of shares from the registered owner to transferees.
(9) Make transfers from time to time upon the books of the Fund
in accordance with properly executed transfer instructions and
documentation and properly surrendered share certificates (if any)
furnished to SASC, and countersign and issue new certificates to
shareholders requesting them.
(10) Answer routine correspondence and shareholder inquiries
about individual accounts.
(11) Maintain dealer and salesperson records.
(12) Maintain and furnish to the Fund such shareholder
information as the Fund may reasonably request for the purpose of
compliance with the applicable tax and securities laws of various
jurisdictions.
(13) Mail confirmations of transactions (including reinvestments
of dividends and other distributions) to shareholders in a timely
fashion.
(14) Maintain continuous proof of the outstanding shares of the
Fund.
(15) Solicit taxpayer identification numbers and certifications.
(16) Endeavor to trace shareholders to whom mail is returned by
the post office.
(17) Provide tax reporting information to shareholders and
Internal Revenue Service.
(d) In accordance with the provisions of the Fund's Prospectus
and Statement of Additional Information, SASC will provide the redemption
service for the Fund, which will include the following functions:
(1) Where applicable, establish accounts payable based on
information furnished to SASC on behalf of the Fund: for example,
copies of trade confirmations and other documents deemed necessary or
desirable by SASC on the first business day following the trade date.
(2) Receive for redemption and process either (a) stock
certificates, supported by appropriate documentation, (b) written
authorization (where no share certificates are issued), supported by
appropriate documentation, and (c) telephone authorization (assuming
pre-authorized withdrawal request is on file).
(3) Verify that (a) there are sufficient shares in an account to
cover redemption requests, and (b) checks for payment of purchase
price of shares being redeemed have been collected.
(4) Transfer the redeemed or repurchased shares to the Fund's
treasury stock account, or if applicable, cancel such shares for
retirement.
(5) Pay the applicable redemption or repurchase price to the
shareholder in accordance with the Fund's Prospectus on or before the
seventh calendar day succeeding any receipt of certificates or
requests for redemption or repurchase in "good order."
(6) Notify the Fund and the Distributor for the Fund of the total
number of shares presented and covered by such requests within one
business day following receipt.
(7) Promptly notify the shareholder if any such certificate or
request for redemption or repurchase is not in "good order," together
with notice of the documents required to comply with the good order
standards. Upon receipt of the necessary documents SASC shall effect
such redemption at the net asset value applicable at the date and
time of receipt of such documents.
(8) Mail to shareholders confirmations showing trade date, number
of full and fractional shares redeemed (rounded to three decimal
places), the price per s hare and the total redemption proceeds.
(9) Produce periodic reports of unsettled items, if any.
(10) Adjust unsettled items, if any, for dividends and
distributions.
(11) Report to the Fund any information requested by the Fund
which must be included in the Fund's N'SAR.
(e) In accordance with the provisions of the Fund's Prospectus and
Statement of Additional Information, SASC will provide the exchange service
for the Fund, which will include the following functions:
(1) Receive and process exchanges in accordance with a duly
executed exchange authorization and the provisions of the Prospectus.
(2) Make authorized deductions of fees, if any.
(3) Register new accounts identically with the shares surrendered
for exchange. Mail new shares or a statement confirming the exchange
by first class mail to the address of record.
4. Nonexclusivity. SASC's services to the Fund hereunder are not to
be deemed exclusive and SASC shall be free to render similar services to
others, so long as its services hereunder are not impaired thereby.
5. National Life Services. National Life Insurance Company and its
subsidiaries may furnish to SASC, in order to better enable it to fulfill its
obligations hereunder, office space, personnel and other servcies as are
requested by SASC, in all cases for a reasonable charge. SASC will present the
details of any such arrangements to the Board of Directors of the Fund.
6. Compensation.
(a) As compensation for the services to be rendered under section 2
hereunder, the Fund will pay to SASC, in twelve equal monthly installments due
on the first day of each month for the preceding month, an annual fee
(pro-rated in the case of the partial 1993 fiscal year) for the fiscal years
of the Fund ending November 30, 1993 and 1994 of $674,000. For fiscal years
starting December 1, 1994 and thereafter, the annual fee for the services
provided under section 2 hereto shall be subject to increases in percentage
amounts not in excess of the percentage increase, if any, in the Consumer
Price Index, All Urban Consumers, for the Boston region, as published by the
United States Department of Labor for the most recent twelve months for which
data are available as of the final Board meeting in a fiscal year, or, if such
figure is not available, a similar measure of general inflation as may be
agreed upon between SASC and the Board of Directors of the Fund. The amounts
of any increases provided for in the preceding sentence shall be subject to
the specific approval of the disinterested members of the Board of Directors
of the Fund. In the event that the Fund creates one or more new series, or the
Fund and SASC agree that SASC shall provide fund accounting services with
respect to the Sentinel World Fund, fees provided for in this section 6(a)
shall be subject to increases by up to an amount or amounts equal to the then
current fee multiplied by a fraction of which the numerator is the total
number of series of the Fund after the addition(s), and the denominator of
which is the total number of series of the Fund before the addition(s). The
exact amount of any such increase will be subject to the specific approval of
the disinterested members of the Board of Directors of the Fund. In addition
to the fee provided for in this paragraph, the Fund shall be responsible for
all charges of outside pricing services used by SASC in connection with the
performance of its duties hereunder.
(b) SASC's annual fee for the services provided under section 3 above
shall be $2,563,000, p lus an amount equal to an annual rate of $15 per
shareholder account in excess of 106,500 as of the last day of the month
preceding the installment due date. Such fee shall be paid in twelve monthly
installments due on the first day of each month for the preceding month. For
the fiscal year beginning December 1, 1994, and subsequent fiscal years, the
base fee of $2,563,000 shall be subject to increase by an amount not in excess
of the percentage increase in the Consumer Price Index, All Urban Consumers,
Boston region, as published by the United States Department of Labor for the
most recent twelve months for which data are available at the time of the last
Board of Directors meeting in a fiscal year, or if such figure is not
available, a similar measure of general inflation as may be agreed upon by
SASC and the Board of Directors of the Fund. The amounts of any increases
pursuant to the immediately preceding sentence shall be subject to specific
approval of the disinterested members of the Board of Directors of the Fund.
In addition, for all periods the Fund shall reimburse SASC for all
out-of-pocket expenses incurred by SASC for expenses such as postage, forms,
envelopes, insurance, and other similar items. The Fund shall in addition be
obligated to pay to DST Systems, Inc., its affiliate Investors Fiduciary Trust
Company, or other entity providing remote access to its transfer agency
systems, the fees charged by such entity for making its systems available, and
the out-of-pocket expenses such remote access provider charges, in addition to
the fees to SASC set forth in this section 6(b).
7. Indemnities. SASC, in performing its obligations under this
Agreement, shall incur no liability for any actions taken or omitted in good
faith and without negligence and the Fund shall indemnify and hold harmless
SASC and its officers, directors and employees from any and all loss,
liability and expense, including any legal expenses, arising out of SASC's
performance under this Agreement other than that resulting from SASC's
negligence. SASC shall indemnify and hold harmless the Fund and its directors,
officers and employees from any and all loss liability and expense, including
any legal expenses, arising out of SASC's negligence or willful misconduct in
the performance of its duties under this Agreement.
8. Ownership of Records. SASC acknowledges that all records
maintained for the Fund hereunder are the sole and exclusive property of the
Fund, and upon termination of this Agreement for any reason SASC will promptly
segregate such records and deliver them to the Fund.
9. Affiliations of SASC. It is understood that the directors and
officers of the Fund may be directors or officers of SASC or an entity under
common control, including National Life Insurance Company, Provident Mutual
Life Insurance Company of Philadelphia, or any affiliate of either, or
otherwise be interested in SASC, and that the existence of such dual interest
shall not affect the validity of this Agreement or any transactions hereunder.
10. Renewal or Termination. This agreement shall be in effect until
November 30, 1993, and shall continue thereafter from year to year, subject to
prior termination as provided herein, but only so long as its continuance
shall be approved specifically at least annually by the Board of Directors of
the Fund, including specific approval (i) by a majority of the directors who
are not interested persons of a party to this Agreement (other than as
directors of the Fund) by votes cast in person at a meeting specifically
called for such purpose (a "Director Vote") or (ii) as to each class of the
issued and outstanding voting securities of the Fund by a majority of such
class and a Director Vote. This Agreement may at any time be terminated as to
all classes of the Fund or as to any one or more classes of the Fund on sixty
days' written notice to SASC either by vote of the Board of Directors of the
Fund or by vote of a majority of the outstanding voting securities of affected
classes of the Fund. This Agreement shall terminate automatically in the event
of its assignment. SASC may terminate this Agreement on sixty days' written
notice to the Fund. Any termination hereunder shall be without the payment of
any penalty.
11. Miscellaneous. This Agreement shall be subject to all applicable
provisions of law, including in particular, but without limitation, the Act.
To the extent that any provisions herein conflict with any applicable
provision of law, the latter shall control. This Agreement shall be construed
in accordance with, and governed by, the laws of the state of Vermont. This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original but all of which shall constitute one and the same
instrument. This Agreement may be amended only by an instrument in writing
duly executed and delivered by each party hereto, and such instrument must be
approved by (i) an affirmative vote of a majority of each class of the
outstanding voting securities of the Fund and (ii) by a Director Vote.
IN WITNESS WHEREOF, the Fund and SASC have executed this Agreement as
of the day and year first above written.
SENTINEL GROUP FUNDS, INC.
By /s/ Keniston P. Merrill
------------------------
Keniston P. Merrill
Chairman
SENTINEL ADMINISTRATIVE SERVICE
COMPANY
By /s/ Joseph M. Rob
-------------------------
Joseph M. Rob
Chairman
Exhibit 10
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in this Post-Effective
Amendment No. 89 to the registration statement on Form N-1A of our report
dated December 30 1999, relating to the financial statements and financial
highlights which appears in the November 30, 1999 Annual Report to
Shareholders of Sentinel Group Funds, Inc., which is also incorporated by
reference into the Registration Statement. We also consent to the references
to us under the headings "Financial Highlights" in the prospectus and under
the heading "General Information" in the Statement of Additional Information.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
New York, NY
March 30, 2000
Exhibit 13(c)
AMENDED CLASS C DISTRIBUTION PLAN
of
SENTINEL GROUP FUNDS, INC.
Pursuant to Rule 12b-1
Amended Class C Distribution Plan (the "Plan") dated as of the
day of March, 2000 of Sentinel Group Funds, Inc., a Maryland corporation (the
"Company") and Sentinel Financial Services Company (the "Distributor").
WITNESSETH:
WHEREAS, the Company is engaged in business as a series open-end
investment company registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"); and
WHEREAS, the Distributor is a securities firm engaged in the business
of marketing shares of investment companies through other securities firms;
and
WHEREAS, the Company has entered into a Distribution Agreement with
the Distributor, pursuant to which the Distributor acts as the primary
distributor of the Company's shares, and the sole distributor and
representative of the Company in the offer and sale through independent
broker-dealers of the common stock, par value $.01 per share, of each Fund of
the Company, including in particular the Class C shares of each of the
following investment portfolios of the Company:
Sentinel Common Stock Fund
Sentinel Balanced Fund
Sentinel High Yield Bond Fund
Sentinel Flex Cap Opportunity Fund
Sentinel Mid Cap Growth Fund
Sentinel Growth Index Fund
Sentinel World Fund
(such classes, together with all class C classes of Funds that may be
authorized for issuance and sale in the future by the Board of Directors of
the Company, being hereinafter referred to as the "Class C Classes"); and
WHEREAS, the Company desires to adopt the Plan pursuant to Rule 12b-1
under the Investment Company Act, pursuant to which the Company will pay
certain fees to the Distributor with respect to the shares of the Company's
Class C Classes; and
WHEREAS, the Directors of the Company have determined that there is a
reasonable likelihood that adoption of the Plan will benefit each Class C
Class and its shareholders.
NOW, THEREFORE, the Company hereby adopts, and the Distributor hereby
agrees to the terms of, the Plan in accordance with Rule 12b-1 under the
Investment Company Act on the following terms and conditions:
1. The Company shall, for the purpose and on the further terms and
conditions set forth herein, pay to the Distributor an amount equal to the
aggregate of the distribution expenditures relating to the sale of the shares
of common stock of each Class C Class of the Company, up to a maximum of 1.00%
per annum of average daily net assets of each Class C Class. Of such amount,
up to 0.25% shall be allocated to service fees to broker-dealers, and up to
0.75% may be allocated to other expenses described below.
2. The Company shall reimburse the Distributor for expenses actually
incurred by the Distributor for: (a) service fees with respect to Class C
Classes paid to securities broker-dealers who have executed a Dealer Agreement
with the Distributor; (b) recovery of front-end sales commissions paid by the
Distributor to securities broker-dealers who have executed a Dealer Agreement
with the Distributor with respect to sales of shares of the Class C Classes,
together with the costs of financing such payments incurred by the
Distributor, except to the extent such costs are recovered through contingent
deferred sales charges collected by the Distributor; and (c) expenses incurred
for state "blue sky" registration fees for the first year of operations of a
series of Class C shares of a Fund of the Company. Reimbursements contemplated
under clauses (b) and (c), above, shall be paid monthly upon receipt by the
Company of a written expense report detailing the expenses qualifying for such
reimbursement and purposes thereof. In the event that for any Class C Class or
Classes the aggregate of these reimbursable expenses exceeds the maximums set
forth in paragraph 1 above, then the expenses described in clause (a) of this
paragraph 2 shall have priority over those reimbursements to be made to the
Distributor under clauses (b) and (c) of this paragraph 2. In such event, the
Distributor will not be reimbursed for any unreimbursed eligible expenses from
any other Class C Class, or in any future year.
3. The Distributor shall prepare reports to the Board of Directors of
the Company on a quarterly basis summarizing all payments made by it pursuant
to the Plan and the Dealer Agreements contemplated hereby, the purposes for
which such payments were made and such other information as the Board of
Directors or the Directors who are not interested persons may reasonably
request from time to time.
4. The Plan shall become effective as to each Class C Class upon its
approval by (a) a majority of the outstanding voting securities (as such
phrase is defined in the Investment Company Act) of such Class, and (b) a
majority of the members of the Board of Directors of the Company, including a
majority of the members of the Board of Directors who are not interested
persons of the Class C Classes and have no direct or indirect financial
interest in the operation of the Plan, with votes cast in person at a meeting
called for the purpose of voting on the Plan, and (c) upon the effectiveness
of a Post-Effective Amendment to the Company's Registration Statement
reflecting this Plan, filed with the U.S. Securities and Exchange Commission
under the Securities Act of 1933. The date on which the last of (a), (b) and
(c) occurs with respect to a Class C Class shall be the "Effective Date" with
respect to such Class C Class.
5. Upon receipt of the approvals required by paragraph 4 above, the
Plan and the Dealer Agreements contemplated hereby shall continue in effect
with respect to any Class C Class beyond the first anniversary of its adoption
by the Board of Directors of the Company only so long as (a) its continuation
is approved at least annually in the manner set forth in either clause (a) or
clause (b) of paragraph 4 above and (b) the selection and nomination of those
Directors of the Company who are not interested persons of the Company are
committed to the discretion of such Directors.
6. The Plan or any agreement related to the Plan may be terminated
without penalty at any time by a majority of those Directors of the Company
who are not interested persons of the Company and have no direct or indirect
financial interest in the operation of the Plan or in any agreements related
to the Plan, or with respect to any Class C Class, by the holders of a
majority of the outstanding voting securities of such Class C Class.
7. This Plan may not be amended to increase the maximum amount
permitted to be expended hereunder except with the approval of the holders of
a majority of the outstanding voting securities of any affected Class C Class,
and may not be amended in any other material respect except with the approval
of the majority of the members of the Board of Directors of the Company who
are not interested persons of the Company and have no direct or indirect
financial interest in the operation of the Plan. Amendments required to
conform to changes in the Rule shall not be deemed to be material amendments.
The Plan or any agreement related to the Plan will terminate automatically in
the event of its assignment.
8. The Company shall preserve copies of this Plan and any related
agreements and all reports made pursuant to paragraph 3 hereof, for a period
of not less than six years from the date of the Plan, or the agreements or
reports, as the case may be, the first two years in an easily accessible
place.
IN WITNESS WHEREOF, the parties hereto have executed this
Distribution Plan as of the date first above written.
SENTINEL GROUP FUNDS, INC.
By:
____________________________
SENTINEL FINANCIAL SERVICES
COMPANY
By:
____________________________
Joseph M. Rob
Chief Executive Officer
Exhibit 14
SENTINEL GROUP FUNDS, INC.
AMENDED RULE 18f-3 PLAN
Rule 18f-3 under the Investment Company Act of 1940 (the "Investment
Company Act") permits mutual funds to issue multiple classes of shares. Under
Rule 18f-3(d), each mutual fund that seeks to rely upon Rule 18f-3 is required
to (i) create a plan (the "Plan") setting forth the differences among each
class of shares, (ii) receive the approval of a majority of the Board of
Directors of the fund (including a majority of the non-interested directors)
that the Plan, including the expense allocation between each class of shares,
is in the best interests of each class individually and the fund as a whole,
and (iii) file a copy of the Plan with the Securities and Exchange Commission
(the "Commission") as an exhibit to the fund's registration statement. The
following Plan describes the differences among the classes of shares for
certain (each a "Fund", and collectively, the "Funds") series of Sentinel
Group Funds, Inc. (the "Company") as set forth in Appendix A hereto.
Each Fund is advised by Sentinel Advisors Company (the "Advisor") and
offers shares as follows:
<TABLE>
<CAPTION>
- ------------------------------- ---------------------------- ----------------------------- ----------------------------
Class A Shares Class B Shares Class C Shares Class D Shares
- ------------------------------- ---------------------------- ----------------------------- ----------------------------
<S> <C> <C> <C>
Balanced Fund Balanced Fund Balanced Fund Balanced Fund
Bond Fund Bond Fund Common Stock Fund
Common Stock Fund Common Stock Fund Flex Cap Opportunity Fund
Flex Cap Opportunity Fund Flex Cap Opportunity Fund Growth Index Fund
Government Securities Fund Growth Index Fund High Yield Bond Fund
Growth Index Fund High Yield Bond Fund Mid Cap Growth Fund
Mid Cap Growth Fund Mid Cap Growth Fund World Fund
High Yield Bond Fund Small Company Fund
Short Maturity Government Fund U.S.Treasury Money Market
Small Company Fund Fund
Tax-Free Income Fund World Fund
U.S. Treasury Money Market
Fund
World Fund
- ------------------------------- ---------------------------- ----------------------------- ----------------------------
</TABLE>
The shares of each class may be purchased at a price equal to the next
determined net asset value per share subject to the sales charges and
ongoing fee arrangements described below, except that Class B shares of
Sentinel U.S. Treasury Money Market Fund (the "Money Market Fund") may be
acquired only through exchanges and may not be purchased directly, as
described below. Class A shares are sold to investors choosing the initial
sales charge alternative, and Class B, Class C and Class D shares are sold to
investors choosing the deferred sales charge alternative. Initial sales
charges, contingent deferred sales charges ("CDSCs"), fees ("Rule 12b-1 fees")
payable under the Company's distribution plans pursuant to Rule 12b-1 under
the Investment Company Act (each a "Rule 12b-1 Plan"), conversion periods and
rights of accumulation for each of the Funds are as set forth in the current
prospectus and statement of additional information for the Company.
Each Class A, Class B, Class C and Class D share of a Fund represents
an identical interest in the investment portfolio of the Fund and has the same
rights, except that Class B, Class C and Class D shares bear the expenses of
higher ongoing Rule 12b-1 fees and the additional incremental transfer agency
costs resulting from the additional recordkeeping required by the deferred
sales charge arrangement, although Class C shares are subject to a shorter
CDSC period at a lower rate and they forgo the Class B and Class D conversion
feature. Each class of shares has exclusive voting rights with respect to the
Rule 12b-1 Plan applicable to that class. The Rule 12b-1 fees that are imposed
on the Class A, Class B, Class C and Class D shares of a Fund and the deferred
sales charges that are imposed on the Class B, Class C and Class D shares of
that Fund are imposed directly against that class and not against all assets
of the Fund and, accordingly, such charges will not affect the net asset value
of any other class or have any impact on investors choosing another sales
charge option. Dividends paid by a Fund for each class of shares will be
calculated in the same manner at the same time and will differ only to the
extent that Rule 12b-1 fees and any incremental transfer agency costs relating
to a particular class are borne exclusively by that class.
Class A: Class A shares incur an initial sales charge when they are
purchased and bear ongoing Rule 12b-1 fees. Class A shares will
be issued upon reinvestment of dividends of outstanding Class A
shares. Investors purchasing in the aggregate shares in the
amount $1 million or more will be offered Class A shares only.
Class A investors may qualify for reduced initial sales charges
through the purchase of certain minimum amounts of Class A
shares of a Fund, as described in Appendix B hereto. In cases
in which no initial sales charge is imposed, a CDSC of up to 1%
will be imposed on redemptions of Class A shares within two
years of purchase, as described in Appendix B hereto.
Class B: Class B shares are sold on a deferred sales charge basis.
Class B shares do not incur a sales charge when they are
purchased, but they are subject to ongoing Rule 12b-1 fees that
are higher than the Rule 12b-1 fees imposed on Class A shares
and a CDSC for periods of up to six years as described in
Appendix B hereto. Once the applicable Class B CDSC period has
expired, Class B shares will convert automatically to Class A
shares at a specified time as described below. Class B shares
are available only to investors whose share holdings aggregate
less than $1 million.
Class C: Class C shares are sold on a deferred sales charge basis.
Class C shares do not incur a sales charge when they are
purchased, but they are subject to ongoing Rule 12b-1 fees that
are higher than the Rule 12b-1 fees imposed on Class A shares
and a CDSC for only one year. Class C shares have no conversion
feature.
Class D: Class D shares are sold on a deferred sales charge basis.
Class D shares do not incur a sales charge when they are
purchased, but they are subject to ongoing Rule 12b-1 fees that
are higher than the Rule 12b-1 fees imposed on Class A shares
but lower than the Rule 12b-1 fees imposed on Class B and Class
C shares and a CDSC for seven years as described in Appendix C
hereto. Once the Class D conversion period has expired, Class D
shares will convert automatically to Class A shares at a
specified time as described below. Class D shares may only be
purchased in increments of $249,999 or less.
Exchange Privilege. Holders of Class A, Class B and Class C shares of
a Fund have an exchange privilege with the other Funds. There is currently no
limitation on the number of times a shareholder may exercise the exchange
privilege. The exchange privilege may be modified or terminated in accordance
with the rules of the Commission. Holders of Class D shares have an exchange
privilege with Class A shares of the Money Market Fund only.
Class A and Class B shares of each Fund are exchangeable with shares
of the same class of the other Funds. Class C shares of Balanced Fund, Common
Stock Fund, High Yield Bond Fund and World Fund (each a "Class C Fund") are
exchangeable with Class C shares of the other Class C Funds. Class A shares
are also exchangeable for shares of Government Securities Fund, Growth Fund,
New York Tax-Free Income Fund and Short-Intermediate Government Fund, each a
series of the Company, and for shares of Sentinel Pennsylvania Tax-Free Trust
(the "Single Class Funds").
Shares of a Fund are exchangeable on the basis of relative net asset
value per share without the payment of any CDSC that might otherwise be due
upon redemption of the shares of such Fund. Except with respect to exchanges
into the Money Market Fund, for purposes of computing the CDSC that may be
payable upon a disposition of the shares acquired in the exchange, the holding
period for the previously owned shares of a Fund is "tacked" to the holding
period of the newly acquired shares of the second Fund.
Class A shares of the Money Market Fund may be acquired either
through a purchase or through an exchange of Class A, Class C or Class D
shares of another Fund; Class B shares of the Money Market Fund may not be
purchased and may be acquired only in exchange for Class B shares of another
Fund. The holding period for shares of the Money Market Fund acquired through
an exchange of Class B, Class C or Class D shares, however, will not count
toward satisfaction of the holding period requirement for the previously owned
Class B, Class C or Class D shares for reduction of any CDSC imposed on such
shares.
Right of Accumulation. The right of accumulation for each class of
shares for each of the Funds is as set forth in the current prospectus and
statement of additional information for the Company.
Allocation of Income, Gains, Losses and Expenses. Allocation of
income, gains and losses of each Fund shall be allocated pro rata according to
the net assets of each class. Allocation of expenses not allocated to a
specific class of each Fund other than the Money Market Fund shall be
allocated according to the net assets or number of shareholder accounts, each
on a pro rata basis, of each class. Allocations in the case of the Money
Market Fund shall be made (i) to each share without regard to class, provided
that the Fund has received undertakings from the Advisor or any other provider
of services to the Fund, agreeing to waive or reimburse the Fund for payments
to such service provider by one or more classes, as allocated as described
above, to the extent necessary to assure that all classes of the Funds
maintain the same net asset value per share, or (ii) on the basis of relative
net asset value.
Amending Rule 12b-1 Plans. No Fund will implement any amendment to
the Company's Class A, Class B, Class C or Class D Rule 12b-1 Plan that would
materially increase the amount that may be borne by each class of shares
unless the holders of such class of shares, voting separately as a class,
approve the proposal.
Conversion of Class B Shares to Class A Shares. After the applicable
CDSC period has expired, Class B shares and shares purchased through
reinvestment of dividends on those converting Class B shares of a Fund will
automatically convert into Class A shares of the same Fund on the basis of
relative net asset value per share of the two classes without the imposition
of any sales load, fee or other charge. For purposes of computing the period
for conversion of Class B shares to Class A shares, the holding period for the
previously owned shares of a Fund is "tacked" to the holding period of the
newly acquired shares of the second Fund. The period of time that shares are
held in the Money Market Fund, however, will not count toward satisfaction of
the holding period necessary to convert Class B shares to Class A shares.
Shareholders holding Class B shares in certificate form will not receive Class
A share certificates until the shareholder tenders the Class B share
certificate(s) to the Fund's Transfer Agent. Until Class B share certificates
are exchanged for Class A share certificates, the Class B share certificates
will represent the shareholder's interest in the Class A shares received upon
conversion.
Conversion of Class D Shares to Class A Shares. Approximately ten
years from the date of purchase, Class D shares and shares purchased through
reinvestment of dividends on those converting Class D shares of a Fund will
automatically convert into Class A shares of the same Fund on the basis of
relative net asset value per share of the two classes without the imposition
of any sales load, fee or other charge. The period of time that shares are
held in the Money Market Fund, however, will not count toward satisfaction of
the holding period necessary to convert Class D shares to Class A shares.
Shareholders holding Class D shares in certificate form will not receive Class
A share certificates until the shareholder tenders the Class D share
certificate(s) to the Fund's Transfer Agent. Until Class D share certificates
are exchanged for Class A share certificates, the Class D share certificates
will represent the shareholder's interest in the Class A shares received upon
conversion.
Appendix A
Series participating in the Rule 18f-3 Plan
of
Sentinel Group Funds, Inc.
Sentinel Balanced Fund
Sentinel Bond Fund
Sentinel Common Stock Fund
Sentinel Flex Cap Opportunity Fund
Sentinel Growth Fund
Sentinel Growth Index Fund
Sentinel High Yield Bond Fund
Sentinel Mid Cap Growth Fund
Sentinel Small Company Fund
Sentinel Tax-Free Income Fund
Sentinel U.S. Treasury Money Market Fund
Sentinel World Fund
Appendix B
<TABLE>
<CAPTION>
====================================================================================================================
Class A Shares of Flex Cap Opportunity Fund, Small Company Fund, Mid Cap Growth Fund, World Fund, Common Stock
Fund, and Balanced Fund
====================================================================================================================
<S> <C>
Sale Size Initial Sales Charge
=========================================================== ========================================================
$0 to $99,999 5.0%
=========================================================== ========================================================
$100,000 to $249,999 4.0%
=========================================================== ========================================================
$250,000 to $499,999 2.5%
=========================================================== ========================================================
$500,000 to $999,999 2.0%
=========================================================== ========================================================
$1,000,000 or more 0.0%
=========================================================== ========================================================
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================
Class A Shares of High Yield Fund, Bond Fund,
Tax-Free Income Fund and Government Fund
====================================================================================================================
<S> <C>
Sale Size Initial Sales Charge
=========================================================== ========================================================
$0 to $99,999 4.0%
=========================================================== ========================================================
$100,000 to $249,999 3.5%
=========================================================== ========================================================
$250,000 to $499,999 2.5%
=========================================================== ========================================================
$500,000 to $999,999 2.0%
=========================================================== ========================================================
$1,000,000 or more 0.0%
=========================================================== ========================================================
====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class A Shares of Short Maturity Government Fund
====================================================================================================================
<S> <C>
Sale Size Initial Sales Charge
=========================================================== ========================================================
$0 to $999,999 1.0%
=========================================================== ========================================================
$1,000,000 or more 0.0%
=========================================================== ========================================================
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================
<S> <C>
Class A Shares of Growth Index Fund
====================================================================================================================
Sale Size Initial Sales Charge
=========================================================== ========================================================
$0 to $499,999 2.5%
=========================================================== ========================================================
$500,000 to $999,999 2.0%
=========================================================== ========================================================
$1,000,000 or more 0.0%
=========================================================== ========================================================
</TABLE>
There is no initial sales charge for purchases of Class A shares of
the Money Market Fund. Initial sales charges for the Single Class Funds are as
set forth in the current prospectus and statement of additional information
for the Company.
In cases in which there is no sales charge because the sale is in an
amount of $1,000,000 or more, if the Class A shares purchased are redeemed
within one year of the purchase, a CDSC will be imposed in the amount of 1.0%.
If the Class A shares are redeemed during the second year after the purchase,
a CDSC of 0.5% will be imposed. After the second year, no CDSC will apply. The
CDSC is imposed on the lower of the cost or the current net asset value of the
shares redeemed. In determining whether a CDSC is payable, a Fund will first
redeem shares not subject to any sales charge.
Class A shares otherwise subject to a CDSC and owned by certain
tax-exempt qualified retirement plans may be redeemed without charge to pay
benefits. In addition, any shares acquired by reinvestment of dividends will
be redeemable without a CDSC. In determining whether a CDSC is payable, the
Funds and Single Class Funds will first redeem shares not subject to any
charge.
<TABLE>
<CAPTION>
====================================================================================================================
Class B Shares (except Money Market Fund and Growth Index Fund)
====================================================================================================================
<S> <C> <C>
Sale Size Year CDSC
=============================================== ================================= ==================================
$0 to $249,999 1 4.0%
=============================================== --------------------------------- ==================================
2 4.0%
=============================================== --------------------------------- ==================================
3 3.0%
=============================================== --------------------------------- ==================================
4 2.0%
=============================================== --------------------------------- ==================================
5 2.0%
=============================================== --------------------------------- ==================================
6 1.0%
=============================================== ================================= ==================================
$250,000 to $499,999 1 3.5%
=============================================== --------------------------------- ==================================
2 3.0%
=============================================== --------------------------------- ==================================
3 2.0%
=============================================== --------------------------------- ==================================
4 1.0%
=============================================== --------------------------------- ==================================
5 1.0%
=============================================== ================================= ==================================
$500,000 to $1,000,000 1 3.0%
=============================================== --------------------------------- ==================================
2 2.0%
=============================================== --------------------------------- ==================================
3 1.0%
=============================================== --------------------------------- ==================================
4 1.0%
=============================================== ================================= ==================================
====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Class B Shares of Growth Index Fund
====================================================================================================================
<S> <C> <C>
Sale Size Year CDSC
=============================================== --------------------------------- ==================================
$0 to $500,000 1 2.50%
=============================================== --------------------------------- ==================================
2 2.50%
=============================================== --------------------------------- ==================================
3 2.00%
=============================================== --------------------------------- ==================================
4 1.50%
=============================================== --------------------------------- ==================================
5 1.25%
=============================================== --------------------------------- ==================================
6 0.50%
=============================================== ================================= ==================================
$500,000 to $1,000,000 1 2.0%
=============================================== --------------------------------- ==================================
2 2.0%
=============================================== --------------------------------- ==================================
3 1.0%
=============================================== --------------------------------- ==================================
4 1.0%
=============================================== ================================= ==================================
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================
Class C Shares
<S> <C> <C>
=============================================== ================================= ==================================
Sale Size Year CDSC
=============================================== --------------------------------- ==================================
all 1 1.0%
=============================================== ================================= ==================================
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================
Class D Shares
<S> <C> <C>
=============================================== ================================= ==================================
Sale Size Year CDSC
=============================================== ================================= ==================================
$0 to $249,999 1 6.0%
=============================================== --------------------------------- ==================================
2 6.0%
=============================================== --------------------------------- ==================================
3 5.0%
=============================================== --------------------------------- ==================================
4 4.0%
=============================================== --------------------------------- ==================================
5 4.0%
=============================================== --------------------------------- ==================================
6 3.0%
=============================================== --------------------------------- ==================================
7 2.0%
=============================================== ================================= ==================================
</TABLE>
Waivers of Class A, Class B, Class C and Class D CDSCs
CDSCs payable on redemptions of Class A, Class B, Class C and Class D
shares will be waived in the following circumstances:
Redemptions of shares issued as a result of reinvestment of dividends
and capital gains
Redemptions upon the death of the shareholder
Redemptions to effect distributions required by the Employee
Retirement Income Security Act of 1974, as amended, or regulations of
the Internal Revenue Service
Redemptions to distribute proceeds of loans made to employees of
not-for-profit organizations (Section 501(c)(3) companies) against
shares held in retirement plan accounts (Section 403(b)(7) accounts)
Redemptions made pursuant to a systematic withdrawal plan in amounts
up to 10% of the account's then current value annually for Class B
and Class C Shares and in amounts up to 8% of the account's then
current value annually for Class D Shares
Exhibit 15
SENTINEL GROUP FUNDS, INC.
CODE OF ETHICS
As Amended Through August 20, 1999
Policy Statement
No director, officer or employee of Sentinel Group Funds, Inc. (the "Company")
shall have any position with, or a substantial interest in, any other business
enterprise operated for a profit, the existence of which would conflict, or
might conflict, with the proper performance of his/her duties or
responsibilities to the Company or which might tend to affect his/her
independence of judgment with respect to transactions between the Company or
its investment adviser (Sentinel Advisors, Inc.) and such other business
enterprise, without prior full and complete disclosure thereof. Each director,
officer or employee who has such a conflicting, or possibly conflicting,
interest with respect to any transaction which he/she knows is under
consideration by the Company, or its investment adviser, or any affiliate
thereof, is required to make timely disclosure thereof so that it may be part
of the Company's consideration of the transaction. Rules of Conduct
In order to implement the foregoing Policy Statement but without limiting
its intent, the following Rules are adopted:
1. No director, officer or employee should accept gifts, gratuities or
favors of any kind from any person, firm or corporation doing
business, or having the potential to do business, with the Company
or its investment advisor under any circumstances from which it
could be reasonably inferred that the purpose of the gift, gratuity
or favor could be to influence the director, officer or employee in
the conduct of the Company or affiliated transactions with the
donor; provided, however, that this section shall not be interpreted
to prohibit (I) allowing business contacts to pay for meals which an
officer or employee attends, or (ii) gifts of items with a value not
exceeding $100.
2. Bribes, kickbacks, and other illegal payments to or from any
individual with whom the Company does business or hopes to do
business, in any form, for any purpose, are absolutely prohibited.
3. The accuracy and completeness of account entries and classifications
are to be strictly maintained at all times. Entries must be made in
such a manner that their nature is clearly discernible to management
and to the Company's independent auditors.
4. No officer or employee of the Company shall be a director, officer,
associate, partner, agent or employee of any other business
enterprise, or shall have any financial interest in any other
financial institution, or in any firm with whom the Company or any
affiliate does business, without first having secured written
permission from the President or the Chairman of the Board.
5. No director, officer or employee of the Company who receives
information on investment matters shall, either directly or
indirectly (a) purchase or sell securities where any such purchase
or sale is based on information obtained by reason of his/her
official position in the Company, unless he/she shall have first
secured written permission to make such purchase or sale from the
President or the Chairman of the Board, nor (b) invest in any real
property in which he knows that the Company or any affiliate has, or
is considering any investment or a tenancy, or in any real property,
the value of which may be affected by any action of the Company of
which he has special knowledge. Notwithstanding the foregoing
provisions of 5(a) above purchases or sales of 1,000 or less share
order of companies whose securities are listed on a registered
exchange or quoted daily on NASDAQ shall not be deemed prohibited
hereunder.
6. Any officer or employee of the Company concerned with investment
activities, who has any investment, either directly indirectly, in
any corporation or business enterprise which has a direct placement
with the Company, or is under consideration for a direct placement
by the Company, or which is under consideration for acquisition by
the Company or any affiliate, must make full disclosure of the
circumstances of any investment held in such corporation or
enterprise to the President or the Chairman of the Board.
7. Directors, officers and employees of the Company shall treat
information which they receive about the financial condition and
business activities of enterprises being considered for investment
as confidential.
8. No director, officer or employee of the Company shall knowingly or
intentionally trade, directly or indirectly, against the Company, or
against any similar fund or funds managed by the Company's
investment adviser in any of their respective securities or in any
securities which they each may respectively purchase, hold or sell,
or, knowingly or intentionally, enter into, advise or permit any
security transaction inconsistent with the best interests of the
Company or of any other fund or funds managed by the Company's
investment adviser.
9. Each officer or employee of the Company or its investment adviser
shall file within ten days after the close of each calendar quarter,
with counsel to the Company's investment advisor, a complete and
accurate report of all transactions in securities of which he/she
has knowledge, made by or for his/her account or any immediate
member of his/her family or any trust, partnership, corporation,
syndicate or account as to which he/she directly or indirectly, has
control or has participation in investment policies; provided
however, any such report may contain a statement that it shall not
be construed as an admission that the person making such report has
any direct or indirect beneficial ownership in the securities to
which the report relates. Every such report shall contain the
following information:
(a) The date of the transaction and the title and amount of the
security involved;
(b) The nature of the transaction (i.e., purchase, sale or other
acquisition or disposition);
(c) The price at which the transaction was effected; and
(d) The name of the broker, dealer or bank with or through whom the
transaction was effected.
10. Officers and employees of the Company shall not under any
circumstances acquire securities in an initial public offering.
11. Officers and employees of the Company shall not invest in private
placements except after having obtained the prior approval of the
CEO of Sentinel Advisors Company, which approval will be granted
only in exceptional circumstances in which it is clear that the
investment opportunity is not appropriate for the Company's Funds or
will not interfere with a Fund's participation in the investment,
and is not being offered to the individual as a result of his or her
position with the Company.
12. Officers and employees of the Company shall not trade in any
security on any day that the Company has a pending buy or sell order
in the same security, or for seven days thereafter, unless the
applicable Fund's portfolio manager has affirmatively advised the
keeper of the restricted list that the Fund has completed its
trading and that the security should be removed from the restricted
list. Furthermore, the period during which trading in a security is
prohibited hereunder will extend to a period seven days before a
trade in such security by a Fund, if at the time of the personal
trade the subsequent trade by a Fund has been identified as
reasonably expected by that Fund's portfolio manager.
13. Officers and employees of the Company shall not be permitted to take
a profit from a purchase and sale, or sale and purchase, of the same
securities within 60 calendar days. Any profits realized in
violation of this restriction shall be disgorged to the Company.
14. Transactions by officers and employees of the Company in securities
which have total market capitaliziations of at least $25 billion, in
options on such securities, or in options or futures on equity
indexes, and which are, in the case individual stocks and options,
in amounts of either 1000 shares or less or $50,000 or less, shall
be exempt from the requirements of paragraphs 12 and 13 above.
However, such transactions must still be pre-cleared as provided in
paragraph 16, so as to ensure that the Company is not in possession
of material non-public information about the issuer of the security,
before the transaction may be effected.
15. Officers and employees of the Company shall not serve on boards of
directors of publicly held companies, in the absence of prior
approval from the Chairman based on a finding that the board service
is in the best interests of the Company.
16. The Company's investment advisor should have in place at all times
procedures under which (a) all securities transactions by its
personnel are pre-cleared, (b) the advisor's personnel are required
to direct their broker to send duplicate copies of confirmations of
securities trades to a designated compliance official of the
advisor; (c) trades executed after pre-clearance is given are
monitored, (d) personal holdings of personnel, not including mutual
funds and government securities, are reported annually by all of its
personnel (such reports may be kept sealed and opened only where
there is good reason to investigate an individual's trading
activity), and (e) its personnel annually certify compliance with
the advisor's procedures listed above and its Code of Ethics.
In order to help ensure that all such reports are timely filed, the
designated individual will distribute the report forms at least five business
days prior to the end of a quarter, with a reminder that the forms are
required by law to be submitted to him/her within 10 days after the end of the
quarter. In addition, the designated individual shall, on a date not later
than seven days after the end of a quarter, determine whether any reports have
not yet been submitted, and shall follow up orally with any such person to
ensure that his or her report is timely filed. All such reports shall be
reviewed by the Chairman who shall indicate in writing on each form that it
has been reviewed by him.
Definitions
As used herein, the following definitions shall apply:
1. "Substantial interest" shall mean (a) beneficial ownership of 1% or
more of the voting stock of any public corporation; (b) an interest
valued at more than $5,000 or an ownership of more than 10% in a
closely held corporation; or (c) any interest for gain or profit in
any other business or profession which to his knowledge the Company
invests in, purchases from or sells to, other than in marketable
securities.
2. "Purchase of sale of a security" includes the writing of an option
to purchase or sell a security.
3. "Security" means any security of a class of securities (other than
bonds or other debt obligations) of an issuer (other than the
Company, the Government of the United States or an instrumentality
of the Government) or any security convertible into a security of
that class or any option to purchase or sell such security.
4. "Security held or to be acquired" by the Company means any security
as defined above which is being, or within the past thirty days has
been (a) held by the Company; or (b) considered by the Company or
its investment adviser for purchase by the Company.
If you should at any time have any questions as to the application of the
above, please consult with independent counsel to the Company or Counsel to
Sentinel Advisors Company
****************
