SENTINEL PENNSYLVANIA TAX FREE TRUST, 485B24E, 1997-03-27

SENTINEL PENNSYLVANIA TAX FREE TRUST
485B24E, 1997-03-27

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 27, 1997

Securities Act File No. 33-7664
Investment Company Act File No. 811-4781
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------

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. 15 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 17 /X/
(Check Appropriate Box or Boxes)

SENTINEL PENNSYLVANIA TAX-FREE TRUST
(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. John A. MacKinnon, Esq.
c/o Sentinel Group Funds, Inc. Brown & Wood LLP
National Life Drive One World Trade Center
Montpelier, Vermont 05604 New York, New York 10048-0557
(Names and Addresses of Agents for Service)

It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/X/ on March 31, 1997 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.

THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF ITS COMMON SHARES OF
BENEFICIAL INTEREST UNDER THE SECURITIES ACT OF 1933 PURSUANT TO RULE 24f-2
UNDER THE INVESTMENT COMPANY ACT OF 1940. NO NOTICE WAS REQUIRED TO BE FILED BY
SUCH RULE FOR THE REGISTRANT'S MOST RECENT FISCAL YEAR.

CALCULATION OF THE REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
Amount of Shares Proposed Maximum Proposed Maximum Amount of
Title of Securities Being Registered Being Registered Offering Price per Share Aggregate Offering Price* Registration Fee
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares of Beneficial Interest
(par value $.01 per share) 215,072 $12.99 $0 $0
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

*Calculation for the Registrant is made pursuant to Rule 24e-2(b) under the
Investment Company Act of 1940. 330,002 shares of the Registrant were redeemed
or repurchased by the Registrant during the previous fiscal year. 114,930
shares redeemed by the Registrant during the previous fiscal year were used for
reduction pursuant to Rule 24e-2(a) or Rule 24f-2(c) under the Investment
Company Act of 1940 in previous filings during the Registrant's fiscal year;
therefore, 215,072 of the shares of the Registrant redeemed during the
Registrant's previous fiscal year are being used to reduce the registration fee
in this amendment to the Registration Statement.

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

<PAGE>

SENTINEL PENNSYLVANIA TAX-FREE TRUST

Registration Statement on Form N-1A

CROSS REFERENCE SHEET

N-1A Item NO.
- - -------------

PART A
- - ------
Item 1. Cover Page . . . . . . . . . . . Prospectus Cover Page
Item 2. Synopsis . . . . . . . . . . . . Fund Expenses
Item 3. Condensed Financial
Information . . . . . . . . . . Financial Highlights;
Performance Data
Item 4. General Description of
Registrant. . . . . . . . . . . Investment Objectives and
Policies; Organization of the
Funds
Item 5. Management of the Fund . . . . . Fund Expenses; Management of
the Funds; Prospectus Back
Cover Page
Item 5A. Management's Discussion of
Fund Performance. . . . . . . . Not Applicable
Item 6. Capital Stock and Other
Securities. . . . . . . . . . . Taxes; Shareholder Services;
Dividends and Capital Gains
Distributions; Shareholder
Inquiries; Organization of the
Funds; Prospectus Inside Back
Cover Page
Item 7. Purchase of Securities Being
Offered . . . . . . . . . . . . Fund Expenses; Distribution
Plans; How to Purchase Shares;
Determination of Net Asset
Value; Shareholder Services;
Prospectus Inside Back Cover
Page
Item 8. Redemption or Repurchase . . . . Fund Expenses; How to Redeem
Shares
Item 9. Pending Legal Proceedings. . . . Not Applicable

PART B
- - ------

Item 10. Cover Page . . . . . . . . . . . Statement of Additional
Information Cover Page
Item 11. Table of Contents. . . . . . . . Statement of Additional
Information Cover Page
Item 12. General Information and
History . . . . . . . . . . . . Not Applicable
Item 13. Investment Objectives and
Policies. . . . . . . . . . . . Investment Objectives and
Policies; Investment
Restrictions; Portfolio
Turnover
Item 14. Management of the Fund . . . . . Management of the Funds
Item 15. Control Persons and Principal
Holders of Securities. . . . . . Management of the Funds
Item 16. Investment Advisory and Other
Services. . . . . . . . . . . . Statement of Additional
Information Cover Page; The
Funds; The Investment Advisory
Contract; The Distribution
Contract; The Distribution
Plans; The Fund Services
Agreement; General Information

<PAGE>

Item 17. Brokerage Allocation and Other
Practices . . . . . . . . . . . Portfolio Transactions and
Brokerage Commissions
Item 18. Capital Stock and Other
Securities. . . . . . . . . . . Capitalization; How to Redeem
Shares; Dividends and Capital
Gains Distributions

Item 19. Purchase, Redemption and Pricing
of Securities Being Offered . . Capitalization; How to
Purchase Shares and Reduce
Sales Charges; Issuance of
Shares at Net Asset Value;
Determination of Net Asset
Value; Shareholder Services;
Tax Deferred Retirement Plans

Item 20. Tax Status . . . . . . . . . . . Taxes
Item 21. Underwriters . . . . . . . . . . The Distribution Contract;
Portfolio Transactions and
Brokerage Commissions; How to
Purchase Shares and Reduce
Sales Charges
Item 22. Calculation of Performance Data. Performance Data; Total
Return, Yield and
Tax-Equivalent Yield
Information
Item 23. Financial Statements . . . . . Independent Auditor's Report;
Statement of Assets and
Liabilities

PART C
- - ------

Items 24-32. Information required to be included in Part C is set forth under
the appropriate Item, so numbered, in Part C to this Registration
Statement.

<PAGE>

<TABLE>
<S> <C> <C>
THE SENTINEL FUNDS Prospectus
[LOGO] National Life Drive Dated March 31, 1997
Montpelier, Vermont 05604
800-282-3863
</TABLE>

...............................................................................

TABLE OF CONTENTS

<TABLE>
<S> <C>
Fund Expenses................... 3
Financial Highlights............ 8
Purchase Options................ 14
The Funds....................... 15
Investment Objectives and
Policies...................... 16
Management of the Funds......... 25
Custodian....................... 28
The Distributor................. 28
Distribution Plans.............. 28
How to Purchase Shares.......... 30
How To Redeem Shares............ 35
Tax Deferred Retirement Plans... 39
Determination of Net Asset
Value......................... 39
Dividends and Capital Gains
Distributions................. 40
Taxes........................... 41
Shareholder Services............ 44
Performance Data................ 45
Organization of the Funds....... 47
Applications
</TABLE>

...............................................................................

EACH OF THE TWELVE FUNDS IN THE SENTINEL FAMILY OF FUNDS
(INDIVIDUALLY, A "FUND", AND COLLECTIVELY, THE "FUNDS") HAS A
SEPARATE INVESTMENT OBJECTIVE AND POLICIES. THE INVESTMENT
OBJECTIVES OF THE FUNDS ARE AS FOLLOWS:

- - - SENTINEL U.S. TREASURY MONEY MARKET FUND (the "Treasury Fund")
- - -- seeks as high a level of current income as is consistent
with the safety of principal and the maintenance of liquidity,
by investing solely in short-term direct obligations of the
U.S. Treasury. An investment in the Treasury Fund is neither
insured nor guaranteed by the U.S. government. The Treasury
Fund seeks to maintain a constant $1.00 per share net asset
value; however, there can be no assurance that the Treasury
Fund will be able to maintain a stable net asset value of $1.00
per share.

...............................................................................

This Prospectus sets forth concisely the information about the Funds (as defined
herein) that a prospective investor should know before investing. This
Prospectus should be read carefully and retained for future reference.
Additional information about the Funds is contained in the Statement of
Additional Information, dated March 31, 1997 (the "Statement of Additional
Information"), which has been filed with the Securities and Exchange Commission.
The Statement of Additional Information is available upon request and without
charge from Sentinel Group Funds, Inc. (the "Company") at the address or
telephone number shown above. The Statement of Additional Information is
incorporated by reference into this Prospectus.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863) 1

PROSPECTUS
<PAGE>
...............................................................................

- - - SENTINEL COMMON STOCK FUND (the "Common Stock Fund") -- seeks a combination of
long-term growth of capital and income, current return and relatively low risk
through investment in common stocks of many well-established companies.

- - - SENTINEL BALANCED FUND (the "Balanced Fund") -- seeks a conservative
combination of stability, income and long-term growth of capital through
investments in both stocks and bonds, with at least 25% of its net assets in
fixed-income senior securities.

- - - SENTINEL GROWTH FUND (the "Growth Fund") -- seeks long-term growth of capital
through equity participation in companies having growth potential believed by
the Advisor to be more favorable than that of the U.S. economy as a whole, with
a focus on relatively well-established companies.

- - - SENTINEL SMALL COMPANY FUND (the "Small Company Fund") -- seeks long-term
capital appreciation. Assets normally will be invested primarily in common
stocks of small and medium-sized corporations believed by Sentinel Advisors
Company (the "Advisor") to have superior growth potential.

- - - SENTINEL WORLD FUND (the "World Fund") -- seeks long-term growth of capital
principally through investments in a diversified portfolio of marketable equity
securities of established non-U.S. companies.

- - - SENTINEL BOND FUND (the "Bond Fund") -- seeks as high a level of continuing
income as is consistent with the preservation of capital through investments
primarily in investment grade fixed-income securities.

- - - SENTINEL GOVERNMENT SECURITIES FUND (the "Government Securities Fund") --
seeks as high a level of current income as is consistent with safety of
principal through investments primarily in securities issued or guaranteed by
the U.S. government or its agencies or instrumentalities.

- - - SENTINEL SHORT MATURITY GOVERNMENT FUND (the "Short Maturity Government Fund")
- - -- seeks as high a level of current income as is consistent with safety of
principal through investments primarily in securities issued or guaranteed by
the U.S. government or its agencies or instrumentalities. The Fund will invest
at least 65% of its assets in such government securities which have an average
maturity from 2 to 5 years.

- - - SENTINEL TAX-FREE INCOME FUND (the "Tax-Free Income Fund") -- seeks as high a
level of current income exempt from federal income taxes as is consistent with
the preservation of capital through investments primarily in a diversified
portfolio of investment grade municipal bonds.

- - - SENTINEL NEW YORK TAX-FREE INCOME FUND (the "New York Fund") -- seeks as high
a level of current interest income exempt from federal and New York State and
City personal income taxes as is consistent with liquidity and capital
preservation.

- - - SENTINEL PENNSYLVANIA TAX-FREE TRUST (the "Pennsylvania Fund") -- seeks as
high a level of current interest income exempt from federal and Pennsylvania
personal income taxes as is consistent with liquidity and capital preservation.

2
FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863)

PROSPECTUS
<PAGE>
...............................................................................

FUND EXPENSES

The following tables illustrate all expenses and fees that a shareholder of the
Funds may expect to incur:

SHAREHOLDER TRANSACTION EXPENSES (as a percentage of offering price)

<TABLE>
<S> <C>
CLASS A SHARES:

Sales Charge Imposed on Purchases --
Common Stock, Balanced, Growth, Small Company and World
Funds...................................................... 5.00% maximum
Bond, Government Securities, Tax-Free Income, New York and
Pennsylvania Funds......................................... 4.00% maximum
Short Maturity Government Fund............................... 1.00%
Treasury Fund................................................ None
Sales Charge Imposed on Reinvested Dividends................. None
Redemption Fees.............................................. None*
Exchange Fees................................................ None**

</TABLE>

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

* If a shareholder chooses to redeem by means of a wire transfer, a wire
charge not normally in excess of $25.00 will be assessed. In addition, a
deferred sales charge of up to 1% is assessed on certain redemptions of
Class A shares made within two years of purchase, if they were purchased
without an initial sales charge as part of an investment of $1,000,000 or
more. See "How to Purchase Shares -- Class A Shares -- Sales Charges",
below.

** If a shareholder exchanges Class A shares of the Treasury Fund for Class A
shares of another Fund, and such Treasury Fund shares were not acquired in
an exchange from another Fund's Class A shares, then a fee equal to the
sales charge imposed on purchases of the new Fund will be assessed.

CLASS B SHARES (available for the Common Stock, Balanced,
Small Company, World, Bond, Tax-Free Income and Treasury
Funds):

Sales Charge Imposed on Purchases............................ None
Sales Charge Imposed on Reinvested Dividends................. None
Contingent Deferred Sales Charge ("CDSC").................... 4.00% maximum***
Exchange Fees................................................ None****
</TABLE>

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

*** The maximum CDSC is imposed on shares redeemed in the first year after
purchase. For shares held longer than one year, the CDSC declines according
to the schedules set forth under "How to Redeem Shares -- Class B Shares --
CDSC", below.

**** Class B shares may be exchanged only for Class B shares of the other Funds
that offer Class B shares as of the date of the exchange.

FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863) 3

PROSPECTUS
<PAGE>
...............................................................................

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

<TABLE>
<CAPTION>
COMMON SMALL
STOCK BALANCED GROWTH COMPANY WORLD
FUND FUND FUND FUND FUND
-------- -------- -------- -------- -----------

<S> <C> <C> <C> <C> <C>
Management Fees......................... .55% .64% .64% .64% .64%
Rule 12b-1 Fees (includes service fee
and distribution fee)(a).............. .29 .30 .30 .30 .30
Other Expenses:
Accounting and Administrative
Costs.............................. .04 .04 .04 .04 .04
Other............................... .19(c) .24(c) .45(c) .53(c) .50(c)
Total Other Expenses.................... .23(c) .28(c) .49(c) .57(c) .54(c)
--- --- --- --- ---
Total Fund Operating Expenses Before
Expense Offset........................ 1.07%(c) 1.22%(c) 1.43%(c) 1.51%(c) 1.48%(b)(c)
--- --- --- --- ---
--- --- --- --- ---

</TABLE>

<TABLE>
<CAPTION>
SHORT
GOVERNMENT MATURITY
BOND SECURITIES GOVERNMENT TREASURY
FUND FUND FUND FUND
-------- ---------- ----------- --------

<S> <C> <C> <C> <C>
Management Fees......................... .53 % .53% .53% .40%
Rule 12b-1 Fees (includes service fee
and distribution fee)(a).............. .20 .20 .35 None
Other Expenses:
Accounting and Administrative
Costs.............................. .04 .04 .00 .04
Other............................... .23 (c) .24(c) .17(c) .34(c)
Total Other Expenses.................... .27 (c) .28(c) .17(c) .38(c)
-------- ---------- ----------- --------
Total Fund Operating Expenses Before
Expense Offset........................ 1.00%(c) 1.01%(c) 1.05%(b)(c) .78%(c)
-------- ---------- ----------- --------
-------- ---------- ----------- --------

</TABLE>

<TABLE>
<CAPTION>
TAX-FREE
INCOME NEW YORK PENNSYLVANIA
FUND FUND FUND
-------- -------- ------------------

<S> <C> <C> <C>
Management Fees......................... .53% .15% .55%
Rule 12b-1 Fees (includes service fee
and distribution fee)(a).............. .20 .20 .20
Other Expenses:
Accounting and Administrative
Costs.............................. .04 .00 .00
Other............................... .20(c) .06(c) .14(c)
Total Other Expenses.................... .24(c) .06(c) .14(c)
-------- -------- ------
Total Fund Operating Expenses Before
Expense Offset........................ .97%(c) .41%(b)(c)(d) .89%(b)(c)(d)
-------- -------- ------
-------- -------- ------

</TABLE>

4
FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863)

PROSPECTUS
<PAGE>
...............................................................................

CLASS B:

<TABLE>
<CAPTION>
COMMON SMALL
STOCK BALANCED COMPANY WORLD
FUND FUND FUND FUND
-------- -------- -------- --------

<S> <C> <C> <C> <C>
Management Fees......................... .55% .64% .64% .64%
Rule 12b-1 Fees (includes service fee
and distribution fee)(a).............. 1.00 1.00 1.00 1.00
Other Expenses:
Accounting and Administrative
Costs.............................. .04 .04 .04 .04
Other............................... .33 .45 .96 .91
Total Other Expenses.................... .37 .49 1.00 .95
--- --- --- ---
Total Fund Operating Expenses Before
Expense Offset........................ 1.92%(c) 2.13%(c) 2.64%(c) 2.59%(c)
--- --- --- ---
--- --- --- ---

</TABLE>

<TABLE>
<CAPTION>
TAX-FREE
BOND TREASURY INCOME
FUND FUND FUND
-------- ------- ---------

<S> <C> <C> <C>
Management Fees......................... .53% .40% .53%
Rule 12b-1 Fees (includes service fee
and distribution fee)(a).............. 1.00 None 1.00
Other Expenses:
Accounting and Administrative
Costs.............................. .04 .04 .04
Other............................... .61 .33 .91
Total Other Expenses.................... .65 .37 .95
--- ------- ---
Total Fund Operating Expenses Before
Expense Offset........................ 2.18%(c) .77% 2.48%(c)
--- ------- ---
--- ------- ---

</TABLE>

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

(a)Assumes distribution history as of November 30, 1996. The maximum annual Rule
12b-1 fee for Common Stock Fund Class A shares, Balanced Fund Class A shares,
Growth Fund Class A shares, Small Company Fund Class A shares and World Fund
Class A shares is .30% of average daily net assets of each such Fund, of
which the service fee portion could be as much as .20%; the maximum annual
Rule 12b-1 fee for Bond Fund Class A shares, Government Securities Fund Class
A shares, Tax-Free Income Fund Class A shares, New York Fund Class A shares
and Pennsylvania Fund Class A shares is .20% of average daily net assets of
each such Fund, of which the service fee portion could be as much as .10%;
and the maximum annual Rule 12b-1 fee for the Short Maturity Government Fund
Class A shares is .35% of average daily net assets, of which the service fee
portion will be .25%.

(b)Sentinel Administrative Service Company ("Sentinel Service") has voluntarily
agreed for an indefinite period to reimburse the Pennsylvania Fund Class A
shares, the Short Maturity Government Fund Class A shares and the New York
Fund Class A shares for expenses necessary to limit those Funds' overall
expense ratios to 0.90% (effective March 31, 1997), 1.00% and zero (effective
March 31, 1997), respectively, in each case after expense offset. For the
Pennsylvania Fund Class A shares, which were reimbursed down to an expense
ratio after expense offset of 0.75% in fiscal 1996, a reimbursement of
$199,793 was paid in fiscal 1996. In the absence of the above reimbursement
arrangement, the Pennsylvania Fund Class A shares Accounting and
Administrative Costs, Other Expenses, Total Other Expenses and Total Fund
Operating Expenses would have been .24%, .38%, .62% and 1.37%, respectively,
before expense offset, and .24%, .34%, .58% and 1.33%, respectively, after
expense offset. The dollar amount of the reimbursement paid to the Short
Maturity Government Fund Class A shares during the 1996 fiscal year by
Sentinel Service was $55,931. In the absence of the above reimbursement
arrangement, Short Maturity Government Fund Class A shares' Accounting and
Administrative Costs, Other Expenses, Total Other Expenses and Total Fund
Operating Expenses would have been, on an annualized basis, .04%, .28%, .32%,
and 1.20%, respectively, before expense offset, and .04%, .23%, .27% and
1.15%, respectively, after

FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863) 5

PROSPECTUS
<PAGE>
...............................................................................

expense offset. For the New York Fund Class A shares, the above reimbursement
policy was not in effect for fiscal 1996, and the actual Management Fee, Rule
12b-1 Fee, Accounting and Administrative Costs, Other Expenses, Total Other
Expenses and Total Fund Operating Expenses were .53, .20, .04, .33, .37 and
1.10, respectively, before expense offset, and .53, .20, .04, .27, .31 and
1.04, respectively, after expense offset. Although Sentinel Service has no
present intention to do so, these arrangements may be terminated at any time.

(c)Expense ratios after expense offset are as follows:

TOTAL OTHER TOTAL FUND
CLASS A: OTHER EXPENSES OPERATING EXPENSES
----------- ------------- -------------------
<S> <C> <C> <C>
Common Stock Fund.......................... .18% .22% 1.06%
Balanced Fund.............................. .22 .26 1.20
Growth Fund................................ .42 .46 1.40
Small Company Fund......................... .49 .53 1.47
World Fund................................. .45 .49 1.43
Bond Fund.................................. .21 .25 .98
Government Securities Fund .23 .27 1.00
Short Maturity Gov't Fund.................. .12 .12 1.00
Treasury Fund.............................. .34 .38 .78
Tax-Free Income Fund....................... .17 .21 .94
New York Fund.............................. .00 .00 .35
Pennsylvania Fund.......................... .10 .10 .85

TOTAL OTHER TOTAL FUND
CLASS B: OTHER EXPENSES OPERATING EXPENSES
----------- ------------- -------------------

<S> <C> <C> <C>
Common Stock Fund.......................... .32% .36% 1.91%
Balanced Fund.............................. .44 .48 2.12
Small Company Fund......................... .94 .98 2.62
World Fund................................. .88 .92 2.56
Bond Fund.................................. .59 .63 2.16
Treasury Fund.............................. .32 .36 .76
Tax-Free Income Fund....................... .61 .65 2.18

</TABLE>

(d)Expense ratios are projections based on actual net assets as of November 30,
1996 and adjusted to reflect expense limitations as of March 31, 1997
described in Note (b) above.

6
FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863)

PROSPECTUS
<PAGE>
...............................................................................

The following examples illustrate the expenses that an investor would pay on
a $1,000 investment in each of the Funds over various time periods assuming
the operating expense ratio as set forth in the tables above for each class
of shares of each Fund and a 5% annual rate of return.
<TABLE>
<CAPTION>
CLASS A: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------

<S> <C> <C> <C> <C>
Common Stock Fund............................. $ 60 $ 82 $ 106 $ 173
Balanced Fund................................. 62 86 113 188
Growth Fund................................... 64 92 123 210
Small Company Fund............................ 64 94 126 217
World Fund.................................... 64 93 124 213
Bond Fund..................................... 50 70 92 155
Government Securities Fund.................... 50 71 93 158
Short Maturity Government Fund................ 20 42 65 131
Treasury Fund................................. 8 25 43 97
Tax-Free Income Fund.......................... 49 69 90 151
New York Fund................................. 43 51 59 83
Pennsylvania Fund............................. 48 66 85 141

CLASS B (assuming redemption at the end of the
period): 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------

<S> <C> <C> <C> <C>
Common Stock Fund............................. $ 59 $ 90 $ 123 $ 181
Balanced Fund................................. 62 96 134 200
Small Company Fund............................ 67 111 159 241
World Fund.................................... 66 110 156 236
Bond Fund..................................... 62 98 136 191
Treasury Fund................................. 48 54 62 95
Tax-Free Income Fund.......................... 62 98 137 191

CLASS B (assuming no redemption at the end of
the period): 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------

<S> <C> <C> <C> <C>
Common Stock Fund............................. $ 19 $ 60 $ 103 $ 181
Balanced Fund................................. 22 66 114 200
Small Company Fund............................ 27 81 139 241
World Fund.................................... 26 80 136 236
Bond Fund..................................... 22 68 116 191
Treasury Fund................................. 8 24 42 95
Tax-Free Income Fund.......................... 22 68 117 191

</TABLE>

These examples should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown and the 5%
annual rate used in this example is a hypothetical rate of return.

The purpose of the foregoing tables is to assist the investor in
understanding the various expenses that an investor in the Funds will bear
directly or indirectly. The expense ratios set forth above, in the case of
the Class A shares, are based on costs actually borne by the Funds in the
fiscal year ended November 30, 1996, using average net assets of each Fund
for the fiscal year ended November 30, 1996, except for the New York Fund and
the Pennsylvania Fund, which take into account changes in reimbursement
policy effective March 31, 1997. In the case of the Class B shares, the
expense ratios are based on annualized costs actually borne by the Funds
during the eight month period from April 1, 1996 (commencement of offering of
Class B shares) to November 30, 1996. In general, all of the Funds share
expenses that are not specifically incurred by particular Funds in proportion
to the net assets of each Fund, except that expenses which vary by the number
of accounts, such as transfer agent costs and shareholder reports and mailing
costs, are allocated in proportion to the number of accounts in each Fund.
The Rule 12b-1 Fees shown in the foregoing tables include both service fee
and distrbution fee components. See "Distribution Plans" on page 28 for more
information on these fees.

FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863) 7

PROSPECTUS
<PAGE>
...............................................................................

FINANCIAL HIGHLIGHTS (for a share outstanding throughout each of the periods).
The following information, insofar as it relates to the five fiscal years in the
period ended November 30, 1996, other than for the Pennsylvania Fund, has been
audited by Price Waterhouse LLP, independent accountants, whose report thereon
was unqualified. For the Pennsylvania Fund, the following information for the
eleven month period ended November 30, 1993 and for the years ended November 30,
1994, 1995 and 1996 has been audited by Price Waterhouse LLP, whose report
thereon was unqualified. The following information with respect to the
Pennsylvania Fund for the year ended December 31, 1992 has been audited by
Coopers & Lybrand L.L.P., independent accountants, whose report thereon was
unqualified. This information should be read in conjunction with the financial
statements and notes thereto incorporated by reference in the Statement of
Additional Information. The Annual Report of the Funds may be obtained by
shareholders without charge by calling the Company at (800) 282-3863.

<TABLE>
<CAPTION>
-------------------------------------------------
------------------------------------------
- - ------------------------------ INCOME FROM INVESTMENT OPERATIONS
- - ------------------------------ ------------------------------------------------- LESS DISTRIBUTIONS
NET REALIZED ------------------------------------------
AND
FISCAL NET ASSET NET UNREALIZED DIVIDENDS DISTRIBUTIONS
YEAR VALUE AT INVESTMENT GAIN TOTAL FROM FROM NET FROM REALIZED
(PERIOD BEGINNING INCOME (LOSS) ON INVESTMENT INVESTMENT GAINS ON TOTAL
FUND ENDED) OF PERIOD (LOSS) INVESTMENTS OPERATIONS INCOME INVESTMENTS DISTRIBUTIONS
- - ------------------------------
------------------------------------------------- ------------------------------------------

<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common 11/30/87 $ 25.30 $ 0.87 $ (2.87) $ (2.00) $ 0.73 $ 1.08 $ 1.81
Stock -- A 11/30/88 21.49 0.85 3.17 4.02 0.83 1.55 2.38
11/30/89 23.13 0.91 4.60 5.51 0.99 1.20 2.19
11/30/90 26.45 0.93 (1.50) (0.57) 1.00 1.27 2.27
11/30/91 23.61 0.90 3.90 4.80 0.93 0.70 1.63
11/30/92 26.78 0.90 3.44 4.34 0.91 0.50 1.41
11/30/93 29.71 0.79 1.66 2.45 0.82 1.71 2.53
11/30/94 29.63 0.83 (1.35) (0.52) 0.80 0.06 0.86
11/30/95 28.25 0.72 8.09 8.81 0.74 1.11 1.85
11/30/96 35.21 0.59 8.18 8.77 0.61 2.77 3.38
- - ------------------------------ ------------------------------------------------- ------------------------------------------
Balanced -- A 11/30/87 $ 12.89 $ 0.70 $ (1.27) $ (0.57) $ 0.59 $ 0.41 $ 1.00
11/30/88 11.32 0.71 0.91 1.62 0.72 -- 0.72
11/30/89 12.22 0.80 1.33 2.13 0.78 0.04 0.82
11/30/90 13.53 0.79 (0.56) 0.23 0.83 0.35 1.18
11/30/91 12.58 0.77 1.37 2.14 0.78 0.05 0.83
11/30/92 13.89 0.70 0.97 1.67 0.71 0.03 0.74
11/30/93 14.82 0.59 0.81 1.40 0.59 0.36 0.95
11/30/94 15.27 0.58 (1.12) (0.54) 0.56 0.09 0.65
11/30/95 14.08 0.58 2.78 3.36 0.59 0.01 0.60
11/30/96 16.84 0.54 2.13 2.67 0.54 0.42 0.96
- - ------------------------------ ------------------------------------------------- ------------------------------------------
Growth -- A 11/30/87 $ 17.07 $ 0.28 $ (1.20) $ (0.92) $ 0.16 $ 2.64 $ 2.80
11/30/88 13.35 0.17 1.36 1.53 0.25 3.18 3.43
11/30/89 11.45 0.16 2.99 3.15 0.18 -- 0.18
11/30/90 14.42 0.18 (0.37) (0.19) 0.17 -- 0.17
11/30/91 14.06 0.20 1.93 2.13 0.20 -- 0.20
11/30/92 15.99 0.11 3.07 3.18 0.16 0.45 0.61
11/30/93 18.56 0.04 (0.28) (0.24) 0.04 0.77 0.81
11/30/94 17.51 0.05 (0.92) (0.87) 0.03 0.46 0.49
11/30/95 16.15 0.07 3.33 3.40 0.05 2.57 2.62
11/30/96 16.93 0.03 3.23 3.26 0.07 2.55 2.62
- - ------------------------------ ------------------------------------------------- ------------------------------------------
Small 9 mo. to
Company -- A 11/30/93(A) $ 6.49 $ (0.06) $ 0.44 $ 0.38 $ -- $ -- $ --
11/30/94 6.87 (0.04) 0.18 0.14 -- 1.48 1.48
11/30/95 5.53 0.02 0.56 0.58 -- 0.91 0.91
11/30/96 5.20 0.01 0.95 0.96 0.03 0.96 0.99
- - ------------------------------ ------------------------------------------------- ------------------------------------------

</TABLE>

8 FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR
SERVICES 1-800-282-FUND (3863)

PROSPECTUS
<PAGE>
...............................................................................

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

RATIOS/SUPPLEMENTAL DATA
- - ------------------------------------------- -------------------------------------------------------------------------------------
- - ------------------------------------------- RATIO OF
EXPENSES TO
AVERAGE NET RATIO OF NET NET ASSETS
NET ASSET RATIO OF NET ASSETS BEFORE INVESTMENT AVERAGE AT END OF
VALUE AT TOTAL EXPENSES TO EXPENSE INCOME TO PORTFOLIO COMMISSION PERIOD
END OF RETURN* AVERAGE NET REDUCTION** AVG. NET TURNOVER RATE PAID (000
FUND PERIOD (%) ASSETS (%) (%) ASSETS (%) RATE (%) PER SHARE OMITTED)
- - ------------------------------------------- -------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common $ 21.49 (9.0) 0.62 0.62 3.28 9 N/A $ 459,296
Stock -- A 23.13 19.8 0.87 0.87 3.75 7 N/A 490,168
26.45 25.6 0.80 0.80 3.69 11 N/A 591,136
23.61 (2.4) 0.76 0.76 3.82 6 N/A 543,047
26.78 21.1 0.74 0.74 3.41 9 N/A 620,179
29.71 16.7 0.72 0.72 3.13 5 N/A 688,309
29.63 8.8 0.93 0.93 2.68 9 N/A 897,836
28.25 (1.8) 1.02 1.02 2.82 15 N/A 839,335
35.21 32.8 1.09 1.10 2.29 22 N/A 1,057,944
40.60 27.2 1.06 1.07 1.64 22 $ .0600 1,306,592
- - ------------------------------------------- -------------------------------------------------------------------------------------
Balanced -- A $ 11.32 (5.3) 0.67 0.67 5.38 32 N/A $ 62,282
12.22 14.6 0.97 0.97 5.74 52 N/A 67,019
13.53 18.1 0.96 0.96 6.16 71 N/A 74,417
12.58 1.8 0.91 0.91 6.17 40 N/A 74,808
13.89 17.5 0.85 0.85 5.70 32 N/A 90,580
14.82 12.4 0.81 0.81 4.86 38 N/A 120,700
15.27 9.7 1.14 1.14 3.88 72 N/A 229,632
14.08 (3.6) 1.21 1.21 3.97 66 N/A 226,328
16.84 24.4 1.27 1.29 3.77 110 N/A 267,103
18.55 16.6 1.20 1.22 3.13 83 $ .0600 297,288
- - ------------------------------------------- -------------------------------------------------------------------------------------
Growth -- A $ 13.35 (6.5) 0.76 0.76 1.68 98 N/A $ 49,233
11.45 11.7 1.12 1.12 1.44 69 N/A 47,350
14.42 27.7 1.24 1.24 1.18 24 N/A 51,665
14.06 (1.4) 1.20 1.20 1.22 15 N/A 49,580
15.99 15.2 1.08 1.08 1.22 25 N/A 55,598
18.56 20.5 1.05 1.05 0.63 28 N/A 63,664
17.51 (1.3) 1.31 1.31 0.22 12 N/A 57,833
16.15 (5.1) 1.43 1.43 0.30 58 N/A 50,447
16.93 24.9 1.50 1.54 0.42 84 N/A 60,446
17.57 22.6 1.40 1.43 0.16 98 $ .0600 69,816
- - ------------------------------------------- -------------------------------------------------------------------------------------
Small
Company -- A $ 6.87 5.9# 1.52+ 1.52+ (1.01)+ 61 N/A $ 105,176
5.53 2.0 1.58 1.58 (0.74) 46 N/A 88,420
5.20 12.2 1.56 1.60 0.26 79 N/A 89,321
5.17 22.0 1.47 1.51 0.23 60 $ .0600 99,393
- - ------------------------------------------- -------------------------------------------------------------------------------------

</TABLE>

(FOOTNOTES ON FOLLOWING PAGES)

FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863) 9

PROSPECTUS
<PAGE>
...............................................................................

<TABLE>
<CAPTION>
--------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ------------------------------------------
--------------------------------------------------
NET REALIZED LESS DISTRIBUTIONS
- - --------------------------------- AND ------------------------------------------
- - --------------------------------- NET ASSET NET UNREALIZED DIVIDENDS DISTRIBUTIONS
FISCAL YEAR VALUE AT INVESTMENT GAIN TOTAL FROM FROM NET FROM REALIZED
(PERIOD BEGINNING INCOME (LOSS) ON INVESTMENT INVESTMENT GAINS ON TOTAL
FUND ENDED) OF PERIOD (LOSS) INVESTMENTS OPERATIONS INCOME INVESTMENTS DISTRIBUTIONS
- - ---------------------------------
-------------------------------------------------- ------------------------------------------

<S> <C> <C> <C> <C> <C> <C> <C> <C>
World -- A 9 Mo. to
11/30/93(A) $ 9.56 $ 0.02 $ 2.28 $ 2.30 $ -- $ -- $ --
11/30/94 11.86 0.08 0.89 0.97 0.03 0.06 0.09
11/30/95 12.74 0.14 1.14 1.28 0.09 0.15 0.24
11/30/96 13.78 0.12 1.99 2.11 0.13 0.07 0.20
- - --------------------------------- -------------------------------------------------- ------------------------------------------
Bond -- A 11/30/87 $ 6.93 $ 0.58 $(0.60) $(0.02) $ 0.57 $ 0.35 $ 0.92
11/30/88 5.99 0.55 0.03 0.58 0.55 -- 0.55
11/30/89 6.02 0.56 0.18 0.74 0.55 -- 0.55
11/30/90 6.21 0.52 (0.18) 0.34 0.52 -- 0.52
11/30/91 6.03 0.50 0.40 0.90 0.50 -- 0.50
11/30/92 6.43 0.46 0.13 0.59 0.46 -- 0.46
11/30/93 6.56 0.41 0.46 0.87 0.41 0.12 0.53
11/30/94 6.90 0.39 (0.70) (0.31) 0.39 0.35 0.74
11/30/95 5.85 0.42 0.64 1.06 0.42 -- 0.42
11/30/96 6.49 0.41 (0.14) 0.27 0.41 -- 0.41
- - --------------------------------- -------------------------------------------------- ------------------------------------------
Government 11/30/87 $10.04 $ 0.80 $(0.70) $ 0.10 $ 0.79 $ -- $ 0.79
Securities -- A 11/30/88 9.35 0.78 (0.03) 0.75 0.79 -- 0.79
11/30/89 9.31 0.81 0.26 1.07 0.81 -- 0.81
11/30/90 9.57 0.78 (0.03) 0.75 0.78 -- 0.78
11/30/91 9.54 0.74 0.50 1.24 0.74 -- 0.74
11/30/92 10.04 0.70 0.14 0.84 0.70 -- 0.70
11/30/93 10.18 0.62 0.42 1.04 0.60 0.17 0.77
11/30/94 10.45 0.59 (1.04) (0.45) 0.58 0.11 0.69
11/30/95 9.31 0.63 0.99 1.62 0.63 -- 0.63
11/30/96 10.30 0.61 (0.30) 0.31 0.61 -- 0.61
- - --------------------------------- -------------------------------------------------- ------------------------------------------
Short Maturity 8 Mo. to
Gov't. -- A 11/30/95(B) $ 9.64 $ 0.40 $ 0.20 $ 0.60 $ 0.40 $ -- $ 0.40
11/30/96 9.84 0.57 (0.03) 0.54 0.57 -- 0.57
- - --------------------------------- -------------------------------------------------- ------------------------------------------
Treasury -- A 9 Mo. to
11/30/93(A) $ 1.00 $ 0.02 $ 0.00 $ 0.02 $ 0.02 $ -- $ 0.02
11/30/94 1.00 0.03 0.00 0.03 0.03 -- 0.03
11/30/95 1.00 0.05 0.00 0.05 0.05 -- 0.05
11/30/96 1.00 0.04 0.00 0.04 0.04 -- 0.04
- - --------------------------------- -------------------------------------------------- ------------------------------------------
Tax-Free -- A 2 Mo. to
11/30/90(C) $12.00 $ 0.10 $ 0.26 $ 0.36 $ 0.10 $ -- $ 0.10
11/30/91 12.26 0.79 0.42 1.21 0.79 -- 0.79
11/30/92 12.68 0.76 0.47 1.23 0.76 0.02 0.78
11/30/93 13.13 0.73 0.79 1.52 0.73 0.11 0.84
11/30/94 13.81 0.68 (1.34) (0.66) 0.68 0.12 0.80
11/30/95 12.35 0.67 1.27 1.94 0.67 -- 0.67
11/30/96 13.62 0.65 (0.09) 0.56 0.65 -- 0.65
- - --------------------------------- -------------------------------------------------- ------------------------------------------

</TABLE>

10 FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR
SERVICES 1-800-282-FUND (3863)

PROSPECTUS
<PAGE>
...............................................................................

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

RATIOS/SUPPLEMENTAL DATA
------------------------------------------------------------------------------------
- - ------------------------------------------- RATIO OF
- - ------------------------------------------- EXPENSES TO RATIO OF NET NET ASSETS
NET ASSET RATIO OF NET AVERAGE NET INVESTMENT AVERAGE AT END OF
VALUE AT TOTAL EXPENSES TO ASSETS BEFORE INCOME TO PORTFOLIO COMMISSION PERIOD
END OF RETURN* AVERAGE NET EXPENSE AVG. NET TURNOVER RATE PAID (000
FUND PERIOD (%) ASSETS (%) REDUCTION**(%) ASSETS (%) RATE (%) PER SHARE OMITTED)
- - ------------------------------------------- ------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C> <C> <C> <C>
World -- A
$11.86 24.1# 2.00+ 2.12+ 0.41(1)+ 66 N/A $ 16,872
12.74 8.2 1.58 1.58 0.62 30 N/A 41,970
13.78 10.2 1.56 1.63 0.79 32 N/A 47,702
15.69 15.5 1.43 1.48 0.94 14 $.0455 71,458
- - ------------------------------------------- ------------------------------------------------------------------------------------
Bond -- A $ 5.99 (0.7) 0.66 0.66 9.03 139 N/A $ 24,409
6.02 10.0 0.92 0.92 8.97 133 N/A 27,858
6.21 12.9 0.87 0.87 9.07 165 N/A 31,668
6.03 5.8 0.83 0.83 8.55 108 N/A 35,389
6.43 15.6 0.81 0.81 8.06 77 N/A 43,447
6.56 9.5 0.78 0.78 7.03 83 N/A 58,106
6.90 13.7 0.92 0.92 5.98 147 N/A 83,387
5.85 (4.9) 0.98 0.98 6.34 133 N/A 80,487
6.49 18.8 0.99 1.03 6.81 237 N/A 108,755
6.35 4.5 0.98 1.00 6.46 176 N/A 99,408
- - ------------------------------------------- ------------------------------------------------------------------------------------
Government $ 9.35 1.2 0.67 0.67 8.31 57 N/A $ 23,057
Securities -- A 9.31 8.2 0.90 0.90 8.20 41 N/A 31,007
9.57 12.1 0.82 0.82 8.59 25 N/A 34,644
9.54 8.3 0.78 0.78 8.25 22 N/A 41,134
10.04 13.5 0.77 0.77 7.52 14 N/A 45,734
10.18 8.6 0.76 0.76 6.90 79 N/A 68,293
10.45 10.6 0.98 0.98 6.06 97 N/A 134,749
9.31 (4.5) 1.00 1.00 5.95 149 N/A 104,457
10.30 17.9 1.03 1.04 6.50 367 N/A 108,100
10.00 3.2 1.00 1.01 6.18 614 N/A 92,299
- - ------------------------------------------- ------------------------------------------------------------------------------------
Short Maturity
Gov't. -- A $ 9.84 6.3# 1.00+ 1.38+ 6.07(6)+ 58 N/A $ 28,417
9.81 5.6 1.00 1.20 6.09(6) 120 N/A 36,474
- - ------------------------------------------- ------------------------------------------------------------------------------------
Treasury -- A
$ 1.00 1.7# 0.85+ 0.87+ 2.20(7)+ -- N/A $ 72,252
1.00 3.1 0.81 0.81 3.01 -- N/A 75,301
1.00 5.0 0.81 0.82 4.83 -- N/A 80,664
1.00 4.6 0.78 0.78 4.38 -- N/A 80,804
- - ------------------------------------------- ------------------------------------------------------------------------------------
Tax-Free -- A
$12.26 3.0# 0.00 0.52+ 4.98(5)+ -- N/A $ 13,824
12.68 10.2 0.38 0.73 6.37(5) 29 N/A 35,277
13.13 10.0 0.50 0.72 5.93(5) 48 N/A 55,538
13.81 11.9 0.64 0.90 5.41(5) 39 N/A 111,968
12.35 (5.1) 0.75 0.94 5.11(5) 92 N/A 99,935
13.62 16.0 0.90 0.99 5.06(5) 112 N/A 110,506
13.53 4.3 0.94 0.97 4.86 112 N/A 99,967
- - ------------------------------------------- ------------------------------------------------------------------------------------

</TABLE>

(FOOTNOTES ON FOLLOWING PAGES)

FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863) 11

PROSPECTUS
<PAGE>
...............................................................................

<TABLE>
<CAPTION>
-------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS -----------------------------------------
-------------------------------------------------
NET REALIZED LESS DISTRIBUTIONS
- - ---------------------------------- AND -----------------------------------------
- - ---------------------------------- NET ASSET NET UNREALIZED TOTAL DIVIDENDS DISTRIBUTIONS
FISCAL YEAR VALUE AT INVESTMENT GAIN FROM FROM NET FROM REALIZED
(PERIOD BEGINNING INCOME (LOSS) ON INVESTMENT INVESTMENT GAINS ON TOTAL
FUND ENDED) OF PERIOD (LOSS) INVESTMENTS OPERATIONS INCOME INVESTMENTS DISTRIBUTIONS
- - ----------------------------------
------------------------------------------------- -----------------------------------------

<S> <C> <C> <C> <C> <C> <C> <C> <C>
New York 8 Mo. to
Fund -- A 11/30/95(B) $11.19 $ 0.36 $ 0.53 $ 0.89 $ 0.36 $ -- $ 0.36
11/30/96 11.72 0.53 -- 0.53 0.53 -- 0.53
- - ---------------------------------- ------------------------------------------------- -----------------------------------------
Pennsylvania 12/31/87 $12.66 $ 0.85 $ (1.17) $(0.32) $ 0.85 $ -- $ 0.85
Fund -- A 12/31/88(3) 11.49 0.82 0.58 1.40 0.82 -- 0.82
12/31/89 12.07 0.66 0.33 0.99 0.72 -- 0.72
12/31/90 12.34 0.72 (0.03) 0.69 0.78 -- 0.78
12/31/91 12.25 0.71 0.52 1.23 0.74 -- 0.74
12/31/92 12.74 0.73 0.43 1.16 0.75 -- 0.75
11 Mo. to
11/30/93(3) 13.15 0.69 0.42 1.11 0.69 -- 0.69
11/30/94 13.57 0.64 (1.28) (0.64) 0.64 -- 0.64
11/30/95 12.29 0.66 1.11 1.77 0.66 -- 0.66
11/30/96 13.40 0.66 (0.03) (0.63) 0.66 0.08 0.74
- - ---------------------------------- ------------------------------------------------- -----------------------------------------
Common 8 Mo. to
Stock -- B 11/30/96(D) $35.43 $ 0.22 $ 5.05 $ 5.27 $ 0.13 $ -- $ 0.13
- - ---------------------------------- ------------------------------------------------- -----------------------------------------
Balanced -- B 8 Mo. to
11/30/96(D) $17.09 $ 0.26 $ 1.37 $ 1.63 $ 0.14 $ -- $ 0.14
- - ---------------------------------- ------------------------------------------------- -----------------------------------------
Small 8 Mo. to
Company -- B 11/30/96(D) $ 4.82 $(0.03) $ 0.33 $ 0.30 $ -- $ -- $ --
- - ---------------------------------- ------------------------------------------------- -----------------------------------------
World -- B 8 Mo. to
11/30/96(D) $14.49 $(0.08) $ 1.17 $ 1.09 $ -- $ -- $ --
- - ---------------------------------- ------------------------------------------------- -----------------------------------------
Bond -- B 8 Mo. to
11/30/96(D) $ 6.30 $ 0.21 $ 0.06 $ 0.27 $ 0.21 $ -- $ 0.21
- - ---------------------------------- ------------------------------------------------- -----------------------------------------
Treasury -- B 8 Mo. to
11/30/96(D) $ 1.00 $ 0.03 $ 0.00 $ 0.03 $ 0.03 $ -- $ 0.03
- - ---------------------------------- ------------------------------------------------- -----------------------------------------
Tax-Free 8 Mo. to
Income -- B 11/30/96(D) $13.28 $ 0.32 $ 0.26 $ 0.58 $ 0.32 $ -- $ 0.32
- - ---------------------------------- ------------------------------------------------- -----------------------------------------

</TABLE>

(A)Commenced operations March 1, 1993.

(B)Commenced operations March 27, 1995.

(C)Commenced operations October 1, 1990.

(D)Commenced operations April 1, 1996.

+ Annualized.

# Not annualized.

* Total return is calculated assuming an initial investment made at the net
asset value at the beginning of the period, reinvestment of all distributions
at the net asset value during the period, and a redemption on the last day of
the period. Initial sales charge is not reflected in the calculation of total
return.

** Expense reductions are comprised of (i) voluntary expense reimbursements, in
the cases of the World Fund and the U.S. Treasury Fund in fiscal 1993, the
Short Maturity Government Fund in all fiscal years shown, the Tax-Free Income
Fund in fiscal years 1990 to 1995, and the Pennsylania Fund in the period
ended December 31, 1986, 1987 and 1988, and November 30, 1995 and 1996, (ii)
in fiscal 1995 and 1996 only, credits received from the custodian and
dividend paying agent on cash balances.

(1)Ratio of net investment income to average net assets would have been .29% in
fiscal 1993, in the absence of a voluntary expense reimbursement.

12 FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR
SERVICES 1-800-282-FUND (3863)

PROSPECTUS
<PAGE>
...............................................................................

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

RATIOS/SUPPLEMENTAL DATA
--------------------------------------------------------------------------------------
- - ------------------------------------------- RATIO OF
- - ------------------------------------------- EXPENSES TO RATIO OF NET NET ASSETS
NET ASSET RATIO OF NET AVERAGE NET INVESTMENT AVERAGE AT END OF
VALUE AT TOTAL EXPENSES TO ASSETS BEFORE INCOME TO PORTFOLIO COMMISSION PERIOD
END OF RETURN* AVERAGE NET EXPENSE AVG. NET TURNOVER RATE PAID (000
FUND PERIOD (%) ASSETS (%) REDUCTION** (%) ASSETS (%) RATE (%) PER SHARE OMITTED)
- - ------------------------------------------- --------------------------------------------------------------------------------------

<S> <C> <C> <C> <C> <C> <C> <C> <C>
New York
Fund -- A $11.72 8.1# 1.22+ 1.29+ 4.60+ 32 N/A $ 5,332
11.72 4.8 1.04 1.10 4.65 48 N/A 5,749
- - ------------------------------------------- --------------------------------------------------------------------------------------
Pennsylvania $11.49 (2.5) 0.45(2) 1.55(2) 7.24(4) 54 N/A $26,590
Fund -- A 12.07 12.5 0.86(2) 1.44(2) 6.93(4) 48 N/A 29,611
12.34 8.5 1.16 1.16 6.43 50 N/A 29,435
12.25 5.9 1.34 1.34 5.90 27 N/A 30,536
12.74 10.3 1.27 1.27 5.71 8 N/A 32,667
13.15 9.4 1.16 1.16 5.62 1 N/A 33,669
13.57 8.1# 1.24+ 1.24+ 5.07+ 23 N/A 34,448
12.29 (4.9) 1.30 1.30 4.84 56 N/A 31,172
13.40 14.8 0.97 1.36 5.14(4) 80 N/A 34,975
13.29 5.0 0.75 1.37 5.07(4) 56 N/A 35,545
- - ------------------------------------------- --------------------------------------------------------------------------------------
Common
Stock -- B $40.57 14.9# 1.91+ 1.92+ 0.80+ 22 $ .0600 $27,257
- - ------------------------------------------- --------------------------------------------------------------------------------------
Balanced -- B
$18.58 9.6# 2.12+ 2.13+ 2.21+ 83 $ .0600 $10,948
- - ------------------------------------------- --------------------------------------------------------------------------------------
Small
Company -- B $ 5.12 6.2# 2.62+ 2.64+ (0.91)+ 60 $ .0600 $ 1,943
- - ------------------------------------------- --------------------------------------------------------------------------------------
World -- B
$15.58 7.5# 2.56+ 2.59+ (0.19)+ 14 $ .0455 $ 3,188
- - ------------------------------------------- --------------------------------------------------------------------------------------
Bond -- B
$ 6.36 4.5# 2.16+ 2.18+ 5.28+ 176 N/A $ 4,714
- - ------------------------------------------- --------------------------------------------------------------------------------------
Treasury -- B
$ 1.00 3.0# 0.76+ 0.77+ 4.40+ -- N/A $ 3,160
- - ------------------------------------------- --------------------------------------------------------------------------------------
Tax-Free
Income -- B $13.54 4.5# 2.18+ 2.48+ 3.61+ 112 N/A $ 766
- - ------------------------------------------- --------------------------------------------------------------------------------------

</TABLE>

(2)Prior to March 1, 1993, the Pennsylvania Fund's investment advisor was
ProvidentMutual Management Co., Inc. ("PMMC") and the distributor was
ProvidentMutual Financial Services ("PMFS"). For the years ended December 31,
1988 and 1987, PMMC waived advisory fees of $97,538 and $139,071,
respectively, and PMFS waived distribution fees of $72,170 and $57,946,
respectively. In addition, PMFS absorbed operating expenses of the Fund
totaling $55,118 for the year ended December 31, 1987. Had fees not been
waived and expenses not absorbed, the ratio of expenses to average net assets
for the fiscal years ended December 31, 1988 and 1987 would have been 1.44%
and 1.55%, respectively.

(3) The Pennsylvania Fund changed investment advisors from The Meritor
Investment Company to PMMC on December 28, 1988, and entered into its
current Investment Advisory Agreement with the Advisor on March 1, 1993.

(4)Ratio of net investment income to average net assets would have been 4.48% in
fiscal 1996, 4.78% in fiscal 1995, 6.35% in 1988 and 6.14% in 1987, in the
absence of a voluntary expense reimbursement.

(5)Ratio of net investment income to average net assets would have been 5.00% in
fiscal 1995, 4.92% in fiscal 1994, 5.14% in fiscal 1993, 5.71% in fiscal
1992, 6.02% in fiscal 1991 and 4.46% in fiscal 1990, in the absence of a
voluntary expense reimbursement.

(6)Ratio of net investment income to average net assets would have been 5.93% in
fiscal 1996 and 5.76% in fiscal 1995, in the absence of a voluntary expense
reimbursement.

(7)Ratio of net investment income to average net assets would have been 2.18% in
fiscal 1993, in the absence of a voluntary expense reimbursement.

FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863) 13

PROSPECTUS
<PAGE>
...............................................................................

PURCHASE OPTIONS

The Common Stock, Balanced, Small Company, World, Bond and Tax-Free Income Funds
currently offer two classes of shares. Investors in these Funds may choose Class
A shares, which are generally sold subject to an initial sales charge, or Class
B shares, which are sold subject to a contingent deferred sales charge ("CDSC")
as described below.

<TABLE>
<CAPTION>
TOTAL 12B-1 FEE,
SALES INCLUDING SERVICE CONVERSION
CLASS CHARGE(1) SERVICE FEE FEE FEATURE
----- -------------- ------------------- ------------------- --------------
<S> <C> <C> <C> <C>
A Maximum 5.00% Maximum of 0.20%(3) Maximum of 0.30%(4) None
initial sales
charge (4.00%
for Bond and
Tax-Free
Income
Funds)(2)
B CDSC for a 0.25% 1.00% Class B Shares
maximum of 6 convert to
years(5) Class A Shares
automatically
after the
applicable
CDSC
period(5)(6)
</TABLE>

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

(1)Initial sales charges are imposed at the time of purchase as a percentage of
the offering price. CDSCs are imposed if the redemption occurs within the
applicable CDSC time period. The charge will be assessed on an amount equal
to the lesser of the current net asset value or cost of the shares being
redeemed. See "How to Purchase Shares -- Class A Shares -- Sales Charges" and
"How to Redeem Shares -- Class B Shares -- CDSC".

(2)Reduced for purchases of more than $100,000 and waived for purchases of Class
A Shares by certain investors. Class A share purchases of $1,000,000 or more
are not subject to an initial sales charge but, if the initial sales charge
is waived, will be subject to a 1.0% CDSC and 0.5% CDSC for the first and
second year, respectively, after the purchase. Following the second year
after purchase, no CDSC will apply. See "How to Purchase Shares -- Class A
Shares -- Sales Charges" and "How to Redeem Shares -- Class A Shares
Purchased in Amounts over $1,000,000 -- CDSC".

(3)The maximum service fee for Class A Shares of the Bond Fund and Tax-Free
Income Fund is 0.10%.

(4)The maximum distribution fee for Class A Shares of the Bond Fund and the
Tax-Free Income Fund is 0.20%.

(5)The applicable CDSC period is reduced to 5 years for aggregate purchases from
$250,001 to $500,000 and to 4 years for aggregate purchases of $500,001 to
$999,999. Investors with aggregate purchases in excess of $1,000,000 are only
offered Class A Shares. The CDSC may be waived in certain circumstances. See
"How to Redeem Shares -- Class B Shares -- CDSC" and "How to Redeem Shares --
Class B Shares -- Waiver or Reduction of the CDSC".

(6)The conversion and holding periods for dividend reinvestment shares are the
same as those for the initial shares to which they relate.

14
FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863)

PROSPECTUS
<PAGE>
...............................................................................

The Growth, Government Securities, New York and Pennsylvania Funds currently
only offer Class A Shares as described below.

<TABLE>
<CAPTION>
TOTAL 12B-1 FEE,
SALES INCLUDING SERVICE CONVERSION
CLASS CHARGE(1) SERVICE FEE FEE FEATURE
----- -------------- ------------------- ------------------- --------------

<S> <C> <C> <C> <C>
A Maximum 4.00% Maximum of 0.10% Maximum of 0.20% None
initial sales (0.20% for Growth (0.30% for Growth
charge (5.00% Fund) Fund)
for Growth
Fund)(2)

</TABLE>

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

(1)See footnote (1) to the preceding chart.

(2)See footnote (2) to the preceding chart.

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

TOTAL 12B-1 FEE,
SALES INCLUDING SERVICE CONVERSION
CLASS CHARGE(1) SERVICE FEE FEE FEATURE
----- -------------- ------------------- ------------------- --------------
<S> <C> <C> <C> <C>
A Maximum 1.00% Maximum of 0.25% Maximum of 0.35% None
initial sales
charge(2)

</TABLE>

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

(1)See footnote (1) to the preceding chart.

(2)Purchases of such shares of up to $999,999 are subject to a 1.0% initial
sales charge, while purchases of $1,000,000 or more are not subject to an
initial sales charge. If the initial sales charge is waived because a
purchase is of $1,000,000 or more, the shares will be subject to a 1.0% CDSC
and 0.5% CDSC for the first and second year, respectively, after the
purchase. Following the second year after purchase, no CDSC will apply. See
"How to Purchase Shares -- Class A Shares -- Sales Charges" and "How to
Redeem Shares -- Class A Shares Purchased in Amounts over $1,000,000 --
CDSC".

The Treasury Fund offers Class A and Class B Shares. Initial purchases of Class
A Shares of the Treasury Fund are not subject to any initial sales charge, CDSC
or Rule 12b-1 fees. Class B Shares of the Treasury may not be purchased directly
(except in connection with dollar-cost averaging plans described on page 30) or
acquired in exchange for shares of the Growth, Government Securities, Short
Maturity Government, New York and Pennsylvania Funds and may be acquired only in
exchange for Class B Shares of another Fund. The period of time that shares are
held in Class B Shares of the Treasury Fund, however, will not count toward
satisfaction of the holding or conversion periods for reduction of any CDSC
imposed on such shares or the conversion of Class B Shares to Class A Shares,
respectively. See "How to Purchase Shares -- Class B Shares".

...............................................................................

THE FUNDS

Sentinel Group Funds, Inc. (the "Company") is a managed, open-end investment
company that consists of eleven separate series funds, each of which
continuously offers shares to investors. All of the Funds in Sentinel Group
Funds, Inc., except the New York Fund, are diversified. The New York Fund is a
non-diversified series of the Company. The Pennsylvania Fund is a separate
open-end, non-diversified, managed investment company.

Sentinel Advisors Company (the "Advisor") serves as the investment advisor to
all of the Funds and Sentinel Financial Services Company (the "Distributor")
serves as the distributor for all of the Funds. See "Management of the Funds"
and "The Distributor".

FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863) 15

PROSPECTUS
<PAGE>
...............................................................................

INVESTMENT OBJECTIVES AND POLICIES

Each of the Funds 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. There can be no assurance
that these objectives will be achieved.

Set forth below is a description of each Fund's investment objectives and
policies and information on the person who is primarily responsible for the
day-to-day management of the portfolio of each Fund.

- - - THE COMMON STOCK FUND seeks a combination of long-term growth of capital and
income, current return and relatively low risk by investing in the common stocks
of a diversified group of well-established companies. The Advisor will select
securities based on the issuing companies' quality and its appraisal of a
stock's price in relation to its value. When appropriate, the Fund may also
invest in preferred stocks or debentures convertible into common stocks.
THE FUND INVESTS FOR GROWTH OF CAPITAL AND INCOME WITH RELATIVELY LOW RISK

- - - THE BALANCED FUND seeks a conservative combination of stability, income and
long-term growth of capital by investing in a diversified portfolio of stocks
and bonds. The percentage invested in each type of security will depend on
whether the Advisor believes stocks or bonds offer a better value at the time of
allocation. A greater proportion invested in bonds ordinarily provides greater
price stability, and a greater proportion in common stocks usually provides
enhanced potential for growth of income and principal. The Fund will invest at
least 25% of its total assets in fixed-income securities. When determining this
percentage, convertible bonds and/or preferred stocks will be considered common
stocks, unless these securities are held primarily for income. The bond portion
of the Balanced Fund will be invested in accordance with the same investment
policies as set forth below for the Bond Fund. As of November 30, 1996, the
portfolio securities in the bond portion of the Balanced Fund had an average
rating of Aa2; the average effective portfolio maturity for the bond portion of
the Fund was 7.7 years.
THE FUND INVESTS FOR STABILITY, INCOME AND GROWTH

- - - THE GROWTH FUND seeks to achieve long-term growth of capital by investing
primarily in common stocks of companies which the Advisor believes have more
growth potential than the U.S. economy as a whole. The Growth Fund will focus on
securities of well-established companies. Such companies will have, in the
Advisor's judgment, favorable growth potential and experienced managements.
Normally, the Fund will be fully invested in common stocks and other securities
convertible into common stocks; however, the Fund may temporarily retain cash or
invest in fixed-income securities, if deemed appropriate by the Advisor. Income
is not a factor in selecting investments.
THE FUND INVESTS IN STOCKS OF GROWING COMPANIES, WITH A FOCUS ON WELL-
ESTABLISHED COMPANIES

The Growth Fund emphasizes securities believed to have superior potential for
growth rather than wide diversification. Up to 25% of the value of the Growth
Fund's assets may be invested in securities of companies within a single
industry.

- - - THE SMALL COMPANY FUND seeks long-term capital appreciation by investing
primarily in a diversified portfolio of common stocks, or securities convertible
into common stock, issued by small and medium-sized companies. The Fund may also
invest in larger, more established companies. Companies selected for the Fund
are believed to have superior growth potential and are judged to represent
attractive relative values. Income is not a factor in selecting investments.
THE FUND INVESTS IN STOCKS OF GROWING COMPANIES, WITH A FOCUS ON SMALL AND
MID-SIZED COMPANIES

The median market capitalization of the Fund's portfolio companies generally
will not exceed $1 billion and at least 65% of the Fund's assets will be
invested in companies with market capitalizations not exceeding $2 billion. Up
to 25% of the Fund's assets may be invested in securities within a single
industry. The Fund may temporarily retain cash or invest in fixed-income
securities, if deemed appropriate by the Advisor.

The Fund's policy is to avoid short-term trading. However, the Advisor may sell
a security without regard to holding period if the Advisor 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 a higher-than-average level
of volatility in order to seek above-average gains.

16
FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863)

PROSPECTUS
<PAGE>
...............................................................................

The Small Company Fund was known as the Sentinel Emerging Growth Fund until
March 31, 1997.

- - - THE WORLD FUND seeks long-term growth of capital by investing primarily in a
diversified portfolio of marketable equity securities of established non-U.S.
companies. Normally, at least 75% of the Fund's total assets will be invested in
securities of non-U.S. issuers selected by INVESCO Capital Management, Inc. (the
"World Fund Sub-advisor") primarily for long-term capital growth. The remaining
25% may be invested in companies organized in the United States that have their
principal activities and interests (i.e., 50% of assets and/or 50% of revenues)
outside the United States. The Fund may also invest in convertible or debt
securities rated Baa or higher by Moody's Investors Service, Inc. ("Moody's") or
BBB or higher by Standard & Poor's Ratings Services ("Standard & Poor's").
THE FUND INVESTS PRIMARILY IN STOCKS OF NON-U.S. COMPANIES

The Fund generally will not invest more than 25% of its total assets in any one
country; however, the Fund may invest up to 40% of its assets in any one country
if in the judgment of the World Fund Sub-advisor, economic and business
conditions make it appropriate to do so.

It is anticipated that the majority of the Fund's portfolio transactions will be
executed on established stock exchanges or in the over-the-counter markets in
the countries in which portfolio investments are being made. The Fund also
expects to purchase American Depositary Receipts ("ADRs"), and European
Depositary Receipts in bearer form, which are designed for use in European
securities markets. ADRs represent foreign securities traded on U.S. exchanges
or in the over-the-counter markets. 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. You
can obtain more information about these strategies by reading the section
entitled, "Investment Objectives and Policies -- Considerations Applicable to
the World Fund -- Foreign Currency Transactions" in the Statement of Additional
Information. Normally, however, the Fund does not hedge its foreign currency
exposure.

Under abnormal economic or market conditions abroad, the Fund may assume a
temporary defensive posture by investing all, or a major portion, of its assets
in U.S. government obligations or investment-grade fixed income securities of
companies organized in the United States.

Investors should note that investing in foreign securities involves certain
special risk considerations which normally are not associated with investing in
U.S. securities, including, but not necessarily limited to, those described on
page 22 below.

- - - THE BOND FUND seeks as high a level of continuing income as is consistent with
capital preservation. The Fund will invest its assets exclusively in
fixed-income securities. At least 80% of the Fund's assets, exclusive of cash
items such as commercial paper, certificates of deposit and banker's
acceptances, will be invested in one or more of the following types of
securities:

1.Debt securities 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;
THE FUND INVESTS FOR CONTINUING INCOME CONSISTENT WITH CAPITAL PRESERVATION

2.Debt securities issued or guaranteed by the U.S. government, its agencies
or instrumentalities ("U.S. Government Securities");

3.Debt securities (payable in U.S. dollars) issued or guaranteed by the
government of Canada or of a province of Canada, or any instrumentality or
subdivision thereof; and

4.Debt obligations of, or guaranteed by, domestic banks or bank holding
companies, even though not rated by Moody's or Standard & Poor's, if the
Advisor believes they have investment qualities comparable to securities
which may be purchased under (1) above.

The remainder of the Fund's assets may be invested in other fixed-income
investments not described above, such as straight or convertible debt securities
and straight or convertible preferred stocks.

FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863) 17

PROSPECTUS
<PAGE>
...............................................................................

Generally, the Fund will invest no more than 5% of its total assets in either
(i) securities rated lower than BBB by Standard & Poor's or Baa by Moody's, or
(ii) unrated securities whose credit quality, in the Advisor's opinion, is below
the credit quality of securities rated BBB by Standard & Poor's or Baa by
Moody's. See "Appendix A -- Description of Bond Ratings" in the Statement of
Additional Information for more information concerning ratings of debt
securities. As of November 30, 1996, the portfolio securities in the Bond Fund
had an average credit quality of A1; the average effective portfolio maturity
for the Fund was 7.9 years.

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,
utility companies will be divided according to their services, and financial
services companies will be classified according to the end users of their
services. For example, gas, gas transmission, electric, electric and gas, and
telephone will each be considered a separate industry, as will auto finance,
bank finance, and diversified finance.

- - - THE GOVERNMENT SECURITIES FUND seeks as high a level of current income as is
consistent with safety of principal by investing primarily in U.S. Government
Securities. To a limited extent, the Fund may also invest in repurchase
agreements with respect to these 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. Money
market instruments may be used as a means of making short-term investments.
THE FUND INVESTS PRIMARILY IN U.S. GOVERNMENT SECURITIES

The Fund may also use repurchase agreements as a means of making short-term
investments, and will invest only in repurchase agreements with durations of
seven days or less, only where the collateral securities are U.S. Government
Securities, and in aggregate amounts of not more than 25% of the Fund's net
assets. Further information concerning repurchase agreements is set forth on
page 22 below.

U.S. Government Securities include the following:

1.U.S. TREASURY BILLS, NOTES AND BONDS. These are obligations issued directly
by the U.S. Treasury and have maturities of less than one year for Bills,
one to ten years for Notes, and ten to thirty years for Bonds.

2.OBLIGATIONS GUARANTEED BY THE U.S. GOVERNMENT. These include securities
issued or guaranteed by certain agencies and instrumentalities of the U.S.
government as to which the U.S. government guarantees repayment of
principal and payment of interest. These securities include fully modified
pass-through mortgage-backed certificates whose principal and interest are
guaranteed by the Government National Mortgage Association ("GNMA
Certificates").
U.S. GOVERNMENT SECURITIES INCLUDE A WIDE ARRAY OF INVESTMENTS

3.OBLIGATIONS OF U.S. GOVERNMENT AGENCIES AND INSTRUMENTALITIES. These
include obligations issued or guaranteed by U.S. government agencies and
instrumentalities, supported by any of the following: (i) the right of the
issuer to borrow an amount limited to a specific line of credit from the
U.S. Treasury; (ii) discretionary authority of the U.S. government to
purchase certain obligations of the agency or instrumentality; or (iii) the
full faith and credit of the agency or instrumentality.

The Fund is not required to maintain a set amount in any of the various types of
U.S. Government Securities described above. The types of U.S. Government
Securities selected for purchase will depend on market conditions and the
Advisor's outlook for interest rates and the economy. As of November 30, 1996,
the Fund's average effective portfolio maturity was 7.9 years.

At times, the Fund may make investments in GNMA Certificates and other
mortgaged-backed U.S. Government Securities ("Mortgage-Backed Securities"). Each
GNMA Certificate is backed by a pool of mortgage loans insured by the Federal
Housing Administration and/or the Veterans Administration.

18
FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863)

PROSPECTUS
<PAGE>
...............................................................................

GNMA Certificates provide for the payment of fixed monthly installments of
principal and interest to the registered holder of the security. As noted above,
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 SUBSTANTIALLY IN MORTGAGE-BACKED SECURITIES

In addition to GNMA Certificates, the Fund may invest in mortgage-backed
securities issued by the Federal National Mortgage Association ("FNMA") and by
the Federal Home Loan Mortgage Corporation ("FHLMC"). FNMA, a
federally-chartered and privately-owned corporation, issues pass-through
securities and certificates representing an interest in a pool of FNMA
pass-through securities which are guaranteed as to the repayment of principal
and payment of interest by FNMA. FHLMC, a corporate instrumentality of the
United States, issues participation certificates which represent an interest in
mortgages from FHLMC's portfolio and securities representing an interest in a
pool of FHLMC participation certificates. FHLMC guarantees the timely payment of
interest and the ultimate collection of principal. As is the case with GNMA
Certificates, the actual maturity of and realized yield on particular FNMA and
FHLMC mortgage-backed securities 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 varies with the maturities of the underlying mortgage instruments.
Average life is likely to be substantially less than the original maturity of
the mortgage pools underlying the Mortgage-Backed Security, due to prepayments,
refinancing or foreclosure of these mortgage loans. Prepayments are passed
through to the registered holder along with regularly scheduled repayments of
principal and payments of interest.

In general, if prevailing interest rates are significantly below the rates on
mortgages underlying the Mortgage-Backed Securities, the Mortgage-Backed
Securities are likely to have higher prepayment rates than if prevailing rates
are at or above the interest rates on the underlying mortgages. Prepayment
possibilities reduce the potential of Mortgage-Backed Securities to appreciate
in market value during periods of falling interest rates, while the risk of
decline in market value during periods of rising interest rates may be
comparable to other debt securities of similar maturities.

The Fund does not intend to enter into options or futures transactions with
respect to U.S. Government Securities, lend its securities to others, or enter
into reverse repurchase agreements. With respect to repurchase agreements, the
Fund might incur time delays or losses in the event of the failure of the other
party to the agreement to repurchase the securities.

- - - THE SHORT MATURITY GOVERNMENT FUND seeks as high a level of current income as
is consistent with safety of principal by investing primarily in U.S. Government
Securities. This Fund will invest at least 65% of its assets in U.S. Government
Securities with average maturities of from 2 to 5 years. The remainder of the
Fund's assets may be invested in U.S. Government Securities with other
maturities, and the Fund may also invest to a limited extent in repurchase
agreements with respect to these securities. 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 INVESTS PRIMARILY IN U.S. GOVERNMENT SECURITIES WITH LIMITED MATURITIES

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.

U.S. Government Securities include the types of securities described above under
"The Government Securities Fund".

The Fund is not required to maintain a set amount in any of the various types of
U.S. Government Securities. The types of U.S. Government Securities selected for
purchase will depend on market conditions and the Advisor's outlook for interest
rates and the economy. At times, the Fund may make investments in
Mortgage-Backed Securities, as described above under "The Government Securities
Fund". As of November 30, 1996, the Fund's average effective portfolio maturity
was 2.7 years.

FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863) 19

PROSPECTUS
<PAGE>
...............................................................................

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

The Short Maturity Fund was known as the Short-Intermediate Government Fund
until February 3, 1997.

- - - THE TREASURY FUND seeks as high a level of current income as is consistent
with safety of principal and the maintenance of liquidity by investing solely in
short-term obligations of the U.S. Treasury. Such obligations include U. S.
Treasury Bills, U. S. Treasury Notes and U. S. Treasury Bonds with remaining
maturities of 397 days or less. Securities that comprise the Fund may earn less
income than longer term securities or lower quality securities that have less
liquidity, greater market risk and greater market value fluctuations.
THE FUND INVESTS SOLELY IN SHORT-TERM U.S. TREASURY SECURITIES

The Fund will seek to maintain a net asset value of $1.00 per share, by using
the amortized cost method of valuing its securities. In accordance with rules
adopted by the Commission, the Fund is required to maintain a dollar-weighted
average portfolio maturity of 90 days or less and to purchase only instruments
having remaining maturities of 397 days or less. For more information about the
amortized cost method, see "Determination of Net Asset Value" herein and in the
Statement of Additional Information.

In many states, the Fund's income dividends may be exempt from state and local
income taxes, but subject to federal income taxes. For more information on state
and local tax exemption, see "Taxes" herein.
INCOME MAY BE EXEMPT FROM STATE AND LOCAL TAXES

- - - THE TAX-FREE INCOME FUND seeks as high a level of current income, exempt from
federal income taxes, as is consistent with capital preservation, by investing
primarily in a diversified portfolio of municipal bonds. These investments may
include obligations of states, territories and possessions of the United States
and their political subdivisions, agencies, authorities and instrumentalities.
The payments from these investments, in the opinion of the issuer's bond
counsel, are exempt in their entirety from federal income tax.
THE FUND INVESTS FOR CURRENT INCOME EXEMPT FROM FEDERAL INCOME TAXES

At least 80% of the total assets of the Tax-Free Income Fund will, at all times,
be invested in municipal bonds rated within the four highest rating categories,
or obligations of issuers having an issue of outstanding municipal bonds rated
within the four highest rating categories of either Moody's or Standard &
Poor's, except to the extent the Fund is invested in defensive investments, as
described below. See "Appendix A -- Description of Bond Ratings" in the
Statement of Additional Information for more information regarding ratings of
debt securities.

The Fund also may invest in unrated municipal bonds if the Advisor 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 securities rated below investment-grade or
unrated securities that the Advisor believes are not equivalent in credit
quality to municipal bonds in the fourth highest rating category. As of November
30, 1996, the portfolio securities of the Tax-Free Income Fund had an average
rating of Aa; the average effective portfolio maturity of the Fund was 11.9
years.

20
FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863)

PROSPECTUS
<PAGE>
...............................................................................

- - - THE NEW YORK FUND seeks as high a level of current interest income exempt from
federal income taxes and New York State and New York City personal income taxes
as is consistent with liquidity and capital preservation, by investing
substantially all of its assets in obligations issued by or on behalf of the
State of New York and its political subdivisions, agencies, authorities, and
instrumentalities ("New York Obligations"), the interest on which, in the
opinion of the issuer's bond counsel, is exempt from federal income tax and New
York State and City personal income tax. The New York Fund normally will invest
substantially all of its net assets in New York Obligations with 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 Obligations.
THE FUND SEEKS HIGH CURRENT INCOME EXEMPT FROM FEDERAL AND NEW YORK STATE AND
CITY INCOME TAXES

At least 80% of the total assets of the New York Fund will, at all times, be
invested in municipal bonds rated within the four highest rating categories, or
obligations of issuers having an issue of outstanding municipal bonds rated
within the four highest rating categories, of either Moody's or Standard &
Poor's, except to the extent the New York Fund is invested in defensive
investments, as described below. See "Appendix A -- Description of Bond Ratings"
to the Statement of Additional Information for more information regarding
ratings of debt securities.

The New York Fund also may invest in unrated municipal bonds if the Advisor
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 securities rated below
investment-grade or unrated securities that the Advisor believes are not
equivalent in credit quality to municipal bonds in the fourth highest rating
category. As of November 30, 1996, the portfolio securities of the New York Fund
had an average rating of A; the average effective maturity of the Fund was 12.3
years.

Due to the New York Fund's concentration in New York Obligations, the Fund is
more susceptible to factors adversely affecting issuers of New York Obligations
than a municipal bond fund which is diversified nationally. Because the Fund
invests at least 80% of its assets in New York Obligations, its net asset value
is particularly sensitive to changes in the economic condition and governmental
policies of the State of New York. For example, the economic condition of a
significant industry within New York may have a corresponding effect on specific
issuers within New York or on anticipated revenue to the State. Other factors
that may negatively affect economic conditions in New York include adverse
changes in employment rates, federal revenue sharing or laws with respect to
tax-exempt financing. In recent years, New York State, New York City and other
New York public bodies have encountered financial difficulties, and New York
City is currently encountering financial difficulties, which could have an
adverse effect with respect to the performance of the Fund. On January 17, 1995,
Standard & Poor's placed the City's general obligation bonds on Credit Watch
with negative implications. The Advisor does not believe, however, that the
current economic conditions in New York will have a significant adverse effect
on the Fund's ability to invest in high quality New York Obligations. For
additional information pertinent to investment in New York Obligations, see
"Appendix B -- Economic Conditions in New York" to the Statement of Additional
Information.

- - - THE PENNSYLVANIA FUND seeks as high a level of current interest income exempt
from federal income taxes and Pennsylvania personal income taxes as is
consistent with liquidity and capital preservation, by investing substantially
all of its assets in obligations issued by or on behalf of the Commonwealth of
Pennsylvania (the "Commonwealth" or "Pennsylvania") and its political
subdivisions, agencies, authorities and instrumentalities ("Pennsylvania
Obligations"), the interest on which, in the opinion of the issuer's bond
counsel, is exempt from federal income tax and Pennsylvania personal income tax.
A general discussion of municipal bonds is contained in the description of the
New York Fund, above.

THE FUND SEEKS HIGH CURRENT INCOME EXEMPT FROM FEDERAL AND PENNSYLVANIA INCOME
TAXES

The Pennsylvania Fund normally will invest substantially all of its net assets
in Pennsylvania Obligations with maturities of more than one year. The Fund may,
however, invest up to 20% of its net assets in short-term Pennsylvania
Obligations. All of the Pennsylvania Obligations in which the Pennsylvania

FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863) 21

PROSPECTUS
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...............................................................................

Fund invests will be rated in the top four rating categories by Moody's or
Standard & Poor's or, if unrated, possess equivalent investment characteristics,
as determined by the Advisor. See "Appendix A -- Description of Bond Ratings" to
the Statement of Additional Information for more information regarding ratings
of debt securities. As of November 30, 1996, the portfolio securities of the
Pennsylvania Fund had an average rating of Aa1; the average effective portfolio
maturity for the Fund was 11.7 years.

At least 75% of the Pennsylvania Fund's assets will be invested in (a) municipal
obligations rated "A" or higher by Moody's or by Standard & Poor's or, if not
rated, that, in the opinion of the Advisor, possess equivalent investment
characteristics; (b) municipal notes rated "SP-1" or higher by Standard & Poor's
or "MIG-2" or higher by Moody's or, if not rated, that, in the opinion of the
Advisor, possess equivalent investment characteristics; and (c) tax-exempt
commercial paper rated "A-1" or higher by Standard & Poor's or "Prime-1" by
Moody's or, if not rated, that, in the opinion of the Advisor, possess
equivalent investment characteristics. The Pennsylvania Fund cannot invest in
municipal obligations or notes rated lower than "BBB" by Standard & Poor's or
"Baa" by Moody's or unrated securities that possess investment characteristics
equivalent to these securities, in the opinion of the Advisor.

Due to the Pennsylvania Fund's concentration in Pennsylvania Obligations, the
Fund is more susceptible to factors adversely affecting issuers of Pennsylvania
Obligations than a municipal bond fund which is diversified nationally. Because
the Fund invests at least 80% of its assets in Pennsylvania Obligations, its net
asset value is particularly sensitive to changes in the economic condition and
governmental policies of Pennsylvania. For example, the economic condition of a
significant industry within Pennsylvania may have a corresponding effect on
specific issuers within Pennsylvania or on anticipated revenue to Pennsylvania.

Other factors that may negatively affect economic conditions in Pennsylvania
include adverse changes in employment rates, federal revenue sharing or laws
with respect to tax-exempt financing. For additional information pertinent to
investment in Pennsylvania Obligations, see "Appendix C -- Economic Conditions
in Pennsylvania" to the Statement of Additional Information.

...............................................................................

FURTHER INFORMATION RELEVANT TO THE INVESTMENT PRACTICES OF THE FUNDS AND
ASSOCIATED RISKS

INFORMATION RELEVANT TO ALL FUNDS

Depending upon the Advisor's appraisal of the availability of attractive
securities and upon its judgment with respect to market conditions, a Fund may
be less than fully invested.

There can be no assurance that a Fund's objective will be attained.

None of the Funds may invest in illiquid securities, or engage in short sales of
securities.
PERIODICALLY THE FUNDS MAY BE LESS THAN FULLY INVESTED

All of the Funds, except the Treasury Fund, may also 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 fixed-income
securities and simultaneously agrees to resell these holdings to the
counterparty at a prearranged time and specific price. If the counterparty
defaults on its repurchase obligation, the Fund would suffer a loss to the
extent that the proceeds from a sale of the underlying securities would be less
than the repurchase price stated in the agreement. Bankruptcy or insolvency of
such a defaulting counterparty may cause a Fund to delay or limit its rights
concerning these securities. For more information about repurchase agreements,
please refer to the Statement of Additional Information.

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

22
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PROSPECTUS
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Investing in foreign securities involves certain special risk considerations
which normally are not associated with investing in U.S. securities, including,
but not necessarily limited to, those listed below. 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. When investing in foreign countries, there is
the possibility of expropriation of assets, confiscatory taxation, difficulty
with the execution of judgments against foreign issuers, imposition of the
withholding of taxes prior to payment of dividends or other distributions,
political or social instability, or diplomatic developments that could affect
U.S. investments in those countries.

The World Fund may in addition be affected favorably or unfavorably by changes
in currency rates or exchange control regulations, and may incur costs in
connection with conversions between various currencies. In general, securities
listed on foreign stock exchanges are less liquid and more volatile than
securities listed on U.S. stock exchanges due to, for example, substantially
lower trading volume. Such lower volume could result in the World Fund's
obtaining lower sales prices in the event of forced liquidation of securities to
meet unanticipated cash requirements. Fixed commissions on foreign stock
exchanges are generally higher than negotiated commissions on U.S. stock
exchanges, and there is less supervision and regulation of such exchanges.

INFORMATION RELEVANT TO THE EQUITY FUNDS

Investments in equity securities of small and medium-sized companies typically
involve more risk than investments in equity securities of larger companies,
because they generally have limited financial resources and narrower product
lines and may have less seasoned managers. In addition, their securities may
trade less frequently and in lower share volumes, making them subject to wider
price fluctuations.

INFORMATION RELEVANT TO THE FIXED-INCOME FUNDS

The market prices of debt securities, including those issued by the U.S.
government, are inversely affected by interest rate changes. As a result, the
net asset value of the shares of Funds holding debt securities will fluctuate
with conditions in the debt securities market. Debt securities with longer
maturities and longer effective durations (a measure of an instrument's
sensitivity to changes in interest rates) generally have higher yields and are
subject to greater price fluctuation due to interest rate changes than debt
securities with shorter maturities or shorter effective durations.

The Bond, New York and Tax-Free Income Funds, and the bond portion of the
Balanced Fund, may invest without limitation in debt securities 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 such debt securities. While considered
"investment-grade", these securities may have more speculative characteristics
and may be more likely to be downgraded than securities rated in the three
highest rating categories. If a debt security in any of the Funds is downgraded
below investment-grade, the Advisor will determine whether selling the security
is in the shareholders' best interest. To arrive at this decision, the Advisor
will consider several factors, including price, credit risk, market conditions
and the prospective trend in interest rates.

In the fiscal year ended November 30, 1996, the Government Fund had portfolio
turnover of 614%, the Bond Fund had portfolio turnover of 176%, the Tax-Free
Income Fund had portfolio turnover of 112%, and the Balanced Fund had portfolio
turnover of 83% (in the case of the Balanced Fund, this portfolio turnover
results from portfolio turnover of 15% for the equity portion, and 191% for the
bond portion). These Funds are actively managed, and their portfolios are
constantly monitored and adjusted in an attempt to increase income, protect the
income stream or improve the quality of the portfolios. This investment policy
results in portfolio turnover that is considered high, but this need not
adversely affect performance, because the Funds generally do not pay
commissions; they deal directly with dealers acting as principals when buying or
selling. Although the price of the securities may include a profit to the
dealer, the Funds will only execute these transactions when the Advisor believes
it will help the Funds to achieve their investment objectives. High portfolio
turnover (i.e., greater than 100% per year) may result in earlier recognition of
capital gains or capital losses for tax purposes than would otherwise

FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863) 23

PROSPECTUS
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...............................................................................

be the case. However, the Funds monitor their trading activity so as to comply
with the federal tax requirement that less than 30% of gross income be derived
from gains from the sale or other disposition of securities held for less than
three months.

The assets of the Bond, New York, Pennsylvania, Tax-Free Income, Government
Securities and Short Maturity Government Funds and the bond portion of the
Balanced Fund may include securities that have been purchased on a when-issued
or delayed-delivery basis. Delivery of and payment for these securities 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
comparable securities. However, when the Fund makes a commitment to purchase the
securities, the payment and interest terms of these issues are fixed. A Fund
will make these commitments only with the intention of acquiring the securities,
but may sell those holdings before settlement date if, in the Advisor's opinion,
such action would benefit shareholders. When a Fund purchases securities on a
when-issued or delayed-delivery basis, it will provide its custodian with enough
assets to pay the purchase price of these securities upon delivery. Payment
would be in the form of cash, cash equivalents, or short-term, high grade,
fixed-income securities. This policy ensures that the use of when-issued or
delayed-delivery purchases does not have the effect of leveraging the portfolio.

The Bond, Government Securities, Short Maturity Government and Balanced Funds
may also enter into "dollar rolls". A dollar roll occurs when a Fund sells
mortgage-backed or U.S. Treasury securities for delivery in the current month
and simultaneously contracts to repurchase substantially similar (same type,
coupon and maturity) securities on a specified future date. During the roll
period, a Fund foregoes principal and interest paid on the mortgage-backed or
U.S. Treasury securities. A Fund is compensated by the difference between the
current sales price and the lower forward price for the future purchase (often
referred to as the "drop") as well as by the 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 segregated account with
liquid, short-term, high grade debt securities. Dollar rolls in which the Funds
may invest will be limited to covered rolls.

INFORMATION RELEVANT TO THE TAX-EXEMPT FUNDS

Interest income on certain "private activity" bonds is a preference item for
shareholders subject to the alternative minimum tax ("AMT"). Municipal bonds
whose interest is a preference item for AMT purposes will comprise less than 20%
of each of the Tax-Free Income and New York Funds' total assets. From their
inceptions through March 31, 1997, the Tax-Free Income and New York Funds did
not hold private activity bonds. However, past investment strategies are not
necessarily indicative of the Funds' future investment program. The Pennsylvania
Fund does not presently intend to purchase bonds subject to the AMT. For more
information on private activity bonds, refer to the section entitled "Taxes"
below.

In general, any gain or loss from the sale of a tax-exempt security will
generally be treated as either a short-term or long-term capital gain or loss
for the Fund, depending on the holding period. Capital gains distributions are
fully taxable.

Should the Advisor anticipate a rise in interest rates, and a corresponding
decline in value of long-term municipal bonds, 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. Such
investments may include notes issued by or on behalf of municipal issuers, U.S.
Government Securities, instruments of domestic banks, repurchase agreements,
domestic commercial paper, and other cash-type investments.
STRATEGIES TO PROTECT SHAREHOLDER CAPITAL IN TIMES OF MARKET WEAKNESS

Under these conditions, the Pennsylvania Fund will limit its investments in
securities other than Pennsylvania obligations to 20% of its assets. With
respect to non-governmental issuers, the Pennsylvania Fund will limit these
investments to obligations of issuers whose quality rating at the time of
purchase is within the two highest categories of either Standard & Poor's or
Moody's.

24
FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863)

PROSPECTUS
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...............................................................................

The interest on municipal obligations issued by states other than New York or
Pennsylvania, for the New York and Pennsylvania Funds, respectively, is exempt
only from federal income tax. Interest on certain qualifying U.S. Government
Securities, but not all such securities, is exempt only from state personal
income tax. Interest on instruments of domestic banks, repurchase agreements,
domestic commercial paper, and other cash-type investments are generally fully
subject to both federal and any applicable state income taxes.

The New York and Pennsylvania Funds are subject to the risks relating to
concentration in New York Obligations or Pennsylvania Obligations, as described
on pages 21 and 22 above.

The New York, Pennsylvania and Tax-Free Income Funds may purchase and sell
certain exchange-traded financial futures contracts and related options for the
following reasons:

- - - to hedge against adverse changes in interest rates;

- - - to protect against depreciation of municipal bond investments; or

- - - to hedge against increases in the cost of prospective municipal bond
investments.

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

RISKS ASSOCIATED WITH THESE OPTIONS AND FUTURES TRANSACTIONS. Options and
futures transactions involve certain risks; however, the Advisor believes that
since the New York, Pennsylvania and Tax-Free Income Funds will engage in these
transactions for hedging purposes only, these portfolio strategies will not
subject these Funds to the risks frequently associated with the speculative use
of options and futures transactions. However, there are certain risks related to
futures transactions used for hedging purposes that you should understand. These
include: (i) incorrect forecasts of interest rates by the Advisor, which may
result in the hedge being ineffective; (ii) possible lack of a liquid secondary
market for a financial futures contract, which may result if the particular
market exceeds its daily price fluctuation limit, or for other reasons, in which
case the New York, Pennsylvania or Tax-Free Income Fund may be adversely
affected by its inability to close out its futures position; and (iii) imperfect
correlation between the change in the market value of a Fund's municipal bonds
and the prices paid for futures contracts, which may result in the hedge being
ineffective. From their inceptions through March 31, 1997, none of the New York,
Pennsylvania or Tax-Free Income Funds has engaged in any of the hedging
transactions described above. For further information on financial futures
contracts and options, please refer to "Investment Objectives and Policies" in
the Statement of Additional Information.

...............................................................................

MANAGEMENT OF THE FUNDS

BOARD OF DIRECTORS -- BOARD OF TRUSTEES

The Board of Directors of the Company and the Board of Trustees of the
Pennsylvania Fund (together, the "Boards") consist of thirteen individuals,
three of whom are "interested persons" of the Funds as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"). The Boards are responsible for
the overall supervision of the operations of the Funds and perform the various
duties imposed on the directors of investment companies by the 1940 Act.

INVESTMENT ADVISOR

The Advisor is a Vermont general partnership whose general partners are
affiliates of three of the nation's major insurance companies, with aggregate
assets of over $20.6 billion. The partners are:

- - - Sentinel Advisors, Inc., an indirect wholly-owned subsidiary of National Life
Insurance Company ("National Life"),

FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863) 25

PROSPECTUS
<PAGE>
...............................................................................

- - - ProvidentMutual Management Co., Inc., an affiliate of Provident Mutual Life
Insurance Company ("Provident Mutual"),
THE ADVISOR'S INDIRECT OWNERS ARE MAJOR INSURANCE COMPANIES WITH COMBINED ASSETS
OF OVER $20.6 BILLION

- - - HTK of Delaware, Inc., an affiliate of The Penn Mutual Life Insurance Company
("Penn Mutual"), and

- - - Sentinel Management Company, a Vermont general partnership whose general
partners are affiliates of National Life, Provident Mutual and Penn Mutual.

The principal business address of the Advisor is National Life Drive,
Montpelier, Vermont 05604. Subject to the direction and control of the Boards,
the Advisor makes the investment decisions for the Funds and provides certain
administrative and related services. For these services to the Funds, the
Advisor receives a fee, based on the aggregate average daily value of net assets
of the Funds at the following annual rates:

(1)
With respect to the Small Company, Growth, World and Balanced Funds:
0.70% per annum on the first $200 million of 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 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 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 Pennsylvania Fund:
0.55% per annum on the first $50 million of average daily net assets of
such funds in the aggregate;

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.

(5)
With respect to the Treasury Fund:
0.40% per annum on the first $300 million of average daily net assets
of the Fund; and
0.35% per annum on such assets in excess of $300 million.

PORTFOLIO MANAGERS

The Common Stock Fund and the Small Company Fund are managed by teams of
investment professionals led by Keniston P. Merrill. Mr. Merrill is Chairman of
the Board of the Company and the Pennsylvania Fund and has been associated with
the Advisor and its predecessor since 1982, serving as Chairman and Chief
Executive Officer since 1986. He has a total of 39 years experience as an
investment professional.

The portfolio manager for the Growth Fund is Robert L. Lee, Vice President of
the Advisor. Mr. Lee is a Chartered Financial Analyst. Mr. Lee assumed
responsibility for the Fund in November, 1993, when he joined the Advisor. Prior
to that time he was a Vice President at Shawmut National Corporation.

The Balanced Fund's portfolio manager is Rodney A. Buck, Senior Vice President
of the Advisor. Mr. Buck is a Chartered Financial Analyst, and has been the
Fund's portfolio manager since 1982. He is also Chairman and Chief Executive
Officer of National Life Investment Management Company, Inc., and Senior Vice
President and Chief Investment Officer of National Life. Mr. Buck has been
employed by the Advisor or its affiliates since 1972.

26
FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
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PROSPECTUS
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...............................................................................

The portfolio manager for the Bond Fund and the Treasury Fund is Richard D.
Temple, Vice President of the Advisor. He has been the Bond Fund's portfolio
manager since 1985 and has been employed by the Advisor or its affiliates since
1969.

The portfolio manager of the Government Securities and Short Maturity Government
Funds is David M. Brownlee, Vice President of the Advisor. Mr. Brownlee is a
Chartered Financial Analyst. Prior to joining the Advisor in 1993, Mr. Brownlee
was a Managing Director at Aetna Life and Casualty.

The portfolio manager of the Tax-Free Income, New York and Pennsylvania Funds is
Kenneth J. Hart, Vice President of the Advisor. Mr. Hart has been with the
Advisor since 1990, and prior to that he was employed by Sentinel Administrative
Service Corporation and Shearson Lehman Brothers.

SUB-ADVISOR

With respect to the World Fund, the Advisor has entered into a sub-advisory
agreement with the World Fund Sub-advisor, INVESCO Capital Management, Inc.
Pursuant to such agreement, the World Fund Sub-advisor provides the Advisor with
a continuous investment program consistent with the World Fund's stated
investment objectives and policies. The sub-advisory agreement provides for a
fee from the Advisor to the World Fund Sub-advisor of the greater of (a) a
monthly fee equal to 0.03125% (0.375% per annum) of the average daily net assets
of the Fund up to $500 million and 0.025% (0.30% per annum) of such average net
assets in excess of $500 million, or (b) $20,000 per annum. INVESCO Capital
Management, Inc. became the World Fund Sub-advisor on April 1, 1996, and the
present sub-advisory agreement was approved by the shareholders of the World
Fund at a meeting held on February 28, 1997. The previous sub-advisor to the
World Fund, under an agreement with terms substantially similar to those of the
present sub-advisory agreement, was Cashman Farrell and Associates, which
resigned as Sub-advisor effective March 31, 1996. The effective fee rate paid by
the Advisor to the World Fund Sub-advisor and Cashman Farrell and Associates for
the fiscal year ended November 30, 1996 was 0.375% per annum.
INVESCO CAPITAL MANAGEMENT, INC. SERVES AS SUB-ADVISOR TO THE WORLD FUND

The World Fund Sub-advisor is located at 1315 Peachtree Street, Atlanta, GA
30309.

The World Fund's portfolio manager since June 1994 has been Erik B. Granade,
International Equity Portfolio Manager of the World Fund Sub-advisor. 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 the World
Fund Sub-advisor. Prior to June, 1994 he was an International Portfolio Manager
with Provident Capital Management, Inc.

ADMINISTRATION

In accordance with Fund Services Agreements with the Funds, Sentinel Service
serves as the transfer agent for the Funds and also provides the Funds with
certain fund accounting, financial administration and shareholder relations
services. To perform the transfer agency function, Sentinel Service utilizes the
computer system of DST Systems, Inc., ("DST") on a remote basis through
Investors Fiduciary Trust Company ("IFTC").

The Fund Services Agreements provide for the Company and the Pennsylvania Fund
to pay to Sentinel Service fixed fees of $842,500 per year and $84,000 per year,
respectively, for fund accounting and financial administration services. They
also provide for annual fees payable by the Company and the Pennsylvania Fund
for transfer agency and shareholder relations services of $2,563,000 and
$37,000, respectively, plus an amount equal to an annual rate of $15 per
shareholder account in excess of 106,500 and 1,500, respectively, as of the last
day of the month preceding the installment due date. The fixed fees are subject
to increase under inflation clauses approved by the Boards. The Funds must pay
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 fees, as a percentage of net assets for transfer
agency and shareholder servicing are somewhat higher than industry norms.
However, the Boards believe that such fees are warranted in light of the level
of service provided. Sentinel Service has voluntarily agreed to reimburse the
Pennsylvania Fund, the Short Maturity Government Fund, and the New York Fund for
expenses necessary to limit such Funds'

FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863) 27

PROSPECTUS
<PAGE>
...............................................................................

individual expense ratios to 0.90%, 1.00% and zero, respectively, in each case
after expense offset. Although Sentinel Service has no present intention to do
so, these arrangements may be terminated at any time.

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

...............................................................................

CUSTODIAN

IFTC serves as the Custodian and Dividend Paying Agent for the Funds. IFTC is an
affiliate of State Street Bank.

...............................................................................

THE DISTRIBUTOR

The Distributor, Sentinel Financial Services Company, whose address is National
Life Drive, Montpelier, Vermont 05604, serves as national distributor for the
Funds under the terms of agreements which became effective March 1, 1993. The
Distributor has the exclusive right to distribute shares of the Funds through
broker-dealers with whom it has selling agreements. The Distributor is a general
partnership of which affiliates of National Life, Provident Mutual and Penn
Mutual are the general partners.

...............................................................................

DISTRIBUTION PLANS

On March 1, 1993, each of the Funds, except for the Treasury, Short Maturity
Government and New York Funds, adopted a distribution plan pursuant to Rule
12b-1 under the 1940 Act, applicable to their Class A shares. On March 27, 1995,
the Short Maturity Government Fund adopted a supplemental distribution plan
pursuant to Rule 12b-1 under the 1940 Act, applicable only to it and both the
Short Maturity Government Fund and the New York Fund became subject to the
existing distribution plan for all of the other Funds. Effective April 1, 1996,
the Small Company, World, Common Stock, Balanced, Bond and Tax-Free Income Funds
adopted a Class B Distribution Plan applicable only to the Class B shares of
these Funds. These distribution plans are herein referred to as the "Plans".
Neither the Class A nor the Class B shares of the Treasury Fund is a participant
in the Plans and none of the fees paid by the other Funds pursuant to the Plans
will be used to reimburse the Distributor for expenses incurred in connection
with the distribution of Treasury Fund shares.

Under the Plans applicable to the Class A shares, each participating Fund will
pay to the Distributor a monthly fee at the maximum annual rate of (a) .30% of
average daily net assets in the case of the Small Company, Growth, World, Common
Stock and Balanced Funds, (b) .20% of average daily net assets in the case of
the Bond, New York, Pennsylvania, Tax-Free Income and Government Securities
Funds, or (c) .35% of average daily net assets in the case of the Short Maturity
Government Fund. Such fees will be used to reimburse the Distributor for
expenses incurred in connection with distribution and promotion of the shares of
each participating Fund, including salaries and expenses of the Distributor's
wholesale sales force, home office management and marketing personnel, expenses
incurred by the Distributor for the occupancy of its office space in Montpelier,
Vermont, expenses incurred by the

28
FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
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PROSPECTUS
<PAGE>
...............................................................................

Distributor with respect to equipment and supplies, expenses incurred for the
preparation, printing and distribution of sales literature used in connection
with the offering of such shares to the public, expenses incurred in
advertising, promoting and selling shares of such Fund to the public, expenses
incurred for the preparation, printing and distribution of the Prospectus and
Statement of Additional Information, and any supplement thereto used in
connection with the offering of such Fund's shares to the public, or any reports
and other communications for distribution to existing shareholders, and service
fees paid to securities dealers who have executed a selling agreement with the
Distributor.

Under the Plans applicable to the Class B shares, the Class B shares of each of
the Small Company, World, Common Stock, Balanced, Bond and Tax-Free Income Funds
will pay to the Distributor a monthly fee at an annual rate of up to a total of
1.00% of average daily net assets, of which up to 0.25% shall be for service
fees to broker-dealers, and the remaining 0.75% shall be for the recovery of the
initial sales commissions paid by the Distributor at the time of sales of Class
B shares, together with the cost of financing such payments, and for the other
types of distribution, sales and marketing expenditures detailed in the
preceding paragraph for the Plans applicable to the Class A shares.

These asset-based fees, excepting the service fee component, are subject to
aggregate limits imposed by the National Association of Securities Dealers, Inc.

To dealers, the Distributor pays, in the case of the Class A shares of the Small
Company, Growth, World, Common Stock and Balanced Funds, .20% per annum of
average net assets owned by clients of the dealer who acquired such shares on or
after March 1, 1993; in the case of the Class A shares of the Bond, New York,
Pennsylvania, Tax-Free Income and Government Securities Funds, .10% per annum of
the Funds' average net assets owned by clients of the dealer who acquired such
shares on or after March 1, 1993, or, in each case, who acquired their shares in
the acquisitions of ProvidentMutual Fund or Independence Capital Group of Funds
assets by the Funds; and in the case of the Short Maturity Government Fund, .25%
per annum of the average net assets owned by clients of the dealer. In the case
of Class B shares of the Small Company, World, Common Stock, Balanced, Bond and
Tax-Free Income Funds, the Distributor pays to dealers a 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 registered representative of
record at the time commissions are paid, as follows:

<TABLE>
<CAPTION>
ASSETS IN CLASS B SHARES OF THE FUNDS ANNUAL
FOR WHICH A PARTICULAR INDIVIDUAL IS THE BROKER-DEALER
REGISTERED REPRESENTATIVE OF RECORD SERVICE FEE
- - ------------------------------------------------------------------------------------ ---------------
<S> <C>
$0 - $99,999........................................................................ -0-
$100,000 - $199,999................................................................. 0.10%
$200,000 - $999,999................................................................. 0.25%
$1,000,000 and over................................................................. 0.50%
</TABLE>

A selling dealer may elect to be paid a service fee on such Class B shares of
0.25% per annum, instead of the above arrangement. In no case will the Class B
shares of any Fund pay service fees which total more than 0.25% per year. To the
extent the above schedule requires a payment from the Distributor in an amount
exceeding 0.25% of average daily assets of the Class B shares of any Fund, then
the Distributor will make such payment and will not be entitled to recover the
excess over 0.25% from the Funds under the Plans. 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.

The portion of the distribution fee consisting of service fees to dealers will
be paid out of the general assets of the related Fund and therefore affects all
shareholders of each such Fund equally, regardless of whether a service fee
payment is made in respect to a particular shareholder's shares. The degree to
which each Fund is affected will depend on the percentages of the shares of such
Fund which are or are not subject to service fee payments.

FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863) 29

PROSPECTUS
<PAGE>
...............................................................................

The Distributor will not be reimbursed for any unreimbursed eligible expenses
from any other Fund, or in any future year for reimbursable expenses for any
Fund that exceed the applicable 0.35%, 0.30%, 0.20% or 1.00% maximums.

...............................................................................

HOW TO PURCHASE SHARES

You can purchase shares of the Funds through any securities dealer who has a
sales agreement with the Distributor. If you already have an account with
Sentinel you can purchase shares by mailing your check directly to Sentinel
Service.
OPENING AN ACCOUNT IS EASY

ALTERNATIVE PURCHASE OPTIONS

The Small Company, World, Common Stock, Balanced, Bond and Tax-Free Income Funds
offer prospective investors a choice of two classes of shares, Class A and Class
B, which incur sales charges in different forms and amounts and which bear
different levels of expenses. These alternative purchase arrangements are
designed to enable the investor to choose the method of purchasing Fund shares
that is most beneficial to the investor based on all factors to be considered,
which may include: the amount and intended length of the investment, the type of
Fund, and whether the investor intends to utilize the exchange privilege.
Generally, when making an investment decision, investors should at least
consider the anticipated life of an intended investment in the Funds, the
accumulated distribution fees plus CDSC on Class B shares, the initial sales
charge, if any, plus accumulated distribution fees on Class A shares, the
possibility that the anticipated higher return on Class A shares due to the
lower ongoing charges will offset the initial sales charge paid on such shares,
and the automatic conversion of Class B shares to Class A shares at certain
specified times.

In determining which class of shares to purchase, an investor should always
consider whether any waiver or reduction of a sales charge or a CDSC is
available. See generally "Class A Shares -- Reduced Sales Charges" and "How to
Redeem Shares -- Class B Shares -- Waiver or Reduction of the CDSC" below.

There is no size limit on purchases of Class A shares. The maximum purchase of
Class B shares accepted is $1,000,000. The Funds may refuse any order to
purchase shares.

The Growth, New York, Pennsylvania, Government Securities and Short Maturity
Government Funds offer only Class A shares. Class B shares of the Treasury Fund
are offered only for exchanges from the Class B shares of other Funds, and are
not offered for initial purchase, except in dollar-cost averaging programs into
Class B shares of other Funds where the initial investment is a minimum of
$10,000, each dollar-cost averaging transaction at least $1,000, and the program
is completed within 24 months. A CDSC will apply to Class B shares in the
Treasury Fund. See "Shareholder Services -- Exchange Privilege" below.

CLASS A SHARES

For all purchases of Class A shares, you pay the public offering price, which
equals the net asset value per share (next computed following receipt of your
order by Sentinel Service), plus a sales charge (except that in the case of the
Treasury Fund, there is no sales charge).

The sales charge ranges from 5.0% to 0.0% of the offering price (5.3% to 0.0% of
the net amount invested). The size of your purchase will determine the amount of
your sales charge.

30
FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863)

PROSPECTUS
<PAGE>
...............................................................................

CLASS A SHARES -- SALES CHARGES

The table below shows the schedule of sales charges for the Common Stock,
Balanced, Growth, Small Company and World Funds:

<TABLE>
<CAPTION>
SALES DEALER
SALE SIZE CHARGE REALLOWANCE
- - ---------------------------------------------------------------------------- --------- -------------
<S> <C> <C>

$0 to $100,000.............................................................. 5.00% 4.50%
$100,001 to $250,000........................................................ 4.00% 3.75%
$250,001 to $500,000........................................................ 2.50% 2.25%
$500,001 to $999,999........................................................ 2.00% 1.75%
$1,000,000 or more.......................................................... -0- -0-

</TABLE>

The schedule of sales charges for the Bond, Government Securities, Tax-Free
Income, New York and Pennsylvania Funds is set forth in the table below:

<TABLE>
<CAPTION>
SALES DEALER
SALE SIZE CHARGE REALLOWANCE
- - ---------------------------------------------------------------------------- --------- -------------
<S> <C> <C>

$0 to $100,000.............................................................. 4.00% 4.00%
$100,001 to $250,000........................................................ 3.50% 3.25%
$250,001 to $500,000........................................................ 2.50% 2.25%
$500,001 to $999,999........................................................ 2.00% 1.75%
$1,000,000 or more.......................................................... -0- -0-

</TABLE>

For the Short Maturity Government Fund, the sales charge for sales of up to
$999,999 is 1.00%, with a dealer reallowance of 0.75%. 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 Treasury Fund.

In cases in which there is no sales charge because the sale is in an amount of
$1,000,000 or more, the Distributor will pay dealers compensation of 1.00% for
sales of up to $4,999,999, and in an individually negotiated amount for sales of
$5,000,000 and over. See "How to Redeem Shares -- Class A Shares Purchased in
Amounts Over $1,000,000 -- CDSC", below.

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 the Advisor, 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 such shares. Because the Funds calculate the offering price per
share by rounding to the nearest whole cent, the entire sales charge may be
slightly more or less than the sales charge percentages set forth above.

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 Treasury Fund), if you redeem shares during the applicable
CDSC period, and no waiver of the CDSC applies. See "How to Redeem Shares --
Class B Shares -- CDSC" and "How to Redeem Shares -- Class B Shares -- Waiver or
Reduction of the CDSC", below.

Class B shares are subject to higher distribution fees than Class A shares for a
fixed period after their purchase. See "Distribution Plans" above. After such
period, the Class B shares automatically convert to Class A shares and are no
longer subject to such higher distribution fees. The holding period for Class B
shares after which they automatically convert to Class A shares varies depending
on the amount of the initial purchase payment. For purchase payments up to
$250,000, the automatic conversion occurs at the end of the sixth year; for
purchase payments from $250,001 to $500,000, the automatic conversion occurs at
the end of the fifth year; and for purchase payments 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.

FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863) 31

PROSPECTUS
<PAGE>
...............................................................................

Because the CDSC may be lower and the conversion to Class A shares may be faster
for purchase amounts of over $250,000, it may be advantageous for a shareholder
to use a Right of Accumulation ("ROA") or a Letter of Intent ("LOI") in
connection with the purchase of Class B shares. These privileges are described
below under "How to Redeem Shares -- Waiver or Reduction of the CDSC".

For sales of Class B shares made and services rendered to Class B shareholders,
the Distributor intends to make payments to selling broker-dealers, at the time
a shareholder purchases Class B shares, of amounts equal to the following
percentages of the purchase amount, for each of the Funds offering purchases of
Class B shares:

<TABLE>
<CAPTION>
BROKER-DEALER
AMOUNT OF PURCHASE PAYMENT PAYMENT
- - ------------------------------------------------------------------------------------ ---------------

<S> <C>
Up to $250,000...................................................................... 4.0%
$250,001 to $500,000................................................................ 2.5%
$500,001 to $999,999................................................................ 2.0%

</TABLE>

The Class B shares of the Treasury Fund are only available through exchange from
the Class B shares of another Fund or in connection with a dollar-cost averaging
program described on page 30. The Class B shares of the Treasury 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
Treasury 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. See "How to Redeem Shares
- - -- Class B Shares -- CDSC", below.

CLASS A SHARES -- REDUCED SALES CHARGES

RIGHT OF ACCUMULATION. Quantity discounts begin with investments in Class A
shares in excess of $100,000. This applies to purchases of Class A shares of one
or more of the Funds at one time, or to purchases of either Class A shares or
Class B shares combined over time by you, your spouse and children under the
applicable age of majority, a trustee or other fiduciary account for these same
persons. Additionally, accounts for charitable, religious, educational and
similar corporations, associations, or foundations exempt under Section
501(c)(3) or (13) of the Code, retirement plans set up under the Self-Employed
Individuals Tax Retirement Act of 1962, and Individual Retirement Accounts
("IRAs") set up under the Employee Retirement Income Security Act of 1974, as
amended, may be linked to an individually owned account for this privilege.
However, individually registered accounts may not be linked with a participant
account in any plan which has multiple linked accounts except as noted below in
the AG&T Advantage Program. Please note that, in order to take advantage of this
privilege, you must advise your representative at the time of purchase that you
are eligible for this privilege and must provide the fund name(s), registration
of account(s), and account number(s).

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

LETTER OF INTENT. The LOI lowers your costs on Class A share investments of more
than $100,000 or Class B share investments of more than $250,000 spread over 13
months or, in the case of corporate qualified plans, spread over 30 months. The
LOI is not a binding commitment by you to purchase, or by the Fund to sell
additional shares. All purchases made for your account within 13 months from the
date of the LOI, or when applicable 30 months will be made at the reduced sales
charge for the investment amount checked on the account application. Any
dividends and distributions will be reinvested without a sales charge and will
not be considered in determining whether the LOI has been completed.

Any purchases of the Sentinel Family of Funds (except the Treasury Fund) made by
you within the 90 days preceding the date of your LOI may be included under it
but do not qualify for the discount. You may also combine the value, at the
current offering price, of any shares you own of other Sentinel Funds in order
to determine the quantity discount which would apply under the LOI.

Two percent (2%) of the shares purchased under the LOI will be held in escrow by
Sentinel Service and released at the end of the 13- or 30-month period or upon
completion of the LOI.

32
FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863)

PROSPECTUS
<PAGE>
...............................................................................

Upon expiration of the 13- or 30-month period a sales charge may be due if total
purchases are less than the LOI amount indicated on the application. Sales
charges are due within 20 days after notification to the account holder and may
be paid either by check payable to Sentinel Service or by redemption of shares
held in escrow to the extent necessary to pay such amount due. Upon payment of
the balance due any remaining escrow shares will be released and free from
further sales charges. The sale of shares for this purpose will be a taxable
event.

GROUP INVESTMENTS. Any group of investors which notifies the Distributor that it
will act as a group in purchasing Fund shares, in such a way as to result in
reduced selling expenses, will be entitled to be treated as if it were a single
entity for purposes of the reduced sales charges for quantity purchases, the ROA
and the LOI.

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 ("AG&T") is the custodian may group participating
employee accounts together in such a way as to result in reduced sales charges
for quantity purchases under both the ROA and the LOI. Quantity discounts under
this program are based upon amounts previously invested in the Funds. In
addition, personal accounts for the employee and members of his or her immediate
family, as defined above under "Right of Accumulation", may be grouped with the
employee's SIMPLE IRA or Section 403(b) accounts for quantity purchases under
both the ROA and LOI.

Certain investors, subject to limitations, may purchase Fund shares at net asset
value. Such investors include current and former Directors of the Funds and
predecessors to the Funds; certain current and retired directors, officers,
employees and retirees of the general partners of the Advisor and their
affiliates; directors, officers, employees and clients of the Sub-advisor;
members of the immediate families of, or survivors of, all of the
above-referenced individuals; registered representatives of securities dealers
that have entered into a sales agreement with the Distributor, and who notify
the Distributor of such status at the time of the purchase, and members of their
immediate families or their survivors; non-profit organizations with which any
of the above-referenced persons are actively involved; clients of dealers,
brokers, registered investment advisors or registered investment advisor
representatives who have entered into an agreement with the Distributor
providing specifically for the use of shares of a Fund in particular investment
programs or products (where such program or product already imposes a fee) made
available to clients of such dealer, broker, registered investment advisor or
registered investment advisor representative; purchasers who are investing
section 403(b) loan principal repayments; purchasers who notify the Distributor
that the funds being used for such purchase consist of redemption proceeds from
other mutual fund shares for which a sales charge or CDSC has been paid, and
such funds in fact come from such source; and investments being transferred from
individually managed trust accounts at AG&T. If there is more than one person on
an account registration, all persons named in the account registration must
qualify. You must notify the Distributor at the time of purchase if you qualify
for a front-end sales charge waiver.

OTHER MATTERS RELATING TO DISTRIBUTION OF FUND SHARES

The Distributor will reimburse all broker-dealers who agree with the Distributor
to undertake activities designed to specifically promote the Funds, for costs
incurred by such broker-dealers in the course of such activities. The Advisor
has adopted a policy under which sales of shares of the Funds may 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.

The Distributor is sponsoring a sales contest during the period February 3, 1997
to December 31, 1997, in which registered representatives of all broker-dealers
who have elected to participate in the contest can qualify for a trip to a
destination to be announced by achieving sales of shares of the Funds (other
than the Treasury Fund) and sales of accounts managed by AG&T, the Distributor's
trust company affiliate, aggregating at least $500,000, and may bring a guest at
the Distributor's expense by achieving such sales of at least $750,000. In
addition, registered representatives of all broker-dealers

FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863) 33

PROSPECTUS
<PAGE>
...............................................................................

who have elected to participate in the contest can qualify for a second
destination when said sales aggregate at least $1,000,000, and may bring a guest
at the Distributor's expense by achieving such sales of at least $1,500,000.
Branch managers of all branch offices which achieve such sales of at least
$4,500,000 can also qualify for the trip and may bring a guest at the
Distributor's expense.

Accounts may be opened with only $50 using the Automatic Investment Plan.
Otherwise, the minimum initial investment in any Fund is $1,000, except as
otherwise provided in the Statement of Additional Information and except for
certain retirement plan accounts. The minimum subsequent investment is $50. The
Funds reserve the right to reject any order and may charge a fee of $25 for each
check or electronic payment returned unpaid due to insufficient funds.
OPEN AN ACCOUNT WITH AS LITTLE AS $50

PURCHASING SHARES BY CHECK

Make your checks payable to "Sentinel Administrative Service Company" and remit
to:

Sentinel Administrative Service Company
P.O. Box 1499
Montpelier, VT 05601-1499

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 such check has cleared, which may take up to 15 days after the purchase
date.

A purchase made by check is effected on the day when federal funds are made
available to a Fund, usually within one business day after Sentinel Service
receives the check. Federal funds are monies held by a commercial bank on
deposit in one of the U.S. Federal Reserve branch banks (the "Federal Reserve
Banks").

PURCHASING SHARES BY WIRE

You may purchase shares by wiring federal funds directly to Sentinel Service
when the New York Stock Exchange ("NYSE") and Federal Reserve Banks are open for
business.
ANOTHER EASY WAY TO BUY SHARES

To make your initial purchase by wire, call our toll-free number noted below and
obtain an account number. If you don't have an application, request one.
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, the Distributor 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.

AUTOMATIC INVESTMENT PLAN

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

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

GOVERNMENT DIRECT DEPOSIT PRIVILEGE
Government Direct Deposit enables you to purchase Fund shares (minimum of $50.00
per transaction) by having 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 such payments as you
elect. To enroll in Government Direct Deposit, you must complete and file with
Sentinel Service a completed Direct Deposit Sign-Up Form for each type of
payment that you desire to

34
FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863)

PROSPECTUS
<PAGE>
...............................................................................

include in this Privilege. The Direct Deposit Sign-Up Form may be obtained by
contacting Sentinel Service or the appropriate Federal Agency for your type of
payment. Death or legal incapacity will terminate your participation in this
Privilege. You may elect to terminate your participation in this privilege by
providing written notification to the appropriate Federal agency.

PAYROLL SAVINGS PLAN

Payroll Savings Plan permits you to purchase Fund shares (minimum of $50.00 per
transaction) automatically on a regular basis. Depending upon your employer's
direct deposit program, you may have part or all of your paycheck transferred to
your existing Sentinel account electronically through the Automated Clearing
House system each pay period. To establish a Sentinel Payroll Savings Plan
account, you must file an authorization form, available from Sentinel Service,
with your employer's payroll department. Changes may be made through written
notification to your employer.

...............................................................................

HOW TO REDEEM SHARES

If your shares are held by Sentinel Service, you can redeem your shares by
providing Sentinel Service with the appropriate instructions by mail or
otherwise.

If you are the shareholder of record and have a certificate representing
ownership in a Fund, you can redeem your shares by either:
FOLLOW THESE EASY STEPS TO REDEEM SHARES

- - - Surrendering the certificate in person, to Sentinel Service (National Life
Drive, Montpelier, Vermont),

- - - Mailing the certificate to

Sentinel Administrative Service Company P.O. Box 1499, Montpelier, VT
05601-1499

WE SUGGEST SENDING CERTIFICATES BY CERTIFIED MAIL.

Sentinel Service is required to redeem your shares at net asset value, less any
applicable CDSC, as of the close of business on the day such surrender or
appropriate instructions are received, in "good order", prior to 4:00 p.m. on a
day that the NYSE is open for business.

"Good order" means that the instructions must be signed by the registered
owner(s) exactly as the shares are registered and the signature(s) must be
guaranteed by an eligible guarantor institution which meets Sentinel Service's
requirements, unless an exception listed below applies. The seal or stamp of a
notary public is not acceptable. You are not required to provide a signature
guarantee when:
IMPORTANT INFORMATION FOR REDEEMING SHARES

- - - the proceeds of the redemption do not exceed $50,000 in any one day and the
proceeds check is made payable to the registered owner(s) and mailed to the
record address (provided the record address has not been changed within the
past 30 days), or

- - - the proceeds of the redemption are payable to one of the Advisor's parent
corporations or an affiliate.

CLASS B SHARES -- CDSC

If you redeem Class B shares, a CDSC may be imposed. Whether a CDSC is imposed
and the amount of the CDSC depends on the amount of your purchases and the
number of years since you made the

FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863) 35

PROSPECTUS
<PAGE>
...............................................................................

purchase from which an amount is being redeemed. Partial redemption requests
will be increased by the amount of CDSC due. CDSC balances due for full
redemptions will be deducted from the redemption proceeds. Purchases are subject
to the CDSC according to the following schedules:

For purchase amounts of up to $250,000:

<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC PERCENTAGE
- - --------------------------------------------------------------------------------- -------------------
<S> <C>
First............................................................................ 4%
Second........................................................................... 4%
Third............................................................................ 3%
Fourth........................................................................... 2%
Fifth............................................................................ 2%
Sixth............................................................................ 1%
</TABLE>

For purchase amounts from $250,001 to $500,000:

<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC PERCENTAGE
- - --------------------------------------------------------------------------------- -------------------
<S> <C>
First............................................................................ 3.5%
Second........................................................................... 3%
Third............................................................................ 2%
Fourth........................................................................... 1%
Fifth............................................................................ 1%
</TABLE>

For purchase amounts from $500,001 to $999,999:

<TABLE>
<CAPTION>
YEAR SINCE PURCHASE
PAYMENT WAS MADE CDSC PERCENTAGE
- - --------------------------------------------------------------------------------- -------------------
<S> <C>
First............................................................................ 3%
Second........................................................................... 2%
Third............................................................................ 1%
Fourth........................................................................... 1%
</TABLE>

In determining whether a CDSC is payable, redemptions are taken first from any
shares acquired through reinvestment of distributions, or any other shares as to
which a waiver of the CDSC is applicable. The purchase payment from which a
redemption is made is the earliest purchase payment from which a redemption or
exchange has not already been fully effected. The amount of the CDSC will be
equal to the applicable CDSC percentage multiplied by the lower of the purchase
price or the net asset value of the shares being redeemed. Any CDSC imposed on a
redemption of Class B shares is paid to the Distributor.

If you exchange Class B shares into Class B shares of the Treasury Fund, or
purchase Class B shares of the Treasury Fund in connection with a dollar-cost
averaging program, the time during which these assets are held in the Class B
shares of the Treasury 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 such Class B shares of the Treasury Fund are ultimately redeemed, a CDSC will
apply in the amount that would have been applicable on the date the assets were
exchanged into the Class B shares of the Treasury Fund, regardless of how long
the Class B shares of the Treasury Fund were held. Also, if the Class B shares
of the Treasury Fund are then further exchanged into Class B shares of another
Fund, and such shares are ultimately redeemed, a CDSC will apply in the amount
that would have been applicable if the total holding period for the shares was
the period during which Class B shares of Funds other than the Treasury Fund
were held. In such a case, the automatic conversion into Class A shares of the
same Fund will occur only after Class B shares of Funds other than the Treasury
Fund have been held for the six, five or four year period, as applicable.

36
FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863)

PROSPECTUS
<PAGE>
...............................................................................

CLASS B SHARES -- WAIVER OR REDUCTION OF THE CDSC

You are subject to a reduced CDSC for quantity purchases, as indicated above, or
when you buy shares in connection with the ROA or a LOI. The ROA will apply to
purchases of Class B shares when you and members of your family own Class A
shares and Class B shares in the aggregate of more than $250,000. See "How to
Purchase Shares -- Class A Shares -- Reduced Sales Charges" for more information
on the ROA and the LOI.

The CDSC applicable to Class B shares may be waived in the following situations
when the Funds have been notified at the time of redemption:

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

2.Redemptions from the account of a shareholder (including one who owns the
shares as joint tenant with his or her spouse) following his or her death,
provided the redemption is requested within one year of the shareholder's
death;

3.Redemptions which result from ERISA or IRS requirements that mandate that a
distribution be made from a qualified retirement plan or individual
retirement account;

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; and

5.Redemptions in amounts up to 10% annually of the account's then current net
asset value.

The Distributor may require documentation prior to waiver of the CDSC,
including, without limitation, certification by plan administrators, applicable
tax forms, or death certificates. The above CDSC waiver provisions will not
apply to Class B shares initially invested in the Treasury Fund as part of a
dollar-cost averaging program.

In addition, no CDSC will apply to Class B share accounts owned by affiliates of
the Advisor, where the Distributor has not paid an initial commission to a
selling dealer.

CLASS A SHARES PURCHASED IN AMOUNTS OVER $1,000,000 -- CDSC

In the case of a purchase of Class A shares with no front-end sales charge
because the sale is in an amount of $1,000,000 or more, if the shares purchased
are redeemed within one year of the purchase, a CDSC will be imposed in the
amount of 1.00%. If the shares are redeemed during the second year after the
purchase, a CDSC of 0.50% will be imposed. After the second year, no CDSC will
apply. As with the CDSC payable on redemptions of Class B shares, the CDSC is
imposed on the lower of the cost or the current net asset value of the shares
redeemed. Partial redemption requests will be increased by the amount of CDSC
due. CDSC balances due for full redemptions will be deducted from the redemption
proceeds. The Distributor receives the entire amount of any CDSC paid. The CDSC
is currently waived in all of the same circumstances as specified under "Class B
Shares -- Waiver or Reduction of the CDSC" above. In determining whether a CDSC
is payable, the Funds will first redeem shares not subject to any charge.

OTHER INFORMATION ON REDEEMING SHARES

Normally, Sentinel Service will mail you payment for such shares within seven
days after it receives all documents required to process the redemption.
Exceptions to this policy include any period in which the right of redemption is
suspended or date of payment is postponed because the NYSE is closed, trading on
such Exchange is restricted, or the Securities and Exchange Commission (the
"Commission") deems an emergency to exist.

Additional documentation may be required 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. The Funds reserve the right to withhold the
proceeds of redemptions where shares to be redeemed have

FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863) 37

PROSPECTUS
<PAGE>
...............................................................................

been purchased by check within 15 calendar days prior to the date the redemption
request is received. The Funds will not withhold redemption proceeds if they (or
Sentinel Service) have been advised and have confirmed that such check has been
cleared for payment.

If you write a check to redeem Class A shares (see "Shareholder Services --
Check Writing Privileges" below) in the Government Securities, Bond, New York,
Pennsylvania, Tax-Free Income, Short Maturity Government or Treasury Funds,
Sentinel Service normally will not honor the redemption check if those shares
have been purchased less than 15 calendar days prior to the date the redemption
request is presented to Sentinel Service.

Distributions from retirement plans may be subject to withholding by the
Internal Revenue Service ("IRS") under the Internal Revenue Code of 1986, as
amended (the "Code").

Due to the expense of maintaining accounts with small balances, the Funds
reserve the right to liquidate and 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.

401(k), pension 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. The fee will be deducted
automatically from each participant account in June of each year unless prepaid.
The fee assessed will vary based upon the average account value of all
participant accounts within the plan, and will be as set forth below:

<TABLE>
<CAPTION>
FEE PER
PARTICIPANT
AVERAGE ACCOUNT VALUE ACCOUNT
- - -------------------------------------------------------------------------------- -----------------
<S> <C>
$0 - $1000...................................................................... $ 20.00
$1000 - $2999................................................................... $ 10.00
$3000 and over.................................................................. No fee
</TABLE>

DEALER WIRE REDEMPTION ORDERS

For the convenience of shareholders, the Distributor, 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. (The net asset value may be more or less than your initial
cost. It is computed as described below on days on which the NYSE is open.) Such
orders to repurchase shares of the Funds are confirmed on the same basis as
orders to purchase. Brokers are not prohibited from charging for their service
for such a redemption.

TELEPHONE REDEMPTION

Unless otherwise specified when opening your account or by subsequently
submitting a Telephone Authorization and Request with a proper signature
guarantee and supporting documents where applicable, you may redeem up to
$1,000,000 from your account each business day.
YOU CAN REDEEM
BY TELEPHONE

In such instances, you may request that the proceeds be sent directly to a
predesignated commercial bank account. If you have not provided the name of a
bank, the proceeds will be sent automatically to the address of record, provided
the address has not been changed within the preceding 30 days.

You must furnish a signature guarantee when making any change in redemption
instructions. To redeem shares by telephone, please call Sentinel Service.

If proceeds are wired to your bank, a fee normally not greater than $25 will be
deducted from the proceeds. Neither the Funds, the Advisor 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 such losses taking
into account the cost of such procedures and the potential risk of loss. In
processing telephone exchange or redemption requests, the Funds will determine
that reasonable procedures are employed to confirm that such telephone
instructions are genuine, and if such procedures are not employed, the Funds may
be liable

38
FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863)

PROSPECTUS
<PAGE>
...............................................................................

for any resulting losses. Such 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.

No fees are charged for telephone redemptions; however, service fees described
above may apply, and the CDSC described above under "How to Redeem Shares" may
apply.
NO FEES FOR TELEPHONE REDEMPTIONS

...............................................................................

TAX-DEFERRED RETIREMENT PLANS

The federal tax laws provide for a variety of retirement plans offering tax
benefits. Fund shares may be purchased by all types of tax-deferred retirement
plans, including Keogh Plans, Individual Retirement Accounts ("IRAs"), SIMPLE
IRAs, Simplified Employee Pension Plans, Section 403(b) Plans, Section 457
Plans, and other corporate pension and profit-sharing plans.
THE FUNDS CAN BE USED IN MANY TYPES OF PLANS

American Guaranty & Trust Company, a Delaware trust company and an affiliate of
the Advisor, will act as a custodian for IRAs, SIMPLE IRAs, and 403(b) plans, if
desired, and will charge an annual fee of $15 per individual (individuals with
more than one account will be charged only one fee). This fee will be deducted
automatically from the account in November of each year unless prepaid (in the
case of more than one account owned by the same person, the fee will be deducted
from the largest account). Sentinel Service will act as agent for the custodian
and will receive from the custodian $12 of the above annual fee per participant.
A fee of $15 is charged for each account when closing, however, a fee of $25 per
transaction is assessed for transferring assets. Consult your tax advisor for
details regarding deductibility of contributions to IRAs.

The Funds intend to enter into agreements with third parties who will provide
administrative services to section 403(b) plans, which are qualified retirement
savings plans for employees of governmental and charitable institutions. The
Funds may assess an annual fee in an amount of up to $100 to accounts in 403(b)
plans which have elected to obtain administrative services from third party
administrators pursuant to the agreements between such administrators and the
Funds. Such third party administrators may include both affiliates of the
Advisor and nonaffiliates.

...............................................................................

DETERMINATION OF NET ASSET VALUE

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

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

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

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

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

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

FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863) 39

PROSPECTUS
<PAGE>
...............................................................................

The Treasury 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 shares, reflecting the daily expense
accruals of the account maintenance, distribution and higher transfer agency
fees applicable with respect to Class B 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
which will differ by approximately the amount of the expense accrual
differentials between the classes.

...............................................................................

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

Each Fund pays dividends substantially equivalent to its net investment income
in accordance with the following schedule:
WHEN THE FUNDS PAY DIVIDENDS

<TABLE>
<CAPTION>
FUND DIVIDENDS PAID
- - ----------------------------------------------------------------------------------- --------------
<S> <C>

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

</TABLE>

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

Distributions of any net realized gains for a fiscal year are paid in December,
following the November 30th fiscal year-end. Income dividends and capital gains
distributions will be reinvested automatically in Fund shares at net asset value
at the close of business on the designated record date, unless you elect
otherwise (see "Shareholder Services -- Distribution Options" below). You may
also elect to have dividends sent directly to your bank account through
electronic funds transfer. Any dividend or distribution of less than $10.00 must
be reinvested.

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 Treasury 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 Treasury Fund, except for class specific expenses, 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.

40
FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863)

PROSPECTUS
<PAGE>
...............................................................................

TAXES

GENERAL. Each Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies under the Code. Qualifying Funds (but
not their shareholders) are free from federal income tax on net ordinary income
and net realized capital gains distributed to shareholders. The Funds intend to
distribute substantially all of this income and gain.
HOW INCOME AND GAINS ARE TAXED

Unless your shares are held in a tax-deferred retirement plan, or in the New
York, Pennsylvania or Tax-Free Income Funds, which are discussed below, you are
subject to ordinary income tax for federal income tax purposes on dividends from
investment income and distributions made from an excess of net short-term
capital gains over net long-term capital losses (together referred to as
"ordinary income dividends"). Distributions made from an excess of net long-term
capital gains over net short-term capital losses (including gains or losses from
certain transactions in options and futures) ("capital gain dividends") are
taxable as long-term capital gains for federal income tax purposes, regardless
of the length of time you have owned your shares. 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).

Any loss incurred on the sale or exchange of shares of a Fund held for six
months or less will be treated as a long-term capital loss for federal income
tax purposes to the extent of any capital gain dividends received with respect
to such shares. For the New York, Pennsylvania and Tax-Free Income Funds, such
loss will be disallowed to the extent of any "exempt-interest dividends" paid,
as defined in section 852(b)(5) of the Code, with any additional loss not
disallowed under this rule treated as long-term capital loss to the extent of
capital gain dividends received.

No gain or loss will be recognized by Class B shareholders for federal income
tax purposes 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 within 90 days of acquiring the
shares, then the loss the shareholder can recognize on the exchange for federal
income tax purposes will be reduced (or the gain increased) to the extent of the
sales charge the shareholder would have owed in the absence of the exchange
privilege. Instead, such sales charge will be treated as an amount paid for the
new shares.

A loss realized on a sale or exchange of shares of a Fund will be disallowed for
federal income tax purposes if other shares of the same Fund 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 that
the shares are disposed of. In such a case, the basis of the shares acquired
will be adjusted to reflect the disallowed loss.

Dividends generally are taxable to shareholders even though they are reinvested
in additional shares (unless they are designated as exempt-interest dividends).
Each Fund will provide its shareholders with a written notice designating the
amounts of any ordinary income dividends, capital gain dividends, and, if
applicable, exempt-interest dividends, no later than 60 days after the close of
its taxable year.

A portion of a Fund's ordinary income dividends may be eligible for the
dividends received deduction allowed to corporations under the Code, if certain
requirements are met. 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 these months, then the dividend will be treated for tax
purposes as if it were paid by the Fund and received by its shareholders on
December 31st of the year in which the dividend was declared.

FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863) 41

PROSPECTUS
<PAGE>
...............................................................................

- Those for whom no certified taxpayer identification number is on file with
Sentinel Service,

- Those who have furnished Sentinel Service with an incorrect certified
taxpayer identification number, and

- Those identified by the IRS.

When establishing an account, you must certify, under penalty of perjury, that
your taxpayer identification number is correct and that you are not otherwise
subject to backup withholding.

Ordinary income dividends paid to nonresident alien shareholders 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. If you are a nonresident alien shareholder, consult your
tax advisor concerning the applicability of the United States withholding tax.

By law, interest income from obligations of the U.S. Treasury is exempt from
state and local taxes. Many states with income taxes permit this exemption to be
passed through to dividends of regulated investment companies that invest in
such securities. Therefore, many shareholders can expect to receive Treasury
Fund dividends and a significant portion of Government Securities Fund and Short
Maturity Government Fund dividends free of state and local taxes. If you live in
a state that imposes income taxes, consult with your tax advisor to determine
whether all or part of the dividends from the Treasury Fund, the Government
Securities Fund or the Short Maturity Government Fund are exempt from state and
local taxation. In any case, such income will not be exempt from federal income
tax. Furthermore, capital gains, if any, realized by such Funds will not be
exempt from federal taxes or, generally, from state and local taxes.

Dividends and/or interest received by the World Fund and to a lesser extent, the
Bond Fund and to a much smaller degree, the Balanced Fund and the Common Stock
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 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. For example, certain
retirement accounts cannot claim foreign tax credits on investments in foreign
securities held in the World Fund. If more than 50% in value of the World Fund's
total assets at the close of its taxable year consists of securities of foreign
corporations, the Fund will be eligible, and intends, to file an election with
the Internal Revenue Service pursuant to which shareholders of such fund will be
required to include their proportionate shares as taxes paid by them, and deduct
such proportionate shares in computing their taxable incomes or, alternatively,
use them as foreign tax credits against their United States income taxes. No
deductions for foreign taxes, however, may be claimed by noncorporate
shareholders who do not itemize deductions. A shareholder that is a nonresident
alien individual or a foreign corporation may be subject to United States
withholding tax on the income resulting from the World 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. The World Fund will report annually to its shareholders the amount
per share of such withholding taxes.

Under Code Section 988, gains or losses of the World Fund from certain debt
instruments, from certain forward contracts, from futures contracts that are not
"regulated futures contracts" and from unlisted options will generally be
treated as ordinary income or loss. Such Code Section 988 gains or losses will
generally increase or decrease the amount of the World 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, the World Fund would not be

42
FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863)

PROSPECTUS
<PAGE>
...............................................................................

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 each shareholder's fund shares and resulting in a capital
gain for any shareholder who received a distribution greater than the
shareholder's fund shares and resulting in a capital gain for any shareholder
who received a distribution greater than the shareholder's tax basis in fund
shares (assuming the shares were held as a capital asset).

The foregoing description relates only to federal income taxes. You should
consult with your tax advisor as to the availability of any exemptions from
state or local taxes.

NEW YORK, PENNSYLVANIA AND TAX-FREE INCOME FUNDS.

Each of the New York, Pennsylvania and Tax-Free Income Funds intends to invest a
sufficient portion of its assets in municipal bonds and notes to qualify to pay
"exempt-interest dividends" to shareholders. Such dividends are excludable from
gross income for federal income tax purposes. Exempt-interest dividends are
included, however, in determining the portion, if any, of an individual's Social
Security benefits and Railroad Retirement benefits subject to federal income
taxes. All or a portion of the New York, Pennsylvania and Tax-Free Income 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.

Interest on indebtedness incurred or continued to purchase or carry shares of a
regulated investment company paying exempt-interest dividends will not be
deductible by the shareholder for federal income tax purposes to the extent
attributable to exempt-interest dividends.

The Code subjects interest received on certain otherwise tax-exempt securities
to an 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 commercial or housing purposes). Income received on such bonds is classified
as an item of "tax preference" which would subject investors in such bonds,
including shareholders of the New York, Pennsylvania and Tax-Free Income Funds,
to an AMT. Each of the New York, Pennsylvania and Tax-Free Income Funds may
purchase private activity bonds and will report to shareholders within 60 days
after their taxable year-end on the portion of its dividends declared during the
year which is a tax preference item 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. Because an exempt-interest dividend
paid by the New York, Pennsylvania or Tax-Free Income Fund will be included in
adjusted current earnings, a corporate shareholder may be required to pay AMT on
exempt-interest dividends paid by any such Fund. Persons who may be substantial
users (or "related persons" of substantial users) of facilities financed by
industrial development bonds or private activity bonds held by the New York,
Pennsylvania or Tax-Free Income Fund should consult their tax advisors before
purchasing Fund shares.

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 New
York, Pennsylvania and Tax-Free Income Funds during the taxable year.

The New York Fund intends to invest primarily in New York Obligations.
Distributions from the New York Fund which are attributable to interest income
received from such obligations also will be exempt from New York State and New
York City personal income tax. The Pennsylvania Fund, likewise, intends to
invest primarily in Pennsylvania Obligations. Distributions from the
Pennsylvania Fund which are attributable to interest income received from such
obligations also will be exempt from Pennsylvania personal income tax.
Distributions from the New York and Pennsylvania Funds which are attributable to
interest received from qualifying obligations of the U.S. government, its
agencies and instrumentalities

FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863) 43

PROSPECTUS
<PAGE>
...............................................................................

similarly will be exempt from New York State and New York City or from
Pennsylvania personal income tax, respectively. Distributions from these Funds
may, however, be subject to taxation at a local level within either New York
State (but outside New York City) or Pennsylvania.

Exempt-interest dividends paid to a corporate shareholder in the New York Fund
will be subject to New York State corporation franchise tax and New York City
general corporation tax. To the extent exempt-interest dividends paid to a
shareholder of the Pennsylvania Fund are excluded from taxable income for
federal corporate income tax purposes (determined before net operating loss
carryovers and special deductions), they will not be subject to the Pennsylvania
corporate net income tax. However, an investment in the Pennsylvania Fund by a
corporate shareholder may not qualify as an exempt asset for purposes of
apportionment of the Pennsylvania capital stock/foreign franchise 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 to the extent that such distributions are attributable to interest
received from Pennsylvania Obligations or from qualifying obligations of the
U.S. Government, its agencies and instrumentalities, or to the extent such
distributions are designated as 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 assets are
comprised of Pennsylvania Obligations and qualifying obligations of the U.S.
government, its agencies and instrumentalities on the annual assessment date.

If the New York and Pennsylvania Funds invest in obligations and allowable
investments other than New York Obligations and Pennsylvania Obligations,
respectively, a portion of the income distributed to shareholders may be subject
to federal, state and local taxes. Shareholders of the New York and Pennsylvania
Funds who are subject to taxation by states other than New York or Pennsylvania
will realize a lower after-tax return than New York or Pennsylvania
shareholders, respectively, since the dividends distributed by the New York and
Pennsylvania Funds generally will not be exempt, to any significant degree, from
income taxation by such other states. The New York and Pennsylvania Funds will
inform shareholders annually as to the portion of such Fund's distributions
which constitutes exempt-interest dividends and the portion which is exempt from
New York or Pennsylvania personal income taxes.

Consult with your tax advisor regarding specific questions about federal,
foreign, state or local taxes. Foreign investors should consider applicable
foreign taxes in their evaluation of an investment in the Funds.

The foregoing is a general and abbreviated summary of the applicable provisions
of the Code and U.S. Treasury regulations, and relevant state and local tax laws
presently in effect. For the complete provisions, refer to the pertinent Code
sections and the U.S. Treasury regulations promulgated thereunder, and relevant
state and local tax laws. The Code and U.S. Treasury Regulations, and relevant
state and local tax laws are subject to change by legislative, judicial or
administrative action, either prospectively or retroactively.
CONSULT WITH YOUR TAX ADVISOR ABOUT TAX IMPLICATIONS OF CERTAIN DISTRIBUTIONS

...............................................................................

SHAREHOLDER SERVICES

When you establish a new account, all dividends and any capital gains
distributions are reinvested at net asset value and without charge to purchase
additional shares, unless you elect another option. Many other features are
available to you, as described below. Minimum account values apply for some.

DISTRIBUTION OPTIONS: Several options for receiving dividends and capital gains
distributions are available, including the ability to reinvest dividends and
distributions from shares of one Fund into shares of the same class in another
Fund.

MANY CONVENIENT SHAREHOLDER SERVICES ARE AVAILABLE

CHECK WRITING PRIVILEGES: Check writing is offered without charge to holders of
Class A shares of the Bond, New York, Pennsylvania, Tax-Free Income, Government
Securities, Short Maturity Government and Treasury Funds.

44
FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863)

PROSPECTUS
<PAGE>
...............................................................................

EXCHANGE PRIVILEGE: Once every 15 days, 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.
Because Class B shares in the Growth, New York, Pennsylvania, Government
Securities and Short Maturity Government Funds are not currently offered,
holders of Class B shares in the other Funds may not exchange into these Funds.
Funds are only available for exchange for residents of states in which such
Funds are registered. In the case of purchases of less than $1 million of the
Short Maturity Government Fund, however, shares purchased (other than by
exchange from another Fund other than the Treasury Fund) must remain in the
account for 90 days before they are eligible for the exchange privilege. Also,
where Class A shares in the Treasury Fund, which were not acquired in exchange
for shares of another Fund, are exchanged for Class A shares of another Fund,
you will be required to pay a sales charge equal to what the sales charge would
have been for an initial purchase of the shares into which Treasury Fund shares
are being exchanged. In determining the holding period for Class B shares, the
holding period for shares which have been exchanged into the then currently held
shares will be included, except that the time that an investment is in the Class
B shares of the Treasury Fund will not count toward the time 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. All shareholders automatically receive the privilege to make
exchanges over the telephone by calling Sentinel Service. See "How to Redeem
Shares -- Telephone Redemption" above for a statement of the Funds' liability
disclaimer policy for unauthorized telephone instructions. Although the Funds
and Sentinel Service will attempt in good faith to provide adequate telephone
exchange service at all times, telephone exchanges may be difficult to implement
in times of drastic economic change. In the event you cannot contact Sentinel
Service by telephone, you may effect an exchange by sending a written request to
Sentinel Administrative Service Company, P.O. Box 1499, Montpelier, VT
05601-1499. Please be certain to specify which account options are desired on
any newly established account. 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
(the current rules of the Commission require 60 days advance notice to
shareholders prior to the modification or termination of the exchange
privilege).

SYSTEMATIC EXCHANGE: This feature enables you to sell a specified number or
dollar-value of shares in one of the Funds periodically and use the proceeds to
purchase the same class of shares in another Fund.

TRANSFERS: When you need to change ownership of or the name on an account, a
Sentinel Service representative will provide you with the necessary assistance.

SYSTEMATIC WITHDRAWAL PLAN: If you want to have regular withdrawals from your
account, this feature will enable you to have shares sold regularly with the
proceeds directed as you elect. Each withdrawal constitutes a taxable event. You
must reinvest dividends and capital gains distributions to use a systematic
withdrawal plan.

REINSTATEMENT PRIVILEGE: If you redeem 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.

To learn more about these services or to find out how to add any of them to your
account, please refer to the Shareholder Services Guide and/or the Statement of
Additional Information.

...............................................................................

PERFORMANCE DATA

Periodically, the Funds include average annual total return in advertisements or
in information distributed to existing and prospective shareholders.

FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863) 45

PROSPECTUS
<PAGE>
...............................................................................

Average annual total return quotations are calculated by determining the average
annual compounded rates of return (based on net investment income and any
capital gains or losses on portfolio investments over such periods) that would
equate the initial amount invested to the redeemable value of such investment at
the end of each period.
HOW THE FUNDS COMPUTE TOTAL RETURN

Included in the calculation are all applicable recurring and nonrecurring
expenses, and it is assumed that all dividends and distributions are reinvested.

To better illustrate the performance of money already invested in the Funds, the
Funds may also periodically advertise total return for specified periods without
subtracting sales charges.

Periodically, the Bond, New York, Pennsylvania, Tax-Free Income, Government
Securities, Short Maturity Government and Treasury Funds may also 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. (The amount
of income generated during the 30-day period is assumed to be earned, reinvested
at a constant rate at the end of such period and compounded semi-annually.)

HOW THE FUNDS COMPUTE YIELD

The Funds listed above 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 Small Company, Growth, Common Stock and Balanced Funds may compare their
performance to the following indices:

- The Dow Jones Industrial Average

- The Standard & Poor's 500 Stock Index

- The Russell 2000 Index

The World Fund may compare its performance to the "EAFE" (Europe, Australia, Far
East) Index.

The Bond, New York, Pennsylvania, Tax-Free Income, Government Securities, Short
Maturity Government, and Treasury Funds may compare their performance to the
following indices:

- Lehman Aggregate Bond Index

- Lehman Municipal Bond Index

- Lehman Government Bond Index

- IBC/Donoghue's Money Fund Report

In addition, the New York, Pennsylvania and Tax-Free Income Funds may quote
tax-equivalent yields in advertisements.

To determine the tax-equivalent yield of the Tax-Free Income Fund, divide the
tax-exempt part of the Fund's yield by an amount which is one minus a stated tax
rate, and add the result to that part, if any, of the Fund's yield that is
taxable.
HOW THE FUNDS COMPUTE TAX-EQUIVALENT YIELD

To determine the tax-equivalent yields of the New York or Pennsylvania Funds,
the yield as calculated above is increased by the amount necessary to reflect
the payment of federal and either New York State and City or Pennsylvania state
taxes, as applicable, at a stated tax rate.

Note: The tax-equivalent yields for the New York, Pennsylvania and Tax-Free
Income Funds will always be higher than their yields. (For more information on
performance data, please refer to "Total Return, Yield and Tax-Equivalent Yield
Information" in the Statement of Additional Information.)

46
FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863)

PROSPECTUS
<PAGE>
...............................................................................

ORGANIZATION OF THE FUNDS

All of the Funds except the Pennsylvania Fund are series of the Company. The
Company was originally incorporated in Delaware as Group Securities, Inc. in
1933. The Company sold its first shares to the public in January 1934, and
became a Maryland corporation in 1973. Effective February 3, 1997, the name of
the Sentinel Short-Intermediate Government Fund was changed to Sentinel Short
Maturity Government Fund. Previously, it was known as Sentinel
Short-Intermediate Government Fund. Effective March 31, 1997, the Sentinel Small
Company Fund began doing business under its present name. Previously, it was
known as Sentinel Emerging Growth Fund. When the Articles of Amendment are
filed, the Charter will reflect the new names.

HISTORICAL INFORMATION ABOUT THE FUNDS

The Company's stock is fully paid and non-assessable. Each share of the Company
entitles its shareholders to one vote for each dollar of net asset value per
share for all purposes.

In the case of dissolution or other liquidation of the Company, shareholders are
entitled to receive (ratably per share) the net assets of each Fund in which
they are invested, with any general assets distributed ratably per share,
regardless of the Fund. Voting rights are non-cumulative.

The Pennsylvania Fund is a separate trust formed under Pennsylvania law in 1986.
Its shares of beneficial interest are fully paid and non-assessable. Each share
of beneficial interest is entitled to one vote for all purposes. Voting rights
are non-cumulative. The Fund became a member of the Sentinel Family of Funds on
March 1, 1993, when the Advisor and the Distributor assumed responsibility for
the Fund. Previously, the Fund was known as "ProvidentMutual Pennsylvania
Tax-Free Trust".

FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863) 47

PROSPECTUS
<PAGE>
...............................................................................

THE SENTINEL FUNDS
National Life Drive
Montpelier, VT 05604

INVESTMENT ADVISOR
Sentinel Advisors Company
National Life Drive
Montpelier, VT 05604

PRINCIPAL UNDERWRITER
Sentinel Financial Services Company
National Life Drive
Montpelier, VT 05604

COUNSEL
Brown & Wood LLP
One World Trade Center
New York, NY 10048

INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036

FUNDS' CUSTODIAN AND DIVIDEND PAYING AGENT
*Investors Fiduciary Trust Company
127 West 10th Street
Kansas City, MO 64105

TRANSFER AGENT, SHAREHOLDER SERVICING AGENT AND ADMINISTRATOR
Sentinel Administrative Service Company
*National Life Drive
Montpelier, VT 05604
800-282-FUND (3863)
- - ------------

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

48
FOR INFORMATION AND ASSISTANCE CALL YOUR FINANCIAL ADVISOR OR INVESTOR SERVICES
1-800-282-FUND (3863)

PROSPECTUS
<PAGE>

STATEMENT OF ADDITIONAL INFORMATION

MARCH 31, 1997

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 Growth Fund (the "Growth Fund")
Sentinel Small Company Fund (the "Small Company Fund")
Sentinel World Fund (the "World 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 "Treasury 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 eleven separate and distinct
funds, ten of which are diversified (the New York Fund being
non-diversified), and the Pennsylvania Fund is a separate, non-diversified
fund. The eleven funds of the Company and the Pennsylvania Fund are
referred to hereinafter collectively as the "Funds", and individually as a
"Fund". The Funds are described in a Prospectus of the Funds dated March 31,
1997 (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 Mutual Life Insurance Company ("Provident Mutual") 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. This Statement of Additional Information has been incorporated by
reference into the Prospectus.

<PAGE>

TABLE OF CONTENTS

Page
----

The Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Investment Objectives and Policies . . . . . . . . . . . . . . . . . . . . 3
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . . 13
Management of the Funds. . . . . . . . . . . . . . . . . . . . . . . . . . 15
The Investment Advisory Contracts. . . . . . . . . . . . . . . . . . . . . 20
The Distribution Contracts . . . . . . . . . . . . . . . . . . . . . . . . 22
The Distribution Plans . . . . . . . . . . . . . . . . . . . . . . . . . . 22
The Fund Services Agreements . . . . . . . . . . . . . . . . . . . . . . . 24
Portfolio Transactions and Brokerage Commissions . . . . . . . . . . . . . 25
Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
How To Purchase Shares and Reduce Sales Charges. . . . . . . . . . . . . . 28
Issuance of Shares at Net Asset Value. . . . . . . . . . . . . . . . . . . 28
How to Redeem Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . . . . 29
Computation of Maximum Offering and Redemption Prices. . . . . . . . . . . 30
Dividends and Capital Gains Distributions. . . . . . . . . . . . . . . . . 32
Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Shareholder Services . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Total Return, Yield and Tax-Equivalent Yield Information . . . . . . . . . 39
General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Appendix A - Description of Bond Ratings . . . . . . . . . . . . . . . . . 44
Appendix B - Economic Conditions in New York . . . . . . . . . . . . . . . 48
Appendix C - Economic Conditions in Pennsylvania . . . . . . . . . . . . . 56

<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 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 Mutual.

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 Treasury Funds. On the same date, 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 "How to Purchase Shares".

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.

INVESTMENT OBJECTIVES AND POLICIES

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

GENERAL CONSIDERATIONS

Each Fund'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

<PAGE>

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 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.

CONSIDERATIONS APPLICABLE TO THE FIXED-INCOME FUNDS

Each of the Bond Fund, the New York Fund, the Tax-Free Income Fund, and
the fixed income portion of the Balanced 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.

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 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 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 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.

CONSIDERATIONS APPLICABLE TO THE TAX-EXEMPT FUNDS

As described in the Prospectus, the Tax-Free Income Fund, the
Pennsylvania Fund and the New York Fund (together, the "Tax-Exempt Funds")
may purchase and sell exchange-traded financial futures contracts ("financial
futures contracts") to hedge their portfolios of municipal bonds against
declines in the value of such securities and to hedge against increases in
the cost of securities they intend to purchase. To hedge their portfolios,
the Tax-Exempt

<PAGE>

Funds may take an investment position in a financial futures contract which
will move in the opposite direction from the portfolio position being hedged.
While the use of hedging strategies is intended to moderate capital changes
in portfolio holdings and thereby reduce the volatility of the net asset
value of Fund shares, the Tax-Exempt Funds anticipate that their net asset
values will fluctuate. Set forth below is information concerning financial
futures transactions.

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

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

<PAGE>

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.

<PAGE>

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

<PAGE>

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

<PAGE>

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 could subject holders of
certain private activity bonds to an 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 (as defined in the Prospectus), and the New York
Fund will attempt to invest 100% of its assets in New York Obligations (as
defined in the Prospectus). 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 to this
Statement of Additional Information.

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) or is
exempt only from Pennsylvania or New York personal income taxes (such as
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities). Moreover, under such conditions, all three

<PAGE>

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

<PAGE>

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 ("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

<PAGE>

borne directly by the Pennsylvania Fund and ultimately by its shareholders.
High portfolio turnover may result in the realization of substantial net
capital gains. 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. The Fund will, however, comply with the federal
income tax requirement that less then 30% of its gross income be derived from
the sale or other disposition of securities held for less than three months.

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 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 the Subadvisor (as defined in the Prospectus)
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

<PAGE>

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 recognize 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. At November 30, 1996, the Common
Stock Fund had 3.7%, the Balanced Fund had 4.5%, the Bond Fund had 12.4% of
its net assets invested in foreign securities; the Small Company, Growth,
Tax-Free Income, Pennsylvania, New York, Treasury, Government Securities and
Short Maturity Government Funds had no such investments as of that date.

INVESTMENT RESTRICTIONS

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

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

It is also a fundamental policy of the Company that it may not borrow
money, except 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, or the Advisor 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 to the extent the Tax-Exempt
Funds may enter into futures transactions and related options for hedging
purposes as described above. None of

<PAGE>

the Funds may invest in oil, gas or other mineral exploration or development
programs or leases. None of the Funds will 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 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 of 1933. It also may not purchase for
any Fund securities of any issuer beyond a market value of 5% of such Fund's
net assets, and may not invest in securities which are not readily
marketable. The Company may not make short sales of securities.

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

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

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

The Pennsylvania Fund may not:

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

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

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

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

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

<PAGE>

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 thirteen
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 the Sub-advisor with respect to the World Fund. See
the "The Investment Advisory Contracts", 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. As of March 1, 1997, 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 33,432,906.644 shares amounting to 16.3% of the outstanding
shares of the Company (10% of the voting power) which included 2,728,470.011
shares of the Common Stock Fund amounting to 7.6% of such class,
1,969,167.420 shares of the Balanced Fund amounting to 11.6% of such class,
955,754.938 shares of the Growth Fund amounting to 20% of such class,
872,830.984 shares of the Small Company Fund amounting to 4.4% of such class,
1,329,147.696 shares of the World Fund amounting to 26% of such class,
3,592,170.375 shares of the Bond Fund amounting to 22% of such class,
864,829.360 shares of the Government Securities Fund amounting to 10% of such
class, 219,586.555 shares of Short Maturity Fund amounting to 5.2% of such
class, 20,222,739.080 shares of the Treasury Fund amounting to 24% of such
class, 606,681.695 shares of the Tax-Free Income Fund amounting

<PAGE>

to 8.5% of such class, and 4,933.643 shares of the New York Fund amounting to
1.0% of such class. National Life and its affiliates also owned 66,594.887
shares of the Pennsylvania Fund amounting to 2.6% of the outstanding shares
on such date.

KENISTON P. MERRILL* - CHAIRMAN AND DIRECTOR/TRUSTEE
National Life Drive
Montpelier, Vermont 05604
Age 60
Sentinel Advisors Company - Chairman and Chief Executive Officer, 1993 to
present; Sentinel Advisors, Inc. - Chairman and Chief Executive Officer,
1986 to 1993, President and Chief Operating Officer, 1982 to 1986, Director,
1982 to present; National Life - Executive Vice President and Chief
Investment Officer, February, 1994 to 1995, Senior Vice President and Chief
Investment Officer, 1989 to February, 1994, Senior Vice
President-Investments, 1986 to 1989, Vice President, 1982 to 1986; National
Life Investment Management Company, Inc. - Chairman and Chief Executive
Officer, 1990 to 1995, President and Chief Executive Officer, 1986 to 1990,
Director, 1982 to present; Sentinel Cash Management Fund, Inc. - Chairman
and Director, 1990 to 1993, President and Director, 1987 to 1990; American
Guaranty & Trust Company - Director, 1993 to present.

JOSEPH M. ROB - PRESIDENT AND DIRECTOR/TRUSTEE
National Life Drive
Montpelier, Vermont 05604
Age 54
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, 1986 to present; Sentinel Administrative Service
Corporation - Chairman of the Board, 1988 to 1993; Sentinel Cash Management
Fund, Inc. - President, 1990 to 1993, Vice President, 1985 to 1990; American
Guaranty & Trust Company - Chairman, 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 65
National Life - Former Vice Chairman of the Board, 1985 to 1990, Director,
1975 to 1991; Sentinel Cash Management Fund, Inc. - Chairman, 1987 to 1990,
President 1985 to 1987, Director, 1985 to 1993; National Life Investment
Management Company, Inc. - Chairman, 1986 to 1990, President, 1985 to 1986,
Director, 1985 to 1990; Sentinel Advisors, Inc. - Chairman, Chief Executive
Officer, 1985 to 1986, Director, 1985 to 1987, 1988 to 1990; ESI - Director,
1985 to 1987, 1988 to 1990; 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 66
Distinguished Bank Research Professor Emeritus, The Fuqua School of Business,
Duke University, 1993 to present; Distinguished Bank Research Professor, 1974
to 1993; USLIFE

<PAGE>

Income Fund, Inc. - Director, 1973 to present; Sentinel Cash Management Fund,
Inc. -Director, 1981 to 1993.

RICHARD D. FARMAN - DIRECTOR/TRUSTEE
555 West Fifth Street, 29th Floor
Los Angeles, California 90013-1011
Age 61
President, Chief Operating Officer and Director - Pacific Enterprises, 1993 to
present; Chairman and Chief Executive Officer - Southern California Gas
Company, 1989 to 1993; Chairman - KCET Public Service Television; Director
and Executive Committee Member - Los Angeles Area Chamber of Commerce;
Director - Union Bank; Past Chairman and Director - American Gas Association;
Director - Interstate Natural Gas Association of America.

JOHN D. FEERICK - DIRECTOR/TRUSTEE
140 West 62nd Street
New York, New York 10023
Age 60
Fordham University School of Law - Dean, 1982 to present; Sentinel Cash
Management Fund, Inc. -Director, 1984 to 1993; American Home Products
Corporation - Director, 1987 to present; The Association of the Bar of the
City of New York - President, 1992 to 1994; New York State Commission on
Government Integrity - Chairman, 1987 to 1990.

RICHARD I. JOHANNESEN, JR. - DIRECTOR/TRUSTEE
87 Whitney Lane
Stowe, Vermont 05672
Age 62
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 66
Sports Consultant; formerly Executive Director - National Fitness Foundation;
former U.S. Congressman; ProvidentMutual Investment Shares, Inc. - Director,
1990 to 1993; ProvidentMutual Growth Fund, Inc. - Director, 1990 to 1993.

DEBORAH G. MILLER - DIRECTOR/TRUSTEE
3 Bates Street
Cambridge, Massachusetts 02140
Age 47
Digital Equipment Corporation - Vice President-Americas Systems Business
Unit, 1995 to present; Miller Van Buren, Inc. - Chief Executive Officer, 1994
to 1995; Silicon Graphics - Vice President, 1991 to 1994; International
Business Machines Corporation - General Manager, 1984 to 1987.

STANLEY R. REBER - DIRECTOR/TRUSTEE
1600 Market Street
Philadelphia, Pennsylvania 19103
Age 53

<PAGE>

Provident Mutual Life Insurance Company - Executive Vice President, 1988 to
present; prior thereto, Senior Vice President; President and Director of
Market Street Fund, Inc.; President, CEO and Director of Sigma American
Corporation; Director of Providentmutual Life and Annuity Company of America,
Providentmutual Investment Management Company, Providentmutual Holding
Company, 1717 Capital Management Company, Software Development Corp., and
Provestco, Inc.

SUSAN M. STERNE - DIRECTOR/TRUSTEE
5 Glen Court
Greenwich, Connecticut 06830-4505
Age 51
Economic Analysis Associates, Inc. - President and Chief Economist, 1979 to
present; Sentinel Cash Management Fund, Inc. - Director, 1990 to 1993.

ANGELA E. VALLOT - DIRECTOR/TRUSTEE
Arent Fox Kintner Plotkin & Kahn
1675 Broadway, 25th Floor
New York, NY 10019
Age 40
Arent Fox Kintner Plotkin & Kahn - Lawyer, 1990 to present; Trustee, District
of Columbia Retirement Board; Acting Director of the Office of White House
Liason-Clinton-Gore Transition Team, 1993; Member of the Steering Committee
of the NAACP Legal Defense Fund.

JOHN RAISIAN, Ph.D. - DIRECTOR/TRUSTEE
Hoover Institution, Stanford University
Serra and Galvey Streets
Stanford, California 94305-6010
Age 47
Director and Senior Fellow - Hoover Institution, 1991 to present; Director,
Stanford Faculty Club, 1994 to present; Member of the Editorial Board,
Journal of Labor Research, 1983 to present; Member, American Economic
Association, World Affairs Council, Council of Foreign Relations, National
Association of Scholars.

JOHN M. GRAB, JR., C.P.A. - VICE PRESIDENT
National Life Drive
Montpelier, Vermont 05604
Age 50
Sentinel Management Company - Senior Vice President, 1993 to present;
Sentinel Administrative Service Company - Senior Vice President, 1993 to
present; Sentinel Administrative Service Corporation - Senior Vice President
and Chief Financial Officer, 1988 to 1993; ESI - Senior Vice President and
Chief Financial Officer, 1988 to present; American Institute of Certified
Public Accountants; The Vermont Society of Certified Public Accountants.

MARVIN ABER - VICE PRESIDENT AND TREASURER
National Life Drive
Montpelier, Vermont 05604
Age 60
Sentinel Administrative Service Company - Vice President, 1993 to present;
ESI - Vice President, 1988 to present, Treasurer, 1974 to 1988; Sentinel
Administrative Service Corporation - Vice President, 1988 to 1993; National
Life Investment Management Company,

<PAGE>

Inc., - Treasurer, 1980 to 1988; Sentinel Cash Management Fund, Inc. -
Treasurer, 1981 to 1993, Assistant Secretary, 1984 to 1993.

D. RUSSELL MORGAN - SECRETARY
National Life Drive
Montpelier, Vermont 05604
Age 41
National Life - Counsel, 1994 to present; Associate Counsel, 1990 to 1994,
Assistant Counsel, 1986 to 1990, Attorney 1985 to 1986; Sentinel Cash
Management Fund, Inc. - Secretary, 1986 to 1993; ESI - Counsel, 1986 to
present; Sentinel Advisors, Inc. - Counsel, 1986 to 1993; Sentinel Advisors
Company - Sentinel Financial Services Company - Sentinel Administrative
Service Company - Counsel, 1993 to present; Life Insurance Company of the
Southwest - Director, 1996 to present; LSW National Holdings, Inc. -
Secretary, 1996 to present.

*As of March 1, 1997, National Life, with which Mr. Merrill and Mr. Rob are
affiliated, together with National Life's affiliates, owned of record and
beneficially the number of shares of the Funds described on pages 15-16 of this
Statement of Additional Information.

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

The officers and directors/trustees of the Funds who are employees of
National Life, Provident Mutual, 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, 1996 to the
officers and directors/trustees of the Funds as a group was $265,033.

The following table sets forth for the fiscal year ended November 30,
1996 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> <C>
Kalman J. Cohen $22,000 $3,300 None $25,300
Richard J. Borda $23,500 $3,500 None $27,000
Richard D. Farman $20,500 $3,100 None $23,600
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 $1,233 None $24,733
Susan M. Sterne $22,000 $3,300 None $25,300
Angela E. Vallot $ 4,000 $ 625 None $ 4,625
</TABLE>

<PAGE>

CODE OF ETHICS

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

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

THE INVESTMENT ADVISORY CONTRACTS

The Advisor provides general supervision of the Funds' investments as
well as certain administrative and related services. As compensation in full
for services rendered under its advisory agreement, the Company will pay to
the Advisor a monthly fee determined as follows: (1) With respect to the
Small Company, Growth, World and Balanced Funds: 0.70% per annum on the first
$200 million of aggregate average daily net assets of such funds in the
aggregate; 0.65% per annum on the next $100 million of such assets; 0.60% per
annum on the next $100 million of such assets; and 0.55% per annum on such
assets in excess of $400 million. (2) With respect to the Common Stock Fund:
0.55% per annum on the aggregate average daily net assets of the Fund. (3)
With respect to the Bond, New York, Tax-Free Income, Government Securities
and Short Maturity Government Funds: 0.55% per annum on the first $200
million of aggregate average daily net assets of such funds in the aggregate;
0.50% per annum on the next $200 million of such assets; and 0.45% per annum
on such assets in excess of $400 million. (4) With respect to the Treasury
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.
For the fiscal year ended November 30, 1996, such fees aggregated
$11,732,548, for the fiscal year ended November 30, 1995, such fees
aggregated $10,156,497, and for the fiscal year ended November 30, 1994, such
fees aggregated $9,511,387.

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, 1996, November 30, 1995 and November 30, 1994, the
Pennsylvania Fund paid advisory fees of $189,231, $182,103 and $182,041,
respectively.

Under the Company's advisory agreement, fees are allocated to the various
Funds of the Company which share common fee schedules in proportion to such
Funds' net assets. Each advisory agreement provides a guarantee by the
Advisor that if expenses (including the management fee but excluding
interest, taxes, brokerage fees and, where permitted, extraordinary expenses)
borne by a Fund in any fiscal year exceed the expense limitations applicable
to such Fund imposed by various state securities regulations, as such
limitations may

<PAGE>

be lowered or raised from time to time, the Advisor will reimburse such Fund
for any excess. Currently, the most stringent state expense limitation is
2.5% of the first $30,000,000 of average net assets, 2.0% of the next
$70,000,000 of average net assets and 1.5% of the remaining average net
assets of each Fund. The Advisor has agreed to reimburse each Fund for any
expenses in excess of such limitation annually before publication of such
Fund's Annual Report. Each of the Funds' expenses during the past fiscal
year were below the prescribed limitation and therefore no reimbursement was
necessary.

The Company's advisory agreement, which was approved by the Company's
shareholders on November 30, 1992, must 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 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 the Sub-advisor dated
March 1, 1997. In accordance with this sub-advisory agreement, the Sub-advisor
provides the World Fund with a continuous investment program consistent with
its stated investment objectives and policies. The Advisor pays to the
Sub-advisor 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 the Sub-advisor or by action of the Board of Directors of
the Company or the shareholders of the World Fund on 60 days' written notice,
without penalty, and terminates automatically in the event of its assignment.
For the period April 1, 1996 to February 28, 1997, the Sub-advisor provided
the same services under an identical sub-advisory agreement dated April 1,
1996, and prior to that, Cashman Farrell & Associates was the Sub-advisor
under a similar sub-advisory agreement. The fees paid to the Sub-advisor and
Cashman Farrell by the Advisor were $166,806 to INVESCO for the period April
1, 1996 to November 30, 1996, and $66,645 to Cashman Farrell for the period
December 1, 1995 to March 31, 1996, for a total of $233,451 for the fiscal
year ended November 30, 1996, $165,408 to Cashman Farrell for the fiscal year
ended November 30, 1995, and $122,288 to Cashman Farrell for the fiscal year
ended November 30, 1994.

<PAGE>

THE DISTRIBUTION CONTRACTS

SFSC acts as the principal underwriter of shares of the Funds, and 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 its receipts from the sale
of shares, before expenses and after allowance by it of the dealer
concession, were $181,026, $127,814 and $121,401 for the fiscal years ended
November 30, 1996, 1995 and 1994, respectively. During such periods, ESI
received reallowances of $2,788,185, $2,332,813 and $2,733,451, respectively,
1717 Capital Management Company received reallowances of $521,911, $799,854
and $1,102,934, respectively. For the fiscal year ended November 30, 1996,
Janney Montgomery Scott and Hornor Townsend & Kent received reallowances of
$442,399 and $582,120, respectively; and during the period from March 27,
1995 to November 30, 1995 they received reallowances of $148,021 and
$156,325, respectively.

The distribution contracts of the Company and the Pennsylvania Fund 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 Treasury 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. Finally, the Class B shares of the Small Company,
World, Common Stock, Balanced, Bond and Tax-Free Income Funds have adopted a
Class B Distribution Plan, effective April 1, 1996 (all of these plans are
collectively hereinafter referred to as the "Plans"). See "Distribution
Plans" in the Prospectus.

The Class A and Class B shares of each Fund (except for the Treasury
Fund) paid fees under the Class A Plan in the amounts set forth below for the
periods indicated:

FUND TOTAL 12b-1 FEES

Year Ended Year Ended Year Ended
November 30, 1996 November 30, 1995 November 30, 1994
--------------------- ----------------- -----------------
A Shares B Shares
<S> <C> <C> <C> <C>
Common Stock $3,345,000 $85,382 $2,545,000 $1,161,000
Balanced 835,591 31,780 741,076 544,500
Growth 189,755 -- 145,000 83,500
Small Company 278,965 6,630 281,355 290,100
World 183,351 10,900 132,778 96,797
Bond 204,195 14,799 196,750 141,500
Government Securities 199,480 -- 210,478 240,000
Short Maturity (1) 123,929 -- 48,200 --
Tax-Free Income 207,052 2,765 211,125 211,325
New York (2) 11,005 -- 6,666 --

<PAGE>

Pennsylvania 68,800 -- 66,219 62,300

</TABLE>

(1) Commenced operations on March 24, 1995
(2) Commenced operations on March 27, 1995

The Plan applicable to the Class B shares of the Small Company, World,
Common Stock, Balanced, Bond and Tax-Free Income Funds became effective on
April 1, 1996. It is expected that the amounts payable to SFSC under this
Class B Plan will be equal to 1.00% of the net assets of the Class B 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 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.

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

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

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

THE FUND SERVICES AGREEMENTS

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

For these services, the Fund Services Agreements provide for the Funds to
pay to Sentinel Service fixed fees totalling $926,500 per year for fund
accounting and financial

<PAGE>

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, 1996, 1995 and 1994 were $3,526,500, $3,470,333
and $3,358,000, respectively.

Sentinel Service is a Vermont general partnership of which affiliates of
National Life, Provident Mutual 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 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 Bond Fund 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.

<PAGE>

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 Securities Exchange Act of 1934, as amended (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 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 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 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 and to the Advisor, it is the opinion of
the management of the Funds that such information is only supplementary to
the Advisor's own research effort since the information must still be
analyzed, weighed and reviewed by the Advisor's staff.

The Funds obtain Lipper Directors' Analytical Data from Lipper Analytical
Distributors, Inc., in exchange for fund brokerage commissions, presently in
the amount of $22,000 per year. This service is available only for brokerage
commissions.

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, 1996,
1995 and 1994, the Funds paid total brokerage commissions of $1,156,527,
$1,102,148 and $909,949, respectively. Brokerage commissions paid by each
Fund were as follows:

YEAR ENDED
Fund 11/30/96 11/30/95 11/30/94
- - ---- -------- -------- --------
Common Stock $656,739 $650,368 $414,244
Balanced 91,540 109,898 115,112
Growth 135,426 108,107 105,150
Small Company 162,972 126,348 131,104
World 109,850 107,427 144,339
Bond --- --- ---
Government Securities --- --- ---
Short Maturity Gov't (1) --- --- N/A
Treasury --- --- ---
Tax-Free Income --- --- ---
New York (2) --- --- N/A
Pennsylvania --- --- ---

<PAGE>

(1) Commenced operations on March 24, 1995.
(2) Commenced operations on March 27, 1995.

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,
approximately 100% was allocated in 1996, 1995 and 1994 to brokers or dealers
whose furnishing of research information was a factor in their selection.

PORTFOLIO TURNOVER

Purchases for the Small Company, Growth, Common Stock, 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 rates of
portfolio turnover for each of the Funds during the fiscal years ended
November 30, 1996, 1995 and 1994 were as follows:

Year Ended Year Ended Year Ended

Fund 11/30/96 11/30/95 11/30/94
- - ---- -------- -------- --------
Common Stock 22% 22% 15%
Balanced 83% 110% 66%
Growth 98% 84% 58%
Small Company 60% 79% 46%
World 14% 32% 30%
Bond 176% 237% 133%
Government Securities 614% 367% 149%
Short Maturity Gov't(1) 120% 58% N/A
Treasury N/A N/A N/A
Tax-Free Income 112% 112% 92%
New York(2) 48% 32% N/A
Pennsylvania 56% 80% 56%

(1) Commenced operations on March 24, 1995.
(2) Commenced operations on March 27, 1995.

In pursuit of the investment objectives of the Bond, Government
Securities, Short Maturity Government, Tax-Free Income and New York Funds, it
is expected that assets will be managed actively. In order to maximize
income and protect the income stream or improve the quality of the portfolio,
in light of market and economic conditions as interpreted or anticipated by
the Advisor, these Funds' portfolios will be monitored constantly and will be
adjusted when deemed appropriate in furtherance of the Funds' investment
objectives. Portfolio turnover is the ratio of the lesser of annual
purchases or sales of portfolio securities to average monthly market value,
not including short-term securities. One of the requirements under the Code
for qualification as a regulated investment company is that less than 30% of
a Fund's gross income may be derived from gains from the sale or disposition
of securities held for less than three months.

<PAGE>

Accordingly, a Fund may be restricted in effecting portfolio turnover
transactions with regard to items that have been held in such Fund for less
than three months.

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 both Class A and Class B
shares 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 Funds offering both Class A and Class B shares. 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. As of March 1, 1997, none of the approximately 103,188
shareholders owns as much as 5% of the voting stock of any Fund except
National Life and its affiliates, whose holdings are set forth on pages 15-16
of this Statement of Additional Information, and except for the following
shareholders of the New York Fund: Mr. Louis P. Dicerbo, 261 Madison Avenue,
New York, New York 10016-2303 - 134,546.765 shares amounting to 27% of the
class; Ms. Arlene Federico, 39 Fruitledge Road, Brookville, New York
11545-3315 - 63,087.643 shares amounting to 12.5% of the class; Ms. Donna
Bernstein, 15 Parkway Drive, Roslyn Heights, New York 11577-2705
- - -31,798.680 shares amounting to 6.3% of the class, and Ms. Mary Vezza, 1
Hillandale Close, Scarsdale, NY 10583-7659 - 52,706.206 shares amounting to
10% of the class.

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

<PAGE>

Class B shares, which are offered by the Common Stock, Balanced, Small
Company, World, Bond, and Tax-Free Income Funds, is equal to the current net
asset value per share. A contingent deferred sales charge ("CDSC") may apply
to redemptions of Class B shares, 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 "How to Purchase Shares" 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. See "How to Purchase Shares - Reduced Sales
Charges" in the Prospectus.

HOW TO REDEEM SHARES

The Funds normally will buy back your shares on demand on any business
day (as defined below). Class A shares are repurchased at current net asset
value; a CDSC may be payable on redemptions of Class B shares, and will be
deducted from the redemption proceeds. For further information, please refer
to the Prospectus.

DETERMINATION OF NET ASSET VALUE

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

The Treasury 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 Treasury Fund

<PAGE>

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 Treasury 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 Treasury 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 Treasury 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 Treasury 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 Treasury 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 Treasury Fund by having each shareholder
proportionately contribute shares to the Treasury 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 Treasury 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 Treasury Fund.

Since the net income of the Treasury Fund is determined and declared as a
dividend immediately prior to each time the asset value of the Treasury Fund
is determined, the net asset value per share of the Treasury 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 Treasury Fund,
representing the reinvestment of dividend income, is reflected by an increase
in the number of shares of the Treasury 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.

<PAGE>

COMPUTATION OF MAXIMUM OFFERING AND REDEMPTION PRICES
AT NOVEMBER 30, 1996

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 Small
Stock Balanced Growth Company World
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Net assets $1,306,592,040 $297,287,616 $69,816,281 $99,392,706 $71,457,559

Shares outstanding 32,181,137 16,027,384 3,974,158 19,207,900 4,554,373
Net asset value per
share (redemption
price) $40.60 $18.55 $17.57 $5.17 $15.69
Maximum offering
price per share* $42.74 $19.53 $18.49 $5.44 $16.52
- - ---------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------
Government Short Maturity
Bond Securities Gov't. Treasury
Fund Fund Fund Fund
<S> <C> <C> <C> <C>
Net assets $99,408,280 $92,299,021 $36,473,694 $80,804,137
Shares outstanding 15,657,296 9,233,946 3,718,756 80,804,137
Net asset value per
share (redemption
price) $6.35 $10.00 $9.81 $1.00
Maximum offering
price per share* $6.61 $10.42 $9.91 $1.00
- - -----------------------------------------------------------------------------------------
</TABLE>

- - -----------------------------------------------------------------------
Tax-Free
Income New York Pennsylvania
Fund Fund Fund

Net assets $99,967,359 $5,748,597 $35,545,252
Shares outstanding 7,389,500 490,673 2,674,841
Net asset value per
share (redemption
price) $13.53 $11.72 $13.29
Maximum offering
price per share* $14.09 $12.21 $13.84

<PAGE>

CLASS B SHARES:

<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------
Common Small
Stock Balanced Company World Bond
Fund Fund Fund Fund Fund

<S> <C> <C> <C> <C> <C>
Net assets $27,257,478 $10,948,196 $1,943,029 $3,187,686 $4,714,358
Shares outstanding 671,906 589,175 379,304 204,653 741,210
Net asset value per
share (redemption
price) $ 40.57 $ 18.58 $ 5.12 $ 15.58 $ 6.36
Maximum offering
price per share* $ 40.57 $ 18.58 $ 5.12 $ 15.58 $ 6.36
- - ----------------------------------------------------------------------------------------------------
Tax-Free
Treasury Income
Fund Fund

Net assets $3,160,340 $765,605
Shares outstanding 3,160,340 56,555
Net asset value per
share (redemption
price) $ 1.00 $ 13.54
Maximum offering
price per share* $ 1.00 $ 13.54

- - ----------------------------------------------------------------------------------------------------
</TABLE>

*For the Small Company Fund, Growth Fund, World Fund, Common Stock Fund and
Balanced Fund, the maximum offering price is 1000/950 times the net asset value
per share. For the Bond Fund, Tax-Free Income Fund, New York Tax-Free Income
Fund, Government Securities 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 Treasury Fund, the maximum offering price per
share is equal to the net asset value per share.

**In the case of Class B shares, the maximum offering price is equal to the
net asset value per share.

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS

Dividends, as explained in the Prospectus, are paid annually for the
Class A and Class B shares of the Small Company, World and Growth Funds,
quarterly for the Class A and Class B shares of the Balanced and Common Stock
Funds, and monthly for the Class A and Class B shares of the Bond, Tax-Free
Income, Government Securities, Short Maturity Government, Pennsylvania and
New York Funds. Distributions of any net realized gains on sales of
investments of any Fund for a fiscal year ordinarily are paid in the month of
December

31
<PAGE>

immediately following the November 30th fiscal year-end. Dividends for the
Treasury Fund are declared daily and paid monthly, as described in the
Prospectus.

Except where the shareholder, in the manner described below, has elected
otherwise, any income dividends or capital gains distributions of a Fund will be
made in shares of such Fund at the net asset value at the close of business on
the designated record date, resulting in the automatic reinvestment of cash
dividends and distributions. Such an acquisition of shares involves no sales
charge. Unless the shareholder is participating in a Systematic Withdrawal
Plan, the shareholder may elect to receive in cash either both income dividends
and capital gains distributions or only income dividends or only capital gains.
Such election may be made by written notice to Sentinel Service or by phoning
Investor Services and will take effect for distributions for which the record
date is more than ten days after the receipt by Sentinel Service of such written
notice. The election will remain in effect until revoked by similar notice.

TAXES

GENERAL

Each Fund intends to continue to qualify for the special tax treatment
afforded regulated investment companies ("RICs") under the Code. Under that
section, if 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 and Class B shareholders. The Company intends to
distribute substantially all of such income.

As discussed in the Prospectus, the Company consists of eleven separate
Funds. Each such Fund is treated as a separate corporation for federal income
tax purposes. Each such Fund 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, except that "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. Any loss upon the sale or exchange of
Fund shares held for six months or less will be disallowed 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. Not later
than 60 days after the close of its taxable year, each Fund will provide its
shareholders with a written notice designating the amount of any ordinary

32
<PAGE>

income dividends, capital gain dividends, tax-exempt dividends and the portion
of any ordinary income dividends eligible for the dividends received deduction
allowed to corporations under the Code. Generally, distributions by the Tax-
Exempt Funds, the World Fund, the Bond Fund, the Government Securities Fund, the
Short Maturity Fund and the Treasury 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 between the
Class A and Class B shareholders 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 the
Class A and Class B 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 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 Treasury 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 who, to the
Company'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. If more
than 50% in value of the Fund's total assets at the close of its taxable year
consists of securities of foreign corporations, the Fund will be eligible to
file an election with the Internal Revenue Service pursuant to which
shareholders of the Fund will be required to include their proportionate shares
of such withholding taxes in their United States income tax returns as gross
income, treat such proportionate shares as taxes paid by them, and deduct such
proportionate shares in computing their taxable incomes or, alternatively, use
them as foreign tax credits against their United States income taxes. No
deductions for foreign taxes, however, may be claimed by noncorporate
shareholders who do not itemize deductions. A shareholder that is a nonresident
alien individual or a foreign corporation may be subject to United States
withholding tax on the income resulting from the 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

33
<PAGE>

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 the Fund. The World Fund (and other Funds to the extent
applicable) will report annually to shareholders the amount per share of such
withholding taxes. For this purpose, the World Fund will allocate foreign taxes
and foreign source income between the Class A and Class B shares according to a
method similar to that described above for the allocation of dividends eligible
for the dividends received deduction.

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 will be reduced (or the gain increased) to the extent any sales
charge paid to the Company reduces any sales charge such shareholder would have
owed the Company 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.

A loss realized on a sale or exchange of shares of a Fund will be
disallowed 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 anticipates that the
Funds will make sufficient timely distributions to avoid the imposition of the
excise tax. Since the required distributions are based only on taxable income,
the excise tax generally will not apply to the Tax-Exempt Funds, discussed
below.

At November 30, 1996, the Bond, Government Securities and Short Maturity
Government Funds had capital loss carryforwards for federal income tax purposes
of $4,488,182, $6,539,561 and $1,173,287, 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 as exempt-interest dividends in a
written notice mailed to shareholders within 60 days after the close of the
Fund's taxable year. For this purpose, each Tax-Exempt Fund will allocate
interest from tax-exempt obligations (as well as ordinary income, capital
gains and tax preference items discussed below) between the Class A and Class
B shareholders according to a method (which it believes 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 the Class A and Class
B shares during the taxable year, or such other method as the Internal
Revenue Service may prescribe. 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-

34
<PAGE>

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 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 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 an 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 Funds, to an AMT. The Tax-Exempt
Funds may purchase such private activity bonds, and will report to shareholders
within 60 days after the Tax-Exempt Funds' respective taxable year-ends the
portion of such Fund's dividends declared during the 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.

The Code previously imposed a deductible tax (the "Environmental Tax") on a
corporation's AMT income (computed without regard to the alternative tax net
operating loss deduction) at a rate of $12 per $10,000 (0.12%) of AMT income in
excess of $2,000,000. The Environmental Tax has expired but may be reinstated in
the future. The tax was imposed even if the corporation was not required to
pay an AMT because the corporation's regular income tax liability exceeded its
minimum tax liability. The Code provides, however, that RICs (such as the Tax-
Exempt Funds) would not be subject to the Environmental Tax. However, exempt-
interest dividends paid by the Tax-Exempt Funds that create alternative minimum
taxable income for corporate shareholders (as described above) could subject
corporate shareholders of such Funds to the Environmental Tax.

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

35
<PAGE>

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 Funds solely to reduce the risk of changes in price or interest rates with
respect to its 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.

One of the requirements for qualification as a RIC is that less than 30% of
the Fund's gross income be derived from gains from the sale or other disposition
of securities held for less than three months. Accordingly, the Tax-Exempt
Funds may be restricted in effecting closing transactions within three months
after entering into an options or financial futures contract.

FOREIGN CURRENCY TRANSACTIONS

A forward foreign exchange contract held by the World Fund that is a
Section 1256 contract will be marked to market, as described under "Tax
Treatment of Options and Futures Transactions". However, the character of gain
or loss from such a contract will generally be ordinary under Code Section 988.
The Fund may, nonetheless, elect to treat the gain or loss from certain forward
foreign exchange contracts as capital. In this case, gain or loss realized in
connection with a forward foreign exchange contract that is a Section 1256
contract will be characterized as 60% long-term and 40% short-term capital gain
or loss.

In general, gains from "foreign currencies" and from foreign currency
options, foreign currency futures and forward foreign exchange contracts
relating to investments in stock, securities or foreign currencies will be
qualifying income for purposes of determining whether a Fund qualifies as a RIC.
It is currently unclear, however, who will be treated as the issuer of a foreign
currency instrument or how foreign currency options, foreign currency futures
and forward foreign exchange contracts will be valued for purposes of the RIC
diversification requirements applicable to the World Fund.

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, the 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 the 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, the 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 each shareholder's Fund shares

36
<PAGE>

and resulting in a capital gain for any shareholder who received a distribution
greater than such shareholder's basis in Fund shares (assuming the shares were
held as a capital asset). These rules, however, will not apply to certain
transactions entered into by the World 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 Mutual 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.

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<PAGE>

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 (BOND, GOVERNMENT SECURITIES, SHORT-INTERMEDIATE
GOVERNMENT, TREASURY, TAX-FREE INCOME, NEW YORK AND PENNSYLVANIA FUNDS) A
special feature of the Class A shares of these Funds is the Check Writing
privilege available through IFTC. Any shareholder who would like to draw checks
on his account should check the box on the application captioned "Check Writing
Service" or subsequently, make a written request to the Funds. Checks then will
be provided by IFTC. These checks may be made payable in any amount not less
than $500, except for the Treasury Fund which has a minimum amount of not less
than $250. Withdrawals by check may not be made until shares have been in the
account for at least fifteen (15) days. The price at which shares will be
redeemed to cover a check will be the net asset value determined on the day the
check clears. Potential fluctuations in net asset value of the Funds' shares
should be taken into account when writing checks. If a dividend or capital
gains distribution is paid during the period between writing and clearing of a
check, the shareholder will be entitled to the dividend or distribution, but the
net asset value of the shares will be reduced by the amount of the dividend
payment. Because shareholders cannot determine the exact redemption price of
their shares at the time a check is written, closing an account through check
writing is not possible.

There is no fee for check writing, but, upon notice, a fee for this service
may be charged in the future. Fees are charged for stop payments, insufficient
funds or other valid reasons.

EXCHANGE PRIVILEGE This privilege also permits a shareholder whose
financial needs have changed to transfer an investment from a National Life
Variable Annuity account (presently the only such entity is the Variable
Annuity Account I). Such transfers from a National Life Variable Annuity
account are made without a sales charge on the basis of respective net asset
values after payment of a fee of $75 (in addition to any applicable transfer
taxes) to Sentinel Service for such transfer.

An exchange is a taxable transaction for income tax purposes and any gain
or loss realized is recognizable for such purposes.

REINSTATEMENT PRIVILEGE Shareholders who have redeemed all or part of
their shares may reinvest all or part of the redemption proceeds at the current
net asset value without charge if a written request is received or is postmarked
within one year after the redemption. Short-Intermediate 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-Intermediate 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.

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<PAGE>

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.

39
<PAGE>

TOTAL RETURN, YIELD AND TAX-EQUIVALENT YIELD INFORMATION

Each of the Funds (except the Treasury 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, 1996
were:

<TABLE>
<CAPTION>
Average Annual Total Return for the
-----------------------------------

One Year Ended Five Years Ended Ten Years Ended
November 30, 1996 November 30, 1996 November 30, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Common Stock Fund-A 20.81% 14.87% 12.46%
Common Stock Fund-B 14.90%(5)

Balanced Fund-A 10.73% 10.36% 9.62%
Balanced Fund-B 9.58%(5)

Growth Fund-A 16.48% 10.40% 9.54%

Small Company Fund-A 15.97% 9.47%(1) N/A
Small Company Fund-B 6.22%(5)

World Fund-A 9.68% 13.75%(1) N/A
World Fund-B 7.52%(5)

Bond Fund-A 0.31% 7.12% 7.89%
Bond Fund-B 4.49%(5)

Gov. Sec. Fund-A (1.02%) 6.00% 7.27%

Short Maturity Fund-A 4.58% 6.50%(2) N/A

Tax-Free Income Fund-A 0.52% 6.40% 7.34%(3)
Tax-Free Income Fund-B 4.48%(5)

New York Fund-A 0.48% 5.01(4) N/A

Pennsylvania Fund-A 0.76% 5.77% 6.17%
</TABLE>

(1) For the period from March 1, 1993 (commencement of operations) through
November 30, 1996.

(2) For the period from March 24, 1995 (commencement of operations) through
November 30, 1996.

(3) For the period from October 1, 1990, when Sentinel Tax-Free Income Fund
commenced operations, through November 30, 1996.

40
<PAGE>

(4) For the period from March 27, 1995 (commencement of operations) through
November 30, 1996.

(5) For the period from April 1, 1996 (commencement of operations) through
November 30, 1996 (not annualized).

The above amounts were computed by assuming a hypothetical initial
payment of $1,000. From this $1,000 the maximum sales load of $50 (5.0% of
the public offering price for the Class A shares of the Common Stock,
Balanced, Growth, Small Company and World Funds; $40 (4.0% of the public
offering price for the Class A shares of the Bond, Government Securities,
Tax-Free Income, New York and Pennsylvania Funds); and $10 (1% for the Class
A shares of the Short Maturity Government Fund) was deducted. It then was
assumed that all of the dividends and distributions by each of the Funds over
the relevant time period were reinvested. It then was assumed that at the
end of the one-, five- or ten-year period, after taking into account all
applicable recurring and nonrecurring expenses, the entire amount was
redeemed. The average annual total return then was calculated by calculating
the annual rate required for the initial payment to grow to the amount which
would have been received upon redemption (i.e., the average annual compound
rate of return). For the Class B shares, the maximum offering price is equal
to the net asset value.

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 and the Shearson Lehman Aggregate Bond Index.

The Bond, Tax-Free Income, Pennsylvania, New York, Government Securities
and Short Maturity Government Funds' annualized yields for the 30-day period
ended November 30, 1996 were:

Class A Shares Class B Shares
Bond Fund 5.93% 5.03%
Tax-Free Income 4.18% 2.92%
Pennsylvania 4.37% N/A
New York 4.16% N/A
Gov.'t Securities 5.67% N/A
Short Maturity 5.81% N/A

The average daily number of shares outstanding during the period that were
eligible to receive dividends were:

Class A Shares Class B Shares
Bond Fund 15,690,518 707,350
Tax-Free Income 7,411,988 53,781
Pennsylvania 2,669,089 N/A

41
<PAGE>

New York 502,087 N/A
Gov.'t Securities 9,309,373 N/A
Short Maturity 3,683,026 N/A

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 Bond,
Tax-Free Income, Pennsylvania, New York, Government Securities and Short
Maturity Government Funds as of November 30, 1996 were 6.17 %, 4.35%, 4.55%,
4.33%, 5.91% and 5.87%, 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 described in the
Prospectus. As of November 30, 1996, the tax-equivalent yield of the Tax-Free
Income Fund was 6.80%, the tax-equivalent yield of the Pennsylvania Fund was
7.31%, and the tax-equivalent yield of the New York Fund was 7.58%. For
purposes of the above tax-equivalent yield calculations the assumed federal tax
rate is 36%.

The Treasury 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
Treasury 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 Treasury 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 Treasury Fund and changes in interest rates on such investments, but also
on changes in the Treasury Fund's expenses during the period.

Yield information may be useful in reviewing the performance of the
Treasury Fund and for providing a basis for comparison with other investment
alternatives. However, the Treasury 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, 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 Website at
http://www.sec.gov. All cash and securities of the Funds, except for U.S.

42
<PAGE>

Government Securities which are represented only in book entry form at the
Federal Reserve Bank, are held by IFTC or in a central depository system in the
name of Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City,
Missouri 64105 as the Funds' Custodian. IFTC is also Dividend Disbursing Agent
for the Funds' shares. Sentinel Service is Transfer Agent and Registrar for the
Funds' shares. All correspondence regarding the Funds should be mailed to
Sentinel Administrative Service Company, P.O. Box 1499, Montpelier, Vermont
05601-1499.

The independent accountants for the Funds are Price Waterhouse 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
are incorporated by reference to the Funds' 1996 Annual Report to Shareholders.

43
<PAGE>

APPENDIX A

DESCRIPTION OF BOND RATINGS -

Moody's describes its ratings for corporate and municipal bonds as follows:

Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and generally are referred to as
"gilt edge". Interest payments are protected by a large or an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.

Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.

A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.

Baa - Bonds which are rated Baa are considered medium grade obligations;
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Caa - Bonds which are rated Caa are of poor standing. Such issues may be
in default or there may be present elements of danger with respect to principal
or interest.

Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.

C - Bonds which are rated C are the lowest rated class of bonds and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.

Rating Requirements: Moody's may apply numerical modifiers 1, 2 and 3 in
each generic rating classification from Aa through B in its bond rating system.
The modifier 1 indicates that the security ranks in the higher end of its
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic rating
category.

44
<PAGE>

A Standard & Poor's municipal debt rating is a current assessment of the
creditworthiness of an obligor with respect to a specific obligation. This
assessment may take into consideration obligors such as guarantors, insurers or
lessees.

The debt rating is not a recommendation to purchase, sell or hold a
security, inasmuch as it does not comment as to market price or suitability for
a particular investor.

The ratings are based on current information furnished by the issuer or
obtained by Standard & Poor's from other sources Standard and Poor's considers
reliable. Standard & Poor's does not perform an audit in connection with any
rating and may, on occasion, rely on unaudited financial information. The
ratings may be changed, suspended or withdrawn as a result of changes in, or
unavailability of, such information, or for other circumstances.

The ratings are based, in varying degrees, on the following considerations:

I. - Likelihood of default capacity and willingness of the obligor as to
the timely payment of interest and repayment of principal in accordance with the
terms of the obligation.

II - Nature of and provisions of the obligation.

III - Protection afforded to, and relative position of, the obligation in
the event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.

Standard & Poor's describes its ratings for corporate and municipal debt
as follows:

AAA - Debt rated AAA have the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA - Debt rated AA have a very strong capacity to pay interest and repay
principal and differ from the higher rated issues only in a small degree.

A - Debt rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than are bonds in higher rated categories.

BBB - Debt rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher-rated categories.

BB, B, CCC, CC, C - Debt rated BB, B, CCC, CC and C is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. BB
indicates the lowest degree of speculation and C the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.

BB - Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.

45
<PAGE>

B - Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.

CCC - Debt rated CCC has a CURRENTLY identifiable vulnerability to default,
and is dependent upon favorable business, financial and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal. The CCC rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.

CC - The rating CC is typically applied to debt subordinated to senior debt
that is assigned an actual or implied CCC rating.

C - The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.

CI - The rating CI is reserved for income bonds on which no interest is
being paid.

D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal repayments 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 if debt service payments 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.

NR - Indicates that no rating has been requested, that there is
insufficient information on which to base a rating or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.

Indicates that continuance of the rating is contingent upon Standard &
Poor's receipt of an executed copy of the escrow agreement or closing
documentation confirming investments and cash flows.

Provisional Ratings - The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and 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 risk of default upon failure of, such completion.
Accordingly, the investor should exercise his own judgment with respect to such
likelihood and risk.

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) are generally regarded as eligible for

46
<PAGE>

bank investment. In addition, the legal investment laws of various states may
impose certain rating or other standards for obligations eligible for investment
by savings banks, trust companies, insurance companies and fiduciaries
generally.

47
<PAGE>

APPENDIX B

ECONOMIC CONDITIONS IN NEW YORK

THE INFORMATION SET FORTH BELOW IS DERIVED FROM THE OFFICIAL STATEMENTS
PREPARED IN CONNECTION WITH THE ISSUANCE OF NEW YORK OBLIGATIONS AND OTHER
SOURCES THAT ARE GENERALLY AVAILABLE TO INVESTORS. THE FOLLOWING INFORMATION IS
PROVIDED AS GENERAL INFORMATION INTENDED TO GIVE A RECENT HISTORICAL DESCRIPTION
AND IS NOT INTENDED TO INDICATE FUTURE OR CONTINUING TRENDS IN THE FINANCIAL OR
OTHER CONDITIONS OF NEW YORK CITY (THE "CITY") OR NEW YORK STATE (THE "STATE" OR
"NEW YORK"). THE NEW YORK FUND HAS NOT INDEPENDENTLY VERIFIED THIS INFORMATION.

In recent years, the State, some of its agencies, instrumentalities and
public authorities and certain of its municipalities have faced serious
financial difficulties that could have an adverse effect on the sources of
payment for or the market value of the New York Obligations in which the New
York 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 national
economic downturn which began in July 1990 adversely affected the local economy,
which had been declining since late 1989. As a result, the City experienced job
losses in 1990 and 1991 and real Gross City Product ("GCP") fell in those two
years. Beginning in calendar year 1992, the improvement in the national economy
helped stabilize conditions in the City. Employment losses moderated toward
year-end and real GCP increased, boosted by strong wage gains. However, after
noticeable improvements in the City's economy during the calendar year 1994,
economic growth slowed in calendar year 1995. The City's current four-year
financial plan assumes that moderate economic growth will continue through
calendar year 2000. During the 1995 fiscal year, the City experienced
substantial shortfalls in payments of non-property taxes from those forecasted.

For each of the 1981 through 1996 fiscal years, the City achieved balanced
operating results as reported in accordance with generally accepted accounting
principles ("GAAP"). The City was required to close substantial budget gaps in
recent fiscal years in order to maintain balanced operating results. There can
be no assurance that the City will continue to maintain a balanced budget as
required by the State law without additional reductions in City services or
entitlement programs or tax or other revenue increases which could adversely
affect the City's economic base.

Pursuant to the laws of the State, the Mayor is responsible for preparing
the City's four-year financial plan, including the City's current financial plan
for the 1997 through 2000 fiscal years (the "1997-2000 Financial Plan" or "City
Financial Plan"). The City's projections set forth in the City Financial Plan
are based on various assumptions and contingencies which are uncertain and which
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.

<PAGE>

Implementation of the City Financial Plan is also dependent upon the City's
ability to market its securities successfully in the public credit markets. The
City's financing program for fiscal years 1997 through 2000 contemplates the
issuance of $9 billion of general obligation bonds and $3.8 billion of bonds to
be issued by the New York City Transitional Finance Authority (the "Transitional
Finance Authority") primarily to reconstruct and rehabilitate the City's
infrastructure and physical assets and to make capital investments. The
Transitional Finance Authority was proposed by the City to avoid its
constitutional debt limit. Legislation creating the Transitional Finance
Authority was signed into law by the Governor on March 5, 1997. In addition,
the City issues revenue notes and tax anticipation notes to finance its seasonal
working capital requirements. The success of projected public sales of City
bonds and notes and Transitional Finance Authority bonds will be subject to
prevailing market conditions, and no assurance can be given that such sales will
be completed. If the City were unable to sell its general obligation bonds and
notes or the Transitional Finance Authority were unable to sell its bonds, the
City would be prevented from meeting its planned operating and capital
expenditures.

1997-2000 FINANCIAL PLAN. On November 14, 1996, the City published the
City Financial Plan for the 1997 through 2000 fiscal years, which is a
modification to the City Financial Plan submitted by the City to the New York
State Financial Control Board (the "Control Board") on June 21, 1996 (the "June
Financial Plan"). The June Financial Plan set forth proposed actions by the
City including cost containment in entitlement programs, City agency spending
reductions, additional State aid, revenue initiatives and pension savings to
close a previously projected gap of approximately $2.6 billion for the 1997
fiscal year (July 1, 1996-June 30, 1997). The City Financial Plan takes into
account actual receipts and expenditures and changes in forecast revenues and
expenditures since the June Financial Plan and projects revenues and
expenditures for the 1997 fiscal year balanced in accordance with GAAP. Changes
since the June Financial Plan made in the City Financial Plan for the 1997
fiscal year include an increase in projected tax revenues, a delay in the
assumed receipt of certain rent payments for the City airports from the 1997
fiscal year to the 1998 and 1999 fiscal years, a reduction in assumed State and
Federal aid, increases in overtime, Board of Education and other expenditures, a
reduction in pension costs, and additional agency actions including personnel
reductions. The City Financial Plan also sets forth projections for the 1998
through 2000 fiscal years and outlines a proposed gap-closing program to close
projected budget gaps of $1.2 billion, $2.1 billion and $3.0 billion for the
1998 through 2000 fiscal years, respectively, after successful implementation of
the gap-closing program for the 1997 fiscal year.

The City's projections set forth in the City Financial Plan are based on
various assumptions and contingencies which are uncertain and which may not
materialize. Such assumptions and contingencies include the condition of the
regional and local economies, the impact on real estate tax revenues of the real
estate market, employment growth, wage increases for City employees consistent
with those assumed in the City Financial Plan, continuation of interest earning
assumptions for pension funds assets, the ability of the City's hospital and
educational entities maintain balanced budgets, provision and mandate relief of
State and Federal aid, the impact of proposed Federal and State welfare reforms
on City revenues and adoption of the budget by the City Council in substantially
the form submitted by the Mayor.

<PAGE>

The City Financial Plan is also subject to the ability of the City to
implement the expenditure reductions and to obtain the savings outlined in the
City Financial Plan. In addition, the City may incur expenditures which exceed
those projected in the City Financial Plan. There can be no assurance that
additional gap-closing measures will not be required to enable the City to
achieve a balanced budget in a particular fiscal year. Certain of the proposed
actions are subject to negotiation with the City's municipal unions. Various
other actions proposed for the 1998 through 2000 fiscal years are subject to
approval by the Governor and the State Legislature and the proposed reductions
in spending for entitlement programs may be subject to legal challenge.

The City depends on the State for State aid both to enable the City to
balance its budget and to meet its cash requirements. If the State experiences
revenue shortfalls or spending increases beyond its projections during its 1996-
1997 fiscal year or subsequent fiscal years, such developments could result in
reductions in anticipated State aid to the City. In addition, there can be no
assurance that State budgets in future fiscal years will be adopted by the April
1 statutory deadline and that there will not be adverse effects on the City's
cash flow and additional City expenditures as a result of such reductions or
delays.

The City's financial plans have been the subject of extensive public
comment and criticism. On December 10, 1996, the City Comptroller issued a
report stating that the City Financial Plan includes potential risks of $200
million for the 1997 fiscal year. The City Comptroller's report also identified
total budget risks of up to $1.88 billion, $2.89 billion and $3.59 billion for
the City's 1998, 1999 and 2000 fiscal years, respectively. On December 17,
1996, the Control Board issued a report on the City Financial Plan which
identified risks totaling $286 million, $1.2 billion, $1.3 billion and $1.1
billion for the 1997 through 2000 fiscal years, respectively. On December 12,
1996, the Office of the State Deputy Comptroller of New York (the "OSDC") issued
a report which reviewed the City Financial Plan and concluded that a budget gap
of $38 million and net additional risks of $229 million exist for the 1997
fiscal year. The OSDC report projected budget gaps of $1.3 billion, $2.2
billion and $3.0 billion for the 1998 through 2000 fiscal years, respectively.
It also identified net additional risks of $1.3 billion, $1.2 billion and $1.1
billion for the 1998 through 2000 fiscal years, respectively. On October 31,
1996, the City's Independent Budget Office (the "IBO") released a report
assessing the costs that could be incurred by the City as a result of recent
Federal welfare reforms. Assuming continued moderate economic performance, the
IBO report projects that the City's cost of providing welfare could increase by
$33 million in 1999, growing to $269 million by 2002. Moreover, if the
requirement that all recipients work after two years of receiving benefits is
enforced, these additional costs could total $723 million in 1999 and
approximately $1 billion annually through 2002, reflecting substantial costs for
worker training and supervision of new workers and increased child care costs.
The report further noted that, if economic performance weakened, resulting in an
increased number of public assistance cases, potential costs to the City could
substantially increase. It is reasonable to expect that such reports will
continue to be issued and to engender public comment.

RATINGS. As of January 28, 1997, Moody's Investors Services, Inc.
("Moody's") rated the City's outstanding general obligation bonds "Baa1",
Standard & Poor's Ratings Services ("Standard & Poor's") rated such bonds "BBB+"
and Fitch Investors Service ("Fitch") rated

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such bonds "A--". On July 10, 1995, Standard & Poor's revised downwards its
ratings on outstanding general obligation bonds of the City from "A--" to
"BBB+". On November 25, 1996, Standard & Poor's issued a report which stated
that, if the City reached its debt limit without the ability to issue bonds
through other means, it would cause deterioration in the City's infrastructure
and significant cutbacks in the City's capital plan which would eventually
impact the City's economy and revenues, and could have eventual negative credit
implications. On February 28, 1996, Fitch placed the City's general obligation
bonds on FitchAlert with negative implications. On November 5, 1996, Fitch
removed the City's general obligation bonds from FitchAlert, although Fitch
stated that the outlook remains negative. 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, 1996, the City had
approximately $25.1 billion of long-term debt and as of October 24, 1996, the
New York City Municipal Water Finance Authority (the "Water Authority") had
approximately $6.6 billion of aggregate principal amount of outstanding bonds
and $400 million aggregate principal amount of outstanding commercial paper
notes.

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's current efforts are directed toward protection of the watershed area.
The City has taken the position that increased regulatory, enforcement and other
efforts to protect its water supply, relating to such matters as land use and
sewage treatment, will preserve the need for filtration. The U.S. Environmental
Protection Agency has granted the City a waiver of filtration regulations
through December 15, 1996 and has stated it will issue a waiver through April,
2002 if the City and State implement certain protective actions estimated to
cost approximately $400 million. Preliminary estimates of the costs of such
filtration are from $4 to $8 billion. Such an expenditure could cause
significant increases in City water and sewer charges.

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
proceedings and claims are not currently predictable, adverse determination in
certain of them might have a material adverse effect upon the City's ability to
carry out the City Financial Plan. As of June 30, 1996, the City estimated its
potential future liability on account of all outstanding claims to be
approximately $2.8 billion.

<PAGE>

NEW YORK STATE

CURRENT ECONOMIC OUTLOOK. The national economy began to expand in 1991 and
has added over 11 million jobs since early 1992. Although the State has added
approximately 240,000 jobs since late 1992, employment growth in the state has
been hindered during recent years by significant cutbacks in the computer and
instrument manufacturing, utility, defense and banking industries.

The State expected New York's economy to continue to expand modestly during
1996. Moderate growth is projected to continue in 1997 for employment, wages,
and personal income, followed by a slight slowing in 1998. On an average annual
basis, the State's employment growth is projected to be 0.7 percent in 1996, 0.8
percent in 1997, and 0.6 percent in 1998 while personal income growth is
projected to be 5.2 percent in 1996, 4.5 percent in 1997, and 4.2 percent in
1998.

STATE FINANCIAL PLAN FOR THE 1996-1997 FISCAL YEAR. The State's budget for
its 1996-1997 fiscal year (April 1, 1996-March 31, 1997) was enacted by the
State Legislature on July 13, 1996, more than three months after the start of
the fiscal year. Prior to adoption of the budget, the State Legislature enacted
appropriations for disbursements considered to be necessary for State operations
and other purposes, including all necessary appropriations for debt service.
The State Financial Plan for the 1996-1997 fiscal year (the "State Financial
Plan") is based on the State's budget as enacted by the Legislature and signed
into law by the Governor, as well as actual results through the third quarter of
the 1996-1997 fiscal year.

The State Financial Plan projects a General Fund balanced on a cash basis
with total projected receipts of $34.159 billion and total projected
disbursements of $32.895 billion. The State of Financial Plan includes gap-
closing actions to offset a previously projected budget gap of $3.9 billion.
Such gap-closing actions include, among others, reductions in the State
workforce, spending reductions in health care and education programs, projected
increases in tax collections, and pension and debt service savings. Despite a
projected budget surplus in the 1996-1997 fiscal year, there can be no assurance
that additional gap-closing measures will not be required and there is no
assurance that any such measures will enable the State to achieve a balanced
budget for its 1996-1997 fiscal year.

On January 14, 1997, the Governor released the Executive Budget for the
State's 1997-1998 fiscal year (the "Executive Budget") which the State
Legislature must enact and the Governor must sign in order to become law. The
1997-1998 Financial Plan projects General Fund receipts of $32.88 billion, a
decrease of $88 million from the 1996-1997 fiscal year projected level. General
Fund disbursements are projected at $32.84 billion, a decrease of $56 million
from projected spending levels for the 1996-1997 fiscal year. The Executive
Budget projects balance on a cash basis but identifies a potential budget gap of
approximately $2.3 billion due primarily to the effect of implementation of
previously enacted tax reduction programs, the loss of non-recurring revenues
available in the 1996-1997 fiscal year, growth in Medicaid, collective
bargaining agreements, and higher fixed costs such as pensions and debt service.
Proposed gap-closing actions in the Executive Budget include cost containment in
State Medicaid, spending reductions, the use of a portion of a projected 1996-
1997 fiscal year budget

<PAGE>

surplus, and other actions. The Executive Budget also anticipates a significant
increase in Federal aid to the State related to the Medicaid program and the new
Federal welfare block grant. There can be no assurance that the Executive
Budget will be enacted as proposed, the cost containment and spending reduction
programs can be implemented as proposed or the anticipated increase in Federal
aid will materialize as expected.

The Executive Budget projects budget imbalances of $988 million for the
1998-1999 fiscal year and $1.224 billion for 1999-2000 which are expected to be
closed primarily through spending reductions. The Executive Budget contains
several new tax initiatives which are projected to reduce total receipts by $170
million in the 1997-1998 fiscal year. In addition, there has been discussion of
additional tax reductions, beyond those reflected in the State's current
projections for the 1997-1998 fiscal year that, if enacted, could make it more
difficult to achieve budget balance over this period.

The State Financial Plan and the Executive Budget are based upon forecasts
of national and State economic activity. Economic forecasts have frequently
failed to predict accurately the timing and magnitude of changes in the national
and State economies. Many uncertainties exist in forecasts of both the national
and State economies, including consumer attitudes toward spending, Federal
financial and monetary policies, the availability of credit 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 worse-than-predicted
results in the 1996-1997 and subsequent fiscal years, with corresponding
material and adverse effects on the State's projections of receipts and
disbursements.

Owing to these and other factors, the State may face substantial potential
budget gaps in future years resulting from a significant disparity between tax
revenues from a lower recurring receipts base and the spending required to
maintain State programs at mandated levels. Any such recurring imbalance would
be exacerbated by the use by the State of nonrecurring resources to achieve
budgetary balance in a particular fiscal year. To correct any recurring
budgetary imbalance, the State would need to take significant actions to align
recurring receipts and disbursements in future fiscal years.

The State Financial Plan contains actions that provide nonrecurring
resources or savings as well as actions that impose baseline losses of receipts.
The Division of the Budget estimates the net amount of nonrecurring resources
used in the State Financial Plan to be at least $1.3 billion and approximately
$66 million for the State's 1997-1998 Financial Plan. In addition to these
nonrecurring actions, the adoption of the three-year 20% reduction in the
State's personal income tax in combination with business tax reductions enacted
in 1994 will reduce State tax receipts by as much as $4.5 billion by the 1997-
1998 fiscal year.

The Governor is required to submit a balanced budget to the State
Legislature and has indicated that he will close any potential imbalances in the
State's 1997-1998 Financial Plan primarily through General Fund expenditure
reductions and without increases in taxes or deferrals of scheduled tax
reductions. The State's 1997-1998 Financial Plan reflects, and the 1998-1999
Financial Plan is expected to reflect, a continuing strategy of substantially
reduced

<PAGE>

state spending. There can be no assurance, however, that the State's actions
will be sufficient to preserve budget balances in the then current or future
fiscal years.

On August 22, 1996, the President signed into law the Personal
Responsibility and Work Opportunity Reconciliation Act of 1996. The new law
abolishes the Federal Aid to Families with Dependent Children program, and
creates a new Temporary Assistance to Needy Families program (TANF) funded with
a fixed Federal block grant to states. The new law also imposes (with certain
exceptions) a five-year durational limit on TANF recipients, requires that
virtually all recipients be engaged in work or community service activities
within two years of receiving benefits, and limits assistance provided to
certain immigrants and other classes of individuals. States are required to
comply with the new Federal welfare reform law no later than July 1, 1997.
States who fail to meet these Federally mandated job participation rates, or who
fail to conform with certain other Federal standards, face potential sanctions
in the form of a reduced Federal block grant.

On October 16, 1996, the Governor submitted the State's TANF implementation
plan to the Federal government as required under the new Federal welfare law.
Submission of this plan to the Federal government requires New York State to
begin compliance with certain time limits on welfare benefits and permits the
State to become eligible for approximately $2.36 million in Federal block grant
funding. On December 13, 1996, the States's plan was approved by the Federal
government. The Governor has introduced legislation necessary to conform with
Federal law for consideration by the Legislature in the 1997 legislative
session. Given the size and scope of the changes required under Federal law, it
is likely that these proposals will produce extensive public discussions. There
can be no assurances that the State legislature will enact welfare reform
proposals as submitted by the Governor and as required under Federal law.

It is expected that funding levels provided under the Federal TANF block
grant will be higher than currently anticipated in the State Financial Plan.
However, the net fiscal impact of any changes to the State's welfare programs
that are necessary to conform with Federal law will be dependent upon such
factors as the ability of the State to avoid any Federal fiscal penalties, the
level of additional resources required to comply with any new State and/or
Federal requirements, and the division of non-Federal welfare costs between the
State and its localities.

Uncertainties with regard to both the economy and potential decisions at
the Federal level add further pressure on future budget balance in New York
State. Specific budget proposals being discussed at the Federal level but not
included in the State's current economic forecast would (if enacted) have a
disproportionately negative impact on the longer-term outlook for the State's
economy as compared to other states.

The State anticipates that its capital programs will be financed, in part,
by State and public authorities borrowings in the 1996-1997 fiscal year. The
State expects to issue $411 million in general obligations bonds (including
$153.6 million for purposes of redeeming outstanding Bond Anticipation Notes
("BANs")), and $154 million in general obligation commercial paper. The
Legislature has also authorized up to $101 million in certificates of
participation during the State's 1996-1997 fiscal year for equipment purchases.
Borrowings by

<PAGE>

public authorities pursuant to lease-purchase and contractual-obligation
financings for capital programs of the State are projected to aggregate $2.7
billion.

PRIOR FISCAL YEARS. The State ended its 1995-1996 fiscal year in balance,
with a reported 1995-1996 General Fund cash surplus of $445 million. Prior to
adoption of the State's 1995-1996 fiscal year budget, the State had projected a
potential budget gap of approximately $5 billion, which was closed primarily
through spending reductions, cost containment measures, State agency actions and
local assistance reforms.

In July 1995, the State Comptroller issued its audit of the State's 1994-
1995 fiscal year prepared in accordance with generally accepted auditing
standards. The State completed its 1994-1995 fiscal year with a General Fund
operating deficit of $1.426 billion, as compared with an operating surplus of
$914 million for the previous fiscal year. The 1994-1995 fiscal year deficit
was caused by several factors, including the use of $1.026 billion of the 1993-
1994 fiscal year surplus in the 1994-1995 fiscal year and the adoption of
changes in accounting methodologies by the State Comptroller.

LOCAL GOVERNMENT ASSISTANCE CORPORATION. In 1990, as part of a State
fiscal reform program, legislation was enacted creating the Local Government
Assistant 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. As of June
1995, LGAC has issued bonds to provide net proceeds of $4.7 billion completing
the program. The impact of LGAC's borrowing is that the State is able to meet
its cash flow needs 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, 1996, the total amount of outstanding general obligation
debt was approximately $5.047 billion, including $293 million in BANs. The
total amount of moral obligation debt was approximately $7.269 billion, and
$20.343 billion of bonds issued primarily in connection with lease-purchase and
contractual-obligation financing of State capital programs were outstanding.

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 incurrence 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 September 30,
1995, the most recent date for which such information is available, there were
17 public authorities that had outstanding debt of $100 million or more and the
aggregate outstanding debt, including refunding bonds, of these 17 public
authorities was $73.45 billion. The State's access to the public credit markets
could be impaired and the market price of its

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<PAGE>

outstanding debt may be adversely affected, if any of its public authorities
were to default in their respective obligations.

RATINGS. Currently, Moody's, Standard & Poor's and Fitch rate New York
State's outstanding general obligation bonds "A2", "A-" and "A+", respectively.
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 judgement of the agency
originally establishing the rating, circumstances so warrant. A downward
revision or withdrawal of such ratings, or either of them, may have an effect on
the market price of the New York State Obligations in which the New York 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. The State believes that the State Financial Plan includes sufficient
reserves for the payment of judgments that may be required during the 1996-1997
fiscal year. There can be no assurance, however, that an adverse decision in
one or more legal proceedings would not exceed the amount of such reserves for
the payment of judgments or materially impair the State's financial operations.

OTHER LOCALITIES. Certain localities in addition to the City could have
financial problems leading to requests for additional State assistance during
the State's 1996-1997 fiscal year and thereafter. The potential impact on the
State of such actions by localities is not included in the projections of the
State receipts and disbursements in the State's 1996-1997 fiscal year.

Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted
in the creation of the Financial Control Board for Yonkers (the "Yonkers Board")
by the State in 1984. The Yonkers Board is charged with oversight of the fiscal
affairs of Yonkers. Future actions taken by the Governor or the State
Legislature to assist Yonkers could result in allocation of State resources in
amounts that cannot yet be determined.

<PAGE>

APPENDIX C

ECONOMIC AND FINANCIAL CONDITIONS IN PENNSYLVANIA

THE FOLLOWING INFORMATION IS A BRIEF SUMMARY OF FACTORS AFFECTING THE
ECONOMY OF THE COMMONWEALTH AND DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF
SUCH FACTORS. OTHER FACTORS WILL AFFECT ISSUERS. THE SUMMARY IS BASED
PRIMARILY UPON ONE OR MORE PUBLICLY AVAILABLE OFFERING STATEMENTS RELATING TO
DEBT OFFERINGS OF COMMONWEALTH ISSUERS; HOWEVER, IT HAS NOT BEEN UPDATED NOR
WILL IT BE UPDATED DURING THE YEAR. THE TRUST HAS NOT INDEPENDENTLY VERIFIED
THE INFORMATION.

Many factors affect the financial condition of the Commonwealth of
Pennsylvania (also referred to 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) 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.

For the five year period from fiscal 1992 through fiscal 1996, revenues
and other sources (determined on a "GAAP" basis) increased by an average
annual rate of 4.6%. Intergovernmental revenues increased by an average
annual rate of 13.2% due, in part, to an accounting change. Tax revenues
during this period increased an average of 2.5% as modest economic growth,
low inflation rates and several tax rate reductions and other tax reduction
measures constrained growth of tax revenues. The tax reduction measure
followed a $2.7 billion tax increase adopted for the 1992 fiscal year.

Expenditures and other uses during the fiscal 1992 through fiscal 1996
period rose at an average annual rate of 6.0%, led by increases of 14.2% for
protection of persons and property. A prison expansion program and other
correctional program expenses are responsible for the large percentage increase
in this area. Efforts to control costs for various social welfare programs and
the presence of favorable economic conditions have led to a modest 5.6% increase
for public health and welfare costs for the five year period.

The fund balance at June 30, 1996 totaled $635.2 million, a $547.7 million
increase from the balance of $87.5 million at June 30, 1992.

Fiscal 1995 was the fourth consecutive fiscal year the Commonwealth
reported an increase in the fiscal year-end unappropriated balance. The fiscal
1995 unappropriated surplus (prior to reserves for transfer to the Tax
Stabilization Reserve Fund) was $540 million, an increase of $204.2 million over
the fiscal 1994 unappropriated surplus (prior to transfers). Commonwealth
revenues were $459.4 million (2.9%) above the estimate of revenues used at the
time the budget was enacted. The higher than estimated revenues from tax
sources were due to faster economic growth in the national and state economy
than had been projected when the budget was adopted. Expenditures from

<PAGE>

Commonwealth revenues (excluding pooled financing expenditures), including $65.5
million of supplemental appropriations enacted at the close of the 1995 fiscal
year, totaled $15,674 million, representing an increase of 5% over spending
during fiscal 1994.

For GAAP purposes, the General Fund recorded a $49.8 million deficit for
fiscal 1995, leading to a decline in the fund balance to $688.3 million at June
30, 1995. The two items which predominately contributed to the decline in the
fund balance were (i) the use of a more comprehensive procedure to compute the
liabilities for certain public welfare programs, leading to an increase for the
year-end accruals, and (ii) a change in the methodology used to calculate the
year-end accrual for corporate tax payables which increased the tax refund
liability by $72 million for the 1995 fiscal year when compared to the previous
fiscal year.

The fiscal 1996 unappropriated surplus (prior to transfer to the Tax
Stabilization Reserve Fund) was $183.8 million, $65.5 million above estimate.
Net expenditures and encumbrances from Commonwealth revenues, including $113
million of supplemental appropriations (but excluding pooled financing
expenditures) totalled $16,129.9 million. Expenditures exceeded available
revenues and lapses by $253.2 million. The difference was funded from a planned
partial drawdown of the $437 million fiscal year adjusted beginning
unappropriated surplus.

Commonwealth revenues (prior to tax refunds) for fiscal 1996 increased by
$113.9 million over the prior year to $16,338.5 million (representing a growth
rate of .7%). Tax rate reductions and other tax law changes substantially
reduced the amount and rate of revenue growth for the fiscal year. It is
estimated the tax changes enacted for the fiscal year reduced Commonwealth
revenues by $283.4 million.

For GAAP purposes, the fiscal 1996 fund balance was drawn down $53.1
million to $635.2 million. A planned drawdown of the budgetary unappropriated
surplus during the fiscal year contributed to expenditures and other uses
exceeding revenues and other sources by $28.0 million. As a result, the
unreserved fund balance declined by $61.1 million, reducing the balance to
$381.8 million at the end of fiscal 1996. Total revenues and other sources
increased by 8.7% for the fiscal year, led by a 24.2% increase in
intergovernmental revenues (due mainly to an accounting change in the way in
which food stamps coupon revenue received from the federal government is counted
as income to the Commonwealth). Expenditures and other uses increased by 8.6%
for fiscal 1996.

The enacted fiscal 1997 budget provides for expenditures from Commonwealth
revenues of $16,375.8 million, an increase of .6% over appropriated amounts from
Commonwealth revenues for fiscal 1996. The fiscal 1997 budget is based on
anticipated Commonwealth revenues (before refunds) of $16,744.5 million, an
increase over actual fiscal 1996 revenues of 2.5%. The revenue estimate includes
provisions for a $15 million tax credit program enacted with the fiscal 1997
budget for businesses creating new jobs. Staggered corporation tax years will
cause fiscal 1997 revenues to continue to be affected by the business tax
reductions enacted during the two prior completed fiscal years. Those
reductions, together with the new jobs, creation tax credit, cause revenue
growth comparisons between fiscal 1996 and 1997 to be understated. When these
tax changes are taken into account, revenues in the fiscal 1997 budget are
anticipated to increase at the rate of 3%. The fiscal 1997 revenue estimate is
based on a forecast of the national economy for real gross domestic product to
slow to a growth rate of 2% for 1996 and below 1.5 percent for 1997. This is
based on the assumption that the Federal Reserve Board does not cut interest
rates and that foreign economic

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growth is weak. The consequence of this economic scenario is a U.S. economy with
very low growth, slow gains in consumer spending, declining inflation rates, but
increasing unemployment.

Increased authorized spending for fiscal 1997 is driven largely by
increased costs of the corrections and probation and payroll programs. The
fiscal 1997 budget contains an appropriation increase in excess of $110 million
for these programs. The fiscal 1997 budget also contains some departmental
restructurings.

Providing funding for certain programs increases required reductions and
savings in other programs funded from the General Fund. A major reform of the
current welfare system was enacted in May 1996 to encourage recipients toward
self-sufficiency through work requirements, to provide temporary support for
families showing personal responsibility and to maintain safeguards for those
who cannot help themselves.

The fiscal 1997 budget anticipated receiving $60 million of proceeds from
the securitization of $151.7 million of loans held by the Sunny Day Fund. This
fund was created to finance large-scale economic development loans to attract
significant employment opportunities to the Commonwealth. Its funding was
generally obtained from General Fund appropriations. The fund has been
abolished and its loans have been transferred to the Pennsylvania Industrial
Development Fund ("PIDA"). In September 1996, PIDA issued bonds secured by its
loan revenues, including the Sunny Day Fund loans. These bond proceeds will be
used to refund outstanding debt of the Commonwealth. The effect of this
transaction on the fiscal 1997 budget is to reduce the amount of debt service
needed to be appropriated from the General Fund by $84.7 million.

The fiscal 1997 budget is based on the presumption that federally enacted
reforms to Medicaid will raise the federal reimbursement percentage for those
costs to 57% from an approximate 53% rate for fiscal 1996. The Higher
reimbursement rate was anticipated to provide an additional $260 million of
federal funds during fiscal 1997 and enable the Commonwealth to reduce its
appropriations for the medical assistance program by a like amount for fiscal
1997. However, the U.S. Congress has not approved the legislation making these
changes and current expectations are that additional federal funds will not be
available at the time and in the amount as anticipated in the approved fiscal
1997 budget. The Commonwealth expects to use intergovernmental transfer funds
obtained through a pooling transaction to help make up the loss of this funding.

The fiscal 1997 budget assumes a drawdown of the $156.3 million fiscal year
beginning unappropriated surplus to fund the enacted level of appropriations
within the current estimate of revenues.

Actual Commonwealth revenues for the fiscal year through January 1997 are
$189.2 million above estimates levels. The higher than estimated revenues are
attributed to economic conditions in the nation and the state exceeding the
projections used to project revenues.

On February 4, 1997, the Governor presented his proposed budget for fiscal
1998. Total Commonwealth revenues before reductions for refunds and proposed
tax changes are estimated to be $17,339.2 million, 2.4% above revised estimates
for fiscal 1997. Proposed appropriations total $16,915.7 million, a 2.7%
increase over currently estimated fiscal 1997 appropriations. The proposed
fiscal 1998 budget assumes a drawdown of the currently estimated $177.6 million
unappropriated surplus at June 30, 1997. Four tax law proposals and a proposed
increase transfer of

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taxes to a special purpose are included in the proposed budget. Together these
items are estimated to reduce fiscal 1998 revenues by $66.9 million. All
require legislative enactment.

A disaster emergency was declared by the Governor and a federal major
disaster declaration was made by the President of the United States for certain
counties in the Commonwealth for a blizzard and subsequent flooding in January,
1996. Substantial damage to public and private facilities occurred and many
municipalities' financial resources have been strained by the costs of
responding to these weather-related conditions. A special session of the
General Assembly was convened by the Governor to consider legislation to respond
to these needs. Legislation was enacted that authorized $110 million of general
obligation debt to provide for the state's share of the required match for
federal public assistance and disaster mitigation funds. The legislation also
appropriated $13 million from tax amnesty receipts to fund the state match for
the federal individual assistance program, and authorized the use of current
Motor License Fund revenues for capital projects to repair flood damaged state
highways and bridges.

Pennsylvania has historically been identified as a heavy industry state
although that reputation has changed over the last thirty years as the coal,
steel and railroad industries declined and the Commonwealth's business
environment readjusted to reflect a more diversified industrial base. This
economic readjustment was a direct result of a long-term shift in jobs,
investment and workers away from the northeast part of the nation. Currently,
the major sources of growth in Pennsylvania are in the service sector, including
trade, medical and the health services, education and financial institutions.

Nonagricultural employment in Pennsylvania over the last ten years
increased at an annual rate of 1.02%. This compares to a .36% rate for the
Middle Atlantic region and 1.8% rate for the United States as a whole during the
period 1986 through 1995. For the last three years, employment in the
Commonwealth has increased 3.4%, as compared to 2.9% growth in the Middle
Atlantic region. The unemployment rate in Pennsylvania for January, 1997,
stood at a seasonably adjusted rate of 4.7%. The seasonably adjusted national
unemployment rate for January, 1997, was 5.4%.

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, 1996, the
Commonwealth had $5,054.5 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
("PHFA"), a state-created agency which provides financing for housing for lower
and moderate income families, and The Hospitals and Higher 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

60
<PAGE>

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, has
entered into various agreements to lease, as lessee, certain real property and
equipment, and to make lease payments for the use of such property and
equipment. Some of those leases and their respective lease payments are, with
the Commonwealth approval, pledged as security for debt obligations issued by
certain public authorities or other entities within the state. All lease
payments due from 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 agencies have statutory authorization to incur debt
for which state appropriations to pay debt service thereon is not required. The
debt of these agencies 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 maintains
pension plans covering all state employees, public school employees and
employees of certain state-related organizations. For their fiscal years ended
in 1996, the State Employees' Retirement System had no accrued unfunded
liability (or any surplus) and the Public School Employees' Retirement System
had a total unfunded actuarial accrued liability of $1,459 million.

The City of Philadelphia is the largest city in the Commonwealth with an
estimated population of 1,585,577 according to the 1990 Census. Legislation
providing for the establishment of Pennsylvania Intergovernmental Cooperation
Authority ("PICA") to assist Philadelphia in remedying fiscal emergencies was
enacted by the Pennsylvania General Assembly and approved by the Governor in
June 1991. PICA is designed to provide assistance through the issuance of
funding debt and to make factual findings and recommendations to Philadelphia
concerning its budgetary and fiscal affairs. At this time, Philadelphia is
operating under a five-year fiscal plan approved by PICA on April 30, 1996.

PICA has issued $1.76 billion of its Special Tax Revenue Bonds. This
financial assistance has included the refunding of certain city general
obligation bonds, funding of capital projects and the liquidation of the
Cumulative General Fund balance deficit as of June 30, 1992 of $224.9 million.
the audited General Fund balance of Philadelphia as of June 30, 1996 shows a
surplus of approximately $118.5 million, up from approximately $80.5 million as
of June 30, 1995.

No further bonds are to be issued by PICA for the purposes 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 $1,146.2 million in special revenue
bonds outstanding as of June 30, 1996.

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

61
<PAGE>

Supreme Court held that this limitation is constitutional. Approximately 3,500
suits against the Commonwealth are pending.

The following are among the cases with respect to which the Office of
Attorney General and the Office of General Counsel have determined that an
adverse decision may have a material effect on governmental operations of the
Commonwealth:

BABY NEAL V. COMMONWEALTH, ET AL.

In 1990, the American Civil Liberties Union and other various named
plaintiffs filed an action against the Commonwealth in Federal court seeking an
order that would require the Commonwealth to provide additional funding for
child welfare services. No figures for the amount of funding sought are
available. However, a similar lawsuit filed in the Commonwealth Court of
Pennsylvania was resolved through a court approved settlement which provides,
among other things, for Commonwealth funding for such services in fiscal year
1991 and a commitment to pay Pennsylvania counties $30 million over five years.
In December 1994, the Third Circuit Court of Appeals reversed the District
Court's denial of the plaintiff's motion for class certification with respect to
the interests of 16 minor plaintiffs. As a result, the District Court has
recently certified the class and the parties have resumed discovery.

COUNTY OF ALLEGHENY V. COMMONWEALTH OF PENNSYLVANIA

On December 7, 1987, the Supreme Court of Pennsylvania held that the
statutory scheme for county funding of the judicial system is in conflict with
the pennsylvania Constitution. However, judgment was stayed in order to afford
the General Assembly an opportunity to enact appropriate funding legislation
consistent with its opinion. Since that time, the Supreme Court has denied
various actions and motions by several Pennsylvania municipalities to compel the
Commonwealth to comply with the Supreme Court's 1987 decision or to restore
funding for local courts and district Justices to levels existing in 1987. On
December 7, 1992, the State Association of County Commissioners filed a new
action in mandamus seeking to compel the Commonwealth to comply with the Supreme
Court's decision in COUNTY OF ALLEGHENY. The Commonwealth has filed a response
in opposition to the new action. The Court issued the writ on July 26, 1996,
and appointed a special master to devise and submit a plan for implementation.
It recently granted an extension of time within which the special master must
file his report and announced the establishment of a committee comprised of
members of the Executive Department, the Legislative Department and the special
master, to develop an implementation plan. Following the issuance of the writ,
the President Pro Tempore of the Senate and the Speaker of the House filed a
petition seeking reconsideration from the Court. the General Assembly has yet
to consider legislation implementing the Pennsylvania Supreme Court's judgment.

FIDELITY BANK V. COMMONWEALTH OF PENNSYLVANIA

On November 30, 1989, Fidelity Bank, N.A. ("Fidelity") filed an action in
challenging the constitutional validity of a 1989 amendment increasing the bank
shares tax and related legislation. The Commonwealth Court ruled in favor of
the Commonwealth finding no constitutional deficiencies in the tax increase, but
invalidating one element of the legislation which provided a credit to new banks
(the "new bank tax credit"). Fidelity, the Commonwealth and certain intervener
banks appealed to the Pennsylvania Supreme Court. However, pursuant to a
Settlement Agreement dated as of April 21, 1995, the Commonwealth agreed to
enter a credit in favor of Fidelity in the amount of

62
<PAGE>

$4,100,000 in settlement of the constitutional and non-constitutional issues.
The credit represents approximately 5% of the potential claim of Fidelity, had
the constitutional issues been resolved in its favor.

Pursuant to a separate Settlement Agreement dated as of April 21, 1995, the
Commonwealth also settled with the intervening banks with respect to issues
concerning the new bank tax credit.

Notwithstanding the foregoing settlements, other banks have filed
protective petitions which are currently pending at the various
administrative agencies challenging the validity of the 1989 tax increase.
One or more of these banks may seek to raise the issues which were
adjudicated by Fidelity, although not brought to resolution by the
Pennsylvania Supreme Court.

PENNSYLVANIA ASSOCIATION OF RURAL AND SMALL SCHOOLS (PARSS) V. CASEY

In January 1991, an association of rural and small schools and several
other parties filed a lawsuit against then Governor Robert P. Casey and former
Secretary of Education, Donald M. Carroll challenging the constitutionality of
the Commonwealth system for funding local school districts. The litigation
consists of two parallel cases, one in the Commonwealth Court of Pennsylvania
and one in the United States District Court for the Middle District of
Pennsylvania. The federal court case has been indefinitely stayed pending
resolution of the state court case. The Commonwealth Court trial was held in
January, 1997. The record remains open to permit respondents to
cross-examine a surprise witness presented by Petitioners, and to permit
respondents to present their own experts. The parties expect to complete all
testimony in the spring of 1997.

AUSTIN V. DEPARTMENT OF CORRECTIONS, ET AL.

In November 1990, the American Civil Liberties Union filed a class
action lawsuit in the United States District Court for the Eastern District
of Pennsylvania on behalf of inmate populations in various Pennsylvania
correctional institutions, challenging the conditions of confinement and
seeking injunctive relief. On January 17, 1995, the Court approved a
Settlement Agreement between the parties, pursuant to which the Commonwealth
paid $1.3 million in attorneys' fees to the plaintiffs' attorneys, with an
additional $100,000 paid in connection with the dismissal of a preliminary
injunction relating to certain health issues. The parties are presently
complying with monitoring provisions outlined in the Settlement Agreement.
The monitoring phase will expire on January 6, 1998. The attorneys' fees for
the 3-year monitoring period will not exceed $60,000 in any one year.

ENVIROTEST/SYNTERRA PARTNERS

On December 15, 1995, Envirotest Systems Corporation, Envirotest Partners
("Envirotest") and the Commonwealth of Pennsylvania entered into a Settlement
Agreement pursuant to which the parties settled all claims which Envirotest
might have against the Commonwealth arising from the suspension of an emissions
testing program. Under the Settlement Agreement, Envirotest is to receive $145
million, with interest at 6% per annum, in payments of $25 million in 1995, and
$40 million each in 1996, 1997 and 1998. An additional $11 million may be
required to be paid in 1998 depending on the results of property liquidations by
Envirotest. Pursuant to a Consent to Assignment entered into in November,
1996, Envirotest has assigned its right, title and interest in the base
settlement.

63
<PAGE>

PENNSYLVANIA HUMAN RELATIONS COMMISSION V. SCHOOL DISTRICT OF PHILADELPHIA, ET
AL. V. COMMONWEALTH OF PENNSYLVANIA, ET AL.

On November 3, 1995, the Commonwealth of Pennsylvania and the Governor of
Pennsylvania, along with the City of Philadelphia and the Mayor of Philadelphia
were joined as additional respondents in an enforcement action commenced in
Commonwealth Court in 1973 by the Pennsylvania Human Relations Commission
against the School District of Philadelphia pursuant to the Pennsylvania Human
Relations Act. The enforcement action was pursued to remedy unintentional
conditions of segregation in the public schools of Philadelphia. The
Commonwealth and the City were joined in the "remedial phase" of the proceeding
"to determine their liability, if any, to pay additional costs necessary to
remedy the unlawful conditions found to exist in the Philadelphia public
schools."

On February 28, 1996, the School District of Philadelphia filed a third-
party complaint against the Commonwealth of Pennsylvania asking Commonwealth
Court to require the Commonwealth to "supply such funding as is necessary for
full compliance with the November 28, 1994 and other remedial orders of the
Commonwealth Court." In addition, a group of interveners on March 4, 1996 filed
a third-party complaint against the Commonwealth of Pennsylvania and the City of
Philadelphia requesting Commonwealth Court to declare that "it is the obligation
of the Commonwealth and the City to supply the additional funds identified as
necessary for the District to fully comply with the orders of the Commonwealth
Court," and to require the Commonwealth and the City to supply such additional
funding as is necessary for the District to comply with the orders.

On April 30, 1996, Commonwealth Court Judge Doris A. Smith overruled the
Commonwealth's and City's preliminary objections seeking dismissal of the claims
against them. The Commonwealth and the City thereafter filed answers to the
complaints, asserting numerous defenses. The Commonwealth also asserted a
cross-claim against the City of Philadelphia claiming that if any party is
liable, sole liability rests with the City, in the alternative, the Commonwealth
argued that if it is held to be liable, it has a right of indemnity or of
contribution against the City.

Trial commenced on May 30, 1996. During the course of the trial, upon
motion of the Commonwealth, the Pennsylvania Supreme Court on July 3, 1996
assumed extraordinary plenary jurisdiction and directed Judge Smith to conclude
the proceedings within 60 days and to file with the Supreme Court findings of
fact, conclusions of law and a final opinion.

On August 20, 1996, Judge Smith issued an Opinion and Order pursuant to
which judgment was entered in favor of the School District of Philadelphia and
the interveners and against the Commonwealth of Pennsylvania and the Governor of
Pennsylvania. Judgment was also entered in favor of the City of Philadelphia
and the Mayor of Philadelphia with respect to the intervener's claim and on the
cross-claim filed by the Commonwealth and Governor. The Judge ordered the
Commonwealth and Governor to submit a plan to the Court within thirty days
detailing the means by which the Commonwealth will effectuate the transfer of
additional funds payable to the School District of Philadelphia to enable it to
comply with the remedial order during fiscal year 1996-1997 and any future years
during which the School District establishes its fiscal incapacity to fund the
remedial programs. Judge Smith specifically found that "[b]ecause of the lack
of adequate funds to comply with the remedial order, the School District is
entitled to additional resources for 1996-1997 of $45.1 million."

<PAGE>

On August 30, 1996, the Commonwealth filed exceptions to the Findings of
Fact, Conclusions of Law and Opinion and Order of Judge Smith along with a
Motion to Vacate the purported Order and a Notice of Appeal and Jurisdictional
Statement.

On September 10, 1996, the Pennsylvania Supreme Court issued an order
granting the Commonwealth's Motion to Vacate and directed its Prothonotary to
establish a briefing schedule and date for oral argument. It also issued a
further order limiting the issues to be addressed and stated that the
Commonwealth Court is divested of jurisdiction of the matter and all further
proceedings in the Commonwealth Court are stayed pending further order of the
Supreme Court. The Supreme Court retained jurisdiction in the matter. On
January 28, 1997, the Supreme Court issued an Order directing the parties to
brief certain specific issues relative to the lower court proceedings.

RIDGE V. STATE EMPLOYEES' RETIREMENT BOARD

On December 29, 1993, Joseph H. Ridge, a former judge of the Allegheny
Court of Common Pleas, filed in the Commonwealth Court a Petition for Review in
the Nature of Complaint in Mandamus and for a Declaratory Judgment against the
State Employees' Retirement Board alleging that the use of gender distinct
actuarial factors for benefits based upon his pre-August 1, 1983 service
violates the equal protection and equal rights clauses of the Pennsylvania
Constitution. The lawsuit requests that the petitioner's benefits be "topped
up" to equal those that a similarly situated female would be receiving. A
decision adverse to the Retirement Board could be applicable to other members of
the State Employees' Retirement System and Public School Employees Retirement
System. The Commonwealth Court granted the Retirement Board's preliminary
objection to Judge Ridge's claims for punitive damages, attorneys fees and
compensatory damages (other than a recalculation of his pension benefits should
he prevail). On November 20, 1996, the Commonwealth Court heard oral arguments
en banc on Judge Ridge's motion for judgment of the pleadings. A decision on
that motion is pending. On February 13, 1997, the Commonwealth Court denied
Judge Ridge's motion for judgment on the pleadings.

YESENIA MARRERRO, ET AL. V. COMMONWEALTH, ET AL.

On February 24, 1997, five residents of the City of Philadelphia, on their
own behalf, and on behalf of their school-aged children, joined by the City of
Philadelphia, the School District of Philadelphia, and two non-profit
organizations, filed in the Commonwealth Court a civil action for declaratory
judgment against the Commonwealth of Pennsylvania, the General Assembly of
Pennsylvania, the presiding officers of the General Assembly, the Governor of
Pennsylvania, the State Board of Education, the Department of Education, and the
Secretary of Education, claiming that the statutory education financing system
is unconstitutional as applied to the School District of Philadelphia and that
the system of funding public education violates the constitutional mandate to
provide a thorough and efficient system of education in the City of
Philadelphia. The lawsuit also alleges that a scheme for financing public
education precludes the Commonwealth from providing the constitutionally
required "thorough and efficient system of public education" in the
circumstances faced by the School District of Philadelphia, and that the
defendants have failed to provide the School District of Philadelphia with
resources and other assistance necessary to provide all of its students with the
quality of education to which they are constitutionally entitled. Among other
things, the petitioners seek a declaration that the legislature must amend the
present or enact new education legislation so as to assure that education
funding for the School District of Philadelphia accounts and makes adequate
provision for the greater and special educational challenges and needs of
students in the School District in order to address their disadvantage.

<PAGE>

* * *

Currently, Pennsylvania general obligation bonds are rated AA- by Standard
& Poor's and Fitch, and A1 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 24. FINANCIAL STATEMENTS AND EXHIBITS

(a) FINANCIAL STATEMENTS:

INCLUDED IN PART A:
- Selected Per Share Data and Ratios for the three years ended
November 30, 1996, for the eleven months ended November 30, 1993
and for the 6 years ended December 31, 1992

INCORPORATED BY REFERENCE IN PART B:
- Selected Per Share Data and Ratios for the three years ended
November 30, 1996, for the eleven months ended November 30, 1993
and for the year ended December 31, 1992*
- Statement of Assets and Liabilities at November 30, 1996*
- Statement of Operations for the year ended November 30, 1996*
- Statement of Changes in Net Assets for the years ended November
30, 1996 and 1995*
- Notes to Financial Statements*
- Report of Independent Accountants*
--------------------
* Incorporated by reference to the Registrant's 1996 Annual Report to
shareholders filed with the Securities and Exchange Commission for
the year ended November 30, 1996 pursuant to Rule 30b2-1 under the
Investment Company Act of 1940, as amended ("1940 Act").

(b) EXHIBITS:
1. Amended and Restated Declaration of Trust of the Registrant.(1)
2. Code of Regulations of the Registrant, as amended to date.(2)
3. None.
4. (a) Portions of the Declaration of Trust and the Code of
Regulations of the Registrant defining the rights of holders
of shares of the Registrant.(3)
(b) Specimen Copy of Share Certificate.(4)
5. Investment Advisory Agreement between the Registrant and Sentinel
Advisors Company (the "Advisor").(5)
6. (a) Distribution Contract.(6)
(b) Dealer Selling Agreement.(7)
(c) Distribution Agreement between the Registrant and Sentinel
Financial Services Company ("SFSC").(5)
7. None.

C-1

<PAGE>

8. Custodian Contract.(7)
9. (a) Transfer Agency Agreement.(7)
(b) Fund Services Agreement between the Registrant and Sentinel
Administrative Service Company.(5)
10. Opinion of Brown & Wood LLP, counsel for the Registrant.
11. (a) Consent of Price Waterhouse LLP, independent accountants for
the Registrant for the three ended November 30, 1996, the
eleven month period ended November 30, 1993 and for the year
ended December 31, 1990.
(b) Consent of Coopers & Lybrand L.L.P., independent accountants
for the Registrant for the year ended December 31, 1992.
12. None.
13. None.
14. (a) Prototype Profit Sharing/Money Purchase Pension Retirement
Plan.(7)
(b) Individual Retirement Custodial Account under
Section 408(a) of the Internal Revenue Code of 1986, as
amended.(7)
(c) Simplified Employee Pension Plan.(7)
15. (a) Distribution Plan pursuant to Rule 12b-1 under the 1940
Act.(4)
(b) Rule 12b-1 Broker-Dealer Agreement.(6)
(c) Distribution Plan pursuant to Rule 12b-1 under the 1940
Act.(5)
16. Schedule for computation of each performance quotation provided
in the Registration Statement in response to Item 22.(7)
17. Financial Data Schedules.
18. None.
- - --------------------
(1) Incorporated by reference to the Exhibit of the same number to
Post-Effective Amendment No. 14 to the Registration Statement.
(2) Reference is made to the Exhibit of the same number to the Registrant's
Registration Statement on Form N-1A, File No. 33-7664 (the "Registration
Statement").
(3) Reference is made to Articles III, IV, V, VIII, X and XI of the
Registrant's Declaration of Trust, previously filed as Exhibit 1 to the
Registration Statement; and to Articles II, III, V and VI of the
Registrant's Code of Regulations, previously filed as Exhibit 2 to the
Registration Statement.
(4) Reference is made to the Exhibit of the same number to Post-Effective
Amendment No. 7 to the Registration Statement.
(5) Reference is made to the Exhibit of the same number to Post-Effective
Amendment No. 10 to the Registration Statement.
(6) Reference is made to the Exhibit of the same number to Post-Effective
Amendment No. 3 to the Registration Statement.
(7) Reference is made to the Exhibit of the same number to Post-Effective
Amendment No. 9 to the Registration Statement.

C-2

<PAGE>

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE REGISTRANT

None.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES

Number of Record Holders
Title of Class as of February 28, 1997
-------------- ------------------------
Common Shares of
Beneficial Interest 1,184

ITEM 27. INDEMNIFICATION

Article X, Section 2 of the Registrant's Declaration of Trust,
incorporated by reference to Exhibit 1 hereto, provides for the
indemnification of the Registrant's trustees and officers.

In no event will the Registrant indemnify any of its trustees,
officers, employees or agents against any liability to which such
person would otherwise be subject by reason of his or her bad faith,
willful misfeasance, gross negligence in the performance of his or her
duties, or by reason of his or her reckless disregard of the duties
involved in the conduct of his or her office arising under his or her
agreement with the Registrant. The Registrant will comply with Rule
484 under the Securities Act of 1933, as amended (the "1933 Act"), and
Release No. 11330 under the 1940 Act in connection with any
indemnification.

Insofar as indemnification for liability arising under the 1933 Act
may be permitted to trustees, 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 Commission such
indemnification is against public policy as expressed in the 1933 Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a trustee, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such trustee, officer or
controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, 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.

C-3

<PAGE>

Trustees and officers of the Registrant are also covered by an errors
and omissions insurance policy that became effective on March 1, 1993
with a total coverage of $15,000,000.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF 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
Keniston P. Merrill, Chief Executive Officer

Rodney A. Buck, Senior Vice President

Richard D. Temple, Vice President

David M. Brownlee, Vice President

Robert L. Lee, Vice President

Kenneth J. Hart, Vice President

Richard A. Pender, 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

Lisa A. Pettrey, Secretary

Each of the above officers, except for Mr. Merrill, 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.

C-4

<PAGE>

ITEM 29. PRINCIPAL UNDERWRITER

(a) The Registrant's principal underwriter, SFSC, also serves as principal
underwriter for Sentinel Group Funds, Inc.

(b) As to each director or officer of SFSC:

Positions and
Name and Principal Positions and Offices Offices with
Business Address With SFSC The Registrant
- - ------------------ --------------------- --------------

Joseph M. Rob Chief Executive Officer President

Julie A. Hendrickson President and Chief None
Operating Officer

John M. Grab, Jr. Senior Vice President Vice President
and Chief Financial
Officer

Brian K. Martin Treasurer None

The principal business address of all such persons is National Life Drive,
Montpelier, Vermont 05604.

ITEM 30. 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:

C-5

<PAGE>

(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)

ITEM 31. MANAGEMENT SERVICES

Not applicable.

ITEM 32. UNDERTAKINGS

Not applicable.

C-6

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to its Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Montpelier and State of Vermont, on the 27th day of March, 1997.

SENTINEL PENNSYLVANIA TAX-FREE TRUST
(Registrant)

By: /s/ Keniston P. Merrill
-------------------------
Keniston P. Merrill
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 dates indicated.

Signature Title Date
- - --------- ----- ----

/s/ Keniston P. Merrill Chairman March 27, 1997
- - -------------------------- (Chief Executive
Keniston P. Merrill Officer)

Richard J. Borda* Trustee
- - --------------------------
Richard J. Borda

Kalman J. Cohen* Trustee
- - --------------------------
Kalman J. Cohen

Richard D. Farman* Trustee
- - --------------------------
Richard D. Farman

John D. Feerick* Trustee
- - --------------------------
John D. Feerick

C-7

<PAGE>

Signature Title Date
- - --------- ----- ----

Richard I. Johannesen, Jr.* Trustee
- - --------------------------
Richard I. Johannesen, Jr.

Robert B. Mathias* Trustee
- - --------------------------
Robert B. Mathias

Deborah G. Miller* Trustee
- - --------------------------
Deborah G. Miller

John Raisian* Trustee
- - --------------------------
John Raisian

Stanley R. Reber* Trustee
- - --------------------------
Stanley R. Reber

Trustee
- - --------------------------
Joseph M. Rob

Susan M. Sterne* Trustee
- - --------------------------
Susan M. Sterne

Angela E. Vallot* Trustee
- - --------------------------
Angela E. Vallot

/s/ John M. Grab, Jr. Vice President March 27, 1997
- - -------------------------- and Principal Financial
John M. Grab, Jr. and Accounting Officer

*By /S/ Keniston P. Merrill March 27, 1997
--------------------------
Keniston P. Merrill,
Attorney-in-Fact

C-8
<PAGE>

SENTINEL PENNSYLVANIA TAX-FREE TRUST

POWER OF ATTORNEY

I, John Raisian, hereby authorize Keniston P. Merrill or Joseph M. Rob, or
either of them, as attorney-in-fact, to sign on my behalf, individually and in
my capacity as a Trustee of Sentinel Pennsylvania Tax-Free Trust (the "Fund"),
the Fund's Registration Statement on Form N-1A (including any post-effective
amendments thereto), and to file the same, with all exhibits thereto, with the
Securities and Exchange Commission.

Dated: March 27, 1997

/s/ John Raisian
----------------------------------

<PAGE>

SENTINEL PENNSYLVANIA TAX-FREE TRUST

POWER OF ATTORNEY

I, Angela E. Vallot, hereby authorize Keniston P. Merrill or Joseph M. Rob,
or either of them, as attorney-in-fact, to sign on my behalf, individually and
in my capacity as a Trustee of Sentinel Pennsylvania Tax-Free Trust (the
"Fund"), the Fund's Registration Statement on Form N-1A (including any post-
effective amendments thereto), and to file the same, with all exhibits thereto,
with the Securities and Exchange Commission.

Dated: March 27, 1997

/s/ Angela E. Vallot
----------------------------------

<PAGE>

EXHIBIT INDEX

Exhibit
Number
- - -------

10 Opinion of Brown & Wood LLP, counsel to the Registrant

11(a) Consent of Price Waterhouse LLP, independent accountants to the
Registrant

11(b) Consent of Coopers & Lybrand L.L.P., independent accountants

17 Financial Data Schedule

<PAGE>

BROWN & WOOD LLP
ONE WORLD TRADE CENTER
NEW YORK, NEW YORK 10048-0557
TELEPHONE: 212-839-5300
FACSIMILE: 212-839-5599

March 27, 1997

Sentinel Pennsylvania Tax-Free Trust
National Life Drive
Montpelier, Vermont 05604

Ladies and Gentlemen:

This opinion is furnished in connection with the registration by Sentinel
Pennsylvania Tax-Free Trust, a Pennsylvania common law trust (the "Trust"), of
shares of beneficial interest, par value $.01 per share (the "Shares"), under
the Securities Act of 1933, as amended, pursuant to a registration statement on
Form N-1A (File No. 33-7664), as amended (the "Registration Statement"), in the
amounts set forth under "Amount Being Registered" on the facing page of the
Registration Statement.

As counsel for the Trust, we are familiar with the proceedings taken by it
in connection with the authorization, issuance and sale of the Shares. In
addition, we have examined such documents as we have deemed appropriate for the
purpose of this opinion.

Based upon the foregoing, we are of the opinion that the Shares, upon
issuance and sale in the manner referred to in the

<PAGE>

Registration Statement, for consideration not less than the par value
thereof, will be legally issued, fully paid and nonassessable shares of
beneficial interest of the Trust. In rendering this opinion, we have relied
as to matters of Pennsylvania law upon an opinion of Stradley, Ronon, Stevens
& Young LLP, rendered to the Trust.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the prospectus and
statement of additional information constituting parts thereof.

Very truly yours,

/s/ Brown & Wood LLP

<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 15 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated December 20, 1996, relating to the financial
statements and financial highlights appearing in the November 30, 1996 Annual
Report to Shareholders of Sentinel Pennsylvania Tax-Free Trust, which are also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the heading "Financial Highlights" in the Prospectus
and under the heading "General Information" in the Statement of Additional
Information.

/s/ Price Waterhouse LLP

Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
March 27, 1997

<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of Post-Effective
Amendment No. 15 to the Registration Statement on Form N-1A (the "Registration
Statement") for Sentinel Pennsylvania Tax-Free Trust (formerly ProvidentMutual
Pennsylvania Tax-Free Trust) (the "Fund"), of our report relating to the
financial statement and selected per share data and ratios appearing in the
December 31, 1992 Annual Report to Shareholders of the Fund, which also is
incorporated by reference into the Registration Statement. We also consent to
the reference to us under the heading "Financial Highlights" in the Prospectus,
which is also a part of the Registration Statement.

/s/ Coopers & Lybrand L.L.P.

COOPERS & LYBRAND L.L.P.

2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 27, 1997

<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 12
<NAME> SENTINEL PENNSYLVANIA TAX-FREE TRUST

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<INVESTMENTS-AT-COST> 36,682,614
<INVESTMENTS-AT-VALUE> 34,860,951
<RECEIVABLES> 771,620
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
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<OTHER-ITEMS-LIABILITIES> 87,319
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<REALIZED-GAINS-CURRENT> 218,984
<APPREC-INCREASE-CURRENT> (282,933)
<NET-CHANGE-FROM-OPS> 1,678,642
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,745,421
<DISTRIBUTIONS-OF-GAINS> 208,641
<DISTRIBUTIONS-OTHER> 208
<NUMBER-OF-SHARES-SOLD> 291,419
<NUMBER-OF-SHARES-REDEEMED> 330,002
<SHARES-REINVESTED> 102,717
<NET-CHANGE-IN-ASSETS> 570,155
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<GROSS-ADVISORY-FEES> 189,231
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 471,242
<AVERAGE-NET-ASSETS> 34,407,707
<PER-SHARE-NAV-BEGIN> 13.40
<PER-SHARE-NII> 0.66
<PER-SHARE-GAIN-APPREC> (0.03)
<PER-SHARE-DIVIDEND> 0.66
<PER-SHARE-DISTRIBUTIONS> 0.08
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 13.29
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>