<PAGE>
1940 Act Registration No. 811-05879
As filed with the Securities and Exchange Commission
on March 27, 1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________
FORM N-1A
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 ( X )
Amendment No. 14 ( X )
(Check appropriate box or boxes)
____________
PARAGON PORTFOLIO
(Exact name of registrant as specified in charter)
4900 Sears Tower
Chicago, Illinois 60606
(Address of principal executive offices)
Registrant's Telephone Number, including Area Code
312-621-2550
_____________
Copy to:
Michael J. Richman, Esq. Pamela J. Wilson, Esq.
Goldman, Sachs & Co. Hale and Dorr
85 Broad Street 60 State Street
New York, New York Boston, Massachusetts
10004 02109
(Name and address of Agent for Service of Process)
_____________
REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF SHARES UNDER THE SECURITIES
ACT OF 1933 PURSUANT TO RULE 24f-2.
ON JANUARY 29, 1996, REGISTRANT FILED A RULE 24f-2 NOTICE FOR THE FISCAL YEAR
ENDED NOVEMBER 30, 1995.
The Index to Exhibits is located at page ______.
Page 1 of _______ total pages.
<PAGE>
THIS AMENDMENT IS BEING FILED SOLELY TO UPDATE THE FINANCIAL INFORMATION OF
PARAGON POWER INTERMEDIATE-TERM BOND PORTFOLIO, PARAGON VALUE GROWTH PORTFOLIO,
PARAGON POWER VALUE EQUITY INCOME PORTFOLIO AND PARAGON POWER GULF SOUTH GROWTH
PORTFOLIO EACH A PORTFOLIO OF PARAGON PORTFOLIO (the "TRUST").
AS OF MARCH 26, 1996, PARAGON TREASURY MONEY MARKET FUND, PARAGON SHORT-TERM
GOVERNMENT FUND, PARAGON INTERMEDIATE-TERM BOND FUND, PARAGON LOUISIANA TAX-FREE
FUND, PARAGON VALUE GROWTH FUND, PARAGON VALUE EQUITY INCOME FUND AND PARAGON
GULF SOUTH GROWTH FUND WERE NO LONGER SERIES OF THE TRUST. THEREFORE THESE
FUNDS ARE NOT INCLUDED IN THIS FILING.
<PAGE>
PARAGON PORTFOLIO
-----------------
CROSS REFERENCE SHEET
---------------------
Items Required by Form N-1A
ITEM NUMBER IN PART A PROSPECTUS CAPTION
- --------------------- ------------------
1. Cover Page Cover Page
2. Synopsis An Introduction to Paragon
Portfolio
3. Condensed Financial Not Applicable
Information
4. General Description An Introduction to Paragon Portfolio;
of Registrant Investment Objec tive and Policies of Invest
ment Objective and Policies of Paragon Power
Intermediate-Term Bond Portfolio; Invest ment
Objective and Policies of Paragon Power Value
Growth Portfolio; Investment Objec tive and
Policies of Paragon Power Value Equity Income
Portfolio; Investment Objec tive and Policies
of Paragon Power Gulf South Growth Port
folio; Organization and Shares of the
Portfolio; Permissible Investments for the
Portfo lios; Investment Practices Common to
the Portfolios; Investment Restrictions
5. Management of the Portfolio The Adviser, Administrator and Distributor;
Portfolio Trans actions; Organization and
Shares of the Portfolio
6. Capital Stock and Purchases and Redemptions; Distributions
Other Securities and Taxes; Organization and Shares of the
Portfolios
7. Purchase of Securities Purchases and Redemptions
Being Offered
8. Redemption or Repurchase Purchases and Redemptions
9. Pending Legal Proceedings Not Applicable
<PAGE>
ITEM NUMBER IN PART B PROSPECTUS CAPTION
- --------------------- ------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information Organization and Capitalization
and History
13. Investment Objectives Investment Policies and Practices of the
and Policies Portfolios; Investment Restrictions
14. Management of the Portfolio Management
15. Control Persons and Management
Principal Holders of
Securities
16. Investment Advisory The Adviser, Administrator, Distributor and
and Other Services Transfer Agent; Portfolio Transactions;
Custodian; Independent Accountants
17. Brokerage Allocation Portfolio Transactions
18. Capital Stock and Organization and Capitalization; Shareholder
Other Securities and Trustee Liability
19. Purchase, Redemption and Net Asset Value; Shareholder Investment
Pricing of Securities Account; Redemptions
Being Offers
20. Tax Status Tax Information
21. Underwriters The Adviser, Administrator,
Distributor and Transfer Agent
22. Calculation of Calculation of Performance
Performance Data Quotations
23. Financial Statements Financial Statements
<PAGE>
PARAGON PORTFOLIO
4900 Sears Tower
Chicago, Illinois 60606
Paragon Portfolio (the "Trust") is an open-end, management investment
company that offers a selection of managed investment portfolios, each with
its own investment objective and policies. The following four portfolios (the
"Portfolios") with the investment objectives set forth below are offered by
this Prospectus.
Paragon Power Intermediate-Term Bond Portfolio. A high level of current
income, consistent with prudent investment risk, by investment in a
diversified portfolio of investment grade fixed-income securities.
Paragon Power Value Growth Portfolio. Long-term capital growth and growth of
income while, as a secondary objective, providing a moderate level of current
income by investment in a diversified portfolio of equity securities that have
the potential for earnings growth.
Paragon Power Value Equity Income Portfolio. Capital growth and current
income by investment in a diversified portfolio of equity securities with low
price-earnings ratios.
Paragon Power Gulf South Growth Portfolio. Long-term capital growth by
investment in a non-diversified portfolio of equity securities of small
capitalization, emerging growth and medium capitalization companies which are
either headquartered in or whose primary market is in the southeastern region
of the United States.
Shares of each of the Portfolios are available only to insurance company
separate accounts that fund certain variable contracts. The information
contained in this Prospectus should be read together with the prospectus for
the variable contracts.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
An Introduction to Paragon Portfolio...................................... 3
Investment Objective and Policies of Paragon Power Intermediate-Term Bond
Portfolio................................................................ 4
Investment Objective and Policies of Paragon Power Value Growth Portfolio. 4
Investment Objective and Policies of Paragon Power Value Equity Income
Portfolio................................................................ 5
Investment Objective and Policies of Paragon Power Gulf South Growth Port-
folio.................................................................... 5
Permissible Investments for the Portfolios................................ 6
Investment Practices Common to the Portfolios............................. 9
Investment Restrictions................................................... 11
Portfolio Transactions.................................................... 11
The Adviser, Administrator and Distributor................................ 12
Purchase and Redemptions.................................................. 13
Distributions and Taxes................................................... 13
Net Asset Value........................................................... 14
Performance and Yield Information......................................... 15
Organization and Shares of the Portfolios................................. 16
</TABLE>
2--Paragon Portfolio
- --------------------------------------------------------------------------------
<PAGE>
AN INTRODUCTION TO PARAGON PORTFOLIO
Paragon Portfolio (the "Trust") is an open-end, management investment com-
pany registered under the Investment Company Act of 1940, as amended (the "In-
vestment Company Act"), that offers a diversified selection of managed invest-
ment portfolios, each with its own investment objective and policies. Banc One
Investment Advisors Corporation ("BOIA") serves as the investment adviser to
Paragon Power Intermediate-Term Bond Portfolio, Paragon Power Value Growth
Portfolio, Paragon Power Value Equity Income Portfolio and Paragon Power Gulf
South Growth Portfolio (the "Portfolios"). BOIA became the Portfolios' invest-
ment adviser on January 2, 1996 as a result of the acquisition of Premier
Bancorp, Inc., the indirect parent of Premier Investment Advisors, L.L.C. (the
previous investment adviser) by Banc One Corporation. See "The Adviser, Admin-
istrator, Distributor."
Shares of the Portfolios are available only to insurance company separate
accounts that fund certain variable contracts (the "Contracts"). Separate ac-
counts may purchase or redeem shares at net asset value without any sales or
redemption charge. Fees and charges imposed by a separate account, however,
will affect the actual return to the holder of a Contract. A separate account
may also impose certain restrictions or limitations on the allocation of pur-
chase payments or Contract value to the Portfolios, and the Portfolios may not
be available in connection with a particular Contract. Prospective investors
should consult the applicable Contract prospectus for information regarding
fees and expenses of the Contract and separate account and any applicable re-
strictions or limitations.
Shares of the Portfolios are available to separate accounts of Great North-
ern Insured Annuity Corporation ("GNA") and its affiliates. Shares of the
Portfolios may serve as the underlying investments for both variable annuity
and variable life insurance contracts. In that event, certain conflicts may at
some point arise between variable annuity contract holders and variable life
insurance contract holders which could adversely affect the management of the
Portfolios. See "Purchase and Redemptions."
BOIA is an indirect wholly-owned subsidiary of Banc One Corporation, a bank
holding company. State Street Bank and Trust Company is the Trust's transfer
agent (the "Transfer Agent").
None of the Portfolios alone constitutes a complete investment program.
There can be no assurance that the Portfolios will achieve their investment
objectives.
Paragon Portfolio--3
- -------------------------------------------------------------------------------
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES OF PARAGON POWER INTERMEDIATE-TERM BOND
PORTFOLIO
The investment objective of Paragon Power Intermediate-Term Bond Portfolio
("Bond Portfolio") is to provide a high level of current income, consistent
with prudent investment risk, by investment in a diversified portfolio of in-
vestment grade fixed-income securities.
As a matter of fundamental policy, at least 65% of Bond Portfolio's total
assets will consist of investment grade bonds and debentures with a dollar-
weighted average portfolio maturity of three to ten years. Markets, securities
and maturities selected will be those that offer the greatest potential for
providing high current income without assuming undue risk. In making these se-
lections, BOIA considers yield curves, interest rate expectations, technical
aspects of the market, and spread relationships among various sectors of the
fixed-income securities markets. The proportion of Bond Portfolio's assets in-
vested in securities with particular characteristics (such as maturity, type
and coupon rate) may vary based on BOIA's outlook for the economy, the finan-
cial markets, and other factors.
Bond Portfolio may invest its assets in: (i) securities that are issued or
guaranteed as to principal and interest by the U.S. Government, its agencies,
authorities or instrumentalities, including mortgage-related securities,
("U.S. Government Securities"); (ii) U.S. dollar denominated debt securities
issued by foreign governments and their political subdivisions and other for-
eign issuers; (iii) foreign and domestic corporate debt securities, some of
which may involve equity features; (iv) asset-backed securities; and (v) obli-
gations of banks or savings and loan associations.
As a matter of nonfundamental policy, under normal market conditions, at
least 80% of the value of Bond Portfolio's total assets will be invested in
the fixed-income securities described above. For this purpose, Bond Portfolio
will consider convertible debt securities to be fixed-income securities. Bond
Portfolio intends to invest all of its assets in fixed-income securities.
Bond Portfolio will invest only in investment grade debt securities, which
are those rated Baa or higher by Moody's Investors Service Inc. ("Moody's") or
BBB or higher by Standard & Poor's Ratings Group ("S&P") or, if unrated, de-
termined by BOIA to be of comparable quality. Securities rated Baa and BBB may
have speculative elements as well as investment grade characteristics. In the
event that the rating for any security held in the Bond Portfolio drops below
the minimal acceptable rating, such change will be considered by BOIA in eval-
uating the overall composition of the Bond Portfolio.
INVESTMENT OBJECTIVE AND POLICIES OF PARAGON POWER VALUE GROWTH PORTFOLIO
The investment objective of Paragon Power Value Growth Portfolio ("Growth
Portfolio ") is to seek long-term capital growth and growth of income while,
as a secondary objective, providing a moderate level of current income.
Growth Portfolio pursues its objectives by investing primarily in a diversi-
fied portfolio of common stocks, preferred stocks, convertible securities,
warrants and other equity securities of companies that show the potential for
growth of earnings over time. Stock selection is guided by current valuation
relative to a stock's historical valuation and relative to BOIA's estimates of
future growth of earnings and dividends. Over the long term, continued earn-
ings growth tends to lead to both higher dividends and capital appreciation.
Growth Portfolio expects to invest in securities currently paying a moderate
level of income, although it may invest in non-income producing securities
when BOIA considers their potential for growth of capital or future income to
be promising. Growth Portfolio diversifies its investments among different in-
dustries and companies and changes its portfolio securities for investment
considerations and not for trading purposes.
In selecting portfolio securities for Growth Portfolio, BOIA analyzes its
outlook for the economy and each economic sector over a 12 to 18 month period
and the relative attractiveness of the various securities markets and individ-
ual market sectors. BOIA then selects securities within these sectors and mar-
kets when it believes that a company's fundamental outlook as well as the
company's ability to achieve
Paragon Portfolio_--4
- -------------------------------------------------------------------------------
<PAGE>
earnings growth are not sufficiently reflected in the market values of the
company's securities. Accordingly, Growth Portfolio may emphasize securities
of companies that BOIA believes are overlooked or undervalued by investors,
which fact should contribute to an increase in the market value of the secu-
rity over time. Portfolio securities are generally sold when there is a sub-
stantial reduction in BOIA's forecast of the company's future earnings poten-
tial or when the price of a security appreciates to such an extent that it is
believed to have realized BOIA's appreciation goal. No effort is made by BOIA
to time the market.
Growth Portfolio will ordinarily invest at least 80% of the value of its to-
tal assets in securities with the characteristics described above. Although
Growth Portfolio intends to invest all of its assets in such securities, up to
20% of its total assets may be held in cash or invested in U.S. Government Se-
curities, other investment grade fixed-income securities and cash equivalents.
INVESTMENT OBJECTIVE AND POLICIES OF PARAGON POWER VALUE EQUITY INCOME
PORTFOLIO
The investment objective of Paragon Power Value Equity Income Portfolio
("Equity Income Portfolio") is to seek capital growth and current income. Eq-
uity Income Portfolio pursues its objective by investing primarily in a diver-
sified portfolio of common stocks, preferred stocks, convertible securities,
warrants and other equity securities of companies which are, in BOIA's opin-
ion, undervalued relative to their intrinsic value and to the stock market in
general due to an overly pessimistic appraisal by the marketplace. A low
price-earnings ratio is the dominant factor in the selection of investments
for Equity Income Portfolio. Equity Income Portfolio expects to maintain a
dividend yield equal to or in excess of the composite yield on the securities
comprising the Standard & Poor's Index of 500 Common Stocks.
BOIA uses a disciplined approach in its review and selection of portfolio
securities for Equity Income Portfolio. To identify undervalued companies,
BOIA first screens a broad universe of securities by systematically evaluating
such factors as historical earnings, dividend yield, market price relative to
book value, earnings per share and financial strength. BOIA then ranks such
securities according to price-earnings ratios using 18-month earnings fore-
casts. Sophisticated computer technology is then used to identify those secu-
rities which present the optimal combination of return and risk. At least
quarterly, the securities in Equity Income Portfolio are compared to those se-
curities identified by the computer at that time. If a security is believed to
have reached a fully-valued position, it will, under most circumstances, be
sold and replaced by securities which are deemed to be undervalued in the mar-
ketplace in accordance with the foregoing analysis. No effort is made by BOIA
to time the market.
As a matter of nonfundamental policy Equity Income Portfolio ordinarily will
invest at least 80% of the value of its total assets in securities with the
characteristics described above. Although Equity Income Portfolio intends to
invest all of its assets in such securities, up to 20% of its total assets may
be held in cash or invested in U.S. Government Securities, other investment
grade fixed-income securities and cash equivalents.
INVESTMENT OBJECTIVE AND POLICIES OF PARAGON POWER GULF SOUTH GROWTH PORTFOLIO
The investment objective of Paragon Power Gulf South Growth Portfolio ("Gulf
South Portfolio") is to seek long-term capital growth. Gulf South Portfolio
pursues its objective by investing primarily in a portfolio of common stocks,
preferred stocks, convertible securities, warrants and other equity securities
of small capitalization, emerging growth and medium capitalization growth com-
panies, which are either headquartered in or whose primary market is in the
southeastern region of the United States. In BOIA's opinion, small to medium
capitalization companies in general and those located in the southeast in par-
ticular will provide above average investment performance over the long term
as they grow and become more recognized by the investment community. Dividend
income, if any, is a consideration incidental to Gulf South Portfolio's objec-
tive of capital growth.
BOIA anticipates that Gulf South Portfolio will normally consist of securi-
ties of approximately twenty to forty emerging growth companies from
5--Paragon Portfolio
- -------------------------------------------------------------------------------
<PAGE>
Virginia, North Carolina, South Carolina, Florida, Georgia, Tennessee, Ala-
bama, Mississippi, Arkansas, Louisiana, Kentucky and Texas. In selecting port-
folio securities for Gulf South Portfolio, BOIA analyzes emerging growth com-
panies whose securities have been analyzed by several regional brokerage
firms. Stock selection is guided by a company's earnings forecasts over a one
to two year period, as well as by its financial strength. In addition, on an
ongoing basis, BOIA reviews a stock's current valuation relative to (1) the
entire stock market, (2) that of other companies in the same industry, and (3)
its recent and expected earnings growth rate. It is expected that companies
selected would generally have market capitalizations ranging from $50,000,000
to $2,000,000,000, though Gulf South Portfolio may occasionally hold securi-
ties of companies whose market capitalizations are considerably larger if do-
ing so contributes to Gulf South Portfolio's investment objective. Companies
selected would also be expected to show earnings growth over time that is well
above the growth rate of the overall economy and the rate of inflation.
Because Gulf South Portfolio is non-diversified, its share price may be sub-
ject to greater fluctuations as a result of changes in an issuer's financial
condition or the market's assessment of an individual issuer. In addition, in-
vesting in emerging growth companies involves greater risk than is customarily
associated with investments in more established companies. Emerging growth
companies often have limited product lines, markets, or financial resources,
and they may be dependent on fewer management resources. The securities of
emerging growth companies may have limited marketability and may be subject to
more abrupt or erratic market movements than securities of larger, more estab-
lished growth companies or the market averages in general. Shares of Gulf
South Portfolio, therefore, are subject to greater fluctuation in value than
shares of a growth fund which invests entirely in proven growth stocks. Gulf
South Portfolio is intended for investors who can bear the risk of losing a
portion or all of their investment.
As a matter of non-fundamental policy, Gulf South Portfolio will ordinarily
invest at least 75% of the value of its total assets in securities with the
characteristics described above. Although Gulf South Portfolio intends to in-
vest all of its assets in such securities, up to 25% of its total assets may
be held in cash or invested in U.S. Government Securities, other investment
grade fixed-income securities and cash equivalents, when BOIA's assessment of
the attractiveness of the entire stock market and individual market sectors
changes.
PERMISSIBLE INVESTMENTS FOR THE PORTFOLIOS
CORPORATE DEBT SECURITIES
Each Portfolio may invest in certain types of corporate debt securities.
Corporate debt securities of both domestic and foreign issuers (denominated in
U.S. dollars) in which the Portfolios may invest include all types of long- or
short-term debt obligations, such as bonds, debentures, notes, and commercial
paper (including obligations secured by such instruments) and, in the case of
Growth Portfolio, Equity Income Portfolio and Gulf South Portfolio, preferred
and preference stock.
Corporate debt securities may bear fixed, fixed and contingent, or variable
rates of interest and may involve equity features, such as conversion or ex-
change rights or warrants for the acquisition of stock of the same or a dif-
ferent issuer; participations based on revenues, sales or profits; or the pur-
chase of common stock in a unit transaction (where corporate debt securities
and common stock are offered as a unit).
U.S. GOVERNMENT SECURITIES
Each Portfolio may invest in U.S. Government Securities in varying degrees.
U.S. Government Securities are obligations of, or guaranteed by, the U.S. Gov-
ernment, its agencies, authorities or instrumentalities. Some U.S. Government
Securities, such as Treasury bills, notes and bonds and Government National
Mortgage Association certificates (see below) are supported by the full faith
and credit of the United States; others, such as those of the Federal Home
Loan Banks, are supported by the right of the issuer to borrow from the Trea-
sury; others, such as those of the Federal Home Loan Mortgage Corporation are
supported only by the credit of the particular agency or instrumentality; and
still others, such as those of the Federal National Mortgage Association, are
supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations. No assurance can be given that the U.S. Government
will provide financial support to U.S. Gov-
Paragon Portfolio_--6
- -------------------------------------------------------------------------------
<PAGE>
ernment agencies or instrumentalities in the future. U.S. Government Secur-
ities may include certain government agency zero coupon bonds.
A Portfolio may also invest in separately traded principal and interest com-
ponents of securities guaranteed or issued by the U.S. Treasury if such compo-
nents are traded independently under the Separate Trading of Registered Inter-
est and Principal of Securities program ("STRIPS").
CUSTODIAL RECEIPTS
Although they are not considered obligations of the U.S. Government for cer-
tain purposes, a Portfolio may acquire securities issued or guaranteed as to
principal and interest by the U.S. Government in the form of custodial re-
ceipts that evidence ownership of future interest payments, principal payments
or both on certain U.S. Treasury notes or bonds.
MORTGAGE-RELATED SECURITIES
Each Portfolio may invest in mortgage-related securities. Mortgage pass-
through securities are securities representing interests in "pools" of resid-
ential mortgage loans. Monthly payments of interest and principal by the indi-
vidual borrowers on the mortgages are passed through to the holders of the se-
curities (net of fees paid to the issuer or guarantor of the securities). The
maturities of mortgage-related securities are variable and unknown when issued
because their maturities depend on prepayment rates. Early repayment of prin-
cipal on mortgage pass-through securities may expose a Portfolio to a lower
rate of return upon reinvestment and, if such security was purchased at a pre-
mium, a loss of the value of the premium which may increase the volatility of
such investments relative to similarly rated debt securities. Mortgage prepay-
ments generally increase with falling interest rates and decrease with rising
interest rates. During periods of rising interest rates, reduced prepayment
rates may extend the average life of mortgage-related securities and increase
a Portfolio's exposure to rising interest rates. As a result, there may be
significant depreciation in the value of certain mortgage-backed securities.
Conversely, during periods of declining interest rates and increased prepay-
ment rates, the value of some mortgage-related securities may decline or may
appreciate less than that of other fixed-income securities. In addition, de-
clining interest rates may impair a Portfolio's ability to reinvest the pro-
ceeds of early principal prepayments at comparable yields.
Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by
the full faith and credit of the U.S. Government (in the case of securities
guaranteed by the Government National Mortgage Association ("GNMA")); or guar-
anteed by agencies or instrumentalities of the U.S. Government (in the case of
securities guaranteed by the Federal National Mortgage Association ("FNMA") or
the Federal Home Loan Mortgage Corporation ("FHLMC"), which are supported only
by the discretionary authority of the U.S. Government to purchase the agency's
obligations). Under certain interest rate and prepayment scenarios, a Portfo-
lio may fail to recoup fully its investment in mortgage-related securities
notwithstanding a direct or indirect governmental or agency guarantee. Mort-
gage pass-through securities created by non-governmental issuers may be sup-
ported by various forms of insurance or guarantees which may be issued by gov-
ernmental or private entities.
Collateralized Mortgage Obligations ("CMOs") are hybrid instruments with
characteristics of both mortgage-backed bonds and mortgage pass-through secu-
rities. As with a bond, interest and pre-paid principal on a CMO are paid, in
most cases, semi-annually. CMOs are usually collateralized by portfolios of
mortgage pass-through securities guaranteed by GNMA, FHLMC, or FNMA but may be
collateralized by whole mortgage loans or private mortgage pass-through secu-
rities. Interests in CMOs are structured as classes of securities with differ-
ent maturities. Under a common structure, monthly payments of principal, in-
cluding prepayments, are first made to investors holding the shortest maturity
class; investors holding the longer maturity classes receive principal pay-
ments only after the first class has been retired.
Real Estate Mortgage Investment Conduits ("REMICs") are CMO vehicles that
qualify for special tax treatment under the Internal Revenue Code and invest
in mortgages principally secured by interests in real property and other in-
vestments permitted by the Internal Revenue Code. No Portfolio will invest
more than 5% of its total assets in REMICs.
Bond Portfolio may also invest in asset-backed securities, which represent
participations in, or are
7--Paragon Portfolio
- --------------------------------------------------------------------------------
<PAGE>
secured by and payable from, pools of assets such as motor vehicle installment
sale contracts, installment loan contracts, leases of various types of real
and personal property, receivables from revolving credit (credit card) agree-
ments and other categories of receivables. Such asset pools are securitized
through the use of privately-formed trusts or special purpose corporations.
Payments or distributions of principal and interest may be guaranteed up to
certain amounts and for a certain time period by a letter of credit or a pool
insurance policy issued by a financial institution unaffiliated with the trust
or corporation, or other credit enhancements may be present. Asset-backed se-
curities present certain risks that are not presented by mortgage-related se-
curities because asset-backed securities generally do not have the benefit of
a security interest in collateral that is comparable to mortgage assets.
A Portfolio may invest in new types of mortgage-related securities and in
other asset-backed securities that may be developed in the future to the ex-
tent consistent with its investment objective and policies and approved by the
Trust's Board of Trustees.
RISKS ASSOCIATED WITH DERIVATIVE MORTGAGE-BACKED AND FLOATING RATE SECURITIES
Derivative mortgage-backed securities are subject to different combinations
of interest rate and/or prepayment risks. In addition, particular derivative
securities may be leveraged such that their exposure (i.e., price sensitivity)
to interest rate and/or prepayment risks is magnified. A Portfolio may acquire
derivative mortgage-backed securities and other derivative securities to the
extent consistent with the Portfolio's investment objective and for various
purposes, including adjusting the average duration of interest rate sensitiv-
ity of the Portfolio or attempting to enhance the Portfolio's total return.
The Investment Adviser manages the risks and benefits of derivative securities
through prudent analysis, selection and monitoring of each Portfolio's invest-
ments in these securities.
FOREIGN SECURITIES
Bond Portfolio may invest in securities of foreign issuers denominated in
U.S. dollars. Growth Portfolio and Equity Income Portfolio may invest in secu-
rities of foreign issuers in the form of American Depository Receipts
("ADRs"). ADRs are receipts issued by a U.S. bank or trust company which evi-
dence ownership of underlying securities of foreign corporations. Investment
in foreign securities may present a greater degree of risk than investment in
domestic securities because of the possibility of less publicly-available fi-
nancial and other information, more volatile and less liquid markets, less se-
curities regulation, higher brokerage costs, imposition of foreign withholding
and other taxes, war, expropriation or other adverse governmental actions.
INTEREST RATE AND MARKET RISK FACTORS
Since shares of a Portfolio represent an investment in securities with fluc-
tuating market prices, the net asset value per share of each Portfolio and the
value of a shareholder's holdings will vary as the aggregate value of a Fund's
portfolio securities increases or decreases. The dividends paid by each Port-
folio will increase or decrease in relation to the income received from its
investments and the expenses incurred by the Portfolio.
The net asset value of Bond Portfolio generally will change as the general
levels of interest rates fluctuate. During periods of falling interest rates,
the market value of fixed-income securities generally rises, and conversely,
during periods of rising interest rates, the market value of fixed-income se-
curities generally declines. The magnitude of the fluctuation is generally
greater for securities with longer maturities and durations. Market values of
fixed-income securities are also affected by general economic conditions,
business conditions affecting the issuer or the industry in which it competes,
and changes by rating agencies in their ratings of a fixed-income security.
The market value of different types of fixed-income securities varies in re-
sponse to the foregoing factors affecting market values.
TEMPORARY DEFENSIVE INVESTMENTS
When BOIA believes that investment for defensive purposes is appropriate,
part or all of a Portfolio's assets may be temporarily invested in cash or
cash equivalent short-term obligations including, but not limited to, certifi-
cates of deposit, commercial paper, notes, U.S. Government Securities, foreign
government securities (if permitted) and repurchase agreements. Under such
circumstance or in order to invest uninvested cash balances, the Portfolios
may
Paragon Portfolio_-- 8
- -------------------------------------------------------------------------------
<PAGE>
also invest in securities issued by other investment companies that invest
primarily in high quality, short-term money market instruments and which de-
termine their net asset value per share based on the amortized cost valuation
and/or penny rounding pricing methods. The amount of a Portfolio's investments
in securities of other investment companies will be subject to the limitations
on such investments prescribed by the Investment Company Act. These limits in-
clude a prohibition on a Portfolio acquiring more than 3% of the voting shares
of any other fund, and investing more than 5% of its assets in securities of
any one fund or more than 10% of its assets in securities of all funds. A Fund
will indirectly bear its proportionate share of any management fees paid by
investment companies in which it invests in addition to the advisory fee paid
by the Portfolio.
INVESTMENT PRACTICES COMMON TO THE PORTFOLIOS
REPURCHASE AGREEMENTS
Each Portfolio may enter into repurchase agreements with selected broker-
dealers, banks or other financial institutions. A repurchase agreement is an
agreement under which a Portfolio purchases securities and the seller agrees
to repurchase the securities within a particular time at a specified price.
Such price will exceed the original purchase price, the difference being in-
come to the Portfolio, and will be unrelated to the interest rate on the pur-
chased security. The Trust's custodian or subcustodian will maintain custody
of the purchased securities for the duration of the agreement. At the time the
Portfolio enters into a repurchase agreement the value of the purchased secur-
ities, including accrued interest, will be equal to or exceed the value of the
repurchase agreement including accrued interest. For purposes of the Invest-
ment Company Act, a repurchase agreement is deemed to be a loan from the Port-
folio to the seller. In the event of bankruptcy of the seller or failure of
the seller to repurchase the securities as agreed, the Portfolio could suffer
losses, including loss of interest on or principal of the security and costs
associated with delay and enforcement of the repurchase agreement. In evaluat-
ing whether to enter into a repurchase agreement, the Adviser will carefully
consider the creditworthiness of the seller pursuant to procedures reviewed
and approved by the Trustees.
ZERO COUPON AND DEFERRED INTEREST BONDS
Each Portfolio may purchase zero coupon bonds and deferred interest bonds.
Zero coupon and deferred interest bonds are issued at a significant discount
from face value. The discount approximates the total amount of interest the
bonds would accrue and compound over the period until maturity or the first
interest payment date at a rate of interest reflecting market rate at the time
of issuance. Zero coupon bonds do not require the periodic payment of inter-
est. Deferred interest bonds provide for a period of delay before regular pay-
ment of interest begins. The market value of such investments fluctuates more
in response to interest rate changes and, accordingly, is subject to greater
market volatility than the value of debt obligations which require regular
cash payments of interest. If it holds zero coupon bonds or deferred interest
bonds in its portfolio, however, a Portfolio would recognize income currently
in the amount of the unpaid, accrued interest and would be required in order
to avoid Federal taxes on undistributed amounts to distribute such income to
shareholders from cash from other sources, including the proceeds of sales of
portfolio securities or the proceeds of Portfolio shares sold, even though
cash representing such income would not have been received by the Portfolio.
To the extent that a Portfolio is required to use the proceeds from the sale
of portfolio securities or Portfolio shares to pay such distributions, it may
forego the opportunity to invest such funds in additional income producing se-
curities. This may ultimately result in a reduction in the income earned and
distributed by the Portfolio.
FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES
Each Portfolio may purchase when-issued securities, i.e. make contracts to
purchase securities for a fixed price at a future date beyond customary set-
tlement time. A Portfolio is required to hold and maintain in a segregated ac-
count until the settlement date of such purchases, cash or liquid, high-grade
debt obligations in an amount sufficient to meet the purchase price. Alterna-
tively, the Portfolio may enter into offsetting contracts for the forward sale
of other securities that it owns. The purchase of securities on a when-issued
or forward commitment basis involves a risk of loss if the value of the secu-
rity to be purchased declines prior to the settlement date. Although a Portfo-
lio would generally purchase securities on a when-issued or forward commitment
basis with the
9--Paragon Portfolio
- -------------------------------------------------------------------------------
<PAGE>
intention of acquiring securities for its portfolio, the Portfolio may dispose
of a when-issued security or forward commitment prior to settlement if BOIA
deems it appropriate to do so.
OPTIONS ON SECURITIES
Writing Covered Options. Each Portfolio may each write (sell) exchange
traded covered call and put options on any securities in which it may invest.
A call option written by a Portfolio obligates the Portfolio to sell specified
securities to the holder of the option at a specified price if the option is
exercised at any time before the expiration date. All call options written by
a Portfolio are covered, which means that the Portfolio will own the securi-
ties subject to the option for such period as the option is outstanding. The
purpose of writing covered call options is for the Portfolio to realize
greater income than would be realized on portfolio securities transactions
alone. However, the Portfolio may forego the opportunity to profit from an in-
crease in the market price of the underlying security.
A put option written by a Portfolio would obligate the Portfolio to purchase
specified securities from the option holder at a specified price if the option
is exercised at any time before the expiration date. All put options written
by a Portfolio would be covered, which means that the Portfolio would have de-
posited with its custodian cash or liquid, high-grade debt obligations with a
value at least equal to the exercise price of the put option. The purpose of
writing such options is to generate additional income for the Portfolio. How-
ever, in return for the option premium, the Portfolio accepts the risk that it
will be required to purchase the underlying securities at a price in excess of
the securities' market value at the time of purchase.
A Portfolio may terminate its obligations under an exchange traded call or
put option at any time prior to its exercise by purchasing an option identical
to the one it has written. Such purchases are referred to as "closing purchase
transactions."
Purchasing Options. Each Portfolio may purchase put and call options on any
securities in which it may invest. A Portfolio would also be able to enter
into closing sale transactions in order to realize gains or minimize losses on
options it had purchased.
A Portfolio would normally purchase call options in anticipation of an in-
crease in the market value of securities of the type in which it may invest.
The purchase of a call option would entitle the Portfolio, in return for the
premium paid, to purchase specified securities at a specified price during the
option period. The Portfolio would ordinarily realize a gain if, during the
option period, the value of such securities exceeded the sum of the exercise
price, the premium paid and transaction costs; otherwise the Portfolio would
realize a loss on the purchase of the call option.
A Portfolio would normally purchase put options in anticipation of a decline
in the market value of securities in its portfolio ("protective puts") or in
securities in which it may invest. The purchase of a put option would entitle
the Portfolio, in exchange for the premium paid, to sell specified securities
at a specified price during the option period. The purchase of protective puts
is designed to offset or hedge against a decline in the market value of the
Fund's portfolio securities. Put options may also be purchased by a Portfolio
for the purpose of affirmatively benefiting from a decline in the price of se-
curities which it does not own. A Portfolio would ordinarily realize a gain
if, during the option period, the value of the underlying securities decreased
below the exercise price sufficiently to cover the premium and transaction
costs; otherwise the Portfolio would realize a loss on the purchase of the put
option. Gains and losses on the purchase of protective put options would tend
to be offset by countervailing changes in the value of underlying portfolio
securities.
Risks Associated With Options Transactions. There is no assurance that a
liquid secondary market on an options exchange will exist for any particular
option or at any particular time. If a Portfolio is unable to effect a closing
purchase transaction with respect to covered options it has written, the Port-
folio will not be able to sell the underlying securities or dispose of assets
held in a segregated account until the options expire or are exercised. Simi-
larly, if a Portfolio is unable to effect a closing sale transaction with re-
spect to options it has purchased, it would have to exercise the options in
order to realize any profit and will incur transaction costs upon the purchase
or sale of underlying securities.
A Portfolio may purchase and sell only options which are traded on United
States exchanges.
The writing and purchase of options is a highly specialized activity which
involves investment tech-
Paragon Portfolio_--10
- -------------------------------------------------------------------------------
<PAGE>
niques and risks different from those associated with ordinary portfolio secu-
rities transactions. The successful use of protective puts for hedging pur-
poses depends in part on BOIA's ability to predict future price fluctuations
and the degree of correlation between the options and securities markets.
LENDING OF PORTFOLIO SECURITIES
Each Portfolio may also seek to increase its income by lending portfolio se-
curities provided that the value of the securities loaned would not exceed
one-third of the value of the total assets of each Portfolio. Under present
regulatory policies, such loans may be made to institutions, such as broker-
dealers, and are required to be secured continuously by collateral in cash,
cash equivalents, or U.S. Government Securities maintained on a current basis
at an amount at least equal to the market value of the securities loaned. Cash
collateral may be invested in short-term debt securities. A Portfolio may ex-
perience loss or delay in the recovery of its securities if the institution
with which it has engaged in a portfolio loan transaction breaches its agree-
ment with such Portfolio.
RESTRICTED AND ILLIQUID SECURITIES
Each Portfolio may purchase securities that are not registered ("restricted
securities") under the Securities Act of 1933 ("1933 Act"), including securi-
ties offered and sold to "qualified institutional buyers" under Rule 144A un-
der the 1933 Act. However, each Portfolio will not invest more than 15% of its
net assets (taken at market value) in illiquid investments, which include cer-
tain repurchase agreements maturing in more than seven days, securities that
are not readily marketable and restricted securities, unless the Board of
Trustees determines, based upon a continuing review of the trading markets for
the specific restricted security, that such restricted securities are liquid.
The Board of Trustees has adopted guidelines and delegated to BOIA the daily
function of determining and monitoring liquidity of restricted securities. The
Board, however, will retain sufficient oversight, focusing on factors such as
valuation, liquidity and availability of information and is ultimately respon-
sible for each determination. Investing in restricted securities eligible for
resale pursuant to Rule 144A could have the effect of increasing the level of
illiquidity in a Portfolio to the extent that qualified institutional buyers
become for a time uninterested in purchasing these restricted securities. The
purchase price and subsequent valuation of restricted and illiquid securities
normally reflect a discount, which may be significant from the market price of
comparable securities for which a liquid market exists.
INVESTMENT RESTRICTIONS
The Trust, on behalf of each Portfolio, has adopted certain fundamental in-
vestment restrictions which are enumerated in detail in the Statement of Addi-
tional Information and which may not be changed with respect to any Portfolio
unless authorized by the holders of a majority of outstanding securities of
that Portfolio. Among other restrictions, a Portfolio may not, with respect to
75% (50% in the case of Gulf South Portfolio) of its total assets taken at
market value, invest more than 5% of its total assets in the securities of any
one issuer (except U.S. Government Securities) or acquire more than 10% of any
class of the outstanding voting securities of any one issuer. In addition, no
Portfolio may invest more than 25% of its total assets in any one industry,
except that for purposes of this limitation, the issuers of U.S. Government
Securities are not considered to be part of any industry. In addition, each
Portfolio may borrow money from banks only for temporary or emergency purposes
in an aggregate amount not exceeding one-third of the value of its total as-
sets, and a Portfolio may not pledge more than 15% of its total assets in con-
nection with such borrowings. A Portfolio may not purchase securities while
such borrowings exceed 5% of the value of the Portfolio's assets. Except for
such enumerated restrictions and as otherwise indicated in this Prospectus,
the investment objectives and policies of each Portfolio are not fundamental
policies and accordingly may be changed by the Trust's Board of Trustees with-
out obtaining the approval of the shareholders.
PORTFOLIO TRANSACTIONS
BOIA is responsible for selecting brokers and dealers to effect portfolio
securities transactions and for negotiating brokerage commissions and dealers'
charges. Fixed-income securities are generally traded in the over-the-counter
market on a net basis with dealers acting as principal for their own accounts
without a stated commission.
11--Paragon Portfolio
- -------------------------------------------------------------------------------
<PAGE>
The primary consideration in selecting broker-dealers to execute portfolio
security transactions is the execution of such portfolio transactions at the
most favorable prices. Subject to this requirement, securities may be bought
from or sold to brokers who have furnished statistical, research and other in-
formation or services to BOIA. Higher commissions may be paid to brokers that
provide research services. Any broker affiliate of BOIA may act as a broker
for the Trust in accordance with applicable rules of the Securities and Ex-
change Commission ("SEC") and the restrictions of the Glass-Steagall Act on
the activities of broker-dealer subsidiaries of national banks.
PORTFOLIO TURNOVER
Although none of the Portfolios invests for short-term profits, securities
in a portfolio will be sold whenever BOIA believes it is appropriate to do so
without regard to the length of time the particular security may have been
held. This policy is subject to certain requirements for qualification as a
regulated investment company for Federal income tax purposes. A higher portfo-
lio turnover rate involves greater expenses to a Portfolio and may increase
the possibility of shareholders receiving taxable distributions.
THE ADVISER, ADMINISTRATOR AND DISTRIBUTOR
THE ADVISER
BOIA, 774 Park Meadow Road, Westerville, Ohio, acts as the investment ad-
viser to the Portfolios. As of June 30, 1995, BOIA, together with its advisory
affiliates, acted as investment adviser for approximately $35 billion in as-
sets.
BOIA became the Portfolios' investment adviser on January 2, 1996 as a re-
sult of the acquisition of Premier Bancorp, Inc., the indirect parent of Pre-
mier Investment Advisors, L.L.C. ("Premier"), by Banc One Corporation.
As compensation for the services rendered to the Portfolios by BOIA pursuant
to the Investment Advisory Agreement and the assumption by BOIA of the ex-
penses related thereto, the Portfolios pay BOIA a monthly fee at annual rate
of the Portfolio's net assets as follows:
<TABLE>
<S> <C>
Bond Portfolio .50%
Growth Portfolio .65%
Equity Income Portfolio .65%
Gulf South Portfolio .65%
</TABLE>
For the fiscal year ended November 30, 1995, each Portfolio paid Premier
(the previous investment adviser) a monthly fee at an annual rate of the Port-
folio's average daily net assets as follows:
<TABLE>
<CAPTION>
RATE PAID
FOR THE
STATED FISCAL YEAR ENDED
ANNUAL RATE NOVEMBER 30, 1995
----------- -----------------
<S> <C> <C>
Bond Portfolio .50% .50%
Growth Portfolio .65% .65%
Equity Income Portfolio .65% .65%
Gulf South Portfolio .65% .65%
</TABLE>
Premier had voluntarily agreed to reimburse expenses (excluding interest,
taxes and extraordinary expenses) to the extent that such expenses exceed, on
an annualized basis, .75%, 1.00%, 1.00% and 1.00% for the Bond Portfolio,
Growth Portfolio, Equity Income Portfolio and Gulf South Portfolio, respec-
tively.
Each Portfolio is responsible for all expenses other than those expressly
borne by Premier under the Portfolio's previous Investment Advisory Agreement.
These expenses include each Portfolio's investment advisory and administration
fees, shareholder service expenses, expenses of issuing reports to sharehold-
ers, its proportionate share of custodian fees, registration fees under Fed-
eral and state securities laws, legal fees, auditing and tax return prepara-
tion fees, taxes, Trustees' fees and other expenses of administering the Port-
folio. In the event that the expenses of a Portfolio (including the fees of
BOIA, but excluding interest, taxes, litigation and indemnification expenses
and other extraordinary expenses) for any fiscal year exceed the limits set by
certain state securities administrators, the investment advisory fee payable
on behalf of such Portfolio will be reduced by the amount of such excess to
the extent of each Portfolio's respective fee. Fee reductions on account of
any excess amounts will be made on a monthly basis.
Paragon Portfolio_--12
- -------------------------------------------------------------------------------
<PAGE>
THE ADMINISTRATOR
GSAM is the Administrator for the Portfolios. Under the Administration
Agreement of the Trust, GSAM administers the Trust's business affairs, subject
to the supervision of the Board of Trustees, and in connection therewith fur-
nishes the Trust with office facilities and is responsible for ordinary cleri-
cal, recordkeeping and bookkeeping services required to be maintained by the
Trust (excluding those maintained by the Trust's custodian, Transfer Agent or
Adviser), preparation and filing of documents required to comply with Federal
and state securities laws, supervising the activities of the Trust's custodian
and Transfer Agent, providing assistance in connection with meetings of the
Board of Trustees and shareholders and other administrative services necessary
to conduct the Trust's business. For these services and facilities, each Port-
folio pays to GSAM a monthly fee at an annual rate of the Portfolio's average
daily net assets as follows:
<TABLE>
<CAPTION>
RATE PAID
FOR THE
FISCAL
YEAR
STATED NOVEMBER
ANNUAL RATE 30, 1995
----------- ---------
<S> <C> <C>
Bond Portfolio .15% .15%
Growth Portfolio .15% .15%
Equity Income Portfolio .15% .15%
Gulf South Portfolio .15% .15%
</TABLE>
THE DISTRIBUTOR
Goldman Sachs serves as the Distributor of shares of the Portfolios pursuant
to a Distribution Agreement with the Trust.
PURCHASE AND REDEMPTIONS
Shares of each Portfolio are available only to the insurance company sepa-
rate accounts that fund the Contracts. Shares of each Portfolio may be pur-
chased and redeemed by the separate accounts without any sales charge at net
asset value. Goldman Sachs serves as distributor for each Portfolio. The Con-
tracts are described in the separate prospectuses issued by GNA or its affili-
ates and any other insurance company which has established separate accounts
that invest in the Portfolios.
Purchase and redemption orders will be processed at the net asset value next
determined after such order has been received in proper form by the transfer
agent. See "Net Asset Value." Orders to purchase or redeem each Portfolio's
shares must be received by the transfer agent before the close of regular
trading on the New York Stock Exchange in order to receive that day's net as-
set value. Proceeds from redemption orders will be wired to the insurance com-
pany on or before the seventh day following the request for redemption. Under
unusual circumstances, a Portfolio may suspend redemptions or postpone payment
of redemption proceeds, as permitted by applicable law. Each Portfolio also
reserves the right to reject any specific purchase order.
Due to differences in tax treatment or other considerations, the interests
of various Contract owners might at some time be in conflict. The Trust cur-
rently does not foresee any such conflict. If such a conflict were to occur,
one or more insurance companies' separate accounts might be required to with-
draw their investments in a Portfolio. This might force such Portfolio to sell
securities at disadvantageous prices or otherwise adversely affect such Port-
folio.
Within the limitations set forth in the appropriate Contract,
Contractholders may direct through GNA or any other insurance company which
has established separate accounts which invests in the Portfolios, the alloca-
tion of amounts available for investment under their Contracts among the Port-
folios. Instructions for any such allocation, or the purchase or redemption of
the shares of any Portfolio, must be made through the insurance company as the
record holder of the Portfolio's shares. The rights of the insurance company
as the record holder of shares of a Portfolio are different from the rights of
a Contractholder. The term "shareholder" in this Prospectus refers to the in-
surance company and not to the Contractholder.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
Bond Portfolio will declare a dividend of its net investment income daily
and distribute such dividend on or about the last calendar day of the month.
All or substantially all long-term and short-term capital gains in excess of
available capital losses, if any, of Bond Portfolio will be distributed at
least annually.
Each of Growth Portfolio and Equity Income Portfolio will typically declare
and distribute a dividend of its net investment income on or about the last
13--Paragon Portfolio
- -------------------------------------------------------------------------------
<PAGE>
calendar day of every month and will distribute all long-term and short-term
capital gains in excess of available capital losses, if any, at least annual-
ly. Gulf South Portfolio will typically declare and distribute a dividend of
its net investment income semi-annually and will distribute all long-term and
short-term capital gains in excess of available capital losses, if any, at
least annually.
Dividends and distributions from a Portfolio will automatically be rein-
vested in additional shares of such Portfolio.
FEDERAL TAXES
Each Portfolio is treated as a separate entity for tax purposes, and intends
to elect to be treated as a regulated investment company under Subchapter M of
the Code and to qualify for such treatment for each taxable year. To qualify
as such, each Portfolio must satisfy certain requirements relating to the
sources of its income, diversification of its assets and distribution of its
income to shareholders. As a regulated investment company, a Portfolio will
not be subject to Federal income tax on any net investment income and net re-
alized capital gains that are distributed to its shareholders in accordance
with certain timing requirements of the Code.
Shares of each Portfolio are available only to insurance company separate
accounts that fund variable annuity and variable life insurance contracts. Un-
der the Code, no tax is imposed on an insurance company with respect to income
of a qualifying separate account properly allocable to certain specified re-
serve items. See the applicable Contract prospectus for a discussion of the
Federal income tax status of (1) the separate accounts that purchase and hold
shares of a Portfolio and (2) the holders of Contracts funded through those
accounts.
Each Portfolio intends to comply with the diversification requirements im-
posed by Section 817(h) of the Code and the regulations thereunder. These re-
quirements, which are in addition to the diversification requirements imposed
on a Portfolio by the Investment Company Act and Subchapter M of the Code,
place certain limitations on the assets of each separate account. Because Sec-
tion 817(h) and those regulations treat the assets of the Portfolio as assets
of the related separate account, these limitations also restrict the percent-
age of assets of a Portfolio that may be invested in securities of a single
issuer. Specifically, the regulations provide that, except as permitted by the
"safe harbor" described below, as of the end of each calendar quarter or
within 30 days thereafter no more than 55% of the value of the total assets of
a Portfolio may be represented by any one investment, no more than 70% by any
two investments, no more than 80% by any three investments and no more than
90% by any four investments. For this purpose, all securities of the same is-
suer are considered a single investment, but each U.S. government agency or
instrumentality is considered a separate issuer. Section 817(h) provides, as a
safe harbor, that a separate account is treated as being adequately diversi-
fied if the diversification requirements under Subchapter M are satisfied and
no more than 55% of the value of the account's total assets are cash and cash
items (including receivables), U.S. government securities and securities of
other regulated investment companies. Failure by a Portfolio to satisfy the
Section 817(h) requirements would, unless the failure is inadvertent and cer-
tain other conditions are satisfied, result in treatment of the Contract hold-
ers other than as described in the applicable Contract prospectus, including
inclusion in ordinary income of income accrued under the Contracts for the
current and all prior taxable years. Any such failure may also result in ad-
verse tax consequences for the investment company issuing the Contracts.
NET ASSET VALUE
The net asset value of shares of each Portfolio is determined at the close
of regular trading on the New York Stock Exchange (normally 3:00 p.m. Louisi-
ana time, 4:00 p.m. New York time) on each Business Day.
For purposes of determining net asset value per share, equity securities
traded on a national securities exchange or the Nasdaq National Market
("NASDAQ") are valued at their last sale price on the principal exchange on
which they are traded or NASDAQ (if NASDAQ is the principal market for such
securities) on the valuation day or, if no sale occurs, at the mean between
the closing bid and asked price. Unlisted equity securities for which market
quotations are available are valued at the mean between the most recent bid
and asked prices.
Fixed-income securities will be valued at prices supplied by a pricing agent
selected by the Trustees,
Paragon Portfolio_--14
- -------------------------------------------------------------------------------
<PAGE>
which prices reflect broker/dealer-supplied valuations and electronic data
processing techniques. Short-term obligations maturing in sixty days or less
are valued at amortized cost. Other assets and assets whose market value does
not, in BOIA's opinion, reflect fair value are valued at fair value using
methods determined in good faith by the Board of Trustees.
PERFORMANCE AND YIELD INFORMATION
From time to time a Portfolio may publish its average annual total return
and/or yield in advertisements and communications to shareholders. A Portfo-
lio's average annual total return is determined by computing the average an-
nual percentage change in value of a $1,000 investment. All calculations as-
sume the reinvestment of all dividends and distributions at net asset value.
The total return calculation assumes a complete redemption of the investment
at the end of the relevant period.
A Portfolio may also from time to time advertise total return on a cumula-
tive, average, year-by-year or other basis for various specified periods by
means of quotations, charts, graphs or schedules. In addition, a Portfolio may
furnish total return calculations based on investments at various sales charge
levels imposed on investments in the variable annuity or at net asset value.
In addition to the above, a Portfolio may from time to time advertise its per-
formance relative to certain performance rankings and indices.
The yield of a Portfolio will be calculated by dividing the net investment
income during a recent 30-day period by the product of the average daily num-
ber of shares outstanding and entitled to receive dividends and the maximum
public offering price (net asset value) per share on the last day of the rele-
vant period. The results are compounded on a bond equivalent (semi-annual) ba-
sis and then annualized.
Investors should note that the investment results of a Portfolio are based
on historical performance and will fluctuate over time. The value of a Portfo-
lio's shares, when redeemed, may be more or less than their original cost. Any
presentation of a Portfolio's yield, effective yield or total return for any
prior period should not be considered a representation of what an investment
may earn or what a Portfolio's yield, effective yield or total return may be
in any future period.
Any Portfolio performance information presented will also include perfor-
mance information for the insurance company separate accounts that fund Con-
tracts investing in the Portfolios, which will take into account insurance-re-
lated charges and expenses under such contracts.
Additional performance information will also be contained in the Annual Re-
port of each Portfolio, which may be obtained by contacting the Trust at (800)
894-3719. See "Performance Information" in the Statement of Additional Infor-
mation.
From time to time any Portfolio may publish an indication of its past per-
formance (including investment standings and rankings) as measured by indepen-
dent sources such as Lipper Analytical Services, Incorporated, Weisenberger
Investment Companies Service, IBC Donoghue's Money Fund Report, Barron's,
Business Week, Changing Times, Financial World, Forbes, Money, Personal In-
vestor, Sylvia Porter's Personal Finance, and The Wall Street Journal. The
Portfolios may also advertise information which has been provided to the NASD
for publication in regional and local newspapers.
15--Paragon Portfolio
- -------------------------------------------------------------------------------
<PAGE>
ORGANIZATION AND SHARES OF THE PORTFOLIOS
The Trust was formed as a business trust under the laws of The Commonwealth
of Massachusetts on October 2, 1989. The Trustees of the Trust are responsible
for the overall management and supervision of its affairs. As of the date
hereof, the Trustees have established eleven series of the Trust, including
the Portfolios described in this Prospectus. The other series of the Trust are
not available through the Contracts. Shares entitle their holders to one vote
per share, are freely transferable and have no preemptive, subscription or
conversion rights. To the best knowledge of the Trust, there are no persons
owning 5% or more of the outstanding shares of any Portfolio as of March 1,
1996, except the GNA Variable Investment Account of Great Northern Insured An-
nuity Corporation which on such date held 100% of the outstanding shares of
each of the Portfolios.
Shares of a Portfolio will be voted separately by series of the Trust with
respect to matters pertaining to that series except for the election of Trust-
ees and ratification of independent accountants. For example, shareholders of
each Portfolio are required to approve the adoption of any investment advisory
agreement relating to such Portfolio and any changes in fundamental investment
restrictions or policies of such Portfolio. Approval by the shareholders of
one Portfolio is effective only as to that Portfolio. An insurance company is-
suing a Contract that participates in a Portfolio will vote shares in the ap-
plicable separate account as required by law and any interpretation thereof,
as such may be amended or changed from time to time. In accordance with cur-
rent law and interpretations thereof, a participating insurance company is re-
quired to request voting instructions from Contract owners and must vote
shares in the applicable separate account in proportion to the voting instruc-
tions received. For further discussion, please refer to the prospectus for
your Contract.
The Trust does not intend to hold annual shareholder meetings, although spe-
cial meetings may be called for purposes such as electing or removing Trustees
or such other purposes as are set forth above.
Paragon Portfolio_--16
- -------------------------------------------------------------------------------
<PAGE>
PARAGON PORTFOLIO
4900 SEARS TOWER
CHICAGO, ILLINOIS 60606
STATEMENT OF ADDITIONAL INFORMATION
Paragon Portfolio (the "Trust") is an open-end, management investment
company (a mutual fund) that offers a diversified selection of managed
investment portfolios, each with its own investment objective and policies.
The following four portfolios (the "Portfolios") are offered by this Statement
of Additional Information and related Prospectus:
Paragon Power Intermediate-Term Bond Portfolio;
Paragon Power Value Growth Portfolio;
Paragon Power Value Equity Income Portfolio;
Paragon Power Gulf South Growth Portfolio.
Paragon Power Gulf South Growth Portfolio is a non-diversified portfolio;
the portfolios of the other Funds are diversified.
Banc One Investment Advisors Corporation ("BOIA" or the "Adviser") serves as
the investment adviser to the Portfolios. BOIA became the Portfolio's
investment adviser on January 2, 1996 as a result of the acquisition of
Premier Bancorp, Inc., the indirect parent of Premier Investment Advisors,
L.L.C. ("Premier" or the Portfolio's previous investment adviser), by Banc One
Corporation. Goldman Sachs Asset Management ("GSAM"), a separate operating
division of Goldman, Sachs & Co. ("Goldman Sachs"), acts as the administrator
and distributor State Street Bank and Trust Company ("State Street"), acts as
transfer agent.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE IN
STATEMENT OF
ADDITIONAL
INFORMATION
------------
<S> <C>
Investment Policies and Practices of the Portfolios................ 3
Investment Restrictions............................................ 10
Management......................................................... 13
The Adviser, Administrator, Distributor and Transfer Agent......... 14
Portfolio Transactions............................................. 16
Net Asset Value.................................................... 18
Purchase and Redemption Information................................ 19
Calculation of Performance Quotations.............................. 20
Tax Information.................................................... 21
Organization and Capitalization.................................... 23
Shareholder and Trustee Liability.................................. 24
Custodian.......................................................... 25
Independent Accountants............................................ 25
Financial Highlights............................................... 25
Appendix........................................................... 1-A
</TABLE>
2 --Paragon Portfolio
- --------------------------------------------------------------------------------
<PAGE>
INVESTMENT POLICIES AND PRACTICES OF THE PORTFOLIOS
The following discussion elaborates on the description of each Portfolio's
investment policies and practices contained in the Prospectus:
CORPORATE DEBT SECURITIES
Included in the corporate debt securities in which certain Portfolios may
invest are preferred, preference and convertible stocks. Preference stocks are
stocks that have many characteristics of preferred stocks, but are typically
junior to an existing class of preferred stocks. When and if available,
corporate debt securities may be purchased at a discount from face value.
U.S. GOVERNMENT SECURITIES
A Portfolio may also invest in separately traded principal and interest
components of securities issued or guaranteed by the U.S. Treasury. The
principal and interest components of selected securities are traded
independently under the Separate Trading of Registered Interest and Principal
of Securities program ("STRIPS"). Under the STRIPS program, the principal and
interest components are individually numbered and separately issued by the
U.S. Treasury at the request of depository financial institutions, which then
trade the component parts independently.
CUSTODIAL RECEIPTS
A Portfolio may also acquire securities which, although not considered U.S.
Government securities for certain purposes are issued or guaranteed as to
principal and interest by the U.S. Government, its agencies, authorities and
instrumentalities in the form of custodial receipts that evidence ownership of
future interest payments, principal payments or both on certain U.S. Treasury
notes or bonds. Such notes and bonds are held in custody by a bank on behalf
of the owners. These custodial receipts are known by various names, including
"Treasury Receipts," "Treasury Investment Growth Receipts" ("TIGR's"), and
"Certificates of Accrual on Treasury Securities" ("CATS").
FOREIGN SECURITIES
Paragon Power Intermediate-Term Bond Portfolio may invest in securities of
foreign issuers denominated in U.S. dollars. Paragon Power Value Growth
Portfolio and Paragon Power Value Equity Portfolio may invest in securities of
foreign issuers in the form of American Depository Receipts ("ADRs"). ADRs are
receipts issued by U.S. bank or trust company which evidence ownership of
underlying securities of foreign corporations. Investment in foreign issuers
involves certain special considerations, including those set forth below,
which are not typically associated with investment in U.S. issuers. Since
foreign companies are not generally subject to uniform accounting, auditing
and financial reporting standards, practices and requirements comparable to
those applicable to U.S. companies, there may be less publicly available
information about a foreign company than about a domestic company. Volume and
liquidity in most foreign bond markets are less than in the United States and,
at times, volatility of price can be greater than in the United States.
There is generally less government supervision and regulation of securities
exchanges, brokers and listed companies in foreign countries than in the
United States. Mail service between the United States and foreign countries
may be slower or less reliable than within the United States, thus increasing
the risk on some transactions of delayed settlements of portfolio transactions
or loss of certificates for portfolio securities. In addition, with respect to
certain foreign countries, there is the possibility of expropriation or
confiscatory taxation, political or social instability, or diplomatic
developments which could affect Paragon Power Intermediate-Term Bond
Portfolio's investments in those countries. Moreover, individual foreign
economies
Paragon Portfolio--3
- -------------------------------------------------------------------------------
<PAGE>
may differ favorably or unfavorably from the U.S. economy in such respects as
growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Each Portfolio
will limit its equity investments in "passive foreign investment companies,"
which could in certain circumstances subject the Portfolio to disadvantageous
U.S. tax treatment on such investments.
ADRs are receipts issued by a U.S. bank or trust company which evidence
ownership of underlying securities of foreign corporations. ADRs are traded on
domestic exchanges or in the U.S. over-the-counter market and, generally, are
in registered form. To the extent a Portfolio acquires ADRs through banks
which do not have a contractual relationship with the foreign issuer of the
security underlying the ADR to issue and service such ADRs, there may be an
increased possibility that the Portfolio would not become aware of and be able
to respond in a timely manner to corporate actions such as stock splits or
rights offerings involving the foreign issuer. In addition, the lack of
information may result in inefficiencies in the valuation of such instruments.
MORTGAGE-RELATED SECURITIES
Mortgage Pass-Through Securities. Interests in pools of mortgage-related
securities differ from other forms of debt securities, which normally provide
for periodic payment of interest in fixed amounts with principal payments at
maturity or specified call dates. Instead, these securities generally provide
a monthly payment which consists of both interest and principal payments. In
effect, these payments are a "pass-through" of the monthly payments made by
the individual borrowers on their residential mortgage loans, net of any fees
paid to the issuer or guarantor of such securities. Additional payments are
caused by prepayments of principal resulting from the sale, refinancing or
foreclosure of the underlying residential property, net of fees or costs which
may be incurred. Some mortgage-related securities (such as securities issued
by the Government National Mortgage Association) ("GNMA")) are described as
"modified pass-through." These securities entitle the holder to receive all
interest and principal payments owed on the mortgages in the mortgage pool,
net of certain fees, at the scheduled payment dates regardless of whether the
mortgagor actually makes the payment.
The GNMA is the principal governmental guarantor of mortgage-related
securities. GNMA is a wholly-owned U.S. Government corporation within the
Department of Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the U.S. Government, the timely payment of
principal and interest on securities issued by institutions approved by GNMA
(such as savings and loan institutions, commercial banks and mortgage bankers)
and backed by pools of FHA-insured or VA-guaranteed mortgages.
Government-related guarantors (i.e., whose guarantees are not backed by the
full faith and credit of the U.S. Government) include the Federal National
Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC"). FNMA is a government-sponsored corporation owned entirely by
private stockholders. It is subject to general regulation by the Secretary of
Housing and Urban Development. FNMA purchases conventional residential
mortgages (i.e., mortgages not insured or guaranteed by any governmental
agency) from a list of approved seller/servicers which include state and
Federally-chartered savings and loan associations, mutual savings banks,
commercial banks and credit unions and mortgage bankers. Pass-through
securities issued by FNMA are guaranteed as to timely payment by FNMA of
principal and interest but are not backed by the full faith and credit of the
U.S. Government.
FHLMC is a corporate instrumentality of the U.S. Government and was created
by Congress in 1970 for the purpose of increasing the availability of mortgage
credit for residential housing. FHLMC issues Participation Certificates
("PCs") which represent interests in conventional mortgages from FHLMC's
national portfolio. FHLMC guarantees timely payment of interest,
4--Paragon Portfolio
- -------------------------------------------------------------------------------
<PAGE>
ultimate collection of principal and, in some cases, timely collection of
principal, but FHLMC PCs are not backed by the full faith and credit of the
U.S. Government.
Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. Such issuers
may also be the originators and/or servicers of the underlying mortgage loans
as well as the guarantors of the mortgage-related securities. Pools created by
such non-governmental issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or
indirect government or agency guarantees of payments in the former pools.
However, timely payment of interest and principal of mortgage loans in these
pools may be supported by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance and letters of credit. The
insurance and guarantees are issued by governmental entities, private insurers
and the mortgage poolers. Such insurance and guarantees and the
creditworthiness of the issuers thereof will be considered in determining
whether a mortgage-related security meets a Portfolio's investment quality
standards. There can be no assurance that the private insurers or guarantors
can meet their obligations under the insurance policies or guarantee
arrangements. Mortgage-related securities without insurance or guarantees may
be purchased by a Portfolio if the Adviser, after an examination of the loan
experience and practices of the originator/servicers and poolers, determines
that the securities meet the Portfolio's quality standards. Although the
market for such securities is becoming increasingly liquid, mortgage-related
securities issued by certain private organizations may not be readily
marketable. A Portfolio will not purchase mortgage-related securities or any
other assets which in the Adviser's opinion are illiquid if, as a result, more
than 15% of the value of a Portfolio's net assets will be illiquid.
Collateralized Mortgage Obligations (CMOs). A CMO is a hybrid security,
having characteristics of both a mortgage-backed bond and a mortgage pass-
through security. As with a bond, interest and prepaid principal on CMOs are
paid, in most cases, semiannually. CMOs may be collateralized by whole
mortgage loans or private mortgage pass-through securities but are more
typically collateralized by portfolios of mortgage pass-through securities
guaranteed by GNMA, FHLMC, or FNMA, and the income streams on such securities.
CMOs are only the obligation of their issuers, and in the event of default
there is no assurance that the collateral, which is typically the issuer's
only asset, will be sufficient to pay principal and interest.
CMOs are structured with multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral. Many CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Under a common structure,
monthly payments of principal received from the pool of underlying mortgages,
including prepayments, are first returned to investors holding the shortest
maturity class. Investors holding the longer maturity class receive principal
only after the first class has been retired. An investor is partially
protected against an earlier than desired return of principal because of the
sequential payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple
series, (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond
offering are used to purchase mortgages or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third party trustee as security
for the Bonds. Principal and interest payments from the collateral are used to
pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C
Bonds all bear current interest. Interest on the Series Z Bond is accrued and
added to principal and a like amount is paid as principal on the Series A, B,
or C Bond currently being paid off. When the Series A, B, and C Bonds are paid
in full, interest and principal on the Series Z Bond begins to be paid
currently.
Paragon Portfolio--5
- -------------------------------------------------------------------------------
<PAGE>
Other types of CMO structures may provide for principal payments to two or
more classes concurrently on a proportionate or disproportionate basis. With
some CMOs, the issuer serves as a conduit to allow loan originators (primarily
builders or savings and loan associations) to borrow against their loan
portfolios.
FHLMC Collateralized Mortgage Obligations. FHLMC CMOs are debt obligations
of FHLMC issued in multiple classes having different maturity dates which are
secured by the pledge of a pool of conventional mortgage loans purchased by
FHLMC. Unlike FHLMC pass-through securities, payments of principal and
interest on the CMOs are made semiannually, as opposed to monthly. The amount
of principal payable on each semiannual payment date is determined in
accordance with FHLMC's mandatory sinking fund schedule, which, in turn, is
equal to approximately 100% of the FHA prepayment experience applied to the
mortgage collateral pool. All sinking fund payments in the CMOs are allocated
to the retirement of the individual classes of bonds in the order of their
stated maturities. Payments of principal on the mortgage loans in the
collateral pool in excess of the amount of FHLMC's minimum sinking fund
obligation for any payment date are paid to the holders of the CMOs as
additional sinking fund payments. Because of the "pass-through" nature of all
principal payments received on the collateral pool in excess of FHLMC's
minimum sinking fund requirement, the rate at which principal of the CMOs is
actually repaid is likely to be such that each class of bonds will be retired
in advance of its scheduled maturity date.
If collection of principal (including prepayments) on the mortgage loans
during any semiannual payment period is not sufficient to meet FHLMC's minimum
sinking fund obligation on the next sinking fund payment date, FHLMC agrees to
make up the deficiency from its general funds. Criteria for the mortgage loans
in the pool backing the CMOs are identical to those of FHLMC pass-through
securities. FHLMC has the right to substitute collateral in the event of
delinquencies and/or defaults.
Real Estate Mortgage Investment Conduits. A CMO vehicle that qualifies as a
"real estate mortgage investment conduit" ("REMIC") under the Internal Revenue
Code of 1986, as amended (the "Code"), invests in certain mortgages
principally secured by interests in real property and other permitted
investments. Investors may purchase beneficial interests in REMICs, which are
known as "regular" interests or "residual" interests. Such beneficial
interests in REMICs may offer a higher yield than U.S. Government securities,
but they may also be subject to greater price fluctuations and credit risk. In
addition, interests in REMICs typically will be issued in a variety of classes
or series, which may have different maturities and may be retired in sequence.
Under the Code, CMOs created after 1991 will generally be required to qualify
as REMICs in order for the issuing entity to avoid being subject to Federal
income tax as a "taxable mortgage pool."
Some REMIC interests are not government securities and are not supported in
any way by any governmental agency or instrumentality. In the event of a
default by an issuer of the assets of such a REMIC, there is no assurance that
the assets of the REMIC will be sufficient to pay principal and interest. It
is possible that there will be limited opportunities for trading REMIC
interests in the over-the-counter market, the depth and liquidity of which
will vary from issue to issue and from time to time. Due to possible
unfavorable tax consequences, no Portfolio will purchase residual interests in
REMICs under present tax law.
Other Mortgage-Related Securities. The Adviser expects that governmental,
government-related or private entities may create mortgage loan pools and
other mortgage-related securities offering mortgage pass-through and mortgage-
collateralized investments in addition to those described above. The mortgages
underlying these securities may include alternative mortgage instruments, that
is, mortgage instruments whose principal or interest payments may vary or
whose terms to maturity may differ from customary long-term fixed rate
mortgages. As new types
6--Paragon Portfolio
- -------------------------------------------------------------------------------
<PAGE>
of mortgage-related securities are developed and offered to investors, the
Adviser will, consistent with a Portfolio's investment objectives, policies
and quality standards and, subject to the review and approval of the Trust's
Board of Trustees, consider making investments in such new types of mortgage-
related securities.
Other Asset-Backed Securities. A Portfolio may invest in asset-backed
securities. Such securities are often subject to more rapid repayment than
their stated maturity date would indicate as a result of the pass-through of
prepayments of principal on the underlying loans. During periods of declining
interest rates, prepayment of loans underlying asset-backed securities can be
expected to accelerate. Accordingly, a Portfolio's ability to maintain
positions in such securities will be affected by reductions in the principal
amount of such securities resulting from prepayments, and its ability to
reinvest the returns of principal at comparable yields is subject to generally
prevailing interest rates at that time.
Credit card receivables are generally unsecured and the debtors on such
receivables are entitled to the protection of a number of state and Federal
consumer credit laws, many of which give such debtors the right to set-off
certain amounts owed on the credit cards, thereby reducing the balance due.
Automobile receivables generally are secured, but by automobiles rather than
residential real property. Most issuers of automobile receivables permit the
loan servicers to retain possession of the underlying obligations. If the
servicers were to sell these obligations to another party, there is a risk
that the purchaser would acquire an interest superior to that of the holders
of the asset-backed securities. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under state
laws, the trustee for the holders of the automobile receivables may not have a
proper security interest in the underlying automobiles. Therefore, there is
the possibility that, in some cases, recoveries on repossessed collateral may
not be available to support payments on these securities.
Consistent with each Portfolio's investment objectives and policies and,
subject to the review and approval of the Trust's Board of Trustees, the
Portfolios also may invest in other types of asset-backed securities.
REPURCHASE AGREEMENTS
Each Portfolio may enter into repurchase agreements with selected broker-
dealers, banks or other financial institutions. In addition, each Portfolio
may enter into repurchase agreements with any foreign bank whose
creditworthiness has been determined by the Adviser to be at least equal to
that of issuers of commercial paper rated within the two highest grades
assigned by Moody's Investors Service, Inc. ("Moody's") and Standard & Poor's
Ratings Group ("S&P").
A repurchase agreement is an arrangement under which the purchaser (i.e.,
the Portfolio) purchases a U.S. Government or other high quality short-term
debt obligation (the "Obligation") and the seller agrees, at the time of sale,
to repurchase the Obligation at a specified time and price.
Custody of the Obligation will be maintained by the Trust's custodian or
subcustodian. The repurchase price may be higher than the purchase price, the
difference being income to the Portfolio, or the purchase and repurchase
prices may be the same, with interest at a stated rate due to the Portfolio
together with the repurchase price on repurchase. In either case, the income
to the Portfolio is unrelated to the interest rate on the Obligation subject
to the repurchase agreement.
Repurchase agreements pose certain risks for all entities, including the
Portfolios, that utilize them. Such risks are not unique to the Portfolios but
are inherent in repurchase agreements. The
Paragon Portfolio--7
- -------------------------------------------------------------------------------
<PAGE>
Portfolios seek to minimize such risks by, among others, the means indicated
below, but because of the inherent legal uncertainties involved in repurchase
agreements, such risks cannot be eliminated.
For purposes of the Investment Company Act of 1940 (the "Investment Company
Act") and for certain federal and state tax purposes, a repurchase agreement
is deemed to be a loan from the Portfolio to the seller of the Obligation. It
is not clear whether for other purposes a court would consider the Obligation
purchased by the Portfolio subject to a repurchase agreement as being owned by
the Portfolio or as being collateral for a loan by the Portfolio to the
seller.
If, in the event of bankruptcy or insolvency proceedings against the seller
of the Obligation, a court holds that the Portfolio does not have a perfected
security interest in the Obligation, the Portfolio may be required to return
the Obligation to the seller's estate and be treated as an unsecured creditor
of the seller. As an unsecured creditor, a Portfolio would be at risk of
losing some or all of the principal and income involved in the transaction. To
minimize this risk, the Portfolios utilize custodians and subcustodians that
the Adviser believes follow customary securities industry practice with
respect to repurchase agreements, and the Adviser analyzes the
creditworthiness of the obligor, in this case the seller of the Obligation.
But because of the legal uncertainties, this risk, like others associated with
repurchase agreements, cannot be eliminated.
Also, in the event of commencement of bankruptcy or insolvency proceedings
with respect to the seller of the Obligation before repurchase of the
Obligation under a repurchase agreement, the Portfolio may encounter delay and
incur costs before being able to sell the security. Such a delay may involve
loss of interest or decline in price of the Obligation.
Apart from risks associated with bankruptcy or insolvency proceedings, there
is also the risk that the seller may fail to repurchase the security. However,
if the market value of the Obligation subject to the repurchase agreement
becomes less than the repurchase price (including accrued interest), the
Portfolio will direct the seller of the Obligation to deliver additional
securities so that the market value of all securities subject to the
repurchase agreement equals or exceeds the repurchase price.
Certain repurchase agreements which have a stated maturity of more than
seven days can be liquidated before the nominal fixed term on seven days or
less notice. These repurchase agreements will be treated by the Portfolios as
liquid investments for purposes of the Trust's limitation on investment in
illiquid securities.
CASH EQUIVALENTS
Commercial paper represents short-term unsecured promissory notes issued in
bearer form by banks or bank holding companies, corporations, and finance
companies. The commercial paper purchased by the Portfolios consists of direct
obligations of domestic or foreign issuers. Bank obligations in which the
Portfolios may invest include certificates of deposit, bankers' acceptances,
and fixed time deposits. Certificates of deposit are negotiable certificates
issued against funds deposited in a commercial bank for a definite period of
time and earning a specified return.
Bankers' acceptances are negotiable drafts or bills of exchange, normally
drawn by an importer or exporter to pay for specific merchandise, which are
"accepted" by a bank, meaning, in effect, that the bank unconditionally agrees
to pay the face value of the instrument on maturity. Fixed time deposits are
bank obligations payable at a stated maturity date and bearing interest at a
fixed rate. Fixed time deposits may be withdrawn on demand by the investor,
but may be subject to early withdrawal penalties which vary depending upon
market conditions and the remaining maturity of the obligation. There are no
contractual restrictions on the right to transfer a beneficial interest in a
fixed time deposit to a third party, although there is no market for such
deposits.
8--Paragon Portfolio
- -------------------------------------------------------------------------------
<PAGE>
SPECIAL RISKS ASSOCIATED WITH OPTIONS ON SECURITIES
There is no assurance that a liquid secondary market on an exchange will
exist for any particular option, or at any particular time. For some options
no secondary market on an exchange may exist. In such event, it might not be
possible to effect closing transactions in particular options, with the result
that a Portfolio would have to exercise options it has purchased in order to
realize any profit and may incur transaction costs upon the purchase or sale
of underlying securities. If a Portfolio is unable to effect a closing
purchase transaction with respect to covered options it has written, it will
not be able to sell the underlying security or dispose of assets held in a
segregated account until the option expires or is exercised.
Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the
facilities of an exchange or the Options Clearing Corporation may not at all
times be adequate to handle current trading volume; or (vi) one or more
exchanges could, for economic or other reasons, decide or be compelled at some
future date to discontinue the trading of options (or a particular class or
series of options), in which event the secondary market on that exchange (or
in that class or series of options) would cease to exist, although outstanding
options on that exchange that had been issued by the Options Clearing
Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms. There is no assurance that higher
than anticipated trading activity or other unforeseen events might not, at
times, render certain of the facilities of the Options Clearing Corporation
inadequate, and thereby result in the institution by an exchange of special
procedures which may interfere with the timely execution of customers' orders.
The amount of the premiums which a Portfolio may pay or receive may be
adversely affected as new or existing institutions, including other investment
companies, engage in or increase their option purchasing and writing
activities.
FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES
Each Portfolio may purchase securities on a when-issued basis or purchase or
sell securities on a forward commitment basis. These transactions involve a
commitment by the Portfolio to purchase or sell securities at a future date
(ordinarily one or two months later). The price of the underlying securities
(usually expressed in terms of yield) and the date when the securities will be
delivered and paid for (the settlement date) are fixed at the time the
transaction is negotiated. When-issued purchases and forward commitment
transactions are negotiated directly with the other party. Such commitments
are not traded on exchanges, but may be traded over-the-counter.
When-issued purchases and forward commitment transactions enable a Portfolio
to lock in what is believed to be an attractive price or yield on a particular
security for a period of time, regardless of future changes in interest rates.
For instance, in periods of rising interest rates and falling prices, the
Portfolio might sell securities it owns on a forward commitment basis to limit
its exposure to falling prices. In periods of falling interest rates and
rising prices, the Portfolio might sell securities it owns and purchase the
same or a similar security on a when-issued or forward commitment basis,
thereby obtaining the benefit of currently higher yield.
The value of securities purchased on a when-issued or forward commitment
basis and any subsequent fluctuations in their value are reflected in the
computation of a Portfolio's net asset value starting on the date of the
agreement to purchase the securities. A Portfolio does not earn interest on
the securities it has committed to purchase until they are paid for and
delivered on
Paragon Portfolio--9
- -------------------------------------------------------------------------------
<PAGE>
the settlement date. When a Portfolio makes a forward commitment to sell
securities that it owns, the proceeds to be received upon settlement are
included in the Portfolio's assets. Fluctuations in the market value of the
underlying securities are not reflected in the Portfolio's net asset value as
long as the commitment to sell remains in effect. Settlement of when-issued
purchases and forward commitment transactions generally takes place within two
months after the date of the transaction, but the Portfolio may agree to a
longer settlement period.
A Portfolio will purchase securities on a when-issued basis or purchase or
sell securities on a forward commitment basis only with the intention of
completing the transaction and actually purchasing or selling the securities.
If deemed advisable as a matter of investment strategy, however, a Portfolio
may dispose of or negotiate a commitment after entering into it. A Portfolio
also may sell securities it has committed to purchase before those securities
are delivered to the Portfolio on the settlement date. The Portfolio may
realize a capital gain or loss in connection with these transactions.
When a Portfolio purchases securities on a when-issued or forward commitment
basis, the Trust's custodian will maintain in a segregated account cash or
liquid high grade debt securities having a value (determined daily) at least
equal to the amount of the Portfolio's purchase commitments. These procedures
are designed to ensure that the Portfolio will maintain sufficient assets at
all times to cover its obligations under when-issued and forward commitment
purchases.
LENDING OF PORTFOLIO SECURITIES
Each Portfolio may seek to increase its income by lending portfolio
securities. Under present regulatory policies, such loans may be made to
institutions, such as broker-dealers, and would be required to be secured
continuously by collateral in cash, cash equivalents or high quality debt
securities maintained on a current basis at an amount at least equal to the
market value of the securities loaned. Cash collateral may be invested in cash
equivalents and other debt securities. A Portfolio would have the right to
call a loan and obtain the securities loaned at any time on five days' notice.
For the duration of a loan, the Portfolio would continue to receive the
equivalent of the interest or dividends paid by the issuer on the securities
loaned and would also receive compensation from investment of the collateral.
The Portfolio would not, however, have the right to vote any securities having
voting rights during the existence of the loan, but the Portfolio would call
the loan in anticipation of an important vote to be taken among holders of the
securities or of the giving or withholding of their consent on a material
matter affecting the investment.
As with other extensions of credit there are risks of delay in recovering or
even loss of rights in the collateral should the borrower of the securities
fail financially. However, the loans would be made only to firms deemed by the
relevant Adviser to be of good standing, and when, in the judgment of the
Adviser, the consideration which can be earned currently from securities loans
of this type justifies the attendant risk. If an Adviser determines to make
securities loans, it is intended that the value of the securities loaned would
not exceed 33 1/3% of the value of the total assets of the lending Portfolio.
INVESTMENT RESTRICTIONS
The following restrictions may not be changed with respect to any Portfolio
without the approval of the majority of outstanding voting securities of that
Portfolio (which, under the Investment Company Act and the rules thereunder
and as used in the Prospectus and this Statement of Additional Information,
means the lesser of (1) 67% of the shares of that Portfolio present at a
meeting if the holders of more than 50% of the outstanding shares of that
Portfolio
10--Paragon Portfolio
- -------------------------------------------------------------------------------
<PAGE>
are present in person or by proxy, or (2) more than 50% of the outstanding
shares of that Portfolio). Investment restrictions that involve a maximum
percentage of securities or assets shall not be considered to be violated
unless an excess over the percentage occurs immediately after, and is caused
by, an acquisition or encumbrance of securities or assets of, or borrowings by
or on behalf of, a Portfolio, with the exception of borrowings permitted by
Investment Restriction (3).
The Trust may not, on behalf of any Portfolio:
(1) with respect to 75% (50% in the case of Paragon Power Gulf South
Growth Portfolio) of a Portfolio's total assets taken at market value,
invest more than 5% of the value of the total assets of that Portfolio in
the securities of any one issuer, except U.S. Government securities;
(2) with respect to 75% (50% in the case of Paragon Power Gulf South
Growth Portfolio) of a Portfolio's total assets taken at market value,
purchase the securities of any issuer if such purchase would cause more
than 10% of the voting securities of such issuer to be held by that
Portfolio;
(3) borrow money, except from banks on a temporary basis for
extraordinary or emergency purposes, provided that a Portfolio is required
to maintain asset coverage of 300% for all borrowings and that no purchases
of securities will be made if such borrowings exceed 5% of the value of the
Portfolio's assets. This restriction does not apply to cash collateral
received as a result of portfolio securities lending;
(4) pledge, mortgage or hypothecate its assets, except that, to secure
permitted borrowings, it may pledge securities having a market value at the
time of pledge not exceeding 15% of the cost of a Portfolio's total assets
and except in connection with permitted transactions in options, futures
contracts and options on futures contracts;
(5) act as underwriter of the securities issued by others, except to the
extent that the purchase of securities in accordance with a Portfolio's
investment objective and policies directly from the issuer thereof and the
later disposition thereof may be deemed to be underwriting;
(6) purchase securities if such purchase would cause more than 25% in the
aggregate of the market value of the total assets of a Portfolio to be
invested in the securities of one or more issuers having their principal
business activities in the same industry, other than U.S. Government
securities (for the purposes of this restriction, telephone companies are
considered to be a separate industry from gas or electric utilities, and
wholly-owned finance companies are considered to be in the industry of
their parents if their activities are primarily related to financing the
activities of their parents);
(7) issue senior securities, except as appropriate to evidence
indebtedness that a Portfolio is permitted to incur and except for shares
of existing or additional series of the Trust;
(8) purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodities
contracts (except futures contracts, including but not limited to contracts
for the future delivery of securities or currency and futures contracts
based on securities indexes or related options thereon), the Trust
reserving the freedom to hold and to sell real estate acquired for any
Portfolio as a result of the ownership of securities. Foreign currency,
forward foreign currency exchange contracts and options on currency are not
deemed to be prohibited commodities or commodities contracts for the
purpose of this restriction; or
(9) make loans to other persons, except loans of portfolio securities and
except to the extent that the purchase of debt obligations and entry into
repurchase agreements in accordance with such Portfolio's investment
objectives and policies may be deemed to be loans.
Paragon Portfolio--11
- -------------------------------------------------------------------------------
<PAGE>
In addition to the investment restrictions mentioned above, the Trustees of
the Trust have voluntarily adopted the following policies and restrictions
which are observed in the conduct of the affairs of the Portfolios. These
represent intentions of the Trustees based upon current circumstances. They
differ from fundamental investment policies in that they may be changed or
amended by action of the Trustees without prior notice to or approval of
shareholders. Accordingly, the Trust may not, on behalf of any Portfolio:
(a) purchase securities of any issuer with a record of less than three
years' continuous operation, including predecessors, except U.S. Government
securities, securities of such issuers which are rated by at least one
nationally recognized statistical rating organization, municipal
obligations, and obligations issued or guaranteed by any foreign government
or its agencies or instrumentalities, if such purchase would cause the
investments of a Portfolio in all such issuers to exceed 5% of the value of
the total assets of that Portfolio;
(b) purchase from or sell portfolio securities of a Portfolio to any of
the officers or Trustees of the Trust, its adviser(s), its principal
underwriter or the members, officers or directors of its adviser(s) or
principal underwriter;
(c) invest in other companies for the purpose of exercising control or
management;
(d) purchase warrants of any issuer, except on a limited basis if, as a
result of such purchases by a Portfolio, no more than 2% of the value of
its total assets would be invested in warrants which are not listed on the
New York Stock Exchange or the American Stock Exchange and no more than 5%
of the value of the total assets of a Portfolio would be invested in
warrants, whether or not so listed, such warrants in each case to be valued
at the lesser of cost or market, but assigning no value to warrants
acquired by a Portfolio in units with or attached to debt securities;
(e) knowingly purchase or retain securities of an issuer any of whose
officers, partners, directors, trustees or securities holders is an officer
or Trustee of the Trust or a member, officer or director of an investment
adviser of the Trust if one or more of such individuals owns beneficially
more than one-half of one percent ( 1/2 of 1%) of the securities (taken at
market value) of such issuer and such individuals owning more than one half
of one percent ( 1/2 of 1%) of such securities together own beneficially
more than 5% of such securities;
(f) purchase securities on margin or make short sales, except in
connection with arbitrage transactions or unless, by virtue of its
ownership of other securities, a Portfolio has the right to obtain
securities equivalent in kind and amount to the securities sold and, if the
right is conditional, the sale is made upon the same conditions, except
that a Portfolio may obtain such short-term credits as may be necessary for
the clearance of purchases and sales of securities and in connection with
transactions involving forward foreign currency exchange contracts;
(g) invest in repurchase agreements maturing in more than seven days and
securities which are not readily marketable if, as a result thereof, more
than 15% of the net assets of a Portfolio (taken at market value) would be
invested in such investments; or
(h) purchase puts, calls, straddles, spreads and any combination thereof
if the value of the Portfolio's aggregate investment in such securities
exceeds 5% of its total assets.
"Value" for the purposes of all investment restrictions shall mean the value
used in determining a Portfolio's net asset value. "U.S. Government
securities" shall mean securities issued or guaranteed by the U.S. Government
or any of its agencies, authorities or instrumentalities.
12--Paragon Portfolio
- -------------------------------------------------------------------------------
<PAGE>
MANAGEMENT
Information pertaining to the Trustees and officers of the Trust is set forth
below. Trustees and officers deemed to be "interested persons" of the Trust for
purposes of the Investment Company Act are indicated by an asterisk.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS POSITIONS WITH TRUST DURING PAST 5 YEARS
- ---------------- -------------------- ------------------------------------
<S> <C> <C>
Paul C. Nagel, Jr. Trustee Retired (since January 1976); Direc-
19223 Riverside Dr. Age 73 tor and Chairman of the Finance and
Tequesta, FL 33469 Audit Committees of Great Atlantic &
Pacific Tea Co., Inc.; Director of
United Conveyor Corporation (a pri-
vately held manufacturer of coal-ash
removal equipment for large scale
boiler installations.)
Ernest E. Howard III Trustee President and Chief Executive Offi-
FM Properties, Inc. Age 53 cer (since May 1993); Senior Vice-
1615 Poydras Street President & Chief Investment Officer
New Orleans, LA 70112 of Freeport-McMoRan Inc. (since
1984).
Paul Klug President Director of Proprietary Mutual Funds
1 New York Plaza Age 44 of GSAM (since February 1994); Chief
New York, NY 10004 Operating Officer, Vista Capital
Management, Chase Manhattan Bank
(from January 1990 to February
1994); Vice President, JP Morgan
(February 1984 to January 1990).
*Marcia L. Beck Vice President Director of Mutual Funds Group of
1 New York Plaza Age 40 GSAM (since September 1992); Vice
New York, NY 10004 President and Senior Portfolio Man-
ager (from June 1988 to 1992).
*Nancy L. Mucker Vice President Vice President, Goldman Sachs; Man-
4900 Sears Tower Age 46 ager, Shareholder Services of GSAM
Chicago, Illinois Funds Group.
60606
*John W. Mosior Vice President Vice President, Goldman Sachs; Man-
4900 Sears Tower Age 57 ager, Shareholder Services of GSAM
Chicago, Illinois Funds Group.
60606
*Pauline Taylor Vice President Vice President, Goldman Sachs since
4900 Sears Tower Age 49 June, 1992; Consultant since 1989 to
Chicago, Illinois June 1992.
60606
*Scott M. Gilman Treasurer Director, Mutual Funds Administra-
1 New York Plaza Age 36 tion (since April 1994); Assistant
New York, NY 10004 Treasurer, Goldman Sachs Funds Man-
agement, Inc., (since March 1993);
Vice President, Goldman Sachs (since
March 1990); Assistant Treasurer of
the Trust (April 1990 - October
1991).
</TABLE>
Paragon Portfolio--13
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS POSITIONS WITH COMPANY DURING PAST 5 YEARS
- ---------------- ---------------------- ------------------------------------
<S> <C> <C>
*Michael J. Richman Secretary Vice President and Assistant General
85 Broad Street Age 35 Counsel to the Funds Group, GSAM
New York, NY 10004 since February 1994; Partner, Hale
and Dorn since September 1991 to
June 1992; Attorney-at-Law, Gaston &
Snow since September 1985 to Septem-
ber 1991.
*Howard B. Surloff Assistant Secretary Vice President and Counsel, Goldman
85 Broad Street Age 30 Sachs since November 1993 and May
New York, NY 10004 1994, respectively; Counsel to the
Funds Group, GSAM since November
1993; Associate, Shereff, Friedman,
Hoffman & Goodman (prior thereto).
Kaysie Uniacke Assistant Secretary Vice President and Portfolio Manag-
1 New York Plaza Age 35 er, GSAM 1988 to Present.
New York, NY 10004
Elizabeth Alexander Assistant Secretary Junior Portfolio Manager, 1995 to
1 New York Plaza Age 26 Present; Funds Trading Assistant,
New York, NY 10004 GSAM 1993-1995. Formerly, Compliance
Analyst, Prudential Insurance, 1991
thru 1993.
Steven Hartstein Assistant Secretary Legal Products Analyst, Goldman
85 Broad Street Age 32 Sachs June 1993 to Present; Funds
New York, NY 10004 Compliance Officer, Citibank Global
Asset Management (August 1991 to
June 1993); Legal Assistant, Brown &
Wood (prior thereto).
</TABLE>
As of March 1, 1996 the Trustees and officers of the Trust, as a group,
owned in the aggregate less than 1% of the outstanding shares of the Trust.
Each interested Trustee and officer holds comparable positions with certain
other investment companies of which Goldman Sachs, GSAM or an affiliate
thereof is the investment adviser and/or distributor.
THE ADVISER, ADMINISTRATOR, DISTRIBUTOR AND TRANSFER AGENT
THE ADVISER
BOIA serves as the investment adviser to the Portfolios. BOIA is responsible
for the management of each Portfolio's assets in accordance with such
Portfolio's investment objectives and policies. In fulfilling their day-to-day
responsibilities, the investment personnel of BOIA are committed to the
pursuit of excellence.
Under the Investment Advisory Agreement between BOIA and the Trust, BOIA,
subject to the supervision of the Trustees of the Trust and in conformity with
the stated policies of each Portfolio, acts as investment adviser and directs
the investments of the Portfolio.
BOIA receives investment advisory fees from each Portfolio equal to an
annual rate, as a percentage of the Portfolio's average daily net assets, as
follows:
<TABLE>
<S> <C>
Paragon Power Intermediate-Term Bond Portfolio....................... .50%
Paragon Power Value Growth Portfolio................................. .65%
Paragon Power Value Equity Income Portfolio.......................... .65%
Paragon Power Gulf South Growth Portfolio............................ .65%
</TABLE>
14--Paragon Portfolio
- -------------------------------------------------------------------------------
<PAGE>
For the fiscal year ended November 30, 1995, Premier (the previous
investment adviser) received investment advisory fees from each Portfolio
equal to the annual rate, as a percentage of the Portfolio's average daily net
assets, as follows:
<TABLE>
<S> <C>
Paragon Power Intermediate-Term Bond Portfolio....................... .50%
Paragon Power Value Growth Portfolio................................. .65%
Paragon Power Value Equity Income Portfolio.......................... .65%
Paragon Power Gulf South Growth Portfolio............................ .65%
</TABLE>
The Investment Advisory Agreement entered into on behalf of each of the
Portfolios was initially approved by the Trustees, including the "non-
interested" Trustees, on October 31, 1995, and by the shareholders of each
Portfolio on December 20, 1995. The Investment Advisory Agreement will remain
in effect until January 1, 1998 and will continue in effect thereafter only if
such continuance is specifically approved at least annually by the Trustees or
by a vote of a majority of the outstanding voting securities of the particular
Portfolio (as defined in the Investment Company Act) and, in either case, by a
majority of the "non-interested" Trustees.
For the fiscal year ended November 30, 1995 the amount of the advisory fees
paid by Paragon Power Intermediate-Term Bond Portfolio, Paragon Power Value
Growth Portfolio, Paragon Power Value Equity Income Portfolio and Paragon
Power Gulf South Growth Portfolio to Premier (the previous investment adviser)
was $6,860, $10,528, and $8,999 and $10,632, respectively.
In addition, for the fiscal year ended November 30, 1995, Premier (the
previous investment adviser) has voluntarily agreed to reimburse expenses
(excluding interest, taxes and extraordinary expenses) to the extent that such
expenses exceed, on an annualized basis, .75%, 1.00%, 1.00% and 1.00% of
average net assets for the Paragon Power Intermediate-Term Bond Portfolio,
Paragon Power Value Growth Portfolio, Paragon Power Value Equity Income
Portfolio and Paragon Power Gulf South Growth Portfolio, respectively. The
effect of these reimbursements by Premier for the fiscal year ended November
30, 1995 was to reduce expenses by approximately $38,100, $39,900, $37,800 and
$43,600 for the Paragon Power Intermediate-Term Bond Portfolio, Paragon Power
Value Growth Portfolio, Paragon Power Value Equity Income Portfolio and
Paragon Power Gulf South Growth Portfolio, respectively.
THE ADMINISTRATOR
GSAM administers the Portfolios' business affairs, and, in connection
therewith, furnishes each Portfolio with office facilities and is responsible
for clerical, record keeping and bookkeeping services, to the extent not
provided pursuant to the Trust's Custodian and Transfer Agency Agreements, and
for the financial and accounting records required to be maintained by each
Portfolio, other than those maintained pursuant to the Trust's Custodian and
Transfer Agency Agreements.
For its services under the Administration Agreement, GSAM receives a monthly
administration fee at the annual rate of .15% of the average daily net assets
of each Portfolio. For the fiscal year ended November 30, 1995, the amount of
the administration fees paid by Paragon Power Intermediate-Term Bond
Portfolio, Paragon Power Value Growth Portfolio, Paragon Power Value Equity
Income Portfolio and Paragon Power Gulf South Growth Portfolio was $2,058,
$2,429, $2,077 and $2,453, respectively.
THE TRANSFER AGENT AND DISTRIBUTOR
State Street serves as the Portfolios' transfer agent. State Street provides
customary transfer agency services to the Portfolios, including the handling
of shareholder communications, the processing of shareholder transactions, the
maintenance of shareholder account records, payment
Paragon Portfolio--15
- -------------------------------------------------------------------------------
<PAGE>
of dividends and distributions and related functions. For these services,
State Street is entitled to a monthly fee with respect to each Portfolio based
on the number of shareholders, together with out-of-pocket expenses. The fee
is 1 shareholder = $250 per month, 2-5 = $500, 6-15 = $1,000,16-25 = $1,500,
26-50 = $2,000 and 51-200 = $2,500.
Goldman Sachs acts as distributor of each Portfolio's shares. The
Distribution Agreement between Goldman Sachs and the Trust was most recently
approved by the Trustees on October 30, 1995.
PORTFOLIO TRANSACTIONS
Purchases and sales of securities on a securities exchange are effected by
brokers, and the Portfolios pay a brokerage commission for this service. In
transactions on stock exchanges in the United States, these commissions are
negotiated, whereas on many foreign stock exchanges the commissions are fixed.
In the over-the-counter market, securities are normally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission, although the price of the securities usually includes a profit to
the dealer. In underwritten offerings, securities are purchased at a fixed
price which includes an amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. On occasion, certain
money market instruments may be purchased directly from an issuer, in which
case no commissions or discounts are paid.
The primary consideration in placing portfolio security transactions with
broker-dealers for execution is to obtain and maintain the availability of
execution at the most favorable prices and in the most effective manner
possible. The Adviser attempts to achieve this result by selecting broker-
dealers to execute portfolio transactions on behalf of each Portfolio and its
other clients on the basis of the broker-dealers' professional capability, the
value and quality of their brokerage services and the level of their brokerage
commissions.
Any broker-dealer affiliate of BOIA (an "Affiliated Broker") may act as a
broker for the Portfolios. In order for an Affiliated Broker to effect any
portfolio transactions for the Portfolios, the commissions, fees or other
remuneration received by the Affiliated Broker must be reasonable and fair
compared to the commissions, fees or other remuneration paid to other brokers
in connection with comparable transactions involving similar securities during
a comparable period of time. This standard would allow an Affiliated Broker to
receive no more than the remuneration which would be expected to be received
by an unaffiliated broker in a commensurate arms-length transaction. The
Trustees of the Trust regularly review the commissions paid by the Portfolios
to an Affiliated Broker. The Portfolios will not deal with an Affiliated
Broker in any portfolio transaction in which an Affiliated Broker acts as
principal.
Under the Investment Advisory Agreement and as permitted by Section 28(e) of
the Securities Exchange Act of 1934 (the "Exchange Act"), the Adviser may
cause a Portfolio to pay to a broker (except an Affiliated Broker), which
provides brokerage and research services to the Adviser, a commission for
effecting a securities transaction for a Portfolio which exceeds the amount
other brokers would have charged for the transaction, if the Adviser
determines in good faith that the greater commission is reasonable in relation
to the value of the brokerage and research services provided by the executing
broker viewed in terms of either a particular transaction or the Adviser's
overall responsibilities to the Portfolios or to its other clients. The term
"brokerage and research services" includes advice as to the value of
securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or of 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 and settlement.
16--Paragon Portfolio
- -------------------------------------------------------------------------------
<PAGE>
Although commissions paid on every transaction will, in the judgment of the
Adviser, be reasonable in relation to the value of the brokerage services
provided, commissions exceeding those which another broker might charge may be
paid to brokers (except an Affiliated Broker) who were selected to execute
transactions on behalf of the Portfolios and the Adviser's other clients in
part for providing advice as to the availability of securities or of
purchasers or sellers of securities and services in effecting securities
transactions and performing functions incidental thereto such as clearance and
settlement. Research provided by brokers is used for the benefit of all of the
Adviser's clients and not solely or necessarily for the benefit of the
Portfolios. The Adviser's investment management personnel attempt to evaluate
the quality of research provided by brokers. Results of this effort are
sometimes used by the Adviser as a consideration in the selection of brokers
to execute portfolio transactions.
In certain instances there may be securities which are suitable for a
Portfolio's portfolio as well as for that of another Portfolio, other series
of the Trust and for one or more of the Adviser's other clients. Investment
decisions for each Portfolio and for the Adviser's other clients are made with
a view to achieving their respective investment objectives. It may develop
that a particular security is bought or sold for only one client even though
it might be held by, or bought or sold for, other clients. Likewise, a
particular security may be bought for one or more clients when one or more
other clients are selling that same security. Some simultaneous transactions
are inevitable when several clients receive investment advice from the same
investment adviser, particularly when the same security is suitable for the
investment objectives of more than one client. When two or more clients are
simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could have a detrimental
effect on the price or volume of the security in a particular transaction as
far as a Portfolio is concerned. The Trust believes that over time its ability
to participate in volume transactions will produce better executions for the
Portfolios.
The investment advisory fee that the Portfolios pay to the Adviser will not
be reduced as a consequence of the Adviser's receipt of brokerage and research
services. To the extent a Portfolio's portfolio transactions are used to
obtain such services, the brokerage commissions paid by the Portfolio will
exceed those that might otherwise be paid by an amount which cannot be
presently determined. Such services would be useful and of value to the
Adviser in serving both the Portfolios and other clients and, conversely, such
services obtained by the placement of brokerage business of other clients
would be useful to the Adviser in carrying out its obligations to the
Portfolios.
During the fiscal year ended November 30, 1995, the Paragon Power Value
Growth Portfolio acquired and/or sold securities of Citicorp, its regular
broker/dealer. As of November 30, 1995, the Paragon Power Intermediate-Term
Bond Portfolio owned the following amounts of securities of its regular
broker/dealers, as defined in Rule 10b-1 under the Investment Company Act, or
their parents: Citicorp with an aggregate value of $56,600.
During the fiscal year ended November 30, 1995, the Paragon Power Value
Equity Income Portfolio acquired and/or sold securities of Bear Stearns
Companies, Inc. and Citicorp, its regular broker/dealers. As of November 30,
1995, the Paragon Power Value Equity Income Portfolio owned the following
amounts of securities of its regular broker/dealers, as defined in Rule 10b-1
under the Investment Company Act, or their parents: Bear Stearns Companies,
Inc. with an aggregate value of $21,750, and Citicorp with an aggregate value
of $90,950.
As of November 30, 1995, the Paragon Power Value Growth Portfolio held no
securities of its regular broker/dealers, as defined in Rule 10b-1 under the
Investment Company Act, or their parents.
Paragon Portfolio--17
- -------------------------------------------------------------------------------
<PAGE>
During the fiscal year ended November 30, 1995, each of the Portfolios
bought securities, including repurchase agreements, issued by State Street
Bank & Trust Company, which was one of the ten entities which executed the
largest amount of transactions with the Portfolios. As of November 30, 1995,
the following Portfolios held the following amounts of repurchase agreements
with State Street Bank & Trust Company:
<TABLE>
<S> <C>
Paragon Power Value Growth Portfolio................................. 284,000
Paragon Power Value Equity Income Portfolio.......................... 263,000
Paragon Power Gulf South Growth Portfolio............................ 264,000
</TABLE>
For the fiscal year ended November 30, 1995, each of the following
Portfolios paid brokerage commissions as follows:
<TABLE>
<CAPTION>
TOTAL
TOTAL TOTAL BROKERAGE
BROKERAGE AMOUNT OF COMMISSIONS
TOTAL COMMISSIONS TRANSACTIONS PAID TO
BROKERAGE PAID TO ON WHICH BROKERS WHO
COMMISSIONS AFFILIATED COMMISSIONS PROVIDED
PAID PERSONS PAID RESEARCH
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
For the period January 13,
1995 (Commencement of
Operations) through November
30, 1995:
Paragon Power Value Growth
Portfolio................... $8,041 $ 0 $3,201,891 $ 0
Paragon Power Value Equity
Income Portfolio............ $3,718 $ 0 $2,276,778 $ 0
Paragon Power Gulf South
Growth Portfolio............ $2,996 $ 0 $ 930,790 $ 0
</TABLE>
Paragon Power Intermediate-Term Bond Portfolio paid no brokerage commissions
during such period.
NET ASSET VALUE
The net asset value per share of each Portfolio is determined by the Trust's
custodian as of the close of regular trading on the New York Stock Exchange ("
NYSE") (normally 3:00 p.m. Louisiana time, 4:00 p.m. New York time) on each
Business Day. A Business Day means any day on which the New York Stock
Exchange is open. Holidays include: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
Portfolio securities of each Portfolio are valued as follows: (a) stocks
which are traded on any U.S. stock exchange or the Nasdaq National Market
("NASDAQ") are valued at the last sale price on the principal exchange on
which they are traded or NASDAQ (if NASDAQ is the principal market for such
securities) on the valuation day or, if no sale occurs, at the mean between
the closing bid and closing asked price; (b) over-the-counter stocks not
quoted on NASDAQ are valued at the last sale price on the valuation day or, if
no sale occurs, at the mean between the last bid and asked price; (c)
securities listed or traded on foreign exchanges (including foreign exchanges
whose operations are similar to the U.S. over-the-counter market) are valued
at the last sale price on the exchange where they are principally traded on
the valuation day or, if no sale occurs, at the official bid price (both the
last sale price and the official bid price are determined as of the close of
the London Foreign Exchange); (d) debt securities are valued at prices
supplied by a pricing agent selected by the Trustees, which prices reflect
broker/dealer-supplied valuations and electronic data processing techniques,
if those prices are deemed by the Adviser to be representative of market
values at the close of business of the NYSE; (e) options contracts are
18--Paragon Portfolio
- -------------------------------------------------------------------------------
<PAGE>
valued at the last sale price on the market where any such options contract is
principally traded; and (f) all other securities and other assets, including
debt securities, for which prices are supplied by a pricing agent but are not
deemed by the Adviser to be representative of market values, but excluding
money market instruments with a remaining maturity of sixty days or less and
including restricted securities and securities for which no market quotation
is available, are valued at fair value under procedures established by the
Trustees or the Valuation Committee, if any, although the actual calculation
may be done by others. Money market instruments held by the Portfolios with a
remaining maturity of sixty days or less will be valued by the amortized cost
method. Portfolio securities traded on more than one United States national
securities exchange or foreign securities exchange are valued at the last sale
price on each Business Day at the close of the exchange representing the
principal market for such securities.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of
business on each Business Day. In addition, European or Far Eastern securities
trading generally or in a particular country or countries may not take place
on all Business Days. Furthermore, trading takes place in Japanese markets on
certain Saturdays and in various foreign markets on days which are not
Business Days and days on which the Portfolios' net asset values are not
calculated. Such calculation does not take place contemporaneously with the
determination of the prices of the majority of the portfolio securities used
in such calculation. Events affecting the values of portfolio securities that
occur between the time their prices are determined and the close of the NYSE
will not be reflected in the Portfolios' calculation of net asset values
unless the Adviser deems that the particular event would materially affect net
asset value, in which case an adjustment will be made.
The proceeds received by each Portfolio for each issue or sale of its
shares, and all net investment income, realized and unrealized gain and
proceeds thereof, subject only to the rights of creditors, will be
specifically allocated to such Portfolio and constitute the underlying assets
of that Portfolio. The underlying assets of each Portfolio will be segregated
on the books of account, and will be charged with the liabilities in respect
to such Portfolio and with a share of the general liabilities of the Trust.
Expenses with respect to the Portfolios are to be allocated in proportion to
the net asset values of the respective Portfolios except where allocations of
direct expenses can otherwise be fairly made.
PURCHASE AND REDEMPTION INFORMATION
Shares of the Portfolios may be purchased only by separate accounts of
certain insurance companies. The insurance company separate accounts may
purchase and redeem share of the Portfolios on each day, Monday through
Friday, on which the NYSE is open for trading based on, among other things,
the amount of premium payments to be invested and surrendered and transfer
requests to be effect on that day pursuant to the variable contracts. Such
purchases and redemptions of shares of each Portfolio are effected at their
respective net asset values per share determined as of 4:00 p.m. on that day.
Payments for redemptions are made by the Portfolios within seven days
thereafter. No fee is charged the separate accounts when they purchase or
redeem shares.
The Portfolios may not suspend redemption privileges or postpone the date of
payment on shares of the Portfolios for more than seven days except during any
period (1) when the NYSE is closed or trading on the Exchange is restricted as
determined by the SEC; (2) when an emergency exists, as defined by the SEC,
which makes it not reasonably practicable for a Portfolio to dispose the
securities owned by it or fairly to determine the value of its assets; or (3)
as the SEC may otherwise permit.
The value of the shares on redemption may be more or less than the
shareholder's cost, depending upon the market value of the portfolio
securities at the time of redemption.
Paragon Portfolio--19
- -------------------------------------------------------------------------------
<PAGE>
CALCULATION OF PERFORMANCE QUOTATIONS
The average annual total return of each Portfolio is determined for a
particular period by calculating the actual dollar amount of the investment
return on a $1,000 investment. Total return for a period of one year is equal
to the actual return of the Portfolio during that period. This calculation
assumes a complete redemption of the investment. It also assumes that all
dividends and distributions are reinvested at net asset value on the
reinvestment dates during the period.
Year-by-year total return and cumulative total return for a specified period
are each derived by calculating the percentage rate required to make a $1,000
investment made at the maximum public offering price (net asset value), with
all distributions reinvested, at the beginning of such period equal to the
actual total value of such investment at the end of such period.
Performance data quoted will represent historical performance and the
investment return and principal value of an investment will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than original
cost.
The yield of each Portfolio is computed by dividing its net investment
income earned during a recent thirty-day period by the product of the average
daily number of shares outstanding and entitled to receive dividends during
the period and maximum offering price per share (net asset value) on the last
day of the period. The results are compounded on a bond equivalent (semi-
annual) basis and then annualized. Net investment income per share is equal to
the Portfolio's dividends and interest earned during the period, reduced by
accrued expenses for the period.
The distribution rate is calculated by dividing the total distribution per
share by the maximum public offering price (net asset value) on the last day
of the period and then annualizing such amount.
The Portfolios may from time to time advertise comparative performance
and/or their past performance as measured by various independent sources,
including, but not limited to, Barron's, The Wall Street Journal, Weisenberger
Investment Companies Service, Business Week, Changing Times, Financial World,
Forbes, Fortune and Money. In addition, the Portfolios may from time to time
advertise their performance relative to certain indices and benchmark
investments, including: (a) the Lipper Analytical Services, Inc. Mutual
Portfolio Performance Analysis, Fixed Income Analysis and Mutual Fund Indices
(which measure total return and average current yield for the mutual fund
industry and rank mutual fund performance); (b) the CDA Mutual Fund Report
published by CDA Investment Technologies, Inc. (which analyzes price, risk and
various measures of return for the mutual fund industry); (c) the Consumer
Price Index published by the U.S. Bureau of Labor Statistics (which measures
changes in the price of goods and services); (d) Stocks, Bonds, Bills and
Inflation published by Ibbotson Associates (which provides historical
performance figures for stocks, government securities and inflation); and (e)
historical investment data supplied by the research departments of Goldman
Sachs, Smith Barney Shearson Inc., First Boston Corporation, Morgan Stanley,
Salomon Brothers, Merrill Lynch, Donaldson Lufkin and Jenrette or other
providers of such data. The composition of the investments in such indices and
the characteristics of such benchmark investments are not identical to, and in
some cases are very different from, those of each Portfolio's portfolio. These
indices and averages are generally unmanaged and the items included in the
calculations of such indices and averages may not be identical to the formulas
used by a Portfolio to calculate its performance figures.
From time to time, advertisements or information may include a discussion of
certain attributes or benefits to be derived by an investment in a Portfolio.
Such advertisements or information may include symbols, headlines or other
material which highlight or summarize the information discussed in more detail
in the communication.
20--Paragon Portfolio
- -------------------------------------------------------------------------------
<PAGE>
The Trust may from time to time summarize the substance of discussions
contained in shareholder reports in advertisements and publish the Adviser's
views as to markets, the rationale for a Portfolio's investments and
discussions of a Portfolio's current asset allocation.
Each Portfolio's performance data will be based on historical results and
will not be intended to indicate future performance. The total return of a
Portfolio will vary based on market conditions, portfolio expenses, portfolio
investments and other factors. The value of shares of each Portfolio will
fluctuate and an investor's shares may be worth more or less than their
original cost upon redemption. The Trust may also, at its discretion, from
time to time make a list of each Portfolio's holdings available to investors
upon request.
TAX INFORMATION
Shares of the Portfolios are currently offered only to insurance company
separate accounts that fund certain variable annuity or variable life
insurance contracts. See the applicable Contract prospectus for a discussion
of the special taxation of insurance companies with respect to such accounts
and of Contract holders.
Each Portfolio is treated as a separate entity for tax and accounting
purposes. Each Portfolio intends to elect to be treated as a separate
regulated investment company under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), and to qualify for such treatment for each
taxable year. Such qualification does not involve supervision of management or
investment practices or policies by any governmental agency or bureau.
In order to qualify as a regulated investment company, each Portfolio must,
among other things, (a) derive at least 90% of its annual gross income from
dividends, interest, payments with respect to securities loans and gains from
the sale or other disposition of stock or securities, or other income (such as
gains from options, futures or forward contracts) derived with respect to its
business of investing in such stock or securities; (b) derive less than 30% of
its annual gross income from the sale or other disposition of stock or
securities or options and futures contracts held less than three months; and
(c) diversify its holdings so that, at the end of each quarter of its taxable
year, (i) at least 50% of the market value of the Portfolio's total (gross)
assets is represented by cash and cash items (including receivables), U.S.
Government securities, securities of other regulated investment companies and
other securities limited, in respect of any one issuer, to an amount not
greater than 5% of the value of the Portfolio's assets and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of the Portfolio's total assets is invested in the securities (other
than U.S. Government securities and securities of other regulated investment
companies) of any one issuer or two or more issuers controlled by the
Portfolio and engaged in the same, similar or related trades or business.
As noted in the Prospectus, each Portfolio must, and intends to continue to,
comply with the diversification requirements imposed by Section 817(h) of the
Internal Revenue Code and the regulations thereunder. These requirements,
which are in addition to the diversification requirements mentioned above,
place certain limitations on the portion of each Portfolio's assets that may
be represented by any single investment (which includes all securities of the
same issuer) or any two, three or four investments.
Each Portfolio, as a regulated investment company, will not be subject to
Federal income tax on any of its net investment income and net realized
capital gains that are distributed to shareholders with respect to any taxable
year, provided that the Portfolio distributes, in compliance with the Code's
timing requirements, at least 90% of its investment company taxable income
(all of its taxable income other than the excess of net long-term capital gain
over net short-term capital loss, after reduction by deductible expenses) for
such year and net tax-exempt interest, if any.
Paragon Portfolio--21
- -------------------------------------------------------------------------------
<PAGE>
Distributions of net investment income (including dividends, interest income
from securities loans, repurchase agreements and certain other investments)
and the excess of net short-term capital gain over net long-term capital loss
will be treated as ordinary income in the hands of shareholders. Distributions
of the excess of net long-term capital gain over net short-term capital loss
will be treated by shareholders as long-term capital gain, regardless of the
length of time shares of a Portfolio have been held by such shareholders.
These tax consequences apply whether distributions are taken in cash or
reinvested in additional shares.
Any loss realized upon a redemption or exchange of shares of a Portfolio
with a tax holding period of six months or less will be treated as a long-term
capital loss to the extent of any distribution of net long term capital gains
with respect to such shares. A loss realized upon a redemption or exchange of
shares of a Portfolio within a 61 day period beginning 30 days before and
ending 30 days after a purchase of shares of the same Portfolio (whether by
reinvestment of distributions or otherwise) may be disallowed under "wash
sale" rules in whole or in part.
Paragon Power Intermediate-Term Bond Portfolio, Paragon Power Value Growth
Portfolio and Paragon Power Value Equity Income Portfolio may be subject to
foreign withholding taxes with respect to investments in certain securities of
foreign entities. These taxes may be reduced under the terms of applicable
U.S. income tax treaties, and the Portfolio intends to satisfy any procedural
requirements to qualify for benefits under these treaties.
A Portfolio's transactions in options and forward contracts will give rise
to taxable income, gain or loss and will be subject to special tax rules, the
effect of which may be to accelerate income to a Portfolio, defer Portfolio
losses, cause adjustments in the holding periods of Portfolio securities,
convert capital gains and losses into ordinary income and losses, convert
long-term capital gains into short-term capital gains and convert short-term
capital losses into long-term capital losses. These rules could therefore
affect the amount, timing and character of distributions to shareholders.
For example, the tax treatment of certain listed non-equity options written
or purchased by a Portfolio (including options on debt securities, options on
futures contracts and options on securities indices) will be governed by
Section 1256 of the Code. Absent a tax election for "mixed straddles" (see
below), each such position held by a Portfolio on the last business day of
each taxable year of a Portfolio will be marked to market (i.e., treated as if
it were closed out), and all resulting gain or loss will be treated as 60%
long-term capital gain or loss and 40% short-term capital gain or loss, with
subsequent adjustments made to any gain or loss realized upon an actual
disposition of such positions.
When a Portfolio holds an option or contract governed by Section 1256 which
substantially diminishes a Portfolio's risk of loss with respect to another
position of the Portfolio not governed by Section 1256 (as might occur in some
hedging transactions), this combination of positions could be a "mixed
straddle" which is generally subject to certain straddle rules of Section 1092
of the Code in addition to being subject in part to Section 1256. A Portfolio
may make certain tax elections for its "mixed straddles" which could alter
certain effects of Section 1256 or Section 1092.
A Portfolio's activities involving options and futures contracts may be
limited by the requirement for qualification as a regulated investment company
that less than 30% of the Portfolio's annual gross income be derived from the
disposition of investments held less than three months.
A Portfolio's investment in zero coupon bonds, deferred interest bonds or
bonds that provide for payment of interest in kind are subject to special tax
rules that may affect the timing of distributions to shareholders by causing
the Portfolio to recognize income prior to the receipt of
22--Paragon Portfolio
- -------------------------------------------------------------------------------
<PAGE>
cash payments. For example, with respect to zero coupon bonds and deferred
interest bonds, a Portfolio will generally be required to accrue as income
each year a portion of the discount (or deemed discount) at which the
securities were issued and to distribute such income each year in order to
maintain its qualification as a regulated investment company and to avoid
Federal income taxes. A Portfolio may also elect to accrue market discount on
a current basis and be required to distribute any such accrued discount. Mark
to market rules applicable to certain positions governed by Section 1256 of
the Code (as described above) may also require the recognition of gain without
concurrent receipt of cash. In order to generate cash to satisfy the
distribution requirements applicable to such income or gain, a Portfolio may
have to dispose of portfolio securities which it would otherwise have
continued to hold.
All distributions, whether received in shares or cash, as well as
redemptions and exchanges, must be taken into account by each shareholder in
determining its Federal income tax liability, if any.
Assuming that each Portfolio qualifies as a regulated investment company for
Federal income tax purposes, each Portfolio, as a series of a Massachusetts
business trust, will not be subject to any income tax in Massachusetts. The
Portfolios are also not subject to Massachusetts corporate excise or franchise
tax.
The foregoing discussion relates solely to U.S. Federal income tax law as it
applies to the Portfolios and their distributions. The discussion does not
address special tax rules applicable to certain classes of investors, such as
insurance companies, and such investors should consult their own tax advisers
regarding these rules.
This discussion of the tax treatment of the Portfolios and their
distributions is based on the tax laws in effect as of the date of this
Statement of Additional Information.
ORGANIZATION AND CAPITALIZATION
The Portfolios are designed to be the funding vehicle for various insurance
contracts (the "Contracts") to be offered by Great Northern Insured Annuity
Corporation ("GNA") and other participating insurance companies. Shares of the
Portfolios are offered exclusively to the separate accounts (the "Accounts")
of GNA and other insurance companies. The terms and conditions of the
Contracts and any limitations upon the Portfolios in which the Accounts may be
invested are set forth in a separate prospectus and statement of additional
information. The Trust reserves the right to limit in the future the types of
Accounts that may invest in the any Portfolio.
GNA and any other participating insurance companies are the recordholders of
the shares of beneficial interest of each Portfolio. Within the limitation set
forth in the appropriate Contract, Contract holders may direct through GNA or
such other insurance company the allocation of amounts available for
investment under their Contracts among the Portfolios. Instructions for any
such allocation, or the purchase or redemption of the shares of any Portfolio,
must be made through GNA or such other insurance company as the record holder
of the Portfolio's shares. The rights of GNA or such other insurance company
as the record holder of the shares of a Portfolio are different from the
rights of a Contractholder. The term "Shareholder" in this Statement of
Additional Information when used with respect to a Portfolio refers to GNA or
such other insurance companies and not to the Contractholder.
The rights, if any, of Contract holders to vote the shares of a Portfolio
beneficially owned by such Contractholders are governed by the relevant
Contract. For information on such voting rights, see the prospectus describing
such Contract.
Paragon Portfolio--23
- -------------------------------------------------------------------------------
<PAGE>
The Trust is a Massachusetts business trust established under the laws of
the Commonwealth of Massachusetts by a Declaration of Trust dated October 2,
1989. The authorized capital of the Trust consists of an unlimited number of
shares of beneficial interest. The Trustees have authority under the
Declaration of Trust to create and classify shares of beneficial interest in
separate series ("Funds") without further action by shareholders. In addition
to the Portfolios, the Trust has seven additional series.
Shares entitle their holder to one vote per share; however, separate votes
will be taken by each Portfolio on matters affecting an individual Portfolio.
Shares are freely transferable and have no preemptive, subscription or
conversion rights. All shares issued and outstanding are fully paid and non-
assessable. The shares of the Trust have non-cumulative voting rights, which
means that the holders of more than 50% of the Trust's shares voting for the
election of Trustees can elect 100% of the Trustees if they choose to do so,
and, in such event, the holders of the remaining less than 50% of the shares
voting for the election of Trustees will not be able to elect any person or
persons to the Board of Trustees.
To the best knowledge of the Trust, as of March 1, 1996, there are no
persons owning 5% or more of the outstanding shares of Paragon Power
Intermediate-Term Bond Portfolio, Paragon Power Value Growth Portfolio,
Paragon Power Value Equity Income Portfolio and Paragon Power Value Equity
Portfolio, except GNA Variable Investment Account of Great Northern Insured
Annuity Corporation which currently holds 100% of the shares of each of the
Portfolios listed above.
SHAREHOLDER AND TRUSTEE LIABILITY
The Trust is an entity of the type commonly known as a "Massachusetts
business trust", which is the form in which many mutual funds are organized.
Under Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for the obligations of
the trust. The Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Trust. Notice of such
disclaimer will normally be given in each agreement, obligation or instrument
entered into or executed by the Trust or the Trustees. The Declaration of
Trust provides for indemnification by the relevant Portfolio for any loss
suffered by a shareholder as a result of an obligation of the Portfolio. The
Declaration of Trust also provides that the Trust shall, upon request, assume
the defense of any claim made against any shareholder for any act or
obligation of the Trust and satisfy any judgment thereon. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which a Portfolio is unable to meet its
obligations. The Trustees believe that, in view of the above, the risk of
personal liability of shareholders is not material.
The Declaration of Trust provides that the Trustees of the Trust shall not
be liable for any action taken by them in good faith, and that they shall be
fully protected in relying in good faith upon the records of the Trust and
upon reports made to the Trust by persons selected in good faith by the
Trustees as qualified to make such reports. The Declaration of Trust further
provides that the Trustees will not be liable for errors of judgment or
mistakes of fact or law. The Declaration of Trust provides that the Trust will
indemnify Trustees and officers of the Trust against liabilities and expenses
reasonably incurred in connection with litigation in which they may be
involved because of their positions with the Trust, unless it is determined in
the manner provided in the Declaration of Trust that they have not acted in
good faith in the reasonable belief that in the case of conduct in his or her
official capacity with the Trust, that the conduct was in the best interests
of the Trust, and in all other cases, that the conduct was at least not
opposed to the best interests of the Trust (and in the case of any criminal
proceeding, he or she had no reasonable cause to believe that the conduct was
unlawful). However, nothing in the Declaration of Trust or
24--Paragon Portfolio
- -------------------------------------------------------------------------------
<PAGE>
the By-Laws protects or indemnifies a Trustees or officer against any
liability to which he or she would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.
CUSTODIAN
State Street Bank and Trust Company has been retained to act as custodian of
the Trust's assets and, in that capacity, maintains the accounting records and
calculates the daily net asset value per share of the Portfolios. Its mailing
address is 225 Franklin Street, Boston, MA 02110. The Northern Trust Company,
50 South LaSalle Street, Chicago, Illinois 60603, serves as subcustodian of
the Trust.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP has been selected as independent accountants of the
Trust. In addition to audit services, Price Waterhouse LLP prepares the
Trust's Federal and state tax returns and provides consultation and assistance
on accounting, internal control and related matters.
FINANCIAL STATEMENTS
The financial statements and related report of Price Waterhouse LLP,
independent public accountants, contained in the 1995 Annual Report are hereby
incorporated by reference and attached hereto. A copy of the Annual Report may
be obtained without charge by writing to Goldman Sachs at (800) 525-7907.
Paragon Portfolio--25
- -------------------------------------------------------------------------------
<PAGE>
APPENDIX
DESCRIPTION OF SECURITIES RATINGS*
MOODY'S INVESTORS SERVICE, INC.
AAA: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
AA: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than with Aaa
securities.
A: Bonds which are rated A possess many favorable investment attributes and
may be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
UNRATED: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted;
2. The issue or issuer belongs to a group of securities or companies that
are not rated as a matter of policy;
3. There is a lack of essential data pertaining to the issue or issuer;
or
4. The issue was privately placed, in which case the rating is not
published in Moody's publications. Suspension or withdrawal may occur if
new and material circumstances arise, the effects of which preclude
satisfactory analysis; if there is no longer available reasonable up-to-
date data to permit a judgment to be formed; if a bond is called for
redemption; or for other reasons.
Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate 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.
Moody's ratings for state and municipal and other short-term obligations
will be designated Moody's Investment Grade ("MIG"). This distinction is in
recognition of the differences between short-term credit risk and long-term
risk. Factors affecting the liquidity of the borrower are uppermost in
importance in short-term borrowing, while various factors of the first
importance in long-term borrowing risk are of lesser importance in the short
run. Symbols used will be as follows:
1-A
- -------------------------------------------------------------------------------
<PAGE>
MIG-1--Notes bearing this designation are of the best quality enjoying
strong protection from established cash flows of funds for their servicing
or from established and broad-based access to the market for refinancing,
or both.
MIG-2--Notes bearing this designation are of high quality, with margins
of protection ample although no so large as the preceding group.
MIG-3--Notes bearing this designation are of favorable quality with all
security elements accounted for, but lacking the undeniable strength of the
preceding grades. Market access for refinancing, in particular, is likely
to be less well established.
A short-term rating may also be assigned on an issue having a demand
feature. Such ratings will be designated as VMIG to reflect such
characteristics as payment upon periodic demand rather than fixed maturity
dates and payment relying on external liquidity. Additionally, investors
should be alert to the fact that the source of payment may be limited to the
external liquidity with no or limited legal recourse to the issuer in the
event the demand is not met VMIG-1, VMIG-2 and VMIG-3 ratings carry the same
definitions as MIG-1, MIG-2 and MIG-3, respectively.
STANDARD & POOR'S RATINGS GROUP**
AAA: Bonds rated AAA are highest grade debt obligations. This rating
indicates an extremely strong capacity to pay principal and interest.
AA: Bonds rated AA also qualify as high-quality obligations. Capacity to pay
principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A: Bonds rated A have a strong capacity to pay principal and interest,
although they are more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds
in this category than in higher rated categories.
PLUS (+) OR MINUS (-): The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
UNRATED: Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate
a particular type of obligation as a matter of policy.
Municipal notes issued since July 29, 1984 are rated "SP-1", "SP-2", and
"SP-3". The designation SP-1 indicates a very strong capacity to pay principal
and interest. A "+" is added to those issues determined to possess
overwhelming safe characteristics. An SP-2 designation indicates a
satisfactory capacity to pay principal and interest while an SP-3 designation
indicates speculative capacity to pay principal and interest.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
MOODY'S INVESTORS SERVICE, INC.
P-1: Moody's Commercial Paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity in
excess of nine months. The designation "Prime-1" or "P-1" indicates the
highest quality repayment capacity of the rated issue.
2-A
- -------------------------------------------------------------------------------
<PAGE>
STANDARD & POOR'S RATINGS GROUP
A-1: Standard & Poor's Commercial Paper ratings are current assessments of
the likelihood of timely payment of debts having an original maturity of no
more than 365 days. The A-1 designation indicates the degree of safety
regarding timely payment is very strong.
- --------
* The ratings indicated herein are believed to be the most recent ratings
available at the date of this Additional Statement for the securities
listed. Ratings are generally given to the securities at the time of
issuance. While the rating agencies may from time to time revise such
ratings, they undertake no obligation to do so, and the ratings indicated
do not necessarily represent ratings which will be given to these
securities on the date of the Portfolios' fiscal year end.
** Rates all governmental bodies having $1,000,000 or more of debt
outstanding, unless adequate information is not available.
3-A
- -------------------------------------------------------------------------------
<PAGE>
PARAGON PORTFOLIO
LETTER TO SHAREHOLDERS
DEAR SHAREHOLDERS:
The staff of Premier Investment Advisors, L.L.C. is pleased to report to you
on the results of operations of the Paragon Power Portfolios for the fiscal
period which began on January 13, 1995 and ended November 30, 1995. In this
letter we will discuss the economic and market environment and explain how
each of the Power mutual funds fared during this year.
THE ECONOMY/INTEREST RATES
The U.S. economy this year could be best described as "mixed". The economy
exhibited robust real growth of 4.20% during the third quarter, and this is
likely to be revised upward. Then in October the purchasing manager's survey
reported that its index fell below 47. A reading below 50 indicates a
shrinking economy. During the fourth quarter, the economy underwent an
inventory correction in which excess inventory accumulated in the third
quarter was reduced by curtailing production. This appears to be largely
complete and the economy should elevate its growth toward a 2.50% rate through
1996. This would be benign for financial markets because it is conducive to
the assumption that the economy will remain near full employment with little
inflation pressure.
The Federal Reserve can still further reduce short-term interest rates in
this environment. Current monetary policy is quite restrictive with the
Federal Funds rates at 5.50% and the inflation rate at 2.80% (12 month
Consumer Price Index ended October 31, 1995). The yield curve (the difference
between short term and long term treasury rates) is relatively flat at near 1%
and will have to steepen through lower short term rates in order to achieve
the desired rate of economic growth. In addition, the budget standoff is
likely to be resolved soon. Each of these issues along with the mixed economic
performance may provide justification for lowering the Federal Funds rate by
at least 50 basis points over the next several quarters.
THE BOND MARKET
During the fiscal period covered by this letter, bond investors have enjoyed
one of the best market performances ever. The Lehman Brothers Aggregate Bond
Index, a proxy for the overall bond market, has earned a total return (income
plus price appreciation) of 17.64% for the year ended November 30, 1995. One
could point to several factors that contributed to this powerful rally, but we
believe the most important one was the failure of inflation to accelerate in
1995 as was widely forecasted.
STOCK MARKET
Taking a cue from bonds, stocks staged a rally that ranks among the top five
in this century during the fiscal period under review. The broad based S&P 500
Index with Income ("S&P 500") achieved a total return of 34.21% during the
period. Growth stocks held a modest advantage over value stocks according to
S&P/Barra indices. Larger capitalization stocks outperformed smaller ones,
bucking the trend of small capitalization outperformance that began in 1990.
Market leadership was held by a few stock groups including technology stocks
and financial stocks. Investors found it difficult to attain results equal to
the market indices without significant weighting in these groups. More
recently, investors have become increasingly defensive worrying about the pace
of the economy, whether the Federal Reserve will lower rates and how much
earnings may fall short of expectations. Indeed, stocks have been punished for
falling short of expectations by a few pennies or for even warning of earnings
shortfalls. Investors have sought out more certainty in earnings, favoring
financials, utilities, consumer staples and health care stocks.
SUMMARY
We believe that volatility will characterize the stock market in 1996.
Earnings may show a tendency to disappoint given tough year over year
comparisons and the effect of economic slowing. A market correction of 5-10%
remains quite possible. However, based on expected earnings in 1996, low
inflation and falling interest rates, the risk reward trade off for stocks
appears favorable. Remarkably, the price-earnings ratio, a major valuation
tool, has actually remained stable at 17 over the past twelve months. This is
due to strong earnings progress among U.S. companies which offsets the healthy
price gains of stock market indices.
Let us now examine how the individual Paragon Power Portfolios navigated
through the dynamic investment landscape of 1995.
PARAGON POWER INTERMEDIATE-TERM BOND PORTFOLIO
For the period since inception (January 13, 1995) through November 30, 1995,
the Portfolio reported a total return of 15.34% based on net asset value
("NAV"). This compares favorably with the Lehman Intermediate Government/
Corporate Bond Index return of 13.68% for the same time period.
The Portfolio outperformed the index due to an overweighted position in
corporate and mortgage backed
1
<PAGE>
PARAGON PORTFOLIO
LETTER TO SHAREHOLDERS--(CONTINUED)
securities along with a longer duration in the portfolio. With the addition of
new money through the year, pools of direct pass-through mortgage-backed
securities in marketable size and corporate issues were added. Corporate
purchases were spread out among the various industry groups with financials
being the largest share. The largest holdings of the Portfolio continue to be
the major factors in relative performance of the fund index versus the above
referenced index.
PARAGON POWER VALUE GROWTH PORTFOLIO
The Paragon Power Value Growth Portfolio ended its first fiscal period on
November 30, 1995. It was a short year as the inception date of the Portfolio
was January 13, 1995. The Portfolio attained a total return of 23.12% at NAV
for this period compared to the S&P 500 return of 34.21%.
Several factors contributed to the Portfolio's underperformance relative to
the S&P 500. Foremost was that the Portfolio received large cash inflows
during the period which needed to be invested during a continual rising
market. Cash equivalents, therefore, were higher than would be optimally
maintained during this period, which negatively impacted performance.
Several economic sectors also caused the Portfolio to lag the S&P 500. Most
notably the energy sector (Amoco Corp., Schlumberger, Ltd., Murphy Oil Co.)
and the retail sector (Office Depot, Inc., Home Depot, Inc., Dayton Hudson
Corp.) dragged down performance. Investors in the retail sectors were
negatively impacted as consumers failed to provide the sales needed to meet
the stores' sales expectations. Energy stocks fundamentals did not materialize
as expected.
Portfolio shareholders benefitted from strong performance in several market
sectors. The utility sector, aided partly by declining interest rates and
announced corporate reorganizations, led the way. AT&T Corp., Bell South Corp.
and WorldCom, Inc. all reported strong performance. The consumer noncyclical
sector's returns were led by two Health Maintenance Organizations (HMOs),
Foundation Health Corp. and United Healthcare Corp. The Portfolio also
benefitted from its positions within the financial sector. The regional bank
stocks (Southtrust Corp., First American Corp. of Tennessee, CCB Financial
Corp.) performed especially well. Finally, the technology sector, with the
exception of Micron Technology, Inc., led to good results for the Portfolio.
PARAGON POWER VALUE EQUITY INCOME PORTFOLIO
From inception on January 13, 1995 to November 30, 1995 the Portfolio
achieved a total return of 31.71%. This compares to the S&P 500 return over
the same period of 34.21% and the Lipper Equity Income Mutual Fund Index
return of 26.11%. The Portfolio lagged the performance of the S&P 500 due to
smaller average market capitalization than that of the Index. In 1995, returns
were positively correlated with market capitalization. There were fortunately
very few holdings which negatively affected investment returns. These include
Georgia Pacific Corp., which was purchased in August, but then declined in
price as expectations for paper prices began to decline. The Portfolio's
International Paper Co, holdings declined for the same reasons. In the
consumer cyclical sector, the Portfolio sold its Reebok International, Ltd.
holdings late in the year, based on earnings disappointments and the company's
loss of market share.
Excellent stock selection within several key stock groups helped propel the
Portfolio's results. For example, in the consumer non-cyclical sector, IBP,
Inc., one of the Portfolio's top ten holdings, rose 95% during the period. The
company, a major meat processor, continually exceeded analysts' earnings
expectations during the year. Also in this sector, Schering Plough Corp., a
pharmaceutical manufacturer and another top ten holding of the Portfolio, rose
60% in price as investors began to view companies with a dependable mid-teens
growth rate as quite appealing in a sluggish economy. Philip Morris Companies,
Inc., also a top ten holding, rose 55% in price for similar reasons. In the
capital goods sector shareholders benefitted from the merger of two major
defense contractors, Martin Marietta, which the Portfolio held previously, and
Lockheed Corp. into a new company known as Lockheed Martin Corp. The
Portfolio's holdings in the combined company appreciated 56% during the
period, which helped boost Portfolio returns since this was the third largest
holding as of November 30, 1995. We incorrectly underweighted the financial
sector during the year, yet individual holdings in this sector have performed
extremely well, including Merrill Lynch & Co., Inc., which was sold for a
significant gain, Federal National Mortgage Assn., which was up nearly 58%
during the period, and a convertible preferred issue of Citicorp which
achieved a 73% return during the period.
In the technology sector, the Portfolio remained close to a market weighting
and experienced positive results overall. The most noteworthy achievements in
this sector were the price gains made by two semi-conductor companies, Texas
Instruments, Inc. and Intel Corp. The Portfolio's Texas Instruments holding
was trimmed during the year to capture profits and control the Portfolio's
risk level.
2
<PAGE>
PARAGON PORTFOLIO
LETTER TO SHAREHOLDERS--(CONTINUED)
The top ten holdings of the Paragon Power Value Equity Portfolio as of
November 30, 1995 are listed below:
<TABLE>
<CAPTION>
PERCENTAGE OF
SECURITY NET ASSETS PRICE APPRECIATION*
-------- ------------- -------------------
<S> <C> <C>
Mobil Corp. .................................. 4.1% 24.3%
IBP, Inc. .................................... 3.9% 95.3%
Lockheed Martin Corp. ........................ 3.4% 55.6%
Philip Morris Companies, Inc. ................ 3.1% 55.7%
Dow Chemical Co. ............................. 3.1% 3.1%
IBM Corp. .................................... 3.0% 1.4%
Citicorp Convertible Preferred................ 3.0% 73.1%
Schering Plough Corp. ........................ 2.9% 60.2%
Sears Roebuck & Company....................... 2.5% 66.1%
Baxter International, Inc. ................... 2.5% 25.5%
</TABLE>
- -------
* For the period from the latter of January 13, 1995 or the purchase date to
November 30, 1995.
PARAGON POWER GULF SOUTH GROWTH PORTFOLIO
For the fiscal period beginning January 13, 1995 and ending November 30,
1995 the Portfolio earned a total return of 22.72%. This compares with the S&P
500 Index's return of 34.21%, the Russell 2000's return of 26.25% and the
Lipper Small Company Growth Fund Index's return of 30.72%.
The S&P 500 Index performance advantage over the Portfolio and the other
indices can be explained to some extent by the wide variation in average
market capitalization of the S&P 500 versus the others. Large capitalization
stocks, such as those in the S&P 500, outperformed smaller capitalization
stocks in 1995.
A number of factors contributed to the fund's lagging performance in 1995.
First of all, several stocks in the consumer cyclical sector experienced
negative earnings surprises causing stock prices to decline. A few were sold
including Cameron Ashley, Inc., a building supply wholesaler, Michael Stores,
Inc. and Heilig Meyers Co. The Portfolio continues to hold others as we expect
these stocks to rebound in 1996. These include River Oaks Furniture, Inc. and
Sports and Recreation, Inc.
In the technology sector several stocks were added later in the year, but
did not perform as expected due to negative earnings comparisons. These
include Cybex Corp., Emulex Corp. and Symmetricom, Inc.
In the basic materials and natural resources sector the Portfolio holds
Nucor Corp. and Quanex Corp. which produce or process metals. These companies
shared a decline during the year due to weak pricing in the metals markets.
In the consumer noncyclical sector, several of the Portfolio's holdings are
HMOs or physician practice management companies. Despite bright prospects, it
was common to see these shares decline during the year as investors shifted
from these smaller higher risk investments into large capitalization
pharmaceutical manufacturers. We continue to believe that companies such as
Inphynet Medical Management, Inc., Healthwise of America, Inc. and Coventry
Corp. have bright futures.
A sector in which efforts paid off handsomely was the financial sector which
was overweighted during the year. Several of the Portfolio's top ten holdings
are in this sector. Stocks which stood out among many strong price gainers
included United Companies Financial Corp., First Financial Management/First
Data Corp., and Medaphis Corp., the Portfolio's largest holding as of November
30, 1995.
In the energy sector, Input/Output, Inc. stood out as a major success as the
stock appreciated 95% and was the Portfolio's second largest holding as of
November 30, 1995.
In conclusion, we appreciate your support of the Paragon Power Portfolios.
/s/ Donald E. Allred
Donald E. Allred
President and Chief Investment Officer
Premier Investment Advisors, L.L.C.
December 22, 1995
3
<PAGE>
PARAGON PORTFOLIO
PERFORMANCE COMPARISON
In accordance with the requirements of the Securities and Exchange Commission,
the following data is supplied for the period from inception (January 13,
1995) to November 30, 1995. Each of the following Paragon Portfolios'
performance, based on an initial investment of $10,000 is compared to the
following:
PORTFOLIO COMPARED TO:
Paragon Power
Intermediate-Term
Bond Portfolio: Lehman Brothers Mutual Fund Intermediate
Government/Corporate Index ("Lehman Int Gov't/Corp
Index").
Paragon Power Value
Growth Portfolio: Standard & Poor's 500 Index with Income ("S&P 500").
Paragon Power Value
Equity Income
Portfolio: S&P 500.
Paragon Power Gulf
South Growth
Portfolio: S&P 500; Russell 2000 Index ("Russell 2000").
All performance data shown represents past performance and should not be
considered indicative of future performance which will fluctuate as market
conditions change. The investment return and principal value of an investment
will fluctuate with changes in market conditions so that an Investor's shares,
when redeemed, may be worth more or less than their original cost.
PARAGON POWER INTERMEDIATE-TERM BOND PARAGON POWER VALUE GROWTH
PORTFOLIO PORTFOLIO
(GRAPH TO COME)
4
<PAGE>
PARAGON PORTFOLIO
PERFORMANCE COMPARISON--(CONTINUED)
PARAGON POWER VALUE EQUITY INCOME PARAGON POWER GULF SOUTH GROWTH
PORTFOLIO PORTFOLIO
5
<PAGE>
PARAGON PORTFOLIO
STATEMENT OF INVESTMENTS
PARAGON POWER INTERMEDIATE-TERM BOND PORTFOLIO
NOVEMBER 30, 1995
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
--------- -------- -------- ----------
<S> <C> <C> <C>
CORPORATE OBLIGATIONS--19.5%
Alltel Corp.
$100,000 6.75% 09/15/05 $ 102,691
Anheuser Busch Companies, Inc.
100,000 6.90 10/01/02 102,679
Ford Motor Credit Corp.
100,000 7.50 06/15/04 106,552
NationsBank Corp.
100,000 7.75 08/15/04 107,800
----------
Total Corporate Obligations
(Cost $388,161)......................... $ 419,722
----------
U.S. GOVERNMENT AGENCY OBLIGATIONS--46.8%
Federal Farm Credit Bank
$100,000 5.81% 11/10/03 $ 99,119
Federal Home Loan Bank
100,000 7.61 09/23/04 109,965
Federal Home Loan Mortgage Corp.
100,000 7.13 07/21/99 104,513
Federal National Mortgage Assn.
145,000 8.35 11/10/99 158,014
100,000 6.80 01/10/03 104,912
Government National Mortgage Assn.
328,896 6.50 10/15/23 323,282
Tennessee Valley Authority 1989 Series D
100,000 8.38 10/01/99 108,772
----------
Total U.S. Government Agency Obligations
(Cost $961,215)......................... $1,008,577
----------
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
--------- -------- -------- ----------
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS--32.9%
United States Treasury Bond
$100,000 9.38% 02/15/06 $ 127,080
United States Treasury Notes
150,000 7.38 11/15/97 155,394
100,000 8.00 05/15/01 111,231
150,000 7.50 05/15/02 165,078
150,000 5.88 11/15/05 151,306
----------
Total U.S. Treasury Obligations
(Cost $665,507)......................... $ 710,089
----------
Total Investments
(Cost $2,014,883(a)).................... $2,138,388
==========
</TABLE>
<TABLE>
- -------------------------------------------------------------------------------
<S> <C>
Federal Income Tax Information:
Gross unrealized gain for investments in which value
exceeds cost.............................................. $ 123,505
Gross unrealized loss for investments in which cost exceeds
value..................................................... --
----------
Net unrealized gain........................................ $ 123,505
==========
- -------------------------------------------------------------------------------
</TABLE>
(a) The cost stated also represents cost for federal income tax purposes.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
6
<PAGE>
PARAGON PORTFOLIO
STATEMENT OF INVESTMENTS
PARAGON POWER VALUE GROWTH PORTFOLIO
NOVEMBER 30, 1995
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
------ ----------- ----------
<C> <S> <C>
COMMON STOCKS--88.6%
BASIC MATERIALS & NATURAL RESOURCES--5.0%
1,050 Dow Chemical Co. $ 74,419
850 Du Pont (E.I.) de Nemours & Co. 56,525
----------
130,944
----------
CAPITAL EQUIPMENT & SERVICES--6.3%
600 Eaton Corp. 32,700
600 Illinois Tool Works, Inc. 38,025
800 Johnson Controls, Inc. 55,400
1,200 Loral Corp. 40,650
----------
166,775
----------
CONSUMER CYCLICAL--10.3%
400 Dayton Hudson Corp. 29,050
2,000 Equifax, Inc. 83,750
1,000 First Data Corp. 71,000
1,000 Home Depot, Inc. 44,375
1,750 Office Depot, Inc.(b) 42,875
----------
271,050
----------
CONSUMER NONCYCLICAL--16.6%
1,000 Amgen, Inc. 49,625
1,300 Foundation Health Corp.(b) 59,475
1,500 Pepsico, Inc. 82,875
1,000 Pfizer, Inc. 58,000
600 Procter & Gamble Co. 51,825
1,000 SmithKline Beecham ADR 53,250
1,300 United Healthcare Corp.(b) 81,737
----------
436,787
----------
ENERGY--7.8%
1,500 Amoco Corp. 77,913
850 Schlumberger, Ltd. 53,975
1,500 Western Atlas, Inc.(b) 71,813
----------
203,701
----------
<CAPTION>
SHARES DESCRIPTION VALUE
------ ----------- ----------
<C> <S> <C>
COMMON STOCKS--CONTINUED
FINANCE--14.5%
1,000 Barnett Banks, Inc. $ 60,125
900 CCB Financial Corp.(a) 45,000
800 Citicorp 56,600
500 Federal National Mortgage Assn. 54,750
1,100 First American Corp. of Tennessee 50,187
1,200 First Tennessee National Corp. 72,600
1,600 Southtrust Corp. 40,600
----------
379,862
----------
TECHNOLOGY--16.2%
700 Cisco Systems, Inc.(b) 58,887
800 Compaq Computer Corp.(b) 39,600
1,000 General Motors Corp. Class E 50,500
500 Hewlett Packard Co. 41,437
1,600 Intel Corp. 97,400
800 Micron Technology, Inc. 43,800
900 Texas Instruments, Inc. 52,088
1,200 Vishay Intertechnology, Inc.(b) 42,000
----------
425,712
----------
TRANSPORTATION--0.9%
1,800 Skywest, Inc. 24,750
----------
UTILITIES--11.0%
1,100 AT&T Corp. 72,600
1,000 BellSouth Corp. 38,875
1,350 Enron Corp. 50,625
1,600 Peco Energy Co. 46,400
2,450 WorldCom, Inc.(b) 79,625
----------
288,125
----------
Total Common Stocks
(Cost $1,997,924)........................ $2,327,706
----------
PREFERRED STOCKS--1.1%
300 Ford Motor Co., Convertible Preferred, 4.20% $ 27,788
----------
Total Preferred Stocks
(Cost $28,027)........................... $ 27,788
----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
7
<PAGE>
PARAGON PORTFOLIO
STATEMENT OF INVESTMENTS
PARAGON POWER VALUE GROWTH PORTFOLIO--(CONTINUED)
NOVEMBER 30, 1995
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
--------- -------- -------- ----------
<S> <C> <C> <C>
REPURCHASE AGREEMENTS--10.8%
State Street Bank & Trust Company,
dated 11/30/95, repurchase price
$284,041 (U.S. Treasury Note
$289,773, 5.63%, 01/31/98)
$284,000 5.25% 12/01/95 $ 284,000
----------
Total Repurchase Agreements
(Cost $284,000)......................... $ 284,000
----------
Total Investments
(Cost $2,309,951(c)).................... $2,639,494
==========
</TABLE>
<TABLE>
- -------------------------------------------------------------------------------
<S> <C>
Federal Income Tax Information:
Gross unrealized gain for investments in which value exceeds cost.. $ 348,883
Gross unrealized loss for investments in which cost exceeds value.. (22,646)
----------
Net unrealized gain................................................ $ 326,237
==========
- -------------------------------------------------------------------------------
</TABLE>
(a) There are common stock rights attached to these securities.
(b) Non-income producing security.
(c) The aggregate cost for federal income tax purposes is $2,313,257.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
8
<PAGE>
PARAGON PORTFOLIO
STATEMENT OF INVESTMENTS
PARAGON POWER VALUE EQUITY INCOME PORTFOLIO
NOVEMBER 30, 1995
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
------ ----------- ----------
<C> <S> <C>
COMMON STOCKS--80.3%
BASIC MATERIALS & NATURAL RESOURCES--8.0%
1,100 Dow Chemical Co. $ 77,963
900 Du Pont (E.I.) de Nemours & Co. 59,850
400 Georgia Pacific Corp. 31,100
900 International Paper Co. 34,313
----------
203,226
----------
CAPITAL EQUIPMENT & SERVICES--9.4%
900 Deere & Co. 29,587
300 Johnson Controls, Inc. 20,775
1,200 Lockheed Martin Corp. 88,050
1,000 Loral Corp. 33,875
300 Paccar, Inc.(a) 13,125
1,200 Raytheon Co.(a) 53,400
----------
238,812
----------
CONSUMER CYCLICAL--6.1%
800 Chrysler Corp. 41,500
800 Fleetwood Enterprises, Inc. 19,200
1,600 Sears Roebuck & Co. 63,000
600 VF Corp. 31,200
----------
154,900
----------
CONSUMER NONCYCLICAL--18.2%
1,500 Baxter International, Inc. 63,000
450 Bristol-Myers Squibb Co. 36,113
600 Columbia/HCA Healthcare 30,975
1,600 IBP, Inc. 100,000
900 Philip Morris Companies, Inc. 78,975
1,200 Premark International, Inc. 61,200
400 Rhone Poulenc Rorer, Inc. 19,150
1,300 Schering Plough Corp. 74,587
----------
464,000
----------
ENERGY--8.0%
500 Exxon Corp. 38,687
1,000 Mobil Corp.(a) 104,375
700 Phillips Petroleum Co. 23,275
300 Royal Dutch Petroleum Co. ADR 38,513
----------
204,850
----------
FINANCE--8.4%
570 Allstate Corp. 23,370
1,000 Bear Stearns Companies, Inc. 21,750
200 Citicorp 14,150
<CAPTION>
SHARES DESCRIPTION VALUE
------ ----------- ----------
<C> <S> <C>
COMMON STOCKS--CONTINUED
FINANCE--Continued
400 Federal National Mortgage Assn. $ 43,800
1,000 First Tennessee National Corp. 60,500
1,200 Reliastar Financial Corp. 51,900
----------
215,470
----------
TECHNOLOGY--11.8%
1,200 Avnet, Inc. 56,400
400 BMC Software, Inc.(b) 16,900
600 Compaq Computer Corp.(b) 29,700
600 Dell Computer Corp.(b) 26,550
700 Intel Corp. 42,612
800 International Business Machines Corp. 77,300
200 Texas Instruments, Inc. 11,575
300 Xerox Corp. 41,137
----------
302,174
----------
TRANSPORTATION--1.1%
400 British Airways ADR 28,150
----------
UTILITIES--9.3%
1,200 BellSouth Corp. 46,650
400 Entergy Corp. 11,150
1,200 GTE Corp. 51,150
700 Nynex Corp. 34,737
1,600 Peco Energy Co. 46,400
1,000 SCE Corp. 15,625
800 Sprint Corp. 32,000
----------
237,712
----------
Total Common Stocks
(Cost $1,751,477)................................... $2,049,294
----------
PREFERRED STOCKS--7.2%
200 Burlington Northern, Inc., Convertible Preferred, 6.25% $ 17,175
400 Citicorp, Convertible
Preferred, 5.38% 76,800
500 Ford Motor Co., Convertible Preferred, 4.20% 46,313
600 General Motors Corp., Convertible Preferred, 3.25% 43,050
----------
Total Preferred Stocks
(Cost $151,487)..................................... $ 183,338
----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
9
<PAGE>
PARAGON PORTFOLIO
STATEMENT OF INVESTMENTS
PARAGON POWER VALUE EQUITY INCOME PORTFOLIO--(CONTINUED)
NOVEMBER 30, 1995
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
--------- -------- -------- ----------
<S> <C> <C> <C>
CORPORATE OBLIGATIONS--2.6%
Healthsouth Rehabilitation
$ 10,000 5.00% 04/01/01 $ 16,050
Pennzoil Co.
30,000 6.50 01/15/03 36,150
Sports & Recreation, Inc.
20,000 4.25 11/01/00 13,700
----------
Total Corporate Obligations
(Cost $64,287)........................ $ 65,900
----------
REPURCHASE AGREEMENTS--10.3%
State Street Bank & Trust Company, dated 11/30/95,
repurchase price $263,038 (U.S. Treasury Note:
$269,438, 5.63%, 01/31/98)
$263,000 5.25% 12/01/95 $ 263,000
----------
Total Repurchase Agreements
(Cost $263,000).............................. $ 263,000
----------
Total Investments
(Cost $2,230,251(c))......................... $2,561,532
==========
<CAPTION>
<S> <C>
Federal Income Tax Information:
Gross unrealized gain for investments in which
value exceeds cost................................ $ 349,861
Gross unrealized loss for investments in which
cost exceeds value................................ (18,580)
----------
Net unrealized gain................................ $ 331,281
==========
- ------------------------
</TABLE>
(a) There are common stock rights attached to these securities.
(b) Non-income producing security.
(c) The cost stated also represents cost for federal income tax purposes.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
10
<PAGE>
PARAGON PORTFOLIO
STATEMENT OF INVESTMENTS
PARAGON POWER GULF SOUTH GROWTH PORTFOLIO
NOVEMBER 30, 1995
<TABLE>
<CAPTION>
SHARES DESCRIPTION VALUE
------ ----------- ----------
<C> <S> <C>
COMMON STOCKS--90.6%
BASIC MATERIALS & NATURAL RESOURCES--6.7%
1,400 Albemarle Corp. $ 25,725
1,000 Clayton Homes, Inc. 28,000
1,500 Image Industries, Inc.(b) 16,500
1,100 Nucor Corp. 54,863
900 Palm Harbor Homes, Inc.(b) 19,125
1,500 Quanex Corp.(a) 29,437
----------
173,650
----------
CAPITAL EQUIPMENT & SERVICES--3.1%
1,700 Alamo Group, Inc. 29,325
2,500 Martin Industries, Inc. 22,500
800 Wolverine Tube, Inc.(b) 27,100
----------
78,925
----------
CONSUMER CYCLICAL--19.8%
3,200 Accustaff, Inc.(b) 96,000
3,100 Autozone, Inc.(b) 90,288
1,500 Dollar General Corp. 40,687
1,427 First Data Corp. 101,317
1,300 Garden Ridge Corp.(b) 48,100
800 Just for Feet, Inc.(b) 27,300
2,800 Office Depot, Inc.(b) 68,600
3,200 River Oaks Furniture, Inc.(b) 22,400
2,400 Sports & Recreation, Inc.(b) 16,800
----------
511,492
----------
CONSUMER NONCYCLICAL--9.0%
2,500 Apple South, Inc. 52,500
2,400 Coventry Corp.(b) 47,100
800 HealthWise of America, Inc.(b) 25,000
800 Healthcare Compare Corp.(b) 31,300
2,300 Inphynet Medical Management, Inc.(b) 41,975
600 Isolyser Company, Inc.(b) 9,750
1,500 Longhorn Steaks, Inc.(b) 24,375
----------
232,000
----------
ENERGY--7.2%
800 Global Industries, Inc.(b) 21,500
2,600 Input/Output, Inc.(b) 119,925
2,300 Landmark Graphics Corp.(b) 46,000
----------
187,425
----------
<CAPTION>
SHARES DESCRIPTION VALUE
------ ----------- ----------
<C> <S> <C>
COMMON STOCKS--CONTINUED
FINANCE--18.5%
1,500 American Federal Bank, FSB $ 22,500
1,200 Bankers First Corp. 32,850
1,400 Central Parking Corp.(b) 38,500
1,200 Concord EFS, Inc.(b) 45,900
4,000 Medaphis Corp.(b) 130,000
4,450 Regional Acceptance Corp.(b) 38,381
2,200 Stewart Enterprises, Inc. 72,050
3,000 United Companies Financial Corp. 99,000
----------
479,181
----------
TECHNOLOGY--14.5%
1,400 Acxiom Corp.(b) 40,250
2,000 Cybex Corp.(b) 37,500
1,000 DSC Communications Corp.(b) 39,625
2,200 Emulex Corp.(b) 27,500
2,500 Mobile Telecommunications Technology Corp.(b) 57,500
2,400 SCI Systems, Inc.(b) 80,400
2,200 Scientific Atlanta, Inc.(a) 34,925
2,100 Symmetricom, Inc.(b) 31,763
1,800 Westcott Communications, Inc.(b) 25,650
----------
375,113
----------
TRANSPORTATION--4.9%
2,900 Atlantic Southeast Airlines, Inc. 76,125
2,300 Miller Industries, Inc.(b) 50,025
----------
126,150
----------
UTILITIES--6.9%
3,300 Equalnet Holding Corp.(b) 63,525
3,500 WorldCom, Inc.(b) 113,750
----------
177,275
----------
Total Common Stocks
(Cost $1,982,316).......................................... $2,341,211
----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
11
<PAGE>
PARAGON PORTFOLIO
STATEMENT OF INVESTMENTS
PARAGON POWER GULF SOUTH GROWTH PORTFOLIO--(CONTINUED)
NOVEMBER 30, 1995
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
--------- -------- -------- ----------
<C> <S> <C> <C>
REPURCHASE AGREEMENTS--10.2%
State Street Bank & Trust
Company, dated 11/30/95,
repurchase price $264,039 (U.S.
Treasury Note: $269,438, 5.63%,
01/31/98)
$264,000 5.25% 12/01/95 $ 264,000
----------
Total Repurchase
Agreements
(Cost $264,000)........ $ 264,000
----------
Total Investments
(Cost $2,246,316(c))... $2,605,211
==========
</TABLE>
<TABLE>
- -------------------------
<S> <C>
Federal Income Tax Information:
Gross unrealized gain for investments
in which value exceeds cost........ $ 493,786
Gross unrealized loss for investments
in which cost exceeds value....... (134,891)
----------
Net unrealized gain................ $ 358,895
==========
- -------------------------
</TABLE>
(a) There are common stock rights attached to these securities.
(b) Non-income producing security.
(c) The cost stated also represents cost for federal income tax purposes.
The percentage shown for each investment category reflects the value of
investments in that category as a percentage of total net assets.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
12
<PAGE>
PARAGON PORTFOLIO
STATEMENTS OF ASSETS AND LIABILITIES
NOVEMBER 30, 1995
<TABLE>
<CAPTION>
PARAGON PARAGON PARAGON PARAGON
POWER POWER POWER POWER
INTERMEDIATE- VALUE VALUE EQUITY GULF SOUTH
TERM BOND GROWTH INCOME GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities, at
value
(cost $2,014,883; $2,309,951;
$2,230,251 and $2,246,316,
respectively)................ $2,138,388 $2,639,494 $2,561,532 $2,605,211
Cash......................... 20,825 10,049 9,253 9,502
Receivables:
Interest..................... 23,756 41 929 39
Dividends.................... -- 4,470 6,319 369
Fund shares sold............. -- 813 807 1,834
Deferred organization
expenses, net................ 1,069 1,105 1,069 1,178
Other........................ 96 83 -- 237
---------- ---------- ---------- ----------
Total assets................ 2,184,134 2,656,055 2,579,909 2,618,370
---------- ---------- ---------- ----------
LIABILITIES:
Payables:
Fund shares redeemed......... -- 53 47 51
Advisory fees................ 865 1,367 1,328 1,346
Administration fees.......... 260 316 307 311
Accrued expenses and other
liabilities.................. 27,201 28,003 26,004 31,169
---------- ---------- ---------- ----------
Total liabilities........... 28,326 29,739 27,686 32,877
---------- ---------- ---------- ----------
NET ASSETS:
Paid-in capital.............. 2,032,296 2,277,863 2,170,204 2,222,163
Accumulated undistributed
(distributions in excess of)
net investment income........ -- 249 (23) --
Accumulated net realized gain
on investment transactions... 7 18,661 50,761 4,435
Net unrealized gain on
investments.................. 123,505 329,543 331,281 358,895
---------- ---------- ---------- ----------
Net assets.................. $2,155,808 $2,626,316 $2,552,223 $2,585,493
========== ========== ========== ==========
Net asset value per share
(net assets/shares
outstanding)................. $ 10.42 $ 16.47 $ 14.65 $ 18.38
========== ========== ========== ==========
SHARES OUTSTANDING:
Shares of beneficial interest
outstanding, ($0.01 par
value),
unlimited number of shares
authorized................... 206,892 159,422 174,212 140,641
========== ========== ========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
13
<PAGE>
PARAGON PORTFOLIO
STATEMENTS OF OPERATIONS
FOR THE PERIOD ENDED NOVEMBER 30, 1995(A)
<TABLE>
<CAPTION>
PARAGON PARAGON PARAGON PARAGON
POWER POWER POWER POWER
INTERMEDIATE- VALUE VALUE EQUITY GULF SOUTH
TERM BOND GROWTH INCOME GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- --------- ------------ ----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest...................... $ 98,384 $ 10,525 $ 11,648 $ 10,764
Dividends(b) ................. -- 28,813 34,131 3,411
-------- -------- -------- --------
Total income................. 98,384 39,338 45,779 14,175
-------- -------- -------- --------
EXPENSES:
Advisory fees................. 6,860 10,528 8,999 10,632
Administration fees........... 2,058 2,429 2,077 2,453
Transfer agent fees........... 5,558 5,558 5,558 5,558
Custodian fees................ 9,528 12,174 10,586 14,027
Professional fees............. 19,920 20,750 19,920 22,410
Trustee fees.................. 151 158 151 169
Amortization of deferred
organization expenses......... 229 237 229 252
Other......................... 4,090 4,220 4,090 4,477
-------- -------- -------- --------
Total expenses............... 48,394 56,054 51,610 59,978
Less--Expenses reimbursable
by Advisor.................... 38,105 39,858 37,765 43,624
-------- -------- -------- --------
Net expenses................. 10,289 16,196 13,845 16,354
-------- -------- -------- --------
Net investment income
(loss)...................... 88,095 23,142 31,934 (2,179)
-------- -------- -------- --------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on
investment transactions....... 7 18,661 50,761 6,614
Net change in unrealized gain
on investments................ 123,505 329,543 331,281 358,895
-------- -------- -------- --------
Net realized and unrealized
gain on investments........... 123,512 348,204 382,042 365,509
-------- -------- -------- --------
Net increase in net assets
resulting from operations..... $211,607 $371,346 $413,976 $363,330
======== ======== ======== ========
</TABLE>
- -----
(a) For the period from commencement of operations (January 13, 1995) to
November 30, 1995.
(b) For the Paragon Power Value Equity Income Portfolio, amount is net of $263
in foreign withholding taxes.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
14
<PAGE>
PARAGON PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE PERIOD ENDED NOVEMBER 30, 1995(A)
<TABLE>
<CAPTION>
PARAGON PARAGON PARAGON PARAGON
POWER POWER POWER POWER
INTERMEDIATE- VALUE VALUE EQUITY GULF SOUTH
TERM BOND GROWTH INCOME GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS:
FROM OPERATIONS:
Net investment income
(loss).................... $ 88,095 $ 23,142 $ 31,934 $ (2,179)
Net realized gain on in-
vestment transactions..... 7 18,661 50,761 6,614
Net change in unrealized
gain on investments....... 123,505 329,543 331,281 358,895
---------- ---------- ---------- ----------
Net increase in net
assets resulting from
operations............... 211,607 371,346 413,976 363,330
---------- ---------- ---------- ----------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment in-
come...................... (88,095) (22,893) (31,934) --
In excess of net invest-
ment income............... -- -- (23) --
---------- ---------- ---------- ----------
Total distributions to
shareholders............. (88,095) (22,893) (31,957) --
---------- ---------- ---------- ----------
FROM SHARE TRANSACTIONS:
Proceeds from sale of
shares.................... 1,966,628 2,293,295 2,186,335 2,251,655
Reinvestment of dividends
and distributions......... 84,907 20,698 28,921 --
Cost of shares redeemed... (19,239) (36,130) (45,052) (29,492)
---------- ---------- ---------- ----------
Net increase in net
assets resulting from
share transactions....... 2,032,296 2,277,863 2,170,204 2,222,163
---------- ---------- ---------- ----------
Total increase........... 2,155,808 2,626,316 2,552,223 2,585,493
---------- ---------- ---------- ----------
NET ASSETS:
Beginning of period....... -- -- -- --
---------- ---------- ---------- ----------
End of period............. $2,155,808 $2,626,316 $2,552,223 $2,585,493
========== ========== ========== ==========
ACCUMULATED UNDISTRIBUTED
(DISTRIBUTIONS IN EXCESS
OF) NET INVESTMENT INCOME.. $ -- $ 249 $ (23) $ --
========== ========== ========== ==========
SUMMARY OF SHARE
TRANSACTIONS:
Sold...................... 200,409 160,409 175,300 142,290
Issued on reinvestment of
dividends and
distributions............. 8,356 1,360 2,139 --
Redeemed.................. (1,873) (2,347) (3,227) (1,649)
---------- ---------- ---------- ----------
Increase in shares out-
standing.................. 206,892 159,422 174,212 140,641
========== ========== ========== ==========
</TABLE>
- -----
(a) For the period from commencement of operations (January 13, 1995) to
November 30, 1995.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
15
<PAGE>
PARAGON PORTFOLIO
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING FOR THE PERIOD ENDED NOVEMBER 30, 1995(a)
<TABLE>
<CAPTION>
DISTRIBUTIONS TO
INCOME FROM INVESTMENT OPERATIONS SHAREHOLDERS
-------------------------------------- -------------------------
NET REALIZED TOTAL NET NET
NET ASSET NET AND INCOME TOTAL INCREASE ASSET
VALUE, INVESTMENT UNREALIZED FROM FROM NET DISTRIBUTIONS IN NET VALUE,
BEGINNING INCOME GAIN ON INVESTMENT INVESTMENT TO ASSET END OF TOTAL
OF PERIOD (LOSS) INVESTMENTS(d) OPERATIONS INCOME SHAREHOLDERS VALUE PERIOD RETURN(b)
--------- ---------- -------------- ---------- ---------- ------------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PARAGON POWER INTERMEDIATE-TERM BOND PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
Period ended: 11/30/95 $ 9.56 $0.57 $0.86 $1.43 $(0.57) $(0.57) $0.86 $10.42 15.34%
PARAGON POWER VALUE GROWTH PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
Period ended: 11/30/95 13.56 0.20 2.91 3.11 (0.20) (0.20) 2.91 16.47 23.12
PARAGON POWER VALUE EQUITY INCOME PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
Period ended: 11/30/95 11.35 0.26 3.30 3.56 (0.26) (0.26) 3.30 14.65 31.71
PARAGON POWER GULF SOUTH GROWTH PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
Period ended: 11/30/95 14.98 (0.02) 3.42 3.40 -- -- 3.40 18.38 22.72
<CAPTION>
RATIOS ASSUMING
NO EXPENSE
REIMBURSEMENTS
----------------------------
RATIO
OF NET
RATIO INVESTMENT RATIO
OF NET INCOME NET OF NET
EXPENSES (LOSS) ASSETS AT RATIO INVESTMENT
TO AVERAGE TO AVERAGE PORTFOLIO END OF EXPENSES INCOME (LOSS)
NET NET TURNOVER OF PERIOD TO AVERAGE TO AVERAGE
ASSETS(c) ASSETS(c) RATE (IN 000'S) NET ASSETS(c) NET ASSETS(c)
---------- ---------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
PARAGON POWER INTERMEDIATE-TERM BOND PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
Period ended: 11/30/95 0.75% 6.42% 9% $ 2,156 3.53% 3.64%
PARAGON POWER VALUE GROWTH PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
Period ended: 11/30/95 1.00 1.43 53 2,626 3.46 (1.03)
PARAGON POWER VALUE EQUITY INCOME PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
Period ended: 11/30/95 1.00 2.31 27 2,552 3.73 (0.42)
PARAGON POWER GULF SOUTH GROWTH PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
Period ended: 11/30/95 1.00 (0.13) 35 2,585 3.67 (2.80)
</TABLE>
(a) For the period from commencement of operations (January 13, 1995) to
November 30, 1995.
(b) Assumes investment at the net asset value at inception (January 13, 1995),
reinvestment of all dividends and distributions and a complete redemption
of the investment at the net asset value at the end of the period.
(c) Annualized.
(d) Includes the balancing effect of calculating per share amounts.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
16
<PAGE>
PARAGON PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1995
NOTE 1. ORGANIZATION
Paragon Portfolio (the "Trust") is a Massachusetts business trust registered
under the Investment Company Act of 1940, as amended, as an open-end
management investment company. The Trust consists of eleven portfolios four of
which (the "Portfolios") are contained within: Paragon Power Intermediate-Term
Bond Portfolio ("Intermediate-Term Bond Portfolio"), Paragon Power Value
Growth Portfolio ("Value Growth Portfolio"), Paragon Power Value Equity Income
Portfolio ("Value Equity Income Portfolio"), and Paragon Power Gulf South
Growth Portfolio ("Gulf South Growth Portfolio"). Gulf South Growth Portfolio
is a non-diversified portfolio; all other Portfolios are diversified. The
Portfolios commenced operations on January 13, 1995.
Shares of the Portfolios are offered to separate accounts of Great Northern
Insured Annuity Corporation ("GNA") and its affiliates and may also be offered
to the separate accounts of unaffiliated insurance companies. Shares of the
Portfolios may serve as the underlying investments for both variable annuity
and variable life insurance contracts.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Portfolios which are in conformity with those generally accepted in the
investment company industry.
Investment Valuation. Equity securities traded on a national securities
exchange or the National Association of Securities Dealers NASDAQ System
("NASDAQ") are valued at their last sale price on the principal exchange on
which they are traded or NASDAQ (if NASDAQ is the principal market for such
securities) on the valuation day or, if no sale occurs, at the mean between
the closing bid and asked prices. Unlisted equity securities for which market
quotations are available are valued at the mean between the most recent bid
and asked prices. Fixed-income securities are valued at prices supplied by an
independent pricing service which reflect broker/dealer-supplied valuations
and electronic data processing techniques. Short-term debt obligations
maturing in sixty days or less are valued at amortized cost. Other assets and
assets whose market values, in the investment adviser's opinion, do not
reflect fair value are valued at fair value using methods determined in good
faith by the Board of Trustees.
Securities Transactions and Investment Income. Securities transactions are
recorded on the trade date. Realized gains and losses on sales of investments
are calculated on the identified cost basis. Dividend income is recorded on
the ex-dividend date and interest income is recorded on the accrual basis.
Premiums and Discounts on Debt Securities Owned. Intermediate-Term Bond
Portfolio accretes market discounts on long-term debt securities and does not
amortize premiums. Value Growth, Value Equity Income and Gulf South Growth
Portfolios accrete market discounts on long-term debt securities and amortize
premiums. For all Portfolios, original issue discounts on debt securities are
amortized to interest income over the life of the security with a
corresponding increase in the cost basis of that security. Intermediate-Term
Bond Portfolio may invest in mortgage-backed securities. Certain mortgage
security paydown gains and losses are taxable as ordinary income. Such paydown
gains and losses increase or decrease taxable ordinary income available for
distributions and are classified as interest income in the accompanying
Statements of Operations.
Federal Taxes. The Trust's policy is to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute each year substantially all of the investment company taxable
income to the shareholders of each Portfolio. Accordingly, no federal tax
provisions are required. The characterization of distributions to shareholders
for financial reporting purposes is determined in accordance with income tax
rules.
Deferred Organization Costs. Organization-related costs are being amortized
on a straight-line basis over a period of five years beginning with the
commencement of each of the Portfolios' operations.
17
<PAGE>
PARAGON PORTFOLIO
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOVEMBER 30, 1995
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Expenses. Expenses incurred by the Trust which do not specifically relate to
an individual Portfolio are allocated to the Portfolios based on each
Portfolio's relative average net assets for the period.
Dividends and Distributions to Shareholders. Dividends from net investment
income are declared daily and paid monthly by the Intermediate-Term Bond
Portfolio; declared and paid monthly by the Value Growth and Value Equity
Income Portfolios; declared and paid semiannually by the Gulf South Growth
Portfolio. Each Portfolio's net realized capital gains (including net short-
term capital gains), if any, are declared and distributed at least annually.
Distributions to shareholders are recorded on the ex-dividend date.
NOTE 3. AGREEMENTS
The Portfolios have entered into Investment Advisory Agreements with Premier
Investment Advisors, L.L.C., ("Premier"). Pursuant to the terms of the
Investment Advisory Agreements, Premier manages the investments and makes
investment decisions for each Portfolio. For these services, each Portfolio
pays Premier a monthly fee at the following annual rate of the corresponding
Portfolio's average daily net assets:
Intermediate-Term Bond Portfolio........................ .50%
Value Growth Portfolio.................................. .65%
Value Equity Income Portfolio........................... .65%
Gulf South Growth Portfolio............................. .65%
For the period from commencement of operations to November 30, 1995, Premier
has voluntarily agreed to reimburse expenses (excluding interest, taxes, and
extraordinary expenses) to the extent that such expenses exceed, on an
annualized basis, .75%, 1.00%, 1.00% and 1.00% of average net assets for the
Intermediate-Term Bond, Value Growth, Value Equity Income and Gulf South
Growth Portfolios, respectively. The effect of these reimbursements by Premier
for the period ended November 30, 1995 was to reduce expenses by approximately
$38,100, $39,900, $37,800 and $43,600 for the Intermediate-Term Bond, Value
Growth, Value Equity Income and Gulf South Growth Portfolios, respectively.
The amounts reimbursable to the Intermediate-Term Bond, Value Growth and Gulf
South Growth Portfolios at November 30, 1995, were approximately $100, $100
and $200, respectively, and are reflected in "Other Assets" in the
accompanying Statement of Assets and Liabilities.
Goldman Sachs Asset Management, ("GSAM"), a separate operating division of
Goldman, Sachs & Co., serves as the Trust's administrator pursuant to an
Administration Agreement. Under the Administration Agreement, GSAM administers
the Trust's business affairs. As compensation for services rendered under the
Administration Agreement, each Portfolio pays GSAM a fee, computed daily and
payable monthly, at the annual rate of .15% of the average daily net assets of
the corresponding Portfolio.
Goldman Sachs serves as the Distributor of shares of the Portfolios pursuant
to a Distribution Agreement with the Trust. Goldman Sachs receives no
compensation for this service.
State Street Bank & Trust Co. serves as Custodian and Transfer Agent of the
Portfolios for a fee.
NOTE 4. REPURCHASE AGREEMENTS
During the term of a repurchase agreement, the value of the underlying
securities, including accrued interest, is required to equal or exceed the
value of the repurchase agreement. The underlying securities for all
repurchase agreements are held in safekeeping in the customer-only account of
State Street Bank & Trust Co., the Portfolios' custodian, at the Federal
Reserve Bank of Boston, or at sub-custodians. The market values of the
underlying securities are monitored by pricing them daily.
In connection with transactions in repurchase agreements, if the seller
defaults and the value of the collateral declines, or if the seller enters an
insolvency proceeding, realization of the collateral by the Trust may be
delayed or limited.
18
<PAGE>
PARAGON PORTFOLIO
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOVEMBER 30, 1995
NOTE 5. INVESTMENT TRANSACTIONS
Purchases and proceeds of sales or maturities of long-term investments for
the period ended November 30, 1995 were as follows:
INTERMEDIATE-TERM BOND PORTFOLIO
Purchases (excluding U.S. Government and Agency Obligations)........ $ 489,193
Sales (excluding U.S. Government and Agency Obligations)............ --
Purchases of U.S. Government and Agency Obligations................. 1,662,111
Sales of U.S. Government and Agency Obligations..................... 139,607
VALUE GROWTH PORTFOLIO
Purchases (excluding U.S. Government and Agency Obligations)........ $2,934,106
Sales (excluding U.S. Government and Agency Obligations)............ 926,697
Purchases of U.S. Government and Agency Obligations................. --
Sales of U.S. Government and Agency Obligations..................... --
VALUE EQUITY INCOME PORTFOLIO
Purchases (excluding U.S. Government and Agency Obligations)........ $2,318,821
Sales (excluding U.S. Government and Agency Obligations)............ 401,975
Purchases of U.S. Government and Agency Obligations................. --
Sales of U.S. Government and Agency Obligations..................... --
GULF SOUTH GROWTH PORTFOLIO
Purchases (excluding U.S. Government and Agency Obligations)........ $2,587,222
Sales (excluding U.S. Government and Agency Obligations)............ 611,514
Purchases of U.S. Government and Agency Obligations................. --
Sales of U.S. Government and Agency Obligations..................... --
NOTE 6. CERTAIN RECLASSIFICATIONS
In accordance with Statement of Position 93-2, the Gulf South Growth
Portfolio has reclassified $2,179 of accumulated net investment loss to
accumulated net realized gain on investment transactions. This
reclassification has no impact on the net asset value of the Portfolio and is
designed to present the Portfolio's capital accounts on a tax basis.
NOTE 7. OTHER MATTERS
GNA owned seed money in the following Portfolios representing approximately
the following percentages of net assets as of November 30, 1995:
Intermediate-Term Bond Portfolio................... 55%
Value Growth Portfolio............................. 47%
Value Equity Income Portfolio...................... 52%
Gulf South Growth Portfolio........................ 48%
NOTE 8. SUBSEQUENT EVENTS
Pursuant to the approval of the Board of Trustees on October 31, 1995 and
the shareholders on December 20, 1995, the Portfolios have entered into an
Investment Advisory Agreement with Banc One Investment Advisors Corporation
("Banc One") effective January 2, 1996. Subject to the terms of the Investment
Advisory Agreement, Banc One has agreed to furnish investment advisory and
related services to the Portfolios. For these services, each Portfolio will
pay Banc One an advisory fee, computed daily and paid monthly, at an annual
rate of average net assets as stated in Note 3.
Effective December 11, 1995, shares of the Portfolios will cease to be
available as investment options for separate accounts of GNA and GNA will
solicit shareholders to exchange their shares into similar investment
vehicles. Separate accounts with investments in the Portfolios prior to
December 11, 1995, may remain there until such time as GNA has obtained all
necessary regulatory approvals to transfer investments in the Portfolios to
other investment options.
19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of Paragon Portfolio
In our opinion, the accompanying statements of assets and liabilities,
including the statements of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of the Paragon Power
Intermediate-Term Bond Portfolio, the Paragon Power Value Growth Portfolio,
the Paragon Power Value Equity Income Portfolio and the Paragon Power Gulf
South Growth Portfolio (separate portfolios constituting Paragon Portfolio
hereafter referred to as the "Portfolio") at November 30, 1995 and the results
of each of their operations, the changes in each of their net assets and the
financial highlights for the period January 13, 1995 (commencement of
operations) through November 30, 1995, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of
the Portfolio's management; our responsibility is to express an opinion on
these financial statements based on our audit. We conducted our audit in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit, which included confirmation
of securities at November 30, 1995 by correspondence with the custodian,
provides a reasonable basis for the opinion expressed above.
As more fully described in Note 8, the Trustees have resolved that shares of
the Portfolio will no longer be offered.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
January 19, 1996
20
<PAGE>
PARAGON PORTFOLIO
------------------------
TRUSTEES
Paul C. Nagel, Jr., Chairman
Ernest E. Howard III
OFFICERS
Paul W. Klug
President
Marcia L. Beck
Vice President
John W. Mosior
Vice President
Nancy L. Mucker
Vice President
Pauline Taylor
Vice President
Scott M. Gilman
Treasurer
Michael J. Richman
Secretary
Howard B. Surloff
Assistant Secretary
This Annual Report is authorized for distribution to prospective investors
only when preceded or accompanied by a Paragon Portfolio Prospectus which
contains facts concerning Paragon Portfolio's objectives and policies,
management, expenses and other information.
<PAGE>
PARAGON PORTFOLIO
4900 Sears Tower
Chicago, Illinois 60606
INVESTMENT ADVISER
Premier Investment Advisors, L.L.C.
451 Florida Street
Baton Rouge, Louisiana 70801
ADMINISTRATOR
Goldman Sachs Asset Management
One New York Plaza
New York, New York 10004
DISTRIBUTOR
Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
CUSTODIAN
State Street Bank & Trust Company
225 Franklin Street
Boston, Massachusetts 02110
TRANSFER AGENT
State Street Bank & Trust Company
P.O. Box 1978
Boston, Massachusetts 02105
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
LEGAL COUNSEL
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
PWR-ANN95
- --------------------------------------------------------------------------------
PARAGON PORTFOLIO
----------------------------------------
PARAGON POWER PORTFOLIO
VARIABLE ANNUITY
----------------------------------
Paragon Power Intermediate-Term Bond Portfolio
Paragon Power Value Growth Portfolio
Paragon Power Value Equity Income Portfolio
Paragon Power Gulf South Growth Portfolio
Annual Report
-------------
November 30, 1995
[LOGO]
P O W E R
P O R T F O L I O (TM)
V A R I A B L E A N N U I T Y
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
---------------------------------
(a) Financial Statements.
Included in Part A of this Registration Statement:
Financial Highlights for the period January 31, 1995
(commencement of operations) through May 31, 1995.
Incorporated by reference from the November 30, 1995 Annual
Report to Shareholders into Part B of this Registration
Statement:
Statement of Investments as of November 30, 1995.
Statement of Assets and Liabilities as of November 30, 1995.
Statement of Operations for the period January 13, 1995 (commencement
of operations) through November 30, 1995.
Statement of Changes in Net Assets for the period Janaury 13, 1995
(commencement of operations) through November 30, 1995
Notes to Financial Statements.
Financial Highlights for the period January 13, 1995
(commencement of operations) through November 30, 1995.
(b) Exhibits--
The following exhibits are incorporated herein by reference to
Registrant's Registration Statement on Form N-1A as initially filed
(Reference A), to
Pre-Effective Amendment No. 2 (Reference B), to
Post-Effective Amendment No. 1 (Reference C), to
Post-Effective Amendment No. 2 (Reference D), to
Post-Effective Amendment No. 3 (Reference E), to
Post-Effective Amendment No. 4 (Reference F), to
Post-Effective Amendment No. 5 (Reference G), to
Post-Effective Amendment No. 7 (Reference H), to
Post-Effective Amendment No. 8 (Reference I), to
Post-Effective Amendment No. 9 (Reference J), to
Post-Effective Amendment No. 10 (Reference K), to
Post-Effective Amemdment No. 11 (Reference L) if
so noted; otherwise, they are included herein:
<PAGE>
(1)(a) Amended and Restated Declaration of Trust Establishing and Designating
CDSL Class (Class B Shares)(Reference I)
(1)(b) Amended and Restated Establishment and Designation of Series of
Shares Power Portfolios, dated October 20, 1994. (Reference K)
(2) By-laws of Registrant. (Reference A)
(3) Not applicable.
(4) Specimen Certificate of Share of Beneficial Interest of the
Registrant. (Reference B)
(5)(a) Investment Advisory Agreement between the Registrant, on behalf of
Paragon Treasury Money Market Fund, and Goldman Sachs Assets
Management. (Reference C)
(5)(b) Subadvisory Agreement among the Registrant, on behalf of Paragon
Treasury Money Market Fund, Goldman Sachs Asset Management and Premier
Investment Advisors,
Inc. (Reference C)
(5)(c) Investment Advisory Agreement between the Registrant, on behalf of
Paragon Short-Term Government Fund, and Premier Investment Advisors,
Inc. (Reference C)
(5)(d) Investment Advisory Agreement between the Registrant, on behalf of
Paragon Intermediate-Term Bond Fund, and Premier Investment Advisors,
Inc. (Reference C)
(5)(e) Investment Advisory Agreement between the Registrant, on behalf of
Paragon Louisiana Tax-Free Fund, and Premier Investment Advisors, Inc.
(Reference C)
(5)(f) Investment Advisory Agreement between the Registrant, on behalf of
Paragon Value Growth Fund, and Premier Investment Advisors, Inc.
(Reference C)
(5)(g) Investment Advisory Agreement between the Registrant, on behalf of
Paragon Value Equity Income Fund, and Premier Investment Advisors,
Inc. (Reference C)
(5)(h) Investment Advisory Agreement between the Registrant on behalf of
Paragon Gulf South Growth Fund, and Premier Investment Advisors, Inc.
(Reference G)
(5)(i) Investment Advisory Agreement between the Registrant, on behalf of
Paragon Power Intermediate-Term Bond Portfolio, and Premier
Investment Advisors, L.L.C. (Reference K)
C-2
<PAGE>
(5)(j) Investment Advisory Agreement between the Registrant, on behalf of
Paragon Power Value Growth Portfolio, and Premier Investment
Advisors, L.L.C. (Reference K)
(5)(k) Investment Advisory Agreement between the Registrant, on behalf of
Paragon Power Value Equity Income Portfolio, and Premier Investment
Advisors, L.L.C. (Reference K)
(5)(l) Investment Advisory Agreement between the Registrant, on behalf of
Paragon Power Gulf South Growth Portfolio, and Premier Investment
Advisors, L.L.C. (Reference K)
(6) Not applicable.
(7) Distribution Agreement between the Registrant and Goldman, Sachs & Co.
(Reference C)
(8)(a) Custodian Agreement between Registrant and State Street Bank and Trust
Company. (Reference C)
(8)(b) Fee schedule for Exhibit (8)(a). (Reference C)
(8)(c) Wiring Agreement between and among State Street Bank and Trust
Company, Goldman, Sachs & Co. and The Northern Trust Company.
(Reference C)
(9)(a) Transfer Agency Agreement between the Registrant and Goldman, Sachs &
Co. (Reference C)
(9)(b) Fee Schedule for Exhibit (9)(a). (Reference C)
(9)(c) Administration Agreement between the Registrant and Goldman Sachs
Asset Management. (Reference C)
(9)(d) Amendment to Administration Agreement between the Trust, on behalf of
Paragon Gulf South Growth Fund, and Goldman Sachs Asset Management.
(Reference G)
(10) Opinion and Consent of Hale and Dorr, Counsel to Registrant, as to the
legality of the securities registered hereby (filed with Registrant's
Notice pursuant to Rule 24f-2).
(12) Not Applicable.
(13) Letter from Goldman Sachs Asset Management to the Registrant providing
that its purchases were made for investment purposes without any
present intention of redeeming or reselling. (Reference B)
(14) Not applicable.
C-3
<PAGE>
(15) Not Applicable.
(17) Powers of Attorney from Messrs. Ernest E. Howard III, Paul C. Nagel,
Jr., Bruce C. Gottwald, Jr., Paul W. Klug, John W. Mosior, Michael J.
Richman, Scott M. Gilman, Marcia L. Beck, Howard B. Surloff, Nancy L.
Mucker and Pauline Taylor. (Reference L)
(18) Rule 18f-3 Plan (Reference L)
The following exhibits are filed herewith electronically pursuant to EDGAR
rules:
(5)(m) Investment Advisory Agreement between Paragon Portfolio and
Banc One Investment Advisors Corporation, dated January 2,
1996.
(5)(n) Investment Advisory Agreement for Subadviser between the
Registrant on behalf of Paragon Treasury Money Market Fund
and Goldman Sachs Asset Management, dated Janaury 2, 1996
(7)(a) Distribution Agreement between the Registrant and The One
Group Services Company, dated January 2, 1996.
(27) Financial Data Schedules
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
-------------------------------------------------------------
Not Applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES (AS OF MARCH 26, 1996)
------------------------------------------------------
Number of
Record Holders
--------------
Shares of Beneficial Interest $0.01 par value per share:
List all Paragon Funds
Paragon Power Intermediate-Term Bond Portfolio 1
Paragon Power Value Growth Portfolio 1
Paragon Power Value Equity Income Portfolio 1
Paragon Power Gulf South Growth Portfolio 1
C-4
<PAGE>
ITEM 27. INDEMNIFICATION.
---------------
Reference is made to Article IV of the Registrant's Declaration of Trust.
Nothing in the Declaration of Trust or By-Laws of the Registrant may be
construed to be in derogation of the provisions of Section 17(h) of the
Investment Company Act of 1940 (the "1940 Act") which provides that the
Declaration of Trust or by-laws of a registered investment company shall not
contain any provision which protects or purports to protect any director or
officer of such company against any liability of the company or to its security
holders to which he would otherwise be subject by reason of wilful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office ("disabling conduct").
The Registrant understands that in the opinion of the Securities and Exchange
Commission (the "Commission") an indemnification provision does not violate
Section 17(h) of the 1940 Act if it precludes indemnification for any liability
whether or not there is an adjudication of liability, arising by reason of
disabling conduct. Reasonable and fair means for determining whether
indemnification shall be made include (1) a final decision on the merits by a
court or other body before whom the proceeding was brought that the person to be
indemnified (the "indemnitee") was not liable by reason of disabling conduct, or
(2) in the absence of such a decision, a reasonable determination, based upon a
review of the facts that the indemnitee was not liable by reason of disabling
conduct by (a) the vote of a majority of a quorum of trustees who are neither
"interested persons" of the Registrant as defined in Section 2(a)(19) of the
1940 Act nor parties to the preceding ("disinterested nonparty trustees"), or
(b) an independent legal counsel in a written opinion.
The Registrant further understands that in the Commission's view the dismissal
of either a court action or an administrative proceeding against an indemnitee
for insufficiency of evidence of any disabling conduct with which he has been
charged would provide reasonable assurance that he was not liable by reason of
disabling conduct. A determination by the vote of a majority of a quorum of
disinterested nonparty directors would also provide reasonable assurance that
the indemnitee was not liable by reason of disabling conduct.
The Registrant further understands that the Commission believes that an
indemnification provision does not violate Section 17(h) of the 1940 Act simply
because it requires or permits the Registrant to advance attorney's fees or
other expenses incurred by its Trustees, officers or investment adviser in
defending a proceeding, upon the undertaking by or on behalf of the indemnitee
to repay the advance unless it is ultimately determined that he is entitled to
indemnification, so long as the provision also requires at least one of the
following as a
C-5
<PAGE>
condition to the advance: (1) the indemnitee shall provide security for his
undertaking, (2) the Registrant shall be insured against losses arising by
reason of any lawful advances, or (3) a majority of a quorum of the
disinterested nonparty Trustees of the Registrant, or an independent legal
counsel in a written opinion, shall determine, based on a review of readily
available facts (as opposed to a full trial-type inquiry), that there is reason
to believe that the indemnitee ultimately will be found entitled to
indemnification. The Registrant is also aware that the Commission believes that
an improper indemnification payment or advance of legal expenses could
constitute a breach of fiduciary duty involving personal misconduct under
Section 36 of the 1940 Act or an unlawful and willful conversion of an
investment company's assets under Section 37 of the 1940 Act.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Securities Act") may be permitted to Trustees, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant understands that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities 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 on the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
----------------------------------------------------
As of January 2, 1996, Banc One Investment Advisors Corporation (the "Adviser")
performs investment advisory services for all of the Portfolios.
The Adviser is an indirect wholly-owned subsidiary of Banc One Corporation, a
bank holding company incorporated in the state of Ohio. Bance One Corporation
now operates affiliate banking organizations in Arizona, California, Colorado,
Illiniois, Indiana, Kentucky, Michigan, Louisiana, Ohio, Oklahoma, Texas, Utah,
West Virginia and Wisconsin. In addition, Banc One Corporation has several
affiliates that engage in data processing, venture capital, investment and
merchant banking, and other diversified services including trust management,
investment management, brokerage, equipment leasing, mortgage banking, consumer
finance, and insurance.
C-6
<PAGE>
To the knowledge of the Registrant, none of the directors or officers of Banc
One Investment Advisors Corporation, except as set forth or incorporated herein,
is or has been, at any time during the past two calendar years, engaged in any
other business, profession, vocation or employment of a substantial nature. Set
forth below are the names and principal businesses of the directors of Banc One
Investment Advisors Corporation who are engaged in any other business,
profession, vocation or employement of a substantial nature.
Banc One Investment Advisors Corporation
----------------------------------------
The name and principal occupation of each of the directors of BOIA are as
follows:
Position(s)
Held with Principal Type of
Name and Address the BOIA Occupation Business
- ----------------------- ------------ ---------------- ------------
Michael J. McMennamin Director Chief Financial Banking
Officer, BANC
ONE CORPORATION
Frederick L. Cullen Director Chairman, Banking
President and
Chief Executive
Officer, Bank
One, Columbus,
NA; Chairman and
Chief Operating
Officer, BANC
ONE CORPORATION
David R. Meuse Director Chairman and Securities
Chief Executive Underwriting
Officer, Banc
One Capital
Holdings Cor-
poration
Garrett H. Jamison Director Client Services Investment
Group Senior Management
Managing Director,
Banc One Invest-
ment Management
and Trust Group
C-7
<PAGE>
Position(s)
Held with Principal Type of
Name and Address the BOIA Occupation Business
- ---------------------- ------------ --------------- ----------
Geoffrey A. von Kuhn Director National Sales Investment
Group Senior Management
Managing
Director, Banc
One Investment
Management and
Trust Group
David J. Kundert Chairman Chairman and Investment
and Chief Chief Executive Management
Executive Officer, Banc
Officer One Investment
Management and
Trust Group
The business and other connections of the officers and directors of Premier
Investment Advisors, L.L.C. (the Portfolios previous investment adviser) are
listed on the Form ADV of Premier Investment Advisors, L.L.C. as currently on
file with the commission (File No. 801-26186) the text of which is hereby
incorporated by reference.
Goldman, Sachs & Co.
Goldman Sachs Asset Management
------------------------------
Effective January 2, 1996, Goldman Sachs Asset Management is the Sub-Investment
Adviser to the Paragon Treasury Money Market Fund. Goldman Sachs Asset
Management is a separate operating division of Goldman, Sachs & Co., a New York
Limited Partnership which is in the investment banking business and is a
registered broker-dealer and futures commission merchant. Prior to January 2,
1996, Goldman Sachs Asset Management was the investment adviser to the Paragon
Treasury Money Market Fund. The business and other connections of the officers
and general partners who have direct responsibility for the asset management
division of Goldman, Sachs & Co. are listed the Uniform Application for
Investment Adviser Registration ("Form ADV") of Goldman, Sachs & Co. (No. 801-
16048), The Goldman Sachs Funds Management, L.P. (No. 801-37591), and Goldman
Sachs Asset Managment International (No. 801-38157) as applicable. These Form
ADV's are currently on file with the Commission, the text of which is hereby
incorporated by reference.
C-8
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS
----------------------
(a) Goldman, Sachs & Co., or an affiliate or division thereof, currently serves
as investment adviser and distributor of the units or shares of Goldman Sachs
Money Market Trust, Goldman Sachs Trust, Goldman Sachs Equity Portfolios, Inc.,
Paragon Portfolio and Trust for Credit Unions. Goldman, Sachs & Co. or a
division thereof, currently serves as administrator and distributor of the units
of The Benchmark Funds and shares of Paragon Portfolio.
(b) Set forth below is certain information pertaining to the general partners of
Goldman, Sachs & Co., Registrant's principal underwriter. Each of the following
persons is a general partner of Goldman, Sachs & Co. and does not hold a
position with Registrant.
GOLDMAN SACHS GENERAL PARTNERS
Name and Principal Name and Principal
Business Address Business Address
---------------- ----------------
Jon S. Corzine, Chairman (1)(2) Charles T. Harris, III (2)
Henry M. Paulson, Jr., Chairman (1)(2) Thomas J. Healey (2)
Roy J. Zuckerberg (5) Stephen Hendel (2)
David M. Silfen (5) Robert E. Higgins (2)
Richard M. Hayden (7) Ernest S. Liu (5)
Robert J. Hurst (2) Eff W. Martin (11)
Howard C. Katz (2) Charles B. Mayer, Jr. (2)
Peter K. Barker (9) Michael J. O'Brien (7)
Eric S. Dobkin (5) Mark Schwartz (2)
Willard J. Overlock, Jr. (2) Stephen M. Semlitz (2)
Jonathan L. Cohen (2) Robert K. Steel (5)
Frederic B. Garonzik (7) John A. Thain (2)(7)
Kevin W. Kennedy (2) John L. Thornton (7)
William C. Landreth (8) Bracebridge H. Young, Jr. (7)
Daniel M. Neidich (2) Joseph R. Zimmel (2)
Edward Spiegel (5) Barry L. Zubrow (2)
Robert F. Cummings, Jr. (2) Gary L. Zwerling (2)
Angelo De Caro (2) Jon R. Aisbitt (7)
Steven G. Einhorn (5) Andrew M. Alper (2)
David B. Ford (2) William J. Buckley (5)
David M. Leuschen (2) Frank L. Coulson, Jr. (2)
Michael R. Lynch (2) Connie Duckworth (8)
Michael D. McCarthy (2) Richard A. Friedman (2)
Donald C. Opatrny, Jr. (2) Alan R. Gillespie (7)
Thomas E. Tuft (5) Joseph H. Gleberman (2)
Robert J. Katz (1)(2) Jacob D. Goldfield (2)
Michael P. Mortara (2) Steven M. Heller (2)
Lloyd C. Blankfein (2) Ann F. Kaplan (2)
John P. Curtin, Jr. (2) Robert S. Kaplan (2)
Gavyn Davies (7) Peter D. Kiernan, III (2)
Dexter D. Earle (5) John P. McNulty (5)
John Ehara (10) T. Willem Mesdag (14)
J. Christopher Flowers (2) Gaetano J. Muzio (11)
Gary Gensler (2) Robin Neustein (2)
C-9
<PAGE>
Name and Principal Name and Principal
Business Address Business Address
---------------- ----------------
Timothy J. O'Neill (2) J. Michael Evans (7)
Scott M. Pinkus (2) Lawton W. Fitt (5)
John J. Powers (2) Joseph D. Gatto (2)
Stephen D. Quinn (2) Peter C. Gerhard (2)
Arthur J. Reimers, III (7) Nomi P. Ghez (5)
James P. Riley, Jr. (2) David T. Hamamoto (2)
Richard A. Sapp (7) Walter H. Haydock (2)(15)
Donald F. Textor (5) David L. Henle (5)
Thomas B. Walker, III (2) Francis J. Ingrassia (2)
Patrick J. Ward (7) Scott B. Kapnick (7)
Jeffrey M. Weingarten (7) Kevin M. Kelly (2)
Jon Winkelried (2) John C. Kleinert (2)
Richard E. Witten (2) Jonathan L. Kolatch (2)
Gregory K. Palm (2)(7) Peter S. Kraus (2)
Carlos A. Cordeiro (7) Robert Litterman (2)
John O. Downing (5) Jonathan M. Lopatin (2)
Mark Evans (13) Thomas J. Macirowski (2)
Michael D. Fascitelli (2) Peter G. Mallinson (13)
Sylvain M. Hefes (7) Oki Matsumoto (10)
Reuben Jeffrey, III (7) E. Scott Mead (7)
Lawrence H. Linden (2) Eric M. Mindich (5)
Jun Makihara (10) Steven T. Mnuchin (2)
Masanori Mochida (10) Thomas K. Montag (2)
Robert B. Morris III (11)(7) Edward A. Mule (2)
Philip D. Murphy (14) Kipp M. Nelson (7)
Suzanne M. Nora Johnson (9) Christopher K. Norton (2)
Terence M. O'Toole (2) Robert J. O'Shea (2)
Carl G.E. Palmstierna (7) Wiet H. Pot (7)
Michael G. Rantz (7) Jack L. Salzman (5)
J. David Rogers (5) Eric S. Schwartz (5)
Joseph Sassoon (7) Michael F. Schwerin (2)
Peter Savitz (7)(2) Richard S. Sharp (7)
Charles B. Seelig, Jr. (2) Richard G. Sherlund (5)
Ralph F. Severson (11) Michael S. Sherwood (7)
Gene T. Sykes (9) Cody J. Smith (2)
Gary A. Syman (10) Daniel W. Stanton (5)
Leslie C. Tortora (2) Esta E. Stecher (2)
John L. Townsend, III (2) Frederic E. Steck (2)
Lee G. Vance (7) Byron D. Trott (8)
David A. Viniar (2) Barry S. Volpert (2)
John S. Weinberg (2) Peter S. Wheeler (13)
Peter A. Weinberg (2) Anthony G. Williams (7)
Laurence M. Weiss (2) Gary W. Williams (5)
George W. Wellde, Jr. (10) Tracy R. Wolstencroft (4)
Jaime E. Yordan (2)(16) Danny O. Yee (13)
Sharmin Mossavar-Rahmani (5) Michael J. Zamkow (2)
Hideo Ishihara (10) Mark A. Zurack (5)
Paul M. Achleitner (14) Jim O'Neill (2)
Armen A. Avanessians (2) Peter D. Sutherland (7)
Joel S. Beckman (2)
David W. Blood (7)
Zachariah Cobrinik (10)
Gary D. Cohn (7)
Christopher A. Cole (2)
Henry Cornell (13)
Robert V. Delaney (2)
Joseph Della Rosa (5)
C-10
<PAGE>
_________________
(1) Management Committee
(2) 85 Broad Street, New York, NY 10004
(3) Mellon Bank Center, 1735 Market Street, 26th Floor,
Philadelphia, PA 19103
(4) 100 Crescent Court, Suite 1000, Dallas, TX 75201
(5) One New York Plaza, New York, NY 10004
(6) 1000 Louisiana Street, Suite 550, Houston, TX 77002
(7) Peterborough Court, 133 Fleet Street, London EC4A 2BB,
England
(8) 4900 Sears Tower, Chicago, IL 60606
(9) 333 South Grand Avenue, Suite 1900, Los Angeles, CA 90071
(10) ARK Mori Bldg.,10th Floor, 12-32 Akasaka, 1-chome, Minato-
ku, Tokyo 107, Japan
(11) 555 California Street, 31st Floor, San Francisco, CA 94104
(12) Exchange Place, 53 State Street, 13th Floor, Boston, MA
02109
(13) Asia Pacific Finance Tower, 35th Floor, Citibank Plaza, 3
Garden Road, Hong Kong
(14) Finanz GmbH, MesseTurm, 60308 Frankfurt am Main 1, Germany
(15) Munsterhof 4, 8022, Zurich, Switzerland
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
--------------------------------
All accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940, as amended and the rules thereunder
will be maintained (1) at the offices of the Registrant at One New York Plaza,
New York, New York 10004 (2) at the offices of the Registrant's Custodian, State
Street Bank and Trust Company, at P.O. Box 1713, Boston, MA 02105.
ITEM 31. MANAGEMENT SERVICES.
-------------------
Not Applicable.
ITEM 32.
(C) The Portfolio's Annual Report contains performance information and
is available to any recipient of the Prospectus upon request and without charge
by writing to Great Northern Insured Annuity Corporation, 5600 Two Union Square,
Seattle, Washington 98101, or Goldman, Sachs & Co., 4900 Sears Tower, Chicago,
Illinois 60606.
C-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the
Registrant certfies that Amendment No. 14 has duly caused this Amendment No. 14
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York and State of New York on the
27th day of March, 1996.
PARAGON PORTFOLIO
By: Michael Richman
---------------------------------
Michael Richman, Secretary
Name Title
---- -----
* President and Chief Executive Officer
- -----------------------
Paul W. Klug
* Treasurer and Chief Financial Officer
- -----------------------
Scott M. Gilman
*
- -----------------------
Paul C. Nagel, Jr. Trustee
* Trustee
- -----------------------
Ernest E. Howard, III
* By Michael Richman
-----------------------------------
Michael Richman, Attorney-in-fact
Pursuant to a power of attorney previously filed
C-12
<PAGE>
INDEX TO EXHIBITS
The following exhibits are filed as part of this Amendment No. 14 to the
Registration Statement:
Exhibit
No. Description Page
- -------- ----------- ----
(5)(m) Investment Advisory Agreement between Paragon Portfolio and Banc One
Investment Advisors Corporation, dated January 2, 1996.
(5)(n) Investment Advisory Agreement for Subadviser between the Registrant on
behalf of Paragon Treasury Money Market Fund and Goldman Sachs Asset
Management, dated Janaury 2, 1996.
(7)(a) Distribution Agreement between the Registrant and The One Group
Services Company, dated January 2, 1996.
(27) Financial Data Schedules
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PARAGON
PORTFOLIO'S ANNUAL REPORT DATED NOVEMBER 30, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 08
<NAME> PARAGON POWER INTERMEDIATE-TERM BOND PORTFOLIO
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> JAN-13-1995
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 2,014,883
<INVESTMENTS-AT-VALUE> 2,138,388
<RECEIVABLES> 23,756
<ASSETS-OTHER> 21,990
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,184,134
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28,326
<TOTAL-LIABILITIES> 28,326
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,032,297
<SHARES-COMMON-STOCK> 206,892
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 123,505
<NET-ASSETS> 2,155,808
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 98,384
<OTHER-INCOME> 0
<EXPENSES-NET> (10,289)
<NET-INVESTMENT-INCOME> 88,095
<REALIZED-GAINS-CURRENT> 7
<APPREC-INCREASE-CURRENT> 123,505
<NET-CHANGE-FROM-OPS> 211,607
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (88,095)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 200,409
<NUMBER-OF-SHARES-REDEEMED> (1,873)
<SHARES-REINVESTED> 8,356
<NET-CHANGE-IN-ASSETS> 2,155,808
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 6,860
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 48,394
<AVERAGE-NET-ASSETS> 1,555,151
<PER-SHARE-NAV-BEGIN> 9.56
<PER-SHARE-NII> 0.57
<PER-SHARE-GAIN-APPREC> 0.86
<PER-SHARE-DIVIDEND> (0.57)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.42
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORAMTION EXTRACTED FROM PARAGON
PORTFOLIO'S ANNUAL REPORT DATED NOVEMBER 30, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 09
<NAME> PARAGON POWER VALUE GROWTH PORTFOLIO
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> JAN-13-1995
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 2,309,951
<INVESTMENTS-AT-VALUE> 2,639,494
<RECEIVABLES> 5,324
<ASSETS-OTHER> 11,237
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,656,055
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 29,739
<TOTAL-LIABILITIES> 29,739
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,277,863
<SHARES-COMMON-STOCK> 159,422
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 249
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 18,661
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 329,543
<NET-ASSETS> 2,626,316
<DIVIDEND-INCOME> 28,813
<INTEREST-INCOME> 10,525
<OTHER-INCOME> 0
<EXPENSES-NET> (16,196)
<NET-INVESTMENT-INCOME> 23,142
<REALIZED-GAINS-CURRENT> 18,661
<APPREC-INCREASE-CURRENT> 329,543
<NET-CHANGE-FROM-OPS> 371,346
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (22,893)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 160,409
<NUMBER-OF-SHARES-REDEEMED> (2,347)
<SHARES-REINVESTED> 1,360
<NET-CHANGE-IN-ASSETS> 2,626,316
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10,528
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 56,054
<AVERAGE-NET-ASSETS> 1,835,965
<PER-SHARE-NAV-BEGIN> 13.56
<PER-SHARE-NII> 0.20
<PER-SHARE-GAIN-APPREC> 2.91
<PER-SHARE-DIVIDEND> (0.20)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.47
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PARAGON
PORTFOLIO'S ANNUAL REPORT DATED NOVEMBER 30, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 10
<NAME> PARAGON POWER VALUE EQUITY INCOME PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> JAN-13-1995
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 2,230,251
<INVESTMENTS-AT-VALUE> 2,561,532
<RECEIVABLES> 8,055
<ASSETS-OTHER> 10,322
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,579,909
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 27,686
<TOTAL-LIABILITIES> 27,686
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,170,204
<SHARES-COMMON-STOCK> 174,212
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (23)
<ACCUMULATED-NET-GAINS> 50,761
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 331,281
<NET-ASSETS> 2,552,223
<DIVIDEND-INCOME> 34,131
<INTEREST-INCOME> 11,648
<OTHER-INCOME> 0
<EXPENSES-NET> (13,845)
<NET-INVESTMENT-INCOME> 31,934
<REALIZED-GAINS-CURRENT> 50,761
<APPREC-INCREASE-CURRENT> 331,281
<NET-CHANGE-FROM-OPS> 413,976
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (31,934)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (23)
<NUMBER-OF-SHARES-SOLD> 175,300
<NUMBER-OF-SHARES-REDEEMED> (3,227)
<SHARES-REINVESTED> 2,139
<NET-CHANGE-IN-ASSETS> 2,552,223
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,999
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 51,610
<AVERAGE-NET-ASSETS> 1,569,244
<PER-SHARE-NAV-BEGIN> 11.35
<PER-SHARE-NII> 0.26
<PER-SHARE-GAIN-APPREC> 3.30
<PER-SHARE-DIVIDEND> (0.26)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.65
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PARAGON
PORTFOLIO'S ANNUAL REPORT DATED NOVEMBER 30, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 11
<NAME> PARAGON POWER GULF SOUTH GROWTH PORTFOLIO
<S> <C>
<PERIOD-TYPE> 11-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-START> JAN-13-1995
<PERIOD-END> NOV-30-1995
<INVESTMENTS-AT-COST> 2,246,316
<INVESTMENTS-AT-VALUE> 2,605,211
<RECEIVABLES> 2,242
<ASSETS-OTHER> 10,917
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,618,370
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 32,877
<TOTAL-LIABILITIES> 32,877
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,222,163
<SHARES-COMMON-STOCK> 140,641
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,435
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 358,895
<NET-ASSETS> 2,585,493
<DIVIDEND-INCOME> 3,411
<INTEREST-INCOME> 10,764
<OTHER-INCOME> 0
<EXPENSES-NET> (16,354)
<NET-INVESTMENT-INCOME> (2,179)
<REALIZED-GAINS-CURRENT> 6,614
<APPREC-INCREASE-CURRENT> 358,895
<NET-CHANGE-FROM-OPS> 363,330
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 142,290
<NUMBER-OF-SHARES-REDEEMED> (1,649)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,585,493
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10,632
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 59,978
<AVERAGE-NET-ASSETS> 1,854,034
<PER-SHARE-NAV-BEGIN> 14.98
<PER-SHARE-NII> (0.02)
<PER-SHARE-GAIN-APPREC> 3.42
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.38
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE>
EXHIBIT 99.1
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of January 2, 1996 between The Paragon Portfolio, a
Massachusetts business trust (herein called the "Trust"), and Banc One
Investment Advisors Corporation, an Ohio Corporation with its principal office
in Westerville, Ohio (herein called the "Investment Adviser").
WHEREAS, the Trust is registered as an open-end, diversified, management
investment company under the Investment Company Act of 1940, as amended ("1940
Act"); and
WHEREAS, the Trust desires to retain the investment Adviser to furnish
investment advisory and related services to the series of the Trust identified
in Schedule A hereto (the "Portfolios") and the Investment Adviser represents
that it is willing and possesses legal authority to so furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
l. Appointment. The Trust hereby appoints the Investment Adviser to act
-----------
as investment adviser to the Portfolios for the period and on the terms set
forth in this Agreement. The Investment Adviser accepts such appointment and
agrees to furnish the services herein set forth for the compensation herein
provided.
2. Delivery of Documents. The Trust has furnished the Investment Adviser
----------------------
with copies properly certified or authenticated of each of the following
documents:
(a) the Trust's Declaration of Trust, as filed with the Secretary of State
of the Commonwealth of Massachusetts on October 2, 1989, and all amendments
thereto or restatements thereof (such Declaration, as presently in effect and as
it shall from time to time be amended or restated, is herein called the
"Declaration of Trust");
(b) the Trust's By-Laws and amendments thereto;
(c) resolutions of the Trust's Board of Trustees authorizing the
appointment of the Investment Adviser and approving this Agreement;
- 1 -
<PAGE>
(d) the Trust's original Notification of Registration on Form N-8A under
the 1940 Act as filed with the Securities and Exchange Commission, and all
amendments thereto;
(e) the Trust's current Registration Statement on Form N-lA under the
Securities Act of 1933, as amended ("1933 Act"), and under the 1940 Act, as
filed with the Securities and Exchange Commission; and
(f) the Portfolios' most recent prospectus and Statement of Additional
Information (such prospectus and Statement of Additional Information, as
presently in effect, and all amendments and supplements thereto are herein
collectively called the "Prospectus").
The Trust will furnish promptly the Investment Adviser with copies of all
amendments of or supplements to the foregoing documents.
3. Management. Subject to the supervision of the Trust's Board of
-----------
Trustees, the Investment Adviser will provide or cause to be provided a
continuous investment program for each Portfolio, including investment research
and management with respect to all securities and investments and cash
equivalents in said Portfolios. The Investment Adviser will determine or cause
to be determined from time to time what securities and other investments will be
purchased, retained or sold by the Trust with respect to the Portfolios and will
place or cause to be placed orders for purchase and sale on behalf of the Trust
with respect to the Portfolios. The Investment Adviser will provide the
services under this Agreement in accordance with each Portfolio's investment
objective, policies and restrictions as stated in the Prospectus and resolutions
of the Trust's Board of Trustees. The Investment Adviser further agrees that it:
(a) will use the same skill and care in providing such services as it uses
in providing services to fiduciary accounts for which it has investment
responsibilities;
(b) will comply in all material respects with all applicable Rules and
Regulations of the Securities and Exchange Commission and in addition will
conduct its activities under this Agreement in accordance with any applicable
regulations pertaining to the investment advisory activities of the Investment
Adviser;
(c) will not make loans to any person to purchase or carry shares of
beneficial interest of the Trust or make loans to the Trust;
(d) will place or cause to be placed orders pursuant to its investment
determinations for the Trust either directly with the issuer or with any broker
or dealer. In regard to such orders placed with brokers and dealers, the
Investment Adviser or any sub-investment adviser employed by the Investment
Adviser will attempt to obtain prompt execution of orders in an effective manner
at the most favorable price. Consistent with this obligation, when the execution
and price offered by two or more brokers or dealers
- 2 -
<PAGE>
are comparable, the Investment Adviser or any sub-investment adviser employed by
the Investment Adviser may, in its discretion, purchase and sell portfolio
securities to and from brokers and dealers who provide the Investment Adviser or
any such sub-investment adviser with research advice and other services. In no
instance will portfolio securities be purchased from or sold to The One Group
Services Company, the Investment Adviser or any sub-investment adviser employed
by the Investment Adviser, or any affiliated person of either the Trust, The One
Group Services Company, the Investment Adviser or any sub-investment adviser
employed by the Investment Adviser;
(e) will treat confidentially and as proprietary information of the Trust
all records and other information relative to the Trust and prior, present or
potential interest holders, and will not use such records and information for
any purpose other than performance of its responsibilities and duties hereunder,
except after prior notification to and approval in writing by the Trust, which
approval shall not be unreasonably withheld and may not be withheld where the
Investment Adviser may be exposed to civil or criminal contempt proceedings for
failure to comply when requested to divulge such information by duly constituted
authorities, or when so requested by the Trust; and
(f) will maintain its policy and practice of conducting its fiduciary
functions independently. In making investment recommendations for the Trust,
the Investment Adviser's personnel will not inquire or take into consideration
whether the issuers of securities proposed for purchase or sale for the Trust's
account are customers of the Investment Adviser or of its parent or its
subsidiaries or affiliates. In dealing with such customers, the Investment
Adviser and its parent, subsidiaries, and affiliates will not inquire or take
into consideration whether securities of those customers are held by the Trust.
4. Use of Sub-Investment Adviser. The Investment Adviser may, subject to
------------------------------
the approvals required under the 1940 Act, employ a sub-investment adviser to
assist the Investment Adviser in the performance of its duties under this
Agreement. Such use does not relieve the Investment Adviser of any duty or
liability it would otherwise have under this Agreement. Compensation of the sub-
Investment Adviser for services provided and expenses assumed under any
agreement between the Investment Adviser and the sub-Investment Adviser
permitted under this paragraph is the sole responsibility of the Investment
Adviser.
5. Services Not Exclusive. The investment management services furnished
-----------------------
by the Investment Adviser hereunder are not to be deemed exclusive. Except to
the extent necessary to perform the Investment Adviser's obligations under this
Agreement, nothing herein shall be deemed to limit or restrict the right of the
Investment Adviser, or any subsidiary or affiliate of the Investment Adviser, or
any employee of the Investment Adviser, to engage in any other business or to
devote time and attention to any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other person.
- 3 -
<PAGE>
6. Books and Records. In compliance with the requirements of Rule 31a-3
------------------
under the 1940 Act, the Investment Adviser hereby agrees that all records which
it maintains for the Trust are the property of the Trust and further agrees to
surrender promptly to the Trust any of such records upon the Trust's request.
The Investment Adviser further agrees to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act the records required to be maintained by Rule
31a-1 under the 1940 Act.
7. Expenses. During the term of this Agreement, the Investment Adviser
--------
will pay all expenses incurred by it in connection with its activities under
this Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the Trust. The Trust will be responsible for
all of the Trust's expenses and liabilities.
8. Compensation. For the services provided and the expenses assumed
-------------
pursuant to this Agreement, each of the Portfolios will pay the Investment
Adviser and the Investment Adviser will accept as full compensation therefor a
fee computed daily and paid monthly in arrears on the first business day of each
month at the applicable annual rate set forth on Schedule A hereto. If the fee
payable to the Adviser pursuant to this paragraph begins to accrue before the
end of any month or if this Agreement terminates before the end of any month,
the fee for the period from such date to the end of such month or from the
beginning of such month to the date of termination, as the case may be, shall be
prorated according to the proportion which such period bears to the full month
in which such effectiveness or termination occurs. For purposes of calculating
fees, the value of the Trust's net assets shall be computed in the manner
specified in the Prospectus and the Fund's Declaration of Trust for the
computation of the value of the Trust's net assets in connection with the
determination of the net asset value of the Trust's shares.
If in any fiscal year the aggregate expenses of any of the Portfolios (as
defined under the securities regulations of any state having jurisdiction over
the Fund) exceed the expense limitations of any such state, the Investment
Adviser will reimburse the Portfolio for a portion of such excess expenses equal
to such excess times the ratio of the fees otherwise payable by the Portfolio to
the Investment Adviser hereunder (after giving effect to any waiver of fees
agreed to by the Investment Adviser) to the aggregate fees otherwise payable by
the Portfolio to the Investment Adviser hereunder (after giving effect to any
waiver off fees agreed to by the Investment Adviser) and to Goldman Sachs Asset
Management under the Administration Agreement between it and the Fund (after
giving effect to any waiver off fees agreed to by Goldman Sachs Asset Management
under said Administration Agreement). The obligation of the Investment Adviser
to reimburse the Portfolios hereunder is limited in any fiscal year to the
amount of its fee hereunder for such fiscal year, provided, however, that
notwithstanding the foregoing, the Investment Adviser shall reimburse the
Portfolios for such proportion of such excess expenses regardless of the amount
of fees paid to it during such fiscal year to the extent that the securities
regulations of any state having jurisdiction over the Trust so require. Such
expense reimbursement, if any, will be estimated daily and reconciled and paid
on a monthly basis.
- 4 -
<PAGE>
9. Limitation of Liability. The Investment Adviser shall not be liable
-----------------------
for any error of judgment or mistake of law or for any loss suffered by the
Portfolios in connection with the performance of this Agreement, except a loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of the Investment Adviser in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement.
10. Duration and Termination. This Agreement will become effective as to
------------------------
a particular Portfolio as of the date first written above, provided that it
shall have been approved by vote of a majority of the outstanding voting
securities of such Portfolio, in accordance with the requirements under the 1940
Act, and, unless sooner terminated as provided herein, shall continue in effect
until December 31, 1997. Thereafter, if not terminated, this Agreement shall
continue in effect as to a particular Portfolio for successive periods of twelve
months each ending on December 31 of each year, such continuance is specifically
approved at least annually (a) by the vote of a majority of those members of the
Trust's Board of Trustees who are not parties to this Agreement or interested
persons of any party to this Agreement, cast in person at a meeting called for
the purpose of voting on such approval, and (b) by the vote of a majority of the
Trust's Board of Trustees or by the vote of a majority of the outstanding voting
securities of such Portfolio. Notwithstanding the foregoing, this Agreement may
be terminated as to a particular Portfolio at any time on sixty days' written
notice, without the payment of any penalty, by the Trust (by vote of the Trust's
Board of Trustees or by vote of a majority of the outstanding voting securities
of such Portfolio) or by the Investment Adviser. This Agreement will immediately
terminate in the event of its assignment. (As used in this Agreement, the terms
"majority of the outstanding voting securities", "interested persons" and
"assignment" shall have the same meaning of such terms in the 1940 Act.)
11. Amendment of this Agreement. No provision of this Agreement may be
---------------------------
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
12. Miscellaneous. The captions in this Agreement are included for
-------------
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect.
If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby.
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and shall be governed by the laws
of the Commonwealth of Massachusetts.
The names "Paragon Portfolio" and "Trustees of Paragon Portfolio" refer
respectively to the Trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under a Declaration of
Trust dated as of October 2, 1989 to which reference is hereby
- 5 -
<PAGE>
made and a copy of which is on file at the office of the Secretary of the
Commonwealth of Massachusetts and elsewhere as required by law, and to any and
all amendments thereto so filed or hereafter filed. The obligations of "The
Paragon Portfolio" entered into in the name or on behalf thereof by any of the
Trustees, representatives or agents are made not individually, but in such
capacities, and are not binding upon any of the Trustees, Shareholders or
representatives of the Trust personally, but bind only the assets of the Trust,
and all persons dealing with any series of Shares of the Trust must look solely
to the assets of the Trust belonging to such series for the enforcement of any
claims against the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first above
written.
PARAGON PORTFOLIO
Seal By: Marcia Beck
President
BANC ONE INVESTMENT ADVISORS
CORPORATION
By: Mark A. Beeson
CFO
26827
- 6 -
<PAGE>
SCHEDULE A
TO THE
INVESTMENT ADVISORY AGREEMENT BETWEEN
PARAGON PORTFOLIO
AND
BANC ONE INVESTMENT ADVISORS CORPORATION
DATED JANUARY 1, 1996
NAME OF FUND COMPENSATION
------------ ------------
Paragon Treasury Money Market Fund Annual rate of twenty one-hundredths of
Paragon Treasury Money Market Fund's
average daily assets
Paragon Short Term Government Fund Annual rate of fifty one-hundredths of
Paragon Short Term Government Fund's
average daily assets
Paragon Intermediate Term Bond Fund Annual rate of fifty one-hundredths of
Paragon Intermediate Term Bond Fund's
average daily assets
Paragon Value Equity Income Fund Annual rate of sixty-five one-hundredths
of Paragon Value Equity Income Fund's
average daily assets
Paragon Louisiana Tax-Free Fund Annual rate of fifty one-hundredths of
Paragon Louisiana Tax-Free Fund's
average daily assets
Paragon Value Growth Fund Annual rate of sixty-five one-hundredths
of Paragon Value Growth Fund's average
daily assets
Paragon Gulf South Fund Annual rate of sixty-five one-hundredths
of Paragon Gulf South Fund's average
daily assets
Paragon Power Intermediate-Term Annual rate of fifty one-hundredths of
Bond PortfolioParagon Power
Intermediate-Term Bond Portfolio's
average daily assets
- 7 -
<PAGE>
Paragon Power Value Growth Portfolio Annual rate of sixty-five one-
hundredths of Paragon Power Value
Growth Portfolio's average daily assets
Paragon Power Value Equity Annual rate of sixty-five one-
Income Portfolio hundredths of Paragon Power Value
Equity Income Portfolio's average daily
assets
Paragon Power Gulf South Annual rate of sixty-five one-
Growth Portfolio hundredths of Paragon Power Gulf South
Growth Portfolio's average daily assets
26827
- 8 -
<PAGE>
EXHIBIT 99.2
PARAGON PORTFOLIO
4900 Sears Tower
Chicago, IL 60606
January 2, 1996
Goldman Sachs
Asset Management
One New York Plaza
New York, NY 10004
Investment Advisory Agreement For Subadviser
--------------------------------------------
(Paragon Treasury Money Market Fund)
Dear Sirs:
Banc One Investment Advisors Corporation, an Ohio corporation with its principal
office in Westerville, Ohio (the "Investment Adviser"), is investment adviser to
Paragon Portfolio (the "Trust") on behalf of Paragon Treasury Money Market Fund
(the "Fund"). The Trust has been organized under the laws of Massachusetts to
engage in the business of an investment company. The shares of beneficial
interest of the Trust ("Shares") are divided into multiple series, including the
Fund, as established pursuant to a written instrument executed by the Trustees
of the Trust. Pursuant to authority granted the Adviser by the Trust's Trustees
and pursuant to the provisions of the Investment Advisory Agreement dated
January 2, 1996 between the Adviser and the Trust, the Adviser has selected you
to act as an investment subadviser of the Fund and to provide certain services,
as more fully set forth below, and you are willing to act as such investment
subadviser and to perform such services under the terms and conditions
hereinafter set forth. Accordingly, the Adviser and the Trust on behalf of the
Fund agree with you as follows:
I. ADVISORY SERVICES
Subject to the supervision of the Investment Adviser and the Trust's
Board of Trustees, you will provide a continuous investment program for
the Fund, including Investment research and management with respect to
all securities, investments and cash equivalents in the Fund's portfolio.
You will determine from time to time what securities and other
investments will be purchased, retained or sold by the Fund and will
place orders for purchases and sales on behalf of the Fund. You will
provide services under this Agreement in accordance with the Fund's
investment objective, policies and restrictions as stated in the Fund's
Prospectus and in resolutions of the Trust's Board of Trustees.
<PAGE>
In the performance of your duties hereunder, you are and shall be an
independent contractor and unless otherwise expressly provided herein or
otherwise authorized in writing, shall have no authority to act for or
represent the Trust in any way or otherwise be deemed to be an agent of
the Trust or of the Adviser. You will make your officers and employees
available to meet with the Trust's officers and Trustees at least
quarterly on due notice to review the investments and investment program
of the Fund in the light of current and prospective economic and market
conditions.
In compliance with the requirements of Rule 31a-3 under the Investment
Company Act of 1940 (the "Act"), you agree that all records which you
maintain for the Fund are the property of the Fund. You further agree to
surrender promptly to the Fund any such records upon the Fund's request.
You agree to preserve for the periods prescribed by Rule 31c-2 under the
Act the records required to be maintained by Rule 31a-1 under the Act.
You will treat confidentially and as proprietary information of the Fund
all records and other information relative to the Fund and prior, present
or potential shareholders and will not use such records and information
for any purpose other than the performance of your responsibilities,
except after prior notification and approval in writing by the Fund.
Such approval shall not be unreasonably withheld and may not be withheld
where you may be exposed to civil or criminal contempt proceedings for
failure to comply when requested to divulge such information by duly
constituted authorities or when requested by the Fund.
II. ALLOCATION OF CHARGES AND EXPENSES
You will bear your own costs of providing services hereunder. Except as
aforesaid, you will not be required to pay any expenses of the Fund.
III. COMPENSATION OF THE SUBADVISER
For all investment management services to be rendered hereunder, the
Adviser will pay you on the last day of each month a fee, at an annual
rate equal to .10% of the average daily net assets, as defined below, of
the Fund. The "average daily net assets" of the Fund are defined as the
average of the values placed on the net assets as of 4:00 p.m. (New York
time), on each day on which the net asset value of the Fund's portfolio
is determined consistent with the provisions of Rule 22c-1 under the
Investment Company Act of 1940 or, if the Fund lawfully determines the
value
-2-
<PAGE>
of the net assets of its portfolio as of some other time on each business
day, as of such time. The value of net assets of the Fund shall be
determined pursuant to the applicable provisions of the Declaration of
Trust of the Trust. If, pursuant to such provisions, the determination
of net asset value is suspended for any particular business day, then for
the purposes of this paragraph III, the value of the net assets of the
Fund as last determined shall be deemed to be the value of the net assets
as of the close of regular trading on the New York Stock Exchange, or as
of such other time as the value of the net assets of the Fund's portfolio
may lawfully be determined on that day. If the determination of the net
asset value of the Shares of the Fund has been suspended pursuant to the
Declaration of Trust of the Trust for a period including such month, you
compensation payable at the end of such month shall be computed on the
basis of the value of the net assets of the Fund as last determined
(whether during or prior to such month). If the Fund determines the
value of the net assets of its portfolio more than once on any day, the
last such determination thereof on that day shall be deemed to be the
sole determination thereof on that day for the purposes of this paragraph
III.
IV. LIMITATION OF LIABILITY
You shall not be liable for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which
this Agreement relates except a loss resulting from a breach of fiduciary
duty with respect to the receipt of compensation for services or except a
loss resulting from willful misfeasance, bad faith or gross negligence on
your part in the performance of your duties or from reckless disregard by
you of your obligations and duties under this Agreement. Any person,
even though also employed by you, who may be or become an employee of and
paid by the Fund shall be deemed, when acting within the scope of his
employment by the Fund, to be acting in such employment solely for the
Fund and not as your employee or agent. The Adviser shall indemnify you
for any damages and related expenses incurred by you as a result of the
performance of your duties hereunder, unless the same shall result from
behavior found by a final judicial determination to constitute willful
misfeasance, bad faith, gross negligence or a reckless disregard of your
obligations, as specified above.
V. DURATION AND TERMINATION OF THIS AGREEMENT
This Agreement shall remain in full force until May 31, 1996. This
Agreement may, on 45 days' written notice, be terminated at any time
without the payment of any penalty,
-3-
<PAGE>
by the Board of Trustees, by vote of a majority of the outstanding voting
securities of the Fund, by the Adviser, or by you. This Agreement shall
automatically terminate in the event of its assignment. In interpreting
the provisions of this Agreement, the definitions contained in Section
2(a) of the Act (particularly the definitions of "interested person,"
"assignment" and "majority of the outstanding voting securities"), as
from time to time amended, shall be applied, subject, however, to such
exemptions as may be granted by the Securities and Exchange Commission by
any rule, regulation or order.
VI. AMENDMENT OF THIS AGREEMENT
No provisions of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the
party against which enforcement of the change, waiver, discharge or
termination is sought. No amendment of this Agreement shall be effective
until approved by vote of the holders of a majority of the outstanding
voting securities of the Fund and by the Board of Trustees, including a
majority of the Trustees who are not interested persons of the Adviser,
you or the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
It shall be your responsibility to furnish to the Trustees of the Trust
such information as may reasonably be necessary in order for such
Trustees to evaluate this Agreement or any proposed amendments thereto
for the purposes of casting a vote pursuant to paragraphs V or VI hereof.
VII. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York.
VIII. MISCELLANEOUS
The captions in this Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be
executed simultaneously in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and
the same instrument.
The name "Paragon Portfolio" is the designation of the Trustees for the time
being under the Declaration of Trust dated October 2, 1989, as amended from time
to time, and all persons dealing with the Trust or the Fund must look solely to
the property of the Trust
-4-
<PAGE>
or the Fund for the enforcement of any claims against the Trust as neither the
Trustees, offices, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Trust. No series of the Trust
(including the Fund) shall be liable for any claims against any other series of
the Trust.
If you are in agreement with the foregoing, please sign the form of acceptance
on the accompanying counterpart of this letter and return one such counterpart
to the Trust and the other such counterpart to the Adviser, whereupon this
letter shall become a binding contract.
Yours very truly,
PARAGON PORTFOLIO
(On behalf of Paragon Treasury
Money Market Fund)
Attest:
By: Angelique Barrow By: Michael J. Richman
---------------- ------------------
Angelique Barrow Michael J. Richman
Legal Products Analyst Secretary of the Trust
BANC ONE INVESTMENT ADVISORS CORPORATION
Attest:
By: Michael V. Wible By: Mark A. Beeson
---------------- --------------
Name Michael V. Wible Name Mark A. Beeson
Title Senior Attorney Title SVP & CFO
GOLDMAN SACHS ASSET MANAGEMENT
a separate operating division of
Goldman, Sachs & Co.
Attest:
By: Angelique Barrow By: Marcia Beck
---------------- -----------
Name Angelique Barrow Name Marcia Beck
Title Legal Products Analyst Title VP
-5-
<PAGE>
EXHIBIT 99.3
DISTRIBUTION AGREEMENT
AGREEMENT made this 1st day of January, 1996, between Paragon
Portfolio (the "Trust"), a Massachusetts business trust having its principal
place of business at 4900 Sears Tower, Chicago, IL 60606, and The One Group
Services Company ("Distributor") having its principal place of business at 3435
Stelzer Road, Columbus, Ohio 43219.
WHEREAS, the Trust is an open-end management investment company,
organized as a Massachusetts business trust and registered with the Securities
and Exchange Commission (the "Commission") under the Investment Company Act of
1940 (the "1940 Act"); and
WHEREAS, it is intended that Distributor act as the distributor of the
shares of beneficial interest ("Shares") of each of the series of the Trust
identified in Schedule A hereto as such Schedule may be amended from time to
time (such series being referred to individually as a "Fund" and collectively as
the "Funds").
NOW, THEREFORE, in consideration of the mutual premises and
covenants herein set forth, the parties agree as follows:
1. Services as Distributor.
-----------------------
1.1 Distributor will act as agent for the distribution of the Shares
covered by the registration statement and prospectus of the Trust then in effect
under the Securities Act of 1933, as amended (the "Securities Act"). As used in
this Agreement, the term "registration statement" shall mean Parts A (the
prospectus), B (the Statement of Additional Information) and C of each
registration statement that is filed on Form N-1A, or any successor thereto,
with the Commission, together with any amendments thereto. The term
"prospectus" shall mean each form of prospectus and Statement of Additional
Information used by the Funds for delivery to shareholders and prospective
shareholders after the effective dates of the above referenced registration
statements, together with any amendments and supplements thereto.
1.2 Distributor agrees to use appropriate efforts to solicit orders
for the sale of the Shares and will undertake such advertising and promotion as
it believes reasonable in connection with such solicitation. The Trust
understands that Distributor is now and may in the future be the distributor of
the shares of several investment companies or series (together, "Companies")
including Companies having investment objectives similar to those of the Trust.
The Trust further understands that investors and potential investors in the
Trust may invest in shares of such other Companies. The Trust agrees that
Distributor's duties to such Companies shall not be deemed in conflict with its
duties to the Trust under this paragraph 1.2.
<PAGE>
Distributor may finance appropriate activities which it deems
reasonable which are primarily intended to result in the sale of the Shares,
including, but not limited to, advertising, and the compensation of
underwriters, dealers and sales personnel.
1.3 In its capacity as distributor of the Shares, all activities of
Distributor and its partners, agents, and employees shall comply with all
applicable laws, rules and regulations, including, without limitation, the 1940
Act, all rules and regulations promulgated by the Commission thereunder and all
rules and regulations adopted by any securities association registered under the
Securities Exchange Act of 1934.
1.4 Distributor will transmit any orders received by it for purchase
or redemption of the Shares to the transfer agent and custodian for the Funds.
1.5 Whenever in their judgment such action is warranted by unusual
market, economic or political conditions, or by abnormal circumstances of any
kind, the Trust's officers may decline to accept any orders for, or make any
sales of, the Shares until such time as those officers deem it advisable to
accept such orders and to make such sales.
1.6 Distributor will act only on its own behalf as principal if it
chooses to enter into selling agreements with selected dealers or others.
1.7 The Trust agrees at its own expense to execute any and all
documents and to furnish any and all information and otherwise to take all
actions that may be reasonably necessary in connection with the qualification of
the Shares for sale in such states as Distributor may designate.
1.8 The Trust shall furnish from time to time, for use in connection
with the sale of the Shares, such information with respect to the Funds and the
Shares as Distributor may reasonably request; and the Trust warrants that the
statements contained in any such information shall fairly show or represent what
they purport to show or represent. The Trust shall also furnish Distributor
upon request with: (a) unaudited semi-annual statements of the Funds' books and
accounts prepared by the Trust, (b) a monthly itemized list of the securities in
the Funds, (c) monthly balance sheets as soon as practicable after the end of
each month, and (d) from time to time such additional information regarding the
financial condition of the Funds as Distributor may reasonably request.
1.9 The Trust represents to Distributor that, with respect to the
Shares, all registration statements and prospectuses filed by the Trust with the
Commission under the Securities Act have been carefully prepared in conformity
with requirements of said Act and rules and regulations of the Commission
thereunder. The registration statement and prospectus contain all statements
required to be stated therein in conformity with said Act and the rules and
regulations of said Commission and all statements of fact contained in any such
registration statement and prospectus are true and correct. Furthermore,
neither any registration statement nor any prospectus includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading to a
purchaser of the Shares. The Trust may, but shall not be obligated to, propose
from time to time such amendment or amendments to any registration statement and
such supplement or supplements to any prospectus
2
<PAGE>
as, in the light of future developments, may, in the opinion of the Trust's
counsel, be necessary or advisable. If the Trust shall not propose such
amendment or amendments and/or supplement or supplements within fifteen days
after receipt by the Trust of a written request from Distributor to do so,
Distributor may, at its option, terminate this Agreement. The Trust shall not
file any amendment to any registration statement or supplement to any prospectus
without giving Distributor reasonable notice thereof in advance; provided,
however, that nothing contained in this Agreement shall in any way limit the
Trust's right to file at any time such amendments to any registration statement
and/or supplements to any prospectus, of whatever character, as the Trust may
deem advisable, such right being in all respects absolute and unconditional.
1.10 The Trust authorizes Distributor and dealers to use any
prospectus in the form furnished from time to time in connection with the sale
of the Shares. The Trust agrees to indemnify, defend and hold Distributor, its
several officers and employees, and any person who controls Distributor within
the meaning of Section 15 of the Securities Act free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which Distributor, its partners
and employees, or any such controlling person, may incur under the Securities
Act or under common law or otherwise, arising out of or based upon any untrue
statement, or alleged untrue statement, of a material fact contained in any
registration statement or any prospectus or arising out of or based upon any
omission, or alleged omission, to state a material fact required to be stated in
either any registration statement or any prospectus or necessary to make the
statements in either thereof not misleading; provided, however, that the Trust's
agreement to indemnify Distributor, its partners or employees, and any such
controlling person shall not be deemed to cover any claims, demands, liabilities
or expenses arising out of any statements or representations as are contained in
any prospectus and in such financial and other statements as are furnished in
writing to the Trust by Distributor and used in the answers to the registration
statement or in the corresponding statements made in the prospectus, or arising
out of or based upon any omission or alleged omission to state a material fact
in connection with the giving of such information required to be stated in such
answers or necessary to make the answers not misleading; and further provided
that the Trust's agreement to indemnify Distributor and the Trust's
representations and warranties hereinbefore set forth in paragraph 1.9 shall not
be deemed to cover any liability to the Trust or its Shareholders to which
Distributor would otherwise be subject by reason of willful misfeasance, bad
faith or gross negligence in the performance of its duties, or by reason of
Distributor's reckless disregard of its obligations and duties under this
Agreement. The Trust's agreement to indemnify Distributor, its officers and
employees and any such controlling person, as aforesaid, is expressly
conditioned upon the Trust being notified of any action brought against
Distributor, its officers or employees, or any such controlling person, such
notification to be given by letter or by telegram addressed to the Trust at its
principal office in Chicago, Illinois and sent to the Trust by the person
against whom such action is brought, within 10 days after the summons or other
first legal process shall have been served. The failure to so notify the Trust
of any such action shall not relieve the Trust from any liability which the
Trust may have to the person against whom such action is brought by reason of
any such untrue, or allegedly untrue, statement or omission, or alleged
omission, otherwise than on account of the Trust's indemnity agreement contained
in this paragraph 1.10. The Trust will be entitled to assume the defense of any
suit brought to enforce any such claim, demand or liability, but, in such case,
such defense shall be conducted by counsel of good standing chosen by the Trust
and approved by Distributor, which approval shall not be
3
<PAGE>
unreasonably withheld. In the event the Trust elects to assume the defense of
any such suit and retain counsel of good standing approved by Distributor, the
defendant or defendants in such suit shall bear the fees and expenses of any
additional counsel retained by any of them; but in case the Trust does not elect
to assume the defense of any such suit, or in case Distributor reasonably does
not approve of counsel chosen by the Trust, the Trust will reimburse
Distributor, its officers and employees, or the controlling person or persons
named as defendant or defendants in such suit, for the fees and expenses of any
counsel retained by Distributor or them. The Trust's indemnification agreement
contained in this paragraph 1.10 and the Trust's representations and warranties
in this Agreement shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of Distributor, its partners and
employees, or any controlling person, and shall survive the delivery of any
Shares.
This Agreement of indemnity will inure exclusively to Distributor's
benefit, to the benefit of its several officers and employees, and their
respective estates, and to the benefit of the controlling persons and their
successors. The Trust agrees promptly to notify Distributor of the commencement
of any litigation or proceedings against the Trust or any of its officers or
Trustees in connection with the issue and sale of any Shares.
1.11 Distributor agrees to indemnify, defend and hold the Trust, its
several officers and Trustees and any person who controls the Trust within the
meaning of Section 15 of the Securities Act free and harmless from and against
any and all claims, demands, liabilities and expenses (including the costs of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which the Trust, its officers or Trustees
or any such controlling person, may incur under the Securities Act or under
common law or otherwise, but only to the extent that such liability or expense
incurred by the Trust, its officers or Trustees or such controlling person
resulting from such claims or demands, shall arise out of or be based upon any
untrue, or alleged untrue, statement of a material fact contained in information
furnished in writing by Distributor to the Trust and used in the answers to any
of the items of the registration statement or in the corresponding statements
made in the prospectus, or shall arise out of or be based upon any omission, or
alleged omission, to state a material fact in connection with such information
furnished in writing by Distributor to the Trust required to be stated in such
answers or necessary to make such information not misleading. Distributor's
agreement to indemnify the Trust, its officers and Trustees, and any such
controlling person, as aforesaid, is expressly conditioned upon Distributor
being notified of any action brought against the Trust, its officers or
Trustees, or any such controlling person, such notification to be given by
letter or telegram addressed to Distributor at its principal office in Columbus,
Ohio, and sent to Distributor by the person against whom such action is brought,
within 10 days after the summons or other first legal process shall have been
served. Distributor shall have the right of first control of the defense of
such action, with counsel of its own choosing, satisfactory to the Trust, if
such action is based solely upon such alleged misstatement or omission on
Distributor's part, and in any other event the Trust, its officers or Trustees
or such controlling person shall each have the right to participate in the
defense or preparation of the defense of any such action. The failure to so
notify Distributor of any such action shall not relieve Distributor from any
liability which Distributor may have to the Trust, its officers or Trustees, or
to such controlling person by reason of any such untrue or alleged untrue
statement, or omission or alleged omission, otherwise than on account of
Distributor's indemnity agreement contained in this paragraph 1.11.
4
<PAGE>
1.12 No Shares shall be offered by either Distributor or the Trust
under any of the provisions of this Agreement and no orders for the purchase or
sale of Shares hereunder shall be accepted by the Trust if and so long as the
effectiveness of the registration statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the
Securities Act or if and so long as a current prospectus as required by Section
10(b)(2) of said Act is not on file with the Commission; provided, however, that
nothing contained in this paragraph 1.12 shall in any way restrict or have an
application to or bearing upon the Trust's obligation to repurchase Shares from
any Shareholder in accordance with the provisions of the Trust's prospectus,
Declaration of Trust, or Bylaws.
1.13 The Trust agrees to advise Distributor as soon as reasonably
practical by a notice in writing delivered to Distributor or its counsel:
(a) of any request by the Commission for amendments to the
registration statement or prospectus then in effect or for additional
information;
(b) in the event of the issuance by the Commission of any stop order
suspending the effectiveness of the registration statement or prospectus then in
effect or the initiation by service of process on the Trust of any proceeding
for that purpose;
(c) of the happening of any event that makes untrue any statement of a
material fact made in the registration statement or prospectus then in effect or
which requires the making of a change in such registration statement or
prospectus in order to make the statements therein not misleading; and
(d) of all action of the Commission with respect to any amendment to
any registration statement or prospectus which may from time to time be filed
with the Commission.
For purposes of this section, informal requests by or acts of the
Staff of the Commission shall not be deemed actions of or requests by the
Commission.
1.14 Distributor agrees on behalf of itself and its partners and
employees to treat confidentially and as proprietary information of the Trust
all records and other information relative to the Trust and its prior, present
or potential Shareholders, and not to use such records and information for any
purpose other than performance of its responsibilities and duties hereunder,
except, after prior notification to and approval in writing by the Trust, which
approval shall not be unreasonably withheld and may not be withheld where
Distributor may be exposed
to civil or criminal contempt proceedings for failure to comply, when requested
to divulge such information by duly constituted authorities, or when so
requested by the Trust.
1.15 This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts.
2. Term, Duration and Termination.
------------------------------
5
<PAGE>
This Agreement shall become effective January 1, 1996 and, unless
sooner terminated as provided herein, shall continue until December 31, 1996.
Thereafter, if not terminated, this Agreement shall continue automatically for
successive one-year terms, provided that such continuance is specifically
approved at least annually by (a) by the vote of a majority of those members of
the Trust's Board of Trustees who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting for the
purpose of voting on such approval and (b) by the vote of the Trust's Board of
Trustees or the vote of a majority of the outstanding voting securities of such
Fund. This Agreement is terminable without penalty, on not less than sixty-days
prior written notice, by the Trust's Board of Trustees, by vote of a majority of
the outstanding voting securities of the Trust or by the Distributor. This
Agreement will also terminate automatically in the event of its assignment. (As
used in this Agreement, the terms "majority of the outstanding voting
securities", "interested persons" and "assignment" shall have the same meanings
as ascribed to such terms in the 1940 Act.)
3. Sale of Shares Subject to a Front-End Sales Load
------------------------------------------------
3.1 Under this Agreement, the following provisions shall apply with
respect to the sale of and payment of those Shares sold at an offering price
which includes a front-end sales load ("Class A Shares") as described in the
prospectuses of the Funds identified on Schedule B hereto (collectively, the
"Front-End Load Funds"; individually a "Front-End Load Fund"):
(a) The Distributor shall have the right to purchase Class A Shares
from the Front-End Load Funds at their net asset value and to sell such Shares
to the public against orders therefor at the applicable offering price, as
defined in Section 3.2 below. The Distributor shall also have the right to sell
Class A Shares to dealers against orders therefor at the public offering price
less a concession determined by the Distributor, which concession shall not
exceed the amount of the sales charge or underwriting discount, if any, referred
to in Section 3.2 below.
(b) Prior to the time of delivery of any Class A Shares by a Front-End
Load Fund to, or on the order of, the Distributor, the Distributor shall pay or
cause to be paid to the Front-End Load Fund or to its order an amount in Boston
or New York clearing house funds equal to the applicable net asset value of such
Shares. The Distributor may retain so much of any sales load or underwriting
discount as it not allowed by the Distributor as a concession to dealers.
3.2 The public offering price of a Class A Share of a Front-End Load
Fund shall be the net asset value of the Share, plus any applicable sales
charge, all as set forth in the current prospectus of the Front-End Load Fund.
The net asset value of Class A Shares shall be determined in accordance with the
provisions of the Declaration of Trust and Bylaws of the Trust and the then
current prospectus of the Front-End Load Fund.
3.3 The Front-End Load Funds reserve the right to issue, transfer or
sell Class A Shares at net asset value (a) in connection with merger or
consolidation of the Trust or the Front-End Load Fund(s) with any other
investment company or the acquisition by the Trust or the Front-End Load Fund(s)
of all or substantially all of the assets or of the outstanding Shares of any
other investment company; (b) in connection with a pro rata distribution
directly to the holders of Shares in the nature of a stock dividend or split;
(c) upon the exercise of subscription
6
<PAGE>
rights granted to the holders of Shares on a pro rata basis; (d) in connection
with the issuance of Shares pursuant to any exchange and reinvestment privileges
described in any then current prospectus of the Front-End Load Fund; and (e)
otherwise in accordance with any then current prospectus of the Front-End Load
Fund.
4. Sale of Shares Subject to a Traditional Rule 12b-1 Fee
------------------------------------------------------
4.1 Under this Agreement, the following provisions shall apply with
respect to Shares of Classes of the Trust's Shares, other than those of a Class
featuring a contingent deferred sales charge, that are subject to a fee under a
Distribution and Shareholder Services Plan under Rule 12b-1 as described in the
prospectuses of the Funds and identified on Schedule C hereto (collectively, the
"Distribution Plan Classes;" individually a "Distribution Plan Class"):
(a) The Distributor shall receive from the Trust all distribution and
service fees, as applicable, at the rate and under the terms and conditions set
forth in each Distribution and Shareholder Services Plan adopted by each
Distribution Plan Class of each Fund, as such Plans may be amended from time to
time, and subject to any further limitations on such fees as the Board may
impose.
(b) The Distributor may reallow any or all of the distribution or
service fees which it is paid by the Trust with respect to each Distribution
Plan Class of each Fund to such brokers, dealers and other financial
institutions and intermediaties as the Distributor may from time to time
determine.
5. Sale of Shares Subject to a Contingent Deferred Sales Charge
------------------------------------------------------------
5.1 The Trust may offer Shares subject to a contingent deferred sales
charge (a "CDSC"). The Distributor may pay brokers, dealers and other financial
institutions and intermediaries commissions with regard to the sale of CDSC
Shares. Under this Agreement, the following provisions shall apply with respect
to Shares of a Class featuring a CDSC (a "CDSC Class") as described in the
prospectus(es) of the Funds and identified on Schedule D hereto.
(a) The Distributor shall be entitled to receive all CDSC payments on
Shares of a CDSC Class. The Distributor may assign or sell to a third party (a
"CDSC Financing Entity") all or a part of the CDSC payments on Shares of a CDSC
Class that the Distributor is
entitled to receive under this Agreement. The Distributor's right to payment on
such Shares, if assigned or sold to a CDSC Financing Entity, shall continue
after termination of this Agreement.
(b) (i) The Distributor shall be entitled to receive all distribution
and service fees at the rate and under the terms and conditions set forth in the
Distribution Plan adopted by the CDSC Class (the "Plan") on all Shares, so long
as the Plan is in effect. The Distributor may assign or sell to a CDSC
Financing Entity all or a part of the distribution and service fees the
Distributor is entitled to receive from the Trust under the Plan. The
Distributor's right to payment on such Shares, if assigned or sold to a CDSC
Financing Entity, shall continue after termination of this Agreement.
Otherwise, the right to receive all distribution and service fee payments in
respect of periods subsequent to the termination of this Agreement shall
terminate
7
<PAGE>
upon termination of this Agreement.
(ii) The Distributor shall not be required to offer or sell Shares of
a CDSC Class unless and until it has received a binding commitment from a CDSC
Financing Entity (a "Commitment") satisfactory to the Distributor which
Commitment shall cover all expenses and fees related to the offer and sale of
such Shares of the CDSC Class including but not limited to dealer reallowances,
financing commitment fees, and legal fees. If at any time during the term of
this Agreement the then current CDSC financing is terminated through no fault of
the Distributor, the Distributor has the right to immediately suspend CDSC
Shares sales until substitute financing becomes effective.
(iii) The Distributor may enter into arrangements regarding the
financing of commissions pertaining to the sale of shares of a CDSC Class only
upon written approval of the Trust's Treasurer, or his or her designee, such
approval not to be unreasonably withheld.
(c) The Distributor and the Trust hereby agree that the terms and
conditions set forth herein regarding the offer and sale of Shares of a CDSC
Class may be amended upon approval of both parties in order to comply with the
terms and conditions of any agreement with a CDSC Financing Entity to finance
the costs for the offer and sale of Shares of a CDSC Class so long as such terms
and conditions are in compliance with the Plan.
6. Limitation of Liability of the Trustees and Shareholders.
--------------------------------------------------------
It is expressly agreed that the obligations of the Trust hereunder
shall not be binding upon any of the Trustees, shareholders, nominees, officers,
agents or employees of the Trust personally, but shall bind only the trust
property of the Trust. The execution and delivery of this Agreement have been
authorized by the Trustees, and this Agreement has been signed and delivered by
an authorized officer of the Trust, acting as such, and neither such
authorization by the Trustees nor such execution and delivery by such officer
shall be deemed to have been made by any of them individually or to impose any
liability on any of them personally, but shall bind only the trust property of
the Trust as provided in the Trust's Agreement and Declaration of Trust. No
series of the Trust shall be liable for the obligations of any other series
under this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year first
written above.
PARAGON PORTFOLIO THE ONE GROUP SERVICES COMPANY
By: Michael J. Richman By: Stephen G. Mintos
Title: Secretary of the Trust Title: Vice President
--------------------------- ----------------------------
Date: January 2, 1996 Date: January 2, 1996
--------------------------- ----------------------------
8
<PAGE>
Schedule A
to the Distribution Agreement
between Paragon Portfolio and
The One Group Services Company
Name of Fund
- ------------
Paragon Treasury Money Market Fund
Paragon Short-Term Government Fund
Paragon Intermediate-Term Bond Fund
Paragon Louisiana Tax-Free Fund
Paragon Value Growth Fund
Paragon Value Equity Income Fund
Paragon Gulf South Growth Fund
PARAGON PORTFOLIO THE ONE GROUP SERVICES COMPANY
By: Michael J. Richman By: Stephen G. Mintos
Title: Secretary of the Trust Title: Vice President
------------------------- ----------------------------
Date: January 2, 1996 Date: January 2, 1996
------------------------- ----------------------------
A-1
<PAGE>
Schedule B
to the Distribution Agreement
between Paragon Portfolio and
The One Group Services Company
Front-End Load Funds
- --------------------
Paragon Short-Term Government Fund
Paragon Intermediate-Term Bond Fund
Paragon Louisiana Tax-Free Fund
Paragon Value Growth Fund
Paragon Value Equity Income Fund
Paragon Gulf South Growth Fund
PARAGON PORTFOLIO THE ONE GROUP SERVICES COMPANY
By: Michael J. Richman By: Stephen G. Mintos
Title: Secretary of the Trust Title: Vice President
------------------------- ----------------------------
Date: January 2, 1996 Date: January 2, 1996
------------------------- ----------------------------
B-1
<PAGE>
Schedule C
to the Distribution Agreement
between Paragon Portfolio and
The One Group Services Company
Distribution Plan Shares
------------------------
Name of Fund
- ------------
Paragon Treasury Money Market Fund
Paragon Short-Term Government Fund
Paragon Intermediate-Term Bond Fund
Paragon Louisiana Tax-Free Fund
Paragon Value Growth Fund
Paragon Value Equity Income Fund
Paragon Gulf South Growth Fund
PARAGON PORTFOLIO THE ONE GROUP SERVICES COMPANY
By: Michael J. Richman By: Stephen G. Mintos
Title: Secretary of the Trust Title: Vice President
------------------------- ----------------------------
Date: January 2, 1996 Date: January 2, 1996
------------------------- ----------------------------
C-1
<PAGE>
Schedule D
to the Distribution Agreement
between Paragon Portfolio and
The One Group Services Company
CDSC Funds
- ----------
Paragon Short-Term Government Fund
Paragon Intermediate-Term Bond Fund
Paragon Louisiana Tax-Free Fund
Paragon Value Growth Fund
Paragon Value Equity Income Fund
Paragon Gulf South Growth Fund
PARAGON PORTFOLIO THE ONE GROUP SERVICES COMPANY
By: Michael J. Richman By: Stephen G. Mintos
Title: Secretary of the Trust Title: Vice President
------------------------- ----------------------------
Date: January 2, 1996 Date: January 2, 1996
------------------------- ----------------------------
D-1
