<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 PORTFOLIO
[CHART APPEARS HERE]
Int-Term Bond Lehman Int Gov't/
Portfolio Corp Index
------------- -----------------
1/13/95 $10,000 $10,000
11/30/95 $11,534 $11,368
Aggregate Total Return
Since Inception (a)
15.34%
PARAGON POWER VALUE GROWTH PORTFOLIO
[CHART APPEARS HERE]
Value Growth
Portfolio S&P 500
------------ ------------
1/13/95 $10,000 $10,000
11/30/95 $12,312 $13,421
Aggregate Total Return
Since Inception (a)
23.12%
4
<PAGE>
PARAGON PORTFOLIO
PERFORMANCE COMPARISON--(CONTINUED)
PARAGON POWER VALUE EQUITY INCOME PORTFOLIO
[CHART APPEARS HERE]
Value Equity Income
Portfolio S&P 500
------------------- -------------
1/13/95 $10,000 $10,000
11/30/95 $13,171 $13,421
Aggregate Total Return
Since Inception (a)
31.71%
PARAGON POWER GULF SOUTH GROWTH PORTFOLIO
[CHART APPEARS HERE]
Gulf South Growth
Portfolio Russell 2000 S&P 500
----------------- ----------------- -------------
1/13/95 $10,000 $10,000 $10,000
11/30/95 $12,272 $12,625 $13,421
Aggregate Total Return
Since Inception (a)
22.72%
(a) Commenced operations on January 13, 1995.
5
<PAGE>
PARAGON PORTFOLIO
STATEMENT OF INVESTMENTS
PARAGON POWER INTERMEDIATE-TERM BOND PORTFOLIO
NOVEMBER 30, 1995
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
--------- -------- -------- ----------
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
----------
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
--------- -------- -------- ---------
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
==========
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
==========
- ----------
(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
SHARES DESCRIPTION VALUE
------ ----------- ----------
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
----------
SHARES DESCRIPTION VALUE
------ ----------- ----------
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
----------
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
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
--------- -------- -------- ----------
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
==========
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
========
- ----------
(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
SHARES DESCRIPTION VALUE
------ ----------- ----------
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
SHARES DESCRIPTION VALUE
------ ----------- ----------
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
----------
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
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
--------- -------- -------- ----------
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
==========
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
========
- ----------
(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
SHARES DESCRIPTION VALUE
------ ----------- ----------
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
----------
SHARES DESCRIPTION VALUE
------ ----------- ----------
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
----------
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
PRINCIPAL INTEREST MATURITY
AMOUNT RATE DATE VALUE
--------- -------- -------- ----------
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
==========
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
=========
- ----------
(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
------------------------------------ ------------------------
TOTAL NET NET
NET ASSET NET NET REALIZED INCOME TOTAL INCREASE ASSET
VALUE, INVESTMENT AND 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)
--------- ---------- -------------- ---------- ---------- ------------- -------- ------ -------
PARAGON POWER INTERMEDIATE-TERM BOND PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Period ended: 11/30/95 $ 9.56 $0.57 $0.86 $1.43 $(0.57) $(0.57) $0.86 $10.42 15.34%
<CAPTION>
PARAGON POWER VALUE GROWTH PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Period ended: 11/30/95 13.56 0.20 2.91 3.11 (0.20) (0.20) 2.91 16.47 23.12
<CAPTION>
PARAGON POWER VALUE EQUITY INCOME PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Period ended: 11/30/95 11.35 0.26 3.30 3.56 (0.26) (0.26) 3.30 14.65 31.71
<CAPTION>
PARAGON POWER GULF SOUTH GROWTH PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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 OF NET
EXPENSES (LOSS) NET ASSETS RATIO INVESTMENT
TO AVERAGE TO AVERAGE PORTFOLIO AT 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>
Period ended: 11/30/95 0.75% 6.42% 9% $2,156 3.53% 3.64%
<CAPTION>
PARAGON POWER VALUE GROWTH PORTFOLIO
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Period ended: 11/30/95 1.00 1.43 53 2,626 3.46 (1.03)
<CAPTION>
PARAGON POWER VALUE EQUITY INCOME PORTFOLIO
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Period ended: 11/30/95 1.00 2.31 27 2,552 3.73 (0.42)
<CAPTION>
PARAGON POWER GULF SOUTH GROWTH PORTFOLIO
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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:
<TABLE>
<S> <C>
Intermediate-Term Bond Portfolio.................................... .50%
Value Growth Portfolio.............................................. .65%
Value Equity Income Portfolio....................................... .65%
Gulf South Growth Portfolio......................................... .65%
</TABLE>
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
<TABLE>
<S> <C>
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..................... --
</TABLE>
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:
<TABLE>
<S> <C>
Intermediate-Term Bond Portfolio................... 55%
Value Growth Portfolio............................. 47%
Value Equity Income Portfolio...................... 52%
Gulf South Growth Portfolio........................ 48%
</TABLE>
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
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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 PARAGON PORTFOLIO
4900 Sears Tower
Chicago, Illinois 60606
INVESTMENT ADVISER PARAGON POWER PORTFOLIO
Premier Investment Advisors, L.L.C. VARIABLE ANNUITY
451 Florida Street
Baton Rouge, Louisiana 70801
ADMINISTRATOR Paragon Power Intermediate-Term Bond Portfolio
Goldman Sachs Asset Management Paragon Power Value Growth Portfolio
One New York Plaza Paragon Power Value Equity Income Portfolio
New York, New York 10004 Paragon Power Gulf South Growth Portfolio
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 Annual Report
P.O. Box 1978 -------------
Boston, Massachusetts 02105
November 30, 1995
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas [LOGO] POWER PORTFOLIO (SM)
New York, NY 10036 VARIABLE ANNUITY
LEGAL COUNSEL
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
PWR-ANN95
