<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[x] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-2
The Palladian Trust
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of Each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
Dear Contract Owner:
The Palladian Trust (the "Trust") will hold a special meeting of shareholders on
June 8, 1998.
The attached Notice and Statement Concerning the Special Meeting discusses the
five proposals to be considered at the meeting. The Board of Trustees of the
Trust has considered the proposals and determined that the approval of each one
is in the best interest of the contract owners participating in the Trust.
You, as the owner of a variable annuity contract that participates in a separate
account of either Allmerica Financial Life Insurance and Annuity Company or
First Allmerica Financial Life Insurance Company (collectively "Allmerica"), are
entitled to instruct Allmerica how to vote the shares of the Capital Stock of
the Trust related to your interest in the separate account as of the close of
business on April 9, 1998.
You have received a separate voting instruction form for each Palladian Trust
Portfolio in which you hold an interest. The voting instruction form for each
Portfolio lists the proposals to be voted upon by contract owners with an
interest in that Portfolio. Not all Portfolios will vote on every proposal.
Please take a few minutes to consider this matter and then exercise your right
to give your instructions by completing, dating, and signing EVERY enclosed
voting instruction form. Included is a self-addressed and postage-paid envelope
for your convenience. In order to be given effect, your voting instructions must
be received no later than June 2, 1998.
If you have any questions about these materials, please contact Allmerica at
(800) 917-1909.
Richard M. Reilly
President
Allmerica Financial Life Insurance and
Annuity Company
Vice President
First Allmerica Financial Life Insurance
Company
<PAGE>
THE PALLADIAN TRUST
440 Lincoln Street
Worcester, Massachusetts 01653
NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE TRUST--JUNE 8, 1998
A special meeting of shareholders of The Palladian Trust (the "Trust") will be
held at 440 Lincoln Street, Worcester, MA 01653 on June 8, 1998 at 10:00 a.m.
for the following purposes:
1. FOR ALL PORTFOLIOS: To elect Gordon Holmes and George J. Sullivan, Jr.
as new Trustees for the Trust.
2. FOR ALL PORTFOLIOS: To approve or disapprove a new Management Agreement
under which Allmerica Financial Investment Management Services, Inc.
("AFIMS") will serve as Manager of the Trust.
3. FOR THE VALUE, GROWTH, INTERNATIONAL GROWTH, AND GLOBAL
INTERACTIVE/TELECOMM PORTFOLIOS ONLY: To approve or disapprove
agreements under which AFIMS is substituted for the previous Manager
under the Portfolio Management Agreements.
4. FOR THE GLOBAL STRATEGIC INCOME PORTFOLIO ONLY: To approve or disapprove
a new portfolio management agreement, pursuant to which Allmerica Asset
Management, Inc. ("AAM") would serve as portfolio manager to the Global
Strategic Income Portfolio.
5. FOR THE GLOBAL STRATEGIC INCOME PORTFOLIO ONLY: To approve or disapprove
a new investment objective for the Global Strategic Income Portfolio
(which would then be renamed the Strategic Income Portfolio).
6. To transact such other business as may properly come before the
meeting.
By order of the Board of Trustees.
George Boyd
Assistant Secretary
The Palladian Trust
<PAGE>
STATEMENT CONCERNING THE
SPECIAL MEETING OF SHAREHOLDERS OF
THE PALLADIAN TRUST
JUNE 8, 1998
The Board of Trustees of The Palladian Trust (the "Trust") solicits your voting
instructions for a special meeting of shareholders of the Trust to be held on
June 8, 1998 at 10:00 a.m. at 440 Lincoln Street, Worcester, MA 01653, and at
any adjournments of the meeting. The approximate date on which this statement
and the voting instruction form will first be sent to certificate owners is May
1, 1998. The record date for determination of the persons entitled to vote for
purposes of this special meeting was April 9, 1998.
The Trust is divided into six Portfolios, and a different class of Capital Stock
is issued with respect to each Portfolio. Only five of the Portfolios are
currently operational and available to certificate owners. These Portfolios are:
Value Portfolio, Growth Portfolio, International Growth Portfolio, Global
Strategic Income Portfolio, and Global Interactive/Telecomm Portfolio. The sixth
Portfolio, the Balanced Opportunity Portfolio, has not commenced operations and
its shares are not publicly available.
As of the record date, 1,639,076.308 votes are eligible to be cast at the
meeting. Each Portfolio has outstanding shares corresponding to the following
number of votes:
<TABLE>
<CAPTION>
International Global Global
Value Growth Growth Strategic Income Interactive/Telecomm
----- ------ ------ ---------------- --------------------
<S> <C> <C> <C> <C>
539,407.184 402,918.306 297,470.314 158,097.308 240,383.196
</TABLE>
All shares of each of the Portfolios are held by (i) the Fulcrum Separate
Account of Allmerica Financial Life Insurance and Annuity Company and the
Fulcrum Separate Account of First Allmerica Financial Life Insurance Company
(collectively, the "Separate Accounts"), (ii) one of the Trust's Portfolio
Managers, and (iii) Palladian Advisors, Inc. ("PAI"). Information about the
number of shares held by each of these entities appears below.
Separate Accounts. Shares of each class of Capital Stock are held by the
Separate Accounts in their corresponding subaccounts as follows:
<TABLE>
<CAPTION>
International Global Global
Value Growth Growth Strategic Income Interactive/Telecomm
----- ------ ------ ---------------- --------------------
<S> <C> <C> <C> <C>
504,538.763 401,718.306 296,444.920 158,097.308 202,661.316
</TABLE>
This Statement uses the term "persons having voting rights with respect to" a
particular Portfolio to refer to a contract owner who has allocated all or part
of his or her contract fund to be invested in that Portfolio. Each contract
owner is entitled to give instructions on how to vote the number of
<PAGE>
2
shares of each Portfolio related to his or her interests in the Separate
Accounts. Each full share shall have one vote, and each fractional share shall
have a proportionate fractional vote. Votes of abstaining contract owners are
not counted. If a contract owner submits a properly executed voting instruction
form but omits instructions with respect to one or more items or proposals,
Allmerica Financial Life Insurance and Annuity Company and First Allmerica
Financial Life Insurance Company (collectively, "Allmerica") will vote the
appropriate number of Trust shares as if the contract owner had given
instructions to vote for approval of that item or proposal. Allmerica will vote
Portfolio shares held in each subaccount for which it does not receive properly
executed instruction forms in the same proportion as it votes Portfolio shares
held in that subaccount for which it does receive properly executed instruction
forms.
Portfolio Managers. The Portfolio Manager for the Value and Global
Interactive/Telecomm Portfolios owns the following Portfolio shares:
<TABLE>
<CAPTION>
% of % of
Portfolio Portfolio Manager Shares Portfolio Trust
- --------- ----------------- ------ ---------- ------
<S> <C> <C> <C> <C>
Value Portfolio GAMCO Investors, Inc.
One Corporate Center
Rye, New York 10580-1434 33,739.804 6.25% 2.09%
Global Interactive/ GAMCO Investors, Inc.
Telecomm Portfolio One Corporate Center
Rye, New York 10580-1434 36,663.537 15.25% 2.24%
</TABLE>
GAMCO Investors, Inc. has agreed to vote its Portfolio shares in the same
proportion as all contract owners having voting rights with respect to the
Portfolio.
Palladian Advisors, Inc. PAI, the Trust's former investment adviser, holds the
following Trust shares purchased in connection with the organization of the
Trust: Value (1,128.617); Growth (1,000.000); Balanced Opportunity
(1,000.000); International Growth (1,025.394); and Global Interactive/Telecomm
(1,058.343). PAI will vote its Portfolio shares in the same proportion as all
contract owners having voting rights with respect to the Portfolio.
Voting instructions, in order to be effective, must be received by the Trust
prior to the close of business on June 2, 1998. You may revoke your voting
instructions any time prior to that date by providing written notice to the
Trust at 440 Lincoln Street, Worcester, Massachusetts 01653. This solicitation
is being made by mail, but it may also be made by facsimile, telephone, or
personal interview. Allmerica Financial Investment Management Services, Inc.
("AFIMS"), the overall Manager of the Portfolios, or one of its affiliates will
bear the costs of this solicitation.
Five proposals are scheduled for consideration at the special shareholder
meeting. Some of the proposals will be voted on by all persons having voting
rights with respect to any Portfolio. Other proposals affect only some
Portfolios and will be voted on only by persons having voting rights with
<PAGE>
3
respect to those Portfolios. The following chart lists each proposal and
indicates which Portfolio or Portfolios will have persons having voting rights
vote on that Proposal.
<TABLE>
<CAPTION>
Inter- Global Global
national Strategic Interactive/
Value Growth Growth Income Telecomm
----- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C>
Proposal 1: To elect Gordon Holmes and X X X X X
George J. Sullivan, Jr. as new Trustees for the
Trust.
Proposal 2: To approve or disapprove a new X X X X X
Management Agreement with Allmerica
Financial Investment Management Services,
Inc. ("AFIMS").
Proposal 3: To approve or disapprove X X X X
agreements substituting AFIMS for the
previous Manager under the Portfolio
Management Agreements.
Proposal 4: To approve or disapprove a new X
Portfolio Management Agreement, pursuant to
which Allmerica Asset Management, Inc.
("AAM") would serve as Portfolio Manager
to the Global Strategic Income Portfolio.
Proposal 5: To approve or disapprove a new X
investment objective for the Global Strategic
Income Portfolio (which, if the Proposal is
approved, would be renamed the Strategic
Income Portfolio).
</TABLE>
THE TRUST WILL FURNISH TO ANY CONTRACT OWNER, UPON REQUEST AND WITHOUT CHARGE, A
COPY OF THE TRUST'S MOST RECENT ANNUAL REPORT TO SHAREHOLDERS. PLEASE WRITE TO
THE TRUST AT 440 LINCOLN STREET, WORCESTER, MASSACHUSETTS 01653, OR CALL (800)
917-1909 TO REQUEST A COPY.
MANAGEMENT AND ADMINISTRATION
Allmerica Financial Investment Management Services, Inc. ("AFIMS"), 440 Lincoln
Street, Worcester, Massachusetts 01653, serves as the overall Manager for the
Trust. More information about AFIMS appears in connection with Proposal 2 below.
<PAGE>
4
The following persons currently serve as officers of the Trust:
Matthew J. Stacom Chairman and President
Tom Dallape Vice President
David J. Mueller Vice President
H. Michael Schwartz Secretary
Thomas P. Cunningham Treasurer
George Boyd Assistant Secretary
Messrs. Mueller, Cunningham, and Boyd are employees of AFIMS. The Trust's Board
of Trustees appointed these individuals to their respective positions at AFIMS's
recommendation. If persons having voting rights approve some or all of the
proposals discussed in this statement, the Board will appoint additional
employees of AFIMS or its affiliates as officers of the Trust, also on AFIMS's
recommendation.
The Trust retains a Portfolio Manager for each Portfolio of the Trust. GAMCO
Investors, Inc., One Corporate Center, Rye, New York 10580-1434, serves as
Portfolio Manager for the Value and Global Interactive/Telecomm Portfolios.
Stonehill Capital Management, Inc., 277 Park Avenue, New York, New York, 10172,
serves as Portfolio Manager for the Growth Portfolio. Bee & Associates
Incorporated, 370 17th Street, Suite 5150, Denver Colorado, 80202, serves as
Portfolio Manager for the International Growth Portfolio. Allmerica Asset
Management, Inc. serves as Portfolio Manager for the Global Strategic Income
Portfolio. Additional information about the Portfolio Managers appears in
Appendix A.
Investors Bank and Trust Company, 89 South Street, Boston, Massachusetts 02111
serves as custodian and transfer agent for, and provides fund accounting
services to, the Trust.
Coopers & Lybrand, L.L.P., has served as independent accountant for the Trust
since the Trust commenced operations in 1996. Representatives of Coopers &
Lybrand are not expected to be present at the shareholder meeting.
MEETING PROPOSALS
The Trust must receive a proposal intended to be presented at a meeting of
persons having voting rights a reasonable time before the solicitation of
proxies is made, usually 120 days before the mailing. The Trust does not
ordinarily hold annual meetings. Therefore, the Trust will retain all proposals
received from persons having voting rights, which will then be eligible to be
considered for distribution with the proxy materials for the next called meeting
of such persons.
<PAGE>
5
PROPOSAL NO. 1
ELECTION OF
NEW TRUSTEES
All person having voting rights with respect to any of the Portfolios will vote
on this proposal.
The business and affairs of the Trust is managed under the direction of the
Board of Trustees (the "Board"), which serves the same function as the Board of
Directors of a corporation. Each Trustee is elected by all persons having voting
rights with respect to the Trust collectively. Currently, the Board has two
Trustees, Matthew J. Stacom (who serves as Chairman) and Tom N. Dallape.
At the recommendation of AFIMS, the Trust's new Manager, the Board has nominated
Gordon Holmes and George J. Sullivan, Jr. also to serve as Trustees. If and
when shareholders elect Mr. Gordon and/or Mr. Sullivan, Mr. Stacom will retire
and Mr. Sullivan will become Chairman and President of the Trust.
During 1997, the Board of Trustees met four times. The Board of Trustees does
not currently have an audit, nominating, or compensation committee. During
1997, the Board had an Audit Committee comprised of the Trustees who were not
interested persons of the Trust or its advisers. That Committee met once in
1997. Because all current and nominated Trustees are not interested persons of
the Trust or its adviser, the Audit Committee is currently inactive.
The table below sets forth information about the current Trustees, the nominees
to serve as Trustees, and the officers of the Trust:
<TABLE>
<CAPTION>
Other Investment
Company Boards
Name Age Position Principal Occupation for Last 5 Years Served On
- ---- --- -------- ------------------------------------- ---------
<S> <C> <C> <C> <C>
Gordon 59 Nominee Lecturer and Executive in Residence, Boston Allmerica
Holmes for University, 1997-present; Certified Public Accountant Investment Trust;
Trustee and Partner with Tofias, Fleishman, Shapiro & Co., Allmerica
P.C., prior to 1997 Securities Trust
George J. 55 Nominee Chief Executive Officer, Newfound Consultants, Inc. Navigator
Sullivan, Jr. for (financial consulting), 1995-present; Chief Operating Securities Lending
Trustee Officer, Noble Partners, L.P. (investment advisory Trust; eight series
services), 1991-1995 funds affiliated
with SEI
investments
Matthew J. 79 Chairman Vice Chairman, Cushman & Wakefield, September None
Stacom of the 1946 to present; Chairman, Palladian Advisors, Inc.,
Board and December 1992 to present
President
</TABLE>
<PAGE>
6
<TABLE>
<CAPTION>
Other Investment
Company Boards
Name Age Position Principal Occupation for Last 5 Years Served On
- ---- --- -------- ------------------------------------- ---------
<S> <C> <C> <C> <C>
Tom N. 30 Trustee; Commercial Land Broker, The Hoffman Company, None
Dallape Vice (Partner since January 1997; Senior Associate prior to
President January 1997)
David J. 45 Vice Vice President, First Allmerica Financial Life None
Mueller President Insurance Company since 1996; Assistant Vice
President, First Allmerica 1995-1996; Business
Analyst, First Allmerica 1993-1995; Manager,
Coopers & Lybrand 1987-1993
H. Michael 31 Secretary President and Director, Palladian Advisors, Inc. since None
Schwartz 1994; President, since 1994, and Vice President and
Chief Financial Officer, 1992-1994, Western Capital
Financial Group, Inc.; Vice President and Chief
Financial Officer, Protean Financial Companies,
1992-1997; Chief Financial Officer, Western Capital
Financial and Insurance Services, Inc., 1988-1997
Thomas P. 52 Treasurer Investment Product Manager, First Allmerica None
Cunningham Financial Life Insurance Company since March 1996;
Vice President, First Data Investor Services Group,
Inc. 1994-1995; Vice President, Fidelity Investments
1990-1993
George 53 Assistant Counsel, First Allmerica Financial Life Insurance None
Boyd Secretary Company since January 1997; Director, Mutual Fund
Administration - Legal and Regulatory, Investors
Bank and Trust Company 1995-1996; Vice President
and Counsel, 440 Financial Group and First Data
Investor Services Group 1992-1995.
</TABLE>
None of the current Trustees or nominees for Trustee are "interested persons" of
the Trust, as that term is defined in the 1940 Act. When Palladian Advisors,
Inc. ("PAI") served as an adviser to the Trust, Mr. Stacom was an interested
person of the Trust because he is Chairman of PAI. Because PAI no longer serves
as an adviser to the Trust, Mr. Stacom is no longer an interested person of the
Trust.
<PAGE>
7
The following table shows the compensation received by the current Trustees
during 1997.
COMPENSATION TABLE
NAME AND POSITION AGGREGATE COMPENSATION
FROM TRUST
Matthew Stacom, Chairman of the $0
Board of Trustees
Tom Dallape, Trustee $9000
Messrs. Stacom and Dallape do not receive any pension or retirement benefits
from the Trust. Neither individual receives any additional compensation from
any registered investment companies other than the Trust.
REQUIRED VOTE
The shares of all the Portfolios are voted together to elect Trustees. Each
person nominated for Trustee will be elected if he receives the votes of a
majority of the outstanding shares of the Trust. The Investment Company Act of
1940 (the "1940 Act") defines a majority of outstanding shares of the Trust as
the lesser of (a) a vote of 67% or more of the outstanding Trust shares whose
holders are present or represented by proxy at the meeting if the holders of
more than 50% of all outstanding Trust shares are present in person or
represented by proxy at the meeting, or (b) a vote of more than 50% of all
outstanding Trust shares. If one nominee does not receive the votes of a
majority of outstanding shares, he will not be elected, but that will not affect
the election of the other nominee.
THE BOARD RECOMMENDS THAT YOU VOTE FOR BOTH OF THE NOMINEES TO THE BOARD OF
TRUSTEES.
<PAGE>
8
PROPOSAL NO. 2
APPROVAL OF A NEW MANAGEMENT AGREEMENT UNDER WHICH
ALLMERICA FINANCIAL INVESTMENT MANAGEMENT SERVICES, INC.
WILL SERVE AS MANAGER OF THE TRUST
All person having voting rights with respect to any of the Portfolios will vote
on this proposal.
Allmerica Financial Investment Management Services, Inc. ("AFIMS" or the
"Manager") serves as Manager to the Trust pursuant to a Management Agreement
with the Trust dated February 12, 1998, as amended April 9, 1998 (the
"Management Agreement"). That agreement was initially approved by the Board of
Trustees (the "Board") on February 11, 1998 and minor amendments were approved
by the Board on April 9, 1998. AFIMS may continue as Manager only until June
11, 1998, unless persons having voting rights approve the Management Agreement.
AFIMS is the successor to another investment adviser affiliated with Allmerica,
Allmerica Investment Management Company, Inc. ("AIMCO"). Prior to April 16,
1998, AIMCO served as an investment adviser to investment companies registered
under the 1940 Act and was also engaged in financial planning for other clients.
As part of a reorganization on April 16, 1998, AIMCO transferred to AFIMS that
portion of its business relating to registered investment companies such as the
Trust, while AIMCO retained its financial planning business. The same personnel
and procedures previously employed by AIMCO to service the Trust are used by
AFIMS. Thus, while AIMCO is the signatory to the Management Agreement, AFIMS
has assumed AIMCO's role under that agreement.
This proposal submits the Management Agreement approved by the Board for the
approval of persons having voting rights. If the persons having voting rights
approve the Management Agreement, it will continue in effect through February
11, 2000 and will continue thereafter if the Board approves it annually. The
Management Agreement will terminate on June 11, 1998 with respect to any
Portfolio for which persons having voting rights fail to approve this proposal.
This proposal would not change the Portfolio Managers who have day-to-day
responsibility for the investment decisions for each Portfolio. Regardless
whether persons having voting rights accept or reject this proposal, each
Portfolio will retain its current Portfolio Manager. Information about a change
in Portfolio Manager for the Global Strategic Income Portfolio appears below in
connection with Proposal 4.
BACKGROUND
Prior to February 12, 1998, Palladian Advisors, Inc. ("PAI" or the "former
manager") served as Manager to the Trust pursuant to a management agreement
between PAI and the Trust. PAI is a California corporation located at 701
Palomar Airport Road, Suite 300, Carlsbad, California 92009.
<PAGE>
9
PAI had agreed to limit operating expenses and reimburse those expenses to the
extent that each Portfolio's "other expenses" (i.e., expenses other than
management fees) from September 11, 1996 through December 31, 1997 exceed the
following expense limitations (expressed as an annualized percentage of average
daily net assets): Value Portfolio, 0.70%; Growth Portfolio, 0.70%;
International Growth Portfolio, 1.20%; Global Strategic Income Portfolio, 1.20%;
Global Interactive/Telecomm Portfolio, 1.20%.
At the request of the Board of Trustees, PAI had committed to pay all amounts
due under the expense reimbursement arrangement on or about December 31, 1997.
In January 1998, however, PAI advised the Board of Trustees that it did not have
sufficient assets to make the required payment. Accordingly, the Board of
Trustees and PAI pursued and considered other options under which the payment
could be made. The Board of Trustees determined that it was in the best
interests of shareholders to accept an offer from a group (the "Payment Group")
willing to immediately pay to the Trust the full amount due under the expense
limitation. The Payment Group currently includes Allmerica and certain
principals of PAI or entities selling the variable contracts.
On January 28, 1998, the Payment Group paid the Portfolios the following
amounts, which were the full amounts due under the expense limitation
arrangement: Value Portfolio, $128,362.72; Growth Portfolio, $114,448.91;
International Growth Portfolio, $89,895.43; Global Strategic Income Portfolio,
$103,436.57; Global Interactive/Telecomm Portfolio, $88,983.02. Accordingly, the
Trust has been fully reimbursed for amounts owed under the expense limitation
arrangement.
Through December 31, 1999, each Portfolio must reimburse the Payment Group for
the payment described above, provided that such reimbursement does not cause the
Portfolio's "other expense" ratio to exceed the previous expense limitation for
that Portfolio under the Manager's expense limitation arrangement. (Those
limitations are listed above.) This reimbursement obligation is the same as the
reimbursement obligation that was in place for PAI. After December 31, 1999, the
Portfolios' reimbursement liability to the Payment Group will cease.
BOARD APPROVAL OF NEW MANAGEMENT AGREEMENT
In light of the background described above, the Board and PAI requested that
AIMCO (the predecessor to AFIMS) accept the role of Manager of the Trust. The
Board concluded that having the Allmerica-affiliated investment adviser assume
this responsibility was in the best interests of the Trust and its shareholders.
AFIMS (as successor to AIMCO) has substantial experience acting as the overall
manager of a multiple-portfolio mutual fund in which it monitors and oversees
separate subadvisers who are responsible for day-to-day investment decisions.
The Board also considered that the Management Agreement, including the
compensation terms, are substantially the same as the previous management
agreement with PAI. AIMCO agreed to assume the role of Manager. At a February
11, 1998 meeting, the Board unanimously approved a new Management Agreement with
AIMCO and appointed AIMCO Manager of the Trust as of February 12, 1998. The
Board was subsequently notified of the reorganization by which AIMCO's
responsibilities under the Management Agreement were assumed by AFIMS. In
accordance with rules of the Securities and
<PAGE>
10
Exchange Commission (the "SEC") the Management Agreement is effective for 120
days to provide time for the Trust to seek shareholder approval. As noted above,
this Proposal seeks shareholder approval of the Management Agreement so that it
may continue in effect past June 11, 1998.
NEW EXPENSE LIMITATION AGREEMENT
Allmerica has voluntarily agreed to limit operating expenses and reimburse those
expenses to the extent that each Portfolio's 1998 "other expenses" (i.e.,
expenses other than management fees) exceed the following expense limitations
(expressed as an annualized percentage of average daily net assets): Value
Portfolio, 1.00%; Growth Portfolio, 1.00%; International Growth Portfolio,
1.20%; Global Strategic Income Portfolio, 1.20%; Global Interactive/Telecomm
Portfolio, 1.20%. For the three global or international Portfolios, the expense
limitation for 1998 is the same percentage (1.20%) as the 1997 limitation, which
is described in the prospectus. For the Value and Growth Portfolios, the 1998
limitation is 1.00% rather than the 0.70% 1997 limitation. Allmerica has agreed
to pay any amount due for a calendar month not later than the 15th day of the
following calendar month (with any final adjustment to be made not later than
January 15, 1999). Allmerica, if agreed to by the Board, may continue this
voluntary expense limitation past December 31, 1998. This expense limitation was
implemented effective February 13, 1998. In addition, on February 24, 1998,
Allmerica voluntarily contributed to the Portfolios the following amounts as
capital: Value Portfolio, $8,469.29; Growth Portfolio, $10,350.93;
International Growth Portfolio, $7,723.73; Global Strategic Income Portfolio,
$7,936.72; Global Interactive/Telecomm Portfolio, $6,618.72. These amounts were
contributed to offset expenses accrued to the Portfolios in excess of the
expense limitations during the period January 1, 1998 through February 12, 1998.
Allmerica received no shares of beneficial interest or other consideration in
exchange for these contributions. These capital contributions resulted in an
increase in paid-in capital for each Portfolio.
For the two years following the date that the Allmerica expense limitation ends,
each Portfolio will reimburse Allmerica for any Portfolio expenses it reimbursed
pursuant to the expense limitation, provided that such reimbursement to
Allmerica does not cause the Portfolio's "other expense" ratio to exceed the
limitation for that Portfolio set forth above. This reimbursement for the 1998
expenses will not commence until the Payment Group has been fully reimbursed for
the 1996 and 1997 expenses, as discussed above. After the two year period after
the Allmerica expense limitation ends, the Portfolios' obligation to reimburse
Allmerica will cease.
INFORMATION ABOUT THE NEW MANAGER
AFIMS, a Massachusetts corporation, is registered with the Securities and
Exchange Commission as an investment adviser. AFIMS is located at 440 Lincoln
Street, Worcester, Massachusetts 01653. AFIMS is wholly-owned subsidiary of SMA
Financial Corp., which in turn is a wholly-owned subsidiary of First Allmerica
Financial Life Insurance Company, a wholly owned subsidiary of Allmerica
Financial Corporation ("AFC"). AFC is the parent company of the two life
insurance companies -- Allmerica Financial Life Insurance Company and Annuity
Company and First Allmerica Financial Life Insurance Company -- that currently
utilize the Trust as an underlying fund
<PAGE>
11
for their variable contracts. FMR Corporation owns or controls over 10% of the
common stock of AFC and therefore may be deemed to have a controlling interest
in AFC. Edward C. Johnson 3d and Abigail P. Johnson each may be deemed a
controlling person of FMR Corporation by virtue of their ownership or control of
stock of that entity.
AFIMS currently serves as the investment manager for the Allmerica Investment
Trust. Like the Palladian Trust, the Allmerica Investment Trust consists of a
number of separate portfolios that serve as the underlying investment vehicle
for variable insurance contracts. Each Allmerica Investment Trust portfolio has
a separate subadviser, who serves in a similar capacity to a Portfolio Manager
for a Palladian Trust Portfolio. Fourteen series of the Allmerica Investment
Trust have commenced operations. Information about each appears in the following
chart.
<TABLE>
<CAPTION>
Size as of
December 31, Expense
Name of Mutual Fund 1997 Annual Advisory Fee Rate (1) Limitation (2)
------------------- ---- ---------------------------- --------------
<S> <C> <C> <C>
Select Aggressive $604 million 1.00% of first $100 million 1.35
Growth Fund plus 0.90% of next $150
million plus 0.85% of amount
over $350 million
Select Capital $240 million 1.00% of first $100 million 1.35
Appreciation Fund plus 0.90% of next $150
million plus 0.85% of amount
over $350 million
Select Value $202 million 1.00% of first $100 million 1.25%(3)
Opportunity Fund plus 0.85% of next $150
million plus 0.80% of next
$250 million plus 0.75% of
next $250 million plus 0.70%
of amount over $750 million
Select International $397 million 1.00% of first $100 million 1.50%
Equity Fund plus 0.90% of next $150
million plus 0.85% of amount
over $350 million
Select Growth Fund $470 million 0.85% 1.20%
Growth Fund $728 million 0.60% of first $250 million 1.20%
plus 0.40% of next $250
million plus 0.35% of amount
over $500 million
</TABLE>
<PAGE>
12
<TABLE>
<CAPTION>
Size as of
December 31, Expense
Name of Mutual Fund 1997 Annual Advisory Fee Rate (1) Limitation (2)
------------------- ---- ---------------------------- --------------
<S> <C> <C> <C>
Equity Index Fund $297 million 0.35% of first $50 million 0.60%
plus
0.30% of next $200 million
plus 0.25% of amount over
$250 million
Select Growth and $473 million 0.75% of first $100 million 1.10%
Income Fund plus 0.70% of next $150
million plus 0.65% of amount
over $350 million
Select Income Fund $104 million 0.60% of first $50 million 1.00%
plus
0.55% of next $50 million plus
0.45% of amount over $100
million
Investment Grade $189 million 0.50% of first $50 million 1.00%
Income Fund plus
0.45% of next $50 million plus
0.40% of amount over $100
million
Government Bond Fund $55 million 0.50% 1.00%
Money Market Fund $260 million 0.35% of first $50 million 0.60%
plus
0.25% of next $200 million
plus 0.20% of amount over
$250 million
Select Emerging (4) 0.__% 2.00%(5)
Markets Fund
Select Strategic Growth (4) 0.__% 1.20%
Fund
</TABLE>
__________
(1) AFIMS pays a portion of the advisory fee to the fund's subadviser.
(2) Currently, AFIMS will voluntarily reimburse fees and pay expenses to the
extent they exceed the applicable reimbursement percentages. Currently, each
fund's fees and expenses are less than the applicable reimbursement percentage,
except for the Select Emerging Markets Fund and Select Strategic Growth Fund,
both of which recently commenced operations, and neither of which has current
expense information available.
(3) Currently, AFIMS has also agreed to limit advisory fees to 0.90% of net
assets.
(4) Both the Select Emerging Markets Fund and Select Strategic Growth Fund
commenced operations after December 31, 1997.
<PAGE>
13
(5) AFIMS will limit its expense reimbursement of the Select Emerging Markets
Fund to the amount of its advisory fee.
The following chart sets forth the name and principal occupation of the
principal executive officer and each director of AFIMS. The address for each
person is 440 Lincoln Street, Worcester, Massachusetts 01653.
Name Position with Manager Principal Occupation
- ---- --------------------- --------------------
John F. Kelly Director Senior Vice President and
Counsel, First Allmerica
John F. O'Brien Director President and Chief
Executive Officer, Allmerica
Richard M. Reilly Director, President, and President and Chief
Chief Executive Officer, AFIMS
Executive Officer
Eric A. Simonsen Director President, Allmerica
Services Corp.
The following chart provides information about the directors and officers of the
Trust who are also directors or officers of the AFIMS.
Name Position with AFIMS Position with the Trust
- ---- ------------------- -----------------------
George M. Boyd Counsel Assistant Secretary
Thomas P. Cunningham Vice President Treasurer
David J. Mueller Vice President Vice President
INFORMATION ABOUT THE NEW MANAGEMENT AGREEMENT
The Management Agreement is set forth in Appendix B. It is substantially
identical to the Management Agreement with PAI, the former manager, except for
substituting the name and address of the new Manager. The agreement provides
that the Manager will recommend Portfolio Managers to the Board of Trustees to
provide day-to-day investment management of each Portfolio; will monitor each
Portfolio Manager and make appropriate recommendations to the Board as to
whether to retain or terminate Portfolio Managers; will coordinate
administrative matters and provide administrative personnel and services; and
will provide reports, consultation, and other reasonable services to the Board.
In the event a Portfolio Manager is terminated or resigns, the agreement
authorizes the Manager to provide day-to-day investment management of that
Portfolio. Pursuant to the agreement, the Manager agrees to act in conformity
with the Trust's registration statement filed with the Securities and Exchange
Commission, with the Board's instructions and directions, and with
<PAGE>
14
all applicable laws and regulations. The agreement requires that the Manager pay
its own expenses, as well as the salaries and other fees and expenses for any
officer or trustee of the Trust who serves as an officer, director, or employee
of the Manager or its affiliates. The agreement requires the Trust to pay for
investment advisory and management fees (which are described below); the Trust's
independent public accountants; the Trust's transfer agent, registrar, and
dividend disbursing agent (if any); the Trust's custodian; costs incurred to
calculate the value of each Portfolio's assets; taxes and costs associated with
maintaining tax records; any salaries of any officers or employees of the Trust
who are not officers, directors, or employees of the Manager or its affiliates;
brokerage fees and commissions in connection with Portfolio transactions; any
costs associated with borrowing by the Trust; costs of communicating with and
providing information to shareholders and regulatory authorities; the Trust's
legal fees; stock certificates; the fees and expenses of Trustees who are
unaffiliated with the Manager; the fidelity bond required under federal
securities laws and any insurance costs; any membership dues for any association
to which the Trust belongs; organizational and offering expenses; and any
extraordinary expenses of the Trust that may arise. The agreement describes the
compensation paid to the Manager. (That compensation is also described below.)
The agreement imposes liability on the Manager for losses caused by the
Manager's breach of fiduciary duty (as limited by certain provisions of the
federal securities laws); willful misfeasance, bad faith, or gross negligence by
the Manager; or reckless disregard by the Manager of its obligations and duties
under the agreement. The Trust may not recover from the Manager for losses
arising from other causes. The agreement specifies that it will terminate if not
approved by persons having voting rights; if so approved, the agreement will
continue for two years, and from year to year afterwards so long as the Board
annually re-approves it. The agreement also provides that it will terminate in
the event of an "assignment" as defined by the 1940 Act (which is essentially a
change of control of the Manager).
INVESTMENT ADVISORY FEES
The fee structure of the new Management Agreement is identical to that of the
old agreement with PAI. That structure is described below. Fees and expenses
under the new Management Agreement will thus be the same as under the old,
except that Allmerica voluntarily has agreed to limit certain expenses as
explained above.
Each Portfolio pays an overall management fee, computed and accrued daily and
paid monthly, based on its average daily net assets. The overall fee varies
based on the performance of that Portfolio (after expenses) compared to that of
an appropriate benchmark. The overall advisory fee is split among the various
advisers in the following manner. The Portfolio Manager receives 80% of the fee,
and AFIMS receives the remaining 20%.
Fixed Advisory Fee For The First Year. For the period beginning on the effective
date of a Portfolio Management Agreement with a new Portfolio Manager (or, in
the case of a new Portfolio, the day on which the Portfolio commenced investment
operations) and ending with the last day of the twelfth full calendar month
thereafter, each Portfolio will pay a monthly advisory fee calculated at an
annual rate of 0.80% of the Portfolio's average daily net assets.
<PAGE>
15
Performance-Based Fee. After the first year with a new Portfolio Manager as
described above, each Portfolio pays, at the end of each month, a monthly
advisory fee equal to a Basic Fee plus or minus an Incentive Fee. (As explained
below, the fee might be reduced if absolute performance is negative.) The
monthly Basic Fee equals one-twelfth of the annual Basic Fee rate of 2.0%
multiplied by average daily net assets over the previous 12 months. The
Incentive Fee rate ranges from -2.0% to +2.0% on an annual basis, depending on a
comparison of the Portfolio's performance (reflecting a deduction of Portfolio
expenses) and the performance of a selected benchmark index over the past 12
months. The monthly Incentive Fee, like the monthly Basic Fee, is calculated by
multiplying one- twelfth of the Incentive Fee rate on an annual basis by the
average daily net assets over the previous 12 months. Accordingly, the Total Fee
could range from 0.0% to an annual rate of 4.0%, depending on performance.
As noted above, performance of both the Portfolio and the selected benchmark
index is calculated on a rolling 12-month period (i.e., the previous 12 months,
including the month for which the fee is being calculated). The performance of a
Portfolio is calculated by first determining the change in the Portfolio's net
asset value per share during the period, assuming the reinvestment of
distributions during that period, and then expressing this amount as a
percentage of the net asset value per share at the beginning of the period. Net
asset value per share is calculated by dividing the value of the securities held
by the Portfolio plus any cash or other assets minus all liabilities including
accrued advisory fees and the other expenses, by the total number of shares
outstanding at the time. The performance of the selected benchmark index is
calculated as the sum of the change in the level of the index during the period,
plus the value of any dividends or distributions made by the companies whose
securities comprise the index accumulated to the end of the period, and then
expressing that amount as a percentage of the index at the beginning of the
period.
No Incentive Fee will be paid if the Portfolio's performance equals the targeted
performance --selected benchmark index plus 2.25 percentage points. The maximum
fee will be paid if performance is 5.25 percentage points higher than the target
(i.e., 7.5 percentage points higher than the selected benchmark index). No fee
will be paid if performance is 5.25 percentage points lower than the target
(i.e., more than 3 percentage points below the selected benchmark index). The
chart below further explains the Incentive Fee at various performance levels.
<TABLE>
<CAPTION>
PERCENTAGE POINT DIFFERENCE BETWEEN
PERFORMANCE OF THE PORTFOLIO (NET OF
EXPENSES INCLUDING BASIC FEE AND
INCENTIVE FEE) AND CHANGE IN TOTAL
SELECTED BENCHMARK INDEX BASIC FEE (%) INCENTIVE FEE (%) ADVISORY FEE
- ------------------------ ------------- --------------- ------------
<S> <C> <C> <C>
+7.5 or greater 2.0 2.0 4.0
+6.0 or greater, but less than +7.5 2.0 1.5 3.5
+4.5 or greater, but less than +6.0 2.0 1.0 3.0
+3.0 or greater, but less than +4.5 2.0 0.5 2.5
+1.5 or greater, but less than +3.0 2.0 0.0 2.0
0.0 or greater, but less than +1.5 2.0 -0.5 1.5
- -1.5 or greater, but less than 0.0 2.0 -1.0 1.0
</TABLE>
<PAGE>
16
<TABLE>
<S> <C> <C> <C>
- -3.0 or greater, but less than -1.5 2.0 -1.5 0.5
Less than -3.0 2.0 -2.0 0.0
</TABLE>
Maximum Fee If Performance Is Negative. Notwithstanding the above schedule, if
the absolute performance of a Portfolio (after payment of all expenses,
including the Basic Fee and any Incentive Fee) after the first year is negative,
the monthly advisory fee will be the lesser of the fee calculated pursuant to
the above schedule or the alternative monthly advisory fee described below,
which under certain circumstances results in the Portfolios paying either no
advisory fee or a lower monthly advisory fee than under the performance fee
schedule above. If a Portfolio's performance (after payment of all expenses
including advisory fees) is negative and does not exceed the selected benchmark
by six percentage points (on an annual basis), no monthly advisory fee will be
paid. If the Portfolio's performance (after payment of all expenses including
advisory fees) is negative and does not exceed the selected benchmark by twelve
percentage points but does exceed the selected benchmark by six percentage
points (on an annual basis), the alternate monthly advisory fee will be based on
an annual rate of 1.0% of average daily net assets over the previous 12 months.
If, on the other hand, the performance of a Portfolio (after payment of all
expenses including advisory fees) is negative but exceeds the selected benchmark
by twelve percentage points or more (on an annual basis), the alternative
monthly advisory fee will be based on an annual rate of 2.0% of average daily
net assets over the previous 12 months.
Size of Fee. The Basic Fee payable by the Portfolios after the first year is at
a rate higher than the investment advisory fees paid by most other investment
companies. If a Portfolio outperforms the selected benchmark by 3.0 percentage
points or more, the advisory fee payable by a Portfolio may further exceed those
paid by other investment companies. On the other hand, if a Portfolio
underperforms the selected benchmark, the advisory fee paid by the Portfolio may
be less than those paid by other investment companies. If, during the applicable
performance period, a Portfolio underperforms the selected benchmark by three
or more percentage points, the Portfolio will not pay any advisory fee, although
the Manager, Portfolio Advisor and Portfolio Managers will remain obligated to
provide the Portfolio with the services contemplated herein as long as they are
in effect.
Performance Benchmarks. As described above, total advisory fees paid to each
Portfolio Manager for advising the Portfolios are based on the performance of
the Portfolio they manage relative to a market benchmark selected in light of
the investment objective and policies of the Portfolio. The performance
benchmarks selected for the Portfolios are listed below and described in more
detail in the prospectus.
Portfolio Performance Benchmark
--------- ---------------------
The Value Portfolio S&P 500
The Growth Portfolio S&P 500
The International Growth Portfolio MSCI - Europe, Australia, Far East
(EAFE) Index
The Global Strategic Income Portfolio JP Morgan Global Government Bond
<PAGE>
17
Index, Unhedged (1)
The Global Interactive/Telecomm Portfolio S&P 500
(1) As described below in connection with Proposals 4 and 5, the Board of
Trustees has proposed to change the performance benchmark for the Global
Strategic Income Portfolio to the Lehman Brothers Aggregate Bond Index to
reflect a proposed change in that Portfolio's investment objective.
1997 Advisory Fees. Information about advisory fees paid during 1997 is
included in Appendix A to this proxy statement.
RELATIONSHIP WITH PROPOSAL NO. 3.
Each Portfolio will vote separately on this Proposal. AFIMS will continue to
serve as overall Manager for each Portfolio for which persons having voting
rights approve both this Proposal AND, if applicable, Proposal No. 3, which
would substitute AFIMS for the previous Manager in each Portfolio's separate
Portfolio Management Agreement. This means that for the Value, Growth,
International Growth, and Global Interactive/Telecomm Portfolios, persons having
voting rights with respect to the Portfolio must approve both Proposals for
AFIMS to continue to serve as overall Manager of that Portfolio. Persons having
voting rights with respect to the Global Strategic Income Portfolio do not vote
on Proposal 3, and AFIMS will continue as overall Manager for that Portfolio if
persons having voting rights approve this Proposal only.
In the event that persons having voting rights with respect to a particular
Portfolio do not approve this Proposal or, if applicable, both this Proposal and
Proposal 3, then AFIMS will cease serving as overall Manager to that Portfolio
as of June 11, 1998, and the Board will meet to consider appropriate action with
regard to that Portfolio.
REQUIRED VOTE
Each Portfolio will vote separately on this Proposal No. 2. The Proposal will be
adopted by a Portfolio if a majority of outstanding shares of the Portfolio vote
FOR approval of the Proposal. The 1940 Act defines a majority of outstanding
shares of a Portfolio as the lesser of (a) a vote of 67% or more of the
Portfolio's shares whose holders are present or represented by proxy at the
meeting if the holders of more than 50% of all outstanding Portfolio's shares
are present in person or represented by proxy at the meeting, or (b) a vote of
more than 50% of all outstanding Portfolio shares.
THE BOARD RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL NO. 2.
<PAGE>
18
PROPOSAL NO. 3
APPROVAL OF AGREEMENTS UNDER WHICH
ALLMERICA FINANCIAL INVESTMENT MANAGEMENT SERVICES, INC.
IS SUBSTITUTED FOR THE PREVIOUS MANAGER UNDER
THE PORTFOLIO MANAGEMENT AGREEMENTS
Persons having voting rights with respect to the following Portfolios (the
"Affected Portfolios") will vote on this proposal:
. Value Portfolio
. Growth Portfolio
. International Growth Portfolio
. Global Interactive/Telecomm Portfolio
Persons having voting rights only with respect to the Global Strategic Income
Portfolio will not vote on this proposal.
The Portfolio Manager for each Portfolio provides the day-to-day investment
management of the Portfolio pursuant to a Portfolio Management Agreement. The
parties to that agreement include the Portfolio Manager, the Trust, and the
overall Manager. As explained above in connection with Proposal 2, the Trust
has a new Manager. Initially the new Manager was Allmerica Investment
Management Company, Inc. ("AIMCO"). The parties executed "substitution
agreements" substituting AIMCO as the new Manager under the Portfolio Management
Agreement. As part of a corporate reorganization on April 16, 1998, AIMCO
transferred to AFIMS that portion of its business relating to registered
investment companies such as the Trust. The same personnel and procedures
previously employed by AIMCO to service the Trust are used by AFIMS. Thus,
while AIMCO is the signatory to the substitution agreement, AFIMS has assumed
AIMCO's role under those agreements.
Although no Portfolio Management Agreement for the Affected Portfolios will
change in any material respect other than substituting AIMCO (and now its
successor AFIMS) for PAI, that substitution technically results in a new or
amended agreement. Accordingly, this Proposal submits the substitution
agreements for the approval of persons having voting rights.
As explained above in connection with Proposal 2, the Board of Trustees
concluded at its February 11, 1998 meeting that the best interests of the Trust
would be served if AIMCO (the predecessor to AFIMS) replaced PAI as Manager. The
Board accordingly approved the substitution agreements.
The form of substitution agreement appears in Appendix C. It provides that AIMCO
will replace PAI as a party to the respective Portfolio Management Agreement.
AFIMS (as successor to AIMCO) now has responsibility for any duty formerly
assigned to PAI and arising after the date of the agreement.
<PAGE>
19
The Portfolio Management Agreements for each Portfolio will not change, other
than the substitution of the new Manager of the Trust. Each Portfolio will
continue to have the same Portfolio Manager responsible for day-to-day
management of the Portfolio's investments. Each Portfolio Management Agreement
provides generally that the Portfolio Manager will provide research services and
make decisions about what securities and other instruments the Portfolio will
invest in. The Portfolio Manager must make investment decisions for the
Portfolio in conformity with the Portfolio's investment objective and policies.
The Portfolio Manager must, under the applicable Portfolio Management Agreement,
comply with applicable laws and regulations. The Portfolio Manager must also
provide information about Portfolio transactions to the Trust's custodian.
Pursuant to each Portfolio Management Agreement, the Portfolio Manager must
provide information and reports to the Board of Trustees. Each Portfolio
Management Agreement specifies that the Portfolio Manager must pay its own
expenses and salaries and fees of any officer or trustee of the Trust who is an
officer, director, or employee of the Portfolio Manager. The Portfolio Manager
is not otherwise responsible for the Trust's or a Portfolio's expenses. Each
Portfolio Management Agreement imposes liability on a Portfolio Manager for
losses caused by the Portfolio Manager's breach of fiduciary duty (as limited by
certain provisions of the federal securities laws); willful misfeasance, bad
faith, or gross negligence by the Portfolio Manager; or reckless disregard by
the Portfolio Manager of its obligations and duties under the agreement. The
Trust may not recover from the Portfolio Manager for losses arising from other
causes. The Portfolio Management Agreement provides that it will terminate in
the event of an "assignment" (which is essentially a change of control of the
Portfolio Manager), but will otherwise continue so long as on the Board of
Trustees re-approves it annually.
Each Portfolio Management Agreement also describes the fee structure for the
particular Portfolio. The substitution agreements will not have any effect on
---
that fee structure. A description of the fee structure for each Portfolio
appears above in connection with Proposal 2. Additional information about AFIMS
also appears above in connection with Proposal 2. Information about the
Portfolio Managers appears in Appendix A.
With respect to each Affected Portfolio, the Proposal will go into effect only
if persons having voting rights with respect to the Portfolio approve both this
Proposal and Proposal No. 2. For more information, see Proposal No. 2.
<PAGE>
20
REQUIRED VOTE
The Affected Portfolios will each vote on this Proposal separately. The Proposal
will be adopted by a Portfolio if a majority of outstanding shares of the
Portfolio vote FOR approval of the Proposal. The 1940 Act defines a majority of
outstanding shares of a Portfolio as the lesser of (a) a vote of 67% or more of
the Portfolio's shares whose holders are present or represented by proxy at the
meeting if the holders of more than 50% of all outstanding Portfolio's shares
are present in person or represented by proxy at the meeting, or (b) a vote of
more than 50% of all outstanding Portfolio shares.
THE BOARD RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL NO. 3.
<PAGE>
21
PROPOSAL NO. 4
APPROVAL OF A NEW PORTFOLIO MANAGEMENT AGREEMENT,
PURSUANT TO WHICH ALLMERICA ASSET MANAGEMENT, INC.
WOULD SERVE AS PORTFOLIO MANAGER
TO THE GLOBAL STRATEGIC INCOME PORTFOLIO
Only persons having voting rights with respect to the Global Strategic Income
Portfolio will vote on this proposal.
Since the Trust commenced operations in 1996, Fischer Francis Trees & Watts
("Fischer Francis") has served as Portfolio Manager to the Global Strategic
Income Portfolio (the "Portfolio"). In response to a request from Fischer
Francis that it be replaced as Portfolio Manager, at an April 9, 1998 meeting,
the Board approved an agreement terminating the Portfolio Management Agreement
with Fischer Francis as of the close of business on April 10, 1998. At that
meeting, the Board also approved a new Portfolio Management Agreement with
Allmerica Asset Management Company, Inc. ("AAM") to serve as Portfolio Manager
to the Global Strategic Income Portfolio. AAM is an affiliate of AFIMS, the
current overall Trust Manager, and has expertise in investing in fixed-income
securities.
This Proposal submits the Portfolio Management Agreement with AAM for the
approval of persons having voting rights with respect to the Portfolio. If
approved, the Portfolio Management Agreement will continue indefinitely so long
as the Board approves the agreement annually.
INFORMATION ABOUT ALLMERICA ASSET MANAGEMENT COMPANY, INC.
AAM, a Massachusetts corporation, is registered with the Securities and Exchange
Commission as an investment adviser. AAM is located at 440 Lincoln Street,
Worcester, Massachusetts 01653. AAM is wholly-owned subsidiary of SMA Financial
Corporation, which, as described above in connection with Proposal 2, is a an
indirect wholly-owned subsidiary of Allmerica Financial Corporation ("AFC").
Additional information about AFC appears above in connection with Proposal 2.
AAM's investment research and portfolio management teams have extensive
experience investing in fixed-income securities. AAM seeks to outperform
relevant benchmarks by exploiting inefficiencies in the fixed-income securities
markets through fundamental research. AAM's investment style combines "bottom-
up" research by analysts who specialize in particular sectors and industries
with a "top-down" investment strategy group that formulates broad investment
strategies and provides overall control and review.
In additional to institutional advisory services, AAM serves as investment
adviser to a closed-end mutual fund, Allmerica Securities Trust, and as
subadviser to three portfolios of the Allmerica
<PAGE>
22
Investment Trust that invest primarily in fixed-income securities. Information
about expense reimbursement for the Allmerica Investment Trust appears above in
connection with Proposal 2. Other relevant information about these mutual funds
appears below.
<TABLE>
<CAPTION>
Name of Mutual Fund December 31, 1997 Advisory or Subadvisory Fee Rate
------------------- ----------------- --------------------------------
<S> <C> <C>
Allmerica Securities Trust $101 million 0.3% of average net assets plus 2.5%
of interest and dividend income
Allmerica Investment Trust - $189 million 0.20%
Investment Grade Income
Fund
Allmerica Investment Trust - $55 million 0.20%
Government Bond Fund
Allmerica Investment Trust - $260 million 0.10%
Money Market Fund
</TABLE>
The following chart sets forth the name and principal occupation of the
principal executive officer and each director of AAM. The address for each
person is 440 Lincoln Street, Worcester, Massachusetts 01653.
<TABLE>
<CAPTION>
Name Position with AAM Principal Occupation
- ------------------- ---------------------- -----------------------------
<S> <C> <C>
John P. Kavanaugh President and Director President, AAM
John F. Kelly Director Property/Casualty insurance
executive
John F. O'Brien Director President and Chief
Executive Officer, Allmerica
</TABLE>
No officers or directors of AAM currently serve as officers or directors of the
Trust.
INFORMATION ABOUT THE NEW PORTFOLIO MANAGEMENT AGREEMENT
The new Portfolio Management Agreement with AAM is substantially identical to
the previous agreement with Fischer Francis. This paragraph summarizes
provisions common to both agreements. The agreement provides generally that the
Portfolio Manager will provide research services and make decisions about what
securities and other instruments the Portfolio will invest in. The Portfolio
Manager must make investment decisions for the Portfolio in conformity with the
Portfolio's investment objective and policies. The Portfolio Manager must, under
the Portfolio Management Agreement, comply with applicable laws and regulations.
The Portfolio Manager must also provide information about Portfolio transactions
to the Trust's custodian. Pursuant to the
<PAGE>
23
Portfolio Management Agreement, the Portfolio Manager must provide information
and reports to the Board of Trustees. The Portfolio Management Agreement
specifies that the Portfolio Manager must pay its own expenses and salaries and
fees of any officer or trustee of the Trust who is an officer, director, or
employee of the Portfolio Manager. The Portfolio Manager is not otherwise
responsible for the Trust's or the Portfolio's expenses. The Portfolio
Management Agreement imposes liability on a Portfolio Manager for losses caused
by the Portfolio Manager's breach of fiduciary duty (as limited by certain
provisions of the federal securities laws); willful misfeasance, bad faith, or
gross negligence by the Portfolio Manager; or reckless disregard by the
Portfolio Manager of its obligations and duties under the agreement. The Trust
may not recover from the Portfolio Manager for losses arising from other causes.
The Portfolio Management Agreement provides that it will terminate in the event
of an "assignment" (which is essentially a change of control of the Portfolio
Manager), but will otherwise continue so long as on the Board of Trustees re-
approves it annually.
The new Portfolio Management Agreement differs from the previous agreement with
Fischer Francis in one material respect. Under the previous agreement with
Fischer Francis, the relevant benchmark for comparing performance and computing
the Portfolio Manager's compensation was the JP Morgan Global Governmental Bond
Index, Unhedged, an index intended to measure the global government bond market
of 13 countries weighted by market capitalization. This benchmark reflected the
Portfolio's global focus. As explained below in connection with Proposal 5,
however, the Board has approved a change in the Portfolio's objective to remove
the global emphasis, and has submitted that proposed change for the approval of
persons having voting rights. Because AAM and the Board anticipate that the
Portfolio will focus more on domestic fixed-income securities, the agreement was
changed to make the relevant benchmark the Lehman Brothers Aggregate Bond Index.
This index measures the overall domestic bond market and combines four other
indices: the Lehman Brothers Government Bond Index, which tracks the returns of
U.S. Treasuries, agency bonds, and one- to three- year U.S. government
obligations; the Lehman Brothers Corporate Bond Index, which tracks the returns
of all publicly issued, fixed-rate, nonconvertible, dollar-denominated,
investment-grade corporate debt registered with the Securities and Exchange
Commission; the Lehman Brothers Mortgage-Backed Securities Index, which includes
15- and 30-year fixed-rate securities backed by mortgage pools issued by GNMA,
FNMA, and FHLMC; and the Lehman Brothers Asset-Backed Securities Index, which
tracks fixed-income securities that represent a participation in, or are secured
by and payable from, a stream of payments generated by particular assets (for
example, trade receivables).
The fee structure of the new Portfolio Management Agreement is the same as under
the old Portfolio Management Agreement with Fischer Francis (except for the
change in performance benchmark) and is described above in connection with
Proposal 2. The new Portfolio Management Agreement will result in one change
relating to fees, however. Under the new agreement (as under the former
agreement), during a Portfolio Manager's first year serving in that capacity,
rather than paying a performance-based fee, the Portfolio will pay a fixed fee
of 0.80% of average daily net assets. After the twelfth full calendar month has
elapsed under the agreement, the performance-based fee will be in effect.
Fischer Francis had already served as Portfolio Manager for a full year, so the
performance-
<PAGE>
24
based fee structure was in effect. AAM has not served as Portfolio Manager for a
year, so the Portfolio will pay a fixed fee of 0.80% of average daily net assets
until that year has elapsed.
AAM's fee is subject to an additional limitation. From the time that AAM
assumed the role of Portfolio Manager until shareholders approve the new
agreement, the Trust will pay AAM the lesser of the following two fees: (1) the
------
0.80% fee set by the new agreement; and (2) the fee that Fischer Francis would
have been paid.
ADDITIONAL FEE INFORMATION
1997 Fee Information. The following table summarizes the expenses of the
Portfolio during 1997. Expenses are expressed as a percentage of average net
assets during the year, and include expense reimbursements applicable at that
time. This table and example do not include any expenses charged under any
variable contract, such as sales charges or mortality and expense risk charges.
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Advisory Fees ................................ 0.41%
Other Expenses ............................... 1.20%
TOTAL FUND OPERATING EXPENSES ................ 1.61%
The following example shows the total expenses that would be payable if a
shareholder redeemed his or her shares in the Portfolio after having held them
for one, three, five, and ten year periods respectively. The example is based on
the expenses listed in the table above. Actual expenses may be greater or less
than shown. The example assumes a 5% annual rate of return pursuant to
requirements of the Securities and Exchange Commission. This hypothetical rate
of return is not intended to be representative of past or future performance.
EXAMPLE
A shareholder would pay the following expenses
on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at end of
each time period:
1 year ......................... $__
3 years ........................ $__
5 years ........................ $__
10 years ........................ $__
<PAGE>
25
Pro Forma Fee Information. The following table shows an estimate of what 1997
expenses would have been had AAM served as subadviser for the Portfolio under
the new Portfolio Manager Agreement. The table assumes that AAM became
Portfolio Manager on January 1, 1997 and thus the one-year start-up fee of 0.80%
was in effect for all of 1997. As in the first table, expenses are expressed as
a percentage of average net assets during the year. Expenses reflect applicable
expense limitations currently in effect. This table and example do not include
any expenses charged under any variable contract, such as sales charges or
mortality and expense risk charges.
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Advisory Fees .................................. 0.80%
Other Expenses ................................. 1.20%
TOTAL FUND OPERATING EXPENSES .................. 2.00%
The following example shows the total expenses that would be payable if a
shareholder redeemed his or her shares in the Portfolio after having held them
for one, three, five, and ten year periods respectively. The example is based on
the pro forma expenses listed in the above table. The example assumes a 5%
annual rate of return pursuant to requirements of the Securities and Exchange
Commission. This hypothetical rate of return is not intended to be
representative of past or future performance.
EXAMPLE
A shareholder would pay the following expenses
on a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at end of
each time period:
1 year .............$20
3 years ............$__
5 years ............$__
10 years ............$__
During 1997, the Global Strategic Income Portfolio paid $7,538 in aggregate
advisory fees.
BOARD CONSIDERATION
On April 9, 1998, the Board of Trustees met in person to consider the proposed
Portfolio Management Agreement with AAM. Representatives from AAM made a
presentation to the Board, and the Board was provided with materials about AAM,
its investment philosophies and strategies, its key personnel, its other
clients, and examples of performance. The Board considered the terms of the
Portfolio Management Agreement and the fact that it was substantially identical
to the prior agreement. The Board also considered the proposed change in
performance benchmark, which it
<PAGE>
26
concluded adequately reflected the Portfolio's proposed new investment
objective. Finally, the Board considered the fairness of the proposed fee, the
fact that it had the same rate structure as under the previous agreement, and
that the performance-based fee structure would not begin until AAM had served as
Portfolio Manager for a year. The Board concluded that entering into the new
Portfolio Management Agreement with AAM was in the best interests of the
Portfolio and its investors. Accordingly, the Board voted unanimously to approve
the proposed agreement.
REQUIRED VOTE
The proposal will be adopted if it is approved by the vote of a majority of
outstanding shares of the Global Strategic Income Portfolio. The 1940 Act
defines a majority of outstanding shares of a Portfolio as the lesser of (a) a
vote of 67% or more of the Portfolio's shares whose holders are present or
represented by proxy at the meeting if the holders of more than 50% of all
outstanding Portfolio's shares are present in person or represented by proxy at
the meeting, or (b) a vote of more than 50% of all outstanding Portfolio shares.
THE BOARD RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL NO. 4.
<PAGE>
27
PROPOSAL NO. 5
APPROVAL OF A NEW INVESTMENT OBJECTIVE
FOR THE GLOBAL STRATEGIC INCOME PORTFOLIO
Only persons having voting rights with respect to the Global Strategic Income
Portfolio (the "Portfolio") will vote on this Proposal.
Each Portfolio has certain investment policies that are fundamental, which means
they cannot be changed without shareholder approval and other investment
policies that are non-fundamental, which the Board of Trustees may change
without shareholder approval.
The Portfolio's current investment objective, which is a fundamental investment
policy, specifies that the Portfolio invest in both domestic and foreign-fixed
income securities. This proposal would change the Portfolio's investment
objective to remove the global emphasis. The revised investment objective would
thus de-emphasize investment in foreign fixed-income securities, although the
Portfolio would continue to have the ability to invest in some foreign fixed-
income securities.
If persons having voting rights approve this Proposal, the name of the Portfolio
will be changed to the "Strategic Income Portfolio" to reflect the new
investment objective. In addition, the Board has adopted new non-fundamental
investment policies consistent with the new investment objective. These new
policies will become effective if and when this Proposal is approved. As
explained above in connection with Proposal 4, the Board has proposed that
Allmerica Asset Management, Inc. ("AAM") continue serving as Portfolio Manager
of the Portfolio. The proposed changes will make the Portfolio's investment
policies similar to those of other portfolios currently managed by AAM.
INVESTMENT OBJECTIVE
The Global Strategic Income Portfolio (the "Portfolio") currently has the
following investment objective, which is fundamental:
THE GLOBAL STRATEGIC INCOME PORTFOLIO seeks to make money for investors by
investing for high current income and capital appreciation in a variety of
domestic and foreign fixed-income securities.
If this Proposal is adopted, the Portfolio's investment objective will change to
the following:
THE STRATEGIC INCOME PORTFOLIO seeks to make money for investors by
investing for high current income and capital appreciation in a variety of
fixed-income securities.
The new investment objective would focus thus eliminate the reference to foreign
fixed-income securities.
<PAGE>
28
NON-FUNDAMENTAL INVESTMENT POLICIES
If persons having voting rights approve this Proposal, the Board will also adopt
the following non-fundamental investment policies:
The Portfolio allocates its assets among debt securities in three separate
areas: 1) investment grade corporate debt securities and securities issued
or guaranteed as to principal or interest by the U.S. Government or its
agencies or instrumentalities; 2) below investment-grade corporate debt
securities; and 3) foreign securities which include government debt of
developed and emerging markets, corporate obligations of foreign companies,
and debt obligations of supranational entities. The Portfolio will select
particular debt securities based on their relative value merits.
Debt securities in which the Strategic Income Portfolio may invest include
bonds, notes, debentures, mortgage-backed and asset-backed securities, and
other similar instruments. The Portfolio normally invests at least 50% of
its total assets in U.S. and foreign debt and other fixed-income securities
that, at the time of purchase, are investment grade. The Strategic Income
Portfolio may consider making carefully selected investments in below
investment-grade quality (also called high yield or junk bonds), which
involve a high degree of risk and are predominantly speculative. Consistent
with the foregoing percentage limitations, the Portfolio may invest in
securities that are in default in payment of principal and/or interest.
Investments in foreign markets involve substantial risks typically not
associated with investing in the United States. Emerging market securities
generally are subject to greater risk than securities from developed
nations. For purposes of the Portfolio's operations, "emerging markets"
consist of all countries determined by the Portfolio Manager to have
developing or emerging economies and markets.
The Strategic Income Portfolio also may invest up to 5% of its assets in
loan participations and assignments.
These new investment policies differ from the current ones by eliminating
certain policies specific to foreign securities. This change is consistent with
the new investment objective's decreased focus of foreign fixed-income
securities.
Although foreign securities may involve different risks than domestic
securities, under both the old and new policies, the Portfolio must invest at
least 50% of total assets in investment-grade fixed-income securities, and may
invest up to 50% of total assets in fixed-income securities rated below
investment grade. Accordingly, AAM does not anticipate that investment risk will
necessarily decrease as a result of the new policies.
<PAGE>
29
REQUIRED VOTE
The proposal will be adopted if it is approved by the vote of a majority of
outstanding shares of the Global Strategic Income Portfolio. The 1940 Act
defines a majority of outstanding shares of a Portfolio as the lesser of (a) a
vote of 67% or more of the Portfolio's shares whose holders are present or
represented by proxy at the meeting if the holders of more than 50% of all
outstanding Portfolio's shares are present in person or represented by proxy at
the meeting, or (b) a vote of more than 50% of all outstanding Portfolio shares.
THE BOARD RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL NO. 5.
<PAGE>
30
OTHER MATTERS
Neither the Board nor Allmerica is currently aware of any other matters that
will be considered at the meeting. In the event any additional business or
matter is properly presented to the meeting, Allmerica will vote your properly
executed voting instruction form in accordance with its best judgment.
<PAGE>
31
APPENDIX A
ADDITIONAL INFORMATION ABOUT THE PORTFOLIOS,
THEIR PORTFOLIO MANAGERS,
AND ADVISORY FEES
GAMCO INVESTORS, INC. (VALUE PORTFOLIO AND GLOBAL INTERACTIVE/TELECOMM
PORTFOLIO)
The chart below sets forth the name and principal occupation of the principal
executive officer and directors of GAMCO Investors, Inc. ("GAMCO"). The address
for each person is One Corporate Center, Rye, New York 10580-1434.
Name Principal Occupation
---- --------------------
Douglas R. Jamieson Executive Vice President, Chief Operating
Officer, and Managing Director, GAMCO
Regina M. Pitaro Managing Director, GAMCO
Joseph R. Rindler, Jr. Chairman and Managing Director, GAMCO
F. William Scholz, II Managing Director, GAMCO
Gabelli Funds, Inc. owns 100% of the stock of GAMCO. Mario Gabelli may be deemed
a controlling person of GAMCO because of his ownership of stock of Gabelli
Funds, Inc.
In 1997, the Value Portfolio and the Global Interactive/Telecomm Portfolio each
placed a significant portion of its portfolio transactions through Gabelli &
Co., an affiliated entity of both Portfolios and of the subadviser, GAMCO. The
Value Portfolio paid $16,696 to Gabelli & Co., which amounts to __% of total
commissions paid in 1997. The Global Interactive/Telecomm Portfolio paid $4,568
to Gabelli & Co., which amounts to __% of total commissions paid that year.
STONEHILL CAPITAL MANAGEMENT, INC. (GROWTH PORTFOLIO)
The chart below sets forth the name and principal occupation of the principal
executive officer and directors of Stonehill Capital Management, Inc.
("Stonehill"). The address for each person is 277 Park Avenue, New York, New
York 10172.
Name Position with Stonehill Principal Occupation
---- ---------------------- ------------------------
Robert L. Emerson President Investment advisory services
Robert Emerson owns 100% of the stock of Stonehill.
BEE & ASSOCIATES INCORPORATED (INTERNATIONAL GROWTH PORTFOLIO)
<PAGE>
32
The chart below sets forth the name and principal occupation of the principal
executive officer and directors of Bee & Associates Incorporated ("BAI"). The
address for each person is 370 17th Street, Suite 5150, Denver, Colorado 80202.
Name Position with BAI Principal Occupation
---- ----------------- --------------------
Bruce B. Bee Principal Executive Officer Investment advisory services
and Director
Edward McMillan Director Investment advisory services
Marshall F. Wallach Director Investment banking
Mr. Bee and Mr. McMillan may be deemed controlling persons of BAI because of
each individual's ownership of the stock of BAI.
The following chart lists all other mutual funds advised by Bee with investment
objectives similar to the International Growth Portfolio:
Approximate Size
Name of Mutual Fund April 1, 1998 Advisory Fee Rate
------------------- ------------- ------------------
Fremont International Small $6,000,000 1%*
Cap Fund
Masters Select International $80,000,000, of which 1%
12%
is managed by BAI
__________________
* BAI has agreed to waive a portion of its 1% advisory fee for the Fremont
International Small Cap Fund for up to one year.
ADVISORY FEES
For 1997, the Value Portfolio accrued fees to PAI of $_____, of which the
Portfolio paid PAI $___. PAI paid Tremont Partners, Inc. ("Tremont"), the former
Portfolio Advisor, $__.
For 1997, the Growth Portfolio accrued fees to PAI of $___, of which the
Portfolio paid PAI $__. PAI paid Tremont $__.
For 1997, the International Growth Portfolio accrued fees to PAI of $___,
of which the Portfolio paid PAI $__. PAI paid Tremont $__.
<PAGE>
33
For 1997, the Global Strategic Income Portfolio accrued fees to PAI of
$___, of which the Portfolio paid PAI $__. PAI paid Tremont $__.
For 1997, the Global Interactive/Telecomm Portfolio accrued fees to PAI of
$___, of which the Portfolio paid PAI $__. PAI paid Tremont $__.
For 1997, the Portfolios paid the following fees to the Portfolio Managers:
Value ($____); Growth ($___); International Growth ($___); Global Strategic
Income ($___); Global Interactive/Telecomm ($____).
<PAGE>
34
APPENDIX B
Set forth below is the Management Agreement for the Trust that is discussed in
Proposal 2. As explained in more detail in Proposal 2, Allmerica Financial
Investment Management Services, Inc. ("AFIMS") has assumed the role of Allmerica
Investment Management Company, Inc. ("AIMCO") under this agreement.
INVESTMENT MANAGEMENT AGREEMENT
-------------------------------
Agreement, made the 12th day of February, 1998, and amended the ___
day of April, 1998, between The Palladian Trust (the "Trust"), a Massachusetts
business trust, and Allmerica Investment Management Company, Inc. (the
"Manager"), a Massachusetts corporation.
WHEREAS, the Trust is a diversified, open-end management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Manager is registered as an investment adviser under the
Investment Advisers Act of 1940; and
WHEREAS, the Trust is authorized to issue shares of beneficial
interest in separate portfolios with each such portfolio representing interests
in a separate portfolio of securities and other assets; and
WHEREAS, the Trust currently offers shares of five portfolios
designated as The Value Portfolio, The Growth Portfolio, The International
Growth Portfolio, The Global Strategic Income Portfolio, and The Global
Interactive/Telecomm Portfolio (collectively, the "Current Portfolios"); and
WHEREAS, the Trust may establish additional portfolios with respect to
which the Trust desires to retain the Manager to render management services
hereunder and with respect to which the Manager is willing to do so (those
portfolios plus the Current Portfolios are collectively referred to as the
"Portfolios"); and
WHEREAS, the Trust desires to avail itself of the services of the
Manager for the provision of advice with respect to the selection and monitoring
of portfolio managers for the Portfolios and for the provision of other services
for the Trust; and
WHEREAS, the Manager is willing to render such services to the Trust.
Therefore, the parties agree as follows:
<PAGE>
35
1. Appointment. The Trust hereby appoints the Manager to provide
-----------
management services with respect to the Current Portfolios for the period and on
the terms set forth in this Agreement, subject to the direction of the Board of
Trustees of the Trust (the "Board of Trustees"). The Manager accepts such
appointment and agrees to render the services described herein for the
compensation provided in paragraph 9. In the event the Trust establishes one or
more portfolios other than the Current Portfolios with respect to which it
desires to retain the Manager to render management services pursuant to this
Agreement, it shall so notify the Manager in writing. If the Manager is willing
to render such services it shall so notify the Trust in writing, whereupon such
portfolio shall become a Portfolio as that term is used in this Agreement.
2. Services of the Manager. Subject to the supervision of the Board of
-----------------------
Trustees, the Manager shall provide the following management services with
respect to the Portfolios:
(a) The Manager shall analyze and recommend for consideration by the
Board of Trustees investment advisory firms to be retained by the Trust to
provide day-to-day investment management of the Portfolios (the "Portfolio
Managers").
(b) The Manager shall monitor and evaluate the performance of the
Portfolio Managers and make recommendations to the Board of Trustees concerning
the renewal or termination of agreements with Portfolio Managers (the "Portfolio
Management Agreements"), although the Manager is not authorized, except as
provided in paragraph 3 of the Agreement, to make determinations with respect to
the investment of a Portfolio's assets or the purchase or sale of securities or
other investments for a Portfolio.
(c) The Manager shall monitor the Portfolio Managers for compliance
with the investment policies and restrictions of each Portfolio, the 1940 Act,
the Internal Revenue Code, and all other applicable federal and state laws and
regulations.
(d) The Manager shall coordinate all matters relating to the functions
of the Trust's Manager, Portfolio Managers, custodian, transfer agent,
accountants, attorneys, and other parties performing services or operational
functions for the Trust.
(e) The Manager shall provide the Trust and the Portfolios with the
services of a sufficient number of persons competent to perform such
administrative and clerical functions as are necessary to provide effective
supervision and administration of the Trust.
(f) The Manager shall provide the Trust with adequate office space,
communications facilities, and other facilities necessary for its operations as
contemplated in this Agreement.
(g) The Manager shall provide the Board of Trustees such periodic and
special reports as the Board may reasonably request.
<PAGE>
36
(h) The Manager shall make its officers and employees available to the
Board of Trustees and officers of the Trust for consultation and discussions
regarding the administration and management of the Trust.
(i) The Manager shall provide such assistance as the Board of Trustees
shall reasonably request in connection with the conduct of meetings of the Board
or otherwise.
3. Investment Management Authority. In the event that a Portfolio
-------------------------------
Management Agreement pertaining to a Portfolio is terminated or if, at any time,
no Portfolio Manager is engaged to manage the assets of a Portfolio, then the
Manager, subject to the supervision of the Board of Trustees, will provide day-
to-day investment management of any such Portfolio. The Manager will provide
investment research and conduct a continuous program of evaluation, investment,
sales, and reinvestment of the Portfolio's assets by determining the securities
and other investments that shall be purchased, entered into, sold, closed, or
exchanged for the Portfolio, when these transactions should be executed, and
what portion of the assets of the Portfolio should be held in the various
securities and other investments in which it may invest. The Manager is hereby
authorized to execute and perform such services on behalf of the Portfolio. To
the extent permitted by the investment policies of the Portfolio, the Manager
shall make decisions for the Portfolio as to foreign currency matters and make
determinations as to, and execute and perform, foreign currency exchange
contracts on behalf of the Portfolio. The Manager will provide the services
under this Agreement in accordance with the Portfolio's investment objective or
objectives, policies, and restrictions as stated in the Trust's registration
statement under the Securities Act of 1933 and the 1940 Act as filed with the
Securities and Exchange Commission ("SEC") and amended from time to time (the
"Registration Statement"). Furthermore, under these circumstances:
(a) The Manager will use reasonable efforts to manage the Portfolio so
that it will (1) qualify as a regulated investment company under Subchapter M of
the Internal Revenue Code, (2) comply with the diversification requirements of
Section 817(h) of the Internal Revenue Code and regulations issued thereunder,
and (3) comply with any other rules and regulations pertaining to investment
vehicles underlying variable annuity or variable life insurance policies. In
managing the Portfolio in accordance with these requirements, the Manager shall
be entitled to receive and act upon advice of counsel to the Trust or counsel to
the Manager.
(b) On occasions when the Manager deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as any other
investment advisory clients, the Manager may, to the extent permitted by
applicable laws and regulations, including, but not limited to Section 17(d) of
the 1940 Act, but shall not be obligated to, aggregate the securities to be so
sold or purchased with those of its other clients where such aggregation is not
inconsistent with the policies set forth in the Registration Statement. In such
event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Manager in a manner
that is fair and equitable in the judgment of the Manager in the exercise of its
fiduciary obligations to the Trust and to such other clients.
<PAGE>
37
(c) In connection with the purchase and sale of securities for the
Portfolio, the Manager will arrange for the transmission to the custodian for
the Trust on a daily basis, such confirmation, trade tickets, and other
documents and information as may be reasonably necessary to enable the custodian
to perform its administrative and recordkeeping responsibilities with respect to
the Portfolio. With respect to portfolio securities to be purchased or sold
through the Depository Trust Company, the Manager will arrange for the automatic
transmission of the confirmation of such trades to the Trust's custodian.
(d) The Manager will assist the custodian or recordkeeping agent for
the Trust in determining, consistent with the procedures and policies stated in
the Registration Statement, the value of any portfolio securities or other
assets of the Portfolio for which the custodian or recordkeeping agent seeks
assistance or review from the Manager. The Manager will monitor on a daily
basis the determination by the custodian or recordkeeping agent for the Trust
the value of portfolio securities and other assets of the Portfolio and the
determination of net asset value of the Portfolio.
(e) The Manager will regularly report to the Board of Trustees on the
investment program for the Portfolio, and will furnish the Board of Trustees
such periodic and special reports as the Board may reasonably request.
(f) In rendering the services required under this paragraph, the
Manager may, from time to time, employ or associate with itself such person or
persons as it believes necessary to assist it in carrying out its obligations
under this Agreement. The Manager shall be responsible for making reasonable
inquiries and for reasonably ensuring that any employee of the Manager, any
person or firm that the Manager has employed or with which it has associated, or
any employee thereof involved in any material connection with the handling of
Trust assets, has not, to the best of the Manager's knowledge:
(i) been convicted, in the last ten (10) years, of any felony
or misdemeanor arising out of conduct involving embezzlement, fraudulent
conversion, or misappropriation of funds or securities, or involving
violations of Sections 1341, 1342, or 1343 of Title 18, United States Code;
or
(ii) been found by any state regulatory authority, within the
last ten (10) years, to have violated or to have acknowledged violation of
any provision of any state insurance law involving fraud, deceit, or
knowing misrepresentation; or
(iii) been found by any federal or state regulatory authorities,
within the last ten (10) years, to have violated or to have acknowledged
violation of any provisions of federal or state securities laws involving
fraud, deceit, or knowing misrepresentation.
(g) In connection with its responsibilities under this paragraph 3,
the Manager is responsible for decisions to buy and sell securities and other
investments for the Portfolio, broker-
<PAGE>
38
dealer selection, and negotiation of brokerage commission rates. The Manager's
primary consideration in effecting a security transaction will be to obtain the
best execution for the Portfolio, taking into account the factors specified in
the Registration Statement. Subject to the Registration Statement and such
policies as the Board of Trustees may determine and consistent with Section
28(e) of the Securities Exchange Act of 1934, the Manager shall not be deemed to
have acted unlawfully or to have breached any duty created by this Agreement or
otherwise solely by reason of its having caused the Portfolio to pay a broker-
dealer for effecting a portfolio investment transaction in excess of the amount
of commission another broker-dealer would have charged for effecting that
transaction, if the Manager or its affiliate determines in good faith that such
amount of commission was reasonable in relation to the value of the brokerage
and research services provided by such broker-dealer, viewed in terms of either
that particular transaction or the Manager's overall responsibilities with
respect to the Portfolio and to its other clients as to which it exercises
investment discretion.
4. Conformity with Applicable Law. The Manager, in the performance of
------------------------------
its duties and obligations under this Agreement, shall act in conformity with
the Registration Statement and with the instructions and directions of the Board
of Trustees and will conform to, and comply with, the requirements of the 1940
Act and all other applicable federal and state laws and regulations.
5. Exclusivity. The services of the Manager under this Agreement are not
-----------
to be deemed exclusive, and the Manager, or any affiliate thereof, shall be free
to render similar services to other investment companies and other clients
(whether or not their investment objectives and policies are similar to those of
any of the Portfolios) and to engage in other activities, so long as its
services hereunder are not impaired thereby.
6. Documents. The Trust has delivered copies of each of the following
---------
documents to the Manager and will deliver to it all future amendments and
supplements thereto, if any:
(a) the Trust's Declaration of Trust and its by-laws;
(b) the Registration Statement; and
(c) the prospectus and statement of additional information of the
Trust as currently in effect and as amended and supplemented from time to time.
7. Records. The Manager agrees to maintain and to preserve records
-------
relating to the Trust as required by the 1940 Act. The Manager further agrees
that all records which it maintains for the Trust are the property of the Trust
and it will promptly surrender any of such records upon request.
8. Expenses. During the term of this Agreement, the Manager will pay all
--------
expenses incurred by it in connection with its activities under this Agreement,
including all rent and other expense involved in providing office space and
equipment required by the Manager and the salaries
<PAGE>
39
and expenses of all personnel of the Manager. The Manager further agrees to pay
all salaries, fees and expenses of any officer or trustee of the Trust who is an
officer, director or employee of the Manager or any of its affiliates. The
Manager further agrees to pay all rent and other expense in providing office
space for the Trust. Nothing in this Agreement shall require the Manager to bear
the following expenses:
(a) Fees of the Portfolio Managers;
(b) Charges for audits by the Trust's independent public accountants;
(c) Charges of the Trust's transfer agent, registrar, and/or dividend
disbursing agent;
(d) Charges of the Trust's custodian and/or accountant;
(e) Costs of obtaining quotations for calculating the value of each
Portfolio's net assets;
(f) Costs of maintaining the Trust's tax records;
(g) Salaries and other compensation of any of the Trust's executive
officers and employees, if any, who are not officers, directors, or employees of
the Manager, or any of its affiliates;
(h) Taxes levied against the Trust;
(i) Brokerage fees and commissions in connection with the purchase
and sale of portfolio securities for the Trust;
(j) Costs, including the interest expense, of borrowing by the Trust;
(k) Costs and/or fees incident to meetings of the Trust's
shareholders, the preparation and mailings of prospectuses, reports, proxy
statements and other communications by the Trust to its shareholders, the filing
of reports with regulatory bodies, the maintenance of the Trust's existence, and
the registration of shares with federal and state securities or insurance
authorities;
(l) The Trust's legal fees, including the legal fees related to the
registration and continued qualification of the Trust's shares for sale;
(m) Costs of printing stock certificates representing shares of the
Trust;
<PAGE>
40
(n) Trustees' fees and expenses of Trustees who are not officers,
directors, or employees of the Manager or any of its affiliates;
(o) The Trust's pro rata portion of the fidelity bond required by
Section 17(g) of the 1940 Act, or other insurance premiums;
(p) Membership dues for any association of which the Trust is a
member;
(q) Extraordinary expenses of the Trust as may arise, including
expenses incurred in connection with litigation, proceedings, other claims
against the Trust (unless the Manager is responsible for such expenses under
paragraph 10 of this Agreement), and the legal obligations of the Trust to
indemnify its trustees, officers, employees, shareholders, distributors, and
agents with respect to such claims; and
(r) Organizational and offering expenses of the Trust and, if
applicable, reimbursement (with interest) of underwriting discounts and
commissions.
9. Compensation.
------------
(a) For the services provided and the expenses borne by the Manager
pursuant to this Agreement, each Portfolio will pay the Manager a fee calculated
in accordance with this paragraph 9.
(b) A Portfolio will pay the Manager 20% of the Initial Monthly
Advisory Fee or the Monthly Advisory Fee, as those terms are defined in this
paragraph, whichever is applicable; provided, however, that for any period
during which the Manager is providing the services described in paragraph 3, a
Portfolio will pay the Manager 100% of the Initial Monthly Advisory Fee or the
Monthly Advisory Fee, as those terms are defined in this paragraph, whichever is
applicable.
(c) For the period beginning with the effective date of a Portfolio
Management Agreement with a new Portfolio Manager (or, for those Portfolios that
have had only one Portfolio Manager, the day on which the Portfolio commenced
operations) and ending with the last day of the twelfth full calendar month
thereafter, the Portfolio will pay at the end of each month, an advisory fee
calculated at an annual rate of 0.80% of the Portfolio's average daily net
assets (the "Initial Monthly Advisory Fee").
(d) For the period beginning with the first day of the thirteenth full
calendar month after the effective date of a Portfolio Management Agreement with
a new Portfolio Manager (or, for those Portfolios that have had only one
Portfolio Manager, the first day of the thirteenth full calendar month after the
Portfolio commenced operations) and continuing through the remainder of the term
of this Agreement, the Portfolio will pay at the end of each month, an advisory
fee (the "Monthly Advisory Fee"). The Monthly Advisory Fee equals the Basic Fee
(as defined in paragraph
<PAGE>
41
9(e) below) plus the Incentive Fee (as defined in paragraph 9(f) below) and
adjusted, if so required, by paragraph 9(i) below.
(e) The Basic Fee equals one-twelfth of 2% multiplied by the
Portfolio's average daily net assets for the previous 12 months (including the
month for which the fee is being calculated).
(f) The Incentive Fee equals: (i) one-twelfth of the Annual Incentive
Fee set forth in the chart below based on the difference between the Performance
of the Portfolio and the Performance of the Benchmark, as those terms are
defined in paragraphs 9(g) and 9(h) below; (ii) multiplied by the Portfolio's
average daily net assets for the previous 12 months (including the month for
which the fee is being calculated).
<TABLE>
<CAPTION>
===============================================================================
Annual
Percentage Point Difference Between Performance of the Incentive
Portfolio and Performance of the Benchmark Fee (%)
===============================================================================
<S> <C>
+7.5 or greater 2.0%
===============================================================================
+6.0 or greater, but less than +7.5 1.5
===============================================================================
+4.5 or greater, but less than +6.0 1.0
===============================================================================
+3.0 or greater, but less than +4.5 0.5
===============================================================================
+1.5 or greater, but less than +3.0 0.0
===============================================================================
0.0 or greater, but less than +1.5 -0.5
===============================================================================
- -1.5 or greater, but less than 0.0 -1.0
===============================================================================
- -3.0 or greater, but less than -1.5 -1.5
===============================================================================
Less than -3.0 -2.0
===============================================================================
</TABLE>
(g) The Performance of the Portfolio will be calculated by first
determining the change in the Portfolio's net asset value per share during the
previous twelve months (including the month for which the fee is being computed)
assuming the reinvestment of distributions during that period, and then
expressing this amount as a percentage of the net asset value per share at the
beginning of the period. Net asset value per share is calculated by dividing
the value of the securities held by the Portfolio plus any cash or other assets
minus all liabilities including accrued advisory fees and the other expenses, by
the total number of shares outstanding at the time. The Performance of the
Portfolios shall be calculated in accordance with SEC rules.
(h) The Performance of the Benchmark will be calculated by first
determining the change in the level of the Benchmark during the previous twelve
months (including the month for which the fee is being computed) plus the value
of any cash dividends or distributions made by the companies whose securities
comprise the Benchmark accumulated to the end of the period, and then
<PAGE>
42
expressing this amount as a percentage of the Benchmark at the beginning of the
period. The Performance of the Benchmark shall be calculated in accordance with
SEC rules. The Benchmark for each Portfolio is the Benchmark established by the
agreement between the Trust and the Portfolio Manager for that Portfolio. If any
Benchmark ceases to be published, changes in any material respect or otherwise
becomes impracticable to use for purposes of the Incentive Fee, the Monthly
Advisory Fee for that Portfolio will equal the Basic Fee (with no incentive
adjustment) until such time as the Board of Trustees approves a substitute
Benchmark.
(i) Notwithstanding paragraphs 9(a)-9(h) above, if the Performance of
a Portfolio (minus payment of all expenses, including the Basic Fee and any
Incentive Fee) is negative and does not exceed the Performance of the Benchmark
by six percentage points, then the Monthly Advisory Fee will equal zero.
Notwithstanding paragraphs 9(a)-9(h) above, if the Performance of a Portfolio
(minus payment of all expenses, including the Basic Fee and any Incentive Fee)
is negative, exceeds the Performance of the Benchmark by six percentage points,
but does not exceed the Performance of the Benchmark by twelve percentage
points, then the Monthly Advisory Fee will not be greater than one-twelfth of 1%
of the Portfolio's average daily net assets for the previous 12 months
(including the month for which the fee is being calculated). Notwithstanding
paragraphs 9(a)-9(h) above, if the Performance of a Portfolio (minus payment of
all expenses, including the Basic Fee and any Incentive Fee) is negative and
exceeds the Performance of the Benchmark by twelve percentage points, then the
Monthly Advisory Fee will not be greater than one-twelfth of 2% of the
Portfolio's average daily net assets for the previous 12 months (including the
month for which the fee is being calculated).
10. Liability and Indemnification. The Manager and the Trust each may
-----------------------------
rely on information reasonably believed by it to be accurate and reliable. The
Manager shall not be liable for any loss suffered by the Trust as the result of
actions by persons other than the Manager or for any loss suffered by the Trust
as the result of any negligent act or error of judgment of the Manager in
connection with the matters to which this Agreement relates, except a loss
resulting from a breach by the Manager of its fiduciary duty with respect to the
receipt of compensation for services (in which case any award of damages shall
be limited to the period and the amount set forth in Section 36(b)(3) of the
1940 Act) or loss resulting from willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties under this Agreement or
from reckless disregard by it of its obligations and duties under this
Agreement. The Trust shall indemnify the Manager and hold it harmless from all
cost, damage and expense, including reasonable expenses for legal counsel,
incurred by the Manager resulting from actions for which it is relieved of
responsibility by this paragraph. The Manager shall indemnify the Trust and
hold it harmless from all cost, damage and expense, including reasonable
expenses for legal counsel, incurred by the Trust resulting from (i) a breach by
the Manager of its fiduciary duty with respect to compensation for services paid
by the Trust (in which case any award of damages shall be limited to the period
and the amount set forth in Section 36(b)(3) of the 1940 Act); (ii) willful
misfeasance, bad faith or gross negligence by the Manager in the performance of
its duties under this Agreement; or (iii) reckless disregard by the Manager of
its obligations and duties under this Agreement.
<PAGE>
43
11. Continuation and Termination. This Agreement shall take effect on the
----------------------------
date first written above, and shall continue in effect, unless sooner terminated
as provided herein, for 119 days thereafter, and provided that the Agreement is
approved by a majority of the outstanding voting shares of the Trust by the end
of such 119th day, shall continue for two years from the date of this Agreement,
and shall continue from year to year thereafter with respect to each Portfolio
so long as such continuance is specifically approved at least annually (i) by
the vote of a majority of the Board of Trustees; or (ii) by vote of a majority
of the outstanding voting shares of the Portfolio; provided, further, in either
event that continuance is also approved by the vote of a majority of the Board
of Trustees who are not parties to this Agreement or "interested persons" (as
defined in the 1940 Act) of the Trust or the Manager, cast in person at a
meeting called for the purpose of voting on such approval. Any approval of this
Agreement by the holders of a majority of the outstanding shares (as defined in
the 1940 Act) of a Portfolio shall be effective to continue this Agreement with
respect to such Portfolio notwithstanding (i) that this Agreement has not been
approved by the holders of a majority of the outstanding shares of any other
Portfolio or (ii) that this Agreement has not been approved by the vote of a
majority of the outstanding shares of the Trust, unless such approval shall be
required by any other applicable law or otherwise. This Agreement may be
terminated by the Trust at any time, without the payment of any penalty, by vote
of a majority of the entire Board of Trustees or by a vote of a majority of the
outstanding voting shares of the Trust, or with respect to a Portfolio, by vote
of a majority of the outstanding voting shares of such Portfolio, on sixty (60)
days' written notice to the Manager, or by the Manager at any time, without the
payment of any penalty, on ninety (90) days' written notice to the Trust. This
Agreement will automatically and immediately terminate in the event of its
"assignment" (as defined in the 1940 Act).
12. Independent Contractor. The Manager shall for all purposes herein be
----------------------
deemed to be an independent contractor and shall, unless otherwise expressly
provided herein or authorized by the Board of Trustees from time to time, have
no authority to act for or represent the Trust in any way or otherwise be deemed
its agent.
13. Notice. Notices of any kind to be given to the Manager by the Trust
------
shall be in writing and shall be duly given if sent by first class mail or
delivered to the Manager at 440 Lincoln Street, Worcester, MA 01653, or at such
other address or to such individual as shall be specified by the Manager to the
Trust. Notices of any kind to be given to the Trust by the Manager shall be in
writing and shall be duly given if sent by first class mail or delivered to 440
Lincoln Street, Worcester, MA 01653, or at such other address or to such
individual as shall be specified by the Trust to the Manager.
14. Obligation. A copy of the Trust's Agreement and Declaration of Trust
----------
is on file with the Secretary of the Commonwealth of Massachusetts. Notice is
hereby given that this Agreement has been executed on behalf of the Trust by a
trustee of the Trust in his or her capacity as trustee and not individually.
The obligations of this Agreement shall only be binding upon the assets and
property of the Trust and shall not be binding upon any trustee, officer, or
shareholder of the Trust individually.
<PAGE>
44
15. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original.
16. Applicable law. This Agreement shall be governed by the laws of
--------------
Massachusetts, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Investment Advisers Act of 1940, or any
rules or order of the SEC thereunder.
17. Severability. 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 and, to this extent, the provisions
of this Agreement shall be deemed to be severable.
18. Captions. The captions of this Agreement are included for convenience
--------
only and in no way define or limit any of the provisions hereof or otherwise
affect their construction or effect.
<PAGE>
45
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below on the day and year first above
written.
The Palladian Trust
__________________________ By:_________________________________
Witness George M. Boyd
Assistant Secretary
Allmerica Investment
Management Company, Inc.
__________________________ By:_________________________________
Witness
<PAGE>
46
APPENDIX C
Set forth below is the form of substitution agreement discussed in Proposal 3.
As explained in more detail under Proposal 3, Allmerica Financial Investment
Management Services, Inc. ("AFIMS") has assumed the role of Allmerica Investment
Management Company, Inc. ("AIMCO") under these agreements.
SUBSTITUTION AGREEMENT
----------------------
Agreement, made this 11th day of February, 1998, by and among Palladian
Advisors, Inc. ("PAI"), a Delaware corporation; Allmerica Investment Management
Company, Inc. ("AIMCO"), a Massachusetts corporation; [Portfolio Manager], a
____________ corporation (the "Portfolio Manager"); and The Palladian Trust (the
"Trust"), a Massachusetts business trust.
WHEREAS, the Trust is registered with the Securities and Exchange
Commission as an open-end management investment company under the Investment
Company Act of 1940, as amended ("Act"), and the Trust issues shares in several
different classes, each of which is known as a "Portfolio"; and
WHEREAS, PAI has served as Manager to the Trust pursuant to a Management
Agreement between the Trust and PAI dated October 12, 1995; and
WHEREAS, the Trust and PAI entered into a Portfolio Management Agreement
with the Portfolio Manager, dated October 12, 1995 (the "Portfolio Management
Agreement"), under which the Portfolio Manager currently serves as the Portfolio
Manager for the _________ Portfolio of the Trust; and
WHEREAS, the Trust and PAI have terminated the Management Agreement with
PAI, effective at the close of business on February 11, 1998; and
WHEREAS, commencing February 12, 1998, AIMCO has agreed to serve as Manager
to the Trust pursuant to a new Management Agreement between the Trust and AIMCO
dated February 12, 1998; and
WHEREAS, the Management Agreement between AIMCO and the Trust is subject to
approval by the vote of a majority of the outstanding voting securities of each
Portfolio of the Trust, and a special meeting of shareholders must be held
within a 120-day period after February 11, 1998 for purposes of obtaining such
approval; and
<PAGE>
47
WHEREAS, PAI, the Portfolio Manager, and the Trust desire to substitute
AIMCO as a party to the Portfolio Management Agreement in the place of PAI and
AIMCO desires to be substituted as a party to the Portfolio Management Agreement
in the place of PAI.
Therefore, the parties agree as follows:
1. Substitution of Party. Effective as of February 12, 1998, AIMCO is
---------------------
hereby substituted as a party to the Portfolio Management Agreement in the place
of PAI. The substitution shall be effective for a period of 120 days after
February 11, 1998, and shall be effective thereafter subject to approval of the
Management Agreement between AIMCO and the Trust by the vote of a majority of
the outstanding voting securities of the ________ Portfolio of the Trust at a
meeting of shareholders, which will be held within a 120-day period after
February 11, 1998. In the event that shareholders of the _________ Portfolio do
not approve the Management Agreement as provided above, the Portfolio Management
Agreement shall terminate as of the close of business on the 120th day after
February 11, 1998.
2. Performance of Duties. As of the effectiveness of the substitution as
---------------------
described above, AIMCO hereby assumes and agrees to perform all of PAI's duties
and obligations under the Portfolio Management Agreement and be subject to all
of the terms and conditions of said Agreement as if they applied to PAI. AIMCO
shall not be responsible for any claim or demand arising under the Portfolio
Management Agreement from services rendered prior to the effective date of this
Substitution Agreement unless otherwise agreed by AIMCO, and PAI shall not be
responsible for any claim or demand arising under the Portfolio Management
Agreement from services rendered after the effective date of this Substitution
Agreement unless otherwise agreed by PAI.
3. Representation of AIMCO. AIMCO represents and warrants that it is
-----------------------
registered as an investment adviser under the Investment Advisers Act of 1940.
4. Consent. The Trust and the Portfolio Manager hereby consent to this
-------
substitution of AIMCO as a party to the Portfolio Management Agreement in the
place of PAI and the assumption by AIMCO of PAI's interest in such Agreement and
the duties and obligations thereunder, and agree, subject to the terms and
conditions of said Agreement, to look to AIMCO for the performance of the
Manager's duties and obligations under said Agreement after the effective date
as described above.
5. Indemnification By AIMCO. Notwithstanding any limitation of liability
------------------------
in the Portfolio Management Agreement, AIMCO shall indemnify and hold harmless
the Portfolio Manager, its affiliates and the directors, officers, agents and
employees of the foregoing (each an "Indemnified Person") from all cost, damage
and expense, including reasonable expenses for legal counsel, incurred by an
Indemnified Person as a result of the AIMCO's actions or omissions in performing
its duties under the Portfolio Management Agreement that constitute negligence,
bad faith, breach of trust or fiduciary duty, a material violation of one or
more of the Portfolio Management Agreement, fraud, reckless or intentional
misconduct, or violation of law or regulation. In the event an Indemnified
Person receives a demand, claim or lawsuit relating to the Trust, its
<PAGE>
48
shares, and/or the Agreements, the Indemnified Person shall promptly notify
AIMCO and the Portfolio Manager.
6. Indemnification By Portfolio Manager. Notwithstanding any limitation
------------------------------------
of liability in the Portfolio Management Agreement, the Portfolio Manager shall
indemnify and hold harmless AIMCO, its affiliates and the directors, officers,
agents and employees of the foregoing (each an "Indemnified Person") from all
cost, damage and expense, including reasonable expenses for legal counsel,
incurred by an Indemnified Person as a result of the Portfolio Manager's actions
or omissions in performing its duties under the Portfolio Management Agreement
that constitute negligence, bad faith, breach of trust or fiduciary duty, a
material violation of the Portfolio Management Agreement, fraud, reckless or
intentional misconduct, or violation of law or regulation. In the event an
Indemnified Person receives a demand, claim or lawsuit relating to the Trust,
its shares, and/or the Agreements, the Indemnified Person shall promptly notify
AIMCO and the Portfolio Manager.
7. Notice. Notices shall be in writing and shall be duly given if sent
------
by first class mail or delivered to the following addresses or to such other
address as shall be specified by a party with proper notice to the other
parties:
If as to AIMCO:
--------------
Allmerica Investment Management
Company, Inc.
440 Lincoln Street
Worcester, MA 01653
Attn: President
If as to the Trust:
------------------
The Palladian Trust
440 Lincoln Street
Worcester, MA 01653
Attn: President
If as to PAI:
------------
Palladian Advisors, Inc.
701 Palomar Airport Road
Suite 300
Carlsbad, CA 92009
Attn: President
<PAGE>
49
If as to the Portfolio Manager:
------------------------------
[address]
8. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original.
9. Captions. The captions of this Agreement are included for convenience
--------
only and in no way define or limit any of the provisions hereof or otherwise
affect their construction or effect.
IN WITNESS WHEREOF, the parties hereto have caused this Substitution
Agreement to be executed by their duly authorized officers as of the date and
year first written above.
Palladian Advisors, Inc.
____________________ By: ____________________________________
Witness H. Michael Schwartz
President
Allmerica Investment Management
Company, Inc.
____________________ By: ____________________________________
Witness Title
____________________________________
(Portfolio Manager)
____________________ By: ____________________________________
Witness Title
<PAGE>
50
The Palladian Trust
____________________ By: ____________________________________
Witness Title
<PAGE>
51
APPENDIX D
Set forth below is the Portfolio Management Agreement for the Global Strategic
Income Portfolio discussed in Proposal 4. Allmerica Financial Investment
Management Services, Inc. ("AFIMS") has assumed the role of Allmerica Investment
Management Company, Inc. ("AIMCO") under this agreement.
GLOBAL STRATEGIC INCOME PORTFOLIO
PORTFOLIO MANAGER AGREEMENT
---------------------------------
Agreement, made this ___ day of April, 1998, among The Palladian Trust (the
"Trust"), a Massachusetts business trust; Allmerica Investment Management
Company, Inc. (the "Manager"), a Massachusetts corporation; and Allmerica Asset
Management, Inc. (the "Portfolio Manager"), a Massachusetts corporation.
WHEREAS, the Trust is a diversified, open-end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, the Manager and the Portfolio Manager are both registered as
investment advisers under the Investment Advisers Act of 1940; and
WHEREAS, the Trust is authorized to issue shares of beneficial interest in
separate portfolios with each such portfolio representing interests in a
separate portfolio of securities and other assets; and
WHEREAS, the Manager has entered into a management agreement with the
Trust, pursuant to which the Manager will provide, among other services, advice
with respect to the selection and monitoring of portfolio managers to handle the
day-to-day investment management of certain portfolios; and
WHEREAS, the Trust and the Manager desire to retain the Portfolio Manager
to provide investment advisory services to the Global Strategic Income Portfolio
of the Trust (the "Portfolio"), and the Portfolio Manager is willing to render
such services.
Therefore, the parties agree as follows:
1. Appointment. The Trust hereby appoints the Portfolio Manager to
-----------
provide investment advisory services with respect to the Portfolio for the
period and on the terms set forth in this Agreement, subject to the direction of
the Board of Trustees of the Trust (the "Board of Trustees"). The Portfolio
Manager accepts such appointment and agrees to render the services described
herein for the compensation provided in paragraph 13.
<PAGE>
52
2. Services of the Portfolio Manager.
---------------------------------
(a) Subject to the supervision of the Board of Trustees, the Portfolio
Manager will provide day-to-day investment management of the Portfolio. The
Portfolio Manager will provide investment research and conduct a continuous
program of evaluation, investment, sales, and reinvestment of the Portfolio's
assets by determining the securities and other investments that shall be
purchased, entered into, sold, closed, or exchanged for the Portfolio, when
these transactions should be executed, and what portion of the assets of the
Portfolio should be held in the various securities and other investments in
which it may invest. The Portfolio Manager is hereby authorized to execute and
perform such services on behalf of the Portfolio. To the extent permitted by
the investment policies of the Portfolio, the Portfolio Manager shall make
decisions for the Portfolio as to foreign currency matters and make
determinations as to, and execute and perform, foreign currency exchange
contracts on behalf of the Portfolio. The Portfolio Manager will provide the
services under this Agreement in accordance with the Portfolio's investment
objective or objectives, policies, and restrictions as stated in the Trust's
registration statement under the Securities Act of 1933 and the 1940 Act as
filed with the Securities and Exchange Commission ("SEC") and amended from time
to time (the "Registration Statement").
(b) The Portfolio Manager will use reasonable efforts to manage the
Portfolio so that it will (1) qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code, (2) comply with the diversification
requirements of Section 817(h) of the Internal Revenue Code and regulations
issued thereunder, and (3) comply with any other rules and regulations
pertaining to investment vehicles underlying variable annuity or variable life
insurance policies. In managing the Portfolio in accordance with these
requirements, the Portfolio Manager shall be entitled to receive and act upon
advice of counsel to the Trust or counsel to the Manager.
(c) On occasions when the Portfolio Manager deems the purchase or sale
of a security to be in the best interest of the Portfolio as well as any other
investment advisory clients, the Portfolio Manager may, to the extent permitted
by applicable laws and regulations, including, but not limited to Section 17(d)
of the 1940 Act, but shall not be obligated to, aggregate the securities to be
so sold or purchased with those of its other clients where such aggregation is
not inconsistent with the policies set forth in the Registration Statement. In
such event, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Portfolio Manager in a
manner that is fair and equitable in the judgment of the Portfolio Manager in
the exercise of its fiduciary obligations to the Trust and to such other
clients.
(d) In connection with the purchase and sale of securities for the
Portfolio, the Portfolio Manager will arrange for the transmission to the
custodian for the Trust on a daily basis, such confirmation, trade tickets, and
other documents and information as may be reasonably necessary to enable the
custodian to perform its administrative and recordkeeping responsibilities with
respect to the Portfolio. With respect to portfolio securities to be purchased
or sold through the Depository Trust Company, the Portfolio Manager will arrange
for the automatic transmission of the confirmation of such trades to the Trust's
custodian. The Portfolio Manager will provide to the
<PAGE>
53
Manager copies of the documents and information sent to the custodian and the
Depository Trust Company as requested by the Manager.
(e) The Portfolio Manager will assist the custodian or recordkeeping
agent for the Trust in determining, consistent with the procedures and policies
stated in the Registration Statement, the value of any portfolio securities or
other assets of the Portfolio for which the custodian or recordkeeping agent
seeks assistance or review from the Portfolio Manager. The Portfolio Manager
will monitor on a daily basis the determination by the custodian or
recordkeeping agent for the Trust the value of portfolio securities and other
assets of the Portfolio and the determination of net asset value of the
Portfolio.
(f) The Portfolio Manager shall regularly report to the Board of
Trustees on the investment program for the Portfolio, and will furnish the Board
of Trustees such periodic and special reports as the Board may reasonably
request.
(g) The Portfolio Manager shall make its officers and employees
available to the Board of Trustees, officers of the Trust, and officers of the
Manager for consultation and discussions regarding the investment program for
the Portfolio.
3. Broker-Dealer Selection. The Portfolio Manager is responsible for
-----------------------
decisions to buy and sell securities and other investments for the Portfolio,
broker-dealer selection, and negotiation of brokerage commission rates. The
Portfolio Manager's primary consideration in effecting a security transaction
will be to obtain the best execution for the Portfolio, taking into account the
factors specified in the Registration Statement. Subject to the Registration
Statement and such policies as the Board of Trustees may determine and
consistent with Section 28(e) of the Securities Exchange Act of 1934, the
Portfolio Manager shall not be deemed to have acted unlawfully or to have
breached any duty created by this Agreement or otherwise solely by reason of its
having caused the Portfolio to pay a broker-dealer for effecting a portfolio
investment transaction in excess of the amount of commission another broker-
dealer would have charged for effecting that transaction, if the Portfolio
Manager determines in good faith that such amount of commission was reasonable
in relation to the value of the brokerage and research services provided by such
broker-dealer, viewed in terms of either that particular transaction or the
Portfolio Manager's overall responsibilities with respect to the Portfolio and
to its other clients as to which it exercises investment discretion.
4. Employees. In rendering the services required under this Agreement,
---------
the Portfolio Manager may, from time to time, employ such person or persons as
it believes necessary to assist it in carrying out its obligations under this
Agreement. The Portfolio Manager shall be responsible for making reasonable
inquiries and for reasonably ensuring that no employee of the Portfolio Manager:
(a) has been convicted, in the last ten (10) years, of any felony or
misdemeanor arising out of conduct involving embezzlement, fraudulent
conversion, or
<PAGE>
54
misappropriation of funds or securities, or involving violations of
Sections 1341, 1342, or 1343 of Title 18, United States Code; or
(b) has been found by any state regulatory authority, within the last
ten (10) years, to have violated or to have acknowledged violation of
any provision of any state insurance law involving fraud, deceit, or
knowing misrepresentation; or
(c) has been found by any federal or state regulatory authorities,
within the last ten (10) years, to have violated or to have
acknowledged violation of any provisions of federal or state
securities laws involving fraud, deceit, or knowing misrepresentation;
or
(d) is ineligible by reason of Section 9 of the 1940 Act to serve as
an employee of an investment adviser to an investment company.
5. Conformity with Applicable Law. The Portfolio Manager, in the
------------------------------
performance of its duties and obligations under this Agreement, shall act in
conformity with the Registration Statement and with the instructions and
directions of the Board of Trustees and will conform to, and comply with, the
requirements of the 1940 Act and all other applicable federal and state laws and
regulations.
6. Exclusivity. The services of the Portfolio Manager under this
-----------
Agreement are not deemed exclusive, and the Portfolio Manager, or any affiliate
thereof, shall be free to render similar services to other investment companies
and other clients and to engage in other activities, so long as its services
hereunder are not impaired thereby.
7. Documents. The Trust has delivered copies of each of the following
---------
documents to the Portfolio Manager and will deliver to it all future amendments
and supplements thereto, if any:
(a) the Trust's Declaration of Trust and its by-laws;
(b) the Registration Statement; and
(c) the prospectus and statement of additional information of the
Trust as currently in effect and as amended and supplemented from time to time.
8. Records. The Portfolio Manager agrees to maintain and to preserve
-------
records relating to the Trust as required by the 1940 Act. The Portfolio
Manager further agrees that all records which it maintains for the Trust are the
property of the Trust and it will promptly surrender any of such records upon
request.
9. Disclosure by Portfolio Manager. The Portfolio Manager will not
-------------------------------
disclose or use any records or information obtained pursuant to this Agreement
(excluding investment research and investment advice) in any manner whatsoever
except as required to carry out its duties as investment
<PAGE>
55
adviser or in the ordinary course of business in connection with placing orders
for the purchase and sale of securities, and will keep confidential any
information obtained pursuant to this Agreement, and disclose such information
only if the Board of Trustees has authorized such disclosure, or if such
disclosure is expressly required by applicable federal or state law or
regulations or regulatory authorities having the requisite authority.
10. Disclosure about Portfolio Manager. The Portfolio Manager will
----------------------------------
cooperate with the Trust and the Manager by providing and reviewing information
relating to the Portfolio Manager and the Portfolio for use in the Registration
Statement, shareholder reports and other documents. The Portfolio Manager
represents and warrants that it is a duly registered investment adviser under
the Investment Advisers Act of 1940 and a duly registered investment adviser in
all states in which the Portfolio Manager is required to be registered.
11. Compliance. The Portfolio Manager agrees that it shall immediately
----------
notify the Manager and the Trust in the event that:
(a) the SEC has censured the Portfolio Manager; placed limitations
upon its activities, functions or operations; suspended or revoked its
registration as an investment adviser; or commenced proceedings or an
investigation that may result in any of these actions; or
(b) the Portfolio Manager has a reasonable basis for believing that
the Portfolio has ceased to qualify or might not qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code; or
(c) the Portfolio Manager has a reasonable basis for believing that
the Portfolio has ceased to comply or might not comply with the diversification
provisions of Section 817(h) of the Internal Revenue Code or the regulations
thereunder; or
(d) the Portfolio Manager has become aware of a material fact that is
not contained in the Registration Statement or prospectus for the Trust, or any
amendment or supplement thereto, or that any statement contained therein that
has become untrue or misleading in any material respect.
12. Expenses. During the term of this Agreement, the Portfolio Manager
--------
will pay all expenses incurred by it in connection with its activities under
this Agreement, including all rent and other expenses involved in providing
office space and equipment required by the Portfolio Manager and the salaries
and expenses of all personnel of the Portfolio Manager. The Portfolio Manager
further agrees to pay all salaries, fees and expenses of any officer or trustee
of the Trust who is an officer, director or employee of the Portfolio Manager or
any of its affiliates. Nothing in this Agreement shall require the Portfolio
Manager to bear the following expenses:
(a) Fees of the Manager and the Portfolio Advisor;
<PAGE>
56
(b) Charges for audits by the Trust's independent public accountants;
(c) Charges of the Trust's transfer agent, registrar, and/or dividend
disbursing agent;
(d) Charges of the Trust's custodian and/or accountant;
(e) Costs of obtaining quotations for calculating the value of each
Portfolio's net assets;
(f) Costs of maintaining the Trust's tax records;
(g) Salaries and other compensation of any of the Trust's executive
officers and employees, if any, who are not officers, directors, or employees of
the Portfolio Manager or any of its affiliates;
(h) Taxes levied against the Trust;
(i) Brokerage fees and commissions in connection with the purchase and
sale of portfolio securities for the Trust;
(j) Costs, including the interest expense, of borrowing by the Trust;
(k) Costs and/or fees incident to meetings of the Trust's
shareholders, the preparation and mailings of prospectuses, reports, proxy
statements and other communications by the Trust to its shareholders, the filing
of reports with regulatory bodies, the maintenance of the Trust's existence, and
the registration of shares with federal and state securities or insurance
authorities;
(l) The Trust's legal fees, including the legal fees related to the
registration and continued qualification of the Trust's shares for sale;
(m) Costs of printing stock certificates representing shares of the
Trust;
(n) Trustees' fees and expenses of Trustees who are not officers,
directors, or employees of the Portfolio Manager or any affiliates;
(o) Trust's pro rata portion of the fidelity bond required by Section
17(g) of the 1940 Act, or other insurance premiums;
(p) Membership dues for any association of which the Trust is a
member;
<PAGE>
57
(q) Extraordinary expenses of the Trust as may arise, including
expenses incurred in connection with litigation, proceedings, other claims
against the Trust (unless the Portfolio Manager is responsible for such expenses
under paragraph 14 of this Agreement), and the legal obligations of the Trust to
indemnify its trustees, officers, employees, shareholders, distributors, and
agents with respect to such claims; and
(r) Organizational and offering expenses of the Trust and, if
applicable, reimbursement (with interest) of underwriting discounts and
commissions.
13. Compensation.
------------
(a) For the services provided and the expenses borne by the Portfolio
Manager pursuant to this Agreement, the Trust will pay the Portfolio Manager 80%
of the Initial Monthly Advisory Fee or the Monthly Advisory Fee, as those terms
are defined in this paragraph, whichever is applicable.
(b) For the period beginning with the effective date of this Agreement
and ending with the last day of the twelfth full calendar month thereafter, the
Portfolio will pay at the end of each month, an advisory fee calculated at an
annual rate of 0.80% of the Portfolio's average daily net assets (the "Initial
Monthly Advisory Fee").
(c) For the period beginning with the first day of the thirteenth full
calendar month after the effective date of this Agreement and continuing through
the remainder of the term of this Agreement, the Portfolio will pay at the end
of each month, an advisory fee (the "Monthly Advisory Fee"). The Monthly
Advisory Fee equals the Basic Fee (as defined in paragraph 13(d) below) plus the
Incentive Fee (as defined in paragraph 13(e) below) and adjusted, if so
required, by paragraph 13(h) below.
(d) The Basic Fee equals one-twelfth of 2% multiplied by the
Portfolio's average daily net assets for the previous 12 months (including the
month for which the fee is being calculated).
(e) The Incentive Fee equals: (i) one-twelfth of the Annual Incentive
Fee set forth in the chart below based on the difference between the Performance
of the Portfolio and the Performance of the Benchmark, as those terms are
defined in paragraphs 13(f) and 13(g) below; (ii) multiplied by the Portfolio's
average daily net assets for the previous 12 months (including the month for
which the fee is being calculated).
<PAGE>
58
==============================================================================
Annual
Percentage Point Difference Between Performance of the Incentive
Portfolio and Performance of the Benchmark Fee (%)
==============================================================================
+7.5 or greater 2.0%
- ------------------------------------------------------------------------------
+6.0 or greater, but less than +7.5 1.5
- ------------------------------------------------------------------------------
+4.5 or greater, but less than +6.0 1.0
- ------------------------------------------------------------------------------
+3.0 or greater, but less than +4.5 0.5
- ------------------------------------------------------------------------------
+1.5 or greater, but less than +3.0 0.0
- ------------------------------------------------------------------------------
0.0 or greater, but less than +1.5 -0.5
- ------------------------------------------------------------------------------
- -1.5 or greater, but less than 0.0 -1.0
- ------------------------------------------------------------------------------
- -3.0 or greater, but less than -1.5 -1.5
- ------------------------------------------------------------------------------
Less than -3.0 -2.0
==============================================================================
(f) The Performance of the Portfolio will be calculated by first
determining the change in the Portfolio's net asset value per share during the
previous twelve months (including the month for which the fee is being computed)
assuming the reinvestment of distributions during that period, and then
expressing this amount as a percentage of the net asset value per share at the
beginning of the period. Net asset value per share is calculated by dividing
the value of the securities held by the Portfolio plus any cash or other assets
minus all liabilities including accrued advisory fees and the other expenses, by
the total number of shares outstanding at the time. The Performance of the
Portfolios shall be calculated in accordance with SEC rules.
(g) The Performance of the Benchmark will be calculated by first
determining the change in the level of the Benchmark during the previous twelve
months (including the month for which the fee is being computed) plus the value
of any cash dividends or distributions made by the companies whose securities
comprise the Benchmark accumulated to the end of the period, and then expressing
this amount as a percentage of the Benchmark at the beginning of the period.
The Performance of the Benchmark shall be calculated in accordance with SEC
rules. The Benchmark is the Lehman Brothers Aggregate Bond Index. If the
Benchmark ceases to be published, changes in any material respect or otherwise
becomes impracticable to use for purposes of the Incentive Fee, the Monthly
Advisory Fee will equal the Basic Fee (with no incentive adjustment) until such
time as the Board of Trustees approves a substitute Benchmark.
(h) Notwithstanding paragraphs 13(a)-13(g) above, if the Performance
of a Portfolio (minus payment of all expenses, including the Basic Fee and any
Incentive Fee) is negative and does not exceed the Performance of the Benchmark
by six percentage points, then the Monthly
<PAGE>
59
Advisory Fee will equal zero. Notwithstanding paragraphs 13(a)-13(g) above, if
the Performance of a Portfolio (minus payment of all expenses, including the
Basic Fee and any Incentive Fee) is negative, exceeds the Performance of the
Benchmark by six percentage points, but does not exceed the Performance of the
Benchmark by twelve percentage points, then the Monthly Advisory Fee will not be
greater than one-twelfth of 1% of the Portfolio's average daily net assets for
the previous 12 months (including the month for which the fee is being
calculated). Notwithstanding paragraphs 13(a)-13(g) above, if the Performance of
a Portfolio (minus payment of all expenses, including the Basic Fee and any
Incentive Fee) is negative and exceeds the Performance of the Benchmark by
twelve percentage points, then the Monthly Advisory Fee will not be greater than
one-twelfth of 2% of the Portfolio's average daily net assets for the previous
12 months (including the month for which the fee is being calculated).
14. Liability and Indemnification. The Portfolio Manager, the Manager and
-----------------------------
the Trust each may rely on information reasonably believed by it to be accurate
and reliable. The Portfolio Manager shall not be liable to the Trust or its
shareholders for any loss suffered by the Trust as the result of any negligent
act or error of judgment of the Portfolio Manager in connection with the matters
to which this Agreement relates, except a loss resulting from a breach by the
Portfolio Manager of its fiduciary duty with respect to the receipt of
compensation for services (in which case any award of damages shall be limited
to the period and the amount set forth in Section 36(b)(3) of the 1940 Act) or
loss resulting from willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless disregard by it of its
obligations and duties under this Agreement. The Trust shall indemnify the
Portfolio Manager and hold it harmless from all cost, damage and expense,
including reasonable expenses for legal counsel, incurred by the Portfolio
Manager resulting from actions for which it is relieved of responsibility by
this paragraph. The Portfolio Manager shall indemnify the Trust and hold it
harmless from all cost, damage and expense, including reasonable expenses for
legal counsel, incurred by the Trust resulting from (i) a breach by the
Portfolio Manager of its fiduciary duty with respect to compensation for
services paid by the Trust (in which case any award of damages shall be limited
to the period and the amount set forth in Section 36(b)(3) of the 1940 Act);
(ii) willful misfeasance, bad faith or gross negligence by the Portfolio Manager
in the performance of its duties under this Agreement; or (iii) reckless
disregard by the Portfolio Manager of its obligations and duties under this
Agreement.
15. Continuation and Termination. This Agreement shall take effect on the
----------------------------
date first written above, and shall continue in effect, unless sooner terminated
as provided herein, for 119 days thereafter, and provided that the Agreement is
approved by a majority of the outstanding voting shares of the Portfolio by the
end of such 119th day, shall continue for two years from the date of this
Agreement and shall continue from year to year thereafter so long as such
continuance is specifically approved at least annually (i) by the vote of a
majority of the Board of Trustees; or (ii) by vote of a majority of the
outstanding voting shares of the Portfolio; provided, further, in either event
that continuance is also approved by the vote of a majority of the Board of
Trustees who are not parties to this Agreement or "interested persons" (as
defined in the 1940 Act) of the Trust, the Manager or the Portfolio Manager cast
in person at a meeting called for the purpose of voting on such approval. This
Agreement may be terminated (i) by the Trust at any time, without the payment
<PAGE>
60
of any penalty, by vote of a majority of the entire Board of Trustees or by a
vote of a majority of the outstanding voting shares of the Portfolio, on sixty
(60) days' written notice to the Manager and the Portfolio Manager, (ii) by the
Manager at any time, without the payment of any penalty, on ninety (90) days'
written notice to the Trust and the Portfolio Manager, or (iii) by the Portfolio
Manager at any time, without the payment of any penalty, on ninety (90) days'
written notice to the Trust and the Manager. This Agreement will automatically
and immediately terminate in the event of its "assignment" (as defined in the
1940 Act).
16. Independent Contractor. The Portfolio Manager shall for all purposes
----------------------
herein be deemed to be an independent contractor and shall, unless otherwise
expressly provided herein or authorized by the Board of Trustees from time to
time, have no authority to act for or represent the Trust in any way or
otherwise be deemed its agent.
17. Use of Name. It is understood that the words "Palladian" and "Fulcrum
-----------
Fund," any derivative thereof and any design associated with those words
(collectively, the "Words and Designs") are the valuable property of the Trust,
and that the Portfolio Manager shall have the right to use the Words and Designs
only with the approval of the Trust. Upon termination of this Agreement, the
Portfolio Manager shall promptly discontinue all use of the Words and Designs.
18. Sales Literature. The Manager agrees to furnish to the Portfolio
----------------
Manager all sales literature which refers to the Portfolio Manager prior to use
thereof and not to use such sales literature if the Portfolio Manager reasonably
objects in writing five business days (or such other time as may be mutually
agreed) after receipt thereof. Sales literature may be furnished to the
Portfolio Manager by first class mail, overnight delivery service, facsimile
transmission equipment, or hand delivery.
19. Notice. Notices of any kind to be given to the Trust shall be in
------
writing and shall be duly given if sent by first class mail or delivered to the
Trust at 440 Lincoln Street, Worcester, MA 01653, or at such other address or to
such individual as shall be specified by the Trust (with proper notice to the
Manager and the Portfolio Manager). Notices of any kind to be given to the
Manager shall be in writing and shall be duly given if sent by first class mail
or delivered to the Manager at 440 Lincoln Street, Worcester, MA 01653, or at
such other address or to such individual as shall be specified by the Manager
(with proper notice to the Trust and the Portfolio Manager). Notices of any
kind to be given to the Portfolio Manager shall be in writing and shall be duly
given if sent by first class mail or delivered to the Portfolio Manager at 440
Lincoln Street, Worcester, MA 01653, or at such other address or to such
individual as shall be specified by the Portfolio Manager (with proper notice to
the Trust and the Manager).
20. Obligation. A copy of the Trust's Agreement and Declaration of Trust
----------
is on file with the Secretary of the Commonwealth of Massachusetts. Notice is
hereby given that this Agreement has been executed on behalf of the Trust by a
trustee of the Trust in his or her capacity as trustee and not individually.
The obligations of this Agreement shall only be binding upon the assets and
<PAGE>
61
property of the Trust and shall not be binding upon any trustee, officer, or
shareholder of the Trust individually.
21. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original.
22. Applicable law. This Agreement shall be governed by the laws of
--------------
Massachusetts, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Investment Advisers Act of 1940, or any
rules or order of the SEC thereunder.
23. Severability. 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 and, to this extent, the provisions
of this Agreement shall be deemed to be severable.
24. Captions. The captions of this Agreement are included for convenience
--------
only and in no way define or limit any of the provisions hereof or otherwise
affect their construction or effect.
<PAGE>
62
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below on the day and year first above
written.
The Palladian Trust
__________________________ By:________________________________
Witness George M. Boyd
Assistant Secretary
Allmerica Investment Management
Company, Inc.
__________________________ By:________________________________
Witness Name:
Title:
Allmerica Asset Management, Inc.
__________________________ By:________________________________
Witness Name:
Title:
<PAGE>
Voting Instruction Form
For The Special Meeting Of Shareholders Of The Palladian Trust
VALUE PORTFOLIO
John Doe
123 Main Street
New York, NY 10001
Contract No: _________
Dear Contract Owner:
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY AND FIRST ALLMERICA
FINANCIAL LIFE INSURANCE COMPANY (COLLECTIVELY, "ALLMERICA") AND THE BOARD OF
TRUSTEES OF THE PALLADIAN TRUST (THE "TRUST") SOLICIT YOUR VOTING INSTRUCTIONS
AND RECOMMEND A VOTE "FOR" EACH ITEM BELOW. ALLMERICA WILL VOTE THE APPROPRIATE
NUMBER OF PORTFOLIO SHARES PURSUANT TO THE INSTRUCTIONS GIVEN. IF NO CHOICE IS
MADE, ALLMERICA WILL VOTE "FOR". WITH RESPECT TO ANY OTHER BUSINESS THAT MAY
PROPERLY COME BEFORE THE MEETING, ALLMERICA WILL VOTE IN ACCORDANCE WITH ITS
BEST JUDGMENT.
This Voting Instruction Card will vote shares of the Value Portfolio only. Only
proposals to be voted upon by persons having voting rights with respect to that
Portfolio are listed below.
ALLMERICA -- FOR THE PURPOSE OF VOTING ON THE ITEMS IN THE AGENDA SET FORTH IN
THE NOTICE AND STATEMENT CONCERNING THE SPECIAL MEETING OF SHAREHOLDERS OF THE
PALLADIAN TRUST AT SUCH SPECIAL MEETING TO BE HELD ON JUNE 8, 1998 OR AT ANY
ADJOURNMENT THEREOF -- IS HEREBY INSTRUCTED TO VOTE THE PORTFOLIO SHARES AS TO
WHICH I AM ENTITLED TO GIVE INSTRUCTIONS AS FOLLOWS:
PROPOSAL FOR AGAINST ABSTAIN
--- ------- -------
1. Election of the following persons as new
Trustees for the Trust:
Gordon Holmes [_] [_] [_]
George J. Sullivan [_] [_] [_]
2. Approval of a new Management Agreement
under which Allmerica Financial Investment
Management Services, Inc. ("AFIMS") will serve [_] [_] [_]
as Manager of the Trust.
<PAGE>
PROPOSAL FOR AGAINST ABSTAIN
--- ------- -------
3. Approval of agreements under which AFIMS
is substituted for the previous Manager under the [_] [_] [_]
Portfolio Management Agreements.
PLEASE MARK THE CHOICE LIKE THIS: [X]
Each owner should sign his or her
name as it appears on the top of this
SIGNATURE____________DATE____ instruction card; if a contract is owned
jointly, each owner should sign; if a contract
is held in a fiduciary capacity, the fiduciary
SIGNATURE____________DATE____ should sign and indicate his or her fiduciary
capacity.
<PAGE>
Voting Instruction Form
For The Special Meeting Of Shareholders Of The Palladian Trust
GROWTH PORTFOLIO
John Doe
123 Main Street
New York, NY 10001
Contract No: _________
Dear Contract Owner:
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY AND FIRST ALLMERICA
FINANCIAL LIFE INSURANCE COMPANY (COLLECTIVELY, "ALLMERICA") AND THE BOARD OF
TRUSTEES OF THE PALLADIAN TRUST (THE "TRUST") SOLICIT YOUR VOTING INSTRUCTIONS
AND RECOMMEND A VOTE "FOR" EACH ITEM BELOW. ALLMERICA WILL VOTE THE APPROPRIATE
NUMBER OF PORTFOLIO SHARES PURSUANT TO THE INSTRUCTIONS GIVEN. IF NO CHOICE IS
MADE, ALLMERICA WILL VOTE "FOR". WITH RESPECT TO ANY OTHER BUSINESS THAT MAY
PROPERLY COME BEFORE THE MEETING, ALLMERICA WILL VOTE IN ACCORDANCE WITH ITS
BEST JUDGMENT.
This Voting Instruction Card will vote shares of the Growth Portfolio only. Only
proposals to be voted upon by persons having voting rights with respect to that
Portfolio are listed below.
ALLMERICA -- FOR THE PURPOSE OF VOTING ON THE ITEMS IN THE AGENDA SET FORTH IN
THE NOTICE AND STATEMENT CONCERNING THE SPECIAL MEETING OF SHAREHOLDERS OF THE
PALLADIAN TRUST AT SUCH SPECIAL MEETING TO BE HELD ON JUNE 8, 1998 OR AT ANY
ADJOURNMENT THEREOF -- IS HEREBY INSTRUCTED TO VOTE THE PORTFOLIO SHARES AS TO
WHICH I AM ENTITLED TO GIVE INSTRUCTIONS AS FOLLOWS:
PROPOSAL FOR AGAINST ABSTAIN
--- ------- -------
1. Election of the following persons as new
Trustees for the Trust:
Gordon Holmes [_] [_] [_]
George J. Sullivan [_] [_] [_]
2. Approval of a new Management Agreement
under which Allmerica Financial Investment
Management Services, Inc. ("AFIMS") will serve [_] [_] [_]
as Manager of the Trust.
<PAGE>
PROPOSAL FOR AGAINST ABSTAIN
--- ------- -------
3. Approval of agreements under which AFIMS
is substituted for the previous Manager under the [_] [_] [_]
Portfolio Management Agreements.
PLEASE MARK THE CHOICE LIKE THIS: [X]
Each owner should sign his or her
name as it appears on the top of this
SIGNATURE_________DATE__________ instruction card; if a contract is owned
jointly, each owner should sign; if a
SIGNATURE_________DATE__________ contract is held in a fiduciary capacity,
the fiduciary should sign and indicate his
or her fiduciary capacity.
<PAGE>
Voting Instruction Form
For The Special Meeting Of Shareholders Of The Palladian Trust
INTERNATIONAL GROWTH PORTFOLIO
John Doe
123 Main Street
New York, NY 10001
Contract No: _________
Dear Contract Owner:
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY AND FIRST ALLMERICA
FINANCIAL LIFE INSURANCE COMPANY (COLLECTIVELY, "ALLMERICA") AND THE BOARD OF
TRUSTEES OF THE PALLADIAN TRUST (THE "TRUST") SOLICIT YOUR VOTING INSTRUCTIONS
AND RECOMMEND A VOTE "FOR" EACH ITEM BELOW. ALLMERICA WILL VOTE THE APPROPRIATE
NUMBER OF PORTFOLIO SHARES PURSUANT TO THE INSTRUCTIONS GIVEN. IF NO CHOICE IS
MADE, ALLMERICA WILL VOTE "FOR". WITH RESPECT TO ANY OTHER BUSINESS THAT MAY
PROPERLY COME BEFORE THE MEETING, ALLMERICA WILL VOTE IN ACCORDANCE WITH ITS
BEST JUDGMENT.
This Voting Instruction Card will vote shares of the International Growth
Portfolio only. Only proposals to be voted upon by persons having voting rights
with respect to that Portfolio are listed below.
ALLMERICA -- FOR THE PURPOSE OF VOTING ON THE ITEMS IN THE AGENDA SET FORTH IN
THE NOTICE AND STATEMENT CONCERNING THE SPECIAL MEETING OF SHAREHOLDERS OF THE
PALLADIAN TRUST AT SUCH SPECIAL MEETING TO BE HELD ON JUNE 8, 1998 OR AT ANY
ADJOURNMENT THEREOF -- IS HEREBY INSTRUCTED TO VOTE THE PORTFOLIO SHARES AS TO
WHICH I AM ENTITLED TO GIVE INSTRUCTIONS AS FOLLOWS:
PROPOSAL FOR AGAINST ABSTAIN
--- ------- -------
1. Election of the following persons as new
Trustees for the Trust:
Gordon Holmes [_] [_] [_]
George J. Sullivan
2. Approval of a new Management Agreement
under which Allmerica Financial Investment [_] [_] [_]
Management Services, Inc. ("AFIMS") will serve
as Manager of the Trust.
<PAGE>
PROPOSAL FOR AGAINST ABSTAIN
--- ------- -------
3. Approval of agreements under which AFIMS
is substituted for the previous Manager under the [_] [_] [_]
Portfolio Management Agreements.
PLEASE MARK THE CHOICE LIKE THIS: [X]
Each owner should sign his or her
name as it appears on the top of this
SIGNATURE_________DATE__________ instruction card; if a contract is owned
jointly, each owner should sign; if a
SIGNATURE_________DATE__________ contract is held in a fiduciary capacity,
the fiduciary should sign and indicate his
or her fiduciary capacity.
<PAGE>
Voting Instruction Form
For The Special Meeting Of Shareholders Of The Palladian Trust
GLOBAL INTERACTIVE/TELECOMM PORTFOLIO
John Doe
123 Main Street
New York, NY 10001
Contract No: _________
Dear Contract Owner:
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY AND FIRST ALLMERICA
FINANCIAL LIFE INSURANCE COMPANY (COLLECTIVELY, "ALLMERICA") AND THE BOARD OF
TRUSTEES OF THE PALLADIAN TRUST (THE "TRUST") SOLICIT YOUR VOTING INSTRUCTIONS
AND RECOMMEND A VOTE "FOR" EACH ITEM BELOW. ALLMERICA WILL VOTE THE APPROPRIATE
NUMBER OF PORTFOLIO SHARES PURSUANT TO THE INSTRUCTIONS GIVEN. IF NO CHOICE IS
MADE, ALLMERICA WILL VOTE "FOR". WITH RESPECT TO ANY OTHER BUSINESS THAT MAY
PROPERLY COME BEFORE THE MEETING, ALLMERICA WILL VOTE IN ACCORDANCE WITH ITS
BEST JUDGMENT.
This Voting Instruction Card will vote shares of the Global Interactive/Telecomm
Portfolio only. Only proposals to be voted upon by persons having voting rights
with respect to that Portfolio are listed below.
ALLMERICA -- FOR THE PURPOSE OF VOTING ON THE ITEMS IN THE AGENDA SET FORTH IN
THE NOTICE AND STATEMENT CONCERNING THE SPECIAL MEETING OF SHAREHOLDERS OF THE
PALLADIAN TRUST AT SUCH SPECIAL MEETING TO BE HELD ON JUNE 8, 1998 OR AT ANY
ADJOURNMENT THEREOF -- IS HEREBY INSTRUCTED TO VOTE THE PORTFOLIO SHARES AS TO
WHICH I AM ENTITLED TO GIVE INSTRUCTIONS AS FOLLOWS:
PROPOSAL FOR AGAINST ABSTAIN
--- ------- -------
1. Election of the following persons as new
Trustees for the Trust:
Gordon Holmes [_] [_] [_]
George J. Sullivan [_] [_] [_]
2. Approval of a new Management Agreement
under which Allmerica Financial Investment
Management Services, Inc. ("AFIMS") will serve [_] [_] [_]
as Manager of the Trust.
<PAGE>
PROPOSAL FOR AGAINST ABSTAIN
--- ------- -------
3. Approval of agreements under which AFIMS
is substituted for the previous Manager under the [_] [_] [_]
Portfolio Management Agreements.
PLEASE MARK THE CHOICE LIKE THIS: [X]
Each owner should sign his or her
name as it appears on the top of this
SIGNATURE____________DATE__________ instruction card; if a contract is owned
jointly, each owner should sign; if a
SIGNATURE____________DATE__________ contract is held in a fiduciary capacity,
the fiduciary should sign and indicate his
or her fiduciary capacity.
<PAGE>
Voting Instruction Form
For The Special Meeting Of Shareholders Of The Palladian Trust
GLOBAL STRATEGIC INCOME PORTFOLIO
John Doe
123 Main Street
New York, NY 10001
Contract No: _________
Dear Contract Owner:
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY AND FIRST ALLMERICA
FINANCIAL LIFE INSURANCE COMPANY (COLLECTIVELY, "ALLMERICA") AND THE BOARD OF
TRUSTEES OF THE PALLADIAN TRUST (THE "TRUST") SOLICIT YOUR VOTING INSTRUCTIONS
AND RECOMMEND A VOTE "FOR" EACH ITEM BELOW. ALLMERICA WILL VOTE THE APPROPRIATE
NUMBER OF PORTFOLIO SHARES PURSUANT TO THE INSTRUCTIONS GIVEN. IF NO CHOICE IS
MADE, ALLMERICA WILL VOTE "FOR". WITH RESPECT TO ANY OTHER BUSINESS THAT MAY
PROPERLY COME BEFORE THE MEETING, ALLMERICA WILL VOTE IN ACCORDANCE WITH ITS
BEST JUDGMENT.
This Voting Instruction Card will vote shares of the Global Strategic Income
Portfolio only. Only proposals to be voted upon by persons having voting rights
with respect to that Portfolio are listed below.
ALLMERICA -- FOR THE PURPOSE OF VOTING ON THE ITEMS IN THE AGENDA SET FORTH IN
THE NOTICE AND STATEMENT CONCERNING THE SPECIAL MEETING OF SHAREHOLDERS OF THE
PALLADIAN TRUST AT SUCH SPECIAL MEETING TO BE HELD ON JUNE 8, 1998 OR AT ANY
ADJOURNMENT THEREOF -- IS HEREBY INSTRUCTED TO VOTE THE PORTFOLIO SHARES AS TO
WHICH I AM ENTITLED TO GIVE INSTRUCTIONS AS FOLLOWS:
PROPOSAL FOR AGAINST ABSTAIN
--- ------- -------
1. Election of the following persons as new
Trustees for the Trust:
Gordon Holmes [_] [_] [_]
George J. Sullivan [_] [_] [_]
2. Approval of a new Management Agreement
under which Allmerica Financial Investment [_] [_] [_]
Management Services, Inc. ("AFIMS") will serve
as Manager of the Trust.
<PAGE>
PROPOSAL FOR AGAINST ABSTAIN
--- ------- -------
4. Approval of a new portfolio management
agreement, pursuant to which Allmerica Asset
Management, Inc. ("AAM") would serve as [_] [_] [_]
portfolio manager to the Global Strategic Income
Portfolio.
5. Approval of a new investment objective for the [_] [_] [_]
Global Strategic Income Portfolio (which would
then be renamed the Strategic Income Portfolio).
PLEASE MARK THE CHOICE LIKE THIS: [X]
Each owner should sign his or her
name as it appears on the top of this
SIGNATURE_________DATE__________ instruction card; if a contract is owned
jointly, each owner should sign; if a
contract is held in a fiduciary capacity,
SIGNATURE_________DATE__________ the fiduciary should sign and indicate his
or her fiduciary capacity.
