<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:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-2
The Palladian Trust
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the 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
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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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<PAGE>
[LETTERHEAD OF ALLMERICA APPEARS HERE]
ALLMERICA FINANCIAL(R)
Dear Contract Owner:
The Palladian Trust (the "Trust") will hold a special meeting of
shareholders on September 15, 1998.
The attached Notice and Statement Concerning the Special Meeting discuss the
single proposal to be considered at the meeting. The Board of Trustees of the
Trust has approved the hiring of Pilgrim Baxter Analytic Investors, Inc.
("Pilgrim Baxter Analytic") as the new Portfolio Manager for the Growth
Portfolio of the Trust. The Board now submits the Portfolio Manager Agreement
with Pilgrim Baxter Analytic for your consideration and recommends that you
vote "FOR" approval of the agreement.
Because the proposal affects only the Growth Portfolio, only contract owners
such as yourself whose contracts hold an interest in the Growth Portfolio will
vote on the proposal. You are entitled to provide instructions on how to vote
the number of shares of the Growth Portfolio related to your contract as of
the close of business on July 17, 1998.
Please take a few minutes to consider this matter and then exercise your
right to give your instructions by completing, dating, and signing the
enclosed voting instruction form. Included is a self-addressed and postage-
paid envelope for your convenience. To be given effect, your voting
instructions must be received by September 10, 1998.
If you have any questions about these materials, please contact your
financial adviser or Allmerica Financial at (800) 917-1909.
August 1, 1998 Richard M. Reilly
President
Allmerica Financial Life Insurance
and Annuity Company
Vice President
First Allmerica Financial Life
Insurance Company
<PAGE>
THE PALLADIAN TRUST
GROWTH PORTFOLIO
440 LINCOLN STREET
WORCESTER, MASSACHUSETTS 01653
----------------
NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE GROWTH PORTFOLIO
OF THE PALLADIAN TRUST
SEPTEMBER 15, 1998
----------------
A special meeting of shareholders of the Growth Portfolio of The Palladian
Trust (the "Trust") will be held at 440 Lincoln Street, Worcester, MA 01653 on
September 15, 1998 at 10:00 a.m. for the following purposes:
1. For the Growth Portfolio only: To approve or disapprove a new
Portfolio Manager Agreement, pursuant to which Pilgrim Baxter Analytic
Investors, Inc. ("Pilgrim Baxter Analytic") would serve as Portfolio
Manager to the Growth Portfolio.
2. To transact such other business as may properly come before the
meeting.
By order of the Board of Trustees.
George M. Boyd
Secretary
The Palladian Trust
August 1, 1998
<PAGE>
STATEMENT CONCERNING THE
SPECIAL MEETING OF SHAREHOLDERS OF
THE PALLADIAN TRUST
GROWTH PORTFOLIO
SEPTEMBER 15, 1998
The Board of Trustees of The Palladian Trust (the "Trust") solicits your
voting instructions for a special meeting of shareholders of the Growth
Portfolio of the Trust. The Trust will hold the special meeting on September
15, 1998 at 10:00 a.m. at the Trust's offices at 440 Lincoln Street,
Worcester, MA 01653, and at any adjournments of that meeting. The approximate
date on which this statement and the voting instruction form will first be
sent to contract owners is August 1, 1998. The record date for determination
of the persons entitled to vote for purposes of this special meeting was July
17, 1998.
On or about September 1, 1998, the Trust's name will change from "The
Palladian Trust" to "The Fulcrum Trust." The Trust is divided into six
Portfolios, and a different class of Capital Stock is issued with respect to
each Portfolio. Five of the Portfolios are currently operational and available
to contract owners. These Portfolios are: Value Portfolio, Growth Portfolio,
International Growth Portfolio, 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.
One Proposal is scheduled for consideration at the special meeting. That
Proposal affects only the Growth Portfolio. Only contract owners who as of the
record date had allocated some or all of their contract fund to the Growth
Portfolio are eligible to vote on this Proposal. This statement refers to
these contract owners as "you" or as "persons having voting rights."
As of the record date, the Growth Portfolio had outstanding shares
corresponding to 421,358.088 votes eligible to be cast at the special meeting.
The following entities are the shareholders of record of the Growth Portfolio:
(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"), which together
are the record owners of 420,358.088 shares; and (iii) Palladian Advisors,
Inc. ("PAI"), which owns 1,000 shares.
You are entitled to give instructions on how to vote the number of shares of
the Growth Portfolio corresponding to the part of your contract fund you have
allocated to the Portfolio. Each full share has one vote, and each fractional
share has a proportionate fractional vote. If you abstain, your vote will not
be counted. If you submit a properly executed voting instruction form but omit
a voting choice, Allmerica Financial Life Insurance and Annuity Company and
First Allmerica Financial Life Insurance Company (collectively, "Allmerica")
will vote the shares "FOR" the Proposal. Allmerica will vote Growth 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.
In addition, Palladian Advisors, Inc., which formerly served as the Trust's
investment adviser, will vote the Growth Portfolio shares it holds in the same
proportion as all persons having voting rights.
In order for your voting instructions to be effective, the Trust must
receive them by the close of business on September 10, 1998. You may revoke
your voting instructions any time before 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. The Growth Portfolio will bear the costs of
this solicitation.
The Trust will furnish you, upon request and without charge, a copy of the
Trust's most recent annual report and semi-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.
<PAGE>
MANAGEMENT AND ADMINISTRATION
Allmerica Financial Investment Management Services, Inc. ("AFIMS"), 440
Lincoln Street, Worcester, Massachusetts 01653, serves as the overall Manager
for the Trust.
The following persons serve as officers of the Trust. An asterisk ("*")
indicates that the person works for AFIMS or one of its affiliates.
<TABLE>
<C> <S>
George J. Sullivan, Jr. ............ Chairman and President
Tom N. Dallape...................... Vice President
Stephen W. Bright*.................. Vice President
David J. Mueller*................... Vice President
Lisa M. Coleman*.................... Vice President
Thomas P. Cunningham*............... Treasurer
George M. Boyd*..................... Secretary
Joseph W. MacDougall, Jr.*.......... Assistant Secretary
</TABLE>
The Trust retains a Portfolio Manager for each Portfolio of the Trust,
including the Growth Portfolio. The Portfolio Manager makes the day-to-day
investment decisions for the Portfolio, subject to the supervision of AFIMS
and the Trust's Board of Trustees. Information about the Portfolio Manager for
the Growth Portfolio appears below in the discussion of the Proposal.
Investors Bank & Trust Company ("IBT"), 200 Clarendon Street, Boston,
Massachusetts 02117, serves as custodian and transfer agent for, and provides
fund accounting services to, the Trust. IBT also provides administrative
assistance to AFIMS in managing the Trust.
PricewaterhouseCoopers L.L.P. and its predecessors have served as
independent accountant for the Trust since the Trust commenced operations in
1996.
The Trust distributes its own shares and therefore has no principal
underwriter.
MEETING PROPOSALS
The Trust must receive a proposal intended to be presented at a shareholders
meeting a reasonable time--generally at least 120 days--before the Trust or
Allmerica solicits voting instructions from contract owners. The Trust does
not ordinarily hold annual shareholder meetings. Therefore, the Trust will
retain all proposals it receives, and those proposals will then be eligible to
be considered for distribution with the proxy materials for the next special
meeting.
2
<PAGE>
PROPOSAL
APPROVAL OF A NEW PORTFOLIO MANAGER AGREEMENT
WITH PILGRIM BAXTER ANALYTIC INVESTORS, INC.
TO SERVE AS PORTFOLIO MANAGER
TO THE GROWTH PORTFOLIO
At a Board of Trustees meeting on June 17, 1998, the Board of Trustees (the
"Board") voted to replace Stonehill Capital Management, Inc. ("Stonehill"),
which served as Portfolio Manager for the Growth Portfolio, with Pilgrim
Baxter Analytic Investors, Inc. ("Pilgrim Baxter Analytic"). AFIMS, the
overall Manager of the Trust, has responsibility to monitor and evaluate the
Trust's Portfolio Managers and to recommend changes to the Board of Trustees
as appropriate. Pursuant to these responsibilities, AFIMS recommended this
change to the Board because Pilgrim Baxter Analytic and its affiliates have a
better long-term performance record and more experience advising mutual funds
than Stonehill does. The Board agreed with AFIMS that making this change was
in the interest of contract owners who have invested in the Growth Portfolio.
The Board has approved a Portfolio Manager Agreement with Pilgrim Baxter
Analytic, and Pilgrim Baxter Analytic is now serving as Portfolio Manager of
the Growth Portfolio on an interim basis. For Pilgrim Baxter Analytic to
continue to serve as Portfolio Manager, persons having voting rights must
approve the new Portfolio Manager Agreement. Accordingly, this Proposal
submits that agreement for your approval. If persons having voting rights do
approve the agreement, it will--subject to the federal securities laws and the
terms of the agreement--continue indefinitely if the Board re-approves the
agreement annually.
INFORMATION ABOUT PILGRIM BAXTER ANALYTIC INVESTORS, INC.
Founded in 1970, Pilgrim Baxter Analytic (formerly Analytic--TSA Global
Asset Management, Inc.) is a registered investment adviser located at 700
South Flower Street, Suite 2400, Los Angeles, California 90017. Pilgrim Baxter
Analytic acts as an investment adviser for banks and thrift institutions,
investment companies, pension and profit sharing plans, trusts, estates and
charitable organizations and corporations. As of June 30, 1998, Pilgrim Baxter
Analytic managed assets of approximately $852 million. Harindra de Silva and
Dennis Bein are primarily responsible for the day-to-day investment management
of the Growth Portfolio. Mr. de Silva is a Chartered Financial Analyst and has
served as President of Pilgrim Baxter Analytic since April 1998. He formerly
served as Managing Director of Pilgrim Baxter Analytic from 1996 to 1998. From
1986 to 1998, he also served as a Principal of Analysis Group, Inc., an
economic research firm. While at Analysis Group, Inc., Mr. de Silva was
responsible for providing economic research services to institutional
investors including investment managers, large pension funds, and endowments.
Mr. Bein has been a member of the portfolio management and research team for
Pilgrim Baxter Analytic since August 1995. He also served as a senior
associate for Analysis Group, Inc. from 1990 until this year. Pilgrim Baxter
Analytic is a wholly-owned subsidiary of Pilgrim Baxter & Associates, Ltd.
("PBA"), which is located at 825 Duportail Road, Wayne, Pennsylvania 19087.
PBA is itself a wholly-owned subsidiary of United Asset Management Corporation
("UAM"), a publicly traded company located at One International Place, Boston,
Massachusetts 02110, that acquired PBA in 1985.
Pilgrim Baxter Analytic uses a proprietary computer model designed to build
a portfolio of stocks that, when viewed as a group, have fundamental
characteristics that Pilgrim Baxter Analytic considers superior to the 500
stocks included in the Standard & Poor's 500 Composite Stock Price Index (the
"S&P 500"). These characteristics include, among others, higher than average
return on equity, earnings growth at a reasonable price, and positive price
momentum over the last six to twelve months. The computer model focuses on the
characteristics of the aggregate portfolio rather than screening for
individual stocks that meet all the desired characteristics. While the Growth
Portfolio may invest in stocks of any company, Pilgrim Baxter Analytic
anticipates investing primarily in stocks of medium to large companies in the
S&P 500. These companies typically have a market capitalization of $15 billion
or higher.
3
<PAGE>
In addition to providing institutional advisory services, Pilgrim Baxter
Analytic serves as investment adviser or subadviser to several other mutual
funds that invest primarily in stocks. Information about these funds appears
in the following table.
<TABLE>
<CAPTION>
SIZE AS OF
JUNE 30, ANNUAL ADVISORY OR
NAME OF MUTUAL FUND 1998 SUBADVISORY FEE RATE
------------------- ----------- --------------------
<C> <C> <S>
PBHG Advisor Enhanced Equity Fund... $18 million Subadvisory fee of 0.40% of
net assets (paid by
investment adviser, which
is paid 0.60% of net
assets)(1)
PBHG Advisor Defensive Equity Fund.. (2) Subadvisory fee of 0.40% of
net assets (paid by
investment adviser, which
is paid 0.60% of net
assets)(1)
Analytic Defensive Equity Fund...... $55 million Advisory fee of:
0.75% of first $100 million
of net assets plus 0.65% of
next $100 million of net
assets plus 0.55% of net
assets over $200 million
</TABLE>
- --------
(1) Pilgrim Baxter Analytic serves as subadviser to these portfolios pursuant
to a Subadvisory Agreement among Pilgrim Baxter & Associates, Ltd., PBHG
Advisor Funds, Inc. and Pilgrim Baxter Analytic. Pilgrim Baxter &
Associates, Ltd. has agreed with the PBHG Advisor Funds, Inc. to waive or
limit the advisory fees it receives from these portfolios or to assume
other expenses in order to limit the aggregate annual total operating
expenses of these portfolios to 0.82% of their average net assets. The
expenses subject to these limitation are those that are not specifically
allocated to a particular class of shares of those portfolios pursuant to
certain rules under the federal securities laws.
(2) The PBHG Advisor Defensive Equity Fund has not yet commenced operations.
Under a proposal submitted to shareholders of the Analytic Defensive
Equity Fund, the Analytic Defensive Equity Fund would be merged into the
PBHG Advisor Defensive Equity Fund.
The table below lists individuals who serve as directors or as principal
executive officer of Pilgrim Baxter Analytic. None of these individuals serves
as an officer or director of the Trust.
<TABLE>
<CAPTION>
POSITION WITH PILGRIM BAXTER
NAME ANALYTIC PRINCIPAL OCCUPATION
---- ---------------------------- --------------------
<C> <C> <S>
Michael Flinn...... Director Consultant
The Flinn Company
1325 Fourth Avenue,
Suite 1900
Seattle, WA 98101
Roger G. Clark..... Chairman of the Board of Directors President
Investment Department
Ensign Peak Advisors
50 East North Temple
Street
Salt Lake City, UT 84150
Harindra de Silva.. President President, Pilgrim
Baxter Analytic
700 South Flower Street,
Suite 2400
Los Angeles, California
90017
</TABLE>
INFORMATION ABOUT THE NEW PORTFOLIO MANAGER AGREEMENT
The new Portfolio Manager Agreement with Pilgrim Baxter Analytic, which
appears in full in the Appendix, is substantially identical to the previous
agreement with Stonehill. The new agreement provides generally that the
Portfolio Manager will provide research services and make decisions about the
securities in which the Growth Portfolio will invest. The Portfolio Manager
must make investment decisions for the Growth Portfolio consistent
4
<PAGE>
with the Portfolio's investment objective and policies. The Portfolio Manager
must, under the Portfolio Manager Agreement, comply with applicable laws and
regulations. The Portfolio Manager must also provide information about
Portfolio transactions to the Trust's custodian, and must provide information
and reports to the Board of Trustees. The Portfolio Manager 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 does not otherwise
have responsibility for the Trust's or the Portfolio's expenses. The Portfolio
Manager 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. Subject to the right of any party to the agreement to terminate it
with advance notice and to the federal securities laws, the agreement will
continue if the Board of Trustees re-approves it annually.
ADVISORY FEES
Advisory fees will not increase under the new Portfolio Manager Agreement.
The fee structure of the new Portfolio Manager Agreement with Pilgrim Baxter
Analytic is exactly the same as under the old Portfolio Manager Agreement with
Stonehill. In addition, during the first year of the new agreement, advisory
fees for the Growth Portfolio will be subject to a maximum cap of 0.80% of
average daily net assets. The advisory fee schedule is explained in more
detail below.
As explained above, AFIMS serves as the overall manager of the Trust,
including the Growth Portfolio, and the Portfolio Manager handles the day-to-
day investment management of the Growth Portfolio. For these services, the
Growth 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 Portfolio Manager receives 80% of the
fee, and AFIMS receives the remaining 20%. In addition to paying the
management fee, the Growth Portfolio pays for the other expenses the Portfolio
incurs.
Performance-Based Fee. The Growth 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 the S&P 500 Composite
Stock Price Index (the "S&P 500") over the past twelve months. (The S&P 500 is
widely used to portray the movement of U.S. stock prices in the aggregate. The
stocks included in the S&P 500 represent, on a market capitalization basis,
over 70% of the common stock of exchange-traded U.S. companies.) 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 twelve months. Accordingly, the Total Fee could range
from 0.0% to an annual rate of 4.0%, depending on performance.
Performance of both the Growth Portfolio and the S&P 500 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 the Growth 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 S&P 500 is calculated as the sum of the change in the
level of the S&P 500 during the period, plus the value of any dividends or
distributions made by the companies whose securities comprise the S&P 500
accumulated to the end of the period, and then expressing that amount as a
percentage of the S&P 500 at the beginning of the period.
5
<PAGE>
No Incentive Fee will be paid unless the Growth Portfolio's performance
exceeds the S&P 500 by at least 3 percentage points. The maximum fee will be
paid if performance is 7.5 percentage points higher than the S&P 500. No fee
will be paid at all if performance is 3 percentage points lower than the S&P
500. The chart below further explains the Incentive Fee at various performance
levels.
<TABLE>
<CAPTION>
PERCENTAGE POINT DIFFERENCE
BETWEEN PERFORMANCE OF THE
GROWTH PORTFOLIO (NET OF
EXPENSES INCLUDING BASIC
FEE AND INCENTIVE FEE) AND TOTAL BASIC INCENTIVE ADVISORY
CHANGE IN SELECTED BENCHMARK INDEX FEE (%) FEE (%) 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
-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 the Growth Portfolio (after payment of all
expenses, including the Basic Fee and any Incentive Fee) 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. Under
certain circumstances, the alternative monthly advisory fee would result in
the Growth Portfolio paying either no advisory fee or a lower monthly advisory
fee than under the performance fee schedule above. If the Growth Portfolio's
performance (after payment of all expenses including advisory fees) is
negative and does not exceed the S&P 500 by six percentage points (on an
annual basis), no monthly advisory fee will be paid. If the Growth Portfolio's
performance (after payment of all expenses including advisory fees) is
negative and does not exceed the S&P 500 by twelve percentage points but does
exceed the S&P 500 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 the Growth Portfolio (after payment of all expenses
including advisory fees) is negative but exceeds the S&P 500 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 Growth Portfolio is at a rate
higher than the investment advisory fees paid by most other comparable mutual
funds. If the Growth Portfolio outperforms the S&P 500 by three percentage
points or more, the advisory fee payable by the Growth Portfolio may further
exceed those paid by other mutual funds. On the other hand, if the Growth
Portfolio underperforms the S&P 500, the advisory fee paid by the Growth
Portfolio may be less than those paid by other mutual funds. If, during the
applicable performance period, the Growth Portfolio underperforms the S&P 500
by three or more percentage points, the Growth Portfolio will not pay any
advisory fee.
Advisory Fee For First Twelve Full Calendar Months. For the period that
began on the effective date of the Portfolio Manager Agreement with Pilgrim
Baxter Analytic and that ends with the last day of the twelfth full calendar
month after that date, the new Portfolio Manager Agreement specifies that the
Growth Portfolio will pay a monthly advisory fee calculated at an annual rate
of 0.80% of the Portfolio's average daily net assets. However, Pilgrim Baxter
Analytic and AFIMS have agreed that if the Growth Portfolio would have paid
less than 0.80% on an annual basis using the incentive fee schedule described
above, Pilgrim Baxter Analytic and AFIMS will limit their fee to that smaller
amount. (Federal securities laws require Pilgrim Baxter Analytic and AFIMS to
limit their fees in this way prior to approval of the new Portfolio Manager
Agreement by persons having voting rights. Pilgrim Baxter Analytic and AFIMS
have agreed voluntarily to continue this limit for the
6
<PAGE>
duration of the first year of the agreement.) As a result, during the first
year of the new Portfolio Manager Agreement, the Growth Portfolio will pay the
lesser of (i) the amount the Portfolio would have paid under the old agreement
and (ii) 0.80% of average daily net assets.
1997 Advisory Fees. During 1997, the Growth Portfolio accrued aggregate
advisory fees of $4192, of which the Portfolio Manager received $3354.
Advisory fees were computed in 1997 in exactly the same way they will be
computed under the new Portfolio Manager Agreement with Pilgrim Baxter
Analytic.
BOARD CONSIDERATION
On June 17, 1998, the Board of Trustees met in person to consider AFIMS'
recommendation that Pilgrim Baxter Analytic replace Stonehill as Portfolio
Manager of the Growth Portfolio and to consider the proposed new Portfolio
Manager Agreement with Pilgrim Baxter Analytic. Representatives from Pilgrim
Baxter Analytic made a presentation to the Board, and the Board was provided
with materials about Pilgrim Baxter Analytic, its investment philosophies and
strategies, its key personnel, its other clients, and examples of performance.
The Board considered the terms of the Portfolio Manager Agreement and the fact
that it was substantially identical to the then-existing agreement. The Board
also considered the fairness of the proposed fee; the incentives it provided
for strong performance and the penalty it provided for poor performance; and
the fact that it had exactly the same rate structure as under the previous
agreement with Stonehill. In this regard, the Board received materials
comparing the Growth Portfolio's advisory fees with those of other funds with
a similar investment objective, including both funds connected with variable
annuity and insurance products and funds available to the public.
AFIMS explained to the Board that the Growth Portfolio's performance during
the period Stonehill served as Portfolio Manager had not been as strong as had
been hoped. The Board agreed with AFIMS' recommendation that the greater
experience with mutual funds, better capitalization, and better long-term
performance record of Pilgrim Baxter Analytic and its affiliates compared with
Stonehill justified replacing Stonehill with Pilgrim Baxter Analytic as
Portfolio Manager of the Growth Portfolio. The Board concluded that entering
into the new Portfolio Manager Agreement with Pilgrim Baxter Analytic was in
the best interests of the Growth Portfolio and contract owners who had
allocated part of their contract fund to the Portfolio. Accordingly, the Board
voted unanimously to terminate the existing Portfolio Manager Agreement with
Stonehill and to approve the new Portfolio Manager Agreement with Pilgrim
Baxter Analytic.
REQUIRED VOTE
The Trust will adopt the Proposal if a majority of outstanding shares of the
Growth Portfolio vote in favor of it. Federal securities law defines a
majority of outstanding shares of a Portfolio as the lesser of (1) 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 (2) a vote of more than 50% of all outstanding Portfolio shares.
The Board recommends that you vote FOR this Proposal.
OTHER MATTERS
Neither the Board of Trustees nor Allmerica is currently aware of any other
matters to be considered at the special meeting.
7
<PAGE>
APPENDIX
The Portfolio Manager Agreement with Pilgrim Baxter Analytic Investors, Inc.
discussed in the Proposal appears below.
GROWTH PORTFOLIO
PORTFOLIO MANAGER AGREEMENT
Agreement, made this 1st day of August, 1998, among The Palladian Trust (the
"Trust"), a Massachusetts business trust; Allmerica Financial Investment
Management Services, Inc. (the "Manager"), a Massachusetts corporation; and
Pilgrim Baxter Analytic Investors, Inc. (the "Portfolio Manager"), a
California 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 Growth 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.
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"). Manager shall promptly provide
Portfolio Manager with the most current effective version of such Registration
Statement if any amendments or supplements to the Registration Statement are
filed with the SEC.
(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, and (2) comply with
8
<PAGE>
the diversification requirements of Section 817(h) of the Internal Revenue
Code and regulations issued thereunder. 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. 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 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 provide reasonable assistance to 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.
(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 at such times as the Board of Trustees, officers or Manager may
reasonably request.
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. Subject to 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.
9
<PAGE>
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:
(i) no employee of the Portfolio Manager who provides investment advice
to the Trust:
(a) has 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
(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; and
(ii) no employee of the Portfolio Manager 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 materially impaired thereby.
7. Documents. The Trust has delivered copies of each of the following
documents to the Portfolio Manager and will promptly 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 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
from the Trust 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
10
<PAGE>
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 promptly 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 actual knowledge that 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 expenses of the Trust or Manager, including but
not limited to the following expenses:
(a) Fees of the Manager;
(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;
11
<PAGE>
(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;
(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).
<TABLE>
<CAPTION>
PERCENTAGE POINT DIFFERENCE ANNUAL
BETWEEN PERFORMANCE OF THE PORTFOLIO INCENTIVE
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>
12
<PAGE>
(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 Standard & Poors 500 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 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
13
<PAGE>
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 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," "Fulcrum Fund"
and "Fulcrum Trust", 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 825 Duportail Road, Wayne, PA 19087, 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
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.
14
<PAGE>
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.
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:
- ---------------------------------- ----------------------------------
Attest George M. Boyd
Secretary
Allmerica Financial Investment
Management Services, Inc.
By:
- ---------------------------------- ----------------------------------
Attest Name:
Title:
Pilgrim Baxter Analytic Investors,
Inc.
By:
- ---------------------------------- ----------------------------------
Attest Name:
Title:
15
<PAGE>
Voting Instruction Form
For The Special Meeting Of Shareholders Of The Palladian Trust
September 15, 1998
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" the Proposal below. Allmerica will vote the
appropriate number of Growth Portfolio shares pursuant to the instructions you
give. If you sign and return this instruction form but do not make a choice,
Allmerica will vote "FOR".
Allmerica - for the purpose of voting on the Proposal in the agenda set forth in
the Notice and Statement Concerning the Special Meeting of Shareholders of The
Palladian Trust at the special shareholder meeting to be held on September 15,
1998 or at any adjournment - is hereby instructed to vote the Growth Portfolio
shares as to which I am entitled to give instructions as follows:
PROPOSAL FOR AGAINST ABSTAIN
--- ------- -------
Approval of Portfolio Manager Agreement with [_] [_] [_]
Pilgrim Baxter Analytic Investors, Inc.
PLEASE MARK YOUR CHOICE LIKE THIS: X
SIGNATURE DATE Please sign your name
-------------------- ---------- as it appears on the
SIGNATURE DATE top of this instruction
-------------------- ---------- card. If you own a
contract jointly, each
owner should sign. If
a contract is held in a
fiduciary capacity, the
fiduciary should sign
and indicate his or her
fiduciary capacity.
