As filed with the Securities and
Exchange Commission on June 24, 2021
1933 Act Registration
No. 033-70742
1940 Act Registration No. 811-08090
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 223
And
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 226
LINCOLN VARIABLE INSURANCE PRODUCTS TRUST
(Exact Name of Registrant as Specified in
Charter)
Jayson R. Bronchetti, President
1301 South Harrison Street
Fort Wayne, Indiana 46802
(Address of Principal Executive Offices)
Registrant’s Telephone Number, Including Area Code: (260) 455-2000
Ronald A. Holinsky, Esquire
Lincoln Financial Group
150 N. Radnor-Chester Road
Radnor, PA 19087
(Name and Address of Agent for Service)
Copies of all communications to:
Robert A. Robertson, Esquire
Dechert, LLP
2010 Main Street, Suite 500
Irvine, CA 92614
It is proposed that this filing will become effective:
[] immediately upon filing pursuant to paragraph (b)
[ ] on __________________pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on pursuant to paragraph (a)(1)
[X ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on __________________ pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[_] This post-effective amendment designates a new effective date for a previously
filed post-effective amendment.
Title of Securities Being Registered:
Shares of Beneficial Interest.
Lincoln
Variable Insurance Products Trust
Lincoln Nasdaq-100
Buffer Fund Dec
Standard and Service Class
1301 South Harrison Street
Fort Wayne, Indiana 46802
Prospectus [September 7], 2021
Lincoln Nasdaq-100 Buffer Fund Dec (the “Fund”) is a series of the
Lincoln Variable Insurance Products Trust (the “Trust”). Shares of the Fund are
currently offered only to separate accounts that fund variable annuity and variable life insurance contracts (“variable accounts”) of The Lincoln National Life Insurance Company, its affiliates, and third-party insurance companies. You cannot purchase shares of the Fund directly. This prospectus discusses the information about the Fund that you should know before investing.
As with all mutual funds, the Securities and Exchange Commission (“SEC”) has not approved or disapproved these securities or determined if this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
We
have not authorized any dealer, salesperson, or any other person to give any information, or to make any representation, other than what this prospectus states.
•
The Fund has characteristics unlike traditional investment products and will not be suitable for all investors. Carefully read this prospectus before determining whether the Fund may be a suitable investment.
•
The Fund seeks, over a specified annual period (an “Outcome Period”), to
provide returns that track those of the Invesco QQQ TrustSM, Series 1 (“Underlying
ETF”) up to a cap, while providing a buffer against losses. There is no guarantee that the Fund will successfully achieve its investment
objective.
•
The
Fund’s initial Outcome Period is the one-year period from [December 17],
2021 to [December 16], 2022.
•
Buffer: The Fund seeks to provide a buffer against the first 12% of Underlying ETF price decreases over each Outcome
Period before the deduction of Fund expenses (the “Buffer”). The Fund, and therefore investors, will bear all Underlying ETF losses exceeding 12%. There is no guarantee the Fund will successfully buffer against Underlying ETF price decreases. The Buffer is designed to have its full effect only for investors who hold Fund shares for an entire Outcome
Period.
•
Cap: For each Outcome Period, Fund performance is subject to a specified upside return cap that represents the maximum percentage return the Fund can achieve during the Outcome Period before the deduction of Fund expenses (the “Cap”). The Cap is set on the first day of an Outcome Period and may increase or decrease from one Outcome Period to the next. If the Underlying ETF experiences returns over an Outcome Period in excess of the Cap, the Fund, and therefore investors, will not experience those excess gains.
•
The Fund is designed to produce predetermined investment outcomes relative to the
performance of an Underlying ETF. The defined outcomes sought by the Fund include the Buffer and Cap (“Outcomes”) based upon the performance of the Underlying
ETF over an Outcome Period. There is no guarantee that the Outcomes for any Outcome Period will be realized. A shareholder may lose its entire investment.
•
The Fund’s strategy is designed to produce specific Outcomes which
may only be realized if you are holding shares of the Fund on the first day of the Outcome Period and hold them continuously through the last day of the
Outcome Period. It should not be expected that the Outcomes
will be provided at any point prior to the end of an Outcome Period. The Outcomes are measured
from the Fund’s net asset value (the per share value of the Fund’s assets (“NAV”)) on the first day of the Outcome Period. The Fund does not track
the Underlying ETF except over an entire Outcome Period, and the Fund’s NAV will not increase or decrease at the same rate as the Underlying ETF during an Outcome
Period.
•
Outcomes are Before Fund Expenses: The Buffer and the Cap are calculated before Fund expenses. Thus, maximum Fund performance over an Outcome
Period is expected to be lower than the Cap by the amount of such Fund expenses, and Fund performance over an Outcome Period will be exposed to losses beyond the Buffer in
the amount of such Fund expenses. The Fund’s prospectus includes further detail on Fund expenses.
•
If you purchase shares after an Outcome Period has begun or redeem shares prior to an
Outcome Period’s conclusion, you may experience investment returns very different from those that the Fund seeks to provide. If the Fund has experienced high levels
of either gains or losses since the beginning of the Outcome Period, there may be little to no ability to achieve gains or benefit from the Buffer for the remainder of the Outcome Period. Please note in
particular:
•
An investor purchasing shares after the Fund has increased in
value during an Outcome Period would not benefit from the Buffer until the Fund’s value has decreased to its value at the commencement of the
Outcome Period. Such an investor also would have less potential for gains before the Cap is reached. An investor purchasing shares after the Fund
has increased in value to a level near to the Cap for an Outcome Period would have little or no ability to achieve gains but would remain
susceptible to downside risks.
•
An investor purchasing shares after the Fund has decreased in
value would have less protection from the Buffer. An investor purchasing shares after the Fund has decreased in value beyond the Buffer would gain
no benefit from the Buffer.
•
Because the Buffer is designed to be in effect only at the end of an Outcome Period, an investor who sells Fund shares before the end of an Outcome Period may not experience the full effect of the Buffer.
•
After the conclusion of an Outcome Period, another one-year Outcome Period will begin. Each
Outcome Period will have a new Cap which may be higher or lower than the current Cap.
•
The Fund’s website, lincolnfinancial.com/definedoutcomefunds, provides important information on
a daily basis that will assist you in determining whether to buy shares, including the current Outcome Period start and end dates, the remaining Cap and Buffer, and the potential outcomes of an investment in the Fund. Investors considering purchasing or selling shares should visit the website to understand the potential investment outcomes at the end of the current Outcome Period.
INVESTOR SUITABILITY
You should consider this investment
only if all of the following factors
apply to you:
•
you fully understand the risks inherent in an investment in the Fund;
•
you desire to invest in a product with a return that depends upon the performance of the
Invesco QQQ TrustSM, Series 1 over a full Outcome Period;
•
you are willing to hold shares for the duration of the Outcome Period in order to achieve
the Outcomes that the Fund seeks to provide;
•
you fully understand that investments made when the Fund is at or near to the Cap may have
limited to no upside;
•
you
seek the protection of a 12% Buffer on Invesco QQQ TrustSM, Series
1 losses for an investment held for the duration of the entire Outcome Period and understand that there is no guarantee that the Fund will be successful in its attempt to
provide protection through the Buffer;
•
you are willing to forego any gains in excess of the Cap;
•
you are willing to be exposed to the downside performance of the Invesco QQQ TrustSM, Series 1 beyond the 12% Buffer;
•
you understand that the Fund’s investment strategies are not expected to provide for
dividends to the Fund;
•
you
fully understand that investments made after an Outcome Period has begun may not fully benefit from the Buffer;
•
you are willing to accept the risk of losing your entire investment; and
•
you have visited the Fund’s website and understand the investment Outcomes available
to you based upon the time of your purchase.
Lincoln Nasdaq-100 Buffer Fund Dec
(Standard and Service Class)
Summary
Investment Objective
The Fund seeks, over a specified annual period (an “Outcome Period”), to provide
returns that track those of the Invesco QQQ TrustSM, Series 1 up to a cap, while providing a buffer against losses.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy, hold and sell shares of the Fund. This table does not reflect any variable contract expenses. You may pay other fees, such as brokerage commissions and
other fees to financial intermediaries, which are not reflected in the tables and examples below. If variable contract expenses were included, the expenses shown would be higher.
Annual Fund Operating Expenses
(Expenses that you pay each year as a percentage of the value of your investment)
|
|
|
|
|
|
Distribution and/or Service (12b-1) Fees |
|
|
|
|
|
Acquired Fund Fees and Expenses2 (AFFE) |
|
|
Total Annual Fund Operating Expenses |
|
|
|
|
|
Total Annual Fund Operating Expenses (After Fee Waiver) |
|
|
1
Other Expenses are based on estimates for the current fiscal year.
2
AFFE is based on estimated amounts for the current fiscal year.
3
Lincoln Investment Advisors Corporation (the “Adviser”) has contractually agreed
to waive the following portion of its advisory fee: 0.23% on the first $50 million of the Fund’s average daily net assets; and 0.00% of the Funds average daily net
assets in excess of $50 million. The agreement will continue through at least June 30, 2022 and cannot be terminated before that date without the mutual agreement of the Fund’s Board of Trustees and the Adviser.
Example
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example illustrates the hypothetical expenses that you would incur over the time periods indicated if you invest $10,000 in the Fund’s shares. The example also assumes that the Fund provides a return of 5% a year and that operating expenses remain the same. This example reflects the net operating expenses with fee waiver for the one-year contractual period and the total operating expenses without fee waiver for the remaining time periods shown below. Your actual costs may be higher or lower than this example. This example does not reflect any variable contract expenses. If variable contract expenses were included, the expenses shown would be higher. The results apply whether or not you redeem your investment at the end of the given period.
Lincoln Nasdaq-100 Buffer Fund Dec1
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. Because the Fund is newly organized, the portfolio turnover rate is not yet available. The Fund intends to turn over all of its options holdings on at least an annual basis.
Principal Investment Strategies
The Fund seeks, over each Outcome Period, to provide returns that track those of the Invesco QQQ TrustSM, Series 1 (the “Underlying ETF”), up to a cap, while providing a buffer against losses. The Fund employs a defined outcome strategy, sub-advised by Milliman Financial Risk Management LLC, which seeks to produce pre-determined investment outcomes based on the performance of the Underlying ETF’s market price over a one-year period (“Outcomes”), subject to the specified cap for gains and with the benefit of a buffer for losses. Due to the unique mechanics of the Fund’s strategy, the return an investor can expect to receive from an investment in the Fund has characteristics that are distinct from many other investment vehicles.
The Fund, under normal circumstances, invests at least 80% of its assets in options that reference the Underlying ETF or, in an underlying fund which tracks the same index as that tracked by the Underlying ETF. The Fund invests approximately half of its assets in FLexible EXchange® Options (“FLEX Options”) and approximately half of its assets in the LVIP SSGA Nasdaq-100 Index Fund (the “Underlying Fund”).
The Fund’s initial Outcome Period is the one-year period from [December 17], 2021 to [December 16], 2022. The pre-determined Outcomes sought by
the Fund, which include the buffer and cap discussed below, are based upon the performance of the Underlying ETF’s market price during the Outcome Period. The Fund
will not receive or benefit from any dividend payments made by the Underlying ETF.
Buffer: The Fund seeks to provide a buffer against the first 12% of Underlying ETF price decreases over each Outcome Period, before the deduction of Fund expenses (the “Buffer”), which after Fund expenses is approximately 11.15% for the Standard Class and 10.80% for the Service Class. The Fund, and therefore investors, will bear all Underlying ETF losses exceeding 12%. There is no guarantee the Fund will successfully buffer against Underlying ETF price decreases. The Buffer is designed to have its full effect only for investors who continually hold Fund shares for an entire Outcome Period. The Buffer is discussed in further detail below.
Cap: For each Outcome Period, Fund performance is subject to a specified upside return cap that represents the maximum percentage return the Fund can achieve during the Outcome Period before the deduction of Fund expenses (the “Cap”). The Cap is set on the first day of an Outcome Period based on the cost of providing the Buffer and may increase or decrease from one Outcome Period to the next.
If the Underlying ETF experiences gains over an Outcome Period, the strategy seeks to provide investment returns that track the performance of the Underlying ETF, up to the Cap. If the Underlying ETF experiences returns over an Outcome Period in excess of the Cap, the Fund will not experience those excess gains. The Cap (before Fund expenses) is reduced by the Fund’s expenses. The Cap is expected to change from one Outcome Period to the next. The Cap is discussed in further detail below.
The Fund’s website, lincolnfinancial.com/definedoutcomefunds, provides important Fund information on a daily basis, including
information about the Cap and Buffer, current Outcome Period start and end dates, and information relating to the remaining potential Outcomes of an investment in the Fund. Investors considering purchasing shares should visit the website for the latest information.
2Lincoln Nasdaq-100 Buffer Fund Dec
The two
hypothetical graphical illustrations provided below are designed to illustrate the Outcomes based upon the hypothetical performance of the Underlying ETF
for a shareholder that holds shares for the entirety of an Outcome Period. There is no guarantee that the Fund will be successful in its attempt to provide
the Outcomes for an Outcome Period. The returns that the Fund seeks to provide do not include the
costs associated with purchasing shares of the Fund and the expenses incurred by the Fund.
Lincoln Nasdaq-100 Buffer
Fund Dec3
Use of FLEX Options. The Fund invests approximately 50% of
its net assets in FLEX Options, the value of which is derived from the performance of the underlying reference asset, the Underlying ETF. FLEX Options are exchange-traded
options contracts with uniquely customizable terms. FLEX Options are set to expire on the last day of the Outcome Period, at which time the Fund will invest in a new set of FLEX Options for the next Outcome Period. An option contract is an agreement between a buyer and seller that gives the purchaser of the option the right to buy or sell a particular reference asset at a specified future date at an agreed upon price.
Investment Strategy of the Buffer. The Fund pursues its
objective by purchasing and selling call and put FLEX Options to create layers within the Fund’s portfolio. One layer is designed to buffer the Fund from losses, while
another layer is designed to produce returns that track those of the Underlying ETF for an Outcome Period, up to the Cap.
The Buffer layer of FLEX Options is designed to buffer the Fund from losses of up to
12% if the Underlying ETF experiences a loss at the end of an Outcome Period.
There is no guarantee that the Fund will be successful in its attempt to provide buffered returns. The Buffer is operative only against the first 12% of Underlying ETF losses at the end an Outcome Period. If
the Underlying ETF has decreased in value by more than 12% at the end of an Outcome Period, the Fund, and therefore investors, will experience those losses.
The Underlying ETF tracking layer of FLEX Options is designed to work alongside the Fund’s investment in the Underlying Fund to produce returns that track those of the Underlying ETF for an Outcome Period if the Underlying ETF has experienced gains during that Outcome Period. This gain is subject to the Cap, a maximum investment return level, which is
discussed below.
Outcome Periods. The Outcomes sought by the Fund are based
upon the Fund’s NAV on the first day of an Outcome Period. An Outcome Period begins on the day the FLEX Options are entered into and ends on the day they expire. Each
FLEX Option’s value is ultimately derived from the performance of the Underlying ETF during the Outcome Period. Because the terms of the FLEX Options do not change, the Cap and Buffer both relate to the Fund’s NAV on the first day of the Outcome Period. To achieve the Outcomes for an Outcome Period, an investor must be holding
shares for the entire Outcome Period. A shareholder that purchases shares after the commencement of an Outcome Period will likely have purchased shares at a
different NAV than the NAV upon which the Outcomes are based and may experience investment Outcomes very different from those sought by the Fund over the
entire Outcome Period. A shareholder that redeems shares prior to the end of an Outcome Period may also experience investment Outcomes very different from those sought by the Fund.
There is no guarantee that the Fund will be successful in its attempt to provide the Outcomes.
The value of FLEX Options is derived from the performance of the underlying reference asset, the Underlying ETF. However, because a component of an option’s value is the time remaining until its expiration, during the Outcome Period, the Fund’s NAV will not directly correlate on a day-to-day basis with the returns experienced by the Underlying ETF, though as a FLEX Option approaches its expiration date, its value typically increasingly moves with the value of the Underlying ETF. While the Fund generally anticipates that its NAV will move in the same direction as the Underlying ETF (meaning that the Fund’s NAV will increase if the Underlying ETF experiences gains and that the Fund’s NAV will decrease if the Underlying ETF experiences losses), the Fund’s NAV may not increase or decrease at the same rate as the Underlying ETF. Similarly, the amount of time remaining until the end of the Outcome Period also affects the impact of the Buffer on the Fund’s NAV, which may not be in full effect prior to the end of the Outcome Period. The Fund’s strategy is designed to produce the Outcomes upon the
expiration of the FLEX Options on the last day of the Outcome Period and it should not be expected that the Outcomes will be provided at any point prior to
that time. Taken together, this means that at the midpoint of the Outcome Period, if the
Underlying ETF has decreased in value by 12%, the Fund’s NAV can be expected to have decreased in value (because the Buffer is not yet in full effect), but by less
than 12% (because the Fund’s NAV will not correlate one-to-one with the Underlying ETF and the Fund’s NAV tends not to participate fully in either Underlying ETF
gains or losses).
Cap on Potential
Upside Returns. Unlike other investment products, the potential returns an investor can receive from an investment in the Fund are subject to an upside return Cap. This means that if the Underlying ETF
experiences gains for the Outcome Period beyond the level of the Cap, the Fund will not experience those excess gains. Therefore, regardless of the
performance of the Underlying ETF, the Cap (after Fund expenses) is the maximum return an investor can achieve from an investment in the Fund for an Outcome Period.
The Cap will change for each Outcome Period based upon prevailing market conditions at
the beginning of an Outcome Period. The Cap may increase or decrease from one Outcome Period to the next. The Cap, and the Fund’s position relative to it, should be
considered before investing in the Fund. If the Fund has already increased in
value to a level near to the Cap, an investor purchasing shares at that price has limited or no potential gains available for the remainder of the Outcome
Period but remains vulnerable to significant downside risks.
Buffer. The Buffer is operative only against the first 12%
of Underlying ETF losses for an Outcome Period; however, there is no guarantee that the Fund will be successful in its attempt to provide buffered returns. If the
Underlying ETF has decreased in value by more than 12% during an Outcome Period, the Fund will experience all further losses. The Buffer is calculated prior to taking into
account Fund expenses, such as Fund management fees equal to 0.55% of the Fund’s daily net assets, transaction fees, and any other expenses incurred by the Fund. If an investor purchases shares during an Outcome Period, and
the Fund has already decreased in value during that Outcome Period, that investor may not fully benefit from the Buffer for the remainder of the Outcome
Period, but will have increased gains available prior to reaching the Cap. Conversely, during the Outcome Period, if the Fund has already
4Lincoln Nasdaq-100 Buffer Fund Dec
increased in value, then a shareholder investing at that time may experience losses
prior to gaining the protection offered by the Buffer. While the Fund seeks to
limit losses by 12% for shareholders who hold shares for an entire Outcome Period, there is no guarantee it will successfully do so. Notwithstanding the Buffer, a
shareholder that purchases shares at the beginning of an Outcome Period or during an Outcome Period may lose its entire investment. An investment in the Fund is only
appropriate for shareholders willing to bear those losses.
Fund Rebalance. The Fund is a continuous investment vehicle.
It does not terminate and distribute its assets at the conclusion of each Outcome Period. On the termination date of an Outcome Period, the Fund will invest in a new set of
FLEX Options, which will provide a new Cap, and another Outcome Period will commence.
Approximately one week prior to the end of an Outcome Period, the Fund will file a
prospectus supplement, which will alert existing shareholders that an Outcome Period is approaching its conclusion and disclose the anticipated ranges for the Cap for the
next Outcome Period. Following the close of business on the last day of an Outcome Period, the Fund will file a prospectus supplement that discloses the Fund’s final Cap for the next Outcome Period.
The Fund’s website, lincolnfinancial.com/definedoutcomefunds, provides information relating to the Outcomes, including the Fund’s
position relative to the Cap and Buffer, of an investment in the Fund on a daily basis.
The Underlying Fund
The Underlying Fund seeks to achieve its objective by investing in the securities that comprise the Nasdaq-100® Index (the “Index”). The Underlying Fund, under normal market conditions, invests at least 80% of its assets in the securities of issuers included in the Index. The Underlying Fund attempts to replicate the Index by investing all, or substantially all, of its assets in the stocks that comprise the Index, holding each stock in approximately the same proportion as its weighting in the Index. The Underlying Fund may not invest in every security in the Index if it is not practical to do so (such as when transaction costs are too high, there is a liquidity issue, or there is a pending corporate action).
The Index includes the common stocks of the 100 largest domestic and international
non-financial companies on the broader Nasdaq Composite Index based on market capitalization. The Index reflects companies across major industry groups including computer
hardware and software, telecommunications, retail/wholesale trade and biotechnology. As of March 15, 2021, the market capitalization range of the companies comprising the Index was $5.4 billion to $2 trillion. The Index typically is rebalanced quarterly and reconstituted annually. The Fund will reinvest Underlying Fund dividends and distributions in additional Underlying Fund shares.
The Underlying Fund employs a passive investment approach called “indexing”, by which the Underlying Fund’s Sub-Adviser attempts to approximate, before fees and expenses, the performance of the Index over the long term. The Underlying Fund’s Sub-Adviser invests in the equity securities comprising the Index, in approximately the same proportions as they are represented in the Index. Equity securities may include common stocks, preferred stocks, depository receipts, or other securities convertible into common stock. The Underlying Fund’s Sub-Adviser may sell securities that are represented in the Index, or purchase securities that are not yet represented in the Index, prior to or after their removal or addition to the Index.
The Underlying Fund may purchase or sell index futures contracts, or options on those futures, or engage in other transactions involving the use of derivatives, to provide equity exposure to the Underlying Fund’s cash position while maintaining cash balances for liquidity, or for other purposes that assist in replicating the Underlying Fund's investment performance of the Index. The Underlying Fund’s return may not match the return of the Index.
The Underlying Fund intends to be diversified in approximately the same proportion as the Index. The Underlying Fund may become “non-diversified,” as defined by the Investment Company Act of 1940 solely as a result of a change in relative market capitalization or index weighting of one or more constituents of the Index. As a “non-diversified” fund, the Underlying Fund can invest a greater percentage of its assets in a limited number of issuers or in any one issuer. Shareholder approval will not be sought if the Underlying Fund shifts from diversified to non-diversified solely due to a change in the relative market capitalization or index weightings of one or more constituents of the Index.
The Underlying Fund will concentrate its investments in a particular industry or group
of industries to the extent the Index is concentrated. The Index, at times, may be significantly concentrated in the information technology sector.
Principal Risks
All mutual funds carry risk. Accordingly, loss of money is a risk of investing in the Fund.
Because the Fund invests certain of its assets in shares of an Underlying Fund, the Fund indirectly owns the investments made by the Underlying Fund. By investing in the
Fund, therefore, you indirectly assume the same types of risks as investing directly in the Underlying Fund. In addition, the Fund will indirectly pay a proportional share of the fees and expenses of the Underlying Fund. The Fund's ability to achieve its investment objective depends, in large part, on the Underlying Fund's ability to meet its investment objective, as well as the performance of the FLEX Options. The following risks reflect the Fund's principal risks, which include the principal risks of the FLEX Options and the Underlying Fund.
•
Buffered Loss Risk. There can be no guarantee that the Fund will be successful in its
strategy to provide buffer protection
Lincoln Nasdaq-100 Buffer Fund Dec5
against Underlying ETF
losses if the Underlying ETF has decreased at the end of an Outcome Period. In the event an investor purchases shares after the commencement of an Outcome Period, the Buffer
that the Fund seeks to provide may not be available. The Fund does not provide principal protection and an investor may experience significant losses on its investment,
including the loss of its entire investment.
•
Capped Upside Return Risk. The Fund’s strategy seeks to provide returns only up to the Cap. In the event that the Underlying ETF
has gains in excess of the Cap during an Outcome Period, the Fund will not participate in those gains beyond the Cap. In the event an investor purchases shares after the
commencement of an Outcome Period and the Fund has risen in value to a level near to the Cap, there may be little or no ability for that investor to experience an investment
gain.
•
Outcome Period Risk. The Fund’s investment strategy is designed to deliver returns that track the Underlying ETF only if shares are bought at the beginning of an Outcome Period and held until the end of the Outcome Period. If an investor purchases or sells shares during an Outcome Period, the returns realized by the investor may not be those that the Fund seeks to achieve. In addition, the Cap may change from one Outcome Period to the next and is unlikely to remain the same for consecutive Outcome Periods.
•
FLEX Options Risk. The Fund may experience substantial downside from specific FLEX Option positions, and certain FLEX Option
positions may expire worthless. In addition, the FLEX Options are subject to the following risks:
Valuation Risk. The value of the FLEX Options will be affected by, among
others, changes in the value of the Underlying ETF, changes in interest rates, changes in the actual and implied volatility of the Underlying ETF and the remaining time
until the FLEX Options expire. The value of the FLEX Options does not increase or decrease at the same rate as the level of the Underlying ETF (although they generally move in the same direction).
Liquidity Risk. In the event that trading in the FLEX Options is limited or absent, the value of the Fund’s FLEX Options may decrease. There is no guarantee that a liquid secondary trading market will exist for the FLEX Options.
Counterparty Risk. Counterparty risk is the risk an issuer, guarantor or counterparty of a security in the Fund is unable or unwilling to meet its obligation on the security. The Fund will utilize FLEX Options issued and guaranteed for settlement by the Options Clearing Corporation (the “OCC”). Although guaranteed for settlement by the OCC, FLEX Options are still subject to counterparty risk with the OCC and may be less liquid than more traditional standardized exchange-traded
options.
Correlation Risk. The FLEX Options held by the Fund will be exercisable at
the strike price only on their expiration date. Prior to the expiration date, the value of the FLEX Options will be determined based upon market quotations or using other
recognized pricing methods, consistent with the Fund’s valuation policy. Because a component of the FLEX Option’s value will be affected by, among other things, changes in the value of the Underlying ETF, changes in interest rates, changes in the actual and implied volatility of the Underlying ETF and the remaining time until the FLEX Options expire, the value of the Fund’s FLEX Options positions is not anticipated to increase or decrease at the same rate as the Underlying ETF, and it is possible they may move in different directions, and as a result, the Fund’s NAV may not increase or decrease at the same rate as the Underlying ETF. Similarly, the components of the option’s value are anticipated to impact the effect of the Buffer on the Fund’s NAV, which may not be in full effect prior to the end of the Outcome Period. The Fund’s strategy is designed to produce the Outcomes upon the expiration of the FLEX Options on the last business day of the Outcome Period, and it should not be expected that the Outcomes will be provided at any point other than the end of the Outcome Period.
•
Market Risk. The value of portfolio investments may decline. As a result, your investment in the Fund may decline in value and you could lose money.
•
Issuer Risk. The prices of, and the income generated by, portfolio securities may decline in response to various factors directly related to the issuers of such securities.
•
Fund of Funds Risk. The Fund bears all risks of an Underlying Fund’s investment strategies, including the risk that an Underlying Fund may not meet its investment objective which may negatively affect the Fund’s performance. In addition, the Fund indirectly will pay a proportional share of the fees and expenses of an Underlying Fund.
•
Tracking Error Risk. The Underlying Fund's performance may deviate substantially from the performance of the index it tracks as a
result of cash flows, fund expenses, imperfect correlation between the Underlying Fund's investments and the index’s components, and other factors. While attempting to
replicate the index return, the Underlying Fund may invest in fewer than all of the securities in the index and in some securities not included in the index, potentially
increasing the risk of divergence between the Underlying Fund’s return and that of the index.
•
Investment Objective Risk. Certain circumstances under which the Fund might not achieve its objective include, but are not limited, to
(i) if the Fund disposes of FLEX Options, (ii) if the Fund is unable to maintain the optimal balance of FLEX Options in the Fund’s portfolio, (iii) significant accrual
of Fund expenses in connection with effecting the Fund’s principal investment strategies or (iv) adverse tax law changes affecting the treatment of FLEX
Options.
•
Exchange-Traded Fund (“ETF”) Risk. ETFs generally reflect the risks of owning the underlying securities they hold, although lack of liquidity in
ETF shares could result in the price of the ETF being more volatile.
•
Authorized Participation Concentration Risk. Only an authorized participant may engage in creation or redemption transactions directly with the Underlying
ETF. The Fund has a limited number of institutions that may act as authorized participants on an agency basis (i.e., on behalf of other market participants). To the extent that authorized participants
exit the business or are
6Lincoln Nasdaq-100 Buffer Fund Dec
unable to proceed with
creation and/or redemption orders with respect to the Underlying ETF and no other authorized participant is able to step forward to create or redeem creation units, shares
may be more likely to trade at a premium or discount to NAV and possibly face trading halts and/or delisting.
•
Active Markets Risk. Although the shares are listed for trading on an exchange, there can be no assurance that an active trading
market for the shares will develop or be maintained. shares trade on an exchange at market prices that may be below, at or above the Underlying ETF’s NAV. Securities,
including the shares, are subject to market fluctuations and liquidity constraints that may be caused by such factors as economic, political, or regulatory developments,
changes in interest rates, and/or perceived trends in securities prices. shares of the Underlying ETF could decline in value or underperform other investments.
•
Fluctuation of Net Asset Value Risk. The Underlying ETF’s shares trade on an exchange at their market price rather than their NAV. The
market price may be at, above or below the Underlying ETF’s NAV. Differences in market price and NAV may be due, in large part, to the fact that supply and demand
forces at work in the secondary trading market for shares will be closely related to, but not identical to, the same forces influencing the prices of the holdings of the
Underlying ETF trading individually or in the aggregate at any point in time. These differences can be especially pronounced during times of market volatility or stress.
During these periods, the demand for shares may decrease considerably and cause the market price of shares to deviate significantly from the Underlying ETF’s NAV.
•
Market Maker Risk. If the Underlying ETF has lower average daily trading volumes, it may rely on a small number of third-party
market makers to provide a market for the purchase and sale of shares. Any trading halt or other problem relating to the trading activity of these market makers could result in a dramatic change in the spread between the Underlying ETF’s NAV and the price at which the shares are trading on an exchange, which could result in a decrease in value of the shares. In addition, decisions by market makers or authorized participants to reduce their role or step away from these activities in times of market stress could inhibit the effectiveness of the arbitrage process in maintaining the relationship between the underlying values of the Underlying ETF’s portfolio securities and the Underlying ETF’s market price. This reduced effectiveness could result in shares trading at a discount to NAV and also in greater than normal intra-day bid-ask spreads for shares.
•
Trading Issues Risk. Although the shares are listed for trading on an exchange, there can be no assurance that an active trading
market for such shares will develop or be maintained. Trading in shares on an exchange may be halted due to market conditions or for reasons that, in the view of the exchange, make trading in shares inadvisable. In addition, trading in shares on an exchange is subject to trading halts caused by extraordinary market volatility pursuant to exchange “circuit breaker” rules. Market makers are under no obligation to make a market in the shares, and authorized participants are not obligated to submit purchase or redemption orders for creation units. There can be no assurance that the requirements of an exchange necessary to maintain the listing of the Underlying ETF will continue to be met or will remain unchanged. Initially, due to the small asset size of the Underlying ETF, it may have difficulty maintaining its listings on an exchange.
•
Passive Management Risk. Index funds invest in the securities of an index rather than actively selecting among securities. With an
indexing strategy there is no attempt to manage volatility, use defensive strategies, or reduce the effects of any long-term period of poor investment
performance.
•
Concentration Risk. Investments that are concentrated in particular industries, sectors or
types of investments may be subject to greater risks of adverse developments in such areas of focus than investments that are spread among a wider variety of industries, sectors or investments.
•
Information Technology Sector Risk. Market or economic factors impacting information technology companies could have a major effect on the value
of the Fund’s investments. The value of stocks of information technology companies is particularly vulnerable to rapid changes in technology product cycles, rapid
product obsolescence, government regulation and competition.
•
Preferred Securities Risk. Preferred securities are subject to issuer-specific and market risks applicable generally to equity
securities. The value of preferred stock also can be affected by prevailing interest rates. Preferred securities may pay fixed or adjustable rates of return. In addition, a company’s preferred securities generally pay dividends only after the company makes required payments to holders of its bonds and other debt.
•
Convertible Securities Risk. Convertible securities share investment characteristics of both fixed income and equity securities. The value
of these securities may vary more with fluctuations in the value of the underlying common stock than with fluctuations in interest rates. The value of convertible securities
also may be less volatile than the underlying common stock. Convertible securities generally offer lower interest or dividend yields than non-convertible securities of
similar quality. The Fund could lose money if the issuer of a convertible security is unable to meet its financial obligations or goes bankrupt.
•
Futures Risk. A futures contract is considered a derivative because it derives its value from the price of the underlying security or financial index. The prices of futures contracts can be volatile, and futures contracts may be illiquid. In addition, there may be imperfect or even negative correlation between the price of the futures contracts and the price of the underlying securities. Losses on futures contracts may exceed the amount invested.
•
Non-Diversification Risk. When a mutual fund is non-diversified, it may invest a greater percentage of its assets in a particular
issuer than a diversified fund. Therefore, a fund’s value may decrease because of a single investment or a small number of investments.
•
Natural Disaster/Epidemic Risk. Natural or environmental disasters, such as earthquakes, fires, floods, hurricanes, tsunamis, and other
severe weather-related phenomena generally, and widespread disease and illness, including pandemics and epidemics (such as the novel coronavirus), have been and can be
highly disruptive to economies and markets.
Lincoln Nasdaq-100 Buffer
Fund Dec7
•
Liquidity Risk. Liquidity risk is the risk that the Fund cannot meet requests to redeem Fund-issued shares without significantly diluting the remaining investors’ interest in the Fund. This may result when portfolio holdings may be difficult to value and may be difficult to sell, both at the time or price desired. Liquidity risk also may result from increased shareholder redemptions in the Fund.
Fund Performance
The Fund will commence operations on or about June 18, 2021. Once the Fund has at
least one full calendar year of performance, a bar chart and performance table will be included in the prospectus. Please note that the Fund’s past performance is not necessarily an indication of how the Fund will perform in the future.
Investment Adviser and Sub-Adviser
Investment Adviser: Lincoln Investment Advisors Corporation
(“LIAC”)
Investment Sub-Adviser: Milliman Financial
Risk Management LLC (“Milliman”)
Portfolio
Managers
Milliman Portfolio Managers |
|
|
|
Principal and Director of Global Trading |
|
|
|
|
Purchase and Sale of Fund Shares
Fund shares are available as underlying investment options for variable life
insurance and variable annuity products issued by The Lincoln National Life Insurance Company (“Lincoln Life”), Lincoln Life & Annuity Company of New York
(“LNY”), and unaffiliated insurance companies. These insurance companies are the record owners of the separate accounts holding the Fund’s shares. You do
not buy, sell or exchange Fund shares directly – you choose investment options through your variable annuity contract or variable life insurance policy. The insurance companies then cause the separate accounts to purchase and redeem Fund shares according to the investment options you choose. Fund shares also may be available for investment by certain funds of the Lincoln Variable Insurance Products Trust.
Tax Information
In general, Contract owners are taxed only on underlying Fund amounts they withdraw from their variable accounts. Contract owners should consult their Contract Prospectus for more information on the federal income tax consequences to them regarding their indirect investment in the Fund. Contract owners also may wish to consult with their own tax advisors as to the tax consequences of investments in variable contracts and the Fund, including application of state and local taxes.
Payments to Broker-Dealers and other Financial
Intermediaries
Shares of the Fund are available only through the
purchase of variable contracts issued by certain life insurance companies. Parties related to the Fund (such as the Fund's principal underwriter or investment adviser) may
pay such insurance companies (or their related companies) for the sale of Fund shares and related services. These payments may create a conflict of interest and may
influence the insurance company to include the Fund as an investment option in its variable contracts. Such insurance companies (or their related companies) may pay broker-dealers or other financial intermediaries (such as banks) for the sale and retention of variable contracts that offer Fund shares. These payments may create a conflict of interest by influencing the broker-dealers or other financial intermediaries to recommend variable contracts that offer Fund shares. The prospectus or other disclosure documents for the variable contracts may contain additional information about these payments, if any. Ask your salesperson or visit your financial intermediary's website for more information.
8Lincoln
Nasdaq-100 Buffer Fund Dec
Additional Information about the Fund
Investment Objective and Principal Investment Strategies
The Fund’s investment objective is to seek, over a specified annual period (an “Outcome Period”), to provide returns that track those of the Invesco QQQ TrustSM, Series 1 (the “Underlying ETF”), up to a cap, while providing a buffer against losses. The investment objective is non-fundamental and may be changed without shareholder approval.
The Fund employs a defined outcome strategy, sub-advised by Milliman Financial Risk Management LLC, which seeks to produce pre-determined investment outcomes based on the performance of the Underlying ETF’s market price over a one-year period (“Outcomes”), subject to the specified cap for gains and with the benefit of a buffer for losses. Due to the unique mechanics of the Fund’s strategy, the return an investor can expect to receive from an investment in the Fund has characteristics that are distinct from many other investment vehicles.
The Fund, under normal circumstances, invests at least 80% of its assets in options that reference the Underlying ETF or, in an underlying fund which tracks the same index as that tracked by the Underlying ETF. The Fund invests approximately half of its assets in FLexible EXchange® Options (“FLEX Options”) and approximately half of its assets in the LVIP SSGA Nasdaq-100 Index Fund (the “Underlying Fund”).
The Fund’s initial Outcome Period is the one-year period from [December 17], 2021 to [December 16], 2022. The pre-determined Outcomes sought by
the Fund, which include the buffer and cap discussed below, are based upon the performance of the Underlying ETF’s market price during the Outcome Period. The Fund
will not receive or benefit from any dividend payments made by the Underlying ETF.
Buffer: The Fund seeks to provide a buffer against the first 12% of Underlying ETF price decreases over each Outcome Period, before the deduction of Fund expenses (the “Buffer”), which after Fund expenses is approximately 11.15% for the Standard Class and 10.80% for the Service Class. The Fund, and therefore investors, will bear all Underlying ETF losses exceeding 12%. There is no guarantee the Fund will successfully buffer against Underlying ETF price decreases. The Buffer is designed to have its full effect only for investors who continually hold Fund shares for an entire Outcome Period. The Buffer is discussed in further detail below.
Cap: For each Outcome Period, Fund performance is subject to a specified upside return cap that represents the maximum percentage return the Fund can achieve during the Outcome Period before the deduction of Fund expenses (the “Cap”). The Cap is set on the first day of an Outcome Period based on the cost of providing the Buffer and may increase or decrease from one Outcome Period to the next.
If the Underlying ETF experiences gains over an Outcome Period, the strategy seeks to provide investment returns that track the performance of the Underlying ETF, up to the Cap. If the Underlying ETF experiences returns over an Outcome Period in excess of the Cap, the Fund will not experience those excess gains. The Cap (before Fund expenses) is reduced by the Fund’s expenses. The Cap is expected to change from one Outcome Period to the next. The Cap is discussed in further detail below.
The Fund’s website, lincolnfinancial.com/definedoutcomefunds, provides important Fund information on a daily basis, including
information about the Cap and Buffer, current Outcome Period start and end dates, and information relating to the remaining potential Outcomes of an investment in the Fund. Investors considering purchasing shares should visit the website for the latest information.
The two hypothetical graphical illustrations provided below are designed to illustrate the Outcomes based upon the hypothetical performance of the Underlying ETF for a shareholder that holds shares for the entirety of an Outcome Period. There is no guarantee that the Fund will be successful in its attempt to provide the Outcomes for an Outcome
Period. The returns that the Fund seeks to provide do not include the costs associated with
purchasing shares of the Fund and the expenses incurred by the Fund.
Use of FLEX Options. The Fund invests approximately 50% of
its net assets in FLEX Options, the value of which is derived from the performance of the underlying reference asset, the Underlying ETF. FLEX Options are exchange-traded
options contracts with uniquely customizable terms. FLEX Options are set to expire on the last day of the Outcome Period, at which time the Fund will invest in a new set of FLEX Options for the next Outcome Period. An option contract is an agreement between a buyer and seller that gives the purchaser of the option the right to buy or sell a particular reference asset at a specified future date at an agreed upon price.
Investment Strategy of the Buffer. The Fund pursues its
objective by purchasing and selling call and put FLEX Options to create layers within the Fund’s portfolio. One layer is designed to buffer the Fund from losses, while
another layer is designed to produce returns that track those of the Underlying ETF for an Outcome Period, up to the Cap.
The Buffer layer of FLEX Options is designed to buffer the Fund from losses of up to
12% if the Underlying ETF experiences a loss at the end of an Outcome Period.
There is no guarantee that the Fund will be successful in its attempt to provide buffered returns. The Buffer is operative only against the first 12% of Underlying ETF losses at the end an Outcome Period. If
the Underlying ETF has decreased in value by more than 12% at the end of an Outcome Period, the Fund, and therefore investors, will experience those losses.
The Underlying ETF tracking layer of FLEX Options is designed to work alongside the Fund’s investment in the Underlying Fund to produce returns that track those of the Underlying ETF for an Outcome Period if the Underlying ETF has experienced gains during that Outcome Period. This gain is subject to the Cap, a maximum investment return level, which is
discussed below.
Outcome Periods. The Outcomes sought by the Fund are based
upon the Fund’s NAV on the first day of an Outcome Period. An Outcome Period begins on the day the FLEX Options are entered into and ends on the day they expire. Each
FLEX Option’s value is ultimately derived from the performance of the Underlying ETF during the Outcome period. Because the terms of the FLEX Options do not change, the Cap and Buffer both relate to the Fund’s NAV on the first day of the Outcome Period. To achieve the Outcomes for an Outcome Period, an investor must be holding
shares for the entire Outcome Period. A shareholder that purchases shares after the commencement of an Outcome Period will likely have purchased shares at a
different NAV than the NAV upon which the Outcomes are based and may experience investment Outcomes very different from those sought by the Fund over the
entire Outcome Period. A shareholder that redeems shares prior to the end of an Outcome Period may also experience investment Outcomes very different from those sought by the Fund.
There is no guarantee that the Fund will be successful in its attempt to provide the Outcomes.
The value of FLEX Options is derived from the performance of the underlying reference asset, the Underlying ETF. However, because a component of an option’s value is the time remaining until its expiration, during the Outcome Period, the Fund’s NAV will not directly correlate on a day-to-day basis with the returns experienced by the Underlying ETF, though as a FLEX Option approaches its expiration date, its value typically increasingly moves with the value of the Underlying ETF. While the Fund generally anticipates that its NAV will move in the same direction as the Underlying ETF (meaning that the Fund’s NAV will increase if the Underlying ETF experiences gains and that the Fund’s NAV will decrease if the Underlying ETF experiences losses), the Fund’s NAV may not increase or decrease at the same rate as the Underlying ETF. Similarly, the amount of time remaining until the end of the Outcome Period also affects the impact of the Buffer on the Fund’s NAV, which may not be in full effect prior to the end of the Outcome Period. The Fund’s strategy is designed to produce the Outcomes upon the
expiration of the FLEX Options on the last day of the Outcome Period and it should not be expected that the Outcomes will be provided at any point prior to
that time. Taken together, this means that at the midpoint of the Outcome Period, if the
Underlying ETF has decreased in value by 12%, the Fund’s NAV can be expected to have decreased in value (because the Buffer is not yet in full effect), but by less
than 12% (because the Fund’s NAV will not correlate one-to-one with the Underlying ETF and the Fund’s NAV tends not to participate fully in either Underlying ETF
gains or losses).
Cap on Potential
Upside Returns. Unlike other investment products, the potential returns an investor can receive from an investment in the Fund are subject to an upside return Cap. This means that if the Underlying ETF
experiences gains for the Outcome Period beyond the level of the Cap, the Fund will not experience those excess gains. Therefore, regardless of the
performance of the Underlying ETF, the Cap (after Fund expenses) is the maximum return an investor can achieve from an investment in the Fund for an Outcome Period.
The Cap will change for each Outcome Period based upon prevailing market conditions at
the beginning of an Outcome Period. The Cap may increase or decrease from one Outcome Period to the next. The Cap, and the Fund’s position relative to it, should be
considered before investing in the Fund. If the Fund has already increased in
value to a level near to the Cap, an investor purchasing shares at that price has limited or no potential gains available for the remainder of the Outcome
Period but remains vulnerable to significant downside risks.
Buffer. The Buffer is operative only against the first 12%
of Underlying ETF losses for an Outcome Period; however, there is no guarantee that the Fund will be successful in its attempt to provide buffered returns. If the
Underlying ETF has decreased in value by more than 12% during an Outcome Period, the Fund will experience all further losses. The Buffer is calculated prior to taking into
account Fund expenses, such as Fund management fees equal to 0.55% of the Fund’s daily net assets, transaction fees, and any other expenses incurred by the Fund. If an investor purchases shares during an Outcome Period, and
the Fund has already decreased in value during that Outcome Period, that investor may not fully benefit from the Buffer for the remainder of the Outcome
Period, but will have increased gains available prior to reaching the Cap. Conversely, during the Outcome Period, if the Fund has already
increased
in value, then a shareholder investing at that time may experience losses prior to gaining the protection offered by the Buffer. While the Fund seeks to limit losses by 12% for shareholders who hold shares for an entire Outcome Period, there is no guarantee it will successfully do so. Notwithstanding the Buffer, a shareholder that purchases shares at the beginning of an Outcome Period or during an Outcome Period may lose its entire investment. An investment in the Fund is only appropriate for shareholders willing to bear those losses.
Fund Rebalance. The Fund is a continuous investment vehicle.
It does not terminate and distribute its assets at the conclusion of each Outcome Period. On the termination date of an Outcome Period, the Fund will invest in a new set of
FLEX Options, which will provide a new Cap, and another Outcome Period will commence.
Approximately one week prior to the end of an Outcome Period, the Fund will file a
prospectus supplement, which will alert existing shareholders that an Outcome Period is approaching its conclusion and disclose the anticipated ranges for the Cap for the
next Outcome Period. Following the close of business on the last day of an Outcome Period, the Fund will file a prospectus supplement that discloses the Fund’s final Cap for the next Outcome Period.
The Fund’s website, lincolnfinancial.com/definedoutcomefunds, provides information relating to the Outcomes, including the Fund’s
position relative to the Cap and Buffer, of an investment in the Fund on a daily basis.
The Underlying Fund
The Underlying Fund seeks to achieve its objective by investing in the securities that comprise the Nasdaq-100® Index (the “Index”). The Underlying Fund, under normal market conditions, invests at least 80% of its assets in the securities of issuers included in the Index. The Underlying Fund attempts to replicate the Index by investing all, or substantially all, of its assets in the stocks that comprise the Index, holding each stock in approximately the same proportion as its weighting in the Index. The Underlying Fund may not invest in every security in the Index if it is not practical to do so (such as when transaction costs are too high, there is a liquidity issue, or there is a pending corporate action).
The Index includes the common stocks of the 100 largest domestic and international
non-financial companies on the broader Nasdaq Composite Index based on market capitalization. The Index reflects companies across major industry groups including computer
hardware and software, telecommunications, retail/wholesale trade and biotechnology. As of March 15, 2021, the market capitalization range of the companies comprising the Index was $5.4 billion to $2 trillion. The Index typically is rebalanced quarterly and reconstituted annually. The Fund will reinvest Underlying Fund dividends and distributions in additional Underlying Fund shares.
The Underlying Fund employs a passive investment approach called “indexing”, by which the Underlying Fund’s Sub-Adviser attempts to approximate, before fees and expenses, the performance of the Index over the long term. The Underlying Fund’s Sub-Adviser invests in the equity securities comprising the Index, in approximately the same proportions as they are represented in the Index. Equity securities may include common stocks, preferred stocks, depository receipts, or other securities convertible into common stock. The Underlying Fund’s Sub-Adviser may sell securities that are represented in the Index, or purchase securities that are not yet represented in the Index, prior to or after their removal or addition to the Index.
The Underlying Fund may purchase or sell index futures contracts, or options on those futures, or engage in other transactions involving the use of derivatives, to provide equity exposure to the Underlying Fund’s cash position while maintaining cash balances for liquidity, or for other purposes that assist in replicating the Underlying Fund's investment performance of the Index. The Underlying Fund’s return may not match the return of the Index.
The Underlying Fund intends to be diversified in approximately the same proportion as the Index. The Underlying Fund may become “non-diversified,” as defined by the Investment Company Act of 1940 solely as a result of a change in relative market capitalization or index weighting of one or more constituents of the Index. As a “non-diversified” fund, the Underlying Fund can invest a greater percentage of its assets in a limited number of issuers or in any one issuer. Shareholder approval will not be sought if the Underlying Fund shifts from diversified to non-diversified solely due to a change in the relative market capitalization or index weightings of one or more constituents of the Index.
The Underlying Fund will concentrate its investments in a particular industry or group
of industries to the extent the Index is concentrated. The Index, at times, may be significantly concentrated in the information technology sector.
*
Nasdaq®
and NASDAQ-100® Indexes are registered trademarks of Nasdaq, Inc. (which with its affiliates is referred to as the “Corporations”) and are licensed for use by Lincoln Investment Advisors Corporation. The Fund has not been passed on by the Corporations as to their legality or suitability. The Fund is not issued, endorsed, sold, or promoted by the Corporations. The Corporations make no warranties and bear
no liability with respect to the Fund.
The Fund’s Board of Trustees may change the Fund’s investment strategies
or policies in the interest of shareholders without a shareholder vote, unless those strategies or policies are designated as fundamental. The Fund may change its policy of
investing at least 80% of its net assets in FLEX Options that reference the Invesco QQQ TrustSM, Series 1 or, in an underlying fund which tracks the same index as that tracked by the Invesco QQQ TrustSM, Series 1, only upon 60 days' notice to shareholders.
Principal Risks
All mutual funds carry risk. Accordingly, loss of money is a risk of investing in the
Fund. Because the Fund invests certain of its assets in shares of an Underlying Fund, the Fund
indirectly owns the investments made by the Underlying Fund. By investing in the Fund, therefore, you indirectly assume the same types of risks as investing directly in the
Underlying Fund. In addition, the Fund will indirectly pay a proportional share of the fees and expenses of the Underlying Fund. The Fund's ability to achieve its investment
objective depends, in large part, on the Underlying Fund's ability to meet its investment objective, as well as the performance of the FLEX Options. The following risks reflect the Fund's principal risks, which include the principal risks of the FLEX Options and the Underlying Fund.
Buffered Loss Risk. There can be no guarantee that the Fund will be successful
in its strategy to provide buffer protection against Underlying ETF losses if the Underlying ETF has decreased at the end of an Outcome Period. A shareholder may lose their
entire investment. The Fund’s strategy seeks to deliver returns that track the Underlying ETF (up to the Cap), while limiting downside losses, if shares are bought on the day on which the Fund enters into the FLEX Options and held until those FLEX Options expire at the end of each Outcome Period. In the event an investor purchases shares after the date on which the FLEX Options were entered into or sells shares prior to the expiration of the FLEX Options, the Buffer that the Fund seeks to provide may not be available. The Fund does not provide principal protection and an investor may experience significant losses on its investment, including the loss of its entire investment.
Capped Upside Return Risk. The Fund’s strategy seeks to provide returns that are subject to the Cap. In the event that the Underlying ETF has gains in excess of the Cap for the Outcome Period, the Fund will not participate in those gains beyond the Cap. The Fund’s strategy seeks to deliver returns that track those of the Underlying ETF if shares are bought on the day on which the Fund enters into the FLEX Options and held until those FLEX Options expire at the end of the Outcome Period. In the event an investor purchases shares after the date on which the FLEX Options were entered into and the Fund has risen in value to a level near to the Cap, there may be little or no ability for that investor to experience an investment gain on its shares. A new Cap is established at the beginning of each Outcome Period and is dependent on prevailing market conditions. The Cap may therefore change from one Outcome Period to the next and is unlikely to remain the same for consecutive Outcome Periods. The Fund is exposed to operational risk arising from human error in the calculation of the Cap. The Fund seeks to reduce this risk through controls and procedures; however, these measures may be inadequate to address such risk.
Outcome Period Risk. The Fund’s investment strategy is designed to
deliver returns that track the Underlying ETF if shares are bought on the day on which the Fund enters into the FLEX Options and held until those FLEX Options expire at the
end of the Outcome Period. In the event an investor purchases shares after the date on which the FLEX Options were entered into or sells shares prior to the expiration of the FLEX Options, the returns realized by the investor may not be those that the Fund seeks to achieve.
FLEX Options Risk. The Fund may experience substantial downside from specific FLEX Option positions and certain FLEX Option
positions may expire worthless. In addition, the FLEX Options are subject to the following risks:
Valuation Risk. The value of the FLEX Options will be affected by, among others, changes in the value of the Underlying ETF, changes in interest rates, changes in the actual and implied volatility of the Underlying ETF and the remaining time until the FLEX Options expire. The value of the FLEX Options does not increase or decrease at the same rate as the level of the Underlying ETF (although they generally move in the same direction). However, as a FLEX Option approaches its expiration date, its value typically increasingly moves with the value of the Underlying ETF. Also, during periods of reduced market liquidity or in the absence of readily available market quotations, or when there is reduced availability of reliable objective pricing data for the FLEX Options, the ability of the Fund to value the FLEX Options becomes more difficult. In these situations, the judgment of the Fund’s investment adviser may play a greater role in the valuation of such holdings. Consequently, while these determinations will be made in good faith, it may nevertheless be more difficult for the Fund to accurately assign a daily value.
Liquidity Risk. In the event that trading in the FLEX Options is limited or
absent, the value of the Fund’s FLEX Options may decrease. There is no guarantee that a liquid secondary trading market will exist for the FLEX Options. The trading in
FLEX Options may be less deep and liquid than the market for certain other securities. FLEX Options may be less liquid than certain non-customized options. In a less liquid market for the FLEX Options, terminating the FLEX Options may require the payment of a premium or acceptance of a discounted price and may take longer to complete. In a less liquid market for the FLEX Options, the liquidation of a large number of options may more significantly impact the price. A less liquid trading market may adversely impact the value of the FLEX Options and the value of your investment.
Counterparty Risk. Counterparty risk is the risk an issuer, guarantor or
counterparty of a security in the Fund is unable or unwilling to meet its obligation on the security. The Fund will utilize FLEX Options issued and guaranteed for settlement
by the Options Clearing Corporation (the “OCC”). Although guaranteed for settlement by the OCC, FLEX Options are still subject to counterparty risk with the
OCC and may be less liquid than more traditional standardized exchange-traded options. As a result, the ability of the Fund to meet its objective depends on the OCC being able to meet its obligations. In the unlikely event that the OCC becomes insolvent or is otherwise unable to meet its settlement obligations, the Fund could suffer significant losses. The Fund bears the risk that the OCC will be unable or unwilling to perform its obligations under the FLEX Options contracts.
Correlation Risk. The FLEX Options held by the Fund will be exercisable at the strike price only on their expiration date. Prior to the expiration date, the value of the FLEX Options will be determined based upon market quotations or using other recognized pricing methods, consistent with the Fund’s valuation policy. Because a component of the FLEX Option’s value will be affected by, among other things, changes in the value of the Underlying ETF, changes in interest rates, changes in the actual and implied volatility of the Underlying ETF and the remaining time until the FLEX Options expire, the value of the Fund’s FLEX Options positions is not anticipated to increase or decrease at the same rate as the Underlying ETF, and it is possible they may move in different directions, and as a result, the Fund’s NAV may not increase or decrease at the same rate as the Underlying ETF. Similarly, the components of the option’s value are anticipated to impact the effect of the Buffer on the Fund’s NAV, which may not be in full effect prior to the end of the Outcome Period. The Fund’s strategy is designed to produce the Outcomes upon the expiration of the FLEX Options on the last business day of the Outcome Period, and it should not be expected that the Outcomes will be provided at any point other than the end of the Outcome Period.
Market Risk. The value of portfolio investments may decline. As a result, your
investment in the Fund may decline in value and you could lose money. A decline in value could result from, among other things, a negative development of: the issuer of the
security, an industry, a sector of the economy, or the overall securities market.
Issuer Risk. The prices of, and the income generated by, portfolio securities may decline in response to various factors directly related to the issuers of such securities. These factors may include reduced demand for an issuer’s goods or services, poor management performance, major litigation related to the issuer, changes in government regulations affecting the issuer or its competitive environment, and strategic initiatives such as mergers, acquisitions or dispositions.
Fund of Funds Risk. The Fund bears all risks of an Underlying Fund’s
investment strategies, including the risk that an Underlying Fund may not meet its investment objective, which may negatively affect the Fund’s performance. The Fund
does not control the investments of Underlying Funds, which may have different investment objectives and may engage in investment strategies that the Fund would not engage in directly. Aggregation of Underlying Fund holdings may result in indirect concentration of assets in a particular industry or group of industries, or in a single issuer, which may increase Fund volatility. In addition, the Fund indirectly will pay a proportional share of the fees and expenses of an Underlying Fund, including management, administration and custodian fees of an Underlying Fund.
Tracking Error Risk. The Underlying Fund attempts to track the performance of
the index it tracks. The performance of the Underlying Fund may deviate substantially from the index it tracks. Various factors may affect the Underlying Fund’s
ability to achieve perfect correlation, such as cash flows, fund expenses, imperfect correlation between the Underlying Fund’s investments and those of the index, rounding of share prices, changes to the index and regulatory policies, and costs in buying and selling securities. To the extent that the Underlying Fund employs a sampling technique to construct the Underlying Fund's portfolio, the Underlying Fund may invest in fewer than all of the securities in the index and in some securities not included in the Index, potentially increasing the risk of divergence between the Underlying Fund’s return and that of the index. In addition, the Underlying Fund may not be fully invested at times, either as a result of cash flows into or out of the Underlying Fund or reserves of cash held by the Underlying Fund to meet redemptions. The representative sample of securities in the Index that are actually held by the Underlying Fund may vary from time to time. In addition, the Underlying Fund’s investment approach, which attempts to track the performance of the index before fees and expenses, may perform differently than other mutual funds that focus on a particular market segment or invest in other asset classes.
Investment Objective Risk. Certain circumstances under which the Fund might not achieve its objective include, but are not limited, to
(i) if the Fund disposes of FLEX Options, (ii) if the Fund is unable to maintain the optimal balance of FLEX Options in the Fund’s portfolio, (iii) significant accrual
of Fund expenses in connection with effecting the Fund’s principal investment strategies or (iv) adverse tax law changes affecting the treatment of FLEX
Options.
Exchange-Traded Fund (“ETF”)
Risk. ETFs generally reflect the risks of owning the underlying securities they hold, although lack of liquidity in ETF shares could result in the price of the ETF being more volatile. Certain ETF track the performance of an index. An imperfect correlation between an ETF’s portfolio securities and those in its index, rounding of prices, the timing of cash flows, the ETF’s size, changes to the index and regulatory requirements may cause tracking error, the divergence of an ETF’s performance from that of its underlying index.
Authorized Participation Concentration Risk. Only an authorized participant
may engage in creation or redemption transactions directly with the Underlying ETF. The Fund has a limited number of institutions that may act as authorized participants on
an agency basis (i.e., on behalf of other market participants). To the extent that authorized participants exit the business or are unable to proceed with creation and/or redemption orders with respect to the Underlying ETF and no other authorized participant is able to step forward to create or redeem creation units, shares may be more likely to trade at a premium or discount to NAV and possibly face trading halts and/or delisting.
Active Markets Risk. Although the shares are listed for trading on an
exchange, there can be no assurance that an active trading market for the shares will develop or be maintained. shares trade on an exchange at market prices that may be
below, at or above the Underlying ETF’s NAV. Securities, including the shares, are subject to market fluctuations and liquidity constraints that may be caused by such factors as economic, political, or regulatory developments, changes in interest rates, and/or perceived trends in securities prices. shares of the Underlying ETF could decline in value or underperform other investments.
Fluctuation of Net Asset Value Risk. The Fund’s shares trade on an exchange at their market price rather than their NAV. The market price
may be at, above or below the Underlying ETF’s NAV. Differences in market price and NAV may be due, in large part, to the fact that supply and demand forces at work in
the secondary trading market for shares will be closely related to, but not identical to, the same forces influencing the prices of the holdings of the Underlying ETF
trading individually or in the aggregate at any point in time. These differences can be especially pronounced during times of market volatility or stress. During these
periods, the demand for shares may decrease considerably and cause the market price of shares to deviate significantly from the Underlying ETF’s NAV.
Market Maker Risk. If the Underlying ETF has lower average daily trading volumes, it may rely on a small number of third-party market makers to provide a market for the purchase and sale of shares. Any trading halt or other problem relating to the trading activity of these market makers could result in a dramatic change in the spread between the Underlying ETF’s NAV and the price at which the shares are trading on an exchange, which could result in a decrease in value of the shares. In addition, decisions by market makers or authorized participants to reduce their role or step away from these activities in times of market stress could inhibit the effectiveness of the arbitrage process in maintaining the relationship between the underlying values of the Underlying ETF’s portfolio securities and the Underlying ETF’s market price. This reduced effectiveness could result in shares trading at a discount to NAV and also in greater than normal intra-day bid-ask spreads for shares.
Trading Issues Risk. Although the shares are listed for trading on an
exchange, there can be no assurance that an active trading market for such shares will develop or be maintained. Trading in shares on an exchange may be halted due to market
conditions or for reasons that, in the view of the exchange, make trading in shares inadvisable. In addition, trading in shares on an exchange is subject to trading halts caused by extraordinary market volatility pursuant to exchange “circuit breaker” rules. Market makers are under no obligation to make a market in the shares, and authorized participants are not obligated to submit purchase or redemption orders for creation units. There can be no assurance that the requirements of an exchange necessary to maintain the listing of the Underlying ETF will continue to be met or will remain unchanged. Initially, due to the small asset size of the Underlying ETF, it may have difficulty maintaining its listings on an exchange.
Passive Management Risk. Index funds invest in the securities of an index
rather than actively selecting among securities. With an indexing strategy there is no attempt to manage volatility, use defensive strategies, or reduce the effects of any
long-term period of poor investment performance. Index funds have costs and fees that an index does not have and therefore index funds will not match the performance of the benchmark index.
Concentration Risk. Investments that are concentrated in particular
industries, sectors or types of investments may be subject to greater risks of adverse developments in such areas of focus than investments that are spread among a wider
variety of industries, sectors or investments. Investments in a select group of securities can be subject to a greater risk of loss and may be more volatile than investments that are more diversified.
Information Technology Sector Risk. Market or economic factors impacting
information technology companies could have a major effect on the value of the Fund’s investments. The value of stocks of information technology companies is
particularly vulnerable to rapid changes in technology product cycles, rapid product obsolescence, government regulation and competition, both domestically and internationally, including competition from foreign competitors with lower production costs. Like other technology companies, information technology companies may have limited product lines, markets, financial resources or personnel. Stocks of technology companies and companies that rely heavily on technology, especially those of smaller, less-seasoned companies, tend to be more volatile than the overall market. Information technology companies are heavily dependent on patent and intellectual property rights, the loss or impairment of which may adversely affect profitability. Additionally, companies in the information technology sector may face dramatic and often unpredictable changes in growth rates and competition for the services of qualified personnel.
Preferred Securities Risk. Preferred securities are subject to issuer-specific and market risks applicable generally to equity securities.
The value of preferred stock also can be affected by prevailing interest rates. Preferred securities may pay fixed or adjustable rates of return. In addition, a company’s preferred securities generally pay dividends only after the company makes required payments to holders of its bonds and other debt. For this reason, preferred stock is also subject to the credit quality of the issuer. Accordingly, the value of preferred securities will usually react more strongly than bonds and other debt to actual or perceived changes in the company’s financial condition or prospects. Preferred securities of smaller companies may be more vulnerable to adverse developments than preferred stock of larger companies.
Convertible Securities Risk. Convertible securities share investment characteristics of both fixed income and equity securities. The value
of these securities may vary more with fluctuations in the value of the underlying common stock than with fluctuations in interest rates. The value of convertible securities
also may be less volatile than the underlying common stock. Convertible securities generally offer lower interest or dividend yields than non-convertible securities of
similar quality. The Fund could lose money if the issuer of a convertible security is unable to meet its financial obligations or goes bankrupt.
Futures Risk. A futures contract is considered a derivative because it derives its value from the price of the underlying security or financial index. Losses on futures contracts may exceed the amount invested. There may be imperfect or negative correlation between the price of the futures contracts and the price of the underlying securities. In addition, there are significant differences between the securities and futures markets that could result in an imperfect correlation between the markets, causing a given hedge not to achieve its objectives. The degree of imperfect correlation depends on several factors such as variations in speculative market demand for
futures and differences
between the financial instruments being hedged and the instruments underlying the standard contracts available for trading. A decision as to whether, when and how to hedge
involves the exercise of skill and judgment, and even a well-conceived hedge may be unsuccessful to some degree because of market behavior or unexpected interest rate
trends.
Futures exchanges may limit the amount of fluctuation permitted
in certain futures contract prices during a single trading day. Once the daily limit has been reached, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements but does not limit potential losses because the limit may work to prevent the liquidation of unfavorable positions.
There can be no assurance that a liquid market will exist at a time when a fund seeks
to close out a futures position, and the Fund would remain obligated to meet margin requirements until the position is closed. In addition, there can be no assurance that an
active secondary market will continue to exist.
Non-Diversification Risk. When a mutual fund is non-diversified it may invest
a greater percentage of its assets in a particular issuer than a diversified fund. Therefore, a fund’s value may decrease because of a single investment or a small
number of investments.
Natural Disaster/Epidemic
Risk. Natural or environmental disasters, such as earthquakes, fires, floods, hurricanes, tsunamis, and other severe weather-related phenomena generally, and widespread disease and illness, including pandemics and epidemics, have been and can be highly disruptive to economies and markets. They may adversely impact individual companies, sectors, industries, markets, currencies, interest and inflation rates, credit ratings, investor sentiment, and other factors affecting the value of the Fund’s investments. For example, the novel coronavirus (COVID-19), which was first detected in 2019, has resulted in, among other things, stressors to healthcare service infrastructure, country border closings, business and school closings, and disruptions to supply chains and customer activity. Natural disaster/epidemic risk could have a significant adverse impact on the Fund’s portfolio investments.
Liquidity Risk. Liquidity risk is the risk that the Fund cannot meet requests to redeem Fund-issued shares without significantly diluting the remaining investors’ interest in the Fund. This may result when portfolio holdings may be difficult to value and may be difficult to sell, both at the time or price desired. In addition, the market for a particular holding may become illiquid due to adverse market or economic conditions, completely apart from any specific conditions in the market for a particular security.
Liquidity risk also may result from increased shareholder redemptions in
the Fund. An increase in shareholder redemptions could require the Fund to sell securities at reduced prices, which would in turn reduce the value of the Fund.
Management and Organization
The Fund's business and affairs are managed under the oversight and direction of its
Board of Trustees (the ”Board“). The Board has the power
to amend the Fund’s bylaws, to declare and pay dividends, and to exercise all the powers of the Fund except those granted to the shareholders.
Investment Adviser and Sub-Adviser: Lincoln Investment Advisors Corporation (“LIAC”) is the Fund’s investment adviser. LIAC is a
registered investment adviser and wholly-owned subsidiary of Lincoln Life. LIAC’s address is 150 N. Radnor-Chester Road, Radnor, PA 19087. LIAC (or its predecessors) has served as an investment adviser to mutual funds for over 30 years. As of March 31, 2021, LIAC had more than $111.7 billion in assets under management.
Lincoln Life is an insurance company organized under Indiana law and is a wholly-owned subsidiary of Lincoln National Corporation (“LNC”). LNC is a publicly-held insurance holding company organized under Indiana law. Through its subsidiaries, LNC provides nationwide insurance and financial services.
The Fund has entered into an Investment Management Agreement with LIAC. In addition to investing directly in the FLEX Options, the Fund operates as a “fund of fund.” In this structure, the Fund invests in another mutual fund, which, in turn, invests directly in portfolio securities. The expenses associated with investing in a fund of fund are generally higher than those for funds that do not invest primarily in other mutual funds because shareholders indirectly pay for a portion of the fees and expenses charged at the underlying fund level. LIAC may hire one or more sub-advisers who are responsible for the Fund’s day-to-day investment management. A sub-adviser is paid by LIAC from its management fee.
A description of LIAC (including the effective advisory fee rate for the most recently completed fiscal year), the Fund’s sub-adviser, and the portfolio managers are included below. The Fund’s statement of additional information (“SAI”) provides additional information about the portfolio managers’ compensation, other accounts managed by the portfolio managers, and the portfolio managers’ ownership of Fund shares.
|
LIAC (advisory fee is 0.55% of the Fund's average daily net
assets). |
|
Milliman Financial Risk Management LLC (”Milliman“) is located at 71 S. Wacker Drive,
31st Floor, Chi-
cago, IL 60606. Milliman is a wholly-owned subsidiary of Milliman, Inc.
Milliman provides investment advisory, hedging, and consulting
services on approximately $150 billion in assets as of March 31, 2021. |
Milliman Portfolio Managers |
Robert T. Cummings and Jordan B. Rosenfeld are responsible for the day-to-day
management of the Fund. |
|
Robert T. Cummings is Principal and Director of Global
Trading at Milliman. Mr. Cummings has served in this role since
2007. Mr. Cummings has more than 25 years of experience as a trader and portfolio man- ager with a primary focus on options. |
|
Jordan B. Rosenfeld is a Trader and Risk Manager within
Milliman’s Capital Markets Group. He manages hedging and
investment strategies for insurance companies, funds, and a number of U.S. equity unit investment trusts. Mr. Rosenfeld joined Milliman in 2018 and has more than 5 years of experience in capi-
tal markets. Prior to joining Milliman, Mr. Rosenfeld was a global macro
portfolio manager at Gelber Group with a focus on equity and
interest rate derivatives trading. Mr. Rosenfeld holds a Bachelor of Arts in Mathematics from Northwestern University. |
A discussion regarding the basis for the Board of Trustees’ approval of the
investment advisory and subadvisory agreements for the Fund will be in the Fund’s first annual or semiannual report to shareholders following commencement of the
Fund’s operations.
Pricing of Fund
Shares
The Fund determines its net asset value per share
(“NAV”) as of close of regular trading on the New York Stock Exchange (“NYSE”) (normally 4:00 p.m. New York time, each business day). The
Fund’s NAV is the value of a single Fund share. The Fund determines its NAV by adding the values of its portfolio securities and other assets, subtracting its
liabilities, and dividing by the number of Fund shares outstanding.
An order for Fund shares received after the close of regular trading on the NYSE will be effected at the NAV determined on the next business day.
The Fund’s portfolio securities may be traded in other markets on days when the NYSE is closed. Therefore, the Fund’s NAV may fluctuate on days when you do not have access to the Fund to purchase or redeem shares.
The Fund typically values its assets based on “market price.” Market price for equities is typically the security’s last sale price on a national securities exchange or over-the-counter, and for debt securities is typically the mean between the bid and ask prices (or the price established by an independent pricing service). Certain short-term fixed income securities are valued based on “amortized cost.”
In certain circumstances, the Fund may value its portfolio securities at “fair
value” as determined in good faith under procedures established by the Fund's Board. The fair value of portfolio securities may differ from quoted or published prices
for the same securities that the Board believes are unreliable. Fair value pricing involves subjective judgments, and it is possible that a security’s fair value price is materially different than the value realized upon the sale of that security.
The Fund anticipates using fair value pricing for securities primarily traded on U.S. exchanges only under very limited circumstances, such as the unexpected early closing of the exchange on which a security is traded or suspension of trading in the security. The Fund may use fair value pricing more frequently for securities primarily traded in non-U.S. markets, if applicable, because, among other things, most foreign markets close well before the Fund determines its NAV. The earlier close of these non-U.S. markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim. If the Fund invests in foreign equity securities, it may frequently value many of those securities using fair value prices based on third-party vendor modeling tools to the extent available.
To the extent the Fund invests in one or more mutual funds, the Fund values mutual fund shares at their respective NAVs. For more information regarding the determination of a mutual fund’s NAV, including when the mutual fund will fair value its portfolio securities and the effects of using fair value pricing, see the mutual fund’s prospectus and SAI.
Purchase and Sale of Fund Shares
Fund shares are available as underlying investment options for variable life insurance and variable annuity products issued by The Lincoln National Life Insurance Company (“Lincoln Life”), Lincoln Life & Annuity Company of New York (“LNY”), and unaffiliated insurance companies. These insurance companies are the record owners of the separate accounts holding the Fund’s shares. You do not buy, sell or exchange Fund shares directly – you choose investment options through your variable annuity contract or variable life insurance policy. The insurance companies then cause the separate accounts to purchase and redeem Fund shares according to the investment options you choose. Fund shares also may be available for investment by certain funds of the Lincoln Variable Insurance Products Trust.
The Fund sells and redeems its shares, without charge, at their NAV next determined after the Fund or its agent receives a purchase or
redemption request. The value of Fund shares redeemed may be more or less than original cost.
The Fund normally pays for
shares redeemed within seven days after the Fund receives the redemption request. However, the Fund may suspend redemptions or postpone payments for any period when (a) the
NYSE closes for other than weekends and holidays; (b) the SEC restricts trading on the NYSE; (c) the SEC determines that an emergency exists, so that the Fund’s
disposal of investment securities, or determination of NAV is not reasonably practicable; or (d) the SEC permits, by order, for the protection of Fund
shareholders.
The Fund typically expects to pay redemption proceeds using
holdings of cash in the Fund’s portfolio, or using the proceeds from sales of portfolio securities. To a lesser extent, the Fund also may use borrowing arrangements to
meet redemption requests. Borrowing is typically expected to be used only during stressed or abnormal market conditions, when an increased portion of the Fund’s
holdings may be comprised of less liquid investments, or during emergency or temporary circumstances.
Market Timing
Frequent, large, or short-term purchases, redemptions or transfers such as those
associated with ”market timing“ transactions, may
adversely affect the Fund and its investment returns. These transactions may dilute the value of Fund shares, interfere with the efficient management of the Fund's portfolio, and increase the Fund's brokerage and administrative costs. As a result, the Fund strongly discourages such trading activity. To protect the Fund and its shareholders from potentially harmful trading activity, the Board has approved certain market timing policies and procedures (the ”Market Timing Procedures“).
The Board may revise the Market Timing Procedures at any time and without prior notice.
Investors may seek to exploit delays between a change in the value of a Fund's
portfolio holdings, and the time when that change is reflected in the NAV of the Fund's shares by purchasing or redeeming shares at NAVs that do not reflect appropriate fair
value prices. This risk is more pronounced for funds investing in overseas markets, due to the time differential in pricing between U.S. and overseas markets, and thinly traded securities. The Fund seeks to deter and prevent this activity by the appropriate use of ”fair value“ pricing of the Fund's portfolio securities.
The Fund seeks to monitor shareholder account activities in order to detect and
prevent excessive and disruptive trading practices. The Fund and LIAC each reserve the right to reject, restrict, or refuse any purchase order (including exchanges) from any
investor, if, in the judgment of the Fund or LIAC, the transaction may adversely affect the Fund or its shareholders.
The Fund
has entered into agreements with each insurance company that holds Fund shares to help detect and prevent market timing. Under the agreements, an insurance company may be
required to (i) provide certain identifying and account information regarding contract owners who invest in Fund shares through the omnibus account; and (ii) restrict
further purchases or exchanges of Fund shares by a contract owner whom the Fund has identified as a market timer.
The Fund also may rely on frequent trading policies established by such insurance
companies. If the Fund detects potential market timing, the Fund will contact the applicable insurance company and may ask the insurance company to take additional action,
if appropriate, based on the particular circumstances.
Fund investors seeking to engage in market timing may deploy a variety of strategies
to avoid detection. In addition, Fund shares may be held through omnibus accounts, which generally do not identify trading activity of Fund investors on an individual basis.
As a result of these and other operational or technological limitations, there is no guarantee that the Fund will be able to identify or prevent market timing. Moreover, the identification of Fund investors determined to engage in transactions that may adversely affect the Fund or its investors involves judgments that are inherently subjective.
Insurance company sponsors of your contract may impose transfer limitations and other
limitations designed to curtail market timing. Please refer to the prospectus and SAI for your variable annuity or variable life contract for details.
Portfolio Holdings Disclosure
A description of the Fund's policies and procedures with respect to the Fund's
disclosure of portfolio securities is available in the Fund's SAI.
Share Classes and Distribution Arrangements
The Fund offers two classes of shares: Standard Class and Service Class. The two
classes are identical, except that Service Class shares are subject to a distribution (Rule 12b-1) fee which has been adopted pursuant to a distribution and service plan
(the
”Plan“
). Under the Plan, Service Class shares pay annual amounts not exceeding 0.35% of the average daily net
assets of the Service Class shares of the Fund. The Fund offers shares to insurance companies for allocation to certain of their variable contracts. The Fund pays its principal underwriter, Lincoln Financial Distributors, Inc. (”LFD“), out of the assets of
the Service Class, for activities primarily intended to sell Service Class shares or variable contracts offering Service Class shares. LFD pays third parties for these sales
activities pursuant to written agreements with such parties. The 12b-1 fee may be increased by the Fund's Board up to the maximum allowed by the Plan, without shareholder approval, in accordance with the Plan's terms. These fees are paid out of the Service Class assets on an ongoing basis, and over time will increase the cost of your investment and may cost you more than other types of sales charges.
LIAC and its affiliates, including LFD, and/or the Fund's sub-advisers or underlying funds, if any,
or their affiliates, may pay additional compensation (at their own expense and not as a Fund expense) to certain affiliated or unaffiliated brokers, dealers, or other
financial intermediaries (collectively, ”financial intermediaries“)
in connection with the sale or retention of Fund shares or insurance products that contain the Fund and/or shareholder servicing (”distribution
assistance“). The level of payments made to a qualifying financial intermediary in any given year will vary. To the extent permitted by SEC and Financial Industry Regulatory Authority rules and other applicable laws and regulations, LFD may pay or allow its affiliates to pay other promotional incentives or payments to financial intermediaries.
If a
mutual fund sponsor, distributor or other party makes greater payments to your financial intermediary for distribution assistance than sponsors or distributors of other
mutual funds make to your financial intermediary, your financial intermediary and its salespersons may have a financial incentive to favor sales of shares of the mutual fund
complex making the higher payments over another mutual fund complex or over other investment options. You should consult with your financial intermediary and review
carefully the disclosure relating to the compensation your financial intermediary receives in connection with the investment products your financial intermediary recommends or sells to you. In certain instances, the payments could be significant and may cause a conflict of interest for your financial intermediary. Any such payments to a financial intermediary will not change the Fund's NAV, or the price of its shares, as such payments are not made from Fund assets.
For more information, please see the SAI.
Distribution Policy
The Fund intends to qualify as a regulated investment company under the Internal
Revenue Code, which requires annual distributions of net investment income and net capital gains to shareholders – the insurance company variable accounts. The Fund
may distribute net realized capital gains only once a year. Net investment income and capital gain distributions will be automatically reinvested in additional Fund shares of the same class at no charge, and are reflected in variable account values.
Contract owners ordinarily are not taxed on Fund distributions. In general, Contract
owners are taxed only on underlying Fund amounts they withdraw from their variable accounts. See the “Tax Information” section.
Financial
Highlights
Because the Fund did not commence operations prior to the
fiscal year end, no financial highlights are available.
General Information
The use of the Fund by both annuity and life insurance variable accounts is called mixed funding. Due to differences in redemption rates, tax treatment, or other considerations, the interests of contract owners under the variable life accounts may conflict with those of contract owners under the variable annuity accounts. Violation of the federal tax laws by one variable account investing in the Fund could cause the contracts funded through another variable account to lose their tax-deferred status, unless remedial action was taken. The Fund's Board will monitor for any material conflicts and determine what action, if any, the Fund or a variable account should take.
A conflict could arise that requires a variable account to redeem a substantial amount
of assets from the Fund. The redemption could disrupt orderly portfolio management to the detriment of those contract owners still investing in the Fund. Also, the Fund
could determine that it has become so large that its size materially impairs investment performance. The Fund would then examine its options, which could include imposition of redemption fees or temporarily closing the Fund to new investors.
You can find additional information in the Fund’s SAI, which is on file with the
SEC. The Fund incorporates its SAI, dated [September 7], 2021, into its prospectus. The Fund will provide a free copy of its SAI upon request.
You can find detailed information about the Fund’s investments in the
Fund’s annual and semi-annual reports to shareholders. The annual report discusses the market conditions and investment strategies that significantly affected the
Fund’s performance during its last fiscal year. The Fund will provide a free copy of its annual and semi-annual report upon request.
The Fund will issue unaudited semi-annual reports showing current investments and
other information; and annual financial statements audited by the Fund’s independent auditors. For an SAI or annual or semi-annual report, either write The Lincoln
National Life Insurance Company, P.O. Box 2340, Fort Wayne, Indiana 46801, or call 1-800-4LINCOLN (454-6265). You may also call this number to request other information about the Fund, or to make inquiries. The Fund's SAI and annual and semi-annual reports are available, free of charge, at https://www.lfg.com/LVIP.
You can also get reports and other information about the Fund on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov. You can get copies of this information, after paying a duplicating fee, by electronic request at the following e-mail address: [email protected]. SEC File
No: 811-08090
Lincoln
Variable Insurance Products Trust
Lincoln Nasdaq-100
Buffer Fund Mar
Standard and Service Class
1301 South Harrison Street
Fort Wayne, Indiana 46802
Prospectus [September 7], 2021
Lincoln Nasdaq-100 Buffer Fund Mar (the “Fund”) is a series of the
Lincoln Variable Insurance Products Trust (the “Trust”). Shares of the Fund are
currently offered only to separate accounts that fund variable annuity and variable life insurance contracts (“variable accounts”) of The Lincoln National Life Insurance Company, its affiliates, and third-party insurance companies. You cannot purchase shares of the Fund directly. This prospectus discusses the information about the Fund that you should know before investing.
As with all mutual funds, the Securities and Exchange Commission (“SEC”) has not approved or disapproved these securities or determined if this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
We
have not authorized any dealer, salesperson, or any other person to give any information, or to make any representation, other than what this prospectus states.
•
The Fund has characteristics unlike traditional investment products and will not be suitable for all investors. Carefully read this prospectus before determining whether the Fund may be a suitable investment.
•
The Fund seeks, over a specified annual period (an “Outcome Period”), to
provide returns that track those of the Invesco QQQ TrustSM, Series 1 (“Underlying
ETF”) up to a cap, while providing a buffer against losses. There is no guarantee that the Fund will successfully achieve its investment
objective.
•
The
Fund’s initial Outcome Period is the one-year period from [March 18], 2022
to [March 17], 2023.
•
Buffer: The Fund seeks to provide a buffer against the first 12% of Underlying ETF price decreases over each Outcome
Period before the deduction of Fund expenses (the “Buffer”). The Fund, and therefore investors, will bear all Underlying ETF losses exceeding 12%. There is no guarantee the Fund will successfully buffer against Underlying ETF price decreases. The Buffer is designed to have its full effect only for investors who hold Fund shares for an entire Outcome
Period.
•
Cap: For each Outcome Period, Fund performance is subject to a specified upside return cap that represents the maximum percentage return the Fund can achieve during the Outcome Period before the deduction of Fund expenses (the “Cap”). The Cap is set on the first day of an Outcome Period and may increase or decrease from one Outcome Period to the next. If the Underlying ETF experiences returns over an Outcome Period in excess of the Cap, the Fund, and therefore investors, will not experience those excess gains.
•
The Fund is designed to produce predetermined investment outcomes relative to the
performance of an Underlying ETF. The defined outcomes sought by the Fund include the Buffer and Cap (“Outcomes”) based upon the performance of the Underlying
ETF over an Outcome Period. There is no guarantee that the Outcomes for any Outcome Period will be realized. A shareholder may lose its entire investment.
•
The Fund’s strategy is designed to produce specific Outcomes which
may only be realized if you are holding shares of the Fund on the first day of the Outcome Period and hold them continuously through the last day of the
Outcome Period. It should not be expected that the Outcomes
will be provided at any point prior to the end of an Outcome Period. The Outcomes are measured
from the Fund’s net asset value (the per share value of the Fund’s assets (“NAV”)) on the first day of the Outcome Period. The Fund does not track
the Underlying ETF except over an entire Outcome Period, and the Fund’s NAV will not increase or decrease at the same rate as the Underlying ETF during an Outcome
Period.
•
Outcomes are Before Fund Expenses: The Buffer and the Cap are calculated before Fund expenses. Thus, maximum Fund performance over an Outcome
Period is expected to be lower than the Cap by the amount of such Fund expenses, and Fund performance over an Outcome Period will be exposed to losses beyond the Buffer in
the amount of such Fund expenses. The Fund’s prospectus includes further detail on Fund expenses.
•
If you purchase shares after an Outcome Period has begun or redeem shares prior to an
Outcome Period’s conclusion, you may experience investment returns very different from those that the Fund seeks to provide. If the Fund has experienced high levels
of either gains or losses since the beginning of the Outcome Period, there may be little to no ability to achieve gains or benefit from the Buffer for the remainder of the Outcome Period. Please note in
particular:
•
An investor purchasing shares after the Fund has increased in
value during an Outcome Period would not benefit from the Buffer until the Fund’s value has decreased to its value at the commencement of the
Outcome Period. Such an investor also would have less potential for gains before the Cap is reached. An investor purchasing shares after the Fund
has increased in value to a level near to the Cap for an Outcome Period would have little or no ability to achieve gains but would remain
susceptible to downside risks.
•
An investor purchasing shares after the Fund has decreased in
value would have less protection from the Buffer. An investor purchasing shares after the Fund has decreased in value beyond the Buffer would gain
no benefit from the Buffer.
•
Because the Buffer is designed to be in effect only at the end of an Outcome Period, an investor who sells Fund shares before the end of an Outcome Period may not experience the full effect of the Buffer.
•
After the conclusion of an Outcome Period, another one-year Outcome Period will begin. Each
Outcome Period will have a new Cap which may be higher or lower than the current Cap.
•
The Fund’s website, lincolnfinancial.com/definedoutcomefunds, provides important information on
a daily basis that will assist you in determining whether to buy shares, including the current Outcome Period start and end dates, the remaining Cap and Buffer, and the potential outcomes of an investment in the Fund. Investors considering purchasing or selling shares should visit the website to understand the potential investment outcomes at the end of the current Outcome Period.
INVESTOR SUITABILITY
You should consider this investment
only if all of the following factors
apply to you:
•
you fully understand the risks inherent in an investment in the Fund;
•
you desire to invest in a product with a return that depends upon the performance of the
Invesco QQQ TrustSM, Series 1 over a full Outcome Period;
•
you are willing to hold shares for the duration of the Outcome Period in order to achieve
the Outcomes that the Fund seeks to provide;
•
you fully understand that investments made when the Fund is at or near to the Cap may have
limited to no upside;
•
you
seek the protection of a 12% Buffer on Invesco QQQ TrustSM, Series
1 losses for an investment held for the duration of the entire Outcome Period and understand that there is no guarantee that the Fund will be successful in its attempt to
provide protection through the Buffer;
•
you are willing to forego any gains in excess of the Cap;
•
you are willing to be exposed to the downside performance of the Invesco QQQ TrustSM, Series 1 beyond the 12% Buffer;
•
you understand that the Fund’s investment strategies are not expected to provide for
dividends to the Fund;
•
you
fully understand that investments made after an Outcome Period has begun may not fully benefit from the Buffer;
•
you are willing to accept the risk of losing your entire investment; and
•
you have visited the Fund’s website and understand the investment Outcomes available
to you based upon the time of your purchase.
Lincoln Nasdaq-100 Buffer Fund Mar
(Standard and Service Class)
Summary
Investment Objective
The Fund seeks, over a specified annual period (an “Outcome Period”), to provide
returns that track those of the Invesco QQQ TrustSM, Series 1 up to a cap, while providing a buffer against losses.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy, hold and sell shares of the Fund. This table does not reflect any variable contract expenses. You may pay other fees, such as brokerage commissions and
other fees to financial intermediaries, which are not reflected in the tables and examples below. If variable contract expenses were included, the expenses shown would be higher.
Annual Fund Operating Expenses
(Expenses that you pay each year as a percentage of the value of your investment)
|
|
|
|
|
|
Distribution and/or Service (12b-1) Fees |
|
|
|
|
|
Acquired Fund Fees and Expenses2 (AFFE) |
|
|
Total Annual Fund Operating Expenses |
|
|
|
|
|
Total Annual Fund Operating Expenses (After Fee Waiver) |
|
|
1
Other Expenses are based on estimates for the current fiscal year.
2
AFFE is based on estimated amounts for the current fiscal year.
3
Lincoln Investment Advisors Corporation (the “Adviser”) has contractually agreed
to waive the following portion of its advisory fee: 0.23% on the first $50 million of the Fund’s average daily net assets; and 0.00% of the Funds average daily net
assets in excess of $50 million. The agreement will continue through at least June 30, 2022 and cannot be terminated before that date without the mutual agreement of the Fund’s Board of Trustees and the Adviser.
Example
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example illustrates the hypothetical expenses that you would incur over the time periods indicated if you invest $10,000 in the Fund’s shares. The example also assumes that the Fund provides a return of 5% a year and that operating expenses remain the same. This example reflects the net operating expenses with fee waiver for the one-year contractual period and the total operating expenses without fee waiver for the remaining time periods shown below. Your actual costs may be higher or lower than this example. This example does not reflect any variable contract expenses. If variable contract expenses were included, the expenses shown would be higher. The results apply whether or not you redeem your investment at the end of the given period.
Lincoln Nasdaq-100 Buffer Fund Mar1
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. Because the Fund is newly organized, the portfolio turnover rate is not yet available. The Fund intends to turn over all of its options holdings on at least an annual basis.
Principal Investment Strategies
The Fund seeks, over each Outcome Period, to provide returns that track those of the Invesco QQQ TrustSM, Series 1 (the “Underlying ETF”), up to a cap, while providing a buffer against losses. The Fund employs a defined outcome strategy, sub-advised by Milliman Financial Risk Management LLC, which seeks to produce pre-determined investment outcomes based on the performance of the Underlying ETF’s market price over a one-year period (“Outcomes”), subject to the specified cap for gains and with the benefit of a buffer for losses. Due to the unique mechanics of the Fund’s strategy, the return an investor can expect to receive from an investment in the Fund has characteristics that are distinct from many other investment vehicles.
The Fund, under normal circumstances, invests at least 80% of its assets in options that reference the Underlying ETF or, in an underlying fund which tracks the same index as that tracked by the Underlying ETF. The Fund invests approximately half of its assets in FLexible EXchange® Options (“FLEX Options”) and approximately half of its assets in the LVIP SSGA Nasdaq-100 Index Fund (the “Underlying Fund”).
The Fund’s initial Outcome Period is the one-year period from [March 18], 2022 to [March 17], 2023. The pre-determined Outcomes sought by the
Fund, which include the buffer and cap discussed below, are based upon the performance of the Underlying ETF’s market price during the Outcome Period. The Fund will
not receive or benefit from any dividend payments made by the Underlying ETF.
Buffer: The Fund seeks to provide a buffer against the first 12% of Underlying
ETF price decreases over each Outcome Period, before the deduction of Fund expenses (the “Buffer”), which after Fund expenses is approximately 11.15% for the
Standard Class and 10.80% for the Service Class. The Fund, and therefore investors, will bear all Underlying ETF losses exceeding 12%. There is no guarantee the Fund will successfully buffer against Underlying ETF price decreases. The Buffer is designed to have its full effect only for investors who continually hold Fund shares for an entire Outcome Period. The Buffer is discussed in further detail below.
Cap: For each Outcome Period, Fund performance is subject to a specified upside return cap that represents the maximum percentage return the Fund can achieve during the Outcome Period before the deduction of Fund expenses (the “Cap”). The Cap is set on the first day of an Outcome Period based on the cost of providing the Buffer and may increase or decrease from one Outcome Period to the next.
If the Underlying ETF experiences gains over an Outcome Period, the strategy seeks to provide investment returns that track the performance of the Underlying ETF, up to the Cap. If the Underlying ETF experiences returns over an Outcome Period in excess of the Cap, the Fund will not experience those excess gains. The Cap (before Fund expenses) is reduced by the Fund’s expenses. The Cap is expected to change from one Outcome Period to the next. The Cap is discussed in further detail below.
The Fund’s website, lincolnfinancial.com/definedoutcomefunds, provides important Fund information on a daily basis, including
information about the Cap and Buffer, current Outcome Period start and end dates, and information relating to the remaining potential Outcomes of an investment in the Fund. Investors considering purchasing shares should visit the website for the latest information.
2Lincoln Nasdaq-100 Buffer Fund Mar
The two
hypothetical graphical illustrations provided below are designed to illustrate the Outcomes based upon the hypothetical performance of the Underlying ETF
for a shareholder that holds shares for the entirety of an Outcome Period. There is no guarantee that the Fund will be successful in its attempt to provide
the Outcomes for an Outcome Period. The returns that the Fund seeks to provide do not include the
costs associated with purchasing shares of the Fund and the expenses incurred by the Fund.
Lincoln Nasdaq-100 Buffer
Fund Mar3
Use of FLEX Options. The Fund invests approximately 50% of
its net assets in FLEX Options, the value of which is derived from the performance of the underlying reference asset, the Underlying ETF. FLEX Options are exchange-traded
options contracts with uniquely customizable terms. FLEX Options are set to expire on the last day of the Outcome Period, at which time the Fund will invest in a new set of FLEX Options for the next Outcome Period. An option contract is an agreement between a buyer and seller that gives the purchaser of the option the right to buy or sell a particular reference asset at a specified future date at an agreed upon price.
Investment Strategy of the Buffer. The Fund pursues its
objective by purchasing and selling call and put FLEX Options to create layers within the Fund’s portfolio. One layer is designed to buffer the Fund from losses, while
another layer is designed to produce returns that track those of the Underlying ETF for an Outcome Period, up to the Cap.
The Buffer layer of FLEX Options is designed to buffer the Fund from losses of up to
12% if the Underlying ETF experiences a loss at the end of an Outcome Period.
There is no guarantee that the Fund will be successful in its attempt to provide buffered returns. The Buffer is operative only against the first 12% of Underlying ETF losses at the end an Outcome Period. If
the Underlying ETF has decreased in value by more than 12% at the end of an Outcome Period, the Fund, and therefore investors, will experience those losses.
The Underlying ETF tracking layer of FLEX Options is designed to work alongside the Fund’s investment in the Underlying Fund to produce returns that track those of the Underlying ETF for an Outcome Period if the Underlying ETF has experienced gains during that Outcome Period. This gain is subject to the Cap, a maximum investment return level, which is
discussed below.
Outcome Periods. The Outcomes sought by the Fund are based
upon the Fund’s NAV on the first day of an Outcome Period. An Outcome Period begins on the day the FLEX Options are entered into and ends on the day they expire. Each
FLEX Option’s value is ultimately derived from the performance of the Underlying ETF during the Outcome Period. Because the terms of the FLEX Options do not change, the Cap and Buffer both relate to the Fund’s NAV on the first day of the Outcome Period. To achieve the Outcomes for an Outcome Period, an investor must be holding
shares for the entire Outcome Period. A shareholder that purchases shares after the commencement of an Outcome Period will likely have purchased shares at a
different NAV than the NAV upon which the Outcomes are based and may experience investment Outcomes very different from those sought by the Fund over the
entire Outcome Period. A shareholder that redeems shares prior to the end of an Outcome Period may also experience investment Outcomes very different from those sought by the Fund.
There is no guarantee that the Fund will be successful in its attempt to provide the Outcomes.
The value of FLEX Options is derived from the performance of the underlying reference asset, the Underlying ETF. However, because a component of an option’s value is the time remaining until its expiration, during the Outcome Period, the Fund’s NAV will not directly correlate on a day-to-day basis with the returns experienced by the Underlying ETF, though as a FLEX Option approaches its expiration date, its value typically increasingly moves with the value of the Underlying ETF. While the Fund generally anticipates that its NAV will move in the same direction as the Underlying ETF (meaning that the Fund’s NAV will increase if the Underlying ETF experiences gains and that the Fund’s NAV will decrease if the Underlying ETF experiences losses), the Fund’s NAV may not increase or decrease at the same rate as the Underlying ETF. Similarly, the amount of time remaining until the end of the Outcome Period also affects the impact of the Buffer on the Fund’s NAV, which may not be in full effect prior to the end of the Outcome Period. The Fund’s strategy is designed to produce the Outcomes upon the
expiration of the FLEX Options on the last day of the Outcome Period and it should not be expected that the Outcomes will be provided at any point prior to
that time. Taken together, this means that at the midpoint of the Outcome Period, if the
Underlying ETF has decreased in value by 12%, the Fund’s NAV can be expected to have decreased in value (because the Buffer is not yet in full effect), but by less
than 12% (because the Fund’s NAV will not correlate one-to-one with the Underlying ETF and the Fund’s NAV tends not to participate fully in either Underlying ETF
gains or losses).
Cap on Potential
Upside Returns. Unlike other investment products, the potential returns an investor can receive from an investment in the Fund are subject to an upside return Cap. This means that if the Underlying ETF
experiences gains for the Outcome Period beyond the level of the Cap, the Fund will not experience those excess gains. Therefore, regardless of the
performance of the Underlying ETF, the Cap (after Fund expenses) is the maximum return an investor can achieve from an investment in the Fund for an Outcome Period.
The Cap will change for each Outcome Period based upon prevailing market conditions at
the beginning of an Outcome Period. The Cap may increase or decrease from one Outcome Period to the next. The Cap, and the Fund’s position relative to it, should be
considered before investing in the Fund. If the Fund has already increased in
value to a level near to the Cap, an investor purchasing shares at that price has limited or no potential gains available for the remainder of the Outcome
Period but remains vulnerable to significant downside risks.
Buffer. The Buffer is operative only against the first 12%
of Underlying ETF losses for an Outcome Period; however, there is no guarantee that the Fund will be successful in its attempt to provide buffered returns. If the
Underlying ETF has decreased in value by more than 12% during an Outcome Period, the Fund will experience all further losses. The Buffer is calculated prior to taking into
account Fund expenses, such as Fund management fees equal to 0.55% of the Fund’s daily net assets, transaction fees, and any other expenses incurred by the Fund. If an investor purchases shares during an Outcome Period, and
the Fund has already decreased in value during that Outcome Period, that investor may not fully benefit from the Buffer for the remainder of the Outcome
Period, but will have increased gains available prior to reaching the Cap. Conversely, during the Outcome Period, if the Fund has already
4Lincoln Nasdaq-100 Buffer Fund Mar
increased in value, then a shareholder investing at that time may experience losses
prior to gaining the protection offered by the Buffer. While the Fund seeks to
limit losses by 12% for shareholders who hold shares for an entire Outcome Period, there is no guarantee it will successfully do so. Notwithstanding the Buffer, a
shareholder that purchases shares at the beginning of an Outcome Period or during an Outcome Period may lose its entire investment. An investment in the Fund is only
appropriate for shareholders willing to bear those losses.
Fund Rebalance. The Fund is a continuous investment vehicle.
It does not terminate and distribute its assets at the conclusion of each Outcome Period. On the termination date of an Outcome Period, the Fund will invest in a new set of
FLEX Options, which will provide a new Cap, and another Outcome Period will commence.
Approximately one week prior to the end of an Outcome Period, the Fund will file a
prospectus supplement, which will alert existing shareholders that an Outcome Period is approaching its conclusion and disclose the anticipated ranges for the Cap for the
next Outcome Period. Following the close of business on the last day of an Outcome Period, the Fund will file a prospectus supplement that discloses the Fund’s final Cap for the next Outcome Period.
The Fund’s website, lincolnfinancial.com/definedoutcomefunds, provides information relating to the Outcomes, including the Fund’s
position relative to the Cap and Buffer, of an investment in the Fund on a daily basis.
The Underlying Fund
The Underlying Fund seeks to achieve its objective by investing in the securities that comprise the Nasdaq-100® Index (the “Index”). The Underlying Fund, under normal market conditions, invests at least 80% of its assets in the securities of issuers included in the Index. The Underlying Fund attempts to replicate the Index by investing all, or substantially all, of its assets in the stocks that comprise the Index, holding each stock in approximately the same proportion as its weighting in the Index. The Underlying Fund may not invest in every security in the Index if it is not practical to do so (such as when transaction costs are too high, there is a liquidity issue, or there is a pending corporate action).
The Index includes the common stocks of the 100 largest domestic and international
non-financial companies on the broader Nasdaq Composite Index based on market capitalization. The Index reflects companies across major industry groups including computer
hardware and software, telecommunications, retail/wholesale trade and biotechnology. As of March 15, 2021, the market capitalization range of the companies comprising the Index was $5.4 billion to $2 trillion. The Index typically is rebalanced quarterly and reconstituted annually. The Fund will reinvest Underlying Fund dividends and distributions in additional Underlying Fund shares.
The Underlying Fund employs a passive investment approach called “indexing”, by which the Underlying Fund’s Sub-Adviser attempts to approximate, before fees and expenses, the performance of the Index over the long term. The Underlying Fund’s Sub-Adviser invests in the equity securities comprising the Index, in approximately the same proportions as they are represented in the Index. Equity securities may include common stocks, preferred stocks, depository receipts, or other securities convertible into common stock. The Underlying Fund’s Sub-Adviser may sell securities that are represented in the Index, or purchase securities that are not yet represented in the Index, prior to or after their removal or addition to the Index.
The Underlying Fund may purchase or sell index futures contracts, or options on those futures, or engage in other transactions involving the use of derivatives, to provide equity exposure to the Underlying Fund’s cash position while maintaining cash balances for liquidity, or for other purposes that assist in replicating the Underlying Fund's investment performance of the Index. The Underlying Fund’s return may not match the return of the Index.
The Underlying Fund intends to be diversified in approximately the same proportion as the Index. The Underlying Fund may become “non-diversified,” as defined by the Investment Company Act of 1940 solely as a result of a change in relative market capitalization or index weighting of one or more constituents of the Index. As a “non-diversified” fund, the Underlying Fund can invest a greater percentage of its assets in a limited number of issuers or in any one issuer. Shareholder approval will not be sought if the Underlying Fund shifts from diversified to non-diversified solely due to a change in the relative market capitalization or index weightings of one or more constituents of the Index.
The Underlying Fund will concentrate its investments in a particular industry or group
of industries to the extent the Index is concentrated. The Index, at times, may be significantly concentrated in the information technology sector.
Principal Risks
All mutual funds carry risk. Accordingly, loss of money is a risk of investing in the Fund.
Because the Fund invests certain of its assets in shares of an Underlying Fund, the Fund indirectly owns the investments made by the Underlying Fund. By investing in the
Fund, therefore, you indirectly assume the same types of risks as investing directly in the Underlying Fund. In addition, the Fund will indirectly pay a proportional share of the fees and expenses of the Underlying Fund. The Fund's ability to achieve its investment objective depends, in large part, on the Underlying Fund's ability to meet its investment objective, as well as the performance of the FLEX Options. The following risks reflect the Fund's principal risks, which include the principal risks of the FLEX Options and the Underlying Fund.
•
Buffered Loss Risk. There can be no guarantee that the Fund will be successful in its
strategy to provide buffer protection
Lincoln Nasdaq-100 Buffer Fund Mar5
against Underlying ETF
losses if the Underlying ETF has decreased at the end of an Outcome Period. In the event an investor purchases shares after the commencement of an Outcome Period, the Buffer
that the Fund seeks to provide may not be available. The Fund does not provide principal protection and an investor may experience significant losses on its investment,
including the loss of its entire investment.
•
Capped Upside Return Risk. The Fund’s strategy seeks to provide returns only up to the Cap. In the event that the Underlying ETF
has gains in excess of the Cap during an Outcome Period, the Fund will not participate in those gains beyond the Cap. In the event an investor purchases shares after the
commencement of an Outcome Period and the Fund has risen in value to a level near to the Cap, there may be little or no ability for that investor to experience an investment
gain.
•
Outcome Period Risk. The Fund’s investment strategy is designed to deliver returns that track the Underlying ETF only if shares are bought at the beginning of an Outcome Period and held until the end of the Outcome Period. If an investor purchases or sells shares during an Outcome Period, the returns realized by the investor may not be those that the Fund seeks to achieve. In addition, the Cap may change from one Outcome Period to the next and is unlikely to remain the same for consecutive Outcome Periods.
•
FLEX Options Risk. The Fund may experience substantial downside from specific FLEX Option positions, and certain FLEX Option
positions may expire worthless. In addition, the FLEX Options are subject to the following risks:
Valuation Risk. The value of the FLEX Options will be affected by, among
others, changes in the value of the Underlying ETF, changes in interest rates, changes in the actual and implied volatility of the Underlying ETF and the remaining time
until the FLEX Options expire. The value of the FLEX Options does not increase or decrease at the same rate as the level of the Underlying ETF (although they generally move in the same direction).
Liquidity Risk. In the event that trading in the FLEX Options is limited or absent, the value of the Fund’s FLEX Options may decrease. There is no guarantee that a liquid secondary trading market will exist for the FLEX Options.
Counterparty Risk. Counterparty risk is the risk an issuer, guarantor or counterparty of a security in the Fund is unable or unwilling to meet its obligation on the security. The Fund will utilize FLEX Options issued and guaranteed for settlement by the Options Clearing Corporation (the “OCC”). Although guaranteed for settlement by the OCC, FLEX Options are still subject to counterparty risk with the OCC and may be less liquid than more traditional standardized exchange-traded
options.
Correlation Risk. The FLEX Options held by the Fund will be exercisable at
the strike price only on their expiration date. Prior to the expiration date, the value of the FLEX Options will be determined based upon market quotations or using other
recognized pricing methods, consistent with the Fund’s valuation policy. Because a component of the FLEX Option’s value will be affected by, among other things, changes in the value of the Underlying ETF, changes in interest rates, changes in the actual and implied volatility of the Underlying ETF and the remaining time until the FLEX Options expire, the value of the Fund’s FLEX Options positions is not anticipated to increase or decrease at the same rate as the Underlying ETF, and it is possible they may move in different directions, and as a result, the Fund’s NAV may not increase or decrease at the same rate as the Underlying ETF. Similarly, the components of the option’s value are anticipated to impact the effect of the Buffer on the Fund’s NAV, which may not be in full effect prior to the end of the Outcome Period. The Fund’s strategy is designed to produce the Outcomes upon the expiration of the FLEX Options on the last business day of the Outcome Period, and it should not be expected that the Outcomes will be provided at any point other than the end of the Outcome Period.
•
Market Risk. The value of portfolio investments may decline. As a result, your investment in the Fund may decline in value and you could lose money.
•
Issuer Risk. The prices of, and the income generated by, portfolio securities may decline in response to various factors directly related to the issuers of such securities.
•
Fund of Funds Risk. The Fund bears all risks of an Underlying Fund’s investment strategies, including the risk that an Underlying Fund may not meet its investment objective which may negatively affect the Fund’s performance. In addition, the Fund indirectly will pay a proportional share of the fees and expenses of an Underlying Fund.
•
Tracking Error Risk. The Underlying Fund's performance may deviate substantially from the performance of the index it tracks as a
result of cash flows, fund expenses, imperfect correlation between the Underlying Fund's investments and the index’s components, and other factors. While attempting to
replicate the index return, the Underlying Fund may invest in fewer than all of the securities in the index and in some securities not included in the index, potentially
increasing the risk of divergence between the Underlying Fund’s return and that of the index.
•
Investment Objective Risk. Certain circumstances under which the Fund might not achieve its objective include, but are not limited, to
(i) if the Fund disposes of FLEX Options, (ii) if the Fund is unable to maintain the optimal balance of FLEX Options in the Fund’s portfolio, (iii) significant accrual
of Fund expenses in connection with effecting the Fund’s principal investment strategies or (iv) adverse tax law changes affecting the treatment of FLEX
Options.
•
Exchange-Traded Fund (“ETF”) Risk. ETFs generally reflect the risks of owning the underlying securities they hold, although lack of liquidity in
ETF shares could result in the price of the ETF being more volatile.
•
Authorized Participation Concentration Risk. Only an authorized participant may engage in creation or redemption transactions directly with the Underlying
ETF. The Fund has a limited number of institutions that may act as authorized participants on an agency basis (i.e., on behalf of other market participants). To the extent that authorized participants
exit the business or are
6Lincoln Nasdaq-100 Buffer Fund Mar
unable to proceed with
creation and/or redemption orders with respect to the Underlying ETF and no other authorized participant is able to step forward to create or redeem creation units, shares
may be more likely to trade at a premium or discount to NAV and possibly face trading halts and/or delisting.
•
Active Markets Risk. Although the shares are listed for trading on an exchange, there can be no assurance that an active trading
market for the shares will develop or be maintained. shares trade on an exchange at market prices that may be below, at or above the Underlying ETF’s NAV. Securities,
including the shares, are subject to market fluctuations and liquidity constraints that may be caused by such factors as economic, political, or regulatory developments,
changes in interest rates, and/or perceived trends in securities prices. shares of the Underlying ETF could decline in value or underperform other investments.
•
Fluctuation of Net Asset Value Risk. The Underlying ETF’s shares trade on an exchange at their market price rather than their NAV. The
market price may be at, above or below the Underlying ETF’s NAV. Differences in market price and NAV may be due, in large part, to the fact that supply and demand
forces at work in the secondary trading market for shares will be closely related to, but not identical to, the same forces influencing the prices of the holdings of the
Underlying ETF trading individually or in the aggregate at any point in time. These differences can be especially pronounced during times of market volatility or stress.
During these periods, the demand for shares may decrease considerably and cause the market price of shares to deviate significantly from the Underlying ETF’s NAV.
•
Market Maker Risk. If the Underlying ETF has lower average daily trading volumes, it may rely on a small number of third-party
market makers to provide a market for the purchase and sale of shares. Any trading halt or other problem relating to the trading activity of these market makers could result in a dramatic change in the spread between the Underlying ETF’s NAV and the price at which the shares are trading on an exchange, which could result in a decrease in value of the shares. In addition, decisions by market makers or authorized participants to reduce their role or step away from these activities in times of market stress could inhibit the effectiveness of the arbitrage process in maintaining the relationship between the underlying values of the Underlying ETF’s portfolio securities and the Underlying ETF’s market price. This reduced effectiveness could result in shares trading at a discount to NAV and also in greater than normal intra-day bid-ask spreads for shares.
•
Trading Issues Risk. Although the shares are listed for trading on an exchange, there can be no assurance that an active trading
market for such shares will develop or be maintained. Trading in shares on an exchange may be halted due to market conditions or for reasons that, in the view of the exchange, make trading in shares inadvisable. In addition, trading in shares on an exchange is subject to trading halts caused by extraordinary market volatility pursuant to exchange “circuit breaker” rules. Market makers are under no obligation to make a market in the shares, and authorized participants are not obligated to submit purchase or redemption orders for creation units. There can be no assurance that the requirements of an exchange necessary to maintain the listing of the Underlying ETF will continue to be met or will remain unchanged. Initially, due to the small asset size of the Underlying ETF, it may have difficulty maintaining its listings on an exchange.
•
Passive Management Risk. Index funds invest in the securities of an index rather than actively selecting among securities. With an
indexing strategy there is no attempt to manage volatility, use defensive strategies, or reduce the effects of any long-term period of poor investment
performance.
•
Concentration Risk. Investments that are concentrated in particular industries, sectors or
types of investments may be subject to greater risks of adverse developments in such areas of focus than investments that are spread among a wider variety of industries, sectors or investments.
•
Information Technology Sector Risk. Market or economic factors impacting information technology companies could have a major effect on the value
of the Fund’s investments. The value of stocks of information technology companies is particularly vulnerable to rapid changes in technology product cycles, rapid
product obsolescence, government regulation and competition.
•
Preferred Securities Risk. Preferred securities are subject to issuer-specific and market risks applicable generally to equity
securities. The value of preferred stock also can be affected by prevailing interest rates. Preferred securities may pay fixed or adjustable rates of return. In addition, a company’s preferred securities generally pay dividends only after the company makes required payments to holders of its bonds and other debt.
•
Convertible Securities Risk. Convertible securities share investment characteristics of both fixed income and equity securities. The value
of these securities may vary more with fluctuations in the value of the underlying common stock than with fluctuations in interest rates. The value of convertible securities
also may be less volatile than the underlying common stock. Convertible securities generally offer lower interest or dividend yields than non-convertible securities of
similar quality. The Fund could lose money if the issuer of a convertible security is unable to meet its financial obligations or goes bankrupt.
•
Futures Risk. A futures contract is considered a derivative because it derives its value from the price of the underlying security or financial index. The prices of futures contracts can be volatile, and futures contracts may be illiquid. In addition, there may be imperfect or even negative correlation between the price of the futures contracts and the price of the underlying securities. Losses on futures contracts may exceed the amount invested.
•
Non-Diversification Risk. When a mutual fund is non-diversified, it may invest a greater percentage of its assets in a particular
issuer than a diversified fund. Therefore, a fund’s value may decrease because of a single investment or a small number of investments.
•
Natural Disaster/Epidemic Risk. Natural or environmental disasters, such as earthquakes, fires, floods, hurricanes, tsunamis, and other
severe weather-related phenomena generally, and widespread disease and illness, including pandemics and epidemics (such as the novel coronavirus), have been and can be
highly disruptive to economies and markets.
Lincoln Nasdaq-100 Buffer
Fund Mar7
•
Liquidity Risk. Liquidity risk is the risk that the Fund cannot meet requests to redeem Fund-issued shares without significantly diluting the remaining investors’ interest in the Fund. This may result when portfolio holdings may be difficult to value and may be difficult to sell, both at the time or price desired. Liquidity risk also may result from increased shareholder redemptions in the Fund.
Fund Performance
The Fund will commence operations on or about June 18, 2021. Once the Fund has at
least one full calendar year of performance, a bar chart and performance table will be included in the prospectus. Please note that the Fund’s past performance is not necessarily an indication of how the Fund will perform in the future.
Investment Adviser and Sub-Adviser
Investment Adviser: Lincoln Investment Advisors Corporation
(“LIAC”)
Investment Sub-Adviser: Milliman Financial
Risk Management LLC (“Milliman”)
Portfolio
Managers
Milliman Portfolio Managers |
|
|
|
Principal and Director of Global Trading |
|
|
|
|
Purchase and Sale of Fund Shares
Fund shares are available as underlying investment options for variable life
insurance and variable annuity products issued by The Lincoln National Life Insurance Company (“Lincoln Life”), Lincoln Life & Annuity Company of New York
(“LNY”), and unaffiliated insurance companies. These insurance companies are the record owners of the separate accounts holding the Fund’s shares. You do
not buy, sell or exchange Fund shares directly – you choose investment options through your variable annuity contract or variable life insurance policy. The insurance companies then cause the separate accounts to purchase and redeem Fund shares according to the investment options you choose. Fund shares also may be available for investment by certain funds of the Lincoln Variable Insurance Products Trust.
Tax Information
In general, Contract owners are taxed only on underlying Fund amounts they withdraw from their variable accounts. Contract owners should consult their Contract Prospectus for more information on the federal income tax consequences to them regarding their indirect investment in the Fund. Contract owners also may wish to consult with their own tax advisors as to the tax consequences of investments in variable contracts and the Fund, including application of state and local taxes.
Payments to Broker-Dealers and other Financial
Intermediaries
Shares of the Fund are available only through the
purchase of variable contracts issued by certain life insurance companies. Parties related to the Fund (such as the Fund's principal underwriter or investment adviser) may
pay such insurance companies (or their related companies) for the sale of Fund shares and related services. These payments may create a conflict of interest and may
influence the insurance company to include the Fund as an investment option in its variable contracts. Such insurance companies (or their related companies) may pay broker-dealers or other financial intermediaries (such as banks) for the sale and retention of variable contracts that offer Fund shares. These payments may create a conflict of interest by influencing the broker-dealers or other financial intermediaries to recommend variable contracts that offer Fund shares. The prospectus or other disclosure documents for the variable contracts may contain additional information about these payments, if any. Ask your salesperson or visit your financial intermediary's website for more information.
8Lincoln
Nasdaq-100 Buffer Fund Mar
Additional Information about the Fund
Investment Objective and Principal Investment Strategies
The Fund’s investment objective is to seek, over a specified annual period (an “Outcome Period”), to provide returns that track those of the Invesco QQQ TrustSM, Series 1 (the “Underlying ETF”), up to a cap, while providing a buffer against losses. The investment objective is non-fundamental and may be changed without shareholder approval.
The Fund employs a defined outcome strategy, sub-advised by Milliman Financial Risk Management LLC, which seeks to produce pre-determined investment outcomes based on the performance of the Underlying ETF’s market price over a one-year period (“Outcomes”), subject to the specified cap for gains and with the benefit of a buffer for losses. Due to the unique mechanics of the Fund’s strategy, the return an investor can expect to receive from an investment in the Fund has characteristics that are distinct from many other investment vehicles.
The Fund, under normal circumstances, invests at least 80% of its assets in options that reference the Underlying ETF or, in an underlying fund which tracks the same index as that tracked by the Underlying ETF. The Fund invests approximately half of its assets in FLexible EXchange® Options (“FLEX Options”) and approximately half of its assets in the LVIP SSGA Nasdaq-100 Index Fund (the “Underlying Fund”).
The Fund’s initial Outcome Period is the one-year period from [March 18], 2022 to [March 17], 2023. The pre-determined Outcomes sought by the
Fund, which include the buffer and cap discussed below, are based upon the performance of the Underlying ETF’s market price during the Outcome Period. The Fund will
not receive or benefit from any dividend payments made by the Underlying ETF.
Buffer: The Fund seeks to provide a buffer against the first 12% of Underlying
ETF price decreases over each Outcome Period, before the deduction of Fund expenses (the “Buffer”), which after Fund expenses is approximately 11.15% for the
Standard Class and 10.80% for the Service Class. The Fund, and therefore investors, will bear all Underlying ETF losses exceeding 12%. There is no guarantee the Fund will successfully buffer against Underlying ETF price decreases. The Buffer is designed to have its full effect only for investors who continually hold Fund shares for an entire Outcome Period. The Buffer is discussed in further detail below.
Cap: For each Outcome Period, Fund performance is subject to a specified upside return cap that represents the maximum percentage return the Fund can achieve during the Outcome Period before the deduction of Fund expenses (the “Cap”). The Cap is set on the first day of an Outcome Period based on the cost of providing the Buffer and may increase or decrease from one Outcome Period to the next.
If the Underlying ETF experiences gains over an Outcome Period, the strategy seeks to provide investment returns that track the performance of the Underlying ETF, up to the Cap. If the Underlying ETF experiences returns over an Outcome Period in excess of the Cap, the Fund will not experience those excess gains. The Cap (before Fund expenses) is reduced by the Fund’s expenses. The Cap is expected to change from one Outcome Period to the next. The Cap is discussed in further detail below.
The Fund’s website, lincolnfinancial.com/definedoutcomefunds, provides important Fund information on a daily basis, including
information about the Cap and Buffer, current Outcome Period start and end dates, and information relating to the remaining potential Outcomes of an investment in the Fund. Investors considering purchasing shares should visit the website for the latest information.
The two hypothetical graphical illustrations provided below are designed to illustrate the Outcomes based upon the hypothetical performance of the Underlying ETF for a shareholder that holds shares for the entirety of an Outcome Period. There is no guarantee that the Fund will be successful in its attempt to provide the Outcomes for an Outcome
Period. The returns that the Fund seeks to provide do not include the costs associated with
purchasing shares of the Fund and the expenses incurred by the Fund.
Use of FLEX Options. The Fund invests approximately 50% of
its net assets in FLEX Options, the value of which is derived from the performance of the underlying reference asset, the Underlying ETF. FLEX Options are exchange-traded
options contracts with uniquely customizable terms. FLEX Options are set to expire on the last day of the Outcome Period, at which time the Fund will invest in a new set of FLEX Options for the next Outcome Period. An option contract is an agreement between a buyer and seller that gives the purchaser of the option the right to buy or sell a particular reference asset at a specified future date at an agreed upon price.
Investment Strategy of the Buffer. The Fund pursues its
objective by purchasing and selling call and put FLEX Options to create layers within the Fund’s portfolio. One layer is designed to buffer the Fund from losses, while
another layer is designed to produce returns that track those of the Underlying ETF for an Outcome Period, up to the Cap.
The Buffer layer of FLEX Options is designed to buffer the Fund from losses of up to
12% if the Underlying ETF experiences a loss at the end of an Outcome Period.
There is no guarantee that the Fund will be successful in its attempt to provide buffered returns. The Buffer is operative only against the first 12% of Underlying ETF losses at the end an Outcome Period. If
the Underlying ETF has decreased in value by more than 12% at the end of an Outcome Period, the Fund, and therefore investors, will experience those losses.
The Underlying ETF tracking layer of FLEX Options is designed to work alongside the Fund’s investment in the Underlying Fund to produce returns that track those of the Underlying ETF for an Outcome Period if the Underlying ETF has experienced gains during that Outcome Period. This gain is subject to the Cap, a maximum investment return level, which is
discussed below.
Outcome Periods. The Outcomes sought by the Fund are based
upon the Fund’s NAV on the first day of an Outcome Period. An Outcome Period begins on the day the FLEX Options are entered into and ends on the day they expire. Each
FLEX Option’s value is ultimately derived from the performance of the Underlying ETF during the Outcome period. Because the terms of the FLEX Options do not change, the Cap and Buffer both relate to the Fund’s NAV on the first day of the Outcome Period. To achieve the Outcomes for an Outcome Period, an investor must be holding
shares for the entire Outcome Period. A shareholder that purchases shares after the commencement of an Outcome Period will likely have purchased shares at a
different NAV than the NAV upon which the Outcomes are based and may experience investment Outcomes very different from those sought by the Fund over the
entire Outcome Period. A shareholder that redeems shares prior to the end of an Outcome Period may also experience investment Outcomes very different from those sought by the Fund.
There is no guarantee that the Fund will be successful in its attempt to provide the Outcomes.
The value of FLEX Options is derived from the performance of the underlying reference asset, the Underlying ETF. However, because a component of an option’s value is the time remaining until its expiration, during the Outcome Period, the Fund’s NAV will not directly correlate on a day-to-day basis with the returns experienced by the Underlying ETF, though as a FLEX Option approaches its expiration date, its value typically increasingly moves with the value of the Underlying ETF. While the Fund generally anticipates that its NAV will move in the same direction as the Underlying ETF (meaning that the Fund’s NAV will increase if the Underlying ETF experiences gains and that the Fund’s NAV will decrease if the Underlying ETF experiences losses), the Fund’s NAV may not increase or decrease at the same rate as the Underlying ETF. Similarly, the amount of time remaining until the end of the Outcome Period also affects the impact of the Buffer on the Fund’s NAV, which may not be in full effect prior to the end of the Outcome Period. The Fund’s strategy is designed to produce the Outcomes upon the
expiration of the FLEX Options on the last day of the Outcome Period and it should not be expected that the Outcomes will be provided at any point prior to
that time. Taken together, this means that at the midpoint of the Outcome Period, if the
Underlying ETF has decreased in value by 12%, the Fund’s NAV can be expected to have decreased in value (because the Buffer is not yet in full effect), but by less
than 12% (because the Fund’s NAV will not correlate one-to-one with the Underlying ETF and the Fund’s NAV tends not to participate fully in either Underlying ETF
gains or losses).
Cap on Potential
Upside Returns. Unlike other investment products, the potential returns an investor can receive from an investment in the Fund are subject to an upside return Cap. This means that if the Underlying ETF
experiences gains for the Outcome Period beyond the level of the Cap, the Fund will not experience those excess gains. Therefore, regardless of the
performance of the Underlying ETF, the Cap (after Fund expenses) is the maximum return an investor can achieve from an investment in the Fund for an Outcome Period.
The Cap will change for each Outcome Period based upon prevailing market conditions at
the beginning of an Outcome Period. The Cap may increase or decrease from one Outcome Period to the next. The Cap, and the Fund’s position relative to it, should be
considered before investing in the Fund. If the Fund has already increased in
value to a level near to the Cap, an investor purchasing shares at that price has limited or no potential gains available for the remainder of the Outcome
Period but remains vulnerable to significant downside risks.
Buffer. The Buffer is operative only against the first 12%
of Underlying ETF losses for an Outcome Period; however, there is no guarantee that the Fund will be successful in its attempt to provide buffered returns. If the
Underlying ETF has decreased in value by more than 12% during an Outcome Period, the Fund will experience all further losses. The Buffer is calculated prior to taking into
account Fund expenses, such as Fund management fees equal to 0.55% of the Fund’s daily net assets, transaction fees, and any other expenses incurred by the Fund. If an investor purchases shares during an Outcome Period, and
the Fund has already decreased in value during that Outcome Period, that investor may not fully benefit from the Buffer for the remainder of the Outcome
Period, but will have increased gains available prior to reaching the Cap. Conversely, during the Outcome Period, if the Fund has already
increased
in value, then a shareholder investing at that time may experience losses prior to gaining the protection offered by the Buffer. While the Fund seeks to limit losses by 12% for shareholders who hold shares for an entire Outcome Period, there is no guarantee it will successfully do so. Notwithstanding the Buffer, a shareholder that purchases shares at the beginning of an Outcome Period or during an Outcome Period may lose its entire investment. An investment in the Fund is only appropriate for shareholders willing to bear those losses.
Fund Rebalance. The Fund is a continuous investment vehicle.
It does not terminate and distribute its assets at the conclusion of each Outcome Period. On the termination date of an Outcome Period, the Fund will invest in a new set of
FLEX Options, which will provide a new Cap, and another Outcome Period will commence.
Approximately one week prior to the end of an Outcome Period, the Fund will file a
prospectus supplement, which will alert existing shareholders that an Outcome Period is approaching its conclusion and disclose the anticipated ranges for the Cap for the
next Outcome Period. Following the close of business on the last day of an Outcome Period, the Fund will file a prospectus supplement that discloses the Fund’s final Cap for the next Outcome Period.
The Fund’s website, lincolnfinancial.com/definedoutcomefunds, provides information relating to the Outcomes, including the Fund’s
position relative to the Cap and Buffer, of an investment in the Fund on a daily basis.
The Underlying Fund
The Underlying Fund seeks to achieve its objective by investing in the securities that comprise the Nasdaq-100® Index (the “Index”). The Underlying Fund, under normal market conditions, invests at least 80% of its assets in the securities of issuers included in the Index. The Underlying Fund attempts to replicate the Index by investing all, or substantially all, of its assets in the stocks that comprise the Index, holding each stock in approximately the same proportion as its weighting in the Index. The Underlying Fund may not invest in every security in the Index if it is not practical to do so (such as when transaction costs are too high, there is a liquidity issue, or there is a pending corporate action).
The Index includes the common stocks of the 100 largest domestic and international
non-financial companies on the broader Nasdaq Composite Index based on market capitalization. The Index reflects companies across major industry groups including computer
hardware and software, telecommunications, retail/wholesale trade and biotechnology. As of March 15, 2021, the market capitalization range of the companies comprising the Index was $5.4 billion to $2 trillion. The Index typically is rebalanced quarterly and reconstituted annually. The Fund will reinvest Underlying Fund dividends and distributions in additional Underlying Fund shares.
The Underlying Fund employs a passive investment approach called “indexing”, by which the Underlying Fund’s Sub-Adviser attempts to approximate, before fees and expenses, the performance of the Index over the long term. The Underlying Fund’s Sub-Adviser invests in the equity securities comprising the Index, in approximately the same proportions as they are represented in the Index. Equity securities may include common stocks, preferred stocks, depository receipts, or other securities convertible into common stock. The Underlying Fund’s Sub-Adviser may sell securities that are represented in the Index, or purchase securities that are not yet represented in the Index, prior to or after their removal or addition to the Index.
The Underlying Fund may purchase or sell index futures contracts, or options on those futures, or engage in other transactions involving the use of derivatives, to provide equity exposure to the Underlying Fund’s cash position while maintaining cash balances for liquidity, or for other purposes that assist in replicating the Underlying Fund's investment performance of the Index. The Underlying Fund’s return may not match the return of the Index.
The Underlying Fund intends to be diversified in approximately the same proportion as the Index. The Underlying Fund may become “non-diversified,” as defined by the Investment Company Act of 1940 solely as a result of a change in relative market capitalization or index weighting of one or more constituents of the Index. As a “non-diversified” fund, the Underlying Fund can invest a greater percentage of its assets in a limited number of issuers or in any one issuer. Shareholder approval will not be sought if the Underlying Fund shifts from diversified to non-diversified solely due to a change in the relative market capitalization or index weightings of one or more constituents of the Index.
The Underlying Fund will concentrate its investments in a particular industry or group
of industries to the extent the Index is concentrated. The Index, at times, may be significantly concentrated in the information technology sector.
*
Nasdaq®
and NASDAQ-100® Indexes are registered trademarks of Nasdaq, Inc. (which with its affiliates is referred to as the “Corporations”) and are licensed for use by Lincoln Investment Advisors Corporation. The Fund has not been passed on by the Corporations as to their legality or suitability. The Fund is not issued, endorsed, sold, or promoted by the Corporations. The Corporations make no warranties and bear
no liability with respect to the Fund.
The Fund’s Board of Trustees may change the Fund’s investment strategies
or policies in the interest of shareholders without a shareholder vote, unless those strategies or policies are designated as fundamental. The Fund may change its policy of
investing at least 80% of its net assets in FLEX Options that reference the Invesco QQQ TrustSM, Series 1 or, in an underlying fund which tracks the same index as that tracked by the Invesco QQQ TrustSM, Series 1, only upon 60 days' notice to shareholders.
Principal Risks
All mutual funds carry risk. Accordingly, loss of money is a risk of investing in the
Fund. Because the Fund invests certain of its assets in shares of an Underlying Fund, the Fund
indirectly owns the investments made by the Underlying Fund. By investing in the Fund, therefore, you indirectly assume the same types of risks as investing directly in the
Underlying Fund. In addition, the Fund will indirectly pay a proportional share of the fees and expenses of the Underlying Fund. The Fund's ability to achieve its investment
objective depends, in large part, on the Underlying Fund's ability to meet its investment objective, as well as the performance of the FLEX Options. The following risks reflect the Fund's principal risks, which include the principal risks of the FLEX Options and the Underlying Fund.
Buffered Loss Risk. There can be no guarantee that the Fund will be successful
in its strategy to provide buffer protection against Underlying ETF losses if the Underlying ETF has decreased at the end of an Outcome Period. A shareholder may lose their
entire investment. The Fund’s strategy seeks to deliver returns that track the Underlying ETF (up to the Cap), while limiting downside losses, if shares are bought on the day on which the Fund enters into the FLEX Options and held until those FLEX Options expire at the end of each Outcome Period. In the event an investor purchases shares after the date on which the FLEX Options were entered into or sells shares prior to the expiration of the FLEX Options, the Buffer that the Fund seeks to provide may not be available. The Fund does not provide principal protection and an investor may experience significant losses on its investment, including the loss of its entire investment.
Capped Upside Return Risk. The Fund’s strategy seeks to provide returns that are subject to the Cap. In the event that the Underlying ETF has gains in excess of the Cap for the Outcome Period, the Fund will not participate in those gains beyond the Cap. The Fund’s strategy seeks to deliver returns that track those of the Underlying ETF if shares are bought on the day on which the Fund enters into the FLEX Options and held until those FLEX Options expire at the end of the Outcome Period. In the event an investor purchases shares after the date on which the FLEX Options were entered into and the Fund has risen in value to a level near to the Cap, there may be little or no ability for that investor to experience an investment gain on its shares. A new Cap is established at the beginning of each Outcome Period and is dependent on prevailing market conditions. The Cap may therefore change from one Outcome Period to the next and is unlikely to remain the same for consecutive Outcome Periods. The Fund is exposed to operational risk arising from human error in the calculation of the Cap. The Fund seeks to reduce this risk through controls and procedures; however, these measures may be inadequate to address such risk.
Outcome Period Risk. The Fund’s investment strategy is designed to
deliver returns that track the Underlying ETF if shares are bought on the day on which the Fund enters into the FLEX Options and held until those FLEX Options expire at the
end of the Outcome Period. In the event an investor purchases shares after the date on which the FLEX Options were entered into or sells shares prior to the expiration of the FLEX Options, the returns realized by the investor may not be those that the Fund seeks to achieve.
FLEX Options Risk. The Fund may experience substantial downside from specific FLEX Option positions and certain FLEX Option
positions may expire worthless. In addition, the FLEX Options are subject to the following risks:
Valuation Risk. The value of the FLEX Options will be affected by, among others, changes in the value of the Underlying ETF, changes in interest rates, changes in the actual and implied volatility of the Underlying ETF and the remaining time until the FLEX Options expire. The value of the FLEX Options does not increase or decrease at the same rate as the level of the Underlying ETF (although they generally move in the same direction). However, as a FLEX Option approaches its expiration date, its value typically increasingly moves with the value of the Underlying ETF. Also, during periods of reduced market liquidity or in the absence of readily available market quotations, or when there is reduced availability of reliable objective pricing data for the FLEX Options, the ability of the Fund to value the FLEX Options becomes more difficult. In these situations, the judgment of the Fund’s investment adviser may play a greater role in the valuation of such holdings. Consequently, while these determinations will be made in good faith, it may nevertheless be more difficult for the Fund to accurately assign a daily value.
Liquidity Risk. In the event that trading in the FLEX Options is limited or
absent, the value of the Fund’s FLEX Options may decrease. There is no guarantee that a liquid secondary trading market will exist for the FLEX Options. The trading in
FLEX Options may be less deep and liquid than the market for certain other securities. FLEX Options may be less liquid than certain non-customized options. In a less liquid market for the FLEX Options, terminating the FLEX Options may require the payment of a premium or acceptance of a discounted price and may take longer to complete. In a less liquid market for the FLEX Options, the liquidation of a large number of options may more significantly impact the price. A less liquid trading market may adversely impact the value of the FLEX Options and the value of your investment.
Counterparty Risk. Counterparty risk is the risk an issuer, guarantor or
counterparty of a security in the Fund is unable or unwilling to meet its obligation on the security. The Fund will utilize FLEX Options issued and guaranteed for settlement
by the Options Clearing Corporation (the “OCC”). Although guaranteed for settlement by the OCC, FLEX Options are still subject to counterparty risk with the
OCC and may be less liquid than more traditional standardized exchange-traded options. As a result, the ability of the Fund to meet its objective depends on the OCC being able to meet its obligations. In the unlikely event that the OCC becomes insolvent or is otherwise unable to meet its settlement obligations, the Fund could suffer significant losses. The Fund bears the risk that the OCC will be unable or unwilling to perform its obligations under the FLEX Options contracts.
Correlation Risk. The FLEX Options held by the Fund will be exercisable at the strike price only on their expiration date. Prior to the expiration date, the value of the FLEX Options will be determined based upon market quotations or using other recognized pricing methods, consistent with the Fund’s valuation policy. Because a component of the FLEX Option’s value will be affected by, among other things, changes in the value of the Underlying ETF, changes in interest rates, changes in the actual and implied volatility of the Underlying ETF and the remaining time until the FLEX Options expire, the value of the Fund’s FLEX Options positions is not anticipated to increase or decrease at the same rate as the Underlying ETF, and it is possible they may move in different directions, and as a result, the Fund’s NAV may not increase or decrease at the same rate as the Underlying ETF. Similarly, the components of the option’s value are anticipated to impact the effect of the Buffer on the Fund’s NAV, which may not be in full effect prior to the end of the Outcome Period. The Fund’s strategy is designed to produce the Outcomes upon the expiration of the FLEX Options on the last business day of the Outcome Period, and it should not be expected that the Outcomes will be provided at any point other than the end of the Outcome Period.
Market Risk. The value of portfolio investments may decline. As a result, your
investment in the Fund may decline in value and you could lose money. A decline in value could result from, among other things, a negative development of: the issuer of the
security, an industry, a sector of the economy, or the overall securities market.
Issuer Risk. The prices of, and the income generated by, portfolio securities may decline in response to various factors directly related to the issuers of such securities. These factors may include reduced demand for an issuer’s goods or services, poor management performance, major litigation related to the issuer, changes in government regulations affecting the issuer or its competitive environment, and strategic initiatives such as mergers, acquisitions or dispositions.
Fund of Funds Risk. The Fund bears all risks of an Underlying Fund’s
investment strategies, including the risk that an Underlying Fund may not meet its investment objective, which may negatively affect the Fund’s performance. The Fund
does not control the investments of Underlying Funds, which may have different investment objectives and may engage in investment strategies that the Fund would not engage in directly. Aggregation of Underlying Fund holdings may result in indirect concentration of assets in a particular industry or group of industries, or in a single issuer, which may increase Fund volatility. In addition, the Fund indirectly will pay a proportional share of the fees and expenses of an Underlying Fund, including management, administration and custodian fees of an Underlying Fund.
Tracking Error Risk. The Underlying Fund attempts to track the performance of
the index it tracks. The performance of the Underlying Fund may deviate substantially from the index it tracks. Various factors may affect the Underlying Fund’s
ability to achieve perfect correlation, such as cash flows, fund expenses, imperfect correlation between the Underlying Fund’s investments and those of the index, rounding of share prices, changes to the index and regulatory policies, and costs in buying and selling securities. To the extent that the Underlying Fund employs a sampling technique to construct the Underlying Fund's portfolio, the Underlying Fund may invest in fewer than all of the securities in the index and in some securities not included in the Index, potentially increasing the risk of divergence between the Underlying Fund’s return and that of the index. In addition, the Underlying Fund may not be fully invested at times, either as a result of cash flows into or out of the Underlying Fund or reserves of cash held by the Underlying Fund to meet redemptions. The representative sample of securities in the Index that are actually held by the Underlying Fund may vary from time to time. In addition, the Underlying Fund’s investment approach, which attempts to track the performance of the index before fees and expenses, may perform differently than other mutual funds that focus on a particular market segment or invest in other asset classes.
Investment Objective Risk. Certain circumstances under which the Fund might not achieve its objective include, but are not limited, to
(i) if the Fund disposes of FLEX Options, (ii) if the Fund is unable to maintain the optimal balance of FLEX Options in the Fund’s portfolio, (iii) significant accrual
of Fund expenses in connection with effecting the Fund’s principal investment strategies or (iv) adverse tax law changes affecting the treatment of FLEX
Options.
Exchange-Traded Fund (“ETF”)
Risk. ETFs generally reflect the risks of owning the underlying securities they hold, although lack of liquidity in ETF shares could result in the price of the ETF being more volatile. Certain ETF track the performance of an index. An imperfect correlation between an ETF’s portfolio securities and those in its index, rounding of prices, the timing of cash flows, the ETF’s size, changes to the index and regulatory requirements may cause tracking error, the divergence of an ETF’s performance from that of its underlying index.
Authorized Participation Concentration Risk. Only an authorized participant
may engage in creation or redemption transactions directly with the Underlying ETF. The Fund has a limited number of institutions that may act as authorized participants on
an agency basis (i.e., on behalf of other market participants). To the extent that authorized participants exit the business or are unable to proceed with creation and/or redemption orders with respect to the Underlying ETF and no other authorized participant is able to step forward to create or redeem creation units, shares may be more likely to trade at a premium or discount to NAV and possibly face trading halts and/or delisting.
Active Markets Risk. Although the shares are listed for trading on an
exchange, there can be no assurance that an active trading market for the shares will develop or be maintained. shares trade on an exchange at market prices that may be
below, at or above the Underlying ETF’s NAV. Securities, including the shares, are subject to market fluctuations and liquidity constraints that may be caused by such factors as economic, political, or regulatory developments, changes in interest rates, and/or perceived trends in securities prices. shares of the Underlying ETF could decline in value or underperform other investments.
Fluctuation of Net Asset Value Risk. The Fund’s shares trade on an exchange at their market price rather than their NAV. The market price
may be at, above or below the Underlying ETF’s NAV. Differences in market price and NAV may be due, in large part, to the fact that supply and demand forces at work in
the secondary trading market for shares will be closely related to, but not identical to, the same forces influencing the prices of the holdings of the Underlying ETF
trading individually or in the aggregate at any point in time. These differences can be especially pronounced during times of market volatility or stress. During these
periods, the demand for shares may decrease considerably and cause the market price of shares to deviate significantly from the Underlying ETF’s NAV.
Market Maker Risk. If the Underlying ETF has lower average daily trading volumes, it may rely on a small number of third-party market makers to provide a market for the purchase and sale of shares. Any trading halt or other problem relating to the trading activity of these market makers could result in a dramatic change in the spread between the Underlying ETF’s NAV and the price at which the shares are trading on an exchange, which could result in a decrease in value of the shares. In addition, decisions by market makers or authorized participants to reduce their role or step away from these activities in times of market stress could inhibit the effectiveness of the arbitrage process in maintaining the relationship between the underlying values of the Underlying ETF’s portfolio securities and the Underlying ETF’s market price. This reduced effectiveness could result in shares trading at a discount to NAV and also in greater than normal intra-day bid-ask spreads for shares.
Trading Issues Risk. Although the shares are listed for trading on an
exchange, there can be no assurance that an active trading market for such shares will develop or be maintained. Trading in shares on an exchange may be halted due to market
conditions or for reasons that, in the view of the exchange, make trading in shares inadvisable. In addition, trading in shares on an exchange is subject to trading halts caused by extraordinary market volatility pursuant to exchange “circuit breaker” rules. Market makers are under no obligation to make a market in the shares, and authorized participants are not obligated to submit purchase or redemption orders for creation units. There can be no assurance that the requirements of an exchange necessary to maintain the listing of the Underlying ETF will continue to be met or will remain unchanged. Initially, due to the small asset size of the Underlying ETF, it may have difficulty maintaining its listings on an exchange.
Passive Management Risk. Index funds invest in the securities of an index
rather than actively selecting among securities. With an indexing strategy there is no attempt to manage volatility, use defensive strategies, or reduce the effects of any
long-term period of poor investment performance. Index funds have costs and fees that an index does not have and therefore index funds will not match the performance of the benchmark index.
Concentration Risk. Investments that are concentrated in particular
industries, sectors or types of investments may be subject to greater risks of adverse developments in such areas of focus than investments that are spread among a wider
variety of industries, sectors or investments. Investments in a select group of securities can be subject to a greater risk of loss and may be more volatile than investments that are more diversified.
Information Technology Sector Risk. Market or economic factors impacting
information technology companies could have a major effect on the value of the Fund’s investments. The value of stocks of information technology companies is
particularly vulnerable to rapid changes in technology product cycles, rapid product obsolescence, government regulation and competition, both domestically and internationally, including competition from foreign competitors with lower production costs. Like other technology companies, information technology companies may have limited product lines, markets, financial resources or personnel. Stocks of technology companies and companies that rely heavily on technology, especially those of smaller, less-seasoned companies, tend to be more volatile than the overall market. Information technology companies are heavily dependent on patent and intellectual property rights, the loss or impairment of which may adversely affect profitability. Additionally, companies in the information technology sector may face dramatic and often unpredictable changes in growth rates and competition for the services of qualified personnel.
Preferred Securities Risk. Preferred securities are subject to issuer-specific and market risks applicable generally to equity securities.
The value of preferred stock also can be affected by prevailing interest rates. Preferred securities may pay fixed or adjustable rates of return. In addition, a company’s preferred securities generally pay dividends only after the company makes required payments to holders of its bonds and other debt. For this reason, preferred stock is also subject to the credit quality of the issuer. Accordingly, the value of preferred securities will usually react more strongly than bonds and other debt to actual or perceived changes in the company’s financial condition or prospects. Preferred securities of smaller companies may be more vulnerable to adverse developments than preferred stock of larger companies.
Convertible Securities Risk. Convertible securities share investment characteristics of both fixed income and equity securities. The value
of these securities may vary more with fluctuations in the value of the underlying common stock than with fluctuations in interest rates. The value of convertible securities
also may be less volatile than the underlying common stock. Convertible securities generally offer lower interest or dividend yields than non-convertible securities of
similar quality. The Fund could lose money if the issuer of a convertible security is unable to meet its financial obligations or goes bankrupt.
Futures Risk. A futures contract is considered a derivative because it derives its value from the price of the underlying security or financial index. Losses on futures contracts may exceed the amount invested. There may be imperfect or negative correlation between the price of the futures contracts and the price of the underlying securities. In addition, there are significant differences between the securities and futures markets that could result in an imperfect correlation between the markets, causing a given hedge not to achieve its objectives. The degree of imperfect correlation depends on several factors such as variations in speculative market demand for
futures and differences
between the financial instruments being hedged and the instruments underlying the standard contracts available for trading. A decision as to whether, when and how to hedge
involves the exercise of skill and judgment, and even a well-conceived hedge may be unsuccessful to some degree because of market behavior or unexpected interest rate
trends.
Futures exchanges may limit the amount of fluctuation permitted
in certain futures contract prices during a single trading day. Once the daily limit has been reached, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements but does not limit potential losses because the limit may work to prevent the liquidation of unfavorable positions.
There can be no assurance that a liquid market will exist at a time when a fund seeks
to close out a futures position, and the Fund would remain obligated to meet margin requirements until the position is closed. In addition, there can be no assurance that an
active secondary market will continue to exist.
Non-Diversification Risk. When a mutual fund is non-diversified it may invest
a greater percentage of its assets in a particular issuer than a diversified fund. Therefore, a fund’s value may decrease because of a single investment or a small
number of investments.
Natural Disaster/Epidemic
Risk. Natural or environmental disasters, such as earthquakes, fires, floods, hurricanes, tsunamis, and other severe weather-related phenomena generally, and widespread disease and illness, including pandemics and epidemics, have been and can be highly disruptive to economies and markets. They may adversely impact individual companies, sectors, industries, markets, currencies, interest and inflation rates, credit ratings, investor sentiment, and other factors affecting the value of the Fund’s investments. For example, the novel coronavirus (COVID-19), which was first detected in 2019, has resulted in, among other things, stressors to healthcare service infrastructure, country border closings, business and school closings, and disruptions to supply chains and customer activity. Natural disaster/epidemic risk could have a significant adverse impact on the Fund’s portfolio investments.
Liquidity Risk. Liquidity risk is the risk that the Fund cannot meet requests to redeem Fund-issued shares without significantly diluting the remaining investors’ interest in the Fund. This may result when portfolio holdings may be difficult to value and may be difficult to sell, both at the time or price desired. In addition, the market for a particular holding may become illiquid due to adverse market or economic conditions, completely apart from any specific conditions in the market for a particular security.
Liquidity risk also may result from increased shareholder redemptions in
the Fund. An increase in shareholder redemptions could require the Fund to sell securities at reduced prices, which would in turn reduce the value of the Fund.
Management and Organization
The Fund's business and affairs are managed under the oversight and direction of its
Board of Trustees (the ”Board“). The Board has the power
to amend the Fund’s bylaws, to declare and pay dividends, and to exercise all the powers of the Fund except those granted to the shareholders.
Investment Adviser and Sub-Adviser: Lincoln Investment Advisors Corporation (“LIAC”) is the Fund’s investment adviser. LIAC is a
registered investment adviser and wholly-owned subsidiary of Lincoln Life. LIAC’s address is 150 N. Radnor-Chester Road, Radnor, PA 19087. LIAC (or its predecessors) has served as an investment adviser to mutual funds for over 30 years. As of March 31, 2021, LIAC had more than $111.7 billion in assets under management.
Lincoln Life is an insurance company organized under Indiana law and is a wholly-owned subsidiary of Lincoln National Corporation (“LNC”). LNC is a publicly-held insurance holding company organized under Indiana law. Through its subsidiaries, LNC provides nationwide insurance and financial services.
The Fund has entered into an Investment Management Agreement with LIAC. In addition to investing directly in the FLEX Options, the Fund operates as a “fund of fund.” In this structure, the Fund invests in another mutual fund, which, in turn, invests directly in portfolio securities. The expenses associated with investing in a fund of fund are generally higher than those for funds that do not invest primarily in other mutual funds because shareholders indirectly pay for a portion of the fees and expenses charged at the underlying fund level. LIAC may hire one or more sub-advisers who are responsible for the Fund’s day-to-day investment management. A sub-adviser is paid by LIAC from its management fee.
A description of LIAC (including the effective advisory fee rate for the most recently completed fiscal year), the Fund’s sub-adviser, and the portfolio managers are included below. The Fund’s statement of additional information (“SAI”) provides additional information about the portfolio managers’ compensation, other accounts managed by the portfolio managers, and the portfolio managers’ ownership of Fund shares.
|
LIAC (advisory fee is 0.55% of the Fund's average daily net
assets). |
|
Milliman Financial Risk Management LLC (”Milliman“) is located at 71 S. Wacker Drive,
31st Floor, Chi-
cago, IL 60606. Milliman is a wholly-owned subsidiary of Milliman, Inc.
Milliman provides investment advisory, hedging, and consulting
services on approximately $150 billion in assets as of March 31, 2021. |
Milliman Portfolio Managers |
Robert T. Cummings and Jordan B. Rosenfeld are responsible for the day-to-day
management of the Fund. |
|
Robert T. Cummings is Principal and Director of Global
Trading at Milliman. Mr. Cummings has served in this role since
2007. Mr. Cummings has more than 25 years of experience as a trader and portfolio man- ager with a primary focus on options. |
|
Jordan B. Rosenfeld is a Trader and Risk Manager within
Milliman’s Capital Markets Group. He manages hedging and
investment strategies for insurance companies, funds, and a number of U.S. equity unit investment trusts. Mr. Rosenfeld joined Milliman in 2018 and has more than 5 years of experience in capi-
tal markets. Prior to joining Milliman, Mr. Rosenfeld was a global macro
portfolio manager at Gelber Group with a focus on equity and
interest rate derivatives trading. Mr. Rosenfeld holds a Bachelor of Arts in Mathematics from Northwestern University. |
A discussion regarding the basis for the Board of Trustees’ approval of the
investment advisory and subadvisory agreements for the Fund will be in the Fund’s first annual or semiannual report to shareholders following commencement of the
Fund’s operations.
Pricing of Fund
Shares
The Fund determines its net asset value per share
(“NAV”) as of close of regular trading on the New York Stock Exchange (“NYSE”) (normally 4:00 p.m. New York time, each business day). The
Fund’s NAV is the value of a single Fund share. The Fund determines its NAV by adding the values of its portfolio securities and other assets, subtracting its
liabilities, and dividing by the number of Fund shares outstanding.
An order for Fund shares received after the close of regular trading on the NYSE will be effected at the NAV determined on the next business day.
The Fund’s portfolio securities may be traded in other markets on days when the NYSE is closed. Therefore, the Fund’s NAV may fluctuate on days when you do not have access to the Fund to purchase or redeem shares.
The Fund typically values its assets based on “market price.” Market price for equities is typically the security’s last sale price on a national securities exchange or over-the-counter, and for debt securities is typically the mean between the bid and ask prices (or the price established by an independent pricing service). Certain short-term fixed income securities are valued based on “amortized cost.”
In certain circumstances, the Fund may value its portfolio securities at “fair
value” as determined in good faith under procedures established by the Fund's Board. The fair value of portfolio securities may differ from quoted or published prices
for the same securities that the Board believes are unreliable. Fair value pricing involves subjective judgments, and it is possible that a security’s fair value price is materially different than the value realized upon the sale of that security.
The Fund anticipates using fair value pricing for securities primarily traded on U.S. exchanges only under very limited circumstances, such as the unexpected early closing of the exchange on which a security is traded or suspension of trading in the security. The Fund may use fair value pricing more frequently for securities primarily traded in non-U.S. markets, if applicable, because, among other things, most foreign markets close well before the Fund determines its NAV. The earlier close of these non-U.S. markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim. If the Fund invests in foreign equity securities, it may frequently value many of those securities using fair value prices based on third-party vendor modeling tools to the extent available.
To the extent the Fund invests in one or more mutual funds, the Fund values mutual fund shares at their respective NAVs. For more information regarding the determination of a mutual fund’s NAV, including when the mutual fund will fair value its portfolio securities and the effects of using fair value pricing, see the mutual fund’s prospectus and SAI.
Purchase and Sale of Fund Shares
Fund shares are available as underlying investment options for variable life insurance and variable annuity products issued by The Lincoln National Life Insurance Company (“Lincoln Life”), Lincoln Life & Annuity Company of New York (“LNY”), and unaffiliated insurance companies. These insurance companies are the record owners of the separate accounts holding the Fund’s shares. You do not buy, sell or exchange Fund shares directly – you choose investment options through your variable annuity contract or variable life insurance policy. The insurance companies then cause the separate accounts to purchase and redeem Fund shares according to the investment options you choose. Fund shares also may be available for investment by certain funds of the Lincoln Variable Insurance Products Trust.
The Fund sells and redeems its shares, without charge, at their NAV next determined after the Fund or its agent receives a purchase or
redemption request. The value of Fund shares redeemed may be more or less than original cost.
The Fund normally pays for
shares redeemed within seven days after the Fund receives the redemption request. However, the Fund may suspend redemptions or postpone payments for any period when (a) the
NYSE closes for other than weekends and holidays; (b) the SEC restricts trading on the NYSE; (c) the SEC determines that an emergency exists, so that the Fund’s
disposal of investment securities, or determination of NAV is not reasonably practicable; or (d) the SEC permits, by order, for the protection of Fund
shareholders.
The Fund typically expects to pay redemption proceeds using
holdings of cash in the Fund’s portfolio, or using the proceeds from sales of portfolio securities. To a lesser extent, the Fund also may use borrowing arrangements to
meet redemption requests. Borrowing is typically expected to be used only during stressed or abnormal market conditions, when an increased portion of the Fund’s
holdings may be comprised of less liquid investments, or during emergency or temporary circumstances.
Market Timing
Frequent, large, or short-term purchases, redemptions or transfers such as those
associated with ”market timing“ transactions, may
adversely affect the Fund and its investment returns. These transactions may dilute the value of Fund shares, interfere with the efficient management of the Fund's portfolio, and increase the Fund's brokerage and administrative costs. As a result, the Fund strongly discourages such trading activity. To protect the Fund and its shareholders from potentially harmful trading activity, the Board has approved certain market timing policies and procedures (the ”Market Timing Procedures“).
The Board may revise the Market Timing Procedures at any time and without prior notice.
Investors may seek to exploit delays between a change in the value of a Fund's
portfolio holdings, and the time when that change is reflected in the NAV of the Fund's shares by purchasing or redeeming shares at NAVs that do not reflect appropriate fair
value prices. This risk is more pronounced for funds investing in overseas markets, due to the time differential in pricing between U.S. and overseas markets, and thinly traded securities. The Fund seeks to deter and prevent this activity by the appropriate use of ”fair value“ pricing of the Fund's portfolio securities.
The Fund seeks to monitor shareholder account activities in order to detect and
prevent excessive and disruptive trading practices. The Fund and LIAC each reserve the right to reject, restrict, or refuse any purchase order (including exchanges) from any
investor, if, in the judgment of the Fund or LIAC, the transaction may adversely affect the Fund or its shareholders.
The Fund
has entered into agreements with each insurance company that holds Fund shares to help detect and prevent market timing. Under the agreements, an insurance company may be
required to (i) provide certain identifying and account information regarding contract owners who invest in Fund shares through the omnibus account; and (ii) restrict
further purchases or exchanges of Fund shares by a contract owner whom the Fund has identified as a market timer.
The Fund also may rely on frequent trading policies established by such insurance
companies. If the Fund detects potential market timing, the Fund will contact the applicable insurance company and may ask the insurance company to take additional action,
if appropriate, based on the particular circumstances.
Fund investors seeking to engage in market timing may deploy a variety of strategies
to avoid detection. In addition, Fund shares may be held through omnibus accounts, which generally do not identify trading activity of Fund investors on an individual basis.
As a result of these and other operational or technological limitations, there is no guarantee that the Fund will be able to identify or prevent market timing. Moreover, the identification of Fund investors determined to engage in transactions that may adversely affect the Fund or its investors involves judgments that are inherently subjective.
Insurance company sponsors of your contract may impose transfer limitations and other
limitations designed to curtail market timing. Please refer to the prospectus and SAI for your variable annuity or variable life contract for details.
Portfolio Holdings Disclosure
A description of the Fund's policies and procedures with respect to the Fund's
disclosure of portfolio securities is available in the Fund's SAI.
Share Classes and Distribution Arrangements
The Fund offers two classes of shares: Standard Class and Service Class. The two
classes are identical, except that Service Class shares are subject to a distribution (Rule 12b-1) fee which has been adopted pursuant to a distribution and service plan
(the
”Plan“
). Under the Plan, Service Class shares pay annual amounts not exceeding 0.35% of the average daily net
assets of the Service Class shares of the Fund. The Fund offers shares to insurance companies for allocation to certain of their variable contracts. The Fund pays its principal underwriter, Lincoln Financial Distributors, Inc. (”LFD“), out of the assets of
the Service Class, for activities primarily intended to sell Service Class shares or variable contracts offering Service Class shares. LFD pays third parties for these sales
activities pursuant to written agreements with such parties. The 12b-1 fee may be increased by the Fund's Board up to the maximum allowed by the Plan, without shareholder approval, in accordance with the Plan's terms. These fees are paid out of the Service Class assets on an ongoing basis, and over time will increase the cost of your investment and may cost you more than other types of sales charges.
LIAC and its affiliates, including LFD, and/or the Fund's sub-advisers or underlying funds, if any,
or their affiliates, may pay additional compensation (at their own expense and not as a Fund expense) to certain affiliated or unaffiliated brokers, dealers, or other
financial intermediaries (collectively, ”financial intermediaries“)
in connection with the sale or retention of Fund shares or insurance products that contain the Fund and/or shareholder servicing (”distribution
assistance“). The level of payments made to a qualifying financial intermediary in any given year will vary. To the extent permitted by SEC and Financial Industry Regulatory Authority rules and other applicable laws and regulations, LFD may pay or allow its affiliates to pay other promotional incentives or payments to financial intermediaries.
If a
mutual fund sponsor, distributor or other party makes greater payments to your financial intermediary for distribution assistance than sponsors or distributors of other
mutual funds make to your financial intermediary, your financial intermediary and its salespersons may have a financial incentive to favor sales of shares of the mutual fund
complex making the higher payments over another mutual fund complex or over other investment options. You should consult with your financial intermediary and review
carefully the disclosure relating to the compensation your financial intermediary receives in connection with the investment products your financial intermediary recommends or sells to you. In certain instances, the payments could be significant and may cause a conflict of interest for your financial intermediary. Any such payments to a financial intermediary will not change the Fund's NAV, or the price of its shares, as such payments are not made from Fund assets.
For more information, please see the SAI.
Distribution Policy
The Fund intends to qualify as a regulated investment company under the Internal
Revenue Code, which requires annual distributions of net investment income and net capital gains to shareholders – the insurance company variable accounts. The Fund
may distribute net realized capital gains only once a year. Net investment income and capital gain distributions will be automatically reinvested in additional Fund shares of the same class at no charge, and are reflected in variable account values.
Contract owners ordinarily are not taxed on Fund distributions. In general, Contract
owners are taxed only on underlying Fund amounts they withdraw from their variable accounts. See the “Tax Information” section.
Financial
Highlights
Because the Fund did not commence operations prior to the
fiscal year end, no financial highlights are available.
General Information
The use of the Fund by both annuity and life insurance variable accounts is called mixed funding. Due to differences in redemption rates, tax treatment, or other considerations, the interests of contract owners under the variable life accounts may conflict with those of contract owners under the variable annuity accounts. Violation of the federal tax laws by one variable account investing in the Fund could cause the contracts funded through another variable account to lose their tax-deferred status, unless remedial action was taken. The Fund's Board will monitor for any material conflicts and determine what action, if any, the Fund or a variable account should take.
A conflict could arise that requires a variable account to redeem a substantial amount
of assets from the Fund. The redemption could disrupt orderly portfolio management to the detriment of those contract owners still investing in the Fund. Also, the Fund
could determine that it has become so large that its size materially impairs investment performance. The Fund would then examine its options, which could include imposition of redemption fees or temporarily closing the Fund to new investors.
You can find additional information in the Fund’s SAI, which is on file with the
SEC. The Fund incorporates its SAI, dated [September 7], 2021, into its prospectus. The Fund will provide a free copy of its SAI upon request.
You can find detailed information about the Fund’s investments in the
Fund’s annual and semi-annual reports to shareholders. The annual report discusses the market conditions and investment strategies that significantly affected the
Fund’s performance during its last fiscal year. The Fund will provide a free copy of its annual and semi-annual report upon request.
The Fund will issue unaudited semi-annual reports showing current investments and
other information; and annual financial statements audited by the Fund’s independent auditors. For an SAI or annual or semi-annual report, either write The Lincoln
National Life Insurance Company, P.O. Box 2340, Fort Wayne, Indiana 46801, or call 1-800-4LINCOLN (454-6265). You may also call this number to request other information about the Fund, or to make inquiries. The Fund's SAI and annual and semi-annual reports are available, free of charge, at https://www.lfg.com/LVIP.
You can also get reports and other information about the Fund on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov. You can get copies of this information, after paying a duplicating fee, by electronic request at the following e-mail address: [email protected]. SEC File
No: 811-08090
Lincoln
Variable Insurance Products Trust
Lincoln Nasdaq-100
Buffer Fund Sep
Standard and Service Class
1301 South Harrison Street
Fort Wayne, Indiana 46802
Prospectus [September 7], 2021
Lincoln Nasdaq-100 Buffer Fund Sep (the “Fund”) is a series of the
Lincoln Variable Insurance Products Trust (the “Trust”). Shares of the Fund are
currently offered only to separate accounts that fund variable annuity and variable life insurance contracts (“variable accounts”) of The Lincoln National Life Insurance Company, its affiliates, and third-party insurance companies. You cannot purchase shares of the Fund directly. This prospectus discusses the information about the Fund that you should know before investing.
As with all mutual funds, the Securities and Exchange Commission (“SEC”) has not approved or disapproved these securities or determined if this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
We
have not authorized any dealer, salesperson, or any other person to give any information, or to make any representation, other than what this prospectus states.
•
The Fund has characteristics unlike traditional investment products and will not be suitable for all investors. Carefully read this prospectus before determining whether the Fund may be a suitable investment.
•
The Fund seeks, over a specified annual period (an “Outcome Period”), to
provide returns that track those of the Invesco QQQ TrustSM, Series 1 (“Underlying
ETF”) up to a cap, while providing a buffer against losses. There is no guarantee that the Fund will successfully achieve its investment
objective.
•
The
Fund’s initial Outcome Period is the one-year period from [September 17],
2021 to [September 16], 2022.
•
Buffer: The Fund seeks to provide a buffer against the first 12% of Underlying ETF price decreases over each Outcome
Period before the deduction of Fund expenses (the “Buffer”). The Fund, and therefore investors, will bear all Underlying ETF losses exceeding 12%. There is no guarantee the Fund will successfully buffer against Underlying ETF price decreases. The Buffer is designed to have its full effect only for investors who hold Fund shares for an entire Outcome
Period.
•
Cap: For each Outcome Period, Fund performance is subject to a specified upside return cap that represents the maximum percentage return the Fund can achieve during the Outcome Period before the deduction of Fund expenses (the “Cap”). The Cap is set on the first day of an Outcome Period and may increase or decrease from one Outcome Period to the next. If the Underlying ETF experiences returns over an Outcome Period in excess of the Cap, the Fund, and therefore investors, will not experience those excess gains.
•
The Fund is designed to produce predetermined investment outcomes relative to the
performance of an Underlying ETF. The defined outcomes sought by the Fund include the Buffer and Cap (“Outcomes”) based upon the performance of the Underlying
ETF over an Outcome Period. There is no guarantee that the Outcomes for any Outcome Period will be realized. A shareholder may lose its entire investment.
•
The Fund’s strategy is designed to produce specific Outcomes which
may only be realized if you are holding shares of the Fund on the first day of the Outcome Period and hold them continuously through the last day of the
Outcome Period. It should not be expected that the Outcomes
will be provided at any point prior to the end of an Outcome Period. The Outcomes are measured
from the Fund’s net asset value (the per share value of the Fund’s assets (“NAV”)) on the first day of the Outcome Period. The Fund does not track
the Underlying ETF except over an entire Outcome Period, and the Fund’s NAV will not increase or decrease at the same rate as the Underlying ETF during an Outcome
Period.
•
Outcomes are Before Fund Expenses: The Buffer and the Cap are calculated before Fund expenses. Thus, maximum Fund performance over an Outcome
Period is expected to be lower than the Cap by the amount of such Fund expenses, and Fund performance over an Outcome Period will be exposed to losses beyond the Buffer in
the amount of such Fund expenses. The Fund’s prospectus includes further detail on Fund expenses.
•
If you purchase shares after an Outcome Period has begun or redeem shares prior to an
Outcome Period’s conclusion, you may experience investment returns very different from those that the Fund seeks to provide. If the Fund has experienced high levels
of either gains or losses since the beginning of the Outcome Period, there may be little to no ability to achieve gains or benefit from the Buffer for the remainder of the Outcome Period. Please note in
particular:
•
An investor purchasing shares after the Fund has increased in
value during an Outcome Period would not benefit from the Buffer until the Fund’s value has decreased to its value at the commencement of the
Outcome Period. Such an investor also would have less potential for gains before the Cap is reached. An investor purchasing shares after the Fund
has increased in value to a level near to the Cap for an Outcome Period would have little or no ability to achieve gains but would remain
susceptible to downside risks.
•
An investor purchasing shares after the Fund has decreased in
value would have less protection from the Buffer. An investor purchasing shares after the Fund has decreased in value beyond the Buffer would gain
no benefit from the Buffer.
•
Because the Buffer is designed to be in effect only at the end of an Outcome Period, an investor who sells Fund shares before the end of an Outcome Period may not experience the full effect of the Buffer.
•
After the conclusion of an Outcome Period, another one-year Outcome Period will begin. Each
Outcome Period will have a new Cap which may be higher or lower than the current Cap.
•
The Fund’s website, lincolnfinancial.com/definedoutcomefunds, provides important information on
a daily basis that will assist you in determining whether to buy shares, including the current Outcome Period start and end dates, the remaining Cap and Buffer, and the potential outcomes of an investment in the Fund. Investors considering purchasing or selling shares should visit the website to understand the potential investment outcomes at the end of the current Outcome Period.
INVESTOR SUITABILITY
You should consider this investment
only if all of the following factors
apply to you:
•
you fully understand the risks inherent in an investment in the Fund;
•
you desire to invest in a product with a return that depends upon the performance of the
Invesco QQQ TrustSM, Series 1 over a full Outcome Period;
•
you are willing to hold shares for the duration of the Outcome Period in order to achieve
the Outcomes that the Fund seeks to provide;
•
you fully understand that investments made when the Fund is at or near to the Cap may have
limited to no upside;
•
you
seek the protection of a 12% Buffer on Invesco QQQ TrustSM, Series
1 losses for an investment held for the duration of the entire Outcome Period and understand that there is no guarantee that the Fund will be successful in its attempt to
provide protection through the Buffer;
•
you are willing to forego any gains in excess of the Cap;
•
you are willing to be exposed to the downside performance of the Invesco QQQ TrustSM, Series 1 beyond the 12% Buffer;
•
you understand that the Fund’s investment strategies are not expected to provide for
dividends to the Fund;
•
you
fully understand that investments made after an Outcome Period has begun may not fully benefit from the Buffer;
•
you are willing to accept the risk of losing your entire investment; and
•
you have visited the Fund’s website and understand the investment Outcomes available
to you based upon the time of your purchase.
Lincoln Nasdaq-100 Buffer Fund Sep
(Standard and Service Class)
Summary
Investment Objective
The Fund seeks, over a specified annual period (an “Outcome Period”), to provide
returns that track those of the Invesco QQQ TrustSM, Series 1 up to a cap, while providing a buffer against losses.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy, hold and sell shares of the Fund. This table does not reflect any variable contract expenses. You may pay other fees, such as brokerage commissions and
other fees to financial intermediaries, which are not reflected in the tables and examples below. If variable contract expenses were included, the expenses shown would be higher.
Annual Fund Operating Expenses
(Expenses that you pay each year as a percentage of the value of your investment)
|
|
|
|
|
|
Distribution and/or Service (12b-1) Fees |
|
|
|
|
|
Acquired Fund Fees and Expenses2 (AFFE) |
|
|
Total Annual Fund Operating Expenses |
|
|
|
|
|
Total Annual Fund Operating Expenses (After Fee Waiver) |
|
|
1
Other Expenses are based on estimates for the current fiscal year.
2
AFFE is based on estimated amounts for the current fiscal year.
3
Lincoln Investment Advisors Corporation (the “Adviser”) has contractually agreed
to waive the following portion of its advisory fee: 0.23% on the first $50 million of the Fund’s average daily net assets; and 0.00% of the Funds average daily net
assets in excess of $50 million. The agreement will continue through at least June 30, 2022 and cannot be terminated before that date without the mutual agreement of the Fund’s Board of Trustees and the Adviser.
Example
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example illustrates the hypothetical expenses that you would incur over the time periods indicated if you invest $10,000 in the Fund’s shares. The example also assumes that the Fund provides a return of 5% a year and that operating expenses remain the same. This example reflects the net operating expenses with fee waiver for the one-year contractual period and the total operating expenses without fee waiver for the remaining time periods shown below. Your actual costs may be higher or lower than this example. This example does not reflect any variable contract expenses. If variable contract expenses were included, the expenses shown would be higher. The results apply whether or not you redeem your investment at the end of the given period.
Lincoln Nasdaq-100 Buffer Fund Sep1
Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund’s performance. Because the Fund is newly organized, the portfolio turnover rate is not yet available. The Fund intends to turn over all of its options holdings on at least an annual basis.
Principal Investment Strategies
The Fund seeks, over each Outcome Period, to provide returns that track those of the Invesco QQQ TrustSM, Series 1 (the “Underlying ETF”), up to a cap, while providing a buffer against losses. The Fund employs a defined outcome strategy, sub-advised by Milliman Financial Risk Management LLC, which seeks to produce pre-determined investment outcomes based on the performance of the Underlying ETF’s market price over a one-year period (“Outcomes”), subject to the specified cap for gains and with the benefit of a buffer for losses. Due to the unique mechanics of the Fund’s strategy, the return an investor can expect to receive from an investment in the Fund has characteristics that are distinct from many other investment vehicles.
The Fund, under normal circumstances, invests at least 80% of its assets in options that reference the Underlying ETF or, in an underlying fund which tracks the same index as that tracked by the Underlying ETF. The Fund invests approximately half of its assets in FLexible EXchange® Options (“FLEX Options”) and approximately half of its assets in the LVIP SSGA Nasdaq-100 Index Fund (the “Underlying Fund”).
The Fund’s initial Outcome Period is the one-year period from [September 17], 2021 to [September 16], 2022. The pre-determined Outcomes sought
by the Fund, which include the buffer and cap discussed below, are based upon the performance of the Underlying ETF’s market price during the Outcome Period. The Fund
will not receive or benefit from any dividend payments made by the Underlying ETF.
Buffer: The Fund seeks to provide a buffer against the first 12% of Underlying ETF price decreases over each Outcome Period, before the deduction of Fund expenses (the “Buffer”), which after Fund expenses is approximately 11.15% for the Standard Class and 10.80% for the Service Class. The Fund, and therefore investors, will bear all Underlying ETF losses exceeding 12%. There is no guarantee the Fund will successfully buffer against Underlying ETF price decreases. The Buffer is designed to have its full effect only for investors who continually hold Fund shares for an entire Outcome Period. The Buffer is discussed in further detail below.
Cap: For each Outcome Period, Fund performance is subject to a specified upside return cap that represents the maximum percentage return the Fund can achieve during the Outcome Period before the deduction of Fund expenses (the “Cap”). The Cap is set on the first day of an Outcome Period based on the cost of providing the Buffer and may increase or decrease from one Outcome Period to the next.
If the Underlying ETF experiences gains over an Outcome Period, the strategy seeks to provide investment returns that track the performance of the Underlying ETF, up to the Cap. If the Underlying ETF experiences returns over an Outcome Period in excess of the Cap, the Fund will not experience those excess gains. The Cap (before Fund expenses) is reduced by the Fund’s expenses. The Cap is expected to change from one Outcome Period to the next. The Cap is discussed in further detail below.
The Fund’s website, lincolnfinancial.com/definedoutcomefunds, provides important Fund information on a daily basis, including
information about the Cap and Buffer, current Outcome Period start and end dates, and information relating to the remaining potential Outcomes of an investment in the Fund. Investors considering purchasing shares should visit the website for the latest information.
2Lincoln Nasdaq-100 Buffer Fund Sep
The two
hypothetical graphical illustrations provided below are designed to illustrate the Outcomes based upon the hypothetical performance of the Underlying ETF
for a shareholder that holds shares for the entirety of an Outcome Period. There is no guarantee that the Fund will be successful in its attempt to provide
the Outcomes for an Outcome Period. The returns that the Fund seeks to provide do not include the
costs associated with purchasing shares of the Fund and the expenses incurred by the Fund.
Lincoln Nasdaq-100 Buffer
Fund Sep3
Use of FLEX Options. The Fund invests approximately 50% of
its net assets in FLEX Options, the value of which is derived from the performance of the underlying reference asset, the Underlying ETF. FLEX Options are exchange-traded
options contracts with uniquely customizable terms. FLEX Options are set to expire on the last day of the Outcome Period, at which time the Fund will invest in a new set of FLEX Options for the next Outcome Period. An option contract is an agreement between a buyer and seller that gives the purchaser of the option the right to buy or sell a particular reference asset at a specified future date at an agreed upon price.
Investment Strategy of the Buffer. The Fund pursues its
objective by purchasing and selling call and put FLEX Options to create layers within the Fund’s portfolio. One layer is designed to buffer the Fund from losses, while
another layer is designed to produce returns that track those of the Underlying ETF for an Outcome Period, up to the Cap.
The Buffer layer of FLEX Options is designed to buffer the Fund from losses of up to
12% if the Underlying ETF experiences a loss at the end of an Outcome Period.
There is no guarantee that the Fund will be successful in its attempt to provide buffered returns. The Buffer is operative only against the first 12% of Underlying ETF losses at the end an Outcome Period. If
the Underlying ETF has decreased in value by more than 12% at the end of an Outcome Period, the Fund, and therefore investors, will experience those losses.
The Underlying ETF tracking layer of FLEX Options is designed to work alongside the Fund’s investment in the Underlying Fund to produce returns that track those of the Underlying ETF for an Outcome Period if the Underlying ETF has experienced gains during that Outcome Period. This gain is subject to the Cap, a maximum investment return level, which is
discussed below.
Outcome Periods. The Outcomes sought by the Fund are based
upon the Fund’s NAV on the first day of an Outcome Period. An Outcome Period begins on the day the FLEX Options are entered into and ends on the day they expire. Each
FLEX Option’s value is ultimately derived from the performance of the Underlying ETF during the Outcome Period. Because the terms of the FLEX Options do not change, the Cap and Buffer both relate to the Fund’s NAV on the first day of the Outcome Period. To achieve the Outcomes for an Outcome Period, an investor must be holding
shares for the entire Outcome Period. A shareholder that purchases shares after the commencement of an Outcome Period will likely have purchased shares at a
different NAV than the NAV upon which the Outcomes are based and may experience investment Outcomes very different from those sought by the Fund over the
entire Outcome Period. A shareholder that redeems shares prior to the end of an Outcome Period may also experience investment Outcomes very different from those sought by the Fund.
There is no guarantee that the Fund will be successful in its attempt to provide the Outcomes.
The value of FLEX Options is derived from the performance of the underlying reference asset, the Underlying ETF. However, because a component of an option’s value is the time remaining until its expiration, during the Outcome Period, the Fund’s NAV will not directly correlate on a day-to-day basis with the returns experienced by the Underlying ETF, though as a FLEX Option approaches its expiration date, its value typically increasingly moves with the value of the Underlying ETF. While the Fund generally anticipates that its NAV will move in the same direction as the Underlying ETF (meaning that the Fund’s NAV will increase if the Underlying ETF experiences gains and that the Fund’s NAV will decrease if the Underlying ETF experiences losses), the Fund’s NAV may not increase or decrease at the same rate as the Underlying ETF. Similarly, the amount of time remaining until the end of the Outcome Period also affects the impact of the Buffer on the Fund’s NAV, which may not be in full effect prior to the end of the Outcome Period. The Fund’s strategy is designed to produce the Outcomes upon the
expiration of the FLEX Options on the last day of the Outcome Period and it should not be expected that the Outcomes will be provided at any point prior to
that time. Taken together, this means that at the midpoint of the Outcome Period, if the
Underlying ETF has decreased in value by 12%, the Fund’s NAV can be expected to have decreased in value (because the Buffer is not yet in full effect), but by less
than 12% (because the Fund’s NAV will not correlate one-to-one with the Underlying ETF and the Fund’s NAV tends not to participate fully in either Underlying ETF
gains or losses).
Cap on Potential
Upside Returns. Unlike other investment products, the potential returns an investor can receive from an investment in the Fund are subject to an upside return Cap. This means that if the Underlying ETF
experiences gains for the Outcome Period beyond the level of the Cap, the Fund will not experience those excess gains. Therefore, regardless of the
performance of the Underlying ETF, the Cap (after Fund expenses) is the maximum return an investor can achieve from an investment in the Fund for an Outcome Period.
The Cap will change for each Outcome Period based upon prevailing market conditions at
the beginning of an Outcome Period. The Cap may increase or decrease from one Outcome Period to the next. The Cap, and the Fund’s position relative to it, should be
considered before investing in the Fund. If the Fund has already increased in
value to a level near to the Cap, an investor purchasing shares at that price has limited or no potential gains available for the remainder of the Outcome
Period but remains vulnerable to significant downside risks.
Buffer. The Buffer is operative only against the first 12%
of Underlying ETF losses for an Outcome Period; however, there is no guarantee that the Fund will be successful in its attempt to provide buffered returns. If the
Underlying ETF has decreased in value by more than 12% during an Outcome Period, the Fund will experience all further losses. The Buffer is calculated prior to taking into
account Fund expenses, such as Fund management fees equal to 0.55% of the Fund’s daily net assets, transaction fees, and any other expenses incurred by the Fund. If an investor purchases shares during an Outcome Period, and
the Fund has already decreased in value during that Outcome Period, that investor may not fully benefit from the Buffer for the remainder of the Outcome
Period, but will have increased gains available prior to reaching the Cap. Conversely, during the Outcome Period, if the Fund has already
4Lincoln Nasdaq-100 Buffer Fund Sep
increased in value, then a shareholder investing at that time may experience losses
prior to gaining the protection offered by the Buffer. While the Fund seeks to
limit losses by 12% for shareholders who hold shares for an entire Outcome Period, there is no guarantee it will successfully do so. Notwithstanding the Buffer, a
shareholder that purchases shares at the beginning of an Outcome Period or during an Outcome Period may lose its entire investment. An investment in the Fund is only
appropriate for shareholders willing to bear those losses.
Fund Rebalance. The Fund is a continuous investment vehicle.
It does not terminate and distribute its assets at the conclusion of each Outcome Period. On the termination date of an Outcome Period, the Fund will invest in a new set of
FLEX Options, which will provide a new Cap, and another Outcome Period will commence.
Approximately one week prior to the end of an Outcome Period, the Fund will file a
prospectus supplement, which will alert existing shareholders that an Outcome Period is approaching its conclusion and disclose the anticipated ranges for the Cap for the
next Outcome Period. Following the close of business on the last day of an Outcome Period, the Fund will file a prospectus supplement that discloses the Fund’s final Cap for the next Outcome Period.
The Fund’s website, lincolnfinancial.com/definedoutcomefunds, provides information relating to the Outcomes, including the Fund’s
position relative to the Cap and Buffer, of an investment in the Fund on a daily basis.
The Underlying Fund
The Underlying Fund seeks to achieve its objective by investing in the securities that comprise the Nasdaq-100® Index (the “Index”). The Underlying Fund, under normal market conditions, invests at least 80% of its assets in the securities of issuers included in the Index. The Underlying Fund attempts to replicate the Index by investing all, or substantially all, of its assets in the stocks that comprise the Index, holding each stock in approximately the same proportion as its weighting in the Index. The Underlying Fund may not invest in every security in the Index if it is not practical to do so (such as when transaction costs are too high, there is a liquidity issue, or there is a pending corporate action).
The Index includes the common stocks of the 100 largest domestic and international
non-financial companies on the broader Nasdaq Composite Index based on market capitalization. The Index reflects companies across major industry groups including computer
hardware and software, telecommunications, retail/wholesale trade and biotechnology. As of March 15, 2021, the market capitalization range of the companies comprising the Index was $5.4 billion to $2 trillion. The Index typically is rebalanced quarterly and reconstituted annually. The Fund will reinvest Underlying Fund dividends and distributions in additional Underlying Fund shares.
The Underlying Fund employs a passive investment approach called “indexing”, by which the Underlying Fund’s Sub-Adviser attempts to approximate, before fees and expenses, the performance of the Index over the long term. The Underlying Fund’s Sub-Adviser invests in the equity securities comprising the Index, in approximately the same proportions as they are represented in the Index. Equity securities may include common stocks, preferred stocks, depository receipts, or other securities convertible into common stock. The Underlying Fund’s Sub-Adviser may sell securities that are represented in the Index, or purchase securities that are not yet represented in the Index, prior to or after their removal or addition to the Index.
The Underlying Fund may purchase or sell index futures contracts, or options on those futures, or engage in other transactions involving the use of derivatives, to provide equity exposure to the Underlying Fund’s cash position while maintaining cash balances for liquidity, or for other purposes that assist in replicating the Underlying Fund's investment performance of the Index. The Underlying Fund’s return may not match the return of the Index.
The Underlying Fund intends to be diversified in approximately the same proportion as the Index. The Underlying Fund may become “non-diversified,” as defined by the Investment Company Act of 1940 solely as a result of a change in relative market capitalization or index weighting of one or more constituents of the Index. As a “non-diversified” fund, the Underlying Fund can invest a greater percentage of its assets in a limited number of issuers or in any one issuer. Shareholder approval will not be sought if the Underlying Fund shifts from diversified to non-diversified solely due to a change in the relative market capitalization or index weightings of one or more constituents of the Index.
The Underlying Fund will concentrate its investments in a particular industry or group
of industries to the extent the Index is concentrated. The Index, at times, may be significantly concentrated in the information technology sector.
Principal Risks
All mutual funds carry risk. Accordingly, loss of money is a risk of investing in the Fund.
Because the Fund invests certain of its assets in shares of an Underlying Fund, the Fund indirectly owns the investments made by the Underlying Fund. By investing in the
Fund, therefore, you indirectly assume the same types of risks as investing directly in the Underlying Fund. In addition, the Fund will indirectly pay a proportional share of the fees and expenses of the Underlying Fund. The Fund's ability to achieve its investment objective depends, in large part, on the Underlying Fund's ability to meet its investment objective, as well as the performance of the FLEX Options. The following risks reflect the Fund's principal risks, which include the principal risks of the FLEX Options and the Underlying Fund.
•
Buffered Loss Risk. There can be no guarantee that the Fund will be successful in its
strategy to provide buffer protection
Lincoln Nasdaq-100 Buffer Fund Sep5
against Underlying ETF
losses if the Underlying ETF has decreased at the end of an Outcome Period. In the event an investor purchases shares after the commencement of an Outcome Period, the Buffer
that the Fund seeks to provide may not be available. The Fund does not provide principal protection and an investor may experience significant losses on its investment,
including the loss of its entire investment.
•
Capped Upside Return Risk. The Fund’s strategy seeks to provide returns only up to the Cap. In the event that the Underlying ETF
has gains in excess of the Cap during an Outcome Period, the Fund will not participate in those gains beyond the Cap. In the event an investor purchases shares after the
commencement of an Outcome Period and the Fund has risen in value to a level near to the Cap, there may be little or no ability for that investor to experience an investment
gain.
•
Outcome Period Risk. The Fund’s investment strategy is designed to deliver returns that track the Underlying ETF only if shares are bought at the beginning of an Outcome Period and held until the end of the Outcome Period. If an investor purchases or sells shares during an Outcome Period, the returns realized by the investor may not be those that the Fund seeks to achieve. In addition, the Cap may change from one Outcome Period to the next and is unlikely to remain the same for consecutive Outcome Periods.
•
FLEX Options Risk. The Fund may experience substantial downside from specific FLEX Option positions, and certain FLEX Option
positions may expire worthless. In addition, the FLEX Options are subject to the following risks:
Valuation Risk. The value of the FLEX Options will be affected by, among
others, changes in the value of the Underlying ETF, changes in interest rates, changes in the actual and implied volatility of the Underlying ETF and the remaining time
until the FLEX Options expire. The value of the FLEX Options does not increase or decrease at the same rate as the level of the Underlying ETF (although they generally move in the same direction).
Liquidity Risk. In the event that trading in the FLEX Options is limited or absent, the value of the Fund’s FLEX Options may decrease. There is no guarantee that a liquid secondary trading market will exist for the FLEX Options.
Counterparty Risk. Counterparty risk is the risk an issuer, guarantor or counterparty of a security in the Fund is unable or unwilling to meet its obligation on the security. The Fund will utilize FLEX Options issued and guaranteed for settlement by the Options Clearing Corporation (the “OCC”). Although guaranteed for settlement by the OCC, FLEX Options are still subject to counterparty risk with the OCC and may be less liquid than more traditional standardized exchange-traded
options.
Correlation Risk. The FLEX Options held by the Fund will be exercisable at
the strike price only on their expiration date. Prior to the expiration date, the value of the FLEX Options will be determined based upon market quotations or using other
recognized pricing methods, consistent with the Fund’s valuation policy. Because a component of the FLEX Option’s value will be affected by, among other things, changes in the value of the Underlying ETF, changes in interest rates, changes in the actual and implied volatility of the Underlying ETF and the remaining time until the FLEX Options expire, the value of the Fund’s FLEX Options positions is not anticipated to increase or decrease at the same rate as the Underlying ETF, and it is possible they may move in different directions, and as a result, the Fund’s NAV may not increase or decrease at the same rate as the Underlying ETF. Similarly, the components of the option’s value are anticipated to impact the effect of the Buffer on the Fund’s NAV, which may not be in full effect prior to the end of the Outcome Period. The Fund’s strategy is designed to produce the Outcomes upon the expiration of the FLEX Options on the last business day of the Outcome Period, and it should not be expected that the Outcomes will be provided at any point other than the end of the Outcome Period.
•
Market Risk. The value of portfolio investments may decline. As a result, your investment in the Fund may decline in value and you could lose money.
•
Issuer Risk. The prices of, and the income generated by, portfolio securities may decline in response to various factors directly related to the issuers of such securities.
•
Fund of Funds Risk. The Fund bears all risks of an Underlying Fund’s investment strategies, including the risk that an Underlying Fund may not meet its investment objective which may negatively affect the Fund’s performance. In addition, the Fund indirectly will pay a proportional share of the fees and expenses of an Underlying Fund.
•
Tracking Error Risk. The Underlying Fund's performance may deviate substantially from the performance of the index it tracks as a
result of cash flows, fund expenses, imperfect correlation between the Underlying Fund's investments and the index’s components, and other factors. While attempting to
replicate the index return, the Underlying Fund may invest in fewer than all of the securities in the index and in some securities not included in the index, potentially
increasing the risk of divergence between the Underlying Fund’s return and that of the index.
•
Investment Objective Risk. Certain circumstances under which the Fund might not achieve its objective include, but are not limited, to
(i) if the Fund disposes of FLEX Options, (ii) if the Fund is unable to maintain the optimal balance of FLEX Options in the Fund’s portfolio, (iii) significant accrual
of Fund expenses in connection with effecting the Fund’s principal investment strategies or (iv) adverse tax law changes affecting the treatment of FLEX
Options.
•
Exchange-Traded Fund (“ETF”) Risk. ETFs generally reflect the risks of owning the underlying securities they hold, although lack of liquidity in
ETF shares could result in the price of the ETF being more volatile.
•
Authorized Participation Concentration Risk. Only an authorized participant may engage in creation or redemption transactions directly with the Underlying
ETF. The Fund has a limited number of institutions that may act as authorized participants on an agency basis (i.e., on behalf of other market participants). To the extent that authorized participants
exit the business or are
6Lincoln Nasdaq-100 Buffer Fund Sep
unable to proceed with
creation and/or redemption orders with respect to the Underlying ETF and no other authorized participant is able to step forward to create or redeem creation units, shares
may be more likely to trade at a premium or discount to NAV and possibly face trading halts and/or delisting.
•
Active Markets Risk. Although the shares are listed for trading on an exchange, there can be no assurance that an active trading
market for the shares will develop or be maintained. shares trade on an exchange at market prices that may be below, at or above the Underlying ETF’s NAV. Securities,
including the shares, are subject to market fluctuations and liquidity constraints that may be caused by such factors as economic, political, or regulatory developments,
changes in interest rates, and/or perceived trends in securities prices. shares of the Underlying ETF could decline in value or underperform other investments.
•
Fluctuation of Net Asset Value Risk. The Underlying ETF’s shares trade on an exchange at their market price rather than their NAV. The
market price may be at, above or below the Underlying ETF’s NAV. Differences in market price and NAV may be due, in large part, to the fact that supply and demand
forces at work in the secondary trading market for shares will be closely related to, but not identical to, the same forces influencing the prices of the holdings of the
Underlying ETF trading individually or in the aggregate at any point in time. These differences can be especially pronounced during times of market volatility or stress.
During these periods, the demand for shares may decrease considerably and cause the market price of shares to deviate significantly from the Underlying ETF’s NAV.
•
Market Maker Risk. If the Underlying ETF has lower average daily trading volumes, it may rely on a small number of third-party
market makers to provide a market for the purchase and sale of shares. Any trading halt or other problem relating to the trading activity of these market makers could result in a dramatic change in the spread between the Underlying ETF’s NAV and the price at which the shares are trading on an exchange, which could result in a decrease in value of the shares. In addition, decisions by market makers or authorized participants to reduce their role or step away from these activities in times of market stress could inhibit the effectiveness of the arbitrage process in maintaining the relationship between the underlying values of the Underlying ETF’s portfolio securities and the Underlying ETF’s market price. This reduced effectiveness could result in shares trading at a discount to NAV and also in greater than normal intra-day bid-ask spreads for shares.
•
Trading Issues Risk. Although the shares are listed for trading on an exchange, there can be no assurance that an active trading
market for such shares will develop or be maintained. Trading in shares on an exchange may be halted due to market conditions or for reasons that, in the view of the exchange, make trading in shares inadvisable. In addition, trading in shares on an exchange is subject to trading halts caused by extraordinary market volatility pursuant to exchange “circuit breaker” rules. Market makers are under no obligation to make a market in the shares, and authorized participants are not obligated to submit purchase or redemption orders for creation units. There can be no assurance that the requirements of an exchange necessary to maintain the listing of the Underlying ETF will continue to be met or will remain unchanged. Initially, due to the small asset size of the Underlying ETF, it may have difficulty maintaining its listings on an exchange.
•
Passive Management Risk. Index funds invest in the securities of an index rather than actively selecting among securities. With an
indexing strategy there is no attempt to manage volatility, use defensive strategies, or reduce the effects of any long-term period of poor investment
performance.
•
Concentration Risk. Investments that are concentrated in particular industries, sectors or
types of investments may be subject to greater risks of adverse developments in such areas of focus than investments that are spread among a wider variety of industries, sectors or investments.
•
Information Technology Sector Risk. Market or economic factors impacting information technology companies could have a major effect on the value
of the Fund’s investments. The value of stocks of information technology companies is particularly vulnerable to rapid changes in technology product cycles, rapid
product obsolescence, government regulation and competition.
•
Preferred Securities Risk. Preferred securities are subject to issuer-specific and market risks applicable generally to equity
securities. The value of preferred stock also can be affected by prevailing interest rates. Preferred securities may pay fixed or adjustable rates of return. In addition, a company’s preferred securities generally pay dividends only after the company makes required payments to holders of its bonds and other debt.
•
Convertible Securities Risk. Convertible securities share investment characteristics of both fixed income and equity securities. The value
of these securities may vary more with fluctuations in the value of the underlying common stock than with fluctuations in interest rates. The value of convertible securities
also may be less volatile than the underlying common stock. Convertible securities generally offer lower interest or dividend yields than non-convertible securities of
similar quality. The Fund could lose money if the issuer of a convertible security is unable to meet its financial obligations or goes bankrupt.
•
Futures Risk. A futures contract is considered a derivative because it derives its value from the price of the underlying security or financial index. The prices of futures contracts can be volatile, and futures contracts may be illiquid. In addition, there may be imperfect or even negative correlation between the price of the futures contracts and the price of the underlying securities. Losses on futures contracts may exceed the amount invested.
•
Non-Diversification Risk. When a mutual fund is non-diversified, it may invest a greater percentage of its assets in a particular
issuer than a diversified fund. Therefore, a fund’s value may decrease because of a single investment or a small number of investments.
•
Natural Disaster/Epidemic Risk. Natural or environmental disasters, such as earthquakes, fires, floods, hurricanes, tsunamis, and other
severe weather-related phenomena generally, and widespread disease and illness, including pandemics and epidemics (such as the novel coronavirus), have been and can be
highly disruptive to economies and markets.
Lincoln Nasdaq-100 Buffer
Fund Sep7
•
Liquidity Risk. Liquidity risk is the risk that the Fund cannot meet requests to redeem Fund-issued shares without significantly diluting the remaining investors’ interest in the Fund. This may result when portfolio holdings may be difficult to value and may be difficult to sell, both at the time or price desired. Liquidity risk also may result from increased shareholder redemptions in the Fund.
Fund Performance
The Fund will commence operations on or about June 18, 2021. Once the Fund has at
least one full calendar year of performance, a bar chart and performance table will be included in the prospectus. Please note that the Fund’s past performance is not necessarily an indication of how the Fund will perform in the future.
Investment Adviser and Sub-Adviser
Investment Adviser: Lincoln Investment Advisors Corporation
(“LIAC”)
Investment Sub-Adviser: Milliman Financial
Risk Management LLC (“Milliman”)
Portfolio
Managers
Milliman Portfolio Managers |
|
|
|
Principal and Director of Global Trading |
|
|
|
|
Purchase and Sale of Fund Shares
Fund shares are available as underlying investment options for variable life
insurance and variable annuity products issued by The Lincoln National Life Insurance Company (“Lincoln Life”), Lincoln Life & Annuity Company of New York
(“LNY”), and unaffiliated insurance companies. These insurance companies are the record owners of the separate accounts holding the Fund’s shares. You do
not buy, sell or exchange Fund shares directly – you choose investment options through your variable annuity contract or variable life insurance policy. The insurance companies then cause the separate accounts to purchase and redeem Fund shares according to the investment options you choose. Fund shares also may be available for investment by certain funds of the Lincoln Variable Insurance Products Trust.
Tax Information
In general, Contract owners are taxed only on underlying Fund amounts they withdraw from their variable accounts. Contract owners should consult their Contract Prospectus for more information on the federal income tax consequences to them regarding their indirect investment in the Fund. Contract owners also may wish to consult with their own tax advisors as to the tax consequences of investments in variable contracts and the Fund, including application of state and local taxes.
Payments to Broker-Dealers and other Financial
Intermediaries
Shares of the Fund are available only through the
purchase of variable contracts issued by certain life insurance companies. Parties related to the Fund (such as the Fund's principal underwriter or investment adviser) may
pay such insurance companies (or their related companies) for the sale of Fund shares and related services. These payments may create a conflict of interest and may
influence the insurance company to include the Fund as an investment option in its variable contracts. Such insurance companies (or their related companies) may pay broker-dealers or other financial intermediaries (such as banks) for the sale and retention of variable contracts that offer Fund shares. These payments may create a conflict of interest by influencing the broker-dealers or other financial intermediaries to recommend variable contracts that offer Fund shares. The prospectus or other disclosure documents for the variable contracts may contain additional information about these payments, if any. Ask your salesperson or visit your financial intermediary's website for more information.
8Lincoln
Nasdaq-100 Buffer Fund Sep
Additional Information about the Fund
Investment Objective and Principal Investment Strategies
The Fund’s investment objective is to seek, over a specified annual period (an “Outcome Period”), to provide returns that track those of the Invesco QQQ TrustSM, Series 1 (the “Underlying ETF”), up to a cap, while providing a buffer against losses. The investment objective is non-fundamental and may be changed without shareholder approval.
The Fund employs a defined outcome strategy, sub-advised by Milliman Financial Risk Management LLC, which seeks to produce pre-determined investment outcomes based on the performance of the Underlying ETF’s market price over a one-year period (“Outcomes”), subject to the specified cap for gains and with the benefit of a buffer for losses. Due to the unique mechanics of the Fund’s strategy, the return an investor can expect to receive from an investment in the Fund has characteristics that are distinct from many other investment vehicles.
The Fund, under normal circumstances, invests at least 80% of its assets in options that reference the Underlying ETF or, in an underlying fund which tracks the same index as that tracked by the Underlying ETF. The Fund invests approximately half of its assets in FLexible EXchange® Options (“FLEX Options”) and approximately half of its assets in the LVIP SSGA Nasdaq-100 Index Fund (the “Underlying Fund”).
The Fund’s initial Outcome Period is the one-year period from [September 17], 2021 to [September 16], 2022. The pre-determined Outcomes sought
by the Fund, which include the buffer and cap discussed below, are based upon the performance of the Underlying ETF’s market price during the Outcome Period. The Fund
will not receive or benefit from any dividend payments made by the Underlying ETF.
Buffer: The Fund seeks to provide a buffer against the first 12% of Underlying ETF price decreases over each Outcome Period, before the deduction of Fund expenses (the “Buffer”), which after Fund expenses is approximately 11.15% for the Standard Class and 10.80% for the Service Class. The Fund, and therefore investors, will bear all Underlying ETF losses exceeding 12%. There is no guarantee the Fund will successfully buffer against Underlying ETF price decreases. The Buffer is designed to have its full effect only for investors who continually hold Fund shares for an entire Outcome Period. The Buffer is discussed in further detail below.
Cap: For each Outcome Period, Fund performance is subject to a specified upside return cap that represents the maximum percentage return the Fund can achieve during the Outcome Period before the deduction of Fund expenses (the “Cap”). The Cap is set on the first day of an Outcome Period based on the cost of providing the Buffer and may increase or decrease from one Outcome Period to the next.
If the Underlying ETF experiences gains over an Outcome Period, the strategy seeks to provide investment returns that track the performance of the Underlying ETF, up to the Cap. If the Underlying ETF experiences returns over an Outcome Period in excess of the Cap, the Fund will not experience those excess gains. The Cap (before Fund expenses) is reduced by the Fund’s expenses. The Cap is expected to change from one Outcome Period to the next. The Cap is discussed in further detail below.
The Fund’s website, lincolnfinancial.com/definedoutcomefunds, provides important Fund information on a daily basis, including
information about the Cap and Buffer, current Outcome Period start and end dates, and information relating to the remaining potential Outcomes of an investment in the Fund. Investors considering purchasing shares should visit the website for the latest information.
The two hypothetical graphical illustrations provided below are designed to illustrate the Outcomes based upon the hypothetical performance of the Underlying ETF for a shareholder that holds shares for the entirety of an Outcome Period. There is no guarantee that the Fund will be successful in its attempt to provide the Outcomes for an Outcome
Period. The returns that the Fund seeks to provide do not include the costs associated with
purchasing shares of the Fund and the expenses incurred by the Fund.
Use of FLEX Options. The Fund invests approximately 50% of
its net assets in FLEX Options, the value of which is derived from the performance of the underlying reference asset, the Underlying ETF. FLEX Options are exchange-traded
options contracts with uniquely customizable terms. FLEX Options are set to expire on the last day of the Outcome Period, at which time the Fund will invest in a new set of FLEX Options for the next Outcome Period. An option contract is an agreement between a buyer and seller that gives the purchaser of the option the right to buy or sell a particular reference asset at a specified future date at an agreed upon price.
Investment Strategy of the Buffer. The Fund pursues its
objective by purchasing and selling call and put FLEX Options to create layers within the Fund’s portfolio. One layer is designed to buffer the Fund from losses, while
another layer is designed to produce returns that track those of the Underlying ETF for an Outcome Period, up to the Cap.
The Buffer layer of FLEX Options is designed to buffer the Fund from losses of up to
12% if the Underlying ETF experiences a loss at the end of an Outcome Period.
There is no guarantee that the Fund will be successful in its attempt to provide buffered returns. The Buffer is operative only against the first 12% of Underlying ETF losses at the end an Outcome Period. If
the Underlying ETF has decreased in value by more than 12% at the end of an Outcome Period, the Fund, and therefore investors, will experience those losses.
The Underlying ETF tracking layer of FLEX Options is designed to work alongside the Fund’s investment in the Underlying Fund to produce returns that track those of the Underlying ETF for an Outcome Period if the Underlying ETF has experienced gains during that Outcome Period. This gain is subject to the Cap, a maximum investment return level, which is
discussed below.
Outcome Periods. The Outcomes sought by the Fund are based
upon the Fund’s NAV on the first day of an Outcome Period. An Outcome Period begins on the day the FLEX Options are entered into and ends on the day they expire. Each
FLEX Option’s value is ultimately derived from the performance of the Underlying ETF during the Outcome period. Because the terms of the FLEX Options do not change, the Cap and Buffer both relate to the Fund’s NAV on the first day of the Outcome Period. To achieve the Outcomes for an Outcome Period, an investor must be holding
shares for the entire Outcome Period. A shareholder that purchases shares after the commencement of an Outcome Period will likely have purchased shares at a
different NAV than the NAV upon which the Outcomes are based and may experience investment Outcomes very different from those sought by the Fund over the
entire Outcome Period. A shareholder that redeems shares prior to the end of an Outcome Period may also experience investment Outcomes very different from those sought by the Fund.
There is no guarantee that the Fund will be successful in its attempt to provide the Outcomes.
The value of FLEX Options is derived from the performance of the underlying reference asset, the Underlying ETF. However, because a component of an option’s value is the time remaining until its expiration, during the Outcome Period, the Fund’s NAV will not directly correlate on a day-to-day basis with the returns experienced by the Underlying ETF, though as a FLEX Option approaches its expiration date, its value typically increasingly moves with the value of the Underlying ETF. While the Fund generally anticipates that its NAV will move in the same direction as the Underlying ETF (meaning that the Fund’s NAV will increase if the Underlying ETF experiences gains and that the Fund’s NAV will decrease if the Underlying ETF experiences losses), the Fund’s NAV may not increase or decrease at the same rate as the Underlying ETF. Similarly, the amount of time remaining until the end of the Outcome Period also affects the impact of the Buffer on the Fund’s NAV, which may not be in full effect prior to the end of the Outcome Period. The Fund’s strategy is designed to produce the Outcomes upon the
expiration of the FLEX Options on the last day of the Outcome Period and it should not be expected that the Outcomes will be provided at any point prior to
that time. Taken together, this means that at the midpoint of the Outcome Period, if the
Underlying ETF has decreased in value by 12%, the Fund’s NAV can be expected to have decreased in value (because the Buffer is not yet in full effect), but by less
than 12% (because the Fund’s NAV will not correlate one-to-one with the Underlying ETF and the Fund’s NAV tends not to participate fully in either Underlying ETF
gains or losses).
Cap on Potential
Upside Returns. Unlike other investment products, the potential returns an investor can receive from an investment in the Fund are subject to an upside return Cap. This means that if the Underlying ETF
experiences gains for the Outcome Period beyond the level of the Cap, the Fund will not experience those excess gains. Therefore, regardless of the
performance of the Underlying ETF, the Cap (after Fund expenses) is the maximum return an investor can achieve from an investment in the Fund for an Outcome Period.
The Cap will change for each Outcome Period based upon prevailing market conditions at
the beginning of an Outcome Period. The Cap may increase or decrease from one Outcome Period to the next. The Cap, and the Fund’s position relative to it, should be
considered before investing in the Fund. If the Fund has already increased in
value to a level near to the Cap, an investor purchasing shares at that price has limited or no potential gains available for the remainder of the Outcome
Period but remains vulnerable to significant downside risks.
Buffer. The Buffer is operative only against the first 12%
of Underlying ETF losses for an Outcome Period; however, there is no guarantee that the Fund will be successful in its attempt to provide buffered returns. If the
Underlying ETF has decreased in value by more than 12% during an Outcome Period, the Fund will experience all further losses. The Buffer is calculated prior to taking into
account Fund expenses, such as Fund management fees equal to 0.55% of the Fund’s daily net assets, transaction fees, and any other expenses incurred by the Fund. If an investor purchases shares during an Outcome Period, and
the Fund has already decreased in value during that Outcome Period, that investor may not fully benefit from the Buffer for the remainder of the Outcome
Period, but will have increased gains available prior to reaching the Cap. Conversely, during the Outcome Period, if the Fund has already
increased
in value, then a shareholder investing at that time may experience losses prior to gaining the protection offered by the Buffer. While the Fund seeks to limit losses by 12% for shareholders who hold shares for an entire Outcome Period, there is no guarantee it will successfully do so. Notwithstanding the Buffer, a shareholder that purchases shares at the beginning of an Outcome Period or during an Outcome Period may lose its entire investment. An investment in the Fund is only appropriate for shareholders willing to bear those losses.
Fund Rebalance. The Fund is a continuous investment vehicle.
It does not terminate and distribute its assets at the conclusion of each Outcome Period. On the termination date of an Outcome Period, the Fund will invest in a new set of
FLEX Options, which will provide a new Cap, and another Outcome Period will commence.
Approximately one week prior to the end of an Outcome Period, the Fund will file a
prospectus supplement, which will alert existing shareholders that an Outcome Period is approaching its conclusion and disclose the anticipated ranges for the Cap for the
next Outcome Period. Following the close of business on the last day of an Outcome Period, the Fund will file a prospectus supplement that discloses the Fund’s final Cap for the next Outcome Period.
The Fund’s website, lincolnfinancial.com/definedoutcomefunds, provides information relating to the Outcomes, including the Fund’s
position relative to the Cap and Buffer, of an investment in the Fund on a daily basis.
The Underlying Fund
The Underlying Fund seeks to achieve its objective by investing in the securities that comprise the Nasdaq-100® Index (the “Index”). The Underlying Fund, under normal market conditions, invests at least 80% of its assets in the securities of issuers included in the Index. The Underlying Fund attempts to replicate the Index by investing all, or substantially all, of its assets in the stocks that comprise the Index, holding each stock in approximately the same proportion as its weighting in the Index. The Underlying Fund may not invest in every security in the Index if it is not practical to do so (such as when transaction costs are too high, there is a liquidity issue, or there is a pending corporate action).
The Index includes the common stocks of the 100 largest domestic and international
non-financial companies on the broader Nasdaq Composite Index based on market capitalization. The Index reflects companies across major industry groups including computer
hardware and software, telecommunications, retail/wholesale trade and biotechnology. As of March 15, 2021, the market capitalization range of the companies comprising the Index was $5.4 billion to $2 trillion. The Index typically is rebalanced quarterly and reconstituted annually. The Fund will reinvest Underlying Fund dividends and distributions in additional Underlying Fund shares.
The Underlying Fund employs a passive investment approach called “indexing”, by which the Underlying Fund’s Sub-Adviser attempts to approximate, before fees and expenses, the performance of the Index over the long term. The Underlying Fund’s Sub-Adviser invests in the equity securities comprising the Index, in approximately the same proportions as they are represented in the Index. Equity securities may include common stocks, preferred stocks, depository receipts, or other securities convertible into common stock. The Underlying Fund’s Sub-Adviser may sell securities that are represented in the Index, or purchase securities that are not yet represented in the Index, prior to or after their removal or addition to the Index.
The Underlying Fund may purchase or sell index futures contracts, or options on those futures, or engage in other transactions involving the use of derivatives, to provide equity exposure to the Underlying Fund’s cash position while maintaining cash balances for liquidity, or for other purposes that assist in replicating the Underlying Fund's investment performance of the Index. The Underlying Fund’s return may not match the return of the Index.
The Underlying Fund intends to be diversified in approximately the same proportion as the Index. The Underlying Fund may become “non-diversified,” as defined by the Investment Company Act of 1940 solely as a result of a change in relative market capitalization or index weighting of one or more constituents of the Index. As a “non-diversified” fund, the Underlying Fund can invest a greater percentage of its assets in a limited number of issuers or in any one issuer. Shareholder approval will not be sought if the Underlying Fund shifts from diversified to non-diversified solely due to a change in the relative market capitalization or index weightings of one or more constituents of the Index.
The Underlying Fund will concentrate its investments in a particular industry or group
of industries to the extent the Index is concentrated. The Index, at times, may be significantly concentrated in the information technology sector.
*
Nasdaq®
and NASDAQ-100® Indexes are registered trademarks of Nasdaq, Inc. (which with its affiliates is referred to as the “Corporations”) and are licensed for use by Lincoln Investment Advisors Corporation. The Fund has not been passed on by the Corporations as to their legality or suitability. The Fund is not issued, endorsed, sold, or promoted by the Corporations. The Corporations make no warranties and bear
no liability with respect to the Fund.
The Fund’s Board of Trustees may change the Fund’s investment strategies
or policies in the interest of shareholders without a shareholder vote, unless those strategies or policies are designated as fundamental. The Fund may change its policy of
investing at least 80% of its net assets in FLEX Options that reference the Invesco QQQ TrustSM, Series 1 or, in an underlying fund which tracks the same index as that tracked by the Invesco QQQ TrustSM, Series 1, only upon 60 days' notice to shareholders.
Principal Risks
All mutual funds carry risk. Accordingly, loss of money is a risk of investing in the
Fund. Because the Fund invests certain of its assets in shares of an Underlying Fund, the Fund
indirectly owns the investments made by the Underlying Fund. By investing in the Fund, therefore, you indirectly assume the same types of risks as investing directly in the
Underlying Fund. In addition, the Fund will indirectly pay a proportional share of the fees and expenses of the Underlying Fund. The Fund's ability to achieve its investment
objective depends, in large part, on the Underlying Fund's ability to meet its investment objective, as well as the performance of the FLEX Options. The following risks reflect the Fund's principal risks, which include the principal risks of the FLEX Options and the Underlying Fund.
Buffered Loss Risk. There can be no guarantee that the Fund will be successful
in its strategy to provide buffer protection against Underlying ETF losses if the Underlying ETF has decreased at the end of an Outcome Period. A shareholder may lose their
entire investment. The Fund’s strategy seeks to deliver returns that track the Underlying ETF (up to the Cap), while limiting downside losses, if shares are bought on the day on which the Fund enters into the FLEX Options and held until those FLEX Options expire at the end of each Outcome Period. In the event an investor purchases shares after the date on which the FLEX Options were entered into or sells shares prior to the expiration of the FLEX Options, the Buffer that the Fund seeks to provide may not be available. The Fund does not provide principal protection and an investor may experience significant losses on its investment, including the loss of its entire investment.
Capped Upside Return Risk. The Fund’s strategy seeks to provide returns that are subject to the Cap. In the event that the Underlying ETF has gains in excess of the Cap for the Outcome Period, the Fund will not participate in those gains beyond the Cap. The Fund’s strategy seeks to deliver returns that track those of the Underlying ETF if shares are bought on the day on which the Fund enters into the FLEX Options and held until those FLEX Options expire at the end of the Outcome Period. In the event an investor purchases shares after the date on which the FLEX Options were entered into and the Fund has risen in value to a level near to the Cap, there may be little or no ability for that investor to experience an investment gain on its shares. A new Cap is established at the beginning of each Outcome Period and is dependent on prevailing market conditions. The Cap may therefore change from one Outcome Period to the next and is unlikely to remain the same for consecutive Outcome Periods. The Fund is exposed to operational risk arising from human error in the calculation of the Cap. The Fund seeks to reduce this risk through controls and procedures; however, these measures may be inadequate to address such risk.
Outcome Period Risk. The Fund’s investment strategy is designed to
deliver returns that track the Underlying ETF if shares are bought on the day on which the Fund enters into the FLEX Options and held until those FLEX Options expire at the
end of the Outcome Period. In the event an investor purchases shares after the date on which the FLEX Options were entered into or sells shares prior to the expiration of the FLEX Options, the returns realized by the investor may not be those that the Fund seeks to achieve.
FLEX Options Risk. The Fund may experience substantial downside from specific FLEX Option positions and certain FLEX Option
positions may expire worthless. In addition, the FLEX Options are subject to the following risks:
Valuation Risk. The value of the FLEX Options will be affected by, among others, changes in the value of the Underlying ETF, changes in interest rates, changes in the actual and implied volatility of the Underlying ETF and the remaining time until the FLEX Options expire. The value of the FLEX Options does not increase or decrease at the same rate as the level of the Underlying ETF (although they generally move in the same direction). However, as a FLEX Option approaches its expiration date, its value typically increasingly moves with the value of the Underlying ETF. Also, during periods of reduced market liquidity or in the absence of readily available market quotations, or when there is reduced availability of reliable objective pricing data for the FLEX Options, the ability of the Fund to value the FLEX Options becomes more difficult. In these situations, the judgment of the Fund’s investment adviser may play a greater role in the valuation of such holdings. Consequently, while these determinations will be made in good faith, it may nevertheless be more difficult for the Fund to accurately assign a daily value.
Liquidity Risk. In the event that trading in the FLEX Options is limited or
absent, the value of the Fund’s FLEX Options may decrease. There is no guarantee that a liquid secondary trading market will exist for the FLEX Options. The trading in
FLEX Options may be less deep and liquid than the market for certain other securities. FLEX Options may be less liquid than certain non-customized options. In a less liquid market for the FLEX Options, terminating the FLEX Options may require the payment of a premium or acceptance of a discounted price and may take longer to complete. In a less liquid market for the FLEX Options, the liquidation of a large number of options may more significantly impact the price. A less liquid trading market may adversely impact the value of the FLEX Options and the value of your investment.
Counterparty Risk. Counterparty risk is the risk an issuer, guarantor or
counterparty of a security in the Fund is unable or unwilling to meet its obligation on the security. The Fund will utilize FLEX Options issued and guaranteed for settlement
by the Options Clearing Corporation (the “OCC”). Although guaranteed for settlement by the OCC, FLEX Options are still subject to counterparty risk with the
OCC and may be less liquid than more traditional standardized exchange-traded options. As a result, the ability of the Fund to meet its objective depends on the OCC being able to meet its obligations. In the unlikely event that the OCC becomes insolvent or is otherwise unable to meet its settlement obligations, the Fund could suffer significant losses. The Fund bears the risk that the OCC will be unable or unwilling to perform its obligations under the FLEX Options contracts.
Correlation Risk. The FLEX Options held by the Fund will be exercisable at the strike price only on their expiration date. Prior to the expiration date, the value of the FLEX Options will be determined based upon market quotations or using other recognized pricing methods, consistent with the Fund’s valuation policy. Because a component of the FLEX Option’s value will be affected by, among other things, changes in the value of the Underlying ETF, changes in interest rates, changes in the actual and implied volatility of the Underlying ETF and the remaining time until the FLEX Options expire, the value of the Fund’s FLEX Options positions is not anticipated to increase or decrease at the same rate as the Underlying ETF, and it is possible they may move in different directions, and as a result, the Fund’s NAV may not increase or decrease at the same rate as the Underlying ETF. Similarly, the components of the option’s value are anticipated to impact the effect of the Buffer on the Fund’s NAV, which may not be in full effect prior to the end of the Outcome Period. The Fund’s strategy is designed to produce the Outcomes upon the expiration of the FLEX Options on the last business day of the Outcome Period, and it should not be expected that the Outcomes will be provided at any point other than the end of the Outcome Period.
Market Risk. The value of portfolio investments may decline. As a result, your
investment in the Fund may decline in value and you could lose money. A decline in value could result from, among other things, a negative development of: the issuer of the
security, an industry, a sector of the economy, or the overall securities market.
Issuer Risk. The prices of, and the income generated by, portfolio securities may decline in response to various factors directly related to the issuers of such securities. These factors may include reduced demand for an issuer’s goods or services, poor management performance, major litigation related to the issuer, changes in government regulations affecting the issuer or its competitive environment, and strategic initiatives such as mergers, acquisitions or dispositions.
Fund of Funds Risk. The Fund bears all risks of an Underlying Fund’s
investment strategies, including the risk that an Underlying Fund may not meet its investment objective, which may negatively affect the Fund’s performance. The Fund
does not control the investments of Underlying Funds, which may have different investment objectives and may engage in investment strategies that the Fund would not engage in directly. Aggregation of Underlying Fund holdings may result in indirect concentration of assets in a particular industry or group of industries, or in a single issuer, which may increase Fund volatility. In addition, the Fund indirectly will pay a proportional share of the fees and expenses of an Underlying Fund, including management, administration and custodian fees of an Underlying Fund.
Tracking Error Risk. The Underlying Fund attempts to track the performance of
the index it tracks. The performance of the Underlying Fund may deviate substantially from the index it tracks. Various factors may affect the Underlying Fund’s
ability to achieve perfect correlation, such as cash flows, fund expenses, imperfect correlation between the Underlying Fund’s investments and those of the index, rounding of share prices, changes to the index and regulatory policies, and costs in buying and selling securities. To the extent that the Underlying Fund employs a sampling technique to construct the Underlying Fund's portfolio, the Underlying Fund may invest in fewer than all of the securities in the index and in some securities not included in the Index, potentially increasing the risk of divergence between the Underlying Fund’s return and that of the index. In addition, the Underlying Fund may not be fully invested at times, either as a result of cash flows into or out of the Underlying Fund or reserves of cash held by the Underlying Fund to meet redemptions. The representative sample of securities in the Index that are actually held by the Underlying Fund may vary from time to time. In addition, the Underlying Fund’s investment approach, which attempts to track the performance of the index before fees and expenses, may perform differently than other mutual funds that focus on a particular market segment or invest in other asset classes.
Investment Objective Risk. Certain circumstances under which the Fund might not achieve its objective include, but are not limited, to
(i) if the Fund disposes of FLEX Options, (ii) if the Fund is unable to maintain the optimal balance of FLEX Options in the Fund’s portfolio, (iii) significant accrual
of Fund expenses in connection with effecting the Fund’s principal investment strategies or (iv) adverse tax law changes affecting the treatment of FLEX
Options.
Exchange-Traded Fund (“ETF”)
Risk. ETFs generally reflect the risks of owning the underlying securities they hold, although lack of liquidity in ETF shares could result in the price of the ETF being more volatile. Certain ETF track the performance of an index. An imperfect correlation between an ETF’s portfolio securities and those in its index, rounding of prices, the timing of cash flows, the ETF’s size, changes to the index and regulatory requirements may cause tracking error, the divergence of an ETF’s performance from that of its underlying index.
Authorized Participation Concentration Risk. Only an authorized participant
may engage in creation or redemption transactions directly with the Underlying ETF. The Fund has a limited number of institutions that may act as authorized participants on
an agency basis (i.e., on behalf of other market participants). To the extent that authorized participants exit the business or are unable to proceed with creation and/or redemption orders with respect to the Underlying ETF and no other authorized participant is able to step forward to create or redeem creation units, shares may be more likely to trade at a premium or discount to NAV and possibly face trading halts and/or delisting.
Active Markets Risk. Although the shares are listed for trading on an
exchange, there can be no assurance that an active trading market for the shares will develop or be maintained. shares trade on an exchange at market prices that may be
below, at or above the Underlying ETF’s NAV. Securities, including the shares, are subject to market fluctuations and liquidity constraints that may be caused by such factors as economic, political, or regulatory developments, changes in interest rates, and/or perceived trends in securities prices. shares of the Underlying ETF could decline in value or underperform other investments.
Fluctuation of Net Asset Value Risk. The Fund’s shares trade on an exchange at their market price rather than their NAV. The market price
may be at, above or below the Underlying ETF’s NAV. Differences in market price and NAV may be due, in large part, to the fact that supply and demand forces at work in
the secondary trading market for shares will be closely related to, but not identical to, the same forces influencing the prices of the holdings of the Underlying ETF
trading individually or in the aggregate at any point in time. These differences can be especially pronounced during times of market volatility or stress. During these
periods, the demand for shares may decrease considerably and cause the market price of shares to deviate significantly from the Underlying ETF’s NAV.
Market Maker Risk. If the Underlying ETF has lower average daily trading volumes, it may rely on a small number of third-party market makers to provide a market for the purchase and sale of shares. Any trading halt or other problem relating to the trading activity of these market makers could result in a dramatic change in the spread between the Underlying ETF’s NAV and the price at which the shares are trading on an exchange, which could result in a decrease in value of the shares. In addition, decisions by market makers or authorized participants to reduce their role or step away from these activities in times of market stress could inhibit the effectiveness of the arbitrage process in maintaining the relationship between the underlying values of the Underlying ETF’s portfolio securities and the Underlying ETF’s market price. This reduced effectiveness could result in shares trading at a discount to NAV and also in greater than normal intra-day bid-ask spreads for shares.
Trading Issues Risk. Although the shares are listed for trading on an
exchange, there can be no assurance that an active trading market for such shares will develop or be maintained. Trading in shares on an exchange may be halted due to market
conditions or for reasons that, in the view of the exchange, make trading in shares inadvisable. In addition, trading in shares on an exchange is subject to trading halts caused by extraordinary market volatility pursuant to exchange “circuit breaker” rules. Market makers are under no obligation to make a market in the shares, and authorized participants are not obligated to submit purchase or redemption orders for creation units. There can be no assurance that the requirements of an exchange necessary to maintain the listing of the Underlying ETF will continue to be met or will remain unchanged. Initially, due to the small asset size of the Underlying ETF, it may have difficulty maintaining its listings on an exchange.
Passive Management Risk. Index funds invest in the securities of an index
rather than actively selecting among securities. With an indexing strategy there is no attempt to manage volatility, use defensive strategies, or reduce the effects of any
long-term period of poor investment performance. Index funds have costs and fees that an index does not have and therefore index funds will not match the performance of the benchmark index.
Concentration Risk. Investments that are concentrated in particular
industries, sectors or types of investments may be subject to greater risks of adverse developments in such areas of focus than investments that are spread among a wider
variety of industries, sectors or investments. Investments in a select group of securities can be subject to a greater risk of loss and may be more volatile than investments that are more diversified.
Information Technology Sector Risk. Market or economic factors impacting
information technology companies could have a major effect on the value of the Fund’s investments. The value of stocks of information technology companies is
particularly vulnerable to rapid changes in technology product cycles, rapid product obsolescence, government regulation and competition, both domestically and internationally, including competition from foreign competitors with lower production costs. Like other technology companies, information technology companies may have limited product lines, markets, financial resources or personnel. Stocks of technology companies and companies that rely heavily on technology, especially those of smaller, less-seasoned companies, tend to be more volatile than the overall market. Information technology companies are heavily dependent on patent and intellectual property rights, the loss or impairment of which may adversely affect profitability. Additionally, companies in the information technology sector may face dramatic and often unpredictable changes in growth rates and competition for the services of qualified personnel.
Preferred Securities Risk. Preferred securities are subject to issuer-specific and market risks applicable generally to equity securities.
The value of preferred stock also can be affected by prevailing interest rates. Preferred securities may pay fixed or adjustable rates of return. In addition, a company’s preferred securities generally pay dividends only after the company makes required payments to holders of its bonds and other debt. For this reason, preferred stock is also subject to the credit quality of the issuer. Accordingly, the value of preferred securities will usually react more strongly than bonds and other debt to actual or perceived changes in the company’s financial condition or prospects. Preferred securities of smaller companies may be more vulnerable to adverse developments than preferred stock of larger companies.
Convertible Securities Risk. Convertible securities share investment characteristics of both fixed income and equity securities. The value
of these securities may vary more with fluctuations in the value of the underlying common stock than with fluctuations in interest rates. The value of convertible securities
also may be less volatile than the underlying common stock. Convertible securities generally offer lower interest or dividend yields than non-convertible securities of
similar quality. The Fund could lose money if the issuer of a convertible security is unable to meet its financial obligations or goes bankrupt.
Futures Risk. A futures contract is considered a derivative because it derives its value from the price of the underlying security or financial index. Losses on futures contracts may exceed the amount invested. There may be imperfect or negative correlation between the price of the futures contracts and the price of the underlying securities. In addition, there are significant differences between the securities and futures markets that could result in an imperfect correlation between the markets, causing a given hedge not to achieve its objectives. The degree of imperfect correlation depends on several factors such as variations in speculative market demand for
futures and differences
between the financial instruments being hedged and the instruments underlying the standard contracts available for trading. A decision as to whether, when and how to hedge
involves the exercise of skill and judgment, and even a well-conceived hedge may be unsuccessful to some degree because of market behavior or unexpected interest rate
trends.
Futures exchanges may limit the amount of fluctuation permitted
in certain futures contract prices during a single trading day. Once the daily limit has been reached, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements but does not limit potential losses because the limit may work to prevent the liquidation of unfavorable positions.
There can be no assurance that a liquid market will exist at a time when a fund seeks
to close out a futures position, and the Fund would remain obligated to meet margin requirements until the position is closed. In addition, there can be no assurance that an
active secondary market will continue to exist.
Non-Diversification Risk. When a mutual fund is non-diversified it may invest
a greater percentage of its assets in a particular issuer than a diversified fund. Therefore, a fund’s value may decrease because of a single investment or a small
number of investments.
Natural Disaster/Epidemic
Risk. Natural or environmental disasters, such as earthquakes, fires, floods, hurricanes, tsunamis, and other severe weather-related phenomena generally, and widespread disease and illness, including pandemics and epidemics, have been and can be highly disruptive to economies and markets. They may adversely impact individual companies, sectors, industries, markets, currencies, interest and inflation rates, credit ratings, investor sentiment, and other factors affecting the value of the Fund’s investments. For example, the novel coronavirus (COVID-19), which was first detected in 2019, has resulted in, among other things, stressors to healthcare service infrastructure, country border closings, business and school closings, and disruptions to supply chains and customer activity. Natural disaster/epidemic risk could have a significant adverse impact on the Fund’s portfolio investments.
Liquidity Risk. Liquidity risk is the risk that the Fund cannot meet requests to redeem Fund-issued shares without significantly diluting the remaining investors’ interest in the Fund. This may result when portfolio holdings may be difficult to value and may be difficult to sell, both at the time or price desired. In addition, the market for a particular holding may become illiquid due to adverse market or economic conditions, completely apart from any specific conditions in the market for a particular security.
Liquidity risk also may result from increased shareholder redemptions in
the Fund. An increase in shareholder redemptions could require the Fund to sell securities at reduced prices, which would in turn reduce the value of the Fund.
Management and Organization
The Fund's business and affairs are managed under the oversight and direction of its
Board of Trustees (the ”Board“). The Board has the power
to amend the Fund’s bylaws, to declare and pay dividends, and to exercise all the powers of the Fund except those granted to the shareholders.
Investment Adviser and Sub-Adviser: Lincoln Investment Advisors Corporation (“LIAC”) is the Fund’s investment adviser. LIAC is a
registered investment adviser and wholly-owned subsidiary of Lincoln Life. LIAC’s address is 150 N. Radnor-Chester Road, Radnor, PA 19087. LIAC (or its predecessors) has served as an investment adviser to mutual funds for over 30 years. As of March 31, 2021, LIAC had more than $111.7 billion in assets under management.
Lincoln Life is an insurance company organized under Indiana law and is a wholly-owned subsidiary of Lincoln National Corporation (“LNC”). LNC is a publicly-held insurance holding company organized under Indiana law. Through its subsidiaries, LNC provides nationwide insurance and financial services.
The Fund has entered into an Investment Management Agreement with LIAC. In addition to investing directly in the FLEX Options, the Fund operates as a “fund of fund.” In this structure, the Fund invests in another mutual fund, which, in turn, invests directly in portfolio securities. The expenses associated with investing in a fund of fund are generally higher than those for funds that do not invest primarily in other mutual funds because shareholders indirectly pay for a portion of the fees and expenses charged at the underlying fund level. LIAC may hire one or more sub-advisers who are responsible for the Fund’s day-to-day investment management. A sub-adviser is paid by LIAC from its management fee.
A description of LIAC (including the effective advisory fee rate for the most recently completed fiscal year), the Fund’s sub-adviser, and the portfolio managers are included below. The Fund’s statement of additional information (“SAI”) provides additional information about the portfolio managers’ compensation, other accounts managed by the portfolio managers, and the portfolio managers’ ownership of Fund shares.
|
LIAC (advisory fee is 0.55% of the Fund's average daily net
assets). |
|
Milliman Financial Risk Management LLC (”Milliman“) is located at 71 S. Wacker Drive,
31st Floor, Chi-
cago, IL 60606. Milliman is a wholly-owned subsidiary of Milliman, Inc.
Milliman provides investment advisory, hedging, and consulting
services on approximately $150 billion in assets as of March 31, 2021. |
Milliman Portfolio Managers |
Robert T. Cummings and Jordan B. Rosenfeld are responsible for the day-to-day
management of the Fund. |
|
Robert T. Cummings is Principal and Director of Global
Trading at Milliman. Mr. Cummings has served in this role since
2007. Mr. Cummings has more than 25 years of experience as a trader and portfolio man- ager with a primary focus on options. |
|
Jordan B. Rosenfeld is a Trader and Risk Manager within
Milliman’s Capital Markets Group. He manages hedging and
investment strategies for insurance companies, funds, and a number of U.S. equity unit investment trusts. Mr. Rosenfeld joined Milliman in 2018 and has more than 5 years of experience in capi-
tal markets. Prior to joining Milliman, Mr. Rosenfeld was a global macro
portfolio manager at Gelber Group with a focus on equity and
interest rate derivatives trading. Mr. Rosenfeld holds a Bachelor of Arts in Mathematics from Northwestern University. |
A discussion regarding the basis for the Board of Trustees’ approval of the
investment advisory and subadvisory agreements for the Fund will be in the Fund’s first annual or semiannual report to shareholders following commencement of the
Fund’s operations.
Pricing of Fund
Shares
The Fund determines its net asset value per share
(“NAV”) as of close of regular trading on the New York Stock Exchange (“NYSE”) (normally 4:00 p.m. New York time, each business day). The
Fund’s NAV is the value of a single Fund share. The Fund determines its NAV by adding the values of its portfolio securities and other assets, subtracting its
liabilities, and dividing by the number of Fund shares outstanding.
An order for Fund shares received after the close of regular trading on the NYSE will be effected at the NAV determined on the next business day.
The Fund’s portfolio securities may be traded in other markets on days when the NYSE is closed. Therefore, the Fund’s NAV may fluctuate on days when you do not have access to the Fund to purchase or redeem shares.
The Fund typically values its assets based on “market price.” Market price for equities is typically the security’s last sale price on a national securities exchange or over-the-counter, and for debt securities is typically the mean between the bid and ask prices (or the price established by an independent pricing service). Certain short-term fixed income securities are valued based on “amortized cost.”
In certain circumstances, the Fund may value its portfolio securities at “fair
value” as determined in good faith under procedures established by the Fund's Board. The fair value of portfolio securities may differ from quoted or published prices
for the same securities that the Board believes are unreliable. Fair value pricing involves subjective judgments, and it is possible that a security’s fair value price is materially different than the value realized upon the sale of that security.
The Fund anticipates using fair value pricing for securities primarily traded on U.S. exchanges only under very limited circumstances, such as the unexpected early closing of the exchange on which a security is traded or suspension of trading in the security. The Fund may use fair value pricing more frequently for securities primarily traded in non-U.S. markets, if applicable, because, among other things, most foreign markets close well before the Fund determines its NAV. The earlier close of these non-U.S. markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim. If the Fund invests in foreign equity securities, it may frequently value many of those securities using fair value prices based on third-party vendor modeling tools to the extent available.
To the extent the Fund invests in one or more mutual funds, the Fund values mutual fund shares at their respective NAVs. For more information regarding the determination of a mutual fund’s NAV, including when the mutual fund will fair value its portfolio securities and the effects of using fair value pricing, see the mutual fund’s prospectus and SAI.
Purchase and Sale of Fund Shares
Fund shares are available as underlying investment options for variable life insurance and variable annuity products issued by The Lincoln National Life Insurance Company (“Lincoln Life”), Lincoln Life & Annuity Company of New York (“LNY”), and unaffiliated insurance companies. These insurance companies are the record owners of the separate accounts holding the Fund’s shares. You do not buy, sell or exchange Fund shares directly – you choose investment options through your variable annuity contract or variable life insurance policy. The insurance companies then cause the separate accounts to purchase and redeem Fund shares according to the investment options you choose. Fund shares also may be available for investment by certain funds of the Lincoln Variable Insurance Products Trust.
The Fund sells and redeems its shares, without charge, at their NAV next determined after the Fund or its agent receives a purchase or
redemption request. The value of Fund shares redeemed may be more or less than original cost.
The Fund normally pays for
shares redeemed within seven days after the Fund receives the redemption request. However, the Fund may suspend redemptions or postpone payments for any period when (a) the
NYSE closes for other than weekends and holidays; (b) the SEC restricts trading on the NYSE; (c) the SEC determines that an emergency exists, so that the Fund’s
disposal of investment securities, or determination of NAV is not reasonably practicable; or (d) the SEC permits, by order, for the protection of Fund
shareholders.
The Fund typically expects to pay redemption proceeds using
holdings of cash in the Fund’s portfolio, or using the proceeds from sales of portfolio securities. To a lesser extent, the Fund also may use borrowing arrangements to
meet redemption requests. Borrowing is typically expected to be used only during stressed or abnormal market conditions, when an increased portion of the Fund’s
holdings may be comprised of less liquid investments, or during emergency or temporary circumstances.
Market Timing
Frequent, large, or short-term purchases, redemptions or transfers such as those
associated with ”market timing“ transactions, may
adversely affect the Fund and its investment returns. These transactions may dilute the value of Fund shares, interfere with the efficient management of the Fund's portfolio, and increase the Fund's brokerage and administrative costs. As a result, the Fund strongly discourages such trading activity. To protect the Fund and its shareholders from potentially harmful trading activity, the Board has approved certain market timing policies and procedures (the ”Market Timing Procedures“).
The Board may revise the Market Timing Procedures at any time and without prior notice.
Investors may seek to exploit delays between a change in the value of a Fund's
portfolio holdings, and the time when that change is reflected in the NAV of the Fund's shares by purchasing or redeeming shares at NAVs that do not reflect appropriate fair
value prices. This risk is more pronounced for funds investing in overseas markets, due to the time differential in pricing between U.S. and overseas markets, and thinly traded securities. The Fund seeks to deter and prevent this activity by the appropriate use of ”fair value“ pricing of the Fund's portfolio securities.
The Fund seeks to monitor shareholder account activities in order to detect and
prevent excessive and disruptive trading practices. The Fund and LIAC each reserve the right to reject, restrict, or refuse any purchase order (including exchanges) from any
investor, if, in the judgment of the Fund or LIAC, the transaction may adversely affect the Fund or its shareholders.
The Fund
has entered into agreements with each insurance company that holds Fund shares to help detect and prevent market timing. Under the agreements, an insurance company may be
required to (i) provide certain identifying and account information regarding contract owners who invest in Fund shares through the omnibus account; and (ii) restrict
further purchases or exchanges of Fund shares by a contract owner whom the Fund has identified as a market timer.
The Fund also may rely on frequent trading policies established by such insurance
companies. If the Fund detects potential market timing, the Fund will contact the applicable insurance company and may ask the insurance company to take additional action,
if appropriate, based on the particular circumstances.
Fund investors seeking to engage in market timing may deploy a variety of strategies
to avoid detection. In addition, Fund shares may be held through omnibus accounts, which generally do not identify trading activity of Fund investors on an individual basis.
As a result of these and other operational or technological limitations, there is no guarantee that the Fund will be able to identify or prevent market timing. Moreover, the identification of Fund investors determined to engage in transactions that may adversely affect the Fund or its investors involves judgments that are inherently subjective.
Insurance company sponsors of your contract may impose transfer limitations and other
limitations designed to curtail market timing. Please refer to the prospectus and SAI for your variable annuity or variable life contract for details.
Portfolio Holdings Disclosure
A description of the Fund's policies and procedures with respect to the Fund's
disclosure of portfolio securities is available in the Fund's SAI.
Share Classes and Distribution Arrangements
The Fund offers two classes of shares: Standard Class and Service Class. The two
classes are identical, except that Service Class shares are subject to a distribution (Rule 12b-1) fee which has been adopted pursuant to a distribution and service plan
(the
”Plan“
). Under the Plan, Service Class shares pay annual amounts not exceeding 0.35% of the average daily net
assets of the Service Class shares of the Fund. The Fund offers shares to insurance companies for allocation to certain of their variable contracts. The Fund pays its principal underwriter, Lincoln Financial Distributors, Inc. (”LFD“), out of the assets of
the Service Class, for activities primarily intended to sell Service Class shares or variable contracts offering Service Class shares. LFD pays third parties for these sales
activities pursuant to written agreements with such parties. The 12b-1 fee may be increased by the Fund's Board up to the maximum allowed by the Plan, without shareholder approval, in accordance with the Plan's terms. These fees are paid out of the Service Class assets on an ongoing basis, and over time will increase the cost of your investment and may cost you more than other types of sales charges.
LIAC and its affiliates, including LFD, and/or the Fund's sub-advisers or underlying funds, if any,
or their affiliates, may pay additional compensation (at their own expense and not as a Fund expense) to certain affiliated or unaffiliated brokers, dealers, or other
financial intermediaries (collectively, ”financial intermediaries“)
in connection with the sale or retention of Fund shares or insurance products that contain the Fund and/or shareholder servicing (”distribution
assistance“). The level of payments made to a qualifying financial intermediary in any given year will vary. To the extent permitted by SEC and Financial Industry Regulatory Authority rules and other applicable laws and regulations, LFD may pay or allow its affiliates to pay other promotional incentives or payments to financial intermediaries.
If a
mutual fund sponsor, distributor or other party makes greater payments to your financial intermediary for distribution assistance than sponsors or distributors of other
mutual funds make to your financial intermediary, your financial intermediary and its salespersons may have a financial incentive to favor sales of shares of the mutual fund
complex making the higher payments over another mutual fund complex or over other investment options. You should consult with your financial intermediary and review
carefully the disclosure relating to the compensation your financial intermediary receives in connection with the investment products your financial intermediary recommends or sells to you. In certain instances, the payments could be significant and may cause a conflict of interest for your financial intermediary. Any such payments to a financial intermediary will not change the Fund's NAV, or the price of its shares, as such payments are not made from Fund assets.
For more information, please see the SAI.
Distribution Policy
The Fund intends to qualify as a regulated investment company under the Internal
Revenue Code, which requires annual distributions of net investment income and net capital gains to shareholders – the insurance company variable accounts. The Fund
may distribute net realized capital gains only once a year. Net investment income and capital gain distributions will be automatically reinvested in additional Fund shares of the same class at no charge, and are reflected in variable account values.
Contract owners ordinarily are not taxed on Fund distributions. In general, Contract
owners are taxed only on underlying Fund amounts they withdraw from their variable accounts. See the “Tax Information” section.
Financial
Highlights
Because the Fund did not commence operations prior to the
fiscal year end, no financial highlights are available.
General Information
The use of the Fund by both annuity and life insurance variable accounts is called mixed funding. Due to differences in redemption rates, tax treatment, or other considerations, the interests of contract owners under the variable life accounts may conflict with those of contract owners under the variable annuity accounts. Violation of the federal tax laws by one variable account investing in the Fund could cause the contracts funded through another variable account to lose their tax-deferred status, unless remedial action was taken. The Fund's Board will monitor for any material conflicts and determine what action, if any, the Fund or a variable account should take.
A conflict could arise that requires a variable account to redeem a substantial amount
of assets from the Fund. The redemption could disrupt orderly portfolio management to the detriment of those contract owners still investing in the Fund. Also, the Fund
could determine that it has become so large that its size materially impairs investment performance. The Fund would then examine its options, which could include imposition of redemption fees or temporarily closing the Fund to new investors.
You can find additional information in the Fund’s SAI, which is on file with the
SEC. The Fund incorporates its SAI, dated [September 7], 2021, into its prospectus. The Fund will provide a free copy of its SAI upon request.
You can find detailed information about the Fund’s investments in the
Fund’s annual and semi-annual reports to shareholders. The annual report discusses the market conditions and investment strategies that significantly affected the
Fund’s performance during its last fiscal year. The Fund will provide a free copy of its annual and semi-annual report upon request.
The Fund will issue unaudited semi-annual reports showing current investments and
other information; and annual financial statements audited by the Fund’s independent auditors. For an SAI or annual or semi-annual report, either write The Lincoln
National Life Insurance Company, P.O. Box 2340, Fort Wayne, Indiana 46801, or call 1-800-4LINCOLN (454-6265). You may also call this number to request other information about the Fund, or to make inquiries. The Fund's SAI and annual and semi-annual reports are available, free of charge, at https://www.lfg.com/LVIP.
You can also get reports and other information about the Fund on the EDGAR Database on the SEC’s Internet site at http://www.sec.gov. You can get copies of this information, after paying a duplicating fee, by electronic request at the following e-mail address: [email protected]. SEC File
No: 811-08090
Lincoln Variable Insurance Products Trust
Lincoln Nasdaq-100 Buffer Fund Sep
Lincoln
Nasdaq-100 Buffer Fund Dec
Lincoln Nasdaq-100 Buffer Fund Mar
1301 South Harrison Street
Fort Wayne, Indiana 46802
Statement of Additional Information
[September 7], 2021
This Statement of Additional Information (SAI),
which is not a prospectus, provides more information about the series named in the caption referred to as Fundsof Lincoln Variable Insurance Products Trust. Each Fund offers two classes of shares: Standard Class and
Service Class.
Since the Funds are new, the first annual or semiannual report to shareholders will be available after the Funds commence operations. This SAI should
be read in conjunction with each Funds prospectus dated [September 7], 2021 as may be amended or supplemented. You may obtain a copy of a Funds prospectus and annual or semi-annual report upon request and without charge. Please write The
Lincoln National Life Insurance Company, P.O. Box 2340, Fort Wayne, Indiana 46801 or call 800-4-LINCOLN (454-6265).
Table of Contents
Description of the Trust and the Funds
Lincoln Variable Insurance Products Trust (the Trust), a Delaware statutory trust formed on February 1, 2003, is an open-end management investment
company.
Each Fund is diversified within the meaning of the Investment Company Act of 1940 (the 1940 Act).
References to Adviser in this SAI include both Lincoln Investment Advisors Corporation (LIAC) and a Funds sub-adviser (if
applicable) unless the context otherwise indicates.
Fundamental Investment Restrictions
Each of the Funds has adopted certain fundamental policies and investment restrictions which may not be changed without a majority vote of a Funds outstanding
shares. Such majority is defined in the 1940 Act as the vote of the lesser of (1) 67% or more of the outstanding voting securities present at a meeting, if the holders of more than 50% of the outstanding voting securities are present in person
or by proxy, or (2) more than 50% of the outstanding voting securities. For purposes of the following restrictions: (a) all percentage limitations apply immediately after the making of an investment; and (b) any subsequent change in
any applicable percentage resulting from market fluctuations does not require elimination of any security from the portfolio (except for fundamental investment restriction 2 regarding borrowing).
Each Fund may not:
1. |
Make investments that will result in the concentration as that term may be defined in the 1940 Act, any rule or
order thereunder, or official interpretation thereof of its investments in the securities of issuers primarily engaged in the same industry, provided that this restriction does not limit the Fund from investing in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities, or in tax-exempt securities or certificates of deposit. |
2. |
Borrow money or issue senior securities, except as the 1940 Act, any rule or order thereunder, or official interpretation
thereof, may permit. |
3. |
Underwrite the securities of other issuers, except that the Fund may engage in transactions involving the acquisition,
disposition or resale of its portfolio securities, under circumstances where it may be considered to be an underwriter under the Securities Act of 1933. |
4. |
Purchase or sell real estate, unless acquired as a result of ownership of securities or other instruments and provided
that this restriction does not prevent the Fund from investing in issuers which invest, deal, or otherwise engage in transactions in real estate or interests therein, or investing in securities that are secured by real estate or interests therein.
|
5. |
Purchase or sell physical commodities, unless acquired as a result of ownership of securities or other instruments and
provided that this restriction does not prevent the Fund from investing in securities that are secured by physical commodities or engaging in transactions involving financial commodities, such as financial options, financial futures contracts,
options on financial futures contracts, and financial forward contracts. |
6. |
Make loans of any security or make any other loan if, as a result, more than 331/3% of its total assets would be lent to other parties, provided that this limitation does not apply to purchases of debt obligations, to
repurchase agreements, and to investments in loans, including assignments and participation interests. |
7. |
With respect to 75% of its total assets, invest in a security if, as a result of such investment: (a) more than 5%
of its total assets would be invested in the securities of any one issuer or (b) the fund would hold more than 10% of the outstanding voting securities of any one issuer; except that these restrictions do not apply to (i) securities issued
or guaranteed by the U.S. Government or its agencies or instrumentalities or (ii) securities of other investment companies. |
The Securities
and Exchange Commissions (SEC) staff has taken the position that, for purposes of the concentration disclosure requirement, a fund investing more than 25% of its assets in an industry may be concentrating in that industry.
Registration Form Used by Open-End Management Investment Companies, Investment Company Act Release No. 23064 (Mar. 13, 1998), at note 163. Notwithstanding fundamental investment restriction 1 above, a Fund may concentrate in a particular
industry to the extent that such concentration results from the Funds tracking or replication of an index.
The 1940 Act generally permits an open-end fund to
borrow money in amounts of up to one-third of the funds total assets from banks, and to borrow up to 5% of the funds total assets from banks or other lenders for temporary purposes. To limit the risks attendant to borrowing, the 1940 Act
generally requires an open-end fund to maintain at all times an asset coverage of at least 300% of the amount of its borrowings. Asset coverage generally means the ratio that the value of a funds total assets, minus
liabilities other than borrowings, bears to the aggregate amount of all borrowings.
Senior securities are generally fund obligations that have a
priority over the funds shares with respect to the payment of dividends or the distribution of fund assets. The 1940 Act generally prohibits an open-end fund from issuing senior securities, except that a fund may borrow money in amounts of up
to one-third of the funds total assets from banks. A fund also may borrow an amount equal to up to 5% of the funds total assets from banks or other lenders for temporary purposes, and these borrowings would not be considered senior
securities.
1
Manager of Managers
The Funds employ a manager of managers structure, which means that the Funds investment adviser may delegate the management of some or all of the
Funds investment portfolio to one or more sub-advisers. To use this structure, the Trust has received an exemptive order from the SEC (Release Nos. 29170 and 29197) to permit the Funds investment adviser with Fund Board approval
to enter into and amend a sub-advisory agreement for a Fund without shareholder approval, subject to certain conditions. For example, within ninety days of the hiring of a new sub-adviser, a Fund is required to furnish shareholders with
information that would be included in a proxy statement regarding the new sub-adviser. In addition, the Funds Adviser is not permitted to hire affiliated sub-advisers without shareholder approval.
What are the Underlying Funds?
The Funds are fund
of funds (Fund of Funds), which means that the Fund of Funds invests some or all of its assets in one or more other mutual funds or exchange-traded funds. For this structure, the Fund of Funds may rely on certain federal securities laws
that generally permit a fund to invest in affiliated and non-affiliated funds within certain percentage limitations and in other securities that are not issued by mutual funds. The Trust also has received an exemptive order from the SEC (Release
Nos. 29168 and 29196) to permit the Fund of Funds to acquire shares of affiliated and non-affiliated funds beyond the statutory limits, subject to certain conditions. The Fund of Funds may also rely on an exemptive order from the SEC issued to a
sub-adviser or an underlying fund.
The Fund of Funds relative weightings in the underlying funds will vary over time. The Fund of Funds are not required to
invest in any particular underlying fund. The Adviser or sub-adviser, as appropriate, may add, eliminate or replace underlying funds at any time and without notice and may invest in affiliated or non-affiliated funds or other types of investment
securities.
In October 2020, the SEC adopted certain regulatory changes and took other actions related to the ability of an investment company to invest in
another investment company. These changes include, among other things, the rescission of certain exemptive relief issued by the SEC permitting such investments in excess of statutory limits and the adoption of Rule 12d1-4, which will permit
such investments in excess of statutory limits, subject to certain conditions. The Fund of Funds may begin relying on Rule 12d1-4 after January 19, 2021. The rescission of exemptive relief is effective on January 19, 2022,
and after such time, the Funds of Funds will no longer be able to rely on the fund of funds exemptive orders and will be subject instead to Rule 12d1-4 and other applicable rules.
Additional Investment Strategies and Risks
The
principal investment strategies each Fund uses to pursue its investment objective and the risks of those strategies are discussed in the Funds prospectus.
Unless otherwise stated in the prospectus, investment strategies and techniques are generally discretionary. This means a Funds Adviser may elect to engage or not
engage in various strategies and techniques in its sole discretion. Investors should not assume that any particular discretionary investment technique or strategy will always or ever be employed by the Adviser to the Funds or by other mutual funds
in which a Fund invests (Underlying Funds).
The Funds operate using a Fund of Fund structure. Each Fund expects to invest its assets in FLEX Options and
another Underlying Fund. As a result, the Funds do not invest directly in some of the securities and other instruments described below, but are subject to their risks through investment in the Underlying Fund.
Information relating to an Underlying Fund is as of the Underlying Funds most recent prospectus and SAI. For additional and more current information
regarding an Underlying Fund, investors should read the Underlying Funds current prospectus and SAI.
The following provides additional information
concerning the investment strategies, either principal or discretionary, that the Funds may employ and additional information about the risks of those investment strategies.
Authorized Participant Concentration Risk. For an underlying exchange-traded fund (ETF), only an authorized participant may engage in
creation or redemption transactions directly with the ETF. The ETF may have a limited number of institutions that may act as authorized participants on an agency basis (i.e., on behalf of other market participants). To the extent that authorized
participants exit the business or are unable to proceed with creation or redemption orders with respect to the ETF and no other authorized participant is able to step forward to create or redeem creation units, the ETFs shares may
be more likely to trade at a premium or discount to NAV and possibly face trading halts or delisting.
Borrowing. Each Fund may borrow money from time to
time to the extent permitted under the 1940 Act, any rule or order thereunder, or official interpretation thereof. This means that, in general, each Fund may borrow money from banks for any purpose in an amount up to 1/3 of the Funds total
assets. Each Fund may also borrow money for temporary purposes in an amount not to exceed 5% of the Funds total assets.
The 1940 Act requires each Fund to
maintain continuous asset coverage (that is, total assets including borrowings, less liabilities exclusive of borrowings) of 300% of the amount borrowed, with an exception for borrowings not in excess of 5% of the Funds total assets made for
temporary
2
purposes. Any borrowings for temporary purposes in excess of 5% of a Funds total assets must maintain continuous asset coverage. If the 300% asset coverage should decline as a result of
market fluctuations or other reasons, a Fund may be required to sell some of its portfolio holdings within three days to reduce the debt and restore the 300% asset coverage, even though it may be disadvantageous from an investment standpoint to sell
securities at that time.
Borrowing may exaggerate the effect on net asset value of any increase or decrease in the market value of a Funds investment
portfolio. Money borrowed will be subject to interest costs and other fees, which could reduce a Funds return and may or may not be recovered by appreciation of the securities purchased. A Fund also may be required to maintain minimum average
balances in connection with such borrowing or to pay a commitment or other fee to maintain a line of credit; either of these requirements would increase the cost of borrowing over the stated interest rate. In addition, purchasing securities when a
Fund has borrowed money may involve an element of leverage.
Convertible Securities. Convertible securities are bonds, debentures, notes, preferred stocks or
other securities that may be converted or exchanged (by the holder or by the issuer) into shares of the underlying common stock (or cash or securities of equivalent value) at a stated exchange ratio. A convertible security may also be called for
redemption or conversion by the issuer after a particular date and under certain circumstances (including a specified price) established upon issue. If a convertible security held by a Fund is called for redemption or conversion, the Fund could be
required to tender it for redemption, convert it into the underlying common stock, or sell it to a third party.
Convertible securities generally have less
potential for gain or loss than common stocks. Convertible securities generally provide yields higher than the underlying common stocks, but generally lower than comparable non-convertible securities. Because of this higher yield, convertible
securities generally sell at prices above their conversion value, which is the current market value of the stock to be received upon conversion. The difference between this conversion value and the price of convertible securities will
vary over time depending on changes in the value of the underlying common stock and interest rates. When the underlying common stock declines in value, convertible securities will tend not to decline to the same extent because of the interest or
dividend payments and the repayment of principal at maturity for certain types of convertible securities. However, securities that are convertible other than at the option of the holder generally do not limit the potential for loss to the same
extent as securities convertible at the option of the holder. When the underlying common stock rises in value, the value of convertible securities may also be expected to increase. At the same time, however, the difference between the market value
of convertible securities and their conversion value will narrow, which means that the value of convertible securities will generally not increase to the same extent as the value of the underlying common stocks. Because convertible securities
generally are interest-rate sensitive, their value may increase as interest rates fall and decrease as interest rates rise. Convertible securities are also subject to credit risk, and are often lower-quality securities.
Cybersecurity. The use of technology is more prevalent in the financial industry, including the Funds management and operations, than in other industries.
As a result, the Funds are more susceptible to risks associated with the technologies, processes and practices designed to protect networks, systems, computers, programs and data from attack, damage or unauthorized access, or
cybersecurity. Such risks may include the theft, loss, misuse, improper release, corruption and/or destruction of, or unauthorized access to, confidential or restricted data relating to the Funds or shareholders, and the compromise or
failure of systems, networks, devices and applications relating to Fund operations. A cybersecurity breach may result in:
|
|
|
Financial losses to the Funds and shareholders; |
|
|
|
The inability of the Funds to timely process transactions or conduct trades; |
|
|
|
Delays or mistakes in materials provided to shareholders; |
|
|
|
Errors or delays in the calculation of Funds net asset values; |
|
|
|
Violations of privacy and other laws (including those related to identity theft); |
|
|
|
Regulatory fines, penalties and reputational damage; and |
|
|
|
Compliance and remediation costs, legal fees and other expenses. |
In addition, the noted risks may adversely impact LIAC, a Funds sub-adviser, if any, the Funds principal underwriter, administrator and other service
providers to the Funds, as well as financial intermediaries (e.g., insurance company record holders) and parties with which the Funds do business. These risks, in turn, could result in losses to the Funds and shareholders and disruptions to the
conduct of business between the Funds, shareholders, the Funds service providers and/or financial intermediaries. While measures have been developed that are designed to reduce cybersecurity risks and to mitigate or lessen resulting damages,
there is no guarantee that those measures will be effective, especially as different or unknown risks may emerge in the future. This is particularly the case because the Funds do not directly control the cybersecurity defenses or plans of their
service providers, financial intermediaries and other parties with which the Funds transact. There is also the risk that cybersecurity breaches may not be detected.
Equity Linked Securities. Equity linked securities are privately issued derivative securities which have a return component based on the performance of a single
security, a basket of securities, or an index. A Fund may invest up to 10% of its net assets in equity linked securities. Equity linked securities may be considered illiquid. In some instances, investments in equity linked securities may be subject
to the Funds limitation on investments in investment companies.
3
Equity Securities. Equity securities, such as common stock, represent an ownership interest, or the right to acquire
an ownership interest, in an issuer. Common stock generally takes the form of shares in a corporation. In addition to common stock, equity securities may include preferred stock, convertible securities and warrants. Equity securities may decline due
to general market conditions, which are not specifically related to a particular company or to factors affecting a particular industry or industries. Equity securities generally have greater price volatility than fixed-income securities.
Investments in equity securities are subject to a number of risks, including the financial risk of selecting individual companies that do not perform as anticipated and
the general risk that domestic and global economies have historically risen and fallen in periodic cycles. Many factors affect an individual companys performance, such as the strength of its management or the demand for its products or
services, and the value of a Funds equity investments may change in response to stock market movements, information or financial results regarding the issuer, general market conditions, general economic and/or political conditions, and other
factors.
Exchange-Traded Fund Investments. ETFs are a type of fund bought and sold on a securities exchange. An ETF trades like common stock and represents
a portfolio of securities. The Funds may invest in ETFs as a principal investment strategy and the Funds may also purchase an ETF to temporarily gain exposure to a portion of the U.S. or a foreign market while awaiting purchase of underlying
securities. The risks of owning an ETF generally reflect the risks of owning the underlying securities they are designed to track, although lack of liquidity in the market for shares of an ETF could result in it being more volatile. In addition,
investments in ETFs involve the risk that the market prices of ETF shares will fluctuate, sometimes rapidly and materially, in response to changes in the ETFs net asset value (NAV), the value of ETF holdings and supply and demand for ETF
shares. Although the creation/redemption feature of ETFs generally makes it more likely that ETF shares will trade close to NAV, market volatility, lack of an active trading market for ETF shares, disruptions at market participants (such as
authorized participants or market makers) and any disruptions in the ordinary functioning of the creation/redemption process may result in ETF shares trading significantly above (at a premium) or below (at a discount) NAV.
Additionally, to the extent an ETF holds securities traded in markets that close at a different time from the ETFs listing exchange, liquidity in such securities may be reduced after the applicable closing times. Furthermore, bid/ask spreads
and the resulting premium or discount to NAV of the ETFs shares may widen during the time when the ETFs listing exchange is open but after the applicable market closing, fixing or settlement times. Significant losses may result when
transacting in ETF shares in these and other circumstances. Neither LIAC nor the Trust can predict whether ETF shares will trade above, below or at NAV. An ETFs investment results are based on the ETFs daily NAV. Investors transacting in
ETF shares in the secondary market, where market prices may differ from NAV, may experience investment results that differ from results based on the ETFs daily NAV.
FLEX Options. FLEX Options are customized option contracts available through national securities exchanges that are guaranteed for settlement by the
Options Clearing Corporation (OCC). FLEX Options are listed on a U.S. national securities exchange. FLEX Options provide investors with the ability to customize assets and indices referenced by the options, exercise prices,
exercise styles (i.e., American-style, exercisable any time prior to the expiration date, or European-style, exercisable only on the option expiration date) and expiration dates, while achieving price discovery in competitive, transparent auctions
markets and avoiding the counterparty exposure of over-the-counter options positions. Each option contract entitles the holder thereof to purchase (for the call options) or sell (for the put options) shares of the reference asset at the strike
price.
The guarantees performance by each of the counterparties to the FLEX Options, becoming the buyer for every seller and the seller for every
buyer, with the goal of protecting clearing members and options traders from counterparty risk.
Certain Considerations Regarding Options. The FLEX
Options in which the Fund invests will be options on an exchange-traded fund (ETF and a Reference Asset). As such, the value of the Funds FLEX Options will fluctuate with changes in the value of the
securities held by the ETF, and thus the ETFs share price. Options on ETFs give the holder the right to receive an amount of cash upon exercise of the option. Receipt of this cash amount will depend upon the ETFs share price upon which
the option is based being greater than (in the case of a call) or less than (in the case of put) the exercise price of the option.
Each of the options exchanges
has established limitations governing the maximum number of call or put options on the same index that may be bought or written by a single investor, whether acting alone or in concert with others (regardless of whether such options are written on
the same or different exchanges or are held or written on one or more accounts or through one or more brokers). Under these limitations, option positions of all investment companies are combined for purposes of these limits. Pursuant to these
limitations, an exchange may order the liquidation of positions and may impose other sanctions or restrictions. These positions limits may restrict the number of listed options that the Fund may buy or sell.
The puts and calls on the Reference Asset are cash-settled and the gain or loss depends on changes in the value of the ETFs share price. When the Fund writes a
call on the ETF, it receives a premium and agrees that, prior to the expiration date, the purchaser of the call, upon exercise of the call, will receive from a Fund an amount of cash if the closing level of the ETFs share price upon which the
call is based is greater than the exercise price of the call. The amount of cash is equal to the difference between the closing price of the ETFs share price and the exercise price of the call times a specified multiple
(multiplier), which determines the total value for each point of such difference. When a Fund buys a call on the ETF, it pays a premium and has the same rights to such call as are indicated above. When a Fund buys a put on the ETF, it
pays a premium and has the right, prior to the expiration date, to require the seller of the put, upon the Funds exercise of the put, to deliver to such Fund an amount of cash if the closing level of the ETFs share price upon which the
put is based is less than the exercise price of the put, which amount of
4
cash is determined by the multiplier, as described above for calls. When a Fund writes a put on an ETF, it receives a premium and the purchaser of the put has the right, prior to the expiration
date, to require such Fund to deliver to it an amount of cash equal to the difference between the closing level of the ETFs share price and the exercise price times the multiplier if the closing level is less than the exercise price.
The value of an option, in general, will reflect, among other things, the current market value of the underlying investment, in the case of the Fund, the ETF, the time
remaining until expiration (end of the Outcome Period), the relationship of the exercise price to the market price of the underlying investment and general market conditions. Options that expire unexercised have no value.
Risks of Options on the Reference Assets. If the Fund has purchased an option and exercises it before the closing value for that day is available, it runs the
risk that the level of the Reference Asset may subsequently change. If such a change causes the exercised option to fall out of the money, the applicable Fund will be required to pay the difference between the closing Reference Asset value and the
exercise price of the option (times the applicable multiplier) to the assigned writer.
Asset Coverage on Options Positions. The Fund will comply with
guidelines established by the SEC with respect to coverage of options by investment companies, and if the guidelines so require, will set aside or earmark appropriate liquid assets in the amount prescribed. Such assets cannot be sold while the
option is outstanding, unless they are replaced with other suitable assets. As a result, there is a possibility that the reservation of a large percentage of a Funds assets could impede portfolio management or a Funds ability to meet
redemption requests or other current obligations.
Futures Contracts. The Funds may enter into contracts for the purchase or sale for future delivery of
fixed-income securities, foreign currencies or contracts based on financial indices, including interest rates or an index of U.S. Government securities, foreign government securities, equity securities, fixed-income securities or commodities. The
buyer or seller of a futures contract is not required to deliver or pay for the underlying instrument unless the contract is held until the delivery date. However, both the buyer and seller are required to deposit initial margin for the benefit of a
Futures Commission Merchant (FCM) when the contract is entered into and to maintain the required variation margin. In the event of the bankruptcy of an FCM that holds margin on behalf of the Fund, the Fund may be entitled to return of margin owed to
it only in proportion to the amount received by FCMs other customers. The adviser will attempt to minimize this risk by careful monitoring of the creditworthiness of the FCMs with which the Fund does business.
The ordinary spreads between prices in the cash and futures markets are subject to distortions due to differences in the nature of those markets. First, all
participants in the futures market are subject to initial margin and variation margin requirements. Rather than meeting additional variation margin requirements, investors may close out futures contracts through offsetting transactions, which can
distort the normal price relationship between the cash and futures markets. Second, the liquidity of the futures market depends on participants entering into offsetting transactions rather than making or taking delivery. To the extent participants
decide to make or take delivery, liquidity in the futures market could be reduced and prices in the futures market distorted. Third, from the point of view of speculators, the margin deposit requirements in the futures market are less onerous than
margin requirements in the securities market. Therefore, increased participation by speculators in the futures market may cause temporary price distortions. Due to the possibility of the foregoing distortions, a correct forecast of cash price trends
by the adviser still may not result in a successful use of futures.
Because futures contracts are generally settled within a day from the date they are closed out,
compared with a settlement period of three days for some types of securities, the futures markets may provide superior liquidity compared to the securities markets. Nevertheless, there is no assurance that a liquid secondary market will exist for
any particular futures contract at any particular time. In addition, futures exchanges may establish daily price fluctuation limits for futures contracts and may halt trading if a contracts price fluctuates by more than the limit on a given
day. On volatile trading days when the price fluctuation limit is reached, it may be impossible for a Fund to enter into new positions or close out existing positions. If the secondary market for a futures contract is not liquid because of price
fluctuation limits or otherwise, the Fund may not be able to promptly liquidate unfavorable futures positions and potentially could be required to continue to hold a futures position until the delivery date, regardless of changes in its value. As a
result, a Funds access to other assets held to cover its futures positions also could be impaired.
Although a Fund would deposit with the FCM margin
consisting of cash and liquid assets, these assets would be available to a Fund immediately upon closing out the futures position, while settlement of securities transactions could take several days. However, because a Funds cash that may
otherwise be invested would be held uninvested or invested in liquid assets so long as the futures position remains open, a Funds return could be diminished due to the opportunity losses of foregoing other potential investments.
Successful use of futures contracts as a hedge is subject to the ability of the adviser to correctly predict movements in the direction of interest rates or changes in
market conditions. These predictions involve skills and techniques that may be different from those involved in the management of the portfolio being hedged. In addition, there can be no assurance that there will be a correlation between movements
in the price of the underlying index or securities and movements in the price of the securities which are the subject of the hedge. A decision of whether, when and how to hedge involves the exercise of skill and judgment, and even a well-conceived
hedge may be unsuccessful to some degree because of market behavior or unexpected trends in interest rates or markets.
Pursuant to rules adopted by the Commodity
Futures Trading Commission (CFTC), each Fund has filed a notice claiming an exclusion from the definition of the term commodity pool operator (CPO) and, therefore, is not subject to registration or regulation as a commodity pool under
the Commodity Exchange Act (CEA). In 2012, the CFTC adopted rule amendments that significantly affected available exemptions. Funds operating as funds of funds have also claimed a temporary exemption from the definition of CPO under the
CEA and, therefore, are not currently subject to
5
registration or regulation as commodity pools under the CEA. To the extent any Funds are, or become, no longer eligible to claim an exclusion from CFTC regulation, these Funds may consider steps,
such as substantial investment strategy changes, in order to continue to qualify for exemption from CFTC regulation, or may determine to operate subject to CFTC regulation. With respect to Funds operating as funds of funds, when the
temporary exemption expires (which will occur when specific regulatory guidance is issued by the CFTC), each Fund will evaluate whether it continues to be eligible to claim an exclusion from CFTC regulation or if, considering any factors relevant
based on the nature of the regulatory guidance when it is issued, it should register and operate under CFTC regulation. Consequently, these Funds may incur additional expenses relating to CFTC compliance.
Illiquid Investments. The Funds may invest in securities or other investments that are considered illiquid. An illiquid investment is any investment that may not
reasonably be expected to be sold or disposed of in current market conditions in seven calendar days or less without the sale or disposition significantly changing the market value of the investment. A security or investment might be illiquid due to
the absence of a readily available market or due to legal or contractual restrictions on resale. The adviser determines the liquidity of investments purchased by the Funds, subject to the Funds liquidity risk management program, as approved by
the Board of Trustees.
The Funds may have to bear the expense of registering restricted securities for resale and risk the substantive delays in effecting such
registration. However, the Funds may avail themselves of Rule 144A under the Securities Act of 1933, which permits the Funds to purchase securities which have been privately placed and resell such securities to qualified institutional buyers.
Certain restricted securities that are not registered for sale to the general public but can be resold to institutional investors may not be considered illiquid, provided that a dealer or institutional trading market exists.
If the value of a Funds assets invested in illiquid investments at any time exceeds the limitation on illiquid investments, the Fund will take actions, if any are
appropriate, to maintain adequate liquidity.
Indexed Securities. Indexed securities are instruments whose prices are indexed to the prices of other
securities, securities indices, currencies, or other financial indicators. Indexed securities typically, but not always, are debt securities or deposits whose value at maturity or coupon rate is determined by reference to a specific instrument or
statistic.
Inflation-indexed bonds are fixed-income securities or other instruments whose principal value is periodically adjusted according to the rate of
inflation. Two structures are common. The U.S. Treasury and some other issuers use a structure that accrues inflation into the principal value of the bond. Most other issuers pay out the Consumer Price Index (CPI) accruals as part of a semi-annual
coupon.
Inflation-indexed securities issued by the U.S. Treasury have maturities of five, ten or thirty years, although it is possible that securities with other
maturities will be issued in the future. The U.S. Treasury securities pay interest on a semi-annual basis, equal to a fixed percentage of the inflation-adjusted principal amount. If the periodic adjustment rate measuring inflation falls, the
principal value of inflation-indexed bonds will be adjusted downward, and, consequently, the interest payable on these securities (calculated with respect to a smaller principal amount) will be reduced. Repayment of the original bond principal upon
maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury inflation-indexed bonds, even during a period of deflation. However, the current market value of the bonds is not guaranteed, and will fluctuate. A Fund may also invest
in other inflation related bonds which may or may not provide a similar guarantee. If a guarantee of principal is not provided, the adjusted principal value of the bond repaid at maturity may be less than the original principal. In addition, if a
Fund purchases inflation-indexed bonds offered by foreign issuers, the rate of inflation measured by the foreign inflation index may not be correlated to the rate of inflation in the United States.
The value of inflation-indexed bonds is expected to change in response to changes in real interest rates. Real interest rates, in turn, are tied to the relationship
between nominal interest rates and the rate of inflation. Therefore, if inflation were to rise at a faster rate than nominal interest rates, real interest rates might decline, leading to an increase in value of inflation-indexed bonds. In contrast,
if nominal interest rates increased at a faster rate than inflation, real interest rates might rise, leading to a decrease in value of inflation-indexed bonds. There can be no assurance, however, that the value of inflation-indexed bonds will be
directly correlated to changes in interest rates. While these securities are expected to be protected from long-term inflationary trends, short-term increases in inflation may lead to a decline in value. If interest rates rise due to reasons other
than inflation (for example, due to changes in currency exchange rates), investors in these securities may not be protected to the extent that the increase is not reflected in the bonds inflation measure. Any increase in the principal amount
of an inflation-indexed bond will be considered taxable ordinary income, even though investors do not receive their principal until maturity.
Mortgage-indexed
securities, for example, could be structured to replicate the performance of mortgage securities and the characteristics of direct ownership.
Currency-indexed
securities typically are short-term to intermediate-term debt securities whose maturity values or interest rates are determined by reference to the values of one or more specified foreign currencies and may offer higher yields than U.S.
dollar-denominated securities. Currency-indexed securities may be positively or negatively indexed; that is, their maturity value may increase when the specified currency value increases, resulting in a security that performs similarly to a
foreign-denominated instrument, or their maturity value may decline when foreign currency values increase, resulting in a security whose price characteristics are similar to a put on the underlying currency. Currency-indexed securities may also have
prices that depend on the value of a number of different foreign currencies relative to each other.
The performance of indexed securities depends to a great extent
on the performance of the security, currency, or other instrument to which they are indexed, and may also be influenced by interest rate changes in the United States and abroad. Indexed securities may be more volatile than the underlying
investments. Indexed securities are also subject to the credit risks associated with the issuer of the security, and their values may
6
decline substantially if the issuers creditworthiness deteriorates. Common issuers of indexed securities have included banks, corporations, and certain U.S. Government agencies.
Investment in Securities of Other Investment Companies. Under the 1940 Act, a Fund (other than a fund of funds) generally may not own more than 3% of the
outstanding voting stock of an investment company, invest more than 5% of its total assets in any one investment company, or invest more than 10% of its total assets in the securities of investment companies. Such investments may include, but are
not limited to, open-end investment companies, closed-end investment companies and unregistered investment companies.
A Fund operating as a fund of
funds may rely on certain federal securities laws to permit it to invest in affiliated investment companies without limit, non-affiliated investment companies within the statutory limits described above and in other securities that are not
issued by investment companies. The Funds have received an exemptive order from the SEC (Release Nos. 29168 and 29196) to permit a Fund to acquire shares of affiliated and non-affiliated investment companies beyond the statutory limits
described above, subject to certain conditions.
If a Fund invests its assets in shares of underlying funds, the Fund is exposed to the
investments made by the underlying funds. By investing in the Fund, therefore, you indirectly assume the same types of risks as investing directly in the underlying funds. A Funds investment performance is affected by each
underlying funds investment performance, and the Funds ability to achieve its investment objective depends, in large part, on each underlying funds ability to meet its investment objective. In addition, Fund shareholders
indirectly bear the expenses charged by the underlying funds.
In October 2020, the SEC adopted certain regulatory changes and took other actions related to the
ability of an investment company to invest in another investment company. These changes include, among other things, the rescission of certain exemptive relief issued by the SEC permitting such investments in excess of statutory limits and the
adoption of Rule 12d1-4, which will permit such investments in excess of statutory limits, subject to certain conditions. The rescission of exemptive relief is effective one year after the effective date of Rule 12d1-4. After such time, the Funds of
Funds will no longer be able to rely on the fund of funds exemptive orders and will be subject instead to Rule 12d1-4 and other applicable rules.
Lincoln
National Corporation (LNC) Securities. LNC is a publicly-held insurance holding company organized under Indiana law. Through its subsidiaries, LNC provides insurance and financial services nationwide. The Funds are prohibited from directly
purchasing securities issued by LNC or any affiliate thereof, except that a Fund may hold shares of LNC or affiliates thereof if the Fund is an index fund (or invests in an index fund) whose investment strategies seek to track the investment
performance of a broad-based index. A Fund may indirectly hold shares of LNC or affiliates thereof if the Fund invests in underlying funds which are not advised by affiliates of LNC.
Money Market Instruments. Money market instruments include bank time deposits, certificates of deposit, commercial paper, loan participations and bankers
acceptances. Bank time deposits are funds kept on deposit with a bank for a stated period of time in an interest-bearing account. Certificates of deposit are certificates issued against funds deposited in a bank or financial institution, are for a
definite period of time, earn a specified rate of return, and are normally negotiable. Commercial paper is a short-term note with a maturity of up to nine months issued by banks, corporations or government bodies. Loan participations are short-term,
high-quality participations in selected commercial bank loans issued by creditworthy banks.
Bankers acceptances are short-term credit instruments used to
finance commercial transactions. Generally, a bankers acceptance is a time draft or bill of exchange drawn on a bank by an exporter or an importer to obtain a stated amount of funds to pay for specific merchandise. The draft is then accepted
by a bank that, in effect, unconditionally guarantees to pay the face value of the instrument on its maturity date. Bankers acceptances may be purchased in the secondary market at the going rate of discount for a specific maturity. Although
maturities for bankers acceptances can be as long as 270 days, most bankers acceptances have maturities of six months or less.
Investing in debt
obligations, such as money market instruments, primarily involves credit risk and interest rate risk. Credit risk is the risk that the issuer of the debt obligation will be unable to make interest or principal payments on time. A debt
obligations credit rating reflects the credit risk associated with that debt obligation. Higher-rated debt obligations involve lower credit risk than lower-rated debt obligations. Credit risk is generally higher for corporate debt obligations
than for U.S. government securities. The value of debt obligations also will typically fluctuate with interest rate changes. These fluctuations can be greater for debt obligations with longer maturities. When interest rates rise, debt obligations
will generally decline in value and you could lose money as a result. Periods of declining or low interest rates may negatively impact an investments yield. A Fund may invest in collective investment vehicles, the assets of which consist
principally of money market instruments.
Operational Risk. Each Fund is exposed to operational risks arising from a number of factors, including, but not
limited to, human error, processing and communication errors, errors of the Funds service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. Each Fund and the adviser (and
sub-adviser, if any) seek to reduce these operational risks through controls and procedures. However, these measures do not completely eliminate such risk or address every possible risk and may be inadequate to address significant operational risks.
Options on Futures Contracts. A Fund may purchase and sell (write) call and put options on futures contracts and enter into closing transactions with
respect to such options to terminate existing positions. A Fund may use options on futures contracts in lieu of writing or buying options directly on the underlying securities or purchasing and selling the underlying futures contracts. For example,
to hedge against a possible decrease in the
7
value of its portfolio securities, a Fund may purchase put options or write call options on futures contracts rather than selling futures contracts. Similarly, a Fund may purchase call options or
write put options on futures contracts as a substitute for the purchase of futures contracts to hedge against a possible increase in the price of securities which the Fund expects to purchase. Such options generally operate in the same manner as
options purchased or written directly on the underlying investments.
As with options on securities, the holder or writer of an option may terminate the position by
selling or purchasing an offsetting option. There is no guarantee that such closing transactions can be effected.
A Fund will be required to deposit initial margin
and maintenance margin with respect to put and call options on futures contracts written by it pursuant to brokers requirements similar to those described above.
Options on Securities. The Funds may purchase and sell (write) put and call options on securities that are traded on United States and foreign securities
exchanges and over-the-counter and on indices of securities. By purchasing a put option, the purchaser obtains the right (but not the obligation) to sell the options underlying instrument at a fixed strike price. In return for this right, the
purchaser pays the current market price for the option (known as the option premium). Options have various types of underlying instruments, including specific securities, indices of securities prices, and futures contracts. The purchaser may
terminate its position in a put option by allowing it to expire or by exercising the option. If the option is allowed to expire, the purchaser will lose the entire premium. If the option is exercised, the purchaser completes the sale of the
underlying instrument at the strike price. A purchaser may also terminate a put option position by closing it out in the secondary market at its current price, if a liquid secondary market exists. The buyer of a typical put option can expect to
realize a gain if security prices fall substantially. However, if the underlying instruments price does not fall enough to offset the cost of purchasing the option, a put buyer can expect to suffer a loss (limited to the amount of the premium,
plus related transaction costs).
The features of call options are essentially the same as those of put options, except that the purchaser of a call option obtains
the right to purchase, rather than sell, the underlying instrument at the options strike price. A call buyer typically attempts to participate in potential price increases of the underlying instrument with risk limited to the cost of the
option if security prices fall. At the same time, the buyer can expect to suffer a loss if security prices do not rise sufficiently to offset the cost of the option.
The writer of a put or call option takes the opposite side of the transaction from the options purchaser. In return for receipt of the premium, the writer of a
put option assumes the obligation to pay the strike price for the options underlying instrument if the other party to the option chooses to exercise it. The writer may seek to terminate a position in a put option before exercise by closing out
the option in the secondary market at its current price. If the secondary market is not liquid for a put option, however, the writer must continue to be prepared to pay the strike price while the option is outstanding, regardless of price changes.
When writing an option on a futures contract, a Fund will be required to make margin payments to a futures commission merchant (FCM) as described below for futures contracts.
If security prices rise, a put writer would generally expect to profit, although its gain would be limited to the amount of the premium it received. If security prices
remain the same over time, it is likely that the writer will also profit, because it should be able to close out the option at a lower price. If security prices fall, the put writer would expect to suffer a loss. This loss should be less than the
loss from purchasing the underlying instrument directly, however, because the premium received for writing the option should mitigate the effects of the decline.
Writing a call option obligates the writer to sell or deliver the options underlying instrument, in return for the strike price, upon exercise of the option. The
characteristics of writing call options are similar to those of writing put options, except that writing calls generally is a profitable strategy if prices remain the same or fall. Through receipt of the option premium, a call writer mitigates the
effects of a price decline. At the same time, because a call writer must be prepared to deliver the underlying instrument in return for the strike price, even if its current value is greater, a call writer gives up some ability to participate in
security price increases.
The successful use of a Funds options strategies depends on the ability of the adviser to forecast correctly market movements. For
example, if the Fund were to write a call option based on the advisers expectation that the price of the underlying security would fall, but the price were to rise instead, the Fund could be required to sell the security upon exercise at a
price below the current market price. Similarly, if the Fund were to write a put option based on the advisers expectation that the price of the underlying security would rise, but the price were to fall instead, the Fund could be required to
purchase the security upon exercise at a price higher than the current market price.
When the Fund purchases an option, it runs the risk that it will lose its
entire investment in the option in a relatively short period of time, unless the Fund exercises the option or enters into a closing sale transaction before the options expiration. If the price of the underlying security does not rise (in the
case of a call) or fall (in the case of a put) to an extent sufficient to cover the option premium and transaction costs, the Fund will lose part or all of its investment in the option. This contrasts with an investment by the Fund in the underlying
security, since the Fund will not lose any of its investment in such security if the price does not change.
A Funds written options positions will be covered
at all times. A call option written by a Fund will be deemed to be covered if the Fund holds the underlying instrument or an option on the underlying instrument with an exercise price equal to or less than the exercise price of the call written. A
put option written by a Fund will be deemed to be covered if the Fund holds a put option on the same instrument with an exercise price equal to or greater than the exercise price of the put option written by the Fund. A Fund may also cover a written
options position by segregating cash or liquid securities equal to the Funds net uncovered obligation.
The effective use of options also depends on a
Funds ability to terminate option positions at times when the adviser deems it desirable to do so. Although a Fund will take an option position only if the adviser believes there is a liquid secondary market for the option, there is no
assurance that a Fund will be able to effect closing transactions at any particular time or at an acceptable price.
8
If a secondary market in options were to become unavailable, a Fund could no longer engage in closing transactions. Lack of
investor interest might adversely affect the liquidity of the market for particular options or series of options. A market may discontinue trading of a particular option or options generally. In addition, a market could become temporarily
unavailable if unusual events, such as volume in excess of trading or clearing capability, were to interrupt its normal operations.
A market may at times find it
necessary to impose restrictions on particular types of options transactions, such as opening transactions. For example, if an underlying security ceases to meet qualifications imposed by the market or the OCC, new series of options on that security
will no longer be opened to replace expiring series, and opening transactions in existing series may be prohibited. If an options market were to become unavailable, the Fund as a holder of an option would be able to realize profits or limit losses
only by exercising the option, and the Fund, as option writer, would remain obligated under the option until expiration or exercise.
Disruption in the markets for
the securities underlying options purchased or sold by the Fund could result in losses on the option. If trading is interrupted in an underlying security, the trading of options on that security is normally halted as well. As a result, the Fund as
purchaser or writer of an option will be unable to close out its positions until options trading resumes, and it may be faced with considerable losses if trading in the security reopens at a substantially different price. In addition, the OCC or
other options markets may impose exercise restrictions. If a prohibition on exercise is imposed at the time when trading in the option has also been halted, the Fund as purchaser or writer of an option will be locked into its position until one of
the two restrictions has been lifted. If the OCC were to determine that the available supply of an underlying security appears insufficient to permit delivery by the writers of all outstanding calls in the event of exercise, it may prohibit
indefinitely the exercise of put options. The Fund, as holder of such a put option could lose its entire investment if the prohibition remained in effect until the put options expiration and the Fund was unable either to acquire the underlying
security or to sell the put option in the market.
OTC Options. Unlike exchange-traded options, which are standardized with respect to the underlying
instrument, expiration date, contract size, and strike price, the terms of over-the-counter (OTC) options (options not traded on exchanges) generally are established through negotiation with the other party to the option contract. While this type of
arrangement allows the purchaser or writer greater flexibility to tailor an option to its needs, OTC options generally involve greater credit risk than exchange-traded options, which are guaranteed by the clearing organization of the exchanges where
they are traded.
Pledging Assets. A Fund may not pledge, hypothecate, mortgage or otherwise encumber its assets in excess of 15% of its total assets (taken
at current value) and then only to secure borrowings permitted by the Borrowing restriction. The deposit of underlying securities and other assets in escrow and other collateral arrangements with respect to margin for derivative
instruments shall not be subject to the foregoing 15% requirement.
Private companies. The Funds may invest in private companies which can involve greater
risks than those associated with investing in publicly traded companies. For example, the securities of a private company may be subject to the risk that market conditions, developments within the company, investor perception, or regulatory
decisions may delay or prevent the company from ultimately offering its securities to the public. Furthermore, these investments are generally considered to be illiquid until a companys public offering and are often subject to additional
contractual restrictions on resale that would prevent a Fund from selling their company shares for a period of time following the public offering.
Investments in
private companies can offer a Fund significant growth opportunities at attractive prices. However, these investments can pose greater risk, and, consequently, there is no guarantee that positive results can be achieved in the future.
Repurchase Agreements. In a repurchase agreement, a Fund purchases a security and simultaneously commits to resell that security to the seller at an agreed upon
price on an agreed upon date within a number of days (usually not more than seven) from the date of purchase. The resale price reflects the purchase price plus an agreed upon incremental amount that is unrelated to the coupon rate or maturity of the
purchased security. A repurchase agreement involves the obligation of the seller to pay the agreed upon price, which obligation is in effect secured by the value (at least equal to the amount of the agreed upon resale price and marked-to-market
daily) of the underlying security. Certain Funds may also invest in purchase and sale contracts. A purchase and sale contract is similar to a repurchase agreement, but purchase and sale contracts also provide that the purchaser receives any interest
on the security paid during the period.
A Fund may engage in a repurchase agreement with respect to any security in which it is authorized to invest. While it is
not possible to eliminate all risks from these transactions (particularly the possibility of a decline in the market value of the underlying securities, as well as delays and costs to a Fund in the event of bankruptcy of the seller), it is the
policy of a Fund to limit repurchase agreements to those parties whose creditworthiness has been reviewed and found satisfactory by the adviser. In addition, the collateral will be segregated and will be marked-to-market daily to determine that the
full value of the collateral, as specified in the agreement, does not decrease below 102% of the purchase price plus accrued interest. If such decrease occurs, additional collateral will be requested and, when received, added to maintain full
collateralization. In the event of a default or bankruptcy by a selling financial institution, a Fund will seek to liquidate such collateral. However, a Fund may incur delay and costs in selling the underlying security or may suffer a loss of
principal and interest if the Fund is treated as an unsecured creditor and required to return the underlying collateral to the sellers estate.
Reverse
Repurchase Agreements. In a reverse repurchase agreement, a Fund sells a security to another party, such as a bank or broker-dealer, in return for cash and agrees to repurchase that security at an agreed-upon price and time. Reverse repurchase
agreements may be used to provide cash to satisfy unusually heavy redemption requests or for other temporary or emergency purposes without the necessity of selling portfolio securities, or to earn additional income on portfolio securities.
9
Because a reverse repurchase agreement may constitute borrowing, while a reverse repurchase agreement is outstanding, a
Fund will segregate appropriate liquid assets to cover its obligation under the agreement. The Fund will enter into reverse repurchase agreements only with parties that the adviser deems creditworthy. Such transactions may increase fluctuations in
the market value of the Funds assets and may be viewed as a form of leverage.
Rights and Warrants. Each Fund may invest in rights and warrants which
entitle the holder to buy equity securities at a specified price for a specific period of time. Rights and warrants do not entitle a holder to dividends or voting rights with respect to the securities which may be purchased, nor do they represent
any rights to the assets of the issuing company. The value of a right or warrant may be more volatile than the value of the underlying securities. Also, their value does not necessarily change with the value of the underlying securities. Warrants
can be a speculative instrument. The value of a warrant may decline because of a decrease in the value of the underlying stock, the passage of time or a change in perception as to the potential of the underlying stock or any other combination. If
the market price of the underlying stock is below the exercise price set forth in the warrant on the expiration date, the warrant will expire worthless. Warrants generally are freely transferable and are traded on the major stock exchanges. Rights
and warrants purchased by a Fund which expire without being exercised will result in a loss to the Fund.
Short Sales. A Fund may engage in short sales,
including short sales against the box. Short sales (other than against the box) are transactions in which a Fund sells an instrument it does not own in anticipation of a decline in the market value of that instrument. A short sale against the box is
a short sale where at the time of the sale, the Fund owns or has the right to obtain instruments equivalent in kind and amounts. To complete a short sale transaction, the Fund must borrow the instrument to make delivery to the buyer. The Fund then
is obligated to replace the instrument borrowed by purchasing it at the market price at the time of replacement. The price at such time may be more or less than the price at which the instrument was sold by the Fund. Until the instrument is
replaced, the Fund is required to pay to the lender amounts equal to any interest or dividends which accrue during the period of the loan. To borrow the instrument, the Fund also may be required to pay a premium, which would increase the cost of the
instrument sold. There will also be other costs associated with short sales.
The Fund will incur a loss as a result of the short sale if the price of the
instrument increases between the date of the short sale and the date on which the Fund replaces the borrowed instrument. Unlike taking a long position in an instrument by purchasing the instrument, where potential losses are limited to the purchase
price, short sales have no cap on maximum loss. The Fund will realize a gain if the instrument declines in price between those dates. This result is the opposite of what one would expect from a cash purchase of a long position in an instrument.
Until the Fund replaces a borrowed instrument in connection with a short sale, the Fund will (a) designate on its records as collateral cash or liquid assets at
such a level that the designated assets plus any amount deposited with the broker as collateral will equal the current value of the instrument sold short or (b) otherwise cover its short position in accordance with applicable law. The amount
designated on the Funds records will be marked to market daily. This may limit the Funds investment flexibility, as well as its ability to meet redemption requests or other current obligations.
There is no guarantee that the Fund will be able to close out a short position at any particular time or at an acceptable price. During the time that the Fund is short
an instrument, it is subject to the risk that the lender of the instrument will terminate the loan at a time when the Fund is unable to borrow the same instrument from another lender. If that occurs, the Fund may be bought in at the
price required to purchase the instrument needed to close out the short position, which may be a disadvantageous price. Thus, there is a risk that a Fund may be unable to fully implement its investment strategy due to a lack of available instruments
or for some other reason. It is possible that the market value of the instruments a Fund holds in long positions will decline at the same time that the market value of the instruments a Fund has sold short increases, thereby increasing a Fund
potential volatility. Short sales also involve other costs. The Fund must normally repay to the lender an amount equal to any dividends or interest that accrues while the loan is outstanding. In addition, to borrow the instrument, the Fund may be
required to pay a premium. The Fund also will incur transaction costs in effecting short sales. The amount of any ultimate gain for the Fund resulting from a short sale will be decreased, and the amount of any ultimate loss will be increased, by the
amount of premiums, dividends, interest or expenses the Fund may be required to pay in connection with the short sale.
A Fund may enter into short sales on
derivative instruments with a counterparty, which will subject the Fund to the risk that the counterparty will not be able to meet its obligations.
When a Fund
enters into a short sale against the box, the Fund does not immediately deliver the instruments sold and is said to have a short position in those instruments until delivery occurs. If the Fund effects a short sale of instruments against the box at
a time when it has an unrealized gain on the instruments, it may be required to recognize that gain as if it had actually sold the instruments (as a constructive sale) on the date it effects the short sale. However, such constructive
sale treatment may not apply if the Fund closes out the short sale with instruments other than the appreciated Instruments held at the time of the short sale and if certain other conditions are satisfied.
Special Situations. A Fund may invest in certain securities under special situations. A special situation arises when, in the advisers opinion, the
securities of a particular company will be recognized and will appreciate in value due to a specific development at that company. Developments creating a special situation might include a new product or process, a management change, a technological
breakthrough or another event considered significant. Investment in special situations may carry an additional risk of loss in the event that the anticipated development does not occur or does not attract the expected attention.
A Fund may invest in the securities of companies which have been in continuous operation for less than three years, or have capitalizations of less than $250 million at
the time of purchase. Securities of these companies may have limited liquidity which can result in their being priced lower than
10
they may be otherwise. Investments in unseasoned or smaller companies are more speculative and involve greater risk than do investments in companies with established operating records or that are
larger.
Spreads and Straddles. In addition to the options strategies described previously, a Fund may engage in spread transactions in which it purchases
and writes a put or call option on the same underlying instrument, with the options having different exercise prices and/or expiration dates. A Fund may also engage in so-called straddles, in which it purchases or sells combinations of put and call
options on the same instrument. Spread and straddle transactions require the Fund to purchase and/or write more than one option simultaneously. Accordingly, a Funds ability to enter into such transactions and to liquidate its positions when
necessary or deemed advisable may be more limited than if a Fund were to purchase or sell a single option. Similarly, costs incurred by a Fund in connection with these transactions will in many cases be greater than if a Fund were to purchase or
sell a single option.
A call option included in a spread or straddle will be deemed to be covered if a Fund holds an option on the same instrument with an exercise
price equal to or less than the exercise price of the call written (or, where the exercise price is greater than that of the option written by a Fund, if a Fund segregates cash or liquid securities equal to the difference). Similarly, a put option
included in a spread or straddle will be deemed to be covered if a Fund holds a put option on the same instrument with an exercise price equal to or greater than the exercise price of the put option written by a Fund (or, where the exercise price is
less than that of the option written by a Fund, if a Fund segregates cash or liquid securities equal to the difference).
Stock Index Futures. A stock index
futures contract does not require the physical delivery of securities, but merely provides for profits and losses resulting from changes in the market value of the contract to be credited or debited at the close of each trading day to the respective
accounts of the parties to the contract. On the contracts expiration date, a final cash settlement occurs and the futures positions are simply closed out. Changes in the market value of a particular stock index futures contract reflect changes
in the specified index of equity securities on which the future is based. Stock index futures may be used to hedge the equity portion of a Funds securities portfolio with regard to market risk (involving the markets assessment of
over-all economic prospects), as distinguished from stock-specific risk (involving the markets evaluation of the merits of the issuer of a particular security). By establishing an appropriate short position in stock index futures,
a Fund may seek to protect the value of its portfolio against an overall decline in the market for equity securities. Alternatively, in anticipation of a generally rising market, a Fund can seek to avoid losing the benefit of apparently low current
prices by establishing a long position in stock index futures and later liquidating that position as particular equity securities are in fact acquired. To the extent that these hedging strategies are successful, a Fund will be affected
to a lesser degree by adverse overall market price movements, unrelated to the merits of specific portfolio equity securities, than would otherwise be the case.
Structured Products. A Fund may invest in structured products, including instruments such as credit-linked securities, commodity-linked notes and structured
notes, which are potentially high-risk derivatives. For example, a structured product may combine a traditional stock, bond, or commodity with an option or forward contract. Generally, the principal amount, amount payable upon maturity or
redemption, or interest rate of a structured product is tied (positively or negatively) to the price of some commodity, currency or securities index or another interest rate or some other economic factor (each a benchmark). The interest rate or
(unlike most fixed-income securities) the principal amount payable at maturity of a structured product may be increased or decreased, depending on changes in the value of the benchmark. An example of a structured product could be a bond issued by an
oil company that pays a small base level of interest with additional interest that accrues in correlation to the extent to which oil prices exceed a certain predetermined level. Such a structured product would be a combination of a bond and a call
option on oil.
Structured products can be used as an efficient means of pursuing a variety of investment goals, including currency hedging, duration management,
and increased total return. Structured products may not bear interest or pay dividends. The value of a structured product or its interest rate may be a multiple of a benchmark and, as a result, may be leveraged and move (up or down) more steeply and
rapidly than the benchmark. These benchmarks may be sensitive to economic and political events, such as commodity shortages and currency devaluations, which cannot be readily foreseen by the purchaser of a structured product. Under certain
conditions, the redemption value of a structured product could be zero. Thus, an investment in a structured product may entail significant market risks that are not associated with a similar investment in a traditional, U.S. dollar-denominated bond
that has a fixed principal amount and pays a fixed rate or floating rate of interest. The purchase of structured products also exposes a Fund to the credit risk of the issuer of the structured product. These risks may cause significant fluctuations
in the net asset value of a Fund.
Certain structured products may provide exposure to the commodities markets. These are derivative securities with one or more
commodity-linked components that have payment features similar to commodity futures contracts, commodity options, or similar instruments (commodity-linked notes). Commodity-linked notes may be either equity or debt securities, leveraged or
unleveraged, and have both security and commodity-like characteristics. A portion of the value of these instruments may be derived from the value of a commodity, futures contract, index or other economic variable. The purchase of commodity-linked
notes will expose a Fund to the credit risk of the issuer of the commodity-linked product. Commodity-linked notes may also be more volatile, relatively less liquid, and more difficult to price accurately than less complex securities and instruments
or more traditional debt securities.
Structured notes are derivative debt instruments, the interest rate or principal of which is determined by an unrelated
indicator (for example, a currency, security, commodity or index thereof). The terms of the instrument may be structured by the purchaser and the borrower issuing the note. The terms of structured notes may provide that in certain circumstances no
principal is due at maturity, which may result in a loss of invested capital. Issuers of structured notes include corporations and banks. Structured notes may be positively or negatively indexed, so that appreciation of the unrelated indicator may
produce an increase or a decrease in the interest rate or the value of the structured note at maturity may be calculated as a specified multiple of the change in the value of the unrelated indicator. Therefore, the value of such notes and securities
may be very volatile. Structured notes may entail a greater degree of market risk than other types of debt securities because the investor bears the risk of
11
the unrelated indicator. Structured notes also may be more volatile, relatively less liquid, and more difficult to accurately price than less complex securities and instruments or more
traditional debt securities.
Certain issuers of structured products may be deemed to be investment companies as defined in the 1940 Act. As a result, a Funds
investments in these structured products may be subject to limits applicable to investments in investment companies and may be subject to restrictions contained in the 1940 Act.
Swaps. Swap agreements are two-party contracts entered into primarily by institutional investors for periods ranging from a few weeks to more than one year. In a
standard swap transaction, two parties agree to exchange the returns (or differential in rates of return) earned or realized on particular predetermined investments or instruments, which may be adjusted for an interest factor. The gross returns to
be exchanged or swapped between the parties are generally calculated with respect to a notional amount, i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate, or in a
basket of securities representing a particular index.
An interest rate swap is a contract in which two parties exchange different types of interest
payment streams, pegged to an underlying notional principal amount. Another type of swap is an inflation swap in which one party transfers inflation risk to another party through an exchange of cash flows. One of the parties pays a fixed rate tied
to a notional principal amount, while the other party pays a floating rate tied to an inflation index.
A cap is a contract for which the buyer pays a fee, or
premium, to obtain protections against a rise in a particular interest rate above a certain level. For example, an interest rate cap may cover a specified principal amount of a loan over a designated time period, such as a calendar quarter. If the
covered interest rate rises above the rate ceiling, the seller of the rate cap pays the purchaser an amount of money equal to the average rate differential times the principal amount times one-quarter. A floor is a contract in which the seller
agrees to pay to the purchaser, in return for the payment of a premium, the difference between current interest rates and an agreed (strike) rate times the notional amount, should interest rates fall below the agreed level (the floor). A floor
contract has the effect of a string of interest rate guarantees.
Swap transactions, caps and floors are typically net basis contracts (i.e., the two payment
streams are netted out, with the Fund receiving or paying as the case may be, only the net amount of the two payments). The net amount of the excess, if any, of a Funds obligations over its entitlement with respect to each transaction will be
calculated on a daily basis and an amount of cash or liquid assets having an aggregate net asset value at least equal to the accrued excess may be required to be posted as collateral with the counterparty as security for such obligations.
A Fund may enter into a credit default swap (CDS) contract, which is an instrument by which one party transfers to another party the financial risk of a certain credit
event as it relates to a particular reference security or basket of securities (such as an index). In exchange for the protection given by the seller of the CDS contract, the purchaser of the protection agrees to pay the seller of the protection a
periodic premium. The Fund might use CDS contracts to limit or to reduce the risk exposure of the Fund to defaults of the issuers of its holdings or to decreases in certain markets. The Fund might also sell protection and use CDS contracts to
increase or vary exposure to certain securities or markets. As the seller of protection, in the event a credit event occurs, the seller of protection has the obligation to make the purchaser whole or pay an agreed upon amount in return for the
transfer to the seller of protection of the reference securities.
CDS contracts do not involve netting, but require the payment of a premium by the purchaser of
protection and if a credit event occurs, the delivery to the seller of protection of the reference securities, securities equal in value to the reference securities or the negotiated monetary value of the obligation. If a credit event occurs, the
seller of protection has the obligation to make the purchaser of protection whole or pay an agreed upon amount. If the Fund enters into a swap transaction on other than a net basis, such as with a CDS contract, the Fund will post cash or other
liquid assets as collateral to cover its obligations under the swap transaction.
The use of swaps is a highly specialized activity that involves investment
techniques and risks different from those associated with ordinary portfolio transactions. Whether the Funds use of these transactions will be successful in furthering its investment objective will depend on a sub-advisers ability to
predict correctly whether certain types of investments are likely to produce greater returns than other investments.
A significant risk in swap transactions is the
creditworthiness of the counterparty because the integrity of the transaction depends on the ability of the counterparty to meet its contractual obligations. If there is a default by the other party to such a transaction, the Fund will have
contractual remedies pursuant to the agreements related to the transaction. In the event of a counterpartys (or its affiliates) insolvency, a Funds ability to exercise remedies, such as the termination of transactions, netting of
obligations and realization on collateral, could be stayed or eliminated under special resolution regimes adopted in the United States, the EU and various other jurisdictions. Such regimes generally provide government authorities with broad
authority to intervene when a financial institution is experiencing financial difficulty. In the EU, the regulatory authorities could reduce, eliminate or convert to equity the liabilities to a fund of a counterparty subject to such proceedings
(sometimes referred to as a bail in). Currently, some transactions are required to be centrally cleared. Swap transactions that are not centrally cleared may be relatively less liquid than exchange-traded instruments and are subject to
margin requirements that will be implemented on a phased-in basis. Central clearing is expected to decrease counterparty risk by interposing the central clearinghouse as the counterparty to each of the parties to the original bi-lateral swap
contract.
To Be Announced (TBA) Investments Risk. TBA transactions include when-issued and delayed delivery securities and forward commitments. These
transactions involve a commitment by the Fund to purchase securities for a predetermined price or yield with payment and delivery taking place after a period longer than the customary settlement period for that type of security. TBA transactions
involve the risks that the security the Fund buys will lose value prior to its delivery and that the counterparty will default. The Fund is subject to this risk whether or not the Fund takes delivery of the securities on the settlement date for a
transaction. There is also the risk that the security will not be issued or that the other party to the transaction will not meet its obligation. If this occurs, the Fund loses both the investment opportunity for the assets it set aside to pay for
the
12
security and any gain in the securitys price. TBAs may also have a leverage-like effect on the Fund and may cause the Fund to be more volatile. To the extent the Fund rolls over
TBA agreements prior to the settlement date, the Fund may experience higher portfolio turnover and increased taxable gains.
Temporary Defensive Strategies.
In response to market, economic, political or other conditions, a Fund may temporarily use a different investment strategy or take temporary defensive positions that are inconsistent with the Funds principal investment strategies, including
but not limited to, holding a substantial portion of the Funds assets in cash or cash equivalents, including securities issued or guaranteed by the U.S. government, its agencies or instrumentalities. If a Fund does so, different factors could
affect performance and a Fund may not achieve its investment objectives.
SEC Names Rule Requirement
Lincoln Nasdaq-100 Buffer Fund Sep. The Funds policy of normally investing at least 80% of its net assets in FLEX Options that reference the Invesco QQQ
TrustSM, Series 1 or, in an underlying fund which tracks the same index as that tracked by the Invesco QQQ TrustSM, Series 1, is a
non-fundamental policy changeable only upon 60 days prior notice to shareholders.
Lincoln Nasdaq-100 Buffer Fund Dec. The Funds policy of
normally investing at least 80% of its net assets in FLEX Options that reference the Invesco QQQ TrustSM, Series 1 or, in an underlying fund which tracks the same index as that tracked by the
Invesco QQQ TrustSM, Series 1, is a non-fundamental policy changeable only upon 60 days prior notice to shareholders.
Lincoln Nasdaq-100 Buffer Fund Mar. The Funds policy of normally investing at least 80% of its net assets in FLEX Options that reference the Invesco QQQ
TrustSM, Series 1 or, in an underlying fund which tracks the same index as that tracked by the Invesco QQQ TrustSM, Series 1, is a
non-fundamental policy changeable only upon 60 days prior notice to shareholders.
More about the
Nasdaq-100® Index. The Fund is not sponsored, endorsed, sold or promoted by Nasdaq, Inc. or its affiliates (Nasdaq, with its affiliates, are referred to as the
Corporations). The Corporations have not passed on the legality or suitability of, or the accuracy or adequacy of descriptions and disclosures relating to, the Product(s). The Corporations make no representation or warranty,
express or implied to the owners of the Fund or any member of the public regarding the advisability of investing in securities generally or in the Fund particularly, or the ability of the
Nasdaq-100® Index to track general stock market performance. The Corporations only relationship to Lincoln Investment Advisors Corporation (Licensee) is in the licensing
of the Nasdaq®, Nasdaq-100® Index, and certain trade names of the Corporations and the use of the Nasdaq-100® Index, which is determined, composed and calculated by Nasdaq without regard to Licensee or the Fund. Nasdaq has no obligation to take the needs of the Licensee or the owners of the Fund
into consideration in determining, composing or calculating the Nasdaq-100® Index. The Corporations are not responsible for and have not participated in the determination of the timing of,
prices at, or quantities of the Fund to be issued or in the determination or calculation of the equation by which the Fund is to be converted into cash. The Corporations have no liability in connection with the administration, marketing or
trading of the Fund.
THE CORPORATIONS DO NOT GUARANTEE THE
ACCURACY AND/OR UNINTERRUPTED CALCULATION OF NASDAQ-100 INDEX®
OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS MAKE NO WARRANTY, EXPRESS
OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF
THE PRODUCT(S), OR ANY OTHER PERSON OR ENTITY FROM THE USE
OF THE NASDAQ-100 INDEX® OR ANY DATA INCLUDED THEREIN.
THE CORPORATIONS MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM
ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR
USE WITH RESPECT TO THE NASDAQ-100 INDEX® OR ANY
DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO
EVENT SHALL THE CORPORATIONS HAVE ANY LIABILITY FOR ANY LOST PROFITS
OR SPECIAL, INCIDENTAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES, EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
Portfolio Transactions and Brokerage
The Funds Adviser or sub-advisers (as applicable) (collectively referred to as the Adviser) are responsible for
decisions to buy and sell securities and other investments for each Fund, and for the selection of brokers and dealers to effect the transactions and the negotiation of brokerage commissions, if any. Purchases and sales of securities on an exchange
are effected through brokers who charge a commission for their services. A particular broker may charge different commissions according to such factors as the difficulty and size of the transaction. Transactions in foreign securities generally
involve the payment of fixed brokerage commissions, which are generally higher than those in the United States. There is generally no stated commission in the case of securities traded in the over-the-counter markets, but the price paid by the Fund
usually includes an undisclosed dealer commission or mark-up. In the U.S. Government securities market, securities are generally traded on a net basis with dealers acting as principal for their own accounts without a stated commission, although the
price of the securities usually includes a profit to the dealer. In underwritten offerings, securities are purchased at a fixed price which includes an amount of compensation to the underwriter, generally referred to as the underwriters
concession or discount. On occasion, certain money market instruments may be purchased directly from an issuer, in which case no commissions or discounts are paid.
The Adviser currently provides investment advice to a number of other clients. The Adviser will allocate purchase and sale transactions among each of the Funds and
other clients whose assets are managed in such manner as is deemed equitable. In making such allocations, among the
13
major factors the Adviser considers are the investment objectives of the relevant Fund, the relative size of portfolio holdings of the same or comparable securities, the availability of cash for
investment, the size of investment commitments generally held, and the opinions of the persons responsible for managing the Funds and other client accounts. Securities of the same issuer may be purchased, held, or sold at the same time by a Fund or
other accounts or companies for which the Adviser provides investment advice (including affiliates of the Adviser, as the case may be).
On occasions when the
Adviser deems the purchase or sale of a security to be in the best interest of a Fund, as well as its other clients, the Adviser, to the extent permitted by applicable laws and regulations, may aggregate such securities to be sold or purchased for a
Fund with those to be sold or purchased for its other clients in order to obtain best execution. 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 Adviser in a
manner it considers to be equitable and consistent with its fiduciary obligations to all such clients, including a Fund. In some instances, the procedures may impact the price and size of the position obtainable for a Fund.
In connection with effecting portfolio transactions, consideration will be given to securing the most favorable price and efficient execution. Within the framework of
this policy, the reasonableness of commission or other transaction costs is a major factor in the selection of brokers and is considered together with other relevant factors, including financial responsibility, confidentiality (including trade
anonymity), research and investment information and other services provided by such brokers. It is expected that, as a result of such factors, transaction costs charged by some brokers may be greater than the amounts other brokers might charge. The
Adviser may determine in good faith that the amount of such higher transaction costs is reasonable in relation to the value of the brokerage and research services provided.
The Board of Trustees will review the reasonableness of commissions and other transaction costs incurred from time to time and will receive reports regarding brokerage
practices. The nature of the research services provided to the Adviser by brokerage firms varies from time to time but generally includes current and historical financial data concerning particular companies and their securities; information and
analysis concerning securities markets and economic and industry matters; and technical and statistical studies and data dealing with various investment opportunities; and risks and trends, all of which the Adviser regards as a useful supplement of
its own internal research capabilities.
The Adviser may from time to time direct trades to brokers which have provided specific brokerage or research services for
the benefit of the clients of the Adviser; in addition, the Adviser may allocate trades among brokers that generally provide such services. Research services furnished by brokers are for the benefit of all the clients of the Adviser and not solely
or necessarily for the benefit of the Funds. The Adviser believes that the value of research services received is not determinable and does not significantly reduce its expenses. A Fund does not reduce its fee to the Adviser by any amount that might
be attributable to the value of such services.
As of the date of this SAI, the Funds have not commenced operations, and therefore, have paid no brokerage
commissions.
Brokerage and Research Services
As of the date of this
SAI, the Funds have not commenced operations, and therefore, no fees for brokerage and research services have been paid.
Purchases of Securities of
Regular Brokers or Dealers
The Funds have not acquired holdings of its regular brokers or dealers (as defined under Rule 10b-1 of the 1940 Act)
that derived more than 15% of its gross revenues from the business of a broker, a dealer, an underwriter, or an investment adviser during the regular brokers or dealers most recent fiscal year.
No Commissions to Finance Distribution
The 1940 Act permits a Fund to use
its selling brokers to execute transactions in portfolio securities only if the Fund or its adviser has implemented policies and procedures designed to ensure that the selection of brokers for portfolio securities transactions is not influenced by
considerations relating to the sale of Fund shares. Accordingly, the Funds maintain, among other policies, a policy that prohibits them from directing to a broker-dealer in consideration for the promotion or sale of Fund shares: (a) Fund
portfolio securities transactions; or (b) any commission or other remuneration received or to be received from the Funds portfolio transactions effected through any other broker-dealer. The Funds have also established other policies and
procedures designed to ensure that a Funds brokerage commissions are not used to finance the distribution of Fund shares.
Portfolio Turnover
A portfolio turnover rate is
the percentage computed by dividing the lesser of a Funds purchases or sales of securities (excluding short-term securities) by the average market value of the Funds portfolio securities. The Adviser intends to manage each Funds
assets (except for the LVIP Government Money Market Fund) by buying and selling securities to help attain its investment objective. This may result in increases or decreases in a Funds current income available for distribution to its
shareholders. While the Funds are not managed with the intent of generating short-term capital gains, each Fund may dispose of investments (including money market instruments) regardless of the holding period if, in the opinion of the Adviser, an
issuers creditworthiness or perceived changes in a companys growth prospects or asset value make selling them advisable. Such an
14
investment decision may result in a high portfolio turnover rate during a given period, resulting in increased transaction costs, including brokerage commissions, dealer mark-ups and other
transaction costs on the sale of the securities and reinvestment in other securities. These effects of higher than normal portfolio turnover may adversely affect a Funds performance.
As of the date of this SAI, the Funds have not yet commenced operations, therefore, no portfolio turnover rate information is provided.
Trustees and Officers
The Board of Trustees
(Board of Trustees or the Board) oversees the management of the Funds and elects the Trusts officers. The Trustees of the Trust (Trustees) have the power to amend the Trusts bylaws, to declare and pay
dividends, and to exercise all the powers of the Trust except those granted to the shareholders. The Trustees hold their position until their resignation, retirement, or their successors are elected and qualified. The Trust has a mandatory
retirement policy for its Board of Trustees. Such policy requires that a Trustee retire from the Board at the end of the calendar year (December 31) in which the Trustee turns 75 years old.
The Trusts officers are responsible for the Funds day-to-day operations. Information pertaining to the Trustees and Executive Officers of the Trust is set
forth below. The Trustee that is deemed an interested person, as defined in the 1940 Act, is included in the table titled, Interested Trustee. Trustees who are not interested persons are referred to as Independent Trustees.
The term Fund Complex includes the 104 series of the Lincoln Variable Insurance Products Trust.
15
Interested Trustee
|
|
|
|
|
|
|
|
|
|
|
Name, Address and Year of Birth |
|
Position(s) Held With the Funds |
|
Term of Office and Length of Time Served |
|
Principal Occupation(s) during Past Five Years |
|
Number of Funds in Fund Complex Overseen by Trustee |
|
Other Board Memberships Held by Trustee during Past Five Years |
|
|
|
|
|
|
Jayson R. Bronchetti* 150 N. Radnor-Chester Road
Radnor, PA 19087 YOB: 1979 |
|
Chairman and Trustee |
|
Since June 2021 |
|
Since April 2016, Director and President, Lincoln Investment Advisors Corporation; SVP, Head of Funds Management & Corporate Fixed Income, The Lincoln National Life Insurance Company. |
|
105 |
|
Lincoln Investment Advisors Corporation; CITRS, Inc. |
* |
Mr. Bronchetti is an interested person of the Trust because he is a Director and officer of Lincoln Investment Advisors
Corporation, the investment adviser to the Trust, and an officer of The Lincoln National Life Insurance Company, the parent company of the Trusts investment adviser. |
Independent Trustees
|
|
|
|
|
|
|
|
|
|
|
Name, Address and Year of Birth |
|
Position(s) Held With the Funds |
|
Term of Office and Length of Time Served |
|
Principal Occupation(s) during Past Five Years |
|
Number of Funds in Fund Complex Overseen by Trustee |
|
Other Board Memberships Held by Trustee during Past Five Years |
|
|
|
|
|
|
Steve A. Cobb 1300 S. Clinton Street
Fort Wayne, IN 46802 YOB: 1971 |
|
Trustee |
|
Since January 2013 |
|
Managing Director, CID Capital (private equity firm) |
|
105 |
|
Formerly: Lincoln Advisors Trust |
|
|
|
|
|
|
Barbara L. Lamb 1300 S. Clinton Street
Fort Wayne, IN 46802 YOB: 1954 |
|
Trustee |
|
Since February 2019 |
|
Managing Director for Finance and
Administration, WH Trading, LLC (derivatives trading firm); Formerly: Managing
Director, Cheiron Trading LLC (derivatives trading firm) |
|
105 |
|
South Suburban Humane Society; Formerly: Trustee of Henderson Global Funds (2014-2017) |
16
|
|
|
|
|
|
|
|
|
|
|
Name, Address and Year of Birth |
|
Position(s) Held With the Funds |
|
Term of Office and Length of Time Served |
|
Principal Occupation(s) during Past Five Years |
|
Number of Funds in Fund Complex Overseen by Trustee |
|
Other Board Memberships Held by Trustee during Past Five Years |
|
|
|
|
|
|
Gary D. Lemon, Ph.D. 1300 S. Clinton Street
Fort Wayne, IN 46802 YOB: 1948 |
|
Trustee |
|
Since February 2006 |
|
Professor of Economics and Management, DePauw University, Chair of
Economics and Management DePauw
University; Formerly: Joseph Percival Allen, III, University Professor;
James W. Emison Director of the Robert C. McDermond Center for Management and
Entrepreneurship |
|
105 |
|
Formerly: Lincoln Advisors Trust |
|
|
|
|
|
|
Thomas A. Leonard 1300 S. Clinton Street
Fort Wayne, IN 46802 YOB: 1949 |
|
Trustee |
|
Since December 2013 |
|
Retired; Formerly: Partner of Pricewaterhouse Coopers LLP (accounting
firm) |
|
105 |
|
Copeland Capital Trust since 2010 (mutual fund); Formerly: Lincoln
Advisors Trust |
|
|
|
|
|
|
Charles I. Plosser 1300 S. Clinton Street
Fort Wayne, IN 46802 YOB: 1948 |
|
Trustee |
|
Since January 2018 |
|
Retired; Formerly: Chief Executive Officer and President of
Federal Reserve Bank of Philadelphia, Inc. |
|
105 |
|
Public Governor for the Financial Industry Regulatory Authority
(FINRA) |
|
|
|
|
|
|
Pamela L. Salaway 1300 S. Clinton Street
Fort Wayne, IN 46802 YOB: 1957 |
|
Trustee |
|
Since December 2013 |
|
Retired; Formerly: Chief Risk Officer, Bank of Montreal/Harris
Financial Corp. U.S. Operations |
|
105 |
|
Formerly: Lincoln Advisors Trust |
|
|
|
|
|
|
Brian W. Wixted 1300 S. Clinton Street
Fort Wayne, IN 46802 YOB: 1959 |
|
Trustee |
|
Since February 2019 |
|
Senior Consultant, CKC Consulting and an Advisory Partner, AI Capital;
Formerly: Senior Vice President, Finance, and Fund Treasurer,
Oppenheimer Funds, Inc. (mutual fund complex) |
|
105 |
|
None |
|
|
|
|
|
|
Nancy B. Wolcott 1300 S. Clinton Street
Fort Wayne, IN 46802 YOB: 1954 |
|
Trustee |
|
Since October 2017 |
|
Retired; Formerly: EVP, BNY Mellon; President, PNC Global Investment Servicing |
|
105 |
|
FundVantage Trust |
17
Officers Who Are Not Trustees
|
|
|
|
|
|
|
Name, Address and
Year of Birth |
|
Position(s) Held With the Funds |
|
Term of Office and Length of Time Served |
|
Principal Occupation(s) during Past Five Years |
|
|
|
|
Jayson R. Bronchetti 150 N. Radnor-Chester Road
Radnor, PA 19087 YOB: 1979 |
|
President |
|
Since April 2016; Formerly: Vice President August 2015 to April 2016 |
|
Director and President, Lincoln Investment Advisors Corporation; Vice President and Head of Funds Management, The Lincoln National Life Insurance Company. |
|
|
|
|
William P. Flory, Jr. 1300 S. Clinton Street
Fort Wayne, IN 46802 YOB: 1961 |
|
Vice President, Treasurer, and Chief Accounting Officer |
|
Vice President since June 2011; Chief Accounting Officer since May 2006;
Treasurer since June 2019 |
|
Vice President and Treasurer, Lincoln Investment Advisors Corporation; Vice President and Director of Separate Account Operations and Mutual Fund
Administration, The Lincoln National Life Insurance Company; Formerly: Second Vice President, Director of Separate Account Operations, The Lincoln National Life
Insurance Company. |
|
|
|
|
Samuel K. Goldstein 150 N. Radnor-Chester Road
Radnor, PA 19087 YOB: 1976 |
|
Vice President and Assistant Secretary |
|
Since June 2019 |
|
Vice President and Assistant Secretary, Lincoln Investment Advisors Corporation; Vice President, The Lincoln National Life Insurance Company; Vice President, Lincoln Life & Annuity Company of New York; Vice President, Lincoln
National Corporation. |
|
|
|
|
Ronald A. Holinsky 150 N. Radnor-Chester Road
Radnor, PA 19087 YOB: 1970 |
|
Senior Vice President, Secretary, and Chief Legal Officer |
|
Since August 2018; Formerly: Vice President since October 2016 |
|
Senior Vice President and Head of Funds Management & Investments Law, The Lincoln National Life Insurance Company; Senior Vice President, Secretary, and Chief Legal Officer, Lincoln Investment Advisors Corporation; Formerly:
Vice President and Chief Counsel Funds Management, The Lincoln National Life Insurance Company; Vice President, Chief Compliance Officer and Assistant General Counsel, Lincoln National Corporation; Vice President, Secretary, and Chief Legal
Officer, Lincoln Investment Advisors Corporation. |
|
|
|
|
Matthew S. MacMillen 150 N. Radnor-Chester Road
Radnor, PA 19087 YOB: 1966 |
|
Vice President |
|
Since June 2015 |
|
Vice President, Lincoln Investment Advisors Corporation; Vice President and Head of Tax, The Lincoln National Life Insurance
Company; Formerly: Senior Vice President and Chief Financial Officer, Sun Life Financial U.S.; Vice President, Investment Finance, Sun Life Financial
U.S. |
|
|
|
|
Jennifer M. Matthews 1300 S. Clinton Street
Fort Wayne, IN 46802 YOB: 1976 |
|
Vice President |
|
Since April 2018 |
|
Vice President, Lincoln Investment Advisors Corporation; Vice President, The Lincoln National Life Insurance Company. |
|
|
|
|
Benjamin A. Richer 150 N. Radnor-Chester Road
Radnor, PA 19087 YOB: 1984 |
|
Vice President |
|
Since April 2018 |
|
Vice President, Lincoln Investment Advisors Corporation; Vice President, The Lincoln National Life Insurance Company; Formerly: Director of Asset Strategies, Nationwide Fund Advisors. |
|
|
|
|
Harold Singleton III 150 N. Radnor-Chester Road
Radnor, PA 19087 YOB: 1962 |
|
Vice President |
|
Since September 2014 |
|
Vice President, Lincoln Investment Advisors Corporation; Vice President, Head of Client Portfolio Management, The Lincoln National Life Insurance
Company; Formerly, Managing Director, Pinebridge Investments. |
|
|
|
|
John (Jack) A. Weston One Granite Place
Concord, NH 03301 YOB: 1959 |
|
Vice President and Chief Compliance Officer |
|
Since May 2007 |
|
Vice President and Chief Compliance Officer, Lincoln Investment Advisors Corporation; Vice President, The Lincoln National Life Insurance Company. |
18
|
|
|
|
|
|
|
|
|
|
|
Amber Williams 150 N. Radnor-Chester Road
Radnor, PA 19087 YOB: 1979 |
|
Vice President |
|
Since May 2019 |
|
Vice President, Lincoln Investment Advisors Corporation; Vice President, Lincoln Life & Annuity Company of New York; Vice President, Lincoln National Corporation; Vice President, The Lincoln National Life Insurance Company;
Formerly, Head of Product Management, Nationwide Investment Management Group |
|
|
|
|
Yajun (Alex) Zeng 150 N. Radnor-Chester Road
Radnor, PA 19087 YOB: 1982 |
|
Vice President |
|
Since April 2018 |
|
Vice President, Lincoln Investment Advisors Corporation; Vice President, The Lincoln National Life Insurance Company. |
19
Trustee Qualifications
The
following is a brief description of the experience and attributes of each Trustee that led the Board to conclude that each Trustee is qualified to serve on the Trusts Board of Trustees. References to the experience and attributes of Trustees
are pursuant to requirements of the Securities and Exchange Commission (SEC), and are not holding out the Board of Trustees or any Trustee as having any special expertise and shall not impose any greater responsibility or liability on any Trustee or
on the Board of Trustees.
Jayson R. Bronchetti. Mr. Bronchetti has served as Director and President of Lincoln Investment Advisors Corporation since
August 2016. Mr. Bronchetti also serves as an officer of The Lincoln National Life Insurance Company. Mr. Bronchetti joined Lincoln Financial Group in 2013. Mr. Bronchetti previously served as Executive Director of Debt Capital
Markets for J.P. Morgan. He has also held positions in private equity, fixed income asset management, credit research, and trading with Macquarie Investments and Bank of America. He is a founding Chapter Executive of the Chartered Alternative
Investment Analyst (CAIA) Society of Philadelphia and has served as a board member on several private equity owned companies and charitable foundations. Mr. Bronchetti received a bachelors degree in finance, with a minor in
economics, from Miami University in Oxford, Ohio. He is also a graduate of the Executive Development Program at the Wharton School of the University of Pennsylvania. Mr. Bronchetti is a member of the CFA Society of Philadelphia, and holds
Series 7, Series 79, and Series 63 securities licenses.
Steve A. Cobb. Mr. Cobb has served as a Trustee of Lincoln Variable Insurance Products Trust
since 2013. He is currently a Managing Director of CID Capital (CID), a private equity firm he joined in 2001. Mr. Cobb is currently a director of Grandview Gallery (designer and distributor of residential lighting products), Classic
Accessories (a provider of outdoor cover products), and Fit and Fresh (a manufacturer of consumer housewares products). He has previously served as a director of multiple other companies. Mr. Cobb is a founder and past Director of the Indiana
Chapter of the Association for Corporate Growth. He is a past director of several community non-profit organizations. Prior to joining CID, Mr. Cobb was a finance manager with Procter & Gamble where he held a variety of operational and
financial roles, including financial analysis, accounting, and internal controls. Through his experience, Mr. Cobb provides the Board with over twenty years of financial, accounting and business management insight.
Barbara L. Lamb. Ms. Lamb has served as a Trustee of Lincoln Variable Insurance Products Trust since 2019. She is currently a Managing Director of Finance
and Administration for WH Trading, LLC, a derivatives trading firm. Ms. Lamb served as a Managing Director of Cheiron Trading LLC from 2012-2015 and a Financial Officer for Valorem Law Group, LLC from 2008-2009. Previously, she served as Chief
Development Officer for Market Liquidity, LLC from 1999-2001. Ms. Lamb served as Chief Credit Officer, Senior Vice President, and Director for The Chicago Corporation from 1986-1998 and in several finance and development positions from
1980-1986. Ms. Lamb holds the Chartered Financial Analyst Designation and is a member of the CFA Institute of Chicago. Through her experience, Ms. Lamb provides the board with risk management and investing insight.
Gary D. Lemon, Ph.D. Dr. Lemon has served as Advisory Trustee of Lincoln Variable Insurance Products Trust from 2004 to 2006 and as a Trustee since 2006.
Dr. Lemon has a Masters Degree and Ph.D. in Economics. Since 1976, Dr. Lemon has been a Professor of Economics and Management at DePauw University and is the current Chair of the Economics and Management department. Dr. Lemon
was formerly the James W. Emison Director of the Robert C. McDermond Center for Management and Entrepreneurship at DePauw University. He is a former member of the Greencastle City Council and the Greencastle Redevelopment Commission. He is an author
of a book on investing. He has also served on several other committees and in various advisory roles in both the community and university settings. Through his experience, Dr. Lemon brings academic and investment insight.
Thomas A. Leonard. Mr. Leonard has served as a Trustee of Lincoln Variable Insurance Products Trust since 2013. Mr. Leonard retired from
Pricewaterhouse Coopers, LLP in 2008, where he had served as Financial Services Industry Leader in the firms Philadelphia office from 2000-2008 and from 1982-2008 as a Partner providing services to clients predominately in the asset management
business with a focus on global fund complexes and insurance company retail and variable funds. Mr. Leonard is currently a board member of Copeland Capital Trust and was previously a board member of AlphaOne Capital and WT Mutual Fund. Since
2012, Mr. Leonard has served as a consultant to the FundVantage Trust. Through his experience, Mr. Leonard provides the Board with accounting, auditing and financial services industry experience.
Charles I. Plosser. Mr. Plosser has served as a Trustee of Lincoln Variable Insurance Products Trust since 2018. Since January 2016, he has served as a
Public Governor for FINRA, the Financial Industry Regulatory Authority, where he serves on the Investment Committee and the Finance, Operations and Technology Committee. Mr. Plosser served as the Chief Executive Officer and President of Federal
Reserve Bank of Philadelphia, Inc. from August 2006 to March 2015 and as Chairman of the Investment Committee of the Federal Reserve System Retirement Systems. Mr. Plosser was the John M. Olin Distinguished Professor of Economics and Public
Policy and Director of the Bradley Policy Research Center at the William E. Simon Graduate School of Business Administration at the University of Rochester, where he also served as Dean from 1993 to 2003. Mr. Plosser was also a professor of
economics in the Department of Economics at the University of Rochester, a senior research associate at the Rochester Center for Economic Research in the Universitys College of Arts and Science and a research associate at the National Bureau
of Economic Research in Cambridge, Massachusetts. He has also been a visiting scholar at the Bank of England and Federal Reserve Bank of Minneapolis. He has served as a consultant to numerous corporations, including Chase Manhattan Bank, Eastman
Kodak Company and The Wyatt Company, on topics ranging from strategic planning and forecasting to portfolio and pension fund management, capital budgeting and financial analysis. Through his experience, Mr. Plosser provides federal banking
experience and economic knowledge.
20
Pamela L. Salaway. Ms. Salaway has served as a Trustee of Lincoln Variable Insurance Products Trust since 2013.
Ms. Salaway retired from the Bank of Montreal/Harris Financial Corp in 2010 where she most recently had served as Chief Risk Officer of BMOs U.S. operations from 2007 to 2009 and as the Harris Financial Corp Personal & Commercial
Line of Business Chief Credit Officer/Chief Risk Officer from 2007 to 2010. From 2000 to 2006, she served in a variety of Executive Management positions within the Risk Management Group of BMO Harris Bank. During this time, she participated in audit
committee meetings of the board and coordinated risk oversight committee meetings of the board. Through her experience, Ms. Salaway provides the Board with risk management and business experience.
Brian W. Wixted. Mr. Wixted has served as a Trustee of Lincoln Variable Insurance Products Trust since 2019. Since 2016, he has served as a consultant for
CKC Consulting and since 2019, as an Advisory Partner with AI Capital. Mr. Wixted served as the Senior Vice President of Finance and Fund Treasurer of the Oppenheimer Funds from 1999-2016. He served as the Principal and Chief Operating Officer
of Bankers Trust Companys Mutual Funds Group from 1995-1999 and the Vice President and Chief Financial Officer for CS First Boston Investment Management Corp from 1991-1995. Mr. Wixted served as Vice President and Accounting Manager with
Merrill Lynch Asset Management from 1987-1991. From 1981-1987, he held several accounting positions with brokerage and accounting firms. Mr. Wixted holds a Certified Public Accountant designation and is a member of the American Institute of
Certified Public Accountants and the New York State Society of Certified Public Accountants. Through his experience, Mr. Wixted provides mutual fund, investment management and financial services industry insight.
Nancy B. Wolcott. Ms. Wolcott has served as a Trustee of Lincoln Variable Insurance Products Trust since 2017. She was Executive Vice President and Head of
GFI Client Service Delivery at BNY Mellon Asset Servicing from 2012 to 2014. Ms. Wolcott served as Executive Vice President and Head of U.S. Funds Services at BNY Mellon Asset Servicing from July 2010 to January 2012. She served as the
President of BNY Mellon Distributors Holdings Inc. (formerly, PNC Global Investment Servicing Inc.) from December 2008 to July 2010 and served as its Chief Operating Officer from 2007 to 2008. Prior to that, Ms. Wolcott served as Executive Vice
President of the predecessor firm, PFPC Worldwide Inc., from 2006 to 2007. She joined PNC in 1996 and served as its Executive Vice President with PNC Advisors before coming to Global Investment Servicing in 2000. Prior to PNC, she served as the Head
of Corporate and Institutional Trust at HarrisBank/Bank of Montreal. Through her experience, Ms. Wolcott provides banking and financial insight.
Board
Oversight
The primary responsibility of the Board of Trustees is to represent the interests of the Trusts shareholders and to provide oversight of the
management. The Trusts day-to-day operations are managed by the adviser and other service providers who have been approved by the Board. The Board is currently composed of ten trustees, nine of whom are classified under the 1940 Act as
non-interested persons of the Trust (Independent Trustees) and one of whom is classified as an interested person of the Trust (Interested Trustee). The Interested Trustee serves as the Chairperson of the Board.
The Board has a Lead Independent Trustee that serves as the primary liaison between Trust management and the Independent Trustees. The Lead Independent Trustee is
selected by the Independent Trustees and serves until a successor is selected. Mr. Leonard currently serves as the Lead Independent Trustee.
Generally, the
Board acts by majority vote of all the Trustees, including a majority vote of the Independent Trustees if required by applicable law. The Board establishes the policies and reviews and approves contracts and their continuance. The Board regularly
requests and/or receives reports from the investment adviser, the Trusts other service providers and the Trusts Chief Compliance Officer. The Board has established three standing committees and has delegated certain responsibilities to
those committees. The Board and its committees meet periodically throughout the year to oversee the Trusts activities, review the Funds expenses, oversee compliance with regulatory requirements, and review investment performance. The
Independent Trustees are represented by independent legal counsel at Board meetings.
As part of its general oversight of the Trust, the Board is involved in the
risk oversight of the Trust. The Board/Investment Committee reviews the Funds investment performance with the Adviser at each of its regularly scheduled quarterly Board meetings. In addition, the Board must approve any material changes to a
Funds investment policies or restrictions. With respect to compliance matters, the Trusts Chief Compliance Officer provides the annual compliance report required by Rule 38a-1 under the 1940 Act, a quarterly report to the Audit Committee
and the Board regarding the operation of the Trusts compliance policies and procedures and any material compliance issues that arose during the quarter, and meets with the Audit Committee at its quarterly meetings.
The Board considered the number of Funds in the Trust, the total assets of the Trust and the general nature of the Funds investments and determined that its
leadership structure is appropriate given the characteristics of the Trust.
Board Committees
Audit Committee. The Board of Trustees has established an Audit Committee. The Audit Committee oversees the Funds financial reporting process on behalf of
the Board of Trustees and reports its activities to the Board. The Audit Committee assists and acts as a liaison with the Board of Trustees in fulfilling the Boards responsibility to shareholders of the Trust and others relating to oversight
of Fund accounting, the Trusts systems of controls, the Trusts programs for monitoring compliance with laws and regulations, and the quality and integrity of the financial statements, financial reports, and audit of the Trust. In
addition, the Audit Committee oversees the Trusts accounting policies, financial reporting and internal control systems. The members of the Audit Committee include Independent Trustees: Thomas A. Leonard, Charles I. Plosser, Brian W. Wixted
(Chair), and Nancy B. Wolcott. The Audit Committee met four times during the last fiscal year.
21
Investment Committee. The Board of Trustees has established an Investment Committee, which is responsible for
overseeing the performance of the Funds and other tasks as requested by the Board. The members of the Investment Committee include Independent Trustees: Pamela L. Salaway (Chair), Steve A. Cobb, Barbara L. Lamb and Gary D. Lemon. The Investment
Committee met four times during the last fiscal year.
Nominating and Governance Committee. The Board of Trustees has established a Nominating and Governance
Committee. The Nominating and Governance Committee is responsible for, among other things, the identification, evaluation and nomination of potential independent trustee candidates to serve on the Board of Trustees. The Board has adopted a charter
for the Nominating and Governance Committee setting forth such Committees responsibilities. The members of the Nominating and Governance Committee are Independent Trustees: Steve A. Cobb (Chair), Barbara L. Lamb, Gary D. Lemon, Thomas A.
Leonard, Charles I. Plosser, Pamela L. Salaway, Brian W. Wixted, and Nancy B. Wolcott. The Nominating and Governance Committee met four times during the last fiscal year. The Nominating and Governance Committee will accept trustee nominations from
shareholders. Any such nominations should be sent to the Trusts Nominating and Governance Committee, c/o The Lincoln National Life Insurance Company, P.O. Box 2340, Fort Wayne, Indiana 46801.
Ownership of Securities
As of December 31, 2020, the Trustees and
officers as a group owned variable contracts that entitled them to give voting instructions with respect to less than 1% of the outstanding shares of each Fund. As of December 31, 2020, the dollar range of equity securities owned beneficially
by each Trustee in the Funds and in any registered investment companies overseen by the Trustees within the same family of investment companies as the Funds is as follows:
Interested Trustee
|
|
|
|
|
Name of Trustee |
|
Dollar Range of Equity Securities in the Funds |
|
Aggregate Dollar Range of Equity
Securities in All Registered Investment
Companies Overseen by Trustee in
Family of Investment Companies |
|
|
|
Jayson R. Bronchetti |
|
None |
|
None |
22
Independent Trustees
|
|
|
|
|
Name of Trustee |
|
Dollar Range of Equity Securities in the Funds |
|
Aggregate Dollar Range of Equity
Securities in All Registered Investment
Companies Overseen by Trustee in
Family of Investment Companies |
|
|
|
Steve A. Cobb |
|
LVIP Baron Growth Opportunities Fund $10,001 $50,000
LVIP Dimensional U.S. Core Equity 2 Fund $10,001 $50,000 LVIP Dimensional
U.S. Equity Managed Volatility Fund $10,001 $50,000 LVIP SSGA S&P 500 Index Fund $10,001 $50,000 |
|
Over $100,000 |
|
|
|
Barbara L. Lamb |
|
None |
|
None |
|
|
|
Gary D. Lemon |
|
LVIP Dimensional International Equity Managed Volatility Fund $10,001 $50,000
LVIP Dimensional U.S. Equity Managed Volatility Fund $10,001 $50,000 LVIP
Dimensional/Vanguard Total Bond Fund $10,001 $50,000 |
|
Over $100,000 |
|
|
|
Thomas A. Leonard |
|
LVIP SSGA Moderate Structured Allocation Fund $50,001 $100,000
LVIP SSGA S&P 500 Index Fund $50,001 $100,000 |
|
Over $100,000 |
|
|
|
Charles I. Plosser |
|
None |
|
None |
|
|
|
Pamela L. Salaway |
|
LVIP Baron Growth Opportunities Fund $10,001 $50,000
LVIP Mondrian International Value Fund $10,001 $50,000 LVIP SSGA S&P
500 Index Fund $50,001 $100,000 |
|
Over $100,000 |
|
|
|
Brian W. Wixted |
|
None |
|
None |
|
|
|
Nancy B. Wolcott |
|
None |
|
None |
Brian Wixted served as officer for OppenheimerFunds, Inc. (Oppenheimer) from 1999 until his retirement in 2016. He has a
deferred compensation plan previously sponsored by Oppenheimer where he receives an annual payout for a fixed number of years based on the performance of phantom share investments in Oppenheimer funds. In 2019, Invesco acquired Oppenheimer and
assumed financial responsibility for payments under the former Oppenheimer deferred compensation plan. Invesco began serving as a sub-adviser to certain LVIP Funds on February 1, 2019. Payments under the plan to Mr. Wixted have exceeded
$120,000 during the past two calendar years. The payment amounts are determined by previously established factors (i.e., performance of the relevant funds), and the payment amounts are not impacted by the profits of Oppenheimer or Invesco.
Compensation
The following table sets forth the compensation paid to
the Trusts Independent Trustees and by the Fund Complex for the fiscal year ended December 31, 2020:
|
|
|
|
|
Name of Person, Position |
|
Aggregate Compensation from the Trust |
|
Total Compensation from the Trust and Fund Complex |
|
|
|
Steve A. Cobb, Trustee |
|
$295,000 |
|
$295,000 |
|
|
|
Barbara L. Lamb, Trustee |
|
285,000 |
|
285,000 |
|
|
|
Gary D. Lemon, Trustee |
|
285,000 |
|
285,000 |
|
|
|
Thomas A. Leonard, Trustee |
|
349,000 |
|
349,000 |
|
|
|
Charles I. Plosser, Trustee |
|
264,875 |
|
264,875 |
|
|
|
Pamela L. Salaway, Trustee |
|
307,000 |
|
307,000 |
|
|
|
Brian W. Wixted, Trustee |
|
285,000 |
|
285,000 |
|
|
|
Nancy B. Wolcott, Trustee |
|
285,000 |
|
285,000 |
Investment Adviser and Sub-Adviser
Investment Adviser. Lincoln Investment Advisors Corporation (LIAC or the Adviser) is the investment adviser to the Funds. LIAC is a
registered investment adviser and wholly-owned subsidiary of The Lincoln National Life Insurance Company (Lincoln Life). LIACs address is 150 N. Radnor-Chester Road, Radnor, Pennsylvania 19087. LIAC (or its predecessors) has served
as an investment adviser to mutual funds for over 30 years. Lincoln Life is an insurance company organized under Indiana Law and is a wholly-owned subsidiary of Lincoln National Corporation (LNC). LNC is a publicly-held insurance holding
company organized under Indiana law. Through its subsidiaries, LNC provides insurance and financial services nationwide.
Pursuant to the Investment Management
Agreement, LIAC manages each Funds portfolio investments and reports to the Board of Trustees. Each Fund pays LIAC a monthly fee equal to a percentage of the average daily net assets of that Fund. The aggregate annual rates of the fees payable
by each Fund to LIAC may vary according to the level of assets of that Fund.
Advisory Fees Paid by Each Fund
23
As of the date of this SAI, the Funds have not commenced operations, and therefore, have paid no investment
advisory fees.
Fee Waivers and Expense Reimbursements
With respect to
the Funds, the Adviser has contractually agreed to waive the following portion of its advisory fee: 0.12% on the average daily net assets of the Fund. The Adviser has also contractually agreed to reimburse the Funds to the extent that the Total
Annual Fund Operating Expenses (excluding acquired fund fees and expenses) exceed 0.58% of average daily net assets for the Standard Class of the Fund and 0.93% for the Service Class. Any reimbursement made by the Adviser is subject to recoupment
from the Fund within three years after the occurrence of the reimbursement, provided that such recoupment shall not be made if it would cause annual Fund operating expenses of a class of the Fund to exceed the lesser of (a) the expense
limitation in effect at the time of the reimbursement, or (b) the current expense limitation in effect, if any. The agreements will continue at least through May 31, 2022 and cannot be terminated before that date without the mutual
agreement of the Funds Board of Trustees and the Adviser.
There can be no assurance that the above fee waivers or expense limitations will continue beyond
the dates indicated.
Sub-Adviser. As adviser, LIAC is primarily responsible for investment decisions affecting each of the Funds under its management. LIAC
has delegated day-to-day portfolio management responsibility of the Funds to an investment management firm to serve as sub-adviser. The sub-adviser makes investment decisions for each Fund in accordance with the Funds investment objectives and
places orders on behalf of that Fund to effect those decisions. LIAC provides ongoing oversight, including review of returns on a relative and absolute basis, a sub-advisers use of soft dollars, evaluation of execution quality and brokerage
allocation and on-site compliance reviews.
Milliman Financial Risk Management LLC (Milliman) is the sub-adviser to the Funds. Milliman is
located at 71 South Wacker Drive, 31st Floor, Chicago, Illinois 60606. Milliman was established in 1998, and also advises other investment companies, insurance companies, financial institutions, other pooled investment vehicles in addition to the
Fund. The sub-adviser is a wholly owned subsidiary of Milliman Inc.
LIAC pays Milliman a monthly fee equal to a percentage of the average daily net assets of the
portion of the Fund for which Milliman provides investment sub-advisory services. The aggregate annual rates of the fees that LIAC pays to the sub-adviser may vary according to the level of assets Milliman manages.
24
Sub-Advisory Fees Paid by Each Fund
As of the date of this SAI, the Funds have not commenced operations, and therefore, have paid no investment sub-advisory fees.
Service marks. The Funds service marks and the name Lincoln are used by the Funds with the permission of LNC, and their continued use is
subject to LNCs right to withdraw this permission in the event LIAC ceases to be the Funds investment adviser.
The Trust has licensed certain
trademarks and the trade names of S&P and of S&P 500® Index, which are determined, composed and calculated by S&P without regard to the Funds.
Fund Expenses. Expenses specifically assumed by each Fund under its Investment Management Agreement include, among others, compensation and expenses of the
Trustees who are not interested persons; custodian fees; independent auditor fees; brokerage commissions; legal and accounting fees; registration and other fees in connection with maintaining required Fund and share registration with the SEC and
state securities authorities; and the expenses of printing and mailing updated prospectuses, proxy statements and shareholder reports to current contract owners.
Proxy Voting Policies and Procedures. The Board of Trustees has delegated to LIAC or the Funds sub-adviser (as applicable) responsibility for voting any
proxies relating to portfolio securities held by the Fund in accordance with the advisers or sub-advisers proxy voting policies and procedures. Summaries of the proxy voting policies and procedures to be followed on behalf of the
Funds, including procedures to be used when a vote represents a conflict of interest, are attached hereto as Appendix B.
Information regarding how each Fund voted
proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available (1) without charge, upon request, by calling 800-4LINCOLN (454-6265); and (2) on the SECs website at http://www.sec.gov.
Portfolio
Managers
The following provides information regarding each portfolio managers other accounts managed, material conflicts of interest, compensation, and
any ownership of securities in a Fund. Each portfolio manager is referred to in this section as a portfolio manager.
Other Accounts Managed
The following chart lists certain information about types of other accounts for which each portfolio manager was primarily responsible.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adviser/Sub-Adviser
Portfolio Manager(s) |
|
Total Number of
Other Accounts |
|
|
Total Assets (in
millions) of Other Accounts |
|
|
Number of Other Accounts Paying
Performance Fees |
|
|
Total Assets (in
millions) of Other Accounts Paying Performance Fees |
|
|
|
|
|
|
Milliman Financial Risk Management, LLC |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert T. Cummings1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered
Investment Companies |
|
|
56 |
|
|
|
$ 3,858 |
|
|
|
0 |
|
|
|
$ 0 |
|
Other Pooled Investment Vehicles |
|
|
0 |
|
|
|
$ 0 |
|
|
|
0 |
|
|
|
$ 0 |
|
Other
Accounts |
|
|
0 |
|
|
|
$ 0 |
|
|
|
0 |
|
|
|
$ 0 |
|
Jordan B. Rosenfeld1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered
Investment Companies |
|
|
0 |
|
|
|
$ 0 |
|
|
|
0 |
|
|
|
$ 0 |
|
Other Pooled Investment Vehicles |
|
|
0 |
|
|
|
$ 0 |
|
|
|
0 |
|
|
|
$ 0 |
|
Other Accounts |
|
|
0 |
|
|
|
$ 0 |
|
|
|
0 |
|
|
|
$ 0 |
|
1 As of March 31, 2021
Material Conflicts of Interest
Actual or apparent conflicts of interest may
arise when a portfolio manager has day-to-day management responsibilities with respect to more than one investment account.
Individual portfolio managers may
perform investment management services for other funds or accounts (Accounts) similar to those provided to the Funds and the investment action for each such other Account and the Funds may differ. For example, an Account may be selling a security,
while a Fund may be purchasing or holding the same security. As a result, transactions executed for one Account may adversely affect the value of securities held by another Account or a fund. Additionally, the management of multiple Accounts and
funds may give rise to potential conflicts of interest, as a portfolio manager must allocate time and effort to multiple Accounts and funds. LIAC and the sub-advisers, if any, have adopted procedures designed to allocate investments fairly across
multiple funds and Accounts.
The information below relates solely to the Fund(s) managed by the particular adviser or sub-adviser.
25
Milliman Financial Risk Management LLC (Milliman FRM)
Milliman FRM acts as an adviser or sub-adviser to institutional clients including life insurers. Certain of the mutual funds for which Milliman FRM also acts as adviser
or sub-adviser may be included in the lineup of underlying funds in which such life insurers separate accounts invest. Milliman FRMs compliance program and other corporate policies and procedures are implemented and enforced to prevent
any potential conflicts from affecting our performance or services to our clients. For example, such conflicts may be mitigated by policies such as the inclusion of written disclosures or specific contractual provisions, or our client
confidentiality and privacy policies.
Milliman FRM provides investment advisory services to certain funds that are sold to the retirement plan market. Another
group within our parent company, Milliman, Inc., provides actuarial and administrative services to retirement plan sponsors, including public and private defined benefit and defined contribution plans. Some of these clients also engage Milliman FRM
for investment advisory services. To avoid engaging in prohibited transactions, the value of clients investment in these trusts or funds may be excluded from Milliman FRM portfolio management fees or from the fees of the related services.
From time to time, Milliman FRM and Milliman, Inc. will both advise the same client in relation to different aspects of their financial needs. Where this occurs, the
relationship between Milliman and FRM is disclosed in advance and fees are structured in a manner that is fair to the client and consistent with applicable law.
Milliman FRM may recommend that current clients participate in services or programs offered by third parties with which we have a relationship, including the provision
of sub-advisory services. In such cases we disclose to the current client the arrangement between Milliman FRM and the third party, and that we receive an economic benefit when recommending such programs by our receipt of a sub-advisory fee.
We are not aware of any effect these potential conflicts may have on the Funds at this time.
Compensation Structures and Methods
Information regarding each portfolio
managers compensation is attached hereto as Appendix C.
Beneficial Interest of Portfolio Managers
Information regarding securities of each Fund beneficially owned, if any, by portfolio managers is disclosed below. In order to own securities of a fund, a portfolio
manager would need to own a Lincoln Life variable life insurance policy or variable annuity contract. Portfolio managers are not required to own Fund shares, but may invest their personal assets in Fund shares in accordance with their individual
investment goals. A portfolio managers personal investment, or lack of investment, is not an indicator of that portfolio managers confidence in, or commitment to, a particular Fund or its investment strategy.
Because the Funds are new, no portfolio manager of any Fund beneficially owns shares of the Funds.
Principal Underwriter
Lincoln Financial
Distributors, Inc. (LFD), 130 North Radnor-Chester Road, Radnor, Pennsylvania 19087, serves as the principal underwriter for the Trust pursuant to a Principal Underwriting Agreement with the Trust dated January 1, 2012. LFD is an affiliate of
LIAC, the Funds investment adviser. Under the agreement, the Trust has appointed LFD as the principal underwriter and distributor of the Trust to sell shares of each class of each Fund within the Trust at net asset value in a continuous
offering to insurance company separate accounts or employer-sponsored products. LFD will not retain underwriting commissions from the sale of Fund shares. The offering of each such class is continuous.
As of the date of this SAI, the Funds have not commenced operations, and therefore, have paid no distribution or services fees.
Administration Agreement
The Trust has entered
into an Administration Agreement with Lincoln Life, an affiliate of LIAC and LFD, pursuant to which Lincoln Life provides various administrative services necessary for the operation of the Funds. These services include, among others: coordinating
all service providers; providing corporate secretary services; providing personnel and office space; providing certain trading operations; maintaining each Funds books and records; general accounting monitoring and oversight; preparing of tax
returns and reports; preparing and arranging for the distribution of all shareholder materials; preparing and coordinating filings with the SEC and other federal and state regulatory authorities. The Trust reimburses Lincoln Life for the cost of
administrative, internal legal and corporate secretary services.
As of the date of this SAI, the Funds have not commenced operations, and therefore, have paid
no administrative services fees.
The Trust compensates Lincoln Life for contractholder servicing provided by Lincoln Life with respect to the Funds. These
contractholder services include, among others: responding to operational inquiries from contractholders about accounts and the Funds; processing purchase and redemption orders with the Funds transfer agent; providing contractholders with
automatic investment services; providing periodic account information to contractholders; interfacing between the Funds transfer agent and contractholder activity systems; providing subaccounting with respect to Fund shares; and forwarding
communications from the Funds to contractholders. In addition, Lincoln Life provides certain corporate-
26
level services to each of the Funds, such as: anti-money laundering and fraud prevention; privacy and data security; disaster recovery; and services related to regulatory duties, such as duties
of confidentiality and disclosure.
As of the date of this SAI, the Funds have not commenced operations, and therefore, have paid no fees for contract holder
services.
Securities Lending
As of the date
of this SAI, the Funds have not commenced operations, and therefore, have not engaged in any securities.
Accounting Agreement
The Trust has entered into a fund accounting and financial administration services agreement (Accounting Agreement) with State Street Bank and
Trust Company (State Street), effective October 15, 2018 (November 19, 2018 for the funds of funds ), pursuant to which State Street provides certain accounting services for the Fund. Services provided under the Accounting Agreement
include, among others, functions related to calculating the daily net asset values (NAV) of the Funds shares, providing financial reporting information, regulatory compliance testing and other related accounting services. For these
services, the Fund pays State Street either a flat, annual fee or an asset-based fee based on the total value of assets in the Trust, plus certain additional service fees and out-of-pocket expenses.
As of the date of this SAI, the Funds have not commenced operations, and therefore, have paid no fund accounting and financial administration services fees.
Code of Ethics
The Trust, LIAC and LFD have each
adopted a Code of Ethics pursuant to Rule 17j-1 under the 1940 Act. The Board of Trustees has reviewed and approved these Codes of Ethics. Subject to certain limitations and procedures, these Codes permit personnel that they cover, including
employees of LIAC who regularly have access to information about securities purchased for the Funds, to invest in securities for their own accounts. This could include securities that may be purchased by Funds. The Codes are intended to prevent
these personnel from taking inappropriate advantage of their positions and to prevent fraud on the Funds. The Trusts Code of Ethics requires reporting to the Board of Trustees of material compliance violations.
Description of Shares
The Trust was organized as
a Delaware statutory trust on February 1, 2003 and is registered with the SEC as an open-end, management investment company. The Trusts Certificate of Trust is on file with the Secretary of State of Delaware. The Trusts Agreement
and Declaration of Trust authorizes the Board of Trustees to issue an unlimited number of shares, which are shares of beneficial interest, without par value. The Trust currently consists of 94 funds organized as separate series of shares. The
Agreement and Declaration of Trust authorizes the Board of Trustees to divide or redivide any unissued shares of the Trust into one or more additional series by setting or changing in any one or more respects their respective preferences, conversion
or other rights, voting power, restrictions, limitations as to dividends, qualifications, and terms and conditions of redemption, and to establish separate classes of shares.
Each Fund currently offers two classes of shares: Standard Class and Service Class. The two classes of shares are identical, except
that Service Class shares are subject to a distribution and service plan (Plan). The Plan allows each Fund to pay distribution and service fees of up to 0.35% per year to those organizations that sell and distribute Service Class
shares and provide services to Service Class shareholders and contract owners. The Plan for the Service Class is discussed in the Rule 12b-1 Plan section of this SAI.
Each Funds shares (all classes) have no subscription or preemptive rights and only such conversion or exchange rights as the Board of Trustees may grant in its
discretion. When issued for payment as described in the prospectus and this SAI, the shares will be fully paid and non-assessable, which means that the consideration for the shares has been paid in full and the issuing Fund may not impose levies on
shareholders for more money. In the event of a liquidation or dissolution of the Trust, shareholders of each Fund are entitled to receive the assets available for distribution belonging to that Fund, and a proportionate distribution, based upon the
relative asset values of the respective Funds, of any general assets not belonging to any particular Fund which are available for distribution, subject to any differential class expenses.
Rule 18f-2 under the 1940 Act provides that any matter required to be submitted to the holders of outstanding voting securities of an investment company such as the
Trust shall not be deemed to have been effectively acted upon unless approved by the holders of a majority of the outstanding shares of each Fund affected by the matter. For purposes of determining whether the approval of a majority of the
outstanding shares of a Fund will be required in connection with a matter, a Fund will be deemed to be affected by a matter unless it is clear that the interests of each Fund in the matter are identical, or that the matter does not affect any
interest of the Fund. Under Rule 18f-2, the approval of an investment advisory agreement or any change in investment policy would be effectively acted upon with respect to a Fund only if approved by a majority of the outstanding shares of that Fund.
However, Rule 18f-2 also provides that the ratification of independent public accountants (for Funds having the same independent
27
accountants), the approval of principal underwriting contracts, and the election of trustees may be effectively acted upon by shareholders of the Trust voting without regard to individual Funds.
In such matters, all shares of the Trust have equal voting rights.
Unless otherwise required by the 1940 Act, ordinarily it will not be necessary for the Trust to
hold annual meetings of shareholders. As a result, shareholders may not consider each year the election of Trustees or the appointment of auditors. However, the holders of at least 10% of the shares outstanding and entitled to vote may require the
Trust to hold a special meeting of shareholders for purposes of removing a trustee from office. Shareholders may remove a Trustee by the affirmative vote of two-thirds of the Trusts outstanding voting shares. In addition, the Board of Trustees
will call a meeting of shareholders for the purpose of electing Trustees if, at any time, less than a majority of the Trustees then holding office have been elected by shareholders.
Control Persons and Principal Holders of Securities
Because the Funds are available as investments for variable annuity contracts and variable life insurance policies (Variable Contracts) offered by certain life insurance
companies, the insurance companies could be deemed to control the voting securities of each Fund (i.e., by owning more than 25%). However, an insurance company would exercise voting rights attributable to any shares of each Fund that it owns
(directly or indirectly) in accordance with, and in proportion to, voting instructions received by owners of the Variable Contracts. A small number of Contract Holders could therefore determine whether Fund proposals are approved.
For these Funds, the insurance companies include, without limitation, (1) Lincoln Life, an Indiana insurance company, at 1300 South Clinton Street, Fort Wayne, IN
46802; (2) Lincoln Life & Annuity Company of New York (Lincoln New York), a New York insurance company, at 100 Madison Street, Suite 1860, Syracuse, NY 13202-2802; and (3) other third-party insurance companies.
Since the Funds are new, no shareholders of the Funds own 5% or more (or 25% or more) of a Funds outstanding shares, except for the insurance company shareholders.
Any Fund of Funds would exercise voting rights attributable to ownership of shares of the Funds in accordance with the proxy voting policies established by the Fund of Funds. The Fund of Funds generally will vote their shares of
underlying funds in the same proportion as the vote of all of the other holders of the underlying funds shares, a technique known as echo voting.
Rule 12b-1 Plan
Pursuant to Rule 12b-1 under the
1940 Act, the Trust has adopted a distribution and service plan (Plan) for the Service Class of shares of each Fund. As previously noted, the Trust offers shares of beneficial interest to Insurance Companies for allocation to certain of their
Variable Contracts. The Trust may pay Insurance Companies or others, out of the assets of Service Class shares of each Fund for activities primarily intended to sell such shares. The Trust would pay each third-party for these services pursuant
to a written agreement with that third-party.
Payments made under the Plan may be used for, among other things: the printing of prospectuses and reports used for
sales purposes; preparing and distributing sales literature and related expenses; advertisements; education of shareholders and contract owners or dealers and their representatives; and other distribution-related expenses. Payments made under the
Plan may also be used to pay insurance companies, dealers or others for, among other things: service fees as defined under FINRA rules; furnishing personal services or such other enhanced services as the Trust or a Variable Contract offering
Service Class may require; or maintaining customer accounts and records.
For the noted services, the Plan authorizes each Fund to pay to Insurance Companies or
others, a monthly fee (Plan Fee) not to exceed 0.35% per annum of the average daily NAV of Service Class shares, respectively, as compensation or reimbursement for services rendered and/or expenses borne. The Plan Fee is
currently 0.35% for the Service Class shares. The Plan Fee may be adjusted by the Trusts Board of Trustees from time to time. The Plan does not limit Plan Fees to amounts actually expended by third parties for services rendered and/or expenses
borne. A third party, therefore, may realize a profit from Plan Fees in any particular year.
No interested person, as defined in the 1940 Act, or
Independent Trustee had or has a direct or indirect financial interest in the operation of the Plan or any related agreement.
The Board of Trustees, including a
majority of the Independent Trustees, has determined that, in the exercise of reasonable business judgment and in light of its fiduciary duties, there is a reasonable likelihood that the Plan will benefit each Fund and Service Class contract
owners thereof. Each year, the Trustees must make this determination for the Plan to be continued. The Board of Trustees believes that the Plan will result in greater sales and/or fewer redemptions of Service Class shares, which may benefit each
Fund by reducing Fund expense ratios and/or by affording greater flexibility to portfolio managers. However, it is impossible to know for certain the level of sales and redemptions of shares that would occur in the absence of the Plan or under
alternative distribution schemes.
As of the date of this SAI, the Funds have not commenced operations, and therefore, have paid no 12b-1 fees.
Revenue Sharing
LIAC and its affiliates,
including LFD, and/or each Funds sub-adviser may pay compensation at their own expense, including the profits from the advisory fees LIAC receives from the Funds or the sub-advisory fees the sub-advisers receive from LIAC, to affiliated
or unaffiliated brokers, dealers or other financial intermediaries (financial intermediaries) in connection with the sale or retention of Fund shares or the sales of insurance products that are funded by
28
the Funds and/or shareholder servicing (distribution assistance). For example, LFD may pay additional compensation to
financial intermediaries for various purposes, including, but not limited to, promoting the sale of Fund shares and the products that are funded by the Fund shares; access to their registered representatives; sub-accounting, administrative or
shareholder processing services; and marketing and education support. Such payments are in addition to any distribution fees, service fees and/or transfer agency fees that may be payable by the Funds. The additional payments may be based on factors,
including level of sales, the Funds advisory fees, some other agreed upon amount, or other measures as determined from time to time.
A significant purpose of
these payments is to increase sales of the Funds shares and the products that contain the Funds. LIAC and/or its affiliates may benefit from these payments of compensation to financial intermediaries through increased fees resulting from
additional assets acquired through the sale of insurance products through such intermediaries.
Valuation of Portfolio Securities
Offering Price/NAV. The offering price of a Funds shares is based on the Funds net asset value (NAV) per share. A Fund determines
its NAV per share by subtracting its liabilities (including accrued expenses and dividends payable) from its total assets (the value of the securities the Fund holds plus cash and other assets, including income accrued but not yet received) and
dividing the result by the total number of Fund shares outstanding. A Fund determines its NAV per share as of close of regular trading on the New York Stock Exchange (NYSE) normally 4:00 p.m. New York time, each business day.
In addition to the disclosure in each Funds prospectus under the Pricing of Fund Shares section, the value of each Funds investments is
determined as follows:
Foreign Equity Securities. Foreign equity securities are generally valued based on their closing price on the principal foreign
exchange for those securities, which may occur earlier than the NYSE close. A Fund then may adjust for market events, occurring between the close of the foreign exchange and the NYSE close. An independent statistical service has been retained to
assist in determining the value of certain foreign equity securities. This service utilizes proprietary computer models to determine adjustments for market events. Quotations of foreign securities in foreign currencies and those valued using forward
currency rates are converted into U.S. dollar equivalents.
Over-the-Counter (OTC) Investments. OTC investments (including swaps and options) are
generally valued by pricing services that use evaluated prices from various observable market and other factors. Certain forward foreign currency contracts are generally valued using the mean between broker-dealer bid and ask quotations, and foreign
currency exchange rates.
Exchange-Traded Futures, Options and Swaps. Exchange-traded futures, options and swaps are normally valued at the reported
settlement price determined by the relevant exchange. Exchange-traded futures, options and swaps for which no settlement prices are reported are generally valued at the mean between the most recent bid and ask prices obtained from pricing services,
established market makers, or from broker-dealers.
Portfolio Holdings Disclosure
The Trusts Board of Trustees has adopted policies and procedures designed to ensure that disclosure of information regarding a Funds portfolio securities is
in the best interests of Fund shareholders. In accordance with these policies and procedures, Fund management will make shareholders reports or other regulatory filings containing the Funds portfolio holdings available free of charge to
individual investors, institutional investors, intermediaries that distribute the Funds shares, and affiliated persons of the Fund that make requests for such holdings information. Shareholder reports are available 60 days after the end of
each semi-annual reporting period.
Each Fund posts its top-ten holdings shortly after each quarter-end to Lincoln Life and other insurance companies who include the
Funds in their products (Insurance Companies). All Insurance Companies that receive nonpublic portfolio holdings information must sign a confidentiality agreement agreeing to keep this nonpublic portfolio information strictly confidential and not to
engage in trading on the basis of the information. The Insurance Companies may include this information in marketing and other public materials (including via website posting) 15 days after the end of the quarter.
Each Fund will post all of its holdings to a publicly available website no earlier than 25 calendar days after quarter end. In addition, each Fund may post all of its
holdings no earlier than 25 calendar days after inception, rebalance, or after any material changes are made to the holdings. At the time of the disclosure on the website, the portfolio holdings of these Funds will be deemed public.
Each Fund also may provide holdings information following the end of the quarterly reporting period under a confidentiality agreement to third-party service providers,
including independent rating and ranking organizations, which conduct market analyses of the Funds portfolio holdings against benchmarks or securities market indices. All such third parties must sign a confidentiality agreement agreeing to
keep the non-public portfolio information strictly confidential and not to engage in trading on the basis of the information. These parties may disseminate the portfolio holdings information when the portfolio holdings are deemed to be public.
Certain Funds provide daily holdings information to affiliated persons of the Funds to better facilitate Fund and related insurance product operations. In this regard,
certain Funds provides daily post-trade position reports, as well as reports showing the Funds daily futures transactions pursuant to certain fund strategies, to the annuity pricing group and market risk management group within Lincoln Life,
LIACs parent company. In addition, certain Funds provide monthly portfolio holdings on a post-trade basis to Lincoln Life approximately 20 days after the end of each month. The pricing group uses Fund information to support the
groups oversight of risk management functions for certain Funds and Lincoln Life, but does not engage in any trading activities. The risk management group uses the information to hedge portfolio risks for Lincoln Life and for Lincoln
insurance products and annuities. Lincolns internal risk management functions are integral to supporting the relevant Funds and their associated
29
insurance products. Each of these information sharing arrangements is subject to: (1) a non-disclosure agreement; and (2) protections against (a) inappropriate trading
based on the information and (b) conflicts of interest between the Funds and their affiliated persons.
Certain sub-advisers have an ongoing arrangement with
the following third parties to make available information about a Funds portfolio holdings: (1) ratings organizations, such as Moodys, and S&P, provided generally on a monthly basis for the purpose of reviewing the particular fund;
(2) portfolio analysis companies, such as Morningstar and Lipper, Factset Research Systems, Intex, Performance Attribution System, Linedata Services, Inc., Investment Technology Group Inc., Wilshire Associates, Inc., Bloomberg L.P., Bloomberg
PORT, BarraOne/MSCI Barra, Barclays Capital, BlackRock Aladdin, Trade Informatics, Investor Tools Perform, BARRA Aegis Systems, Global Trading Analytics, LLC, Citigroup, Hedgemark, MoneyMate and Barclays Capital Point, Acuity Knowledge
Partners, Virtu Financial, Markit/Wall Street Office and Axioma provided generally on a daily, monthly or quarterly basis for the purpose of compiling reports, preparing comparative analysis data and trade execution evaluation; (3) proxy
voting or class action services, such as Broadridge Financial Solutions, Inc., Glass, Lewis & Co., or Institutional Shareholder Services (ISS) - ISS/RiskMetrics provided generally on a daily basis or bi-monthly basis for the purpose of
voting proxies relating to portfolio holdings or providing corporate actions services and trade confirmation; (4) computer systems, products, services and software vendors, such as Electra Securities, TriOptima, FX Connect, OMEGO
LLC, Infinit Outsourcing, Inc., Limited, Cogent Consulting, Abel Noser, Charles River Communications and StarCompliance, provided generally on a daily basis for the purpose of providing computer products, services, software and
accounting systems to the sub-advisers; and (5) operational services such as Accenture LLP, Bank of New York Mellon, Brown Brothers Harriman & Co., Fidelity Corporate Action Solutions, State Street Bank and Trust Company, State Street
Investment Manager Solutions, ION and Northern Trust, provided generally on a daily basis for the purpose of providing operational functions including, but not limited to, Fund pricing and OTC derivative swap products to the sub-advisers. Each
of the above unaffiliated third parties must agree to keep the Funds holdings information confidential and not engage in trading on the basis of the information. The sub-advisers do not receive compensation in connection with these
arrangements.
Each Fund may provide, at any time, portfolio holdings information to: (a) Fund service providers and affiliates, such as the Funds
investment adviser, or sub-advisers, trading services providers, class action service provider (Kessler Topaz Meltzer & Check, LLP), custodian and independent registered public accounting firm, to the extent necessary to perform services
for the Funds; and (b) state and federal regulators and government agencies as required by law or judicial process. These entities are subject to duties of confidentiality imposed by law, contract, or fiduciary obligations.
The Funds will disclose their portfolio holdings in public SEC filings. The Trusts Board of Trustees also may, on a case-by-case basis, authorize disclosure of the
Funds portfolio holdings, provided that, in its judgment, such disclosure is not inconsistent with the best interests of shareholders, or may impose additional restrictions on the dissemination of portfolio information.
Neither the Funds, the Adviser, nor any affiliate receive any compensation or consideration in connection with the disclosure of the Funds portfolio holdings
information.
The Funds are responsible for ensuring appropriate disclosure is made regarding these procedures in the Funds prospectuses and/or SAI.
The Trusts Board of Trustees exercises oversight of these policies and procedures. Management for the Funds will inform the Trustees if any substantial changes to
the procedures become necessary to ensure that the procedures are in the best interest of Fund shareholders. The officers will consider any possible conflicts between the interest of Fund shareholders, on the one hand, and those of the Funds
investment adviser and other Fund affiliates, on the other. Moreover, the Funds Chief Compliance Officer will address the operation of the Funds procedures in the annual compliance review and will recommend any remedial changes to the
procedures.
Purchase and Redemption Information
Shares of a Fund may not be purchased or redeemed by individual investors directly but may be purchased or redeemed only through variable annuity contracts or variable
life contracts offered by Lincoln Life, LNY and other insurance companies. Shares of the Funds may also be purchased by the Trusts funds of funds, which invest their assets in other mutual funds. The offering price of a
Funds shares is equal to its net asset value per share.
If conditions exist which make payment of redemption proceeds wholly in cash unwise or undesirable, a
Fund may make payment wholly or partly in securities or other investment instruments which may not constitute securities as such term is defined in the applicable securities laws. If a redemption is paid wholly or partly in securities or other
property, a shareholder would incur transaction costs in disposing of the redemption proceeds.
30
Custodian and Transfer Agent
All securities, cash and other similar assets of the Funds are currently held in custody by State Street Bank and Trust Company, One Lincoln Street, Boston,
Massachusetts 02111.
The custodian shall: receive and disburse money; receive and hold securities; transfer, exchange, or deliver securities; present for payment
coupons and other income items, collect interest and cash dividends received, hold stock dividends, etc.; cause escrow and deposit receipts to be executed; register securities; and deliver to the Funds proxies, proxy statements, etc.
Lincoln Life performs the Funds dividend and transfer agent functions.
Independent Registered Public Accounting Firm
The Board of Trustees has engaged Ernst & Young LLP, One Commerce Square, Suite 700, 2005 Market
Street, Philadelphia, PA 19103, to serve as the Funds Independent Registered Public Accounting Firm. In addition to the audits of the Funds financial statements, Ernst & Young LLP also reviews certain regulatory reports, reviews
the Funds federal income tax returns, and performs other tax and advisory services when engaged to do so by the Trust.
Financial Statements
Since the Funds are new, the
audited financial statements for the Funds are not yet available. We will provide a copy of each Funds annual report, once available, on request and without charge. Either write: The Lincoln National Life Insurance Company, P.O. Box 2340, Fort
Wayne, Indiana 46801, or call: 1-800-4LINCOLN (454-6265).
Taxes
Regulated Investment Company. Each Fund intends to qualify, and has elected to be taxed as, a regulated investment company under the Internal Revenue Code (the
Code). A regulated investment companys ordinary income and net realized capital gains, if distributed to shareholders, will not be subject to corporate income tax. Each Fund, as a regulated investment company, must, among other
things, annually derive at least 90% of its gross income from dividends, interest, payments with respect to securities loans and gains from the sale of stock or securities or foreign currencies, or other income, such as income derived from interests
in qualified publicly traded partnerships, gains from options, futures, or forward contracts, derived with respect to the Funds other investments (the Income Requirement).
Each Fund also intends to comply with diversification requirements that apply to mutual funds investing in variable contracts. Generally, a Fund will be required to
diversify its investments so that on the end of each calendar quarter: no more than 55% of total assets is represented by any one investment; no more than 70% is represented by any two; no more than 80% is represented by any three; and no more than
90% is represented by any four.
For this purpose, securities of a given issuer are treated as one investment, but each U.S. government agency or instrumentality is
treated as a separate issuer. Any security issued, guaranteed, or insured by the U.S. government or an agency or instrumentality of the U.S. government is treated as a security issued by such. A Fund may satisfy an alternative asset diversification
test under certain circumstances.
Each Fund may sell its shares directly to certain qualified pension and retirement plans, and to separate accounts established and
maintained by insurance companies for the purpose of funding variable annuity and variable life insurance contracts. If a Fund were to sell its shares to other categories of shareholders, the Fund may fail to comply with applicable Treasury
requirements regarding investor control. If a Fund should fail to comply with the investor control requirements, the Contract owners would be treated as the Funds shareholders, and the contracts invested in the Fund would not be treated as
annuity, endowment, or life insurance contracts under the Code. All income and gain earned from those contracts both in past years and currently would be taxed currently to the Contract owners, and income and gain would remain subject to taxation as
ordinary income thereafter.
If a Fund fails to qualify as a regulated investment company, the Fund would be subject to tax as an ordinary corporation on all of its
taxable income and gain, whether or not distributed to shareholders. Moreover, if a Fund were to fail to qualify as a regulated investment company, the Funds distributions would be characterized as ordinary dividend income to its shareholders,
and Contract owners would be required to include in ordinary income any income earned under the contracts for the current and all prior taxable years. A Funds failure to satisfy the diversification requirements may also result in adverse tax
consequences for the insurance company issuing the contracts. Under certain circumstances inadvertent failures to satisfy the diversification requirements may be corrected.
Certain Funds may invest in exchange traded vehicles that track commodity returns. Under the Code, these investments are not considered securities for
purposes of the Income Requirement. As a result, any income generated by such investments is not included in determining compliance with the Income Requirements 90% test. Each Fund intends to manage its commodities exposure to ensure that the
Income Requirement is met at the end of the Funds tax year. To the extent that a Funds income from commodities exceeds 10% of the Funds gross income, the Fund may be subject to taxation on that portion of commodities income that
exceeds 10% of the Funds gross income.
31
Medicare Tax. A 3.8% Medicare tax is imposed on the net investment income (which includes, but is not limited to,
taxable dividends, taxable annuity payments, and net gain from investments) of certain individuals, trusts and estates.
Fund Distributions. Dividends that a
Fund pays from its ordinary income and distributions of a Funds net realized capital gains are includable in the respective Insurance Companys gross income. Distributions of a Funds net realized long-term capital gains retain their
character as long-term capital gains in the hands of the Insurance Companies if certain requirements are met. The tax treatment of such dividends and distributions depends on the respective Insurance Companys tax status. To the extent that
income of a Fund represents dividends on common or preferred stock, rather than interest income, its distributions to the Insurance Companies will be eligible for the present 70% dividends received deduction applicable to life insurance companies
under the Code. See the Contracts Prospectus for a description of the respective Insurance Companys tax status and the charges that may be made to cover any taxes attributable to the Separate Account. Not later than 60 days after the end of
each calendar year, each Fund will send to the Insurance Companies a written notice reporting the amount and character of any distributions made during such year. Any benefits reported will inure to the benefit of the Insurance Companies and will
not be shared with Contract owners.
Foreign Investments. Dividends or other income received by a Fund from investments in foreign securities may be subject
to withholding and other taxes imposed by foreign jurisdictions. Tax conventions, such as treaties, between certain countries and the United States may reduce or eliminate such taxes in some cases. If more than 50% of a Funds total assets at
the close of its taxable year consists of stock or securities in foreign corporations or in other regulated investment companies, the Fund may elect to treat its foreign income tax payments as paid by the Insurance Companies for U.S. income tax
purposes. A Fund may qualify for and make this election in some, but not necessarily all, of its taxable years. If a Fund were to make this election, the Insurance Companies would be required to take into account an amount equal to their pro rata
portions of such foreign taxes in computing their taxable income. Not later than 60 days after any year for which it makes such an election, a Fund will report to the Insurance Companies the amount per share of such foreign income tax that must be
included in gross income and the amount that will be available for the deduction or credit. Certain limitations apply to the credit (but not the deduction) for foreign taxes that an Insurance Company may claim. Foreign taxes each Fund pays will
reduce the return on the Funds investments. Any benefits of a foreign tax credit or deduction as a result of this election will inure to the benefit of the Insurance Companies and will not be shared with Contract owners.
A Fund or Underlying Fund that invests in non-U.S. securities may be subject to non-U.S. income taxes and non-U.S. financial transactions taxes. Each Fund and underlying
fund that is eligible to do so may elect to pass through to its investors the amount of non-U.S. income taxes paid by the Fund or underlying fund, depending on the circumstances.
Contract Owner Taxes. Since individual Contract owners are generally not treated as shareholders of the Funds, no discussion is included regarding the federal
income tax consequences at the Contract owner level. The discussion of federal income tax considerations in the prospectus, in conjunction with the foregoing, is a general and abbreviated summary of the applicable provisions of the Code and Treasury
Regulations currently in effect. These interpretations can be changed at any time. The above discussion covers only federal tax considerations with respect to the Funds. State and local taxes vary.
Each Fund also intends to comply with diversification regulations under Section 817(h) of the Code that apply to mutual funds underlying variable contracts.
Generally, a Fund will be required to diversify its investments so that on the last day of each quarter of a calendar year, no more than 55% of the value of its total assets is represented by any one investment, no more than 70% is represented by
any two investments, no more than 80% is represented by any three investments, and no more than 90% is represented by any four investments. For this purpose, securities of a given issuer are treated as one investment, but each U.S. government agency
or instrumentality is treated as a separate issuer. Any security issued, guaranteed, or insured (to the extent so guaranteed or insured) by the U.S. government or an agency or instrumentality of the U.S. government is treated as a security issued by
the U.S. government or its agency or instrumentality, whichever is applicable. An alternative asset diversification test may be satisfied under certain circumstances.
Each Fund may sell its shares directly to separate accounts established and maintained by insurance companies for the purpose of funding variable annuity and variable
life insurance contracts and to certain qualified pension and retirement plans; if a Fund were to sell its shares to other categories of shareholders, the Fund may fail to comply with applicable Treasury requirements regarding investor control. If a
Fund should fail to comply with the investor control requirements, the Contract holders would be treated as the owners of the shares and the contracts invested in the Fund would not be treated as annuity, endowment or life insurance contracts under
the Code and all income and gain earned in past years and currently inside the contracts would be taxed currently to the Contract holders, and income and gain would remain subject to taxation as ordinary income thereafter.
Failure by a Fund to both qualify as a regulated investment company and satisfy the Section 817(h) diversification requirements would generally cause Variable
Contracts that include the Fund as an underlying investment to lose their favorable tax status and require contract holders to include in ordinary income any income under the contracts for the current and all prior taxable years. Under certain
circumstances described in the applicable Treasury regulations, inadvertent failure to satisfy the applicable diversification requirements may be corrected, but such a correction would require a payment to the Internal Revenue Service (IRS) based on
the tax contract holders would have incurred if they were treated as receiving the income on the contract for the period during which the diversification requirements were not satisfied. Any such failure may also result in adverse tax consequences
for the insurance company issuing the contracts. Failure by a Fund to qualify as a regulated investment company would also subject a Fund to federal and state income taxation on all of its taxable income and gain, whether or not distributed to
shareholders.
A Fund or an underlying fund, if invested in non-U.S. securities, may be subject to non-U.S. income taxes and non-U.S. financial transactions taxes.
Each Fund and underlying fund that is permitted to do so may elect to pass through to its investors, including a Fund, the amount of non-U.S. income taxes paid by the Fund or underlying fund. A Fund itself will be eligible to elect to
pass through such amounts to its stockholders and may do so, depending upon circumstances.
32
A 3.8% Medicare tax is imposed on the net investment income (which includes, but is not limited to, taxable dividends,
taxable annuity payments and net gain from investments) of certain individuals, trusts and estates.
Dividends paid by the Company from its ordinary income and
distributions of the Companys net realized capital gains are includable in the respective Insurance Companys gross income. Distributions of the Companys net realized long-term capital gains retain their character as long-term
capital gains in the hands of the Insurance Companies if certain requirements are met. The tax treatment of such dividends and distributions depends on the respective Insurance Companys tax status. To the extent that income of the Company
represents dividends on common or preferred stock, rather than interest income, its distributions to the Insurance Companies will be eligible for the present 70% dividends received deduction applicable in the case of a life insurance company as
provided in the Code. See the Prospectus for the Contracts for a description of the respective Insurance Companys tax status and the charges which may be made to cover any taxes attributable to the Separate Account. Not later than 60 days
after the end of each calendar year, the Company will send to the Insurance Companies a written notice required by the Code reporting the amount and character of any distributions made during such year. Any benefits of such designation will inure to
the benefit of the Insurance Companies and will not be shared with Contract holders.
Dividends or other income (including, in some cases, capital gains) received by
a Fund from investments in foreign securities may be subject to withholding and other taxes imposed by foreign countries. Tax conventions between certain countries and the United States may reduce or eliminate such taxes in some cases. If more than
50% of a Funds total assets at the close of its taxable year consists of stock or securities of foreign corporations or in other regulated investment companies, the Fund may elect for U.S. income tax purposes to treat foreign income taxes paid
by it as paid by the Insurance Companies. A Fund may qualify for and make this election in some, but not necessarily all, of its taxable years. If a Fund were to make an election, the Insurance Companies would be required to take into account an
amount equal to their pro rata portions of such foreign taxes in computing their taxable income and then treat an amount equal to those foreign taxes as a U.S. Federal income tax deduction or as a foreign tax credit against their U.S. Federal income
taxes. Not later than 60 days after any year for which it makes such an election, a Fund will report to the Insurance Companies the amount per share of such foreign income tax that must be included in gross income and the amount which will be
available for the deduction or credit. Certain limitations will be imposed on the extent to which the credit (but not the deduction) for foreign taxes may be claimed. Foreign taxes paid by each Fund will reduce the return from the Funds
investments. Any benefits of such reporting will inure to the benefit of the Insurance Companies and will not be shared with Contract holders.
Since individual
contract owners are generally not treated as shareholders of the Funds, no discussion is included regarding the federal income tax consequences at the shareholder level.
The discussion of federal income tax considerations in the prospectus, in conjunction with the foregoing, is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations currently in effect as interpreted by the Courts and the IRS. These interpretations can be changed at any time. The above discussion covers only federal tax considerations with respect to the Funds.
State and local taxes vary.
33
Appendix A Reserved
34
Appendix B Proxy Voting Policies and Procedures
Lincoln Investment Advisors Corporation
I. Introduction
The Board of Trustees (the Board) of each series of Lincoln Variable Insurance Products Trust (collectively, the Lincoln Funds) has adopted these
Proxy Voting Policies and Procedures (the Policies and Procedures) to govern each Lincoln Funds proxy voting. The Board has delegated implementation of these Policies and Procedures, and the responsibility for all proxy voting, or
further delegation of proxy voting, to the Lincoln Funds investment adviser, Lincoln Investment Advisors Corporation (LIAC).
LIAC has adopted
these Policies and Procedures to govern LIACs implementation of proxy voting for LIACs clients, which include the Lincoln Funds.
II. Policies
LIAC shall vote proxies for which it has discretionary authority in the best interests of its clients. Such clients may include the Lincoln Funds, non-Lincoln
mutual funds, private funds, and separate accounts (collectively, Clients).
Proxy voting decisions with respect to a Clients holdings shall be
made in the manner LIAC believes will most likely protect and promote such Clients long-term economic value. Absent unusual circumstances or specific instructions, LIAC votes proxies on a particular matter with this fundamental premise on
behalf of each Client, regardless of a Clients individual investment style or strategies.
In exercise voting authority LIAC will comply with Rule 206(4)-6
under the Investment Advisers Act of 1940. The Rule requires an investment adviser to:
|
|
|
Adopt and implement written policies and procedures that are reasonably designed to ensure that the adviser votes client
securities in the best interest of clients, which procedures must include how material conflicts are addressed; |
|
|
|
Disclose to clients how they may obtain information about how the adviser voted with respect to their securities; and
|
|
|
|
Describe to clients the advisers proxy voting policies and procedures and, upon request, furnish a copy of the
policies and procedures to the requesting client. |
III. Procedures
A. Direct Investments
LIAC may invest directly in equity and fixed income
securities, and other types of investments. LIAC will cast votes for proxies in accordance with the Clients proxy voting procedures or other direction. If the Client does not direct proxy voting in the Clients account, LIAC will vote
proxies in the Clients best interests, as determined by LIAC. In making such determination, LIAC may rely on analysis from proxy voting consultants or third-party proxy voting services. LIAC will consider each proxy that it votes and evaluate
it based on the particular facts and circumstances of that proxy. LIAC may determine not to vote all or some shares eligible to vote if that course of action would be in the Clients best interests under the circumstances. Such circumstances
could include, but are not limited to, cases where the cost of voting exceeds any expected benefits (e.g., foreign proxies), or where voting results in restrictions on trading.
B. Sub-Advised Funds
LIAC advises mutual funds and separate accounts that are
offered through variable contracts and which are sub-advised by unaffiliated third-party sub-advisers (sub-advised funds). Each sub-advised fund delegates responsibility for voting proxies relating to the sub-advised funds
securities to the sub-adviser, subject to the Boards continued oversight. The sub-adviser votes all proxies relating to the sub-advised funds portfolio securities and uses the sub-advisers own proxy voting policies and procedures
adopted in conformance with Rule 206(4)-6. LIAC shall review each sub-advisers proxy voting policies and procedures as follows:
|
|
|
Before a sub-adviser is retained, LIACs compliance staff will review the proposed sub-advisers proxy voting
policies and procedures and confirm that the sub-adviser will vote the proxies in the best interests of its clients. |
|
|
|
Each quarter, LIACs compliance staff surveys each sub-adviser, via a compliance questionnaire, and reviews any
reported changes or exceptions to their compliance policies and procedures, including proxy voting. LIACs compliance staff reviews these reported changes or exceptions and, if material, summarizes them and reports such events to the
sub-advised funds board. |
|
|
|
During contract renewal of sub-advisory agreements for Clients that are registered mutual funds, LIAC reviews the
sub-advisers responses to the Section 15(c) information request sent by Funds Management, which includes pertinent questions relating to the sub-advisers proxy voting policies and procedures. |
35
C. Funds of Funds
LIAC advises
certain funds of funds that invest substantially all of their assets in shares of other affiliated and/or unaffiliated mutual funds (each an underlying fund). A fund of funds may also invest directly in equity and fixed income securities
and other types of investments.
When an underlying fund, whose shares are held by a fund of funds, solicits a shareholder vote on any matter, LIAC shall vote such
shares of the underlying fund in the same proportion as the vote of all other holders of shares of such underlying fund. This type of voting structure is commonly referred to as mirror voting.
When a fund of funds invests directly in securities other than mutual funds, LIAC shall follow the procedures outlined in Direct Investments above.
D. Master-Feeder Funds
LIAC advises certain master-feeder funds. A feeder
fund does not buy investment securities directly. Instead, it invests in a master fund which in turn purchases investment securities. Each feeder fund has the same investment objective and strategies as its master fund.
If a master fund in a master-feeder structure calls a shareholder meeting and solicits proxies, the feeder fund (that owns shares of the master fund) shall seek voting
instructions from the feeder funds shareholders, and will vote proxies as directed. Proxies for which no instructions are received shall be voted in accordance with mirror voting, in the same proportion as the proxies for which instructions
were timely received from the feeder funds shareholders.
Proxies for the portfolio securities owned by the master fund will be voted pursuant to the master
funds own proxy voting policies and procedures.
E. Material Conflicts
In the event that LIAC identifies a potential material conflict of interest between: a Client and LIAC, or any LIAC-affiliated entity, LIAC will advise the chief
compliance officer (CCO) of the potential conflict. The CCO then will convene an ad hoc committee which will include, without limitation, the CCO, legal counsel, and the president of LIAC. The ad hoc committee will determine if an actual
conflict exists, and if so, it will vote the proxy in accordance with the Clients best interests. If the conflict relates specifically to a Client that is a registered mutual fund, the CCO shall report to the funds board, at its next
regularly scheduled meeting, the nature of the conflict, how the proxy vote was cast, and the rationale for the vote.
IV. Disclosure
A. Form ADV
LIAC shall disclose information regarding these Policies and
Procedures as required in Item 17 of Form ADV, Part 2A. Among other things, LIAC will disclose how Clients may obtain information about how LIAC voted their portfolio securities and how Clients may obtain a copy of these Policies and
Procedures.
B. Statement of Additional Information (SAI)
Each of the
Lincoln Funds shall include in its SAI a copy or a summary of these Policies and Procedures, and, if applicable, any sub-advisers policies and procedures (or a summary of such policies and procedures).
C. Annual Reports
Each of the Lincoln Funds shall disclose in its annual and
semi-annual shareholder reports that a description of these Policies and Procedures, including any sub-adviser policies and procedures, and the Lincoln Funds proxy voting record for the most recent 12 months ended June 30 are available on
the Securities and Exchange Commissions (SEC) website by calling a specified toll-free telephone number.
D. Proxy Voting Record on Form N-PX
The Lincoln Funds annually will file their complete proxy voting record with the SEC on Form N-PX. Form N-PX shall be filed for the twelve months ended June 30 no
later than August 31 of that year.
V. Recordkeeping
LIAC shall
retain the following documents for not less than seven (7) years from the end of the year in which the proxies were voted, the first two (2) years at an on-site location:
(a) |
Proxy Voting Policies and Procedures; |
(b) |
Proxy voting records (this requirement may be satisfied by a third party who has agreed in writing to do so);
|
36
(c) |
A copy of any document that LIAC, or an ad hoc committee convened for purposes of voting proxies, creates that was
material in making its voting decision, or that memorializes the basis for such decision; and |
(d) |
A copy of each written request from a Client, and any response to the Client, for information on how LIAC voted the
Clients proxies. |
Milliman Financial Risk Management LLC (Milliman FRM)
When acting as the primary investment adviser to investment companies which invest in other unaffiliated investment companies (Underlying Funds), the Company shall vote
all proxies received from the Underlying Funds in the same proportion that all shares of the Underlying Funds are voted (mirror vote), or in accordance with instructions received from fund shareholders. The Company only votes proxies in
instances where it is the primary adviser to a registered investment company as defined in the Investment Company Act.
Please Note: The Company will not be the
primary adviser to the Funds; in addition, the Company expects that it will only be engaging in derivative transactions for the Funds, and derivatives do not carry voting rights. As such, the Proxy Voting Policy will not apply.
37
Appendix C Compensation Structures and Methodologies of Portfolio Managers
The following describes the structure of, and the method(s) used to determine the different types of compensation (e.g., salary, bonus, deferred compensation, retirement
plans and arrangements) for each Funds portfolio manager as of each Funds fiscal year ended December 31, 2020:
Lincoln Investment Advisors
Corporation
The equity programs are designed to position LIAC to attract and retain the most talented individuals in the financial services industry by offering
competitive programs that reward exceptional individual and company performance. Compensation of portfolio managers is not directly based on the performance of the funds or the value of assets held in the funds. Each portfolio managers
compensation consists of the following:
BASE SALARY: Each named portfolio manager receives a fixed base salary. The base salary is a combination of factors
including experience, responsibilities, skills, expectations, and market considerations. Salary increases are awarded in recognition of the portfolio managers individual performance and an increase or change in duties and responsibilities. Job
expectations are reviewed annually to ensure that they are reflected in the performance objects of the portfolio manager.
ANNUAL INCENTIVE PLAN (AIP): Portfolio
managers are eligible to receive annual variable incentive bonus. The AIP is a component of overall compensation based on company, division, and individual employee performance designed to link performance to pay.
LONG-TERM INCENTIVE PLAN PROGRAM: From time to time long-term incentive equity awards are granted to certain key employees. Equity awards are generally granted in the
form of Lincoln National Corporation restricted stock units that, once vested, settle in Lincoln National Corporation common stock.
DEFERRED COMPENSATION PROGRAM: A
portion of the cash compensation paid to eligible LIAC employees may be voluntarily deferred at their election for defined periods of time into an account that may be invested in mutual funds. The mutual fund investment options available in such
accounts do not currently include LIAC-advised funds.
Milliman Financial Risk Management LLC (Milliman FRM)
Compensation Overview
Milliman FRM portfolio managers and
other employees are paid competitive salaries by Milliman FRM. In addition, they may receive bonuses based on qualitative considerations, such as an individuals contribution to the organization, and performance reviews in relation to job
responsibilities. Investment professionals and other key employees also may participate in profit-sharing plans. The relative mix of compensation represented by bonuses, salary and profit-sharing plans will vary depending on the individuals
contributions to the organization and other factors.
As Milliman FRM is primarily concerned with managing and reducing financial risk for its
clients, one factor in determining bonuses is how well portfolio managers and traders manage risk; bonuses are not contingent on taking excessive risks or chasing high returns. Salaries and discretionary bonuses are intended to allow Milliman FRM to
compete for and retain talented professionals with appropriate experience and capabilities that complement our risk management business.
38
Lincoln Variable Insurance Products
Trust
Part C - Other Information
Item 28. Exhibits
Defined Terms for Exhibits:
•
Lincoln Investment Advisors Corporation (“LIAC”)
•
Lincoln Variable Insurance Products Trust (“LVIP Trust”)
•
Lincoln Financial Distributors, Inc. (“LFD”)
•
The Lincoln National Life Insurance Company (“Lincoln Life”)
•
Lincoln Life & Annuity Company of New York (“Lincoln New
York”)
•
Post-Effective Amendment (“PEA”)
Each of the following exhibits are incorporated by reference herein to
the previously filed documents indicated, except as otherwise noted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Instruments Defining Rights of Security Holders. |
|
|
Articles II, VII, and VIII of the Agreement and Declaration of Trust and Articles III, V and VI of the Amended Bylaws,
incorporated by reference into Exhibits (a) and (b) hereto, define the rights
of holders of shares. |
|
Investment Advisory Contracts. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-Sub-Advisory Contracts. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Sub-Advisory Contracts. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Material Contracts. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 29. Persons Controlled by or Under Common Control with Registrant
A diagram of all persons under common control with the Registrant is incorporated by
reference to Post-Effective Amendment No. 3 of the Registration Statement of The Lincoln National Life Insurance Company filed on Form N-4 (File No. 333-170695) on March 30,
2012.
See also “Purchase and Sale of Fund Shares” in the Prospectus disclosure
forming Part A of this Registration Statement and “Control Persons and Principal Holders of Securities” in the Statement of Additional Information disclosure
forming Part B of this Registration Statement. As of the date of this Post-Effective Amendment, the shareholders of the Trust are The Lincoln National Life Insurance Company for its Variable Annuity Accounts C, E, H, L, N, Q, T, W, JL-A, JF-I, and JF-II; and for its Flexible Premium Variable Life Accounts D, G, K, M, R, S, Y, JF-A, and JA-C; and for its Separate Account A; and Lincoln Life & Annuity Company of New York for its Variable Annuity Accounts C, H, L, and N and for its Flexible Premium Variable Life Accounts M, R, S, Y, and JA-B; and certain non-registered separate accounts of The Lincoln National Life Insurance Company and Lincoln Life & Annuity Company of New York. Shareholders of the Trust may also include certain unaffiliated insurance companies with respect to the LVIP Baron Growth Opportunities Fund, LVIP SSGA Bond Index Fund, LVIP SSGA Developed International 150 Fund, LVIP SSGA Emerging Markets 100 Fund, and LVIP SSGA International Index Fund. Certain “fund of funds” of the Trust may also invest in other of the Trust's series of funds.
No persons are controlled by the Registrant.
Item 30. Indemnification
As permitted by Sections 17(h) and 17(i) of the Investment Company Act of 1940 (the
“1940 Act”) and pursuant to Article VII, Section 2 of the Trust's Agreement and Declaration of Trust (Exhibit 28(a) to the Registration Statement) and Article VI
of the Trust's By-Laws (Exhibit 28(b) to the Registration Statement), officers, trustees, employees and agents of the Registrant will not be liable to the Registrant, any stockholder, officer, director, trustee, employee, agent or other person for any action or failure to act, except for bad faith, willful misfeasance, gross negligence or reckless disregard of duties, and those individuals may be indemnified against liabilities in connection with the Registrant, subject to the same exceptions. Subject to the standards set forth in the governing instrument of the Trust, Section 3817 of Title 12, Part V, Chapter 38, of the Delaware Code permits indemnification of trustees or other persons from and against all claims and demands. The Independent Trustees have entered into an Indemnification Agreement with the Trust which obligates the Trust to indemnify the Independent Trustees in certain situations and which provides the procedures and presumptions with respect to such indemnification obligations.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “1933” Act) may be permitted to trustees, officers and controlling persons of the Registrant pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission (“SEC) such indemnification is against public policy as expressed in the 1933 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a trustee, officer, or controlling person of the Registrant in connection with the successful defense of any action, suit or proceeding) is asserted against the Registrant by such trustee, officer or controlling person in connection with the shares being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue.
The Registrant has purchased an insurance policy insuring its officers, trustees and
directors against liabilities, and certain costs of defending claims against such officers and directors, to the extent such officers and directors are not found to have
committed conduct constituting willful misfeasance, bad faith, gross negligence or reckless disregard in the performance of their duties. The insurance policy will also insure the Registrant against the cost of indemnification payments to officers and trustees under certain circumstances.
Section
9 of the Investment Management Agreements (Exhibits 28(d)(1) and (2) to the Registration Statement) limits the liability of Lincoln Investment Advisors Corporation
(“LIAC”) to liabilities arising from willful misfeasance, bad faith or gross negligence in the performance of its respective duties or from reckless disregard by
LIAC of its respective obligations and duties under the Agreements. Certain other agreements to which the Trust is a party also contain indemnification
provisions.
The Registrant hereby undertakes that it will apply the
indemnification provisions of its By-Laws in a manner consistent with SEC Release No. 11330 so long as the interpretations of Sections 17(h) and 17(i) of the 1940 Act remain
in effect and are consistently applied.
Item 31. Business and Other Connections of Investment Adviser
Information pertaining to any business and other connections of Registrant’s
adviser, LIAC, is hereby incorporated by reference from the sections captioned “Investment Adviser” or “Investment Adviser and Subadviser” in the
Prospectus and Statement of Additional Information (“SAI”) disclosures forming Parts A and B, respectively, of this Registration Statement, and Item 7 of Part II
of LIAC’s Form ADV filed separately with the SEC.
Information regarding any business and other connections of the Registrant's sub-advisers
(collectively, the “Sub-Advisers”) is incorporated by reference from the sections captioned “Investment Adviser and Subadvisers” of the Prospectus
and SAI disclosures forming Parts A and B, respectively, of this Registration Statement and Item 7 of Part II of the Subadvisers’ Forms ADV filed separately with the SEC. The Sub-Advisers include:
•
AllianceBernstein L.P.;
•
American Century Investment Management, Inc.;
•
BlackRock Advisors, LLC;
•
BlackRock Financial Management, Inc.;
•
BlackRock Investment Management, LLC;
•
Clearbridge Investments LLC;
•
Delaware Investments Fund Advisers;
•
Dimensional Fund Advisors LP;
•
Franklin Advisers, Inc.;
•
Franklin Mutual Advisers, LLC;
•
Goldman Sachs Asset Management, L.P.;
•
Invesco Capital Management LLC;
•
JPMorgan Investment Management Inc.;
•
Loomis, Sayles & Company, L.P.;
•
Massachusetts Financial Services Company;
•
Milliman Financial Risk Management LLC;
•
Mondrian Investment Partners Limited;
•
Pacific Investment Management Company LLC;
•
Schroder Investment Management North America Inc.;
•
SSGA Funds Management, Inc.;
•
T. Rowe Price Associates, Inc.;
•
Templeton Investment Counsel, LLC;
•
Wellington Management Company, LLP; and,
•
Western Asset Management Company.
Information concerning the other businesses, professions, vocations, and
employment of a substantial nature during the past two years of the directors and officers of LIAC and the Sub-Advisers is incorporated by reference to Schedule A and
Schedule D of LIAC’s Form ADV and the respective Forms ADV for the Sub-Advisers.
Item 32. Principal
Underwriters
(a) Lincoln Financial Distributors, Inc. (“LFD”)
currently serves as principal underwriter for the Trust. LFD also serves as the principal underwriter for: Lincoln National Variable Annuity Account C; Lincoln Life Flexible
Premium Variable Life Account D; Lincoln National Variable Annuity Account E; Lincoln Life Flexible Premium Variable Life Account F; Lincoln Life Flexible Premium Variable
Life Account G; Lincoln National Variable Annuity Account H; Lincoln Life Flexible Premium Variable Life Account J; Lincoln Life Flexible Premium Variable Life Account K; Lincoln National Variable Annuity Account L; Lincoln Life Flexible Premium Variable Life Account M; Lincoln Life Variable Annuity Account N; Lincoln Life Variable Annuity Account Q; Lincoln Life Flexible Premium Variable Life Account R; Lincoln Life Flexible Premium Variable Life Account S; Lincoln Life Variable Annuity Account T; Lincoln Life Variable Annuity Account W; Lincoln Life Flexible Premium Variable Life Account Y; Lincoln Life Flexible Premium Variable Life Account Z; Lincoln Life Variable Annuity Account JL-A; Lincoln Life Variable Annuity Account JF-H; Lincoln Life Variable Annuity Account JF-I; and Lincoln Life Flexible Premium Variable Life Account JF-A; Lincoln Life Flexible Premium Variable Life Account JF-C.
LFD also serves as principal underwriter for: Lincoln Life & Annuity Variable Annuity Account L; Lincoln Life & Annuity Flexible Premium Variable Life Account JA-B; Lincoln Life & Annuity Flexible Premium Variable Life Account M; Lincoln New York Account N for Variable Annuities; LLANY Separate Account R for Flexible Premium Variable Life Insurance; LLANY Separate Account S for Flexible Premium Variable Life Insurance; Lincoln Life & Annuity Flexible Premium Variable Life Account Y; and Lincoln Life & Annuity Flexible Premium Variable Life Account Z.
(b) Directors and Principal Officers of Lincoln Financial Distributors,
Inc.:
|
Positions and Offices with Underwriter |
Positions and Offices with Trust |
|
Director and Senior Vice President |
|
|
Positions and Offices with Underwriter |
Positions and Offices with Trust |
|
Director, President, and Chief Executive Officer |
|
|
Director and Senior Vice President |
|
|
Director and Senior Vice President |
|
|
|
|
|
|
|
|
Senior Vice President and Treasurer |
|
|
|
|
|
|
Senior Vice President, Secretary and Chief Legal
Officer |
|
|
|
|
|
|
|
Senior Vice President, Chief Operating Officer, and Head of Financial Institutions Group |
|
|
|
|
|
|
|
*
Principal Business address is 150 N. Radnor-Chester Road, Radnor PA
19087
**
Principal Business address is 350 Church Street, Hartford, CT 06103
***
Principal Business address is 100 N. Greene Street, Greensboro, NC
27401
Item 33. Location of Accounts and Records
All accounts, books, and other documents required to be maintained by Section 31(a) of
the Investment Company Act of 1940 and the rules promulgated thereunder are maintained by the Adviser, LIAC, 150 N. Radnor-Chester Road, Radnor, PA 19087 and 1300 South
Clinton Street, Fort Wayne, Indiana 46802, as well as the Subadvisers at:
•
AllianceBernstein L.P., 1345 Avenue of the Americas, New York, New York 10105;
•
American Century Investment Management, Inc., 4500 Main Street, Kansas City, Missouri
64111;
•
BAMCO,
Inc., 767 Fifth Avenue, New York, New York 10153;
•
BlackRock Advisors, LLC, 100 Bellevue Parkway, Wilmington, Delaware 19809;
•
BlackRock Financial Management, Inc., 40 East 52nd Street, New York, New York
10022;
•
BlackRock Investment Management, LLC 40 East 52nd Street, New York, New York
10022;
•
ClearBridge Investments, LLC, 620 Eighth Avenue, New York, New York 10018
•
Delaware Investments Fund Advisors, 2005 Market Street, Philadelphia, Pennsylvania
19103;
•
Dimensional Fund Advisors, L.P., 6300 Bee Cave Road, Building One, Austin, TX
78746,
•
Franklin Advisers, Inc., One Franklin Parkway, San Mateo, California
94403-1906;
•
Franklin Mutual Advisers, LLC, 101 John F. Kennedy Parkway, Short Hills, New Jersey
07078;
•
Goldman
Sachs Asset Management, L.P., 200 West Street, 15th Floor, New York, NY 10282;
•
Invesco Advisers, Inc., 1555 Peachtree Street, N.E., Atlanta, Georgia 30309;
•
Invesco Capital Management LLC, 3500 Lacey Road, Suite 700, Downers Grove, Illinois
60515;
•
JPMorgan Investment Management Inc., 270 Park Avenue, New York, New York
10017;
•
Loomis,
Sayles & Company, L.P., One Financial Center, Boston, Massachusetts 02111;
•
Massachusetts Financial Services Company, 500 Boylston Street, Boston, Massachusetts
02116;
•
Milliman Financial Risk Management LLC, 71 S. Wacker Drive, 31st Floor, Chicago, Illinois
60606;
•
Mondrian Investment Partners Limited, 80 Cheapside, London EC2V6EE;
•
Pacific Investment Management Company LLC, 840 Newport Center Drive, Newport Beach, CA
92660;
•
QS
Investors, LLC, 880 Third Avenue, 7th Floor, New York, New York 10022;
•
Schroder Investment Management North America Inc., 7 Bryant Park, New York, NY
10018
•
SSGA
Funds Management, Inc., One Lincoln Street, Boston, Massachusetts 02111;
•
T. Rowe Price Associates, Inc., 100 East Pratt Street, Baltimore, Maryland
21202;
•
Templeton Investment Counsel, 500 East Broward Boulevard, Suite 2100, Fort Lauderdale,
Florida 33394;
•
Wellington Management Company, LLP 75 State Street, Boston, Massachusetts 02111;
and,
•
Western
Asset Management Company, 385 East Colorado Boulevard, Pasadena, California 91101.
and former Subadvisers at:
•
AQR Capital Management, LLC, Two Greenwich Plaza, 4th Floor, Greenwich, CT
06830;
•
CBRE
Clarion Securities LLC, 201 King of Prussia Road, Suite 600, Radnor, Pennsylvania 19087;
•
Cohen & Steers Capital Management, 280 Park Avenue, New York, New York
10017;
•
Columbia Management Investment Advisers, LLC, One Financial Center, Boston, Massachusetts
02111;
•
Franklin Advisory Services, LLC, 55 Challenger Road, Suite 501, Ridgefield Park, New Jersey
07660;
•
Ivy
Investment Management Company, 6300 Lamar Avenue, Shawnee Mission, KS 66201;
•
Janus Capital Management LLC, 100 Fillmore Street, Denver, Colorado 80206;
•
Metropolitan West Capital Management, LLC, 610 Newport Center Drive, Suite 1000, Newport
Beach, California 92660;
•
Turner
Investment Partners, Inc., 1205 Westlakes Drive, Suite 100, Berwyn, Pennsylvania 19312; and,
•
UBS Asset Management (Americas) Inc., 1285 Avenue of the Americas, New York, New York
10019.
Also, the
Trust’s administrator, The Lincoln National Life Insurance Company, 1300 South Clinton Street, Fort Wayne, Indiana 46802; the Trust’s custodian, State Street
Bank and Trust Company, One Lincoln Street, Boston, Massachusetts 02111; and the Trust’s accounting services provider, State Street Bank and Trust Company, One Lincoln
Street, Boston, Massachusetts 02111.
Item 34. Management Services
Not applicable.
Item 35. Undertakings
Not applicable.
SIGNATURE PAGE
Pursuant to the requirements of the Securities Act of 1933 (“Securities
Act”) and the Investment Company Act of 1940, the Registrant has duly caused this Post-Effective Amendment No. 223 to the Registration Statement to be signed on its
behalf by the undersigned, duly authorized, in the city of Fort Wayne, and State of Indiana, on this 24th day of June, 2021.
LINCOLN VARIABLE INSURANCE PRODUCTS TRUST |
By: /s/Jayson R. Bronchetti
Jayson R. Bronchetti President |
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated.
|
|
|
|
Chairman of the Board, Trustee and President (Principal Executive Officer) |
|
/s/ William P. Flory, Jr. |
Chief Accounting Officer
(Principal Accounting Officer and Principal Financial Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|