As filed with the Securities and Exchange Commission on January 30, 2023
1933 Act Registration No. 333-268967
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. 2
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
US Bank Tower
633 West 5th Street, Suite 4900
Los Angeles, CA 90071-2013
Approximate Date of Public Offering: As soon as practicable after this Registration Statement becomes effective under the Securities Act of 1933, as amended.
Title of securities being registered: Shares of beneficial interest, without par value, of the Acquiring Fund, a series of the Registrant.
Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), shall determine.
No filing fee is due because Registrant is relying on Section 24(f) of the Investment Company Act of 1940, as amended.
PROXY MATERIALS
JPMORGAN INSURANCE TRUST
JPMorgan Insurance Trust Core Bond Portfolio
JPMorgan Insurance Trust Mid Cap Value Portfolio
JPMorgan Insurance Trust Small Cap Core Portfolio
JPMorgan Insurance Trust U.S. Equity Portfolio
277 Park Avenue
New York, New York 10172
January 30, 2023
ACTION REQUIRED
Dear Contract Owners and Shareholders:
You are cordially invited to a joint special meeting of shareholders of each of the following series of JPMorgan Insurance Trust (“Trust”): JPMorgan Insurance Trust Core Bond Portfolio, JPMorgan Insurance Trust Mid Cap Value Portfolio, JPMorgan Insurance Trust Small Cap Core Portfolio and JPMorgan Insurance Trust U.S. Equity Portfolio (each, a “JPMorgan Portfolio,” and collectively, the “JPMorgan Portfolios”).
The meeting will be held at 277 Park Avenue, New York, New York 10172 at 10:00 a.m., Eastern Time, on March 15, 2023 (together with any postponements or adjournments thereof, the “Meeting”). The purpose of the Meeting is to vote on an important matter that affects the JPMorgan Portfolios, as described below (the “Proposal”).
The Board of Trustees of the Trust has approved an Agreement and Plan of Reorganization (the “Agreement”) for the JPMorgan Portfolios where each JPMorgan Portfolio would be reorganized into a corresponding, newly formed fund (each, an “Acquiring Fund,” and collectively, the “Acquiring Funds”) in the Lincoln Variable Insurance Products Trust (each, a “Reorganization” and together, the “Reorganizations”). Following the Reorganizations, each Acquiring Fund will be managed by Lincoln Investment Advisors Corporation, which is part of the Lincoln Financial Group.
Our records indicate that you are an owner of a variable annuity contract and/or a variable life insurance policy (either, a “variable contract”) and that you have selected as an investment option within that variable contract one or more of the JPMorgan Portfolios. This entitles you to give voting instructions to the insurance company that issued your variable contract, which will then be obligated to vote on your behalf at the Meeting in accordance with your instructions.
The JPMorgan Portfolios are exclusively sold, directly or indirectly, to the separate accounts (or sub-accounts thereof) (“Separate Accounts”) of certain insurance companies (“Participating Insurance Companies”) that support variable annuity contracts and variable life insurance policies (“variable contracts”). For convenience, contract owners and policy participants are referred to collectively as “Contract Owners.” Individual Contract Owners are not the “shareholders” of the JPMorgan Portfolios. Rather, the Separate Accounts of Participating Insurance Companies are the shareholders of the JPMorgan Portfolios. Contract Owners – as beneficial shareholders of JPMorgan Portfolio shares – have the right to instruct the insurance companies, as the record owners of the shares, how to vote the shares. Because you are a Contract Owner, you are entitled to provide voting instructions.
In accordance with the Investment Company Act of 1940, as amended, and certain interpretations by the staff of the Securities and Exchange Commission, each Participating Insurance Company will offer to variable contract owners (“Contract Owners”) who have allocated their variable contract values to a JPMorgan Portfolio as of January 10, 2023 (the “Record Date”), as determined by each of the Participating Insurance Companies, the opportunity to instruct the Participating Insurance Company as to how they should vote JPMorgan Portfolio shares (attributable to their contract values) with respect to the Proposal.
This letter and the accompanying Notice of Special Meeting of Shareholders, Combined Proxy Statement/Prospectus, and Voting Instruction Card are, therefore, being furnished to Contract Owners entitled to provide voting instructions with regard to the Proposal.
As a Contract Owner, you have the right to instruct your Participating Insurance Company as to the manner in which a JPMorgan Portfolio’s shares attributable to your variable contract should be voted. Shares for which a Participating Insurance Company does not receive timely voting instructions from Contract Owners and duly executed and dated Voting Instruction Cards that do not provide voting instructions will be voted by that Participating Insurance Company in the same proportion as the shares for which Contact Owners have provided voting instructions to the Participating Insurance Company. This proportional voting may result in a small number of Contract Owners determining the vote on the Proposal.
Your vote is extremely important and providing voting instructions is quick and easy. Everything you need is enclosed. To cast your vote, simply complete, sign and return the Voting Instruction Card. In addition to voting by mail, depending on your insurance company, you may also be able to provide voting instructions either by telephone or via the Internet. If available, we encourage you to vote by telephone or via the Internet using the control number that appears on your enclosed Voting Instruction Card. Use of telephone or Internet voting will reduce the time and costs associated with this proxy solicitation.
Please vote at your earliest convenience. Please review the Combined Proxy Statement/Prospectus and consider the Proposal carefully before providing your voting instructions. Please vote at your earliest convenience, even if you plan to attend the Meeting in person. This will help control costs associated with conducting the proxy solicitation and will help ensure quorum is reached, which will allow the Proposal to be acted upon at the Meeting. You may receive more than one set of proxy solicitation materials if you hold investment interests in multiple JPMorgan Portfolios or accounts. Please respond to them all. Your vote is extremely important, no matter how many investment interests you own.
Instructions explaining how to provide voting instructions are provided on the notice for the Meeting and your Voting Instruction Card.
If you have any questions after reviewing the proxy materials, please call (866) 905-8147. We will get you the answers that you need promptly.
The Board of Trustees of the JPMorgan Insurance Trust has unanimously
approved and recommends that you vote “FOR” the Proposal.
The enclosed Combined Proxy Statement/Prospectus describes the Agreement and compares each JPMorgan Fund to its corresponding Acquiring Fund. You should review these materials carefully. If shareholders approve the Agreement, the Reorganizations are expected to occur on or about May 1, 2023.
Your vote is important no matter how many shares you own. After reviewing the enclosed materials, please take a moment to sign and return your Voting Instruction Card in the enclosed postage-paid return envelope. You may also vote by telephone or through a website established for that purpose by following the instructions that appear on the enclosed Voting Instruction Card. It is important that we receive your vote by the Meeting date. If you attend the Meeting, you may vote at the Meeting. If you have questions, please call (866) 905-8147. If we do not hear from you, you may receive a telephone call from our proxy solicitor encouraging you to vote.
Sincerely,
Brian S. Shlissel
President
JPMorgan Insurance Trust
NOTICE OF JOINT SPECIAL MEETING OF SHAREHOLDERS
To Be Held on March 15, 2023
JPMORGAN INSURANCE TRUST
JPMorgan Insurance Trust Core Bond Portfolio
JPMorgan Insurance Trust Mid Cap Value Portfolio
JPMorgan Insurance Trust Small Cap Core Portfolio
JPMorgan Insurance Trust U.S. Equity Portfolio
277 Park Avenue
New York, New York 10172
(800) 480-4111
NOTICE IS HEREBY GIVEN that a joint special meeting (together with any postponements or adjournments thereof, the “Meeting”) of shareholders of the JPMorgan Insurance Trust series identified in the Proposal below (each, a “JPMorgan Portfolio” and collectively, the “JPMorgan Portfolios”) will be held on March 15, 2023 at 10:00 a.m., Eastern Time, at 277 Park Avenue, New York, New York 10172.
The purpose of the Meeting is for shareholders of each JPMorgan Portfolio to consider and vote upon the following Proposal:
1. To approve an Agreement and Plan of Reorganization (the “Agreement”) providing for:
1(a) | The reorganization of the JPMorgan Insurance Trust Core Bond Portfolio into the LVIP JPMorgan Core Bond Fund; |
1(b) | The reorganization of the JPMorgan Insurance Trust Mid Cap Value Portfolio into the LVIP JPMorgan Mid Cap Value Fund; |
1(c) | The reorganization of the JPMorgan Insurance Trust Small Cap Core Portfolio into the LVIP JPMorgan Small Cap Core Fund; and |
1(d) | The reorganization of the JPMorgan Insurance Trust U.S. Equity Portfolio into the LVIP JPMorgan U.S. Equity Fund (each, a “Reorganization” and together, the “Reorganizations”). |
2. To transact other business that may properly come before the Meeting.
The Agreement provides for the reorganization of each JPMorgan Portfolio into a corresponding, newly formed fund (each, an “Acquiring Fund,” and collectively, the “Acquiring Funds”) in the Lincoln Variable Insurance Products Trust. Following the Reorganizations, each Acquiring Fund will be managed by Lincoln Investment Advisors Corporation, which is part of the Lincoln Financial Group. If shareholders of a JPMorgan Portfolio approve the Agreement, and certain other closing conditions are satisfied or waived, the shareholders of the JPMorgan Portfolio will become shareholders of the corresponding Acquiring Fund.
The JPMorgan Portfolios are exclusively sold, directly or indirectly, to the separate accounts (or sub-accounts thereof) (“Separate Accounts”) of certain insurance companies (“Participating Insurance Companies”) that support certain variable annuity contracts and variable life insurance policies (“variable contracts”). For convenience, contract owners and policy participants are referred to collectively as “Contract Owners.” Individual Contract Owners are not shareholders of the JPMorgan Portfolios. Rather, the Separate Accounts of Participating Insurance Companies are the shareholders of the JPMorgan Portfolios. Contract Owners – as beneficial shareholders of JPMorgan Portfolio shares – have the right to instruct the insurance companies, as the record owners of the shares, how to vote the shares. Because you are a Contract Owner, you are entitled to provide voting instructions.
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Shareholders of record as of the close of business on January 10, 2023 (“Record Date”) are entitled to notice of, and to vote at, the Meeting. Shareholders of each JPMorgan Portfolio will vote separately on the Agreement, with all classes of the JPMorgan Portfolio voting together, and the proposed Reorganization will be effected as to a particular JPMorgan Portfolio only if that JPMorgan Portfolio’s shareholders approve the Agreement and certain conditions of the Agreement are met or waived.
As a Contract Owner, you have the right to instruct your Participating Insurance Company as to the manner in which a JPMorgan Portfolio’s shares attributable to your variable contract should be voted. Shares for which a Participating Insurance Company does not receive timely voting instructions from Contract Owners and duly executed and dated Voting Instruction Cards that do not provide voting instructions will be voted by that Participating Insurance Company in the same proportion as the shares for which Contract Owners have provided voting instructions to the Participating Insurance Company. This proportional voting may result in a small number of Contract Owners determining the vote on the Proposal.
You are also entitled to participate at the Meeting, including any postponement(s) and adjournment(s), if you were an Contract Owner at the close of business on the Record Date.
Important Notice Regarding the Availability of Proxy Materials for the Special Meeting of Shareholders to Be Held on March 15, 2023.
This Notice presents an overview of the more complete proxy materials, which contain important information and are available on the JPMorgan Portfolios’ website or by mail. This Notice is not a ballot or other form for voting.
The Combined Proxy Statement/Prospectus is available at https://www.proxy-direct.com/jpm-33120and a paper copy can be obtained at no charge by calling (800) 480-4111.
To cast your vote simply complete, sign and return the Voting Instruction Card. In addition to voting by mail, depending on your insurance company, you may also be able to provide voting instructions either by telephone or via the Internet.
To provide voting instructions by Telephone: | To provide voting instructions by Internet: | |
(1) Read the Combined Proxy Statement/Prospectus and have your Voting Instruction Card at hand. | (1) Read the Combined Proxy Statement/Prospectus and have your Voting Instruction Card at hand. | |
(2) Call the toll-free number shown on your Voting Instruction Card. | (2) Go to the website shown on your Voting Instruction Card. | |
(3) Enter the control number shown on your Voting Instruction Card and follow the simple instructions. | (3) Enter the control number shown on Voting Instruction Card and follow the simple instructions. |
If available, we encourage you to vote by telephone or via the Internet using the control number that appears on your enclosed Voting Instruction Card. Use of telephone or Internet voting will reduce the time and costs associated with this proxy solicitation.
Please respond at your earliest convenience, even if you plan to attend the Meeting. You may receive more than one set of proxy solicitation materials if you hold investment interests in multiple JPMorgan Portfolios or accounts. Please vote them all. Your vote is extremely important, no matter how many investment interests you own.
Whichever method you choose, please read the Combined Proxy Statement/Prospectus carefully before you provide voting instructions.
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After careful consideration, the Board of Trustees of the JPMorgan Insurance Trust has unanimously approved and recommends that you cast your vote “FOR” the Proposal as described in the Combined Proxy Statement/ Prospectus.
You are requested to complete, date, and sign the enclosed Voting Instruction Card/Cards and return it/them promptly in the envelope provided for that purpose. Your Voting Instruction Card/Cards also provides/provide instructions for voting via telephone or the Internet if you wish to utilize these voting options. Some shareholders hold shares of more than one JPMorgan Portfolio and may receive Voting Instruction Cards or proxy materials for each JPMorgan Portfolio owned. Please sign and return the Voting Instruction Card in the postage-paid return envelope, or vote via telephone or the Internet, for each JPMorgan Portfolio held.
You may revoke your proxy at any time before it is exercised by submitting a written notice of revocation or a subsequently executed proxy or by attending the Meeting and giving notice of revocation.
By Order of the Board of Trustees of the JPMorgan Insurance Trust,
Brian S. Shlissel President
January 30, 2023
Your vote is very important to us regardless of the number of shares you hold. Shareholders who do not expect to attend the Meeting are requested to complete, sign, date and return the accompanying proxy card(s) in the enclosed envelope, which needs no postage if mailed in the United States. It is important that your proxy card(s) be returned promptly.
For your convenience, you may also vote by telephone or the Internet by following the enclosed instructions. If you vote by telephone or via the Internet, please do not return your Voting Instruction Card(s) unless you elect to change your vote.
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IMPORTANT INFORMATION TO HELP YOU UNDERSTAND
AND VOTE ON THE PROPOSAL
We are providing you with this overview of the proposal on which your vote is requested (the “Proposal”). Please read the full text of the Combined Proxy Statement/Prospectus, which contains additional information about the Proposal, and keep it for future reference. Your vote is important.
Questions and Answers
Q. Why am I receiving the Combined Proxy Statement/Prospectus?
A. You are receiving a Combined Proxy Statement/Prospectus because you beneficially owned shares of one or more JPMorgan Portfolio noted in the chart below as of January 10, 2023 and you have the right to vote on a very important Proposal. We refer to each Portfolio as a “JPMorgan Portfolio,” and collectively the “JPMorgan Portfolios.” The Combined Proxy Statement/Prospectus contains information that you should know before voting on the Proposal which, if approved and consummated, will result in important changes to your JPMorgan Portfolio investment.
Q. What am I being asked to vote upon?
A. You are being asked to approve an Agreement and Plan of Reorganization (the “Agreement”) to effect the reorganization of the JPMorgan Portfolio(s) of which you own shares into corresponding newly formed fund(s) in a different mutual fund family, sponsored by the Lincoln Financial Group. In each proposed Reorganization, the JPMorgan Portfolio will be the “target” or “acquired” fund and the Corresponding Acquiring Fund shown below will be the “acquiring” fund.
The table below shows the JPMorgan Portfolios and the corresponding newly formed funds in the Lincoln Variable Insurance Products Trust (each, an “Acquiring Fund,” and, collectively, the “Acquiring Funds”).
JPMorgan Portfolio | Corresponding Acquiring Fund | |
JPMorgan Insurance Trust Core Bond Portfolio | LVIP JPMorgan Core Bond Fund | |
JPMorgan Insurance Trust Mid Cap Value Portfolio | LVIP JPMorgan Mid Cap Value Fund | |
JPMorgan Insurance Trust Small Cap Core Portfolio | LVIP JPMorgan Small Cap Core Fund | |
JPMorgan Insurance Trust U.S. Equity Portfolio | LVIP JPMorgan U.S. Equity Fund |
If shareholders of a JPMorgan Portfolio approve the Agreement and certain other closing conditions are satisfied or waived, the Class 1 shares and Class 2 shares you currently own of a JPMorgan Portfolio will be exchanged for the same value of Standard Class shares and Service Class shares, respectively, of the corresponding Acquiring Fund. Please note that only Class 1 Shares of the JPMorgan Insurance Trust Mid Cap Value Portfolio are involved in a Reorganization. We refer to each transaction as a “Reorganization,” and collectively, as the “Reorganizations.”
Q. Why are the Reorganizations being proposed?
A. Management of the JPMorgan Portfolios believes that implementing the Reorganizations will benefit the JPMorgan Portfolios and their shareholders in a number of ways. The Reorganizations are expected to benefit the shareholders of the JPMorgan Portfolios by, among other things, decreasing Fund expenses, offering general continuity of investment personnel and substantially identical principal investment strategies while also providing the reputation, financial strength, resources and operational oversight of the Lincoln Financial Group with respect to funds that serve as investment options for their insurance products. In addition, the Acquiring
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Funds will become eligible for greater placement as investment options within insurance products, such as those offered by Lincoln Financial Group’s affiliates, which will make it easier for the Funds to attract new investors and additional inflows. These opportunities may result in greater economies of scale for the Acquiring Funds as compared to the JPMorgan Portfolios, which could ultimately benefit shareholders. Based upon discussions with management of the JPMorgan Portfolios and the Acquiring Funds regarding the proposed Reorganizations, the Board of Trustees of the JPMorgan Insurance Trust (the “JPMIT Board”) concluded that the Reorganizations are in the best interests of each JPMorgan Portfolio.
Q. What effect will a Reorganization have on me as a shareholder or Contract Owner of a JPMorgan Portfolio?
A. Upon the closing of a Reorganization, the Class 1 shares and/or Class 2 shares you currently own of the applicable JPMorgan Portfolio will be exchanged for the same value of Standard Class shares and Service Class shares, respectively, of the corresponding Acquiring Fund. The Acquiring Funds offer 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 0.25% of the average daily net assets of the Service Class shares of the Fund. The Service Class of each Acquiring Fund was chosen to be exchanged for Class 2 of the corresponding JPMorgan Portfolio as both classes are subject to the same level of Rule 12b-1 fee. The Standard Class of each Acquiring Fund was chosen to be exchanged for Class 1 of the corresponding JPMorgan Portfolio as neither are subject to a Rule 12b-1 fee. As discussed below, the Acquiring Fund shares you receive in a Reorganization are expected to have a lower expense ratio than your current JPMorgan Portfolio shares.
Q. If the Agreement is approved by shareholders, who will be managing my Fund?
A. Each Acquiring Fund will be managed on a day-to-day basis by the same team of financial professionals that manages the corresponding JPMorgan Portfolio.
Specifically, if shareholders of a JPMorgan Portfolio approve the Agreement, and certain other closing conditions are satisfied or waived, J.P. Morgan Investment Management Inc. (“JPMIM”) will serve as the sub-adviser to each Acquiring Fund. JPMIM currently serves as the investment adviser for each JPMorgan Portfolio.
JPMIM is a wholly-owned subsidiary of JPMorgan Asset Management Holdings Inc., which is a wholly-owned subsidiary of JPMorgan Chase & Co., a bank holding company. JPMIM is located at 383 Madison Avenue, New York, NY 10179. As of September 30, 2022, JPMIM and its affiliates had $2.3 trillion in assets under management.
Lincoln Investment Advisor Corporation (“LIAC”) serves as the investment adviser for each Acquiring Fund. LIAC is part of the Lincoln Financial Group, and, as of October 31, 2022, LIAC managed approximately $220 billion in assets in various institutional or separately managed, investment company, and insurance accounts. LIAC will act as investment manager for each Acquiring Fund, providing oversight of JPMIM.
Q. Are there any significant differences between the investment objectives and principal investment strategies and principal risks of each JPMorgan Portfolio and its corresponding Acquiring Fund?
A. Each Acquiring Fund has the same investment objective and substantially identical principal investment strategies and principal risks as its corresponding JPMorgan Portfolio.
Because each Acquiring Fund has the same investment objective and substantially identical principal investment strategies and principal risks as its corresponding JPMorgan Portfolio, the Reorganizations generally should not change the risk/return profile for JPMorgan Portfolio shareholders.
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Q. Are there any significant differences between the advisory fee or total annual fund operating expenses of the JPMorgan Portfolios and their corresponding Acquiring Funds?
A. The investment advisory fee schedule for each Acquiring Fund provides for the same fees as that of its corresponding JPMorgan Portfolio. The gross and net annual fund operating expenses of each Acquiring Fund are estimated to be lower than the total annual fund operating expenses of the corresponding JPMorgan Portfolio. In addition, LIAC has agreed to reimburse fund expenses of each Acquiring Fund for two years from the closing date of the Reorganization so that each Acquiring Fund’s total annual fund operating expenses will be no greater than the total annual fund operating expenses of its corresponding JPMorgan Portfolio immediately prior to the Reorganization.
Q. Will there be any sales load, commission or other transactional fee in connection with the Reorganizations?
A. No. The shares of each JPMorgan Portfolio that you own will be exchanged for an equal value of shares of the corresponding Acquiring Fund without the imposition of any sales load, commission or other transactional fee.
Q. What are the expected federal income tax consequences of the Reorganizations?
A. Each Reorganization is intended to qualify as a tax-free reorganization for federal income tax purposes. Therefore, each JPMorgan Portfolio and its shareholders are not expected to recognize any gain or loss for U.S. federal income tax purposes as a direct result of a Reorganization.
Q. Has the JPMIT Board considered the Agreement and the Reorganizations, and how does it recommend that I vote?
A. The JPMIT Board, including the Independent Trustees, has carefully considered the Agreement and the Reorganizations and unanimously recommends that you vote “FOR” the Agreement.
Q. What is the anticipated timing of the Reorganizations?
A. The Reorganizations are expected to occur on or about May 1, 2023.
Q. What will happen if shareholders of a JPMorgan Portfolio do not approve the Agreement?
A. If shareholders of a JPMorgan Portfolio do not approve the Agreement or if a Reorganization is not completed for any other reason, the JPMIT Board, on behalf of the applicable JPMorgan Portfolio, will consider other possible courses of action, including continuing to operate the JPMorgan Portfolio as is, merging the JPMorgan Portfolio into another fund or liquidating the JPMorgan Portfolio.
Q. Will any JPMorgan Portfolio or Acquiring Fund pay the costs of this proxy solicitation or any costs in connection with the proposed Reorganizations?
A. No. None of the JPMorgan Portfolios or Acquiring Funds will bear these costs, including any repositioning costs. LIAC and JPMIM will bear all expenses of the Reorganizations as set forth in the Agreement, whether or not one or more of the Reorganizations are consummated.
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Q. How do I vote my shares?
A. For your convenience, there are several ways you can vote:
• | By telephone (call the toll free number listed on your Voting Instruction Card/Cards) |
• | By Internet (log on to the website listed on your Voting Instruction Card/Cards) |
• | By mail (using the enclosed postage prepaid envelope) |
• | By attending the shareholder meeting |
We encourage you to vote as soon as possible so we can reach the needed quorum for the vote and avoid the cost of additional solicitation efforts. Please refer to the enclosed Voting Instruction Card(s) for instructions for voting by telephone, Internet or mail. Voting Instruction Cards may also be referred to as “proxy cards.”
Q. How Can I Attend the Special Meeting?
A. If you attend the Meeting in person, you will be required to present a valid form of government-issued photo identification, such as a valid driver’s license or passport, and proof of ownership of Acquired Fund shares as of January 10, 2023, the Record Date for the Meeting.
The Meeting will begin promptly at 10:00 a.m. Eastern time. We encourage you to arrive at the Meeting prior to the start time leaving ample time for check in.
Q. Whom should I call if I have questions?
A. If you need any assistance, or have any questions regarding the Agreement, the Reorganizations or how to vote your shares, please call (866) 905-8147.
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JPMORGAN INSURANCE TRUST
JPMorgan Insurance Trust Core Bond Portfolio
JPMorgan Insurance Trust Mid Cap Value Portfolio
JPMorgan Insurance Trust Small Cap Core Portfolio
JPMorgan Insurance Trust U.S. Equity Portfolio
277 Park Avenue
New York, New York 10172
(800) 480-4111
Lincoln Variable Insurance Products Trust
(Registrant)
LVIP JPMorgan Core Bond Fund
LVIP JPMorgan Mid Cap Value Fund
LVIP JPMorgan Small Cap Core Fund
LVIP JPMorgan U.S. Equity Fund
1301 South Harrison Street
Fort Wayne, IN 46802
(800) 454-6265
COMBINED PROXY STATEMENT/PROSPECTUS
January 30, 2023
Introduction
This combined proxy statement/prospectus (the “Combined Proxy Statement/Prospectus”) is being furnished to shareholders of the JPMorgan Insurance Trust series identified above (each, a “JPMorgan Portfolio” and collectively, the “JPMorgan Portfolios”). The Combined Proxy Statement/Prospectus is also being furnished to insurance contract owners (“Contract Owners”) who beneficially owned shares of a JPMorgan Portfolio. The Board of Trustees of the JPMorgan Insurance Trust, of which the JPMorgan Portfolios are series, are soliciting votes for a joint special meeting (together with any postponements or adjournments thereof, the “Meeting”) of shareholders of the JPMorgan Portfolios. The meeting will be held on March 15, 2023 at 10:00 a.m., Eastern Time, at 277 Park Avenue, New York, New York 10172.
The purpose of the Meeting is for shareholders of each JPMorgan Portfolio to consider and vote upon the following proposal (the “Proposal”):
1. To approve an Agreement and Plan of Reorganization (the “Agreement”) providing for:
1(a) | The reorganization of the JPMorgan Insurance Trust Core Bond Portfolio into the LVIP JPMorgan Core Bond Fund; |
1(b) | The reorganization of the JPMorgan Insurance Trust Mid Cap Value Portfolio into the LVIP JPMorgan Mid Cap Value Fund; |
1(c) | The reorganization of the JPMorgan Insurance Trust Small Cap Core Portfolio into the LVIP JPMorgan Small Cap Core Fund; and |
1(d) | The reorganization of the JPMorgan Insurance Trust U.S. Equity Portfolio into the LVIP JPMorgan U.S. Equity Fund (each, a “Reorganization” and together, the “Reorganizations”). |
2. To transact other business that may properly come before the Meeting.
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The Agreement provides for the reorganization of each JPMorgan Portfolio into a corresponding, newly formed “LVIP” branded fund (each, an “Acquiring Fund,” and collectively, the “Acquiring Funds”) that is a series of the Lincoln Variable Insurance Products Trust. Following the Reorganizations, each Acquiring Fund will be managed by Lincoln Investment Advisors Corporation, which is part of the Lincoln Financial Group. If shareholders of a JPMorgan Portfolio approve the Agreement, and certain other closing conditions are satisfied or waived, they will become shareholders of the corresponding Acquiring Fund. In each proposed Reorganization, the JPMorgan Portfolio will be the “target” or “acquired” fund and the corresponding Acquiring Fund will be the acquiring fund.
The JPMorgan Portfolios are exclusively sold, directly or indirectly, to the separate accounts (or sub-accounts thereof) (“Separate Accounts”) of certain insurance companies (“Participating Insurance Companies”) that support variable annuity contracts and variable life insurance policies (“variable contracts”). For convenience, contract owners and policy participants are referred to collectively as “Contract Owners.” Individual Contract Owners are not the “shareholders” of the JPMorgan Portfolios. Rather, the Separate Accounts of Participating Insurance Companies are the shareholders of the JPMorgan Portfolios. Contract Owners – as beneficial shareholders of JPMorgan Portfolio shares – have the right to instruct the insurance companies, as the record owners of the shares, how to vote the shares. Because you are a Contract Owner, you are entitled to provide voting instructions.
This Combined Proxy Statement/Prospectus contains information that shareholders of the JPMorgan Portfolios should know before voting on the Agreement that is described herein and should be retained for future reference. It is both the proxy statement of the JPMorgan Portfolios and also a prospectus for the Acquiring Funds. Each JPMorgan Portfolio and Acquiring Fund is a registered open-end management investment company. We sometimes refer to the JPMorgan Portfolios and the Acquiring Funds collectively as the “Funds” and to any of them individually as a “Fund.”
Each Acquiring Fund has been organized as a separate series of the Lincoln Variable Insurance Products Trust, which filed a registration statement with the U.S. Securities and Exchange Commission (the “SEC”) on December 22, 2022 in order to begin the process of establishing each Acquiring Fund and registering its shares. Each Acquiring Fund’s registration statement is not yet effective. The Agreement requires each Acquiring Fund’s registration statement to be effective prior to the effective date of the Reorganization.
The Reorganization of each JPMorgan Portfolio with and into its corresponding Acquiring Fund as described in the Agreement, will involve three steps:
• | The transfer by each JPMorgan Portfolio of all of its assets to its corresponding Acquiring Fund in return for the Acquiring Fund assuming the liabilities of the JPMorgan Portfolio and issuing shares of the corresponding Acquiring Fund to the JPMorgan Portfolio equal to the aggregate net asset value of the JPMorgan Portfolio’s shares owned by the JPMorgan Portfolio’s shareholders as of the closing time on the closing date of the Reorganization; |
• | The pro rata distribution of shares of the corresponding class of the Acquiring Fund to the shareholders of record of the JPMorgan Portfolio as of the closing date of the Reorganization and the cancellation of the outstanding shares of the JPMorgan Portfolio held by such shareholders; and |
• | The winding up of the affairs and termination of each JPMorgan Portfolio. |
If shareholders approve the Agreement and certain other closing conditions are satisfied or waived, the value of the Acquiring Fund shares that you will receive upon the closing of the Reorganization will be the same as the value of the shares of the JPMorgan Portfolio that you held immediately prior to the Reorganization, with the potential exception of the JPMorgan Insurance Trust Core Bond Portfolio reorganization into the LVIP JPMorgan Core Bond Fund. For that reorganization, the use by the Acquiring Fund and the JPMorgan Portfolio of different pricing vendors may cause the values of the respective Funds’ shares to vary slightly higher or lower
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on the date of the Reorganization. We do not believe that changes due to the differences in the valuation vendors will have a material impact on the value of a shareholder’s investment. As of November 22, 2022, the differences in valuation vendors would cause the value of the Standard Class of the LVIP JPMorgan Core Bond Fund shares you receive in the Reorganization to be approximately $0.01 per share higher than the value of your JPMorgan Core Bond Portfolio shares immediately prior to the Reorganization.
Each Reorganization is intended to be a tax-free reorganization for federal income tax purposes, meaning that you should not be required to pay any federal income tax as a direct result of the Reorganization. No sales load, commission, or other transactional fee will be imposed in connection with the Reorganizations. See “Federal Income Tax Consequences” for more information.
The Board of Trustees of the JPMorgan Insurance Trust (the “JPMIT Board”) has fixed the close of business on January 10, 2023 (the “Record Date”) for the determination of shareholders entitled to notice of, and to vote at, the Meeting. Each shareholder of a JPMorgan Portfolio shall be entitled to one vote for each full share owned, and a fractional vote for each fractional share owned. Regardless of the class of shares they own, shareholders of all classes of a JPMorgan Portfolio will vote as a single class on the Agreement. We intend to mail this Combined Proxy Statement/Prospectus, the enclosed Notice of Joint Special Meeting of Shareholders and the enclosed Voting Instruction Card (also referred to as a “proxy card”) on or about January 30, 2023 to all shareholders entitled to vote at the Meeting.
After careful consideration of the proposed Agreement and the Reorganizations, the JPMIT Board, including all of the Independent Trustees, has unanimously approved the Agreement. If shareholders of a JPMorgan Portfolio do not approve the Agreement, the JPMIT Board will consider what further action is appropriate.
This Combined Proxy Statement/Prospectus is being used in order to reduce the preparation, printing, handling and postage expenses that would result from the use of a separate proxy statement/prospectus for each JPMorgan Portfolio.
Additional information about the Funds is available in the:
• | Statement of Additional Information, dated January 30, 2023, to this Combined Proxy Statement/Prospectus (“SAI”). |
The section entitled “PROSPECTUSES INCORPORATED BY REFERENCE INTO THE COMBINED PROXY STATEMENT/PROSPECTUS” in this Combined Proxy Statement/Prospectus contains a list of the specific prospectuses and supplements thereto incorporated by reference into the Combined Proxy Statement/Prospectus. These documents are on file with the Securities and Exchange Commission (the “SEC”). The prospectuses of the JPMorgan Portfolios and supplements thereto are incorporated herein by reference and are legally deemed to be part of this Combined Proxy Statement/Prospectus. The SAI, dated the same date as this Combined Proxy Statement/Prospectus, is incorporated by reference, is deemed to be part of this Combined Proxy Statement/Prospectus, and is available upon oral or written request from the Lincoln Variable Insurance Products Trust, at the address and toll-free telephone number noted below. The JPMorgan Portfolios’ prospectuses, most recent Annual Report to Shareholders containing
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audited financial statements for the most recent fiscal year, and most recent Semi-Annual Report to Shareholders have been previously mailed to shareholders of the JPMorgan Portfolios and are available on the JPMorgan Portfolios’ website at www.jpmorgan.com/variableinsuranceportfolios.
Copies of all of these documents are available upon request without charge by visiting, writing to, or calling:
For JPMorgan Portfolio Documents: | For Combined Proxy Statement/Prospectus Statement of Additional Information: | |
JPMORGAN INSURANCE TRUST New York, New York 10172 (800) 480-4111 | LINCOLN VARIABLE INSURANCE PRODUCTS TRUST 1301 South Harrison Street Fort Wayne, IN 46802 (800) 454-6265 |
You also may view or obtain these documents from the SEC’s website at www.sec.gov. You can also request copies of these materials, upon payment at the prescribed rates of the duplicating fee, by electronic request to the SEC’s e-mail address (publicinfo@sec.gov) or by writing the Public Reference Branch, Office of Consumer Affairs and Information Services, SEC, Washington, DC 20549-0102.
These securities have not been approved or disapproved by the SEC nor has the SEC passed upon the accuracy or adequacy of this Combined Proxy Statement/Prospectus. Any representation to the contrary is a criminal offense.
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Comparison of Investment Objectives and Principal Investment Strategies | 7 | |||
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Comparison of Purchase and Redemption Procedures and Exchange Privileges | 20 | |||
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Comparison of Dividend and Distribution Policies and Fiscal Years | 22 | |||
Comparison of Business Structures, Shareholder Rights, and Applicable Law | 22 | |||
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ADDITIONAL INFORMATION ABOUT THE ACQUIRING FUNDS AND JPMORGAN PORTFOLIOS | 28 | |||
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JPMORGAN PORTFOLIOS AND CLASSES AND CORRESPONDING ACQUIRING FUNDS AND CLASSES | 34 | |||
PROSPECTUSES INCORPORATED BY REFERENCE INTO THE COMBINED PROXY STATEMENT/PROSPECTUS | 35 | |||
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COMPARISON OF INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES | 40 | |||
COMPARISON OF PRINCIPAL RISKS | ||||
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APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION
On December 12, 2022, the JPMIT Board, including all of the Independent Trustees, unanimously voted to approve the Agreement on behalf of each JPMorgan Portfolio, subject to approval by shareholders of the applicable JPMorgan Portfolio and other closing conditions.
In each Reorganization, each JPMorgan Portfolio will transfer its assets and liabilities to its corresponding Acquiring Fund. Each Acquiring Fund will then issue shares to the corresponding JPMorgan Portfolio, which will distribute such shares pro rata to shareholders of the JPMorgan Portfolio. Any shares you beneficially own of a JPMorgan Portfolio at the time of a Reorganization will be cancelled and you will receive shares, in the corresponding share class, of the corresponding Acquiring Fund having a value equal to the value of your shares of the JPMorgan Portfolio. No gain or loss for federal income tax purposes is expected to be recognized by any shareholder of a JPMorgan Portfolio as a direct result of the Reorganization, as discussed below under “Federal Income Tax Consequences.” If the Agreement is approved by shareholders and certain other conditions are met or waived, each Reorganization is expected to occur on or about May 1, 2023. Each Reorganization is independent of the other Reorganizations.
Reasons for the Reorganizations
The JPMIT Board, including all of the Independent Trustees, approved the Agreement after considering each proposed Reorganization and concluding that participation in the proposed Reorganization would be in the best interest of each JPMorgan Portfolio. In its review of the Reorganizations and the Agreement, the JPMIT Board considered, among other factors:
• | Information regarding the reputation, financial strength and resources of the Lincoln Financial Group; |
• | The nature, quality and extent of services to be provided to the Acquiring Funds and their shareholders by investment adviser Lincoln Investment Advisors Corporation (“LIAC”) following the Reorganizations; |
• | The similarities and differences, if any, between the investment objectives, principal investment strategies and risks of each JPMorgan Portfolio and those of the corresponding Acquiring Fund; |
• | J.P. Morgan Investment Management Inc. (“JPMIM”), currently the adviser to the JPMorgan Portfolios, would sub-advise the Acquiring Funds after the Reorganization; |
• | The historical investment performance records of the JPMorgan Portfolios and the investment strategies that will be used by the proposed portfolio managers in managing the Acquiring Funds following the Reorganizations; |
• | The anticipated benefits to the shareholders of the JPMorgan Portfolios, including lower expenses and operating efficiencies, that may be achieved from the Reorganizations; |
• | The distribution arrangements that will be available to the Acquiring Funds following the Reorganizations; |
• | The transition from the JPMorgan Portfolios’ current service providers to the Acquiring Funds’ service providers following the Reorganizations; |
• | The current management fee schedules of the JPMorgan Portfolios and the proposed management fee schedules of the Acquiring Funds, and that LIAC will provide a two-year contractual undertaking that will limit the total expense ratio (after waivers if applicable) of each share class of each Acquiring |
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Fund so that such share class’s total expense ratio (after waivers if applicable) is no greater than the total expense ratio (after waivers if applicable) of the corresponding class of the corresponding JPMorgan Portfolio immediately prior to the Reorganizations; |
• | LIAC and JPMIM, and not the Funds, will pay all expenses of the JPMorgan Portfolio and the Acquiring Funds arising in connection with the Reorganizations as set forth in the Agreement; |
• | Each Reorganization is expected to be a tax-free reorganization for federal income tax purposes; and |
• | The terms and conditions of the Agreement, including each Acquiring Fund’s assumption of all of the liabilities of the corresponding JPMorgan Portfolio. |
For a more complete discussion of the factors considered by the JPMIT Board in approving the Agreement, see the section entitled “Board Considerations” in this Combined Proxy Statement/Prospectus.
Comparison of Investment Objectives and Principal Investment Strategies
Each Acquiring Fund has an investment objective identical to that of its corresponding JPMorgan Portfolio.
The table below shows the investment objective for each Acquiring Fund.
Acquiring Fund | Investment Objective | |
LVIP JPMorgan Core Bond Fund | seeks to maximize total return by investing primarily in a diversified portfolio of intermediate- and long-term debt securities. | |
LVIP JPMorgan Mid Cap Value Fund | seeks capital appreciation with the secondary goal of achieving current income by investing primarily in equity securities. | |
LVIP JPMorgan Small Cap Core Fund | seeks capital growth over the long term. | |
LVIP JPMorgan U.S. Equity Fund | seeks to provide high total return from a portfolio of selected equity securities. |
Each Acquiring Fund has substantially identical principal investment strategies as its corresponding JPMorgan Portfolio. However, JPMorgan Insurance Trust Core Bond Portfolio and the JPMorgan Trust Mid Cap Value Portfolio have fundamental (i.e., changeable only with shareholder approval) investment policies regarding their investment objectives and, with respect to JPMorgan Insurance Trust Core Bond Portfolio, its 80% policy. The corresponding Acquiring Funds’ policies are non-fundamental and therefore may be changed without a shareholder vote.
For each Fund, the investment portfolios will be substantially similar before and after the Reorganization.
Please see the section entitled “COMPARISON OF INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES” in this Combined Proxy Statement/Prospectus for a comparison of the principal investment strategies between each JPMorgan Portfolio and its corresponding Acquiring Fund and a description of any material differences in the principal investment strategies between each JPMorgan Portfolio and its corresponding Acquiring Fund. In summary, investment objectives of each JPM Portfolio and its corresponding Acquiring Funds are identical and the principal investment strategies of each are materially the same.
Principal Risks Associated with the Acquiring Funds
Because each Acquiring Fund has the same investment objective and substantially identical principal investment strategies and principal risks as its corresponding JPMorgan Portfolio, the Reorganizations generally should not change the risk/return profile for Fund shareholders.
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The section entitled “COMPARISON OF PRINCIPAL RISKS” in this Combined Proxy Statement/Prospectus shows a comparison of these risks. In addition, the prospectuses of the Acquiring Funds contain a discussion of their risks. For more information on the risks associated with an Acquiring Fund, see the “Investment Strategies and Risks” section of the Acquiring Fund’s SAI. The cover page of this Combined Proxy Statement/Prospectus describes how you can obtain a copy of the SAI.
Comparison of Fundamental Investment Restrictions
The 1940 Act requires, and each of the JPMorgan Portfolios and the Acquiring Funds have, fundamental investment restrictions relating to diversification, borrowing, issuing senior securities, underwriting, investing in real estate, investing in physical commodities, making loans, and concentrating in particular industries. Fundamental investment restrictions of a fund cannot be changed without shareholder approval. Each JPMorgan Portfolio and its corresponding Acquiring Fund have substantially similar fundamental investment restrictions, except as noted in the section entitled “COMPARISON OF FUNDAMENTAL INVESTMENT RESTRICTIONS” in this Combined Proxy Statement/Prospectus, which provides a side-by-side comparison of each fundamental investment restriction and notes any material differences. In summary, with the exception of the following there are no material differences in the fundamental investment restrictions for the JPM Portfolios and corresponding Acquiring Funds: (1) the JPMorgan Portfolios (except the JPMorgan Insurance Trust Small Cap Core Portfolio) have a fundamental investment restriction prohibiting the purchase of participations or other direct interests in oil, gas or mineral exploration or development programs, while the Acquiring Funds do not have an analogous policy; (2) The JPMorgan Portfolios (except the JPMorgan Insurance Trust Small Cap Core Portfolio) have a fundamental investment restriction prohibiting the purchase of securities of other investment companies except as permitted by the 1940 Act and the rules and regulations thereunder, while the Acquiring Funds do not have an analogous policy; (3) The JPMorgan Portfolios (except the JPMorgan Insurance Trust Small Cap Core Portfolio) have a fundamental investment restriction prohibiting the purchase of securities on margin or selling securities short, while the Acquiring Funds do not have an analogous policy; (4) The Acquiring Funds may make loans up to 33 1/3% of their assets, while the JPMorgan Portfolios, except the JPMorgan Insurance Trust Small Cap Core Portfolio, may not make loans except in the stipulated circumstances. The 33 1/3% limitation is intended to set out the extent generally permitted by applicable law, which is similar to the policy of the JPMorgan Insurance Trust Small Cap Core Portfolio. In addition, the fundamental policies of the Acquiring Funds do not address securities lending; (5) JPMorgan Insurance Trust Core Bond Portfolio and the JPMorgan Trust Mid Cap Value Portfolio have fundamental investment policies regarding their investment objectives and, with respect to JPMorgan Insurance Trust Core Bond Portfolio, its 80% policy. The corresponding Acquiring Funds’ policies are non-fundamental and therefore may be changed without a shareholder vote.
Both the JPMorgan Portfolios and Acquiring Funds are subject to other investment restrictions that are not identified above. The full list of each JPMorgan Portfolio’s and each Acquiring Fund’s investment restrictions may be found in its respective Statement of Additional Information. See the cover page of this Combined Proxy Statement/Prospectus for a description of how you can obtain a copy of the JPMorgan Portfolios’ Statements of Additional Information and the Statement of Additional Information to this Combined Proxy Statement/Prospectus.
Comparison of Purchase and Redemption Procedures and Exchange Privileges
The purchase procedures and redemption procedures employed by the JPMorgan Portfolios and Acquiring Funds are substantially similar. Each Acquiring Fund typically expects to pay redemption proceeds using holdings of cash in the Acquiring Fund’s portfolio or using the proceeds from sales of portfolio securities. To a lesser extent, each Acquiring 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 an Acquiring Fund’s holdings may be comprised of less liquid investments, or during emergency or temporary circumstances. Each JPMorgan Portfolio has reserved the right to pay for redemptions with portfolio securities under certain conditions. A subsequent sale of such securities could result in the payment of brokerage commissions and expose a Contract Owner and Separate Account to market risk until the securities are sold.
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Comparison of Tax Consequences
In summary, 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 Funds, including application of state and local taxes.
Comparison of Fees and Expenses
The following table compares the shareholder fees and annual fund operating expenses, expressed as a percentage of net assets (“expense ratios”), of each JPMorgan Portfolio with the shareholder fees and pro forma expense ratios of the corresponding Acquiring Fund. Pro forma expense ratios of the Acquiring Funds give effect to the Reorganizations. The pro forma expense ratios shown project anticipated expenses, but actual expenses may be greater or less than those shown. The table does not reflect any variable contract expenses. If variable contract expenses were included, the current and pro forma expenses shown would be higher. You should know that the Acquiring Funds will implement fee waivers for two years from the closing date of the Reorganizations as necessary to ensure that the total expense ratio (after waivers if applicable) for each class of shares of the corresponding Acquiring Fund (after waivers if applicable) is no higher than that of the corresponding class of the corresponding JPMorgan Portfolio (after waivers if applicable) and if those waivers are not renewed upon the end of the two years after the closing date of the Reorganizations, the expense ratios of certain Acquiring Funds after two years from the closing date of the Reorganizations could be higher than the current expense ratios of the corresponding JPMorgan Portfolios.
In summary, as shown below, each Acquiring Fund pays the same management fees as the corresponding JPMorgan Portfolio and has lower gross and net operating expenses than its corresponding JPMorgan Portfolio.
JPMORGAN INSURANCE TRUST CORE BOND PORTFOLIO LVIP JPMORGAN CORE BOND FUND
| ||||||||
JPMorgan Insurance Trust Core Bond Portfolio | LVIP JPMorgan Core Bond Fund (Acquiring Fund) Pro Forma Combined | |||||||
Class 1 | Standard Class | |||||||
Annual fund operating expenses (expenses that are deducted from fund assets) | ||||||||
Management Fees | 0.40 | % | 0.40 | % | ||||
Distribution and/or Service (12b-1) Fees | 0.00 | % | 0.00 | % | ||||
Other Expenses | 0.14 | % | 0.10 | % | ||||
Acquired Fund Fees and Expenses | 0.02 | % | 0.01 | % | ||||
Total annual fund operating expenses | 0.56 | % | 0.51 | % | ||||
Less Fee Waiver and Expense Reimbursement | (0.02 | %)1 | (0.00 | %)3 | ||||
Net annual fund operating expenses | 0.54 | %2 | 0.51 | %2 | ||||
Class 2 | Service Class | |||||||
Annual fund operating expenses (expenses that are deducted from fund assets) | ||||||||
Management Fees | 0.40 | % | 0.40 | % | ||||
Distribution and/or Service (12b-1) Fees | 0.25 | % | 0.25 | % | ||||
Other Expenses | 0.14 | % | 0.10 | % | ||||
Acquired Fund Fees and Expenses | 0.02 | % | 0.01 | % | ||||
Total annual fund operating expenses | 0.81 | % | 0.76 | % | ||||
Less Fee Waiver and Expense Reimbursement | (0.02 | %)1 | (0.00 | %)3 | ||||
Net annual fund operating expenses | 0.79 | %2 | 0.76 | %2 |
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1. | The JPMorgan Insurance Trust Core Bond Portfolio’s adviser, J.P. Morgan Investment Management Inc. (adviser) and/or its affiliates have contractually agreed to waive fees and/or reimburse expenses to the extent Total Annual Fund Operating Expenses (excluding Acquired Fund Fees and Expenses other than certain money market fund fees as described below, dividend and interest expenses related to short sales, interest, taxes, expenses related to litigation and potential litigation, expenses related to trustee elections, and extraordinary expenses) exceed 0.60% and 0.85% of the average daily net assets of Class 1 Shares and Class 2 Shares, respectively. The JPMorgan Portfolio may invest in one or more money market funds advised by the adviser or its affiliates (affiliated money market funds). The JPMorgan Portfolio’s adviser, shareholder servicing agent and/or administrator have contractually agreed to waive fees and/or reimburse expenses in an amount sufficient to offset the respective net fees each collects from the affiliated money market funds on the JPMorgan Portfolio’s investment in such money market funds for each Share Class. These waivers are in effect through 4/30/24, at which time it will be determined whether such waivers will be renewed or revised. To the extent that the JPMorgan Portfolio engages in securities lending, affiliated money market fund fees and expenses resulting from the JPMorgan Portfolio’s investment of cash received from securities lending borrowers are not included in Total Annual Fund Operating Expenses and therefore, the above waivers do not apply to such investments. |
2. | Fees and expenses for JPMorgan Portfolio are based on those incurred by it for the 12-month period ended June 30, 2022. The pro forma fees and expenses of the Acquiring Fund are estimated as if the Reorganization were in effect for the 12 months ended June 30, 2022. |
3. | LIAC has contractually agreed to limit the Acquiring Fund’s Operating Expenses (excluding interest, taxes, brokerage commissions, underlying fund fees and expenses or “AFFE”, extraordinary expenses such as litigation, and other expenses not incurred in the ordinary course of such Acquiring Fund’s business) at 0.54% for Standard Class and 0.79% for Service Class for two years following the Reorganization. The agreement cannot be terminated before that date without the mutual agreement of the Fund’s Board of Trustees and LIAC. Any reimbursements made by the LIAC are 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. |
JPMORGAN INSURANCE TRUST MID CAP VALUE PORTFOLIO LVIP JPMORGAN MID CAP VALUE FUND
| ||||||||
JPMorgan Insurance Trust Mid Cap Value Portfolio | LVIP JPMorgan Mid Cap Value Fund (Acquiring Fund) Pro Forma Combined | |||||||
Class 1 | Standard Class | |||||||
Annual fund operating expenses (expenses that are deducted from fund assets) | ||||||||
Management Fees | 0.65 | % | 0.65 | % | ||||
Distribution and/or Service (12b-1) Fees | 0.00 | % | 0.00 | % | ||||
Other Expenses | 0.11 | % | 0.08 | % | ||||
Total annual fund operating expenses | 0.76 | % | 0.73 | % | ||||
Less Fee Waiver and Expense Reimbursement | (0.00 | %)1 | (0.00 | %)3 | ||||
Net annual fund operating expenses | 0.76 | %2 | 0.73 | %2 |
1. | The JPMorgan Insurance Trust Mid Cap Value Portfolio’s adviser, J.P. Morgan Investment Management Inc. (adviser) and/or its affiliates have contractually agreed to waive fees and/or reimburse expenses to the extent Total Annual Fund Operating Expenses (excluding Acquired Fund Fees and Expenses other than certain money market fund fees as described below, dividend and interest expenses related to short sales, interest, taxes, expenses related to litigation and potential litigation, expenses related to trustee elections, and extraordinary expenses) exceed 0.90% of the average daily net assets of Class 1 Shares. The JPMorgan Portfolio may invest in one or more money market funds advised by the adviser or its affiliates (affiliated |
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money market funds). The JPMorgan Portfolio’s adviser, shareholder servicing agent and/or administrator have contractually agreed to waive fees and/or reimburse expenses in an amount sufficient to offset the respective net fees each collects from the affiliated money market funds on the JPMorgan Portfolio’s investment in such money market funds. These waivers are in effect through 4/30/24, at which time it will be determined whether such waivers will be renewed or revised. To the extent that the JPMorgan Portfolio engages in securities lending, affiliated money market fund fees and expenses resulting from the JPMorgan Portfolio’s investment of cash received from securities lending borrowers are not included in Total Annual Fund Operating Expenses and therefore, the above waivers do not apply to such investments. |
2. | Fees and expenses for the JPMorgan Portfolio are based on those incurred by it for the 12-month period ended June 30, 2022. The pro forma fees and expenses of the Acquiring Fund are estimated as if the Reorganization were in effect for the 12 months ended June 30, 2022. |
3. | LIAC has contractually agreed to limit the Acquiring Fund’s Operating Expenses (excluding interest, taxes, brokerage commissions, underlying fund fees and expenses or “AFFE”, extraordinary expenses such as litigation, and other expenses not incurred in the ordinary course of such Acquiring Fund’s business) at 0.76% for Standard Class for two years following the Reorganization. The agreement cannot be terminated before that date without the mutual agreement of the Fund’s Board of Trustees and LIAC. Any reimbursements made by the LIAC are 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. |
JPMORGAN INSURANCE TRUST SMALL CAP CORE PORTFOLIO LVIP JPMORGAN SMALL CAP CORE FUND
| ||||||||
JPMorgan Insurance Trust Small Cap Core Portfolio | LVIP JPMorgan Small Cap Core Fund (Acquiring Fund) Pro Forma Combined | |||||||
Class 1 | Standard Class | |||||||
Annual fund operating expenses (expenses that are deducted from fund assets) | ||||||||
Management Fees | 0.65 | % | 0.65 | % | ||||
Distribution and/or Service (12b-1) Fees | 0.00 | % | 0.00 | % | ||||
Other Expenses | 0.17 | % | 0.11 | % | ||||
Total annual fund operating expenses | 0.82 | % | 0.76 | % | ||||
Less Fee Waiver and Expense Reimbursement | (0.00 | %)1 | (0.00 | %)3 | ||||
Net annual fund operating expenses | 0.82 | %2 | 0.76 | %2 | ||||
Class 2 | Service Class | |||||||
Annual fund operating expenses (expenses that are deducted from fund assets) | ||||||||
Management Fees | 0.65 | % | 0.65 | % | ||||
Distribution and/or Service (12b-1) Fees | 0.25 | % | 0.25 | % | ||||
Other Expenses | 0.21 | % | 0.11 | % | ||||
Total annual fund operating expenses | 1.11 | % | 1.01 | % | ||||
Less Fee Waiver and Expense Reimbursement | (0.00 | %)1 | (0.00 | %)3 | ||||
Net annual fund operating expenses | 1.11 | %2 | 1.01 | %2 |
1. | The JPMorgan Insurance Trust Small Cap Core Portfolio’s adviser, J.P. Morgan Investment Management Inc. (adviser) and/or its affiliates have contractually agreed to waive fees and/or reimburse expenses to the extent Total Annual Fund Operating Expenses (excluding Acquired Fund Fees and Expenses other than certain money market fund fees as described below, dividend and interest expenses related to short sales, interest, taxes, expenses related to litigation and potential litigation, expenses related to trustee elections, and extraordinary expenses) exceed 1.03% and 1.28% of the average daily net assets of Class 1 Shares and Class 2 Shares, |
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respectively. The JPMorgan Portfolio may invest in one or more money market funds advised by the adviser or its affiliates (affiliated money market funds). The JPMorgan Portfolio’s adviser, shareholder servicing agent and/or administrator have contractually agreed to waive fees and/or reimburse expenses in an amount sufficient to offset the respective net fees each collects from the affiliated money market funds on the JPMorgan Portfolio’s investment in such money market funds for each Share Class. These waivers are in effect through 4/30/24, at which time it will be determined whether such waivers will be renewed or revised. To the extent that the JPMorgan Portfolio engages in securities lending, affiliated money market fund fees and expenses resulting from the JPMorgan Portfolio’s investment of cash received from securities lending borrowers are not included in Total Annual Fund Operating Expenses and therefore, the above waivers do not apply to such investments. |
2. | Fees and expenses for JPMorgan Portfolio are based on those incurred by it for the 12-month period ended June 30, 2022. The pro forma fees and expenses of the Acquiring Fund are estimated as if the Reorganization were in effect for the 12 months ended June 30, 2022. |
3. | LIAC has contractually agreed to limit the Acquiring Fund’s Operating Expenses (excluding interest, taxes, brokerage commissions, underlying fund fees and expenses or “AFFE”, extraordinary expenses such as litigation, and other expenses not incurred in the ordinary course of such Acquiring Fund’s business) at 0.82% for Standard Class and 1.07% for Service Class for two years following the Reorganization. The agreement cannot be terminated before that date without the mutual agreement of the Fund’s Board of Trustees and LIAC. Any reimbursements made by the LIAC are 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. |
JPMORGAN INSURANCE TRUST U.S. EQUITY PORTFOLIO LVIP JPMORGAN U.S. EQUITY FUND
| ||||||||
JPMorgan Insurance Trust U.S. Equity Portfolio | LVIP JPMorgan U.S. Equity Fund (Acquiring Fund) Pro Forma Combined | |||||||
Class 1 | Standard Class | |||||||
Annual fund operating expenses (expenses that are deducted from fund assets) | ||||||||
Management Fees | 0.55 | % | 0.55 | % | ||||
Distribution and/or Service (12b-1) Fees | 0.00 | % | 0.00 | % | ||||
Other Expenses | 0.20 | % | 0.12 | % | ||||
Total annual fund operating expenses | 0.75 | % | 0.67 | % | ||||
Less Fee Waiver and Expense Reimbursement | (0.00 | %)1 | (0.00 | %)3 | ||||
Net annual fund operating expenses | 0.75 | %2 | 0.67 | %2 | ||||
Class 2 | Service Class | |||||||
Annual fund operating expenses (expenses that are deducted from fund assets) | ||||||||
Management Fees | 0.55 | % | 0.55 | % | ||||
Distribution and/or Service (12b-1) Fees | 0.25 | % | 0.25 | % | ||||
Other Expenses | 0.20 | % | 0.12 | % | ||||
Total annual fund operating expenses | 1.00 | % | 0.92 | % | ||||
Less Fee Waiver and Expense Reimbursement | (0.00 | %)1 | (0.00 | %)3 | ||||
Net annual fund operating expenses | 1.00 | %2 | 0.92 | %2 |
1. | The JPMorgan Insurance Trust U.S. Equity Portfolio’s adviser, J.P. Morgan Investment Management Inc. (adviser) and/or its affiliates have contractually agreed to waive fees and/or reimburse expenses to the extent Total Annual Fund Operating Expenses (excluding Acquired Fund Fees and Expenses other than certain money market fund fees as described below, dividend and interest expenses related to short sales, interest, taxes, expenses related to litigation and potential litigation, expenses related to trustee elections, and extraordinary expenses) exceed 0.80% and 1.05% of the average daily net assets of Class 1 Shares and Class 2 Shares, |
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respectively. The JPMorgan Portfolio may invest in one or more money market funds advised by the adviser or its affiliates (affiliated money market funds). The JPMorgan Portfolio’s adviser, shareholder servicing agent and/or administrator have contractually agreed to waive fees and/or reimburse expenses in an amount sufficient to offset the respective net fees each collects from the affiliated money market funds on the JPMorgan Portfolio’s investment in such money market funds for each Share Class. These waivers are in effect through 4/30/24, at which time it will be determined whether such waivers will be renewed or revised. To the extent that the JPMorgan Portfolio engages in securities lending, affiliated money market fund fees and expenses resulting from the JPMorgan Portfolio’s investment of cash received from securities lending borrowers are not included in Total Annual Fund Operating Expenses and therefore, the above waivers do not apply to such investments. |
2. | Fees and expenses for JPMorgan Portfolio are based on those incurred by it for the 12-month period ended June 30, 2022. The pro forma fees and expenses of the Acquiring Fund are estimated as if the Reorganization were in effect for the 12 months ended June 30, 2022. |
3. | LIAC has contractually agreed to limit the Acquiring Fund’s Operating Expenses (excluding interest, taxes, brokerage commissions, underlying fund fees and expenses or “AFFE”, extraordinary expenses such as litigation, and other expenses not incurred in the ordinary course of such Acquiring Fund’s business) at 0.75% for Standard Class and 1.00% for Service Class for two years following the Reorganization. The agreement cannot be terminated before that date without the mutual agreement of the Fund’s Board of Trustees and LIAC. Any reimbursements made by the LIAC are 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. |
Expense Examples
The Examples are intended to help you compare the costs of investing in different classes of a JPMorgan Portfolio and the corresponding Acquiring Fund with the cost of investing in other mutual funds. Pro forma combined costs of investing in different classes of an Acquiring Fund after giving effect to the Reorganization of the corresponding JPMorgan Portfolio into the Acquiring Fund are also provided. All costs are based upon the information set forth in the tables above.
The Examples assume that you invest $10,000 for the time periods indicated and shows the expenses that you would pay if you redeem all of your shares at the end of those time periods. The Examples also assume that your investment has a 5% return each year and that the operating expenses remain the same.
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Any applicable fee waivers and/or expense reimbursements are reflected in the below examples for the first year only for the JPMorgan Portfolios, and the first two years for the corresponding Acquiring Funds, as LIAC has contractually agreed to reimburse expenses through two years from the closing date of the Reorganization. Accordingly, the expense reimbursements applicable to the Acquiring Funds are not reflected in years three through ten of the table. This example does not reflect any variable contract-related fees and expenses, including redemption fees (if any), applicable to the Acquiring Funds at the variable contract level. If such fees and expenses were reflected, the total expenses would be higher. The results apply whether or not you redeem your investment at the end of the given period. Although your actual returns and costs may be higher or lower, based on these assumptions your costs would be:
1 year | 3 years | 5 years | 10 years | |||||||||||||
JPMorgan Insurance Trust Core Bond Portfolio | ||||||||||||||||
Class 1 | $ | 56 | $ | 178 | $ | 311 | $ | 700 | ||||||||
Class 2 | $ | 81 | $ | 257 | $ | 448 | $ | 1,000 | ||||||||
Pro Forma LVIP JPMorgan Core Bond Fund | ||||||||||||||||
Standard Class | $ | 52 | $ | 164 | $ | 285 | $ | 640 | ||||||||
Service Class | $ | 78 | $ | 243 | $ | 422 | $ | 942 | ||||||||
JPMorgan Insurance Trust Mid Cap Value Portfolio | ||||||||||||||||
Class 1 | $ | 78 | $ | 243 | $ | 422 | $ | 942 | ||||||||
Pro Forma LVIP JPMorgan Mid Cap Value Fund | ||||||||||||||||
Standard Class | $ | 75 | $ | 233 | $ | 406 | $ | 906 | ||||||||
JPMorgan Insurance Trust Small Cap Core Portfolio | ||||||||||||||||
Class 1 | $ | 84 | $ | 262 | $ | 455 | $ | 1,014 | ||||||||
Class 2 | $ | 113 | $ | 353 | $ | 612 | $ | 1,352 | ||||||||
Pro Forma LVIP JPMorgan Small Cap Core Fund | ||||||||||||||||
Standard Class | $ | 78 | $ | 243 | $ | 422 | $ | 942 | ||||||||
Service Class | $ | 103 | $ | 322 | $ | 558 | $ | 1,236 | ||||||||
JPMorgan Insurance Trust U.S. Equity Portfolio | ||||||||||||||||
Class 1 | $ | 77 | $ | 240 | $ | 417 | $ | 930 | ||||||||
Class 2 | $ | 102 | $ | 318 | $ | 552 | $ | 1,225 | ||||||||
Pro Forma LVIP JPMorgan U.S. Equity Fund | ||||||||||||||||
Standard Class | $ | 68 | $ | 214 | $ | 373 | $ | 835 | ||||||||
Service Class | $ | 94 | $ | 293 | $ | 509 | $ | 1,131 |
The Examples are not a representation of past or future expenses. Each JPMorgan Portfolio’s and Acquiring Fund’s actual expenses, and an investor’s direct and indirect expenses, may be more or less than those shown. The table and the assumption in the Example of a 5% annual return are required by regulations of the SEC applicable to all mutual funds. The 5% annual return is not a prediction of and does not represent the JPMorgan Portfolio’s or the Acquiring Fund’s projected or actual performance.
For further discussion regarding the JPMIT Board’s consideration of the fees and expenses of the Funds in approving the Agreement, see the section entitled “Board Considerations” in this Combined Proxy Statement/Prospectus.
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Comparison of Principal Risks
The principal risks of each Acquiring Fund are substantially identical to those of its corresponding JPMorgan Portfolio. The principal risks of each Fund are listed below.
Principal Risks | JPMorgan Insurance Trust Core Bond Portfolio | LVIP JPMorgan Core Bond Fund | ||
General Market Risk | √ | √ | ||
Interest Rate Risk | √ | √ | ||
Credit Risk | √ | √ | ||
Government Securities Risk | √ | √ | ||
Asset-Backed, Mortgage-Related and Mortgage-Backed Securities Risk | √ | √ | ||
Inverse Floater Risk | √ | √ | ||
Prepayment Risk | √ | √ | ||
Foreign Issuer Risks | √ | √ | ||
Geographic Focus Risk | √ | √ | ||
Industry and Sector Focus Risk | √ | √ | ||
Zero Coupon, Pay-In-Kind and Deferred Payment Securities Risk | √ | √ | ||
Transactions Risk | √ | √ |
Principal Risks | JPMorgan Insurance Trust Mid Cap Value Portfolio | LVIP JPMorgan Mid Cap Value Fund | ||
Equity Market Risk | √ | √ | ||
General Market Risk | √ | √ | ||
Mid Cap Company Risk | √ | √ | ||
Value Investing Risk | √ | √ | ||
Derivatives Risk | √ | √ | ||
Real Estate Securities Risk | √ | √ | ||
Industry and Sector Focus Risk | √ | √ | ||
Transactions Risk | √ | √ |
Principal Risks | JPMorgan Insurance Trust Small Cap Core Portfolio | LVIP JPMorgan Small Cap Core Fund | ||
Equity Market Risk | √ | √ | ||
General Market Risk | √ | √ | ||
Smaller Company Risk | √ | √ | ||
Derivatives Risk | √ | √ | ||
Real Estate Securities Risk | √ | √ | ||
Industry and Sector Focus Risk | √ | √ | ||
Risk Associated with the Portfolio Holding Cash, Money Market Instruments and Other Short-Term Investments | √ | √ | ||
Transactions Risk | √ | √ |
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Principal Risks | JPMorgan Insurance Trust U.S. Equity Portfolio | LVIP JPMorgan U.S. Equity Fund | ||
Equity Market Risk | √ | √ | ||
General Market Risk | √ | √ | ||
Mid Cap Company Risk | √ | √ | ||
Large Cap Company Risk | √ | √ | ||
Value Strategy Risk | √ | √ | ||
Foreign Securities Risk | √ | √ | ||
Derivatives Risk | √ | √ | ||
Industry and Sector Focus Risk | √ | √ | ||
Risk Associated with the Portfolio Holding Cash, Money Market Instruments and Other Short-Term Investments | √ | √ | ||
Transactions Risk | √ | √ |
Comparison of Investment Advisers and Sub-Advisers
For the JPMorgan Portfolios, the investment adviser is J.P. Morgan Investment Management Inc. (“JPMIM”), and none of the JPMorgan Portfolios has a sub-adviser.
For each Acquiring Fund, the investment adviser is Lincoln Investment Advisors Corporation (“LIAC”), and JPMIM will serve as sub-adviser.
LIAC is a registered investment adviser and wholly owned subsidiary of The Lincoln National Life Insurance Company. 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 October 31, 2022, LIAC had approximately $220 billion in assets under management.
The Lincoln National Life Insurance Company 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 Acquiring Funds have entered into an Investment Management Agreement with LIAC. LIAC may hire one or more sub-advisers who are responsible for the Acquiring Fund’s day-to-day investment management. A sub-adviser is paid by LIAC from its management fee.
The Acquiring Funds employ a “manager of managers” structure, which means that the Acquiring Fund’s investment adviser may delegate the management of some or all of the Acquiring Fund’s investment portfolio to one or more sub-advisers. To use this structure, Lincoln Variable Insurance Products Trust has received an exemptive order from the SEC (Release Nos. 29170 and 29197) to permit the Acquiring Funds’ investment adviser – with the Acquiring Funds’ Board approval – to enter into and amend a sub-advisory agreement for an Acquiring Fund without shareholder approval, subject to certain conditions. For example, within ninety days of the hiring of a new sub-adviser, an Acquiring Fund would be required to furnish shareholders with information that would be included in a proxy statement regarding the new sub-adviser. In addition, the Acquiring Funds’ investment adviser is not permitted to hire affiliated sub-advisers without shareholder approval.
JPMIM acts as investment adviser to each JPMorgan Portfolio and makes the day-to-day investment decisions for the JPMorgan Portfolio. In rendering investment advisory services to certain JPMorgan Portfolios, JPMIM uses the portfolio management, research and other resources of a foreign (non-U.S.) affiliate of JPMIM and may provide services to a Portfolio through a “participating affiliate” arrangement, as that term is used in relief granted by the staff of the SEC. Under this relief, U.S. registered investment advisers are allowed to use portfolio management or research resources of advisory affiliates subject to the regulatory supervision of the registered investment adviser.
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JPMIM is a wholly-owned subsidiary of JPMorgan Asset Management Holdings Inc., which is a wholly-owned subsidiary of JPMorgan Chase & Co. (“JPMorgan Chase”), a bank holding company. JPMIM is located at 383 Madison Avenue, New York, NY 10179. As of September 30, 2022, JPMIM and its affiliates had $2.3 trillion in assets under management.
See the section entitled “COMPARISON OF INVESTMENT ADVISORY FEES” in this Combined Proxy Statement/Prospectus for a comparison of the current and contractual investment advisory fee rates for each Fund.
Comparison of Portfolio Managers
Each Acquiring Fund will be managed on a day-to-day basis by the same team of portfolio managers that currently manages the corresponding JPMorgan Portfolio.
The table below shows the portfolio managers for each JPMorgan Portfolio and its corresponding Acquiring Fund.
JPMorgan Portfolio | Acquiring Fund | Portfolio Managers | ||
JPMorgan Insurance Trust Core Bond Portfolio | LVIP JPMorgan Core Bond Fund | Richard D. Figuly Justin Rucker Steven Lear | ||
JPMorgan Insurance Trust Mid Cap Value Portfolio | LVIP JPMorgan Mid Cap Value Fund | Jonathan Simon Lawrence E. Playford | ||
JPMorgan Insurance Trust Small Cap Core Portfolio | LVIP JPMorgan Small Cap Core Fund | Phillip Hart Wonseok Choi Jonathan L. Tse Akash Gupta | ||
JPMorgan Insurance Trust U.S. Equity Portfolio | LVIP JPMorgan U.S. Equity Fund | Scott Davis David Small Shilpee Raina |
JPMorgan Insurance Trust Core Bond Portfolio/LVIP JPMorgan Core Bond Fund
The lead portfolio managers who are primarily responsible for the day-to-day management of the Fund are listed below. As part of that responsibility, the portfolio managers establish and monitor the overall duration, yield curve, and sector allocation strategies for the Fund. The portfolio managers are assisted by research teams who provide individual security and sector recommendations regarding their area of focus, while the portfolio managers select and allocate individual securities in a manner designed to meet the investment objective of the Fund.
Richard Figuly, Managing Director, is the lead portfolio manager responsible for day-to-day management of the Fund. An employee of JPMIM or predecessor firms since 1993 and a portfolio manager for the Fund since March 2016, Mr. Figuly is a member of JPMIM’s Global Fixed Income, Currency & Commodities Group (GFICC) and head of GFICC’s Core Bond team responsible for managing certain J.P. Morgan Funds and institutional taxable bond portfolios. An employee of JPMIM since 2006 and a portfolio manager of the Fund since 2019, Justin Rucker, Executive Director, is a member of the GFICC group and a portfolio manager responsible for managing Long Duration and Core Bond institutional taxable bond portfolios. An employee of JPMIM since 2008 and a portfolio manager of the Fund since January 2021, Steven Lear, Managing Director and CFA charterholder, is the U.S. Chief Investment Officer within the GFICC team responsible for oversight and management of fixed income investment strategies in the U.S.
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JPMorgan Insurance Trust Mid Cap Value Portfolio/LVIP JPMorgan Mid Cap Value Fund
Jonathan Simon, Managing Director of JPMIM, and Lawrence E. Playford, Managing Director of JPMIM, serve as the portfolio managers for the Fund. Mr. Simon has worked as a portfolio manager for JPMIM and its affiliates (or their predecessors) since 1987 and has been employed by the firm since 1980. Mr. Simon is a senior member of the U.S. Equity Value portfolio management team. An employee of JPMIM or its affiliates since 1993, Mr. Playford, a CFA charterholder, has worked as a portfolio manager since 2004 and as a research analyst since 2003. From 2001 to 2003, he served as a client portfolio manager working with the U.S. Equity Group.
JPMorgan Insurance Trust Small Cap Core Portfolio/LVIP JPMorgan Small Cap Core Fund
The portfolio management team for the Fund utilizes a team-based approach and uses the models, insights and recommendations of the broader Structured Equity Team. The portfolio management team is comprised of Phillip D. Hart, Wonseok Choi, Jonathan L. Tse and Akash Gupta. Mr. Hart, Managing Director of JPMIM and a CFA charterholder, is a portfolio manager and the head of the U.S. Structured Equity Small and Mid Cap Team. An employee of the firm since 2003, his responsibilities include managing all of the Structured Equity Small and Mid Cap strategies. Previously he worked on quantitative research and the daily implementation and maintenance of portfolios for the group. Mr. Hart obtained a B.A. in economics from Cornell University. Mr. Choi, Managing Director of JPMIM, is a portfolio manager and the head of quantitative research for the U.S. Structured Equity Group. An employee of the firm since 2006, he is responsible for conducting quantitative research on proprietary models utilized in portfolio management. Prior to joining the firm, Mr. Choi worked as a research manager at Arrowstreet Capital, L.P., where he was involved in developing and enhancing the firm’s forecasting, risk and transaction-cost models. Mr. Choi holds a Ph.D. in economics from Harvard University and a B.A. in economics from Seoul National University. Mr. Tse, Executive Director of JPMIM and a CFA charterholder, is a portfolio manager and member of the quantitative research team for the U.S. Structured Equity Group, and has been a member of the team since 2004. Prior to joining the firm, Mr. Tse worked as a summer intern for UBS and Credit Suisse First Boston in software and database development. Mr. Tse graduated in May 2004 with a B.S. in computer engineering from Columbia University. Mr. Gupta, Executive Director of JPMIM and a CFA charterholder, is a portfolio manager and research analyst within the U.S. Structured Equity Small and Mid Cap Team, and has been a member of the team since 2008. An employee of the firm since 2004, Mr. Gupta previously spent over three years in the sell-side Equity Research Group, focusing on the electronics manufacturing supply chain sector. Mr. Gupta holds a B.Tech. in electronics & communication (Gold Medalist) from I.I.T. (Indian Institute of Technology) in Roorkee, India and a M.B.A. in analytical finance from the ISB (Indian School of Business) in Hyderabad, India. He is also a certified Financial Risk Manager (FRM).
JPMorgan Insurance Trust U.S. Equity Portfolio/LVIP JPMorgan U.S. Equity Fund
The portfolio managers primarily responsible for daily management of the Portfolio are Scott Davis, Managing Director of JPMIM, David Small, Managing Director of JPMIM, and Shilpee Raina, Executive Director of JPMIM and CFA charterholder, each of whom has day to day management responsibility for a portion of the Fund. Mr. Davis has been an employee since 2006 and has been a portfolio manager since 2013. Previously, he was an analyst in the U.S. Equity Research Group. Mr. Small, an employee since 2005 and a portfolio manager since 2016, was the Associate Director of U.S. Equity Research from July 2015 to July 2016 and is currently the Head of U.S. Equity Research. In addition, Mr. Small previously was the insurance analyst on the Fundamental Research Team from 2008 to 2016. Ms. Raina is a portfolio manager on the Large Cap Core Equity Strategy within the US Equity Group. An employee since 2005, Ms. Raina was previously a research analyst on the JPMorgan Equity Income and U.S. Value Funds, concentrating on the consumer sectors.
Comparison of Other Service Providers
The Acquiring Funds use different service providers than the JPMorgan Portfolios. The following table identifies the principal service providers that service the JPMorgan Portfolios and will service the Acquiring Funds.
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Service Provider | JPMorgan Portfolios’ Service Provider | Acquiring Funds’ Service Provider | ||
Administrator | J.P. Morgan Investment Management Inc. | The Lincoln National Life Insurance Company | ||
Transfer Agent | DST Asset Manager Solutions, Inc. | The Lincoln National Life Insurance Company | ||
Custodian | JPMorgan Chase Bank, N.A. (Custodian and Fund Accounting Agent) | State Street Bank and Trust Company | ||
Distributor | JPMorgan Distribution Services, Inc. | Lincoln Financial Distributors, Inc. | ||
Auditor | PricewaterhouseCoopers LLP | Tait, Weller and Baker LLP |
Comparison of Share Classes and Distribution Arrangements
Each share class of a JPMorgan Portfolio will be reorganized into the designated share class of the corresponding Acquiring Fund as described below and in the section entitled “JPMORGAN PORTFOLIOS AND CLASSES AND CORRESPONDING ACQUIRING FUNDS AND CLASSES” in this Combined Proxy Statement/Prospectus. The following section describes the distribution arrangements for the JPMorgan Portfolios and the Acquiring Funds.
Distribution Arrangements. JPMorgan Distribution Services, Inc. (“JPMDS”), a subsidiary of JPMorgan Chase and an affiliate of JPMIM, is the principal underwriter for the JPMorgan Portfolios pursuant to a written agreement with JPMorgan Insurance Trust (the “JPMorgan Portfolios Distribution Agreement”). Lincoln Financial Distributors, Inc. (“LFD”), an affiliate of LIAC, serves as the principal underwriter for the Acquiring Funds pursuant to a Principal Underwriting Agreement with the Lincoln Variable Insurance Products Trust (the “Acquiring Funds Distribution Agreement” and, together with the JPMorgan Portfolios Distribution Agreement, the “Distribution Agreements”). The Distribution Agreements provide that JPMDS and LFD have the exclusive right to distribute shares of the JPMorgan Portfolios and the Acquiring Funds, respectively, on a continuous basis. Under the relevant agreements, JPMDS may sell shares of each class of each JPMorgan Portfolio to insurance company separate accounts and LFD may sell shares of each class of each Acquiring Fund to insurance company separate accounts or employer-sponsored products.
Class Structure. Each JPMorgan Portfolio offers two classes of shares: Class 1 and Class 2 (with the exception of the JPMorgan Insurance Trust Mid Cap Value Portfolio which offers only Class 1 shares). Each Acquiring Fund offers two classes of shares: Standard Class and Service Class. JPMorgan Portfolio Class 1 and Class 2 shareholders will receive Standard Class and Service Class shares, respectively, of the Acquiring Funds in connection with the Reorganizations. The two share classes are identical for both the JPMorgan Portfolios and Acquiring Funds, except that Class 2 and Service Class shares for the JPMorgan Portfolios and the Acquiring Funds, respectively, are subject to a distribution (Rule 12b-1) fee which has been adopted pursuant to a distribution and service plan.
Service Class shares of the Acquiring Funds will pay the same Rule 12b-1 fee as Class 2 shares of the JPMorgan Portfolios. Under the Acquiring Funds’ distribution and service plan, Service Class shares will pay annual amounts not exceeding 0.25% of the average daily net assets of the Service Class shares of the Acquiring Fund. Each Acquiring Fund will offer shares to insurance companies for allocation to certain of their variable contracts. Each Acquiring Fund will pay its principal underwriter, 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 will pay third parties for these sales activities pursuant to written agreements with such parties. These fees will be 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.
Under the JPMorgan Portfolios’ distribution and service plan, Class 2 shares pay distribution fees up to 0.25% per year.
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Comparison of Purchase and Redemption Procedures and Exchange Privileges
The purchase procedures and redemption procedures employed by the JPMorgan Portfolios and Acquiring Funds are substantially similar.
Acquiring Fund and JPMorgan Portfolio 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. You do not buy, sell or exchange Fund shares directly, but rather only through the applicable insurance company. Because shares are purchased and held only through insurance companies, you are subject to the polices of the insurance company through which you beneficially own shares. The Funds are not aware of any difference in the treatment of Acquiring Fund shares versus JPMorgan Portfolio shares in this respect.
Each Fund redeems its shares at the net asset value next determined after receipt of redemption request. Shareholders of the Funds are not subject to a redemption fee.
Each Acquiring Fund typically expects to pay redemption proceeds using holdings of cash in the Acquiring Fund’s portfolio or using the proceeds from sales of portfolio securities. To a lesser extent, each Acquiring 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 an Acquiring Fund’s holdings may be comprised of less liquid investments, or during emergency or temporary circumstances.
Each JPMorgan Portfolio has reserved the right to pay for redemptions with portfolio securities under certain conditions. A subsequent sale of such securities could result in the payment of brokerage commissions and expose a Contract Owner and Separate Account to market risk until the securities are sold.
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 Funds, including application of state and local taxes.
Payments to Broker-Dealers and other Financial Intermediaries
Shares of the JPMorgan Portfolios and Acquiring Funds are available only through the purchase of variable contracts issued by certain life insurance companies. Parties related to the JPMorgan Portfolios and Acquiring Funds (such as these Funds’ 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 JPMorgan Portfolios and Acquiring Funds 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.
Each 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. Eastern time, each business day). Each Fund’s NAV is the value of a single Fund share. Each 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.
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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.
Each Fund’s portfolio securities may be traded in other markets on days when the NYSE is closed. Therefore, each Fund’s NAV may fluctuate on days when you do not have access to the Fund to purchase or redeem shares.
Each Fund typically values its assets based on “market price.” Market price for equities and exchange-traded funds is typically the security’s last sale price on a national securities exchange or over-the-counter. Each Fund generally values debt securities using the bid 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, each Fund may value its portfolio securities at “fair value” as determined in good faith under procedures established by the Fund’s Board of Trustees. The fair value of portfolio securities may differ from quoted or published prices for the same securities that the Board of Trustees 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 JPMorgan Portfolio and the Acquiring Funds may use different vendors to provide data that is used in valuing securities, which could result in a discrepancy between the NAV of a JPMorgan Portfolio and its corresponding Acquiring Fund.
Frequent, large, or short-term transfers such as those transfers associated with “market timing” transactions, may adversely affect the Funds and their investment returns. Such transfers may dilute the value of Fund shares, interfere with the efficient management of a Fund’s portfolio, and increase the Fund’s brokerage and administrative costs. The JPMorgan Portfolios and Acquiring Funds strongly discourage such trading activity. The JPMorgan Portfolios and Acquiring Funds both reserve the right to reject any purchase order from any investor.
Each Fund’s Board of Trustees has approved certain market timing policies and procedures in an effort to protect a Fund and its shareholders from potentially harmful trading activity. There is no guarantee that the JPMorgan Portfolios and Acquiring Funds will be able to identify possible market timing activity or that market timing will not occur in the Funds.
Frequent, large, or short-term purchases, redemptions or transfers such as those associated with “market timing” transactions, may adversely affect a 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 Funds strongly discourage such trading activity.
To protect each Acquiring Fund and its shareholders from potentially harmful trading activity, the Acquiring Funds’ 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. Each Fund seeks to deter and prevent this activity by the appropriate use of “fair value” pricing of the Fund’s portfolio securities.
Each Fund seeks to monitor shareholder account activities in order to detect and prevent excessive and disruptive trading practices. Each 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.
Each 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
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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. Each Fund also may rely on frequent trading policies established by such insurance companies. If a 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.
Comparison of Dividend and Distribution Policies and Fiscal Years
Dividend and Distribution Policies. Each JPMorgan Portfolio and its corresponding Acquiring Fund have substantially similar policies regarding the payment of dividends and distributions. The Funds expect to declare and distribute its net investment income and net capital gains, if any, at least annually. The amount of dividends and distributions will vary, and there is no guarantee that the JPMorgan Portfolios or the Acquiring Funds will pay either a dividend from net investment income or a capital gains distribution. With respect to the Acquiring Funds, dividends and capital gain distributions will be automatically reinvested in additional Acquiring Fund shares. With respect to the JPMorgan Portfolios, at the election of the insurance companies issuing the variable contracts, dividends and distributions are automatically reinvested in additional JPMorgan Portfolio shares.
Fiscal Years. Each Acquiring Fund has the same fiscal year as its corresponding JPMorgan Portfolio: December 31.
Comparison of Business Structures, Shareholder Rights, and Applicable Law
Each JPMorgan Portfolio is a series of the JPMorgan Insurance Trust, a voluntary association with transferable shares, of the type commonly referred to as a Massachusetts business trust, and each Acquiring Fund is a series of the Lincoln Variable Insurance Products Trust, a Delaware statutory trust. Although Massachusetts and Delaware laws that apply to mutual funds differ in certain respects, those differences are not expected to have a material impact on the Funds or their shareholders. In accordance with the laws of both states, shareholder rights are defined principally by the respective Fund’s governing instruments of these entities.
The following is a discussion of material provisions of the governing instruments and governing laws of each JPMorgan Portfolio and Acquiring Fund, but is not a complete description thereof. Further information about each Fund’s governance structure is contained in its governing instruments, which are on file with the SEC.
Shares. When issued and paid for in accordance with the prospectus, shares of both a JPMorgan Portfolio and its corresponding Acquiring Fund are fully paid and non-assessable, have no preemptive or subscription rights and are freely transferable. Each share of both a JPMorgan Portfolio and its corresponding Acquiring Fund represents an equal interest in such Fund.
Organization and Governing Law. The JPMorgan Insurance Trust is organized as a Massachusetts business trust and the Lincoln Variable Insurance Products Trust is organized as a Delaware statutory trust. Each of JPMorgan Insurance Trust and the Lincoln Variable Insurance Products Trust is governed by its Declaration of Trust and its By-Laws (which are sometimes referred to as their “governing instruments” in this section), and its business and affairs are managed under the supervision of its Board of Trustees. Each Fund is subject to the federal securities laws, including the 1940 Act, and the rules and regulations promulgated by the Securities and Exchange Commission thereunder.
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As noted above, although Massachusetts and Delaware laws that apply to mutual funds differ in certain respects, those differences are not expected to have a material impact on the Funds or their shareholders. Delaware is generally regarded as a more favorable jurisdiction than Massachusetts for organizing a mutual fund for several reasons, including: (i) under Delaware law, there is greater certainty that shareholders of a fund would not become personally liable for obligations of the fund; (ii) under Delaware law, there is greater certainty that trustees and officers of a fund would not become personally liable for acting in good faith on behalf of the fund; (iii) under Delaware law, there is greater certainty that the liabilities of a particular fund would be enforceable solely against the assets of that fund and not against the assets of the trust or any of the other funds within the trust; and (iv) Delaware has a more comprehensive body of law relating to funds established as trusts, including a more detailed statute than Massachusetts, and Delaware courts generally have more experience dealing with matters that are likely to affect mutual funds organized as Delaware statutory trusts than Massachusetts courts with regard to Massachusetts business trustss, which provides greater certainty about outcomes. It is worth noting that the liability risks summarized above in (i), (ii) and (iii) are also generally understood to be low for Massachusetts business trusts like the JPMorgan Insurance Trust that have provisions in their governing instruments specifically designed to limit those risks.
Shareholder Meetings. Neither the JPMorgan Portfolios nor the Acquiring Funds are required to hold annual shareholders’ meetings.
Quorum. For each JPMorgan Portfolio, the presence in-person or by proxy of a majority of the outstanding shares of the JPMorgan Portfolio entitled to vote shall constitute a quorum at a meeting of Shareholders, unless a larger quorum is expressly required by any provision of applicable law or the governing instruments. For each Acquiring Fund, a quorum will exist if 33 and 1/3% of the outstanding shares of such Fund entitled to vote of such Fund are present at the meeting in person or by proxy, except when a larger quorum is required by applicable law or the governing instruments.
Number of Votes; Aggregate Voting. For each JPMorgan Portfolio and each Acquiring Fund, each shareholder is entitled to one vote for each whole share held, and a proportionate fractional vote for any fractional shares held, as of the record date, as to any matter on which it is entitled to vote.
Right to Vote. The 1940 Act provides that shareholders of a fund, including the JPMorgan Portfolios and Acquiring Funds, have the power to vote with respect to certain matters, generally including: the election of Trustees, the selection of auditors (under certain circumstances), the approval of investment advisory agreements and plans of distribution, and amendments to policies, objectives or restrictions deemed to be fundamental. Shareholders of a fund also have the right to vote on certain matters affecting the fund or a particular share class thereof under their respective governing instruments and applicable state law. Pursuant to the applicable governing instruments, shareholders of each JPMorgan Portfolio and each Acquiring Fund have the power to vote (i) for the above matters required by the 1940 Act; (ii) with respect to such additional matters relating to the applicable Trust as may be required by other applicable law or its governing documents; and (iii) on such other matters as the Board of Trustees may consider necessary or desirable.
Election/Removal of Trustees. The shareholders of all JPMorgan Portfolios and Acquiring Funds are entitled to vote for the election of Trustees. The shareholders of all JPMorgan Portfolios and Acquiring Funds shall have the power to remove a Trustee only to the extent provided by the 1940 Act and the rules and regulations thereunder.
Mergers and Reorganizations. The shareholders of all JPMorgan Portfolios and Acquiring Funds are generally entitled to vote on mergers, consolidations or other reorganizations except in limited circumstances in which a transaction can be approved by the Board of Trustees without shareholder approval, in accordance with applicable law and the Fund’s governing instruments.
Liquidation of a Fund. Each JPMorgan Portfolio and each Acquiring Fund may be liquidated by its respective Board of Trustees without shareholder approval.
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Liability of Shareholders. The governing instruments of each of the JPMorgan Insurance Trust and the Lincoln Variable Insurance Products Trust generally provide that shareholders will not be subject to personal liability for the obligations of the applicable Funds.
The terms and conditions under which each Reorganization may be consummated are set forth in the Agreement. Certain provisions of the Agreement are summarized below. A copy of the Agreement is included in the section entitled “FORM OF AGREEMENT AND PLAN OF REORGANIZATION” in this Combined Proxy Statement/Prospectus.
With respect to each Reorganization, if shareholders of a JPMorgan Portfolio approve the Agreement and other closing conditions are satisfied or waived (to the extent legally permissible), the assets (as defined in the Agreement) of the JPMorgan Portfolio will be delivered to the Acquiring Fund’s custodian for the account of the corresponding Acquiring Fund in exchange for the assumption by the Acquiring Fund of the liabilities (as defined in the Agreement) of the JPMorgan Portfolio and delivery by the Acquiring Fund to the holders of record as of the Closing (defined below) of the issued and outstanding shares of the JPMorgan Portfolio of a number of shares of the Acquiring Fund (including, if applicable, fractional shares rounded to the nearest thousandth), having an aggregate net asset value equal to the aggregate value of the net assets of the JPMorgan Portfolio so transferred, all determined and adjusted as provided in the Agreement. The value of your account with an Acquiring Fund immediately after the Reorganization will be the same as the value of your account with the JPMorgan Portfolio immediately prior to the Reorganization.
The class of Acquiring Fund shares that shareholders will receive in connection with each Reorganization will depend on the class of JPMorgan Portfolio shares that shareholders hold immediately prior to the Reorganization. The share classes that will be issued by the Acquiring Funds to the holders of the share classes of the JPMorgan Portfolios are described in the section entitled “JPMORGAN PORTFOLIOS AND CLASSES AND CORRESPONDING ACQUIRING FUNDS AND CLASSES” in this Combined Proxy Statement/Prospectus.
If shareholders approve the Agreement and if all of the closing conditions set forth in the Agreement are satisfied or waived, consummation of the Reorganizations (the “Closing”) is expected to occur on or about May 1, 2023 (the “Closing Date”). The Closing of the Reorganizations shall take place as of the later of 7:01 p.m. Eastern Time or the finalization of each JPMorgan Portfolio’s net asset value on the Closing Date, unless otherwise agreed to by the parties. The valuation of a JPMorgan Portfolio’s assets shall be calculated following the close of regular trading on the NYSE on the Closing Date on the basis of values calculated as of the close of regular trading on the NYSE on the Closing Date. The consummation of any particular Reorganization is not conditioned upon the consummation of any other Reorganization. As a result, the Reorganizations may close at different times if, for example, shareholders of one or more JPMorgan Portfolios have not approved the Agreement by the Closing Date. In addition, the parties may choose to delay the consummation of a Reorganization that shareholders have approved so that all or substantially all of the Reorganizations are consummated at the same time. On or before the Closing Date, some securities held by a JPMorgan Portfolio may be unable to be transferred to the corresponding Acquiring Fund because the Acquiring Fund would not be permitted to hold such securities (i) under applicable law or (ii) because the transfer of such securities would result in material operational or administrative difficulties, however it is currently expected that no portfolio repositioning or de minimus portfolio repositioning will be required to consummate the Reorganizations. Under such circumstances, the affected JPMorgan Portfolio may, to the extent permissible and consistent with its own investment objectives and policies and the fiduciary duties of the investment adviser, liquidate such investments prior to the Closing Date. An affected JPMorgan Portfolio may temporarily deviate from its investment strategy with respect to these select securities and may incur certain related costs.
Following receipt of the requisite shareholder vote in favor of a Reorganization and prior to the opening of trading on the NYSE next following the Closing Date, a JPMorgan Portfolio will distribute to its shareholders of
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record of each class the shares of the corresponding class of the Acquiring Fund received by the JPMorgan Portfolio, on a pro rata basis. Additionally, as soon as reasonably practicable after the Closing, the outstanding shares of the JPMorgan Portfolio will be redeemed and cancelled as permitted by, and in accordance with, its governing instruments and applicable law.
Additionally, while the consummation of any particular Reorganization is not conditioned upon the specific consummation of any other Reorganization, each Reorganization may not close unless certain conditions are met or waived. If such conditions are not met or waived, none of the Reorganizations will be consummated, even if shareholders of the JPMorgan Portfolios approved the Agreement, and the JPMorgan Portfolios will not be reorganized into the Acquiring Funds. If this occurs, the Board of Trustees of the JPMorgan Insurance Trust will consider what additional action, if any, for each JPMorgan Portfolio to take.
The Agreement may be terminated and a Reorganization may be abandoned at any time prior to the Closing Date by mutual agreement of the parties, or by either party if the Closing does not occur on or before May 1, 2023, or if one or more of the parties shall have materially breached its obligations under the Agreement. The Agreement may be amended or modified in a writing signed by the parties to the Agreement.
Federal Income Tax Consequences
Each Reorganization is intended to qualify for federal income tax purposes as a tax-free reorganization described in Section 368(a) of the Internal Revenue Code of 1986, as amended (“Code”). As a condition to the Closing of each Reorganization, the applicable JPMorgan Portfolio and its corresponding Acquiring Fund will receive a legal opinion from Dechert LLP substantially to the effect that for federal income tax purposes:
(1) | The transfer of the JPMorgan Portfolio’s assets to the Acquiring Fund in exchange for shares of the Acquiring Fund and the assumption of the JPMorgan Portfolio’s liabilities, followed by a distribution of those shares to the shareholders of the JPMorgan Portfolio and the termination of the JPMorgan Portfolio will constitute a “reorganization” within the meaning of Section 368(a)(1) of the Code; |
(2) | No gain or loss will be recognized by the Acquiring Fund upon the receipt of the assets of the JPMorgan Portfolio in exchange for shares of the Acquiring Fund and the assumption by the Acquiring Fund of the liabilities of the JPMorgan Portfolio; |
(3) | The basis in the hands of the Acquiring Fund of the assets of the JPMorgan Portfolio transferred to the Acquiring Fund in the Reorganization will be the same as the basis of such assets in the hands of the JPMorgan Portfolio immediately prior to the transfer; |
(4) | The holding periods of the assets of the JPMorgan Portfolio in the hands of the Acquiring Fund will include the periods during which such assets were held by the JPMorgan Portfolio; |
(5) | No gain or loss will be recognized by the JPMorgan Portfolio upon the transfer of the JPMorgan Portfolio’s assets to the Acquiring Fund in exchange for shares of the Acquiring Fund and the assumption by the Acquiring Fund of the liabilities of the JPMorgan Portfolio or upon the distribution (whether actual or constructive) by the JPMorgan Portfolio of shares of the Acquiring Fund to the shareholders of the JPMorgan Portfolio in liquidation; |
(6) | The shareholders of the JPMorgan Portfolio will not recognize a gain or loss upon the exchange of their shares of the JPMorgan Portfolio solely for shares of the Acquiring Fund as part of the Reorganization; |
(7) | The aggregate basis of the shares of the Acquiring Fund that the shareholders of the JPMorgan Portfolio receive in connection with the Reorganization will be the same as the aggregate basis of their respective shares in the JPMorgan Portfolio exchanged therefor; |
(8) | The holding period for the shares of the Acquiring Fund that a shareholder of the JPMorgan Portfolio receives in the Reorganization will include the period for which it held the shares of the JPMorgan Portfolio exchanged therefor, provided that on the date of the exchange it held such shares of the JPMorgan Portfolio as capital assets; and |
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(9) | The Reorganization will not result in the termination of the JPMorgan Portfolio’s taxable year and the JPMorgan Portfolio’s tax attributes enumerated in Section 381(c) of the Code will be taken into account by the Acquiring Fund without limitation. |
The opinion will be based on certain factual certifications made by the Funds and will also be based on customary assumptions. It is possible that the Internal Revenue Service (“IRS”) could disagree with counsel’s opinion. Opinions of counsel are not binding upon the IRS or the courts.
Dechert LLP will express no view with respect to the effect of each Reorganization on any transferred assets as to which any unrealized gain or loss is required to be recognized under federal income tax principles (i) at the end of a taxable year or upon termination thereof or (ii) upon the transfer of such assets regardless of whether such a transfer would otherwise be a non-taxable transaction.
This description of the federal income tax consequences of the Reorganizations does not take into account shareholders’ particular facts and circumstances. Consult your tax advisor about the effect of state, local, foreign, and other tax laws.
The Acquiring Funds do not have any operating history or performance information, and it is expected that upon completion of each proposed Reorganization, each Acquiring Fund will continue the historical performance information of its corresponding JPMorgan Portfolio, and the accounting books and records of the JPMorgan Portfolios will become the accounting books and records of the Acquiring Funds.
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The JPMIT Board considered the Reorganizations at a meeting held on December 12, 2022. Prior to this meeting, on November 29, 2022, members of the JPMIT Board’s Governance Committee met with leadership of the Acquiring Funds’ Board of Trustees and senior management of LIAC. On December 12, 2022, the JPMIT Board, including a majority of the Trustees who are not “interested persons” of the JPMorgan Insurance Trust as that term is defined in the 1940 Act (“Independent Trustees”), approved the Reorganizations and the Plan. In approving the Reorganizations, the JPMIT Board determined that: (i) participation in the Reorganization is in the best interest of each JPMorgan Portfolio and its shareholders; and (ii) the interests of the existing shareholders of each JPMorgan Portfolio will not be diluted as a result of the Reorganization.
In making these determinations, the JPMIT Board reviewed and considered information provided to them to assist them in evaluating the Reorganizations, such as information relating to: the terms of the Agreement; each Acquiring Fund’s investment objective, investment strategy and risks; each Acquiring Fund’s fee structure, as compared to the corresponding JPMorgan Portfolio’s fee structure; the Acquiring Funds’ investment adviser and other service providers; JPMIM’s historical relationship with Lincoln Financial Group; the reputation of LIAC and the Lincoln Financial Group generally; the U.S. federal income tax consequences of the Reorganizations; the costs anticipated to be incurred in connection with the Reorganizations and the fact that LIAC and JPMIM would be responsible for absorbing such costs; and the recommendations of JPMIM, among other relevant information. In addition, the Independent Trustees were advised by independent legal counsel in their considerations of the Agreement and the Reorganizations.
The Trustees did not find it practicable to, and did not, assign relative weights to the specific factors considered in reaching their conclusions and determinations to approve the Agreement. Rather, the approval determinations were made on the basis of each Trustee’s business judgment after consideration of all of the factors taken in their entirety. Although not meant to be all-inclusive, the following were some of the factors considered by the JPMIT Board in making their determination:
• | Shareholders of a JPMorgan Portfolio who do not wish to become shareholders of the Acquiring Fund may, prior to the Reorganizations, reallocate their investments to other investment options, in accordance with the requirements of their applicable variable contracts; |
• | Information from management of the JPMorgan Portfolios and the Acquiring Funds regarding the reputation, financial strength and resources of the Lincoln Financial Group; |
• | The nature, quality and extent of services to be provided to the Acquiring Funds and their shareholders by their investment adviser, LIAC, following the Reorganizations. In this regard, the Board noted that each Acquiring Fund will adopt the accounting and performance track record of the applicable JPMorgan Portfolio; |
• | The similarities and differences, if any, between the investment objectives, principal investment strategies and risks of each JPMorgan Portfolio and those of the corresponding Acquiring Fund. In this regard, the Board noted that each Acquiring Fund has the same investment objective and substantially similar or identical principal investment strategies and principal risks as its corresponding JPMorgan Portfolio; |
• | JPMIM would sub-advise the Acquiring Funds after the Reorganization; |
• | The historical investment performance records of the JPMorgan Portfolios and the investment strategies that will be used by the proposed portfolio managers in managing the Acquiring Funds following the Reorganizations. In this regard, the Board noted that each Acquiring Fund will adopt the accounting and performance track record of the applicable JPMorgan Portfolio; |
• | The anticipated benefits to the shareholders of the JPMorgan Portfolios, including lower expenses and greater operating efficiencies, that may be achieved from the Reorganizations; |
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• | The distribution arrangements that will be available to the Acquiring Funds following the Reorganizations and how those arrangements could potentially benefit investors in the Acquiring Fund, such as by generating further economies of scale; |
• | The transition from the JPMorgan Portfolios’ current service providers to the Acquiring Funds’ service providers following the Reorganizations; |
• | The current management fee schedules of the JPMorgan Portfolios and the proposed management fee schedules of the Acquiring Funds, and that LIAC will provide a two-year contractual undertaking that will limit the total expense ratio (after waivers if applicable) of each share class of each Acquiring Fund so that such share class’s total expense ratio (after waivers if applicable) is no greater than the total expense ratio (after waivers if applicable) of the corresponding class of the corresponding JPMorgan Portfolio immediately prior to the Reorganizations; |
• | LIAC and JPMIM, and not the Funds, will pay all expenses of the JPMorgan Portfolios and the Acquiring Funds arising in connection with the Reorganizations as set forth in the Agreement; |
• | Each Reorganization is expected to be a tax-free reorganization for federal income tax purposes; and |
• | The terms and conditions of the Agreement, including each Acquiring Fund’s assumption of all of the liabilities of the corresponding JPMorgan Portfolio. |
Based on all of the foregoing, the JPMIT Board concluded that the JPMorgan Portfolio’s participation in the applicable proposed Reorganizations would be in the best interests of each JPMorgan Portfolio and would not dilute the interests of its existing shareholders. The JPMIT Board, including those Board members who are not “interested persons” of the JPMorgan Insurance Trust, as defined in the 1940 Act, unanimously recommends that shareholders of each JPMorgan Portfolio approve the Agreement for the reorganization of that JPMorgan Portfolio.
ADDITIONAL INFORMATION ABOUT THE ACQUIRING FUNDS AND JPMORGAN PORTFOLIOS
The JPMorgan Portfolios’ prospectuses, SAI, most recent Annual Report to Shareholders containing audited financial statements for the most recent fiscal year, and most recent Semi-Annual Report to Shareholders are available, free of charge, on the JPMorgan Portfolios’ website at www.jpmorgan.com/variableinsuranceportfolios. To receive a free copy of the SAI or the Annual Report to Shareholders or Semi-Annual Report to Shareholders, write to J.P. Morgan Funds Services, P.O. Box 21914, Kansas City, MO 64121-9143 or call toll-free 800-480-4111.
Financial highlights for each JPMorgan Portfolio are included in the section entitled “FINANCIAL HIGHLIGHTS” in this Combined Proxy Statement/Prospectus.
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Only shareholders of record of the JPMorgan Portfolios as of the close of business on the Record Date of January 10, 2023, will be entitled to notice of, and to vote at, the Meeting or any adjournments or postponements thereof. As a Contract Owner with a variable contract value allocated to a Portfolio as of the close of business on the Record Date, you are entitled to instruct your Participating Insurance Company how to vote the shares of the Portfolio attributable to your variable contract. The number of outstanding shares of each class of the JPMorgan Portfolios on the Record Date can be found in the section entitled “OUTSTANDING SHARES OF THE JPMORGAN PORTFOLIOS” in this Combined Proxy Statement/Prospectus. Each JPMorgan Portfolio shareholder is entitled to one vote for each fund share and a fractional vote for each fractional share. Shareholders of a JPMorgan Portfolio will vote as a single class on the Agreement.
Your proxy will grant the authority to vote and act on your behalf at the Meeting. A Contract Owner may revoke previously submitted voting instructions at any time prior to the Meeting by (1) submitting to the appropriate Participating Insurance Company subsequently dated voting instructions in proper form, whether via a Voting Instruction Card or telephone or Internet voting, (2) delivering to the appropriate Participating Insurance Company a written notice of revocation, or (3) otherwise giving notice of revocation during the Meeting, in all cases prior to the exercise of the authority granted in the previously submitted proxy/voting instructions.
It is expected that the Participating Insurance Companies will attend the Meeting in-person or by proxy and will vote shares held by them in accordance with the voting instructions received from their respective Contract Owners. Unless revoked, all valid and executed Voting Instruction Cards will be voted in accordance with the specifications thereon.
JPMorgan Portfolio shareholders may vote while attending the Meeting. However, you do not need to attend the Meeting to vote your shares. Instead, you may complete, sign and return the enclosed voting instruction card or vote by telephone or through the Internet.
Shares for which a Participating Insurance Company does not receive timely voting instructions from Contract Owners and duly executed and dated Voting Instruction Cards that do not provide voting instructions will be voted by that Participating Insurance Company in the same proportion as the shares for which Contract Owners have provided voting instructions to the Participating Insurance Company. Shares owned by a Participating Insurance Company will also be voted in the same proportion as the shares for which timely voting instructions have been received from Contract Owners. This proportional voting may result in a small number of Contract Owners determining the vote on the Proposal.
If a Voting Instruction Card is properly executed and returned in time to be voted at the Meeting, the proxies named on the card will vote the shares represented by the proxy in accordance with the instructions marked on the card. If a shareholder simply signs, dates and returns a Voting Instruction Card, but does not specify a vote on the Proposal, the proxy will be voted FOR the Proposal.
Quorum Requirement and Adjournment
A quorum of shareholders is necessary to hold a valid meeting of each JPMorgan Portfolio. For each JPMorgan Portfolio, a quorum will exist if shareholders representing a majority of the outstanding shares of the JPMorgan Portfolio, as of the Record Date, are present at the Meeting in person or by proxy. Abstentions will count as shares present at the Meeting for purposes of establishing a quorum.
Under the rules applicable to broker-dealers, if your broker holds your shares in its name, the broker will not be entitled to vote your shares if it has not received instructions from you. Because the Proposal is treated as “non-routine” under applicable legal requirements and there are no routine proposals to be considered at the Meeting, there will not be any “broker non-votes” and therefore broker non-votes will have no effect on quorum.
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The Meeting, whether or not a quorum is present, may be adjourned from time to time (and at any time during the course of the Meeting) by a majority of the votes cast by those shareholders present, in person or by proxy, or by the chairperson of the Meeting. In the absence of a quorum with respect to any JPMorgan Portfolio, or in the event that a quorum is present at the Meeting with respect to a JPMorgan Portfolio, but sufficient votes to approve the Proposal are not received by the time scheduled for the Meeting, the persons named as proxies may propose one or more adjournments or postponements of the Meeting to permit further solicitation of proxies. The persons named as proxies will vote proxies that they are entitled to vote in favor of the Proposal in favor of such an adjournment and will vote those proxies required to be voted against the Proposal against such adjournment.
Vote Necessary to Approve the Agreement
For each JPMorgan Portfolio, assuming a quorum, shareholder approval of the Proposal requires the affirmative vote of a simple majority of the shares voted.
Abstentions are counted as present but not voted cast at the Meeting. As a result, they have the same effect as a vote against the Proposal. Each Reorganization is independent of the other Reorganizations.
Broker non-votes will have no effect on the vote’s outcome because there will not be any broker non-votes.
The JPMorgan Portfolios have engaged the services of Computershare Inc., a Delaware corporation (operating through its Computershare Fund Services division) (“CFS”) (“Solicitor”), a private proxy services firm, to assist in the solicitation of proxies for the Meeting. Proxies are expected to be solicited principally by the mailing of this Combined Proxy Statement/Prospectus, but proxies may also be solicited by telephone and/or in person by representatives of the JPMorgan Portfolios, regular employees of JPMIM or its affiliate(s), or the Solicitor may also solicit proxies by telephone, facsimile or in person. If we have not received your vote as the date of the Meeting approaches, you may receive a telephone call from one of these parties to ask for your vote.
Solicitor’s costs are expected to be approximately $100,000. The cost of the Meeting, including the costs of retaining the Solicitor, preparing, printing and distributing the Combined Proxy Statement/Prospectus and the solicitation of proxies, will be borne by LIAC and JPMIM. The Funds and their shareholders will not bear any costs or expenses directly related to any Reorganization, regardless of whether any Reorganization is consummated.
By contract, Computershare, among other things, will be: (i) required to maintain the confidentiality of all shareholder information; (ii) prohibited from selling or otherwise disclosing to any third party shareholder information; and (iii) required to comply with state telemarketing laws to the extent applicable to the services provided under the contract.
As the Meeting date approaches, Contract Owners of the JPMorgan Portfolios may receive a call from a representative of JPMIM or Computershare if the relevant Participating Insurance Company has not yet received voting instructions. Authorization to permit JPMIM or Computershare to execute voting instructions may be obtained by telephonic or electronically transmitted instructions from JPMorgan Portfolio shareholders. Proxies that are obtained telephonically will be recorded in accordance with the procedures set forth below. Management of the JPMorgan Portfolios believes that these procedures are reasonably designed to ensure that the identity of the Contract Owner providing voting instructions is accurately determined and that the voting instructions of the Contract Owner are accurately determined. In all cases where a telephonic proxy is solicited, a JPMIM or Computershare representative is required to ask the Contract Owner for the Contract Owner’s full name, address and confirmation that the Contract Owner has received this Combined Proxy Statement/Prospectus.
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If the Contract Owner information solicited agrees with the information provided to JPMIM or Computershare by the JPMorgan Portfolios, the JPMIM or Computershare representative has the responsibility to explain the process, read the Proposal listed on the Voting Instruction Card, and ask for the Contract Owner’s instructions on the Proposal. The representative of JPMIM or Computershare although permitted to answer questions about the process, is not permitted to recommend to the Contract Owner how to vote, other than to read any recommendation set forth in this Combined Proxy Statement/Prospectus. Computershare will record the shareholder’s instructions on the card. Within 72 hours, JPMIM or Computershare will send the Contract Owner a letter or mailgram to confirm the shareholder’s vote and asking the shareholder to call JPMIM or Computershare immediately if the shareholder’s instructions are not correctly reflected in the confirmation.
Management is not aware of any matters to be presented at the Meeting other than as is discussed in this Combined Proxy Statement/Prospectus. If any other matters properly come before the Meeting, the shares represented by proxies will be voted by the proxies in accordance with their best judgment.
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The following tables set forth, for each Reorganization, the total net assets, number of shares outstanding and net asset value per share of the applicable JPMorgan Portfolio and its applicable Acquiring Fund. This information is generally referred to as the “capitalization” of a Fund. The term “pro forma capitalization” means the expected capitalization of an Acquiring Fund after it has combined with the corresponding JPMorgan Portfolio. The following tables are as of November 21, 2022 and assume that each Reorganization has taken place as of that date. The capitalizations will be different on the Closing Date based on various factors, such as daily JPMorgan Portfolio share purchase, redemption, and market activity.
Each JPMorgan Portfolio will be the accounting and performance survivor in the applicable Reorganization, with the result that the corresponding Acquiring Fund, as the corporate survivor in the Reorganization, shall adopt the accounting and performance history of its corresponding JPMorgan Portfolio.
JPMorgan Insurance Trust Core Bond Portfolio | LVIP JPMorgan Core Bond Fund | Pro Forma Adjustments* | LVIP JPMorgan Core Bond Fund (pro forma) | |||||||||||||
Net Assets | ||||||||||||||||
Class1/Standard Class | $ | 138,425,273.25 | $ | 0 | $ | 59,482.70 | $ | 138,484,755.95 | ||||||||
Class 2/Service Class | $ | 315,544,134.00 | $ | 0 | $ | 135,592.40 | $ | 315,679,726.40 | ||||||||
Total | $ | 453,969,407.25 | $ | 0 | $ | 195,075.10 | $ | 454,164,482.35 | ||||||||
Net Asset Value Per Share | ||||||||||||||||
Class1/Standard Class | $ | 9.60 | $ | 0.00 | $ | 0.01 | $ | 9.61 | ||||||||
Class 2/Service Class | $ | 9.47 | $ | 0.00 | $ | 0.00 | $ | 9.47 | ||||||||
Shares Outstanding | ||||||||||||||||
Class1/Standard Class | 14,415,395.466 | 0 | 0 | 14,415,395.466 | ||||||||||||
Class 2/Service Class | 33,335,768.999 | 0 | 0 | 33,335,768.999 | ||||||||||||
JPMorgan Insurance Trust Mid Cap Value Portfolio | LVIP JPMorgan Mid Cap Value Fund | Pro Forma Adjustments* | LVIP JPMorgan Mid Cap Value Fund (pro forma) | |||||||||||||
Net Assets | ||||||||||||||||
Class1/Standard Class | $ | 457,433,504.12 | $ | 0 | $ | 0 | $ | 457,433,504.12 | ||||||||
Total | $ | 457,433,504.12 | $ | 0 | $ | 0 | $ | 457,433,504.12 | ||||||||
Net Asset Value Per Share | ||||||||||||||||
Class1/Standard Class | $ | 10.66 | $ | 0.00 | $ | 0.00 | $ | 10.66 | ||||||||
Shares Outstanding | ||||||||||||||||
Class1/Standard Class | 42,904,880.445 | 0 | 0 | 42,904,880.445 | ||||||||||||
JPMorgan Insurance Trust Small Cap Core Portfolio | LVIP JPMorgan Small Cap Core Fund | Pro Forma Adjustments* | LVIP JPMorgan Small Cap Core Fund (pro forma) | |||||||||||||
Net Assets | ||||||||||||||||
Class1/Standard Class | $ | 171,643,467.59 | $ | 0 | $ | 0 | $ | 171,643,467.59 | ||||||||
Class 2/Service Class | $ | 1,256,346.32 | $ | 0 | $ | 0 | $ | 1,256,346.32 | ||||||||
Total | $ | 172,899,813.91 | $ | 0 | $ | 0 | $ | 172,899,813.91 | ||||||||
Net Asset Value Per Share | ||||||||||||||||
Class1/Standard Class | $ | 18.56 | $ | 0.00 | $ | 0.00 | $ | 18.56 | ||||||||
Class 2/Service Class | $ | 18.31 | $ | 0.00 | $ | 0.00 | $ | 18.31 | ||||||||
Shares Outstanding | ||||||||||||||||
Class1/Standard Class | 9,248,728.194 | 0 | 0 | 9,248,728.194 | ||||||||||||
Class 2/Service Class | 68,598.558 | 0 | 0 | 68,598.558 |
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JPMorgan Insurance Trust U.S. Equity Portfolio | LVIP JPMorgan U.S. Equity Fund | Pro Forma Adjustments* | LVIP JPMorgan U.S. Equity Fund (pro forma) | |||||||||||||
Net Assets | ||||||||||||||||
Class1/Standard Class | $ | 111,602,724.12 | $ | 0 | $ | 0 | $ | 111,602,724.12 | ||||||||
Class 2/Service Class | $ | 14,258,002.17 | $ | 0 | $ | 0 | $ | 14,258,002.17 | ||||||||
Total | $ | 125,860,726.29 | $ | 0 | $ | 0 | $ | 125,860,726.29 | ||||||||
Net Asset Value Per Share | ||||||||||||||||
Class1/Standard Class | $ | 32.53 | $ | 0.00 | $ | 0.00 | $ | 32.53 | ||||||||
Class 2/Service Class | $ | 31.98 | $ | 0.00 | $ | 0.00 | $ | 31.98 | ||||||||
Shares Outstanding | ||||||||||||||||
Class1/Standard Class | 3,430,625.439 | 0 | 0 | 3,430,625.439 | ||||||||||||
Class 2/Service Class | 445,909.93 | 0 | 0 | 445,909.93 |
* | Pro forma adjustments reflect the different valuation vendors of the Acquiring Funds and the JPMorgan Portfolios. The Acquiring Funds’ valuation vendors (instead of the JPMorgan Portfolios’ valuation procedures) will be used to value the assets of each JPMorgan Portfolio for purposes of the Reorganizations. As of November 22, 2022, the differences in valuation vendors would cause the value of the Standard Class of the LVIP JPMorgan Core Bond Fund shares you receive in the Reorganization to be approximately $0.01 per share higher than the value of your JPMorgan Core Bond Portfolio shares immediately prior to the Reorganization, and would causes no change to Fund share values for the remaining Reorganizations. |
A list of the name, address and percent ownership of each person who, as of January 10, 2023, to the knowledge of each JPMorgan Portfolio, owned of record or beneficially 5% or more of the outstanding shares of a class of such JPMorgan Portfolio can be found in the section entitled “OWNERSHIP OF SHARES OF THE JPMORGAN PORTFOLIOS” in this Combined Proxy Statement/Prospectus.
To the best of the knowledge of each JPMorgan Portfolio, the ownership of shares of the JPMorgan Portfolio by executive officers and trustees of the JPMorgan Portfolio as a group constituted less than 1% of each outstanding class of shares of the JPMorgan Portfolio as of January 10, 2023.
Each Acquiring Fund is a newly organized shell fund created to acquire the assets and assume the liabilities of the corresponding JPMorgan Portfolio and, as of the date of this Combined Proxy Statement/Prospectus, each Acquiring Fund does not have any shareholders.
The JPMorgan Portfolios are not required to, and do not, hold annual shareholder meetings. Nonetheless, the JPMIT Board may call a special meeting of shareholders for action by shareholder vote as may be required by the 1940 Act or as required or permitted by the JPMorgan Portfolios’ governing instruments. A shareholder desiring to submit a proposal intended to be presented at any meeting of shareholders of a JPMorgan Portfolio hereafter called should send the proposal to the JPMorgan Portfolio at the JPMorgan Portfolio’s principal offices so that it is received within a reasonable time before the proxy materials are printed and mailed. Whether a proposal is included in a proxy statement will be determined in accordance with applicable federal and state laws. If shareholders of a JPMorgan Portfolio approve the Agreement, and certain other closing conditions are satisfied or waived, the shareholders will become shareholders of the corresponding Acquiring Fund and, thereafter, will be subject to the notice requirements of the Acquiring Fund. The mere submission of a proposal by a shareholder does not guarantee that such proposal will be included in the proxy statement because certain rules under the federal securities laws must be complied with before inclusion of the proposal is required. Also, the submission does not mean that the proposal will be presented at the Meeting. For a shareholder proposal to be considered at a shareholder meeting, it must be a proper matter for consideration under applicable law.
33
SHAREHOLDER COMMUNICATIONS WITH THE BOARD OF TRUSTEES
If a shareholder wishes to send a communication to the Board of Trustees of JPMorgan Insurance Trust, or to a specified Trustee, the communication should be submitted in writing to the Secretary of the JPMorgan Portfolios at 4 New York Plaza, Floor 19, New York, New York 10004, who will forward such communication as appropriate.
It is the policy of the JPMorgan Portfolios to mail only one copy of this Combined Proxy Statement/Prospectus to all shareholders who share a single address and share the same last name, unless the Fund has received instructions to the contrary. If you would like to obtain an additional copy of this Combined Proxy Statement/Prospectus, free of charge, write to J.P. Morgan Funds Services, P.O. Box 21914, Kansas City, MO 64121-9143 or call toll-free 800-480-4111. If you received a Proxy Statement/Prospectus for each shareholder at your address and would like to receive a single copy in the future, please contact the Secretary of the JPMorgan Portfolios as instructed above.
JPMORGAN PORTFOLIOS AND CLASSES
AND CORRESPONDING ACQUIRING FUNDS AND CLASSES
PROPOSED REORGANIZATIONS
| ||
JPMORGAN PORTFOLIO | ACQUIRING FUND | |
JPMorgan Insurance Trust Core Bond Portfolio | LVIP JPMorgan Core Bond Fund | |
Class 1 | Standard Class | |
Class 2 | Service Class | |
JPMorgan Insurance Trust Mid Cap Value Portfolio | LVIP JPMorgan Mid Cap Value Fund | |
Class 1 | Standard Class | |
JPMorgan Insurance Trust Small Cap Core Portfolio | LVIP JPMorgan Small Cap Core Fund | |
Class 1 | Standard Class | |
Class 2 | Service Class | |
JPMorgan Insurance Trust U.S. Equity Portfolio | LVIP JPMorgan U.S. Equity Fund | |
Class 1 | Standard Class | |
Class 2 | Service Class |
34
PROSPECTUSES INCORPORATED BY REFERENCE
INTO THE COMBINED PROXY STATEMENT/PROSPECTUS
JPMORGAN INSURANCE TRUST (File No. 033-66080)
| ||
JPMorgan Insurance Trust Core Bond Portfolio | • Prospectus dated May 1, 2022 (Accession No. 0001193125-22-104145);
• Supplement to the Prospectus dated July 1, 2022 (Accession No. 0001193125-22-186742)
• Supplement to the Prospectus dated December 19, 2022 (Accession No. 0001193125-22-308055) | |
JPMorgan Insurance Trust Mid Cap Value Portfolio | • Prospectus dated May 1, 2022 (Accession No. 0001193125-22-104145);
• Supplement to the Prospectus dated December 19, 2022 (Accession No. 0001193125-22-308055) | |
JPMorgan Insurance Trust Small Cap Core Portfolio | • Prospectus dated May 1, 2022 (Accession No. 0001193125-22-104145);
• Supplement to the Prospectus dated December 19, 2022 (Accession No. 0001193125-22-308055) | |
JPMorgan Insurance Trust U.S. Equity Portfolio | • Prospectus dated May 1, 2022 (Accession No. 0001193125-22-104145);
• Supplement to the Prospectus dated December 19, 2022 (Accession No. 0001193125-22-308055) |
35
COMPARISON OF FUNDAMENTAL INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions for | Fundamental Investment Restrictions | Material Differences | ||
Each JPMorgan Portfolio, except for the JPMorgan Insurance Trust Small Cap Core Portfolio, may not purchase securities of any issuer (except securities issued or guaranteed by the United States, its agencies or instrumentalities and repurchase agreements involving such securities) if as a result more than 5% of the total assets of the Fund would be invested in the securities of such issuer or the Fund would own more than 10% of the outstanding voting securities of such issuer. This restriction applies to 75% of the Fund’s assets. For purposes of this limitation, a security is considered to be issued by the government entity whose assets and revenues guarantee or back the security. With respect to private activity bonds or industrial development bonds backed only by the assets and revenues of a nongovernmental user, such user would be considered the issuer.
The JPMorgan Insurance Trust Small Cap Core Portfolio may not purchase securities of any issuer if such purchase would not be consistent with the maintenance of the Portfolio’s status as a diversified company under the 1940 Act, or the rules or regulations thereunder, as such statute, rules or regulations may be amended from time to time. | Each Acquiring Fund may not, 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 | None | ||
Each JPMorgan Portfolio may not purchase any securities which would cause more than 25% of the total assets of the Fund to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that this limitation does not apply to investments in the obligations issued or guaranteed by the U.S. Government or its agencies and instrumentalities and repurchase | Each Acquiring Fund may not 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. | None
The JPMorgan Portfolios’ policy includes further detail regarding certain industry classifications. |
36
Fundamental Investment Restrictions for | Fundamental Investment Restrictions | Material Differences | ||
agreements involving such securities. For purposes of this limitation (i) utility companies will be divided according to their services, for example, gas, gas transmission, electric and telephone will each be considered a separate industry; and (ii) wholly-owned finance companies will be considered to be in the industries of their parents if their activities are primarily related to financing the activities of their parents. | Government, its agencies or instrumentalities, or in tax-exempt securities or certificates of deposit. | |||
Each JPMorgan Portfolio may not (i) purchase physical commodities or contracts relating to physical commodities, except as permitted under the 1940 Act, or (ii) operate as a commodity pool, in each case, as interpreted or modified by regulatory authority having jurisdiction, from time to time. | Each Acquiring Fund may not 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. | None
The JPMorgan Portfolios’ policy may considered more restrictive in that it specifically prohibits each JPMorgan Portfolio from operating as a commodity pool. | ||
Each JPMorgan Portfolio may not purchase or sell real estate (however, each Fund may, to the extent appropriate to its investment objective, purchase securities secured by real estate or interests therein or securities issued by companies investing in real estate or interests therein). | Each Acquiring Fund may not 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. | None | ||
Each JPMorgan Portfolio may not borrow money or issue senior securities, except to the extent permitted under the 1940 Act, or the rules or regulations thereunder, as such statute, rules or regulations may be amended from time to time, or as permitted by order or interpretation of the SEC. | Each Acquiring Fund may not borrow money or issue senior securities, except as the 1940 Act, any rule or order thereunder, or official interpretation thereof, may permit. | None |
37
Fundamental Investment Restrictions for | Fundamental Investment Restrictions | Material Differences | ||
Each JPMorgan Portfolio may not underwrite the securities of other issuers except to the extent that a Fund may be deemed to be an underwriter under certain securities laws in the disposition of “restricted securities.” | Each Acquiring Fund may not 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. | None | ||
Each JPMorgan Portfolio, except the JPMorgan Insurance Trust Small Cap Core Portfolio, may not purchase participations or other direct interests in oil, gas or mineral exploration or development programs (although investments by the Fund in marketable securities of companies engaged in such activities are not hereby precluded). | N/A | The JPMorgan Portfolios (except the JPMorgan Insurance Trust Small Cap Core Portfolio) have a fundamental investment restriction prohibiting the purchase of participations or other direct interests in oil, gas or mineral exploration or development programs, while the Acquiring Funds do not have an analogous policy. | ||
Each JPMorgan Portfolio, except the JPMorgan Insurance Trust Small Cap Core Portfolio, may not purchase securities of other investment companies except as permitted by the 1940 Act and the rules and regulations thereunder. | N/A | The JPMorgan Portfolios (except the JPMorgan Insurance Trust Small Cap Core Portfolio) have a fundamental investment restriction prohibiting the purchase of securities of other investment companies except as permitted by the 1940 Act and the rules and regulations thereunder, while the Acquiring Funds do not have an analogous policy. | ||
Each JPMorgan Portfolio, except the JPMorgan Insurance Trust Small Cap Core Portfolio, may not purchase securities on margin or sell securities short. | N/A | The JPMorgan Portfolios (except the JPMorgan Insurance Trust Small Cap Core Portfolio) have a fundamental investment restriction prohibiting the purchase of securities on margin or selling securities short, while the Acquiring Funds do not have an analogous policy. | ||
Each JPMorgan Portfolio, except the JPMorgan Insurance Trust Small Cap Core Portfolio, may not make loans, except that a Fund may (i) purchase or hold debt instruments in accordance with its investment | Each Acquiring Fund may not make loans of any security or make any other loan if, as a result, more than 33 1/3% of its total assets would be lent to other parties, provided that this | The Acquiring Funds may make loans up to 33 1/3% of their assets, while the JPMorgan Portfolios, except the JPMorgan Insurance Trust Small Cap Core Portfolio, may not make loans |
38
Fundamental Investment Restrictions for | Fundamental Investment Restrictions | Material Differences | ||
objectives and policies; (ii) enter into repurchase agreements; and (iii) engage in securities lending as described in the Prospectus and in the Statement of Additional Information.
The JPMorgan Insurance Trust Small Cap Core Portfolio may make loans to other persons in accordance with the Portfolio’s investment objectives and policies and to the extent permitted by applicable law. | limitation does not apply to purchases of debt obligations, to repurchase agreements, and to investments in loans, including assignments and participation interests. | except in the stipulated circumstances. The 33 1/3% limitation is intended to set out the extent generally permitted by applicable law, which is similar to the policy of the JPMorgan Insurance Trust Small Cap Core Portfolio. In addition, the fundamental policies of the Acquiring Funds do not address securities lending. | ||
The investment objective for each of the JPMorgan Insurance Trust Core Bond Portfolio and the JPMorgan Trust Mid Cap Value Portfolio is fundamental.
As a matter of fundamental policy, the JPMorgan Insurance Trust Core Bond Portfolio will invest at least 80% of its net assets in bonds. | N/A | JPMorgan Insurance Trust Core Bond Portfolio and the JPMorgan Trust Mid Cap Value Portfolio have fundamental investment policies regarding their investment objectives and, with respect to JPMorgan Insurance Trust Core Bond Portfolio, its 80% policy. The corresponding Acquiring Funds’ policies are non-fundamental and therefore may be changed without a shareholder vote. |
39
COMPARISON OF INVESTMENT OBJECTIVES AND PRINCIPAL INVESTMENT STRATEGIES
JPMorgan Insurance Trust Core | LVIP JPMorgan Core Bond Fund | Material Differences | ||||
Investment Objective | seeks to maximize total return by investing primarily in a diversified portfolio of intermediate- and long-term debt securities. | seeks to maximize total return by investing primarily in a diversified portfolio of intermediate- and long-term debt securities. | None | |||
Principal Investment Strategies | The Fund is designed to maximize total return by investing in a portfolio of investment grade intermediate- and long-term debt securities. As part of its main investment strategy, the Fund may principally invest in corporate bonds, U.S. treasury obligations including treasury coupon strips and treasury principal strips and other U.S. government and agency securities, and asset-backed, mortgage-related and mortgage-backed securities. Mortgage-related and mortgage-backed securities may be structured as collateralized mortgage obligations (agency and non-agency), stripped mortgage-backed securities, commercial mortgage-backed securities, mortgage pass-through securities and cash and cash equivalents. These securities may be structured such that payments consist of interest-only (IO), principal-only (PO) or principal and interest.
As a matter of fundamental policy, the Fund will invest at least 80% of its net assets in bonds. For purposes of this policy, net assets include the amount of borrowings for investment purposes. Generally, such bonds will have intermediate to long maturities. The Fund’s average weighted maturity will ordinarily range between four and 12 years. The Fund may have a longer or shorter average weighted maturity under certain market conditions and the Fund may shorten or lengthen its average weighted maturity if deemed appropriate for temporary defensive purposes. Because of the Fund’s holdings in asset-backed, mortgage-backed and similar securities, the Fund’s average weighted maturity is | The Fund is designed to maximize total return by investing in a portfolio of investment grade intermediate- and long-term debt securities. As part of its main investment strategy, the Fund may principally invest in corporate bonds, U.S. treasury obligations including treasury coupon strips and treasury principal strips and other U.S. government and agency securities, and asset-backed, mortgage-related and mortgage-backed securities. Mortgage-related and mortgage-backed securities may be structured as collateralized mortgage obligations (agency and non-agency), stripped mortgage-backed securities, commercial mortgage-backed securities, mortgage pass-through securities and cash and cash equivalents. These securities may be structured such that payments consist of interest-only (IO), principal-only (PO) or principal and interest.
Under normal circumstances, the Fund will invest at least 80% of its net assets in bonds. For purposes of this policy, net assets include the amount of borrowings for investment purposes. Generally, such bonds will have intermediate to long maturities. The Fund’s average weighted maturity will ordinarily range between four and 12 years. The Fund may have a longer or shorter average weighted maturity under certain market conditions and the Fund may shorten or lengthen its average weighted maturity if deemed appropriate for temporary defensive purposes. Because of the Fund’s holdings in asset-backed, mortgage-backed and similar securities, the Fund’s average weighted maturity is | None, the principal investment strategies are materially the same.
The language describing the principal risks differs in some respects but the risks of investing in the Funds are materially the same. |
40
JPMorgan Insurance Trust Core | LVIP JPMorgan Core Bond Fund | Material Differences | ||||
equivalent to the average weighted maturity of the cash flows in the securities held by the Fund given certain prepayment assumptions (also known as weighted average life).
Securities will be rated investment grade (or the unrated equivalent) at the time of purchase. In addition, all securities will be U.S. dollar-denominated although they may be issued by a foreign corporation or a U.S. affiliate of a foreign corporation or a foreign government or its agencies and instrumentalities. J.P. Morgan Investment Management Inc. (JPMIM or the adviser) may invest a significant portion or all of the Fund’s assets in mortgage-related and mortgage-backed securities in the adviser’s discretion. The Fund expects to invest no more than 10% of its assets in “sub-prime” mortgage-related securities at the time of purchase.
The adviser buys and sells securities and investments for the Fund based on its view of individual securities and market sectors. Taking a long-term approach, the adviser looks for individual fixed income investments that it believes will perform well over market cycles. The adviser is value oriented and makes decisions to purchase and sell individual securities and instruments after performing a risk/reward analysis that includes an evaluation of interest rate risk, credit risk, duration, liquidity, legal provisions and the structure of the transaction. As part of its security selection process, the adviser seeks to assess the impact of environmental, social and governance factors on certain issuers in the universe in which the Fund may invest. The adviser’s assessment is based on an analysis of key opportunities and risks across industries to identify financially material issues on the Fund’s | equivalent to the average weighted maturity of the cash flows in the securities held by the Fund given certain prepayment assumptions (also known as weighted average life).
Securities will be rated investment grade (or the unrated equivalent) at the time of purchase. In addition, all securities will be U.S. dollar-denominated although they may be issued by a foreign corporation or a U.S. affiliate of a foreign corporation or a foreign government or its agencies and instrumentalities. J.P. Morgan Investment Management Inc. (JPMIM or the sub-adviser) may invest a significant portion or all of the Fund’s assets in mortgage-related and mortgage-backed securities in the adviser’s discretion. The Fund expects to invest no more than 10% of its assets in “sub-prime” mortgage-related securities at the time of purchase.
The sub-adviser buys and sells securities and investments for the Fund based on its view of individual securities and market sectors. Taking a long-term approach, the sub-adviser looks for individual fixed income investments that it believes will perform well over market cycles. The sub-adviser is value oriented and makes decisions to purchase and sell individual securities and instruments after performing a risk/reward analysis that includes an evaluation of interest rate risk, credit risk, duration, liquidity, legal provisions and the structure of the transaction. As part of its security selection process, the sub-adviser seeks to assess the impact of environmental, social and governance factors on certain issuers in the universe in which the Fund may invest. The sub-adviser’s assessment is based on an analysis of key opportunities and risks across industries to identify financially |
41
JPMorgan Insurance Trust Core | LVIP JPMorgan Core Bond Fund | Material Differences | ||||
investments in issuers and ascertain key issues that merit engagement with issuers. These assessments may not be conclusive and securities of issuers that may be negatively impacted by such factors may be purchased and retained by the Fund while the Fund may divest or not invest in securities of issuers that may be positively impacted by such factors.
An investment objective is fundamental if it cannot be changed without the consent of a majority of the outstanding shares of the Fund. The investment objective for the Fund is fundamental.
The Fund’s 80% policy is fundamental and may not be changed without shareholder approval. | material issues with respect to the Fund’s investments in issuers and ascertain key issues that merit engagement with issuers. These assessments may not be conclusive and securities of issuers that may be negatively impacted by such factors may be purchased and retained by the Fund while the Fund may divest or not invest in securities of issuers that may be positively impacted by such factors.
The Fund’s investment objectives are not fundamental. This means that the Fund’s Board of Trustees (Board) may change the Fund’s objectives without obtaining shareholder approval. If the objectives were changed, the Fund would notify shareholders at least 60 days before the change became effective.
The Fund’s 80% policy is not fundamental and may be changed without shareholder approval. Fund shareholders would be given at least 60 days’ notice prior to any such change. |
JPMorgan Insurance Trust Mid Cap Value Portfolio | LVIP JPMorgan Mid Cap Value Fund | Material Differences | ||||
Investment Objective | seeks capital appreciation with the secondary goal of achieving current income by investing primarily in equity securities. | seeks capital appreciation with the secondary goal of achieving current income by investing primarily in equity securities. | None | |||
Principal Investment Strategies | Under normal circumstances, at least 80% of the Fund’s Assets will be invested in equity securities of mid cap companies. “Assets” means net assets, plus the amount of borrowings for investment purposes. Mid cap companies are companies with market capitalizations equal to those within the universe of the Russell Midcap Value Index and/or between $1 billion and $20 billion at the time of purchase. As of the reconstitution of the Russell Midcap Value Index on March 31, 2022, the market capitalizations of the companies in the index ranged from $60.35 billion to $8.06 million. In implementing its | Under normal circumstances, at least 80% of the Fund’s Assets will be invested in equity securities of mid cap companies. “Assets” means net assets, plus the amount of borrowings for investment purposes. Mid cap companies are companies with market capitalizations equal to those within the universe of the Russell Midcap Value Index and/or between $1 billion and $20 billion at the time of purchase. As of the reconstitution of the Russell Midcap Value Index on March 31, 2022, the market capitalizations of the companies in the index ranged from $60.35 billion to $8.06 million. In implementing its | None, the principal investment strategies are materially the same.
The language describing the principal risks differs in some respects but the risks of investing in the Funds themselves are materially the same. |
42
JPMorgan Insurance Trust Mid Cap Value Portfolio | LVIP JPMorgan Mid Cap Value Fund | Material Differences | ||||
main strategies, the Fund’s investments are primarily in common stocks and real estate investment trusts (REITs).
Derivatives, which are instruments that have a value based on another instrument, exchange rate or index, may be used as substitutes for securities in which the Fund can invest. To the extent the Fund uses derivatives, the Fund will primarily use futures contracts to more effectively gain targeted equity exposure from its cash positions.
Investment Process: In managing the Fund, J.P. Morgan Investment Management Inc. (JPMIM or the adviser) employs a bottom-up approach to stock selection, constructing portfolios based on company fundamentals, quantitative screening and proprietary fundamental analysis. The adviser looks for quality companies, which appear to be undervalued and to have the potential to grow intrinsic value per share. Quality companies generally have a sustainable competitive position, relatively lower levels of business cyclicality, high returns on invested capital and strong experienced management teams. As part of its investment process, the adviser seeks to assess the impact of environmental, social and governance factors on the companies in which the Fund invests. The adviser’s assessment is based on a proprietary analysis of key opportunities and risks across industries to seek to identify financially material issues on the Fund’s investments in securities and ascertain key issues that merit engagement with company management. These assessments may not be conclusive and securities of companies may be purchased and retained by the Fund for reasons other than material ESG factors. | main strategies, the Fund’s investments are primarily in common stocks and real estate investment trusts (REITs).
Derivatives, which are instruments that have a value based on another instrument, exchange rate or index, may be used as substitutes for securities in which the Fund can invest. To the extent the Fund uses derivatives, the Fund will primarily use futures contracts to more effectively gain targeted equity exposure from its cash positions.
Investment Process: In managing the Fund, J.P. Morgan Investment Management Inc. (JPMIM or the sub-adviser) employs a bottom-up approach to stock selection, constructing portfolios based on company fundamentals, quantitative screening and proprietary fundamental analysis. The sub-adviser looks for quality companies, which appear to be undervalued and to have the potential to grow intrinsic value per share. Quality companies generally have a sustainable competitive position, relatively lower levels of business cyclicality, high returns on invested capital and strong experienced management teams. As part of its investment process, the sub-adviser seeks to assess the impact of environmental, social and governance (ESG) factors on many issuers in the universe in which the Fund invests. The sub-adviser’s assessment is based on an analysis of key opportunities and risks across industries to seek to identify financially material issues with respect to the Fund’s investments in securities and ascertain key issues that merit engagement with issuers. These assessments may not be conclusive and securities of issuers may be purchased and retained by the |
43
JPMorgan Insurance Trust Mid Cap Value Portfolio | LVIP JPMorgan Mid Cap Value Fund | Material Differences | ||||
The adviser may sell a security for several reasons. A security may be sold due to a change in the company’s fundamentals or if the adviser believes the security is no longer attractively valued. Investments may also be sold if the adviser identifies a stock that it believes offers a better investment opportunity.
The Fund’s 80% policy is not fundamental and may be changed without shareholder approval. Fund shareholders would be given at least 60 days’ notice prior to any such change.
An investment objective is fundamental if it cannot be changed without the consent of a majority of the outstanding shares of the Fund. The investment objective for the Fund is fundamental. | Fund for reasons other than material ESG factors while the Fund may divest or not invest in securities of issuers that may be positively impacted by such factors.
The sub-adviser may sell a security for several reasons. A security may be sold due to a change in the company’s fundamentals or if the sub-adviser believes the security is no longer attractively valued. Investments may also be sold if the sub-adviser identifies a stock that it believes offers a better investment opportunity.
The Fund’s 80% policy is not fundamental and may be changed without shareholder approval. Fund shareholders would be given at least 60 days’ notice prior to any such change.
The investment objective for the Fund is not fundamental and may be changed without the consent of a majority of the outstanding shares of the Fund. |
JPMorgan Insurance Trust Small Cap Core Portfolio | LVIP JPMorgan Small Cap Core Fund | Material Differences | ||||
Investment Objective | seeks capital growth over the long term. | seeks capital growth over the long term. | None | |||
Principal Investment Strategies | Under normal circumstances, the Fund invests at least 80% of its Assets in equity securities of small cap companies. “Assets” means net assets, plus the amount of borrowings for investment purposes. Small cap companies are companies with market capitalizations equal to those within the universe of the Russell 2000® Index at the time of purchase. As of the reconstitution of the Russell 2000 Index on March 31, 2022, the market capitalizations of the companies in the index ranged from $4.47 million to $14.04 billion. Sector by sector, the Fund’s weightings are similar to those of the Russell 2000 Index. The Fund can moderately underweight or | Under normal circumstances, the Fund invests at least 80% of its Assets in equity securities of small cap companies. “Assets” means net assets, plus the amount of borrowings for investment purposes. Small cap companies are companies with market capitalizations equal to those within the universe of the Russell 2000® Index at the time of purchase. As of the reconstitution of the Russell 2000 Index on March 31, 2022, the market capitalizations of the companies in the index ranged from $4.47 million to $14.04 billion. Sector by sector, the Fund’s weightings are similar to those of the Russell 2000 Index. The Fund can moderately underweight or | None, the principal investment strategies are materially the same.
The language describing the principal risks differs in some respects but the risks of investing in the Funds themselves are materially the same. |
44
JPMorgan Insurance Trust Small Cap Core Portfolio | LVIP JPMorgan Small Cap Core Fund | Material Differences | ||||
overweight sectors when it believes it will benefit performance. In implementing its main strategies, the Fund’s investments are primarily in common stocks and real estate investment trusts (REITs).
Derivatives, which are instruments that have a value based on another instrument, exchange rate or index, may be used as substitutes for securities in which the Fund can invest. The Fund may use futures contracts to gain or reduce exposure to its index, maintain liquidity and minimize transaction costs. In managing cash flows, the Fund buys futures contracts to invest incoming cash in the market or sells futures contracts in response to cash outflows, thereby gaining market exposure to the index while maintaining a cash balance for liquidity.
Investment Process: The Fund pursues returns that exceed those of the Russell 2000 Index while seeking to limit its volatility relative to this index. In managing the Fund, J.P. Morgan Investment Management, Inc. (JPMIM or the adviser) employs a process that ranks stocks based on its proprietary stock ranking system. The rankings are then reviewed and adjusted utilizing fundamental research conducted by the investment team to enhance accuracy and consistency. The adjusted rankings are used to place stocks into portfolios. As part of its investment process, the adviser seeks to assess the impact of environmental, social and governance factors on the companies in which the Fund invests. The adviser’s assessment is based on a proprietary analysis of key opportunities and risks across industries to seek to identify financially material issues on the Fund’s investments in securities and ascertain key issues that merit | overweight sectors when it believes it will benefit performance. In implementing its main strategies, the Fund’s investments are primarily in common stocks and real estate investment trusts (REITs).
Derivatives, which are instruments that have a value based on another instrument, exchange rate or index, may be used as substitutes for securities in which the Fund can invest. The Fund may use futures contracts to gain or reduce exposure to its index, maintain liquidity and minimize transaction costs. In managing cash flows, the Fund buys futures contracts to invest incoming cash in the market or sells futures contracts in response to cash outflows, thereby gaining market exposure to the index while maintaining a cash balance for liquidity.
Investment Process: The Fund pursues returns that exceed those of the Russell 2000 Index while seeking to limit its volatility relative to this index. In managing the Fund, J.P. Morgan Investment Management, Inc. (JPMIM or the sub-adviser) employs a process that ranks stocks based on its proprietary stock ranking system. The rankings are then reviewed and adjusted utilizing fundamental research conducted by the investment team to enhance accuracy and consistency. The adjusted rankings are used to place stocks into portfolios. As part of its investment process, the sub-adviser seeks to assess the impact of environmental, social and governance (ESG) factors on many issuers in the universe in which the Fund invests. The sub-adviser’s assessment is based on an analysis of key opportunities and risks across industries to seek to identify financially material issues with respect to the Fund’s investments in |
45
JPMorgan Insurance Trust Small Cap Core Portfolio | LVIP JPMorgan Small Cap Core Fund | Material Differences | ||||
engagement with company management. These assessments may not be conclusive and securities of companies may be purchased and retained by the Fund for reasons other than material ESG factors. In general, stocks are purchased when they are among the top ranked within their sector. Stocks become candidates for sale when their ranking falls, when they appear unattractive or when the company is no longer a small cap company. The Fund may continue to hold the securities if it believes further substantial growth is possible. Risk factor exposures are managed through portfolio construction. Fund constraints control for sector weights, position sizes and/or style characteristics of the Fund.
The Fund’s 80% policy is not fundamental and may be changed without shareholder approval. Fund shareholders would be given at least 60 days’ notice prior to any such change.
The investment objective for the Fund is not fundamental and may be changed without the consent of a majority of the outstanding shares of the Fund. | securities and ascertain key issues that merit engagement with issuers. These assessments may not be conclusive and securities of issuers may be purchased and retained by the Fund for reasons other than material ESG factors while the Fund may divest or not invest in securities of issuers that may be positively impacted by such factors. In general, stocks are purchased when they are among the top ranked within their sector. Stocks become candidates for sale when their ranking falls, when they appear unattractive or when the company is no longer a small cap company. The Fund may continue to hold the securities if it believes further substantial growth is possible. Risk factor exposures are managed through portfolio construction. Fund constraints control for sector weights, position sizes and/or style characteristics of the Fund.
The Fund’s 80% policy is not fundamental and may be changed without shareholder approval. Fund shareholders would be given at least 60 days’ notice prior to any such change.
The investment objective for the Fund is not fundamental and may be changed without the consent of a majority of the outstanding shares of the Fund. |
JPMorgan Insurance Trust U.S. Equity Portfolio | LVIP JPMorgan U.S. Equity Fund | Material Differences | ||||
Investment Objective | seeks to provide high total return from a portfolio of selected equity securities. | seeks to provide high total return from a portfolio of selected equity securities. | None | |||
Principal Investment Strategies | Under normal circumstances, the Fund invests at least 80% of its Assets in equity securities of U.S. companies. “Assets” means net assets, plus the amount of borrowings for investment purposes. In implementing its strategy, the Fund primarily invests in common stocks of large- and mid-capitalization U.S. companies but it may also invest | Under normal circumstances, the Fund invests at least 80% of its Assets in equity securities of U.S. companies. “Assets” means net assets, plus the amount of borrowings for investment purposes. In implementing its strategy, the Fund primarily invests in common stocks of large- and mid-capitalization U.S. companies but it may also invest | None, the principal investment strategies are materially the same.
The language describing the |
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JPMorgan Insurance Trust U.S. Equity Portfolio | LVIP JPMorgan U.S. Equity Fund | Material Differences | ||||
up to 20% of its Assets in common stocks of foreign companies, including depositary receipts. Depositary receipts are financial instruments representing a foreign company’s publicly traded securities. A depositary receipt trades on a stock exchange in a country different from the company’s local market.
The Fund focuses on those equity securities that it considers attractively valued and seeks to outperform the Benchmark through superior stock selection. By emphasizing attractively valued equity securities, the Fund seeks to produce returns that exceed those of the Benchmark.
Derivatives, which are instruments that have a value based on another instrument, exchange rate or index, may be used as substitutes for securities in which the Fund can invest. To the extent the Fund uses derivative, the Fund will primarily use futures contracts to more effectively gain targeted equity exposure from its cash positions.
An issuer of a security will be deemed to be located in the United States if: (i) the principal trading market for the security is in the United States, (ii) the issuer is organized under the laws of the United States, or (iii) the issuer derives at least 50% of its revenues or profits from the United States or has at least 50% of its total assets situated in the United States.
Investment Process: In managing the Fund, J.P. Morgan Investment Management, Inc. (JPMIM or the adviser) employs a three-step process that combines research, valuation and stock selection. The adviser takes an in-depth look at company prospects over a period as long as five years, which is designed to provide insight into a company’s real growth potential. The research findings allow | up to 20% of its Assets in common stocks of foreign companies, including depositary receipts. Depositary receipts are financial instruments representing a foreign company’s publicly traded securities. A depositary receipt trades on a stock exchange in a country different from the company’s local market.
The Fund focuses on those equity securities that it considers attractively valued and seeks to outperform the Benchmark through superior stock selection. By emphasizing attractively valued equity securities, the Fund seeks to produce returns that exceed those of the Benchmark.
Derivatives, which are instruments that have a value based on another instrument, exchange rate or index, may be used as substitutes for securities in which the Fund can invest. To the extent the Fund uses derivative, the Fund will primarily use futures contracts to more effectively gain targeted equity exposure from its cash positions.
An issuer of a security will be deemed to be located in the United States if: (i) the principal trading market for the security is in the United States, (ii) the issuer is organized under the laws of the United States, or (iii) the issuer derives at least 50% of its revenues or profits from the United States or has at least 50% of its total assets situated in the United States.
Investment Process: In managing the Fund, J.P. Morgan Investment Management, Inc. (JPMIM or the sub-adviser) employs a three-step process that combines research, valuation and stock selection. The sub-adviser takes an in-depth look at company prospects, which is designed to provide insight into a company’s real growth potential. The research findings allow the adviser to rank the companies | principal risks differs in some respects but the risks of investing in the Funds themselves are materially the same. |
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JPMorgan Insurance Trust U.S. Equity Portfolio | LVIP JPMorgan U.S. Equity Fund | Material Differences | ||||
the adviser to rank the companies in each sector group according to what it believes to be their relative value. As part of its investment process, the adviser seeks to assess the impact of environmental, social and governance factors on the companies in which the Fund invests. The adviser’s assessment is based on a proprietary analysis of key opportunities and risks across industries to seek to identify financially material issues on the Fund’s investments in securities and ascertain key issues that merit engagement with company management. These assessments may not be conclusive and securities of companies may be purchased and retained by the Fund for reasons other than material ESG factors.
On behalf of the Fund, the adviser then buys and sells equity securities, using the research and valuation rankings as a basis. In general, the adviser buys equity securities that are identified as attractively valued and considers selling them when they appear to be overvalued. Along with attractive valuation, the adviser often considers a number of other criteria:
• catalysts that could trigger a rise in a stock’s price
• high potential reward compared to potential risk
• temporary mispricings caused by apparent market overreactions.
The Fund’s 80% policy is not fundamental and may be changed without shareholder approval. Fund shareholders would be given at least 60 days’ notice prior to any such change.
The investment objective for the Fund is not fundamental and may be changed without the consent of a majority of the outstanding shares of the Fund. | in each sector group according to their relative value. As part of its investment process, the sub-adviser seeks to assess the impact of environmental, social and governance (ESG) factors on many issuers in the universe in which the Fund invests. The sub-adviser’s assessment is based on an analysis of key opportunities and risks across industries to seek to identify financially material issues with respect to the Fund’s investments in securities and ascertain key issues that merit engagement with issuers. These assessments may not be conclusive and securities of issuers may be purchased and retained by the Fund for reasons other than material ESG factors while the Fund may divest or not invest in securities of issuers that may be positively impacted by such factors.
On behalf of the Fund, the sub-adviser then buys and sells equity securities, using the research and valuation rankings as a basis. In general, the sub-adviser buys equity securities that are identified as attractively valued and considers selling them when they appear to be overvalued. Along with attractive valuation, the adviser often considers a number of other criteria:
• catalysts that could trigger a rise in a stock’s price
• high potential reward compared to potential risk
• temporary mispricings caused by apparent market overreactions.
The Fund’s 80% policy is not fundamental and may be changed without shareholder approval. Fund shareholders would be given at least 60 days’ notice prior to any such change.
The investment objective for the Fund is not fundamental and may be changed without the consent of a majority of the outstanding shares of the Fund. |
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FORM OF AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (“Agreement”) is adopted as of this [ ] day of [ ], 2022 by and among: (i) JPMorgan Insurance Trust (the “Target Entity”), an open-end registered investment company, separately, where applicable, on behalf of its respective series identified on Exhibit A hereto (each a “Target Fund”); and (ii) Lincoln Variable Insurance Products Trust, an open-end registered investment company (the “Acquiring Entity”), separately, where applicable, on behalf of its respective series identified on Exhibit A hereto (each an “Acquiring Fund”). J.P. Morgan Investment Management Inc. (“JPMIM”) joins this Agreement solely for purposes of Sections 1.2(f), 5.1(a), 9.2, 14, 16.3, 17.2, and 17.3. Lincoln Investment Advisors Corporation (“LIAC”) joins this agreement solely for purposes of Sections 1.2(f), 5.1(a), 9.2, 14, 16.3, 17.2, and 17.3.
WHEREAS, the parties hereto intend for each Acquiring Fund and the corresponding Target Fund (as set forth in Exhibit A hereto) to enter into a transaction pursuant to which: (i) the Acquiring Fund will acquire the Assets and Liabilities (as each such term is defined in Section 1.2) of the Target Fund in exchange for the corresponding class or classes of shares (as applicable) of the Acquiring Fund of equal value to the Net Assets (as defined in Section 1.2(c)) of the Target Fund being acquired, and (ii) the Target Fund will distribute such shares of the Acquiring Fund to shareholders of the corresponding class of the Target Fund, in connection with the liquidation of the Target Fund, all upon the terms and conditions hereinafter set forth in this Agreement (each such transaction, a “Reorganization” and collectively, the “Reorganizations”). Each Acquiring Fund is, and will be immediately prior to Closing (defined in Section 3.1), a shell series, without assets or liabilities, created solely for the purpose of acquiring the Assets and Liabilities of the Target Fund;
WHEREAS, each Target Entity and each Acquiring Entity is an open-end, registered investment company of the management type; and
WHEREAS, this Agreement is intended to be and is adopted as a plan of reorganization and liquidation with respect to each Reorganization within the meaning of Section 368(a)(1)(C) of the United States Internal Revenue Code of 1986, as amended (“Code”).
NOW, THEREFORE, in consideration of the premises and of the covenants and agreements hereinafter set forth, the parties hereto covenant and agree as follows:
1. | DESCRIPTION OF THE REORGANIZATIONS |
1.1. The parties hereto intend that each Reorganization described herein shall be conducted separately of the others, and a party that is not a party to a Reorganization shall incur no obligations, duties or liabilities with respect to such Reorganization by reason of being a party to this Agreement. If any one or more Reorganizations should fail to be consummated, such failure shall not affect the other Reorganizations in any way.
1.2. Provided that all conditions precedent to a Reorganization set forth herein have been satisfied or, to the extent legally permissible, waived as of the Closing Time (defined in Section 3.1), and based on the representations and warranties each party provides to the others, the Target Entity and the Acquiring Entity agree to take the following steps with respect to their Reorganization(s), the parties to which and classes of shares to be issued in connection with which are set forth in Exhibit A:
(a) The Target Fund shall transfer all of its Assets, as defined and set forth in Section 1.2(b), to the Acquiring Fund, and the Acquiring Fund in exchange therefor shall assume the Liabilities, as defined and set forth in Section 1.2(c), and deliver to the Target Fund the number of full and fractional Acquiring Fund shares determined in the manner set forth in Section 2.
(b) The assets of the Target Fund to be transferred to the Acquiring Fund shall consist of all assets and property, including, without limitation, all rights, cash, securities, commodities and futures interests,
49
forwards, swaps and other financial instruments, claims (whether absolute or contingent, known or unknown, accrued or unaccrued and including, without limitation, any interest in pending or future legal claims in connection with past or present portfolio holdings, whether in the form of class action claims, opt- out or other direct litigation claims, or regulator or government-established investor recovery fund claims, and any and all resulting recoveries), receivables (including dividends, interest, principal, subscriptions and other receivables), goodwill and other intangible property, and choses in action, copies of all books and records belonging to the Target Fund (including all books and records required to be maintained under the Investment Company Act of 1940, as amended (the “1940 Act”)), any deferred or prepaid expenses shown as an asset on the books of the Target Fund as of the Closing Time, and all interests, rights, privileges and powers, other than the Target Fund’s rights under this Agreement on the Closing Date as defined in Section 2.1(a) (collectively, “Assets”). The Assets of the Target Fund shall be delivered to the Acquiring Fund free and clear of all liens, encumbrances, hypothecations and claims whatsoever, and there shall be no restrictions on the full transfer thereof, except as contemplated under Section 4.1(f).
(c) The Target Fund will use its best efforts to identify and discharge all known liabilities and obligations prior to the Closing Date (as defined in Section 2.1(a)) to the extent possible and consistent with its own investment objectives and policies and normal business operations, and prior to the Closing Date will have discharged such liabilities, including without limitation (i) liabilities arising from the Target Fund’s allocation of Target Entity obligations, such as any undischarged obligations to board members under a deferred compensation plan; (ii) any liabilities, costs or charges relating to fee waiver and expense reimbursement arrangements between the Target Funds and JPMIM and its affiliates (including any recoupment of any fees or expenses of the Target Funds previously waived or reimbursed); and, (iii) any liabilities or penalties resulting from the termination of material contracts or other commitments of the Target Funds, including the contracts listed on schedule 4.1(h). At the Closing, the Acquiring Fund shall assume all of the liabilities of the Target Fund set forth in the statement of Assets and Liabilities as of the Closing Date delivered by the Target Fund to the Acquiring Fund pursuant to paragraph 5.1(g) (collectively, “Liabilities”). The Assets minus the Liabilities of a Target Fund shall be referred to herein as the Target Fund’s “Net Assets.”
(d) As soon as is reasonably practicable after the Closing, the Target Fund will distribute to its shareholders of record (“Target Fund Shareholders”) the shares of the Acquiring Fund of the corresponding class received by the Target Fund pursuant to Section 1.2(a), as set forth in Exhibit A, on a pro rata basis within that class, and without further notice the outstanding shares of the Target Fund will be redeemed and cancelled as permitted by its Governing Documents (as defined in Section 4.1) and applicable law, and the Target Fund will as promptly as practicable completely liquidate and dissolve as permitted by its Governing Documents and applicable law. Such distribution to the Target Fund Shareholders and liquidation of the Target Fund will be accomplished, with respect to each class of the Target Fund’s shares, by the transfer of the Acquiring Fund’s shares of the corresponding class then credited to the account of the Target Fund on the books of the Acquiring Fund to open accounts on the share records of the Acquiring Fund in the names of the Target Fund Shareholders of the class. The aggregate net asset value of the Acquiring Fund’s shares to be so credited to the corresponding Target Fund Shareholders shall be equal to the aggregate net asset value of the corresponding Target Fund’s shares owned by the Target Fund Shareholders on the Closing Date. The Acquiring Fund shall not issue certificates representing shares in connection with such exchange.
(e) Ownership of the Acquiring Fund’s shares will be shown on its books, as such are maintained by the Acquiring Fund’s transfer agent.
(f) Beginning at least forty-five (45) business days prior to the Closing Date, the Target Fund will provide LIAC and the Acquiring Fund with a daily schedule of the Assets then held by the Target Fund, with current market values. At least thirty (30) business days prior to the Closing Date, and ten (10) business days prior to the Closing Date, LIAC, on behalf of the Acquiring Fund, will advise JPMIM and the Target Fund of any investments of the Target Fund shown on the Target Fund’s schedule of Assets that the Acquiring Fund would not be permitted to hold (i) under applicable law; or (ii) because the transfer of such investments would result in material operational or administrative difficulties (including relating to
50
valuation matters) to the Acquiring Fund in connection with facilitating the orderly transition of the Target Fund’s Assets to the Acquiring Fund. Under such circumstances, to the extent practicable, the Target Fund will, if requested by the Acquiring Fund and in the Target Fund’s discretion, to the extent permissible and consistent with its own investment objectives and policies and the fiduciary duties of the investment adviser responsible for the portfolio management of the Target Fund, make a good faith effort to liquidate such investments prior to the Closing Date. Notwithstanding the foregoing, nothing herein will permit or require the Target Fund to liquidate any Assets, if, in the reasonable judgment of the Target Entity’s board of trustees or the Target Fund’s investment adviser, such disposition would adversely affect the tax-free nature of the Reorganization for U.S. federal income tax purposes, or would adversely affect the Target Fund’s status as a “regulated investment company” under the Code or would otherwise not be in the best interests of the Target Fund.
(g) The Target Fund shall notify the Acquiring Fund of any portfolio security held by the Target Fund in other than book-entry form at least thirty (30) business days prior to the Closing Date.
(h) Any transfer taxes payable upon issuance of the Acquiring Fund’s shares in a name other than the registered holder of the Target Fund’s shares on the books and records of the Target Fund as of that time shall, as a condition of such issuance and transfer, be paid by the person to whom the Acquiring Fund’s shares are to be issued and transferred.
(i) Immediately after the Closing Time, the share transfer books relating to the Target Fund shall be closed and no transfer of shares shall thereafter be made on such books.
2. | VALUATION |
2.1. | With respect to each Reorganization: |
(a) The value of the Target Fund’s Assets shall be the value of such Assets computed as of immediately after the close of regular trading on the New York Stock Exchange (“NYSE”), which shall reflect the declaration of any dividends, on the Closing Date, using the valuation procedures set forth in the then-current prospectus for the Target Fund and the valuation procedures established by the Target Entity’s board of trustees. On the Closing Date, the Target Fund shall record the value of its Net Assets, as valued pursuant to this Section 2.1(a), on a valuation report (the “Valuation Report”) and deliver a copy of the Valuation Report to the Acquiring Fund by 7:00 p.m. (Eastern time) on the Closing Date, or as soon as practicable thereafter.
(b) The net asset value per share of each class of the Acquiring Fund shares issued in connection with the Reorganization shall be the net asset value per share of the corresponding class of the Target Fund as of the close of business on the Closing Date.
(c) The number of shares of each class of the Acquiring Fund (including fractional shares, if any, rounded to the nearest thousandth) issued in exchange for the Target Fund’s Net Assets shall equal the number of shares of the corresponding class of the Target Fund outstanding as of the Closing Date. All Acquiring Fund shares delivered to a Target Fund will be delivered at net asset value without the imposition of a sales load, commission, transaction fee or other similar fee.
(d) All computations of value shall be made by the Target Fund or its designated recordkeeping agent using the valuation procedures described in this Section 2 and shall be subject to review by the Acquiring Fund and/or its recordkeeping agent, and, if requested by either the Target Entity or the Acquiring Entity, by the independent registered public accountant of the requesting party.
3. | CLOSING AND CLOSING DATE |
3.1. Each Reorganization shall close on such date as the parties may mutually agree with respect to any or all Reorganizations (the “Closing Date”). All acts taking place at the closing of a Reorganization (“Closing”)
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shall, subject to the satisfaction or waiver of the conditions in this Agreement, be deemed to take place simultaneously as of the later of 7:01 p.m. Eastern time or the finalization of the applicable Target Fund’s net asset value on the Closing Date of that Reorganization, unless otherwise agreed to by the parties (the “Closing Time”). The Closing of each Reorganization shall be held in person, by facsimile, email or such other communication means as the parties may reasonably agree.
3.2. | With respect to each Reorganization: |
(a) The Target Fund’s portfolio securities, investments or other assets that are represented by a certificate or other written instrument shall be presented, transferred and delivered by the Target Fund’s custodian (the “Target Custodian”) as of the Closing Time to the Acquiring Fund’s custodian for the account of the Acquiring Fund duly endorsed in proper form for transfer and in such condition as to constitute good delivery thereof. The Target Fund shall direct the Target Custodian to deliver to the Acquiring Fund’s custodian as of the Closing Date by book entry, in accordance with the customary practices of Target Custodian and any securities depository (as defined in Rule 17f-4 under the 1940 Act), in which the Assets are deposited, the Target Fund’s portfolio securities and instruments so held. The Target Fund’s portfolio securities represented by a certificate or other written instrument shall be presented by the Target Custodian to the Acquiring Fund’s custodian. A draft of such presentation shall be made for examination no later than five (5) business days preceding the Closing Date, and such final certificates and other written instruments shall be transferred and delivered by the Target Custodian as of the Closing Time for the account of the Acquiring Fund duly endorsed in proper form for transfer in such condition as specified by the Acquiring Fund’s custodian so as to constitute good delivery thereof. The cash to be transferred by the Target Fund shall be delivered to the Acquiring Fund’s custodian by wire transfer of federal funds or other appropriate means on the Closing Date. If the Target Fund is unable to make such delivery on the Closing Date in the manner contemplated by this Section for the reason that any of such securities or other investments purchased prior to the Closing Date have not yet been delivered to the Target Fund or its broker, then the Acquiring Fund may, in its sole discretion, waive the delivery requirements of this Section with respect to the undelivered securities or other investments if the Target Fund has, by or on the Closing Date, delivered to the Acquiring Fund or its custodian executed copies of an agreement of assignment and escrow and due bills executed on behalf of said broker or brokers, together with such other documents as may be required by the Acquiring Fund or its custodian, such as brokers’ confirmation slips.
(b) The Target Entity shall direct the Target Custodian for the Target Fund to deliver, at the Closing or as soon as practicable thereafter, a certificate of an authorized officer stating that (i) except as permitted by Section 3.2(a), the Assets have been delivered in proper form to the Acquiring Fund no later than the Closing Time on the Closing Date, and (ii) all necessary Taxes (as defined below) in connection with the delivery of the Assets, including all applicable federal, state and foreign stock transfer stamps, if any, have been paid or provision for payment has been made. At the Closing, or as soon as practicable thereafter, the Acquiring Entity will cause the custodian for the Acquiring Fund to deliver a certificate of an authorized officer acknowledging that the Acquiring Fund has received the Target Fund portfolio securities, cash and any other Assets as of the final settlement date for such transfers.
(c) At such time prior to the Closing Date as the parties mutually agree, the Target Fund shall provide instructions and related information to the Acquiring Fund or its transfer agent with respect to the Target Fund Shareholders, including names, addresses, dividend reinvestment elections, if any, and tax withholding status of the Target Fund Shareholders as of the date agreed upon (such information to be updated as of the Closing Date, as necessary). The Acquiring Fund and its transfer agent shall have no obligation to inquire as to the validity, propriety or correctness of any such instruction, information or documentation, but shall, in each case, assume that such instruction, information or documentation is valid, proper, correct and complete.
(d) The Target Entity shall direct the transfer agent for a Target Fund (the “Target Transfer Agent”) to deliver to the Acquiring Fund at the Closing a certificate of an authorized officer stating that its records, as provided to the Acquiring Fund, contain the names and addresses of the Target Fund Shareholders and the
52
number of outstanding shares of each class owned by each such shareholder immediately prior to the Closing. At the Closing, each party shall deliver to the other such bills of sale, checks, assignments, certificates, if any, receipts or other documents as such other party or its counsel may reasonably request.
(e) In the event that on the Closing Date (i) the NYSE or another primary trading market for portfolio securities of the Target Fund (each, an “Exchange”) shall be closed to trading or trading thereupon shall be restricted, or (ii) trading or the reporting of trading on such Exchange or elsewhere shall be disrupted so that, in the judgment of the board of trustees of the Acquiring Entity or the Target Entity, or the authorized officers of such entities, accurate appraisal of the value of the net assets of the Acquiring Fund or the Target Fund, respectively, is impossible or impracticable, the Closing Date shall be postponed until the first business day after the day when trading shall have been fully resumed and reporting shall have been restored or such later dates as may be mutually agreed in writing by an authorized officer of each party.
4. | REPRESENTATIONS AND WARRANTIES |
4.1. The Target Entity, on behalf of itself or, where applicable a Target Fund, represents and warrants to the Acquiring Entity and Acquiring Fund as follows:
(a) The Target Entity is a voluntary association with transferable shares, of the type commonly referred to as a “Massachusetts business trust,” and is validly existing under the laws of the Commonwealth of Massachusetts with power under the Target Entity’s governing documents (including bylaws), as applicable (“Governing Documents”) and Massachusetts law, to own all of its Assets, to carry on its business as it is now being conducted and to enter into this Agreement and perform its obligations hereunder. The Target Fund is a duly established and designated separate series of the Target Entity;
(b) The Target Entity is a registered investment company classified as a management company of the open-end type, and its registration with the U.S. Securities and Exchange Commission (the “Commission”) as an investment company under the 1940 Act, and the registration of the shares of the Target Fund under the Securities Act of 1933, as amended (“1933 Act”), are in full force and effect, and will be in full force and effect on the Closing Date, and, to the knowledge of the Target Fund, no action or proceeding to revoke or suspend such registrations is pending, or threatened. All issued and outstanding shares of the Target Fund have been offered for sale in conformity in all material respects with applicable federal and state securities laws;
(c) No consent, approval, authorization, or order of any court or governmental authority or the Financial Industry Regulatory Authority (“FINRA”) is required for the consummation by the Target Fund and the Target Entity of the transactions contemplated herein, except such as have been obtained or will be obtained prior to the Closing Date under the 1933 Act, the Securities Exchange Act of 1934, as amended (“1934 Act”), the 1940 Act, and state securities or blue sky laws (which term as used herein shall include the laws of the District of Columbia and of Puerto Rico), each of which, as required, shall have been obtained on or prior to the Closing Date. No consent of or notice to any other third party or entity is required for the consummation by the Target Fund of the transactions contemplated by this Agreement;
(d) To the knowledge of the Target Fund, the current prospectus and statement of additional information and current shareholder reports of the Target Fund, and each prospectus and statement of additional information and shareholder reports of the Target Fund used at all times during the three (3) years prior to the date of this Agreement, conform or conformed at the time of its use in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations of the Commission thereunder and does not or did not at the time of its use include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not materially misleading;
(e) To the knowledge of the Target Fund, the Target Fund is in compliance in all material respects with, and during the three (3) years prior to the date of this Agreement was in compliance in all material respects with, the requirements of, and the rules and regulations under, the 1933 Act, the 1934 Act and the
53
1940 Act, state securities laws and all other applicable federal and state laws or regulations. To the knowledge of the Target Fund, (i) the Target Fund is in compliance in all material respects with, and during the three (3) years prior to the date of this Agreement was in compliance in all material respects with, its investment objectives, policies, guidelines and restrictions and compliance procedures, and (ii) the value of the Net Assets of the Target Fund is, and during such period was, determined using portfolio valuation methods that, in the reasonable judgment of the Target Fund, comply in all material respects with the requirements of the 1940 Act and the rules and regulations of the Commission thereunder and the pricing and valuation policies of the Target Fund, and (iii) there have been no material miscalculations of the net asset value of the Target Fund or the net asset value per share of the Target Fund (or any class thereof) during the twelve (12) month period preceding the date hereof that, individually or in the aggregate, would have a material adverse effect on the Target Fund or its Assets and that have not been remedied or will not be remedied prior to the Closing Date in accordance with industry practice, and all such calculations have been made in accordance with the applicable provisions of the 1940 Act. To the knowledge of the Target Fund, all advertising and sales material used by the Target Fund during the twelve (12) months prior to the date of this Agreement complied in all material respects, at the time such material was used, with applicable law and the rules and regulations of FINRA;
(f) Except as otherwise disclosed to and accepted, in writing, by or on behalf of the Acquiring Fund, the Target Fund will as of the Closing Time have good and marketable title to the Assets and full right, power, and authority to sell, assign, transfer and deliver such Assets free of adverse claims, including any liens or other encumbrances, and upon delivery and payment for such Assets, the Acquiring Fund will acquire good and marketable title thereto, free of adverse claims and subject to only those restrictions on the full transfer thereof as when they were held by the Target Fund, including, without limitation, such restrictions as might arise under the 1933 Act, provided that the Acquiring Fund will, as applicable, acquire assets that are segregated as collateral for the Target Fund’s derivative positions, including without limitation as collateral for swap positions and as margin for futures and options positions, subject to such segregation and liens that apply to such Assets;
(g) Except as otherwise disclosed to and accepted, in writing, by or on behalf of the Acquiring Fund, the Target Fund is not engaged currently, and the execution, delivery and performance of this Agreement will not result, in (i) a material violation of the Target Entity’s Governing Documents or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Target Fund or the Target Entity is a party or by which it is bound, or (ii) the acceleration of any obligation, or the imposition of any lien, encumbrance, penalty or additional fee under any agreement, indenture, instrument, contract, lease, judgment or decree to which the Target Fund or Target Entity is a party or by which it is bound;
(h) To the knowledge of the Target Fund, except as otherwise disclosed to and accepted, in writing, by or on behalf of the Acquiring Fund, all material contracts or other commitments of the Target Fund (other than this Agreement and certain investment contracts, including swap agreements, options, futures and forward contracts) will terminate or be terminated with respect to the Target Fund without liability to the Target Fund or may otherwise be assigned to the Acquiring Fund without the payment of any fee (penalty or otherwise) or acceleration of any obligations of the Target Fund on or prior to the Closing Date, provided that such assigned contracts are identified on Schedule 4.1(h);
(i) To the knowledge of the Target Fund, except as set forth on Schedule 4.1(i), no litigation or administrative proceeding or investigation of or before any court, tribunal, arbitrator, governmental body, regulatory agency or FINRA is presently pending or threatened against the Target Fund or Target Entity, and no such litigation, proceeding or investigation, if adversely determined, would materially and adversely affect the Target Fund’s financial condition or the conduct of its business or the Target Fund’s ability to consummate the transactions contemplated by this Agreement. The Target Fund and the Target Entity, without any special investigation or inquiry, know of no facts that might form the basis for the institution of such proceedings and neither the Target Entity nor the Target Fund is a party to or subject to the provisions of any order, decree or judgment of any court, governmental body, regulatory agency or FINRA that materially and adversely affects its business or its ability to consummate the transactions herein
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contemplated. The Target Fund (i) has not entered into any contract or agreement or amendment of any contract or agreement or terminated any contract or agreement, in each case material to the operation of the Target Fund, except as otherwise contemplated by this Agreement or as disclosed to the Acquiring Fund; (ii) has not incurred any indebtedness, other than in the ordinary course of business consistent with the investment objective and policies of the Target Fund; (iii) has not entered into any amendment of its Governing Documents that has not been disclosed to the Acquiring Fund; (iv) does not have outstanding any grant or imposition of any lien, claim, charge or encumbrance (other than encumbrances arising in the ordinary course of business) upon any asset of the Target Fund other than a lien for Taxes (as defined below) not yet due and payable or as contemplated by Section 4.1(f); and (v) has not entered into any agreement or made any commitment to do any of the foregoing except as disclosed to the Acquiring Fund;
(j) The financial statements of the Target Fund for the most recently completed fiscal year have been, or will be, audited by the independent registered public accounting firm identified in the Target Fund’s prospectus or statement of additional information included in the Target Fund’s registration statement on Form N-1A. To the knowledge of the Target Fund, such statements, as well as the unaudited, semi-annual financial statements for the semi-annual period next succeeding the Target Fund’s most recently completed fiscal year, if any, are or will be, as applicable, prepared in accordance with GAAP consistently applied, and such statements (copies of which, if available, have been furnished or made available to the Acquiring Fund) present fairly, or will present fairly, in all material respects, the financial condition of the Target Fund as of such date in accordance with GAAP, and there are no known contingent liabilities of the Target Fund required to be reflected on a balance sheet (including the notes thereto) in accordance with GAAP as of such date not disclosed therein. No significant deficiency, material weakness, fraud, significant change or other factor that could significantly affect the internal controls of the Target Fund has been disclosed or, to the knowledge of the Target Fund, is required to be disclosed in the Target Fund’s reports on Form N-CSR and, to the knowledge of the Target Fund, no such disclosure will be required as of the Closing Date;
(k) Since the last day of the Target Fund’s most recently completed fiscal year, there has not been any material adverse change in the Target Fund’s financial condition, assets, liabilities or business, other than changes occurring in the ordinary course of business, except as otherwise disclosed to and accepted by the Acquiring Fund in writing. For the purposes of this subparagraph, a decline in net asset value due to declines in market values of securities held by the Target Fund, the redemption of the Target Fund’s shares by shareholders of the Target Fund or the discharge of the Target Fund’s ordinary course liabilities shall not constitute a material adverse change;
(l) To the knowledge of the Target Fund, on the Closing Date, all Tax Returns (as defined below) of the Target Fund required by law to have been filed by such date (including any extensions) for the prior three (3) taxable years for which Tax Returns have been due shall have been filed and are or will be true, correct and complete in all material respects, and all Taxes (as defined below) shown as due or claimed to be due by any government entity shall have been paid or provision has been made for the payment thereof. To the Target Fund’s knowledge, no such Tax Return is currently under audit by any federal, state, local or foreign Tax authority; no assessment has been asserted with respect to such Tax Returns; there are no levies, liens or other encumbrances on the Target Fund or its assets resulting from the non-payment of any Taxes; no waivers of the time to assess any such Taxes are outstanding nor are any written requests for such waivers pending; and adequate provision has been made in the Target Fund financial statements for all Taxes in respect of all periods ended on or before the date of such financial statements. To the Target Fund’s knowledge, no claim has ever been made by a taxing authority in a jurisdiction where the Target Fund does not file a Tax Return that the Target Fund is or may be subject to taxation in that jurisdiction. To the knowledge of the Target Fund, the Target Fund is in compliance in all material respects with applicable regulations of the Internal Revenue Service (the “Service”) pertaining to the reporting of distributions on and redemptions of its shares of beneficial interest and to withholding in respect of distributions to shareholders, and is not liable for any material penalties that could be imposed thereunder. As used in this Agreement, “Tax” or “Taxes” means any tax, governmental fee or other like assessment or charge of any kind whatsoever (including, but not limited to, excise tax and withholding on amounts paid to or by any
55
person), together with any interest, penalty, addition to tax or additional amount imposed by any governmental authority (whether domestic, foreign, federal, state or local) responsible for the imposition of any such tax. “Tax Return” means reports, returns, information returns, dividend reporting forms, elections, agreements, declarations, or other documents or reports of any nature or kind (including any attached schedules, supplements and additional or supporting material) filed or required to be filed or furnished or required to be furnished with respect to Taxes, including any claim for refund, amended return or declaration of estimated Taxes (and including any amendments with respect thereto);
(m) The Target Fund: (i) is not (and will not be as of the Closing Date) classified as a partnership, and instead is (and will be as of the Closing Date) classified as an association that is subject to Tax as a corporation for federal Tax purposes, (ii) has elected to be a regulated investment company under Subchapter M of the Code, and (iii) is a “fund,” as defined in Section 851(g)(2) of the Code, that is treated as a separate corporation under Section 851(g)(1) of the Code. The Target Fund has qualified for treatment as a regulated investment company for each taxable year since inception that has ended prior to the Closing Date and will have satisfied the requirements of Part I of Subchapter M of the Code to maintain such qualification for the period beginning on the first day of its current taxable year and ending on the Closing Date, and for each such taxable year (or portion thereof), the Target Fund has been eligible to compute its federal income tax under Section 852 of the Code. The Target Fund will satisfy the diversification requirements of Section 851(b)(3) of the Code without regard to the last sentence of Section 851(d)(1) of the Code as of the last taxable year quarter end of the Target Fund closing on or before the Closing Date. The Target Fund will not have as of the Closing Date any material tax liability under Sections 852 or 4982 of the Code for any period ended on or before the Closing Date. The Target Fund has no earnings or profits accumulated with respect to any taxable year in which the provisions of Subchapter M of the Code did not apply to the Target Fund. If a Target Fund serves as a funding vehicle for variable contracts (life insurance or annuity), the Target Fund, with respect to each of its taxable years that has ended prior to the Closing Date during which it has served as such a funding vehicle, has satisfied the diversification requirements of Section 817(h) of the Code and will continue to satisfy the requirements of Section 817(h) of the Code for the period beginning on the first day of its current taxable year and ending on the Closing Date. Each Target Fund that serves as a funding vehicle for variable contracts (life insurance or annuity) has been managed and its business has been conducted so that no variable contract holder is or will be taxable on such Target Fund’s income and gains as a result of the investor control doctrine. The Target Fund will not be subject to corporate-level taxation on the sale of any assets currently held by it as a result of the application of Section 337(d) of the Code and the Treasury Regulations promulgated thereunder;
(n) The Target Fund has not changed its taxable year end within the most recent 60-month period ending on the last day of the month immediately preceding the Closing Date of a Reorganization, and it does not intend to change its taxable year end prior to the Closing Date;
(o) The Target Fund has not undergone, has not agreed to undergo, nor, to its knowledge, is required to undergo (nor will it be required as a result of the transactions contemplated in this Agreement to undergo) a change in its method of accounting resulting in an adjustment to its taxable income pursuant to Section 481 of the Code. The Target Fund (including the Acquiring Fund as its successor) will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any (i) change in method of accounting for a taxable period ending on or prior to the Closing Date; (ii) “closing agreement” as described in Section 7121 of the Code (or any corresponding or similar provision of state, local or foreign income Tax law) executed on or prior to the Closing Date; (iii) installment sale or open transaction disposition made on or prior to the Closing Date; or (iv) prepaid amount received on or prior to the Closing Date;
(p) The Target Fund has not been notified in writing that any examinations of the Tax Returns of the Target Fund are currently in progress or threatened, and, to the knowledge of the Target Fund, no such examinations are currently in progress or threatened, and no deficiencies have been asserted or assessed against the Target Fund as a result of any audit by the Service or any state, local or foreign taxing authority, and, to the knowledge of the Target Fund, no such deficiency has been proposed or threatened, and there are
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no levies, liens or other encumbrances related to Taxes existing or known to the Target Fund to be threatened or pending with respect to the Assets of the Target Fund;
(q) The Target Fund has no actual or potential liability for any Tax obligation of any taxpayer other than itself. The Target Fund is not currently and has never been a member of a group of corporations with which it has filed (or been required to file) consolidated, combined or unitary Tax Returns. The Target Fund is not a party to any Tax allocation, sharing, or indemnification agreement;
(r) All issued and outstanding shares of the Target Fund are, and on the Closing Date will be, duly and validly issued and outstanding, fully paid and non-assessable by the Target Entity, and are not, and on the Closing Date will not be, subject to preemptive or objecting shareholder rights. In every state where offered or sold, such offers and sales have been in compliance in all material respects with applicable registration and/or notice requirements of the 1933 Act and state and District of Columbia securities laws. All of the issued and outstanding shares of the Target Fund will, at the time of Closing, be held by the persons and in the amounts set forth in the records of the Target Transfer Agent, on behalf of the Target Fund;
(s) The Target Entity, on behalf of the Target Fund, has all requisite power and authority to enter into this Agreement and to consummate the transactions contemplated herein. The execution, delivery and performance of this Agreement has been duly authorized by all necessary action, if any, on the part of the board of trustees of the Target Entity and, subject to the approval of the shareholders of the Target Fund (only with respect to those obligations under this Agreement that are contingent on such shareholder approval) and the due authorization, execution and delivery of this Agreement by the other parties hereto, this Agreement will constitute a valid and binding obligation of the Target Fund, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors’ rights and to general equity principles;
(t) The information relating to the Target Fund furnished by the Target Fund for use in no-action letters, applications for orders, registration statements, proxy materials and other documents filed or to be filed with any federal, state or local regulatory or self-regulatory authority that are necessary in connection with the transactions contemplated hereby is and will be accurate and complete in all material respects and will comply in all material respects with federal securities laws and regulations thereunder and other applicable laws and regulations applicable thereto;
(u) As of the date of this Agreement or within a certain time thereafter as mutually agreed by the parties, the Target Fund has provided the Acquiring Fund with all information requested by the Acquiring Fund reasonably necessary for the preparation of the N-14 Registration Statement (as defined in Section 5.1(b) hereof), in compliance with the 1933 Act, the 1934 Act and the 1940 Act in connection with the meeting of shareholders of the Target Fund to approve this Agreement and the transactions contemplated hereby. As of the effective date of the N-14 Registration Statement, the date of the meeting of shareholders of the Target Fund and the Closing Date, such information provided by any Target Fund will not, to its knowledge, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading; provided, however, that the representations and warranties in this subparagraph shall not apply to statements in or omissions from the N-14 Registration Statement made in reliance upon and in conformity with information that was furnished by the Acquiring Fund for use therein;
(v) To the knowledge of the Target Fund, the books and records of the Target Fund are true and correct in all material respects and contain no material omissions with respect to information required to be maintained under the laws, rules and regulations applicable to the Target Fund;
(w) The Target Entity and the Target Fund have maintained any material license, permit, franchise, authorization, certification and approval required by any governmental entity in the conduct of its business (the “Licenses and Permits”). Each License and Permit has been duly obtained, is valid and in full force and effect, and is not subject to any pending or, to the knowledge of the Target Entity, threatened administrative or judicial proceeding to revoke, cancel, suspend or declare such License and Permit invalid;
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(x) The Target Entity is not under the jurisdiction of a court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code; and
(y) The Target Fund has no unamortized or unpaid organizational fees or expenses.
4.2. The Acquiring Entity, on behalf of each Acquiring Fund, represents and warrants to the Target Entity and corresponding Target Fund as follows:
(a) The Acquiring Fund is duly organized as a series of the Acquiring Entity, which is a statutory trust duly formed, validly existing, and in good standing under the laws of the State of Delaware, each with power under its Governing Documents to own all of its properties and assets and to carry on its business as it is now being, and as it is contemplated to be, conducted and to enter into this Agreement and perform its obligations hereunder;
(b) The Acquiring Entity is a registered investment company classified as a management company of the open-end type, and its registration with the Commission as an investment company under the 1940 Act and the registration of shares of the Acquiring Fund under the 1933 Act are in full force and effect, and will be in full force and effect on the Closing Date, and no action or proceeding to revoke or suspend such registrations is pending, or to the knowledge of the Acquiring Fund, threatened;
(c) No consent, approval, authorization, or order of any court, governmental authority or FINRA is required for the consummation by the Acquiring Fund of the transactions contemplated herein, except such as have been or will be (at or prior to the Closing Date) obtained under the 1933 Act, the 1934 Act, the 1940 Act and state securities or blue sky laws (which term as used herein shall include the laws of the District of Columbia and of Puerto Rico), each of which, as required, shall have been obtained on or prior to the Closing Date. No consent of or notice to any other third party or entity is required for the consummation by the Acquiring Fund of the transactions contemplated by this Agreement;
(d) The prospectus and statement of additional information of the Acquiring Fund to be used in connection with the Reorganization will conform at the time of their use in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations of the Commission thereunder and will not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading;
(e) The Acquiring Fund is not engaged currently, and the execution, delivery and performance of this Agreement will not result, in (i) a material violation of the Acquiring Entity’s Governing Documents or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Acquiring Fund or the Acquiring Entity is a party or by which it is bound, or (ii) the acceleration of any obligation, or the imposition of any lien, encumbrance, penalty, or additional fee under any agreement, indenture, instrument, contract, lease, judgment or decree to which the Acquiring Fund or the Acquiring Entity is a party or by which it is bound;
(f) Except as set forth on Schedule 4.2(f), no litigation or administrative proceeding or investigation of or before any court, tribunal, arbitrator, governmental body, regulatory agency or FINRA is presently pending or, to the Acquiring Fund’s knowledge, threatened against the Acquiring Fund, and no such litigation, proceeding or investigation, if adversely determined, would materially and adversely affect the Acquiring Fund’s financial condition or the conduct of its business or the Acquiring Fund’s ability to consummate the transactions contemplated by this Agreement. The Acquiring Fund and the Acquiring Entity, without any special investigation or inquiry, know of no facts that might form the basis for the institution of such proceedings and neither the Acquiring Entity nor the Acquiring Fund is a party to or subject to the provisions of any order, decree or judgment of any court, governmental body, regulatory agency or FINRA that materially and adversely affects its business or its ability to consummate the transactions herein contemplated;
(g) The Acquiring Fund has not yet commenced operations. The Reorganization will be structured as a “shell reorganization” subject to U.S. federal income tax treatment under Section 368(a)(1) of the Code. The
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Acquiring Fund is, and will be at the time of Closing, a new series portfolio of the Acquiring Entity created within the last twelve (12) months, without assets or liabilities, formed for the purpose of receiving the Assets and assuming the Liabilities of the Target Fund in connection with the Reorganization and, accordingly, the Acquiring Fund has not prepared books of account and related records or financial statements or issued any shares except those issued in a private placement to LIAC or its affiliate to secure any required initial shareholder approvals;
(h) On the Closing Date, all material Tax Returns of the Acquiring Fund required by law to have been filed by such date (including any extensions) shall have been filed and are or will be true, correct and complete in all material respects, and all Taxes shown as due or claimed to be due by any government entity shall have been paid or provision has been made for the payment thereof. To the Acquiring Fund’s knowledge, no such Tax Return is currently under audit by any federal, state, local or foreign Tax authority; no assessment has been asserted with respect to such Tax Returns; there are no levies, liens or other encumbrances on the Acquiring Fund or its assets resulting from the non-payment of any Taxes; and no waivers of the time to assess any such Taxes are outstanding nor are any written requests for such waivers pending;
(i) The Acquiring Fund: (i) was formed for the purpose of the respective Reorganization, (ii) is not (and will not be as of the Closing Date) classified as a partnership, and instead is (and will be as of the Closing Date) classified as an association that is subject to Tax as a corporation for federal Tax purposes and has elected (or will timely elect) the latter classification by filing Form 8832 with the Service, (iii) has not filed any income tax return, and intends to qualify to be a regulated investment company under Subchapter M of the Code for its taxable year which includes the Closing Date, (iv) holds and has held no property and has and has had no Tax attributes, and (v) is a “fund,” as defined in Section 851(g)(2) of the Code, that is treated as a separate corporation under Section 851(g)(1) of the Code. The Acquiring Fund has no earnings or profits accumulated in any taxable year in which the provisions of Subchapter M of the Code did not apply to it;
(j) The Acquiring Entity, on behalf of the Acquiring Fund, has all requisite power and authority to enter into this Agreement and to consummate the transactions contemplated herein. The execution, delivery and performance of this Agreement will have been duly authorized prior to the Closing Date by all necessary action, if any, on the part of the board of trustees of the Acquiring Entity, on behalf of the Acquiring Fund, and subject to the approval of shareholders of the Target Fund and the due authorization, execution and delivery of the Agreement by the other parties thereto, this Agreement will constitute a valid and binding obligation of the Acquiring Fund, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization, moratorium and other laws relating to or affecting creditors’ rights and to general equity principles;
(k) The shares of the Acquiring Fund to be issued and delivered to the Target Fund, for the account of the Target Fund Shareholders, pursuant to the terms of this Agreement, have been duly authorized and, when so issued and delivered, will be duly and validly issued Acquiring Fund shares, and, upon receipt of the Target Fund’s Assets in accordance with the terms of this Agreement, will be fully paid and non-assessable by the Acquiring Entity;
(l) The Acquiring Entity is not under the jurisdiction of a court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code;
(m) The Acquiring Fund has no unamortized or unpaid organizational fees or expenses for which it does not expect to be reimbursed by LIAC or its affiliates;
(n) As of the effective date of the N-14 Registration Statement, the date of the meeting of shareholders of the Target Fund and the Closing Date, the information provided by any Acquiring Fund for use in the N-14 Registration Statement, including the documents contained or incorporated therein by reference will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such
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statements were made, not misleading; provided, however, that the representations and warranties in this subparagraph shall not apply to statements in or omissions from the N-14 Registration Statement made in reasonable reliance upon and in conformity with information that was furnished by the Target Fund for use therein; and
4.3. With respect to each Reorganization, the Target Entity, on behalf of the Target Fund, and the Acquiring Entity, on behalf of the Acquiring Fund, represents and warrants as follows:
(a) The net asset value of the Acquiring Fund’s shares that each Target Fund shareholder receives will be equal to the net asset value of the Target Fund shares it actually or constructively surrenders in exchange therefor;
(b) The fair market value of the Assets will equal or exceed the Liabilities to be assumed by the Acquiring Fund and those to which the Assets are subject;
(c) No expenses incurred by the Target Fund or on its behalf in connection with the Reorganization will be paid or assumed by the Acquiring Fund or any other third party unless those expenses are solely and directly related to the Reorganization (determined in accordance with the guidelines set forth in Rev. Rul. 73-54, 1973-1 C.B. 187) (“Reorganization Expenses”), and no cash or property other than Acquiring Fund shares will be transferred to the Target Fund or any of its shareholders with the intention that it be used to pay any expenses (even Reorganization Expenses) thereof; and
(d) Immediately following consummation of the Reorganization: (1) the shareholders of the Acquiring Fund will own all the Acquiring Fund shares and will own those shares solely by reason of their ownership of the Target Fund shares immediately before the Reorganization; (2) the Acquiring Fund will hold the same Assets and will be subject to the Liabilities that the Target Fund held or was subject to immediately before the Reorganization; and (3) the amount of all distributions (other than dividends and redemption payments) Target Fund will make immediately preceding the Reorganization, will, in the aggregate, constitute less than 1% of its net assets.
5. | COVENANTS OF THE ACQUIRING ENTITY AND THE TARGET ENTITY |
5.1. | With respect to each Reorganization: |
(a) The Target Fund will (i) operate its business in the ordinary course and substantially in accordance with past practice between the date hereof and the Closing Date, it being understood that, with respect to the Target Fund, such ordinary course of business may include purchases and sales of portfolio securities and other instruments, sales and redemptions of the Target Fund’s shares, and the declaration and payment of customary dividends and distributions, and any other distribution that may be advisable, and (ii) use its reasonable best efforts to preserve intact its business organization and material assets and maintain the rights, franchises and business and customer relations necessary to conduct the business operations of the Target Fund in the ordinary course in all material respects. The Acquiring Fund shall take such actions as are customary to the organization of a new series prior to its commencement of operations. In order to facilitate the transfer of Assets at the Closing Date, LIAC may request in writing that JPMIM use commercially reasonable efforts, subject to JPMIM’s fiduciary duty, as applicable, to limit or cease portfolio trading on behalf of the Target Fund for a period of up to three (3) days prior to the Closing Date. JPMIM agrees that it will accommodate such requests if in JPMIM’s discretion such trading restrictions may practicably be implemented and are consistent with the investment objectives, policies and strategies of the Target Fund and consistent with fulfilling its fiduciary obligations as an investment adviser. No party shall take any action that would, or would reasonably be expected to, result in any of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect.
(b) The parties hereto shall cooperate in preparing, and the Acquiring Entity shall file with the Commission, a registration statement on Form N-14 under the 1933 Act, which shall properly register the Acquiring Fund shares to be issued in connection with the Reorganization and include a proxy statement
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with respect to the votes of the shareholders of the Target Fund to approve the Reorganization (the “N-14 Registration Statement”). If at any time prior to the Closing Date a party becomes aware of any untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements made not misleading in light of the circumstances under which they were made in respect of the N-14 Registration Statement, such party shall notify each other party, and the parties shall cooperate in promptly preparing and filing with the Commission and, if appropriate, distributing to shareholders appropriate disclosure with respect to the item. The Target Fund agrees to mail or otherwise deliver (e.g., by electronic means consistent with applicable regulations governing their use) to its respective shareholders of record entitled to vote at the special meeting of shareholders at which action is to be considered regarding this Agreement, in sufficient time to comply with requirements as to notice thereof, the prospectus/proxy statement contained in the N-14 Registration Statement and other documents as are necessary, which each comply in all material respects with the applicable provisions of Section 14(a) of the 1934 Act and Section 20(a) of the 1940 Act, and the rules and regulations, respectively, thereunder.
(c) The Target Entity will call a meeting of the shareholders of the Target Fund to be held prior to the Closing Date to consider and act upon this Agreement and to take all other action necessary to seek to obtain the required shareholder approval of the transactions contemplated herein. In the event that the Target Fund does not achieve a quorum or receives insufficient votes from shareholders to approve the proposal, the meeting may be postponed or adjourned as permitted under the Target Entity’s Governing Documents, applicable law and the N-14 Registration Statement in order to permit further solicitation of proxies, for a period of up to 120 days or such longer period as is mutually agreed upon by the parties.
(d) The Target Fund covenants that the Acquiring Fund’s shares to be issued pursuant to this Agreement are not being acquired for the purpose of making any distribution thereof, other than in accordance with the terms of this Agreement.
(e) The Target Entity will assist the Acquiring Fund in obtaining such information as the Acquiring Fund reasonably requests concerning the beneficial ownership of the Target Fund’s shares, and will assist the Acquiring Fund and LIAC in obtaining copies of any books and records of the Target Fund from its service providers reasonably requested by the Acquiring Entity or LIAC.
(f) The Target Entity will provide the Acquiring Fund with: (i) a schedule, as set forth in this Schedule 5.1(f), certified by the Treasurer of the Target Entity, stating that the various statements, books and records set forth in Schedule 5.1(f) exist and specifying the location of such statements, books and records and the means by which the Acquiring Entity can access them (the “Schedule of Statements, Books and Records”); and (ii) FASB ASC 740-10 (formerly FIN 48) work papers and supporting statements pertaining to the Target Fund relating to any taxable years of the Target Fund not closed by the applicable Tax statute of limitations (the “ASC 740-10 Workpapers”). The Schedule of Statements, Books and Records shall be provided at the Closing. The ASC 740-10 Workpapers shall be provided at least sixty (60) days prior to the Closing Date.
(g) The Target Fund will prepare and deliver to the Acquiring Fund at least five (5) business days prior to the Closing Date a statement of the Assets and the Liabilities of the Target Fund as of such date for review and agreement by the parties to determine that the Assets and the Liabilities of the Target Fund are being correctly determined in accordance with the terms of this Agreement. The Target Fund will deliver at the Closing a statement of Assets and Liabilities of the Target Fund as of the Closing Date, certified by the Treasurer of the Target Entity.
(h) Subject to the provisions of this Agreement, the Acquiring Fund and the Target Fund will each take, or cause to be taken, all action, and do or cause to be done all things, reasonably necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement.
(i) As soon as is reasonably practicable after the Closing, the Target Fund will make one or more distributions to its shareholders consisting of all shares of the applicable class of the Acquiring Fund received at the Closing, as set forth in Section 1.2(d) hereof.
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(j) The Acquiring Fund and the Target Fund shall each use their reasonable best efforts prior to Closing to fulfill or obtain the fulfillment of the conditions precedent to effect the transactions contemplated by this Agreement.
(k) The Target Fund shall, from time to time, as and when reasonably requested by the Acquiring Fund, execute and deliver or cause to be executed and delivered all such assignments and other instruments, and will take or cause to be taken such further action, as the Acquiring Fund may reasonably deem necessary or desirable in order to vest in and confirm the Acquiring Fund’s title to and possession of all the Assets and otherwise to carry out the intent and purpose of this Agreement.
(l) The Acquiring Fund shall, from time to time, as and when reasonably requested by the Target Fund, execute and deliver or cause to be executed and delivered all such assumption agreements and other instruments, and will take or cause to be taken such further action, as the Target Fund may reasonably deem necessary or desirable in order for the Acquiring Fund to assume the Target Fund’s Liabilities and otherwise to carry out the intent and purpose of this Agreement.
(m) The Acquiring Fund will use all reasonable efforts to obtain the approvals and authorizations required by the 1933 Act, the 1940 Act and such of the state blue sky or securities laws as may be necessary in order to continue its operations after the Closing Date.
(n) The parties intend that each Reorganization will qualify as a reorganization with the meaning of Section 368(a) of the Code. None of the parties to this Agreement shall take any action or cause any action to be taken (including, without limitation the filing of any Tax Return) that is inconsistent with such treatment or results in the failure of a Reorganization to qualify as a reorganization with the meaning of Section 368(a) of the Code.
(o) At or prior to the Closing, the Target Fund shall have delivered to the Acquiring Fund copies of: (i) any legal opinions that have been issued to or for the benefit of the Target Fund and which have continuing relevance and (ii) with respect to any wholly owned subsidiaries of the Target Fund (if any), any organizational documents, including without limitation, the declarations of trust, articles of incorporation and bylaws, together with the board meeting minutes and consent of directors or trustees and shareholders.
6. | CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TARGET ENTITY |
6.1. With respect to each Reorganization, the obligations of the Target Entity, on behalf of the Target Fund, to consummate the transactions provided for herein shall be subject to the performance, or to the extent legally permissible, the Target Entity’s waiver, of the obligations to be performed by the Acquiring Fund hereunder on or before the Closing Date and, in addition thereto, the following conditions:
(a) All representations and warranties of the Acquiring Fund and the Acquiring Entity contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Time, with the same force and effect as if made on and as of the Closing Time;
(b) The Acquiring Entity shall have delivered to the Target Entity as of the Closing Time a certificate executed in its name by its President or Vice President and Treasurer, in form and substance reasonably satisfactory to Target Entity and dated as of the Closing Date, to the effect that the representations and warranties of or with respect to the Acquiring Entity and Acquiring Fund made in this Agreement are true and correct at and as of the Closing Time, except as they may be affected by the transactions contemplated by this Agreement;
(c) The Acquiring Entity and the Acquiring Fund shall have performed all of the covenants and complied with all of the provisions required by this Agreement to be performed or complied with by the Acquiring Entity and the Acquiring Fund, on or before the Closing Time;
(d) The Target Fund and the Acquiring Fund shall have agreed on the number of full and fractional shares of each class of the Acquiring Fund to be issued in connection with the Reorganization after such number has been calculated in accordance with Section 1.2 hereto;
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(e) As of the Closing Date, there shall have been no material change in the investment objectives, policies and restrictions or any increase in the investment management fee rate or other fee rates that the Acquiring Fund is contractually obligated to pay for services provided to the Acquiring Fund from those described in the N-14 Registration Statement;
(f) The Target Entity shall have received from the Target Transfer Agent a certificate stating that it has received from the Acquiring Entity the number of shares of the Acquiring Fund equal in value to the value of the shares of the Target Fund as of the time and date set forth in Section 3; and
(g) The Target Entity shall have received on the Closing Date the opinion of Dechert LLP (“Dechert”), counsel to the Target Entity (which may rely on certificates of officers or trustees of the Acquiring Entity), dated as of the Closing Date, covering the following points:
(i) The Acquiring Entity is a statutory trust duly formed, validly existing and in good standing under the laws of the State of Delaware, and has the trust power to own all of the Acquiring Fund’s properties and assets and to carry on its business, including that of the Acquiring Fund, as a registered investment company;
(ii) The Acquiring Entity is a registered investment company classified as a management company of the open-end type with respect to each series of shares it offers, including the Acquiring Fund, under the 1940 Act, and its registration with the Commission as an investment company under the 1940 Act is in full force and effect;
(iii) The Agreement has been duly authorized by the Acquiring Entity on behalf of the Acquiring Fund and, assuming due authorization, execution and delivery of the Agreement by the Target Entity, the Target Fund and JPMIM, it is a valid and binding obligation of the Acquiring Entity, on behalf of the Acquiring Fund, enforceable against it in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, fraudulent conveyance, reorganization, receivership, moratorium and other similar laws relating to or affecting creditors’ rights generally, general equity principles (whether considered in a proceeding in equity or at law) and to an implied covenant of good faith and fair dealing;
(iv) The Acquiring Fund shares to be issued to the Target Fund as provided by this Agreement are duly authorized, upon such delivery will be validly issued and upon receipt of the Target Fund’s Assets will be fully paid and non-assessable by the Acquiring Entity, and no shareholder of an Acquiring Fund has any preemptive rights to subscription or purchase in respect thereof; and
(v) The execution and delivery of the Agreement did not, and the consummation of the transactions contemplated hereby will not, result in a violation of the Acquiring Entity’s Governing Documents or a breach or default under any material contract, agreement, instrument or other document pertaining to, or material to the business or financial condition of, the Acquiring Fund, or, to the knowledge of such counsel, result in the acceleration of any obligation or the imposition of any penalty under any such agreement.
7. | CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING ENTITY |
7.1. With respect to each Reorganization, the obligations of the Acquiring Entity, on behalf of the Acquiring Fund, to consummate the transactions provided for herein shall be subject to the performance, or to the extent legally permissible, the Acquiring Fund’s waiver, of the obligations to be performed by the Target Fund hereunder on or before the Closing Date and, in addition thereto, the following conditions:
(a) All representations and warranties of the Target Entity and the Target Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Time, with the same force and effect as if made on and as of the Closing Time;
(b) The Target Entity, on behalf of the Target Fund, shall have delivered to the Acquiring Entity (i) a statement of the Target Fund’s Assets and Liabilities, as of the Closing Date, certified by the Treasurer of
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the Target Entity, (ii) the Schedule of Statements, Books and Records, (iii) in electronic form, to the extent permitted by applicable law, all information pertaining to, or necessary or useful in the calculation or demonstration of, the investment performance of the Target Fund, and (iv) the ASC 740-10 Workpapers. The information to be provided under (ii) and (iv) of this subsection shall be provided in accordance with the timing set forth in Section 5.1(f) hereof;
(c) The Target Entity shall have delivered to the Acquiring Entity as of the Closing Time a certificate executed in its name by its President or Vice President and Treasurer, in form and substance satisfactory to the Acquiring Entity and dated as of the Closing Date, to the effect that the representations and warranties of or with respect to the Target Entity and Target Fund made in this Agreement are true and correct at and as of the Closing Time;
(d) The Target Custodian and the Target Transfer Agent shall have delivered the certificates contemplated by Sections 3.2(b) and 3.2(d) of this Agreement, respectively, and the Target Transfer Agent or the Target Entity’s President or Vice President shall have delivered the certificate contemplated by Section 5.1(f) of this Agreement, each duly executed by an authorized officer of the Target Custodian, the Target Transfer Agent, the Target Entity’s President or the Target Entity’s Vice President, as applicable;
(e) The Target Entity and the Target Fund shall have performed all of the covenants and complied with all of the provisions required by this Agreement to be performed or complied with by the Target Entity and the Target Fund, on or before the Closing Time;
(f) The Target Fund and the Acquiring Fund shall have agreed on the number of full and fractional shares of each class of the Acquiring Fund set forth on Exhibit A hereto to be issued in connection with the Reorganization after such number has been calculated in accordance with Section 1.2 hereto;
(g) The Target Entity shall have duly executed and delivered to the Acquiring Entity, on behalf of the Target Fund, such bills of sale, assignments, certificates and other instruments of transfer, including transfer instructions to the Target Custodian and instructions to the Acquiring Fund’s transfer agent as the Acquiring Entity may reasonably deem necessary or desirable to evidence the transfer to the Acquiring Fund by the Target Fund all of the right, title and interest of the Target Fund in and to the respective Assets of the Target Fund. In each case, the Assets of the Target Fund shall be accompanied by all necessary state stock transfer stamps or cash for the appropriate purchase price therefor;
(h) The Acquiring Entity shall have received at the Closing: (i) a certificate of an authorized signatory of the Target Custodian stating that the Assets of the Target Fund have been delivered to the Acquiring Fund; (ii) a certificate of an authorized signatory from the custodian for the Acquiring Fund stating that the Assets of the Target Fund have been received; (iii) a certificate of an authorized officer of the Target Transfer Agent confirming that the transfer agent has delivered its records containing the names and addresses of the record holders of the Target Fund’s shares and the number and percentage (to four decimal places) of ownership of the Target Fund owned by each such holder as of the Closing Date; and (iv) the Tax books and records of the Target Fund, including but not limited to, for purposes of preparing any Tax Returns required by law to be filed after the Closing Date;
(i) As of the Closing Date, there shall have been no material change in the investment objectives, policies and restrictions or any increase in the investment management fee rate or other fee rates that the Target Fund is contractually obligated to pay for services provided to the Target Fund from those described in the N-14 Registration Statement; and
(j) The Acquiring Entity shall have received on the Closing Date an opinion of Dechert, counsel to the Target Entity (which may rely on certificates of officers or trustees of the Target Entity), covering the following points:
(i) The Target Entity is a voluntary association with transferable shares, of the type commonly referred to as a “Massachusetts business trust,” and is validly existing under the laws of the Commonwealth of Massachusetts with power under the Target Entity’s Governing Documents and Massachusetts law to
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own all of its Assets, and to conduct its business, including that of the Target Fund, as described in its organizational documents or in the most recently filed registration statement of the Target Fund;
(ii) The Target Entity is a registered investment company classified as a management company of the open-end type with respect to itself and, if applicable, each series of shares it offers, including the Target Fund, under the 1940 Act, and its registration with the Commission as an investment company under the 1940 Act is in full force and effect;
(iii) The Agreement has been duly authorized by the Target Entity on behalf of Target Fund and, assuming due authorization, execution and delivery of the Agreement by the Acquiring Entity, the Acquiring Fund and LIAC, is a valid and binding obligation of the Target Entity, on behalf of the Target Fund, enforceable against the Target Entity in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, fraudulent conveyance, reorganization, receivership, moratorium and other similar laws relating to or affecting creditors’ rights generally, general equity principles (whether considered in a proceeding in equity or at law) and to an implied covenant of good faith and fair dealing; and
(iv) The execution and delivery of the Agreement did not, and the consummation of the transactions contemplated hereby will not, result in a violation of, as appropriate, the Target Entity’s Governing Documents or a breach or default under any material contract, agreement, instrument or other document pertaining to, or material to the business or financial condition of, the Target Fund, or, to the knowledge of such counsel, result in the acceleration of any obligation or the imposition of any penalty under any such agreement.
8. | FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING ENTITY AND THE TARGET ENTITY |
With respect to each Reorganization, if any of the conditions set forth below have not been satisfied on or before the Closing Date with respect to the Target Fund or the Acquiring Fund, the Acquiring Entity or Target Entity, respectively, shall, at its option, not be required to consummate the transactions contemplated by this Agreement:
8.1. The Agreement shall have been approved by the requisite vote of the holders of the outstanding shares of the Target Fund in accordance with the provisions of the Target Entity’s Governing Documents, applicable law of the Commonwealth of Massachusetts, and the 1940 Act, and certified copies of the voting record from the proxy solicitor evidencing such approval shall have been delivered to the Acquiring Fund. Notwithstanding anything herein to the contrary, neither the Target Fund nor the Acquiring Fund may waive the conditions set forth in this Section 8.1;
8.2. The Agreement and transactions contemplated herein shall have been approved by the board of trustees of the Target Entity and the board of trustees of the Acquiring Entity and each party shall have delivered to the other party a copy of the resolutions approving this Agreement and the transactions contemplated in connection herewith adopted by such party’s board of trustees, certified by the secretary or equivalent officer. Notwithstanding anything herein to the contrary, neither the Target Fund nor the Acquiring Fund may waive the conditions set forth in this Section 8.2;
8.3. On the Closing Date, no action, suit or other proceeding shall be pending or, to the Target Entity’s or the Acquiring Entity’s knowledge, threatened before any court or governmental agency in which it is sought to restrain or prohibit, or obtain damages or other relief in connection with, this Agreement or the transactions contemplated herein;
8.4. All consents of other parties and all other consents, orders and permits of federal, state and local regulatory authorities deemed necessary by the Acquiring Fund or Target Fund to permit consummation, in all material respects, of the transactions contemplated hereby shall have been obtained, except where failure to obtain any such consent, order or permit would not result in a material adverse effect on the Acquiring Fund or the Target Fund, provided that either party hereto may for itself waive any of such conditions;
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8.5. The N-14 Registration Statement shall have become effective under the 1933 Act and no stop orders suspending the effectiveness thereof shall have been issued and, to the best knowledge of the parties hereto, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act;
8.6. The Target Entity and the Acquiring Entity shall have received on or before the Closing Date an opinion of Dechert in form and substance reasonably acceptable to the Target Entity and the Acquiring Entity, as to the matters set forth on Schedule 8.6. In rendering such opinion, Dechert may request and rely upon representations contained in certificates of officers of the Target Entity, the Acquiring Entity and others, and the officers of the Target Entity and the Acquiring Entity shall use their best efforts to make available such truthful certificates. Such opinion shall contain such limitations as shall be in the opinion of Dechert appropriate to render the opinions expressed therein. Subject to receipt of the certificates referenced in this Section 8.6 and absent a change of law or change of fact between the date of this Agreement and the Closing, the Acquiring Fund agrees that such opinion shall state that the Reorganization will qualify as a “reorganization” under Section 368(a)(1) of the Code. Notwithstanding anything herein to the contrary, neither the Acquiring Entity nor the Target Entity may waive the conditions set forth in this paragraph 8.6;
9. | FEES AND EXPENSES |
9.1. The parties hereto represent and warrant to each other that there are no brokers or finders entitled to receive any payments in connection with the transactions provided for herein.
9.2. Except as otherwise stated herein, LIAC and JPMIM will bear the expenses of the Target Entity and Acquiring Entity relating to the Reorganizations, whether or not the Reorganizations are consummated. The expenses of the Reorganizations shall include costs associated with obtaining board approvals, any necessary order of exemption from the 1940 Act, organizing each Acquiring Fund, preparation, printing and distribution of the N-14 Registration Statement for each Reorganization (including the prospectus/proxy statement contained therein), preparation and filing other necessary reorganization documents with the SEC to effect the Reorganization, legal fees, accounting fees, audit fees, proxy solicitation fees, taxes and stamps, expenses of holding shareholders’ meetings, and other related administrative or operational costs (including, for example, brokerage commissions, transfer fees, exchange fees, and securities registration fees). LIAC and JPMIM will not bear any costs relating to the Reorganizations other than as described in this Agreement.
10. | COOPERATION AND EXCHANGE OF INFORMATION |
With respect to each Reorganization, prior to the Closing and for a reasonable time thereafter, the Target Entity and the corresponding Acquiring Entity will provide each other and their respective representatives with such cooperation, assistance and information as is reasonably necessary (i) for the filing of any Tax Return, for the preparation for any audit, and for the prosecution or defense of any claim, suit or proceeding relating to any proposed adjustment, or (ii) for any financial accounting purpose. Each such party or their respective agents will retain until the applicable period for assessment under applicable law (giving effect to any and all extensions or waivers) has expired all returns, schedules and work papers and all material records or other documents relating to Tax matters and financial reporting of Tax positions of the Target Fund and the Acquiring Fund for its taxable period first ending after the Closing of the applicable Reorganization and for all prior taxable periods for which the statute of limitation had not run at the time of the Closing, provided that a Target Entity shall not be required to maintain any such documents that it has delivered to the Acquiring Fund.
11. | INDEMNIFICATION |
11.1. With respect to each Reorganization, the Acquiring Entity, out of the assets of the applicable Acquiring Fund, agrees to indemnify and hold harmless the Target Entity and each of the Target Entity’s officers and trustees from and against any and all losses, claims, damages, liabilities or expenses (including, without
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limitation, the payment of reasonable legal fees and reasonable costs of investigation) to which, jointly and severally, the Target Entity or any of its trustees or officers may become subject, insofar as such loss, claim, damage, liability or expense (or actions with respect thereto) arises out of or is based on any breach by the Acquiring Entity, on behalf of the applicable Acquiring Fund, of any of its representations, warranties, covenants or agreements set forth in this Agreement. This indemnification obligation shall survive the termination of this Agreement and the Closing of the Reorganization.
11.2. With respect to each Reorganization, the Target Entity, out of the assets of the applicable Target Fund, agrees to indemnify and hold harmless the Acquiring Entity and each of the Acquiring Entity’s officers and trustees from and against any and all losses, claims, damages, liabilities or expenses (including, without limitation, the payment of reasonable legal fees and reasonable costs of investigation) to which, jointly and severally, the Acquiring Entity or any of its trustees or officers may become subject, insofar as such loss, claim, damage, liability or expense (or actions with respect thereto) arises out of or is based on any breach by the Target Entity, on behalf of the applicable Target Fund, of any of its representations, warranties, covenants or agreements set forth in this Agreement. This indemnification obligation shall survive the termination of this Agreement and the Closing of the Reorganization.
12. | ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES AND COVENANTS |
12.1. Except as described in Section 9.2, each party agrees that no party has made any representation, warranty or covenant not set forth herein and that this Agreement constitutes the entire agreement between the parties.
12.2. The representations, warranties and covenants contained in this Agreement or in any document delivered pursuant hereto or in connection herewith shall survive the consummation of the transactions contemplated hereunder. The covenants to be performed after the Closing shall survive the Closing.
13. | TERMINATION |
This Agreement may be terminated and the transactions contemplated hereby may be abandoned with respect to one or more (or all) Reorganizations at any time prior to the Closing Date by: (i) mutual agreement of the parties; (ii) either the Acquiring Entity or the Target Entity if the Closing shall not have occurred on or before [DATE]; unless such date is extended by mutual agreement of the Acquiring Entity and the Target Entity; (iii) any party if one or more other parties shall have materially breached its obligations under this Agreement or made a material misrepresentation herein or in connection herewith which would render a condition set forth in this Agreement unable to be satisfied; or (iv) by the board of trustees of either the Target Entity or Acquiring Entity. In the event of any such termination, this Agreement shall become void and there shall be no liability hereunder on the part of any party or their respective directors/trustees or officers, except for (a) any such material breach or intentional misrepresentation or (b) the parties’ respective obligations under Sections 9.2 and 11, as to each of which all remedies at law or in equity of the party adversely affected shall survive.
14. | AMENDMENTS |
This Agreement may be amended, modified or supplemented in a writing signed by the parties hereto to be bound by such Amendment; provided, however, that following the meeting of the shareholders of the Target Fund called pursuant to Section 5.1(c) of this Agreement, no such amendment may have the effect of changing the provisions for determining the number of shares of the Acquiring Fund to be issued to the shareholders of the Target Fund under this Agreement to the detriment of such shareholders without their further approval.
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15. | NOTICES |
Any notice, report, statement or demand required or permitted by any provisions of this Agreement shall be in writing and shall be given by facsimile, electronic delivery, personal service or prepaid or certified mail addressed to:
For the Acquiring Entity and LIAC:
c/o Lincoln Investment Advisors Corporation
150 N. Radnor Chester Road
Radnor, PA 19087
Fax:
Attn: Jayson Bronchetti, President
With a copy to:
Dechert LLP
650 Town Center Drive
Suite 700
Costa Mesa, CA 92626-7122
Attn: Robert A. Robertson
For the Target Entity and JPMIM:
277 Park Avenue
New York, NY 10172
Fax:
Attn:
with a copy to:
Dechert LLP 1095 Avenue of the Americas
New York, NY 10172
Fax:
Attn: Anthony H. Zacharski
16. | HEADINGS; GOVERNING LAW; COUNTERPARTS; ASSIGNMENT; LIMITATION OF LIABILITY |
16.1. The Article and Section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
16.2. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware and applicable federal law, without regard to its principles of conflicts of laws.
16.3. This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, but no assignment or transfer hereof or of any rights or obligations hereunder shall be made by any party without the written consent of the other parties. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement.
16.4. This Agreement may be executed in any number of counterparts, each of which shall be considered an original.
16.5. The Target Entity is a Massachusetts business trust. With respect to the Reorganization of each Target Fund, the Target Entity is executing this Agreement on behalf of the Target Fund only. Pursuant to the Trust
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Instrument of the Target Entity and Massachusetts law, there is a limitation on liability of each series such that (a) the debts, liabilities, obligations and expenses incurred, contracted or otherwise existing with respect to the Target Fund are enforceable against the assets of that Target Fund only, and not against its shareholders, Trustees, the assets of the Target Entity generally or the assets of any other series thereof, and (b) none of the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to the Target Entity generally or with respect to any other series thereof are enforceable against the assets of such Target Fund or its shareholders or Trustees.
16.6. The Acquiring Entity is a Delaware statutory trust. With respect to the Reorganization with each Acquiring Fund, the Acquiring Entity is executing this Agreement on behalf of the Acquiring Fund only. Pursuant to the Trust Instrument of the Acquiring Entity and Section 3804(a) of the Delaware Statutory Trust Act, there is a limitation on liability of each series such that (a) the debts, liabilities, obligations and expenses incurred, contracted or otherwise existing with respect to the Acquiring Fund are enforceable against the assets of that Acquiring Fund only, and not against the assets of the Acquiring Entity generally or the assets of any other series thereof, and (b) none of the debts, liabilities, obligations and expenses incurred, contracted for or otherwise existing with respect to the Acquiring Entity generally or with respect to any other series thereof are enforceable against the assets of such Acquiring Fund.
16.7. The parties expressly agree that their obligations hereunder shall not be binding upon any of their respective board members, shareholders, nominees, officers, agents, or employees personally, but, except as provided in Section 9.2 hereof, shall bind only the property of the applicable Target Fund or the applicable Acquiring Fund as provided in the Governing Documents of the applicable Target Entity or the applicable Acquiring Entity, respectively. The execution and delivery by such officers shall not be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the property of such party.
17. | PUBLICITY/CONFIDENTIALITY |
17.1. The parties shall cooperate on determining the manner in which any public announcements or similar publicity with respect to this Agreement or the transactions contemplated herein are made, provided that nothing herein shall prevent either party from making such public announcements as may be required by law, in which case the party issuing such statement or communication shall use all reasonable commercial efforts to advise the other party prior to such issuance.
17.2. The Target Entity, the Acquiring Entity, JPMIM and LIAC (for purposes of this Section 17, the “Protected Persons”) will hold, and will cause their board members, officers, employees, representatives, agents and affiliates to hold, in confidence, and not disclose to any other person, and not use in any way except in connection with the transactions herein contemplated, without the prior written consent of the other Protected Persons, any non-public information obtained from the other Protected Persons in connection with the transactions contemplated by this Agreement, except such information may be disclosed: (i) to governmental or regulatory bodies, and, where necessary, to any other person in connection with the obtaining of consents or waivers as contemplated by this Agreement; (ii) if required by court order or decree or applicable law; (iii) if it becomes publicly available through no act or failure to act of such party; (iv) if it was already known to such party on a non-confidential basis on the date of receipt; (v) during the course of or in connection with any litigation, government investigation, arbitration, or other proceedings based upon or in connection with the subject matter of this Agreement, including, without limitation, the failure of the transactions contemplated hereby to be consummated; or (vi) if it is otherwise expressly provided for herein.
17.3. In the event of a termination of this Agreement, the Protected Persons agree that they along with their employees, representative agents and affiliates shall, and shall cause their affiliates to, except with the prior written consent of the other Protected Persons, keep secret and retain in confidence, and not use for the benefit of itself or themselves, nor disclose to any other persons, any and all confidential or proprietary information relating
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to the other Protected Persons and their related parties and affiliates, whether obtained through their due diligence investigation, this Agreement or otherwise, except such information may be disclosed: (i) if required by court order or decree or applicable law; (ii) if it is publicly available through no act or failure to act of such party; (iii) if it was already known to such party on a non-confidential basis on the date of receipt; (iv) during the course of or in connection with any litigation, government investigation, arbitration, or other proceedings based upon or in connection with the subject matter of this Agreement, including, without limitation, the failure of the transactions contemplated hereby to be consummated; or (v) if it is otherwise expressly provided for herein.
[Signature pages follow]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be approved on behalf of the Acquiring Fund and Target Fund.
Lincoln Variable Insurance Products Trust, on behalf of its series identified on Exhibit A hereto | JPMorgan Insurance Trust, on behalf of its series identified on Exhibit A hereto | |||||||
By: |
| By: |
| |||||
Name: | Name: | |||||||
Title: | Title: |
Lincoln Investment Advisors Corporation, solely with respect to Sections 1.2(f), 5.1(a), 9.2, 14, 16.3, 17.2, and 17.3 | J.P. Morgan Investment Management Inc., solely with respect to 1.2(f), 5.1(a), 9.2, 14, 16.3, 17.2, and 17.3 | |||||||
By: |
| By: |
| |||||
Name: | Name: | |||||||
Title: | Title: |
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EXHIBIT A
CHART OF REORGANIZATIONS
Target Trust/Fund | Corresponding Acquiring Trust/Fund | |
JPMorgan Insurance Trust | Lincoln Variable Insurance Products Trust | |
JPMorgan Insurance Trust Core Bond Portfolio Class 1 Class 2 | LVIP JPMorgan Core Bond Fund Standard Class Service Class | |
JPMorgan Insurance Trust Mid Cap Value Portfolio Class 1 | LVIP JPMorgan Mid Cap Value Fund Standard Class | |
JPMorgan Insurance Trust Small Cap Core Portfolio Class 1 Class 2 | LVIP JPMorgan Small Cap Core Fund Standard Class Service Class | |
JPMorgan Insurance Trust U.S. Equity Portfolio Class 1 Class 2 | LVIP JPMorgan U.S. Equity Fund Standard Class Service Class |
Schedule 4.1(h)
Assigned Contracts
[ ]
Schedule 4.1(i)
Target Fund/Target Entity Litigation, Administrative Proceedings and Investigations
[ ]
Schedule 4.2(f)
Acquiring Fund Litigation, Administrative Proceedings and Investigations
[ ]
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Schedule 5.1(f)
Target Fund Statements, Books and Records
Type of Statements, Books or Records | Location | Method of Access | ||
Shareholder ledger accounts including, without limitation:
• the name, address and taxpayer identification number of each shareholder of record,
• the number of shares of beneficial interest held by each shareholder,
• the dividend reinvestment elections applicable to each shareholder, and
• the backup withholding and nonresident alien withholding certifications | [ ] | Electronic | ||
Information in connection with the Target Fund’s cost basis reporting and related obligations under Sections 1012, 6045, 6045A, and 6045B of the Code and related regulations issued by the United States Treasury (“Income Tax Regulations”) | ||||
Notices or records on file with the Target Fund with respect to each shareholder, for all of the shareholders of record of the Target Fund as of the close of business on the Closing Date, who are to become holders of the Acquiring Fund as a result of the transfer of Assets | ||||
Year-end shareholder tax reporting information including ICI broker files, Tax insert letters, and supporting calculations for the Target Fund | ||||
All IRS Forms 8937 (Report of Organizational Actions
Affecting Basis of Securities) filed or posted by the Target Fund |
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Type of Statements, Books or Records | Location | Method of Access | ||
Statement of the respective Tax1 basis (by lot) and holding period as of the most recent Tax year end of the Target Fund of all portfolio securities to be transferred by the Target Fund to the Acquiring Fund | ||||
Tax books and records of the Target Fund for purposes of preparing any Tax returns required by law to be filed for Tax periods ending after the Closing Date2 | ||||
A statement of any capital loss carryovers, for U.S. federal income tax purposes, of the Target Fund, as of the most recent Tax year end of the Target Fund, along with supporting workpapers providing information regarding any limitations on the use of such capital loss carryovers including information on any built-in gains and built-in losses of the Target Fund for purposes of applying applicable limitations on the use of such items under the Code | ||||
All Tax Returns filed by or on behalf of the Target Fund (including extensions) | ||||
Any of the following that have been issued to or for the benefit of the Target Fund: (a) rulings, determinations, holdings or opinions issued by any Tax authority and (b) Tax opinions |
1 | The terms “Tax” or “Taxes” and “Tax Return” as used in this Schedule 5.1(f) shall be as set forth in Section 4.1(l) of this Agreement. |
2 | Such Tax books and records shall include, but not be limited to, a statement of the current earnings and profits of the Target Fund for U.S. federal income tax purposes, a statement of the items that the Acquiring Fund will succeed to and take into account as a result of Section 381 of the Code and the current and historical books and records of the Target Fund to comply with regulatory requirements imposed under the Code and the Income Tax Regulations for all periods including, but not limited to, up to and including the Closing Date. |
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Type of Statements, Books or Records | Location | Method of Access | ||
All books and records related to testing the qualification of the Target Fund, excluding the C Corporation Target Fund, as a regulated investment company for Tax purposes (e.g., distribution requirement, qualifying income requirement, quarterly asset diversification requirement) | ||||
All books and records relating to the filing of FBARs (FinCEN Form 114, Report of Foreign Bank and Financial Accounts) by the Target Fund | ||||
Current and historical books and records of the Target Fund to comply with regulatory requirements imposed under the 1940 Act, including, without limitation, Section 31(a) of the 1940 Act and the rules thereunder, for all periods including, but not limited to, up to and including the Closing Date |
Schedule 8.6
Tax Opinions
With respect to each Reorganization:
(i) The acquisition by the Acquiring Fund of all of the Assets of the Target Fund, as provided for in the Agreement, in exchange for Acquiring Fund shares and the assumption by the Acquiring Fund of the Liabilities of the Target Fund, followed by the distribution by the Target Fund to its shareholders of the Acquiring Fund shares in complete liquidation of the Target Fund, will qualify as a reorganization within the meaning of Section 368(a)(1) of the Code, and the Target Fund and the Acquiring Fund each will be a “party to the reorganization” within the meaning of Section 368(b) of the Code.
(ii) No gain or loss will be recognized by the Target Fund upon (i) the transfer of all of its Assets to, and assumption of its Liabilities by, the Acquiring Fund in exchange solely for Acquiring Fund shares pursuant to Section 361(a) and Section 357(a) of the Code and (ii) the distribution of the Acquiring Fund shares by the Target Fund to its shareholders in complete liquidation (in pursuance of the Agreement) pursuant to Section 361(c)(1) of the Code, except that the Target Fund may be required to recognize gain or loss with respect to (A) contracts described in Section 1256(b) of the Code, (B) stock in a passive foreign investment company, as defined in Section 1297(a) of the Code, or (C) any other gain or loss required to be recognized upon the termination of a position, or upon the transfer of such asset regardless of whether such a transfer would otherwise be a nontaxable transaction under the Code.
(iii) No gain or loss will be recognized by the Acquiring Fund upon the receipt by it of all of the Assets of the Target Fund in exchange solely for the assumption of the Liabilities of the Target Fund and issuance of the Acquiring Fund shares pursuant to Section 1032(a) of the Code.
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(v) The tax basis of the Assets of the Target Fund received by the Acquiring Fund will be the same as the tax basis of such Assets in the hands of the Target Fund immediately prior to the transfer pursuant to Section 362(b) of the Code, except with respect to (A) contracts described in Section 1256(b) of the Code, (B) stock in a passive foreign investment company, as defined in Section 1297(a) of the Code, and (C) any other Asset on which gain was recognized by the Target Fund upon the termination of a position, or upon the transfer of such asset regardless of whether such a transfer would otherwise be a nontaxable transaction under the Code.
(vi) The holding periods of the Assets of the Target Fund in the hands of the Acquiring Fund will include the periods during which such Assets were held by the Target Fund pursuant to Section 1223(2) of the Code.
(vii) No gain or loss will be recognized by the shareholders of the Target Fund upon the exchange of all of their Target Fund shares for the Acquiring Fund shares pursuant to Section 354(a) of the Code.
(viii) The aggregate tax basis of the Acquiring Fund shares to be received by each shareholder of the Target Fund will be the same as the aggregate tax basis of Target Fund shares exchanged therefor pursuant to Section 358(a)(1) of the Code.
(ix) The holding period of Acquiring Fund shares received by a shareholder of the Target Fund will include the holding period of the Target Fund shares exchanged therefor, provided that the shareholder held Target Fund shares as a capital asset on the date of the exchange pursuant to Section 1223(1) of the Code.
(x) For purposes of Section 381 of the Code, the Acquiring Fund will succeed to and take into account, as of the date of the transfer as defined in Section 1.381(b)-1(b) of the Income Tax Regulations, the items of Target Fund described in Section 381(c) of the Code as if there had been no Reorganization, subject to the conditions and limitations specified in Sections 381, 382, 383 and 384 of the Code and, if applicable, the Income Tax Regulations promulgated thereunder.
This opinion does not address the tax consequences of the Reorganization to contracts or securities on which gain or loss is recognized upon the transfer of an asset regardless of whether such transfer would otherwise be a nonrecognition transaction under the Code.
76
These financial highlight tables are intended to help you understand the JPMorgan Portfolios’ financial performance for the past five fiscal years and are included in the JPMorgan Portfolios’ prospectuses which are each incorporated herein by reference. The financial highlights tables below provide additional information for the most recent 12-month annual reporting period.
The following tables set forth the per share operating performance data for a share outstanding, total return, ratios to average net assets and other supplemental data for each fiscal year ended December 31, except as otherwise indicated.
JPMorgan Insurance Trust Core Bond Portfolio
The financial highlights tables are intended to help you understand the Portfolio’s financial performance for the past five fiscal years or the period of the Portfolio’s operations, as applicable. Certain information reflects financial results for a single Portfolio share. The total returns in the tables represent the rate that an investor would have earned (or lost) on an investment in the Portfolio (assuming reinvestment of all dividends and distributions). The total returns do not include charges that will be imposed by variable insurance contracts or by Eligible Plans. If these charges were reflected, returns would be lower than those shown. This information for each period presented, except for the six months ended June 30, 2022, has been audited by PricewaterhouseCoopers LLP, whose report, along with the Portfolio’s financial statements, are included in the Portfolio’s annual report, which is available upon request.
To the extent the Portfolio invests in other funds, the Total Annual Fund Operating Expenses included in the fee table will not correlate to the ratio of expenses to average net assets in the financial highlights below.
Per share operating performance | ||||||||||||||||||||||||||||
Investment operations | Distributions | |||||||||||||||||||||||||||
Net asset value, beginning of period | Net investment income (loss)(b) | Net realized and unrealized gains (losses) on investments | Total from investment operations | Net investment income | Net realized gain | Total distributions | ||||||||||||||||||||||
JPMorgan Insurance Trust Core Bond Portfolio | ||||||||||||||||||||||||||||
Class 1 | ||||||||||||||||||||||||||||
Six Months Ended June 30, 2022 (Unaudited) | $ | 11.34 | $ | 0.11 | $ | (1.22 | ) | $ | (1.11 | ) | $ | (0.20 | ) | $ | (0.05 | ) | $ | (0.25 | ) | |||||||||
Year Ended December 31, 2021 | 11.88 | 0.21 | (0.37 | ) | (0.16 | ) | (0.22 | ) | (0.16 | ) | (0.38 | ) | ||||||||||||||||
Year Ended December 31, 2020 | 11.24 | 0.24 | 0.63 | 0.87 | (0.23 | ) | — | (0.23 | ) | |||||||||||||||||||
Year Ended December 31, 2019 | 10.66 | 0.30 | 0.56 | 0.86 | (0.28 | ) | — | (0.28 | ) | |||||||||||||||||||
Year Ended December 31, 2018 | 10.94 | 0.29 | (0.29 | ) | — | (h) | (0.26 | ) | (0.02 | ) | (0.28 | ) | ||||||||||||||||
Year Ended December 31, 2017 | 10.84 | 0.29 | 0.09 | 0.38 | (0.28 | ) | — | (0.28 | ) | |||||||||||||||||||
Class 2 | ||||||||||||||||||||||||||||
Six Months Ended June 30, 2022 (Unaudited) | 11.17 | 0.09 | (1.18 | ) | (1.09 | ) | (0.18 | ) | (0.05 | ) | (0.23 | ) | ||||||||||||||||
Year Ended December 31, 2021 | 11.72 | 0.17 | (0.37 | ) | (0.20 | ) | (0.19 | ) | (0.16 | ) | (0.35 | ) | ||||||||||||||||
Year Ended December 31, 2020 | 11.09 | 0.21 | 0.63 | 0.84 | (0.21 | ) | — | (0.21 | ) | |||||||||||||||||||
Year Ended December 31, 2019 | 10.53 | 0.27 | 0.55 | 0.82 | (0.26 | ) | — | (0.26 | ) | |||||||||||||||||||
Year Ended December 31, 2018 | 10.82 | 0.26 | (0.29 | ) | (0.03 | ) | (0.24 | ) | (0.02 | ) | (0.26 | ) | ||||||||||||||||
Year Ended December 31, 2017 | 10.73 | 0.26 | 0.09 | 0.35 | (0.26 | ) | — | (0.26 | ) |
77
Ratios/Supplemental data | ||||||||||||||||||||||||||||
Ratios to average net assets(a) | ||||||||||||||||||||||||||||
Net asset value, end of period | Total return(c)(d)(e) | Net assets, end of period (000’s) | Net expenses(f) | Net investment income (loss) | Expenses without waivers and reimbursements | Portfolio turnover rate(e) | ||||||||||||||||||||||
JPMorgan Insurance Trust Core Bond Portfolio | ||||||||||||||||||||||||||||
Class 1 | ||||||||||||||||||||||||||||
Six Months Ended June 30, 2022 (Unaudited) | $ | 9.98 | (9.68 | )% | $ | 148,169 | 0.53 | (g)% | 2.04 | (g)% | 0.54 | (g)% | 36 | % | ||||||||||||||
Year Ended December 31, 2021 | 11.34 | (1.35 | ) | 172,023 | 0.53 | 1.79 | 0.54 | 93 | ||||||||||||||||||||
Year Ended December 31, 2020 | 11.88 | 7.84 | 190,891 | 0.53 | 2.09 | 0.55 | 92 | |||||||||||||||||||||
Year Ended December 31, 2019 | 11.24 | 8.18 | 162,192 | 0.58 | 2.70 | 0.58 | 20 | |||||||||||||||||||||
Year Ended December 31, 2018 | 10.66 | 0.05 | 158,167 | 0.56 | 2.76 | 0.61 | 20 | |||||||||||||||||||||
Year Ended December 31, 2017 | 10.94 | 3.57 | 171,382 | 0.57 | 2.66 | 0.63 | 21 | |||||||||||||||||||||
Class 2 | ||||||||||||||||||||||||||||
Six Months Ended June 30, 2022 (Unaudited) | 9.85 | (9.80 | ) | 313,859 | 0.77 | (g) | 1.79 | (g) | 0.79 | (g) | 36 | |||||||||||||||||
Year Ended December 31, 2021 | 11.17 | (1.66 | ) | 350,986 | 0.78 | 1.54 | 0.79 | 93 | ||||||||||||||||||||
Year Ended December 31, 2020 | 11.72 | 7.68 | 340,885 | 0.78 | 1.82 | 0.79 | 92 | |||||||||||||||||||||
Year Ended December 31, 2019 | 11.09 | 7.87 | 218,268 | 0.83 | 2.45 | 0.83 | 20 | |||||||||||||||||||||
Year Ended December 31, 2018 | 10.53 | (0.23 | ) | 150,156 | 0.81 | 2.51 | 0.85 | 20 | ||||||||||||||||||||
Year Ended December 31, 2017 | 10.82 | 3.30 | 123,282 | 0.82 | 2.41 | 0.87 | 21 |
(a) | Annualized for periods less than one year, unless otherwise noted. |
(b) | Calculated based upon average shares outstanding. |
(c) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset values for financial reporting purposes and the returns based upon those net asset values may differ from the net asset values and returns for shareholder transactions. |
(d) | Total returns do not include charges that will be imposed by variable insurance contracts or by Eligible Plans. If these charges were reflected, returns would be lower than those shown. |
(e) | Not annualized for periods less than one year. |
(f) | Includes earnings credits and interest expense, if applicable, each of which is less than 0.005% unless otherwise noted. |
(g) | Certain non-recurring expenses incurred by the Portfolio were not annualized for the period indicated. |
(h) | Amount rounds to less than $0.005. |
78
JPMorgan Insurance Trust Mid Cap Value Portfolio
The financial highlights tables are intended to help you understand the Portfolio’s financial performance for the past five fiscal years or the period of the Portfolio’s operations, as applicable. Certain information reflects financial results for a single Portfolio share. The total returns in the tables represent the rate that an investor would have earned (or lost) on an investment in the Portfolio (assuming reinvestment of all dividends and distributions). The total returns do not include charges that will be imposed by variable insurance contracts or by Eligible Plans. If these charges were reflected, returns would be lower than those shown. This information for each period presented, except for the six months ended June 30, 2022, has been audited by PricewaterhouseCoopers LLP, whose report, along with the Portfolio’s financial statements, are included in the Portfolio’s annual report, which is available upon request.
To the extent the Portfolio invests in other funds, the Total Annual Fund Operating Expenses included in the fee table will not correlate to the ratio of expenses to average net assets in the financial highlights below. .
Per share operating performance | ||||||||||||||||||||||||||||
Investment operations | Distributions | |||||||||||||||||||||||||||
Net asset value, beginning of period | Net investment income (loss)(b) | Net realized and unrealized gains (losses) on investments | Total from investment operations | Net investment income | Net realized gain | Total distributions | ||||||||||||||||||||||
JPMorgan Insurance Trust Mid Cap Value Portfolio | ||||||||||||||||||||||||||||
Class 1 | ||||||||||||||||||||||||||||
Six Months Ended June 30, 2022 (Unaudited) | $ | 13.34 | $ | 0.07 | $ | (1.65 | ) | $ | (1.58 | ) | $ | (0.12 | ) | $ | (1.78 | ) | $ | (1.90 | ) | |||||||||
Year Ended December 31, 2021 | 10.89 | 0.11 | 3.11 | 3.22 | (0.12 | ) | (0.65 | ) | (0.77 | ) | ||||||||||||||||||
Year Ended December 31, 2020 | 11.81 | 0.12 | (0.28 | ) | (0.16 | ) | (0.15 | ) | (0.61 | ) | (0.76 | ) | ||||||||||||||||
Year Ended December 31, 2019 | 10.16 | 0.15 | 2.47 | 2.62 | (0.19 | ) | (0.78 | ) | (0.97 | ) | ||||||||||||||||||
Year Ended December 31, 2018 | 11.83 | 0.17 | (1.54 | ) | (1.37 | ) | (0.11 | ) | (0.19 | ) | (0.30 | ) | ||||||||||||||||
Year Ended December 31, 2017 | 10.98 | 0.11 | 1.34 | 1.45 | (0.09 | ) | (0.51 | ) | (0.60 | ) |
Ratios/Supplemental data | ||||||||||||||||||||||||||||
Ratios to average net assets(a) | ||||||||||||||||||||||||||||
Net asset value, end of period | Total return(c)(d)(e) | Net assets, end of period (000’s) | Net expenses(f) | Net investment income (loss) | Expenses without waivers and reimbursements | Portfolio turnover rate(e) | ||||||||||||||||||||||
JPMorgan Insurance Trust Mid Cap Value Portfolio | ||||||||||||||||||||||||||||
Class 1 | ||||||||||||||||||||||||||||
Six Months Ended June 30, 2022 (Unaudited) | $ | 9.86 | (13.18 | )% | $ | 439,249 | 0.76 | (g)% | 1.18 | (g)% | 0.76 | (g)% | 16 | % | ||||||||||||||
Year Ended December 31, 2021 | 13.34 | 29.88 | 529,038 | 0.76 | 0.86 | 0.76 | 22 | |||||||||||||||||||||
Year Ended December 31, 2020 | 10.89 | 0.37 | 447,529 | 0.76 | 1.20 | 0.77 | 20 | |||||||||||||||||||||
Year Ended December 31, 2019 | 11.81 | 26.76 | 494,297 | 0.76 | 1.31 | 0.77 | 10 | |||||||||||||||||||||
Year Ended December 31, 2018 | 10.16 | (11.84 | ) | 445,963 | 0.76 | 1.43 | 0.77 | 13 | ||||||||||||||||||||
Year Ended December 31, 2017 | 11.83 | 13.76 | 572,520 | 0.77 | 0.95 | 0.78 | 14 |
(a) | Annualized for periods less than one year, unless otherwise noted. |
(b) | Calculated based upon average shares outstanding. |
(c) | Not annualized for periods less than one year. |
(d) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset values for financial reporting purposes and the returns based upon those net asset values may differ from the net asset values and returns for shareholder transactions. |
79
(e) | Total returns do not include charges that will be imposed by variable insurance contracts or by Eligible Plans. If these charges were reflected, returns would be lower than those shown. |
(f) | Includes earnings credits and interest expense, if applicable, each of which is less than 0.005% unless otherwise noted. |
(g) | Certain non-recurring expenses incurred by the Portfolio were not annualized for the period indicated. |
80
JPMorgan Insurance Trust Small Cap Core Portfolio
The financial highlights tables are intended to help you understand the Portfolio’s financial performance for the past five fiscal years or the period of the Portfolio’s operations, as applicable. Certain information reflects financial results for a single Portfolio share. The total returns in the tables represent the rate that an investor would have earned (or lost) on an investment in the Portfolio (assuming reinvestment of all dividends and distributions). The total returns do not include charges that will be imposed by variable insurance contracts or by Eligible Plans. If these charges were reflected, returns would be lower than those shown. This information for each period presented, except for the six months ended June 30, 2022, has been audited by PricewaterhouseCoopers LLP, whose report, along with the Portfolio’s financial statements, are included in the Portfolio’s annual report, which is available upon request.
To the extent the Portfolio invests in other funds, the Total Annual Fund Operating Expenses included in the fee table will not correlate to the ratio of expenses to average net assets in the financial highlights below.
Per share operating performance | ||||||||||||||||||||||||||||
Investment operations | Distributions | |||||||||||||||||||||||||||
Net asset value, beginning of period | Net investment income (loss)(b) | Net realized and unrealized gains (losses) on investments | Total from investment operations | Net investment income | Net realized gain | Total distributions | ||||||||||||||||||||||
JPMorgan Insurance Trust Small Cap Core Portfolio | ||||||||||||||||||||||||||||
Class 1 | ||||||||||||||||||||||||||||
Six Months Ended June 30, 2022 (Unaudited) | $ | 28.40 | $ | 0.05 | $ | (6.16 | ) | $ | (6.11 | ) | $ | (0.11 | ) | $ | (5.04 | ) | $ | (5.15 | ) | |||||||||
Year Ended December 31, 2021 | 24.11 | 0.09 | 5.04 | 5.13 | (0.14 | ) | (0.70 | ) | (0.84 | ) | ||||||||||||||||||
Year Ended December 31, 2020 | 23.04 | 0.15 | 2.38 | 2.53 | (0.19 | ) | (1.27 | ) | (1.46 | ) | ||||||||||||||||||
Year Ended December 31, 2019 | 21.10 | 0.15 | 4.69 | 4.84 | (0.10 | ) | (2.80 | ) | (2.90 | ) | ||||||||||||||||||
Year Ended December 31, 2018 | 25.64 | 0.12 | (2.85 | ) | (2.73 | ) | (0.10 | ) | (1.71 | ) | (1.81 | ) | ||||||||||||||||
Year Ended December 31, 2017 | 22.49 | 0.10 | 3.30 | 3.40 | (0.08 | ) | (0.17 | ) | (0.25 | ) | ||||||||||||||||||
Class 2 | ||||||||||||||||||||||||||||
Six Months Ended June 30, 2022 (Unaudited) | 28.06 | 0.01 | (6.08 | ) | (6.07 | ) | (0.02 | ) | (5.04 | ) | (5.06 | ) | ||||||||||||||||
Year Ended December 31, 2021 | 23.85 | 0.01 | 4.98 | 4.99 | (0.08 | ) | (0.70 | ) | (0.78 | ) | ||||||||||||||||||
Year Ended December 31, 2020 | 22.79 | 0.09 | 2.37 | 2.46 | (0.13 | ) | (1.27 | ) | (1.40 | ) | ||||||||||||||||||
Year Ended December 31, 2019 | 20.91 | 0.09 | 4.63 | 4.72 | (0.04 | ) | (2.80 | ) | (2.84 | ) | ||||||||||||||||||
Year Ended December 31, 2018 | 25.41 | 0.05 | (2.82 | ) | (2.77 | ) | (0.02 | ) | (1.71 | ) | (1.73 | ) | ||||||||||||||||
Year Ended December 31, 2017 | 22.30 | 0.02 | 3.29 | 3.31 | (0.03 | ) | (0.17 | ) | (0.20 | ) |
81
Ratios/Supplemental data | ||||||||||||||||||||||||||||
Ratios to average net assets(a) | ||||||||||||||||||||||||||||
Net asset value, end of period | Total return(c)(d)(e) | Net assets, end of period (000’s) | Net expenses(f) | Net investment income (loss) | Expenses without waivers and reimbursements | Portfolio turnover rate(e) | ||||||||||||||||||||||
JPMorgan Insurance Trust Small Cap Core Portfolio | ||||||||||||||||||||||||||||
Class 1 | ||||||||||||||||||||||||||||
Six Months Ended June 30, 2022 (Unaudited) | $ | 17.14 | (23.03 | )% | $ | 163,353 | 0.82 | (g)% | 0.39 | (g)% | 0.82 | (g)% | 39 | % | ||||||||||||||
Year Ended December 31, 2021 | 28.40 | 21.38 | 218,952 | 0.80 | 0.33 | 0.80 | 67 | |||||||||||||||||||||
Year Ended December 31, 2020 | 24.11 | 13.69 | 201,489 | 0.84 | 0.76 | 0.84 | 95 | |||||||||||||||||||||
Year Ended December 31, 2019 | 23.04 | 24.58 | 198,542 | 0.83 | 0.66 | 0.84 | 83 | |||||||||||||||||||||
Year Ended December 31, 2018 | 21.10 | (11.93 | ) | 153,429 | 0.82 | 0.47 | 0.83 | 59 | ||||||||||||||||||||
Year Ended December 31, 2017 | 25.64 | 15.23 | 189,186 | 0.83 | 0.40 | 0.83 | 51 | |||||||||||||||||||||
Class 2 | ||||||||||||||||||||||||||||
Six Months Ended June 30, 2022 (Unaudited) | 16.93 | (23.14 | ) | 1,207 | 1.10 | (g) | 0.09 | (g) | 1.11 | (g) | 39 | |||||||||||||||||
Year Ended December 31, 2021 | 28.06 | 21.01 | 1,718 | 1.09 | 0.05 | 1.09 | 67 | |||||||||||||||||||||
Year Ended December 31, 2020 | 23.85 | 13.38 | 1,450 | 1.12 | 0.46 | 1.12 | 95 | |||||||||||||||||||||
Year Ended December 31, 2019 | 22.79 | 24.20 | 1,786 | 1.11 | 0.39 | 1.11 | 83 | |||||||||||||||||||||
Year Ended December 31, 2018 | 20.91 | (12.15 | ) | 1,031 | 1.09 | 0.20 | 1.10 | 59 | ||||||||||||||||||||
Year Ended December 31, 2017 | 25.41 | 14.93 | 1,111 | 1.09 | 0.10 | 1.10 | 51 |
(a) | Annualized for periods less than one year, unless otherwise noted. |
(b) | Calculated based upon average shares outstanding. |
(c) | Not annualized for periods less than one year. |
(d) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset values for financial reporting purposes and the returns based upon those net asset values may differ from the net asset values and returns for shareholder transactions. |
(e) | Total returns do not include charges that will be imposed by variable insurance contracts or by Eligible Plans. If these charges were reflected, returns would be lower than those shown. |
(f) | Includes earnings credits and interest expense, if applicable, each of which is less than 0.005% unless otherwise noted. |
(g) | Certain non-recurring expenses incurred by the Portfolio were not annualized for the period indicated. |
82
JPMorgan Insurance Trust U.S. Equity Portfolio
The financial highlights tables are intended to help you understand the Portfolio’s financial performance for the past five fiscal years or the period of the Portfolio’s operations, as applicable. Certain information reflects financial results for a single Portfolio share. The total returns in the tables represent the rate that an investor would have earned (or lost) on an investment in the Portfolio (assuming reinvestment of all dividends and distributions). The total returns do not include charges that will be imposed by variable insurance contracts or by Eligible Plans. If these charges were reflected, returns would be lower than those shown. This information for each period presented, except for the six months ended June 30, 2022, has been audited by PricewaterhouseCoopers LLP, whose report, along with the Portfolio’s financial statements, are included in the Portfolio’s annual report, which is available upon request.
To the extent the Portfolio invests in other funds, the Total Annual Fund Operating Expenses included in the fee table will not correlate to the ratio of expenses to average net assets in the financial highlights below.
Per share operating performance | ||||||||||||||||||||||||||||
Investment operations | Distributions | |||||||||||||||||||||||||||
Net asset value, beginning of period | Net investment income (loss)(b) | Net realized and unrealized gains (losses) on investments | Total from investment operations | Net investment income | Net realized gain | Total distributions | ||||||||||||||||||||||
JPMorgan Insurance Trust U.S. Equity Portfolio | ||||||||||||||||||||||||||||
Class 1 | ||||||||||||||||||||||||||||
Six Months Ended June 30, 2022 (Unaudited) | $ | 45.86 | $ | 0.13 | $ | (9.08 | ) | $ | (8.95 | ) | $ | (0.21 | ) | $ | (5.76 | ) | $ | (5.97 | ) | |||||||||
Year Ended December 31, 2021 | 37.40 | 0.20 | 10.44 | 10.64 | (0.31 | ) | (1.87 | ) | (2.18 | ) | ||||||||||||||||||
Year Ended December 31, 2020 | 32.27 | 0.30 | 7.16 | 7.46 | (0.26 | ) | (2.07 | ) | (2.33 | ) | ||||||||||||||||||
Year Ended December 31, 2019 | 26.63 | 0.26 | 7.81 | 8.07 | (0.26 | ) | (2.17 | ) | (2.43 | ) | ||||||||||||||||||
Year Ended December 31, 2018 | 32.43 | 0.27 | (1.93 | ) | (1.66 | ) | (0.27 | ) | (3.87 | ) | (4.14 | ) | ||||||||||||||||
Year Ended December 31, 2017 | 27.03 | 0.26 | 5.69 | 5.95 | (0.26 | ) | (0.29 | ) | (0.55 | ) | ||||||||||||||||||
Class 2 | ||||||||||||||||||||||||||||
Six Months Ended June 30, 2022 (Unaudited) | 45.14 | 0.08 | (8.93 | ) | (8.85 | ) | (0.09 | ) | (5.76 | ) | (5.85 | ) | ||||||||||||||||
Year Ended December 31, 2021 | 36.85 | 0.10 | 10.28 | 10.38 | (0.22 | ) | (1.87 | ) | (2.09 | ) | ||||||||||||||||||
Year Ended December 31, 2020 | 31.83 | 0.22 | 7.05 | 7.27 | (0.18 | ) | (2.07 | ) | (2.25 | ) | ||||||||||||||||||
Year Ended December 31, 2019 | 26.29 | 0.19 | 7.71 | 7.90 | (0.19 | ) | (2.17 | ) | (2.36 | ) | ||||||||||||||||||
Year Ended December 31, 2018 | 32.08 | 0.20 | (1.92 | ) | (1.72 | ) | (0.20 | ) | (3.87 | ) | (4.07 | ) | ||||||||||||||||
Year Ended December 31, 2017 | 26.74 | 0.19 | 5.64 | 5.83 | (0.20 | ) | (0.29 | ) | (0.49 | ) |
83
Ratios/Supplemental data | ||||||||||||||||||||||||||||
Ratios to average net assets(a) | ||||||||||||||||||||||||||||
Net asset value, end of period | Total return(c)(d)(e) | Net assets, end of period (000’s) | Net expenses(f) | Net investment income (loss) | Expenses without waivers and reimbursements | Portfolio turnover rate(e) | ||||||||||||||||||||||
JPMorgan Insurance Trust U.S. Equity Portfolio | ||||||||||||||||||||||||||||
Class 1 | ||||||||||||||||||||||||||||
Six Months Ended June 30, 2022 (Unaudited) | $ | 30.94 | (20.37 | )% | $ | 108,584 | 0.75 | (g)% | 0.64 | (g)% | 0.75 | (g)% | 25 | % | ||||||||||||||
Year Ended December 31, 2021 | 45.86 | 29.34 | 143,135 | 0.74 | 0.48 | 0.74 | 48 | |||||||||||||||||||||
Year Ended December 31, 2020 | 37.40 | 25.26 | 121,611 | 0.76 | 0.94 | 0.76 | 66 | |||||||||||||||||||||
Year Ended December 31, 2019 | 32.27 | 31.75 | 101,127 | 0.78 | 0.88 | 0.79 | 69 | |||||||||||||||||||||
Year Ended December 31, 2018 | 26.63 | (6.16 | ) | 84,126 | 0.74 | 0.89 | 0.79 | 95 | ||||||||||||||||||||
Year Ended December 31, 2017 | 32.43 | 22.28 | 97,287 | 0.75 | 0.89 | 0.79 | 91 | |||||||||||||||||||||
Class 2 | ||||||||||||||||||||||||||||
Six Months Ended June 30, 2022 (Unaudited) | 30.44 | (20.46 | ) | 13,522 | 1.00 | (g) | 0.39 | (g) | 1.00 | (g) | 25 | |||||||||||||||||
Year Ended December 31, 2021 | 45.14 | 29.01 | 17,139 | 0.99 | 0.23 | 0.99 | 48 | |||||||||||||||||||||
Year Ended December 31, 2020 | 36.85 | 24.95 | 18,556 | 1.01 | 0.69 | 1.01 | 66 | |||||||||||||||||||||
Year Ended December 31, 2019 | 31.83 | 31.44 | 17,054 | 1.03 | 0.64 | 1.03 | 69 | |||||||||||||||||||||
Year Ended December 31, 2018 | 26.29 | (6.42 | ) | 13,699 | 0.99 | 0.65 | 1.04 | 95 | ||||||||||||||||||||
Year Ended December 31, 2017 | 32.08 | 22.04 | 14,274 | 1.00 | 0.65 | 1.03 | 91 |
(a) | Annualized for periods less than one year, unless otherwise noted. |
(b) | Calculated based upon average shares outstanding. |
(c) | Not annualized for periods less than one year. |
(d) | Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset values for financial reporting purposes and the returns based upon those net asset values may differ from the net asset values and returns for shareholder transactions. |
(e) | Total returns do not include charges that will be imposed by variable insurance contracts or by Eligible Plans. If these charges were reflected, returns would be lower than those shown. |
(f) | Includes earnings credits and interest expense, if applicable, each of which is less than 0.005% unless otherwise noted. |
(g) | Certain non-recurring expenses incurred by the Portfolio were not annualized for the period indicated. |
84
OUTSTANDING SHARES OF THE JPMORGAN PORTFOLIOS
As of January 10, 2023, there were the following number of shares outstanding of each class of each JPMorgan Portfolio:
JPMorgan Portfolio/Share Class | Shares | |||
JPMorgan Insurance Trust Core Bond Portfolio | ||||
Class 1 | 15,266,914.45 | |||
Class 2 | 33,951,040.49 | |||
JPMorgan Insurance Trust Mid Cap Value Portfolio | ||||
Class 1 | 67,622.22 | |||
JPMorgan Insurance Trust Small Cap Core Portfolio | ||||
Class 1 | 9,165,842.49 | |||
Class 2 | 3,336,291.07 | |||
JPMorgan Insurance Trust U.S. Equity Portfolio | ||||
Class 1 | 455,947.29 | |||
Class 2 | 42,547,094.37 |
85
OWNERSHIP OF SHARES OF THE JPMORGAN PORTFOLIOS
Significant Holders
Listed below is the name, address and percent ownership of each person who, as of January 10, 2023, to the best knowledge of the JPMorgan Portfolios owned of record or beneficially 5% or more of the outstanding shares of each class of each JPMorgan Portfolio. A shareholder who owns beneficially 25% or more of the outstanding securities of a JPMorgan Portfolio is presumed to “control” the Fund as defined in the 1940 Act. Such control may affect the voting rights of other shareholders.
FUND/CLASS/SHAREHOLDER | SHAREHOLDER ADDRESS | PERCENT OWNED OF RECORD | ||||
JPMorgan Insurance Trust Core Bond Portfolio | ||||||
Class 1 | ||||||
NATIONWIDE LIFE INSURANCE COMPANY | C/O IPO PORTFOLIO ACCOUNTING PO BOX 182029 COLUMBUS OH 43218-2029 | 30.35 | % | |||
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY | 1300 S CLINTON ST FORT WAYNE IN 46802-3506 | 13.60 | % | |||
TALCOTT RESOLUTION LIFE INS CO SEPARATE ACCOUNT 7 | PO BOX 5051 HARTFORD CT 06102-5051 | 10.65 | % | |||
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY | C/O IPO PORTFOLIO ACCOUNTING PO BOX 182029 COLUMBUS OH 43218-2029 | 10.33 | % | |||
GREAT-WEST LIFE & ANNUITY FBO COLI VUL 7 | 8515 E ORCHARD RD # 2T2 GREENWOOD VLG CO 80111-5002 | 6.35 | % | |||
Class 2 | ||||||
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY | 1300 S CLINTON ST FORT WAYNE IN 46802-3506 | 60.91 | % | |||
NATIONWIDE LIFE INSURANCE COMPANY | C/O IPO PORTFOLIO ACCOUNTING PO BOX 182029 COLUMBUS OH 43218-2029 | 18.61 | % | |||
DELAWARE LIFE INSURANCE COMPANY | 1601 TRAPELO RD STE 30 WALTHAM MA 02451-7360 | 9.31 | % | |||
JPMorgan Insurance Trust Mid Cap Value Portfolio | ||||||
Class 1 | ||||||
OHIO NATIONAL LIFE INS COMPANY FOR THE BENEFIT OF ITS SEPARATE ACCTS | ATTN DAWN CAIN ONE FINANCIAL WAY CINCINNATI OH 45242-5800 | 39.74 | % | |||
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY | C/O IPO PORTFOLIO ACCOUNTING PO BOX 182029 COLUMBUS OH 43218-2029 | 25.52 | % | |||
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY | C/O IPO PORTFOLIO ACCOUNTING PO BOX 182029 COLUMBUS OH 43218-2029 | 11.49 | % |
86
FUND/CLASS/SHAREHOLDER | SHAREHOLDER ADDRESS | PERCENT OWNED OF RECORD | ||||
MODERN WOODMEN OF AMERICA | C/O PRODUCT VALUATION 5801 SW SIXTH AVE TOPEKA KS 66636-0001 | 5.48 | % | |||
JPMorgan Insurance Trust Small Cap Core Portfolio | ||||||
Class 1 | ||||||
OHIO NATIONAL LIFE INS COMPANY FOR THE BENEFIT OF ITS SEPARATE ACCTS | ATTN DAWN CAIN ONE FINANCIAL WAY CINCINNATI OH 45242-5800 | 33.69 | % | |||
TALCOTT RESOLUTION LIFE INSURANCE COMPANY COLI SEPARATE ACCOUNT IV | PO BOX 5051 HARTFORD CT 06102-5051 | 19.61 | % | |||
MODERN WOODMEN OF AMERICA | C/O PRODUCT VALUATION 5801 SW SIXTH AVE TOPEKA KS 66636-0001 | 16.83 | % | |||
Class 2 | ||||||
COUNTRY INVESTORS LIFE ASSURANCE COMPANY | 5400 UNIVERSITY AVE WDM IA 50266-5950 | 31.43 | % | |||
GREAT-WEST LIFE & ANNUITY FBO VARIABLE ANNUITY 2 SMARTTRACK I | 8515 E ORCHARD RD # 2T2 GREENWOOD VLG CO 80111-5002 | 29.56 | % | |||
SECURITY BENEFIT LIFE VARIABLE ANNUITY ACCOUNT XIV | ONE SECURITY BENEFIT PLACE TOPEKA KS 66636-0001 | 21.16 | % | |||
FARM BUREAU LIFE INSURANCE COMPANY | ATTN MUTUAL FUNDS ACCOUNTING 5400 UNIVERSITY AVE W DES MOINES IA 50266-5950 | 10.79 | % | |||
JPMorgan Insurance Trust U.S. Equity Portfolio | ||||||
Class 1 | ||||||
HORACE MANN LIFE INSURANCE CO SEPARATE ACCOUNT | ATTN WILLIAM J KELLY 1 HORACE MANN PLZ SPRINGFIELD IL 62715-0002 | 43.79 | % | |||
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY | C/O IPO PORTFOLIO ACCOUNTING PO BOX 182029 COLUMBUS OH 43218-2029 | 14.94 | % | |||
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY | 1300 S CLINTON ST FORT WAYNE IN 46802-3506 | 5.54 | % | |||
FOR THE SOLE BENEFIT OF CUSTOMERS LOMBARD INTERNATIONAL LIFE ASSURANCE COMPANY | 1650 MARKET ST FL 45 PHILADELPHIA PA 19103-7341 | 5.24 | % |
87
FUND/CLASS/SHAREHOLDER | SHAREHOLDER ADDRESS | PERCENT OWNED OF RECORD | ||||
Class 2 | ||||||
DELAWARE LIFE INSURANCE COMPANY | 1601 TRAPELO RD STE 30 WALTHAM MA 02451-7360 | 77.28 | % | |||
AMERICAN ENTERPRISE LIFE INSURANCE CORP | 222 AMPF FINANCIAL CENTER MINNEAPOLIS MN 55474-0001 | 14.47 | % | |||
DELAWARE LIFE INSURANCE COMPANY OF NEW YORK | ATTN: OPERATIONAL CONTROL 1601 TRAPELO RD STE 30 WALTHAM MA 02451-7360 | 6.33 | % |
88
COMPARISON OF INVESTMENT ADVISORY FEES
Fund Name | Effective Management Fee as of 6/30/2022 | Acquiring Fund | Estimated Acquiring Fund Effective Management Fee | |||||||
JPMorgan Insurance Trust Core Bond Portfolio | 0.40 | % | LVIP JPMorgan Core Bond Fund | 0.40 | % | |||||
JPMorgan Insurance Trust Mid Cap Value Portfolio | 0.65 | % | LVIP JPMorgan Mid Cap Value Fund | 0.65 | % | |||||
JPMorgan Insurance Trust Small Cap Core Portfolio | 0.65 | % | LVIP JPMorgan Small Cap Core Fund | 0.65 | % | |||||
JPMorgan Insurance Trust U.S. Equity Portfolio | 0.55 | % | LVIP JPMorgan U.S. Equity Fund | 0.55 | % |
Comparative Investment Advisory Fee Schedules
JPMorgan Portfolio | JPMorgan Portfolio Investment Advisory Fee Schedule | Corresponding Acquiring Fund | Acquiring Fund Investment Advisory Fee Schedule | |||
JPMorgan Insurance Trust Core Bond Portfolio | 0.40% of the Portfolio’s average daily net assets | LVIP JPMorgan Core Bond Fund | 0.40% of the Fund’s average daily net assets | |||
JPMorgan Insurance Trust Mid Cap Value Portfolio | 0.65% of the Portfolio’s average daily net assets | LVIP JPMorgan Mid Cap Value Fund | 0.65% of the Fund’s average daily net assets | |||
JPMorgan Insurance Trust Small Cap Core Portfolio | 0.65% of the Portfolio’s average daily net assets | LVIP JPMorgan Small Cap Core Fund | 0.65% of the Fund’s average daily net assets | |||
JPMorgan Insurance Trust U.S. Equity Portfolio | 0.55% of the Portfolio’s average daily net assets | LVIP JPMorgan U.S. Equity Fund | 0.55% of the Fund’s average daily net assets |
A discussion regarding the basis for the Board’s approval of a Fund’s investment advisory and sub-advisory contracts is available in the Fund’s next annual or semi-annual report to shareholders.
89
J.P. MORGAN | ||
PO Box 43131 Providence, RI 02940-3131 | EVERY VOTE IS IMPORTANT | |
EASY VOTING OPTIONS: | ||||
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Follow the on-screen instructions | ||||
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Call 1-800-337-3503 | ||||
Follow the recorded instructions | ||||
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VOTE IN PERSON | ||||
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New York, NY 10172 on March 15, 2023 |
Please detach at perforation before mailing.
PROXY | JPMORGAN INSURANCE TRUST JOINT SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON MARCH 15, 2023 |
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES. The undersigned shareholder of each of the portfolio(s) listed on the back of this card, each a series of JP Morgan Insurance Trust hereby appoints Tim Clemens, Anthony Geron and Joe Parascondola, or any of them, the attorneys and proxies for the undersigned, with full power of substitution to vote, as indicated herein, all of the shares of beneficial interest of the Portfolio(s) in the name of the undersigned at the Joint Special Meeting of Shareholders to be held at 277 Park Avenue, New York, New York 10172, on Wednesday, March 15, 2023, at 10:00 a.m., Eastern Time and at any adjournment or postponement thereof (the “Meeting”), with all of the powers the undersigned would possess if then and there personally present and especially (but without limiting the general authorization and power hereby given) to vote as indicated on the proposal(s), as more fully described in the Joint Proxy Statement/Prospectus. The undersigned hereby acknowledges receipt of the Notice of the Joint Special Meeting of Shareholders and of the accompanying Joint Proxy Statement/Prospectus, the terms of each of which are incorporated by reference, and revokes any proxy heretofore given with respect to such meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF THIS PROXY IS PROPERLY EXECUTED BUT NO DIRECTION IS MADE, AN EXECUTED PROXY WILL AUTHORIZE THE PERSONS NAMED ON THE RESPECTIVE PROXY TO VOTE FOR THE PROPOSAL(S) AND IN THE DISCRETION OF THE PROXY HOLDERS ON ANY OTHER MATTER PROPERLY BROUGHT BEFORE THE MEETING.
VOTE VIA THE TELEPHONE: 1-800-337-3503
VOTE VIA THE INTERNET: www.proxy-direct.com
JPM_33120_011323
UNLESS VOTING BY TELEPHONE OR INTERNET, PLEASE SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
xxxxxxxxxxxxxx | code |
EVERY SHAREHOLDER’S VOTE IS IMPORTANT
Important Notice Regarding the Availability of Proxy Materials for the
Joint Special Shareholders Meeting to Be Held on March 15, 2023
The Notice of the Joint Special Meeting, Joint Proxy Statement/Prospectus
and Proxy Card for this meeting are available at:
https://www.proxy-direct.com/jpm-33120
PORTFOLIOS | PORTFOLIOS | PORTFOLIOS | ||
JPMorgan Insurance Trust Core Bond Portfolio | JPMorgan Insurance Trust Mid Cap Value Portfolio | JPMorgan Insurance Trust Small Cap Core Portfolio | ||
JPMorgan Insurance Trust U.S. Equity Portfolio |
Please detach at perforation before mailing.
TO VOTE MARK BLOCKS BELOW IN BLUE OR BLACK INK AS SHOWN IN THIS Example: ☒
ProposalsTHEBOARDOFTRUSTEESOFTHETRUSTUNANIMOUSLYRECOMMENDSTHATYOUVOTEFORTHEPROPOSALS.
1. | To approve an Agreement and Plan of Reorganization (the “Agreement”) providing for: |
1(a) | The reorganization of the JPMorgan Insurance Trust Core Bond Portfolio into the LVIP JPMorgan Core Bond Fund. |
FOR | AGAINST | ABSTAIN | ||||
JPMorgan Insurance Trust Core Bond Portfolio | ☐ | ☐ | ☐ | |||
1(b) The reorganization of the JPMorgan Insurance Trust Mid Cap Value Portfolio into the LVIP JPMorgan Mid Cap Value Fund. | ||||||
FOR | AGAINST | ABSTAIN | ||||
JPMorgan Insurance Trust Mid Cap Value Portfolio | ☐ | ☐ | ☐ | |||
1(c) The reorganization of the JPMorgan Insurance Trust Small Cap Core Portfolio into the LVIP JPMorgan Small Cap Core Fund. | ||||||
FOR | AGAINST | ABSTAIN | ||||
JPMorgan Insurance Trust Small Cap Core Portfolio | ☐ | ☐ | ☐ | |||
1(d) The reorganization of the JPMorgan Insurance Trust U.S. Equity Portfolio into the LVIP JPMorgan U.S. Equity Fund. | ||||||
FOR | AGAINST | ABSTAIN | ||||
JPMorgan Insurance Trust U.S. Equity Portfolio | ☐ | ☐ | ☐ |
2. | To transact such other business as may properly come before the meeting. |
Authorized Signatures — This section must be completed for your vote to be counted.— Sign and Date Below
Note: | Please sign exactly as your name(s) appear(s) on this Proxy Card, and date it. When shares are held jointly, each holder should sign. When signing as attorney, executor, guardian, administrator, trustee, officer of corporation or other entity or in another representative capacity, please give the full title under the signature. |
Date (mm/dd/yyyy) — Please print date below | Signature 1 — Please keep signature within the box | Signature 2 — Please keep signature within the box |
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PART B
STATEMENT OF ADDITIONAL INFORMATION
January 30, 2023
LINCOLN VARIABLE INSURANCE PRODUCTS TRUST
LVIP JPMorgan Core Bond Fund
LVIP JPMorgan Mid Cap Value Fund
LVIP JPMorgan Small Cap Core Fund
LVIP JPMorgan U.S. Equity Fund
1301 South Harrison Street
Fort Wayne, Indiana 46802
This Statement of Additional Information (“SAI”) is not a prospectus but contains additional information that should be read in conjunction with the Combined Proxy Statement/Prospectus dated January 30, 2023 (the “Combined Proxy Statement/Prospectus”), relating to the proposed reorganizations (each, a “Reorganization” and collectively, the “Reorganizations”) of each fund identified below under the heading “JPMorgan Portfolios,” each a series of JPMorgan Insurance Trust (each, a “JPMorgan Portfolio” and collectively, the “JPMorgan Portfolios”), into a corresponding, newly formed series identified below under the heading “Corresponding Acquiring Funds,” each a series of Lincoln Variable Insurance Products Trust (each, an “Acquiring Fund” and collectively, the “Acquiring Funds”).
This SAI relates specifically to the Joint Special Meeting of Shareholders to be held on March 15, 2023 for each of the JPMorgan Portfolios listed below:
JPMorgan Portfolios | Corresponding Acquiring Funds | |
JPMorgan Insurance Trust Core Bond Portfolio | LVIP JPMorgan Core Bond Fund | |
Class 1 | Standard Class | |
Class 2 | Service Class | |
JPMorgan Insurance Trust Mid Cap Value Portfolio | LVIP JPMorgan Mid Cap Value Fund | |
Class 1 | Standard Class | |
JPMorgan Insurance Trust Small Cap Core Portfolio | LVIP JPMorgan Small Cap Core Fund | |
Class 1 | Standard Class | |
Class 2 | Service Class | |
JPMorgan Insurance Trust U.S. Equity Portfolio | LVIP JPMorgan U.S. Equity Fund | |
Class 1 | Standard Class | |
Class 2 | Service Class |
Copies of the Combined Proxy Statement/Prospectus may be obtained 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). Once available, you may also call this number to request other information about each Fund, or to make inquiries. Once available, each Acquiring Fund’s SAI and annual and semi-annual reports will be available, free of charge, at https://www.lfg.com/LVIP.
General Information
This SAI relates to the acquisition of the assets and liabilities of each JPMorgan Portfolio by its corresponding Acquiring Fund. Each Acquiring Fund is a series of Lincoln Variable Insurance Products Trust. Each JPMorgan Portfolio is a series of JPMorgan Insurance Trust. Further information is included in the Combined Proxy Statement/Prospectus and in the documents, listed below, that are incorporated by reference into this SAI.
Incorporation of Documents by Reference
Because each Acquiring Fund was newly created for purposes of this transaction, no Acquiring Fund has published an annual or semi-annual report to shareholders. Each JPMorgan Portfolio shall be the accounting and performance survivor in the applicable Reorganization, with the result that the corresponding Acquiring Fund, as the corporate survivor in the Reorganization, shall adopt the accounting and performance history of the JPMorgan Portfolio. This SAI incorporates by reference the following documents, which have each been filed with the Securities and Exchange Commission:
Supplemental Financial Information
Tables showing the fees and expenses of each JPMorgan Portfolio and its corresponding Acquiring Fund, and the fees and expenses of the Acquiring Fund on a pro forma basis after giving effect to the Reorganization, are included in the “Comparison of Fees and Expenses” section in the Combined Proxy Statement/Prospectus.
It is currently anticipated that in each Reorganization, all of the Acquired Fund’s holdings will be transferred in-kind to the corresponding Acquiring Fund. Each Acquiring Fund expects to retain such holdings except for any trades entered into in the normal course of business, with no turnover expected to result from the Reorganization.
There are no material differences in the accounting, valuation and tax policies of the JPMorgan Portfolios as compared to those of the Acquiring Fund. The Acquiring Funds and JPMorgan Portfolios use different pricing vendors, and this may cause the values of the respective Funds’ share values to vary higher or lower on the date of the Reorganization. We do not believe that changes due to the differences in the valuation vendors will have a material impact on the value of a shareholder’s investment. As of November 22, 2022, the differences in valuation vendors would cause the value of the Standard Class of the LVIP JPMorgan Core Bond Fund shares you receive in the Reorganization to be approximately $0.01 per share higher than the value of your JPMorgan Core Bond Portfolio shares immediately prior to the Reorganization, and would causes no change to Fund share values for the remaining Reorganizations.
ADDITIONAL INFORMATION ABOUT THE ACQUIRING FUNDS
The additional information that follows relates solely to the Acquiring Funds (each referred to below as the “Fund” or the “Funds”), each a series of Lincoln Variable Insurance Products Trust. The additional information that follows is not a prospectus. It should be read in conjunction with the Prospectus/Proxy Statement. To obtain a free copy of the Prospectus/Proxy Statement, please write The Lincoln National Life Insurance Company, P.O. Box 2340, Fort Wayne, Indiana 46801, or call: 1-800-4LINCOLN (454-6265). Once available, you may also call this number to request other information about each Fund, or to make inquiries. Each Fund’s SAI and annual and semi-annual reports will be available, free of charge, at https://www.lfg.com/LVIP.
Each Fund was formed in connection with the Reorganization. On May 1, 2023, each Fund is expected to acquire the assets and liabilities of the respective Acquired Fund in a tax-free reorganization, while maintaining a substantially similar investment objective, and substantially similar investment strategies and policies. Each Acquiring Fund will be advised by Lincoln Investment Advisors Corporation (“LIAC”), a registered investment adviser and wholly-owned subsidiary of The Lincoln National Life Insurance Company
The audited financial statements of each Acquired Fund for the Acquired Fund’s fiscal year ended December 31, 2021, including notes thereto and the report of each Acquired Fund’s independent registered public accounting firm thereon, are herein incorporated by reference from the Acquired Fund’s Annual Report. A copy of each Acquired Fund’s December 31, 2021 Annual Report must accompany the delivery of this SAI.
Item | Page | |||
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27 | ||||
28 | ||||
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41 | ||||
41 | ||||
41 | ||||
41 | ||||
42 | ||||
42 | ||||
42 | ||||
43 | ||||
44 | ||||
44 | ||||
44 | ||||
46 | ||||
46 | ||||
46 | ||||
46 | ||||
46 | ||||
49 | ||||
51 | ||||
Appendix C — Compensation Structures and Methodologies of Portfolio Managers | 56 |
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.
Prior to April 30, 2003, each fund in the Trust in existence at the time was organized as a separate Maryland corporation (each, a predecessor fund). Eleven series of the Trust are successors to a predecessor fund, the assets and liabilities of which were acquired and assumed, respectively, on April 30, 2003.
Each of the Funds is diversified within the meaning of the Investment Company Act of 1940 (“1940 Act”).
References to “Adviser” in this SAI include both Lincoln Investment Advisors Corporation (“LIAC”) and a Fund’s sub-adviser unless the context otherwise indicates.
The Funds have had no changes to their name within the past five years.
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 Fund’s 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. |
4
The Securities and Exchange Commission’s (“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. See 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 Fund’s 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 fund’s total assets from banks, and to borrow up to 5% of the fund’s 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 fund’s 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 fund’s 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 fund’s total assets from banks. A fund also may borrow an amount equal to up to 5% of the fund’s total assets from banks or other lenders for temporary purposes, and these borrowings would not be considered senior securities.
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 Fund’s prospectus.
Unless otherwise stated in the prospectus, investment strategies and techniques are generally discretionary. This means a Fund’s 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.
Below describes additional information concerning the investment strategies that the Funds may employ, either principal or discretionary, and the risks of those investment strategies.
All Funds Investments
The following additional investment strategy and risk information relates to all Funds.
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 Fund’s total assets. Each Fund may also borrow money for temporary purposes in an amount not to exceed 5% of the Fund’s 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 Fund’s total assets made for temporary purposes. Any borrowings for temporary purposes in excess of 5% of a Fund’s 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 Fund’s investment portfolio. Money borrowed will be subject to interest costs and other fees, which could reduce a Fund’s 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.
5
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 Fund’s 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.
Environment, Social, and Governance (“ESG”). Although a Fund does not seek to implement a specific ESG, impact or sustainability strategy unless disclosed in its prospectus, the Fund’s investment process may integrate ESG factors with traditional fundamental factors. The weight given to any particular ESG factor varies across asset classes, sectors, and strategies and no one factor is determinative. When integrating ESG factors into the investment process, the Fund may rely on third-party data believed to be reliable, but the accuracy of such third-party data is not guaranteed. ESG information from third-party data providers may be incomplete, inaccurate, or unavailable, which may adversely impact the investment process. Moreover, ESG information, regardless of its source, is mostly based on a qualitative and subjective assessment. An element of subjectivity and discretion is therefore inherent to the interpretation and use of ESG data. While the Fund believes that consideration of ESG factors has the potential to identify financial risks and contribute to long-term performance, ESG factors may not be considered for each and every investment decision, and there is no guarantee that the consideration of ESG factors will result in better performance. Investor views on positive or negative ESG characteristics can differ, and the current lack of common standards may result in different approaches to considering ESG factors. Accordingly, the Fund may invest in companies that do not reflect the beliefs and values of any particular investor. A Fund’s approach to ESG integration may evolve and develop over time, both due to a refinement of investment decision-making processes to address ESG factors and risks, and because of legal and regulatory developments.
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 Fund’s 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 Fund’s 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.
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.
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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 Fund’s investment performance is affected by each underlying fund’s investment performance, and the Fund’s ability to achieve its investment objective depends, in large part, on each underlying fund’s ability to meet its investment objective. In addition, Fund shareholders indirectly bear the expenses charged by the underlying funds.
In 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 permits such investments in excess of statutory limits, subject to certain conditions. The Fund of Funds began relying on Rule 12d1-4 after January 19, 2021, the compliance date for the Rule.
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 obligation’s 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 investment’s 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 Fund’s 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.
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 company’s 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.
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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 seller’s 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.
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 Fund’s assets and may be viewed as a form of leverage.
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 Fund’s records will be marked to market daily. This may limit the Fund’s 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
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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 adviser’s 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 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.
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 Fund’s principal investment strategies, including but not limited to, holding a substantial portion of the Fund’s 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.
Equity Investments
The following additional investment strategy and risk information relates to each Fund that may invest in equity securities.
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.
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.
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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 company’s performance, such as the strength of its management or the demand for its products or services, and the value of a Fund’s 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 Funds (“ETFs”). 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 ETF’s 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 ETF’s 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 ETF’s shares may widen during the time when the ETF’s 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 ETF’s investment results are based on the ETF’s 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 ETF’s daily NAV.
ETF Authorized Participant Concentration Risk. For an underlying exchange-traded fund, 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 ETF’s shares may be more likely to trade at a premium or discount to NAV and possibly face trading halts or delisting.
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.
Fixed Income Investments
The following additional investment strategy and risk information relates to each Fund that may invest in fixed-income securities.
Asset-Backed Securities. Asset-backed securities represent interests in pools of mortgages, loans, receivables or other assets. Payment of interest and repayment of principal may be largely dependent upon the cash flows generated by the assets backing the securities and, in certain cases, supported by letters of credit, surety bonds, or other credit enhancements. Asset-backed security values may also be affected by other factors, including changes in interest rates, the availability of information concerning the pool and its structure, the creditworthiness of the servicing agent for the pool, the originator of the loans or receivables, or the entities providing any credit enhancement. If the required payments of principal and interest are not made to the trust with respect to the underlying loans after the credit enhancement is exhausted, certificate holders may experience losses or delays in payment.
For many asset-backed securities, the cash flows from the pool are split into two or more portions, called tranches, varying in risk and yield. The riskiest portion is the “equity” tranche, which bears the first loss from defaults from the bonds or loans in the pool and serves to protect the other, more senior tranches from default (though such protection is not complete). Since it is partially protected from defaults, a senior tranche from an asset-backed security typically has higher ratings and lower yields than its underlying securities, and may be rated investment grade. Despite the protection from the equity tranche, asset-backed security tranches can experience substantial losses.
In addition, these securities may be subject to prepayment risk. Prepayment, which occurs when unscheduled or early payments are made on the underlying obligations, may shorten the effective maturities of these securities and may lower their total returns. Additionally, asset-backed securities are also subject to maturity extension risk. This is the risk that in a period of rising interest rates, prepayments may occur at a slower than expected rate, which may cause these securities to fluctuate more widely in response to changes in interest rates.
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A Fund may invest in each of collateralized debt obligations (“CDOs”), collateralized bond obligations (“CBOs”), collateralized loan obligations (“CLOs”) and other similarly structured securities. CDOs are types of asset-backed securities. A CBO is ordinarily issued by a trust or other special purpose entity (SPE) and is typically backed by a diversified pool of fixed-income securities (which may include high risk, below investment grade securities) held by such issuer. A CLO is ordinarily issued by a trust or other SPE and is typically collateralized by a pool of loans, which may include, among others, domestic and non-U.S. senior secured loans, senior unsecured loans, and subordinate corporate loans, including loans that may be rated below investment grade or equivalent unrated loans, held by such issuer. Although certain CDOs may benefit from credit enhancement in the form of a senior-subordinate structure, over-collateralization or bond insurance, such enhancement may not always be present, and may fail to protect a Fund against the risk of loss on default of the collateral. Certain CDO issuers may use derivatives contracts to create synthetic exposure to assets rather than holding such assets directly, which entails the risks of derivative instruments described elsewhere in this SAI. CDOs may charge management fees and administrative expenses, which are in addition to those of a Fund.
Interest on certain tranches of a CDO may be paid in kind or deferred and capitalized (paid in the form of obligations of the same type rather than cash), which involves continued exposure to default risk with respect to such payments. The risks of an investment in a CDO depend largely on the type of the collateral securities and the class of the CDO in which a Fund invests. Normally, CBOs, CLOs and other CDOs are privately offered and sold, and thus are not registered under the securities laws. As a result, investments in CDOs may be illiquid. However, an active dealer market may exist for CDOs, allowing a CDO to qualify for Rule 144A transactions. In addition to the normal risks associated with fixed-income securities and asset-backed securities, CDOs carry additional risks including, but not limited to: (i) the possibility that distributions from collateral securities will not be adequate to make interest or other payments; (ii) the risk that the collateral may default or decline in value or be downgraded, if rated by a nationally recognized statistical rating organization; (iii) a Fund may invest in tranches of CDOs that are subordinate to other tranches; (iv) the structure and complexity of the transaction and the legal documents could lead to disputes among investors regarding the characterization of proceeds; (v) the investment return achieved by a Fund could be significantly different than those predicted by financial models; (vi) the lack of a readily available secondary market for CDOs; (vii) risk of forced fire sale liquidation due to technical defaults such as coverage test failures; and (viii) the CDO’s manager may perform poorly.
Debt and Other Fixed-Income Securities. Fixed-income securities include, but are not limited to, preferred stocks, warrants, stock rights, corporate bonds and debentures and longer-term government securities, Brady Bonds, zero coupon bonds and pay-in-kind bonds. Fixed-income securities also include mortgage-backed securities, which are debt obligations issued by government agencies and other non-government agency issuers. Mortgage-backed securities include obligations backed by a mortgage or pool of mortgages and direct interests in an underlying pool of mortgages. Mortgage-backed securities also include collateralized mortgage obligations (CMOs). The mortgages involved could be those on commercial or residential real estate properties. Fixed-income securities may be issued by U.S. companies, the U.S. Government and its agencies and instrumentalities, foreign companies, foreign governments and their agencies and instrumentalities, and supranational organizations such as (but not limited to) the European Economic Community and the World Bank, or other issuers. The rate of interest on a fixed-income security may be fixed, floating or variable. Floating and variable rate securities provide for a periodic adjustment in the interest rate paid on the obligations. The adjustment intervals may be regular, and range from daily up to annually, or may be event based, such as based on a change in the prime rate.
The income earned by a Fund on investments in floating and variable rate securities will generally increase or decrease along with movements in the relevant index, benchmark or base lending rate. Thus, a Fund’s income on such investments will be more unpredictable than the income earned on such investments with a fixed rate of interest.
Brady Bonds are debt securities issued under the framework of the Brady Plan as a mechanism for debtor nations to restructure their outstanding external indebtedness (generally, commercial bank debt). Zero coupon bonds are debt obligations which do not entitle the holder to any periodic payments of interest prior to maturity or a specified date when the securities begin paying current interest, and therefore are issued and traded at a discount from their face amounts or par value. Pay-in-kind bonds pay interest through the issuance to holders of additional securities.
As a general matter, the value of debt securities will fluctuate with changes in interest rates, and these fluctuations can be greater for debt securities with longer maturities. The market value of debt securities typically varies inversely to changes in prevailing interest rates. In periods of declining interest rates, the values of debt securities typically increase. In periods of rising interest rates, the values of those securities typically decrease. These fluctuations in the value of debt securities may cause the value of a Fund’s shares to fluctuate in value.
A Fund’s share price and yield also depend, in part, on the quality of its investments. U.S. Government securities generally are of high quality. Debt securities that are not backed by the full faith and credit of the United States (including those of foreign governments) may be affected by changes in the creditworthiness of the issuer of the security. The prices of investment grade bonds generally fluctuate less than the prices of bonds that are below investment grade. Investment grade bonds are those rated at the time of purchase in the top four credit rating categories of Moody’s Investors Service (Moody’s) or Standard & Poor’s Financial Services LLC (S&P), or their equivalents from other nationally recognized rating agencies, or are unrated securities judged by the adviser to be of comparable value.
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Delayed Delivery and When-Issued Securities and Forward Commitments. Some Funds may purchase securities on a delayed delivery or when-issued basis and may purchase or sell securities on a forward commitment basis. When such transactions are negotiated, the price is fixed at the time of the commitment, but delivery and payment can take place a month or more after the date of the commitment. The securities so purchased are subject to market fluctuation and no interest accrues to the purchaser during this period. The Fund may sell the securities before the settlement date, if it is deemed advisable. At the time a Fund makes the commitment to purchase securities on a when-issued or delayed delivery basis, the Fund will record the transaction and thereafter reflect the value, each day, of such security in determining the net asset value of the Fund. At the time of delivery of the securities, the value may be more or less than the purchase price. A Fund will also segregate cash or liquid assets equal in value to commitments for such when-issued or delayed delivery securities; subject to this requirement, a Fund may purchase securities on such basis without limit. An increase in the percentage of a Fund’s assets committed to the purchase of securities on a when-issued or delayed delivery basis may increase the volatility of the Fund’s net asset value.
Exchange-Traded Notes (“ETNs”). A Fund may invest in ETNs. ETNs are typically notes representing senior, unsecured, unsubordinated debt of the issuer, usually a financial institution. ETNs combine both aspects of bonds and ETFs. An ETN’s returns are based on the performance of one or more underlying assets, reference rates or indexes, minus fees and expenses. Similar to ETFs, ETNs are listed on an exchange and traded in the secondary market. However, unlike an ETF, an ETN can be held until the ETN’s maturity, at which time the issuer will pay a return linked to the performance of the specific asset, index or rate (reference instrument) to which the ETN is linked minus certain fees. Unlike regular bonds, ETNs do not make periodic interest payments, and principal is not protected.
The value of an ETN may be influenced by, among other things, time to maturity, level of supply and demand for the ETN, volatility and lack of liquidity in underlying markets, changes in the applicable interest rates, the performance of the reference instrument, changes in the issuer’s credit rating and economic, legal, political or geographic events that affect the reference instrument. An ETN that is tied to a reference instrument may not replicate the performance of the reference instrument. ETNs also incur certain expenses not incurred by their applicable reference instrument. Some ETNs that use leverage can, at times, be relatively illiquid and, thus, they may be difficult to purchase or sell at a fair price. Levered ETNs are subject to the same risk as other instruments that use leverage in any form. While leverage allows for greater potential return, the potential for loss is also greater. Finally, additional losses may be incurred if the investment loses value because, in addition to the money lost on the investment, the loan still needs to be repaid.
Because the return on the ETN is dependent on the issuer’s ability or willingness to meet its obligations, the value of the ETN may change due to a change in the issuer’s credit rating, despite no change in the underlying reference instrument. The market value of ETN shares may differ from the value of the reference instrument. This difference in price may be due to the fact that the supply and demand in the market for ETN shares at any point in time is not always identical to the supply and demand in the market for the assets underlying the reference instrument that the ETN seeks to track. ETNs are also subject to tax risk. No assurance can be given that the Internal Revenue Service will accept, or a court will uphold, how a Fund characterizes and treat ETNs for tax purposes.
There may be restrictions on a Fund’s right to redeem its investment in an ETN, which are generally meant to be held until maturity. A Fund’s decision to sell its ETN holdings may be limited by the availability of a secondary market. An investor in an ETN could lose some or all of the amount invested.
Floating Rate Debt Investments (LIBOR). The London Interbank Offering Rate (“LIBOR”) is intended to represent the rate at which contributing banks may obtain short-term borrowings from each other in the London interbank market. On March 5, 2021, the U.K. Financial Conduct Authority (“FCA”) publicly announced that (i) immediately after December 31, 2021, publication of the 1-week and 2-month U.S. Dollar LIBOR settings will permanently cease; (ii) immediately after June 30, 2023, publication of the overnight and 12-month U.S. Dollar LIBOR settings will permanently cease; and (iii) immediately after June 30, 2023, the 1-month, 3-month and 6-month U.S. Dollar LIBOR settings will cease to be provided or, subject to the FCA’s consideration of the case, be provided on a synthetic basis and no longer be representative of the underlying market and economic reality they are intended to measure and that representativeness will not be restored. There is no assurance that the dates announced by the FCA will not change or that the administrator of LIBOR and/or regulators will not take further action that could impact the availability, composition or characteristics of LIBOR or the currencies and/or tenors for which LIBOR is published, and we recommend that you consult your advisors to stay informed of any such developments. In addition, certain regulated entities ceased entering into most new LIBOR contracts in connection with regulatory guidance or prohibitions. Public and private sector industry initiatives are currently underway to implement new or alternative reference rates to be used in place of LIBOR. There is no assurance that any such alternative reference rate will be similar to or produce the same value or economic equivalence as LIBOR or that it will have the same volume or liquidity as did LIBOR prior to its discontinuance, unavailability or replacement, all of which may affect the value, volatility, liquidity or return on certain of a Fund’s loans, notes, derivatives and other instruments or investments comprising some or all of a Fund’s investments and result in costs incurred in connection with changing reference rates used for positions, closing out positions and entering into new trades. Certain of the Fund’s investments may transition from LIBOR prior to the dates announced by the FCA. The transition from LIBOR to alternative reference rates may result in operational issues for the Fund or its investments. No assurances can be given as to the impact of the LIBOR transition (and the timing of any such impact) on the Fund and its investments. These risks may also apply with respect to changes in connection with other interbank offering rates (e.g., Euribor) and a wide range of other index levels, rates and values that are treated as “benchmarks” and are the subject of recent regulatory reform.
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High Yield Fixed-Income Securities. Debt securities rated below investment grade by the primary rating agencies (bonds rated Ba or lower by Moody’s or BB or lower by S&P, or their equivalents from other nationally recognized rating agencies) constitute lower-rated fixed-income securities (commonly referred to as high yield bonds). See Appendix A to the SAI for a description of these ratings. Unrated bonds or bonds with split ratings are included in this limit if the adviser determines that these securities have the same characteristics as non-investment-grade bonds.
High yield bonds involve a higher degree of credit risk, that is, the risk that the issuer will not make interest or principal payments when due. In the event of an unanticipated default, a Fund would experience a reduction in its income, and could expect a decline in the market value of the securities affected. More careful analysis of the financial condition of each issuer of high yield bonds is necessary. During an economic downturn or substantial period of rising interest rates, issuers of high yield bonds may experience financial stress which would adversely affect their ability to honor their principal and interest payment obligations, to meet projected business goals, and to obtain additional financing.
The market prices of high yield bonds are generally less sensitive to interest rate changes than higher-rated investments, but more sensitive to adverse economic or political changes, or in the case of corporate issuers, to individual corporate developments. Periods of economic or political uncertainty and change can be expected to result in volatility of prices of high yield bonds. High yield bonds also may have less liquid markets than higher-rated securities, and their liquidity as well as their value may be negatively affected by adverse economic conditions. Adverse publicity and investor perceptions as well as new or proposed laws also may have a negative impact on the market for high yield bonds.
The market for high yield bonds may be less active than that for higher-rated debt securities, which may make it difficult to value these securities. If market quotations are not available, high yield bonds will be “fair valued” in accordance with a Fund’s procedures. Judgment plays a greater role in valuing high yield bonds than is the case for securities for which more external sources for quotations and last-sale information are available.
Loans and Other Direct Debt Instruments. Direct debt instruments are interests in amounts owed by corporate, governmental, or other borrowers to lenders or lending syndicates (loans and loan participations), to suppliers of goods or services (trade claims or other receivables), or to other parties. Direct debt instruments involve a risk of loss in case of default or insolvency of the borrower and may offer less legal protection to the purchaser in the event of fraud or misrepresentation.
Purchasers of loans and other forms of direct indebtedness depend primarily upon the creditworthiness of the borrower for payment of interest and repayment of principal. If scheduled interest or principal payments are not made, the value of the instrument may be adversely affected. The rate of interest on a loan may be fixed, floating or variable. Loans that are fully secured provide more protections than an unsecured loan in the event of the borrower’s failure to make scheduled interest or principal payments. However, there is no assurance that the liquidation of collateral from a secured loan would satisfy the borrower’s obligation, or that the collateral could be liquidated. Indebtedness of borrowers whose creditworthiness is poor involves substantially greater risks and may be highly speculative. Borrowers that are in bankruptcy or restructuring may never pay off their indebtedness, or may pay only a small fraction of the amount owed. Direct indebtedness of developing countries also involves a risk that the governmental entities responsible for the repayment of the debt may be unable, or unwilling, to pay interest and repay principal when due.
Investments in loans directly or through direct assignment of a financial institution’s interests with respect to a loan may involve additional risks. For example, if a loan is foreclosed, the purchaser could become part owner of any collateral, and would bear the costs and liabilities associated with owning and disposing of the collateral. In addition, it is conceivable that under emerging legal theories of lender liability, a purchaser could be held liable as a co-lender. Direct debt instruments may also involve a risk of insolvency of the lending bank or other intermediary.
A loan is often administered by a bank or other financial institution that acts as agent for all holders. The agent administers the terms of the loan, as specified in the loan agreement. Unless, under the terms of the loan or other indebtedness, the purchaser has direct recourse against the borrower, the purchaser may have to rely on the agent to apply appropriate credit remedies against a borrower. If assets held by the agent for the benefit of a purchaser were determined to be subject to the claims of the agent’s general creditors, the purchaser might incur certain costs and delays in realizing payment on the loan or loan participation and could suffer a loss of principal or interest.
Direct indebtedness may include letters of credit, revolving credit facilities, or other standby financing commitments that obligate purchasers to make additional cash payments on demand. These commitments may have the effect of requiring the Fund to increase its investment in a borrower at a time when it would not otherwise have done so, even if the borrower’s condition makes it unlikely that the amount will ever be repaid.
Mortgage-Related Securities. Mortgage-related securities are issued by government and non-government entities such as banks, mortgage lenders, or other institutions. A mortgage-related security is an obligation of the issuer backed by a mortgage or pool of mortgages or a direct interest in an underlying pool of mortgages. Some mortgage-related securities make payments of both principal and interest at a range of specified intervals; others make semiannual interest payments at a predetermined rate and repay principal at maturity (like a typical bond). Mortgage-related securities are based on different types of mortgages, including those on commercial real estate (CMBS) or residential properties (RMBS). Stripped mortgage-related securities are created when the interest and principal
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components of a mortgage-related security are separated and sold as individual securities. In the case of a stripped mortgage-related security, the holder of the “principal-only” security (PO) receives the principal payments made by the underlying mortgage, while the holder of the “interest-only” security (IO) receives interest payments from the same underlying mortgage.
Mortgage-related securities include collateralized mortgage obligations (“CMOs”) and real estate mortgage investment conduits (REMICs). CMOs are mortgage-backed bonds whose underlying value is the mortgages that are collected into different pools according to their maturity. CMOs are issued by U.S. government agencies and private issuers. REMICs are privately issued mortgage-backed bonds whose underlying value is a fixed pool of mortgages secured by an interest in real property. Like CMOs, REMICs offer different pools according to the underlying mortgages’ maturity. CMOs and REMICs issued by private entities — so-called “non-agency mortgage-backed securities”—are not collateralized by securities issued or guaranteed by the U.S. government, its agencies, or instrumentalities.
As CMOs have evolved, some classes of CMO bonds have become more common. For example, the Funds may invest in parallel-pay and planned amortization class (“PAC”) CMOs and multi- class pass through certificates. Parallel-pay CMOs and multi-class pass-through certificates are structured to provide payments of principal on each payment date to more than one class. These simultaneous payments are taken into account in calculating the stated maturity date or final distribution date of each class, which, as with other CMO and multi-class pass-through structures, must be retired by its stated maturity date or final distribution date but may be retired earlier. PACs generally require payments of a specified amount of principal on each payment date. PACs are parallel-pay CMOs with the required principal amount on such securities having the highest priority after interest has been paid to all classes. Any CMO or multi-class pass through structure that includes PAC securities must also have support tranches — known as support bonds, companion bonds or non-PAC bonds — which lend or absorb principal cash flows to allow the PAC securities to maintain their stated maturities and final distribution dates within a range of actual prepayment experience. These support tranches are subject to a higher level of maturity risk compared to other mortgage-related securities, and usually provide a higher yield to compensate investors. If principal cash flows are received in amounts outside a pre-determined range such that the support bonds cannot lend or absorb sufficient cash flows to the PAC securities as intended, the PAC securities are subject to heightened maturity risk. Consistent with a Fund’s investment objectives and policies, a Fund may invest in various tranches of CMO bonds, including support bonds.
Fannie Maes and Freddie Macs are pass-through securities issued by the Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”), respectively. Fannie Mae and Freddie Mac, which guarantee payment of interest and repayment of principal on Fannie Maes and Freddie Macs, respectively, are federally chartered corporations supervised by the U.S. Government that act as governmental instrumentalities under authority granted by Congress. Fannie Mae is authorized to borrow from the U.S. Treasury to meet its obligations. Fannie Maes and Freddie Macs are not backed by the full faith and credit of the U.S. Government. However, in 2008, due to concerns related to the mortgage crisis, the Federal Housing Finance Agency placed these agencies into conservatorship and the U.S. government provided them with financial support.
The Federal Housing Finance Agency and the White House have made public statements regarding plans to consider ending the conservatorship of Fannie Mae and Freddie Mac. In the event that Fannie Mae and Freddie Mac are taken out of conservatorship, it is unclear how the capital structure of Fannie Mae and Freddie Mac would be constructed and what effects, if any, there may be on their creditworthiness and guarantees of certain mortgage-backed securities. Should Fannie Mae’s and Freddie Mac’s conservatorship end, there could be an adverse impact on the value of their securities, which could cause losses to a Fund. In addition, under the direction of the Federal Housing Finance Agency, Fannie Mae and Freddie Mac have entered into a joint initiative to develop a common securitization platform for the issuance of a uniform mortgage-backed security (the “Single Security Initiative”) that aligns the characteristics of Fannie Mae and Freddie Mac certificates. The Single Security Initiative was implemented in June 2019, and the effects it may have on the market for mortgage-backed securities are uncertain. There is no assurance that the U.S. government or its agencies will provide Freddie Mac or Fannie Mae with financial support in the future.
The value of mortgage-related securities may change due to shifts in the market’s perception of issuers and changes in interest rates. In addition, regulatory or tax changes may adversely affect the mortgage-related securities market as a whole. Non-government mortgage-related securities may offer higher yields than those issued by government entities, but also may be subject to greater price changes than government issues. Mortgage-related securities are subject to prepayment risk, which is the risk that early principal payments made on the underlying mortgages, usually in response to a reduction in interest rates, will result in the return of principal to the investor, causing it to be invested subsequently at a lower current interest rate. Alternatively, in a rising interest rate environment, mortgage-related security values may be adversely affected when prepayments on underlying mortgages do not occur as anticipated, resulting in the extension of the security’s effective maturity and the related increase in interest rate sensitivity of a longer-term instrument (extension risk). The prices of stripped mortgage-related securities tend to be more volatile in response to changes in interest rates than those of non-stripped mortgage-related securities.
Municipal Bonds. A Fund may invest in obligations issued by or on behalf of states, territories and possessions of the United States and the District of Columbia and their political subdivisions, agencies and instrumentalities, the payments from which, in the opinion of bond counsel to the issuer, are excludable from gross income for Federal income tax purposes (Municipal Bonds). A Fund may also invest in Municipal Bonds that pay interest excludable from gross income for purposes of state and local income taxes of the designated state and/or allow the value of a Fund’s shares to be exempt from state and local taxes of the designated state (State Municipal Bonds). A Fund may also invest in securities not issued by or on behalf of a state or territory or by an agency or
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instrumentality thereof, if the manager believes such securities to pay interest excludable from gross income for purposes of Federal income tax and state and local income taxes of the designated state and/or state and local personal property taxes of the designated state (Non-Municipal Tax-Exempt Securities). Non-Municipal Tax-Exempt Securities could include trust certificates or other instruments evidencing interest in one or more long term municipal securities. Non-Municipal Tax-Exempt Securities also may include securities issued by other investment companies that invest in municipal bonds, to the extent such investments are permitted by applicable law. Other types of Municipal Bonds include, but are not limited to, moral obligation bonds, municipal notes, municipal lease obligations, tender option bonds, variable rate demand obligations, municipal interest rate swap transactions, insured municipal bonds and Build America bonds.
The issuer of Municipal Bonds pays a fixed, floating or variable rate of interest, and must repay the principal at maturity. The risks and special considerations involved in investment in Municipal Bonds vary with the types of instruments being acquired. Investments in Non-Municipal Tax-Exempt Securities may present similar risks, depending on the particular product. Certain instruments in which a Fund may invest may be characterized as derivatives.
The value of the Municipal Bonds may be highly sensitive to events affecting the fiscal stability of the municipalities, agencies, authorities and other instrumentalities that issue securities. In particular, economic, legislative, regulatory or political developments affecting the ability of the issuers to pay interest or repay principal may significantly affect the value of a Fund’s investments. These developments can include or arise from, for example, insolvency of an issuer, uncertainties related to the tax status of municipal securities, tax base erosion, state or federal constitutional limits on tax increases or other actions, budget deficits and other financial difficulties, or changes in the credit ratings assigned to municipal issuers. There will be a limited market for certain Municipal Bonds and a Fund could face illiquidity risks.
Municipal Bonds include debt obligations issued to obtain funds for various public purposes, including the construction of a wide range of public facilities, refunding of outstanding obligations and obtaining funds for general operating expenses and loans to other public institutions and facilities. In addition, certain types of bonds are issued by or on behalf of public authorities to finance various privately owned or operated facilities, including certain facilities for the local furnishing of electric energy or gas, sewage facilities, solid waste disposal facilities and other specialized facilities. Such obligations are included within the term Municipal Bonds if the interest paid thereon is excluded from gross income for Federal income tax purposes and any applicable state and local taxes. Other types of private activity bonds, the proceeds of which are used for the construction, equipment or improvement of privately operated industrial or commercial facilities, may constitute Municipal Bonds, although the current Federal tax laws place substantial limitations on the size of such issues. The two principal classifications of Municipal Bonds are general obligation and revenue or special obligation bonds, which latter category includes private activity bonds (or industrial development bonds under pre-1986 law).
Real Estate Investment Trusts (“REITs”). Equity real estate investment trusts own real estate properties, while mortgage real estate investment trusts make construction, development, and long-term mortgage loans. Their value may be affected by changes in the value of the underlying property of the trusts, the creditworthiness of the issuer, property taxes, interest rates, and tax and regulatory requirements, such as those relating to the environment. Both types of trusts are dependent upon management skill, are not diversified, and are subject to heavy cash flow dependency, defaults by borrowers, self-liquidation, and the possibility of failing to qualify for tax-free status of income under the Internal Revenue Code and failing to maintain an exemption from the 1940 Act. For taxable years beginning after December 31, 2017 and before January 1, 2026, qualified REIT dividends (i.e., REIT dividends other than capital gain dividends and portions of REIT dividends designated as qualified dividend income) are eligible for a 20% federal income tax deduction in the case of individuals, trusts and estates. A Fund that receives qualified REIT dividends may elect to pass the special character of this income through to its shareholders. To be eligible to treat distributions from a Fund as qualified REIT dividends, a shareholder must hold shares of the Fund for more than 45 days during the 91-day period beginning on the date that is 45 days before the date on which the shares become ex-dividend with respect to such dividend and the shareholder must not be under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property. If a Fund does not elect to pass the special character of this income through to shareholders or if a shareholder does not satisfy the above holding period requirements, the shareholder will not be entitled to the 20% deduction for the shareholder’s share of the Fund’s qualified REIT dividend income while direct investors in REITS may be entitled to the deduction.
Real Estate Securities. A Fund investing significantly in the global real estate industry may carry a much greater risk of adverse developments in the real estate industry than a fund that invests less significantly in that industry. Real estate values rise and fall in response to a variety of factors, including: local, regional, and national and global economic conditions; interest rates; tax and insurance considerations; changes in zoning and other property-related laws; environmental regulations or hazards; overbuilding; increases in property taxes and operating expenses; or value decline in a neighborhood. When economic growth is slow, demand for property decreases and prices may decline.
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,
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the Fund loses both the investment opportunity for the assets it set aside to pay for the security and any gain in the security’s 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.
U.S. Government Securities. A Fund may invest in securities issued or guaranteed by the U.S. Government. Securities guaranteed by the U.S. Government include: (1) direct obligations of the U.S. Treasury (such as Treasury bills, notes and bonds) and (2) federal agency obligations guaranteed as to principal and interest by the U.S. Treasury (such as Government National Mortgage Association (GNMA) certificates and Federal Housing Administration (FHA) debentures). These securities are of the highest possible credit quality, because the payment of principal and interest is unconditionally guaranteed by the U.S. Government. They are subject to variations in market value due to fluctuations in interest rates, but, if held to maturity are generally deemed to be free of credit risk for the life of the investment.
Securities issued by U.S. Government instrumentalities and certain federal agencies are neither direct obligations of, nor are they guaranteed by, the U.S. Treasury. However, they do generally involve federal sponsorship in one way or another. Some are backed by specific types of collateral. Some are supported by the issuer’s right to borrow from the U.S. Treasury. Some are supported by the discretionary authority of the U.S. Treasury to purchase certain obligations of the issuer. Others are supported only by the credit of the issuing government agency or instrumentality. These agencies and instrumentalities include, but are not limited to, Federal Land Banks, Farmers Home Administration, Central Bank for Cooperatives, Federal Intermediate Credit Banks and Federal Home Loan Banks. There is no guarantee that the government will support these types of securities and, therefore, they may involve more risk than other government obligations.
U.S. Government securities may be acquired by a Fund in the form of separately-traded principal and interest segments of selected securities issued or guaranteed by the U.S. Treasury. These segments are traded independently under the Separate Trading of Registered Interest and Principal Securities (STRIPS) program. Under the STRIPS program, the principal and interest parts are individually numbered and separately issued by the U.S. Treasury at the request of depository financial institutions, which then trade the parts independently. Obligations of the Resolution Funding Corp. are similarly divided into principal and interest parts and maintained on the book entry records of the Federal Reserve Banks.
A Fund may also invest in custodial receipts that evidence ownership of future interest payments, principal payments, or both, on certain U.S. Treasury notes or bonds in connection with programs sponsored by banks and brokerage firms. Such notes and bonds are held in custody by a bank on behalf of the owners of the receipts. These custodial receipts are known by various names, including Treasury Receipts (TRs), Treasury Interest Guarantee Receipts (TIGRs), and Certificates of Accrual on Treasury Securities (CATS) and may not be deemed U.S. Government securities.
A Fund may invest in collective investment vehicles, the assets of which consist principally of U.S. Government securities or other assets substantially collateralized or supported by such securities, such as government trust certificates.
In general, the U.S. Government securities in which a Fund invests do not have as high a yield as do more speculative securities not supported by the U.S. Government or its agencies or instrumentalities.
Foreign Investments
The following additional investment strategy and risk information relates to each Fund that may invest in foreign securities.
Foreign Currency Transactions. A Fund may hold foreign currency deposits from time to time and may convert dollars and foreign currencies in the foreign exchange markets. Although foreign exchange dealers generally do not charge a fee for such conversions, they do realize a profit based on the difference between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency at one rate, while offering a lesser rate of exchange should the counterparty desire to resell that currency to the dealer. A Fund also may enter into forward foreign currency exchange contracts (forward contracts). Forward contracts are customized transactions that require a specific amount of a currency to be delivered at a specific exchange rate on a specific date or range of dates in the future. Forward contracts are generally traded in an interbank market directly between currency traders (usually large commercial banks) and their customers. The parties to a forward contract may agree to offset or terminate the contract before its maturity, or may hold the contract to maturity and complete the contemplated currency exchange.
A Fund will exchange foreign currencies for U.S. dollars and for other foreign currencies in the normal course of business and may buy and sell currencies through forward contracts in order to fix a price for securities it has agreed to buy or sell (transaction hedge). A Fund also may hedge some or all of its investments denominated in or exposed to foreign currency against a decline in the value of that currency relative to the U.S. dollar by entering into forward contracts to sell an amount of that currency (or a proxy currency whose performance is expected to replicate the performance of that currency) approximating the value of some or all of its portfolio securities denominated in or exposed to that currency (position hedge) or by participating in options or futures contracts with respect to the currency. A Fund also may enter into a forward contract with respect to a currency where the Fund is considering the purchase of investments denominated in or exposed to that currency but has not yet done so (anticipatory hedge). Certain Funds may also invest in currency forwards to gain exposure to a particular currency or to enhance returns.
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A Fund may enter into forward contracts to shift its investment exposure from one currency to another. This may include shifting exposure from U.S. dollars to a foreign currency, or from one foreign currency to another foreign currency. This type of strategy, sometimes known as a “cross-hedge,” will tend to reduce or eliminate exposure to the currency that is sold, and increase exposure to the currency that is purchased, similar to if a Fund had sold a security denominated in one currency and purchased an equivalent security denominated in another. Cross-hedges protect against losses resulting from a decline in the hedged currency, but will cause a Fund to assume the risk of fluctuations in the value of the currency it purchases.
The matching of the increase in value of a forward contract and the decline in the U.S. dollar equivalent value of the foreign currency denominated asset that is the subject of the hedge generally will not be precise. In addition, a Fund may not always be able to enter into forward contracts at attractive prices and may be limited in its ability to use these contracts to hedge Fund assets. Also, with regard to a Fund’s use of cross-hedges, there can be no assurance that historical correlations between the movement of certain foreign currencies relative to the U.S. dollar will continue. Poor correlation may exist between movements in the exchange rates of the foreign currencies underlying a Fund’s cross-hedges and the movements in the exchange rates of the foreign currencies in which its assets that are the subject of such cross-hedges are denominated.
Successful use of currency management strategies will depend on the adviser’s skill in analyzing currency values. Currency management strategies may substantially change a Fund’s investment exposure to changes in currency exchange rates and could result in losses to a Fund if currencies do not perform as the adviser anticipates. For example, if a currency’s value rose at a time when the adviser had hedged a Fund by selling that currency in exchange for dollars, a Fund would not participate in the currency’s appreciation. If the adviser hedges currency exposure through proxy hedges, a Fund could realize currency losses from both the hedge and the security position if the two currencies do not move in tandem. Similarly, if the adviser increases a Fund’s exposure to a foreign currency and that currency’s value declines, a Fund will realize a loss. There is no assurance that the adviser’s use of currency management strategies will be advantageous to a Fund or that it will hedge at appropriate times.
Foreign Investments. Foreign investments can involve significant risks in addition to the risks inherent in U.S. investments. The value of securities denominated in or indexed to foreign currencies, and of dividends and interest from such securities, can change significantly when foreign currencies strengthen or weaken relative to the U.S. dollar. Foreign securities markets generally have less trading volume and less liquidity than U.S. markets, and prices on some foreign markets can be highly volatile. Many foreign countries lack uniform accounting and disclosure standards comparable to those applicable to U.S. companies, and it may be more difficult to obtain reliable information regarding an issuer’s financial condition and operations. In addition, the costs of foreign investing, including withholding taxes, brokerage commissions and custodial costs, are generally higher than for U.S. investments and therefore may reduce the value of foreign investments.
Foreign markets may offer less protection to investors than U.S. markets. Foreign issuers, brokers, and securities markets may be subject to less government supervision. Foreign security trading practices, including those involving the release of assets in advance of payment, may involve increased risks in the event of a failed trade or the insolvency of a broker-dealer, and may involve substantial delays. It may be difficult to enforce legal rights in foreign countries.
Investing abroad involves different political and economic risks. Foreign investments may be affected by actions of foreign governments adverse to the interests of U.S. investors, including the possibility of expropriation or nationalization of assets, confiscatory taxation, restrictions on U.S. investment or on the ability to repatriate assets or convert currency into U.S. dollars, tariffs, trade embargoes or other government intervention. There may be a greater possibility of default by foreign governments or foreign government-sponsored enterprises. Investments in foreign countries also involve a risk of local political, economic or social instability, military action or unrest or adverse diplomatic developments. The foreign countries in which a Fund invests may become subject to economic and trade sanctions or embargoes imposed by the U.S. or foreign governments or the United Nations. Such sanctions or other actions could result in the devaluation of a country’s currency or a decline in the value and liquidity of securities of issuers in that country. In addition, such sanctions could result in a freeze on an issuer’s securities which would prevent a fund from selling securities it holds. The value of the securities issued by companies that operate in, or have dealings with these countries may be negatively impacted by any such sanction or embargo and may reduce a Fund’s returns. The risks related to sanctions or embargoes are greater in emerging and frontier market countries. There is no assurance that the adviser will be able to anticipate these potential events or counter their effects.
Investing in emerging markets involves additional risks. An “emerging market company” generally is any company domiciled or doing a substantial portion of its business in countries represented in the MSCI Emerging Market Index at the time of purchase. The countries included in this definition will change over time. Foreign investment considerations generally are intensified for investments in emerging market countries. Emerging market countries may have relatively unstable governments, economies based on only a few industries and securities markets that trade a small number of securities. In many emerging markets, including China, there also is substantially greater risk that company disclosures will be incomplete or misleading and, in the event of investor harm, substantially less access to recourse, in comparison to U.S. domestic companies. Furthermore, with respect to business operations in China, there are significant risks due to the inability of the Public Company Accounting Board to access the audit work papers of Chinese audit firms. Securities of issuers located in China and other emerging market countries tend to have volatile prices and may offer significant potential for loss as well as gain. Securities of issuers located in China and other emerging market countries tend to have volatile prices and may offer significant potential for loss as well as gain.
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In addition to investing directly in equity securities, the Funds may invest in American Depositary Receipts (ADRs), European Depositary Receipts (EDRs) and Global Depositary Receipts (GDRs). Generally, ADRs in registered form are U.S. dollar-denominated securities designed for use in the U.S. securities markets, which represent and may be converted into the underlying foreign security. EDRs are typically issued in bearer form and are designed for use in the European securities markets. GDRs are designed for use in the global securities markets. Depositary receipts involve many of the same risks of investing directly in foreign securities, including currency risks and risks of foreign investing. Depositary receipts may be sponsored or unsponsored. Issuers of the stock of unsponsored ADRs, EDRs and GDRs are not obligated to disclose material information in the United States and, therefore, there may not be an accurate correlation between such information and the market value of such depositary receipts.
On January 31, 2020, the United Kingdom officially withdrew from the EU (commonly known as “Brexit”). Upon the United Kingdom’s withdrawal, the EU and the United Kingdom entered into a transition phase, which concluded on December 31, 2020. Negotiators representing the United Kingdom and EU came to a preliminary trade agreement that took effect on January 1, 2021, but many aspects of the United Kingdom-EU trade relationship remain subject to further negotiation. Uncertainties remain relating to certain aspects of the United Kingdom’s future economic, trading and legal relationships with the European Union and with other countries. Due to political uncertainty, it is not possible to anticipate the form or nature of the future trading relationship between the United Kingdom and the EU. The UK, EU and broader global economy may experience substantial volatility in foreign exchange markets and a sustained weakness in the British pound’s exchange rate against the United States dollar, the euro and other currencies, which may impact Fund returns. Brexit may also destabilize some or all of the other EU member countries and/or the Eurozone. These developments could result in losses to the Funds, as there may be negative effects on the value of a Funds’ investments and/or on a Funds’ ability to enter into certain transactions or value certain investments. These developments also may make it more difficult for a Fund to exit certain investments at an advantageous time or price. Such events could result from, among other things, increased uncertainty and volatility in the United Kingdom, the EU and other financial markets; fluctuations in asset values; fluctuations in exchange rates; decreased liquidity of investments located, traded or listed within the United Kingdom, the EU or elsewhere; changes in the willingness or ability of financial and other counterparties to enter into transactions or the price and terms on which other counterparties are willing to transact; and/or changes in legal and regulatory regimes to which Fund investments are or become subject. Any of these events, as well as an exit or expulsion of an EU member state other than the United Kingdom from the EU, could negatively impact Fund returns.
Investing through Stock Connect (China and Hong Kong). Certain Funds may participate in the Stock Connect program. Foreign investors may invest in eligible China A shares (shares of publicly traded companies based in Mainland China) (“Stock Connect Securities”) listed and traded on the Shanghai Stock Exchange (“SSE”) through the Shanghai – Hong Kong Stock Connect program, as well as eligible China A shares listed and traded on the Shenzhen Stock Exchange (“SZSE”) through the Shenzhen-Hong Kong Stock Connect program (both programs collectively referred to herein as “Stock Connect”). Each of the SSE and SZSE are referred to as an “Exchange” and collectively as the “Exchanges” for purposes of this section. Stock Connect is a securities trading and clearing program developed by The Stock Exchange of Hong Kong Limited (“SEHK”), the Exchanges, Hong Kong Securities Clearing Company Limited and China Securities Depository and Clearing Corporation Limited for the establishment of mutual market access between SEHK and the Exchanges. In contrast to certain other regimes for foreign investment in Chinese securities, no individual investment quotas or licensing requirements apply to investors in Stock Connect Securities through Stock Connect. In addition, there are no lock-up periods or restrictions on the repatriation of principal and profits.
However, trading through Stock Connect is subject to a number of restrictions that may affect a Fund’s investments and returns. For example, a primary feature of the Stock Connect program is the application of the home market’s laws and rules to investors in a security. Thus, investors in Stock Connect Securities are generally subject to Chinese securities regulations and the listing rules of the respective Exchange, among other restrictions. In addition, Stock Connect Securities generally may not be sold, purchased or otherwise transferred other than through Stock Connect in accordance with applicable rules. While Stock Connect is not subject to individual investment quotas, daily and aggregate investment quotas apply to all Stock Connect participants, which may restrict or preclude the Fund’s ability to invest in Stock Connect Securities. For example, an investor cannot purchase and sell the same security on the same trading day. Stock Connect also is generally available only on business days when both the respective Exchange and the SEHK are open. Trading in the Stock Connect program is subject to trading, clearance and settlement procedures that are untested in China which could pose risks to a Fund. Finally, the withholding tax treatment of dividends and capital gains payable to overseas investors currently is unsettled.
Stock Connect is in its early stages. Further developments are likely and there can be no assurance as to whether or how such developments may restrict or affect a Fund’s investments or returns. In addition, the application and interpretation of the laws and regulations of Hong Kong and China, and the rules, policies or guidelines published or applied by relevant regulators and exchanges in respect of the Stock Connect program, are uncertain, and they may have a detrimental effect on a Fund’s investments and returns.
Investing through Bond Connect (China and Hong Kong). Certain Funds may invest in the China Interbank Bond Market (the “CIBM”) through China’s Bond Connect Program (“Bond Connect”) subject to any applicable regulatory limits. Bond Connect is a bond trading and settlement linked program developed by the People’s Bank of China (“PBOC”), Hong Kong Monetary Authority (“HKMA”), China Foreign Exchange Trade System and National Interbank Funding Centre (“CFETS”), China Central Depository and Clearing Co., Ltd. (“CCDC”), Shanghai Clearing House (“SCH”), Hong Kong Exchanges and Clearing Limited and Central
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Moneymarkets Unit (“CMU”), with the aim of achieving mutual bond market access between China and Hong Kong. For the time being, this program allows eligible Hong Kong and overseas investors to invest in the bonds traded in the CIBM through the northbound trading of Bond Connect (the “Northbound Trade Link”) only.
Eligible Hong Kong and overseas investors may use their own sources of Renminbi in the Chinese offshore market (“CNH”) or convert foreign currencies into the Renminbi to invest in CIBM bonds under Bond Connect. A Fund will be exposed to any fluctuation in the exchange rate between the U.S. Dollar and Renminbi in respect of such investments. Currently, there is no investment quota for the Northbound Trade Link.
By seeking to invest in the CIBM via Bond Connect, a Fund is subject to the following additional risks:
General Risk. The relevant regulations are relatively untested and subject to change. There is no certainty as to how they will be applied, which could adversely affect a Fund. Bond Connect requires use of new information technology systems which may be subject to operational risk due to Bond Connect’s cross-border nature. If the relevant systems fail to function properly, trading in the CIBM through Bond Connect could be disrupted.
Market Risk. A Fund investing in the CIBM is subject to liquidity and volatility risks. Market volatility and potential lack of liquidity due to possible low trading volume of certain bonds in the CIBM may result in prices of certain bonds traded in the CIBM fluctuating significantly. The bid and offer spreads of the prices of such bonds may be large, and the Fund may therefore incur significant trading and realization costs and may even suffer losses when selling such investments.
To the extent that a Fund transacts in the CIBM, the Fund may also be exposed to risks associated with settlement procedures and default of counterparties. The counterparty which has entered into a transaction with the Fund may default in its obligation to settle the transaction by failure to deliver relevant securities or to make payment.
Third Party Agent Risk. Under the Northbound Trading Link, CFETS or other institutions recognized by PBOC (as the registration agents) shall apply for registration with PBOC for the eligible Hong Kong and overseas investors. In addition, CMU (as the offshore custody agent recognized by the HKMA) shall open a nominee account with CCDC/SCH (as the onshore custody agent) as nominee holder of the CIBM bonds purchased by Hong Kong and overseas investors through Bond Connect.
As the relevant filings, registration with PBOC, and account opening have to be carried out by an onshore settlement agent, offshore custody agent, registration agent or other third parties (as the case may be), a Fund is subject to the risks of default or errors on the part of such third parties.
Operational Risk. Bond Connect provides a new channel for investors from Hong Kong and overseas to access the CIBM directly. It is premised on the functioning of the operational systems of the relevant market participants. Market participants are able to participate in this program subject to meeting certain information technology capability, risk management and other requirements as may be specified by the relevant authorities.
The “connectivity” in Bond Connect requires routing of orders across the border. This requires the development of new information technology systems. There is no assurance that the systems of market participants will function properly or will continue to be adapted to changes and developments in both markets. In the event that the relevant systems fail to function properly, trading in the CIBM through Bond Connect could be disrupted. A Fund’s ability to access the CIBM (and hence to pursue its investment strategy) may be adversely affected.
Regulatory Risk. The PBOC Bond Connect rules are departmental regulations having legal effect in China. However, the application of such rules is untested, and there is no assurance that Chinese courts will recognize such rules.
Bond Connect is novel in nature and is subject to regulations promulgated by regulatory authorities and implementation rules made by the relevant authorities in China and Hong Kong. Further, new regulations may be promulgated from time to time by the regulators in connection with operations and cross-border legal enforcement in connection with cross-border trades under Bond Connect.
The regulations are currently untested and there is no certainty as to how they will be applied. Moreover, the current regulations are subject to change. There can be no assurance that Bond Connect will not be abolished. A Fund which may invest in the CIBM through Bond Connect may be adversely affected as a result of such changes.
Legal/Beneficial Ownership Risk. Where CIBM bonds are held in custody on a cross-border basis there are specific legal and beneficial ownership risks linked to the compulsory requirements of CMU and CCDC/SCH. CIBM bonds will be held by CMU as a nominee holder of the bonds purchased by foreign investors through Bond Connect. The PBOC has made it clear that the ultimate investors are the beneficial owners of the relevant bonds and shall exercise their rights against the bond issuer through CMU as the nominee holder. While the distinct concepts of nominee holder and beneficial owner are referred to under PBOC rules or regulations, as well as other laws and regulations in China, the application of such rules is untested, and there is no assurance that Chinese courts will recognize such concepts. Therefore, although a Fund’s ownership may be ultimately recognized, it may suffer difficulties or delays in enforcing its rights over CIMB bonds.
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Tax within China. Uncertainties in the Chinese tax rules governing taxation of income and gains from investments in CIBM bonds through Bond Connect could result in unexpected tax liabilities for a Fund. A Fund’s investments in CIBM bonds may cause the Fund to become subject to withholding and other taxes imposed by China.
If a Fund were considered to be a tax resident enterprise of China, it would be subject to Chinese corporate income tax at the rate of 25% on its worldwide taxable income. If a Fund were considered to be a non-tax resident enterprise with a “permanent establishment” in China, it would be subject to Chinese corporate income tax on the profits attributable to the permanent establishment. The Adviser intends to operate the Funds in a manner that will prevent them from being treated as tax resident enterprises of China and from having a permanent establishment in China. It is possible, however, that China could disagree with that conclusion, or that changes in Chinese tax law could affect the Chinese corporate income tax status of a Fund.
Unless reduced or exempted by the applicable tax treaties, China generally imposes withholding income tax at the rate of 10% on dividends, premiums, interest and capital gains originating in China and paid to a company that is not a resident of China for tax purposes and that has no permanent establishment in China.
The Ministry of Finance of China and the State Administration of Taxation of China issued Caishui No. 108 on November 7, 2018 (“Notice 108”), which states that foreign investors will be temporarily exempt from the withholding income tax on their gains derived from CIBM bond interest.
The Adviser or a Fund may also potentially be subject to Chinese value added tax at the rate of 6% on capital gains derived from trading of CIBM bonds and coupon interest income (if any). Notice 108 specifies that foreign investors will also be temporarily exempt from the value added tax exemption on their gains derived from CIBM bond interest. In addition, urban maintenance and construction tax (currently at rates ranging from 1% to 7%), educational surcharge (currently at the rate of 3%) and local educational surcharge (currently at the rate of 2%) (collectively, the “surtaxes”) are imposed based on value added tax liabilities, so if the Adviser or a Fund were liable for value added tax it would also be required to pay the applicable surtaxes.
The temporary exemption of withholding tax and value added tax will remain in effect until November 6, 2021. If, in the future, China begins to apply tax rules regarding the taxation of bond interest income derived by foreign investment in CIBM, and/or begins to collect withholding tax and other taxes on such investment, the Adviser or a Fund could be subject to such withholding tax and value added tax
Derivatives Investments
The following additional investment strategy and risk information relates to each Fund that may invest in derivatives.
Derivatives. In October 2020, the SEC adopted a final rule related to the use of derivatives, short sales, reverse repurchase agreements and certain other transactions by registered investment companies that will rescind and withdraw the guidance of the SEC and its staff regarding asset segregation and cover transactions reflected in the Funds’ asset segregation and cover practices discussed herein. The final rule requires Funds to trade derivatives and other transactions that create future payment or delivery obligations (except reverse repurchase agreements and similar financing transactions) subject to a value-at-risk (“VaR”) leverage limit, certain derivatives risk management program and reporting requirements. Generally, these requirements apply unless a Fund qualifies as a “limited derivatives user,” as defined in the final rule. Under the final rule, when a Fund trades reverse repurchase agreements or similar financing transactions, including certain tender option bonds, it needs to aggregate the amount of indebtedness associated with the reverse repurchase agreements or similar financing transactions with the aggregate amount of any other senior securities representing indebtedness when calculating the Fund’s asset coverage ratio or treat all such transactions as derivatives transactions. Reverse repurchase agreements or similar financing transactions aggregated with other indebtedness do not need to be included in the calculation of whether a Fund is a limited derivatives user, but for funds subject to the VaR testing, reverse repurchase agreements and similar financing transactions must be included for purposes of such testing whether treated as derivatives transactions or not. The SEC also provided guidance in connection with the new rule regarding use of securities lending collateral that may limit the Funds’ securities lending activities. Compliance with these new requirements will be required after an eighteen-month transition period. Following the compliance date, these requirements may limit the ability of a Fund to use derivatives and reverse repurchase agreements and similar financing transactions as part of its investment strategies. These requirements may increase the cost of a Fund’s investments and cost of doing business, which could adversely affect investors.
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 Fund’s limitation on investments in investment companies.
Foreign Options and Futures Markets. Options on U.S. Government securities, futures contracts, options on futures contracts, forward contracts and options on foreign currencies may be traded on foreign exchanges and over-the-counter in foreign countries. Such transactions are subject to the risk of governmental actions affecting trading in or the prices of foreign currencies or securities. The value of such positions also could be adversely affected by (1) other complex foreign political and economic factors, (2) lesser availability than in the United States of data on which to make trading decisions, (3) delays in a Fund’s ability to act upon economic events occurring in foreign markets during non-business hours in the United States, (4) the imposition of different exercise and settlement terms and procedures and margin requirements than in the United States, and (5) low trading volume.
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Special risks are presented by internationally-traded options. Because of time differences between the United States and the various foreign countries, and because different holidays are observed in different countries, foreign options markets may be open for trading during hours or on days when U.S. markets are closed and vice versa. As a result, option premiums may not reflect the current prices of the underlying interest in the United States.
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 FCM’s 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 contract’s 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 Fund’s 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 Fund’s cash that may otherwise be invested would be held uninvested or invested in liquid assets so long as the futures position remains open, a Fund’s 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 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.
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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 bond’s 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 decline substantially if the issuer’s creditworthiness deteriorates. Common issuers of indexed securities have included banks, corporations, and certain U.S. Government agencies.
Options and Futures Relating to Foreign Currencies. Currency futures contracts are similar to forward contracts, except that they are traded on exchanges (and have margin requirements) and are standardized as to contract size and delivery date. Most currency futures contracts call for payment or delivery in U.S. dollars. The underlying instrument of a currency option may be a foreign currency, which generally is purchased or delivered in exchange for U.S. dollars, or may be a futures contract. The purchaser of a currency call obtains the right to purchase the underlying currency, and the purchaser of a currency put obtains the right to sell the underlying currency.
The uses and risks of currency options and futures are similar to those of options and futures relating to securities or indices, as discussed below. A Fund may purchase and sell currency futures and may purchase and write currency options to increase or decrease its exposure to different foreign currencies. Currency options may also be purchased or written in conjunction with each other or with currency futures or forward contracts. Currency futures and options values can be expected to correlate with exchange rates, but may not reflect other factors that affect the value of a Fund’s investments. A currency hedge, for example, should protect a Yen-denominated security from a decline in the Yen, but will not protect a Fund against a price decline resulting from deterioration in the issuer’s creditworthiness. Because the value of a Fund’s foreign-denominated investments changes in response to many factors other than exchange rates, it may not be possible to match the amount of currency options and futures to the value of the Fund’s investments exactly over time.
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Unlike transactions entered into by a Fund in futures contracts, options on foreign currencies and forward contracts are not traded on contract markets regulated by the CFTC or (with the exception of certain foreign currency options) by the SEC. Such instruments are traded through financial institutions acting as market-makers, although foreign currency options are also traded on certain national securities exchanges, such as the Philadelphia Stock Exchange and the Chicago Board Options Exchange, subject to SEC regulation.
Similarly, options on currencies may be traded over-the-counter. In an over-the-counter trading environment, many of the protections afforded to exchange participants will not be available. For example, there are no daily price fluctuation limits, and adverse market movements could therefore continue to an unlimited extent over a period of time. Although the buyer of an option cannot lose more than the amount of the premium plus related transaction costs, this entire amount could be lost. Moreover, an option writer and a buyer or seller of futures or forward contracts could lose amounts substantially in excess of any premium received or initial margin or collateral posted due to the potential additional margin and collateral requirements associated with such positions.
Options on foreign currencies traded on national securities exchanges are within the jurisdiction of the SEC, as are other securities traded on such exchanges. As a result, many of the protections provided to traders on organized exchanges will be available with respect to such transactions. In particular, all foreign currency option positions entered into on a national securities exchange are cleared and guaranteed by the Options Clearing Corp. (OCC), thereby reducing the risk of counterparty default. Further, a liquid secondary market in options traded on a national securities exchange may be more readily available than in the over-the-counter market, potentially permitting a Fund to liquidate open positions at a profit before exercise or expiration, or to limit losses in the event of adverse market movements.
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 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 option’s 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 instrument’s 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 option’s 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 option’s purchaser. In return for receipt of the premium, the writer of a put option assumes the obligation to pay the strike price for the option’s 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.
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Writing a call option obligates the writer to sell or deliver the option’s 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 Fund’s 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 adviser’s 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 adviser’s 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 option’s 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 Fund’s 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 Fund’s net uncovered obligation.
The effective use of options also depends on a Fund’s 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.
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 option’s 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.
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
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simultaneously. Accordingly, a Fund’s 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 contract’s 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 Fund’s securities portfolio with regard to market risk (involving the market’s assessment of over-all economic prospects), as distinguished from stock-specific risk (involving the market’s 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 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.
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Certain issuers of structured products may be deemed to be investment companies as defined in the 1940 Act. As a result, a Fund’s 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 Fund’s 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.
A fund may enter into currency swaps. Currency swaps are transactions in which one currency is simultaneously bought for a second currency on a spot basis and sold for the second currency on a forward basis. Currency swaps involve the exchange of the rights of a Fund and another party to make or receive payments in specified currencies, and typically require the delivery of the entire principal value of one designated currency in exchange for the other designated currency.
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 Fund’s use of these transactions will be successful in furthering its investment objective will depend on a sub-adviser’s 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 counterparty’s (or its affiliate’s) insolvency, a Fund’s 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.
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SEC Names Rule Requirement
LVIP JPMorgan Core Bond Fund. The Fund’s policy of normally investing at least 80% of its net assets in bonds is a non-fundamental policy changeable only upon 60 days’ prior notice to shareholders
LVIP JPMorgan Mid Cap Value Fund. The Fund’s policy of normally investing at least 80% of its net assets in equity securities of mid cap companies is a non-fundamental policy changeable only upon 60 days’ prior notice to shareholders.
LVIP JPMorgan Small Cap Core Fund. The Fund’s policy of normally investing at least 80% of its net assets in equity securities of small cap companies is a non-fundamental policy changeable only upon 60 days’ prior notice to shareholders.
LVIP JPMorgan U.S. Equity Fund. The Fund’s policy of normally investing at least 80% of its net assets in equity securities of U.S. companies is a non-fundamental policy changeable only upon 60 days’ prior notice to shareholders.
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 underwriter’s concession or discount. On occasion, certain money market instruments may be purchased directly from an issuer, in which case no commissions or discounts are paid.
The 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 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.
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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.
Since the Funds are new, no brokerage commissions were incurred during the last three fiscal years ended December 31.
Purchases of Securities of “Regular” Brokers or Dealers
Because the Funds are new, they 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 Fund’s portfolio transactions effected through any other broker-dealer. The Funds have also established other policies and procedures designed to ensure that a Fund’s brokerage commissions are not used to finance the distribution of Fund shares.
Proxy Voting Policies and Procedures. The Board of Trustees has delegated to LIAC or each Fund’s sub-adviser (as applicable) responsibility for voting any proxies relating to portfolio securities held by the Fund in accordance with the adviser’s or sub-adviser’s 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 SEC’s website at http://www.sec.gov.
The Board of Trustees (“Board of Trustees” or the “Board”) oversees the management of the Funds and elects the Trust’s officers. The Trustees of the Trust (“Trustees”) have the power to amend the Trust’s 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 Trust’s 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 114 series of the Trust.
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. | 114 | Lincoln Investment Advisors Corporation; CITRS, Inc. |
* | Mr. Bronchetti is an interested person of the Trust because he is a Director and an 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 Trust’s investment adviser. |
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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 1301 S. Harrison Street, Fort Wayne, IN 46802 YOB: 1971 | Trustee | Since January 2013 | Managing Director, CID Capital (private equity firm) | 114 | Formerly: Lincoln Advisors Trust | |||||
Ken C. Joseph 1301 S. Harrison Street, Fort Wayne, IN 46802 YOB: 1962 | Trustee | Since January 2022 | Managing Director & Head of Financial Services Compliance and Regulatory Consulting in the Americas, Kroll LLC; Formerly: Associate Director, Division of Examinations, U.S. Securities & Exchange Commission | 114 | Board of Directors of University Settlement; Board of Directors of Harvard Kennedy School NY/NJ/CT Alumni Network (President); Board of Directors of the University of North Carolina, School of Law Alumni Association) | |||||
Barbara L. Lamb 1301 S. Harrison Street, Fort Wayne, IN 46802 YOB: 1954 | Trustee | Since February 2019 | Retired; Formerly: Managing Director for Finance and Administration, WH Trading, LLC (derivatives trading firm) | 114 | South Suburban Humane Society; Formerly: Trustee of Henderson Global Funds (2014-2017) | |||||
Gary D. Lemon, Ph.D. 1301 S. Harrison 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 | 114 | Formerly: Lincoln Advisors Trust | |||||
Thomas A. Leonard 1301 S. Harrison Street, Fort Wayne, IN 46802 YOB: 1949 | Trustee | Since December 2013 | Retired; Formerly: Partner of Pricewaterhouse Coopers LLP (accounting firm) | 114 | Copeland Capital Trust since 2010 (2 portfolios); Formerly: Lincoln Advisors Trust | |||||
Charles I. Plosser 1301 S. Harrison 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. | 114 | Public Governor for the Financial Industry Regulatory Authority (FINRA) | |||||
Pamela L. Salaway 1301 S. Harrison 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 | 114 | Formerly: Lincoln Advisors Trust | |||||
Manisha A. Thakor 1301 S. Harrison Street, Fort Wayne, IN 46802 YOB: 1970 | Trustee | Since January 2022 | Founder of MoneyZen LLC; Formerly: Vice President, Brighton Jones; Formerly: Director of Wealth Strategies for Women, Buckingham Financial | 114 | Board Member at The National Endowment for Financial Education since 2017 |
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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 | |||||
Brian W. Wixted 1301 S. Harrison 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) | 114 | None | |||||
Nancy B. Wolcott 1301 S. Harrison Street, Fort Wayne, IN 46802 YOB: 1954 | Trustee | Since October 2017 | Retired; Formerly: EVP, BNY Mellon; President, PNC Global Investment Servicing | 114 | FundVantage Trust since 2011 (40 portfolios); Third Avenue Trust since 2019 (4 portfolios); Third Avenue Variable Series Trust since 2019 (1 portfolio) |
Officers of the Trust
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; Chief Investment Officer of The Lincoln National Life Insurance Company; Formerly: Director, Senior Vice President and Head of Funds Management. | |||
William P. Flory, Jr. 1301 S. Harrison 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. | |||
Jennifer M. Matthews 1301 S. Harrison 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. |
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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 | |||
Benjamin A. Richer 150 N. Radnor-Chester Road Radnor, PA 19087 YOB: 1984 | Senior Vice President | Since March 2022; Formerly: Vice President since April 2018 | Senior Vice President and Head of Funds Management, Lincoln Investment Advisors Corporation; Senior Vice President, Lincoln National Corporation; Senior Vice President, The Lincoln National Life Insurance Company; Senior Vice President, Lincoln Life & Annuity Company of New York; Formerly: Director of Asset Strategies, Nationwide Fund Advisors. | |||
John (Jack) A. Weston 150 N. Radnor-Chester Road Radnor, PA 19087 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. | |||
Amber Williams 150 N. Radnor-Chester Road Radnor, PA 19087 YOB: 1979 | Senior Vice President | Since March 2022; Formerly, Vice President since May 2019 | Senior Vice President and Head of Client Investment Strategies, Lincoln Investment Advisors Corporation; Senior Vice President, Lincoln Life & Annuity Company of New York; Senior Vice President, Lincoln National Corporation; Senior 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 and Managing Director, Lincoln Investment Advisors Corporation; Vice President, The Lincoln National Life Insurance Company. |
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 Trust’s 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 bachelor’s 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.
Ken C. Joseph. Mr. Joseph has served as a Trustee of Lincoln Variable Insurance Products Trust since 2022. He is currently a Managing Director & Head of Financial Services Compliance and Regulatory Consulting in the Americas for Kroll LLC (formerly Duff & Phelps, LLC). Mr. Joseph previously served for over 20 years at the U.S. Securities & Exchange Commission, including as Associate Director/Senior Officer in the Division of Examinations (formerly known as the Office of Compliance Inspections and Examinations), and as an Assistant Director in the Division of Enforcement. He previously served as an Associate Dean of St. John’s University, NY. Currently, he serves on the Board of Directors of the Harvard Kennedy School NY/NJ/CT Alumni Network (President), University Settlement, and the University of North Carolina, School of Law Alumni Association. Mr. Joseph provides the board with compliance, securities law and business experience.
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Barbara L. Lamb. Ms. Lamb has served as a Trustee of Lincoln Variable Insurance Products Trust since 2019. In 2022, she retired from WH Trading, LLC, a derivatives trading firm, where she had served as Managing Director of Finance and Administration since 2016. 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 Master’s 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 firm’s 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 University’s 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.
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 BMO’s 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.
Manisha A. Thakor. Ms. Thakor has served as a Trustee of Lincoln Variable Insurance Products Trust since 2022. Ms. Thakor currently serves at MoneyZen LLC, which she founded in 2009. From 2018-2020, Ms. Thakor served as Vice President at Brighton Jones. From 2015-2017, Ms. Thakor served as Director of Wealth Strategies for Women at Buckingham Financial. She is a Board member of The National Endowment for Financial Education. Ms. Thakor is also a Chartered Financial Analyst (CFA) charterholder and Certified Financial Planner (CFP®). Ms. Thakor provides the Board with investment management experience and financial services industry insight.
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 Company’s 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
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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 Trust’s shareholders and to provide oversight of the management. The Trust’s 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 twelve trustees, eleven 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 (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 Trust’s other service providers and the Trust’s 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 Trust’s activities, review the Fund’s 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 Fund’s 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 Fund’s investment policies or restrictions. With respect to compliance matters, the Trust’s 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 Trust’s 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 Fund’s 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 Fund’s 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 Board’s responsibility to shareholders of the Trust and others relating to oversight of Fund accounting, the Trust’s systems of controls, the Trust’s 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 Trust’s accounting policies, financial reporting and internal control systems. The members of the Audit Committee include Independent Trustees: Ken C. Joseph, Barbara L. Lamb, Thomas A. Leonard, Brian W. Wixted (Chair), and Nancy B. Wolcott. The Audit Committee met four times during the last fiscal year.
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: Steve A. Cobb (Chair), Gary D. Lemon, Charles I. Plosser, Pamela L. Salaway and Manisha A. Thakor. 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 Committee’s responsibilities. The members of the Nominating and Governance
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Committee are Independent Trustees: Steve A. Cobb, Ken C. Joseph, Barbara L. Lamb, Gary D. Lemon, Thomas A. Leonard, Charles I. Plosser, Pamela L. Salaway, Manisha A. Thakor, Brian W. Wixted, and Nancy B. Wolcott (Chair). 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 Trust’s 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, 2021, 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, 2021, 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 |
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 | None | Over $100,000 | ||
Ken C. Joseph | None | None | ||
Barbara L. Lamb | None | Over $100,000 | ||
Gary D. Lemon | None | Over $100,000 | ||
Thomas A. Leonard | None | Over $100,000 | ||
Charles I. Plosser | None | Over $100,000 | ||
Pamela L. Salaway | None | Over $100,000 | ||
Manisha A. Thakor | None | None | ||
Brian W. Wixted | None | Over $100,000 | ||
Nancy B. Wolcott | None | Over $100,000 |
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.
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Compensation
The following table sets forth the compensation paid to the Trust’s Independent Trustees and by the Fund Complex for the fiscal year ended December 31, 2021:
Name of Person, Position | Aggregate Compensation from the Trust | Total Compensation from the Trust and Fund Complex | ||||||
Steve A. Cobb, Trustee | $ | 296,000 | $ | 296,000 | ||||
Ken C. Joseph, Trustee* | N/A | N/A | ||||||
Barbara L. Lamb, Trustee | $ | 286,000 | $ | 286,000 | ||||
Gary D. Lemon, Trustee | $ | 286,000 | $ | 286,000 | ||||
Thomas A. Leonard, Trustee | $ | 348,000 | $ | 348,000 | ||||
Charles I. Plosser, Trustee | $ | 285,000 | $ | 285,000 | ||||
Pamela L. Salaway, Trustee | $ | 308,000 | $ | 308,000 | ||||
Manisha A. Thakor, Trustee* | N/A | N/A | ||||||
Brian W. Wixted, Trustee | $ | 309,500 | $ | 309,500 | ||||
Nancy B. Wolcott, Trustee | $ | 286,000 | $ | 286,000 |
* | Effective January 1, 2022, Mr. Joseph and Ms. Thakor were appointed as Independent Trustees of the Trust and were not paid any compensation by the Trust for the fiscal year ended December 31, 2021. |
Investment Adviser and Sub-Advisers
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”). LIAC’s 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 Fund’s 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.
Because the Funds are new, they have not yet paid fees to LIAC.
Expense Reimbursements
With respect to the LVIP JPMorgan Core Bond Fund, the Adviser has contractually agreed to reimburse the Fund to the extent that the Total Annual Fund Operating Expenses (excluding AFFE) exceed 0.54% of the average daily net assets for the Standard Class of the Fund and 0.79% for the Service Class. Any reimbursements made by the Adviser are 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 agreement will continue at least through April 30, 2025 and cannot be terminated before that date without the mutual agreement of the Fund’s Board of Trustees and the Adviser.
With respect to the LVIP JPMorgan Mid Cap Value Fund, the Adviser has contractually agreed to reimburse the Fund to the extent that the Total Annual Fund Operating Expenses (excluding AFFE) exceed 0.76% of the average daily net assets for the Standard Class of the Fund and 1.01% for the Service Class. Any reimbursements made by the Adviser are 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 agreement will continue at least through April 30, 2025 and cannot be terminated before that date without the mutual agreement of the Fund’s Board of Trustees and the Adviser.
With respect to the LVIP JPMorgan Small Cap Core Fund, the Adviser has contractually agreed to reimburse the Fund to the extent that the Total Annual Fund Operating Expenses (excluding AFFE) exceed 0.82% of the average daily net assets for the Standard Class of the Fund and 1.07% for the Service Class. Any reimbursements made by the Adviser are 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 agreement will continue at least through April 30, 2025 and cannot be terminated before that date without the mutual agreement of the Fund’s Board of Trustees and the Adviser.
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With respect to the LVIP JPMorgan U.S. Equity Fund, the Adviser has contractually agreed to reimburse the Fund to the extent that the Total Annual Fund Operating Expenses (excluding AFFE) exceed 0.75% of the average daily net assets for the Standard Class of the Fund and 1.00% for the Service Class. Any reimbursements made by the Adviser are 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 agreement will continue at least through April 30, 2025 and cannot be terminated before that date without the mutual agreement of the Fund’s 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-Advisers. As adviser, LIAC is primarily responsible for investment decisions affecting each of the Funds under its management. For some Funds, LIAC has delegated day-to-day portfolio management responsibility to investment management firms that serve as sub-advisers. Each sub-adviser makes investment decisions for its respective Fund in accordance with that Fund’s investment objectives and places orders on behalf of that Fund to effect those decisions. With respect to the Funds that are sub-advised, LIAC provides ongoing oversight, including review of returns on a relative and absolute basis, a sub-adviser’s use of soft dollars, evaluation of execution quality and brokerage allocation and on-site compliance reviews.
Fund | Sub-Adviser | |
LVIP JPMorgan Core Bond Fund | J.P. Morgan Investment Management, Inc. | |
LVIP JPMorgan Mid Cap Value Fund | 383 Madison Avenue | |
LVIP JPMorgan Small Cap Core Fund | New York, NY 10179 | |
LVIP JPMorgan U.S. Equity Fund |
LIAC, not the Funds, pays each sub-adviser a monthly fee equal to a percentage of the average daily net assets of the portion of the Fund for which the sub-adviser provides investment sub-advisory services. The aggregate annual rates of the fees that LIAC pays to a sub-adviser may vary according to the level of assets the sub-adviser manages.
Since the Funds are new, LIAC paid no fees to the sub-adviser during the fiscal year ended December 31, 2022.
Sub-Advisory Fees Paid by Each Fund
Since the Funds are new, there were no fees paid for investment sub-advisory services with respect to the management of each Fund. LIAC, not the Fund, pays all sub-advisory fees owed.
J.P. Morgan Investment Management Inc. (“JPMorgan”) is a wholly owned subsidiary of JP Morgan Asset Management Holdings Inc., which is a wholly owned subsidiary of JPMorgan Chase & Co. (JPMorgan Chase), a bank holding company. JP Morgan is located at 383 Madison Avenue, New York, NY 10179.
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 LNC’s right to withdraw this permission in the event LIAC ceases to be the Funds’ investment adviser. In the prospectus and sales literature, the name JPMorgan will be used with 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 each Fund’s sub-adviser (as applicable) responsibility for voting any proxies relating to portfolio securities held by the Fund in accordance with the adviser’s or sub-adviser’s 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 SEC’s website at http://www.sec.gov.
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The following provides information regarding each portfolio manager’s 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.” Because the Funds are new, no portfolio manager has any ownership in the Funds.
Other Accounts Managed
The following chart lists certain information about types of other accounts for which each portfolio manager was primarily responsible as of October 31, 2022.
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 | ||||||||||||
J.P. Morgan Investment Management Inc. | ||||||||||||||||
Richard Figuly | ||||||||||||||||
Registered Investment Companies | 30 | $ | 66,929 | 0 | $ | 0 | ||||||||||
Other Pooled Investment Vehicles | 15 | $ | 18,107 | 0 | $ | 0 | ||||||||||
Other Accounts | 25 | $ | 4,550 | 1 | $ | 906 | ||||||||||
Justin Rucker | $ | 0 | ||||||||||||||
Registered Investment Companies | 15 | $ | 44,260 | 0 | $ | 0 | ||||||||||
Other Pooled Investment Vehicles | 13 | $ | 14,178 | 0 | $ | 0 | ||||||||||
Other Accounts | 34 | $ | 7,599 | 0 | $ | 0 | ||||||||||
Steven Lear | $ | 0 | ||||||||||||||
Registered Investment Companies | 18 | $ | 66,084 | 0 | $ | 0 | ||||||||||
Other Pooled Investment Vehicles | 10 | $ | 17,083 | 0 | $ | 0 | ||||||||||
Other Accounts | 10 | $ | 1,606 | 0 | $ | 0 |
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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 | ||||||||||||
Jonathan K. L. Simon | ||||||||||||||||
Registered Investment Companies | 3 | $ | 16,510 | 0 | $ | 0 | ||||||||||
Other Pooled Investment Vehicles | 1 | $ | 76 | 0 | $ | 0 | ||||||||||
Other Accounts | 32 | $ | 2,662 | 0 | $ | 0 | ||||||||||
Lawrence E. Playford | ||||||||||||||||
Registered Investment Companies | 3 | $ | 16,510 | 0 | $ | 0 | ||||||||||
Other Pooled Investment Vehicles | 1 | $ | 76 | 0 | $ | 0 | ||||||||||
Other Accounts | 32 | $ | 2,662 | 0 | $ | 0 | ||||||||||
Phillip D. Hart | ||||||||||||||||
Registered Investment Companies | 15 | $ | 5,235 | 0 | $ | 0 | ||||||||||
Other Pooled Investment Vehicles | 2 | $ | 800 | 0 | $ | 0 | ||||||||||
Other Accounts | 3 | $ | 757 | 0 | $ | 0 | ||||||||||
Jonathan Tse | ||||||||||||||||
Registered Investment Companies | 15 | $ | 5,235 | 0 | $ | 0 | ||||||||||
Other Pooled Investment Vehicles | 2 | $ | 800 | 0 | $ | 0 | ||||||||||
Other Accounts | 3 | $ | 757 | 0 | $ | 0 | ||||||||||
Wonseok Choi | ||||||||||||||||
Registered Investment Companies | 17 | $ | 6,594 | 0 | $ | 0 | ||||||||||
Other Pooled Investment Vehicles | 1 | $ | 157 | 0 | $ | 0 | ||||||||||
Other Accounts | 3 | $ | 757 | 0 | $ | 0 | ||||||||||
Akash Gupta | ||||||||||||||||
Registered Investment Companies | 14 | $ | 5,236 | 0 | $ | 0 | ||||||||||
Other Pooled Investment Vehicles | 1 | $ | 157 | 0 | $ | 0 | ||||||||||
Other Accounts | 3 | $ | 757 | 0 | $ | 0 | ||||||||||
Robert Ippolito | ||||||||||||||||
Registered Investment Companies | 0 | $ | 0 | 0 | $ | 0 | ||||||||||
Other Pooled Investment Vehicles | 0 | $ | 0 | 0 | $ | 0 | ||||||||||
Other Accounts | 0 | $ | 0 | 0 | $ | 0 | ||||||||||
Scott Davis | ||||||||||||||||
Registered Investment Companies | 2 | $ | 19,073 | 0 | $ | 0 | ||||||||||
Other Pooled Investment Vehicles | 3 | $ | 9,408 | 0 | $ | 0 | ||||||||||
Other Accounts | 46 | $ | 17,332 | 0 | $ | 0 | ||||||||||
David Small | ||||||||||||||||
Registered Investment Companies | 2 | $ | 19,073 | 0 | $ | 0 | ||||||||||
Other Pooled Investment Vehicles | 3 | $ | 9,408 | 0 | $ | 0 | ||||||||||
Other Accounts | 46 | $ | 17,332 | 0 | $ | 0 | ||||||||||
Shilpee Raina | ||||||||||||||||
Registered Investment Companies | 2 | $ | 19,073 | 0 | $ | 0 | ||||||||||
Other Pooled Investment Vehicles | 3 | $ | 9,408 | 0 | $ | 0 | ||||||||||
Other Accounts | 46 | $ | 17,332 | 0 | $ | 0 |
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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.
Lincoln Investment Advisors Corporation (LIAC)
Portfolio managers maintain an asset allocation strategy for each Fund and make investment decisions based on the investment objectives, policies, practices and other relevant investment considerations that the managers believe are applicable. Differences in the investment strategies or restrictions among the Funds and other accounts may cause the portfolio managers to take action with respect to one Fund that differs from the action taken with respect to another Fund or account. For example, portfolio managers may invest in an underlying fund for one account while at the same time eliminating or reducing an investment in the same underlying fund for another account.
The portfolio managers may engage in cross-trades, in which one Fund sells a particular security to another fund or account (potentially saving transaction costs for both accounts). Cross trades may pose a potential conflict of interest if, for example, one account sells a security to another account at a higher price than an independent third party would pay. The mix of underlying funds purchased in one Fund may perform better than the mix of underlying funds purchased for another Fund.
The management of accounts with different advisory fee rates and/or fee structures may raise potential conflicts of interest for a portfolio manager by creating an incentive to favor higher fee accounts. It is the policy of LIAC that all decisions concerning the selection of underlying funds be based solely on the best interests of each Fund and its shareholders, and without regard to any revenue that LIAC receives, might receive, or has received in the past, directly or indirectly, from portfolio managers or funds for services provided by LIAC or any affiliate of LIAC.
The management of multiple accounts may result in a portfolio manager devoting unequal time and attention to the management of each account. Although LIAC does not track the time a portfolio manager spends on a single fund, it does assess whether a portfolio manager has adequate time and resources to effectively manage all the accounts for which he or she is responsible. LIAC seeks to manage competing interests for the time and attention of portfolio managers.
LIAC has adopted and implemented policies and procedures which it believes address the conflicts associated with managing multiple accounts. In addition, personal accounts may give rise to potential conflicts of interest and must be maintained and conducted in accordance with LIAC’s Code of Ethics.
JPMorgan Investment Management, Inc. (JPMorgan)
The potential for conflicts of interest exists when portfolio managers manage other accounts with similar investment objectives and strategies as the Fund (“Similar Accounts”). Potential conflicts may include, for example, conflicts between investment strategies and conflicts in the allocation of investment opportunities. Responsibility for managing JPMorgan’s and its affiliates’ clients’ portfolios is organized according to investment strategies within asset classes. Generally, client portfolios with similar strategies are managed by portfolio managers in the same portfolio management group using the same objectives, approach and philosophy. Underlying sectors or strategy allocations within a larger portfolio are likewise managed by portfolio managers who use the same approach and philosophy as similarly managed portfolios. Therefore, portfolio holdings, relative position sizes and industry and sector exposures tend to be similar across similar portfolios and strategies, which minimizes the potential for conflicts of interest.
JPMorgan and/or its affiliates (“JPMorgan Chase”) perform investment services, including rendering investment advice, to varied clients. JPMorgan, JPMorgan Chase and its or their directors, officers, agents, and/or employees may render similar or differing investment advisory services to clients and may give advice or exercise investment responsibility and take such other action with respect to any of its other clients that differs from the advice given or the timing or nature of action taken with respect to another client or group of clients. It is JPMorgan’s policy, to the extent practicable, to allocate, within its reasonable discretion, investment opportunities among clients over a period of time on a fair and equitable basis. One or more of JPMorgan’s other client accounts may at any time hold, acquire, increase, decrease, dispose, or otherwise deal with positions in investments in which another client account may have an interest from time-to-time.
JPMorgan, JPMorgan Chase, and any of its or their directors, partners, officers, agents or employees, may also buy, sell, or trade securities for their own accounts or the proprietary accounts of JPMorgan and/or JPMorgan Chase. JPMorgan and/or JPMorgan Chase, within their discretion, may make different investment decisions and other actions with respect to their own proprietary accounts than those made for client accounts, including the timing or nature of such investment decisions or actions. Further, JPMorgan is not required to purchase or sell for any client account securities that it, JPMorgan Chase, and any of its or their employees, principals, or agents may purchase or sell for their own accounts or the proprietary accounts of JPMorgan, or JPMorgan Chase or its clients.
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JPMorgan and/or its affiliates may receive more compensation with respect to certain Similar Accounts than that received with respect to the Fund or may receive compensation based in part on the performance of certain Similar Accounts. This may create a potential conflict of interest for JPMorgan and its affiliates or the portfolio managers by providing an incentive to favor these Similar Accounts when, for example, placing securities transactions. In addition, JPMorgan or its affiliates could be viewed as having a conflict of interest to the extent that JPMorgan or an affiliate has a proprietary investment in Similar Accounts, the portfolio managers have personal investments in Similar Accounts or the Similar Accounts are investment options in JPMorgan’s or its affiliates’ employee benefit plans. Potential conflicts of interest may arise with both the aggregation and allocation of securities transactions and allocation of investment opportunities because of market factors or investment restrictions imposed upon JPMorgan and its affiliates by law, regulation, contract or internal policies. Allocations of aggregated trades, particularly trade orders that were only partially completed due to limited availability and allocation of investment opportunities generally, could raise a potential conflict of interest, as JPMorgan or its affiliates may have an incentive to allocate securities that are expected to increase in value to favored accounts. Initial public offerings, in particular, are frequently of very limited availability. JPMorgan and its affiliates may be perceived as causing accounts they manage to participate in an offering to increase JPMorgan’s and its affiliates’ overall allocation of securities in that offering. A potential conflict of interest also may be perceived to arise if transactions in one account closely follow related transactions in a different account, such as when a purchase increases the value of securities previously purchased by another account, or when a sale in one account lowers the sale price received in a sale by a second account. If JPMorgan or its affiliates manage accounts that engage in short sales of securities of the type in which the Fund invests, JPMorgan or its affiliates could be seen as harming the performance of the Fund for the benefit of the accounts engaging in short sales if the short sales cause the market value of the securities to fall.
As an internal policy matter, JPMorgan or its affiliates may from time to time maintain certain overall investment limitations on the securities positions or positions in other financial instruments JPMorgan or its affiliates will take on behalf of its various clients due to, among other things, liquidity concerns and regulatory restrictions. Such policies may preclude the Fund from purchasing particular securities or financial instruments, even if such securities or financial instruments would otherwise meet the Fund’s objectives.
The goal of JPmorgan and its affiliates is to meet their fiduciary obligation with respect to all clients. JPMorgan and its affiliates have policies and procedures that seek to manage conflicts. JPMorgan and its affiliates monitor a variety of areas, including compliance with fund guidelines, review of allocation decisions and compliance with JPMorgan’s Codes of Ethics and JPMorgan Chase and Co.’s Code of Conduct. With respect to the allocation of investment opportunities, JPMorgan and its affiliates also have certain policies designed to achieve fair and equitable allocation of investment opportunities among its clients over time. For example: Orders for the same equity security traded through a single trading desk or system are aggregated on a continual basis throughout each trading day consistent with JPMorgan’s and its affiliates’ duty of best execution for their clients. If aggregated trades are fully executed, accounts participating in the trade will be allocated their pro rata share on an average price basis. Partially completed orders generally will be allocated among the participating accounts on a pro-rata average price basis, subject to certain limited exceptions. For example, accounts that would receive a de minimis allocation relative to their size may be excluded from the order. Another exception may occur when thin markets or price volatility require that an aggregated order be completed in multiple executions over several days. If partial completion of the order would result in an uneconomic allocation to an account due to fixed transaction or custody costs, JPMorgan and its affiliates may exclude small orders until 50% of the total order is completed. Then the small orders will be executed. Following this procedure, small orders will lag in the early execution of the order, but will be completed before completion of the total order.
Purchases of money market instruments and fixed income securities cannot always be allocated pro-rata across the accounts with the same investment strategy and objective. However, the Adviser and its affiliates attempt to mitigate any potential unfairness by basing non-pro rata allocations traded through a single trading desk or system upon objective predetermined criteria for the selection of investments and a disciplined process for allocating securities with similar duration, credit quality and liquidity in the good faith judgment of the Adviser or its affiliates so that fair and equitable allocation will occur over time.
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Compensation Structures and Methods
Information regarding each portfolio manager’s compensation is attached hereto as Appendix C.
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.
For fiscal years ended December 31, 2021, 2020 and 2019, LFD received $208,355,341, $173,124,472 and $168,111,614, respectively, in compensation from the Trust.
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 Fund’s 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.
For the fiscal years ended December 31, 2021, 2020 and 2019, the Trust paid Lincoln Life $9,183,600, $11,452,717 and $10,730,919, respectively, in administrative services reimbursement.
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-level services to each of the Funds, such as: antimoney laundering and fraud prevention; privacy and data security; disaster recovery; and services related to regulatory duties, such as duties of confidentiality and disclosure.
For the fiscal years ended December 31, 2021 and 2020, the Trust paid Lincoln Life $33,707,685 and $28,243,675, respectively, in contractholder servicing and corporate-level services reimbursement.
Since the Funds are new, none of the Funds engaged in any securities lending.
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 and master feeder 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 Fund’s 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.
For fiscal years ended December 31, 2021, 2020 and 2019, the Trust paid $11,022,662, $10,363,301, and $9,336,151, respectively, pursuant to its Accounting Agreement.
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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 Trust’s Code of Ethics requires reporting to the Board of Trustees of material compliance violations.
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 Trust’s Certificate of Trust is on file with the Secretary of State of Delaware. The Trust’s 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 114 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 Fund’s 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 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 Trust’s 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.
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For these Funds, the insurance companies include, without limitation, (1) Lincoln Life, an Indiana insurance company, at 1301 S. Harrison 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.
As of April 1, 2022, there were no shareholders of the Funds that held 5% or more (or 25% or more) of a Fund’s outstanding shares. 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 fund’s shares, a technique known as “echo voting.”
As of April 1, 2022, the no shareholders held 5% or more (or 25% or more) of the outstanding shares of a Fund.
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 of the following Funds: LVIP American Century Select Mid Cap Managed Volatility Fund, LVIP ClearBridge Franklin Select Large Cap Managed Volatility Fund, LVIP Delaware Bond Fund, LVIP Delaware Social Awareness Fund, LVIP Delaware Mid Cap Value Fund, LVIP Dimensional U.S. Core Equity 1 Fund, LVIP Fidelity Institutional AM® Select Core Equity Managed Volatility Fund, LVIP Invesco Select Equity Income Managed Volatility Fund, LVIP Loomis Sayles Global Growth Fund, and LVIP Multi-Manager Global Equity Managed Volatility Fund. The Plan Fee for Service Class shares of all other Funds is 0.25%. The Plan Fee may be adjusted by the Trust’s 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.
For the fiscal year ended December 31, 2021, the Service Class shares of the Trust paid Plan Fees for compensation to broker-dealers of approximately $208,355,341.
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LIAC and its affiliates, including LFD, and/or each Fund’s 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 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 Fund’s shares is based on the Fund’s 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 Fund’s prospectus under the “Pricing of Fund Shares” section, the value of each Fund’s 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.
The Trust’s Board of Trustees has adopted policies and procedures designed to ensure that disclosure of information regarding a Fund’s 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 Fund’’ portfolio holdings available free of charge to individual investors, institutional investors, intermediaries that distribute the Fund’’ 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.
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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 Fund’s 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, each Managed Volatility Fund provides daily post-trade position reports, as well as reports showing the Fund’s daily futures transactions pursuant to the managed volatility strategy, to the annuity pricing group and market risk management group within Lincoln Life, LIAC’s 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 group’s oversight of risk management functions for the Managed Volatility 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. Lincoln’s internal risk management functions are integral to supporting the relevant Funds and their associated 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.
Fund sub-advisers have an ongoing arrangement with the following third parties to make available information about a Fun’‘s 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 Commicise, BBH Infomediary, IEX Data Analytics LLC, Morningstar, Lipper, Factset Research Systems, Financial Recovery Technologies, Intex, Performance Attribution System, Linedata Services, Inc., Investment Technology Group Inc., Wilshire Associates, Inc., Bloomberg L.P., Bloomberg PORT, BarraOne/MSCI Barra, Inc., Barclays Capital, BlackRock Aladdin, Trade Informatics, Investor Tools Perform, BARRA Aegis Systems, Global Trading Analytics, LLC, Citigroup, Hedgemark, ICE Data Pricing and Reference Data, LLC, MoneyMate, Omgeo, Barclays Capital Point, Acuity Knowledge Partners, Virtu Americas LLC, 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, FIS XSPrisa (XSP) SaaS, 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, StarCompliance, State Street Bank and Trust Company, State Street Global Services, 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 Fund’s 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 Trust’s Board of Trustees also may, on a case-by-case basis, authorize disclosure of the Fund’’ 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 Fund’’ portfolio holdings information.
The Funds are responsible for ensuring appropriate disclosure is made regarding these procedures in the Fund’’ prospectuses and/or SAI.
The Trust’s 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 Fund’’ investment adviser and other Fund affiliates, on the other. Moreover, the Fund’’ Chief Compliance Officer will address the operation of the Fund’’ procedures in the annual compliance review and will recommend any remedial changes to the procedures.
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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 Trust’s funds of funds, which invest their assets in other mutual funds. The offering price of a Fund’s 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.
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
For the fiscal year ended December 31, 2023, the Board of Trustees engaged Tait, Weller & Baker LLP, 50 South 16th Street, Suite 2900, Philadelphia, PA 19102, to serve as the Fund’’ Independent Registered Public Accounting Firm in order to maintain auditor independence in light of the reorganization transactions. In addition to the audits of the Fund’’ financial statements, Tait, Weller & Baker 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.
Since the Funds are new, the most recent Annual Report to Shareholders, which contains each Fund’s audited financial statements, will not be available until after December 31, 2023. We will provide a copy of each Fund’s 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).
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 company’s 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 Fund’s 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.
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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 Fund’s 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 Fund’s 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 Fund’s 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 Requirement’s 90% test. Each Fund intends to manage its commodities exposure to ensure that the Income Requirement is met at the end of the Fund’s tax year. To the extent that a Fund’s income from commodities exceeds 10% of the Fund’s gross income, the Fund may be subject to taxation on that portion of commodities income that exceeds 10% of the Fund’s gross income.
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 Fund’s net realized capital gains are includable in the respective Insurance Company’s gross income. Distributions of a Fund’s 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 Company’s 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 Company’s 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 Fund’s 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 Fund’s 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.
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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.
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 Company’s net realized capital gains are includable in the respective Insurance Company’s gross income. Distributions of the Company’s 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 Company’s 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 Company’s 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 Fund’s 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 Fund’s 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.
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Appendix A — Long and Short-Term Credit Ratings
Certain of the Funds’ investment policies and restrictions include reference to bond (long-term) and commercial paper (short-term) ratings. The following is a discussion of the rating categories of Moody’s Investor Service, Inc. and Standard & Poor’s Financial Services LLC.
Background
Moody’s
Ratings assigned on Moody’s global long-term and short-term rating scales are forward-looking opinions of the relative credit risks of financial obligations issued by non-financial corporates, financial institutions, structured finance vehicles, project finance vehicles, and public sector entities.
S&P Global Ratings
A Standard & Poor’s issue credit rating is a forward-looking opinion about the creditworthiness of an obligor with respect to a specific financial obligation, a specific class of financial obligations, or a specific financial program. The opinion reflects Standard & Poor’s view of the obligor’s capacity and willingness to meet its financial commitments as they come due.
Long-Term Credit Ratings
Long-term ratings are generally the credit risk of fixed-income obligation with an original maturity of one year or more.
Moody’s
Aaa – Obligations rated Aaa are judged to be of the highest quality, subject to the lowest level of credit risk.
Aa – Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.
A – Obligations rated A are judged to be upper-medium grade and are subject to low credit risk.
Baa – Obligations rated Baa are judged to be medium-grade and subject to moderate credit risk and as such may possess certain speculative characteristics.
Ba – Obligations rated Ba are judged to be speculative and are subject to substantial credit risk.
B – Obligations rated B are considered speculative and are subject to high credit risk.
Caa – Obligations rated Caa are judged to be speculative of poor standing and are subject to very high credit risk.
Ca – Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest.
C – Obligations rated C are the lowest rated and are typically in default, with little prospect for recovery of principal or interest.
S&P Global Ratings
AAA – An obligation rated ‘AAA’ has the highest rating assigned by S&P Global Ratings. The obligor’s capacity to meet its financial commitment on the obligation is extremely strong.
AA – An obligation rated ‘AA’ differs from the highest-rated obligations only to a small degree. The obligor’s capacity to meet its financial commitment on the obligation is very strong.
A – An obligation rated ‘A’ is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor’s capacity to meet its financial commitment on the obligation is still strong.
BBB – An obligation rated ‘BBB’ exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to weaken the obligor’s capacity to meet its financial commitment on the obligation.
BB; B; CCC; CC; and C – Obligations rated ‘BB’, ‘B’, ‘CCC’, ‘CC’, and ‘C’ are regarded as having significant speculative characteristics. ‘BB’ indicates the least degree of speculation and ‘C’ the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
D – An obligation rated ‘D’ is in default or in breach of an imputed promise. For non-hybrid capital instruments, the ‘D’ rating category is used when payments on an obligation are not made on the date due, unless S&P Global Ratings believes that such payments will be made within five business days in the absence of a stated grace period or within the earlier of the stated grace period or 30 calendar days. The ‘D’ rating also will be used upon the filing of a bankruptcy petition or the taking of similar action and where default on an obligation is a virtual certainty, for example due to automatic stay provisions. A rating on an obligation is lowered to ‘D’ if it is subject to a distressed exchange offer.
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* | Ratings from ‘AA’ to ‘CCC’ may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the rating categories. |
Short-Term Credit Ratings
Short-term ratings are generally assigned to those obligations considered short-term in the relevant market. In the U.S., for example, that means obligations with an original maturity of no more than 365 days — including commercial paper.
Moody’s
P1 – Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay short-term debt obligations.
P2 – Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay short-term debt obligations.
P3 – Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to repay short-term obligations.
NP – Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime rating categories.
S&P Global Ratings
A-1 – A short-term obligation rated ‘A-1’ is rated in the highest category by S&P Global Ratings. The obligor’s capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligor’s capacity to meet its financial commitment on these obligations is extremely strong.
A-2 – A short-term obligation rated ‘A-2’ is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligor’s capacity to meet its financial commitment on the obligation is satisfactory.
A-3 – A short-term obligation rated ‘A-3’ exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to weaken an obligor’s capacity to meet its financial commitment on the obligation.
B – A short-term obligation rated ‘B’ is regarded as vulnerable and has significant speculative characteristics. The obligor currently has the capacity to meet its financial commitments; however, it faces major ongoing uncertainties that could lead to the obligor’s inadequate capacity to meet its financial commitments.
C – A short-term obligation rated ‘C’ is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitments on the obligation.
D – A short-term obligation rated ‘D’ is in default or in breach of an imputed promise. For non-hybrid capital instruments, the ‘D’ rating category is used when payments on an obligation are not made on the date due, unless S&P Global Ratings believes that such payments will be made within any stated grace period. However, any stated grace period longer than five business days will be treated as five business days. The ‘D’ rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action and where default on an obligation is a virtual certainty, for example due to automatic stay provisions. A rating on an obligation is lowered to ‘D’ if it is subject to a distressed exchange offer.
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Appendix B — Proxy Voting Policies and Procedures
Lincoln Investment Advisors Corporation
100. 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 Fund’s 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 LIAC’s implementation of proxy voting for LIAC’s 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 Client’s holdings shall be made in the manner LIAC believes will most likely protect and promote such Client’s 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 Client’s 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 adviser’s proxy voting policies and procedures and, upon request, furnish a copy of the policies and procedures to the requesting client. |
III. Procedures
100. 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 Client’s proxy voting procedures or other direction. If the Client does not direct proxy voting in the Client’s account, LIAC will vote proxies in the Client’s 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 Client’s 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 fund’s securities to the sub-adviser, subject to the Board’s continued oversight. The sub-adviser votes all proxies relating to the sub-advised funds’ portfolio securities and uses the sub-adviser’s own proxy voting policies and procedures adopted in conformance with Rule 206(4)-6. LIAC shall review each sub-adviser’s proxy voting policies and procedures as follows:
• | Before a sub-adviser is retained, LIAC’s compliance staff will review the proposed sub-adviser’s proxy voting policies and procedures and confirm that the sub-adviser will vote the proxies in the best interests of its clients. |
• | Each quarter, LIAC’s 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. LIAC’s compliance staff reviews these reported changes or exceptions and, if material, summarizes them and reports such event’s to the sub-advised fund’s board. |
• | During contract renewal of sub-advisory agreements for Clients that are registered mutual funds, LIAC reviews the sub-adviser’s responses to the Section 1I) information request sent by Funds Management, which includes pertinent questions relating to the sub-adviser’s proxy voting policies and procedures. |
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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 fund’s 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 fund’s shareholders.
Proxies for the portfolio securities owned by the master fund will be voted pursuant to the master fund’s 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 Client’s best interests. If the conflict relates specifically to a Client that is a registered mutual fund, the CCO shall report to the fund’s 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 Fund’s proxy voting record for the most recent 12 months ended June 30 are available on the Securities and Exchange Commission’s (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); |
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(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 Client’s proxies.
JPMORGAN INVESTMENT MANAGEMENT INC. (JPMIM)
The Board of Trustees has delegated to JPMIM and its affiliated advisers, proxy voting authority with respect to the fund’s portfolio securities. To ensure that the proxies of portfolio companies are voted in the best interests of the fund, the fund’s Board of Trustees has adopted JPMIM’s detailed proxy voting guidelines (“Guidelines”) for voting proxies on specific types of issues.
JPMIM and its affiliated advisers are part of a global asset management organization with the capability to invest in securities of issuers located around the globe. Because the regulatory framework and the business cultures and practices vary from region to region, the Guidelines are customized for each region to take into account such variations. Separate Guidelines cover the regions of (1) North America, (2) Europe, Middle East, Africa, Central America and South America, (3) Asia (ex-Japan) and (4) Japan, respectively.
Notwithstanding the variations among the Guidelines, all of the Guidelines have been designed with the uniform objective of encouraging corporate action that enhances shareholder value. As a general rule, in voting proxies of a particular security, JPMIM and its affiliated advisers will apply the Guidelines of the region in which the issuer of such security is organized. Except as noted below, proxy voting decisions will be made in accordance with the Guidelines covering a multitude of both routine and non-routine matters that JPMIM and its affiliated adviser have encountered globally, based on many years of collective investment management experience.
To oversee and monitor the proxy-voting process, JPMIM has established a proxy committee and appointed a proxy administrator in each global location where proxies are voted. The primary function of each proxy committee is to review periodically general proxy-voting matters, review and approve the Guidelines annually, and provide advice and recommendations on general proxy-voting mat- ters as well as on specific voting issues. The procedures permit an independent voting service to perform certain services otherwise carried out or coordinated by the proxy administrator.
Although for many matters the Guidelines specify the votes to be cast, for many others, the Guidelines contemplate case-by-case determinations or the proposal may not be covered by the Guidelines. Under those circumstances or when overriding the Guidelines, a certification and review process may be completed before the vote is cast. That process is designed to identify actual or potential material conflicts of interest (between the fund on the one hand, and JPMIM, its underwriter or an affiliate of any of the foregoing, on the other hand) and ensure that the proxy vote is cast in the best interests of the fund. A conflict is deemed to exist when the proxy is for JPMorgan Chase & Co. stock or for J.P. Morgan Funds, or when the proxy administrator has actual knowledge indicating that a JPMorgan affiliate is an investment banker or rendered a fairness opinion with respect to the matter that is the subject of the proxy vote. When such conflicts are identified, the proxy will be voted by an independent third party either in accordance with the Guidelines or by the third party guidelines; provided, however, that JPMIM’s investment professional(s) may request an exception to this process to vote against a proposal rather than referring it to an independent third party (“Exception Request”) where the proxy administrator has actual knowledge indicating that a JPMorgan Chase affiliate is an investment banker or rendered a fairness opinion with respect to the matter that is the subject of the proxy vote. The Proxy Committee shall review the Exception Request and shall determine whether JPMIM should vote against the proposal or whether such proxy should still be referred to an independent third party due to the potential for additional conflicts or otherwise.
When other types of potential material conflicts of interest are identified, the proxy administrator and, as necessary, a legal representative from the proxy committee will evaluate the potential conflict of interest and determine whether such conflict actually exists, and if so, will recommend how JPMIM will vote the proxy. In addressing any material conflict, JPMIM may take one or more of the following measures (or other appropriate action): removing or “walling off” from the proxy voting process certain JPMIM personnel with knowledge of the conflict, voting in accordance with any applicable Guideline if the application of the Guideline would objectively result in the casting of a proxy vote in a predetermined manner, or deferring the vote to or obtaining a recommendation from an independent third party, in which case the proxy will be voted by, or in accordance with the recommendation of, the independent third party unless there is an Exception Request.
The following summarizes some of the more noteworthy types of proxy voting policies of the non-U.S. Guidelines:
• | Corporate governance procedures differ among the countries. Because of time constraints and local customs, it is not always possible for JPMIM to receive and review all proxy materials in connection with each item submitted for a vote. Many proxy statements are in foreign languages. Proxy materials are generally mailed by the issuer to the sub-custodian which holds the securities for the client in the country where the portfolio company is organized, and there may not be sufficient time for such materials to be transmitted to JPMIM in time for a vote to be cast. In some countries, proxy statements are not mailed at all, and in some locations, the deadline for voting is two to four days after the initial announcement that a vote is to be solicited and it may not always be possible to obtain sufficient information to make an informed decision in good time to vote. |
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• | Certain markets require that shares being tendered for voting purposes are temporarily immobilized from trading until after the shareholder meeting has taken place. Elsewhere, notably emerging markets, it may not always be possible to obtain sufficient information to make an informed decision in good time to vote. Some markets require a local representative to be hired in order to attend the meeting and vote in person on our behalf, which can result in considerable cost. JPMIM also considers the cost of voting in light of the expected benefit of the vote. In certain instances, it may sometimes be in the Fund’s best interests to intentionally refrain from voting in certain overseas markets from time to time. |
• | Where proxy issues concern corporate governance, takeover defense measures, compensation plans, capital structure changes and so forth, JPMIM pays particular attention to management’s arguments for promoting the prospective change. JPMIM’s sole criterion in determining its voting stance is whether such changes will be to the economic benefit of the beneficial owners of the shares. |
• | JPMIM is in favor of a unitary board structure of the type found in the United Kingdom as opposed to tiered board structures. Thus, JPMIM will generally vote to encourage the gradual phasing out of tiered board structures, in favor of unitary boards. However, since tiered boards are still very prevalent in markets outside of the United Kingdom, local market practice will always be taken into account. |
• | JPMIM will use its voting powers to encourage appropriate levels of board independence, taking into account local market practice. |
• | JPMIM will usually vote against discharging the board from responsibility in cases of pending litigation, or if there is evidence of wrongdoing for which the board must be held accountable. |
• | JPMIM will vote in favor of increases in capital which enhance a company’s long-term prospects. JPMIM will also vote in favor of the partial suspension of preemptive rights if they are for purely technical reasons (e.g., rights offers which may not be legally offered to shareholders in certain jurisdictions). However, JPMIM will vote against increases in capital which would allow the company to adopt “poison pill” takeover defense tactics, or where the increase in authorized capital would dilute shareholder value in the long term. |
• | JPMIM will vote in favor of proposals which will enhance a company’s long-term prospects. JPMIM will vote against an increase in bank borrowing powers which would result in the company reaching an unacceptable level of financial leverage, where such borrowing is expressly intended as part of a takeover defense, or where there is a material reduction in shareholder value. |
• | JPMIM will generally vote against anti-takeover devices and support proposals aimed at revoking such plans. Where anti-takeover devices exist, they should be fully disclosed to shareholders and shareholders should be given the opportunity to review them periodically. |
• | JPMIM considers social or environmental issues on a case-by-case basis, keeping in mind at all times the best long-term/economic interests of its clients. |
The following summarizes some of the more noteworthy types of proxy voting policies of the U.S. Guidelines:
• | JPMIM considers votes on director nominees on a case-by-case basis. Votes generally will be withheld from directors who: (a) attend less than 75% of board and committee meetings without a valid excuse; (b) adopt or renew a poison pill without shareholder approval; (c) are affiliated directors who serve on audit, compensation or nominating committees or are affiliated directors and the full board serves on such committees or the company does not have such committees; (d) ignore a shareholder proposal that is approved by a majority of either the shares outstanding or the votes cast based on a review over a consecutive two year time fraI (e) are insiders and affiliated outsiders on boards that are not at least majority independent; or (f) are CEOs of publicly-traded companies who serve on more than three public boards or serve on more than four public company boards. In addition, votes are generally withheld for directors who serve on committees in certain cases. For example, the Adviser generally withholds votes from audit committee members in circumstances in which there is evidence that there exists material weaknesses in the company’s internal controls. Votes generally are also withheld from directors when there is a demonstrated history of poor performance or inadequate risk oversight or when the board adopts changes to the company’s governing documents without shareholder approval if the changes materially diminish shareholder rights. Votes generally will be withheld from Board chair, lead independent directors, or government committee chairs of publicly traded companies where employees have departed for significant violation of code of conduct without claw back of compensation. For newly public companies, JPMAM will vote case-by-case on directors as we believe the company should have the appropriate time frame to mature and better its governance structure and practices. |
• | JPMIM votes proposals to classify boards on a case-by-case basis, but normally will vote in favor of such proposal if the issuer’s governing documents contain each of eight enumerated safeguards (for example, a majority of the board is composed of independent directors and the nominating committee is composed solely of such directors). |
• | JPMIM also considers management poison pill proposals on a case-by-case basis, looking for shareholder-friendly provisions before voting in favor. |
• | JPMIM votes against proposals for a super-majority vote to approve a merger. |
• | JPMIM considers proposals to increase common and/or preferred shares and to issue shares as part of a debt restructuring plan on a case-by-case basis, taking into account such factors as the extent of dilution and whether the transaction will result in a change in control. |
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• | JPMIM considers vote proposals with respect to compensation plans on a case-by-case basis. The analysis of compensation plans focuses primarily on the transfer of shareholder wealth (the dollar cost of pay plans to shareholders) and includes an analysis of the structure of the plan and pay practices of other companies in the relevant industry and peer companies. Other matters included in the analysis are the amount of the company’s outstanding stock to be reserved for the award of stock options, whether the exercise price of an option is less than the stock’s fair market value at the date of the grant of the options, and whether the plan provides for the exchange of outstanding options for new ones at lower exercise prices. |
• | JPMIM also considers on a case-by-case basis proposals to change an issuer’s state of incorporation, mergers and acquisitions and other corporate restructuring proposals and certain social issue proposals. |
• | JPMIM generally votes for management proposals which seek shareholder approval to make the state of incorporation the exclusive forum for disputes if the company is a Delaware corporation; otherwise, JPMIM votes on a case-by-case basis. |
• | JPMIM supports board refreshment, independence, and a diverse skill set for directors. As a matter of principle, we expect our investee companies to be committed to diversity and inclusiveness in their general recruitment policies as we believe such diversity contributes to the effectiveness of boards. JPMIM will utilize its voting power to bring about change where Boards are lagging in gender and racial and/or ethnic diversity. |
• | JPMIM will consider environmental and social issues on a case-by-case basis, keeping in mind the best long-term interests of clients. Generally JPMorgan supports management disclosure practices that are overall consistent with the goals and objective expressed above. Proposals with respect to companies that have been involved in controversies, fines or litigation are expected to be subject to heightened review and consideration. JPMorgan will Vote against chair of committee responsible for providing oversight of environmental matters and/or risk where we believe the company is lagging peers in terms of disclosure, business practices or targets. Vote against committee members, lead independent director and/or board chair for companies that have lagged over several years. |
• | JPMIM reviews Say on Pay proposals on a case-by-case basis with additional review of proposals where the issuer’s previous year’s proposal received a low level of support. |
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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 Fund’s portfolio manager as of each Fund’s fiscal year ended December 31, 2021:
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 manager’s 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 manager’s 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.
JPMorgan Investment Management, Inc. (JPMorgan)
JPMorgan’s compensation programs are designed to align the behavior of employees with the achievement of its short- and long-term strategic goals, which revolve around client investment objectives. This is accomplished, in part, through a balanced performance assessment process and total compensation program, as well as a clearly defined culture that rigorously and consistently promotes adherence to the highest ethical standards.
In determining portfolio manager compensation, JPMorgan uses a balanced discretionary approach to assess performance against four broad categories: (1) business results; (2) risk and control; (3) customers and clients; and (4) people and leadership. These performance categories consider short-, medium- and long-term goals that drive sustained value for clients, while accounting for risk and control objectives. Specifically, portfolio manager performance is evaluated against various factors including the following: (1) blended pre-tax investment performance relative to competitive indices, generally weighted more to the long-term; (2) individual contribution relative to the client’s risk/return objectives; and (3) adherence with JPMorgan’s compliance, risk and regulatory procedures.
Feedback from JPMorgan’s risk and control professionals is considered in assessing performance.
JPMorgan maintains a balanced total compensation program comprised of a mix of fixed compensation (including a competitive base salary and, for certain employees, a fixed cash allowance), variable compensation in the form of cash incentives, and long-term incentives in the form of equity based and/or fund-tracking incentives that vest over time. Long-term awards comprise up to 60% of overall incentive compensation, depending on an employee’s pay level.
Long-term awards are generally in the form of time-vested JPMC Restricted Stock Units (“RSUs”). However, portfolio managers are subject to a mandatory deferral of long-term incentive compensation under JPMorgan’s Mandatory Investor Plan (“MIP”). The MIP provides for a rate of return equal to that of the Fund(s) that the portfolio managers manage, thereby aligning portfolio manager’s pay with that of their client’s experience/return. 100% of the portfolio manager’s long-term incentive compensation is eligible for MIP with 50% allocated to the specific Fund(s) they manage, as determined by their respective manager. The remaining portion of the overall amount is electable and may be treated as if invested in any of the other Funds available in the plan or can take the form of RSUs.
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(1) | Declaration of Trust. | |||
(a) | ||||
(b) | ||||
(2) | By-laws. | |||
(a) | ||||
(3) | N/A | |||
(4) |
(5) | 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. | |||
(6) | Investment Advisory Contracts. | |||
(a) | ||||
(1) | ||||
(b) | ||||
(c) | Reserved. | |||
(d) | Sub-Advisory Contracts. | |||
(1) | ||||
(2) | ||||
(3) | ||||
(i) | ||||
(4) | ||||
(5) | ||||
(6) | ||||
(i) | ||||
(ii) | ||||
(7) | ||||
(i) | ||||
(8) | ||||
(i) | ||||
(9) | ||||
(i) | ||||
(10) | ||||
(i) | ||||
(11) | ||||
(i) | ||||
(12) |
(13) | Reserved. | |||
(14) | ||||
(15) | ||||
(i) | ||||
(16) | ||||
(i) | ||||
(17) | ||||
(18) | ||||
(19) | ||||
(i) | ||||
(20) | ||||
(21) | ||||
(22) | ||||
(i) | ||||
(ii) | ||||
(iii) | ||||
(23) | ||||
(i) | ||||
(ii) | ||||
(24) | ||||
(25) | ||||
(26) | ||||
(i) | ||||
(27) | ||||
(i) |
(28) | ||||
(i) | ||||
(ii) | ||||
(29) | ||||
(i) | ||||
(30) | ||||
(i) | ||||
(31) | ||||
(i) | ||||
(32) | ||||
(i) | ||||
(33) | Reserved. | |||
(34) | ||||
(35) | ||||
(i) | ||||
(ii) | ||||
(36) | ||||
(i) | ||||
(ii) | ||||
(37) | ||||
(i) | ||||
(38) | ||||
(i) | ||||
(39) | ||||
(i) | ||||
(ii) |
(40) | ||||
(i) | ||||
(41) | ||||
(i) | ||||
(42) | ||||
(i) | ||||
(43) | ||||
(44) | ||||
(45) | ||||
(46) | ||||
(i) | ||||
(ii) | ||||
(47) | ||||
(i) | ||||
(ii) | ||||
(48) | ||||
(i) | ||||
(49) | ||||
(i) | ||||
(50) | ||||
(51) | ||||
(52) | ||||
(53) |
(54) | ||||
(55) | ||||
(7) | Underwriting Contracts. | |||
(a) | ||||
(1) | ||||
(8) | N/A | |||
(9) | Custodian Agreements. | |||
(a) | ||||
(1) | ||||
(10) | Rule 12b-1 Plan and Rule 18f-3 Plan. | |||
(a) | ||||
(1) | ||||
(b) | ||||
(c) | ||||
(11) | Legal Opinion. | |||
(a) | ||||
(b) | ||||
(c) | ||||
(12) | N/A | |||
(13) | Other Material Contracts. | |||
(a) | ||||
(1) | ||||
(b) | ||||
(i) | ||||
(c) | ||||
(1) | ||||
(d) | ||||
(1) | ||||
(e) | ||||
(f) | Consulting Agreements | |||
(1) |
(2) | ||||
(g) | Participation Agreements | |||
(1) | ||||
(2) | ||||
(3) | ||||
(4) | ||||
(5) | ||||
(6) | ||||
(7) | ||||
(8) | ||||
(9) | ||||
(10) | ||||
(11) | ||||
(12) | ||||
(13) | ||||
(14) | ||||
(15) | ||||
(16) | ||||
(17) | ||||
(18) | ||||
(19) | ||||
(20) | ||||
(21) | ||||
(22) |
(23) | ||||
(24) | ||||
(25) | ||||
(26) | ||||
(27) | ||||
(28) | ||||
(29) | ||||
(30) | ||||
(31) | ||||
(h) | ||||
(14) | ||||
(15) | N/A | |||
(16) | ||||
(17) | Codes of Ethics. | |||
(a) | ||||
(b) | ||||
(c) | ||||
(18) | N/A |
SIGNATURE PAGE
As required by the Securities Act of 1933, this Registration Statement has been signed on behalf of the Registrant, in the city of Fort Wayne and the State of Indiana, on this 30th day of January 2023.
LINCOLN VARIABLE INSURANCE PRODUCTS TRUST | ||
By: | /s/ William P. Flory, Jr. | |
William P. Flory, Jr. Chief Accounting Officer |
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in their capacities and on the date indicated above.
Signature | Title | |||
By: | /s/ Jayson R. Bronchetti* | Chairman of the Board, Trustee and President | ||
Jayson R. Bronchetti | (Principal Executive Officer) | |||
By: | /s/ William P. Flory, Jr. | Chief Accounting Officer | ||
William P. Flory, Jr. | (Principal Accounting Officer and Principal Financial Officer) | |||
/s/ Steve A. Cobb* Steve A. Cobb | Trustee | |||
/s/ Ken C. Joseph* Ken C. Joseph | Trustee | |||
/s/ Barbara L. Lamb* Barbara L. Lamb | Trustee | |||
/s/ Gary D. Lemon* Gary D. Lemon | Trustee | |||
/s/ Thomas A. Leonard* Thomas A. Leonard | Trustee | |||
/s/ Charles I. Plosser* Charles I. Plosser | Trustee | |||
/s/ Pamela L. Salaway* Pamela L. Salaway | Trustee | |||
/s/ Manisha A. Thakor* Manisha A. Thakor | Trustee |
/s/ Brian W. Wixted* Brian W. Wixted | Trustee | |||
/s/ Nancy B. Wolcott* Nancy B. Wolcott | Trustee | |||
By: | /s/ William P. Flory, Jr. | Attorney-in-Fact | ||
William P. Flory, Jr. |
* | Pursuant to a Power of Attorney filed on December 22, 2022. |