UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14C
Information Statement Pursuant to Section 14(c) of the
Securities Exchange Act of 1934
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☐ | Confidential, for Use of the Commission Only (as permitted by Rule14c-5(d)(2)) | |||
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LVIP ClearBridge QS Select Large Cap Managed Volatility Fund
a series of Lincoln Variable Insurance Products Trust
(Name of Registrant as Specified in its Charter)
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INFORMATION STATEMENT
Lincoln Variable Insurance Products Trust
LVIP ClearBridge QS Select Large Cap Managed Volatility Fund
(formerly, LVIP Blended Core Equity Managed Volatility Fund)
May 6, 2019
Dear Shareholder:
At a meeting of the Board of Trustees (the “Board”) of the Lincoln Variable Insurance Products Trust (the “Trust”), held on December3-4, 2018 (the “Meeting”), the Board approved new investmentsub-advisory agreements (each a“Sub-Advisory Agreement”, collectively, the“Sub-Advisory Agreements”) for the LVIP ClearBridge QS Select Large Cap Managed Volatility (formerly, the LVIP Blended Core Equity Managed Volatility Fund) (the “Fund”) between the Fund’s investment adviser, Lincoln Investment Advisors Corporation (the “Adviser”), and ClearBridge Investments, LLC (“Clearbridge”) and QS Investors, LLC (“QS Investors”).
The Trust has received an exemptive order (the “Order”) from the U.S. Securities and Exchange Commission (“SEC”) permitting the Adviser, subject to Board approval, including a majority of the Trustees who are not “interested persons” (“Independent Trustees”) of the Trust within the meaning of that term under the Investment Company Act of 1940, to enter into or materially amend the Fund’s investmentsub-advisory agreements without obtaining shareholder approval. Accordingly, approval of theSub-Advisory Agreements does not require a shareholder vote.
This document is for informational purposes only. You are not required
to take any action and you are not requested to send us a proxy
with respect to thissub-adviser change.
As a condition of relying on the Order, the Adviser is required to furnish Fund shareholders with an Information Statement when asub-advisory agreement is entered into or materially amended without a shareholder vote. This Information Statement provides information regarding theSub-Advisory Agreements.
I. Background
At the Meeting, the Adviser recommended, and the Board, including all of the Independent Trustees, approved, theSub-Advisory Agreements with ClearBridge and QS Investors with respect to the Fund to be effective as of February 8, 2019. Under the terms of theSub-Advisory Agreements, ClearBridge and QS Investors make investment decisions and continuously review, supervise and administer the Fund’s investment program with respect to the portion of the Fund’s assets allocated to them.
II. Board Considerations on theSub-Advisory Agreements
At the Meeting, the Board of the Trust met to consider, among other things, theSub-Advisory Agreements. The trustees who were not “interested persons” of the Trust (as such term is defined in the Investment Company Act of 1940) (the “Independent Trustees”) reported that they had reviewed materials provided by the Adviser and ClearBridge and QS Investors (the“Sub-Advisers”) prior to the meeting, and were advised by their independent legal counsel of their fiduciary duties pertaining to approval of investmentsub-advisory agreements and the factors that they should consider in evaluating such agreements. Among other information, the Adviser and theSub-Advisers provided information to assist the Independent Trustees in assessing the nature, extent and quality of services to be provided, including previous presentations by representatives of theSub-Advisers and theSub-Advisers’ responses
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to the Adviser’s request for proposal. The Independent Trustees and their independent legal counsel met separately from the “interested” trustee, Trust officers, and Lincoln National Life Insurance Company employees to consider the approval of theSub-Advisory Agreements. The Independent Trustees reported that they had considered, among others, the factors listed below and reached the following conclusions with respect to their recommendation to the Board.
The Board considered that the Fund would continue to be managed with an actively-managed risk-management overlay using up to 20% of the Fund’s net assets (the “Risk-Management Sleeve”). The Board further considered the Adviser’s proposal to change the structure of the Fund with regard to the investment of the remainder of the Fund’s net assets (the “Equity Sleeve”) from a fund of funds structure, where the Equity Sleeve is invested in underlying funds, to asub-advised structure, where theSub-Advisers would manage the investments of the Equity Sleeve. The Board also considered the changes to the Fund’s investment strategy to include exposure to ClearBridge’s Variable Aggressive Growth and Variable Appreciation strategies and QS Investors’ U.S. Large Cap strategy and to remove exposure to T. Rowe Price Inc.’s Capital Opportunities strategy.
The Board determined that, given the totality of the information provided with respect to theSub-Advisory Agreements, the Board had received sufficient information to approve theSub-Advisory Agreements. In considering the approval of theSub-Advisory Agreements, the Board did not identify any single factor or group of factors asall-important or controlling and considered a variety of factors in its analysis including those discussed below. The Board did not allot a particular weight to any one factor or group of factors.
Sub-Advisory Agreements
Nature, Extent and Quality of Services and Performance. In considering the approval of theSub-Advisory Agreements between the Adviser and each of ClearBridge and QS Investors with respect to the Fund, the Board considered the nature, extent and quality of services to be provided by eachSub-Adviser under theSub-Advisory Agreements. The Board reviewed the services to be provided by eachSub-Adviser, the investment professionals proposed to service the Fund and the reputation, resources and investment approach of theSub-Advisers. The Board noted that each of ClearBridge and QS Investors, which are affiliated companies, currently use the same strategy that eachSub-Adviser wouldsub-advise for the Fund to manage underlying funds in which the Fund and another LVIP Fund invests. The Board considered the Adviser’s statement that the Fund has achieved sufficient scale in recent years, which has allowed the Adviser to negotiate asub-advisory fee directly with theSub-Advisers. The Board concluded that the services to be provided by theSub-Advisers were expected to be satisfactory.
Sub-Advisory Fee and Economies of Scale. The Board considered the proposedsub-advisory fee schedules, which contain breakpoints. The Board noted that the proposedsub-advisory fee schedules were negotiated between the Adviser and theSub-Advisers, each unaffiliated with the Adviser, and that the Adviser would compensate theSub-Advisers from its fee and concluded the proposedsub-advisory fee schedules were reasonable.
Profitability and Fallout Benefits. The Board considered that thesub-advisory fee schedules were negotiated between LIAC and theSub-Advisers, each unaffiliated with the Adviser, and that the Adviser would compensate theSub-Advisers from its fees. The Board reviewed materials provided by theSub-Advisers as to any additional benefits each of ClearBridge or QS Investors would receive and noted that theSub-Advisers stated that the engagement may lead to additional assets under other product mandates and enhance its reputation and name recognition with current and prospective clients.
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Overall Conclusions
Based on all the information considered and conclusions reached, the Board determined that the terms of theSub-Advisory Agreements are fair and reasonable and that approval of theSub-Advisory Agreements is in the best interest of the Fund.
III. TheSub-Advisory Agreements
EachSub-Advisory Agreement is dated February 7, 2019 and has an initialtwo-year term. Thereafter, continuance of theSub-Advisory Agreements will require the annual approval of the Board, including a majority of the Independent Trustees.
Under theSub-Advisory Agreements, ClearBridge and QS Investors make investment decisions and continuously review, supervise and administer the Fund’s investment program with respect to the portion of the Fund’s assets allocated to them. TheSub-Advisory Agreements can be terminated at any time, without the payment of any penalty, by: (a) the vote of a majority of the Fund’s outstanding voting securities; (b) the Adviser on at least sixty days’ written notice to ClearBridge and/or QS Investors; or (c) ClearBridge and/or QS Investors on at least sixty days’ written notice to the Adviser. TheSub-Advisory Agreements will also automatically terminate, without the payment of any penalty, in the event of their assignment, or delegation (unless the Adviser has by prior written consent agreed to the delegation) or in the event the investment management agreement between the Adviser and the Trust terminates.
IV. Information About ClearBridge
ClearBridge is located at 620 Eighth Avenue, New York, New York, 10018. ClearBridge is a wholly owned subsidiary of Legg Mason, a publicly traded company listed on the New York Stock Exchange (NYSE:LM). As of December 31, 2018, ClearBridge managed more than $125.5 billion in assets.
The table below provides the name and principal occupation of ClearBridge’s directors and executive officers. The address of each of the directors and executive officers is 620 Eighth Avenue, New York, New York, 10018.
Name | Principal Occupation* | |
Terrence Murphy | Chief Executive Officer, Director | |
Hersh Cohen | Co-Chief Investment Officer | |
Scott Glasser | Co-Chief Investment Officer, Director | |
Cynthia List | Chief Financial Officer, Director | |
Barbara Brooke Manning | General Counsel, Chief Compliance Officer | |
Brian Eakes | Director | |
John Eede | Director | |
Frances Cashman | Director | |
John Kenney | Director |
* | ClearBridge is 100% owned by Legg Mason, Inc. Each person listed is considered a control person of ClearBridge. |
Comparable Funds
ClearBridge acts as investment adviser to the following mutual funds that have objectives similar to the portion of the Fund’s assets allocated to Clearbridge.
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Comparable Funds | Contractual Fee | Assets under (as of December 31, | ||||||
Proprietary Funds – Aggressive Growth | ||||||||
ClearBridge Aggressive Growth Fund | First $1 Billion
| 52.50 bps | $8,115,325,656 | |||||
Next $1 Billion
| 50.75 bps | |||||||
Next $3 Billion
| 49.00 bps | |||||||
Next $5 Billion
| 47.25 bps | |||||||
Over $10 Billion
| 45.50 bps | |||||||
ClearBridge Variable Aggressive Growth Fund | First $1 Billion
| 52.50 bps | $798,587,161 | |||||
Next $1 Billion
| 50.75 bps | |||||||
Next $3 Billion
| 49.00 bps | |||||||
Next $5 Billion
| 47.25 bps | |||||||
Over $10 Billion
| 45.50 bps | |||||||
Legg Mason ClearBridge U.S. Aggressive Growth Fund (Offshore) | Flat Rate
| 46.00 bps | $1,397,511,602 | |||||
Non-Proprietary Funds – Aggressive Growth |
| |||||||
AXA EQ Advisors Trust Multimanager Aggressive Equity Portfolio | 0 - $500 Million
| 35.00 bps | $135,481,375 | |||||
$500 Million - $2 Billion
| 30.00 bps | |||||||
Assets Over $2 Billion
| 25.00 bps | |||||||
Brighthouse Funds Trust I - CB Aggressive Growth Portfolio | 0 - $500 Million
| 35.00 bps | $2,452,879,981 | |||||
$500 Million - $1 Billion
| 30.00 bps | |||||||
$1 Billion - $2 Billion
| 25.00 bps | |||||||
$2 Billion - $3 Billion
| 20.00 bps | |||||||
Assets over $3 Billion
| 18.00 bps | |||||||
Prudential AST LM Diversified Growth Portfolio - ClearBridge Sleeve | Flat Rate | 30.00 bps | $28,212,750 | |||||
Proprietary Funds – Appreciation |
| |||||||
ClearBridge Appreciation Fund | First $250 Million
| 52.50 bps | $5,578,631,347 | |||||
Next $250 Million
| 49.00 bps | |||||||
Next $500 Million
| 45.50 bps | |||||||
Next $ 1 Billion
| 42.00 bps | |||||||
Next $ 1 Billion
| 38.50 bps | |||||||
Over $3 Billion
| 35.00 bps |
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ClearBridge Variable Appreciation Fund | First $250 Million
| 52.50 bps
| $911,757,354 | |||||
Next $250 Million
| 49.00 bps
| |||||||
Next $500 Million
| 45.50 bps
| |||||||
Next $ 1 Billion
| 42.00 bps
| |||||||
Next $ 1 Billion
| 38.50 bps
| |||||||
Over $3 Billion
| 35.00 bps
| |||||||
Legg Mason ClearBridge U.S. Appreciation Fund (Offshore) | Flat Rate | 50.00 bps | $194,706,760 | |||||
Non-Proprietary Funds – Appreciation |
| |||||||
SA LM Tactical Opportunities Portfolio - Appreciation Sleeve | First $500 Million
| 30.00 bps
| $4,707,867 | |||||
Next $500 Million
| 28.00 bps
| |||||||
Next $1 Billion
| 26.00 bps
| |||||||
Over $2 Billion
| 23.00 bps
|
Payments of Commissions to Affiliated Brokers
As of December 31, 2018, ClearBridge had the following affiliated broker-dealers:
Subsidiary Name |
Clarion Partners Securities LLC |
EnTrustPermal Securities LLC |
Legg Mason Investor Services, LLC |
Permal (Hong Kong) Limited |
Royce Fund Services, LLC |
The Fund did not pay any brokerage commissions to brokers affiliated with Clearbridge during the fiscal year ended December 31, 2018.
V. Information About QS Investors
QS Investors is located at 880 Third Avenue, 7th Floor, New York, New York, 10022. QS Investors is a wholly owned, independently managed affiliate of Legg Mason, Inc., a publicly traded company listed on the New York Stock Exchange (NYSE:LM). As of December 31, 2018, QS Investors managed more than $17.9 billion in assets.
The table below provides the name and principal occupation of QS Investors’ directors and executive officers. The address of each of the directors and executive officers is 880 Third Avenue, 7th Floor, New York, New York, 10022.
Name | Principal Occupation | |
Jeff Nattans | Director (Board member) | |
John Kenney | Director (Board member) | |
Tom Merchant | Director (Board member) | |
Tom Hoops | Director (Board member) | |
Janet Campagna | Chairperson (Board member) | |
Adam Petryk | Director, President & CEO (Board member) | |
Robert (Yu Ming) Wang | CCO & Head of Portfolio Management |
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Steven Ducker | Chief Compliance Officer |
Comparable Funds
QS Investors acts as investment adviser to the following mutual funds that have objectives similar to the portion of the Fund’s assets allocated to QS Investors.
Comparable Fund | Contractual Fee (Sub-Advisory Fee) | Assets under Management (as of December 31, 2018) | ||
Sub-Advised Fund #1
| Confidential
| $82 billion
|
Payments of Commissions to Affiliated Brokers
As of December 31, 2018, QS Investors had the following affiliated broker-dealers:
Subsidiary Name |
Clarion Partners Securities LLC |
EnTrustPermal Securities LLC |
Legg Mason Investor Services, LLC |
Permal (Hong Kong) Limited |
Royce Fund Services, LLC |
The Fund did not pay any brokerage commissions to brokers affiliated with QS Investors during the fiscal year ended December 31, 2018.
VI. Purchases of ClearBridge or QS Investors’ Securities by Trustees
To the knowledge of the Fund, no Trustee currently has any material interest in security holdings or transactions or proposed transactions involving ClearBridge or QS Investors or any entity controlling, controlled by or under common control with ClearBridge or QS Investors.
VII. Ownership of Shares
As of December 31, 2018, the Fund had 6,839 outstanding Standard Class shares and 25,425,316 outstanding Service Class shares. Because the Fund is an investment for variable annuity contracts and variable life insurance policies (“Variable Contracts”) offered by certain life insurance companies, the insurance companies are the record holders of the Fund’s shares. However, the owners of the Variable Contracts are the beneficial owners/shareholders and they direct the voting of the Fund’s shares.
As of December 31, 2018, to the knowledge of the Fund, no beneficial owner/shareholder of the Fund’s shares beneficially owned 5% or more of the shares.
As of December 31, 2018, the Trustees and officers of the Trust as a group beneficially owned less than 1% of the Fund’s outstanding shares.
VIII. Other Information
Investment Adviser
The Lincoln Investment Advisors Corporation serves as the Fund’s investment adviser and is located at 150 N. Radnor-Chester Road, Radnor, Pennsylvania 19087.
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Principal Underwriter and Distributor
The Trust’s principal underwriter and distributor, Lincoln Financial Distributors, Inc. (“LFD”), is located at 130 N. Radnor-Chester Road, Radnor, Pennsylvania 19087. LFD is an affiliate of the Adviser. The Fund paid LFD $90,901 in12b-1 fees for the fiscal year ended December 31, 2018.
Broker-Dealers Affiliated with the Adviser
The Adviser has the following affiliated brokers: Lincoln Financial Advisors Corporation, Lincoln Financial Distributors, Inc., and Lincoln Financial Securities Corporation. The Fund does not trade securities through any broker affiliated with the Adviser and as a result, the Fund did not pay any brokerage commissions to these brokers for the fiscal year ended December 31, 2018.
Administrator
The Trust’s administrator, Lincoln National Life Insurance Company (“Lincoln Life”), is located at 1300 S. Clinton St., Fort Wayne, Indiana 46802. Lincoln Life is an affiliate of the Adviser. The Fund paid Lincoln Life $16,859 in reimbursed administrative servicing costs and contractholder servicing fees for the fiscal year ended December 31, 2018.
Householding
Only one copy of this Information Statement is mailed to households, even if more than one person in a household is a Fund shareholder of record, unless the Fund has received instructions to the contrary. If you need additional copies of this Information Statement, or if you do not want the mailing of an Information Statement to be combined with those for other members of your household in the future, or if you are receiving multiple copies and would rather receive just one copy for the household, please contact the Trust by calling1-800-454-6265 or by writing to the Trust at P.O. Box 2340, Fort Wayne, Indiana 46801 (regular mail) or 1300 S. Clinton Street, Fort Wayne, Indiana 46802 (express mail).
Financial Statements
Shareholders can obtain a copy of the Fund’s most recent Annual Report and Semi-Annual Report without charge, by calling1-800-454-6265 or by writing to the Trust at P.O. Box 2340, Fort Wayne, Indiana 46801 (regular mail) or 1300 S. Clinton Street, Fort Wayne, Indiana 46802 (express mail).
PLEASE RETAIN THIS INFORMATION STATEMENT FOR FUTURE REFERENCE
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