[Federal Register Volume 75, Number 48 (Friday, March 12, 2010)]
[Notices]
[Pages 11949-11951]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-5446]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 29170; File No. 812-13732]
Lincoln Investment Advisors Corporation and Lincoln Variable
Insurance Products Trust; Notice of Application
March 9, 2010.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application under section 6(c) of the Investment
Company Act of 1940 (``Act'') for an exemption from section 15(a) of
the Act and rule 18f-2 under the Act, as well as from certain
disclosure requirements.
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Summary of Application: Applicants request an order that would permit
them to enter into and materially amend subadvisory agreements without
shareholder approval and would grant relief from certain disclosure
requirements.
Applicants: Lincoln Investment Advisors Corporation (``Adviser'') and
Lincoln Variable Insurance Products Trust (the ``Trust'') (together,
``Applicants'').
Filing Dates: The application was filed on December 22, 2009.
Applicants have agreed to file an amendment during the notice period,
the substance of which is contained in this notice.
Hearing or Notification of Hearing: An order granting the application
will be issued unless the Commission orders a hearing. Interested
persons may request a hearing by writing to the Commission's Secretary
and serving applicants with a copy of the request, personally or by
mail. Hearing requests should be received by the Commission by 5:30
p.m. on March 30, 2010, and should be accompanied by proof of service
on applicants, in the form of an affidavit or, for lawyers, a
certificate of service. Hearing requests should state the nature of the
writer's interest, the reason for the request, and the issues
contested. Persons who wish to be notified of a hearing may request
notification by writing to the Commission's Secretary.
ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F
Street, NE., Washington, DC 20549-1090. Applicants, Lincoln Investment
Advisors Corporation, One Granite Place, Concord, NH 03301 and Lincoln
Variable Insurance Products Trust, 1300 S. Clinton Street, Fort Wayne,
IN 46802.
FOR FURTHER INFORMATION CONTACT: Jill Ehrlich, Attorney Adviser, at
(202) 551-6819, or Mary Kay Frech, Branch Chief, at (202) 551-6821
(Division of Investment Management, Office of Investment Company
Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained via the
Commission's Web site by searching for the file number, or an applicant
using the Company name box, at http://www.sec.gov/search/search.htm or
by calling (202) 551-8090.
Applicants' Representations
1. The Trust, a Delaware statutory trust, is registered under the
Act as an open-end management investment company and currently offers
39 series, each with separate investment objectives, policies and
restrictions (each, a ``Fund'' and collectively, the ``Funds'').\1\ The
Adviser, an indirect, wholly owned subsidiary of Lincoln National
Corporation, is registered as an investment adviser under the
Investment Advisers Act of 1940 (``Advisers Act''). The Adviser serves
as investment adviser to each Fund under an investment advisory
agreement (each, an ``Advisory Agreement'') that
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has been approved by the shareholders \2\ of each Fund and by the
Trust's board of trustees (the ``Board''), including a majority of the
trustees who are not ``interested persons,'' as defined in section
2(a)(19) of the Act, of the Trust, the Adviser, or the Sub-Advisers
(the ``Independent Trustees'').
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\1\ Applicants request that any relief granted pursuant to the
application also apply to any existing or future registered open-end
management investment company or series thereof that: (i) Is advised
by the Adviser or any entity controlling, controlled by, or under
common control with the Adviser; (ii) uses the ``manager of
managers'' structure described in the application; and (iii)
complies with the terms and conditions of the application (included
in the term ``Funds''). The Trust is the only existing investment
company that currently intends to rely on the order. If the name of
any Fund should, at any time, contain the name of a Sub-Adviser (as
defined below), the name of the Adviser or a trademark or trade name
owned by Lincoln Financial Group, such as ``Lincoln VIP'' or
``LVIP,'' will precede the name of the Sub-Adviser. ``Lincoln
Financial Group'' is the marketing name for Lincoln National
Corporation, the ultimate parent company of the Adviser.
\2\ The term ``shareholder'' includes variable life insurance
policy and variable annuity contract owners that are unitholders of
any separate account for which a Fund serves as a funding medium.
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2. Under the terms of each Advisory Agreement, the Adviser is
authorized to manage the investment and reinvestment of the assets of
each Fund in conformity with the Fund's investment objectives, policies
and restrictions. As compensation for its services, the Adviser
receives a fee from the Trust, computed separately for each Fund. The
fee for each Fund is stated as an annual percentage of the current
value of the net assets of the Fund. Each Advisory Agreement
specifically permits the Adviser to delegate its investment advisory
responsibilities to one or more investment advisers (each, a ``Sub-
Adviser''), pursuant to investment sub-advisory agreements (each, a
``Sub-Advisory Agreement''), subject to the approval of the Board. Each
Sub-Adviser is, and any future Sub-Adviser will be, an investment
adviser that is registered under the Advisers Act. The Adviser monitors
and evaluates the Sub-Advisers and recommends to the Board their
hiring, retention or termination. The Board, including a majority of
the Independent Trustees, will approve each Sub-Advisory Agreement.
Each Sub-Adviser will have discretionary investment authority with
respect to the portion of the Fund's assets allocated to it by the
Adviser, subject to supervision by the Adviser and the Board. The
Adviser pays each Fund's Sub-Adviser(s), if any, out of the fee the
Adviser receives from the Fund under the relevant Advisory Agreement.
3. Applicants request relief to permit the Adviser, subject to
Board approval, to enter into and materially amend Sub-Advisory
Agreements without obtaining shareholder approval. The requested relief
will not extend to any Sub-Adviser that is an affiliated person, as
defined in section 2(a)(3) of the Act, of a Fund or the Adviser, other
than by reason of serving as a Sub-Adviser to one or more of the Funds
(``Affiliated Sub-Adviser'').
4. Applicants also request an exemption from the various disclosure
provisions described below that may require the Applicants to disclose
fees paid by the Adviser to each Sub-Adviser. An exemption is requested
to permit a Fund to disclose (as both a dollar amount and as a
percentage of the Fund's net assets): (i) Aggregate fees paid to the
Adviser and Affiliated Sub-Advisers; and (ii) aggregate fees paid to
Sub-Advisers other than Affiliated Sub-Advisers (``Aggregate Fee
Disclosure''). If a Fund employs an Affiliated Sub-Adviser, the Fund
will provide separate disclosure of any fees paid to the Affiliated
Sub-Adviser.
Applicants' Legal Analysis
1. Section 15(a) of the Act provides, in relevant part, that it is
unlawful for any person to act as an investment adviser to a registered
investment company except pursuant to a written contract that has been
approved by a vote of a majority of the company's outstanding voting
securities. Rule 18f-2 under the Act provides that each series or class
of stock in a series investment company affected by a matter must
approve that matter if the Act requires shareholder approval.
2. Form N-1A is the registration statement used by open-end
investment companies. Item 19(a)(3) of Form N-1A requires disclosure of
the method and amount of the investment adviser's compensation.\3\
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\3\ Form N-1A was recently amended by the Commission, effective
March 31, 2009, and, with respect to any Fund that has not yet begun
using the revised form, references in the application to Item
19(a)(3) should be read to refer to Item 14(a)(3).
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3. Rule 20a-1 under the Act requires proxies solicited with respect
to an investment company to comply with Schedule 14A under the
Securities Exchange Act of 1934 (``1934 Act''). Items 22(c)(1)(ii),
22(c)(1)(iii), 22(c)(8) and 22(c)(9) of Schedule 14A, taken together,
require a proxy statement for a shareholder meeting at which the
advisory contract will be voted upon to include the ``rate of
compensation of the investment adviser,'' the ``aggregate amount of the
investment adviser's fees,'' a description of the ``terms of the
contract to be acted upon,'' and, if a change in the advisory fee is
proposed, the existing and proposed fees and the difference between the
two fees.
4. Form N-SAR is the semi-annual report filed with the Commission
by registered investment companies. Item 48 of Form N-SAR requires
investment companies to disclose the rate schedule for fees paid to
their investment advisers, including the Sub-Advisers.
5. Regulation S-X sets forth the requirements for financial
statements required to be included as part of investment company
registration statements and shareholder reports filed with the
Commission. Sections 6-07(2)(a), (b), and (c) of Regulation S-X require
that registered investment companies include in their financial
statements information about investment advisory fees.
6. Section 6(c) of the Act provides that the Commission may exempt
any person, security, or transaction or any class or classes of
persons, securities, or transactions from any provisions of the Act, or
from any rule thereunder, if such exemption is necessary or appropriate
in the public interest and consistent with the protection of investors
and the purposes fairly intended by the policy and provisions of the
Act. Applicants state that their requested relief meets this standard
for the reasons discussed below.
7. Applicants assert that shareholders will rely on the Adviser's
expertise to select one or more Sub-Advisers best suited to achieve a
Fund's investment objectives. Applicants assert that, from the
perspective of the shareholder, the role of the Sub-Advisers with
respect to a Fund will be substantially equivalent to the role of the
individual portfolio managers employed by traditional investment
company advisory firms. Applicants contend that requiring shareholder
approval of Sub-Advisory Agreements would impose unnecessary costs and
delays on the Funds and may preclude the prompt replacement of a Sub-
Adviser when considered advisable by the Board and the Adviser.
Applicants note that each Advisory Agreement and any Sub-Advisory
Agreement with an Affiliated Sub-Adviser will remain subject to the
shareholder voting requirements of section 15(a) of the Act and rule
18f-2 under the Act.
8. Applicants assert that some Sub-Advisers use a ``posted'' fee
schedule to set their fees. Applicants state that while Sub-Advisers
are willing to negotiate fees that are lower than those posted on the
schedule, they are reluctant to do so where the fees are disclosed to
other prospective and existing customers. Applicants submit that the
requested relief will better enable the Adviser to negotiate lower
advisory fees with the Sub-Advisers, the benefits of which would likely
be passed on to the shareholders of the Funds.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. Before a Fund may rely on the order requested in the
application, the operation of the Fund in the manner described in the
application will be approved by a majority of the Fund's
[[Page 11951]]
outstanding voting securities, as defined in the Act, or in the case of
a Fund whose public shareholders purchase shares on the basis of a
prospectus containing the disclosure contemplated by condition 2 below,
by the sole initial shareholder before offering the Fund's shares to
the public.
2. The prospectus for each Fund will disclose the existence,
substance, and effect of any order granted pursuant to the application.
In addition, each Fund will hold itself out to the public as employing
the manager of managers structure described in the application. The
prospectus will prominently disclose that the Adviser has the ultimate
responsibility (subject to oversight by the Board) to oversee the Sub-
Advisers and to recommend their hiring, termination and replacement.
3. At all times, at least a majority of the Board will be
Independent Trustees, and the nomination of new or additional
Independent Trustees will be placed within the discretion of the then
existing Independent Trustees.
4. The Adviser will not enter into a Sub-Advisory Agreement with
any Affiliated Sub-Adviser without that agreement, including the
compensation to be paid thereunder, being approved by the shareholders
of the applicable Fund.
5. When a change of Sub-Adviser is proposed for a Fund with an
Affiliated Sub-Adviser, the Board, including a majority of the
Independent Trustees, will make a separate finding, reflected in the
Board minutes, that the change is in the best interests of the Fund and
its shareholders and does not involve a conflict of interest from which
the Adviser or the Affiliated Sub-Adviser derives an inappropriate
advantage.
6. Within 90 days of hiring any new Sub-Adviser, the affected
Fund's shareholders will be furnished all information about the new
Sub-Adviser that would be contained in a proxy statement, except as
modified to permit Aggregate Fee Disclosure. This information will
include Aggregate Fee Disclosure and any change in such disclosure
caused by the addition of the new Sub-Adviser. To meet this obligation,
the Fund will provide shareholders within 90 days of the hiring of a
new Sub-Adviser with an information statement meeting the requirements
of Regulation 14C, Schedule 14C, and Item 22 of Schedule 14A under the
1934 Act, except as modified by the order to permit Aggregate Fee
Disclosure.
7. The Adviser will provide general investment advisory services to
the Funds, including overall supervisory responsibility for the general
management and investment of each Fund's assets, and, subject to review
and approval by the Board, the Adviser will (i) set each Fund's overall
investment strategies; (ii) evaluate, select and recommend Sub-Advisers
to manage all or part of each Fund's assets; (iii) when appropriate,
allocate and reallocate each applicable Fund's assets among multiple
Sub-Advisers; (iv) monitor and evaluate the performance of the Sub-
Advisers, and (v) implement procedures reasonably designed to ensure
that the Sub-Advisers comply with each Fund's investment objective,
policies and restrictions.
8. No trustee or officer of a Trust, or director or officer of the
Adviser, will own, directly or indirectly (other than through a pooled
investment vehicle that is not controlled by such person), any interest
in a Sub-Adviser, except for: (i) Ownership of interests in the Adviser
or any entity that controls, is controlled by, or is under common
control with the Adviser; or (ii) ownership of less than 1% of the
outstanding securities of any class of equity or debt of a publicly
traded company that is either a Sub-Adviser or an entity that controls,
is controlled by, or is under common control with a Sub-Adviser.
9. Independent legal counsel, as defined in rule 0-1(a)(6) under
the Act, will be engaged to represent the Independent Trustees. The
selection of such counsel will be within the discretion of the then
existing Independent Trustees.
10. Each Fund will disclose in its registration statement the
Aggregate Fee Disclosure.
11. Whenever a Sub-Adviser is hired or terminated, the Adviser will
provide the Board with information showing the expected impact on the
Adviser's profitability.
12. The Adviser will provide the Board, no less frequently than
quarterly, with information about the Adviser's profitability, on a
per-Fund basis. The information will reflect the impact on
profitability of the hiring or termination of any Sub-Adviser during
the applicable quarter.
13. In the event that the Commission adopts a rule under the Act
providing substantially similar relief to that in the order requested
in the application, the requested order will expire on the effective
date of that rule.
For the Commission, by the Division of Investment Management,
under delegated authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-5446 Filed 3-11-10; 8:45 am]
BILLING CODE 8011-01-P