Correspondence 0001193125-24-176117 from Lincoln Funds Trust (CIK 0002015799)
Lincoln Funds Trust (CIK 0002015799)
Date: July 8, 2024 · CIK: 0002015799 · Accession: 0001193125-24-176117
AI Filing Summary & Sentiment
File numbers found in text: 333-278528, 811-23952
Letter
VIA EDGAR Division of Investment Management Securities and Exchange Commission File Nos. 333-278528 and 811-23952 Funds: Lincoln Inflation Plus Fund and Lincoln U.S. Equity Income Maximizer Fund (each a “Fund” collectively, the “Funds”)
Dear Mr. O’Brien:
This letter responds to your comments, provided via email on May 6, 2024, to the Trust’s initial registration statement filed on Form N-1A on April 5, 2024, under Rule 485(a) under the Securities Act of 1933 (the “Registration Statement”). Any comments to the disclosure for one Fund will be applied to both Funds, where applicable.
The following are your comments and the Trust’s responses.
General
1. We note that portions of the registration statement are incomplete. Please ensure all information is included in a pre-effective amendment, including the fee table, hypothetical expense examples, references to the auditor, auditor’s consent, and seed financial statements. A full financial review must be performed prior to declaring the registration statement effective. We may have additional comments on such portions when the Fund completes them in a pre-effective amendment, on disclosures made in response to this letter, on information supplied supplementally, or on exhibits added in any amendment.
RESPONSE: The Trust acknowledges this comment.
2. Where a comment is made with regard to disclosure in one location of a registration statement or with regard to one fund, it is applicable to all similar disclosure appearing elsewhere in the registration statement.
RESPONSE: The Trust acknowledges this comment.
Lincoln U.S. Equity Income Maximizer Fund
Lincoln Financial Group
150 N. Radnor Chester Rd.
Radnor, PA 19087
Phone: 484-583-8711
Email: sam.goldstein@lfg.com
Fees and Expenses; Page 3-4
3. Please review the narrative disclosures at the top of page 4 to the Expense Example and better conform to the Instructions to Item 3 of Form N-1A. Please also add the following below the Example, as applicable: “The Example does not reflect sales charges (loads) on reinvested dividends [and other distributions]. If these sales charges (loads) were included, your costs would be higher.”
RESPONSE: The requested revision has been made. The Expense Example disclosure has been updated as follows:
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example illustrates the hypothetical expenses that you would incur over the time periods indicated if you invest $10,000 in the Fund’s shares. The example also assumes that the Fund provides a return of 5% a year and that operating expenses remain the same. This example reflects the net operating expenses with a fee waiver for the one-year contractual period and the total operating expenses without a fee waiver for the remaining time periods shown below. Your actual costs may be higher or lower than this example. The results apply whether or not you redeem your investment at the end of the given period. This example does not reflect sales charges (loads) on reinvested dividends [and other distributions]. If these sales charges (loads) were included, your costs would be higher.
Principal Investment Strategies; Page 4
4. The first sentence of the second paragraph states that, “[t]he Fund, under normal circumstances, invests at least 80% of its assets in equity and equity related securities of U.S. companies.” Please revise the 80% test to clarify that the Fund will invest 80% of its net assets, plus the amount of any borrowings for investment purposes, in equity securities and equity-related securities in U.S. companies. Please also disclose with specificity the types of principal investments that the Fund intends to invest in that would be considered “equity related securities.” Please also clarify how the Adviser will determine whether a particular issuer has its “principal business activities” in the United States.
RESPONSE: The requested revisions have been made. The paragraph has been updated as follows:
The Fund, under normal circumstances, invests at least 80% of its net assets (including borrowings for investment purposes) in equity and equity related securities of U.S. companies. These are companies that are incorporated, headquartered, or have their principal business activities in the United States (as defined by Bloomberg’s Global Equity Indices Methodology). The Fund tends to focus on equity and equity related securities (including stocks and index futures) of larger, well-established companies with market capitalizations similar to those companies that comprise the top 500 U.S. companies by market capitalization. The market capitalization range of the S&P 500® Index was $6.74 billion to $3.09 trillion as of March 31, 2024.
Lincoln Financial Group
150 N. Radnor Chester Rd.
Radnor, PA 19087
Phone: 484-583-8711
Email: sam.goldstein@lfg.com
5. The third sentence of the second paragraph states that, [t]he Fund tends to focus on securities of larger, well-established companies with market capitalizations similar to those companies that comprise the top 500 U.S. companies by market capitalization.” Please disclose what this capitalization range is and whether the fund has a targeted capitalization range.
RESPONSE: The requested revision has been made. Please see Response (4)(a).
6. The second sentence of the third paragraph states that, “[b]ased on market or economic conditions, the Fund may, through its stock selection, focus in one or more sectors of the market, though the Fund does not target any particular sector.” Please disclose the Adviser’s stock selection process.
RESPONSE: The requested revision has been made. The paragraph has been updated as follows:
The Fund’s portfolio seeks to be broadly diversified by company and industry. Based on market or economic conditions, the Fund may, through its stock selection, focus in one or more sectors of the market, though the Fund does not target any particular sector. The Fund invests in an index replication-style portfolio constructed from certain of the top 500 listed U.S. companies by market capitalization.
7. The last sentence of the third paragraph states that, “[t]he Fund may also invest directly or indirectly in other securities (including in other asset classes), countries, regions ...” To the extent the Fund will invest in other securities, asset classes, countries, regions, et. al. as principal strategies, please specifically disclose those securities, asset classes, countries, regions, et. al and their related risks in this section of the prospectus. If these are not principal strategies, please move this discussion to later in the prospectus and clarify these are not principal strategies/risks.
RESPONSE: This sentence has been moved to the Item 9 discussion of the Fund’s investment strategy as it is not a principal strategy.
8. The third sentence of the fourth paragraph (among other locations in the summary and statutory prospectuses) states that “[t]he Fund may use futures contracts, options, swaps, and other derivatives as tools in the management of portfolio assets.” To the extent the Fund uses derivatives as part of its principal investment strategies, or such use subjects the Fund to a principal risk, the principal investment strategies and principal risks sections should: (i) adequately discuss the specific derivative instruments used to achieve the Fund’s investment objective, (ii) not include extraneous discussion of derivatives that are not part of the Fund’s principal investment strategies or risks, and (iii) specifically address the purposes for the use of such derivatives to ensure that the information provided is not too generic or standardized. See, Barry Miller Letter to the ICI dated July 30, 2010.
RESPONSE: The Trust notes that the following sentence is included in the discussion of the Fund’s principal investment strategy, “The Fund receives income from dividends on equities in the portfolio and from the selective sale of short-dated covered call options on
Lincoln Financial Group
150 N. Radnor Chester Rd.
Radnor, PA 19087
Phone: 484-583-8711
Email: sam.goldstein@lfg.com
individual securities or portfolios of securities held by the Fund, by agreeing to strike prices above which potential capital growth is foregone in exchange for receiving upfront options premiums.” Further, the Trust has reviewed the Letter to Karrie McMillan, Investment Company Institute, from Barry D. Miller, Associate Director, Division of Investment Management, SEC (July 30, 2010) (the “Letter”) and believes that the Fund’s existing derivatives disclosure is consistent with the observations made in the Letter. To the extent the Fund uses derivatives as part of its principal investment strategies, or such use subjects the Fund to a principal risk, the Trust believes both the Principal Investment Strategies and Principal Risks sections (i) adequately discuss such derivatives, (ii) do not include extraneous discussion of derivatives that are not part of the Fund’s principal investment strategies or risks, and (iii) adequately address the purposes for the use of such derivatives.
The Fund provides a summary of the types of derivatives used within the appropriate sections discussing the Fund’s principal investment strategy. The disclosure provided in these sections is only a summary and is limited to the securities and instruments used in furtherance of the Fund’s principal investment strategies. Apart from providing the plain English summary that the Trust has included in its discussion of the Fund’s principal investment strategy, it would be nearly impossible to list every potential scenario in which the Fund might employ derivatives given the continually changing investment landscape. The Principal Risks section following is more detailed, but is inherently limited to a discussion of derivatives in the context of what factors constitute a principal risk to the Fund.
Although the Fund does not believe it is appropriate to include a full description of each type of derivative used and the purposes thereof within the discussion of the Fund’s principal investment strategy, the Trust notes that more complete disclosure is found elsewhere in the registration statement. Additional disclosure regarding derivatives, and their risks, is found in the Additional Investment Strategies and Risks section of the Statement of Additional Information (“SAI”). The Trust believes that this presentation of derivatives disclosure throughout the Registration Statement is an appropriate presentation of the types of derivatives used, the purposes thereof, and the attendant risks.
9. The fifth paragraph states that, “[t]o seek to enhance the yield, the Sub-Adviser selectively sells short-dated call options over individual securities, portfolios of securities or portfolios of securities held by the Fund, by agreeing to strike prices above which potential capital growth is foregone in exchange for receiving upfront premium.”
a. Please provide a plain English description of “call options” and how the Adviser intends to utilize. Please further disclose what percentage of net assets will be invested in call options. Disclose, if applicable, whether call options
Lincoln Financial Group
150 N. Radnor Chester Rd.
Radnor, PA 19087
Phone: 484-583-8711
Email: sam.goldstein@lfg.com
will be covered/uncovered.
RESPONSE: The Trust has revised the registration statement as follows:
The Fund receives income from dividends on equities in the portfolio and from the selective sale of short-dated covered call options on individual securities or portfolios of securities held by the Fund, by agreeing to strike prices above which potential capital growth is foregone in exchange for receiving upfront options premiums. A call option on a security (or index) is a contract that gives the holder of the option, in return for the payment of a “premium,” the right, but not the obligation, to buy from the writer of the option the security underlying the option (or the cash value of the index) at a specified exercise price at the expiration date of the option. Under normal circumstances, the Fund may invest up to 5% of its assets in call options.
b. Please disclose whether the “income” component of the Fund’s strategy is principally derived from the above referenced options strategy, from investments in equity securities or both.
RESPONSE: The Trust has revised the registration statement. Please see the Trust’s response to Comment 9(a) above.
10. The sixth paragraph states that, “[t]he Fund’s investment strategy will typically underperform a similar portfolio without derivatives in periods when the underlying stock prices are rising and has the potential to outperform when the underlying stock prices are falling.” Please disclose, in plain English, how or why the Fund’s investment strategy will perform in such manner.
RESPONSE: The Trust has revised the registration statement as follows:
Selling call options may reduce participation in capital growth. In exchange for this, the Fund receives a premium income upfront. The reduction in participation means that when the stocks are rising, the Fund will generally underperform a similar, long only equity fund. As stocks fall, the Fund can benefit from the premium received from selling the call options. (The maximum outperformance in weak markets is limited to the aggregate option premium received.) Under certain circumstances, the Fund may also use index options as part of its income generation strategy.
11. The Staff notes the inclusion of Foreign Investment Risk and Foreign Currency Risk as principal risks of the Fund. Given the Fund’s strategy to invest in U.S. large cap equity securities, please consider whether foreign investments and currency present principal risks to the Fund and, if so, include related principal strategy disclosure.
Lincoln Financial Group
150 N. Radnor Chester Rd.
Radnor, PA 19087
Phone: 484-583-8711
Email: sam.goldstein@lfg.com
RESPONSE: The Trust notes that these are not principal risks to the Fund at this time and has removed these risk disclosures.
12. The Staff notes the inclusion of Leverage Risk as a principal risk of the Fund. Please explain what leverage is and how it creates additional investment exposure and the potential for greater loss.
RESPONSE: The Trust has revised the registration statement to include the following statement:
The Fund may invest in long futures contracts, which may have the economic effect of creating leverage by creating additional investment exposure, as well as the potential for greater loss. “Leverage” means any method by which a fund manager increases the exposure of a fund it manages whether through the borrowing of cash or securities, or leverage embedded in derivative positions or by any other means.
13. Please confirm that Liquidity Risk is a principal risk of the Fund given the Fund’s principal strategy to invest in large-cap U.S. equity securities.
RESPONSE: The Trust confirms that liquidity risk is a principal risk to the Fund.
Lincoln Inflation Plus Fund
14. Please supplementally confirm whether the Fund will disclose an estimate for Acquired Fund Fees and Expenses (“AFFE”) as it appears the Fund will invest in other investment companies.
RESPONSE: The Trust confirms that it will disclose an estimate for AFFE.
Principal Investm
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CORRESP 1 filename1.htm Lincoln Funds Trust Lincoln Financial Group 150 N. Radnor Chester Rd. Radnor, PA 19087 Phone: 484-583-8711 Email: sam.goldstein@lfg.com VIA EDGAR July 08, 2024 Seamus O’Brien, Esq. Division of Investment Management Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 20549-4644 RE: Registrant: Lincoln Funds Trust (the “Trust”) File Nos.: File Nos. 333-278528 and 811-23952 Funds: Lincoln Inflation Plus Fund and Lincoln U.S. Equity Income Maximizer Fund (each a “Fund” collectively, the “Funds”) Dear Mr. O’Brien: This letter responds to your comments, provided via email on May 6, 2024, to the Trust’s initial registration statement filed on Form N-1A on April 5, 2024, under Rule 485(a) under the Securities Act of 1933 (the “Registration Statement”). Any comments to the disclosure for one Fund will be applied to both Funds, where applicable. The following are your comments and the Trust’s responses. General 1. We note that portions of the registration statement are incomplete. Please ensure all information is included in a pre-effective amendment, including the fee table, hypothetical expense examples, references to the auditor, auditor’s consent, and seed financial statements. A full financial review must be performed prior to declaring the registration statement effective. We may have additional comments on such portions when the Fund completes them in a pre-effective amendment, on disclosures made in response to this letter, on information supplied supplementally, or on exhibits added in any amendment. RESPONSE: The Trust acknowledges this comment. 2. Where a comment is made with regard to disclosure in one location of a registration statement or with regard to one fund, it is applicable to all similar disclosure appearing elsewhere in the registration statement. RESPONSE: The Trust acknowledges this comment. Lincoln U.S. Equity Income Maximizer Fund 1 Lincoln Financial Group 150 N. Radnor Chester Rd. Radnor, PA 19087 Phone: 484-583-8711 Email: sam.goldstein@lfg.com Fees and Expenses; Page 3-4 3. Please review the narrative disclosures at the top of page 4 to the Expense Example and better conform to the Instructions to Item 3 of Form N-1A. Please also add the following below the Example, as applicable: “The Example does not reflect sales charges (loads) on reinvested dividends [and other distributions]. If these sales charges (loads) were included, your costs would be higher.” RESPONSE: The requested revision has been made. The Expense Example disclosure has been updated as follows: This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example illustrates the hypothetical expenses that you would incur over the time periods indicated if you invest $10,000 in the Fund’s shares. The example also assumes that the Fund provides a return of 5% a year and that operating expenses remain the same. This example reflects the net operating expenses with a fee waiver for the one-year contractual period and the total operating expenses without a fee waiver for the remaining time periods shown below. Your actual costs may be higher or lower than this example. The results apply whether or not you redeem your investment at the end of the given period. This example does not reflect sales charges (loads) on reinvested dividends [and other distributions]. If these sales charges (loads) were included, your costs would be higher. Principal Investment Strategies; Page 4 4. The first sentence of the second paragraph states that, “[t]he Fund, under normal circumstances, invests at least 80% of its assets in equity and equity related securities of U.S. companies.” Please revise the 80% test to clarify that the Fund will invest 80% of its net assets, plus the amount of any borrowings for investment purposes, in equity securities and equity-related securities in U.S. companies. Please also disclose with specificity the types of principal investments that the Fund intends to invest in that would be considered “equity related securities.” Please also clarify how the Adviser will determine whether a particular issuer has its “principal business activities” in the United States. RESPONSE: The requested revisions have been made. The paragraph has been updated as follows: The Fund, under normal circumstances, invests at least 80% of its net assets (including borrowings for investment purposes) in equity and equity related securities of U.S. companies. These are companies that are incorporated, headquartered, or have their principal business activities in the United States (as defined by Bloomberg’s Global Equity Indices Methodology). The Fund tends to focus on equity and equity related securities (including stocks and index futures) of larger, well-established companies with market capitalizations similar to those companies that comprise the top 500 U.S. companies by market capitalization. The market capitalization range of the S&P 500® Index was $6.74 billion to $3.09 trillion as of March 31, 2024. 2 Lincoln Financial Group 150 N. Radnor Chester Rd. Radnor, PA 19087 Phone: 484-583-8711 Email: sam.goldstein@lfg.com 5. The third sentence of the second paragraph states that, [t]he Fund tends to focus on securities of larger, well-established companies with market capitalizations similar to those companies that comprise the top 500 U.S. companies by market capitalization.” Please disclose what this capitalization range is and whether the fund has a targeted capitalization range. RESPONSE: The requested revision has been made. Please see Response (4)(a). 6. The second sentence of the third paragraph states that, “[b]ased on market or economic conditions, the Fund may, through its stock selection, focus in one or more sectors of the market, though the Fund does not target any particular sector.” Please disclose the Adviser’s stock selection process. RESPONSE: The requested revision has been made. The paragraph has been updated as follows: The Fund’s portfolio seeks to be broadly diversified by company and industry. Based on market or economic conditions, the Fund may, through its stock selection, focus in one or more sectors of the market, though the Fund does not target any particular sector. The Fund invests in an index replication-style portfolio constructed from certain of the top 500 listed U.S. companies by market capitalization. 7. The last sentence of the third paragraph states that, “[t]he Fund may also invest directly or indirectly in other securities (including in other asset classes), countries, regions ...” To the extent the Fund will invest in other securities, asset classes, countries, regions, et. al. as principal strategies, please specifically disclose those securities, asset classes, countries, regions, et. al and their related risks in this section of the prospectus. If these are not principal strategies, please move this discussion to later in the prospectus and clarify these are not principal strategies/risks. RESPONSE: This sentence has been moved to the Item 9 discussion of the Fund’s investment strategy as it is not a principal strategy. 8. The third sentence of the fourth paragraph (among other locations in the summary and statutory prospectuses) states that “[t]he Fund may use futures contracts, options, swaps, and other derivatives as tools in the management of portfolio assets.” To the extent the Fund uses derivatives as part of its principal investment strategies, or such use subjects the Fund to a principal risk, the principal investment strategies and principal risks sections should: (i) adequately discuss the specific derivative instruments used to achieve the Fund’s investment objective, (ii) not include extraneous discussion of derivatives that are not part of the Fund’s principal investment strategies or risks, and (iii) specifically address the purposes for the use of such derivatives to ensure that the information provided is not too generic or standardized. See, Barry Miller Letter to the ICI dated July 30, 2010. RESPONSE: The Trust notes that the following sentence is included in the discussion of the Fund’s principal investment strategy, “The Fund receives income from dividends on equities in the portfolio and from the selective sale of short-dated covered call options on 3 Lincoln Financial Group 150 N. Radnor Chester Rd. Radnor, PA 19087 Phone: 484-583-8711 Email: sam.goldstein@lfg.com individual securities or portfolios of securities held by the Fund, by agreeing to strike prices above which potential capital growth is foregone in exchange for receiving upfront options premiums.” Further, the Trust has reviewed the Letter to Karrie McMillan, Investment Company Institute, from Barry D. Miller, Associate Director, Division of Investment Management, SEC (July 30, 2010) (the “Letter”) and believes that the Fund’s existing derivatives disclosure is consistent with the observations made in the Letter. To the extent the Fund uses derivatives as part of its principal investment strategies, or such use subjects the Fund to a principal risk, the Trust believes both the Principal Investment Strategies and Principal Risks sections (i) adequately discuss such derivatives, (ii) do not include extraneous discussion of derivatives that are not part of the Fund’s principal investment strategies or risks, and (iii) adequately address the purposes for the use of such derivatives. The Fund provides a summary of the types of derivatives used within the appropriate sections discussing the Fund’s principal investment strategy. The disclosure provided in these sections is only a summary and is limited to the securities and instruments used in furtherance of the Fund’s principal investment strategies. Apart from providing the plain English summary that the Trust has included in its discussion of the Fund’s principal investment strategy, it would be nearly impossible to list every potential scenario in which the Fund might employ derivatives given the continually changing investment landscape. The Principal Risks section following is more detailed, but is inherently limited to a discussion of derivatives in the context of what factors constitute a principal risk to the Fund. Although the Fund does not believe it is appropriate to include a full description of each type of derivative used and the purposes thereof within the discussion of the Fund’s principal investment strategy, the Trust notes that more complete disclosure is found elsewhere in the registration statement. Additional disclosure regarding derivatives, and their risks, is found in the Additional Investment Strategies and Risks section of the Statement of Additional Information (“SAI”). The Trust believes that this presentation of derivatives disclosure throughout the Registration Statement is an appropriate presentation of the types of derivatives used, the purposes thereof, and the attendant risks. 9. The fifth paragraph states that, “[t]o seek to enhance the yield, the Sub-Adviser selectively sells short-dated call options over individual securities, portfolios of securities or portfolios of securities held by the Fund, by agreeing to strike prices above which potential capital growth is foregone in exchange for receiving upfront premium.” a. Please provide a plain English description of “call options” and how the Adviser intends to utilize. Please further disclose what percentage of net assets will be invested in call options. Disclose, if applicable, whether call options 4 Lincoln Financial Group 150 N. Radnor Chester Rd. Radnor, PA 19087 Phone: 484-583-8711 Email: sam.goldstein@lfg.com will be covered/uncovered. RESPONSE: The Trust has revised the registration statement as follows: The Fund receives income from dividends on equities in the portfolio and from the selective sale of short-dated covered call options on individual securities or portfolios of securities held by the Fund, by agreeing to strike prices above which potential capital growth is foregone in exchange for receiving upfront options premiums. A call option on a security (or index) is a contract that gives the holder of the option, in return for the payment of a “premium,” the right, but not the obligation, to buy from the writer of the option the security underlying the option (or the cash value of the index) at a specified exercise price at the expiration date of the option. Under normal circumstances, the Fund may invest up to 5% of its assets in call options. b. Please disclose whether the “income” component of the Fund’s strategy is principally derived from the above referenced options strategy, from investments in equity securities or both. RESPONSE: The Trust has revised the registration statement. Please see the Trust’s response to Comment 9(a) above. 10. The sixth paragraph states that, “[t]he Fund’s investment strategy will typically underperform a similar portfolio without derivatives in periods when the underlying stock prices are rising and has the potential to outperform when the underlying stock prices are falling.” Please disclose, in plain English, how or why the Fund’s investment strategy will perform in such manner. RESPONSE: The Trust has revised the registration statement as follows: Selling call options may reduce participation in capital growth. In exchange for this, the Fund receives a premium income upfront. The reduction in participation means that when the stocks are rising, the Fund will generally underperform a similar, long only equity fund. As stocks fall, the Fund can benefit from the premium received from selling the call options. (The maximum outperformance in weak markets is limited to the aggregate option premium received.) Under certain circumstances, the Fund may also use index options as part of its income generation strategy. 11. The Staff notes the inclusion of Foreign Investment Risk and Foreign Currency Risk as principal risks of the Fund. Given the Fund’s strategy to invest in U.S. large cap equity securities, please consider whether foreign investments and currency present principal risks to the Fund and, if so, include related principal strategy disclosure. 5 Lincoln Financial Group 150 N. Radnor Chester Rd. Radnor, PA 19087 Phone: 484-583-8711 Email: sam.goldstein@lfg.com RESPONSE: The Trust notes that these are not principal risks to the Fund at this time and has removed these risk disclosures. 12. The Staff notes the inclusion of Leverage Risk as a principal risk of the Fund. Please explain what leverage is and how it creates additional investment exposure and the potential for greater loss. RESPONSE: The Trust has revised the registration statement to include the following statement: The Fund may invest in long futures contracts, which may have the economic effect of creating leverage by creating additional investment exposure, as well as the potential for greater loss. “Leverage” means any method by which a fund manager increases the exposure of a fund it manages whether through the borrowing of cash or securities, or leverage embedded in derivative positions or by any other means. 13. Please confirm that Liquidity Risk is a principal risk of the Fund given the Fund’s principal strategy to invest in large-cap U.S. equity securities. RESPONSE: The Trust confirms that liquidity risk is a principal risk to the Fund. Lincoln Inflation Plus Fund 14. Please supplementally confirm whether the Fund will disclose an estimate for Acquired Fund Fees and Expenses (“AFFE”) as it appears the Fund will invest in other investment companies. RESPONSE: The Trust confirms that it will disclose an estimate for AFFE. Principal Investm