Example
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. The example illustrates the hypothetical expenses that you would incur over the time periods indicated if you invest $10,000 in the Fund's shares. The example also assumes that the Fund provides a return of 5% a year and that operating expenses remain the same. This example reflects the net operating expenses with fee waiver and expense reimbursement for the one-year contractual period and the total operating expenses without fee waiver and expense reimbursement for the remaining time periods shown below. Your actual costs may be higher or lower than this example. This example does not reflect any variable contract expenses. If variable contract expenses were included, the expenses shown would be higher. The results apply whether or not you redeem your investment at the end of the given period.
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1 year
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3 years
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5 years
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10 years
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Standard Class
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$72
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$533
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$1,021
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$2,368
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Service Class
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$107
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$640
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$1,200
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$2,726
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Portfolio Turnover
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or "turns over" its portfolio). A higher portfolio turnover rate may indicate higher transaction costs. These costs, which are not reflected in annual fund operating expenses or in the example, affect the Fund's performance. During the most recent fiscal year, the Fund's portfolio turnover rate was 45% of the average value of its portfolio.
Principal Investment Strategies
The Fund seeks long-term growth of capital. The Fund pursues its objective by providing exposure to the returns of the S&P 500 Price Return Index (the "Index") while implementing a hedging strategy to reduce downside exposure. Hedging means structuring a portfolio to seek to reduce the risk of loss of an existing position.
The Fund employs a hedging strategy, sub-advised by Milliman Financial Risk Management LLC, which seeks to produce investment outcomes based on the performance of the Index, subject to limits on gains (a "Cap") and with the benefit of a buffer for losses (a "Buffer") for each tranche of options (as described below). The Fund, under normal circumstances, invests at least 80% of its net assets (including borrowings for investment purposes) in investments that reference the Index or in an underlying fund which tracks the Index. The Fund invests approximately half of its assets in FLexible EXchange® Options ("FLEX Options") and approximately half of its assets in the LVIP SSGA S&P 500® Index Fund (the "Underlying Fund"), which is advised by the Fund's investment adviser, Lincoln Financial Investments Corporation.
The Index is a price return index, which captures only the capital appreciation component of the issuers in the Index and not the associated dividend payments. The Fund, and therefore investors of the Fund, will not receive the benefit of such dividends. As of December 31, 2023, a significant portion of the Fund's investment exposure comprised companies in the information technology sector.
FLEX Options Portfolio. FLEX Options are exchange-traded options contracts with uniquely customizable terms. The Fund's FLEX Options have one-year terms and are based on the value of the Index. The Fund invests in FLEX Options using a "laddering" technique, which means investing in several similar securities that have different maturity dates. The Fund will construct its portfolio so that each fiscal quarter, approximately 25% of the Fund's FLEX Options will expire and the Fund will replace them with new FLEX Options. The Fund will therefore "reset" approximately 25% of its FLEX Options each quarter. The basket of FLEX Options transacted on a particular date is referred to as a "tranche". The Fund will generally hold four tranches of FLEX Options.
Each tranche consists of a combination of four FLEX Options contracts that provide exposure to the Index up to a Cap along with limited downside Buffer protection against the performance of the Index. Each tranche consists of the following:
1) purchased one-year near-zero calls that, in combination with the investment in the Underlying Fund, provide market exposure for the portion of the Fund whose FLEX Options are expiring.
2) purchased one-year at-the-money puts that provide limited downside protection for the portion of the Fund whose FLEX Options are expiring.
3) sold one-year puts with a strike price 22% "out-of-the-money" to help establish the Buffer and fund the purchase of calls and puts.
4) sold out-of-the-money calls to help fund the purchase of calls and puts.
The above description is a summary for illustrative purposes and necessarily does not reflect all factors that could potentially affect the Fund's strategy.
This combination of FLEX Options provides the resetting tranche, for one year after the reset date, with limited downside protection from declines in the Index's value as of the reset date, while allowing the Fund to participate in Index appreciation up to the strike price of the sold out-of-the-money calls. This gain potential for each FLEX Options tranche is subject to a Cap, a maximum investment