Vest U.S. Large Cap 20% Buffer Strategies Fund

Options are unique investment tools that seek to provide a level of certainty, which is not possible with conventional investments. That’s because options have contractual features that provide a formulaic payment based on the performance of a reference financial asset, such as an index. The payment for options is dependent on the performance of the reference index being above or below a predetermined price (strike price) on a specific date in the future (exercise date).

A call option on an index gives the buyer the right to the upside of the index relative to a preset strike price on a specific expiry date in the future in exchange for an upfront payment (premium). The call option buyer pays the premium up front and acquires the right to the index’s price appreciation above the strike price. The call option seller, on the other hand, gives up the right to the index’s future price appreciation above the strike price in exchange for upfront premium income. The value of the payment delivered is proportional to the magnitude by which the index price is above the strike price. Effectively, call options allow investors to trade in the potential future upside of an index.

A put option on an index gives the option buyer the right to profit from the decline of the index relative to a preset strike price on a specific future date, in exchange for an upfront premium payment. A put option buyer pays an upfront premium in exchange for the right to profit from the index’s decline below the strike price. A put option seller, on the other hand gives up the right to profit from the index’s decline below the strike price in exchange for upfront premium income. Effectively, put options allow investors to trade in the potential future downside of an index.

The Buffer Strategy utilizes a combination of call and put options with an expiry of approximately one year overlaid on an exposure to the index or ETF. The overlay strategy has two components:

Some structured notes and variable annuities provide targeted outcomes like the Buffer Strategy but may come with unique risks, including concentrated credit risks, lack of transparency and lack of liquidity. The Fund offers access to the Buffer Strategy in a potentially more transparent, more liquid and more familiar investment vehicle of a mutual fund. In addition, investing in a Buffer Strategy with a single maturity as is commonly done in structured notes or annuities comes with acute timing risks. The Fund follows a laddered portfolio approach, in an attempt to manage these timing risks.

The Buffer Strategy is designed for bear, range-bound or modest bull market environments. While the strategy may outperform the index or ETF in a bear market, it may still suffer absolute levels of loss. With the utilization of a laddered portfolio of Buffer Strategies, the Fund seeks to smooth market fluctuations.

While the strategy may outperform the index or ETF in a bear market, it may still suffer absolute levels of loss. The strategy may deliver capped returns during strong bull markets and as a result underperform relative to the index or ETF.

The Fund is designed to cushion against (or “buffer”) equity losses in down markets, while taking advantage of growth opportunities in up markets. It can fit in two places in an investor’s portfolio:

Investing in a single Buffer Strategy with a one-year duration creates timing risk. A single Buffer Strategy would lock investors into one specific cap and buffer level for the entire year. This would prevent them from capitalizing on new upside cap or buffer levels over the course of the year. Moreover, it would expose investors to potentially greater losses and could limit upside participation when the index or ETF is far above the buffer range within the year.

A laddered portfolio of Buffer Strategies seeks to manage timing risk and smooth market fluctuations.

The buffers and upside caps are set for each Buffer Strategy on the third Wednesday of each month. In the laddered portfolio, on the third Wednesday of each month, a maturing Buffer Strategy rolls off, and the proceeds are reinvested in a new Buffer Strategy with a maturity that extends to the third Wednesday of the month the following year. The buffer and upside caps set on such a day depend on the prices for the put and call options on that day, such that the premium to be paid for the 20% buffer is offset by the premium received from the opportunity cost of the capped upside.

The Fund’s distributions, if any, will be taxed as ordinary income or capital gains, unless you are investing through a tax-deferred arrangement, such as a 401(k) plan or an individual retirement account, in which case withdrawals will be taxed. Investors are urged to consult their own tax advisors to determine the tax consequences to them of investing in the Fund. To the extent consistent with the primary objectives and other strategies of the Fund, the Advisor intends to minimize taxes by harvesting capital losses to minimize current year capital gains. There is no assurance the Advisor can implement this tax strategy to reduce the tax burden for the shareholders.