Vest S&P 500^® Dividend Aristocrats Target Income Fund

A call option on a stock gives the buyer the right to buy 100 shares of stock at a fixed price up to a specific future date in exchange for an upfront payment. The fixed price is referred to as the strike price, the future date is referred to as expiry date and the upfront payment is referred to as the premium. Effectively, the buyer pays the premium up front and acquires the right to a stock’s future price appreciation above the strike price. The seller, on the other hand, gives up the right to the stock’s future price appreciation above the strike price in exchange for upfront premium payment as income. Call options allow investors to trade in the future upside of a stock relative to a pre-fixed strike price in return for an upfront premium.

A covered call strategy is a strategy in which an investor owns (or “holds a long position in”) a stock and sells (or “writes”) call options on that same stock. By selling the call options, the seller gives up the right to the stock’s future price appreciation over the strike price and receives an upfront premium payment as compensation. The covered call strategy gives the seller the unique ability to convert a stock’s uncertain future returns into certain upfront premium income.

Investors who sell covered calls typically execute continuously rolling covered call strategies (i.e., when the sold call option expires, they sell a new call option). For example, the investor may sell a call option on a stock with one month to expiry against a long position on the stock. The investor collects the premium income and gives up future upside. One month later, when the call option expires, the investor will sell a new call option with one month to expiry and collect premium income again. This process repeats on a rolling basis. A covered call strategy is also known as a "buy-write strategy" or may be referred to as a “call option selling strategy.”

First, let’s define a fully covered call selling strategy as one in which the investor sells calls against the entire long position on the stock. (Put another way, he/she sells calls on every share of stock he/she owns). This means the investor gives up future price appreciation of the stock above the call strike price in return for the upfront premium.

In contrast, the partial call selling strategy is one in which an investor sells calls on a smaller percentage of each stock holding. A partial call selling strategy would collect a lower level of premium income but would also give up only a portion of the future returns. A partial call selling strategy allows an investor to strike the appropriate balance between the upfront predictable premium income collected and the future returns given away.

As an illustration, let’s say an investor holds 1,000 shares of XYZ stock. A 10% call selling strategy (or 10% “overwrite”) means that the investor sells calls on only 100 of the 1,000 shares. He/she collects premiums in return for selling calls on 100 shares, and gives up the future upside on those 100 shares if, in the future, the price rises above the strike price. He/she retains the future potential appreciation on 900 shares.

The Index strategy sells some calls on every stock holding in the Aristocrats portfolio

The calls are sold “at the money,” meaning at or close to the price of the stock at the time of the sale. As an illustration, let’s say there are 50 stocks in the portfolio, and the Index methodology states that calls should be sold on 10% of the shares of each stock holding. By doing this repeatedly each month, the strategy seeks to generate an annualized premium income of 10% over the annual dividend yield of the S&P 500, while still allowing investors to participate in at least 90% of the potential future growth from price appreciation.

Note: By design, the Index methodology limits the sales of calls to the requisite amount needed to augment income to the targeted level. Investors' participation in potential future stock price increases may be limited by the potential for some of the call options sold to be exercised.

The Fund can fit in three places in an investor's portfolio:

• Strategic income allocation, for the income that seeks to outpace inflation
• Strategic core (low risk) large-cap equity allocation, for the total returns
• Inflation hedge allocation

The Fund was launched in September 2017.

Distributions are paid quarterly and consist of the available dividend payments for the quarter from all the stocks in the portfolio, plus premiums from selling options.

The fund holds dividend-producing equity securities. These securities pay dividend income to the fund, which is then distributed (net of expenses) to shareholders. The dividend income can be considered ordinary or qualified dividends. The premiums realized from selling call options are considered short-term capital gains.

The above material is not intended to be tax advice. The above tax consequences of dividend distributions may vary by individual tax payer. Please consult your tax professional or financial advisor for more information regarding your specific situation.

The breakdown of income from dividends and options may vary each month. The stocks in the portfolio may deliver dividend income. Residual income may come from selling just the right amount of call options each month on a smaller fraction of each stock holding in the portfolio, aiming to generate an annualized level of income of 10% over the dividend yield of the S&P 500.

As an illustration, if the portfolio of stocks delivered a 2.5% annualized dividend yield and there was an additional 9.0% in annualized option premium income with a net expense of 0.95%, then the total net distribution would be 10.55%. (2.5% from dividends plus 9.0% from options premium less 0.95% in expenses).

Note: For illustrative purposes only and does not represent actual results. Covered call strategies do not ensure profits or guarantee against losses. It is not possible to invest in an index.

The strategy seeks to deliver a net distribution after fees that is the dividend yield on the equity securities, plus the premium income received from selling calls, minus the fund’s expense ratio.

Vest (the “Advisor”) has entered into a written expense limitation agreement to limit the total expenses of the Fund for Investor, Institutional, Class A and Class C to an annual rate of 0.95%; and for Class Y to an annual rate of 0.70%, until February 29, 2024.

Not necessarily. Remember that the investor collects a premium on the calls sold. The covered call portion of the partial call selling strategy will underperform a stock-only position if the stock increases to the level that the loss on the call option at expiration exceeds the premium collected. Therefore, a covered call strategy could outperform a stock-only position even if the stock appreciates over the term of the strategy (typically a week).

As an illustration, let’s say a call is sold at $105 at a premium of $3. If the stock rises to $110 upon expiry, then the covered call will underperform the stock-only position by $2 ($105 strike - $110 at expiry +$3 option premium). Now, if the stock instead rose only to $106 upon expiry, the covered call will outperform the stock-only position by $2 ($105 strike - $106 at expiry + $3 option premium).

It is possible to generate more premium income by selling weekly call options instead of quarterly call options. The potential disadvantage of selling weekly call options versus quarterly options is higher transaction costs.