Vest Large Cap Buffer & Premium Income, Series 2
Targeting Defined And Consistent Income Potential While Providing A Downside Buffer
The Vest Large Cap Buffer & Premium Income Portfolio is a unit investment trust (UIT) that seeks to provide a consistent level of income, while providing a buffer against the first 10% of losses experienced by the SPDR® S&P 500® ETF Trust (“SPY”). The trust seeks to achieve its objective by investing in a portfolio of FLexible EXchange® Options (“FLEX Options”) and short-term (15 months or less) U.S. Treasury securities. The trust will distribute the principal and any interest received from the U.S. Treasuries in order to seek to meet the targeted distribution rate.
How Does It Work?
Under normal market conditions, this trust will invest
substantially all of its assets in FLEX Options that are tied to the price performance
of a reference asset and short-term (15 months or less) U.S. Treasury securities. FLEX
Options are customized equity or index option contracts that trade on an exchange,
but provide investors with the ability to customize key contract terms like exercise
prices, styles, and expiration dates.
This trust seeks to provide a buffer on a predetermined level
of losses of the reference asset over each Target Outcome Period which is based on
the term of the trust, approximately 15 months. The buffer is a fixed level that is calculated
in relation to the price of the reference asset as of the time the FLEX Options are
executed on the trust’s initial date of deposit. If the price return of the reference
asset decreases by more than the buffer level, the trust will experience subsequent
losses equal to those of the reference asset over the Target Outcome Period (see
illustrative examples on the next page).
The distribution rate is a result of a trust’s principal investment strategy, which, in
part, involves selling at-the-money (“ATM”) call FLEX Options. As the seller of the
options, the trust receives premiums which it intends to use to purchase a portfolio
of short-term U.S. Treasury securities. The distribution rate is a fixed level that is
calculated in relation to the premiums paid by the underlying U.S. Treasuries at the
time of purchase. The trust will distribute the principal and any interest received
from the U.S. Treasuries on an approximately quarterly basis after the initial date of
deposit to seek to meet the distribution rate.
Because investors in this trust do not participate in positive price returns of the reference asset, the intended return per unit may represent a return that is less than the performance
of the reference asset and are subject to losses below the buffer level. Even if there are significant increases in the value of the reference asset, the amount received is capped at zero. In
return, the investor receives premium income from U.S. Treasury securities.
The Sponsor may elect to postpone a trust if certain adverse market conditions occur that affect volatility and pricing of the FLEX Options
Potential Advantages Of Buffer & Premium Income Target Outcome UITs®
Targeted Outcome | Targeted market exposure with a defined distribution rate and downside buffer level, over a specified period, removes some of the uncertainty
associated with equity investing.
Defined Maturity | The distribution rate and buffer are set for the term of the trust, from the initial date of deposit through the termination date.* New distribution
rates and buffers are determined with each new trust. The distribution rate and buffer for each subsequent trust will likely differ from any previous series.
Flexible, Liquid, and Transparent | The portfolios offer the convenienceand transparency of a UIT. The option positions and current pricing are disclosed on a
daily basis on the First Trust website.
No Bank Credit Risk | Underlying assets will consist of U.S. Treasury securities which are guaranteed by the U.S. government, and FLEX Options issued and guaranteed
by the Options Clearing Corporation (OCC). FLEX Options are not exposed to the same unsecured credit risk of issuing banks associated with credit linked instruments.
Limited Volatility | Provide equity exposure with less volatility. Exposure to the price return of the reference asset through FLEX Options may provide a less volatile
return profile than the underlying asset, and when combined with the downside buffer, may offer an attractive portfolio management tool.
*The buffer is a fixed level that is calculated in relation to the price of the underlying ETF as of the time the FLEX Options are executed on the trust’s initial date of deposit, and the distribution rate is a fixed level
that is calculated in relation to the premiums paid by the underlying U.S. Treasuries at the time of purchase.
Who Might Be Interested In
Buffer & Premium Income Target Outcome UITs®?
Investors Saving for Life’s Milestones | Buffer & Premium Income UITs give
investors the ability to prioritize a buffer against downside losses (if held for the full
Target Outcome Period) while also seeking a defined and consistent level of income.
Investors With a Moderately Bullish View on Market Returns | Buffer &
Premium Income UITs may appeal to investors who anticipate moderate market
returns and are willing to forgo any positive price returns for a consistent level of
income, while gaining a buffer on the downside.
Investors Looking for Defined and Consistent Income Levels | Buffer
& Income UITs are an agile tool for risk management while benefiting from a
consistent level of income.
About Vest Financial LLC
Vest Financial LLC (“Vest”) is the creator of Target Outcome Investments®,
which strive to buffer losses, amplify gains or provide consistent income to a
diverse spectrum of investors. Today, Vest’s Target Outcome StrategiesTM are
available in mutual funds, exchange-traded funds (ETFs), unit investment
trusts (UITs), collective investment trusts (CITs), and customizable
managed accounts/sub-advisory services.
|Not FDIC Insured Not Bank Guaranteed May Lose Value
You should consider the portfolio's investment objectives, risks, and
charges and expenses carefully before investing. Contact your financial professional
or call First Trust Portfolios, L.P. at 1.800.621.1675 to request a prospectus,
which contains this and other information about the portfolio. Read it carefully
before you invest.
DEFINITIONS | The NAV represents the value per unit of a trust’s portfolio securities and other
assets reduced by any liabilities. An option is a contractual obligation between a buyer and a seller.
There are two types of options known as “calls” and “puts.” The buyer of a call option has the right, but
not the obligation, to purchase an agreed upon quantity of an underlying asset from the writer (seller)
of the option at a predetermined price (the strike price) within a certain window of time (until the
option’s expiration), creating a long position. A covered call refers to a financial transaction in which
the investor selling call options owns an equivalent amount of the underlying security. A put option is the opposite of a call option and gives the buyer the right to sell to the writer (seller) the underlying
asset at the strike price at the option’s expiration. For this right, the buyer pays a fee to the seller, called
a premium. A call option is at-the-money (ATM) if the market price of the underlying security is
equal to the strike price. In-the-money options (ITM) are options where the underlying stock price is
higher/lower for a call/put relative to the strike price. Out-of the-money options (OTM) are options
where the underlying stock price is lower/higher for a call/put relative to the strike price.
An investment in this unmanaged unit investment trust should be made with an understanding of the
risks involved with owning FLEX Options based on the referemce asset.
The portfolio has characteristics unlike many other traditional investment products and may not be
appropriate for all investors.
The value of U.S. Treasury securities will be adversely affected by decreases in bond prices and increases
in interest rates.
The portfolio holds purchased and written FLEX Options. The FLEX Options are European style options,
which are exercisable at the strike price only on the FLEX Option expiration date. The FLEX Options held by
the portfolio give the option holder the right to buy or sell the underlying ETF on the FLEX Option expiration
date at the strike price. Prior to their expiration on the FLEX Option expiration date, the value of the FLEX
Options is determined as discussed under “The Value of the Securities” section of the full prospectus. The
value of the FLEX Options prior to their expiration on the FLEX Option expiration date may vary because of
factors other than fluctuations in the value of the underlying ETF. The value of FLEX Options will be affected
by changes in the value of the underlying ETF, the underlying index and its underlying securities, a change
in interest rates, a change in the expected dividend rate of the underlying ETF, a change in the actual and
perceived volatility of the stock market and the underlying index and the remaining time to expiration.
Additionally, the value of the FLEX Options does not increase or decrease at the same rate as the underlying
ETF, the underlying index or its underlying securities due to “tracking error” as described in more detail in
the full prospectus (although they generally move in the same direction).
Options are subject to various risks including that their value may be adversely affected if the market for
the option becomes less liquid or smaller. In addition, options will be affected by changes in the value
and dividend rates of the stock subject to the option, a change in interest rates, a change in the actual
and perceived volatility of the stock market and the common stock and the remaining time to expiration.
The FLEX Options represent indirect positions in the underlying ETF and are subject to risks associated
with changes in value as the price of the underlying ETF rises or falls. The investment in the FLEX
Options includes the risk that their value may be affected by market risk related to the underlying ETF,
the underlying index and the value of the securities in the underlying index held by the underlying ETF.
Market risk is the risk that the value of the securities will fluctuate. Market value fluctuates in response
to various factors. These can include changes in interest rates, inflation, the financial condition of a
security’s issuer, perceptions of an issuer, ratings on a bond, or political or economic events affecting
the issuer. While the FLEX Options are individually related to the underlying ETF, the return on the
FLEX Options depends on the price of the underlying ETF at the close of the NYSE on the FLEX Option
expiration date and will be substantially determined by market conditions and the underlying ETF and
the value of the securities comprising the underlying ETF as of such time.
ETFs are subject to various risks, including management’s ability to meet the fund’s investment objective,
and to manage the fund’s portfolio when the underlying securities are redeemed or sold, during periods
of market turmoil and as investors’ perceptions regarding ETFs or their underlying investments change.
Unlike open-end funds, which trade at prices based on a current determination of the fund’s net asset
value, ETFs frequently trade at a discount from their net asset value in the secondary market.
The intended return for units purchased on the portfolio’s initial date of deposit and held for the life of
the portfolio is based on the performance of the underlying ETF and the value of the FLEX Options on
the FLEX Option expiration date and is subject to a capped amount per Unit and may represent a return
that is worse than the performance of the underlying ETF. Even if there are significant increases in the
value of the underlying ETF, the amount you may receive is capped.
The underlying ETF invests in common stocks. Common stocks are subject to certain risks, such as an
economic recession and the possible deterioration of either the financial condition of the issuers of the
equity securities or the general condition of the stock market.
You should be aware that the underlying ETF is concentrated in stocks in the information technology
sector which involves additional risks, including limited diversification. The companies engaged in the
information technology sector are subject to fierce competition, high research and development costs,
and their products and services may be subject to rapid obsolescence. Technology company stocks,
especially those which are Internet related, may experience extreme price and volume fluctuations
that are often unrelated to their operating performance.
The portfolio may experience substantial downside from the FLEX Options and option contract
positions may expire worthless. The portfolio does not provide principal protection and you may not
receive a return of the capital you invest. You may experience significant losses on your investment
up to an almost total loss on your investment if the value of the underlying ETF decreases by greater
than 10% from the initial underlying ETF level. The portfolio might not achieve its objective in certain
circumstances. You may realize a return (including a loss) that is higher or lower than the intended
returns as a result of redeeming units prior to the portfolio’s mandatory termination date and in
various circumstances, including where FLEX Options are otherwise liquidated by the portfolio prior
to their expiration or maturity, if the portfolio is unable to maintain the proportional relationship of
the FLEX Options in the portfolio or increases in potential expenses of the portfolio above estimated
levels. The portfolio’s investment strategy is designed to achieve its investment objective over the life
of the portfolio. An increase in the value of the written FLEX Options reduces the value of your units.
As the value of the written FLEX Options increases, the written FLEX Options have a more negative
impact on the value of your units. You should note that even if the value of the underlying ETF does not
change, if the value of a written FLEX Option increases (for example, based on increased volatility of the
underlying index) your units will lose value. After the premium is received on the written FLEX Options,
the written FLEX Options will reduce the value of your units.
Credit risk is the risk that a security’s issuer, guarantor or counterparty of a security is unable or unwilling
to make dividend, interest or principal payments when due and the related risk that the value of a
security may decline because of concerns about the issuer’s ability or willingness to make such payments.
The OCC is guarantor and central counterparty with respect to the FLEX Options. As a result, the ability of
the portfolio to meet its objective depends on the OCC being able to meet its obligations.
Liquidity risk is the risk that the value of a security will fall if trading in the security is limited or absent.
No one can guarantee that a liquid trading market will exist for the securities. The FLEX Options are
listed on the CBOE; however, no one can guarantee that a liquid secondary trading market will exist for
the FLEX Options. Trading in the FLEX Options may be less deep and liquid than certain other securities.
The FLEX Options may be less liquid than certain non-customized options. In a less liquid market for
the FLEX Options, liquidating the FLEX Options may require the payment of a premium (for written
FLEX Options) or acceptance of a discounted price (for purchased FLEX Options) and may take longer to
complete. In a less liquid market for the FLEX Options, the liquidation of a large number of options may
more significantly impact the price. A less liquid trading market may adversely impact the value of the
FLEX Options and your units and result in the portfolio being unable to achieve its investment objective.
As the use of Internet technology has become more prevalent in the course of business, the trust has
become more susceptible to potential operational risks through breaches in cybersecurity.
Ongoing armed conflicts between Russia and Ukraine in Europe and among Israel, Hamas and other
militant groups in the Middle East, have caused and could continue to cause significant market
disruptions and volatility within the markets in Russia, Europe, the Middle East and the United States.
The hostilities and sanctions resulting from those hostilities could have a significant impact on certain
investments as well as performance.
The ongoing effects of the COVID-19 global pandemic, or the potential impacts of any future public
health crisis, may cause significant volatility and uncertainty in global financial markets. While
vaccines have been developed, there is no guarantee that vaccines will be effective against future
variants of the disease.
The value of the securities held by the trust may be subject to steep declines or increased volatility due
to changes in performance or perception of the issuers of the securities held by the underlying ETF.
The Target Outcome registered trademarks are registered trademarks of Vest Financial LLC.
The trust is not sponsored, endorsed, sold or promoted by SPDR® S&P 500® ETF Trust, PDR, or Standard &
Poor’s® (together with their affiliates hereinafter referred to as the “Corporations”). The Corporations have
not passed on the legality or suitability of, or the accuracy or adequacy of, descriptions and disclosures
relating to the trust or the FLEX Options. The Corporations make no representations or warranties, express
or implied, regarding the advisability of investing in the trust or the FLEX Options or results to be obtained
by the trust or the FLEX Options, shareholders or any other person or entity from use of the SPDR® S&P
500® ETF Trust. The Corporations have no liability in connection with the management, administration,
marketing or trading of the trust or the FLEX Options.
The information presented is not intended to constitute an investment recommendation for, or advice
to, any specific person. By providing this information, First Trust is not undertaking to give advice in
any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory
framework. Financial professionals are responsible for evaluating investment risks independently and for
exercising independent judgment in determining whether investments are appropriate for their clients.