Common use of Asset Allocation Strategies Clause in Contracts

Asset Allocation Strategies. Confluence’s Asset Allocation strategies involve apportioning the portfolio’s assets among various asset classes, the success of which generally depends upon our ability to estimate the expected returns, volatility, and correlations of the relevant markets for such assets. Expected returns and volatility for different asset classes vary over time, as do the correlations of different asset classes. Therefore, Confluence applies an adaptive process, one that evaluates economic and market variables in a forward-looking context. Our approach evaluates the investing landscape against the backdrop of the pending business cycle—a rolling time frame continuously looking forward at the next three years. The Confluence approach is not market timing. Rather, the intention is to remain within an acceptable risk profile, while changing the asset class mix to seek to optimize return potential. Confluence can adjust allocations in much shorter time frames, depending upon changing views of the marketplace and economy. Alternately, Confluence may continue for several quarters without making significant allocation adjustments if Confluence believes the existing posture remains optimal. While this flexibility is generally expected to result in diversification of the portfolio across multiple asset classes, asset classes may not perform as expected and may not display the level of correlation anticipated. If the assessment of the risk and return potential of asset classes is incorrect, the portfolio could significantly underperform the markets in general, particular markets, or other asset allocation strategies. If the assessment of the correlations between different asset classes is incorrect, the portfolio may not achieve the level of diversification that we anticipated, which can increase the risk of underperformance or negative performance. Confluence’s Asset Allocation strategies are implemented using passive ETFs, which own a basket of securities that track a particular market index. Changes in the price of an ETF, before deducting expenses, typically track the movement of the associated index relatively closely. ETFs charge their own management fees and other expenses that come directly out of the ETF returns. In addition, a commission on each purchase or sale of shares of the ETF may be charged by the executing broker-dealer, and these commission expenses will reduce the performance of the client’s portfolio. An ETF’s performance sometimes may not perfectly track the targeted index the ETF seeks to mirror. ETFs are subject to various risks, including the ability of the ETF’s managers to meet the investment objective, and to manage appropriately the ETF’s portfolio when the underlying securities are redeemed or sold, particularly during periods of market turmoil and as investors’ perceptions regarding ETFs or their underlying investments change. There is also no guarantee that an ETF will track its targeted index and therefore achieve its investment objective. Market disruptions and regulatory restrictions could have an adverse effect on the ETF’s ability to adjust its exposure to the required levels in order to track the targeted index. Errors in index data, index computations and/or the construction of the targeted index in accordance with its methodology may occur from time to time and may not be identified and corrected by the provider of the targeted index for a period of time or at all, which may have an adverse impact on the ETF and its shareholders, including Confluence clients in its Asset Allocation strategies. Unlike traditional open-end mutual funds, the shares of which can be purchased or redeemed at prices equal to the mutual fund’s net asset value at the end of a business day, shares of ETFs trade on a securities exchange and are purchased or sold at market prices established on the exchange. ETFs enter into agreements with certain designated Authorized Participants (APs) who may purchase and redeem during the trading day large blocks of the ETF’s shares at the then-current net asset value, which such purchases and redemptions are intended to (and in normal market conditions frequently do) maintain the approximate equivalence of the market price and net asset value of the ETF’s shares. To the extent that one or more of such designated APs cease to or are unable to proceed with such purchases and redemptions, and no other designated AP is willing or able to make such purchases and redemptions, the market price of the ETF’s shares may be more likely to trade at a premium or discount to net asset value and the shares could have limited liquidity. During periods of severe market volatility or disruption, these premiums or discounts could be significant, and the exchange could impose trading halts on and/or delisting of the shares of the ETF. There are also risks associated with the asset class in which the ETF invests. The risks associated with equity-oriented ETFs include the risk that the securities in an ETF will decline in value due to factors affecting the issuing companies, their industries or the markets generally. Industry specific ETFs by design provide concentrated risks in industries. For example, a REIT ETF has investments in companies that are subject to changes in the real estate market, vacancy rates and competition, volatile interest rates and economic recession. Confluence’s Asset Allocation strategies can include commodity-oriented ETFs. Buying commodities allows for a source of potential diversification in consideration for the assumption of the risks inherent in the commodities markets, which include the global supply and demand for commodities being influenced by U.S. and foreign interest rates and inflation rates and global or regional political, economic or financial events and situations. Any commodity investment represents a transaction in a non-income-producing asset and is highly speculative. Certain fixed income ETFs invest in investment grade and, at times, speculative grade bonds. Investment grade securities are subject to numerous risks including higher interest rates, economic recession, deterioration of the investment grade market or investors’ perceptions thereof, possible downgrades and defaults of interest and/or principal. Changes in interest rates could affect the value of investments in fixed income ETFs. Rising interest rates tend to cause the prices of debt securities (especially those with longer maturities) to fall. The credit rating or financial condition of an issuer may affect the value of the debt security. Generally, the lower the quality rating of a security, the greater the risk that issuer will fail to pay interest fully and return principal in a timely manner. Credit ratings are not an absolute standard of quality, but rather general indicators that reflect only the view of the originating rating agencies from which an explanation of the significance of such ratings may be obtained. If an issuer defaults or becomes unable to honor its financial obligations, the security may lose some or all of its value. Speculative securities are usually issued by less credit worthy and/or highly leveraged (indebted) companies. Compared with investment grade bonds, speculative grade bonds carry a greater degree of risk and are less likely to make timely payments of interest and principal. Regarding the fixed income portion of Asset Allocation strategies and Balanced strategies, there are risks associated with the use of ETFs. Fixed income ETFs are not bonds. During market disruptions, there are times when ETFs trade at discounts or premiums to the net asset value of the underlying portfolio of securities, which can directly affect the return on an investment in the ETF. Liquidity can also vary depending on market conditions. A fixed income ETF does not mature like an individual bond. These and other differences highlight the fact that fixed income ETFs may vary in performance relative to direct investments in bonds.

Asset Allocation Strategies. Confluence’s Asset Allocation strategies involve apportioning the portfolio’s assets among various asset classes, the success of which generally depends upon our Confluence’s ability to estimate the expected returns, volatility, and correlations of the relevant markets for such assets. Expected returns and volatility for different asset classes vary over time, time as do the correlations of different asset classes. Therefore, Confluence applies an adaptive process, one that evaluates economic and market variables in a forward-looking context. Our Confluence’s approach evaluates the investing landscape against the backdrop of the pending business cycle—a rolling time frame continuously looking forward at the next three years. The Confluence approach is not market timing. Rather, the intention is to remain within an acceptable risk profile, while changing the asset class mix to seek to optimize return potential. Confluence can adjust allocations in much shorter time frames, depending upon changing views of the marketplace and economy. Alternately, Confluence may continue for several quarters without making significant allocation adjustments if Confluence believes the existing posture remains optimal. While this flexibility is generally expected to result in diversification of the portfolio across multiple asset classes, asset classes may not perform as expected and may not display the level of correlation anticipated. If the assessment of the risk and return potential of asset classes is incorrect, the portfolio could significantly underperform the markets markets, in general, particular markets, or other asset allocation strategies. If the assessment of the correlations between among different asset classes is incorrect, the portfolio may not achieve the level of diversification that we Confluence anticipated, which can increase the risk of underperformance or negative performance. Confluence’s Asset Allocation strategies are implemented using passive ETFs, which own a basket of securities that track a particular market index. Changes in the price of an ETF, before deducting expenses, typically track the movement of the associated index relatively closely. ETFs charge their own management fees and other expenses that come directly out of the ETF returns. In addition, a commission on each purchase or sale of shares of the ETF may be charged by the executing broker-dealer, and these commission expenses will reduce the performance of the client’s portfolio. An ETF’s performance sometimes may not perfectly track the targeted index the ETF seeks to mirror. ETFs are subject to various risks, including the ability of the ETF’s managers to meet the investment objective, and to manage appropriately the ETF’s portfolio when the underlying securities are redeemed or sold, particularly during periods of market turmoil and as investors’ perceptions regarding ETFs or their underlying investments change. There is also no guarantee that an ETF will track its targeted index and therefore achieve its investment objective. Market disruptions and regulatory restrictions could have an adverse effect on the an ETF’s ability to adjust its exposure to the required levels in order to track the targeted index. Errors in index data, index computations computations, and/or the construction of the targeted index in accordance with its methodology may occur from time to time and may not be identified and corrected by the provider of the targeted index for a period of time or at all, which may have an adverse impact on the ETF and its shareholders, including Confluence clients invested in its Confluence’s Asset Allocation strategies. Unlike traditional open-end mutual funds, the shares of which can be purchased or redeemed at prices equal to the mutual fund’s net asset value at the end of a business day, shares of ETFs trade on a securities exchange and are purchased or sold at market prices established transacted on the exchangeexchange throughout the trading day. ETFs enter into agreements with certain designated Authorized Participants (APs) who may purchase create and redeem during the trading day large blocks of the ETF’s shares at the then-current net asset value, which such purchases and redemptions are intended to (and in normal market conditions frequently do) maintain the approximate equivalence of the market price and net asset value of the ETF’s shares. To the extent that one or more of such designated APs cease to or are unable to proceed with such purchases creations and redemptions, and no other designated AP is willing or able to make such purchases creations and redemptions, the market price of the ETF’s shares may be more likely to trade at a premium or discount to net asset value and the shares could have limited liquidity. During periods of severe market volatility or disruption, these premiums or discounts could be significant, and the exchange could impose trading halts on and/or delisting of the shares of the ETF. There are also risks associated with the asset class in which the ETF invests. The risks associated with equity-oriented ETFs include the risk that the securities in an ETF will decline in value due to factors affecting the issuing companies, their industries industries, or the markets generally. Industry Industry-specific ETFs by design provide concentrated risks in industries. For example, a REIT ETF has investments in companies that are subject to changes in the real estate market, vacancy rates and competition, volatile interest rates rates, and economic recession. Confluence’s Asset Allocation strategies can include commodity-oriented ETFs. Buying commodities allows for a source of potential diversification in consideration for the assumption of the risks inherent in the commodities markets, which include the global supply and demand for commodities being influenced by U.S. and foreign interest rates and inflation rates and global or regional political, economic economic, or financial events and situations. Any commodity investment represents a transaction in a non-income-producing asset and is highly speculative. Certain fixed income ETFs invest in investment investment-grade and, at times, speculative grade bonds. Investment Investment-grade securities are subject to numerous risks including higher interest rates, economic recession, deterioration of the investment investment-grade market or investors’ perceptions thereof, possible downgrades downgrades, and defaults of interest and/or principal. Changes in interest rates could may affect the value of investments in fixed income ETFs. Rising interest rates tend to cause the prices of debt securities (especially those with longer maturities) to fall, which is more pronounced in longer-duration securities. The credit rating or financial condition of an issuer may affect the value of the debt security. Generally, the lower the quality rating of a security, the greater the risk that issuer will fail to pay interest fully and return principal in a timely manner. Credit ratings are not an absolute standard of quality, but rather general indicators that reflect only the view of the originating rating agencies from which an explanation of the significance of such ratings may be obtained. If an issuer defaults or becomes unable to honor its financial obligations, the security may lose some or all of its value. Speculative securities are usually issued by less credit worthy creditworthy and/or highly leveraged (indebted) companies. Compared with investment investment-grade bonds, speculative grade bonds carry a greater degree of risk and are less likely to make timely payments of interest and principal. Regarding the fixed income portion portions of Asset Allocation strategies and Balanced strategies, there are risks associated with the use of ETFs. Fixed income ETFs are not bonds. During market disruptions, there are times when ETFs trade at discounts or premiums to the net asset value of the underlying portfolio of securities, which can directly affect the return on an investment in the ETF. Liquidity can also vary depending on market conditions. A fixed income ETF does not mature like an individual bond. These and other differences highlight the fact that fixed income ETFs may vary in performance relative to direct investments in bonds. With respect to the Target Date strategies, the principal value of the strategies is not guaranteed at any time, including on or after the target date. The overall level of risk will directly correspond to the risks of the underlying investments. By investing in various underlying investments, the strategy has exposure to the risks of different segments of the market. No Target Date strategy is considered a complete investment program and there is no guarantee of principal invested.

Asset Allocation Strategies. Confluence’s Asset Allocation strategies involve apportioning the portfolio’s assets among various asset classes, the success of which generally depends upon our ability to estimate the expected returns, volatility, and correlations of the relevant markets for such assets. Expected returns and volatility for different asset classes vary over time, as do the correlations of different asset classes. Therefore, Confluence applies an adaptive process, one that evaluates economic and market variables in a forward-looking context. Our approach evaluates the investing landscape against the backdrop of the pending business cycle—a rolling time frame continuously looking forward at the next three years. The Confluence approach is not market timing. Rather, the intention is to remain within an acceptable risk profile, while changing the asset class mix to seek to optimize return potential. Confluence can adjust allocations in much shorter time frames, depending upon changing views of the marketplace and economy. Alternately, Confluence may continue for several quarters without making significant allocation adjustments if Confluence believes the existing posture remains optimal. While this flexibility is generally expected to result in diversification of the portfolio across multiple asset classes, asset classes may not perform as expected and may not display the level of correlation anticipated. If the assessment of the risk and return potential of asset classes is incorrect, the portfolio could significantly underperform the markets markets, in general, particular markets, or other asset allocation strategies. If the assessment of the correlations between among different asset classes is incorrect, the portfolio may not achieve the level of diversification that we anticipated, which can increase the risk of underperformance or negative performance. Confluence’s Asset Allocation strategies are implemented using passive ETFs, which own a basket of securities that track a particular market index. Changes in the price of an ETF, before deducting expenses, typically track the movement of the associated index relatively closely. ETFs charge their own management fees and other expenses that come directly out of the ETF returns. In addition, a commission on each purchase or sale of shares of the ETF may be charged by the executing broker-dealer, and these commission expenses will reduce the performance of the client’s portfolio. An ETF’s performance sometimes may not perfectly track the targeted index the ETF seeks to mirror. ETFs are subject to various risks, including the ability of the ETF’s managers to meet the investment objective, and to manage appropriately the ETF’s portfolio when the underlying securities are redeemed or sold, particularly during periods of market turmoil and as investors’ perceptions regarding ETFs or their underlying investments change. There is also no guarantee that an ETF will track its targeted index and therefore achieve its investment objective. Market disruptions and regulatory restrictions could have an adverse effect on the ETF’s ability to adjust its exposure to the required levels in order to track the targeted index. Errors in index data, index computations and/or the construction of the targeted index in accordance with its methodology may occur from time to time and may not be identified and corrected by the provider of the targeted index for a period of time or at all, which may have an adverse impact on the ETF and its shareholders, including Confluence clients in its Asset Allocation strategies. Unlike traditional open-end mutual funds, the shares of which can be purchased or redeemed at prices equal to the mutual fund’s net asset value at the end of a business day, shares of ETFs trade on a securities exchange and are purchased or sold at market prices established on the exchange. ETFs enter into agreements with certain designated Authorized Participants (APs) who may purchase and redeem during the trading day large blocks blocs of the ETF’s shares at the then-current net asset value, which such purchases and redemptions are intended to (and in normal market conditions frequently do) maintain the approximate equivalence of the market price and net asset value of the ETF’s shares. To the extent that one or more of such designated APs cease to or are unable to proceed with such purchases and redemptions, and no other designated AP is willing or able to make such purchases and redemptions, the market price of the ETF’s shares may be more likely to trade at a premium or discount to net asset value and the shares could have limited liquidity. During periods of severe market volatility or disruption, these premiums or discounts could be significant, and the exchange could impose trading halts on and/or delisting of the shares of the ETF. There are also risks associated with the asset class in which the ETF invests. The risks associated with equity-oriented ETFs include the risk that the securities in an ETF will decline in value due to factors affecting the issuing companies, their industries or the markets generally. Industry Industry-specific ETFs by design provide concentrated risks in industries. For example, a REIT ETF has investments in companies that are subject to changes in the real estate market, vacancy rates and competition, volatile interest rates and economic recession. Confluence’s Asset Allocation strategies can include commodity-oriented ETFs. Buying commodities allows for a source of potential diversification in consideration for the assumption of the risks inherent in the commodities markets, which include the global supply and demand for commodities being influenced by U.S. and foreign interest rates and inflation rates and global or regional political, economic or financial events and situations. Any commodity investment represents a transaction in a non-income-producing asset and is highly speculative. Certain fixed income ETFs invest in investment investment-grade and, at times, speculative grade bonds. Investment Investment-grade securities are subject to numerous risks including higher interest rates, economic recession, deterioration of the investment investment-grade market or investors’ perceptions thereof, possible downgrades and defaults of interest and/or principal. Changes in interest rates could affect the value of investments in fixed income ETFs. Rising interest rates tend to cause the prices of debt securities (especially those with longer maturities) to fall. The credit rating or financial condition of an issuer may affect the value of the debt security. Generally, the lower the quality rating of a security, the greater the risk that issuer will fail to pay interest fully and return principal in a timely manner. Credit ratings are not an absolute standard of quality, but rather general indicators that reflect only the view of the originating rating agencies from which an explanation of the significance of such ratings may be obtained. If an issuer defaults or becomes unable to honor its financial obligations, the security may lose some or all of its value. Speculative securities are usually issued by less credit worthy creditworthy and/or highly leveraged (indebted) companies. Compared with investment investment-grade bonds, speculative grade bonds carry a greater degree of risk and are less likely to make timely payments of interest and principal. Regarding the fixed income portion of Asset Allocation strategies and Balanced strategies, there are risks associated with the use of ETFs. Fixed income ETFs are not bonds. During market disruptions, there are times when ETFs trade at discounts or premiums to the net asset value of the underlying portfolio of securities, which can directly affect the return on an investment in the ETF. Liquidity can also vary depending on market conditions. A fixed income ETF does not mature like an individual bond. These and other differences highlight the fact that fixed income ETFs may vary in performance relative to direct investments in bonds.