Common use of Fixed Income Strategies Clause in Contracts

Fixed Income Strategies. The Fixed Income strategies are implemented through investments in ETFs that hold fixed income securities, including U.S. Treasuries, mortgage-backed securities, corporate bonds and municipal bonds. The market value of bonds and other fixed income securities changes in response to interest rate changes and other factors. Interest rate risk is the risk that prices of bonds and other fixed income securities will increase as interest rates fall and decrease as interest rates rise. Credit risk is the risk that one or more fixed income securities will decline in price or fail to pay interest or principal when due because the issuer of the security experiences a decline in its financial status. Credit risk is increased when a portfolio security is downgraded, or the perceived creditworthiness of the issuer deteriorates. During periods of declining interest rates, borrowers can exercise their option to prepay principal earlier than scheduled. For fixed rate securities, such payments often occur during periods of declining interest rates, forcing participants to reinvest in lower yielding securities, resulting in a possible decline in income and distributions to shareholders. This is known as prepayment or “call” risk. Fixed income ETFs are not bonds. During market disruptions, there are times when ETFs may 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 various differences highlight the fact that fixed income ETFs may vary in performance relative to direct investments in bonds. 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 bonds carry a greater degree of risk and are less likely to make timely payments of interest and principal. ETFs hold 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 fee 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 Fixed Income 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. BALANCED STRATEGIES Confluence’s Balanced strategies combine a specific Value Equity strategy with fixed income allocations—either the Taxable Fixed Income strategy or the Tax-Exempt Fixed Income strategy—utilizing income-oriented ETFs. The risks associated with the equity portion of a Balanced account are described above in the Value Equity Strategies section and the risks associated with the fixed income portion of a Balanced account are described above in the Asset Allocation section.

Fixed Income Strategies. The Fixed Income strategies are implemented through investments in ETFs that hold fixed income securities, including U.S. Treasuries, mortgage-backed securities, corporate bonds and municipal bonds. The market value of bonds and other fixed income securities changes in response to interest rate changes and other factors. Interest rate risk is the risk that prices of bonds and other fixed income securities will increase as interest rates fall and decrease as interest rates rise. Credit risk is the risk that one or more fixed income securities will decline in price or fail to pay interest or principal when due because the issuer of the security experiences a decline in its financial status. Credit risk is increased when a portfolio security is downgraded, or the perceived creditworthiness of the issuer deteriorates. During periods of declining interest rates, borrowers can exercise their option to prepay principal earlier than scheduled. For fixed rate securities, such payments often occur during periods of declining interest rates, forcing participants to reinvest in lower yielding securities, resulting in a possible decline in income and distributions to shareholders. This is known as prepayment or “call” risk. Fixed income ETFs are not bonds. During market disruptions, there are times when ETFs may 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 various differences highlight the fact that fixed income ETFs may vary in performance relative to direct investments in bonds. 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 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-grade bonds, speculative bonds carry a greater degree of risk and are less likely to make timely payments of interest and principal. ETFs hold 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 fee 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 Fixed Income 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. BALANCED STRATEGIES Confluence’s Balanced strategies accounts combine a specific Value Equity strategy with fixed income allocations—either the Taxable Fixed Income Taxable strategy or the Fixed Income Tax-Exempt Fixed Income strategy—utilizing income-oriented ETFs. The risks associated with the equity portion of a Balanced account are described above in the Value Equity Strategies section and the risks associated with the fixed income portion of a Balanced account are described above in the Asset Allocation section.

Fixed Income Strategies. The Fixed Income strategies are implemented through investments in ETFs that hold fixed income securities, including U.S. Treasuries, mortgage-backed securities, corporate bonds bonds, and municipal bonds. The market value of bonds and other fixed income securities changes in response to interest rate changes and other factors. Interest rate risk is the risk that prices of bonds and other fixed income securities will increase as interest rates fall and decrease as interest rates rise. Credit risk is the risk that one or more fixed income securities will decline in price or fail to pay interest or principal when due in a timely manner because the issuer of the security experiences a decline change or erosion in its financial status. Credit risk is increased rises when a portfolio security is downgraded, downgraded or the perceived creditworthiness of the issuer deteriorates. During periods of declining interest rates, borrowers can exercise their option to prepay principal earlier than scheduled. For fixed rate securities, such payments often occur during periods of declining interest rates, forcing participants to reinvest in lower yielding securities, resulting in a possible decline in income and distributions to shareholders. This is known as prepayment or “call” risk. Fixed income ETFs are not bonds. During market disruptions, there are times when ETFs may 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 various differences highlight the fact that fixed income ETFs may vary in performance relative to direct investments in bonds. 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 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-grade bonds, speculative bonds carry a greater degree of risk and are less likely to make timely payments of interest and principal. ETFs hold 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 fee 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 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 Fixed Income 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. BALANCED STRATEGIES Confluence’s Balanced strategies accounts combine a specific Value Equity equity strategy with fixed income allocations—either the Taxable Fixed Income Taxable strategy or the Fixed Income Tax-Exempt Fixed Income strategy—utilizing income-oriented ETFs. The risks associated with the equity portion of a Balanced account are described above in the Value Equity Strategies section and the risks associated with the fixed income portion of a Balanced account are described above in the Asset Fixed Income section. The combination of two strategies in one account creates an exposure to a continuous drift away from or toward the targeted allocation. Allocation sectiondrift may cause portfolio performance to vary relative to the targeted allocation. To address drift, guardrails around the targeted allocation are created, referencing the proportion of the equity allocation. Larger equity proportions have wider guardrails, while smaller equity proportions have narrower guardrails. Portfolios are periodically rebalanced to their targeted allocation when allocations drift outside their guardrails. During the fourth quarter of the calendar year, portfolios may be allowed to drift outside their guardrails to help limit or avoid end-of-year taxable gain realizations. In these situations, guardrail drift is generally addressed in the first quarter of the new year.