Value Equity Strategies. Value Equity strategies invest in a portfolio of equity securities which Confluence believes are undervalued or inexpensive relative to other investments. These types of securities present risks in addition to the general risks associated with investing in equity securities, including the risk that Confluence’s estimates of the intrinsic value of the stock may never be realized by the market or that the price goes down. Equity securities generally are selected based on views of an issuer’s business and economic fundamentals or the security’s current and projected credit and profit profiles, relative to current market price. Such securities are subject to the risk of misestimating certain fundamental factors. Further, because the prices of value-oriented securities tend to correlate more closely with economic cycles than growth-oriented securities, they generally are more sensitive to changing economic conditions, such as changes in interest rates, corporate earnings and industrial production. Disciplined adherence to a value investment mandate during periods in which that style is out of favor can result in significant underperformance relative to overall market indices and other managed investment vehicles that pursue growth style investments and/or flexible style mandates. Confluence Value Equity portfolios will typically hold securities of fewer issuers than a broadly diversified equity mutual fund. Confluence Value Equity portfolios may be more susceptible to a single adverse economic or regulatory occurrence affecting one or more of these issuers, experience increased volatility, and be concentrated in certain issues. Furthermore, because Value Equity portfolios have a relatively small number of issuers, the portfolios have greater susceptibility to adverse developments in one issuer or group of issuers. Confluence’s Value Equity strategies sometimes utilize American Depository Receipts (“ADRs”), which are U.S listed receipts for securities of non-U.S. companies and are typically issued by a U.S. bank or trust company and represent ownership of the underlying non-U.S. securities. While ADRs are typically U.S. dollar-denominated (which is not necessarily in the same currency as the securities into which they may be converted), many of the risks associated with non-U.S. securities often apply to ADRs as well. Issuers of non-U.S. securities are not generally subject to uniform accounting, auditing and financial standards comparable to those applicable to...
