Tax Reform/Corporate Earnings Prop MarketsMark J. Kennedy, Executive VP p: 502.259.2517 e: mark.kennedy@cbandt.com

4350 Brownsboro Road, Suite 210 • Louisville, KY 40207502.259.2500 • www.CBandT.com

Equity markets have proven surprisingly resilient in the face of discouraging political outcomes and mixed economic data, marking fresh highs in July after surging more than 16% since the election. Investor sentiment seems indifferent as to whether the healthcare bill passes, the Fed is raising rates, or the Administration is under investigation, so long as tax reform remains on the

table. Because Republicans need to address healthcare before the next interim elections and the process has stalled, it could take until year end before tax reform is taken up. As a result of the delayed timing, the market is likely to remain range bound through year end, adding or subtracting 2%-5% from the June 30 year-to-date return of 9.3%.

The S&P 500 rallied 3.09% in the second quarter, posting a 9.33% return for the first half of 2017 and reaching a new all-time high of 2484 on July 27. April remained relatively flat after Congress failed to pass healthcare reform legislation in March. Most of the gains for the quarter were generated in May, when the house passed a watered down healthcare bill. Markets were helped further when Republicans vowed to deliver tax reform legislation, whether or not the legislature passes a health reform bill. In April, companies beat earnings estimates, delivering first quarter earnings growth of 15% - the highest gains since 2011. Furthermore, a broad-based upward revision in earnings followed the quarterly earnings releases. Those revisions have tapered somewhat in recent weeks for certain sectors, such as energy, as oil prices fell during the quarter, financials after the yield curve flattened and telecom in response to increased data pricing competition.

While international and emerging market stocks trailed domestic equity returns in 2016, these indices outperformed U.S. stocks in the second quarter and first half of 2017. International markets have benefitted from a weak dollar (down 6.4% YTD) as well as fundamental strength in developed and emerging market economies. After years of flat to down growth, EU growth is meeting or exceeding U.S. growth after years of quantitative easing and improvement in EU bank balance sheets. Developed international and emerging market equity returns exceeded 20% for the trailing twelve month period ending June 30, 2017.

Almost all of the major developed and emerging market economies are demonstrating solid manufacturing and service sector expansion, higher employment, high consumer confidence and rising leading economic indicators. As we referenced in prior newsletters, the global economy is approaching an inflection point, with Central Bankers beginning to slow the pace of quantitative easing, causing interest rates to rise as fiscal stimulus spending measures are adopted across the international landscape.

Proprietary Performance Results2nd Quarter 1 Year 3 Year 5 Year Since Inception

Focused Equity Fund2 3.46% 15.35% 8.87% 12.89% 14.34%Aggressive Growth Fund3 6.82% 28.89% 11.44% 15.26% 8.86%1

Science/Technology Fund4 5.51% 17.87% 9.60% 14.61% 9.36%S&P 500 3.09% 17.15% 10.35% 13.28% 14.74%2, 9.84%3, 7.99%4

Russell 2000 2.46% 24.60% 7.36% 13.70% 14.59%2, 9.08%3, 7.05%4

MSCI EAFE 7.39% 12.25% 0.96% 6.32% 8.78%2, 5.02%3, 3.73%4

Strategic Income Builder Fund5 1.67% 9.37% 4.70% 7.76% 9.68%

60% Russell 3000 Value, 40% Barclays Agg 1.36% 9.42% 5.52% 9.23% 9.80%

There is no assurance that any of these investment strategies will meet its investment objective. Performance results for each strategy are computed on the strategy’s overall returns. Each strategy and index includes the reinvestment of dividends. Past performance does not guarantee future results. Current performance may be lower or higher than the performance results quoted. 1 Net of management fees; performance results of SMC Capital and/or its principals as advisor from inception to 2/28/06 and as sub-advisors to CBandT since 3/1/06. 2 Inception date 12/31/2008. 3 Inception date 7/1/1989. 4 Inception date 3/31/2006. 5 Inception date 12/31/2008.

Q2 2017 S&P 500 Sector Performance

Q2 1 year

Healthcare 7.10% 12.47%

Consumer Discretionary 2.35% 16.90%

Consumer Staples 1.57% 3.06%

Financials 4.25% 35.32%

Telecommunication -7.05% -11.71%

Information Technology 4.14% 33.89%

Materials 3.17% 18.59%

Energy -6.36% -4.14%

Industrials 4.73% 22.25%

Utilities 2.21% 2.47%

Chart 2

Q2 2017 Market Performance – Total Returns

6.30.17 Level

Q2 1 year

Dow Jones 21350 3.95% 22.12%

S&P 500 2423 3.09% 17.89%

NASDAQ Composite 6140 4.21% 28.40%

Russell 2000 1415 2.46% 24.57%

S&P Midcap 1747 1.97% 18.56%

Russell 1000 Growth 1192 4.67% 20.41%

Russell 1000 Value 1140 1.34% 15.50%

MSCI EAFE 1883 6.31% 20.91%

Yield Q2 1 year

Barclays Municipal 2.27 1.96% -0.49%

Barclays Aggregate 2.55 1.45% -0.31%

Barclays High Yield 5.62 2.17% 12.70%

Chart 1

Not FDIC Insured • Not Bank Guaranteed • May Lose Value • Not Guaranteed By Any Government Agency • Not A Bank Deposit

SUMMER 2017

QuarterlyNEWSLET TER

active selection in the quarter. Investors continue to discount the probability of Walgreens’ potential merger with Rite Aid (RAD), as well as further industry concerns of Amazon (AMZN) entering into the grocery and pharmacy space with their purchase offer for Whole Foods (WFM). Disney suffered from continued industry-wide “cord-cutting” in their networks segment, where they are seeing a persistent decline in subscribers for their flagship brand, ESPN.

Strategic Income BuilderFor the quarter, the strategy (SIB) returned 1.67%, somewhat ahead of its blended benchmark return of 1.36%, which is comprised of a 60% Russell 3000 Value weighting & 40% to the Barclay’s US Aggregate. Over 12 months, SIB was in line with these benchmark results (9.37% vs. 9.42%). Volatility measures for stocks and bonds jumped in April and May from record lows. Value stocks continue to underperform growth this year, reversing course from its dominance in in 2016. Since inception (1/1/09), the SIB strategy has returned an annualized 9.68%, mostly in line with the benchmark return of 9.80%. The yield generated from the strategy has consistently exceeded that of the benchmark. On a risk-adjusted basis, the strategy has generated a positive alpha of 0.92% annualized with a beta of 0.89. The success of the portfolio is the result of an attractive mix of income producing securities, exposure to global markets and tactical allocation.

For the quarter, our equities returned 1.79%, or 0.5% ahead of the Russell 3000 Value, which was up 1.29%. Healthcare (+5.4% return) and Financials (+4.8%) were the best performing sectors. Telecom Services (-4.4%) followed by Consumer Discretion (-2.1%) performed the worst. Equity allocation rose slightly during the quarter to 69%.

Novartis AG (NVS +12.4%) was a strong performer during the quarter. Generic competition to Glivec (cancer) will abate through 2017, while Cosentyx (psoriasis) and Entresto’s (heart failure) sales growth will boost 2018 profit. The spinoff of underperforming eye-care unit Alcon looks increasingly likely. Its immuno-oncology portfolio is young but emerging, with its most-advanced program, CAR-T therapy, under FDA review for acute lymphoblastic leukemia. The FDA advisory committee panel recently voted 10-0 to recommend this treatment in children and young adults. The decision now gets passed to the FDA which is expected to render a final decision by Oct.3. Advisory panel recommendations are not binding but the FDA typically adheres to what the group urges.

Banks struggled during much of the quarter given the flattening yield curve, but performed well in June. We suspect it was due to expectations for a positive Comprehensive Capital Analysis and Review (CCAR), which were confirmed in late June. We established a position in Citigroup (C +12.1%) earlier in the year on the thesis of capital actions surrounding CCAR. On June 28th, Citigroup announced its intent to double its quarterly dividend to $0.32 as well as a stock repurchase of $15.6 billion. These planned capital actions total $18.9 billion over the next four quarters.

Quarterly fixed income performance of 1.66% compared to the Bloomberg Barclays Aggregate Bond return of 1.45%. Over the last 12 months, fixed income results were outstanding at +2.85% vs. -0.31%. Our tactical position within high yield returned a more modest 1.8% during the quarter. Our multi-sector fixed income strategies continued to perform well. Fixed income allocation finished the quarter at 25%.

Our tax-free holdings returned 1.4% during the quarter. We reduced allocation to under 5% of fixed income on relative performance during 2017. Our international bond funds returned 2.6%. We previously switched our international allocation from developed to emerging markets and increased it again slightly to 7.5% of fixed income.

Our alternatives are allocated to managed-futures strategies and returned -0.8% during the quarter. These results compare very favorably to the SG CTA Index, which declined -3.5%. Portfolio allocation remained stable at just over 4%. In general, we believe we can reduce portfolio volatility and enhance returns over time utilizing alternatives. While income generation is possible in these strategies, it is much more difficult to predict.

Science & Technology Strategy The Science & Technology strategy (SciTech) returned 6.61% for the second

of once per quarter. Its new range of 1%-1.25% puts the Prime borrowing rate at 4.25%. In addition, the FOMC “expects to begin implementing a balance sheet normalization program this year”. This “tapering” of bond purchases announcement was well received by markets, unlike the bond rout in 2013, on its consideration alone. The market is now very skeptical that the Fed will be able to increase rates at its projected path. FOMC median forecasts are roughly 2% & 3% in 2018 & 2019 respectively. For the period, the 10-year Treasury yield declined 0.08% to 2.3%. During April and May it traded mostly in the 2.2%-2.4% range. In June, it traded in a narrower range, mostly below 2.2%. We have seen “conundrum” articles on why long-term rates are falling as the Fed hikes rates. As we have noted previously, there is still a relative value proposition globally speaking. European 10-year sovereign rates are mostly between 0.5%-1.0%. During the quarter, U.S. investment-grade bonds returned a respectable 1.5%. Year-to-date returns through June stand at 2.3% which comes close to the full year returns in 2016. Fixed income markets, like equities, had very low volatility during the quarter. The Merrill Option Volatility Estimate (MOVE) index which measures volatility in Treasury options declined to a near record low. According to Bloomberg Barclays, “hedged” global aggregate bonds returned 1.0% (vs. 2.6% unhedged) during the period. Year-to-date, these global investment-grade returns were 1.4% and 4.4% respectively. The U.S. high yield market returned a more typical 2.2% during this period with year-to-date returns of 4.9%. High yield returns in 2016 were in excess of 17%. With spreads below 4%, we remain somewhat cautious on high yield. We have been incrementally adding to emerging market bonds this year. As a proxy, the iShares JPM USD Emerging Markets Bond ETF (EMB) returned 1.8% during the quarter and is up 5.8% this year. Tax-exempt municipals, which were impacted by the Trump victory, have mostly recovered. Market reaction was based on the tax-exemption being less beneficial given his proposed tax cuts particularly to the highest marginal rate. During the quarter, tax-exempts returned 2.0% putting them up roughly 3.5% this year. Delayed tax-cut legislation has certainly helped, though we believe supply/demand factors are more important. Also, we previously noted that reductions in the highest tax rates were not indicative of poor performance. We also suspected that tax-exempts would continue to outperform taxable investment-grade bonds, which they have done. Given the move downward in rates particularly on the long end, we find ourselves cautious. We continue to recommend a tactical underweight to core fixed income in favor of high quality dividend paying stocks and alternative strategies.

On June 14th, the Federal Reserve raised the Fed Funds rate by 0.25%, continuing its tightening pace

Summer 2017 Page 2

Fixed Income

Focused EquityFor the second quarter and the twelve months ending June 30, the strategy returned 3.46% and 15.35%, respectively, versus a 3.09% and 17.87% increase for the S&P 500 Equity Index. Since inception, the strategy has narrowly trailed the S&P 500’s annual return of 14.74% by -0.40% with an annualized gain of 14.34%. However, the fund has achieved these results taking on meaningfully less risk than the S&P 500 with a beta of 0.87 and capturing only 89% of the index’s annualized standard deviation, thus producing annualized alpha (the amount of risk-adjusted performance greater than the benchmark) of 1.36 since inception (12/31/2008).

Leaders: Interest rate sensitive sectors, Financials (7.33%), Telecom (7.10%) and Real Estate (8.06%), lead the strategy during the second quarter as we saw the yield curve flatten and the 10-year treasury dip as low as 2.14%. Overweight positions in PayPal (PYPL, 24.76%), Alphabet (GOOGL, 9.66%), Facebook (FB, 6.29%), and Yum Brands (YUM, 15.88%) made the largest contributions to the strategy’s total return during the quarter. PayPal led Focused Equity in terms of absolute return during the quarter following a solid earnings report in late April and new partnerships within its growing mobile payments business. Large overweight positions in American Tower (AMT +9.93%), Yum Brands, and PayPal were the strategy’s best active selections relative to the index as they outperformed their S&P sectors by large margins.

Laggards: Energy holdings, including Diamondback Energy (FANG, –17.17%) and Pioneer Natural Resources (PXD, -15.45%), were among the leading detractors to the fund’s results during the second quarter relative to the benchmark, lagging the S&P energy subsector by 10.83% and 9.11% respectively. These mid-sized players in the exploration and production industry suffered as crude oil declined from its $51 price level in early April, down to $42 at the end of the quarter. However, the strategy’s tactical underweight across the energy sector resulted in positive relative performance. Walgreens Boots Alliance (WBA, -5.25%) and Walt Disney (DIS, –6.30%) were the most significant negative

PayPal Holdings, Inc. (PYPL) 4/1/2017 – 6/30/2017

Summer 2017 Page 3

quarter vs. the Nasdaq 100 (4.18%), the broader Nasdaq Composite (4.20%) and the Lipper Science & Tech Fund Index (5.51%). For last twelve months the SciTech returned 28.02% vs. 29.37% for the Nasdaq 100, 28.39% for the Nasdaq Composite and 32.39% for the Lipper Science & Technology index. The portfolio closed the gap versus the benchmarks as the overweight in healthcare rewarded the fund. Over the long run the strategy is beating the Lipper SciTech index on a risk adjusted basis with a 0.81 beta to the index, indicating higher risk-adjusted returns.

Leaders: Align Technology (ALGN) was one of the best performing stocks for the fund for the quarter and year, up 30.87% for the quarter and 86.37% for the last twelve months. The strength in ALGN continues to come from overseas as routine dental work becomes a part of standard healthcare with studies linking good dental health to overall health. Facebook (FB), Apple (AAPL), Netflix (NFLX), and Alphabet (GOOGL) contributed a significant portion of the performance to the fund. These names continue to outperform and are among the highest and most consistent growth rates in technology. We expect the technology sector to continue to outperform as domestic and international economic numbers strengthen, since tech companies tend to receive a significant portion of their revenues from international markets.

Laggards: Over the last quarter, Editas Medicine (EDIT) was the largest detractor of performance, down 24.82%. Although up as much as 30% in the first quarter of 2017, after winning a preliminary hearing in their current IP dispute, EDIT ended the second quarter down. We continue to have confidence in EDIT as they are the leaders in the new technology, CRISPR, which allows scientists to accurately edit DNA. We expect returns from this early-stage company to remain a volatile holding for the fund, but believe that it is incredibly well-positioned to be the leader in this very exciting space. Healthcare names such as Gilead (GILD), Express Scripts (ESRX), and Bristol-Myers (BMY) have continued to detract from performance over the last twelve months. The healthcare sector began to recover over the last quarter as glimpses of legislation suggest healthcare reform may not result in significant changes to reimbursement or pricing for the sector.

Small Cap Composite The Small Cap Value Composite returned 5.10% for Q2 versus 0.67% for the Russell 2000 Value index. For the full year, the Small Cap Value stands at 7.67% while the benchmark is at 0.54%.

One top contributing holding in the Portfolio during Q2 was Fidelity National Financial Inc. - FNFV Group (FNFV, +19%). FNFV tracks ownership stakes in an insurance broker (One Digital), a HR software company (Ceridian), and various restaurant brands (O’Charley’s, Village Inn, Bakers Square). The company delivered a mixed Q2 earnings report that was later overshadowed by the announcement FNFV agreed to sell One Digital for $560 MM cash. Looking ahead to Q3, FNFV is also approaching its conversion to a common stock from a tracking stock structure, which will increase management’s flexibility for M&A and make the stock more widely eligible for index inclusion. We maintained the position during the quarter. Another top contributor during the quarter was Air Transport Services Group Inc. (ATSG, +36%), the premier lessor of midsize freighter aircraft, including the Boeing 767. ATSG reported strong Q1 results and increased 2017 guidance. We trimmed the position as ATSG reached our assessed valuation. Another positive contributor was Select Comfort Corp. (SCSS, +43%), manufacturer and retailer of Sleep Number mattresses and associated products. In April, SCSS reported a top- and bottom-line Q1beat plus boosted annual guidance. Same-store sales grew +3% and EBIT margins expanded +350 bps due to enterprise resource planning efficiencies, lower return rates, and lower media spend. Late in the quarter, the stock moved higher on rumors that competitor Tempur Sealy International Inc. (TPX) might attempt to acquire SCSS. We took no action on the stock as it continued to trade below our

assessed valuation.

One bottom contributing holding in the Portfolio during Q2 was Ingles Markets Inc. (Cl A) (IMKTA, -23%), an Asheville, NC based regional grocery chain with 201 stores. During the quarter, IMKTA reported its first decline in same-store sales since calendar Q4 2013 due to food deflation. Later in the quarter, investor sentiment worsened when Amazon announced a deal to acquire Whole Foods, sending shares of all grocery peers lower. Another bottom contributor was Resources Connection Inc. (RECN, -18%), a multinational professional services firm. In April, RECN reported Q3 results below expectations due to continuing negative trends for its U.S. financial services and energy practices. However, we remain encouraged by RECN’s strong international business (revenues +8.8% year over year) as well as an uptick in activity related to approaching deadlines for new accounting standards. Another poor performer during the quarter was Natural Grocers by Vitamin Cottage Inc. (NGVC, -20%), a growing specialty grocery chain selling natural and organic foods and dietary supplements. In May, NGVC reported poor Q2 results and slightly reduced annual guidance due to weak customer traffic trends and continued competition facing the broader industry. Competitive pressures became a larger concern for investors in June when Amazon announced its agreement to acquire Whole Foods. In response to these competitive threats, we reviewed our assumptions and reduced the multiple applied to NGVC, but maintained our position during the quarter.

Select Comfort Corp (SCSS) 4/1/2017 – 6/30/2017

Facebook, Inc (FB) 4/1/2017 – 6/30/2017

Kentucky Municipals- 2Q 2017Quarterly bond issuance by Kentucky municipalities increased to $1.17 billion from $733.8 million in the previous quarter. Competitively awarded deals were $280 million with negotiated deals of $886 million. Deal size was strong averaging $27.8 million with 42 new issues in total. Much of the supply in recent years has refinanced (refunded) outstanding debt. Purchasing “refunding” candidates over the years has proven very successful. We now own a substantial amount of pre-refunded municipals with “Treasury equivalent” credit profiles. These become top picks for “selective selling” during pullbacks like the one we experienced after the Presidential election late last year.

Bank-qualified (BQ) issuance came in at $47 million or 4% for the quarter while non-BQ issuance was the majority, coming in at $1.08 billion or 93%. We tend to utilize non-BQ because yields are usually higher. There was no taxable issuance during the quarter. We prefer taxable municipals to corporates as credits are more stable and spreads are generally wider. Visible supply is strong with $531 million on the calendar in coming months.

Deals of note included one $40 million (3%) Alternative Minimum Tax (AMT) subject deal issued by the KY Higher Education Student Loan Corp. We bought these roughly a month after the issuance for their relative valuation. Many clients are not subject to the AMT and we were also mindful that both Trump and the House Republicans’ proposed overhaul of the tax code would eliminate the individual and corporate AMT. If enacted, these securities should “price up” as the additional AMT yield requirement would not apply. Both S&P and Fitch assigned an A credit rating on the deal.

Also of note included $218 million of issuance by the Baptist Healthcare System Obligated Group. In rating the deal, Moody’s downgraded its credit rating to Baa2 from A3. We have been cautious on this credit for some time now so we were not surprised by the downgrade. That said, we continue to hold this name in some instances, mostly in seasoned shorter-term maturities.

In May, the Associated Press reported that “Independent consultants say Kentucky taxpayers need to spend an extra $700 million each year to keep their troubled public pension systems afloat. That’s on top of the nearly $2 billion taxpayers are scheduled to spend on all of the state’s retirement systems in the fiscal year that begins July 1.” They also stated, “It’s the second of three commissioned studies of the state’s pension system. The final report will detail recommendations about how the state can raise the necessary funds.”

In late June, Louisville Business First reported that “Kentucky Gov. Matt Bevin intends to stick to his promise of tackling tax reform this calendar year despite some in his own party privately voicing concern about timing. Early this year, Bevin promised a special session is coming to tackle tax reform. At the time, he promised it would come with a tough decision.”

Bevin has stated he isn’t a proponent of raising taxes, “If we simply aligned our tax base and stopped exempting things — you can spin that however you want. Is that a raise or just stop exempting things we shouldn’t exempt? The fact of the matter is, I want to see our tax rates go down.” While we are hopeful for meaningful reform, thus far the state has been immune to this credit concern and politicians may lack a sense of urgency.

Commonwealth Trust Company is a division of Commonwealth Bank and Trust Company, Louisville, Kentucky. SMC Capital, Inc. was a registered investment advisor, formed in July of 1993, whose accounts consisted of corporate retirement accounts and common trust funds. Commonwealth Bank & Trust Company is a subsidiary of Commonwealth Bancshares, Inc. Prior to the formation of SMC Capital, Inc., principals of SMC Capital, Inc. were primarily responsible for the management of three of the common trust funds of Shelby County Trust Bank. Shelby County Trust Bank provided SMC Capital, Inc. with written authorization allowing SMC Capital, Inc. use of the data in this report. These common trust funds have been included in the composite beginning July 1, 1989, the inception of the management of these common trust funds by principals of SMC Capital, Inc. As of July 1, 1994, these common trust funds were converted into a mutual fund advised by SMC Capital, Inc. Past performance does not guarantee future results. Commonwealth Brokerage has entered into a third party brokerage arrangement allowing LPL Financial Services to offer securities to Commonwealth Brokerage customers. LPL is independent of Commonwealth Brokerage. Securities are offered by, and Investment Consultants are registered with, LPL Financial Services, Member FINRA/SIPC. For further information, please call Christine Gandara at 502.259.2531.

ASSET ALLOCATION OUTLOOKLAST QUARTER THIS QUARTER

WE BELIEVED → ACTIONS TAKEN → RESULTS WE BELIEVE → ACTIONS WE ARE TAKING

DOMESTIC EQUITIES DOMESTIC EQUITIESTrump policies likely to take longer to pass/ implement than street expects, but y/y EPS and GDP estimates likely to be stronger for 1Q17 and 2Q17 than expected.

Trimmed U.S. large cap stocks, but still a little overweight to equal weight. Maintaining overweight on small/mid cap stocks.

Legislation has taken longer and 1Q17 EPS beat estimates-15% growth vs. 10% expected. Large cap stocks up 3% in 2Q17 (9% YTD); Small/ mid cap stocks underperformed in 2Q17 2.5% and 1.7%, respectively (weaker on expectations a tax cut may be delayed).

Trump policies likely to take longer to pass/ implement than street expects, but y/y EPS and GDP estimates to be stronger for 2Q17 than expected.

Trimming U.S. large cap stocks, but equal weight. Maintaining overweight on small/mid cap stocks.

INTERNATIONAL EQUITIES INTERNATIONAL EQUITIESTrump continues to comment that he believes the dollar is "too strong". These com-ments as well as a delay in policy initiatives and strength in oil should keep the dollar in a stable range.

With a stable dollar, improving economic conditions, and lower relative valuations, we increased our allocation to emerging markets and developed international stocks. Moving the allocation closer to equal weight.

The dollar fell almost 5% during 2Q17. Both emerging markets and international stocks were up over 6% in the quarter.

We believe the dollar should stay lower for a little longer as the Fed holds to expected rate increases, U.S. growth remains at or a little below expecta-tions and international growth continues to improve.

With a stable dollar, improving economic conditions, and lower relative valuations, we are maintaining our allocation to emerging markets and developed international stocks at equal weight.

FIXED INCOME FIXED INCOMEWe expected two additional Fed Funds rate increases this year.

We were underweight core bonds. We were overweight credit/high yield bonds. We in-creased allocation to emerging market bonds. We maintained zero weight to international bonds.

The Fed raised rates 0.25% in June. Core bonds returned 1.45% in 2Q17, while credit/high yield bonds generated returns between 2.14%. International and EM bonds returned 2.60% and 1.77%, respectively, in 2Q17.

Assuming economic data improves, we expect one more Fed Funds rate increase this year. We believe the Fed is likely to reduce its balance sheet after the next rate increase as they have stated.

We remain underweight core bonds in this rising rate environment. We remain overweight credit/high yield bonds. We are increasing allocation to emerging market bonds.

We believed munis were returning to fair value.

We maintained an equal weight to munis.

After selling off after the election, munis rallied 2.14% in 2Q17, outperforming core bonds (1.45%).

We believe munis are at fair value to a little overvalued.

We are maintaining an equal weight to munis at this time, but remain vigilant for how tax policy will impact muni valuations.

ALTERNATIVE ASSETS ALTERNATIVE ASSETSVolatility remains near record low, which is constructive for steady market gains, but also ripe for big dips on negative developments.

We maintained ~8% allocation to alternatives, with 0%-1% allocation to gold.

Volatility remained subdued and the SG CTA alternatives index fell -3.52%, CB&T's Liquid Alpha alternatives CTF fell 3.22% in 2Q17. Gold fell -0.7%.

Volatility will remain near record lows, if tax reform legislation still remains stalled, but possible.

We are maintaining ~8% allocation to alternatives. We are watching Gold, which seems stuck in a range, generally rising ahead of Fed announcements, but falling when it suggests the Fed is not becoming significantly hawkish. Typically inflation needs to increase faster than interest rates for gold to rally strongly, which is not occurring currently.

For more details on CBandT’s investment outlook, please visit our Investment Commentary page at: https://cbandt.com/wealth-trust/resources/.

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Our comprehensive wealth management service integrates Commonwealth Trust Company’s wide-ranging capabilities and highly qualified staff, with a network of external resources and advisors you may designate, such as your personal attorney or accountant. Our team of professionals can coordinate and provide you with the following services:

Investment Research & Portfolio Management: Darrell R. Wells; Robert R. Hawkins, CFA; Brian S. Stivers; John M. Fidler; Erik N. Evans, CFA; Stephen L. McCool; Christopher J. Beneke, Peter M. Ward, Nathan J. Kinney; William T. Husband | Trust & Estate Administration: Jack M. Combs, Jr.; Mary Beth Byron; Michael R. Motsinger; Patricia L. Hayes; Mark J. Kennedy; Beth A. Russell; Christopher A. Nunnelley; Nancye W. Olt; Fran E. Clark; Alex D. Croft; Robin A. Barnett | Private Banking, Family Office and Brokerage Services: Susan L. Roberts; Wendy O’Banion; Toby K. Nutt; CFP®, CTFA, Justin B. Beavers, AAMS®, CRPC®, Christine S. Gandara, Heather M. Hardin; Sam Ronald; Jill H. Cooper

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