Presented by:

October 2017

Leo Grohowski Chief Investment Officer

CIO Update: Economy, Financial Markets and Investment Strategy

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• Global growth improving and more synchronized

• U.S. economy expected to deliver 2.2% real GDP this year, and 2.5% in 2018

• Low inflation and slow global growth should enable central banks to be more patient in

withdrawing accommodation

• Many of our 2017 market themes are playing out, including recent move higher in rates

and shift from monetary to fiscal policy

• Global equities remain resilient, shrugging off geopolitical risk, disasters and Washington

tensions. S&P 500 forecast of 2,700-2,800 for year-end 2018

• Fixed income remains important source of diversification and income. 10-year Treasury

yield: year-end range of 2.5%-2.75% for 2017, 2.75%-3.0% for 2018.

• Resist temptation to extrapolate returns or period of market calm. Consider rebalancing

portfolios, diversifiers and customized hedging strategies to help buffer market swings.

Key Takeaways

Uncharacteristic Market Bounce Following Trump Victory S&P 500 PRICE PERFORMANCE FOLLOWING PRESIDENTIAL ELECTIONS

*As of 5/31/17. Source: StrategasRP; Morningstar Direct 3

0.8%

-1.1% -2.3% -1.9%

-0.5%

4.1%

11.5%

0.4% 1.1%

1.9%

5.0% 4.6%

12.1%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

Election Day 1 Day After 1 Week After 1 Month After Year End 6 Months After 1 Year After

PER

CEN

T

Avg. 1984-2012 2016

Historical Bull Markets S&P 500 1928 TO PRESENT

As of 9/30/2017. Source: StrategasRP 4

Volatility VIX: FEAR GAUGE HITS 23-YEAR LOW

Data from 1/2/90 through 9/28/17. Source: FactSet 5

90 92 94 96 98 00 02 04 06 08 10 12 14 160

10

20

30

40

50

60

70

80

90

20-YEARMEAN

CBOE Volatility Index - Price

IND

EX L

EVEL

As of 9/30/17. Source: Institute for Supply Management and FactSet 6

Moderate U.S. Growth Expectations BNY MELLON WEALTH MANAGEMENT GDP ESTIMATES

-0.3

-2.8

2.5

1.9 2.3 2.2 2.4 2.4

1.6

2.2 2.5

-4

-2

0

2

4

08 09 10 11 12 13 14 15 16 17E 18E

PER

CEN

T

Real GDP

Improving Confidence

*As of 9/29/17. Sources: National Federation of Independent Businesses and Ned Davis Research; FactSet **As of 9/29/17. Shaded areas represent periods of U.S. recession. Source: The Conference Board; FactSet 7

78 82 86 90 94 98 02 06 10 14

80

85

90

95

100

105

110

IND

EX

NFIB Index ofSmall Business Optimism*

71 77 82 87 92 97 02 07 12 1720

40

60

80

100

120

140

160

IND

EX

Conference Board'sConsumer Confidence Index**

Improvement in Employment UNEMPLOYMENT RATE, SEASONALLY ADJUSTED

As of 9/30/17. Sources: Bureau of Labor Statistics and FactSet. *Includes officially unemployed, those who want a job but stopped looking, and those who need full-time jobs but can only find part-time work, measured as a percentage of the civilian labor force plus all the marginally attached workers. 8

Jan-77 Jan-80 Jan-83 Jan-86 Jan-89 Jan-92 Jan-95 Jan-98 Jan-01 Jan-04 Jan-07 Jan-10 Jan-13 Jan-16

4

6

8

10

12

14

16

18

4.20

8.30

U.S. Civilian Unemployment Rate U.S. Broader Unemployment Rate*

Housing Market

*As of 8/31/2017. July data. Source: FactSet **As of 8/31/2017. July data. Source: FactSet 9

3

4

5

6

7

8

9

10

11

12

MO

NTH

S

Months' Supply Existing Homes*

Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16-20

-15

-10

-5

0

5

10

15

20

PE

RC

EN

T

Median Price of Existing Homes - Percent Change from Year Ago**

Global Outlook REAL GROSS DOMESTIC PRODUCT (GDP)

As of July 2017. Source: International Monetary Fund 10

1.6 1.8

1.0

1.8

6.7

3.8

-1.0

2.1 1.7

1.3

1.9

6.7

2.3

1.0

2.1

1.5

0.6

1.7

6.4

3.2

1.9

-1

0

1

2

3

4

5

6

7

8

U.S. U.K. Japan EuroArea

China Middle Eastand

North Africa

LatinAmerica

PER

CEN

T

2016 2017E 2018E

Developed Markets Emerging Markets

Global Interest Rates 10-YEAR TREASURY NOTE YIELDS

As of 9/28/17. Source: FactSet 11

2015 2016 2017-0.5

0

0.5

1

1.5

2

2.5

3

PE

RC

EN

T

0.07

0.48

0.77

1.37

1.62

2.122.31

US Italy Spain UK France Germany Japan

Expect Gradual Rise in U.S. Rates

-6

-4

-2

0

2

4

6

8

10

12

14

16

18

20

2015 2016 2017 YTD

MODERATE RETURNS GOING FORWARD

12 As of 9/29/2017. Source: Barclays Capital.

Assumes current breakeven inflation of +1.8419%. Breakeven inflation impacts the total return of TIPS. As of 9/29/2017. For illustrative purposes only. Source: Bloomberg L.P.

PE

RC

EN

T

Bond Sector Returns

1.5

-1.2

-4.1 -5.3

-14.1 -16

-14

-12

-10

-8

-6

-4

-2

0

2

4

2-YearTreasury

5-YearTreasury

10-YearTreasury

10-YearTIPS*

30-YearTreasury

1-Year Total Returns with 1% Rise in Interest Rates

PE

RC

EN

T

Muni Yields as a Percentage of Treasuries

80

100

120

140

2012 2013 2014 2015 2016 2017

PER

CEN

T AAA 10-YR MUNICIPAL BOND YIELDS AS PERCENTAGE OF 10-YR TREASURY YIELDS

As of 9/29/2017. Source: Bloomberg 13

PE

RC

EN

T

'10 '11 '12 '13 '14 '15 '16 '170

0.5

1

1.5

2

2.5

3

3.5

4

4.5

PE

RC

EN

T

2.34

Rates and The Fed 10-YEAR U.S. TREASURY YIELD

14

End of QE1

End of QE2

End of ‘Operation

Twist’

Start of QE3

Taper

End of QE3

2013 ‘Taper Tantrum’

As of 9/28/2017. Source: FactSet and The Wall Street Journal.

Three-month period following tightening

Balance Sheet

Reduction Plan

Announced

PER

CEN

T

15

85.2 87.7

22.6

41.8

2.8

63.8

0.8

63.8

0

10

20

30

40

50

60

70

80

90

100

November December

Beginning of 2017 After FOMC June Meeting After FOMC September Meeting Current

Probability of December Rate Hike Spikes

As of 9/27/2017. Source: Bloomberg.

PER

CEN

T

Yield on 10-Year Treasury Note Less 10-Year TIPS

PER

CEN

T Break-Even Inflation Rate

2.66

1.20

1.85

1.0

1.5

2.0

2.5

3.0

2011 2012 2013 2014 2015 2016 2017

ROLLING IMPLIED INFLATION ON 10-YEAR TREASURY

As of 9/29/2017. Source: Bloomberg 16

PER

CEN

T

Low Inflation Supportive of Current Valuations S&P 500 P/E BY YEAR-OVER-YEAR PERCENT CHANGE IN CPI TRANCHE

As of 9/30/2017. Updated Quarterly. 1950 – December 2016. S&P 500 P/E for trailing twelve months. Source: StrategasRP. 17

16.8x 18.1x

17.3x

14.7x

10.9x 9.5x

8.3x

0

5

10

15

20

< 0% 0-2% 2-4% 4-6% 6-8% 8-10% > 10%

S&P

500

TTM

P/E

RAT

IO

INFLATION RATE

S&P 500 Operating Earnings Estimates CONSISTENT WITH SLOW GROWTH SCENARIO

As of 6/30/17. Source: FactSet, S&P 500 Calendar Year Bottom-Up EPS Estimate Source: BNY Mellon Wealth Management. 18

81.8

71.4

59.3

83.1

94.9 102.4

108.4 116.8 118.0 117

125-130 135-140

0

20

40

60

80

100

120

140

160

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E 2018E

DO

LLAR

S

Earnings Growth Gaining Momentum NEXT 12 MONTHS YEAR-OVER-YEAR EARNINGS GROWTH ESTIMATE

Source: Bloomberg As of 9/21/2017. Earnings growth estimates in local currency. 19

15.77

11.55

10.23 10.62

0

2

4

6

8

10

12

14

16

18

MSCI Emerging Markets STOXX 600 MSCI EAFE S&P 500

PER

CEN

T

Recent Dollar Weakness Unlikely to Continue TRADE-WEIGHTED DOLLAR

Data represents the Federal Reserve Board Trade Weighted Dollar Index. As of 10/5/17. Source: Federal Reserve 20

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '1790

95

100

105

110

115

120

125

130

PR

ICE

LEV

EL

AVE = 109.48

AVE = 104.72

AVE = 100.06

AVE = 105.57

AVE = 101.79

AVE = 98.02

AVE = 99.58

AVE = 100.57

AVE = 103.43

AVE = 114.31

AVE = 122.09

PRIC

E LE

VEL

Tax Reform Coming? TAX PROPOSAL HIGHLIGHTS COMPARED TO CURRENT LAW

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Tax Item Current Law White House & Republican House Proposal1 (September 2017)

Corporate Tax Rate Top rate of 35% Top rate of 20%

Partnership & Other Pass-Through Entities Taxed at individual rates Top rate of 25%

Individual Ordinary Income Tax Rate 7 brackets: 10%-39.6% (+3.8% NIIT) 3 brackets: 12%/25%/35%2 (+3.8% NIIT)

Taxable Interest Income Taxed as ordinary income Not addressed3

Long-Term Capital Gains & Qualified Dividends 3 brackets: 0%/15%/20% (+3.8% NIIT) Not addressed3

Short-Term Capital Gains Taxed as ordinary income Not addressed

Carried Interest Taxed at capital gains rates Not addressed

AMT Remain Eliminated

Standard Deduction Single: $6,350 (2017) Joint: $12,700 (2017)

Single (no children): $12,0004

Head of Household: not addressed4 Joint: $24,0004

Itemized Deductions Various Eliminate all except mortgage interest and charitable contributions

Estate/Gift Tax Top rate: 40% Exemption: $5,490,000 (2017)

Eliminate estate and GST tax Silent on basis step-up and gift tax

1 Source: “Unified Framework for Fixing Our Broken Tax Code:, https://www.treasury.gov/press-center/press-releases/Documents/Tax-Framework.pdf 2 The proposal leaves open the possibility of a fourth bracket on the highest-income taxpayers. 3 The initial Republican House proposal called for investment income to be taxed as ordinary income with families and individuals able to deduct 50% of their net capital gains, dividends, and interest income, leading to basic rates of 6%, 12.5%, and 17.5% on such investment income depending on the individual’s tax bracket. 4 Personal Exemption eliminated.

Planning During Uncertain Times A PLAN FOR HIGH-NET WORTH INDIVIDUALS

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Stay the Course on Estate Planning

Consider Accelerating Charitable Gifts

Build Flexibility Into Plans

Look Beyond Tax Considerations

Don’t Stop Planning

Source: BNY Mellon Wealth Management

Our Key Investment Themes

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Moderately Rising Rates

Modest Equity Gains

Shift to Fiscal

Reform

Strong Dollar

Bouts of Volatility

Disinflation to Reflation

SUSTAINABLE ECONOMIC GROWTH

Asset Class Positioning

Underweight Small

Underweight Neutral Small

Overweight Overweight

EQUITY Large Cap Mid Cap Small Cap International Developed Large Cap International Developed Small Cap Emerging Markets Private Equity Private Equity-Real Estate

FIXED INCOME Treasuries Investment-grade Corporate Tax-exempt High Yield

DIVERSIFIERS Real Estate (REITs) Long/Short Hedge Absolute Return Hedge Managed Futures Commodities

As of 9/13/17 24

INVESTMENT STRATEGY COMMITTEE RECOMMENDATIONS

Thank You – Questions and Answers

Leo P. Grohowski Executive Vice President Chief Investment Officer BNY Mellon Wealth Management

Education Bachelor’s degree, Drew University Master of Business Administration,

New York University’s Stern School of Business

Community Involvement Board of Trustees and Investment Committee Chair,

Drew University Board member and Vice Chair, Far Hills Country Day School

Executive Responsibilities

Member, BNY Mellon’s Operating Committee Benefits Investment Committee

Chair, Wealth Management Investment Policy Committee Member, Compliance, Ethics and Conflicts Committee

Member, Investment Ethics Council

Leo Grohowski is chief investment officer of BNY Mellon Wealth Management. He leads all investment strategy and investment management functions for the wealth management organization. Mr. Grohowski joined BNY Mellon in 2007 and has more than 30 years of industry experience. Previously, he was with US Trust, Bank of America, where he was chief investment officer, responsible for investment solutions and the end-to-end investment process, including portfolio management and investment strategy for Private Wealth Management clients. Prior to his role at US Trust, he was the chief investment officer for Deutsche Bank in the Americas, overseeing more than $250 billion in assets. From 1999 to 2002, Mr. Grohowski was chief investment officer of Deutsche Bank Private Banking, serving as chairman of the Global Markets Strategy Committee and Domestic Investment Strategy group, and head of Investment Products and Services for the DB Alex Brown unit. In 1996, Mr. Grohowski joined Bankers Trust where he served as a senior trust investment officer of the Private Bank and head of the U.S. Investment Strategy group. He was with HSBC Asset Management from 1988 to 1996 and was named chief investment officer in 1993, after heading the U.S. Equities group from 1988 to 1993.

Executive Management Profile

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Disclosure Appendix

The information provided is for illustrative/educational purposes only. All investment strategies referenced in this material come with investment risks, including loss of value and/or loss of anticipated income. Past performance does not guarantee future results. No investment strategy or risk management technique can guarantee returns in any market environment. This material is not intended to constitute legal, tax, investment or financial advice. Effort has been made to ensure that the material presented herein is accurate at the time of publication. However, this material is not intended to be a full and exhaustive explanation of the law in any area or of all of the tax, investment or financial options available. The information discussed herein may not be applicable to or appropriate for every investor and should be used only after consultation with professionals who have reviewed your specific situation. BNY Mellon Wealth Management may refer clients to certain of its affiliated offering expertise, products and services which may be of interest to the client. Use of an affiliate after such a referral remains the sole decision of the client. Strategic Architecture is a service mark owned by The Bank of New York Mellon Corporation. BNY Mellon Wealth Management conducts business through various operating subsidiaries of The Bank of New York Mellon Corporation. ©2017 The Bank of New York Mellon Corporation. All rights reserved.

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