Fred H. Dickson, CMT

Senior Vice President & Chief Investment Strategist

The Davidson Companies fdickson@dadco.com

Internet Updates: www.dadco.com (Individual Investor Tab) (503-603-3059)

Important Disclosures on Slide 2

October 2013

This material has been compiled from sources we deem to be reliable; it is not guaranteed as to its accuracy and does not purport to be complete. All opinions and estimates contained in these reports constitute D.A. Davidson & Co.’s judgment as of the date of such reports, are subject to change without notice and are provided in good faith but without legal responsibility. The information is not intended to be used as the primary basis of investment decisions. Because of individual client requirements, it should not be construed as advice designed to meet the particular investment needs of any investor. It is not a representation by us, or an offer, or the solicitation of an offer, to sell or buy any security. Further, a security described in a report may not be eligible for solicitation in the states in which a client resides.

Let Go of Short-Term Media Driven Concerns and

Think Global, Long-Term, Big Picture

Economic Mega-Trends

We remain very bullish on the global economic future in spite of huge geo-political, environmental, regulatory and financial resource challenges !!

Eight $Trillion Mega-Trends Drive Multi-Decade Economic Growth ………..Too Big to Stop

Water Resource Development Healthcare Innovation Food Production/Ag Resource Technology R&D Electronic/Data Security Protection Life Style Services Energy Resource Development Infrastructure Upgrades

Focus on these key global economic drivers for revenue, earnings and employment growth !!!

E-Commerce (Internet continues to explode further flattening the globe. 1.5 billion on-line workers by 2015)

Energy Transformation (US becomes largest global oil producer and a big exporter by 2020)

Financial Markets provide easy access (maybe too easy) to massive investment capital

Nano-Productivity (Rapidly Expanding)

Updated 10/9/2013

Smaller, faster handheld systems connected to multiple servers through the Cloud

Artificial Intelligence Solutions dominates Data Security Initiatives

Robotic Device Innovation

3Q Adaptive Manufacturing Technology Explodes -- Print Products of all types and Sizes

Technology

Updated 10/9/2013

Nanopore Gene Sequencing Devices (individualized DNA-data based disease diagnosis in physicians offices)

Gene Targeted Cancer testing and Treatment (early clinical trials)

3D Adaptive/Additive Printed Artificial Organs

Weekly Oral Drug to Stabilize Type 2 Diabetic Blood Sugar Spikes

Healthcare

Updated 10/9/2013

Bakken Oil Field and Marcellus Gas Fields give U.S. global-class undeveloped resources

Development of Gas Pipeline and Energy Conversion Infrastructure

Upgraded Grid drives energy productivity and better security from Cyber-Attacks

Energy

Updated 10/1/2013

2013 – Surprises:

• Many Global Stock Markets hit all-time highs • Fed’s $85 Billon/Month Bond Buy program • Fiscal Cliff “Rescue” on January 5 (ATRA) • The Economy achieves its 14th Consecutively

Quarterly all-time record high (3Q 2013) • Corporations have reported record Revenues,

Operating Profit Margins, Earnings and the Cleanest Balance Sheets seen in 30 years

• Autos/Housing/Consumer Spending remains Robust

2013 – Challenges: • “What’s Next-itis, Paralysis” –On Going • European Debt Crisis (Cyrus/Italy) • Chinese Economic Slowdown • Federal Government Sequestration • Domestic Economic Slowdown (On going) • Federal Continuation Funding ???? • Federal Debt Ceiling……Round 3??? • Federal Regulatory Implementation

(Affordable Healthcare Act) ??? • Fed Considers Tapering Bond Buys??? • Syrian Geo-Political Situation ????

Our 2013 Year-end Price Target:1,550. (+10% 2013 Total Return).

Updated 10/4/2013 Source: Factset

S&P 500 $1,703.20RESISTANCESUPPORT CURRENT PRIOR

LONG-TERM PERSPECTIVE 1751 1455 UPTREND UPTREND 10/11/2013

400

600

800

1000

1200

1400

1600

1800

2000

'89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13

0.0%0.0%

1.0%1.0%

2.0%2.0%

3.0%3.0%

4.0%4.0%

5.0%5.0%

6.0%6.0%

7.0%7.0%

8.0%8.0%

9.0%9.0%

10.0%10.0%

2.76

US 10Y Treasury Yield

Year-End 2013 Projection: 3.00% . Risk level: Moderate to high. At Some point, the Fed will lift it Cap on Low Interest Rates.

Updated 10/4/2013 Source: Factset

2.70%

Bond Market Overview – 10 Year Treasury Yield

Updated 10/9/2013

Source: Factset

0

10

20

30

40

50

60

70

80

7/3/2003 7/3/2004 7/3/2005 7/3/2006 7/3/2007 7/3/2008 7/3/2009 7/3/2010 7/3/2011 7/3/2012 7/3/2013

Which Line Shows the Bond Market’s Valuation History ?

The bond market valuation is still in a record high range. The valuation differential points to high risk holding bonds and moderate risk holding

stocks based on their current valuation metrics. Updated 10/9/2013

Source: Factset

0

10

20

30

40

50

60

70

80

7/3/2003 7/3/2004 7/3/2005 7/3/2006 7/3/2007 7/3/2008 7/3/2009 7/3/2010 7/3/2011 7/3/2012 7/3/2013

Bond Market Valuation Equivalent (10Year Treasury Note)

Stock Market Valuation (DJIA P/E)

Updated 9/2013

Source: D.A. Davidson

Investment Strategy

Late Mid-Cycle Stock Focus

Late Cycle

Correcting

Contraction Early Cycle

‣ Basic Materials ‣ Energy ‣ Large Cap – Div Achievers

‣ Basic Materials ‣ Energy ‣ Large Cap Div

Achievers – “Hold” ‣ Short-term Maturity

Fixed Income ETFs

‣ Short-term Maturity Fixed Income ETFs

‣ Long-term Fixed Income

‣ Large Cap Div Achievers

‣ Utilities ‣ Consumer

Staples ‣ Healthcare ‣ Long-term Fixed

Income ‣ High Yield “Junk

Bonds” ‣ Value Plays

‣ Financials ‣ Consumer Discretionary ‣ Technology ‣ Small Cap – Mid Cap ‣ Value Plays ‣ Utilities – REITS ‣ Emerging Markets ETFs

‣ Industrials ‣ Energy ‣ Technology ‣ Basic Materials ‣ Large Cap

Dividend Achievers

‣ Bond Ladders

Cycle Bottom

Looking Ahead to 2014

Observation: Investors and Consumers feel better, but wonder why the stock market isn’t doing as well in 2014 as it did in 2013 (Up 6% to 8% versus the 20%+ gains seen on 9/30/2013) One Answer: The Fed is no longer providing increasing amounts of money into the economy and financial markets --- The wind filling the market’s sails has noticeably diminished

Looking Ahead to 2014 Fed Begins to Taper Monthly Bond Buy

Program Longer Term Interest rates slowly rise (3.5%

at 12/31/2014 Global Economy continues to Slowly Recover Euro-Zone Economy and €uro Stabilizes Weak Dollar helps U.S. Exporters.. Inflation

the next problem-not likely? U.S. Energy production dramatically expands Autos/Industrial Production/Consumer

Spending Remains Strong; Housing Slows (due to rising interest rates)

Looking Ahead to 2014 Federal Government returns to “normal”

spending levels…. Budget Deficit around $600 billion, down from $700 billion

Companies see higher costs related to 2010 Affordable Healthcare Act implementation

Congressional Elections capture media attention and consumer “mindshare”

Syria remains on the “radar screen” U.S. Economy enjoys slightly better growth,

fewer challenges .. Employment slowly rebounds

Source: D.A. Davidson

Market Strategy

Correcting

Contraction Expansion

Last Cycle Peak

Last Cycle Bottom

Real Estate

US Stocks…..

3/2009

8/2013

10/2007

Emerging Markets

Gold

US T-Bonds

9/2007

6/2009

S&P Operating EPS

7/2009

12/2007 Economy/Jobs

Updated 10/2013

Late Mid-Cycle

Accelerating

Leveraged FI Instruments

2016 ?

Late- Cycle Checklist: (Few Signs we are there)

1. Long-term Interest rates are high and at multi-year highs - No

2. Equity Market Valuation (P/E ratio) at Multi-year highs - No

3. The Fed is rapidly increasing short-term interest rates - No

4. Emerging Global Economies begin to noticeably slow - Yes

5. Inflation pressures continue to significantly increase – No

6. M2 monetary growth beginning to noticeably slow down – No

7. Corporate Profit Margins are Declining on Rising Costs - No

8. Y/Y % Earnings increases for the S&P 500 are decelerating- Yes

9. Index of Leading Indicators approach zero growth - No

10.Corporations accelerate M&A Activity and sharebuybacks- Yes

11.Industry/Sector Stock Market bubbles become very visible-No

12.Market Breadth rapidly narrows, price divergences become visible-No

Source: D.A. Davidson

Market Strategy Updated 10/9/2013