The third quarter of 2013 was complex and it continues to be complex going into the fourth quarter. Among the uncertainties are: the future direction of Federal Reserve policy with its bond purchase program, the Syrian conflict, unresolved spending authorizations, U.S. government default risk and budget fights, a lackluster economy, and the impact of Obamacare.

Despite all the crosscurrents, equities moved higher and fixed income markets finished with mixed results over the past three months. There was quite a bit of variance in the nature of equity appreciation with large-cap growth and small-cap equities capturing most of the gains.

The Timberline Dividend and Growth portfolio also had a positive quarter that was indicative large-cap value returns but lagged the overall market. Year to day, composite performance is indicative of the strong equity market conditions of 2013.

A majority of portfolio holdings provided positive returns. Interestingly, the strongest returns were not concentrated in any particular industrial sector. Apple (AAPL),) 3M (DDD), Williams (WMB), Dominion Resources (D), Paychex (PAYX) and DuPont (DD) all had positive returns.

Negative returns were not severe with names generally found in the consumer, telecom and technology areas. Performance during the quarter took a notable turn for financials when the Fed announced that they would not taper.

Financials had been trading higher in anticipation of higher rates but retreated with the Fed’s surprising announcement. All said, financials provided positive returns but at level that did not keep up with benchmarks.

On the dividend front, there were seven payout increases as announced by (Duke Energy) (+2.0%), (Leggett & Platt)(+3.5%), (Microchip Technology) (+.3%), (Microsoft)(+21.7%), (Paychex)(+6.1%), (Philip Morris International)(+10.6%) and Williams Companies (+3.9%). Penn West (PWE) announced a roughly 50% dividend decrease in conjunction with new management and new initiatives that look promising for the stock. (Note that dividends reflect past performance and there is no guarantee they will continue to be paid.)

Valuations and earnings growth expectations point to a market that appears to be fairly valued but with good long-term potential. This is based on a supportive Fed, modest economic growth, and evidence of very effective management within many companies. Political conditions are complex but if past history is any indicator, government issues will likely get worked out in some rather unimpressive ways.

The investments discussed are held in client accounts as of September 30, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.