As the end of the year approaches, we believe it is worthwhile to take a step back and review what 2005 has meant for investors so far. 2005 has surely not suffered from a shortage of remarkable headline stories and events.

Events have ranged from the immediate aftermath of the Indian Ocean tsunami to the hurricanes in the Gulf Coast, from high housing and energy prices to ballooning deficits and from the ongoing strife in Iraq to fears of a bird flu pandemic. Despite the worrisome headlines, as of September 30, 2005*, most areas of the market have generated fairly stable if somewhat timid year-to-date returns.

Large stocks slightly trailed small stocks, with the S&P 500 Index rising 2.8% and the small company Russell 2000 Index gaining 3.3%. Energy stocks remained the undisputed market leader, gaining 43.8% year-to-date, as measured by the S&P Energy Index.

Value stocks continued to perform better than growth stocks extending value leadership well into a fifth year. As measured by the Russell 1000 Value Index, value stocks were up 5.7% vs. growth stocks being up 2.2%, as measured by the Russell 1000 Growth Index.

Despite the appreciation in the U.S. dollar, foreign stocks performed better than domestic stocks, with the EAFE Index gaining 9.4% in dollar terms. The MSCI Emerging Markets Index posted an eyebrow raising 25.5% return in dollar terms, buoyed by continued high economic growth rates raging from East Asia to Eastern Europe to Latin America.

For the most part, fixed-income markets have stayed in the low single-digit return territory. High quality U.S bonds returned 1.5% as measured by the Lehman Brothers Aggregate Index. Shorter-term bonds have returned 1.0% as measured by the Merrill 1-3 Govt. Index, as the upside of high quality bonds had been capped by renewed fears of inflation.

High-Yield bonds returned 2.1% as measured by Lehman Brothers High Yield Composite. Overseas, developed countries' bonds lost 6.8% as measured by the CSFB Non $ Index, primarily due to U.S. dollar gains. Emerging-market bonds posted a 15.0% gain as measured by the Lehman Emerging Market Bond Index, as emerging market economies have gained both more global economic clout and higher credit ratings.

While this information helps put the recent returns of our investment portfolios in perspective, it provides no guidance on what we can expect in the future. As such, the questions to be asked are:

What's next? How can Fragasso Financial Advisors help me with my investments in the face of an uncertain future?

At Fragasso Financial Advisors, we recognize that markets are a mechanism for discounting the future, not a platform for extrapolating the recent past. We spend much time evaluating how various threats and opportunities could impact the economy, the markets and ultimately, your investment portfolio moving forward.

We view the following factors as the primary avenues in which Fragasso Financial Advisors helps clients with the ongoing management of their investment portfolios:

1) Avoiding large mistakes by keeping our clients' goals in mind

In times of uncertainty, we have found that it is often tempting for investors to give in to worries and fears and to assume an overly conservative investment posture. Conversely, periods of euphoria and optimism result in investors concentrating their portfolios in the most speculative areas of the market (such as the technology stocks of the late Nineties and, potentially, the Energy stocks of today).

Repeated knee-jerk reactions to the recent past may result in compounding errors over time. Such errors can result in losses or missed opportunities that can significantly jeopardize the very foundation of investors' long-term financial security. At Fragasso Financial Advisors, we strive to minimize any emotional responses to market gyrations, which may lead to disproportionate losses. To that end, we maintain a consistent and disciplined portfolio management process, focused on clients' long-term financial goals.

2) Tactical Asset Allocation

We seek value-added opportunities through emphasizing areas of the market that we believe are relatively undervalued. When no such opportunities readily present themselves, we maintain a diversified approach designed to provide returns consistent with a broad, fully invested global portfolio.

You can learn more about the latest positioning of your portfolio from our most recent Tactical Allocation Updates as well as Monthly Investment Briefings (individual stock managed portfolios only). Our financial advisors also stand ready to answer any questions you may have on the positioning of your investment portfolio(s).

3) Investment Selection

Additionally, we seek to add value through hiring investment managers possessing an identifiable investment edge. If no such managers readily present themselves, we seek to duplicate the returns of the market through an indexed approach. Last but not least, we seek to add value through selecting individual securities that, in our view, have favorable fundamentals and an outlook that is not currently reflected in the market price.

4) Tax Management While we do not allow tax considerations to dictate investment decisions, we seek to limit the tax liability of our clients' taxable accounts. We currently expect to avoid taking any additional gains prior to year-end, unless investment considerations strongly dictate such action. We are also in the process of considering any potential offsetting losses during the remainder of the year in order to mitigate the effects of already realized capital gains.

2005 has certainly contained many volatile storylines. World events can be unsettling in these challenging times. However, we at Fragasso Financial Advisors can help you interpret the financial climate and chart a sound financial course.

*Past performance is not a guarantee of future returns