Over the past year we have stated a number of times that we regard the 2002 U.S. Sarbanes-Oxley Act, legislated to counteract the Enron, Worldcom, etc., fiascos, as extremely onerous upon corporate America. As a result, it is our continuing belief that numerous American small and micro cap companies will reconsider whether remaining public and complying with increasing securities regulation is worth the cost and effort.

We believe many companies, in consequence, will decide to go private, reorganize or sell out to large corporations. This belief, along with the elimination of Canada’s 30% foreign content investment restriction for pensions, RRSPs, etc., caused us to recalibrate our two Canadian funds. The ABC Fully-Managed and ABC Fundamental-Value Funds are now targeting a 50% Canada-50% U.S. country mix. We recognize that this country mix decision will create additional currency risk. This would happen if the Canadian dollar, now regarded internationally as a petro-currency, appreciates further against the U.S. dollar. Our response is: this risk is well worth taking.

Firstly, the U.S. market, with over 10,000 public companies, offers us innumerable investment opportunities compared to the smaller, illiquid Canadian equity market. In fact, we are finding U.S. common stocks, on a relative basis, to be far less expensive compared to Canadian shares. This is particularly true in the insurance and retailing sectors where we continue to uncover cheap American stocks. Secondly, with the Sarbanes-Oxley catalyst, we believe that the potential for significant appreciation outweighs the currency risk and provides an additional sweetener to an already undervalued security.

We recently came under some minor investor criticism due to the fact that the Canadian dollar has appreciated toward the 85 cent level. As a result, the rising Canadian dollar depreciated our U.S. common share values within our four ABC Funds portfolios. Nonetheless, we have stuck to our investment focus and purchase/sell disciplines. This strategy, we believe, will eventually pay off. In fact over the past week two of our American holdings have become the object of friendly takeovers: Haggar Corp. at $29 U.S. and United Financial Mortgage Corp. at $5.65 U.S. After all is said and done, the capital appreciation of these two American takeovers significantly offsets the negative effects of the appreciating Canadian dollar.

Irwin A. Michael, CFA