Over the past year the Canadian dollar has appreciated from $0.85 to $1.02US or 20%. Admittedly, the Canadian dollar was undervalued at $0.70-$0.80 and at $0.85, in our opinion, it was fairly valued. Incidentally, excluding this currency impact, our ABC American-Value Fund, in particular, would be showing a positive 12-month return.

The Canadian dollar's recent strength from $0.85 to $1.02US, we believe, was due less to its inherent strength, but rather due to the U.S. dollar's extreme weakness. The US dollar, for instance, is faced with numerous negative issues which we feel are largely reflected in the market place. They include: extremely unpopular and lame-duck President George Bush, the Iraq War, the Sarbanes-Oxley Act, subprime mortgages, extremely weak US housing market, etc. As a result, the US dollar has plummeted not only against the Canadian dollar but also against the Eurodollar at $1.41US, up from $1.00 a few years ago.

Presently, with a relatively overvalued Canadian dollar, Canada is at risk of losing significant domestic manufacturing and exports. True, trips to Florida will become a lot less expensive, however, this is only a short-term benefit as a lot of Canadian dollars will be migrating south on trips, crossborder purchases, new cars, etc. Clearly, our Canadian financial authorities are quite sensitized to the negative effects of an overly-strong Canadian dollar.

With the Canadian dollar at $1.02US and with the US stock market being one of the cheapest markets in the world, we believe that, in Canadian dollar terms, US equities are extremely attractive. As a result, we intend to continue to search for extremely underpriced American stocks with our relatively expensive Canadian dollar.

Overall, we think it is too late to hedge the Canadian dollar versus the US. In fact, at some point, the Canadian dollar is vulnerable to a setback --- which could be caused by a random political, economic, or psychological event. In short, we will continue to stick to our disciplined investment style and expect to add more dirt-cheap, US dollar stocks to our portfolios by taking advantage of the Canadian dollar's recent strength. For instance, a year ago it would take approximately $1.20 Canadian to buy $1.00US of American assets. Today it takes only $0.98 Canadian to buy those same undervalued US equities. In summary, we intend to remain focused, disciplined and opportunistic with regard to Canadian/American dollar investments.

Irwin A. Michael, CFA