Early December share price firmness gradually led to mid-month weakness due to persisting U.S. banking, real estate and corporate concerns. Specific examples included Countrywide Financial, Lennar Homes, ACA Financial Guaranty Corp as well as mounting CIBC difficulties. Later in the month stock market indices recovered somewhat due to the end of seasonal tax-loss selling, an improved quarterly report and outlook at Research In Motion and a significant rise in gold, oil and gas and long term bond prices.

This late December rally enabled our five ABC Funds to recover from an early-month decline. The price improvement was largely due to an upswing in gold and silver (Western Goldfields and U.S. Silver), oil and gas (Nexen, Pioneer National Resources and Stratic Energy), and several special situation holdings including Canwest Global, McGuigan Simeon Wines and Migao Corporation.

As we enter 2008 we expect continued share price volatility, considerable uncertainty with regard to the Canadian asset-backed commercial paper deadlock and a notable investor propensity towards greater liquidity and risk aversion. Nevertheless, we anticipate an improving investment environment due to continued worldwide central bank accommodation, low interest rates and increased corporate mergers, acquisitions, privatizations and takeovers. Moreover, with investor psychology relatively fearful, skeptical and pessimistic the framework is in place for a meaningful price advance in those sectors which have performed most poorly in 2007. In particular and rather contrarian, we believe that hard-hit small and medium capitalization, special situation and deep-value equities could rebound substantially in 2008.

Irwin A. Michael, CFA