October stock price performance was rather miserable largely affected by investor flight to liquidity and fueled by hedge fund stock liquidation, margin calls and extreme share price volatility. While poor performance was across the board, value stocks provided little downside protection as low price to book value and low price earnings ratio securities were also severely impacted. The S&P/TSX Composite Total Return Index fell 16.7%, the American Russell 2000 Index declined 20.9% whereas the CIBC World Markets Small Cap Index dropped 27.7%.

Clearly investor fears of financial institution instability, economic recession and inordinate currency volatility are filling the market place. In consequence, many share prices appear to be disconnected from their intrinsic valuations. Moreover, due to disorderly market conditions common stocks continue to drift lower as fearful buyers retreat to the sidelines.

On the positive side, the international central banks and International Monetary Fund (IMF) continue to supply massive liquidity to the monetary system with bank equity infusions, lower interest rates, et al. As a result, in the U.S., for instance, the American money supply as measured by M1 and M2 growth rates have expanded by 21%+ and 9%+ respectively over the past three months. The spread between 3 month U.S. Treasury bills, now at a 1% low, and 30 year bonds has widened to about 300 basis points and should eventually provide an impetus for economic recovery.

At present, we continue to adjust our ABC Portfolios in an extremely difficult market. We are taking selective capital losses to reduce exposure to weaker holdings and also to be tax-effective for 2008. We are also patiently adding to several undervalued equities and are searching for new common stocks with our $135 million of cash reserves held amongst our five ABC funds.

Our ABC Funds' performance has been severely affected by the market's recent decline. In particular, our prices have been impacted by a decline in small capitalization valuations as well as weaker oil & gas and resource shares. We continue to favour many of our holdings such as Nexen, Talisman, Canam Group, Precision Drilling, Onex Corporation and Equitable Group despite a highly emotional investment environment which has challenged traditional investment analysis. Nonetheless we continue to abide by our value disciplines. While we are uncertain how long the present market instability will last, we remain patient and vigilant. At this point, we believe considerable negativity is priced in the marketplace and expect a bottoming process to occur within the next six months.

Irwin A. Michael, CFA