I am an optimist by nature. I believe that the glass is half full. But I am also a realist. I do see opportunity knocking and I do sense tremendous opportunity within the present business and investment uncertainty. I strongly believe, however, that investors must tread very cautiously during this difficult economic period.

Consider the present investment scene. There has been significant wealth destruction over the past 12 months. For instance, the price decline in high technology stocks such as Nortel, 724, 360 Networks, etc. has erased billions of dollars of personal and corporate wealth. This depreciation of wealth will undoubtedly have a negative multiplier effect on the economy, investments and on the spending habits of both business and consumers. This directly relates to the Pigou Effect as postulated by English economist A.C. Pigou that "you are as wealthy as you feel." In essence, if you feel less wealthy due to significant common share prices erosion, you will spend less on personal, discretionary consumption. With the substantial decline of stock prices over the past 12 months, I believe we have yet to experience the Pigou effects of declining personal and corporate consumption as well as increasing unemployment. This fact, unfortunately, tempers my innate bullishness.

Again, while I feel that we should be aggressively hunting for Canadian stock bargains, we must be sensitive to a recessionary environment and the timing of an economic recovery. This is, after all, a very tricky investment period. We must use common sense and persevere with intensive research. We must be very market attentive and be extremely opportunistic when a buying or selling opportunity presents itself. We expect that the stock market will remain very volatile for at least the next 3-6 months. Investors' patience, in consequence, will be severely tested; this will contribute to continued price volatility.

I do believe, however, that the risk-rewards will ultimately tilt substantially toward profitable opportunities. As a result, we expect to gradually commit our 20% cash reserves whenever the time appears propitious.