Initiative Update - Winter 2005

There's really no REAL trades going on during the break for the initiative. Most of it was trying to exit an illiquid position (MRCBF). The portfolio value as a whole is $100,723.55, a roughly 2% underperformance relative to the S&P 500. We have only $6,504 in cash, meaning we are roughly 94% invested. We are still actively looking for ideas to replace ones that will soon be taken out of the portfolio when 4th quarter earnings hit.

With that said, here is an overview of all the investments we are currently holding:

Yellow Roadway (YELL) - 16%
Avg Cost: 41.13 - Current Price: 44.61

Yellow Roadway is a very solid play on the transportation industry and the wellbeing of the economy as a whole. Although it is somewhat market correlated, we believe that it is still a good investment in light of the low valuation multiples it's currently trading at relative to most other businesses in the industry. 3rd quarter marked the highest earnings quarter the company has ever seen in its entire operating history. I expect to see the same trend in the 4th quarter.

SFBC International (SFCC) - 17%
Avg Cost: 17.92 - Current Price: 16.01

SFBC is an event driven investment that was attractive to us because of the ability for the company to generate earnings despite tremendous negative publicity that has hit it over the past couple of months. They lost 2 clients (which were no more than 2% of their revenue). This company was accused of violating human rights by treating human testers in drug trials with negligence, sometimes causing painful disabilities and death. Two independent law firms were set to review the company's activities, and both of them have exonerated the company and called the recent bad press "wholly unfounded". The employee that was said to have threatened illegal immigrants with deportation resigned, and we should see a good solid 4Q with SFBC coming up.

Terra Nitrogen (TNH) - 14%
Avg Cost: 24.52 - Current Price: 19.04

To be honest, this is a stock that is killing the portfolio. It is a Nitrogen/Ammonia producer that makes fertilizer products for the agriculture industry (Nitrogen/Ammonia is made out of natural gas as its base cost by the way). It has close ties with its parent company, Terra Industries, in the UK. There has been recent announcements that Terra Industries has closed many of Terra Nitrogen's peer companies in the Oklahoma area, and have started massive imports of Nitrogen products outside of UK due to the unproportionally high LNG prices there. We have reasons to believe that most of the imports will come from Terra Nitrogen. This company is a highly volatile investment with tremendous short-term downside risk, depending on where the natural gas prices go. In the long-term it is more solid due to fertilizer prices adjusting for any increases natural gas prices might have. Im not too comfortable holding this company into the 4Q... but I don't plan in exiting the position unless a better investment comes along to replace it. Even with all the downside risk, it is still a very attractive investment should our thesis play out that the results of 4Q will be favorable due to a significant decrease in Natural Gas prices over the last quarter from the Sept 30, 2005 levels.

Keystone North America (KYSNF) - 17%
Avg Cost: 6.67 - Current Price: 7.50

Keystone North America deals with death care services in North America. As far as I know, this is a stable company with predictable earnings because death is about the most solid kind of certainty one can get in life. It is still trading at a discount relative to many of its peers in its industry due to the fact that it is a rather illiquid stock, under the radar, and traded on the Toronto Stock Exchange. This is also a stock that pays out an estimated 3% ROI every quarter due to its income trust status. It is a solid play offering us a stable return. The only concerns we might have with this stock is its status as an income trust in Canada, and also the trend towards "cremation" instead of burial--where the company gets most of their revenues from.

Morguard Corporation (MRCBF) - 1.2%
Avg Cost: 26.01 - Current Price: 26.34

We are currently trying to exit this position for reasons mentioned in the sell e-mails.

Great Basin Gold (GBN) - 15%
Avg Cost: 1.48 - Current Price: 1.55

Great Basin Gold is a gold explorations/mining company with properties in Nevada and South Africa. This is a very attractive company due to the prospects it has in its Burnstone property located in South Africa, which is estimated to be able to produce a sizable amount of gold in the next couple of years once the explorations stage is complete. In fact, the company's prospects is so attractive, that it has attracted one of the most successful gold moguls in South Africa--Mr. Dippenar--to become president and CEO. We expect this to be the next Big Sky Energy as we wait and see what news the company will unfold.

Eternal Technologies (ETLT) - 14%
Avg Cost: 0.47 - Current Price: 0.40

This is another stock that is currently killing the portfolio second to TNH. The only thing we are waiting for on this company is 4Q release, and then we are going to exit the position no matter what the results are. We don't believe 4Q will have a negative impact on the stock price of the company, as it is expected to report record earnings for the company, surpassing 4Q of last year, and also last year as a whole when the entire fiscal year is taken into account. However, there is a very good possibility that the market has already taken that into account. We have enough downside protection, however, to warrant us taking this risk.

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Some current ideas that we have been looking at over the past few weeks are Innotrac (INOC) and Rent-A-Center (RCII). If anyone would like to help me with these stocks, please feel free to let me know. But again, I'm still looking for better ideas out there, and I can't quite get comfortable enough with those two. Overall, other than TNH which doesn't let me sleep at night, I have a very optimistic outlook for the initiative in the second semester, and hopefully, the markets will be more agreeable for us.

If you have any questions, please feel free to let me know.

Best regards,
Ming