October 9, 2002

Adherex Technologies Inc, (AHX on TSX), Ottawa, ON, tel: (613) 738-8000,

Price: Sept 9/02: C$0.41, 52-week range:C$0.63-0.28.  Last mention of the company in this newsletter was at 45 cents/sh on Sept 6/02.  Adherex announced it will, subject to shareholder approval, merge on an equal share-for-share basis with NYC-based Oxiquant Inc., a private US pharmaceutical company developing a number of anticancer compounds.  Coincidental with the merger, Adherex shareholders will receive, in the form of a dividend, an equal number of shares of a ne2 spin-off company, Cadherin Biomedical Research Inc., formed to hold all of Adherex’s non-cancer assets, including the company’s transdermal delivery technology.  Dr Mark Rogers, former professor at Johns Hopkins U, and c.e.o. of the Duke University Medical Center, will become chairman of the merged company.  Shareholders will be also asked to approve a 1 for 4 consolidation of stock.  If approved, there will then be 21 million shares outstanding, compared with AHX’s current 40.3 million shs out.  Together, the company will have 4 clinical stage drug candidates.  The most advanced is Oxiquant’s STS, which is in phase II clinical trials.  It is a sodium thiosulfate compound, a chemoprotectant targeted to prevent the disabling loss of hearing associated with certain drugs such as the widely used platinum-based anticancer agents.  Studies are presently being carried out at Oregon Health Sciences University.  The loss of hearing and the accompanying learning difficulties appear to affect children mainly and since there is no treatment currently available the drug has the potential to get to market as early as 2005/2006. Adherex has been collaborating with AstraZeneca (AZN: NYSE) on its N-cadherin technology targeted to destroy cancer blood vessels.  Rather than entering into a license agreement at this stage, the company will make use of Oxiquant’s strengths in cancer research to proceed with further development independently and return to AstraZeneca at a later date.  On its lead compound, Adherex plans to commence with a phase I trial with Exherin later this year.  AHX released its 2002 fiscal year results on Sept 27.  This showed a cash position of $8.8 million at June 30, down from $14.2 million a year ago.  Operating expenses were $6.1 million over the year and net loss was $5.6 million, or 14 cents/sh on the 40.3 million shs. out.

ARC Energy Trust (AET.UN on TSE) Calgary, AB, tel: (403) 292-0680. Price: Oct 9/02: $12.00, 52-week range: $13.44-10.35. First mentioned at $9 on Feb 4/00 and last reviewed at $12.16 on August 31/01.  Unitholders approved the trust’s buyout of the management company, thus internalizing the managers, for what appeared to be a hefty price, $55 million in a combination of cash and units.  Since the management entity collected fees on acquisitions and disposals, among other payments, there could be a saving, particularly if the royalty trust enters into some major deals.  In the meantime, the trust is on target to generate $1.80/unit in cash flow and it continues to pay out 13 cents/unit each month, implying a $1.56/unit distribution, producing a 12.6% yield on the current trading price.  ARC should report 3Q results around Nov 5/02 and it will be interesting to see if cash flow has increased with the stronger price for oil, in spite of the fact that the trust has hedged 55% of its oil and 47% of its gas volumes for the balance of the year.  So far this year, the trust has made $55 million in acquisitions, paying a reasonable price of $23,000/boed and $6.90/boe of established reserves.  Higher payouts, either on a regular basis or as an extra, are possible providing the potential for some additional capital gain to go along with the current 12.6% yield.

Advantage Energy Income Fund  (AVN.UN on TSE), Calgary, AB, tel: (403) 261-8810. Price: Oct 9/02: $12.79, 52-week range equivalent: $13.50-7.05.  Last mention of the income fund was at $8.56 on Jan 23/02.  Advantage has just announced the acquisition of Best Pacific Resources Ltd. for $52 million, which includes $21.7 million of debt.  Best currently produces 5.8 Mmcf/d of natural gas and 1,100 bblo/d of oil and NGL, combined production at 2,070 boe/d.  Acquired are established reserves of 6.5 mmboe (50% natural gas) with a reserve life index of 8.6 years along with 155,000 acres of undeveloped land rights.  The acquisition appears to be good value, Advantage paying the equivalent of $24,975/boe/d, $7.98/boe and 3.8 times cash flow generated.  At the same time, Advantage has floated a $55 million 10%, 5-year convertible debenture, convertible into units at $13.30/unit.  This will bring production to an average rate of 11.3 boe/d.  The fund has recently increased the monthly payout to 18 cents/unit.  If this payout is maintained, the $2.16/unit on an annual basis produces a yield of 16.9%.

Atlas Energy Ltd. (AED on CDNX), Calgary, AB, Tel: (403) 215-8313.  Price: Oct 9/02: $2.50, 52-week range: $2.65-1.25.  Last mentioned in this newsletter at $1.60 on Jan 23/02.  Atlas announced that it is acquiring privately held Castle River Resources Ltd. for 7.55 million shares and 3.775 million warrants (exercisable at $1.65/sh).  At the then trading price of Atlas, the acquisition cost equates $11.2 million, which appears to be an excessive amount for a company that brings only $3 million cash, modest production of 100 boe/d and 4,000 net acres.  It does bring combined managers that have worked well together in the past and who had flipped their O&G holdings profitably to senior producers.  Investors liked the combination, as evidenced by AED stock moving up $1 a share.  This newsletter views the profit the vendors are already making along with the substantial dilution that will eventually take place (35.7 million fully diluted shares vs. 21.85 million shs currently outstanding at Atlas) and concludes: good luck!!

Baytex Energy Ltd. (BTE on TSE) Calgary, AB, tel: (403), Price: Oct 9/02: $7.10, 52-week range: $8.45-3.00.  Last mention of the company in this newsletter was at $6.55 on April 13/02, first mention was at $12 on May 12/01.  The company is benefiting from increased production of heavy oil combined with better prices.  Production of 39,625 boe/d in 2Q was 4% higher than in1Q and prices for heavy oil averaged $26.62/bbl, up from $21.58 in the 1st Q.  Since July, Baytex has been realizing over $30/bbl for its heavy oil.  Cash flow in the current 3Q will surely exceed that of 95 cents/sh obtained in the 2nd quarter.  These stronger financial flow-throughs combined with reduced capital outlays is allowing the company to reduce outstanding debt ($359 million at June 30) and is currently running better than the 1.8 times annualized cash flow exhibited in 2Q.  Baytex should be reporting 3Q results in mid-November.  The company is giving some thought to converting to an income royalty trust.  While payouts would be volatile, they might also be substantial at times, in which case the royalty trust units could, on occasion, trade at considerably higher prices than the currently trade at as common stock.

Christopher & Banks Corporation (CBK on NYSE), Plymouth, MN, Tel: (763) 551-5000. Price: Oct 9/02: $22.42, 52-week range: $44.80-20.60.   Last mention of the company in this newsletter was at $34.20 on July 26/02 and first mention was at $7.29 on April 8/00, adjusted for splits.  CBK shares have been hit hard in the last month, reacting unfavorably to the announcement that September same store sales did not increase year over year.  Sales for the 4-week period ended September 28/02 increased 20% to $25 million from $21 million on the strength of new stores in operation.  In the first 7 months of the fiscal year sales increased 30% to $176 million, with same-store sales rising 7%.  As of Sep 28, the company operated 414 stores compared with 343 a year ago.  The company expects to have 440 stores operating by fiscal year ending Feb 28/03.  100 stores are expected to open next year followed by a further 105 to 110 in 2004.  Christopher & Banks stores are planned in North Carolina, Colorado and Massachusetts next year followed by store openings in Tennessee, South Carolina and Georgia the following year.  C.J.Banks stores offering full-size sportswear will open in the vicinities of the C&B stores, filling in the regional pockets.  The company has a base in place permitting the operation of 555 C&B stores and 400 C.J.Banks stores.  Generally, the company offers casual sportswear to the active woman in the 35-55 year age bracket, sold during 6 mini seasons under their own design label in stores measuring, on average, 2,000 sq.ft. that generates about $700,000 in sales a year. 90% of product comes from Pacific-rim countries, 60% of which is from China.   A prolonged work stoppage along the West Coast ports would have hurt the company.  With the back-to-work process on October 9, the company has, most likely, been spared real pain although October same store sales may very well be flat again.  2Q ended Aug 28/02 saw sales increase 28% to $74 million and net income increase 30% to $7 million, or 26 cnts/sh.  For the six months, sales increased 31% to $152 million and net income 41% to $17 million, or 63 cents/sh.  The recent drop in the stock price provides entry opportunity to the investor looking for participation into a well-managed company.

Columbia Sportswear Company (COLM on NASDAQ), Portland, Ore., tel: (503) 985-4128. Price: Oct 9/92: $31.31, 52-week range: $40.00-23.18. This is the first mention of the company in this newsletter.  The company is a leader in the design, sourcing, marketing and distribution of active outdoor apparel and footwear.  It distributes to approximately 10,000 retailers in 40 countries.  Its product line makes use of 4 words: Outdoor, Active, Authentic, American and Value.  Columbia went public in 1998 and in the last 5 years net sales have increased from $300 million to $800 million, while at the same time operating margins have increased from 12% to 19%.  Management feels that the company’s strength lays in the fact it that it has an outdoor branded product that is also diversified.  Footwear has taken on importance, particularly since the acquisition of Canada-based Sorel, and now accounts for about $110 million in sales revenue.  The company feels that their most promising area of growth will be in Europe and, also, increased licensing agreements will contribute to profits.  About 40% of sales take place in the 3Q ending Sept 30 and 27% in 4Q.  Likewise, about 55% of net income is realized in 3Q and 25% in the 4Q ending Dec 31.  Columbia has a strong balance sheet with dept being 6.5% of equity.  A key date will be Oct 24 when the company will not only announce 3Q results but also the amount of backlog orders.  With respect to the downtime at West Coast docks, Columbia was in good shape having already received, and in placed in distribution center, 90% of goods for the Fall season.  Management is hopeful of continuing to grow earnings at a rate in the high teens.  Consensus earnings on the street appear to be $2.40/sh for this year and $2.65 for 2003, based on 40 million shares out.  A 17 multiple to next year’s earnings implies a share price of $45. 

GTC Transcontintal Group Ltd. (GRT.A on TSX), Montreal, QC, tel: (514) 954-4000. Price: Oct 9/02: $36.24, 52-week range: $43.00- 19.00.  Last and first mention of the company in this newsletter was at $41.69 on Sept 6/02.  As expected, the company reported strong quarterly earnings on September 12/02.  For the 3-month period ended July 31, net income increased 29% to $24.7 million, or 58 cents/sh on revenues of $409 million, virtually unchanged over last year.  Weaker commercial printing activity contributed to lower total sales revenue.  Management has reiterated its guideline for earnings of $2.95/sh this year.  Street estimates for next year and for 2004 appear to be $3.30/sh and $3.60/sh.  A 14 multiple to 2003 earnings implies a stock price of $46.

Hovnanian Enterprises, Inc. (HOV on NYSE), Red Bank, NJ, tel: (732) 747-7800, Price: Oct 9/02: $30.39, 52-week range: $40.56-10.00.  Last and first mention of the company in this newsletter was at $21.20 on Feb 22/02.  The company continues to grow at even a faster clip than that mentioned in this newsletter last February.  3Q revenues for the period ended July 31 increased 38% to $704.6 million.  The company delivered 2,647 homes, a record for any quarterly period.   Pre-tax margins increased to 8.8% from 6.9%.  Net income increased 69% to $39.2 million, or $1.20/sh, in spite of a non-cash charge of $7.6 million, or 23 cents/sh related to an abandonment of a software program.  The company’s CEO and CFO have both validated to the SEC the financial statements. The growth continues since then.  Hovnanian announced an 89% increase in new home orders in August and a 94% increase in September.  The company is now active building homes in190 communities, up from 179 a year ago.  After the 3Q results, management was once more increasing earnings estimates for this year and next to the range of $4.00/sh to $4.10/sh and $4.50/sh to $4.75/sh, respectively.  Since that time, they may very well have to increase it again taking into consideration August and September new orders.  A 10 times multiple to this year’s earnings implies a stock price of $40, higher than the $36 mentioned in February.

The J. Jill Group (JILL on NASDAQ), Quincy, MA, tel: (617) 376-4300. Price: Oct 9/02: $17.69, 52-week range: $27.50-8.83.  Last and first mention of the company in this newsletter was at $24.39 on Sept 6/02.  The stock has come down 27% in one month on investor fears that consumers have vacated shopping malls and that the company will be badly affected by the West Coast dockworkers lockout.  Some interesting facts came out at the corporate presentation made at RBC Capital Markets Consumer Conference held in Orlando, Florida on October 2.  The company is on target to end the year with 87 stores at which time retail stores will account for 42% of sales compared with the current 35% portion.  The stores, considered as “Lifestyle Centers” average 4500 sq.ft. and each generates about $2 million of sales.  The goal is to aim for 300 to 500 stores and the distribution center in Tilton, New Hampshire has taken on added space in order to accommodate this growth.  J.Jill has introduced a credit card and already this accounts for 38% of the business being done at retail.  The company does cross marketing in opening up new stores by making use of its 1 million catalogue subscribers as well as drawing from shoppers currently ordering through the website.  Management re-iterated their aim to end the year with sales of $342million to $349 million, an operating margin of 10.1%, producing earnings of $1.04/sh to $1.07/sh for 2002.  The recent drop in the stock price presents investors with a good entry opportunity into a growth situation.

Mothers Work, Inc. (MWRK on NASDAQ), Philadelphia, PA, tel: (215) 873-2200, Price: Oct 9/02: $30.62, 52-week range: $40.25-6.90.  This is the first mention of the company in this newsletter.  The company is the largest designer and retailer of maternity apparel, operating 763 stores and 146 leased departments primarily under the trade names Motherhood Maternity, A pea in the Pod and Mimi Maternity.  It also sells through its website at maternity.com.  Sales in September increased 16.5% to $38.5 million, while comparable store sales increased 2.6% in a difficult retail environment.  This brought 4Q ended Sept 30 sales to $111 million, a 20% increase during which comps increased 6%.  For the year, it appears that sales were $455 million, but net income will be impacted by about $3million because of early redemption of notes and preferred shares.  This would bring net income for the year to $11.7 million, or $1.85/sh based on 6.3 million shares. The company plans to double capital expenditures in 2003 to $20 to $25 million over that of this year, and that should be financed primarily by cash flow.  The corporate plan over the next 3 years is to increase sales by about 10% a year and net by 20%/yr.  If the company succeeds, net income next year could attain $14.7 million, or $2.30/sh, on sales of $490 million.  A 15 multiple implies a $34 share price, a 20 multiple a $46 price.  With only 6.3 million shares outstanding there is good leverage available.  The company took no chances with the possible downtime in receiving goods at West Coast docks and since June has routed all ocean shipments through East Coast ports.

NAL Oil & Gas Trust (NAE.UN on TSE) Calgary, AB, tel: (403) 294-3600. Price: Oct 9/02: $10.01, 52-week range: $10.55-8.11.  Last mentioned in this newsletter at $9.29 on Aug 30/01.  The trust acquired, for $62.5 million, a 50% interest in producing oil & gas properties adjacent to their own in central Alberta.  This will add 1,900 boe/d production to the trust’s existing production level of 8,400 and is expected to be accretive to both cash flow and net asset value/unit.  At first glance, the price appears to be high based on $10.96/boe for the 5.7 million boe and $32,894/boe/d for the average production rate.  However, operating costs are low and there may be synergy available in tying in the production with the existing infrastructure.  As a result of the additional revenue, the royalty trust increased its monthly payout to 13 cents/unit from 12 cents.  At the current trading price, the units are yielding 15.6% and offer modest potential for capital growth.

Orleans Homebuilders, Inc. (OHB on Amex), Bensalem, PA, tel: (215) 245-7500, price: Oct 9/02: $6.50, 52-week range: $10-2.45.  Last and first mention of the company in this newsletter was at $7.65 on Feb 22/02.  The company beat all forecasts for 2002 fiscal year that ended June 30/02.  It delivered 1,332 homes Generating revenues of $355 million, an increase of 23% over revenues of $287 million a year ago when 1,085 homes were delivered.  This produced net income of $17.7 million, or $1.09 per fully diluted share.    Average prices per order are increasing ($279,000 in 2002 vs.$265,000 in 2001) partly because of a shortage of approved building lots.  Orleans is well placed in this area controlling 8,300 building lots.  This combined with the backlog of 647 homes ($206 million), management is anticipating another good year for fiscal 2003 with earnings of $1.45/sh on a diluted basis.  Capitalized at 7 times earnings indicates a possible share price of $10.

PrimeWest Energy Trust (PWI.UN on TSX) Calgary, AB, tel: (403) 234-6600. Price: Oct 9/02: $25.95, 52-week range: $30.28-23.28.  Last mention of the trust in this newsletter was at $30.76 on Aug 30/01 and first mention was at $39.64 on May 12/01, all prices adjusted for the 1 for 4 reverse split effected on August 16/02.  There are now 32.4 million units outstanding in this gas royalty trust, Canada’s fourth largest.  Unitholders are being asked on Nov. 4/02 to approve the internalization of the management structure.  Total consideration amounts to payment of $26 million to the managers in a combination of cash and the issuance of units.  The trust assumes that operating costs will be reduced by such a move.  The trust has been one of the worst performers among the oil and gas royalty trusts.  The purpose of the reverse split is to help qualify the units to list on the NYSE, such listing expected for Nov 12/02.  In the meantime the trust anticipates payouts to continue at 40 cents/unit per month for November, December and January, the equivalent of 10 cents/unit on the old basis.  During 2001, the trust paid out $2.41/unit on the old basis, the equivalent of twice the current payout.  At the present rate, the units trade at a yield of 18.5%.

Progress Energy Ltd. (PGX on CDNX), Calgary, AB, Tel: (403) 216-2510, Price: Oct 9/02: $5.45, 52-week range: $6.50-2.30.  Last mention of the company in this newsletter was at $5.40 on Feb 22/02 and first mention was at $3.55 on November 23/01.  The company has just completed the acquisition of producing oil and natural gas properties in the Fort St. John area of northeastern British Columbia.  Involved is proven reserves of 3 million barrels of oil equivalent consisting of 13.5 billion cubic feet of natural gas and 741,000 barrels of crude oil and gas liquids.  Current production averages 1,000 boe/d, 67% of which is natural gas.  Along with the reserves comes a 50% interest in 61,000 acres of undeveloped land on which it will be obliged to spend $10 million of expenditures over the next 18 months.  Purchase price of $25.4 million implies a cost of $25,475/boe/d and $8.49 per proven boe of reserves, both reasonable prices.  Management is most familiar with the area since it was part of Encal’s operation that was sold to Calpine.  Senior managers at Progress were formerly with Encal.  In order to finance the acquisition, Progress floated a $25 million private placement issue consisting of 4,464,300 shares sold at $5.60/sh.  The company will now have 34.2 million shares outstanding on a fully diluted basis.  The acquired production should allow the company to exit the year at a production rate averaging 7,000 boe/d.  This paves the way to way to additional production next year and possible cash flow/sh of $1.40 compared with 85 cents/sh in 2002.  A 5 times multiple indicates a potential stock trading price of $7 over the next 12 months.

Reitmans (Canada) Limited  (RET.A on TSX), Montreal, QC, Tel: (514) 384-1140, Price: Oct 9/02: $23.10, 52-week range: $25.00-9.25.  Last mention of the company in this newsletter was at $20.76 on July 4/02 with the first mention being at $12.87 on Jan 23/02 (all prices reflecting the 100% stock dividend on Sept 24/02).  The company continues to produce strong results.  In the 2Q ended Aug 3/02, sales increased 41% to $202 million, comparable stores increasing 9.1%, and net income up 71% to $13.6 million, or 79 cents/sh.  Results for this period include operations of Shirmax Fashions Ltd. for 9 weeks following its acquisition effective June 5/02.  Same store sales in August decreased 1.4%.  Even assuming September comparable stores mirror the August performance, the company appears to be on track to generate earnings of $2.40/sh for the year ending January 31/03.  That being the case, even a moderate 12 times multiple to these earnings point to a stock price of $29.  The new Montreal distribution center capable of servicing 1000 stores should be fully operational by fiscal year end.  This paves the way for improved margins next year as well as continued expansion or possibly another acquisition.  The company currently operates 804 stores, almost all in Canada.

Royal Group Technologies Ltd. (RYG on TSE), Woodbridge, ON Tel: (905) 264-0701 Price: Oct 9/02: $13.16, 52-week range: $32.40-13.02.  Last mention of the company in this newsletter was at $30 on Feb 22/02 when it was suggested that at that level the shares were fully priced.  First mention was at $18 on Oct 15/95.  Management has reduced the company’s earnings estimate again and is now calling for earnings of $1.55 to $1.60 a share for 2002 and for $1.90 to $2.10 for 2003.  The problems are taking place in the window coverings operations.  Unfortunately, management that was, in the past, highly regarded is now being viewed by members of the investment community as lacking in credibility.  It  appears that it will now take some time for the company to get back into a growth mode and recapture investor interest.  Some analysts have lowered their forecasted earnings to $1.55 for both years.  If this turns out to be the case, the shares currently trading at 8.5 times this level are possibly adequately priced.

TransForce Income Fund  (TIF.UN on TSX), Montreal, QC, tel: (514) 856-7531, Price: Oct 9/02: $7.65, 52-week range: $9.00-1.80.  This is the first mention of the trust in this newsletter.  On September 30, 2002 TransForce Inc. was converted from a corporation to an income fund trust.  Coincidental to this, the fund raised $102 million through a public offering of 12 million units at $8.50/unit.  Following the issue, there will be 63.9 million units outstanding.  The largest shareholders are the Saputo family interests with 36% ownership, funds managed by Fidelity Management with 14.5% and a Quebec labour fund with 8%. TransForce is a leading player in the Canadian transportation industry with approximately 22,000 customers and close to 5,000 employees.  With the recent acquisition of Canspar Transport annual revenues are now running at approximately $587 million.  Business is split up into the following segments: Less than truckload and parcel delivery 63%, Truckload 16%, Specialized truckload 15% and Logisticcs & Warehousing 6%.  Geographically, business splits up into Canadian domestic market 68% and Canada-US Transborder 32%.  It owns or leases 1900 trucks and 4100 trailers and has access to an additional 480 trucks under contract with owner-operators. In addition, Canspar owns or leases 1200 vehicles, including 820 curbsides and 280 semi-trailers.  TransForce’s network consists of 124 terminals and Canspar has 7 major hub facilities and 53 terminals.  In addition to Canspar, some of the company’s other familiar names seen on the road are Kingsway Transport, TST, TFI, TNT and Overland Express.  For the 52-weeks ended July 20, 2002, pro forma EBITDA was $88.8 million and distributable cash flow, after a reserve of $10 million for capital expenditures, were $72,8 million, or the equivalent of $1.14/unit.  If this turns out to be the payout, the units at its current trading price would yield 14.9%.  The trust intends to pay distributions on a monthly basis.

Ultima Energy Trust  (UET.UN on TSE), Calgary, AB, tel: (403) 264-5709. Price: Oct 9/02: $5.65, 52-week range: $6.06-3.65.  Last and first mention of the trust in this newsletter was at $5.40 on May 31/02.  The trust has recently acquired some additional light oil producing property and associated facilities in central Alberta for $11.8 million.  The property contains 1.4 million boe of established reserves that currently produce approximately an average of 500 boe/d.  The cost of acquisition appears reasonable at the equivalent of $8.43 per boe and $23,600 boe/d, considering they are calculated as having a reserve life index of 8 years.  This brings the fund’s production to 3,800 boe/d.  The fund pays out between 80 and 90% of cash flow to unitholders.  At the current rate of 8 cents monthly, the units currently yield 17%.

Washington Federal Inc.  (WFSL on NASDAQ), Seattle, WA, Tel: (206) 777-8246, Price: Oct 9/02: $20.71, 52-week range: $27.56-19.91.  Last and first mention of the bank in this newsletter was at $25.26 on Feb 22/02.  The bank continues to do well and is on track to earn $144 million, or $2.25/sh, for fiscal 2002, year ending Sept 30.  This would represent an increase of 27% over last year’s $1.77.  Return on assets is 2.04% and return on equity is 15.3%.  The bank increased its quarterly dividend in June to 23 cents and its October dividend will be its 79th consecutive quarterly dividend.  The stock has backed off somewhat from the time of this newsletter’s update in February so that at its current level it is trading at only 9.2 times this year’s anticipated earnings and yields 4.4% on the cash dividend.  This appears to represent good value.

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October 9, 2002

Adherex Technologies Inc, (AHX on TSX), Ottawa, ON, tel: (613) 738-8000,

Price: Sept 9/02: C$0.41, 52-week range:C$0.63-0.28.  Last mention of the company in this newsletter was at 45 cents/sh on Sept 6/02.  Adherex announced it will, subject to shareholder approval, merge on an equal share-for-share basis with NYC-based Oxiquant Inc., a private US pharmaceutical company developing a number of anticancer compounds.  Coincidental with the merger, Adherex shareholders will receive, in the form of a dividend, an equal number of shares of a ne2 spin-off company, Cadherin Biomedical Research Inc., formed to hold all of Adherex’s non-cancer assets, including the company’s transdermal delivery technology.  Dr Mark Rogers, former professor at Johns Hopkins U, and c.e.o. of the Duke University Medical Center, will become chairman of the merged company.  Shareholders will be also asked to approve a 1 for 4 consolidation of stock.  If approved, there will then be 21 million shares outstanding, compared with AHX’s current 40.3 million shs out.  Together, the company will have 4 clinical stage drug candidates.  The most advanced is Oxiquant’s STS, which is in phase II clinical trials.  It is a sodium thiosulfate compound, a chemoprotectant targeted to prevent the disabling loss of hearing associated with certain drugs such as the widely used platinum-based anticancer agents.  Studies are presently being carried out at Oregon Health Sciences University.  The loss of hearing and the accompanying learning difficulties appear to affect children mainly and since there is no treatment currently available the drug has the potential to get to market as early as 2005/2006. Adherex has been collaborating with AstraZeneca (AZN: NYSE) on its N-cadherin technology targeted to destroy cancer blood vessels.  Rather than entering into a license agreement at this stage, the company will make use of Oxiquant’s strengths in cancer research to proceed with further development independently and return to AstraZeneca at a later date.  On its lead compound, Adherex plans to commence with a phase I trial with Exherin later this year.  AHX released its 2002 fiscal year results on Sept 27.  This showed a cash position of $8.8 million at June 30, down from $14.2 million a year ago.  Operating expenses were $6.1 million over the year and net loss was $5.6 million, or 14 cents/sh on the 40.3 million shs. out.

ARC Energy Trust (AET.UN on TSE) Calgary, AB, tel: (403) 292-0680. Price: Oct 9/02: $12.00, 52-week range: $13.44-10.35. First mentioned at $9 on Feb 4/00 and last reviewed at $12.16 on August 31/01.  Unitholders approved the trust’s buyout of the management company, thus internalizing the managers, for what appeared to be a hefty price, $55 million in a combination of cash and units.  Since the management entity collected fees on acquisitions and disposals, among other payments, there could be a saving, particularly if the royalty trust enters into some major deals.  In the meantime, the trust is on target to generate $1.80/unit in cash flow and it continues to pay out 13 cents/unit each month, implying a $1.56/unit distribution, producing a 12.6% yield on the current trading price.  ARC should report 3Q results around Nov 5/02 and it will be interesting to see if cash flow has increased with the stronger price for oil, in spite of the fact that the trust has hedged 55% of its oil and 47% of its gas volumes for the balance of the year.  So far this year, the trust has made $55 million in acquisitions, paying a reasonable price of $23,000/boed and $6.90/boe of established reserves.  Higher payouts, either on a regular basis or as an extra, are possible providing the potential for some additional capital gain to go along with the current 12.6% yield.

Advantage Energy Income Fund  (AVN.UN on TSE), Calgary, AB, tel: (403) 261-8810. Price: Oct 9/02: $12.79, 52-week range equivalent: $13.50-7.05.  Last mention of the income fund was at $8.56 on Jan 23/02.  Advantage has just announced the acquisition of Best Pacific Resources Ltd. for $52 million, which includes $21.7 million of debt.  Best currently produces 5.8 Mmcf/d of natural gas and 1,100 bblo/d of oil and NGL, combined production at 2,070 boe/d.  Acquired are established reserves of 6.5 mmboe (50% natural gas) with a reserve life index of 8.6 years along with 155,000 acres of undeveloped land rights.  The acquisition appears to be good value, Advantage paying the equivalent of $24,975/boe/d, $7.98/boe and 3.8 times cash flow generated.  At the same time, Advantage has floated a $55 million 10%, 5-year convertible debenture, convertible into units at $13.30/unit.  This will bring production to an average rate of 11.3 boe/d.  The fund has recently increased the monthly payout to 18 cents/unit.  If this payout is maintained, the $2.16/unit on an annual basis produces a yield of 16.9%.

Atlas Energy Ltd. (AED on CDNX), Calgary, AB, Tel: (403) 215-8313.  Price: Oct 9/02: $2.50, 52-week range: $2.65-1.25.  Last mentioned in this newsletter at $1.60 on Jan 23/02.  Atlas announced that it is acquiring privately held Castle River Resources Ltd. for 7.55 million shares and 3.775 million warrants (exercisable at $1.65/sh).  At the then trading price of Atlas, the acquisition cost equates $11.2 million, which appears to be an excessive amount for a company that brings only $3 million cash, modest production of 100 boe/d and 4,000 net acres.  It does bring combined managers that have worked well together in the past and who had flipped their O&G holdings profitably to senior producers.  Investors liked the combination, as evidenced by AED stock moving up $1 a share.  This newsletter views the profit the vendors are already making along with the substantial dilution that will eventually take place (35.7 million fully diluted shares vs. 21.85 million shs currently outstanding at Atlas) and concludes: good luck!!

Baytex Energy Ltd. (BTE on TSE) Calgary, AB, tel: (403), Price: Oct 9/02: $7.10, 52-week range: $8.45-3.00.  Last mention of the company in this newsletter was at $6.55 on April 13/02, first mention was at $12 on May 12/01.  The company is benefiting from increased production of heavy oil combined with better prices.  Production of 39,625 boe/d in 2Q was 4% higher than in1Q and prices for heavy oil averaged $26.62/bbl, up from $21.58 in the 1st Q.  Since July, Baytex has been realizing over $30/bbl for its heavy oil.  Cash flow in the current 3Q will surely exceed that of 95 cents/sh obtained in the 2nd quarter.  These stronger financial flow-throughs combined with reduced capital outlays is allowing the company to reduce outstanding debt ($359 million at June 30) and is currently running better than the 1.8 times annualized cash flow exhibited in 2Q.  Baytex should be reporting 3Q results in mid-November.  The company is giving some thought to converting to an income royalty trust.  While payouts would be volatile, they might also be substantial at times, in which case the royalty trust units could, on occasion, trade at considerably higher prices than the currently trade at as common stock.

Christopher & Banks Corporation (CBK on NYSE), Plymouth, MN, Tel: (763) 551-5000. Price: Oct 9/02: $22.42, 52-week range: $44.80-20.60.   Last mention of the company in this newsletter was at $34.20 on July 26/02 and first mention was at $7.29 on April 8/00, adjusted for splits.  CBK shares have been hit hard in the last month, reacting unfavorably to the announcement that September same store sales did not increase year over year.  Sales for the 4-week period ended September 28/02 increased 20% to $25 million from $21 million on the strength of new stores in operation.  In the first 7 months of the fiscal year sales increased 30% to $176 million, with same-store sales rising 7%.  As of Sep 28, the company operated 414 stores compared with 343 a year ago.  The company expects to have 440 stores operating by fiscal year ending Feb 28/03.  100 stores are expected to open next year followed by a further 105 to 110 in 2004.  Christopher & Banks stores are planned in North Carolina, Colorado and Massachusetts next year followed by store openings in Tennessee, South Carolina and Georgia the following year.  C.J.Banks stores offering full-size sportswear will open in the vicinities of the C&B stores, filling in the regional pockets.  The company has a base in place permitting the operation of 555 C&B stores and 400 C.J.Banks stores.  Generally, the company offers casual sportswear to the active woman in the 35-55 year age bracket, sold during 6 mini seasons under their own design label in stores measuring, on average, 2,000 sq.ft. that generates about $700,000 in sales a year. 90% of product comes from Pacific-rim countries, 60% of which is from China.   A prolonged work stoppage along the West Coast ports would have hurt the company.  With the back-to-work process on October 9, the company has, most likely, been spared real pain although October same store sales may very well be flat again.  2Q ended Aug 28/02 saw sales increase 28% to $74 million and net income increase 30% to $7 million, or 26 cnts/sh.  For the six months, sales increased 31% to $152 million and net income 41% to $17 million, or 63 cents/sh.  The recent drop in the stock price provides entry opportunity to the investor looking for participation into a well-managed company.

Columbia Sportswear Company (COLM on NASDAQ), Portland, Ore., tel: (503) 985-4128. Price: Oct 9/92: $31.31, 52-week range: $40.00-23.18. This is the first mention of the company in this newsletter.  The company is a leader in the design, sourcing, marketing and distribution of active outdoor apparel and footwear.  It distributes to approximately 10,000 retailers in 40 countries.  Its product line makes use of 4 words: Outdoor, Active, Authentic, American and Value.  Columbia went public in 1998 and in the last 5 years net sales have increased from $300 million to $800 million, while at the same time operating margins have increased from 12% to 19%.  Management feels that the company’s strength lays in the fact it that it has an outdoor branded product that is also diversified.  Footwear has taken on importance, particularly since the acquisition of Canada-based Sorel, and now accounts for about $110 million in sales revenue.  The company feels that their most promising area of growth will be in Europe and, also, increased licensing agreements will contribute to profits.  About 40% of sales take place in the 3Q ending Sept 30 and 27% in 4Q.  Likewise, about 55% of net income is realized in 3Q and 25% in the 4Q ending Dec 31.  Columbia has a strong balance sheet with dept being 6.5% of equity.  A key date will be Oct 24 when the company will not only announce 3Q results but also the amount of backlog orders.  With respect to the downtime at West Coast docks, Columbia was in good shape having already received, and in placed in distribution center, 90% of goods for the Fall season.  Management is hopeful of continuing to grow earnings at a rate in the high teens.  Consensus earnings on the street appear to be $2.40/sh for this year and $2.65 for 2003, based on 40 million shares out.  A 17 multiple to next year’s earnings implies a share price of $45. 

GTC Transcontintal Group Ltd. (GRT.A on TSX), Montreal, QC, tel: (514) 954-4000. Price: Oct 9/02: $36.24, 52-week range: $43.00- 19.00.  Last and first mention of the company in this newsletter was at $41.69 on Sept 6/02.  As expected, the company reported strong quarterly earnings on September 12/02.  For the 3-month period ended July 31, net income increased 29% to $24.7 million, or 58 cents/sh on revenues of $409 million, virtually unchanged over last year.  Weaker commercial printing activity contributed to lower total sales revenue.  Management has reiterated its guideline for earnings of $2.95/sh this year.  Street estimates for next year and for 2004 appear to be $3.30/sh and $3.60/sh.  A 14 multiple to 2003 earnings implies a stock price of $46.

Hovnanian Enterprises, Inc. (HOV on NYSE), Red Bank, NJ, tel: (732) 747-7800, Price: Oct 9/02: $30.39, 52-week range: $40.56-10.00.  Last and first mention of the company in this newsletter was at $21.20 on Feb 22/02.  The company continues to grow at even a faster clip than that mentioned in this newsletter last February.  3Q revenues for the period ended July 31 increased 38% to $704.6 million.  The company delivered 2,647 homes, a record for any quarterly period.   Pre-tax margins increased to 8.8% from 6.9%.  Net income increased 69% to $39.2 million, or $1.20/sh, in spite of a non-cash charge of $7.6 million, or 23 cents/sh related to an abandonment of a software program.  The company’s CEO and CFO have both validated to the SEC the financial statements. The growth continues since then.  Hovnanian announced an 89% increase in new home orders in August and a 94% increase in September.  The company is now active building homes in190 communities, up from 179 a year ago.  After the 3Q results, management was once more increasing earnings estimates for this year and next to the range of $4.00/sh to $4.10/sh and $4.50/sh to $4.75/sh, respectively.  Since that time, they may very well have to increase it again taking into consideration August and September new orders.  A 10 times multiple to this year’s earnings implies a stock price of $40, higher than the $36 mentioned in February.

The J. Jill Group (JILL on NASDAQ), Quincy, MA, tel: (617) 376-4300. Price: Oct 9/02: $17.69, 52-week range: $27.50-8.83.  Last and first mention of the company in this newsletter was at $24.39 on Sept 6/02.  The stock has come down 27% in one month on investor fears that consumers have vacated shopping malls and that the company will be badly affected by the West Coast dockworkers lockout.  Some interesting facts came out at the corporate presentation made at RBC Capital Markets Consumer Conference held in Orlando, Florida on October 2.  The company is on target to end the year with 87 stores at which time retail stores will account for 42% of sales compared with the current 35% portion.  The stores, considered as “Lifestyle Centers” average 4500 sq.ft. and each generates about $2 million of sales.  The goal is to aim for 300 to 500 stores and the distribution center in Tilton, New Hampshire has taken on added space in order to accommodate this growth.  J.Jill has introduced a credit card and already this accounts for 38% of the business being done at retail.  The company does cross marketing in opening up new stores by making use of its 1 million catalogue subscribers as well as drawing from shoppers currently ordering through the website.  Management re-iterated their aim to end the year with sales of $342million to $349 million, an operating margin of 10.1%, producing earnings of $1.04/sh to $1.07/sh for 2002.  The recent drop in the stock price presents investors with a good entry opportunity into a growth situation.

Mothers Work, Inc. (MWRK on NASDAQ), Philadelphia, PA, tel: (215) 873-2200, Price: Oct 9/02: $30.62, 52-week range: $40.25-6.90.  This is the first mention of the company in this newsletter.  The company is the largest designer and retailer of maternity apparel, operating 763 stores and 146 leased departments primarily under the trade names Motherhood Maternity, A pea in the Pod and Mimi Maternity.  It also sells through its website at maternity.com.  Sales in September increased 16.5% to $38.5 million, while comparable store sales increased 2.6% in a difficult retail environment.  This brought 4Q ended Sept 30 sales to $111 million, a 20% increase during which comps increased 6%.  For the year, it appears that sales were $455 million, but net income will be impacted by about $3million because of early redemption of notes and preferred shares.  This would bring net income for the year to $11.7 million, or $1.85/sh based on 6.3 million shares. The company plans to double capital expenditures in 2003 to $20 to $25 million over that of this year, and that should be financed primarily by cash flow.  The corporate plan over the next 3 years is to increase sales by about 10% a year and net by 20%/yr.  If the company succeeds, net income next year could attain $14.7 million, or $2.30/sh, on sales of $490 million.  A 15 multiple implies a $34 share price, a 20 multiple a $46 price.  With only 6.3 million shares outstanding there is good leverage available.  The company took no chances with the possible downtime in receiving goods at West Coast docks and since June has routed all ocean shipments through East Coast ports.

NAL Oil & Gas Trust (NAE.UN on TSE) Calgary, AB, tel: (403) 294-3600. Price: Oct 9/02: $10.01, 52-week range: $10.55-8.11.  Last mentioned in this newsletter at $9.29 on Aug 30/01.  The trust acquired, for $62.5 million, a 50% interest in producing oil & gas properties adjacent to their own in central Alberta.  This will add 1,900 boe/d production to the trust’s existing production level of 8,400 and is expected to be accretive to both cash flow and net asset value/unit.  At first glance, the price appears to be high based on $10.96/boe for the 5.7 million boe and $32,894/boe/d for the average production rate.  However, operating costs are low and there may be synergy available in tying in the production with the existing infrastructure.  As a result of the additional revenue, the royalty trust increased its monthly payout to 13 cents/unit from 12 cents.  At the current trading price, the units are yielding 15.6% and offer modest potential for capital growth.

Orleans Homebuilders, Inc. (OHB on Amex), Bensalem, PA, tel: (215) 245-7500, price: Oct 9/02: $6.50, 52-week range: $10-2.45.  Last and first mention of the company in this newsletter was at $7.65 on Feb 22/02.  The company beat all forecasts for 2002 fiscal year that ended June 30/02.  It delivered 1,332 homes Generating revenues of $355 million, an increase of 23% over revenues of $287 million a year ago when 1,085 homes were delivered.  This produced net income of $17.7 million, or $1.09 per fully diluted share.    Average prices per order are increasing ($279,000 in 2002 vs.$265,000 in 2001) partly because of a shortage of approved building lots.  Orleans is well placed in this area controlling 8,300 building lots.  This combined with the backlog of 647 homes ($206 million), management is anticipating another good year for fiscal 2003 with earnings of $1.45/sh on a diluted basis.  Capitalized at 7 times earnings indicates a possible share price of $10.

PrimeWest Energy Trust (PWI.UN on TSX) Calgary, AB, tel: (403) 234-6600. Price: Oct 9/02: $25.95, 52-week range: $30.28-23.28.  Last mention of the trust in this newsletter was at $30.76 on Aug 30/01 and first mention was at $39.64 on May 12/01, all prices adjusted for the 1 for 4 reverse split effected on August 16/02.  There are now 32.4 million units outstanding in this gas royalty trust, Canada’s fourth largest.  Unitholders are being asked on Nov. 4/02 to approve the internalization of the management structure.  Total consideration amounts to payment of $26 million to the managers in a combination of cash and the issuance of units.  The trust assumes that operating costs will be reduced by such a move.  The trust has been one of the worst performers among the oil and gas royalty trusts.  The purpose of the reverse split is to help qualify the units to list on the NYSE, such listing expected for Nov 12/02.  In the meantime the trust anticipates payouts to continue at 40 cents/unit per month for November, December and January, the equivalent of 10 cents/unit on the old basis.  During 2001, the trust paid out $2.41/unit on the old basis, the equivalent of twice the current payout.  At the present rate, the units trade at a yield of 18.5%.

Progress Energy Ltd. (PGX on CDNX), Calgary, AB, Tel: (403) 216-2510, Price: Oct 9/02: $5.45, 52-week range: $6.50-2.30.  Last mention of the company in this newsletter was at $5.40 on Feb 22/02 and first mention was at $3.55 on November 23/01.  The company has just completed the acquisition of producing oil and natural gas properties in the Fort St. John area of northeastern British Columbia.  Involved is proven reserves of 3 million barrels of oil equivalent consisting of 13.5 billion cubic feet of natural gas and 741,000 barrels of crude oil and gas liquids.  Current production averages 1,000 boe/d, 67% of which is natural gas.  Along with the reserves comes a 50% interest in 61,000 acres of undeveloped land on which it will be obliged to spend $10 million of expenditures over the next 18 months.  Purchase price of $25.4 million implies a cost of $25,475/boe/d and $8.49 per proven boe of reserves, both reasonable prices.  Management is most familiar with the area since it was part of Encal’s operation that was sold to Calpine.  Senior managers at Progress were formerly with Encal.  In order to finance the acquisition, Progress floated a $25 million private placement issue consisting of 4,464,300 shares sold at $5.60/sh.  The company will now have 34.2 million shares outstanding on a fully diluted basis.  The acquired production should allow the company to exit the year at a production rate averaging 7,000 boe/d.  This paves the way to way to additional production next year and possible cash flow/sh of $1.40 compared with 85 cents/sh in 2002.  A 5 times multiple indicates a potential stock trading price of $7 over the next 12 months.

Reitmans (Canada) Limited  (RET.A on TSX), Montreal, QC, Tel: (514) 384-1140, Price: Oct 9/02: $23.10, 52-week range: $25.00-9.25.  Last mention of the company in this newsletter was at $20.76 on July 4/02 with the first mention being at $12.87 on Jan 23/02 (all prices reflecting the 100% stock dividend on Sept 24/02).  The company continues to produce strong results.  In the 2Q ended Aug 3/02, sales increased 41% to $202 million, comparable stores increasing 9.1%, and net income up 71% to $13.6 million, or 79 cents/sh.  Results for this period include operations of Shirmax Fashions Ltd. for 9 weeks following its acquisition effective June 5/02.  Same store sales in August decreased 1.4%.  Even assuming September comparable stores mirror the August performance, the company appears to be on track to generate earnings of $2.40/sh for the year ending January 31/03.  That being the case, even a moderate 12 times multiple to these earnings point to a stock price of $29.  The new Montreal distribution center capable of servicing 1000 stores should be fully operational by fiscal year end.  This paves the way for improved margins next year as well as continued expansion or possibly another acquisition.  The company currently operates 804 stores, almost all in Canada.

Royal Group Technologies Ltd. (RYG on TSE), Woodbridge, ON Tel: (905) 264-0701 Price: Oct 9/02: $13.16, 52-week range: $32.40-13.02.  Last mention of the company in this newsletter was at $30 on Feb 22/02 when it was suggested that at that level the shares were fully priced.  First mention was at $18 on Oct 15/95.  Management has reduced the company’s earnings estimate again and is now calling for earnings of $1.55 to $1.60 a share for 2002 and for $1.90 to $2.10 for 2003.  The problems are taking place in the window coverings operations.  Unfortunately, management that was, in the past, highly regarded is now being viewed by members of the investment community as lacking in credibility.  It  appears that it will now take some time for the company to get back into a growth mode and recapture investor interest.  Some analysts have lowered their forecasted earnings to $1.55 for both years.  If this turns out to be the case, the shares currently trading at 8.5 times this level are possibly adequately priced.

TransForce Income Fund  (TIF.UN on TSX), Montreal, QC, tel: (514) 856-7531, Price: Oct 9/02: $7.65, 52-week range: $9.00-1.80.  This is the first mention of the trust in this newsletter.  On September 30, 2002 TransForce Inc. was converted from a corporation to an income fund trust.  Coincidental to this, the fund raised $102 million through a public offering of 12 million units at $8.50/unit.  Following the issue, there will be 63.9 million units outstanding.  The largest shareholders are the Saputo family interests with 36% ownership, funds managed by Fidelity Management with 14.5% and a Quebec labour fund with 8%. TransForce is a leading player in the Canadian transportation industry with approximately 22,000 customers and close to 5,000 employees.  With the recent acquisition of Canspar Transport annual revenues are now running at approximately $587 million.  Business is split up into the following segments: Less than truckload and parcel delivery 63%, Truckload 16%, Specialized truckload 15% and Logisticcs & Warehousing 6%.  Geographically, business splits up into Canadian domestic market 68% and Canada-US Transborder 32%.  It owns or leases 1900 trucks and 4100 trailers and has access to an additional 480 trucks under contract with owner-operators. In addition, Canspar owns or leases 1200 vehicles, including 820 curbsides and 280 semi-trailers.  TransForce’s network consists of 124 terminals and Canspar has 7 major hub facilities and 53 terminals.  In addition to Canspar, some of the company’s other familiar names seen on the road are Kingsway Transport, TST, TFI, TNT and Overland Express.  For the 52-weeks ended July 20, 2002, pro forma EBITDA was $88.8 million and distributable cash flow, after a reserve of $10 million for capital expenditures, were $72,8 million, or the equivalent of $1.14/unit.  If this turns out to be the payout, the units at its current trading price would yield 14.9%.  The trust intends to pay distributions on a monthly basis.

Ultima Energy Trust  (UET.UN on TSE), Calgary, AB, tel: (403) 264-5709. Price: Oct 9/02: $5.65, 52-week range: $6.06-3.65.  Last and first mention of the trust in this newsletter was at $5.40 on May 31/02.  The trust has recently acquired some additional light oil producing property and associated facilities in central Alberta for $11.8 million.  The property contains 1.4 million boe of established reserves that currently produce approximately an average of 500 boe/d.  The cost of acquisition appears reasonable at the equivalent of $8.43 per boe and $23,600 boe/d, considering they are calculated as having a reserve life index of 8 years.  This brings the fund’s production to 3,800 boe/d.  The fund pays out between 80 and 90% of cash flow to unitholders.  At the current rate of 8 cents monthly, the units currently yield 17%.

Washington Federal Inc.  (WFSL on NASDAQ), Seattle, WA, Tel: (206) 777-8246, Price: Oct 9/02: $20.71, 52-week range: $27.56-19.91.  Last and first mention of the bank in this newsletter was at $25.26 on Feb 22/02.  The bank continues to do well and is on track to earn $144 million, or $2.25/sh, for fiscal 2002, year ending Sept 30.  This would represent an increase of 27% over last year’s $1.77.  Return on assets is 2.04% and return on equity is 15.3%.  The bank increased its quarterly dividend in June to 23 cents and its October dividend will be its 79th consecutive quarterly dividend.  The stock has backed off somewhat from the time of this newsletter’s update in February so that at its current level it is trading at only 9.2 times this year’s anticipated earnings and yields 4.4% on the cash dividend.  This appears to represent good value.

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