Quarterly Newsletter

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2004 Q4 Newsletter
December 31, 2004

Canadian markets added to their gains in the 4th quarter. U.S. markets also gained ground. The continuing decline in the U.S. dollar neutralized any market gains viewed in Canadian dollars. Lawrence Decter Investment Counsel (LDIC) had overall gains of 9.7% for Q4 and 22.7% for the full year 2004. We were very pleased with these results particularly in comparison to the gain of 12.5% for the TSX for the year.

Data Table

The prospects for 2005 remain largely positive. So long as the pace of job creation remains strong and interest rate increases are moderate, good investment returns are possible. The risks to 2005 include terrorist activity in North America, rising U.S. interest rates and any significant slowdown in the growth of the Chinese economy.

Top 10 Holdings

Of our top ten positions, seven gained in Q4 lead by Sleep Country with +27.6%. The three decliners showed modest losses of under 3%. Two of the trusts actually gained if monthly distributions are included.

New Additions

We participated in several new income trust issues including Arriscraft International, Summit, and Golftown. As well, we purchased positions in existing trusts such as Peyto, Acclaim Energy, Advantage Energy, and others that issued additional units to finance acquisitions.

Forestry

We continued to add to our forestry investments. Lumber and wood product prices remained strong in Q4. In addition to our top picks, Norbord and Canfor, we also purchased Timberwest, International Forest Products, and Norske Skog.

Norbord - Our top pick for 2005 is Norbord. Our meeting with Norbord CEO, Barrie Shineton, confirmed our optimism that the new OSB (Oriented Strand Board) plant acquired in Belgium is an excellent asset. As well the Norbord OSB plants in the southern U.S.A. are well positioned to contribute to improved earnings. While there is some risk to OSB pricing, our view is that Norbord has significant potential upside. It pays a 3.4% dividend and is a takeover candidate.

Canfor - Canfor is a softwood lumber producer. We believe Canfor will perform well in 2005 based on duty reductions, potential refund of past duties and its competitive position. Housing starts in the United States will influence Canfor’s fortunes.

From Algoma Steel to Sherritt and Alliance Atlantis

One decision in Q4 was to exit our large position in Algoma Steel. We decided to be disciplined to take our gains of over 100% and reinvest in companies with better medium term prospects. We took the proceeds of our Algoma sale and invested in Sherritt and Alliance Atlantis. Both have performed well with Sheritt moving from $7.95 to nearly $10.00, and Alliance Atlantis moving from $28.00 to $31.00. Sherritt is a play on coal as well as oil and gas. Alliance Atlantis owns the lucrative CSI television franchise as well as several television channels.

Redwood Mutual Funds

We are now managing two new Mutual Funds. The Redwood Funds are a great opportunity for LDIC to pool together smaller accounts and to provide a solution for those accounts under our minimum portfolio size. Therefore, allowing us to manage your assets more efficiently and effectively. Both Funds are 100% RRSP eligible with a minimum investment of $5000. If you are interested, we can forward copies of the Redwood Simplified Prospectus and term sheets for the Redwood Diversified Equity Fund (RAM201) and Redwood Diversified Income Fund (RAM202). If you have an existing brokerage account you may telephone your representative to purchase a Fund immediately.

Conclusions

As noted in our July newsletter, Canada’s economic prospects are strong so long as we can slow the rise of the Canadian dollar against the currencies of our competitors. The recent rise of the Canadian dollar above 80 cents U.S., while a benefit to Canadians visiting the United States, will slow our manufacturing economy. Interest rate stability will assist Canadian economic performance. Sharp increases in rates that we do not expect would hurt equity markets’. Selecting companies with an ability to outperform in the current and prospective economic circumstance remains our goal in 2005.

Sincerely,

Michael Decter
President and CEO