Quarterly Newsletter

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2005 Q2 Newsletter
June 30, 2005

Equity markets in the United States declined in the second quarter of 2005. The Dow Jones declined by 2.18%, the Standard and Poors 500 rose by 0.91%, and the NASDAQ rose by 2.90%. Downward pressure came from rising oil prices and rising interest rates, which lead to fears of a slowing economy. In Canada, equity markets were supported by continued strength in energy prices. The S&P TSX Index increased 3.02% during Q2.

Lawrence Decter Investment Counsel experienced a gain of7.60% in Q2. Our 2005 year-to-date we returned 9.08% overall.

Data Table

Of our top ten holdings, five increased in price and five declined. These movements underscore the volatility evident in metals and energy in Q2. It should be noted that strong positive movement in the first week of July has increased several of these values dramatically.

Top 10 Holdings

Energy

Oil prices have been volatile and climbing, and reached a new all time height of $61 on June 27th. Analysts view the next two years as a period where increasing demand for oil will exceed supply additions as noted in our Q1 letter. The well-regarded Wall Street firm, Goldman Sachs, published a report on March 31st forecasting a spike in oil prices to the $105 level in the next two years. Jeff Rubin, a Canadian economist, has forecasted $77 average oil prices over the next 5 years.

In view of this outlook, I now intend to overweight oil and gas holdings through Q1 2006. This will cause some increased volatility in valuations but will enhance our overall returns. It is likely strong oil and natural gas prices will continue over 18 months to 3 years.

Major Portfolio Changes

In Q1 2005, we made some major changes to our holdings. The rationale for selling some of our long time positions as well as some shorter term holdings is detailed below:

Switches

Manitoba Telecom to Telus – In June, we took the decision to sell our Manitoba Telecom position and replace it with Telus. Our decision was based on the greater growth in the Alberta and BC markets versus the prospects for growth in Manitoba. Allstream, acquired by Manitoba Telecom to allow entry into the business market in Ontario, however, has not yet proven its merit. Telus is pursuing an aggressive and successful expansion strategy.

PBB Logistics to Westshore Terminals – PBB Logistics is paying out over 100% of its cash flow. This is an unsustainable position. Westshore Terminals (WTE.UN) is a far better prospect. Investing in Westshore, WTE allows us to benefit from the coal export boom. A dozen coal mines are opening or have reopened in British Columbia. The coal mines will reach world markets, largely Asian, through Westshore Terminals facility in British Columbia.

Osprey Media to Sunrise Senior Living REIT – Osprey is a solid trust but it has been unable to grow its revenues in the Ontario market. It is paying out virtually all of its cash flow. Sunrise owns high-end senior residences – the “Four Seasons” of the market. It is growing rapidly.

New Additions

Stongco (SQP.UN) – Strongco is an equipment distributor. With a strong base of operations in Western Canada, it will benefit from the boom in the resource economy. Stongco represents a range of equipment manufacturers insulating it from the fortunes of any single company.

Uranium (U.TO) – Our energy-short planet is turning back to nuclear reactors. In particular, China is embarking on a major nuclear construction program. The world has been mining less uranium than it conserves in recent years. The gap has been filled by recycling uranium from dismantled weapons. This source is nearing an end. It is not legal for individuals to directly own uranium for security reasons. Uranium Participation is a vehicle to allow us to participate in a rising uranium price and its peaceful use.

Harvest Trust (HTE.UN) – With its recent $260 million acquisition and distribution increase, Harvest has become a larger and valued oil and gas income trust. We already have significant holdings of Acclaim Energy, Focus Energy, and Enerplus. We are adding Harvest Trust as a diversification of our holdings in the oil and gas trust sector.

Outlook for 2005 and 2006

The economy is coping with higher energy prices. Central banks are gradually raising interest rates. Overall, growth is expected to be 2%+ in 2005 and 3%+ in 2006. The terrorist attack in London is a terrible tragedy. The impact of such an attack on economic growth is negative but difficult to fully assess. The New York 9/11 attack had a major effect while the later Madrid train bombing had little impact. The London attack seems initially more like Madrid.

Equities will remain volatile through the balance of 2005 but volatiles in an upward direction. We are confident Q3 and Q4 will be positive for our investments and therefore, for our clients.

Sincerely,

Michael Decter
President and CEO
MD/cl