January 23, 2002

SPECIAL Canadian Income Investments

Aberdeen Asia-Pacific Inc. (FAP on TSE), Price:$8.33, 52-week range: $8.75-6.96. Dividend: 7 cents/unit monthly for 84 cents per annum. Yield: 10.1%. Invests in bonds. 69.7% of portfolio is invested in bonds rated AAA/AA by S&P. 50.6% invested in Australia, 32.9% in USA and 9.6% in South Korea.

Aberdeen Scots Trust. (SCO.UN on TSE), Price: $25.20, 52-week range: $27.25-22.75. Pays 18.23 cents/unit/month, or $2.19/unit/annum. Yield: 8.7% managed by Aberdeen Asset Management. Invests in companies with market cap of minimum $10 billion selected from Dow Jones Global Titans and Morgan Stanley International World index. Matures at $25/unit on Dec 31, 2013

Canada Trust Income Investment. (CNN.UN on TSE), Price: $8.58, 52-week range: $8.64-7.25, Dividend: 4.5 cents/unit monthly for 54 cents per annum, Yield: 6.3%. Invested in bonds, mainly Canadas and provincials.

CPL Long Term Care Real Estate Investment Trust. (CPL.UN on TSE), Price: $14.99/unit, 52-week range: $15.40-12.70. Pays 11.5 cents/unit/month, or $1.38/unit/yr, Yield: 9.2%. Operated by Reichman family of Toronto. About 80% of income is non-taxable, considered a return on capital, hence a reduction of adjusted capital base.

First Premium Income Trust. (FPI.UN on TSE), Price: $25.24, 52-week range: $27.60-21.25. Pays 50 cents/unit/quarterly, or $2.00/unit/annum. Yield: 7.92%. Managed by Toronto-based Mulvihill Capital Mgmt. Invests in major Cndn. companies selected from TSE 200 Index. Termination date January 1, 2004, may be redeemed monthly. 65% of income is taxed as capital gain, 22% as dividend income, 13% as non-taxable income.

First Premium US Income Trust. (FPU.UN on TSE), Price: $22.20, 52-week range: $25.50-16.50. Pays 50 cents/unit/quarterly, or $2.00/unit/annum. Yield: 9.0 %. Managed by Mulvihill Capital. Invests in the top 50 companies of S&P 100 index. Termination date January 1, 2007, may be redeemed monthly. 87% of income taxed as capital gain, 1% as dividend income, 12% as non-taxable income.

Freehold Royalty Trust (FRU.UN on TSE) Price: $9.25, 52-week range: $10.10-8.00. Dividend: 10 cents/unit monthly, indicated: $0.96 per annum, Yield: 10.4%. Due to lower oil and gas commodity prices, the dividend during 2001 has been reduced from 12 cents/month. The trust hardly speculates on exploration. Instead it collects income royalties from oil & gas wells from producers operating on freehold concessions, much of which were previously bestowed to Hudson's Bay Company. The board of directors is represented by Bill Siebens, whose Siebens Oil & Gas once held the ownership, prior to being acquired by Dome Petroleum, and by representatives of CN Investments and Bolton Tremblay.

NAL Oil & Gas Trust. (NAE:UN on TSE), Price: $8.65, 52-week range: $11.75-7.85. Dividend: 10 cents/unit monthly, indicated: $1.20 per annum, Yield: 20.8%. Due to lower commodity prices for oil and gas, the payout during 2001 has been reduced from 23 cents/monthly to 20 cents to 15 cents and now to 10 cents. North American Life Insurance Company (now part of Manulife) formed the trust. The strong board of directors is headed by Charles Caty, formerly of RBCDS and president of the IDA and chairman of the TSE and also has, as members, 2 representatives from Manulife and one each from Westcoast Energy, Nexen and Petro- Canada.

Pro Ams Trust. (PR.UN on TSE), Price: $23.90, 52-week range: $25.65-19.06. Pays 18.2 cents/unit/monthly, or $2.19/unit/annum. Yield: 9.16%. Managed by Mulvihill Capital. Invests in companies that have a market cap of a minimum $5 billion and are part of S&P/TSE 60 index and S&P 500 index. Matures at $25 on Dec 31, 2012, redeemable monthly.

Sixty Plus Income Trust. (SIX.UN on TSE), Price: $25.80, 52-week range: $27.75-21.30 Pays 50 cent/unit/quarterly, or $2.00/unit/annum. Yield: 7.75%. Managed by Mulvihill Capital. Invests primarily in stocks found in S&P/TSE 60 index. Matures at $25 January 1, 2009, redeemable monthly. 85% of income is taxed as capital gains, 5% as dividends, 9% non-taxable.

REGULAR PICS SECTION

Advantage Energy Income Fund formerly Search Energy Corp. (AVN.UN on TSE), Calgary, AB, tel: (403) 261-8810. Price: Jan 23/02: $8.56, 52-week range equivalent: $13.60-7.05. Last mention of the income fund was at $7.69 on Sept 28/01. 3Q production increased to 7, 125 boe/d from the 6,316 rate for the period just prior to this and was the result of acquisitions. During that period, Advantage acquired Due West resources for $57.8 million, paying a top price equivalent to $35, 200/boe/d. During 4Q, the trust continued to pay top dollar in purchasing natural gas production in the Medicine Hat area of southern Alberta for $62 million, paying the equivalent of $36,172/boe/d. More recently, the fund has been acquiring properties at prices more in keeping with the realities of lower commodity prices. It has acquired additional natural gas production in southern Alberta for $10.8 million, paying the equivalent of $11,650/boe/d. To finance these acquisitions, the trust raised funds through one issue of 6 million units at $7.65/unit for $46 million and is now in the process of raising another $19.75 million through the sale of 2.5 million units at $$7.90/unit. This means there will now be 27.1 million units outstanding once this financing is completed. Faced with lower commodity prices, the fund reduced its payout from 28 cents/unit to 22 cents/unit in September and October and is now paying out 15 cents/unit/month since November. The intention is to maintain this payout for 2002, implying a yield of 21.8% based on the current trading price.

Atlas Energy Ltd. (AED on CDNX), Calgary, AB, Tel: (403) 215-8313. Price: Jan 23/02: $1.60, 52-week range: $3.40-1.48. Last mentioned in this newsletter at $2.11 on Aug 31/01. 3Q production increased slightly to 2,251 boe/d from 2,226, the result of increased natural gas production to 10 Mmcf/d from 9.7. The company has a new line of credit to $15 million, non-reducing at prime. Atlas raised $7.7 million through the sale of 3.9 million flow-through shares at $2.05/sh and 935,000 shares at $1.65/sh. Refreshing to see that this is an outfit that floats to market shares priced at or above current market price levels during an environment when stock prices are depressed. There are now 21.9 million shs outstanding, 23.1 million fully diluted. Capital expenditures are earmarked at $9.7 million for 2002, approximately equal to projected cash flow. The shares currently trade at 4 times projected cash flow of 40 cents/f.d.sh

BioTransplant Incorporated (BRTN on NASDAQ) Charlestown, MA, Tel: (617) 241-5200. Price: Jan 23/02: $7.20, 52-week range: $9.20-2.97. Last mention of the company in this newsletter was at $7.10 on May 12/01. The company continues to make progress in cancer research. With collaborators at Massachusetts General Hospital it was found that a mild course of chemotherapy including in some cases MEDI-507, BioTransplant's proprietary T-cell depleting monoclonal antibody, followed by a bone marrow transplantation, to be effective for the treatment of large B-cell lymphoma. The procedures were also applied successfully to patients with multiple myolema and end-stage renal disease employing a double transplant, bone marrow and kidney. This supports the potential of the AlloMune System, which includes the T-cell depleting MEDI-507 antibody. The company also reported advances toward solving the problem of rejection of foreign proteins in transplantation. This makes use of a reporter protein, EGFP, which when linked to an important gene will report that the gene has been successfully delivered to the host cell. BioTransplant also announced that a Phase I/II trial utilizing its proprietary AlloMune System demonstrated encouraging anti-tumor results in a majority of patients afflicted with end-stage refractory lymphoma. On another note, MedImmune (MEDI on NASDAQ) announced that it has begun Phase II trials using Siplizumab employed as a potential psoriasis treatment. MedImmune acquired the rights to siplizumab from BioTranplant. It is the humanized form of BioTransplant's murine monoclinal antibody, BTI-322. BioTransplant has retained the right to use these in its proprietary ImmunoCognance systems, which are designed to re-educate the immune system to accept foreign tissue.

Bonavista Petroleum Ltd. (BNP on TSE), Calgary AB, tel: (403) 213-4300, Price: Jan 23/02: $25.60, 52-week range: $34.75-21.75. Last mention of the company in this newsletter was at $23.25 on Sept 28/01. As expected, production in 3Q increased to 32,207 boe/d from Q2 of 29,373. As a result of lower commodity prices, cash flow generated came to $1.25/sh, down fromQ2's $1.74. This means that for the year cash generated should approximate $200 million, or $6.60/sh, down from the $7 forecast in our Sept 28 edition. Current production is running at 33,400 boe/d, composed of 130Mmdf/d of natural gas and 11,700 b/d of oil & liquids. This is a 46% increase over the rate at year-end 2000. During the year, Bonavista increased reserves 52% to 29.4 Mmboe and increased its undeveloped land position in core areas by 26% to 808,000 net acres. Capital expenditures for the year were about $245 million. The company is maintaining some flexibility by forecasting capital expenditures for 2002 of between $190 million and $225 million. It calculates that this level should produce production rates averaging between 36,000 and 37,500 boe/d. With commodity prices continuing at low levels, this could produce cash flow/share of $5.20. The company has bank facilities of $220 million to draw upon to supplement cash flow in meeting its capital expenditures. Bonavista is a class pick among intermediate oil & gas producers in Canada and its stock, as a result of a proven track record, should command a premium multiple. This implies a share price of $30 to $32.

Canadian Medical Laboratories Ltd. (CLC on TSE) Toronto, ON Tel: (416) Price: Jan 23/02: $23.15, 52-week range:$34.70-15.70. Last mention of the company in this newsletter was at $15 on Feb 28/00 and first mention was at $6.20 on August 19, 1997. The company reported higher earnings for the year ended Sept 30/01 on slightly more revenue. Net income of $35.4 million, or $1.68/sh, on sales of $188 million compared with $31.8 million, or $1.51/sh, on sales of $186 million a year ago. Sales in CLC's health care and diagnostic division were higher at $160 million vs $156 million but lower in the pharmaceutical division, $29 million vs.$33 million. The outlook for fiscal 2002 looks quite promising. The Association of Medical Laboratories has entered into a 2-year agreement with the Ontario Ministry of Health to increase the the provincial payment cap from $458 million to $488 million in year ending March 31/02 and to $498 million in year ending March 31/03. The company expects to maintain its 30.5% of the Ontario laboratory testing market. Another boost to reported earnings will be the accounting change that takes place at the start of this year when, to comply with new accounting standards, the company will stop amortizing good will and licences on a go forward basis. These, on a pre-tax basis, accounted for $5.9 million in 2001 and $5.4 million in 2000. This implies an additional 10 cents/sh in earnings. Subsequent to year-end, CLC acquired Edmonton-based DC DiagnostiCare, a company operating the largest network of non-hospital based medical diagnostic clinics in Canada. Purchase price was $19 million in a cash transaction. This operation generates $70 million in revenue, operating 141 clinics in 5 provinces. Unlike CLC's health care & diagnostic division, this business is not capped. The acquisition, however, brings with it $34 million in debt. During 2001, Canadian Medical reduced debt by $20 million and at year-end this stood at $43.9million. In addition, the company had a cash position of $20 million. CLC may very well decide at some point to do some equity financing. It has 21 million shares outstanding. The shares appear to be attractively priced based on anticipated higher earnings for 2002 and particularly so if the company cam make a go with the new acquisition.

Canadian Pacific Railway (CP on TSE and NYSE), Calgary AB, tel: (403) 218-8000. Price: Jan 23/02: $31.64, 52-week range: $41.00-20.49. Last mentioned in this newsletter at $22.60 on September 28/01. CP produced solid results during 4Q of 2001. Revenues increased 2% to $951 million, operating income 12% to $261 million. Share earnings were 74 cents compared with 78 cents in 4Q 2000. Lower net was affected by costs associated with the spin-off from holding company Canadian Pacific Limited. For the full year, revenues increased $44 million to $3.7 billion, operating income unchanged at $841 million, net income $370 million vs. $401 million. Share earnings ere $2.33 compared with $2.52. The year was a challenging one for the CP group of companies with prime distractions associated with the creation of five separate, publicly-traded companies from century-old CP, all of this taking place in a recession. The recent derailment at Minto, North Dakota may cost the company a significant amount, perhaps as much as $10 million. Nevertheless, the outlook for 2002 and 2003 appears better with earning estimates of $2.55/sh this year and $3.00 for next year. The indicated yearly dividend of 51 cents provides the stock with a yield of 1.6% and could be increased with earning improvements.

Christopher & Banks Corporation (CHBS on NASDAQ), Plymouth, MN, Tel: (763) 551-5000. Price: Jan 23/02: $34.05, 52-week range: $35.76 -14.81. Last mention of the company in this newsletter was at $25.49 (adj. for 3 for 2 split) on Nov 23/01. First covered in this newsletter on April 8/00 at $7.29. The company continues to show above industry growth. 3Q net for the period ended Dec 1/01 increased 34% to $10.7 million, or 41 cents/fully diluted share, from $7.9 million, or 31 cents/sh. Net sales for the quarter increased 36% to $77.7 million from $57.3 million. Same store sales increased 7% during this period. For the nine months, net income increased 32% to $22.6 million, or 87 cents per fully diluted share., from $17.0 million, or 67 cents/sh. Net sales for this period increased 37% to $193.1 million from $141.1 million. Same store sales during this 9-month period increased. 8%. The trend has continued through December. Total sales for the 4-week period ended Dec 23/01 increased 34% to $39.8 million from $29.7 million for the 4-week period ended Dec 29/01. If the same calendar period were used, the same store increase would have been 9.5%. For the 10 months sales increased 36% to $232.9 million from $170.9 million and same store sales increased 8%. As at Dec 31/01, there were 353 stores compared with 274 a year ago. The company expects to open 90 additional stores in 2002. As a result of the 4th 3 for 2 stock split over the last 2 years, the company now has 24.8 million shares outstanding, 26.1 million on a fully diluted basis and has no long term debt. This type of growth should permit CHBS stock to trade at a premium price to earnings ratio. If the company ends up with earnings of $1.30/sh this year (4Q 2001 was strong and 14 weeks long) a 30 multiple spells out a share price of $39. Even then, the stock could be held on for the longer term.

Citigroup Inc. (C on NYSE), New York, NY, tel: (212) 559-1000. Price: Jan 23/02: $49.50, 52-week range: $56.99-34.51, It is unusual for this newsletter to comment on large caps but the rare exception has been made, such as with CIT Group(Dec 26/99), Kohl's Corp (Sept 28/01) and Nortel (June 22/01). C reported strong 4Q and year 2001 earnings in the face of most difficult circumstances: Enron, Argentina, WTC and a weak economy. Core net profit for the 4Q of 74 cents/sh was up 14% and for the year up 3% to $2.81/sh. This was after $1.8 billion of pre-tax impact from Enron, Argentina and September11. Just the WTC impact accounted for a shortfall of 14 cents/sh. Share earnings are forecast at $3.35 for this year and $3.75 for the next. The $1.20 dividend provides a current yield of 2.4%. This is a really big company with 5.15 billion shares providing a market cap of $257 billion, a sum greater than the GDP's of many countries. However, much of present day stock markets are influenced by institutionalized investment holdings and managed funds may very well be prepared to assign a 20 times multiple to this year's earnings, implying a share price of $67.

Dectron Internationale Inc. (DECT on NASDAQ), Montreal, QC, tel: (514) 334-9609, price: Jan 23/02: $5.83, 52-week: $7.62-2.75. This is the first mention of the company in this newsletter. Dectron supplies an extensive array of products for the air purification and indoor air quality, dehumidification, energy recycling, refrigeration and air-conditioning markets. The company's 400 employees are located in six different manufacturing facilities, principally in and around Montreal but also in upper NY. While net sales for the 9-month period ended Oct 31/01 were relatively unchanged at $28.3 million, margins improved due to more sophisticated product producing net of $1.3 million, or 47 cents/sh compared with $0.9 million and 33 cents/sh. Dectron is presently developing a new line of products intended to protect occupants of institutional buildings from toxic gases. Current backlog appears to be about $18 million. Meanwhile, Dectron has consolidated the financial structures existent in its five subsidiaries into one unit with the result financial costs have been reduced and credit lines increased, permitting increased R&D investment. The company has only 2.8 million shares outstanding, 3.1 million fully diluted if 349,000 are exercised at $3/sh during one year following Nov 4, 2003. Additionally, there are 1.1 million warrants exercisable at $9/sh until Oct 5, 2003. With such a low cap, there is good leverage for share price improvement if Dectron continues to grow.

Fairmont Hotels & Resorts Inc. (FHR on TSE and NYSE), Toronto ON, Tel: 1-866-627-0642, price: Jan 23/02: $36.50, 52-week range:$40.00-20.49. Last mentioned in this newsletter at $23.40 on Sept 28/01. The luxury hotel chain reported rather poor earnings for 4Q as well as for the year 2001. The recent quarter, typically a weak one for the chain, came in at revenues of $100.8 million down 12.7% over last year's, and EBITDA of $14.6 million down 54% from the $31.8 million in 4Q of 2000. For the year , revenues increased 2% to $543 million and EBITDA of $165 million down 15%. Fairmont's revenue per available room was down 18% in the quarter to $86, while for the year it was down 3% to $114. The company indicates that for 2002, EBITDA could range between $180 million and $190 million and that net income may be in the range of $62 million to $68 million, or 79 cents to 87 cents per share. Fairmont forecasts 1Q 2002 earnings of about 3 cents a share. These results and forecasts are not particularly inspiring. The company has been hit hard by Sept 11 and the recession. The current share price appears to be trading at a lofty level with respect to the near-term outlook. Investors will have to take a long-term approach in appraising Fairmont and its high value hotels and resorts.

Freeport-McMoRan Copper & Gold Inc. (FCX on NYSE), New Orleans, LA. Tel: (504) 582-4000 Price: Jan 23/02: $13.93, 52-week range: $17.15-9.40. Last mention of the company in this newsletter was at $18.50 on Feb 4/00. Freeport, through its 86% owned subsidiary, PT Freeport Indonesia, reported a 4Q 2001 loss of 1 cent/sh compared with a profit of 40 cents a rear ago due to lower copper and gold production combined with lower commodity prices. For year 2001, net was 53 cent/sh up from year 2000's 26 cents. The company identified additional ore during the year which contains 3.2 billion ponds of copper and 4.3 million ounces of gold, which more than replaced 2001 production. Freeport's subsidiary now has reserves of 39.4 billion ponds of copper and 50.2 million ounces of gold, confirming its standing as one of the largest and lowest cost copper and gold producers. Employing an average price for gold of $280/oz in 2002 and $300 in 2003 and for copper 80 cent/lb in 2002 and 95 cents in 2003, estimates of earnings/sh and cash flow/sh for the next two years indicate $1.00 and $3.50 in 2002 and $1.75 and $4.35 in 2003. If such a scenario unfolds, FCX shares could attain a level of $18-20 over the year.

Gauntlet Energy Corporation (GAU on TSE), Calgary AB, tel: (403) 216-8660. Price: Jan 23/02: $3.85, 52-week range: $6.50-2.66. Last covered in this newsletter at $3.50 on Aug 31/01. 3Q natural gas production increased to a rate of 19.0 Mmcf/d from 2Q's average rate of 18.1 and 13.6 in 1Q. Combined with oil at a 6:1 ratio (GAU is 85% gas), average production for the September quarter was 3,379 boe/d compared with 3,226 in 2Q and 2,491 in 1Q. Gauntlet maintains that through successful drilling significant reserves were added during the recent quarter. These will be made public when the company reports year-end results, most likely mid-March. At June 30/01, these were at 8.8 Mmboe. GAU has contracted two drill rigs for drilling Slave Lake gas prospects in Northern Alberta during the current winter months. Year 2001 cash flow of $15 million, or 87 cents/sh, compares with debt currently at $25 million. The company has loan facilities in place for an additional $6 million. If natural gas prices continue at currently depressed levels, the company will be hard pressed to generate much more than 60 cents/sh in cash flow for 2002. Gauntlet may very well be obliged to pare down the aggressive rate of capital expenditures that has increased production rates and reserves and start applying cash flow to debt reduction. That being the case, GAU's stock at the moment appears to be trading at full value.

D. R. Horton, Inc. (DHI on NYSE), Arlington, TX, tel: (817) 856-8200, Price: Jan 23/02: $33.46, 52-week range: $33.50-17.50. This is the first mention of the company in this newsletter, although mention has been made over the years to Schuler Homes with whom DHI will be merging. Founded in 1978, DHI is celebrating its 25th consecutive year of growth and profitability. The company is engaged in the construction and sale of high quality homes designed principally for the entry-level and first time move-up markets. It operates in 20 states in the Midwest, Mid-Atlantic, Southeast, Southwest and Western regions of the US. DHI has just reported its Dec 31/01 1Q, its 97th consecutive quarter of year-over-year growth in profitability. Net income increased 47% to $73.4 million (94 cents/sh) from $49.9 million (66 cents/sh). Revenues increased 30% to $1,135 million from $874 million. This resulted from 5,691 homes closed in this 1st quarter compared with 4,290 last year. Sales contract backlog at December 31, 2001 increased to 8,716 homes ($1.8 billion) from 7,327 homes ($1.6 billion) last year. On February 21, 2002, shareholders of both D.R. Horton and Schuler will vote to merge. The combination of these two companies will form the 2nd largest homebuilder in the US based on revenues of over $6 billion and delivery of more than 26,625 homes annually. DHI currently has 78.1 million shares on a fully diluted basis and would issue an additional 19.8 million shares for SHLR, making for a total of 98 million shares to be outstanding. DHI management believes that the combined company would have cost savings of $30 million to $40 million. Over the next year or two, the merged company could be producing net income of some $445 million, or $4.50/sh. That being the case and assuming that the corporate growth mode is still intact, D.R. Horton shares could easily trade at levels exceeding $45.

Inmet Mining Company (IMN on TSE), Toronto, ON, Tel: (416) 361-6400, Price Jan 23/02: $4.30, 52-week range: $4.74-1.60. This is the first mention of the company in this newsletter. Inmet is a Canadian-based international mining company formed in 1987. It produces copper, zinc and gold from operations in Papua New Guinea (copper), Turkey (copper-zinc) and Quebec (copper-gold). It has advanced exploration projects in Northern Canada and Panama and a net proceeds interest in the Antamina Project in Peru. Recently, the company announced that it will be reducing reclamation costs pertaining to closed mines by $15 million. This will add 43 cents to after-tax earnings for the 4Q, to be reported Feb 5/02. Furthermore, legislation has been passed in PNG that will streamline guidelines regarding the environmental regime and will permit mine dividends to fund other regional exploration and development in that country. Inmet is in the process of increasing its ownership of the Cayeli copper-zinc mine in Turkey to 53% from 49%. The company has entered into a strategic alliance with Outokumpu to purchase its Pyhasalmi copper-zinc mine in Finland for $104 million. Payment consists of a combination of cash, 6% 10-year promissory notes and 4 million common shares valued at $4.50/sh. Inmet has arranged a $40 million credit facility to assist in the purchase. As part of this alliance, both companies will cooperate on the development of mining and mineral processing technologies. Outokumpu will end up with 10% of Inmet's 39 million shares to be outstanding. Finally, Inmet has won its court decision claiming $88 million against Homestake Canada and that company's decision to pull out of buying Inmet's Troilus mine in Quebec. These developments will have, as an effect, to increase the company's net asset value to well over $7 a share from a current $5.80 and to enable Inmet to report earnings of 40 cents/sh for 2001, up from last year's 17 cents. Employing copper prices of 80 cents/lb for 2002 and zinc prices of 45 cents/lb, year 2002 earnings could attain 45 cents/sh. The real impact for the newly acquired Finland operation would take place in year 2003 and could add a further 25 cents a share to reported earnings. If the scenario develops as such, IMN shares over the next year could very well trade at a level of $6.50, based on 39 million shares outstanding, 46 million on a fully diluted basis.

Nortel Networks Corporation (NT on TSE and NYSE), Brampton ON, Tel: (905) 863- 0000. Price: Jan 23/02: $11.85, 52-week range: C$61.10-7.50. Last mention of the company in this newsletter was Nov 23/01 at $12.99, first mention was on June 22/01 at $13.50. The company reported 4Q results slightly better than expectations with revenues at US$3.46 billion and a pro-forma loss of $506 million, or 16 cents/sh. Th company's cash position increased to $3.5 billion, in spite of cash outlays of almost $1 billion of which $400 million went to discontinued operations and the rest toward reduced employment and facility closures. The vendor financing book was reduced quarter over quarter by $200 million to $500 million and the un-funded sector by $300 million to US$1.6 billion. Working capital efficiencies took place with faster collection of accounts receivable, higher inventory turnover and continuing reductions in SG&A and R&D expenses. Company guidance points to a continuing reduction in revenue for the 1st Q of 2002, followed by sequential improvement thereafter throughout 2002 and profitability in 4Q. It now appears that a bottom has been reached and that a gradual recovery is taking place. While this newsletter's November edition pointed to the possibility of a stock price improvement to C$18 over a 6-month period, it now appears more realistic to thing in terms of a C$15 level over the next 12 months.

Nycan Energy Corp. (NYE on TSE), Calgary, AB, tel: (403) 264-7377. Price: Jan 23/02: $1.25, 52-week range: $2.25-0.96. Last mention of this junior O&G company in this newsletter was at $1.24 on Aug 31/01. The Company continues to increase production, averaging 7.1 Mmcf/d of gas in 3Q, compared with 6.3 in the 2nd and 6.2 in the 1st. Oil production increased to 323 bbls/d from 318 in the 2nd and 279 in the 1st. After having spent $11.1 million in capital expenditures in the first 9 moths, Nycan was planning to reduce expenditures during 4Q to $1.2 million in face of low commodity prices and in order to bring these into line with cash flow generated. Cash flow for the year may have attained $9 million, or 50 cents/sh. The company has built up a multi-well land package in Southern Alberta which management expects will produce growth in production in 2002 and beyond. Current debt stands at $6 million and the company has available a line of credit for a further $10 million. The shares of this small, well-managed company appear to be investor-friendly and poised for long term growth.


Pier 1 Imports, Inc (PIR on NYSE) Fort Worth, TX Tel: (817) 252-8000 Price: Jan 23/02: $18.80, 52-week range: $19.20-7.97. Last mention of the company in this newsletter was at $11.50 on April 8/00, prior to that at $6.12 on Dec 26/99. Pier 1 announced that sales for the 5-week period ended January 5, 2002 had increased 18% to $260 million, with same store sales increasing 9.3%. This has prompted management to increase 4Q estimated earnings for the period ending March 1,2002 to 44 cents/sh -46 cents/sh. This implies earnings per share for the full year of 97 cents to $1. At current prices, PIR stock trades at 18.8 times earnings and appears to be full value, considering the competitive nature of the business and the ease of entry into that brand of retail merchandising.

Purcell Energy Ltd. (PEL on TSE) Calgary, AB, tel: (403) 269-5803, Price: Jan 23/02: $3.05, 52-week range: $5.12-2.70. Last mention of the company in this newsletter was at $4.35 on June 22/01. 3Q production increased to 5,196 boe/d from the 4,034 rate in Q2. Purcell was expected to exit 2001 at a production rate averaging 5,500 boe/d and with increased production slated for Fort Liard and elsewhere in British Columbia, Alberta and Saskatchewan, average production rate of 7,000 boe/d is forecast for 2002. This would produce anticipated cash flow of $32 million, or $1.15 per fully diluted share. The company raised $9.1 million in December through the issuance of 1.6 million flow through shares at $4.05/sh and 800,000 common shares at $3.30. Debt at 2001 year-end was expected to be $20 million, modest in relation to yearly cash flow. At last count, Purcell was aiming for capital expenditures of $32 million for 2002, an aggressive target. The company will report year 2001 results in late March and these will reflect certain one time transportation costs and the marketing loss, both encountered earlier in the year. Fortunately, the gas marketing arrangement expired October 31, 2001. The shares of this natural gas weighted company trade at less than 3 times potential cash flow per share and can be considered a timely choice for investing in this industry.

Reitmans (Canada) Limited (RET.A on TSE), Montreal, QC, Tel: (514) 384-1140, Price: Jan 23/02: $25.75, 52-week range: $25.95-15.55. This is the first mention of the company in this newsletter. Reitmans operates Canada's largest women's specialty retailer. It currently has in operation 623 stores across Canada consisting of 328 Reitmans (current fashion, avg. store size 3,700 sq.ft.), 148 Smart St/Dalmys (15-35 age group junior affordable, avg. store size 2,300 sq.ft.), Penningtons (plus-size all ages, avg. store size 6,800 sq.ft) and 28 RW&Co (ladies & men 18-30 age group, avg. store size 4,000 sq.ft.). Company reported sales for the 4Q to date, nine weeks ended Jan 5/02 increased by 15.2% with same store sales up 7.3%. This appears to confirm that results for 4Q will be strong and will continue the trend developed in the company's first nine months. Sales during that period had increased 11% to $403 million (comparable store sales, 5%) and net income had increased 31% to $19.7 million, or $2.35 a share. This implies earnings for the full year ending Feb 1/2002 could be about $3.10/sh. If Retinas can keep up this pace, its shares could very well trade at a multiple of 15 times, i.e. a stock price level of $45. With only 6.7 million class A shares outstanding and 1.7 multiple-voting class B shares out, trading in the combined 8.4 million shares is thin. The company may well decide on a stock split in order to add liquidity to the market. Reitmans has been liquidating part of its $80 million cash and marketable investment position and applying it to the construction of its new 330,000 sq.ft. distribution centre in Montreal. When in full operation by June 2003, it will have the capacity to service 1,000 store locations, a figure 70% higher than at present. This points to the potential of future corporate growth. Over the last 3 years, the company has increased its quarterly dividend from 13 cents to 20 cents and shareholders are now due for another increase. In any event, at the current payout level, the stock provides a respectable cash yield of 3.1%.

Skechers USA, Inc. (SKX on NYSE), Manhattan Beach, CA. Tel: (310) 318-3100. Price: Jan 23/02: $16.11, 52-week range:$40.30-10.00. Last mention of the company in this newsletter was at $36.35 on May 11/01 and first mention was at $23.71 on April 3/01. The shares appear to be recovering from a rough ride. The Greenberg father and son team that had made their mark in life with the LA footwear line is determined to build an international outfit based on flexible marketing adaptations to ever-changing trends in casual footwear. While sales grew 40% to $288 million in the 3rdQ and by 48% in the nine months to $746 million, costs caught up in the third quarter ended Sept 30/01. These increased costs came from advertising and marketing and losses in the mail order and e-commerce operations. The company has also scaled back thee retail store openings, which, in any event, did not go down well with Sketchers main core of retail store clients. It will be critical to see how the company has coped with these cost reductions when reporting year-end results in late February and to take notice whether or not it has been able to retain its growth in sales momentum. In other words, will the company be able to recapture credibility?

Storm Energy Inc. (SME on TSE) Calgary, AB, Tel: (403) 264-3959, Price: Jan 23/02: $9.70Aug 30/01: $8.00, 52-week range: $12.00-6.90. Last mention of the company in this newsletter was at $8.00 on Aug 30/01. First mention was at $2.30 on Dec 26/99. Activities in the 3rd and 4th quarters of 2001 remained flat while the company waits to pursue an active winter drilling campaign in NE British Columbia. Storm expects to spend $60 million in 2002 that will include drilling approximately 60 wells, 45 of which will be in the winter months. Production should increase to a level of 12,800 boe/d up from 10,000 in 2001. Natural gas production should increase to a level of 36 Mmcf/d from 22.5Mmcf/d in 2001 and would represent 47% of production as compared with a current 37% share of Storms production. Oil production should, nevertheless, increase to a level of 6,800 bbl/d from the present level of 6,500. The resulting cash flow of $80 million, or $2.75/sh, sits well with current debt of $58 million. Storm has a $100 million bank line of credit, which, along with residual cash flow, could allow it to be even more aggressive in either exploration or in acquisitions. Given these parameters, a stock price of $12 to $13 over the year appears to be a realistic level.


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