bce

BCE INC. $26.55 (Toronto symbol BCE; SI Rating: Above-Average) is reorganizing its businesses to unlock shareholder value. The company will combine its traditional telephone operations in rural areas of Ontario and Quebec with those of 53.2%-owned ALIANT INC. $35.30 (Toronto symbol AIT; SI Rating: Above average) into a new income trust called Bell Aliant Regional Communications Income Fund. BCE will assume control over Aliant’s wireless and other operations. BCE shareholders will receive 0.0725 trust units for each share they own. They will also receive 0.915 of a new BCE common share for each old share. Aliant shareholders will receive one trust unit for each common share they hold....

BCE INC. $27 (Toronto symbol BCE; Conservative Growth Portfolio, Utilities sector; SI Rating: Above average) is reorganizing its businesses to unlock some of its value. The biggest part of this plan will combine Bell Canada’s traditional telephone operations in rural areas of Ontario and Quebec with those of 53.2%-owned ALIANT INC. $37 (Toronto symbol AIT; Conservative Growth Portfolio, Utilities sector; SI Rating: Above average) into a new income trust called Bell Aliant Regional Communications Income Fund. BCE will assume control over Aliant’s wireless and other operations. BCE shareholders will receive 0.0725 trust units for each common share they own. Consequently, BCE will own 45% of the new trust and run it, and BCE shareholders will hold 28.5%. Aliant shareholders will receive one trust unit for each common share they hold. As a group they will own 26.5% of the new trust....

TELUS CORP. (Toronto symbols T $44 and T.NV $44; SI Rating: Above average) is Canada’s second-largest telecommunications provider, after BCE Inc. It provides local and long distance telephone services to roughly 5 million customers, mainly in Alberta, British Columbia and parts of Quebec. It also provides Internet access services to roughly 1 million subscribers. Telus’s revenue slipped from $7.1 billion in 2001 to $7.0 billion in 2002, but rose to $8.1 billion in 2005. It lost $0.51 a share (total $145.8 million) from continuing operations in 2001, as well as $0.75 a share ($235.8 million) in 2002, mainly due to restructuring costs following the Clearnet acquisition. However, earnings improved from $0.92 a share ($324.4 million) in 2003 to $1.94 a share ($700.3 million) in 2005. Most of Telus’s recent growth comes from its wireless division, which is Canada’s largest wireless service provider with 4.5 million customers (36% of the market). The company is also doing a good job of hanging on to its customers, and getting them to sign long-term service contracts....

In 2000, Telus Corp. acquired money-losing wireless provider Clearnet. It looked like a bad move at the time, but it has paid off. In 2005, wireless provided 40% of Telus’s revenue, 44% of its profit and 53% of its cash flow. New services such as video, music and game downloads should continue to spur wireless demand, and Telus’s profits. The stock has risen nine-fold (see box next page) in the past few years, but we foresee further gains. TELUS CORP. (Toronto symbols T $44 and T.NV $44; SI Rating: Above average) is Canada’s second-largest telecommunications provider, after BCE Inc. It provides local and long distance telephone services to roughly 5 million customers, mainly in Alberta, British Columbia and parts of Quebec. It also provides Internet access services to roughly 1 million subscribers. Telus’s revenue slipped from $7.1 billion in 2001 to $7.0 billion in 2002, but rose to $8.1 billion in 2005. It lost $0.51 a share (total $145.8 million) from continuing operations in 2001, as well as $0.75 a share ($235.8 million) in 2002, mainly due to restructuring costs following the Clearnet acquisition. However, earnings improved from $0.92 a share ($324.4 million) in 2003 to $1.94 a share ($700.3 million) in 2005....

BCE INC. $29 (Toronto symbol BCE; SI Rating: Above average) has struggled in the past few years due to increasing competition in its core telephone business, which supplies 40% of its revenue and half of its profit. It also suffers from a “holding company discount": the current price of the stock is less than the total value of its various assets (wireless, Internet, satellite TV, etc.). Selling or rearranging these assets would give BCE more cash and/or income, and let it focus on its core operations. BCE now hopes that several recent announcements will simplify its operations and spur the stock price. The latest is a proposal to form a new trust that will hold its rural telephone lines in Ontario and Quebec. The new trust will also hold the land-line business of 53.2%-owned Aliant Inc., which is the main telephone company in Atlantic Canada. BCE will own 73.5% of the new trust, but that will fall to 45% after it hands out some of these units to its owns shareholders as a tax-deferred distribution. The company will also assume control over Aliant’s wireless business, which will expand the geographic reach of it’s own wireless operations....

IUNITS DIVIDEND INDEX FUND $20.50 (Toronto symbol XDV; buy or sell through a broker) began trading in December, 2005. The fund currently holds the 30 highest yielding Canadian stocks. These stocks are included in the index based on their proportionate dividend-per-share weight. The weight of any one stock in the fund is limited to 10% of the fund’s assets. The fund’s MER is 0.50%. The fund will have a dividend yield of about 3.3%. The fund’s top holdings are CIBC at 7.3%; Manitoba Telecom, 6.4%; Royal Bank, 7.2%; Bank of Montreal, 5.5%; National Bank, 4.8%; TD Bank, 4.7%; Magna International, 4.2%; IGM Financial, 3.7%; Bank of Nova Scotia, 3.9%; and BCE, 3.4%. iUnits Dividend Index Fund is a buy. If you buy it, however, you should adjust your portfolio to offset its over 50% weighting in the Finance sector.

UNIVERSAL CANADIAN GROWTH FUND $20.66 (CWA Rating: Conservative) (Mackenzie Financial Corp., 150 Bloor St. West, Toronto, Ont. M5S 3B5. Web site: www.mackenziefinancial.com. 1-800-387-0780; Load fund — available from brokers) holds companies with strong management and sound business prospects. The fund holds fewer than 40 stocks at all times. Top holdings include Bank of Montreal, Manulife Financial, Finning International, Avid Technology, Shoppers Drug Mart, Corus Entertainment, Industrial- Alliance Life Insurance, Edwards Lifesciences, Biosite Inc. and BCE Inc. The fund’s breakdown by economic sector is as follows: 19.3% in Financials, 17.9% in Information technology, 16.1% in Consumer discretionary, 9.2% in Health Care, 9.4% in Industrials, 5.7% in Energy, 6.0% in Consumer staples, 3.7% in Telecommunications and 2.1% in Materials....

Here are two funds offered by Mackenzie Financial. We rate one as Conservative and the other as Aggressive. But both cut risk by investing in high-quality stocks. UNIVERSAL CANADIAN GROWTH FUND $20.66 (CWA Rating: Conservative) (Mackenzie Financial Corp., 150 Bloor St. West, Toronto, Ont. M5S 3B5. Web site: www.mackenziefinancial.com. 1-800-387-0780; Load fund — available from brokers) holds companies with strong management and sound business prospects. The fund holds fewer than 40 stocks at all times. Top holdings include Bank of Montreal, Manulife Financial, Finning International, Avid Technology, Shoppers Drug Mart, Corus Entertainment, Industrial- Alliance Life Insurance, Edwards Lifesciences, Biosite Inc. and BCE Inc....

While telephone companies already have learned to live with long-distance competition, they now face local competition as well. New technologies such as Voice-over- Internet Protocol (VoIP) are a threat to BCE and Manitoba Tel in both long-distance and local service. We think both companies will prosper despite the competitive threats. Still, to lower risk, income-seekers should spread their utility-sector investments out among the three main segments of the Utilities economic sector — telephone companies, pipeline operators and electric companies. You should own phone stocks only if they are part of a balanced portfolio, and you also have diversification within the utilities sector. In addition, we advise against holding more than 10% of your portfolio in phone stocks.

BCE INC. $28 (Toronto symbol BCE; SI Rating: Above-Average) provides local and long distance telephone service to customers throughout Ontario and Quebec. Other services offered by the company include wireless communications, direct-to-home satellite television, Internet access and e-commerce. BCE also owns 68.5% of Bell Globemedia, the owner of CTV, The Globe and Mail and several specialty channels. BCE made $0.50 a share from ongoing operations in the three months ended September 30, 2005, down 3.8% from $0.52 a year earlier. Revenues rose 3.1%, to $4.95 billion from $4.8 billion. BCE still suffers from a “holding company” discount, and may spin off or sell more of its divisions to unlock its hidden value. The company recently agreed to sell most of its shares in computer consulting firm CGI Group back to CGI for $859.2 million. That still leaves BCE with $242 million worth of CGI shares, which it plans to sell in 2006. BCE has also agreed to sell most of its controlling stake in Bell Globemedia. It will receive $1.3 billion, and see its interest in Bell Globemedia fall from 68.5% to 20%....