Report on Contributory Pension Council Meeting

November 17, 2004 by Norm Hobbs VP

The meeting started with the introduction of two new faces from MTS

- Bruce Hannah, Vice President, Human Resources, MTS and

- Brenda Mclnnes, Treasurer, MTS

Brenda Mclmies has been with MTS some fifteen years with thirteen of those involved in the responsibility of governing the MTS pension plan. She now assumes that same role vis-a-vis the Alistream pension plan.

MTS has a billion dollar plan and its investment principles are quite similar to those of Alistream. The equity/bond split is the same as ours, i.e. 60/40 but with a minor difference of having 5% equity in real estate and mortgages.

MTS allows investment managers to hold no more than 25% of the portfolio.

No more than 30% of the fund is held in non-Canadian assets and the bonds are a mix of short, medium and long term.

The Allstream plan will be run as a separate entity with perhaps a few changes in the investment management, such as the 25% mentioned above. MTS also employs recognized experts in the investment field and does not countermand or overule their advice. The investment committee of MTS may also consider combining some investment from the two funds to take advantage of economy of scale.

MTS has only one pension fund, contributory, to which all of their employees belong It is 90% funded at the present time and has some 2500 pensioners.

Now, to the status of Allstream Pension Fund.

-- Investment returns for third quarter 2004 are 0.4% exceeding the benchmark of 0.1%

-- Year to date returns of 4.6% exceed the benchmark return of 4.2%

The third quarter return was affected negatively by the strong performance of the Cdn$ on the foreign investment portion of the fund.

The year to date performance is considered adequate in the present market.

-- The solvency deficit has been reduced to 76.7 million as of June 30, 2004 down from 83.9 million at January 1, 2004 and solvency stands now at 84%

-- Amortization of the deficiency is estimated to be 22.5 million for the year 2004, with 16.9 million funded this year to date.

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Report on Non-Contributory Pension Council Meeting

November 17, 2004 by Norm Hobbs VP

As you probably are already aware I attended in place of Morley who is ill-disposed Joining me was Bob Clarke Past President.

The meeting was pretty much a repeat of the morning contributory session. Bob had a question with respect to the substantial increase in the audit cost of the pension fund.

Brenda Mclnnes replied that they had noted that fact and were presently pursuing the matter. She was of the opinion that such an increase will not occur in the future since MTS will be using their plan auditor and much of the audit file is prepared in-house to ameliorate costs. In all aspects of the pension plans as much as can be done is in-house and there should be a further saving in having the three plans under one umbrella

Brenda Melnnes expanded further on the investment committee. It is made up of six members, three internal to MTS and three external. The three external members include

Retired Deputy Finance Minister of Manitoba specializing in bonds

Retired VP of Great West Life

A present VP of Great West Life.

She reiterated that the MTS board does not overule or second-guess the investment committee

The Alistream Non-Contributory Pension Fund Status

-- The investment return and mix is identical to the contributory fund

-- The solvency deficit has been reduced to 20.7 million as of June 30, 2004 which is down from 23.0 million as of January 1, 2004.

-- The solvency deficit is estimated to be reduced by 7.0 million this year with 5.2 million funded this year to date.

In both funds, of the five investment managers three equaled or exceeded the benchmarks. Canadian Equity fell short of the bench mark by 0.8 at 6.0 return. Non Canadian equity held by Capital Guardian fell short of the benchmark by 2.6 at a negative 2.1 return. Those two investments represent 20% and 13%, respectively, of the total fund.

The shortfall in Canadian Equity investment was explained by the fact that McLean Budden follows a rather conservative approach staying away from hi-tech and energy stocks which can be quite volatile. And as before the loss in the Non Canadian Equity was attributed to the strong Canadian dollar.

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