Dear Mr. Berko:

I’m thinking of buying 100 shares each of BellSouth Corp. and SBC Communications Inc. for the long term (two to four years), and I’d be comfortable holding these stocks because they have good dividends that are taxed at 15 percent. Because they own Cingular, which recently purchased AT&T Wireless, I think that in the coming few years the share price of both of these companies will have good appreciation. Do you agree?

I’m also considering buying about $10,000 worth of a closed-end fund called TCW Convertible Securities Fund. It has been around for a while and I think that it will give me a good income without the wide swings this stock market might have during the next few years. I’d also like to have your thoughts on this investment.

H.S., Joliet, Ill.

Dear H.S.:

Cingular Wireless (jointly owned by BellSouth and SBC Communications) is now the largest U.S. mobile-phone carrier. After its $43 billion purchase of AT&T Wireless (many analysts believe Cingular overpaid by $12 billion), Cingular now has 49.2 million customers and dwarfs its competition.

Last year, Cingular took in $8.05 billion in revenues but spent more than $7.2 billion on marketing and advertising. Many on the Street believe that Cingular will be a drag on the earnings of BellSouth (BLS-$26.02) and SBC Communications (SBC-$23.66). Though Cingular has had success keeping most AT&T Wireless subscribers, some observers believe this may be only a short-term phenomenon.

The merger has created technical problems, and many subscribers are becoming short-fused with their service. Calls are lost, call-back messages show up days later, reception is poor, information operators provide wrong numbers, nonsense data appears on phone screens, dialing connections don’t connect, ad nauseam. Many on the Street think this merger is terribly counterproductive and may end up costing SBC and BLS some big bucks.

This October 2004 merger combined two mobile-phone companies that have the lowest customer service and performance rankings in the industry. Cingular and AT&T together have 70,000 employees, and many of these people are going to lose their jobs. This has created enormous ill will, anger and anxiety among employees and it’s not unthinkable that their collective angst has been a contributing factor to Cingular’s inefficiencies, poor customer service and subpar operating performance. And it’s not unthinkable that the collateral damage from this foul mood may affect its two parents.

Yes, both SBC and BLS have attractive dividend yields and yes, both may have modest six- to eight-year potential, but I’m uncomfortable owning either stock. Frankly, I think it’s dumb to own SBC or BLS when there are so many better equities to choose from.

I think your choice of TCW Convertible Securities Fund (CVT-$5.38) is an excellent idea. In my opinion, it’s such a good idea that just a few months ago we bought CVT for most of our managed accounts; our clients and I also own the stock personally. About 70 percent of CVT’s portfolio is invested in convertible bonds, and as you know, I have a strong affinity for this kind of investment because convertibles provide investors with a two-edged sword. They offer the conservatism and safety of corporate bonds along with the upside potential of the underlying common stocks. CVT now pays a 40-cent dividend, and at today’s price the yield is an attractive 7.4 percent. I like that. The shares currently trade at an 8 percent discount to the portfolio’s net asset value. This means that investors are purchasing assets at 92 cents on the dollar. I like that, too. Unlike other closed-end convertible bond funds, CVT does not employ leverage (borrowing money at low rates to buy higher-yielding issues) to increase the size of its portfolio. This of course reduces CVT’s volatility, which I also like. I recommend this stock for conservative accounts, because I think there’s an unexciting appreciation potential of 5 percent to 7 percent over the next 12 months and combined with a 7.4 percent dividend the total return could be an unexciting 12.4 percent. This isn’t a home run stock, but we’re satisfied with a few walks, singles and doubles. We believe CVT can give you some modest appreciation and an attractive dividend.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.