Telus Corp.

FIDELITY TRUE NORTH FUND $27.95 (CWA Rating: Conservative) (Fidelity Investments Canada, 483 Bay St., Suite 200, Toronto, Ont. M5G 2N7. 1-800-263-4077; Web site: www.fidelity.ca. Load fund — available from brokers) uses a “bottom-up” approach (using fundamentals such as earnings, cash flow and low debt) to identify undervalued companies. Fidelity True North Fund’s top holdings include high-quality stocks such as Manulife Financial, Nexen, TD Bank, Sun Life Financial, Canadian Natural Resources, Bank of Nova Scotia, Telus Corporation, Rogers and Talisman Energy. The $6.2-billion Fidelity True North Fund’s one-year gain is 20.2%, compared to a gain of 20.6% for the S&P/TSX over the same period. The fund’s MER is 2.55%....

FIDELITY TRUE NORTH FUND $27.95 (CWA Rating: Conservative) (Fidelity Investments Canada, 483 Bay St., Suite 200, Toronto, Ont. M5G 2N7. 1-800-263-4077; Web site: www.fidelity.ca. Load fund — available from brokers) uses a “bottom-up” approach (using fundamentals such as earnings, cash flow and low debt) to identify undervalued companies. Fidelity True North Fund’s top holdings include high-quality stocks such as Manulife Financial, Nexen, TD Bank, Sun Life Financial, Canadian Natural Resources, Bank of Nova Scotia, Telus Corporation, Rogers and Talisman Energy. The $6.2-billion Fidelity True North Fund’s one-year gain is 20.2%, compared to a gain of 20.6% for the S&P/TSX over the same period. The fund’s MER is 2.55%....

CANADIAN NATIONAL RAILWAY CO. $54 (Toronto symbol CNR; Conservative Growth Portfolio, Manufacturing & Industry sector; SI Rating: Average) plans to increase capital spending in 2007 by 4% over 2006. About half will go to basic items like replacing tracks and repairing bridges. It will also buy new locomotive and other railcars that will cut its fuel costs and improve safety. CN Rail is a buy. GREAT-WEST LIFECO INC. $34 (Toronto symbol GWO; Conservative Growth Portfolio, Finance sector; SI Rating: Above average) continues to expand its retirement savings and healthcare insurance operations in the United States....

MANITOBA TELECOM SERVICES INC. $44 (Toronto symbol MBT; Conservative Growth Portfolio, Utilities sector; SI Rating: Average) earned $0.52 a share from continuing operations, down 14.8% from $0.61 a year earlier. If you disregard restructuring costs, profits grew slightly. Revenue fell 5.9%, to $477.9 million from $507.7 million, due to strong competition in the local and long distance businesses. The stock fell 10% on news of Ottawa’s new plan to tax income trusts, but quickly recovered. That’s because bigger phone companies like BCE and Telus could use the accumulated losses of Manitoba Tel’s struggling Allstream business telecom division to cut their own tax bills. These losses expire in 2014. The company’s $2.60 dividend (5.9% yield) is also now more attractive to income-seeking investors. Manitoba Telecom is a buy.

MANITOBA TELECOM SERVICES INC. $49 (Toronto symbol MBT; Conservative Growth Portfolio, Utilities sector; SI Rating: Average) is the leading provider of telecom services in Manitoba, with 1.8 million customers. It also provides telecom services to businesses across Canada through its MTS Allstream division. Manitoba Tel acquired Allstream in 2004 as way to cut its reliance on residential customers in a single province. However, the business telecom market is extremely competitive, and Allstream has not been as profitable as the company hoped. Based on the favourable reaction to BCE’s and Telus’s trust conversion plans, it’s more likely that Manitoba Tel will follow the same path. It would probably try to sell or spin off Allstream first, since the division’s uncertain cash flows would limit its appeal as a trust....

TELUS CORP. (Toronto symbols T $62 and T.A $62; Conservative Growth Portfolio, Utilities sector; SI Rating: Above average) is the main provider of telephone service in Alberta, British Columbia and parts of Quebec, with roughly 4.5 million customers. It also operates a national wireless service under the Telus Mobility banner. Back in October 2000, Telus acquired wireless provider Clearnet Communications Inc. This gave Telus an instant national network, and let it avoid having to build its own network from scratch. Demand for wireless services has soared since the acquisition, and now supplies half of Telus’s revenue and two-thirds of its cash flow. Along with the Clearnet business, Telus acquired substantial tax loss carryforwards, which is could use to offset its taxable income. However, the company is now close to using up all of the tax loss carryforwards. Rather than let its tax rate shoot up, the company unveiled plans in September to convert itself into an income trust. The stock shot up on the news....

Both BCE and Telus have unveiled plans to convert into income trusts, which helped spark a rise in their stock prices. Canada’s other big telecom company, Manitoba Telecom, moved up on rumors that it too would convert. The trust structure will let BCE and Telus avoid a big tax increase in the next few years as certain tax shelters expire. But investors have higher payout expectations of a trust compared with a regular company. Telecom companies must invest large sums in new equipment, or risk losing customers. These costs could hurt BCE’s and Telus’s ability to raise future cash distributions....

High quality Real Estate Investment Trusts, or REITs, are among the most stable of the royalty and investment trusts. That’s because they own nondepleting assets, and can lock in lease rates and financing costs for long terms. Investors are also aware of the takeover prospects for REITs these days. That’s not reason enough alone to buy them, but it’s a plus. The REITs we recommend hold top-quality assets. In contrast, many other types of trusts hold lowquality assets in volatile industries such as resources and commodities, sugar production or restaurants. These trusts expose holders to hidden business risks that could have a sudden, devastating effect on their cash flow and yields....

IMPERIAL OIL LTD. $45 earned $0.85 a share in the three months ended June 30, 2006, up 63.5% from $0.52 a year earlier. If you disregard a one-time tax credit, Imperial’s second quarter profits would have grown 34.6%, to $0.70 a share. Revenue slipped to $6.7 billion from $6.8 billion, due to lower natural gas production and prices. Rising costs at Imperial’s proposed oil sands and gas pipeline projects could hurt future growth. Hold. TELUS CORP. $52 continues to benefit from growing demand for wireless services. In fact, it now has more wireless customers than traditional telephone customers. Thanks to a 14% jump in the number of wireless subscribers in the past year, Telus earned $0.69 a share before one-time items in the second quarter of 2006, up 32.7% from $0.52 a year earlier. Revenue rose 7.0%, to $2.14 billion from $2.0 billion. Buy. BANK OF MONTREAL $64 is the first Canadian bank to receive permission to provide banking services in Beijing using China’s local currency. That will let it offer a broader array of services, and give it an advantage over other foreign banks. Buy.

TELUS CORP. (Toronto symbols T $46 and T.A $45 (old symbol T.NV); Conservative Growth Portfolio, Utilities sector; SI Rating: Above average) continues to offer new wireless services, which should help it attract new customers and squeeze more revenue out of current users. Telus now plans to offer satellite radio services from XM Canada to its wireless customers. Only 10% of cellphone users subscribe to an entertainment service, so there’s plenty of room for growth. The company should also benefit from a new federal telecommunications policy. That will give Telus and other traditional phone service providers greater flexibility to compete with cable and Internet-based phone services....