TORONTO, June 19 /CNW/ - The Northwater Five-Year Market-Neutral Trust
(the "Trust") announced today that the net asset value of the Trust per unit
as at May 31, 2009 is $11.73. The return of the Trust for the month of May is
0.11%. The rolling 12-month return for the Trust is -34.94%. The Trust also
announced that it has declared the final regular quarterly distribution to be
payable to unitholders of record on June 30, 2009 that is $0.4375. This
distribution is expected to be paid on July 15, 2009.
The Trust, through a forward purchase and sale agreement, has exposure to
a portfolio of market-neutral hedge funds held by Northwater Five-Year
Market-Neutral Fund Limited (the "Fund"). For the month of May, 15 of the
Fund's 22 managers posted positive returns. All nine market-neutral strategies
included within the Fund's portfolio contributed positively to the bottom
line. Specifically, the Fund's Convertible Arbitrage managers, in aggregate,
were the largest positive contributors to the estimated return of the Trust
for the month.
The Fund relies on estimates provided by administrators or managers of
each of the Fund's underlying hedge funds. These estimates may be revised and
the Fund will be required to capture these revisions in subsequent net asset
value calculations. The net asset value of the Fund is also affected by the
finalization of the net asset value by the administrators of the underlying
hedge funds. Ultimately, the net asset value of the Fund impacts the reported
net asset value of the Trust and, accordingly, the Trust indirectly relies on
the estimates provided by administrators or managers of each of the Fund's
underlying hedge funds.
The Fund's exposure to a fixed interest rate swap increased the Trust's
return as the interest rate environment was favourable to the Trust over the
Subject to limits set out in the Trust's prospectus, the Trust is
required to purchase its units in the market in the event that the market
price of a unit of the Trust falls below 95% of the net asset value of the
Trust per unit. For the month of May, the Trust did not purchase any units
under this program.
Initial Termination Distribution
As announced previously, a portion of the Trust is subject to
restrictions on liquidity that will extend beyond June 30, 2009 (the
"Termination Date"). The Trust will make an initial termination distribution
("Initial Termination Distribution") of $3.87 per unit to unitholders of
record on June 30, 2009. The Initial Termination Distribution is expected to
be paid on July 15, 2009.
Update on Status of Wind-Up
As announced in the press release of June 11, 2009, in accordance with
the process of winding up the Trust, the following actions will occur on or
about the Termination Date:
1. In accordance with the terms of the forward purchase and sale
agreement the Trust entered at the inception of the Trust (the
"Forward Agreement"), the Forward Agreement will mature and
terminate. The Forward Agreement provided a tax-deferred exposure to
the portfolio of hedge funds held by Northwater Five-Year Market-
Neutral Fund Limited (the "Fund") as well as the foreign currency
hedge that hedged the US Dollar exposure of the Fund. The Trust will
have direct exposure to the Fund following the Termination Date. As
the foreign currency hedge was part of the Forward Agreement, the US
Dollar exposure of the Fund will no longer be hedged to Canadian
dollars. The creation of a new hedging program would have required
the Trust to hold back a material amount of cash and would have
significantly restricted the Trust's ability to distribute cash to
unitholders after June 30, 2009.
2. The five-year term of the interest rate swap that the Trust entered
at the inception of the Trust (the "Interest Rate Agreement") will
terminate on June 30, 2009, and the Trust will no longer have direct
exposure to interest rates from the interest rate swap. The Trust
will maintain some direct exposure to short term interest rates going
forward through any money market securities held by the Trust.
The Manager continues to work toward affecting the monetization of the
hedge fund portfolio against a backdrop of liquidity constraints. In some
instances, the Fund (and by extension the Trust) will have exposure to the
particular investment strategy engaged in by a hedge fund until the Fund's
redemption in the hedge fund is effective.
Potential Tax Implications of Wind-Up and loss of Qualified Registered
Plan Status on June 30, 2009
As previously announced in press releases released by the Manager since
January 2009, it is anticipated that the percentage of certain illiquid
holdings in relation to the Trust's assets is likely to exceed the 10%
concentration limits required in order for the Trust to continue to qualify as
a unit trust for Canadian income tax purposes.
If and when the Trust fails to qualify as a unit trust it will no longer
qualify as a mutual fund trust for Canadian income tax purposes and the Trust
will no longer be a "qualified investment" for registered accounts, including
without limitation, RRIF's, RRSP's and RESP's. The Manager anticipates that
the Trust will lose its "qualified investment" status on or about the
Termination Date. Investors are advised to speak with their advisors as soon
as possible to obtain tax advice regarding the anticipated failure of the
Trust to maintain its "qualified investment" status, and the appropriate
movement of any investment in the Trust out of registered accounts.
The Northwater Five-Year Market-Neutral Trust is a fund of hedge funds.
Units are listed on The Toronto Stock Exchange under the symbol NYF.UN.
For further information:
For further information: Mohamed Khaki at Northwater Capital Management
Inc. at (416) 360-5435