Northwater Five-Year Market-Neutral Trust - Update on status of Wind-Up and Potential Tax Implications

    TORONTO, Feb. 6 /CNW/ - The Northwater Five-Year Market-Neutral Trust
(the "Trust") today is providing investors with an update on the status of
actions taken within the Trust to effect the orderly liquidation of the
Trust's assets as previously announced.
    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"). The Trust previously targeted an
exposure to the Fund of approximately 150% of the value of the Trust. The
process of reducing the leverage and redeeming from the underlying hedge funds
is well under way and will continue. The Trust's exposure to the Fund will
fall as redemption payments are received from the underlying hedge funds.

    Status of Wind-Up
    The hedge fund industry, like other market participants, has been subject
to unprecedented turmoil in the markets due to the ongoing credit crisis. Many
of the trading strategies employed by hedge funds depend on functional
financial markets, including the ability of managers to enter into short
positions. Hedge funds have not only suffered losses as a result of the stress
felt in the markets, including the difficulty encountered in maintaining short
positions, but because of the drying up of liquidity in many markets. Certain
of the managers have been unable to sell assets to prevent additional losses
or fund investor redemptions. Continuing illiquidity has caused numerous
underlying hedge funds held by the Fund to invoke various restrictions on
redemptions including, without limitation, restricting redemptions to a
limited percentage of the aggregate net asset value of such underlying hedge
funds, the temporary suspension of redemptions altogether, or the commencement
of a controlled liquidation and wind-up of the underlying hedge fund's
    As of December 31, 2008, approximately 49% of the Fund (71% of the Trust)
will continue to have exposure to underlying hedge fund market movements.
Based on the information that Northwater Capital Management Inc. (the
"Manager") had available to it as of December 31, 2008, the Manager
anticipates that approximately 43% of the Fund (62% of the Trust) may be
subject to restrictions on liquidity that could extend beyond June 30, 2009
(the "Termination Date"). The Manager is working to affect the monetization of
the hedge fund portfolio on or prior to the Termination Date 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

    Potential Tax Implications of Wind-Up
    The Manager currently anticipates commencing special cash distributions
("Termination Distributions") to investors effective as of June 30, 2009. Upon
the commencement of the payment of Termination Distributions from the Trust,
the percentage of a particular illiquid holding 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 for
Canadian income tax purposes on or about June 30, 2009. 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.

    Units of the Northwater Five-Year Market-Neutral Trust 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

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