Northwater Market-Neutral Trust - Update on Status of Wind-Up and Potential Tax Implications

    TORONTO, Feb. 6 /CNW/ - The Northwater 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 holds a portfolio of market-neutral hedge funds and utilizes a
loan facility to apply a moderate degree of leverage to the portfolio. The
Trust previously targeted an exposure to the hedge fund portfolio of
approximately 125% of the net asset 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 leverage in the hedge fund portfolio 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 Trust 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 52% 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 41% of the Trust may be subject to restrictions on liquidity
that could extend beyond December 31, 2009 (the "Termination Date"). The
Manager of the Trust 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 Trust will have exposure to the particular
investment strategy engaged in by a hedge fund until the Trust's redemption in
the hedge fund is effective.

    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 Market-Neutral Trust are listed on The Toronto
Stock Exchange under the symbol NMN.UN.

For further information:

For further information: Mohamed Khaki, at Northwater Capital Management
Inc., at (416) 360-5435

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Northwater Market-Neutral Trust

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