Front Street Long/Short Income Fund
TSX : FLS.UN

Front Street Long/Short Income Fund

March 15, 2007 21:23 ET

Front Street Long/Short Income Fund Special Meeting of Unitholders to Be Held May 10, 2007

TORONTO, ONTARIO--(CCNMatthews - March 15, 2007) -

NOT FOR DISTRIBUTION IN THE UNITED STATES OR OVER U.S. WIRE SERVICES

Front Street Capital 2004 ("Front Street Capital") has announced that a special meeting of unitholders of Front Street Long/Short Income Fund (TSX:FLS.UN) ("FSLS") will be held on May 10, 2007 to approve the merger of FSLS into Front Street Special Opportunities Canadian Fund Ltd. ("SOF"), a mutual fund corporation managed by Front Street Capital.

A meeting of the shareholders of SOF will be held on the same date to, among other things, approve (i) a reorganization of the capital structure of SOF to convert it into a "capital class fund", more particularly discussed below; (ii) the approval of the merger of certain funds managed by Front Street Capital, including FSLS, into SOF; and (iii) a change to the investment objectives, strategy and restrictions of SOF to convert it from a conventional mutual fund to a fund subject to National Instrument 81-104 ("NI 81-104").

Shareholders of SOF will be asked to vote on a proposal to reorganize the capital structure of SOF such that it would offer multiple classes of shares, issuable in series, with each share class referable to a particular portfolio of assets. The existing series of shares of SOF would become series of shares of the Front Street Special Opportunities Class of shares of the reorganized company, to be renamed "Front Street Opportunity Funds Ltd.". If the proposal is approved by shareholders of SOF, Front Street Capital will have the discretion to create additional classes of shares of Front Street Opportunity Funds Ltd.

Assuming these changes are approved by the shareholders of SOF, and the merger of FSLS into SOF is approved by the unitholders of FSLS, the existing portfolio assets of FSLS would be transferred to Front Street Opportunity Funds Ltd. in return for Front Street Yield Opportunities Class shares of Front Street Opportunity Funds Ltd. These portfolio assets would be maintained as a separate portfolio by Front Street Opportunities Fund Ltd., for the exclusive benefit of holders of the Front Street Yield Opportunities Class shares. As part of the merger, unitholders of FSLS would receive one Front Street Yield Opportunities Class share for each unit in FSLS held. This merger would not be effected on a rollover basis for tax purposes, and so would be treated as a taxable disposition.

As with other capital class funds, if investors switch their shares of any series of the Front Street Yield Opportunities Class for shares of any other class of shares of Front Street Opportunity Funds Ltd. (each such additional share class effectively representing a separate fund), or if they switch from one series of shares within a class to another series, the switch occurs on a "rollover" basis so that investors generally will not realize a capital gain or a capital loss on the switch.

Front Street Capital believes that the capital reorganization of SOF, in conjunction with the proposed mergers, should benefit investors in all funds through the ability to switch tax-free between funds with different investment strategies and investment approaches all within the context of a larger and hence more cost effective fund structure.

Shareholders of SOF are also being asked to approve changes to its investment objectives, strategy and restrictions so as to convert it from a conventional mutual fund, subject only to National Instrument 81-102 ("NI 81-102") in respect of its investment operations, to a fund subject to NI 81-104, which provides an exemption from certain of the provisions of NI 81-102, thereby creating additional investment flexibility. As a conventional mutual fund, SOF is currently subject to restrictions on its use of derivatives prescribed in Part 2 of NI 81-102. Shareholders of SOF are being asked to approve the use by Front Street Opportunity Funds Ltd. of the more liberal derivatives regime available under NI 81-104, which will provide it with greater flexibility in the management of the assets of Front Street Opportunity Funds Ltd. and provide the potential for higher returns. Shareholders of SOF will also be asked to approve certain other changes, including changes to the method of calculating performance fees payable to Front Street Capital, available to funds subject to NI 81-104. Except for these changes, however, Front Street Opportunity Funds Ltd. would remain subject to NI 81-102.

Additional details regarding the proposed changes to FSLS, as well as the changes to SOF relevant to unitholders of FSLS, will be outlined in an information circular that will be sent in mid April to unitholders of record on April 2, 2007. The information circular will also be available at www.sedar.com. Unitholders of FSLS are encouraged to complete voting instruction forms in order that their units can be voted at the meetings.

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