Front Street Capital

Front Street Capital

March 15, 2007 21:22 ET

Front Street Special Opportunities Canadian Fund Ltd. Annual and Special Meeting of Shareholders 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 an annual and special meeting of shareholders of Front Street Special Opportunities Canadian Fund Ltd. ("SOF"), a mutual fund corporation that it manages, will be held on May 10, 2007. In addition to the election of directors of SOF and the re-appointment of its auditors, the special business to be considered by shareholders at this meeting is (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 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").

SOF currently offers Series A, Series B and Series F shares of one class. Shareholders 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 would form the Series A, Series B and Series F shares of the Front Street Special Opportunities Class of shares of the reorganized company, to be renamed "Front Street Opportunity Funds Ltd.". The assets of SOF held at the date of this reorganization would form the portfolio of assets of the Front Street Special Opportunities Class of shares of Front Street Opportunity Funds Ltd., and that share class would be treated as a separate fund for securities regulatory purposes. There would be no change to the net asset value of any of the Series A, Series B or Series F shares currently held by shareholders, and no immediate tax consequences to investors.

As with other capital class funds, if investors switch their shares of any series of the Front Street Special Opportunities Class for shares of any other class of share of Front Street Opportunity Funds Ltd. (each such additional share classes 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.

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. Additional share classes may be used in connection with mergers of certain funds managed by Front Street Capital, including the Front Street Yield Opportunities Class, which would be used in connection with the proposed merger of Front Street Long/Short Income Fund ("FSLS") into Front Street Opportunity Funds Ltd. Under the proposed merger, which is subject to the approval of the unitholders of FSLS in addition to the approval of the shareholders of SOF, the portfolio 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, which shares would then be distributed to FSLS Unitholders on the redemption of their FSLS units. This portfolio would be maintained as a separate portfolio by Front Street Opportunity Funds Ltd., for the exclusive benefit of holders of the Front Street Yield Opportunities Class shares. This merger would not be effected on a rollover basis for tax purposes, and so would be treated as a taxable disposition.

Front Street Capital believes that the capital reorganization, in conjunction with the proposed merger, should benefit shareholders 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 SOF's assets and provide the potential for higher returns. Shareholders 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 SOF will be outlined in an information circular that will be sent in mid April to shareholders of record on April 2, 2007. Unitholders of FSLS will receive their own information circular with respect to the matters they are being asked to approve at a meeting to be held on the same day as the annual and special meeting of shareholders of SOF. These information circulars will also be available at www.sedar.com. Shareholders of SOF are encouraged to complete voting instruction forms in order that their shares can be voted at the meeting.

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