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NEWPORT BEACH, California (January 28, 2007) - 2006 was a year of many positive developments at Prospero Capital: each of our three Funds closed the year at all-time performance highs; assets under management increased significantly to $277 million (from $26 million at the end of 2005); we completed our tenth year of dedicated service to our investors, with cumulative net performance of +230% versus only +124% for the S&P 500 Index (12.7% per annum versus 8.4% per annum for the S&P 500); and we successfully relocated to New York City from Newport Beach, CA. These strategic changes substantially increase our access to company management teams, idea flow, research products, and industry conferences. Consequently, Prospero is well-positioned in 2007 to deliver strong, double-digit net returns to our investors, while carefully managing risk and protecting investor capital.
As many of you know, in January, Prospero formed a new long/short hedge fund, Beaumont Fund, LP, which will be our exclusive investment vehicle going forward. The new fund was formed through a tax-free restructuring of our three existing funds and will offer investors our best long and short ideas, while optimizing net market exposures. In conjunction with the new fund launch, Prospero established its offices in New York and began an affiliation with Omega Advisors, a $5.2 billion hedge fund managed by Leon Cooperman. Omega has provided Prospero with a line of capital to manage in concert with our long/short Beaumont Fund. Through this affiliation, Prospero will be able to capitalize on superior access to Wall Street investment research, conferences, company management teams, and idea flow, increasing the likelihood of producing superior returns for our investors.
Performance for the fourth quarter was strong in absolute terms for our Antenor (long only), Beaumont (long/short), and Curan (market neutral) Funds, appreciating by 7.3%, 4.7%, and 1.9%, respectively. Significant hedges in Beaumont prevented an even higher return for the year, but given Beaumont's conservative 34% net exposure to the markets, we are pleased with its double-digit net return, making it our strongest-performing fund in 2006, as illustrated below:
Monthly and Annualized net returns (through 12/31/06):
| Antenor | S&P 500 | Beaumont | Curan | |
| Dec '06 | 0.9% | 1.4% | 1.8% | 1.4% |
| 1-year | 9.6% | 15.8% | 11.5% | 7.8% |
| 3-year | 8.1% | 10.4% | 7.6% | 5.9% |
| 5-year | 7.0% | 6.2% | ||
| 10-year | 12.7% | 8.4% | ||
| Inception (1997) | 12.7% | 8.4% |
During the fourth quarter, Prospero particularly capitalized on its short position in for-profit education company Apollo Group, Inc (APOL), which suffers from a variety of company-specific and structural factors that pushed the shares down more than 20% during the fourth quarter in a rising market. On the long side, Prospero maintained overweight positions in Consumer Staples (particularly tobacco), Financials, and select Transports (railroads), while remaining underweight in Consumer Cyclicals. Prospero maintained in-line weightings in Healthcare, Technology, and Energy, and had no net exposure to Basic Materials, Capital Goods, Utilities, and Communications.
Since our inception, Prospero has prided itself on producing strong returns for our investors through in-depth, fundamental research and careful risk management. If you would like to discuss Prospero's proven long-term track record in more detail or further explore our proprietary investment process, please call us at 212.495.5207 or come visit our new offices in New York. As always, we value your loyal support and wish each of you happiness and great success in 2007!
Prospero Capital Management is an investment advisory company delivering superior financial results and service to clients through detailed fundamental research and investment insight. Contact Prospero at 866.377.7677 or invest@prosperofunds.com for more information.