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COLUMBUS, Ohio (October 1, 2003) - During the third quarter, Prospero's core equity fund (Antenor) continued its strong ascent, resulting in a year-to-date net return of 27.5%, a solid 13.1% ahead of the S&P 500 Index and exceeding our targeted goal of 10% per annum outperformance. Furthermore, Antenor has gained 38.5% during the last 12 months. Perhaps more importantly, Prospero's detailed equity research and rigorous risk management process have continued to produce significant appreciation over the long-term, resulting in a 5-year annualized net return of 12.9% versus only 1.0% for the S&P 500. In dollar terms, for every $1 million invested with Prospero 5 years ago, investors gained an incremental $785,725 versus the S&P 500 (78% cumulative outperformance).
Per annum annualized returns (-9/30):
| Antenor | S&P 500 | |
| MTD | (0.4)% | (1.1)% |
| YTD | 27.5% | 14.7% |
| 1-year | 38.5% | 24.4% |
| 3-year | 6.0% | (10.1)% |
| 5-year | 12.9% | 1.0% |
| Inception (1997) | 13.9% | 6.0% |
Despite the recent rise of the US equity markets, Prospero Capital continues to believe that the markets are trading significantly ahead of the underlying fundamentals necessary to support current valuation levels. Therefore, we have conservatively positioned all 3 funds as we enter the final months of 2003. Our cautious stance has taken the form of increased cash in Antenor and incremental short positions in our hedge funds, Beaumont and Curan. While cash positions don't offer comprehensive protection against market declines, they have proven an effective hedge during periods of rapid market correction. However, because the markets have held up surprisingly well during the last several weeks, Prospero's conservative stance has cost our hedge funds on the short side, leading to a poor month for both Beaumont and Curan, with Beaumont declining 2.2% (up 9.7% for the year) and Curan dropping 1.5% (down 1.9% for the year).
Although the recent performance of our short investments has been disappointing, Prospero's equity selection process continues to identify inexpensive value stocks for our long positions and expensive/problem stocks for our shorts. We anticipate that these short investments will pay off significantly over time and in the interim, provide an important protection to our investors. Despite these near-term concerns, Prospero's long/short Beaumont Fund has gained a net 16.7% for investors during the past 12 months, while maintaining significant hedges against declines in the US equity markets. Meanwhile, our market-neutral Curan Fund has gained 4.6% since its inception at the beginning of last year, while the S&P has declined by (10.6)% over the same time period. Clearly, Prospero's short positions add stability to returns over extended periods of time and provide investors an opportunity to reduce volatility, while still participating in Prospero's core equity selections.
If you would like to discuss Prospero's investment strategies in greater detail, please call us toll-free at 866.377.7677. Meanwhile, while carefully managing each fund's risk exposure, we will be working diligently to produce consistent gains during the remainder of 2003 and beyond.
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.