A hedge fund is an investment product that offers significantly greater flexibility in its investment strategy compared to a mutual fund or traditional investment strategy. Hedge funds can make money in up and down markets by investing in equities both long and short (betting against a company's stock price), buying and selling options to protect core holdings, and utilizing many strategies to adjust the overall risk of the portfolio. The fund's strategy will depend on its investors' risk tolerance.

• Prospero's hedge fund strategy provides our investors with the ability to generate positive returns in both rising and falling equity markets and interest rate environments.
• Academic research demonstrates that including hedge funds in a balanced portfolio reduces overall portfolio risk and increases returns.
• Exposure to a hedge fund product in an investment portfolio provides diversification not otherwise available through traditional investment vehicles.

Prospero Capital's Beaumont Fund utilizes sophisticated hedging techniques to ensure that our investors are always offered a portfolio that corresponds with their individual risk tolerance levels. Fundamentally, Prospero seeks to provide our investors with the ability to benefit from our stock picking capabilities without facing direct exposure to the direction of the market. Prospero employs a number of financial instruments to reduce risk and enhance returns, while simultaneously lowering correlation with the equity markets. To mitigate market risk, Prospero primarily sells individual equities short, but will also employ market index shorts during periods of excessive valuation in the broader S&P 500 and NASDAQ indices.

Short selling is a widely used technique whereby the party entering the trade sells a stock without actually owning it (shares are borrowed from brokerage firms), hoping to buy it back at lower prices in the expectation that the share price will drop. Used in isolation, short selling can be a risky proposition since negative events (e.g. disappointing earnings announcements, overvaluation by the market, etc.) can be difficult to time correctly. However, when used in conjunction with traditional long investments in similar industries, short selling mitigates risk and provides terrific protection against excessive portfolio volatility.

A popular misconception is that all hedge funds are extremely volatile—that they all use global strategies and place large directional bets on stocks, currencies, bonds, and commodities, while simultaneously using excessive leverage to enhance returns (and increase risk). In reality, less than 5% of hedge funds are global macro players. Furthermore, many only use derivatives for hedging and those like Prospero do not rely on leverage.

Prospero Capital has been able to beat the market consistently through superior research and insight into company and market trends. Our investment philosophy does not look for shortcuts to wealth accumulation.

Investment leverage is a technique that involves accumulating debt to increase potential returns through an increase in risk. In a leveraged account, an investment manager borrows money and invests it in the funds' securities. If the securities appreciate, the upside is magnified as more money has been invested. If the securities lose value, however, investors will lose a greater percentage of their original investment.

Prospero Capital does not believe in seeking higher returns through leverage and does not rely on this technique in our Beaumont Fund.

Prospero Capital's annual management fee is 1.5% of assets, charged quarterly in advance on the first day of each January, April, July and October and is based on the assets in the Fund on the immediately preceding December 31, March 31, June 30, and September 30. In addition to the management fee, Prospero Capital maintains a carried interest in the investment performance of the Fund, based on the appreciation in the immediately preceding fee period. The carried interest will be 20% of the investment gains of the Fund during each fee period, subject to a high-water mark requirement.

Example: If Prospero returns 3% in the first quarter of the year, the carried interest fee will be 0.6% for that quarter. If the account declines 1% in the second quarter and appreciates 2% in the third quarter, the carry will be zero in Q2 and will be based on a net 1% gain, or 0.2% in Q3 (high-water mark).

No. Please review our Privacy Policy for more details.

For more information please call us at (312) 938-8000 or e-mail us at jmarquardt@prosperofunds.com.