Fat Prophets Australia Fund Limited Annual General Meeting 2005

Robert Bolton

Chairman

25 November, 2005

Welcome & Introductions

Chair's Address

Manager's Address

Formal Business

Acceptance of Annual Financial Report

Appointment of Auditor

Adoption of Remuneration Report

Re-election of David Shearwood as Director

Questions

Tea & Coffee

Net Profit after Tax \$138,000
$\triangleright$ NTA rose \$1.86 million
$\triangleright$ Difference is due to accounting treatment as capital gains reflected on balance sheet.
$\triangleright$ NTA per share rose from \$0.974 to \$1.032
$\triangleright$ Gain of 5.95%
Benchmark ASX 300 All Accumulation index up 5.45%.

Share Buy-Back

$\triangleright$ Company presently has zero debt
Margin Loan facilities have been established to allow gearing should opportunities arise
$\triangleright$ Maximum gearing level at 30% of total assets
Would only be used during periods of extreme market volatility
$\triangleright$ Board to approve first use

None declared for year end 30 June 2005.
Listed only 2.5 months.
Value of franking credits received to date small.
$\triangleright$ Any dividend would have been predominately unfranked
October 2005 NTA release stated $\blacktriangleright$
Dividends will be declared each six months commencing the half year ended 31 December 2005 (within Feb 2006 profit release).
Company will attempt to pass out franking credits to shareholders.

$\triangleright$ Find additional investments to;
take cash holdings to $<$ 2% (now 5.7%)
Provide new opportunities as we crystallise investment gains
$\triangleright$ A desire to grow NTA through performance, with the effect that fixed costs are spread further.
$\triangleright$ Commencement of dividend payments.

Manager's Commentary

David Shearwood

Director Fat Prophets Australia Fund Limited

CEO Fat Prophets Funds Management (Australia) Pty Ltd

		1 Month	3 Month	Since Apr 15	Annualised Since Apr15
Pre-Tax NTA	$\frac{0}{0}$	$-4.59$	1.31	10.76	19.86
Pre-Tax/Exp NTA	$\frac{0}{0}$	$-4.36$	1.88	11.91	21.98
ASX 300 All Accumulation	$\frac{0}{0}$	$-3.84$	3.09	11.58	21.39
Value Add/(Detract)
Pre-Tax	bp	$-0.75$	$-1.78$	$-0.83$	$-1.52$
Pre-Tax/Exp	bp	$-0.51$	$-1.21$	0.32	0.60

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$\triangleright$ Our aim is to find undervalued investments and then patiently wait for true value to be recognised.
$\triangleright$ As such most of the assets within the fund are held on "Capital" Account".
$\triangleright$ Changes in the value of assets is reflected in the Balance Sheet ("capital reserves").
Only dividends received and the change in value of assets held in the Trading Account are reported as profit.

$\triangleright$ Good companies are attentive to broader stakeholder concerns.
The Manager will screen for companies deriving revenue from
activities associated with asbestos, tobacco, armaments, child labour and more.
Possible effect of any ethical concerns will be incorporated into company and industry analysis.
$\triangleright$ Where a material ethical issue is identified, the board will be notified.
Obtained Socially Responsible Investment accreditation from the Ethical Investment Association.

$\triangleright$ Constant search for undervalued stocks.
$\triangleright$ Key driver: Share price is not perfect at determining the appropriate price of a security in the short term.
$\triangleright$ Over time, business fundamentals are real determinant of share price.
Buying opportunities are presented when business fundamentals are strong yet short term price is depressed.
$\triangleright$ Over time these stocks should appreciate to reflect appropriate price.

$\triangleright$ A strong philosophy of capital preservation
$\triangleright$ Where the ratio of the "upside" is larger than potential "downside".
$\triangleright$ Example
Company on a PER of 2x is either cheap or going bust.
If price falls 75% we will look at it as it is either:
- Cheap or
- Potentially insolvent