INVESTSMART GROUP LIMITED — Net Asset Value 2006

Sep 14, 2006

Fat Prophets Australia Fund Limited ACN 111 772 359 Level 33, 2 Park St Sydney, NSW 2000 02 8258 0015 fatfund@fatprophets.com.au

August 2006 NTA RELEASE

14 August 2006

$\ddagger$ . Details of Performance and Net Asset Backing at Month end

The net asset backing ("NTA") of Fat Prophets Australia Fund Limited ("Fat Fund") at 31 August 2006 was \$1.2050 per share on a before tax basis, calculated in accordance with ASX Listing Rule 19:12, and represents a increase of 1.35% over the month. By comparison, the Fat Fund's benchmark, the S&P/ASX 300 Accumulation Index, rose by 3.34% in August 2006. After adjusting for the impact of taxation on both realised and unrealised gains, the Fat Fund's after tax NTA at the end August 2006 was \$1.1584 per share. The pre tax figure for the month includes an increase of approximately 0.48c per share of tax provision on realised gains, which detracts about 0.42% from performance. The figures are cum dividend for the dividend announced on 12 September 2006 of 2.1c per share.

Since inception on 15 April 2005, the Fat Fund's pre-tax NTA, calculated in accordance with ASX Listing Rule 19:12, has risen from 97.4c per share to 120.50c per share with dividends of 1.2 cents per share representing a total return (including tax on realised gains) of 24.9%; over the same period, the S&P/ASX 300 Accumulation Index has increased by 32.8%.

Month by month details of NTA per share and performance since inception are given in the table in the Appendix at the end of this announcement.

$2₁$ Performance Commentary

The major influences on the Fat Fund's performance versus the benchmark during the month of August 2006 were as follows:

Positive Influences			Negative Influences
Company	% move	Position	Company	% move	Position
Image Res.	29.8	Overweight	Oil Search	$-16.3$	Overweight
Repcol	12.1	Overweight	Coles Myer	23.0	Underweight
Telstra	$-5.8$	Underweight	Integrated Group	$-8.3$	Overweight
Brain Res.	25.0	Overweight	Corp.Express	$-12.9$	Overweight
Westfield	$-0.7$	Underweight	Espreon	-5.6	Overweight

3. Top 15 Holdings

Top 15 Holdings by Portfolio Weight as of 31 August 2006
Company	Symbol	% weighting
BHP Billiton	BHP	11.31
National Australia Bank	NAB	6.97
ANZ Banking Group	ANZ	6.44
Commonwealth Bank	CBA	5.52
Rinker Group	RIN	4.35
Ammtec Limited	AEC	3.66
Westpac Bank.	WBC	3.56
Tower Limited	TWR	3.55
Repcol Limited	RPC	2.62
Perseverance Corp	PSV	2.59
Woolworths Limited	WOW	2.51
Espreon Limited	EON	2.42
Rio Tinto	RIO	2.18
Suncorp Metway	SUN	2.14
Insurance Australia Group	IAG	1.98

4. Portfolio Positioning

"Today, only a handful of people know what it means... Soon you will know." Tagline to 1979 film "The China Syndrome"

"The China Syndrome" refers to the ludicrous idea that the consequences of an uncontained nuclear meltdown would flow through the earth from the USA to the other side of the world -China. This seems rather apt in financial markets at present with various indicators showing little degree of control and speculators taking rapidly reversing positions on the back of little firm evidence.

The month of August - aside from low volume volatility as a consequence of Northern Hemisphere holidays - was marked out by the beginning of a (currently) small scale theme away from securities with some degree of leverage to global growth. This was assisted by a flat lining of base metal prices – with the exception of nickel which is in extremely short supply and trades at an eve popping \$14+ per pound. In addition, the lessening of tensions in Lebanon – and to a degree the US stance on Iran – has removed some of the geo-political risk premium in the oil price which was evident at close to \$75/barrel. So far, in August, the price has come off a further \$5-\$6/barrel into the mid \$60's. It is no surprise that gold has responded equally poorly to these changes.

There is little doubt that in recent weeks, there has been a lessening of confidence in the resources story by the global investors. That's good news, as some of the inevitable speculative premiums which start being exhibited in either the product prices or the producer company's shares will erode. The major producer's shares have never really believed in the type of product prices currently being exhibited anyway, given the pricing of BHP and Rio Tinto at roughly 10x forward earnings.

Much attention is focused on the marginal slowdown ion the Chinese economy (specifically industrial production growth) but little on the ongoing net demand profile for most (not all) raw materials; as a general comment, there is a great deal of focus at this stage on short term "noise" and not on the China impact on overall commodity demand over the long term. We acknowledge that this means, in the short term, that resources shares will be even more volatile than in the recent past, and that we may have to be nimble and trade a little more than would be normal.

The major fundamental change in the resources area in the past month was the sale of our stake in Oil Search. We had gradually been reducing our shareholding - after the share price advanced aggressively earlier in the year - but the stance taken by AGL in respect of their portion of the downstream assets (the Australian pipeline) was an intriguing one. There had been increasing hints that AGL might have been re-assessing their position; remember, the Alinta bid documents for AGL suggested the WA company were less optimistic regarding the pipeline, a view which appears to have permeated the new management group at AGL. With other pipeline assets all the rage in managed vehicles, and the predilection of Alinta to manage rather than own assets, you can understand where they are coming from. One suspects the pipeline will get built when the packagers decide it will, rather than Oil Search and the customers. That's capitalism for you. The liquids project as a means to secure value for the gas is a clear second best to the mooted Australian demand.

The other key domestic equity market theme over the past month has been the level of rumoured – and overt – corporate activity, much of it inspired by the new "Masters of the Universe" – private equity houses. The confirmed approaches to Coles Myer (where were these guys at \$6 - \$7 before part of the work was done) suggest there is an ongoing desire to invest the vast slabs of liquidity available to this sector of the market. We don't own Coles shares which detracted from performance over the month. The portfolio has benefited in September from approaches to the radiology and aged care group DVC, which we acquired around the time of the final results; the shares have come well off their peak of \$4,00 plus as a consequence of earnings downgrades and missed contracts; the management are smart and proven at deal construction so a break up or wholesale deal on the company wouldn't surprise.

We also received a takeover offer late in August for our Burns Philp shares; the cash offer is a reasonable approximation of value and there is little scope for debate given the extent of cash assets within the company. There continues to be bid speculation surrounding two of our financial sector holdings - the "ugly ducklings" IAG and Suncorp Metway.

The results season was a genuine mixed bad in the industrial sector, as you expect with AIFRS adjustments, and a schizophrenic economy. Few companies have been game enough to provide explicit guidance for the 2007 year; we continue to worry over the slowing economy (the last set of GDP figures were a far more genuine reflection) accompanied by the travails of inflation. As we keep noting, a conundrum for policy makers and not good news for financial markets. This environment has continued to spur investors towards defensive assets – most notably property trusts – over the pasty few months, where we continue to be under represented on value grounds. Our approach to "defence" continues to be to buy noneconomically sensitive securities on single digit P/E multiples. This strategy has been paying increasing dividends with Tassal up 30% plus on our entry earlier this vear, and a similar gain for UXC Limited. These two were amongst the smaller company exposure we hold which reported good quality 2006 year results, and proffered strong 2007 quidance; other notables in this regard have been Coffey International - which has rallied 15% after their report - and Integrated Group. The same cannot be said for Repcol (whose totally legal accounting must win some sort of award) and PCG. The portfolio was also impacted by the decline in Corporate Express as a result of lower than expected half year profits, partly arising from a decision to exit the specific components of their business. We remain confident in this strong franchise.

Performance and Share buyback

Recent month's performance (especially June) has been impacted by some of the smaller company exposures which were purchased during 2005; in the main, our recent smaller company stock selection has been good. We are underweight expensive defensive securities, some of which have railied hard in recent times. Our performance also needs to be seen in the context of the pre tax figure quoted being after the impact of tax on realised gains, so the number cannot be directly compared to the performance of a managed fund; in

the last month, for example, the sale of the Oil Search shares produced a tax provision of 0.42% at the pre tax line.

At the end of August, the NTA of the Fat Fund after tax on unrealised gains was \$1.1584 per share. This figure is undiluted for the options which are due to expire in April 2008, which can be exercised at \$1.00. In the event that all options are exercised, the after tax NTA would be just shy of \$1.08 per share. With FAT shares trading at around \$0.92 prior to the results announcement of 12 September 2006, the discount to this NTA was around 15%. This is large in comparison to other listed investment companies and has resulted in a decision by the Board of Directors of the Fat Fund to repurchase up to 10% of the fat Fund, on market, over the next year. There is no quarantee that we will purchase shares and we will be limited by ASX rules on the pricing we can pay, but every share we buy back at below NTA enhances the NTA of those remaining. The Board of Directors see the buyback, allied to the dividend payment, as an optimal capital management policy. We hope you agree.

5. Dividend

The Fat Fund will be paving a final dividend in respect of the 2006 financial vear, as announced to ASX on 12 September 2006, of 2.1cents per share fully franked. There will be no dividend reinvestment plan. FAT shares will trade ex the dividend on 20 September 2006; the dividend will be paid on 24 October 2006. This brings the total dividends for the 2006 vear to 3.3cents.

Andrew Brown^a Steve O'Hanna^ª

On behalf of Fat Prophets Funds Management Australia P/L

Andrew Brown and Steve O'Hanna are employees of Trent Capital Limited who currently manage the Fat a: Fund under a sub-contract agreement dated 15 March 2006

Appendix I: Monthly NTA per share and performance since inception

Month by month details of NTA per share and performance since inception are given in the table below;

Undiluted Net Tangible Asset Backing 1 (\$) as of end:
			Monthly change (pre tax)
	Before Tax 2	After Tax \$	Fat Fund	S&P/ASX 300	% cash
April 2005 3	0.976	0.976	0.21%	$-2.48%$	72.0
May 2005	0.981	0.980	0.51%	3.21%	41.0
June 2005	1.032	1.014	5.20%	4.77%	25.0
July 2005	1.067	1.042	3.39%	2.65%	20.0
August 2005	1.077	1.048	0.94%	2.01%	12.0
September 2005	1.133	1.092	5.20%	5.09%	7.0
October 2005	1.081	1.052	$-4.59%$	$-3.84%$	5.7
November 2005	1.113	1.074	2.96%	4.44%	6.6
December 2005	1.140	1.093	2.43%	3.10%	2.2
January 2006	1.169	1.11	2.54%	3.55%	2.7
February 2006	1.172	1.115	0.26%	0.58%	2.6
March 2006	1.2263(xd)	1.1509(xd)	$5.65\%$ 4	4.77%	4.9
April 2006	1.2736	1.189	3.86%	2.60%	3.9
May 2006	1.2173	1.159	-4.42%	$-4.74%$	9.5
June 2006	1.1999	1.1482	$-1.43%$	2.04%	6.2
July 2006	1.1890	1.1425	$-0.91%$	$-1.68%$	9,4
August 2006	1.2050	1.1584	1.35%	3.34%	8.4
Since Inception			$24.95\%$ 4	32.85%

This report has been prepared solety for the benefit of the Fat Fund and its shareholders. It summarises information on the financial products held by the Fat Fund and the views of the Fat Fund as at the date of preparation of the report. These views and financial products may and will change after the issue of this report. No assurance can be given by the Fat Fund or Fat Prophets Funds Management Australia Pty Limited (the Manager) as to the accuracy and completeness of the information used to compile this report. Past performance is not necessarily indicative of future performance.

By making this report available, the Fat Fund and the Manager are not providing any general advice or personal advice within the meaning of section 766B of the Corporations Act regarding the fait Fund, any potential investment in the Fat Fund or any investments or potential investments of the Fat Fund. This report is made without consideration of an investment objectives, financial situation or needs. The Fat Fund, the Manager and directors and employees of the Fat Fund and the Manager do not accept any liability for the results of any action taken or not taken on the basis of the information contained in this report, any negligent mis-statements, errors or omissions.

The net tangible asset backing stated below is not diluted for the potential issuance of shares arising from the 32,185,001 options expiring on 20 April 2008 which are exercisable at \$1.00 per share.

Defined as before providing for the estimated tax on unrealised income and gains in accordance with ASX Listing Rule 19:12.

Performance from the close on 14 April 2005 to 30 April 2005 starting at NTA of \$0.974 per share

^<sup>4 This number includes the 1.2c dividend that was paid on the 26^th April 2006