INVESTSMART GROUP LIMITED — Net Asset Value 2006

May 11, 2006

Fat Prophets Australia Fund Limited ACN 111 772 359 Level 33, 2 Park St Sydney, NSW 2000 1 300 88 11 77 fatfund@fatprophets.com.au

APRIL 2006 NTA RELEASE

12 May 2006

$\ddot{\mathbf{1}}$ . Details of Performance and Net Asset Backing at Month end

The net asset backing ("NTA") of Fat Prophets Australia Fund Limited ("Fat Fund") at 28 April 2006 was \$1.2736 per share on a before tax basis. This represents an increase of 3.86% over the month, and compares favourably to the Fat Fund's benchmark, the S&P/ASX 300 Accumulation Index, which appreciated by 2.60% during April 2006. After adjusting for the impact of taxation on realised and unrealised gains, the Fat Fund's after tax NTA at end April 2006 was \$1.1897.

Since inception on 15 April 2005, the Fat Fund's pre-tax NTA has risen from 97.4c per share to 127.36c per share or 30.75% (ex-dividend). Including the dividend the NTA has increased 32.05%. Over the same period, the S&P/ASX 300 Accumulation Index has increased by 34.53%.

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.

$2.$ Performance Commentary

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

Positive Influences			Negative Influences
Company	$%$ move	Position	Company	% move	Position
Perserverance	$+18.1%$	overweight	Image Resources	$-2.6%$	overweight
Konekt	$+18.8%$	overweight	Brain Resource	$-10.9%$	overweight
Oil Search	$+8.9%$	overweight	UXC	$-5.8%$	overweight
Ammtec	$+10.6%$	overweight	Oxiana	$+27.2%$	underweight
Westfield Group	$-1.00\%$	underweight	Fosters	$+10.7%$	underweight

3. Top 15 Holdings

The Top 15 holdings of the Fat Fund as at 28 April 2006 are as follows:

Top 15 Holdings by Portfolio Weight as of 28 April 2006
BHP BILLITON LIMITED	BHP	10.42
ANZ BANKING GRP LTD	ANZ	6.35
NATIONAL AUST. BANK	NAB.	5.70
COMMONWEALTH BANK.	CBA	5.45
OIL SEARCH	OSH	5.14
PERSEVERANCE CORP	PSV	4.24
AMMTEC LIMITED	AEC	4.19
TRIBECA LEARNING	TBC	3.78
WESTPAC BANKING CORP	WBC	3.68
ESPREON LIMITED	EON	3.20
GROPEP LIMITED	GRO	3.08
REPCOL LIMITED	RPC	2.82
TOWER LIMITED	TWR	2.78
IMAGE RESOURCES	IMA.	2.62
KONEKT LIMITED	KKT	2.59

$\overline{4}$ . Portfolio Positioning

Kids aren't allowed in casinos. Neither are those of the population under 18 allowed to buy pornographic magazines, which are shrink wrapped to prevent the schoolies from reading them when buying sweets from the newsagent outside the bus stop. We seem to be reaching the stage where the "Australian Financial Review" also needs to be shrink wrapped, and the stock quotes in your local daily paper need to be in a separate sealed section. For the Australian stockmarket is now starting to resemble a casino, and a fairly unruly one at that, from which innocents need a high degree of protection.

We discussed last month the fact that globally, risk doesn't seem to be properly valued. exemplified by the low spreads on emerging market debt over its developed world counterpart. This is a mere kids party compared to the lunacy which is now taking place in commodity markets, where monthly average positions, long and short, in all US commodity markets are now up to \$120billion - close on twice what they were a year ago. The rebuild of these positions in the month of April was a major contributing factor to the price of copper rising by close on 31% over the month, with zinc and nickel both up over 20%. These types of moves – with copper up nearly 50% in two months – are simply not supported by the fundamentals. Indeed, over the very short term, net imports of certain commodities into China have been falling on a year over year basis. We saw a small amount of evidence during the past month that if China sneezes - and the quarter per cent rate rise in that country late in the month was no more than a little sniffle – then commodity prices will suffer a severe set back from current levels. It still seems incongruous to us that the Chinese administration wishes to sign "partnership" arrangements such as those with Australia over uranium, with "special prices", but sit idly by while global speculators take advantage of their growth profile.

The larger counters in the resource area of the ASX are not reflecting current spot prices for commodities - nor should they - but will clearly not be immune from a significant pullback if commodity prices relapse. The sentiment shakeout could be extremely harsh, which will start to eat away at the complacency which has now entered the ASX.

Aside from the vast numbers of trashy uranium floats and spin offs, there are signs of rampant speculation elsewhere on the ASX. We have seen two financial services floats in the last month. The first prices the company at 25x earnings (at the float price) where the vendor took \$90million off the table, and still has a 39% interest in the company, valued at \$86million for a business where 100% was effectively acquired for \$41million in June 2004. That's despite an \$18million free employee giveaway. The second asks you to purchase a business generating current revenue of about \$2.5million per annum for \$34million. Its prospects must be mighty good. Now there's nothing illegal or underhand about any of these floats – it's a simple case of if the market will pay it, take it.

Other red lights are flashing brightly on the domestic front - ostentatious consumption is back with average 39% increases in prices of yearlings at the recent Inglis Yearling Sales in Sydney - and you know what proportion of these thoroughbreds will actually make it to the track, let alone pay their way.

Of course, the bogeyman around the corner that everyone is counting on staying away is consumer price inflation; how we stay at low single digit percentages with credit growth in the mid teen's and cost push inflation now clearly apparent is anyone's guess. It certainly suggests that a concerned Reserve Bank may not yet have finished with interest rate rises, and that a bearish bond market will serve to constrain valuations of industrial shares. Relying on profit growth to obtain returns on industrial shares will likely provide extremely skinny pickings.

The past few months' performance of the Fat Fund against the benchmark has improved. mainly due to our resource exposure, but we are highly cognisant of the short term speculative environment, which could rapidly turn negative, set against the positive long term picture. As a consequence, we have gradually been reducing these overweight positions and buttressing the portfolio with purchases of higher quality companies at discount ratings. As you might imagine, these are not easy to find in the prevailing environment. In simple terms, we believe the outlook for the Australian stockmarket is highly uncertain, and we wish to reflect this in the composition of our portfolio, without being "market timers" (taking extreme cash positions against the market). Remember as J.M. Keynes is famously alleged to have said: "the market can stay irrational longer than you can stay solvent".

We have a 7% cash weighting at present, and our purchases of shares over the past month reflect a bias towards good franchises which have lagged their peers, groups with limited economic or market exposure and companies capable of paying a recurring high dividend vield. To this end, we have acquired shares in:

• Suncorp Metway, the Brisbane based banking and insurance group, which has massively lagged the peer group in respect of share price performance and trades, in our opinion, at a significant discount to break-up value, and close to 5% dividend vield:
• Burns Philp. the food group with over \$1.5billion of net cash, a 20% stake in Goodman Fielder and owner of the "Uncle Toby's" snack food business.

We have also increased our holding of Corporate Express, a very strong business model, with significant further growth prospects, now trading at a significant discount to the overall market, and Integrated Group, a labour hire company which appears to have solved many past issues through sale of assets and its errant training division.

Stockmarkets have an amazing bias towards higher returns in the November to April period, with more mundane outcomes in the May - October months. This phenomenon is difficult to explain logically, other than by reference to Northern Hempishere holidays, resulting in the great London market saying: "sell in May, and go away". If he was still around, it might be a good time to visit the great "Spectator" journalist, drinker and man of the turf, Jeffrey Bernard, at his favourite haunt in London's Soho. As the great man said: "in most betting shops you will see three windows marked "Bet Here", but only one window with the legend "Pay Out". Maybe that one's about to close for the evening.

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%	$\overline{2.7}$
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	1.1897	3.86%	2.60%	3.9
Since inception			$32.05\%$ 4	34.52%

This report has been prepared solely 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 nay 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 Fat 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 any specific person's
investment objectives, financial situation or needs. The Fat Fund, the Manager and directors and empl 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. 2 Defined as before providing for the estimated tax on unrealised income and gains.
² Defined as before providing for the estimated tax on unrealised income and gains.
³ Performance from the close on 14 April 2005 to 3

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