INVESTSMART GROUP LIMITED — Net Asset Value 2006

Apr 5, 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

6 April 2006

$\ddot{\phantom{a}}$ 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 March 2006 was \$1.2263 per share on a before tax, ex-dividend basis. This represents an increase of 4.63% over the month, and compares to the Fat Fund's benchmark, the S&P/ASX 300 Accumulation Index, which appreciated by 4.77% during March 2006. Including the dividend which is vet to be paid, the Fat Fund was up 5.65% on a before tax basis. After adjusting for the impact of taxation on realised and unrealised gains, the Fat Fund's after tax NTA at end March 2006 was \$1,1509 ex-dividend.

Since inception on 15 April 2005, the Fat Fund's pre-tax NTA has risen from 97.4c per share to 122.63c per share or 25.9% (ex-dividend). On a cum dividend basis, this is equivalent to 123.83c or 27.1%; over the same period, the S&P/ASX 300 Accumulation Index has increased by 31.11%.

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

$2.$ Performance Commentary

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

Positive Influences			Negative Influences
Company	$\%$ move	Position	Company	% move	Position
Metgasco	$+46.0%$	overweight	Gropep	$-11.1\%$	overweight
CBH Resources	$+45.5%$	overweight	Perserverance	$-7.7\%$	overweight
Tower Limited	$+16.2%$	overweight	Coffey	$-7.2\%$	overweight
Ammtec	$+11.3%$	overweight	Meteoric Res.	$-21.2%$	overweight
Westfield Group	$-3.90\%$	underweight	Repcol	$+1.9%$	overweight

$3₁$ Top 15 Holdings

The Top 15 holdings of the Fat Fund as at 31 March 2006 are as follows:

Top 15 Holdings by Portfolio Weight as of 31 March 2006
BHP BILLITON LIMITED	BHP	10.25
ANZ BANKING GRP LTD	ANZ	6.20
OIL SEARCH LTD	OSH	6.00
NATIONAL AUST. BANK	NAB	5.90
COMMONWEALTH BANK.	CBA	5.41
AMMTEC LIMITED	AEC	4.18
TRIBECA LEARNING LTD	TBC	3.85
PERSEVERANCE CORP	PSV	3.82
WESTPAC BANKING CORP	WBC	3.60
ESPREON LIMITED	EON	3.30
GROPEP LIMITED	GRO	3.15
IMAGE RESOURCES NL	IMA	3.05
REPCOL LIMITED	RPC	2.80
TOWER LIMITED	TWR	2.75
RIO TINTO LIMITED	RIO	2.52

$\ddot{a}$ . Portfolio Positioning

We'll never know if Athena Starwoman could have predicted that the planets would align so favourably for the Australian sharemarket in March 2006. If her psychic powers were as strong as believed - and she hadn't sadly died in December 2004 - then her lifestyle split between New York, "The World" cruise liner and the Gold Coast could have added a fourth upmarket dimension.

Consider this favourable set of confluent events:

• Copper prices up 14.2% in US\$ terms with zinc up 16.8%;
• A near 4% rise in the spot gold price in US\$;
• A bizarre 3% decline in the A\$/US\$ exchange rate which compounded the benefit of these gains to unhedged local producers;
• A structural shift in the uranium industry with a clear Government mandate for new mines and exports to China:
• Significant number of mergers and acquisitions, bringing a heady overseas trend to domestic markets, including "Manic Monday" (27 March) when three takeovers
  (Tattersalls/Unitab; ASX/SFE and Transpacific/Waste Management NZ) were all announced by 9.30am:
• An ongoing increase in global "risk appetite"

The Fat Fund portfolio benefited from its resource bias, nicely outperforming the benchmark return of 4.77% (the fund was up 5.65% on a cum-dividend basis), despite a very defensive stance in terms of cash. Taking Tribeca, which is under takeover from a subsidiary of Washington Post, as "cash" (if the offer falls away it clearly would not be) then our effective cash weighting is around 10% of the fund.

This weighting reflects some level of caution about certain trends in markets, as well as the difficulty in finding sufficiently attractive securities at prevailing prices without taking on excessive amounts of earnings risk, or portfolio risk.

About one third of the return of our benchmark came from the one stock which benefits from all the resource positives noted above - BHP. The 15.5% gain in its shares was aided by the technical nature of its buyback, with professionals selling into the buyback for tax reasons but replenishing their holdings. There is a high degree of risk about some of the base metal price moves given the supply disruptions from strikes amongst copper producers - which have dramatically reduced stockpiles - but which will eventually unwind.

We thoroughly agree with the scepticism exhibited by our friends on the "Fat Prophets" newsletter in respect of the bulk of the new uranium plays which have found their way onto the market (by one estimate there are now 95 such listed "plays"); BHP and RIO are in the world's six largest miners of uranium, with BHP clearly able to countenance a significant expansion of Olympic Dam.

However, perhaps the most troubling aspect of the domestic market at present are two global trends: takeovers and risk appetite.

In the global environment, we are starting to see a large number of mooted M&A strategies. across a variety of industries – insurance, telecommunications equipment, utilities (especially in Europe), pharma and basic industries. It's a well known fact that over half of the mergers and acquisitions subsequently dilute returns to the acquiring party - mainly through botched post merger decision making and cultural chasms. It's why, after the euphoric party - where the known winner is the investment banker (witness recent US investment bank results) there will be a hangover. In the Australian context, some of the mooted M&A deals have synergies, but many rely on financial engineering, and are littered with scrip components. That tend to means they won't turn into nasty disasters - because they're not built on borrowed money - but it's hard to conceptualise that acquiring companies after a 100% plus return from the ASX 300 Accumulation index over the past three vears is a sensible occupation. Didn't see too many of these deals in 2003/4.....

The resource end of the market has always been a haven for risk lovers, due to its intrinsic speculative aspects - exploration, operationally geared companies, pro-global growth bias. Hence, it has an obvious correlation with areas such as emerging markets. The emerging market "bubble" is a phenomenon which is now starting to garner more publicity. A number of senior US bankers have noted that the average difference in vield between emerging market bonds denominated in U.S. dollars and U.S. Treasuries fell to 1.86% on 2 March, the narrowest on record, according to JPMorgan Chase & Co.'s benchmark emerging-market index. A more tangible example shows that since the start of the 2006 year, the yield on 10 year Croatian bonds - denominated in local currency (the kuna) - has remained stable at about 4.02%. At year end, that was about 0.77% more than the comparable German ten year bond. The gap – as German bond yields have risen by about 0.5% - is now down to only 24 basis points (0.24%). So you get a quarter of a percent per annum more to lock your money away for ten years in a Croatian bond than that of its German counterpart. Given history, and with respectful sensitivities to our Croatian readers, that doesn't seem much of a deal to us.

Not surprisingly, the Eastern European markets have been amongst the best performers of Emerging stock markets this year, which as a group are up about 11% in the first quarter of 2006 in US\$ terms – coming off three massive years of performance with the MSCI Emerging Markets price index up over 42%pa over three years.

You can draw all the pretty graphs you want, and perform all types of econometric analysis, but sheer common sense tells you that this stuff looks like a bubble. Anyone managing money in 1997 and 1998 knows what can happen when the contagion effects of emerging markets take hold, as people head for the exits.

What does all this mean for our portfolio? Aside from being cautious, it is likely to result in us being a little less thematic, and having more a "collection of stocks" in the foreseeable future. If the emerging markets bubble were to quickly burst, there is little doubt the resource sector would suffer most, especially at the smaller end, despite the fundamentals of the Chinese economy remaining strong. We have had one or two successes with explorers who have made genuine finds and progress, resulting in a reduction of certain positions after significant price appreciation. Our only new purchase in the past month is GPG, the investment company now with a significant proportion of its assets in the burgeoning recovery of Coats. the world's largest supplier of cotton thread. As a consequence, our contribution to the investment banking community in the past few weeks in terms of commission on securities transactions has been spartan.

There are nascent signs of improvement in some unloved parts of the domestic economy, although a little too early for us to speculate at this stage. The recent decline in the currency could give importers, distributors and retailers an impetus - if the consumer genuinely starts to pick up. Whilst they are a lagging indicator, the recent results of media companies such as Ten Network are a salutary warning.

Anyway, we're in the month of Aries which is a "fire" sign moving into the month of Taurus, an "earth" sign. Fire on earth anyone?? Just tell them you read it here first.

$5.$ Unstapling

On the 30^th of March we released to the ASX the timetable for the un-stapling. Importantly, on the close of trading, 11 April 2006 the quotation of the FATS will be suspended and on 12 April 2006, the ordinary shares (FAT) and the options (FATO) will commence trading on a deferred basis. Please refer to the timetable for more detail.

We have deliberately made this release a few days early to enable shareholders to make a more informed decision on how to deal with the un-stapling, if they wish to enact any specific strategies. Many thanks to our outsource providers for facilitating this early release at a busy time for them.

Andrew Brown Steve O'Hanna

On behalf of Fat Prophets Funds Management Australia Ptv. Limited

Appendix I: Monthly NTA per share and performance since inception

Undiluted Net Tangible Asset Backing 1 (\$) as of end:
			Monthly change (pre tax)
	Before $\text{Tax}^2$	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	$(xd)$ 1.2263	$(xd)$ 1.1509	(cd) 5.65%	4.77%	4.9
Since inception			27.13%
(inc. dividends)				31.11%

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

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 and which are stapled to the shares of Fat Prophets Australia Fund until 20 April 2006

² Defined as before providing for the estimated tax on unrealised income and gains. Performance from the close on 14 April 2005 to 30 April 2005 starting at NTA of \$0.974 per share

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 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 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 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.