INVESTSMART GROUP LIMITED — Net Asset Value 2006

Mar 13, 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

FEBRUARY 2006 NTA RELEASE

13 March 2006

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

The net asset backing ("NTA") of Fat Prophets Australia Fund Limited ("Fat Fund") at 28 February 2006 was \$1.172 per share on a before tax basis. This represents an increase of 0.26% over the month, and compares to the Fat Fund's benchmark, the S&P/ASX 300 Accumulation Index, which appreciated by 0.58% during February 2006. After adjusting for the impact of taxation on realised and unrealised gains, the Fat Fund's after tax NTA at end February 2006 was \$1.1152.

Since inception on 15 April 2005, the Fat Fund's pre-tax NTA has risen from 97.4c per share to 117.2c per share or 20.3%; over the same period, the S&P/ASX 300 Accumulation Index has increased by 25.14%.

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

Undiluted Net Tangible Asset Backing $$$ ) 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
Since inception			20.34%	25.14%

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.
³ Performance from the close on 14 April 2005 to 30 April 2005 starting at NTA of \$0.974 per share

$2²$ Performance Commentary

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

Positive Influences			Negative Influences
Company	$%$ move	Position	Company	% move	Position
Perseverance	$+18.2%$	overweight	Espreon	$-22.3\%$	overweight
Image Resources	$+20.5%$	overweight	Oil Search	$-5.2\%$	overweight
Ammtec Limited	$+16.4%$	overweight	Repcol	$-3.6%$	overweight
Gropep	$+15.4%$	overweight	Sedimentary	$-21.2\%$	overweight
Konekt Limited	$+14.8%$	overweight	CSL	$+21.1%$	underweight

During the month, the fund benefited from the performance of a number of smaller resource related companies. The rebound in a number of previously laggard sectors (see below) was generally detrimental to monthly performance. The earnings warning in relation to Espreon, saw a significant price correction compounded by large overweight position.

3. Top 15 Holdings

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

Top 15 Holding by Portfolio Weight as of 28 Feb 2006
BHP BILLITON LIMITED	BHP	9.36
ANZ BANKING GRP LTD	ANZ	6.34
NATIONAL AUST. BANK	NAB	6.03
OIL SEARCH LTD	OSH	5.83
COMMONWEALTH BANK.	CBA	5.65
REPCOL LIMITED	RPC	5.30
PERSEVERANCE CORP	PSV	4.36
TRIBECA LEARNING LTD	TBC	4.04
AMMTEC LIMITED	AEC	3.96
WESTPAC BANKING CORP	WBC	3.76
GROPEP LIMITED	GRO	3.71
IMAGE RESOURCES NL	IMA.	3.32
ESPREON LIMITED	EON	3.20
TOWER LIMITED	TWR	2.50
RIO TINTO LIMITED	RIO	2.40

$\ddot{a}$ . Portfolio Positioning

The equity market's performance through February saw an interesting series of contrasts. A number of sectors and areas which had lagged the overall indices during the previous year rebounded during the month, some to a vociferous degree, whilst the strongly performing resource components were subject to (not unsurprising) profit taking. In this context, the results reporting season had limited influence in an overall sense, but as usual, some extremely large "micro" company factors came into play.

As a generalisation, the resources reporting season was a trice disappointing - mainly in the price and (especially) cost effects rather than production volumes. Given the extent of the appreciation in these stocks, the market has started to look upon the heads of the major companies as high priced public prestidigitateurs, desperate for the next new trick, and eagerly debating the differences between "capital returns" and "special dividends". (under the current tax rulings, they're pretty much the same thing.....). The major issue for the sector was more the departure of some of the hot money we spoke about last month which had clearly entered the tradeable commodities markets in January and found the exit somewhat narrower in February. We suspect a bit more of a shake up is required to bring some of the larger resource counters back to good buying levels, but have found a number of smaller companies which have well run decent life assets and exposures to specific products whose multiples are firmly in single digit territory, where there has been a decent shakeout in the share price. Amongst our purchases in this area in the past month have been:

• CBH Resources which runs the Endeavour zinc and lead mine at Cobar, NSW (another former Pasminco asset) and is now starting to get over a stope collapse which deprived it of full production in the latter part of 2005;
• Gloucester Coal which runs open cut thermal and coking coal mines in the $\bullet$ Gloucester Valley in NSW.

A number of interest rate sensitive counters were strong performers in February - notably banks, REITs and utilities. We are underweight these sectors, though have select stock exposures as noted last month.

The most interesting sector in the past month, as a microcosm of the overall market, was clearly the retail arena. In what is overall a tough environment, there are certain participants with a strong niche, excellent systems and management and a capability to head off the competition. This was marked by upgraded earnings from two participants - Just Group and David Jones – which spilled over into a rally amongst a number of other counters.

This is not unrepresentative of what is happening elsewhere, with the gap between the "good" and the "great" being shown to stark effect through this season. This particularly applies in the smaller company arena where lower than flagged earnings reports are met with vicious sell offs. In some cases, these have emanated from confusion over AIFRS reporting (or even its prior period comparative), and there are a number of areas of clear conflict between companies and their auditors (gold mines which make more money at lower gold prices due to the seemingly arbitrary accounting treatment of hedges are an obvious one).

The continued rise in the valuation of the non resource market is becoming more concerning. with further signs of overoptimism, most notably the continuing ability of top hatted "packagers" to extract vast fees and engage in even more spellbinding financial prestidiaitation.

We have made no strategic changes to the portfolio, remaining overweight the resource arena, and with a heavy exposure to selected non benchmark securities.

5. Dividend

On the 10^th of March, we released our half yearly accounts to the market, which also detailed our maiden dividend of 1.2 cents per share, fully franked. The NTA backing on page 1 is before allowing for the payment of the dividend, next month however, the NTA will reflect this provision. The link below will take to you the half yearly accounts and all the details regarding the dividend.

http://www.asx.com.au/asxndf/20060310/ndf/3yt7z20bmcv2z.pdf

6. Unstapling Date

A BIG REMINDER that on 20^th April 2006, the share and option that make up each stapled security (FATS) will begin to trade separately leaving you with one separate share (FAT) and one separate option (FATO) after this date for every current FATS you own.

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.