INVESTSMART GROUP LIMITED — Net Asset Value 2007

Apr 12, 2007

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

March 2007 NTA Release

13 April 2007

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

The net asset backing ("NTA") of Fat Prophets Australia Fund Limited ("Fat Fund") at 30 March 2007 was \$1.3447 per share on a before tax basis, calculated in accordance with ASX Listing Rule 19:12, and represents a decrease of 0.72% over the month. This number is exa 3 cent dividend which will be paid on the 20^th April 2007. Including the dividend, the NTA would have increased by 1.50%. By comparison, the Fat Fund's benchmark, the S&P/ASX 300 Accumulation Index, rose by 3.30% in March 2007.

After adjusting for the impact of taxation on both realised and unrealised gains, the Fat Fund's after tax NTA at the end of March 2007 was \$1.2629 per share, undiluted for the \$1.00 strike price options which can be exercised until 20 April 2008. If all of the April 2008 options were exercised at \$1.00; the fully diluted after tax NTA/share would be \$1.1331.

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 134.47c per share with dividends of 6.3 cents per share representing a total return of 44.53%; over the same period, the S&P/ASX 300 Accumulation Index has increased by 60%.

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 March 2007 were as follows:

Positive Influences			Negative Influences
Company	%	Position	Company	%	Position
	move			move
Metgasco	28.6	Overweight	Perseverance	$-8.6$	Overweight
Westfield	-5.4	Underweight	Brain Res.	$-17.5$	Overweight
BHP Billiton	10.2	Overweight	Image Res	$-8.4$	Overweight
Mundo Min.	26.9	Overweight	Tower Ltd	$-8.7$	Overweight
Suncorp	-4.5	Underweight	Tower Aust.	$-4.6$	Overweight

Top 15 Holdings at 30 March 2007 $\overline{3}$ .

Company	Symbol	% Weighting
BHP Billiton	BHP	10.33
National Aust. Bank	NAB	8.34
Westpac Banking Corp	WBC	6.56
ANZ Banking Group	ANZ	6.31
Commonwealth Bank	CBA	5.45
RIO Tinto Ltd	RIO	4.09
Woolworths	WOW	2.96
UXC Limited	UXC	2.90
Perseverance Corp	PSV	2.52
Lihir Gold	LHG	2.50
Image Resources	IMA	2.22
Espreon	EON	2.08
Commander Communications	CDR	1.99
IAG Group	IAG	1.94
Auselect	AUS	1.93

$\ddot{a}$ . Portfolio Positioning

The 3.3% gain in the S&P/ASX 300 now takes the twelve month rolling return from this accumulation index to 22.4%. The Australian market's gain was driven by a multitude of short term positive influences:

Significant gain in copper prices, up 16% over the month:

• Increased Middle east tensions resulting in a 7% increase in oil prices, over the \$65/barrel mark:
• Better than expected pricing negotiations in respect of iron ore, combined with bullish $\bullet$ presentations by the major miners in respect of their "stronger for longer" capital expenditure thesis:
• Ongoing rumour and actual corporate activity in a number of major companies;
• Declines in the level of volatility priced into other equity markets (as discussed last month):
• Ongoing signals that certain flatter areas of domestic economic activity are starting to $\bullet$ improve.

With the exception of a rise in the A\$ to well above US\$0.80, it's difficult to construct a more bullish short term scenario for Australian shares. So, not surprisingly, after the 6.6% retracement from the early March peak over about a week, the market responded with vigour to these positive influences.

We can only reiterate our previous comments that Australian equities as an asset class now represent little long term value and the signs of speculative excess continue to grow. Some of these signs are strongly in evidence in the smaller area of the market, especially resources shares, with over 100 companies now suggesting they are engaging in uranium exploration. The value of "shell" premiums continues to escalate - your correspondent saw one shell valued at \$18million during the month on rumours it was going to go into uranium!! (it hasn't as yet).

In the wake of this, the Fat Fund continues to hold capital preservation in the highest regard. We have become increasingly defensive as the market has risen which is reflected in the reaction of the Fat Fund to the market's daily movements. There is increasing media being given to the composition of portfolio returns into "beta" - that return explained by a relationship with the overall market - and "alpha" - the returns generated from a portfolio not explained by movement in the market. A portfolio with a beta of 1.00 will move proportionately to the market, leaving the return of the portfolio to solely reflect non market factors. A beta of over 1.0 will be "geared" to market movements; a beta below 1.00, will be defensively positioned with respect to index movement. Over the past six months, the beta of the Fat Fund, measured from daily figures, is around 0.76; in other words, if the market rises 1%, our portfolio will only rise by 0.76% solely as a result of market factors. There are other influences which may (and have!) seen it do better than this in reality. Given this defensive stance, the Fat Fund did slightly worse than the market over the month.

The Fat Fund was less active in March with two new holdings added to the portfolio. We purchased Incremental Petroleum, an Australian managed company with significant oil assets in Turkey, a country dependent upon imports for 98% of its hyrdocarbron consumption. In common with many other "new generation" smaller oil companies, Incremental uses modern day drilling, workover and seismic techniques to revisit producing acreage sold off by the oil majors. As a result of recent increases in reserves, Incremental is one of the cheapest asset plays in the oil sector with each barrel of proven reserves being valued at around US\$7.00/barrel at our entry price.

We also purchased a second real estate security, Record Realty, a company which is highly geared but against long, blue chip leaseholds. The company, managed by Allco, trades at around a 16% discount to the stated NTA of its portfolio of Australian, German and US (predominantly) office properties.

The largest transaction performed, however, was to tender our BHP shares into the offmarket buyback. This resulted in us selling 38% of our BHP holding, at below market prices, but receiving franking credits (\$22.31/BHP share) equivalent to 4.6cents per Fat Fund share, whilst also reducing our taxation impost from realised gains. The pre tax cost (as measured by LR19.12) to the portfolio of the exercise (selling below market but reducing tax) was around 5 basis points. It should be noted, however, that we purchased "replacement" BHP shares ahead of the tender to ensure an overweight position to BHP was maintained.

Andrew Brown^a Steve O'Hanna^a

On behalf of Fat Prophets Funds Management Australia P/L

$\mathbf{a}^*$ Andrew Brown and Steve O'Hanna are employees of Tidewater Investments Limited who currently manage the Fat 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%	$\overline{2.2}$
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
September 2006	1.1823(xd)	1.1380	$-0.14\%$ 4	1.31%	8.7
October 2006	1.2706	1.2030	7.47%	4.71%	6.6
November 2006	1.2941	1.2193	1.85%	2.37%	4.5
December 2006	1.3154	1.2388	1.65%	3.67%	6.0
January 2007	1.3387	1.2552	1.77%	1.89%	6.3
February 2007	1.3545	1.2747	1.18%	1.62%	$\overline{8.0}$
March 2007	1.3447(xd)	1.2629(xd)	$1.50\%$ 4	3.3%	8.5
Since Inception			$44.53\%$ 4	60.01%

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) or Tidewater Investments Limited (the sub contract 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.

The net tangible asset backing stated below is not diluted for the potential issuance of shares arising from the 31,195,653 options expiring on 20 April 2008 which are exercisable at \$1.00 per share.

^<sup>2 Defined as before providing for the estimated tax on unrealised income and gains in accordance with ASX Listing Rule 19:12.

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

$^4$ This number includes the 1.2c dividend that was paid on the 26^th April 2006, the 2.1cps paid on the 24th of October 2006 and the 3 cps to be paid on the 20^th April 2007.