INVESTSMART GROUP LIMITED — Net Asset Value 2007

Mar 13, 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

February 2007 NTA Release

14 March 2007

$\ddot{\phantom{a}}$ Details of Performance and Net Asset Backing at Month end

The net asset backing ("NTA") of Fat Prophets Australia Fund Limited ("Fat Fund") at 28 February 2007 was \$1.3545 per share on a before tax basis, calculated in accordance with ASX Listing Rule 19:12, and represents an increase of 1.18% over the month. By comparison, the Fat Fund's benchmark, the S&P/ASX 300 Accumulation Index, rose by 1.62% in February 2007. The Fat Fund incurred significant tax liabilities on realised gains during the month without which performance would have exceeded the benchmark return by approximately 0.3% over the month (see explanation below).

After adjusting for the impact of taxation on both realised and unrealised gains, the Fat Fund's after tax NTA at the end of February 2007 was \$1.2747 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 \$1.1353.

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 135.45c per share with dividends of 3.3 cents per share representing a total return of 42.9%; over the same period, the S&P/ASX 300 Accumulation Index has increased by 54.9%.

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 February 2007 were as follows:

Positive Influences			Negative Influences
Company	℅	Position	Company	%	Position
	move			move
Brain Resource	37.9	Overweight	UXC Limited	$-11.8$	Overweight
Tassal Grp.	18.3	Overweight	Coffey Int'l	$-13.8$	Overweight
Perseverance Corp	$9.5^{\circ}$	Overweight	Timbercorp	$-21.8$	Overweight
Metgasco	14.9	Overweight	Leightons	41.4	Underweight
Westfield Group	$-2.5$	Underweight	CSL Limited	11.8	Underweight

$\overline{3}$ . Top 15 Holdings at 28 February 2007

Company	Symbol	% Weighting
BHP Billiton	BHP	10.72
National Aust. Bank	NAB.	8.38
Westpac Banking Corp	WBC	6.38
ANZ Banking Group	ANZ	6.26
Commonwealth Bank	CBA	5.45
RIO Tinto Ltd	RIO	3.95
Woolworths	WOW	2.98
UXC Limited	UXC	2.90
Perseverance Corp	PSV	2.78
Image Resources	IMA	2.72
Lihir Gold	LHG	2.56
Espreon	EON	2.10
IAG Group	IAG	1.99
Commander Communications	CDR	1.94
Tower Australia	TWR	1.88

$\ddot{4}$ . Portfolio Positioning

February was a particularly interesting month across all types of markets, and fuelled a higher level of activity than usual within the Fat Fund.

In itself, this produced one particular item of note, namely a \$310,000 increase in our tax liability as a result of selling shares on which we generated a significant realised gain. The pre tax NTA disclosed above includes the effect of this effective 1c per share reduction in NTA/share; without this liability, the Fat Fund outperformed the index marginally over the month. It is worth noting that the accrued tax liability on realised gains within the Fat Fund is now in excess of \$1.1million, which would equate to franking credits generation of the equivalent of over 8.5 cents per FAT share (undiluted) once paid. (see the long discussion on pre tax NTA's in the Fat Fund interim results release for further explanation on the definition of NTA under Listing Rule 19.12).

The Australian stockmarket was buovant through the month of February in the wake of a results season which was generally well up to expectations. Reaffirmation or upgrades to growth expectations by individual companies were usually received in euphoric fashion, irrespective of valuation. Major construction and infrastructure service companies were notable in this area, along with other large concerns such as Woolworths, Computershare and Conversely, disappointing earnings results were met with significant negative CSL. movement - most notably Fosters, Allco, Iluka Resources and Tabcorp.

Resources shares generally outstripped their industrial counterparts in February, buoyed by strong reported results, share buybacks, and improvements in most major commodity and precious metal prices.

The key word for February, however, was "volatility".

Outside of the ASX, where there has been no major recent change in implied volatilities (as measured by solving option pricing models for this particular variable), things have been far more active. In a number of areas (not including metals and certain equity markets), the level of volatility priced into options has been falling away to extremely low levels - especially in bonds and (surprisingly) gold. For example, the near term volatility priced into US S&P500 stock index options - as measured by the Chicago Board Options Exchange's VIX index, had fallen away to multi-year lows of around 10% between November 2006 and mid February 2007.

In turn, this has an impact in "tulling" investors to reduce the risk premiums demanded on more exotic securities. Of course, all this started to change right at the end of February with wild (negative) rumour and speculation in the furnace like Chinese equity markets. The large scale (c. 10%) falls over a couple of days in certain of the Chinese indices at the end of the month spilled over into other developing markets, but also fuelled a rapid pick up in the level of volatility priced into options across a number of fields.

It's not so much the specific reasons behind the fall in the Chinese market - frankly they amount to nothing fundamental – but the "wake up call" that volatility – and hence risk – is not being adequately priced into numerous financial assets which is the real message. This is a theme we have mentioned on a number of occasions over past months, continues to be a source of significant concern and underlies why we remain cautious on equities despite the apparent strong growth environment.

The divergence in individual share prices and reactions to results saw a number of opportunities for the Fat Fund to lock in gains. Over the course of the month, we divested our holdings in Alumina, Corporate Express and Ling Resources Fund. We had the misfortune to acquire shares in Timbercorp Limited just prior to the announcement of the Government's changes to taxation rules in respect of non forestry horticultural schemes. As a consequence of the relative share price reactions to these rules, and relative importance or otherwise of such schemes to the specific companies, we sold our Timberscorp shares but acquired Great Southern Limited. The company's shares trade just above NTA and on extremely low forward multiples of earnings which are 70% composed of forestry related schemes. During the month, we increased our holdings in UXC Limited and Commander Communications, as well as purchasing another new holding in IWL Limited. IWL is the dominant provider of software (Visiplan) to financial planning groups as well as a major supplier of "white label" stockbroking services. The company has announced it is in discussions to potentially sell its Visiplan business to a competitor.

All of the companies we have purchased trade at sensible valuations and - with the exception of Great Southern given the regulatory uncertainties - have strong unrecognised medium term earnings growth. The Fat Fund continues to carry significant cash weighting of around 8%, reflecting the general difficulty in finding companies at attractive valuations. We hope the temporary repricing of volatility may turn into a longer lasting upturn in the price of risk, and bring forward new opportunities.

Andrew Brown^a Steve O'Hanna^a

On behalf of Fat Prophets Funds Management Australia P/L

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%	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%	8.0
Since Inception			42.92% 4	54.86%

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 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.

^<sup>3 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 and the 2.1 cents per share that was paid on the 24th of October 2006.