corresponding period: half year ended 31 December 2005)

corresponding period: half year ended 31 December 2005)

conjunction with the 30 June 2006 Annual Report.

with Listing Rule 4.2A

Your directors present

report on the consolidated entity consisiting of Prana Biotechnology Limited

the entities it controlled at the end of, or during, the half year ended 31

The following persons were

directors of Prana Biotechnology Limited during the whole of the half-year

up to the date of this report:

completion of the second Phase

I clinical trial for our lead compound, PBT-2, under development as a therapy

for Alzheimer's disease. The safety,

tolerability and pharmacokinetics of multiple doses of our

PBT-2 compound were tested in male & female older volunteers aged 45 years

and above. Results from the trial showed that PBT-2 was well tolerated by the

trial participants and has predictable pharmacokinetics suitable for further

Initiation of the first Phase II

clinical trial for PBT-2 in Alzheimer's disease. The Phase IIa

clinical study is being

conducted in Sweden and investigates 3 months treatment with PBT-2 at two

different dose levels compared to placebo in 80 elderly male and female patients

with mild Alzheimer's disease. Tolerability, safety, CSF (cero-spinal fluid) and

plasma biomarker and cognition endpoints will be measured. The trial is expected

to report its findings in 4th Quarter 2007. Enrolment, screening and dosing

initiated in December 2006.

Bush announced the results of a

study confirming that PBT-2 can reduce the levels of soluble beta-amyloid

protein in the brains of transgenic Alzheimer mice after only 24 hours.

conducted by Prof Bush's group, showed that as little as 2 doses of PBT2 could

significantly reduce soluble beta-amyloid in the brains of Alzheimer model

transgenic mice. These findings indicated that PBT-2 has a rapid and potent

mechanism of action in the brain.

Prof. Bush announced the results of a

study confirming that PBT-2 can enhance memory function after only 5 days of

dosing and improve synaptic function in mouse models. The study,

conducted by Prof Bush's

group, showed that after only 5 days of dosing with PBT-2, significant

improvement in spatial memory in transgenic mice could be achieved. The Morris

Water Maze test involves remembering the location of a submerged platform,

requiring the mouse to employ higher level learning and spatial memory skills.

This was the first study with PBT2 that provided supporting evidence for the

hypothesized link between the MPAC mechanism of action and the potential for

cognitive improvement.

Colin Masters, Prana's

co-Founding scientist receives multiple prestigious awards for his research

Alzheimer's disease. Professor Colin

Masters was awarded a Lifetime Achievement Award at the

10th International Conference on Alzheimer's Disease in July 2006, the Lennox K.

Black International Prize for Excellence in Biomedical Research from the Thomas

Jefferson University in October 2006 and the Grand Hamdan International Award

for Medical Sciences in December 2006.

Auditors' Independence

A copy of the auditors'

independence declaration as required under section 307C of the Corporations

2001 is set out on the following page.

This report is made in

accordance with a resolution of directors.

for the Half Year Ended

announcement to the market

Half year Ended 31 December 2006

Half year Ended 31 December 2005

Explanation of the above

Prana Biotechnology Ltd

revenue of $236,869 for the period ended 31 December 2006 (2005: $433,925)

result of interest on company bank accounts. This amount reduced over the period

as a result of a reduction in cash reserves, however these cash reserves were

increased in November 2006 as a result of a $7.78m capital raising.

Prana has incurred a loss

the half year of $7,795,613 (2005: $5,386,035). This loss includes the

revaluation of financial liabilities to fair value and research and development

Refer to the Directors'

- Review of Operations for further information.

INCOME STATEMENT FOR THE

ENDED 31 DECEMBER 2006

The accompanying notes form

these financial statements.

The accompanying notes form

these financial statements.

STATEMENT OF CHANGES IN EQUITY

FOR THE HALF YEAR ENDED

The accompanying notes form

these financial statements.

CASH FLOW STATEMENT FOR THE

ENDED 31 DECEMBER 2006

The accompanying notes form