INVESTSMART GROUP LIMITED - AGM Information 2008

NOTICE OF ANNUAL GENERAL MEETING

Notice is hereby given that the Annual General Meeting of the Shareholders of Fat Prophets Australia Fund Limited ACN 111 772 359 (“ FPAFL ” or the “ Company ”) will be held on Friday 28[th] November 2008 at 10.30am at the Pinaroo 3 Room, The Grace Hotel located at 77 York Street in Sydney, New South Wales (“ AGM ”).

BUSINESS

The accompanying Explanatory Notes describe the proposed resolutions in detail.

Chairman’s Address

The Chairman will report on the Company’s results and activities during the year ended 30 June 2008.

Financial Statements and Reports for the year ended 30 June 2008

To receive and consider the financial report of the Company for the year ended 30 June 2008 and the reports of the Directors and the auditor.

Adoption of Remuneration Report

Resolution 1

To consider and, if thought fit, to pass the following as an ordinary resolution:

That the Remuneration Report contained in the Fat Prophets Australia Fund Limited 2008 Annual Report be adopted.

Note: Under Section 250R(3) of the Corporations Act, the vote on this resolution is advisory only and does not bind the Directors or the Company.

Re-election of Directors – Mr Andrew Brown and Mr John Reynolds

Resolution 2

To consider and, if thought fit, to pass the following as an ordinary resolution:

That Andrew Brown, who retires in accordance with the Company’s constitution and, being eligible, offers himself for re-election, be re-elected as a Director of the Company.

Resolution 3

To consider and, if thought fit, to pass the following as an ordinary resolution:

That John Reynolds, who vacates office in accordance with the Company’s constitution and, being eligible, offers himself for re-election, be re-elected as a Director of the Company.

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Removal of Underperformance Clause in the Management Agreement

Resolution 4

To consider and, if thought fit, to pass the following as an ordinary resolution:

That, conditional on the passage of Resolution 5, the amendment of the Management Agreement by deleting Clause 11.4, as further described in the Explanatory Notes, is approved.

Without limitation, Section 208 of the Corporations Act is relevant to this resolution.

Voting Exclusion Statement

The Company will disregard any votes cast on this resolution by Angus Geddes and any of his associates ( Excluded Person ).

However, the Company need not disregard such a vote if:

it is cast by a person as proxy appointed in writing for a person who is entitled to vote, in accordance with the directions on the proxy form; and
it is not cast on behalf of an Excluded Person.

Addition of a sunset clause in the Constitution

Resolution 5

To consider and, if thought fit, to pass the following as a special resolution:

That, conditional on the passage of Resolution 4 and amendment of the Management Agreement as contemplated by Resolution 4, the Constitution is amended by the addition of a new Clause 10.2 as further described in the Explanatory Notes.

Without limitation, Section 136(2) of the Corporations Act is relevant to this resolution.

Variation of Dividend Reinvestment Plan

Resolution 6

To consider and, if thought fit, to pass the following as an ordinary resolution:

That the Company’s Dividend Reinvestment Plan be varied as further described in the Explanatory Notes.

Without limitation, Rule 8.5(b) of the Constitution is relevant to this resolution.

Variation of the Constitution to give Directors the discretion to establish, vary, suspend or terminate the Company’s dividend reinvestment plans

Resolution 7

To consider and, if thought fit, to pass the following as a special resolution:

That the Constitution is amended to give Directors the discretion to establish, vary, suspend or terminate the Company’s dividend reinvestment plans by the variation of Rule 8.5(b) and deletion of Rule 8.5(d) as further described in the Explanatory Notes.

Without limitation, Section 136(2) of the Corporations Act is relevant to this resolution.

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Defined Terms

Terms used in this Notice of Annual General Meeting shall have the same meaning as defined in the Explanatory Notes accompanying this Notice of Annual General Meeting.

Other Information

The Explanatory Notes accompany and form part of this Notice of Annual General Meeting.

Voting by Proxy

Any Shareholder of the Company entitled to attend and vote at this AGM is entitled to appoint a proxy to attend and vote instead of that Shareholder. The proxy does not need to be a Shareholder.

A Shareholder who is entitled to cast 2 or more votes may appoint 2 proxies and may specify the proportion or number of votes each proxy is appointed to exercise. If no proportion or number is specified, each proxy may exercise half of the Shareholder’s votes.

Proxies must be:

(a) lodged at the Company’s share register; or

(b) received at the share register’s fax number specified below,

not later than 48 hours before the General Meeting i.e. 10.30am (Sydney time) on 26[th] November 2008.

The Company’s share register: Registries Limited Level 7 207 Kent Street Sydney NSW 2000 Postal address: Registries Limited PO Box R67 Royal Exchange NSW 1223 Fax number: (02) 9279 0664

A form of proxy is provided with this notice.

Entitlement to Vote

In accordance with section 1074E(2)(g)(i) of the Corporations Act and regulation 7.11.37 of the Corporations Regulations, the Company has determined that for the purposes of the AGM all Shares will be taken to be held by the persons who, according to records of the Company’s share registrar, held them as registered Shareholders at 7:00pm (Sydney time) on 26[th] November 2008. Accordingly, share transfers registered after that time will be disregarded in determining entitlements to attend and vote at the AGM.

Dated this 28th day of October 2008

By order of the Board of Directors

Richard Fabricius Company Secretary

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Explanatory Notes to Accompany Notice of Annual General Meeting

These Explanatory Notes are intended to provide Shareholders with sufficient information to assess the merits of the resolutions contained in the accompanying Notice of Annual General Meeting of the Company. The Directors of the Company recommend Shareholders read these Explanatory Notes in full before making any decision in relation to the resolutions.

If you have any queries regarding the contents of these Explanatory Notes or in relation to the Annual General Meeting, please contact the Company Secretary, Richard Fabricius, on (02) 9024 6725.

If you do not fully understand the contents of these Explanatory Notes you should consult your financial or legal adviser for assistance.

Resolution 1. Adoption of Remuneration Report

The Board of FPAFL is submitting the Remuneration Report to Shareholders for consideration and adoption by way of a non-binding resolution. This resolution is put to Shareholders in accordance with Section 250R(2) of the Corporations Act.

A reasonable opportunity will be provided for discussion of the Remuneration Report at the AGM.

The outcome of this resolution is advisory only and is not binding on the Company or the Directors. However, the Directors will consider the outcome of the vote when reviewing the remuneration practices and policies of the Company.

The Remuneration Report is set out on pages 29 and 30 of the FPAFL Annual Report for 2008.

The Remuneration Report explains the Company’s policies in relation to the nature of remuneration paid to the Directors and sets out remuneration details for each Director for the financial year ended 30 June 2008.

Resolution 2. Re-election of Director – Mr Andrew Brown

The ASX Listing Rules and the Constitution of the Company require each Director to be re-elected every three years and also that an election of Directors be held each year.

Andrew Brown is a current Director of the Company who is retiring and, being eligible, seeking re-election in accordance with the Company’s Constitution.

Information relating to experience and qualifications of Andrew Brown is detailed below.

Andrew Brown

Non-Executive Director

Andrew Brown has 28 years experience in the Australian equity market as a stockbroker, corporate investor and funds manager, latterly with AMP Capital and Rothschild Australia Asset Management. Since 2003, Andrew has been the Managing Director of Tidewater Investments Limited. Andrew has an honours degree majoring in economics and econometrics from the University of Manchester, England.

Andrew is also the Chairman of Equities and Freeholds Limited, and a non-executive Director of Aequs Capital Limited and Cheviot Bridge Limited.

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Resolution 3. Re-election of Director – Mr John Reynolds

John Reynolds was appointed by the Directors under Rule 6.2 (c) of the Company’s Constitution. As provided in the Constitution, his appointment will terminate at the end of the Meeting, being the first general meeting of the Company after his appointment. John Reynolds, being eligible, has offered himself for re-election as a Director in accordance with the Company’s Constitution.

Information relating to experience and qualifications of John Reynolds is detailed below.

John Reynolds

Independent Non-Executive Director

John Reynolds is a senior client advisor at Bell Potter Securities with over 16 years of experience within the securities industry. During this period he has also worked at JB Were, Credit Suisse and Challenger. He gained accreditation by the Securities Institute (now known as the Financial Services Institute of Australasia) as a dealer in Australian and international equities, derivatives and numerous equity and non-equity related products.

John has completed a Diploma in Applied Finance and Investment through FINSIA in addition to a real estate licensing certificate. John specialised in portfolio construction and portfolio management in his diploma. The majority of his advisory work is focused on the Top 50 stocks listed on the ASX. John is also a regular contributor to CNBC and Boardroom Radio.

John became a director of the Company in June 2008 and is currently the Chair of the Audit Committee.

Resolution 4. Removal of Underperformance Clause in the Management Agreement

Background

The Company is managed by Fat Prophets Funds Management Australia Pty Limited ( Manager ). The Company entered into a management agreement with the Manager on 8 March 2005 ( Management Agreement ). Under the Management Agreement, the Manager is appointed as the exclusive manager of the Company’s investment portfolio. The term of the appointment is 25 years, expiring on 15 April 2030. The Company was granted a waiver of ASX Listing Rule 15.16 which limits the term of management agreements to 5 years, enabling the Manager to be appointed for a 25 year term.

The Company has been in discussions with the Manager to remove Clause 11.4 of the Management Agreement which presently entitles the Company to terminate the Management Agreement in the event of underperformance ( Underperformance Clause ). The Underperformance Clause is as follows:

“ 11.4 Termination by Company for non performance

(a) The Company may immediately remove the Manager and terminate this Agreement by special resolution of the Company’s shareholders in general meeting at any time where BB is less than –0.15, where BB is calculated in accordance with the following formula):

BB = (FV - IV) - (FI - II)

I V II

where

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FI is the level of the S&P/ASX 300 Accumulation Index published by ASX on the last Business Day of the relevant Performance Calculation Period;

FV is the Value of the Portfolio calculated on the last Business Day of a Performance Calculation Period;

II is the S&P/ASX 300 Accumulation Index published by ASX calculated on the last Business Day of the preceding Performance Calculation Period; and

IV is the Value of the Portfolio calculated on the last Business Day of the preceding Performance Calculation Period.

(b) For the purposes of Clause 11.4(a) Performance Calculation Period is the three year period immediately prior to any calculation date.
(c) Where the ASX or equivalent authority ceases to publish the S&P/ASX 300 Accumulation Index then the published index which most closely resembles it must be used for the purposes of this Clause 11.4.
(d) In calculating BB, changes in the Value of the Portfolio as a result of the issue of Securities by the Company, capital reductions undertaken by the Company, share buy-backs undertaken by the Company and dividend distributions undertaken by the Company will be disregarded or adjusted in a manner determined by the auditor of the Company at the conclusion of that Performance Calculation Period.
(e) Where BB is less than -0.15 and the Company proposes to remove the Manager by way of special resolution of shareholders in general meeting:
(i) the Company must provide the Manager with written notice of the proposed resolution and the full text of the notice of meeting and any related materials at the same time as the notice of meeting is distributed to the Company’s shareholders;
(ii) the Company will, if requested by the Manager and at the Company’s cost, distribute a statement to the Company’s shareholders in response to the proposed resolution at least 10 days prior to any meeting. Such statement must not be more than 1000 words long or defamatory; and
(iii) representatives of the Manager will be allowed a reasonable amount of time to speak at the meeting in response to the resolution prior to it being tabled for voting.”

The Underperformance Clause permits the Company to terminate the Management Agreement before expiry of its term if the cumulative performance of the portfolio is at least 15% below the performance of the benchmark S&P/ASX 300 Index ( Benchmark ) calculated over a rolling 3 year period.

The Company is one of a handful of current LICs which have a clear right to terminate a management agreement with their investment manager for underperformance.

As at 31 August 2008 the Manager estimates the cumulative level of underperformance is 14.08%, based on the Manager’s interpretation of the calculation methodology in the Management Agreement (which would be used by the auditor in evaluating whether the provisions of the Underperformance Clause would be triggered). This does not meet the threshold level of underperformance to trigger operation of the Underperformance Clause.

The Company is also entitled to terminate the Management Agreement in other limited circumstances. These include insolvency of the Manager, loss of the Manager's Australian Financial Services Licence and a material

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unrectified breach of the Management Agreement by the Manager. These termination rights are consistent with the termination rights for similar management agreements for many other LICs.

The Company is now seeking Shareholder approval for the purposes of Section 208 of the Corporations Act for the removal of the Underperformance Clause.

As part of providing a benefit back to Shareholders in consideration for any potential financial benefit given by the Company to the Manager (considered a related party of the Company, as described below), it is proposed that the performance fee payable by the Company to the Manager is reduced from the current rate of 15% of outperformance to 13.75% of outperformance. This is explained further below.

Further, the existing Clause 11.4 will be replaced with a new clause that provides that if the Company is wound up under the proposed Sunset Clause to be added to the Constitution of the Company under Resolution 5, the Company has no liability to the Manager in respect of termination of the Management Agreement (including in respect of management fees and performance fees that would have been payable to the Manager had the agreement not been terminated).

This resolution is conditional on Resolution 5 being passed by Shareholders.

Proposed Amendment

It is proposed that the existing Clause 11.4 in the Management Agreement is removed in its entirety. This amendment will not affect the remaining provisions which will continue in force.

Shareholder approval under Section 208 of the Corporations Act is required in circumstances where a public company (the Company) gives a financial benefit to a related party (the Manager) and a relevant exception is not otherwise available. All information known to the Company and the Directors that is reasonably required by Shareholders to decide whether or not it is in the Company’s interests to pass the proposed resolution to amend the Management Agreement is set out as follows, as required by Section 219(1) of the Corporations Act:

(a) The related party to whom the proposed resolution would permit financial benefits to be given:

The Manager is controlled by Mr Angus Geddes, a Director of the Company, as Mr Angus Geddes has the capacity to determine the outcome of decisions about the Manager’s financial and operating policies. Accordingly, under the Corporations Act, the Manager is considered to be a “related party” of the Company. A financial benefit cannot be given by a public company to a related party of that public company unless shareholder approval has been obtained to the giving of that benefit.

(b) The nature of the financial benefits:

The removal of the Underperformance Clause may be considered to be provision of a financial benefit to a “related party” of the Company. It is possible to interpret the removal of the Underperformance Clause as giving a financial benefit to the Manager, as under the proposed amended Management Agreement, the Manager may continue to receive a management fee for its services without exposure to termination for underperformance by Shareholders.

(c) In relation to each Director of the Company :

(i) The independent Directors, Mr Robert Bolton and Mr John Reynolds do not have an interest in the outcome of the resolution. On balance, the independent directors are in favour of this resolution.

Robert Bolton and John Reynolds reached their decision to recommend this resolution by considering the following points:

Reasons to vote in favour of Resolution 4:

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(a) Only a small number of LICs have a clause in their management agreement permitting termination for underperformance – removal of this clause will bring the Company into line with other LICs.
(b) The Underperformance Clause appears to be more onerous compared to similar clauses of other LICs – the provisions of the Underperformance Clause are triggered sooner than similar clauses in other LICs’ management agreements, or may be triggered by a shorter period of underperformance.
(c) Market conditions over the past 3 years have not been favourable to value based investor style managers such as the Company.
(d) The Underperformance Clause causes uncertainties in relation to its operation. These uncertainties and ambiguities may lead to the Company becoming involved in litigation with the Manager.
(e) The current Underperformance Clause relies on the interpretation of its operation by the auditor of the Company. The figures used in the calculations to determine the level of underperformance are at the discretion of the auditor – this may leave the Company vulnerable to claims against the auditor’s interpretation of the clause and also could be used by predatory investors as a means of seeking operational control of the Company.
(f) Proposed Sunset Clause – subject to the passage of Resolution 5, the Sunset Clause replaces the measurement ambiguity that exists in the current Underperformance Clause, providing for a more defined measurement of underperformance. It may also provide Shareholders with the opportunity, at regular intervals during the Company’s life, to consider whether or not they wish the Company to be wound up and have the net value of the Company’s investments distributed to them if at that time the Shares are trading at a significant discount to the Net Tangible Asset Value.
(g) Frequency of review – the current Underperformance Clause is based on a monthly review of the relative performance of the Company. If the Underperformance Clause is triggered, an extraordinary general meeting may be called to consider the removal of the Manager. The Underperformance Clause may potentially be triggered on numerous occasions, leading to the possibility of numerous extraordinary general meetings being held in a short space of time. This could result in excessive expense to the Company. The proposed Sunset Clause allows for reviews every 3 years, and for meetings to be called at those times if the relevant provision is triggered.
(h) Removing the Underperformance Clause does not prevent the Company from terminating the Management Agreement in all circumstances – the Company may still remove the Manager for cause (pursuant to Clause 11.3 of the Management Agreement).
(i) Departure from the Company’s investment strategy - the Underperformance Clause may prompt the Manager to depart from the investment strategy outlined in the Company's prospectus, as underperformance may lead the Manager to mimic the Benchmark to avoid termination.
(j) Reduction in the Manager’s Performance Fee – if Resolution 4 is passed, the fee for outperformance paid to the Manager will be reduced from 15% to 13.75% of outperformance of the Company’s investments. Base fees for management will continue to be paid.
Reasons to vote against Resolution 4:
(a) Probability of the Underperformance Clause being triggered - as at 31 August 2008, the Manager estimates the cumulative level of underperformance is 14.08% based on the Manager’s interpretation of the calculation methodology in the Management Agreement, which would be used by the auditor in evaluating whether the provisions of the Underperformance Clause would be triggered.

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     - (b) A new manager cannot be appointed – shareholders lose the ability to vote to replace the Manager with a better performing manager should the opportunity arise.

(ii) Mr Angus Geddes declines to make a recommendation in relation to this resolution as he will benefit from the resolution if passed. The resolution would permit financial benefits to be given to the Manager which is controlled by Mr Angus Geddes.
(iii) Mr Andrew Brown declines to make a recommendation in relation to this resolution. Mr Andrew Brown is a director of Tidewater Asset Management Pty Limited, which holds a subcontract agreement with the Manager, and is also the key person for the Manager. While he will not personally benefit from the resolution if passed, he considers it inappropriate to make a recommendation in these circumstances.
(d) Other information known to the Company and the Directors that is relevant in deciding whether the resolution is in the Company’s interests:
(i) Removal of uncertainty in operation : The operation of the Underperformance Clause may be uncertain. The Company believes that these uncertainties may lead to disputes and possibly litigation between the Company and the Manager. These uncertainties include:
- assessment of the taxation impact of participation in a share buyback for investee companies on performance of the Portfolio; and
- the impact of the exercise of options to acquire unissued shares in the Company on performance of the Portfolio.

Accordingly, the benefit to the Company is the decreased likelihood of any potential litigation that could arise between the Company and the Manager. In the event of such litigation, the Company could incur significant legal and other one-off costs and be exposed to possible adverse publicity, which in turn could have a negative impact on price at which Shares trade on the Exchange.

(ii) Brings the Company in line with other LICs: While the Management Agreement is similar in most respects to the form of management agreement entered into by other LICs, the Company is aware of only 3 other LICs whose management agreement features such an “underperformance clause”. The Company seeks to be consistent with other LICs. As with all LICs, the Company would still have the ability to terminate the Management Agreement for cause. The Management Agreement may be terminated by the Company if any of the following events occur:
(a) an Insolvency Event (as defined in the Management Agreement) occurs with respect to the Manager;
(b) the Manager commits a material breach of the Management Agreement that cannot be or is not rectified within 30 days;
(c) the Manager’s Australian Financial Services Licence is suspended or cancelled;
(d) there is a change in control of the Manager (that has not been consented to by the Company); or
(e) the Manager persistently fails to ensure that investments are consistent with the agreed investment strategy.

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(iii) Better compliance with the Company’s investment strategy: The Underperformance Clause may prompt the Manager to depart from the investment strategy it has formulated for the Company as underperformance may lead the Manager to mimic the Benchmark to avoid termination, thereby adopting a more index-based approach. A possible result may be that the Company's instant focus changes from an actively managed approach to a quasi indexhugging LIC.

Therefore the proposed amendment will better allow the Manager to follow the Company’s investment strategy and comply with the Manager’s investment mandate, which aims to provide the highest returns possible for investors.

(iv) Reduce vulnerability to predatory investors: The Company may be exposed to predatory investors who may seek to rely on the Underperformance Clause to remove the Manager and in doing so, achieve a degree of control over the Company’s investment portfolio without payment to existing shareholders of an appropriate premium for control. The approach of predatory investors may distract both the Board and the Manager and impose significant compliance and defence costs on the Company.

The proposed amendment assists in providing a more focussed management of investments, without the potential for distraction by predatory investors. This in turn allows a more focused approach to achieving the highest returns possible for Shareholders.

(v) Special Resolution of Shareholders still required: The ability to invoke the Underperformance Clause involves the passage of a special resolution by members. A special resolution requires at least 75% of the votes cast by members entitled to vote in favour of the resolution. The ability to implement the Wind Up Resolution (as part of the proposed Sunset Clause) is also subject to a special resolution. Hence, the removal of the Underperformance Clause and the implementation of the Sunset Clause in Resolution 5 (which is dependent on the passing of Resolution 4) as a replacement does not derogate from the requirement of a special resolution of Shareholders to invoke such benefit.
(vi) Reduction in Performance Fee: If Resolution 4 is passed, the Performance Fee payable to the Manager will be reduced from 15% of outperformance to 13.75% of outperformance. This is a benefit provided to Shareholders in consideration for any opportunity, costs or benefits forgone by the Company in removing the Underperformance Clause. To date, the Manager has been paid a performance fee equal to $111,965 (inclusive of GST), paid in April 2005.
(vii) Taxation consequences: None have been identified.
(viii) Opportunity costs and benefits foregone by the Company :
(a) The Company will lose its ability to remove the Manager, and at a Shareholder level, the Shareholders lose their ability to vote to remove the Manager for underperformance (unless the underperformance is a result of another act or omission permitting termination). Potentially, this means that during the Manager’s 25 year tenure, the Company cannot terminate the Manager even if it is consistently underperforming its targets.

In such case, this means loss of opportunity to engage a better performing manager, resulting in potentially negative effects on share price.

Therefore the proposed amendment will mean that the Company cannot terminate the Manager for underperformance without cause.

(b) A flat 1.25% management fee continues to be payable by the Company to the Manager irrespective of the Manager’s performance. Although it is in the interests of the Manager to perform well so that it is entitled to a performance fee (as calculated according to Clause 10.2 of the Management Agreement), if, for example, the performance by the Manager is consistently failing to reach the agreed targets, the Manager will still receive a 1.25% management fee.

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The proposed amendment will mean that even if the Manager is consistently underperforming (as measured by the Underperformance Clause), the Manager will continue to receive a management fee.

Resolution 5. Addition of a Sunset Clause in Constitution

Background

The proposed amendment to the Constitution is to introduce a “Sunset Clause” which provides a mechanism by which Shareholders have the opportunity to realise the value of the Company in the event that the share price of the Company trades at a significant discount to its Net Tangible Asset Value per Share.

In summary, if the Company’s Share price during a relevant calculation period is trading at a discount to the Net Tangible Asset Value per Share greater than 10% and that discount is greater than the weighted average percentage discount of a designated peer group of listed investment companies trading on the ASX at that time ( Designated Peer Group ) plus 5%, then the Directors are required to convene a meeting of Shareholders to consider resolving, by way of a special resolution, to commence a voluntary winding up of the Company. The relevant calculation period is the month of June every 3 years between 2011 and 2029 (inclusive).

Given the diversity of investment companies listed on the ASX, a Designated Peer Group is used to calculate a benchmark maximum discount to ensure that an appropriate performance comparison to the Company is used. The Designated Peer Group will comprise LICs that have capital and revenue structures, investment approaches and investment focuses that are comparable to the Company. The independent Directors will have the absolute discretion to determine the composition of the Designated Peer Group in accordance with the above criteria and have determined that it will initially consist of the following LICs:

Designated Peer Group

Designated Peer Group
Company	ASX code
Aberdeen Leaders Limited	ALR
Australian Leaders Fund Limited	ALF
CenturyAustralia Investments Limited	CYA
Clime Capital Limited	CAM
EmergingLeaders Investments Limited	ELI
Fat Prophets Australia Fund Limited	FAT
HuntleyInvestment CompanyLimited	HIC
Hyperion FlagshipInvestments Limited	HIP
Scarbourgh Equities Limited	SCB
Van Eyk Three Pillars Limited	VTP
WAMCapital Limited	WAM
Wilson Investment Fund Limited	WIL

The independent Directors will review the Designated Peer Group and will determine its composition no less than 6 months prior to the beginning of each calculation period. Prior to removing or adding a listed investment company from or to the Designated Peer Group, the independent Directors will seek the non-binding advice of two experts, at least one of which must be independent of the Board, as to the appropriateness of such an action. If there are no independent Directors at the time of determining the composition of the Designated Peer Group for a particular calculation period or if for any reason the independent Directors do not review the Designated Peer Group in the required review period, the Designated Peer Group will remain unchanged from its existing composition.

This resolution is conditional on Resolution 4 being passed by Shareholders.

A full copy of the Company’s current Constitution, prior to this amendment, can be viewed through the ASX’s announcements platform (see the Company’s 2005 announcements, date 19 April 2005).

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Proposed Amendment

Section 136(2) of the Corporations Act requires that any changes to the Constitution are to be passed by a special resolution.

The proposed amendment is the addition of the following rule as Rule 10.2:

“10.2 Sunset Clause

(a) If at any time during a Calculation Period the Discount is both:
(i) greater than 10%; and
(ii) greater than the Maximum Discount,
the Directors must:
(iii) convene a meeting of members to be held within 3 months of expiry of the Calculation Period, to be held to consider and, if thought fit, pass a special resolution to wind up the Company in accordance with Part 5.5 of the Corporations Act ( Wind Up Resolution );
(iv) include with the notice of meeting containing the Wind Up Resolution, a statement setting out all information known to the Company that is material to the decision on how to vote on the Wind Up Resolution.
(b) Rule 10.2(a) does not limit the circumstances in which a resolution to wind up the Company may be presented to members in accordance with the Corporations Act or this Constitution.
(c) For the purposes of this Rule 10.2, the following terms have the following meanings:
(i) Discount means the amount (expressed as positive number and a percentage) determined in accordance with the following formula:

D = (NTA – AP) / NTA

Where:

D is the Discount;

NTA is the average of the four calculations of unaudited post-tax net tangible assets of the Company per Share at the close of business on each of the four Fridays during the relevant Calculation Period; and

AP is the volume weighted average price at which Shares trade on the Exchange in the relevant Calculation Period.

(ii) Maximum Discount means an amount equal to the aggregate of 5% and the weighted average ordinary share price discount (expressed as a positive number) to the post-tax net tangible assets of the Designated Peer Group in respect of the last day of the relevant Calculation Period. The weighted average share price discount to the post-tax net tangible assets of the members of the Designated Peer Group will be calculated using the respective market capitalisations of the members of the Designated Peer Group to determine each member’s respective weighting within the Designated Peer Group and then applying that weighting to each member’s share price premium or discount to its post-tax net tangible asset position using the amounts released by the Exchange in respect of members of the Designated Peer Group (if the Exchange ceases to release details of the relevant members of the Designated Peer Group then, to the extent it is able the Company will acquire those details from such other publicly available sources).

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Examples of the operation of this calculation are:

If the Company’s Discount is 13% during the Calculation Period and the weighted average discount of the Designated Peer Group is 5%, the Company must convene a meeting under Rule 10.2(a) as the Discount is both greater than 10% and is greater than the Maximum Discount (as 13% is greater than 5% plus 5%).

If the Company’s Discount is 13% during the Calculation Period and the weighted average discount of the Designated Peer Group is 9%, the Company need not convene a meeting under Rule 10.2(a) as the Discount is not greater than the Maximum Discount (as 13% is not greater than 9% + 5%).

(iii) Calculation Period means the month of:
(A) June 2011;
(B) June 2014;
(C) June 2017;
(D) June 2020;
(E) June 2023;
(F) June 2026; and
(G) June 2029
(iv) Designated Peer Group means investment companies listed on the Exchange which have capital and revenue structures, investment approaches and investment focuses broadly comparable to the Company as selected by the Independent Directors in their absolute discretion. The Independent Directors will review the Designated Peer Group and determine its composition no less than 6 months prior to the beginning of the relevant Calculation Period ( DPG Review Period ). If the Independent Directors form the opinion to remove a company from or add a new company to the Designated Peer Group, the Independent Directors must obtain advice from two experts, at least one of which must be independent of the board of Directors, as to the appropriateness of such an action. The Independent Directors may consider but are not obliged to adopt the advice of the experts. Where a Designated Peer Group Company ceases to be listed on the Exchange at any time prior to or during a Calculation Period, it is deemed to cease to be a member of the Designated Peer Group. If there are no Independent Directors at the time of a DPG Review Period or if the Independent Directors for any reason do not review the Designated Peer Group within a DPG Review Period, the existing composition of the Designated Peer Group remains unchanged for the purposes of calculating the Maximum Discount for the corresponding Calculation Period.
(v) Independent Director means a non-executive Director who:
(i) is not a substantial shareholder of the Company or an officer of, or otherwise associated directly with, a substantial shareholder of the Company;
(ii) within the last 3 years has not been employed in an executive capacity by the Company or another group member;
(iii) within the last 3 years has not been a principal of a material professional adviser or a material consultant to the Company or another group member;

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(iv) is not a material supplier or customer of the Company or other group member, or an officer of or otherwise associated directly or indirectly with a material supplier or customer;
(v) has no material contractual relationship with the Company or another group member other than as a director of the Company; and
(vi) is free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the Director’s ability to act in the best interests of the Company.
(d) The Directors must procure that the Company’s Discount is calculated within 30 days of the end of each Calculation Period and must issue an announcement to the Exchange within 1 Business Day of determination of the Discount.
(e) In the event that there is any uncertainty regarding the calculation of the Discount or whether a meeting must be convened under Rule 10.2(a), the Directors must engage the auditor of the Company to resolve the uncertainty as soon as possible after the end of each Calculation Period
(f) For the avoidance of doubt, if the Company’s share price is trading at a premium to its post-tax net tangible assets on the last Business Day of a Calculation Period then in no circumstances can the provisions of Rules 10.2(a)(iii) and 10.2(a)(iv) be triggered.

Resolution 6. Variation of Dividend Reinvestment Plan

The Company’s Prospectus dated February 2004 contains details of an existing dividend reinvestment plan ( Existing DRP ) (refer to Section 10.9 on pages 53 and 54 of the Prospectus).

The Board of the Company proposes that the Existing DRP is varied according to the terms of a new, replacement dividend reinvestment plan ( New DRP ). An outline of the proposed New DRP is set out below together with examples of its operation. The full rules of the New DRP are set out in Appendix 1.

Rule 8.5(b) of the Constitution requires shareholder approval for the Directors to vary any dividend reinvestment plan.

If the proposed resolution is passed, the Board intends to offer the New DRP for the interim dividend payable in respect of the 2009 financial year and for subsequent dividends.

The Board considers that the New DRP would provide the Company with a more flexible DRP. It would incorporate a more appropriate pricing mechanism for issuing DRP shares which would reflect the relationship between the Company’s share price and its Net Tangible Asset Value.

Outline of the New DRP

Who can participate in the New DRP? All registered Shareholders of the Company may participate in the New DRP. However, the Board may determine that a Shareholder who is not a resident of Australia is not entitled to participate in the New DRP if withholding tax has not been paid in accordance with the taxation legislation, or if the Shareholder’s participation in the New DRP would contravene the laws of the jurisdiction in which that Shareholder is resident.

Extent of Participation. Participation in the New DRP is entirely voluntary. A Shareholder may elect full participation, so that all dividends on all of the Shareholder’s shares will be subject to reinvestment. Alternatively, a Shareholder may elect partial participation, by nominating a particular number of Shares to which the New DRP Plan shall apply. Where a Shareholder elects partial participation, the number of Shares nominated shall be the minimum number of Shares to which the New DRP shall apply. Thereafter, the New

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DRP shall also apply to all additional Shares acquired either through the New DRP Plan or by any other means.

Reinvestment of Dividends. The New DRP has been structured to take account of the relationship between the Company’s share price and its Net Tangible Asset Value as follows:

Scenario A. Where the share price is less than Net Tangible Asset Value (“NTA”) . If the prevailing share price is less than the Company’s NTA, dividends on Shares subject to the New DRP will be used to acquire the Company’s Shares on market. The Company will procure the acquisition of shares on market. The Company has 10 trading days in which to procure the acquisition of Shares on market on behalf of all Shareholders participating in the New DRP. The average share price, less brokerage, commission or other transaction costs, is then determined and the Shares purchased under the New DRP are allocated among the participating Shareholders in accordance with their level of participation.

However, where enough Shares cannot be bought on market within 10 trading days to satisfy the full amount of dividends payable under the New DRP, the remainder of the dividend will be provided to the participating Shareholders in the form of newly issued Shares in the Company (“ Residual Shares ”).

What is the issue price of the Residual Shares? Residual Shares issued and allotted under the New DRP under Scenario A will be issued at the greater of: (a) the NTA per Share on the business day immediately prior to the Record Date; or (b) the weighted average price of all Shares traded on the ASX during the 5 trading days up to and including the Record Date.

Scenario B. Where the share price is greater than or equal to NTA. If the prevailing share price is higher than or equal to the Company's NTA, participating Shareholders will receive dividends as newly issued Shares in the Company.

What is the issue price of the Shares? Shares issued and allotted under the New DRP under Scenario B will be issued at the greater of: (a) the NTA per Share on the business day immediately prior to the Record Date; or (b) 97.5% of the weighted average price of all Shares traded on the ASX during the 5 trading days up to and including the Record Date.

Costs of participation. It will cost nothing for a Shareholder to join the New DRP and there will be no direct on-going costs of participating in the New DRP. Where Shares are issued and allotted under the New DRP, a participating Shareholder will not be charged any brokerage, commission or other transaction costs. Where Shares are purchased on-market under the New DRP, a participating Shareholder’s Shares shall be allocated to its shareholding account net of brokerage, commission or other transaction costs.

Modification or termination of the New DRP. The Company’s Board of Directors may modify the rules of the New DRP at any time or terminate it by giving one month’s notice to New DRP participants..

Joining the New DRP. If the proposed resolution to vary the New DRP is passed, the Company will provide Shareholders with a New DRP form. A Shareholder’s participation in the New DRP will commence in respect of the first dividend payment after the Company receives the Shareholder’s New DRP form, provided it is received before 4.00 pm on the Record Date in respect of that dividend.

Shareholder termination or alteration of participation in the New DRP. A Shareholder’s participation in the New DRP automatically terminates if it disposes of its entire shareholding in the Company. Otherwise, a Shareholder may terminate or alter its level of participation in the New DRP by completing a New DRP form noting its termination or alteration.

Where a Shareholder has elected partial participation of its shareholding under the New DRP, and the Shareholder disposes of a number of its Shares such that the number of its remaining shares is less than the

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number of Shares it previously nominated as applying to the New DRP, its entire remaining shareholding will be subject to the New DRP as if it had elected full participation.

The following rules will apply to a New DRP participant disposing of all of its FPAFL shares after the Record Date but before the payment of a dividend:

if the Company is issuing and allotting shares under the New DRP, and the number of Shares which the New DRP participant would otherwise be entitled to is less than a "marketable parcel" (ie, less than $500 worth of Shares), the New DRP participant will receive its dividend in the form of a cheque;
if the Company is issuing and allotting shares under the New DRP, and the number of Shares which the New DRP participant is entitled to receive is a "marketable parcel", the New DRP participant will receive its dividends as shares; or
if the Company is procuring the acquisition of Shares on-market, the New DRP participant shall be allocated those Shares which were acquired on its behalf under the New DRP.

Taxation Consequences. There may be tax implications for Shareholders receiving additional Shares under the New DRP. Shareholders should discuss this with their financial or taxation advisers. The Company will take no responsibility for the taxation liabilities of participants under the New DRP.

Examples of the operation of the New DRP

Examples of the mechanics of the New DRP under various NTA and share price scenarios are detailed below. Please note that these examples incorporate various assumptions including both a nominal figure for the dividend per share and an illustrative dividend record date which is not an actual dividend record date of the Company.

1. NTA per share>Share Price; the Company is able to purchase Shares on market

Record Date for dividend	1 October 2008	Assumed for illustrative purposes
Dividend per share	3 cents	Assumed for illustrative purposes
NTA per share for the trading day immediately prior to the	$1.37	Determined at 4pm on day before Record Date (ie, using the
Record Date		Company’s NTA per share as at 28 September 2008)
Weighted average share price for the 5 trading days up to and	$1.08	Weighted average price of the Company’s Shares for 25
including the Record Date		September – 1 October 2008
Number of Shares held by participating Shareholders	100,000	Assumed for illustrative purposes
Value of dividend payable to participating Shareholders	$3,000	Number of Shares held by participating Shareholders x
		dividend per share
Average price paid for $3,000 of Shares on market /	$1.09	Average price paid to acquire $3,000 worth of shares on 2
		October 2008
Price at which DRP Shares are distributed
Number of Shares distributed to participating Shareholders	2,752	$3,000 divided by $1.09 assuming full DRP participation by
/Number of Shares purchased on market by the Company		participating Shareholders

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2. NTA per share>Share Price; the Company is not able to purchase Shares on market

Record Date for dividend	1 October 2008	Assumed for illustrative purposes
Dividend per share	3 cents	Assumed for illustrative purposes
NTA per share for the trading day immediately prior to the	$1.37	Determined at 4pm on day before Record Date (ie, using the
Record Date		Company’s NTA per share as at 28 September 2008)
Weighted average share price for the 5 trading days up to and	$1.08	Weighted average price of the Company’s Shares for 25
including the Record Date		September – 1 October 2008
Number of Shares held by participating Shareholders	100,000	Assumed for illustrative purposes
Value of dividend payable to participating Shareholders	$3,000	Number of Shares held by participating Shareholders x
		dividend per share
Issue Price of DRP shares	$1.37	This is the higher of the NTA per share and the Weighted
		average share price
Number of Shares issued to participating Shareholders	2,190	$3,000 divided by $1.37 assuming full DRP participation by
		participating Shareholders
3. Share Price > NTA per share
Record Date for dividend	1 October 2008	Assumed for illustrative purposes
Dividend per share	3 cents	Assumed for illustrative purposes
NTA per share for the trading day immediately prior to the	$1.37	Determined at 4pm on day before Record Date (ie, as at 28
Record Date		September 2008)
Weighted average share price for the 5 trading days up to and	$1.45	This is an_assumed_weighted average price of the Company’s
including the Record Date		Shares for 25 September- 1 October 2008
Number of Shares held by participating Shareholders	100,000	Assumed for illustrative purposes
Value of dividend payable to participating Shareholders	$3,000	Number of Shares held by participating Shareholders x
		dividend per share
Issue Price of DRP shares	$1.41	This is the higher of the NTA per share ($1.37) and 97.5% of
		the weighted average share price ($1.41)
Number of Shares issued to participating Shareholders	2,128	$3,000 divided by $1.41 assuming full DRP participation by
		participating Shareholders

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Resolution 7. Variation of the Constitution to give Directors the discretion to establish, vary, suspend or terminate the Company’s dividend reinvestment plans

The proposed amendments to the Constitution to give the Board the discretion to establish, vary, suspend or terminate the Company’s dividend investment plans.

Under the current Constitution (prior to this proposed amendment), the Company is required to seek majority shareholder approval in order to establish, vary, suspend or terminate any of the Company’s dividend reinvestment plans. This means that a general meeting must be called each time the Board considers making any changes to a dividend reinvestment plan. Varying the Constitution to give the Directors the discretion to establish, vary, suspend or terminate the plan would save the Company considerable expenses associated with the calling and holding of a general meeting of Shareholders.

The first proposed amendment is deletion of the words struck out below in Rule 8.5(b) of the Constitution:

“8.5(b) The Directors may from time to tim ~~e, if and to the extent that they are authorised by the Company in general meeting to do so~~ :
(i) establish 1 or more plans whereby some or all members may elect in terms of 1 or more of the following for a period or periods as provided in the plan:
- (A) that dividends to be paid in respect of some or all of the shares from time to time held by the member will be satisfied by the issue of fully paid shares of the same class as shares so held;
- (B) that dividends will not be declared or paid in respect of some or all of the shares from time to time held by the member, but that the member will receive an issue of fully paid shares of the same class as the shares so held in accordance with the plan; or
- (C) if elections in terms of each of paragraph (A) and paragraph (B) are available under the plan, in terms of paragraph (A) as to some of the shares from time to time held by the member and in terms of paragraph (B) as to others of them;
(ii) upon or after establishment of any such plan, extend participation in it, in whole or in part, to some or all of the holders of debentures, notes, bonds or other debt obligations of the Company in respect of interest upon such debentures, notes, bonds or other debt obligations in like manner as if that interest were dividends; and
(iii) vary, suspend or terminate any such plan.”

The second proposed amendment is the deletion of Rule 8.5(d) of the Constitution which currently reads as follows:

“8.5(d) Any plan may be terminated and any authority given to the Directors under Rule 8.5(b) may be revoked or varied by the Company in general meeting.”

The amendments to the Constitution are consistent with corporate practices for publicly listed companies and would bring the Company in line with the majority of companies listed on the ASX.

A full copy of the Company’s current Constitution, prior to this amendment, can be viewed through the ASX’s announcements platform (see the Company’s 2005 announcements, date 19 April 2005).

Recommendation of Directors regarding the Resolutions

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The Board of the Company presently comprises Robert Bolton, John Reynolds, Andrew Brown and Angus Geddes.

Except where Directors have specifically declined to make a recommendation in relation to a specific Resolution (refer below), the Directors recommend that Shareholders vote in favour of each of the Resolutions.

Given Resolution 2 relates to the re-election of Andrew Brown as a Director of the Company, Andrew Brown is not making a recommendation in relation to this resolution.

Given Resolution 3 relates to the re-election of John Reynolds as a Director of the Company, John Reynolds is not making a recommendation in relation to this resolution.

Mr Angus Geddes declines to make a recommendation in relation to Resolution 4 as he will benefit from the resolution if passed. The resolution would permit financial benefits to be given to the Manager which is controlled by Mr Angus Geddes.

Mr Andrew Brown declines to make a recommendation in relation to Resolution 4. Mr Andrew Brown is a director of Tidewater Asset Management Pty Limited, which holds a sub-contract agreement with the Manager, and is also the key person for the Manager. While he will not personally benefit from the resolution if passed, he considers it inappropriate to make a recommendation in these circumstances.

Definitions

AGM or Meeting means annual general meeting.

ASX or Exchange means ASX Limited ACN 008 624 691.

Benchmark means S&P/ASX 300 Index.

Board means the Board of Directors

Company means Fat Prophets Australia Fund Limited (ACN 111 772 359).

Constitution means constitution of the Company.

Corporations Act means Corporations Act 2001 (Cth).

Directors means Robert Bolton, Bruce Holman, Andrew Brown and Angus Geddes.

FPAFL means Fat Prophets Australia Fund Limited (ACN 111 772 359) or the Company.

LIC means listed investment company.

Management Agreement means the agreement between the Company and the Manager in relation to the management of the portfolio of investments of the Company from time to time.

Manager means Fat Prophets Funds Management Australia Pty Limited (ACN 112 466 887).

Net Tangible Asset Value means, in relation to the Company, total assets minus the sum of total liabilities (including provisions for tax on realised capital gains), intangible assets and the estimated tax that would be payable on any unrealised capital gains if such gains were realised as at the relevant date.

New DRP means the proposed new terms of the dividend reinvestment plan of Fat Prophets Australia Fund Limited, the rules of which are set out in Appendix 1.

Share means an ordinary share in the capital of the Company.

Shareholder means a holder of a Share.

Sunset Clause means the proposed new Clause 10.2 of the Constitution which requires the Directors to convene a meeting of shareholders to consider voluntary winding up of the Company in the event that Shares are trading at a significant discount to Net Tangible Asset Value.

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Underperformance Clause means Clause 11.4 of the Management Agreement which entitles the Company to terminate the Management Agreement in the event of underperformance.

Wind Up Resolution means a special resolution to wind up the Company effected via the mechanism in the Sunset Clause.

APPENDIX 1 FAT PROPHETS AUSTRALIA FUND LIMITED DIVIDEND REINVESTMENT PLAN RULES

1. DEFINITIONS

In these Rules:

(a) " Board " means the board of Directors of the Company.
(b) " Company " means Fat Prophets Australia Fund Limited ACN 111 772 359.
(c) " Constitution " means the Constitution of the Company.
(d) " DRP Form " means the application form/notice of variation in the form that the Board from time to time approves.
(e) " Exchange " means ASX Limited ACN 008 624 691.
(f) " Marketable Parcel " has the same meaning as that under the Market Rule Procedures of the Exchange.
(g) " NTA Value " means, in relation to the Company, total assets minus the sum of total liabilities (including provisions for tax on realised capital gains), intangible assets and the estimated tax that would be payable on any unrealised capital gains if such gains were realised as at the Record Date.
(h) " NTA Price " means the amount per Share calculated by dividing the NTA Value as at 4.00 pm on the trading day before the Record Date by the total number of issued Shares as at that point in time.
(i) " Participant " means a Shareholder who has elected to participate in the Plan in accordance with the Rules.
(j) " Participating Account " means a Shareholding Account nominated and accepted for participation in the Plan.
(k) " Payment Date " means the date on which Shares are allotted and issued under the Plan in accordance with Rule 7.1 or purchased and allocated to Participants in accordance with Rule 7.3 (as the case may be).
(l) " Plan " means the dividend reinvestment plan constituted by these Rules.
(m) " Plan Account " means a separate account kept by the Company, for record purposes only, which records the amount of dividends to which a Shareholder becomes entitled from time to time in respect of:
all their Shares in a Participating Account in the case of full participation in the Plan; or
the nominated number of Shares in a Participating Account in the case of partial participation in the Plan.
(n) " Record Date " means the books closing date for determining Shareholders’ entitlements to receive a dividend.
(o) " Reinvestment Share Limit " means in respect of each Plan Account the maximum number of Shares that may be fully subscribed for based on the credit balance of the Plan Account immediately before an issue of additional Shares under the Plan.
(p) " Rules " means these rules as amended from time to time.
(q) " Shareholder " means a person at any time and from time to time registered by the Company as holding a Share.
(r) " Shareholding Account " means:

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where a Member has one holding of Shares, the account recording that holding; or
where a Member has two or more holdings of Shares, each separate account recording each separate holding.
(s) " Share Price " means the weighted average of all prices at which Shares were sold on the Exchange on the Record Date and each of the immediately preceding four trading days on which Shares were sold.
(t) " Share Purchase Limit " means in respect of each Plan Account the maximum number of Shares that have been purchased on the Exchange that may be allocated to the Plan Account based on the credit balance of the Plan Account immediately before the allocation of Shares under the Plan.
(u)
" Share " means a fully paid ordinary share in the capital of the Company.
(v) " Tax Act " means the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997 and related Commonwealth income taxation legislation and regulations.

2. COMMENCEMENT

The Plan shall take effect on and from the date it is approved by Shareholders at a general meeting of the Company and will continue in operation until suspended or terminated by the Board pursuant to Rule 15.

3. PARTICIPATION IN THE PLAN

3.1 Participation in the Plan by Shareholders is optional and is not transferable.
3.2
Subject to Rules 3.3 and 3.4, any Shareholder is eligible to participate in the Plan.
3.3 The Board may determine that a Shareholder who is not a resident of Australia is not entitled to participate in the Plan if:
(a) withholding tax payable in respect of the dividend to be reinvested has not been paid by the Shareholder in accordance with the Tax Act; or
(b) the Shareholder has not produced such evidence to the Company as the Company may require to satisfy the Company that any necessary approvals of any government or governmental authority in relation to that Shareholder participating in the Plan have been obtained and that such participation is not contrary to any applicable laws of any jurisdiction.
3.4 A Shareholder is not eligible to participate in the Plan in respect of less than a Marketable Parcel of Shares.
3.5 A Shareholder may, subject to these Rules, apply to participate in the Plan or vary or terminate further participation in the Plan at any time.

4. APPLICATIONS

4.1
Applications to participate in the Plan are to be made on a DRP form.
4.2 A separate DRP Form is required for each Shareholding Account that a Shareholder wishes to nominate for participation in the Plan.
4.3 A DRP Form received by the Company shall be effective in respect of all dividends payable after receipt of the DRP Form provided that any DRP Form received by the Company after 4.00pm on the Record Date shall not be effective in respect of those dividends.
4.4 Subject to Rule 4.5, an application to participate in the Plan is not valid unless it:
(a) is made on a DRP Form;
(b) contains sufficient details to enable the Shareholding Account to which the application relates to be clearly identified;

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(c) complies with, and contains all the particulars required by, the DRP Form; and
(d) is signed in the manner specified in the DRP Form.
4.5 The Board has an absolute discretion to:
(a) accept and treat as valid an application which does not satisfy the provisions of Rule 4.4; and
(b) reject and treat as invalid an application to participate (whether or not complying with Rule 4.4) where the Board has determined that acceptance of the application would or might prejudice the effective operation of the Plan or would or might otherwise be contrary to Rule 3.3
4.6 The Board will be under no obligation to correct or amend defective applications to participate on behalf of Shareholders.

5. DEGREE OF PARTICIPATION

5.1 Participation in the Plan by a Shareholder may be either full or partial for each Shareholding Account of the Shareholder.
5.2 DRP Forms which are duly signed but do not indicate the degree of participation selected may be deemed by the Board to be applications for full participation or such partial participation as the Board deems fit.
5.3 Full participation in the Plan in respect of a Shareholder's Shareholding Account shall result when the Board accepts a DRP Form received from a Shareholder that requests that all of the Shares in the Shareholder's specified Shareholding Account be subject to the Plan or when the Board deems full participation in accordance with Rule 5.2
5.4 Under full participation, the Plan shall apply to all dividends payable on all Participant's Shares in the specified Shareholding Account as at the relevant Record Date including:
(a) all Shares held by the Participant in such Shareholding Account as at the date when full participation commences;
(b) all Shares issued to the Participant in respect of such Shareholding Account under the provisions of the Plan;
(c) all Shares acquired by the Company on behalf of the Participant in respect of such Shareholding Account under provisions of the Plan;
(d) any bonus Shares issued to the Participant by reference to such Shareholding Account;
(e) any Shares acquired by the Participant on acceptance of rights to new Shares offered by the Company by reference to such Shareholding Account; and
(f) any other Shares subsequently acquired by the Participant either on or off the Exchange and entered in such Shareholding Account,

less Shares that were in such Shareholding Account and registered as being disposed of by the Participant prior to the relevant Record Date and since full participation commenced.

5.5 Partial participation in respect of a Shareholder's Shareholding Account shall result when the Board accepts a DRP Form received from a Shareholder that requests that a nominated number of that Shareholder's holdings in the Shareholder's specified Shareholding Account be subject to the Plan or when the Board deems partial participation in accordance with Rule 5.2.
5.6 Under partial participation, the Plan shall apply to all dividends payable on the nominated number of Shares (see Rule 5.7) in the Shareholder's specified Shareholding Account unless, as at the Record Date, the number of Shares in the specified Shareholding Account is less than the nominated number in which case the Plan shall, in respect of those dividends, apply only to such lesser number of Shares.

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5.7 Where further Shares are added to a Shareholder's specified Shareholding Account for any reason (including pursuant to the Plan) those shares shall be taken to have been nominated (in addition to Shares previously nominated or previously taken to have been nominated) and the Plan shall apply to such further Shares.
5.8 If a Shareholder nominates a percentage of Shares in the Shareholder's specified Shareholding Account, the nominated number of Shares shall be that number of shares as is constituted by the specified percentage as at the date the DRP Form is received by the Company. Where the number of Shares as is constituted by the specified percentage is a fraction, that number shall be rounded up to the nearest whole number.

6. OPERATION OF THE PLAN

6.1 Every dividend which is payable to a Participant in respect of Shares in a Participating Account shall not be paid to the Participant but shall be applied by the Company on the Participant's behalf in subscribing for additional Shares or purchasing additional shares on the Exchange.
6.2 In respect of each Participant's Participating Account(s), the Company shall establish and maintain a Plan Account.
6.3 In respect of every dividend payable to a Participant in respect of a Participating Account, the Board shall for that Participant's Plan Account:
(a) determine the amount of the dividend payable in respect of the Shares in the Participating Account; and
(b) credit that dividend to the Plan Account.
6.4 Where the Share Price is greater than or equal to the NTA Price, the Board shall for each Participant's Plan Account:
(a) determine the Reinvestment Share Limit for the Plan Account;
(b) where the Reinvestment Share Limit is a fraction, round the Reinvestment Share Limit up or down to the nearest whole number;
(c) debit the Plan Account with the amount of the dividends to be used to subscribe for those additional Shares; and
(d) issue the Shares subscribed for and adjust the Participant's Participating Account accordingly.
6.5 Where the Share Price is greater than the NTA Price, Shares issued under the Plan shall be issued at an issue price equal to the Share Price multiplied by 0.975 or the NTA Price (whichever is greater).
6.6 Where the Share Price is less than the NTA Price the Board shall:
(a) determine the total amount of dividends available in all Plan Accounts to purchase Shares on the Exchange under the Plan;
(b) within ten trading days after the Record Date, procure the purchase for Participants of the maximum number of Shares on the Exchange and pay all brokerage, commission or other transaction costs in respect of those purchases with the total amount of dividends available in all Plan Accounts;
(c) determine the average price of the Shares purchased on the Exchange, after making allowance for brokerage, commission or other transaction costs in respect of the shares purchased;
(d) determine the Share Purchase Limit for each Plan Account;
(e) debit the Plan Account with the purchase price for the additional Shares;
(f) retain any cash balance in the Plan Account to be applied in accordance with the Plan after the following Record Date; and

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(g) adjust the Participant's Participating Account accordingly.
6.7 Shares purchased under Rule 6.6 on behalf of the Participant on the Exchange shall be purchased at the market price of the Shares on the Exchange with the time limit set out in Rule 6.6(b) (the " Time Limit ").
6.8 In the event that the Board cannot expend all of the dividends available under the Plan in purchasing Shares on the Exchange within the Time Limit, the Board will comply with Rules 6.4 and 6.5 in respect of those dividends that have not been used to purchase Shares on the Exchange, except that the issue price of Shares issued under these circumstances shall be the greater of the Share Price or the NTA Price.

7. SHARES TO BE ISSUED OR PURCHASED UNDER THE PLAN

7.1 Shares to be allotted and issued under the Plan shall be allotted no later than the date on which the dividends being retained and applied in accordance with this Plan would have been distributed to the Participant and issued as soon as reasonably practicable thereafter.
7.2 Shares issued under the Plan shall from issue rank equally in all respects with all other issued Shares.
7.3 Shares to be purchased on the Exchange under the Plan shall be allocated to the Participant's Shareholding Account no later than the date on which the dividend being retained and applied in accordance with this Plan would have been distributed to the Participant.

8. COSTS TO PARTICIPANTS

No brokerage, commission or other transaction costs shall be payable by Participants in respect of the issue of Shares under the Plan. Brokerage, commission or other transaction costs shall be payable by Participants in respect of the purchase of Shares under the Plan, in accordance with Rule 6.6

9. STATEMENTS TO PARTICIPANTS

The Company shall send to each Participant within 10 business days of each Payment Date a shareholding statement for Shares issued or purchased and allocated under the Plan and a statement specifying in respect of each Participating Account:

(a) the number of the Participant's Shares subject to the Plan as at the Record Date;
(b) the amount of the dividend taken to have been paid to the Participant in respect of the Shares;
(c) the amount of withholding tax (if any) applicable to the dividends;
(d) the number of Shares subscribed for, or purchased and allocated, by applying the relevant dividends under the provisions of the Plan; and
(e) such other information as the Board may determine.

Statements to partial Participants shall not include information as to their Shares not subject to the Plan.

10. ALTERING DEGREE OF PARTICIPATION

A Participant may at any time increase or reduce participation to a nominated number of Shares in their Participating Account by completing a DRP Form and applying to the Board prior to 4.00 pm on the relevant Record Date.

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11. TERMINATION OF PARTICIPATION

11.1 A Participant may at any time give the Board notice of termination of participation in the Plan for their Participating Account by completing a DRP Form and applying to the Board prior to the relevant Record Date.
11.2 In the event of the death of a Participant:
(a) participation in the Plan by that Participant shall continue until the legal personal representative of the Participant notifies the Board to cease participation in the Plan; or
(b) if the Participant held the Shares jointly with other persons, participation in the Plan by the other persons who remain eligible to participate in the Plan shall continue until they notify the Board to cease participation in the Plan.
11.3 Upon termination of participation the Board shall send to the Participant or the Participant's legal representative (as the case may be):
(a) a statement as at the date of termination containing, with such modifications as may be necessary, the information to be provided in the statement to Participants set out in Rule 9; and
(b) any cash balance in the Plan Account as at the date of termination.

12. REDUCTION OR TERMINATION WHERE NO NOTICE GIVEN

12.1 Where a Participant disposes of some Shares in a Participating Account and does not advise the Board otherwise:
(a) if the Shares remaining in the Participating Account after the disposal are greater than the number of Shares in that account which were subject to the Plan immediately before the disposal, then the number of Shares subject to the Plan shall not change as a result of the disposal; or
(b) if the Shares remaining in the Participating Account after the disposal are less than the number of Shares in that account which were subject to the Plan immediately before the disposal, then such remaining Shares shall all be deemed to be subject to the Plan and the Participant shall be treated as having elected full participation in the Plan for such account until such time as the Participant's holding in such account exceeds the number of Shares previously nominated for partial participation (in which case partial participation shall resume on the same terms as previously applied).
12.2 Where a Participant disposes of all the Participant's Shares in a Participating Account without giving the Board notice of termination of participation and is not registered as a holder of Shares in such account as the Record Date, the Participant shall be deemed to have terminated participation in the Plan in respect of such account on the last date when the Company registered a transfer or instrument of disposal of the Participant's Shares in the Participation Account. In such cases the Board shall comply with Rule 11.3 in respect of that Participation Account.
12.3 Where a Participant disposes of all the Participant's Shares in a Participating Account without giving the Board notice of termination of participation and is not registered as a holder of Shares in such account as at the Payment Date (but was so registered as at the Record Date) and where:
(a) the amount of Shares to be allotted and issued, in accordance with Rule 6.4 of the Plan would constitute less than a Marketable Parcel of Shares, the Company will, in lieu of allotting and issuing such Shares, pay to the Participant the dividends in the Plan Account by cheque in Australian dollars.
(b) the Shares are to be purchased under the Plan on account of that Participant in accordance with Rule 6.6, any Shares so purchased in accordance with Rule 6.6 shall be allocated to that Participant's Shareholding Account.

00269298

13. NOTICES

13.1 Notices to the Company shall be in writing.
13.2 DRP Forms and other notices shall be effective on receipt by the Company subject to:
(a) these Rules;
(b) in the case of DRP Forms whereby Shareholders are applying to participate in the Plan, acceptance by the Board; and
(c) receipt by the Company before 4.00 pm on the Record Date (DRP Forms or other notices received after the Record Date shall not be effective in respect of the dividends payable for the period prior to that Record Date but shall be effective for subsequent dividends).

14. OFFICIAL QUOTATION

The Company shall apply to the Exchange for official quotation of the Shares issued under this Plan in accordance with the Listing Rules of the Exchange.

15. MODIFICATION AND TERMINATION OF THE PLAN

15.1 These Rules may be varied or modified by the Board at any time by giving one month’s notice to Shareholders.
15.2 The Plan may be suspended or terminated by the Board at any time by giving one month’s notice to Shareholders. In the event of suspension for a period of more than one month or termination, the Board shall comply with Rule 11.3 in respect of each Participation Account.

16. ADMINISTRATION OF PLAN

16.1 The Plan will be administered by the Board which has the power to:
(a) determine appropriate procedures for administration and implementation of the Plan consistent with these Rules and to settle any difficulty which may arise generally or in a particular case in regard to the Plan as the Board thinks expedient and its determination will bind all Shareholders and other persons to whom the determination relates;
(b) resolve conclusively all questions of fact or interpretation in connection with the Plan; and
(c) delegate to any one or more persons, for such period and on such conditions as the Board may determine, the exercise of its powers or discretions arising under the Plan but not including any powers under Rule 15.
16.2 The Board and any other employees of the Company shall not be responsible or liable for any error or omission that occurs in the administration of the Plan.

17. GOVERNING LAW

The laws of New South Wales govern these Rules.

00269298

FAT PROPHETS AUSTRALIA FUND LIMITED

ACN 111 772 359

PROXY FORM

Annual General Meeting

All correspondence to: Registries Limited GPO Box 3993 Sydney NSW 2001 Enquiries: 61 2 9290 9600 Facsimile: 61 2 9279 0664 www.registries.com.au [email protected]

[Mark this box with an 'X' if you are Issuer Sponsored and want to make any changes to your address details (see reverse)]

Appointment of Proxy

If appointing a proxy to attend the Annual General Meeting on your behalf, please complete the form and submit it in accordance with the directions at the bottom of the page.

I/We being a shareholder/shareholders of Fat Prophets Australia Fund Limited pursuant to my/our right to appoint not more than two proxies, appoint

� The Chairman of the Write here the name of the person you are appointing if this Meeting OR person is someone other than the Chairman of the (mark with an “X”) Meeting. or failing him/her Write here the name of the other person you are appointing.

or failing him/her, (or if the box is not ticked and no proxy is specified above), the Chairman of the meeting, as my/our proxy to vote for me/us and on my/our behalf at the Annual General Meeting to be held on Friday, 28 November 2008 at 10:30am and at any adjournment of that meeting.

This proxy is to be used in respect of

% of the ordinary shares I/we hold.

If you do not wish to direct your proxy how to vote, please place a mark in the box. If you have appointed the Chair of the meeting to exercise your proxy, by marking this box, you acknowledge that the Chairman of the meeting may exercise your proxy even if he has an interest in the outcome of a the resolutions and votes cast by him other than as proxy holder will be disregarded because of that interest. � The Chair intends to vote 100% of all open proxies in favour of the resolutions.

If you do not mark this box, and you have not directed your proxy how to vote, the Chairman will not cast your votes on the resolutions and your votes will not be counted in calculating the required majority if a poll is called on the resolutions.

Voting directions to your proxy – please mark ⌧ to indicate your directions


RESOLUTION	For	Against	Abstain*

1. Adoption of Remuneration Report	�	�	�
2. Re-election of Mr Andrew Brown as a Director of the Company	�	�	�
3. Re-election of Mr John Reynolds as a Director of the Company	�	�	�
4. Removal of Underperformance Clause in the Management Agreement	�	�	�
5. Addition of a Sunset Clause in the Constitution	�	�	�
6. Variation of Dividend Reinvestment Plan	�	�	�
7. Variation of the Constitution to give Directors the discretion to establish, vary, suspend or terminate the Company’s Dividend Reinvestment Plans	�	�	�

If you mark the Abstain box for a particular item, you are directing your proxy not to vote on your behalf on a show of hands or on a poll and your votes will not be counted in computing the required majority on a poll.

PLEASE SIGN HERE

This section must be signed in accordance with the instructions overleaf to enable your directions to be implemented. Executed in accordance with section 127 of the Corporations Act:

Individual or Shareholder 1 Sole Director & Sole Company Secretary Dated this	Joint Shareholder 2 Director day of	Joint Shareholder 3

		Director / Company Secretary 2008

Contact Name

Contact Business Telephone / Mobile

Annual General Meeting Proxy Form

Fat Prophets Australia Fund Limited ACN 111 772 359

INSTRUCTIONS FOR COMPLETING PROXY FORM

Your pre-printed name and address is as it appears on the share register of Fat Prophets Australia Fund Limited. If you are Issuer Sponsored and this information is incorrect, please mark the box at the top of the proxy form and make the correction on the form. Securityholders sponsored by a broker on the CHESS subregister should advise their broker of any changes. Please note, you cannot change ownership of your securities using this form.
Completion of a proxy form will not prevent individual shareholders from attending the Annual General Meeting in person if they wish. Where a shareholder completes and lodges a valid proxy form and attends the Annual General Meeting in person, then the proxy’s authority to speak and vote for that shareholder is suspended while the shareholder is present at the Annual General Meeting.
A shareholder of the Company entitled to attend and vote is entitled to appoint not more than two proxies. Where more than one proxy is appointed, each proxy must be appointed to represent a specified proportion of the shareholder’s voting rights. If the shareholder appoints two proxies and the appointments do not specify this proportion, each proxy may exercise half of the votes.
A proxy need not be a shareholder of the Company.
If you mark the abstain box for a particular item, you are directing your proxy not to vote on that item on a show of hands or on a poll and that your shares are not to be counted in computing the required majority on a poll.
If a representative of a company shareholder is to attend the Meeting, a properly executed original (or certified copy) of the appropriate “Certificate of Appointment of Corporate Representative” should be produced for admission to the Meeting. Previously lodged “Certificates of Appointment of Corporate Representative” will be disregarded by the Company.
If a representative as Power of Attorney of a shareholder is to attend the meeting, a properly executed original (or originally certified copy) of an appropriate Power of Attorney should be produced for admission to the Annual General Meeting. Previously lodged Powers of Attorney will be disregarded by the Company.
Signing Instructions

You must sign this form as follows in the spaces provided:

Individual: Where the holding is in one name, the holder must sign.

Joint Holding: Where the holding is in more than one name, all of the shareholders should sign.

Power of Attorney: If you are signing under a Power of Attorney, you must lodge an original or certified photocopy of the appropriate Power of Attorney with your completed Proxy Form.

Companies: Where the company has a Sole Director who is also the Sole Company Secretary, this form must be signed by that person.

If the company (pursuant to section 204A of the Corporations Act 2001) does not have a Company Secretary, a Sole Director can also sign alone.

Otherwise this form must be signed by a Director jointly with either another Director or a Company Secretary. Please indicate the office held by signing in the appropriate place.

Lodgement of a Proxy

This Proxy Form (and any Power of Attorney under which it is signed) must be received at the address below not later than 10.30am on Wednesday, 26 November 2008 (48 hours before the commencement of the meeting). Any Proxy Form received after that time will not be valid for the scheduled meeting.

Hand deliveries

Registries Limited Level 7 / 207 Kent Street Sydney NSW 2000

Alternatively you can fax your proxy form so that it is received no later than 10.30am on Wednesday, 26 November 2008 on the fax number listed below.

Postal address:

Registries Limited GPO Box 3993 Sydney NSW 2001

Fax number:

(02) 9279 0664

AI assistant

INVESTSMART GROUP LIMITED — AGM Information 2008

65130_rns_2008-10-27_7df98149-d3c6-47d4-808e-cfb30373c016.pdf

NOTICE OF ANNUAL GENERAL MEETING

BUSINESS

Chairman’s Address

Financial Statements and Reports for the year ended 30 June 2008

Adoption of Remuneration Report

Resolution 1

Re-election of Directors – Mr Andrew Brown and Mr John Reynolds

Resolution 2

Resolution 3

Removal of Underperformance Clause in the Management Agreement

Resolution 4

Voting Exclusion Statement

Addition of a sunset clause in the Constitution

Resolution 5

Variation of Dividend Reinvestment Plan

Resolution 6

Variation of the Constitution to give Directors the discretion to establish, vary, suspend or terminate the Company’s dividend reinvestment plans

Resolution 7

Defined Terms

Other Information

Voting by Proxy

Entitlement to Vote

Explanatory Notes to Accompany Notice of Annual General Meeting

Resolution 1. Adoption of Remuneration Report

Resolution 2. Re-election of Director – Mr Andrew Brown

Andrew Brown

Non-Executive Director

Resolution 3. Re-election of Director – Mr John Reynolds

John Reynolds

Independent Non-Executive Director

Resolution 4. Removal of Underperformance Clause in the Management Agreement

Background

“ 11.4 Termination by Company for non performance

Proposed Amendment

(a) The related party to whom the proposed resolution would permit financial benefits to be given:

(b) The nature of the financial benefits:

(c) In relation to each Director of the Company :

Resolution 5. Addition of a Sunset Clause in Constitution

Background

Designated Peer Group

Proposed Amendment

“10.2 Sunset Clause

Resolution 6. Variation of Dividend Reinvestment Plan

Outline of the New DRP

Examples of the operation of the New DRP

1. NTA per share>Share Price; the Company is able to purchase Shares on market

2. NTA per share>Share Price; the Company is not able to purchase Shares on market

Resolution 7. Variation of the Constitution to give Directors the discretion to establish, vary, suspend or terminate the Company’s dividend reinvestment plans

Recommendation of Directors regarding the Resolutions

Definitions

APPENDIX 1

FAT PROPHETS AUSTRALIA FUND LIMITED DIVIDEND REINVESTMENT PLAN RULES

1. DEFINITIONS

2. COMMENCEMENT

3. PARTICIPATION IN THE PLAN

4.

APPLICATIONS

5. DEGREE OF PARTICIPATION

6. OPERATION OF THE PLAN

7. SHARES TO BE ISSUED OR PURCHASED UNDER THE PLAN

8. COSTS TO PARTICIPANTS

9. STATEMENTS TO PARTICIPANTS

10. ALTERING DEGREE OF PARTICIPATION

11. TERMINATION OF PARTICIPATION

12. REDUCTION OR TERMINATION WHERE NO NOTICE GIVEN

13. NOTICES

14. OFFICIAL QUOTATION

15. MODIFICATION AND TERMINATION OF THE PLAN

16. ADMINISTRATION OF PLAN

17. GOVERNING LAW

PROXY FORM

Annual General Meeting

Appointment of Proxy

Voting directions to your proxy – please mark ⌧ to indicate your directions

PLEASE SIGN HERE

INSTRUCTIONS FOR COMPLETING PROXY FORM

Hand deliveries

INVESTSMART GROUP LIMITED AGM Information 2008