INVESTSMART GROUP LIMITED — Interim / Quarterly Report 2008

Feb 24, 2008

Fat Prophets Australia Fund Limited ABN 62 111 772 359

APPENDIX 4D

HALF-YEAR REPORT PERIOD ENDED 31 DECEMBER 2007 (PREVIOUS CORRESPONDING PERIOD: HALF-YEAR ENDED 31 DECEMBER 2006)

Fat Prophets Australia Fund Limited ABN 62 111 772 359

RESULTS FOR ANNOUNCEMENT TO THE MARKET HALF-YEAR ENDED 31 DECEMBER 2007

	2007 Half-Year \$'000	2006 Half-Year \$'000	% Change Prior Period	Up/Down
Investment revenue from ordinary activities	947	632	50	UP
Profit before tax for the period attributable to members (excluding realised capital gains/(losses))	386	402	4	DOWN
Profit from ordinary activities after tax attributable to members	475	433	10	UP
Profit after tax for the period attributable to members (including realised capital gains/(losses))	1,924	1,715	12	UP
Net Tangible Assets per share - pre	\$1.395	\$1.315	6	UP
deferred capital gains tax Net Tangible Assets per share - post deferred capital gains tax	\$1.320	\$1.239	7	UP

DIVIDENDS

The following dividends were declared and paid in the half-year ended 31 December 2007:

	Total			Percentage
	Dividend	Amount	Date of	Franked
	Rate	\$'000	Payment	%
Ordinary
Final	3.0cps	980	24 October 2007	100

The following dividend was declared subsequent to the half-year end:

	Dividend Rate	Total Amount \$'000	Date of Payment	Percentage Franked %
Ordinary Interim	3.0cps	943	4 April 2008	100%

The record date for determining entitlement to the interim dividend is 28 March 2008.

Refer to the Directors' Commentary for explanation of the results. All the documents comprise the information required by ASX listing rule 4.2A.

This information should be read in tandem with the most recent financial report and monthly NTA releases lodged with ASX.

This report is based on accounts which have been subject to independent review by the auditor, Grosvenor Schiliro.

COMMENTARY ON THE RESULTS FOR THE PERIOD

Refer to the Directors' Commentary for further details.

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

FAT PROPHETS AUSTRALIA FUND INTERIM RESULTS TO 31 DECEMBER 2007

DIRECTORS' COMMENTARY

• After tax profit \$1,923,621
• Earnings per share including realised gains of 5.93 cents
• Interim dividend of 2.5 cents (fully franked) declared
• Special Interim dividend of 0.5 cents (fully franked)

The Fat Prophets Australia Fund Limited ("Fat Fund" or "the Company") has recorded an after tax profit of \$1,923,621 for the six months to 31 December 2007. The result includes after tax capital gains of \$1,448,806 and equates to earnings per share of 5.93 cents. The profit figures do not include unrealised losses of \$772,324 before tax (\$207,718 after tax) which are credited directly to the Investment Portfolio Revaluation Reserve.

The Directors have declared a fully franked interim dividend of 2.5 cents per share from the first half results. In addition, a special interim dividend of 0.5 cents per share will be paid to reduce the franking balance of the Company. Holders of the 20 April 2008 options will be eligible for the dividends if the Company's share register, Registries Limited, receives a valid Notice of Exercise of Options form by Monday 10 March 2008.

The Manager (Fat Prophets Fund Management Pty. Limited) estimates the gross performance of the portfolio – prior to expenses and tax on realised gains over the six months to 31 December 2007 – was 1.37%; this compares to the return of the S&P/ASX 300 Accumulation index ("SPA300"), the Fat Fund's benchmark, of 2.9%. The majority of this modest underperformance occurred in the month of August 2007, when after an initial decline of 7% in the SPA 300 over the first half of that month, was dramatically reversed in the last two weeks to leave the SPA300 up over 2% in August 2007. The Fat Fund's exposure to smaller companies severely inhibited its performance over this brief period. All of the underperformance – and more - had been recouped by the end of January 2008.

Overview and Outlook

This dramatic rally was the start of a highly irrational period within the Australian stockmarket where the increasing price of risk – from the absurdly low levels of June/July 2007 – and a deteriorating domestic and US economic scene was blithely ignored amidst a frenzy of takeover activity in the resources sector, and re-rating of industrial shares to unwarranted levels.

In our piece in the 2007 Annual Report it's worth re-quoting the start of the final paragraph on outlook, published at the end of August 2007:

"The volatility of the last few weeks has done a great deal to put in place some firmer longer term fundamentals; it's now a case of looking at which of the financial engineering emperors are left naked as the tide has receded. We haven't yet seen the full extent of "secondary" damage, when liquidity dries up in certain sectors – debt or equity – of financial markets. This latter factor will be the major one which restrains financial market returns since it will act to force more sensible valuation parameters onto shares than have prevailed in recent times." Of course, the defrocking of the financial engineering emperors was the key feature of the past two months of the period to end December 2007 as well as the early part of 2008. We are now into the second round effects with a concomitant decline in liquidity. Allied to the significant declines in markets in January 2008, attractive valuations are emerging in a number of companies – at this early stage of a bear market. Inevitably, the Fat Fund will be too early in buying into certain situations and suffer some short term pain. Moreover, many of these opportunities will be in smaller companies which have been heavily marked down already.

Recent unnecessary interest rate rises are setting a dismal backdrop for economic activity during 2008, which the "bottom-up" company analytical community has yet to fully grasp; there is a necessary convergence between the bleaker top-down forecast and excessively robust "bottom-up" projections. We believe this convergence will be completed to the necessary degree around mid-year, just ahead of the full year reporting season. It is likely to coincide with a reversal of current policy by the RBA, against a backdrop of lower bond rates. This confluence of events should prove the backdrop to more attractive opportunities across Australian equities at that point. Clearly, this suggests that returns over the six months to June 2008 are likely to be subdued; if our prognosis is correct, inflows to the Fat Fund from the exercise of the April 2008 options could be judiciously timed.

Performance & Strategy

The Fat Fund's performance over the period was reasonable in the context of:

• Our significant smaller companies exposure smaller industrial shares significantly underperformed overall indices over the period;
• We opted to stay with some well run smaller companies despite share price retracements – notably Guinness Peat Group, UXC and Altium which underperformed over the six months;
• We had one disaster Commander Communications;
• Our stock picking in the larger companies was generally good we avoided the property trust debacles and our financial sector picks – with the exception of IAG and latterly National Australia Bank – were productive;
• We retained an overweight stance to resource securities.

During the period, we moved the cash weighting in the fund around to a significant extent given the volatility in markets, especially in August when we reduced cash significantly prior to rebuilding towards the end of December 2007. Aside from doing our best to protect capital over the long term, our main aim in working with the "Fat Prophets" newsletter has been to buy quality companies cheaply rather than investing in "value traps". For significant parts of the period, this was extremely difficult, especially in the context of an Australian market which values its "best" companies extremely highly against their global counterparts. However, we did acquire shares in QBE Insurance at very attractive valuations, together with Publishing and Broadcasting, prior to its dissection into the "media" and "gaming" components. This resulted in Top 100 securities forming 51% of the Fat Fund at end December, against 46% at end June 2007, despite the sale of parts of our large resources exposures.

Capital Management

The Fat Fund bought back 733,866 shares during the period, representing around 2.26% of opening capital. The reduction in discount to net asset backing curtailed the more aggressive program seen in the January to June 2007 period. As the discount widened in November 2007 and after the period end, in January 2008, the buyback has been far more aggressive.

The Manager, in tandem with the Board of Directors, remains highly cognisant of the capacity of closed end funds to enhance returns to shareholders through capital management. This is a delicate balance between retiring equity when it is advantageous to do so, and ensuring the valuable franking credits which accumulate in a portfolio such as that of the Fat Fund are paid to their real beneficiaries – the shareholders. The mixture of ordinary and special dividend is designed to provide such a balance, whilst ensuring that we do not overdistribute in the event of significant option exercises in April 2008. Once the Directors have greater certainty over the quantum of share capital within the Fat Fund, after the April 2008 options have expired, further consideration to the appropriate dividend policy will be given.

Outlook

The Fat Fund's value style of stock picking has found favour in recent months with consistent performance over the September 2007 – January 2008 period of rocky markets. The Fat Fund has avoided virtually all of the financial engineering disasters, and sees increasing opportunities across the market spectrum, as share prices correct further. As the 2008 calendar year progresses, we see significant scope to become and remain fully invested.

For further enquiries:

Robert Bolton Andrew Brown Chairman Tidewater Asset Management Pty. Limited 0412 235 616 (02) 8258 0011 0418 215 255

ABN 62 111 772 359

Financial Report for the Half-Year ended

31 December 2007

FAT PROPHETS AUSTRALIA FUND LIMITED ABN 62 111 772 359 CONTENTS FOR THE HALF-YEAR ENDED 31ST DECEMBER 2007

	Page
Portfolio Shareholdings as at 31 January 2007	2
Directors' Report	3
Auditor's Independence Declaration	4
Condensed Income Statement	5
Condensed Balance Sheet	6
Condensed Statement of Changes in Equity	7
Condensed Cash Flow Statement	8
Notes to the Financial Statements	9-12
Directors' Declaration	13
Independent Review Report to the Members	14

FAT PROPHETS AUSTRALIA FUND LIMITED ABN 62 111 772 359 PORTFOLIO SHAREHOLDINGS AS AT 31ST JANUARY 2007

SECURITY	Gross Market Value	'% of portfolio
	\$
Materials & Mining
BHP Billiton Limited	4,461,450	10.90%
Great Southern Limited	674,240	1.65%
Image Resources NL	494,225	1.21%
Lihir Gold Limited	1,666,560	4.07%
Lion Selection Limited	1,080,753	2.64%
Mundo Minerals Limited	786,033	1.92%
Perseverance Corporation Limited	719,465	1.76%
Rio Tinto Limited	1,247,220	3.05%
Energy
Australian Worldwide Exploration Limited	548,910	1.34%
Beach Petroleum Limited Incremental Petroleum Limited	1,033,945 506,040	2.53% 1.24%
Consumer Discretionary
Crown Limited	696,102	1.70%
Consolidated Media Holdings Limited	266,262	0.65%
Macquarie Communications Infrastructure Group	251,000	0.61%
Industrials
Ambition Group Limited	420,000	1.03%
Coffey International Limited	643,098	1.57%
ConnectEast Group	404,670	0.99%
Savcor Group Limited	386,400	0.94%
Health Care Konekt Limited	138,385	0.34%
Consumer Staples
Woolworths Limited	1,372,320	3.35%
Financials
ANZ Banking Group Limited	2,418,930	5.91%
Babcock & Brown Capital Limited	372,623	0.91%
Commonwealth Bank of Australia	2,346,500	5.73%
Everest Babcock & Brown Alternative Inv Trust	789,520	1.93%
Galileo Japan Trust	441,620	1.08%
Guinness Peat Group PLC	657,482	1.61%
Insurance Australia Group	540,850	1.32%
Macquarie Group Limited	598,000	1.46%
Magellan Financial Group Limited	56,511	0.14%
National Australia Bank Limited	3,376,960	8.25%
Premier Investments Limited	583,381	1.42%
QBE Insurance Group Limited	1,626,300	3.97%
Record Realty Trust	300,475	0.73%
Washington H Soul Pattinson & Co. Limited	994,754	2.43%
Westpac Banking Corporation	2,788,220	6.81%
Westpac Office Trust	407,385	0.99%
Information and Technology
Altium Limited	462,961	1.13%
Bravura Solutions Limited	511,299	1.25%
Integrated Research Limited	484,399	1.18%
QM Technologies Limited	503,774	1.23%
UXC Limited	674,500	1.65%
Telecommunications SP Telemedia Limited	469,454	1.13%
Total Equities	39,202,976	95.75%
Cash (excludes operating accounts) TOTAL	1,741,606 40,944,582	4.25% 100.00%

ABN 62 111 772 359

DIRECTORS' REPORT TO SHAREHOLDERS FOR THE HALF-YEAR ENDED 31 DECEMBER 2007

The Directors present their report together with the financial report of Fat Prophets Australia Fund Limited ("the Company") for the half-year ended 31 December 2007.

DIRECTORS

The Directors in office during or since the end of the half-year:

Period of Directorship

• Mr Robert J Bolton (Chairman) Commenced 19 January 2005 Mr Bruce W Holman Commenced 12 November 2004

Mr Andrew Brown Commenced 22 December 2005 Mr Angus Geddes Commenced 12 September 2006

REVIEW OF OPERATIONS AND OPERATING RESULTS

The Company's net operating profit after tax (including net realised capital profits) for the half-year is \$1,923,621 (2006: \$1,715,470). Basic earnings per share before net realised gains/(losses) amounted to 1.46 cents for the half-year (2006: 1.35 cents).

The net asset backing of the Company's shares, which includes 100% of the current market value of investments less capital gains tax, rose 6.5% to \$1.32 at 31 December 2007 (2006: \$1.239).

AUDITOR'S INDEPENDENCE DECLARATION

The lead auditor's independence declaration for the half-year ended 31 December 2007 as required under Section 307C of the Corporations Act 2001 is set out on page 4.

This report is signed in accordance with a resolution of the Board of Directors.

R.J. Bolton Director

Dated at Sydney this 25th day of February 2008

	Notes	Half-year ended 31 December 2007 \$	Half-year ended 31 December 2006 \$
Investment Revenue from ordinary activities	2(a)	946,498	631,873
Income from trading portfolio
Revenue from trading portfolio	2(b)	28,925	26,973
Net realised gains on disposal		-	-
Net unrealised gains/(losses)		(99,188)	190,405
Expenses
Administrative expenses		(30,228)	(29,849)
Management fees		(299,952)	(257,536)
Audit fees		(8,800)	(10,350)
Company secretarial fees		(10,250)	(10,250)
Directors' fees		(38,150)	(38,150)
Share registry fees		(21,192)	(31,310)
Brokerage expense		(17,062)	(489)
Other		(64,586)	(69,333)
Total expenses from ordinary activities		(490,220)	(447,267)
Operating profit before income tax benefit and capital gains		386,015	401,982
Income tax benefit relating to ordinary activities		88,800	30,569
Operating profit before capital gains		474,815	432,551
Capital Profits Realised
Net realised gains on investment portfolio		1,924,298	1,858,978
Income tax expense on investment portfolio		(475,492)	(576,059)
Net Realised Capital Profits		1,448,806	1,282,919
Profit attributable to members of Fat Prophets Australia Fund Limited		1,923,621	1,715,470
Basic earnings per share (excluding net realised gains/(losses) on investment portfolio)	5	1.46 cents	1.35 cents
Basic earnings per share (including net realised gains/(losses) on investment portfolio)	5	5.93 cents	5.36 cents
Diluted earnings per share (excluding net realised gains/(losses) on investment portfolio)	5	1.40 cents	n/a
Diluted earnings per share (including net realised gains/(losses) on investment portfolio)	5	5.66 cents	n/a

This Condensed Income Statement should be read in conjunction with the Notes to the Financial Statements.

ABN 62 111 772 359 CONDENSED BALANCE SHEET AS AT 31ST DECEMBER 2007

	31 December	30 June
	2007 \$	2007 \$
CURRENT ASSETS
Cash Assets	4,886,758	6,628,605
Trade and other Receivables	116,836	340,955
Held for Trading Portfolio	1,265,250	1,381,500
Prepayments	31,732	13,942
TOTAL CURRENT ASSETS	6,300,576	8,365,002
NON-CURRENT ASSETS
Available for Sale Portfolio	40,452,506	39,313,142
Deferred Tax Assets	66,673	126,561
TOTAL NON-CURRENT ASSETS	40,519,179	39,439,703
TOTAL ASSETS	46,819,755	47,804,705
CURRENT LIABILITIES
Trade and other Payables	814,185	337,987
Current Tax Liabilities	1,339,465	984,764
TOTAL CURRENT LIABILITIES	2,153,650	1,322,751
NON-CURRENT LIABILITIES
Deferred Tax Liabilities	2,394,863	2,987,275
TOTAL NON-CURRENT LIABILITIES	2,394,863	2,987,275
TOTAL LIABILITIES	4,548,513	4,310,026
NET ASSETS	42,271,242	43,494,679
EQUITY
Share Capital	31,296,165	31,763,329
Investment Portfolio Revaluation Reserve	4,356,099	6,012,626
Realised Capital Profits Reserve	6,360,266	4,911,457
Retained Earnings	258,712	807,267
TOTAL EQUITY	42,271,242	43,494,679

This Condensed Balance Sheet should be read in conjunction with the Notes to the Financial Statements.

ABN 62 111 772 359 CONDENSED STATEMENT OF CHANGES IN EQUITY FOR THE HALF-YEAR ENDED 31ST DECEMBER 2007

	Share Capital	Investment Portfolio Revaluation Reserve/ Realised Capital Profits Reserve	Retained Earnings	Total
As at 1 July 2006	\$ 31,510,850	\$ 5,324,184	\$ 202,255	\$ 37,037,289
Direct equity adjustments
Costs associated with initial public offer	6,262	-	-	6,262
Investment portfolio
Net unrealised gains on investment securities	-	6,885,456	-	6,885,456
Tax on unrealised gains on investment
securities	-	(1,285,557)	-	(1,285,557)
Total direct equity adjustments	6,262	5,599,899	-	5,606,161
Profit for the half-year	-	-	5,389,519	5,389,519
Net realised loss on investment securities	-	-	(4,231,217)	(4,231,217)
Tax expense on net realised losses on
investment securities	-	-	1,118,399	1,118,399
Total recognised income and expense for year	-	-	2,276,701	2,276,701
Transactions with shareholders
Dividends paid from retained earnings	-	-	(1,666,807)	(1,666,807)
Issue of Shares	1,898,149			1,898,149
Shares bought back	(1,651,932)	-	(4,882)	(1,656,814)
As at 30 June 2007	31,763,329	10,924,083	807,267	43,494,679
Direct equity adjustments
Investment portfolio
Net unrealised losses on investment securities	-	(772,234)	-	(772,234)
Tax on unrealised losses on investment
securities	-	564,516	-	564,516
Total direct equity adjustments	-	(207,718)	-	(207,718)
Profit for the half-year	-	-	1,923,621	1,923,621
Net realised losses on investment securities	-	-	(1,924,298)	(1,924,298)
Tax expense on net realised losses on
investment securities	-	-	475,492	475,492
Total recognised income and expense for year	-	-	474,815	474,815
Transactions with shareholders
Dividends paid from retained earnings	-	-	(980,428)	(980,428)
Issue of Shares	266,702			266,702
Shares bought back	(733,866)	-	(42,942)	(776,808)
As at 31 December 2007	31,296,165	10,716,365	258,712	42,271,242

This Condensed Statement of Changes in Equity should be read in conjunction with the Notes to the Financial Statements.

FAT PROPHETS AUSTRALIA FUND LIMITED ABN 62 111 772 359 CONDENSED CASH FLOW STATEMENT FOR THE HALF-YEAR ENDED 31ST DECEMBER 2007

	Half-year ended 31 December 2007	Half-year ended 31 December 2006
	\$	\$
Cash Flows from Operating Activities
Proceeds from sale of trading portfolio	-	-
Purchase of trading portfolio	-	(272,235)
Interest received	148,132	86,241
Underwriting Income	5,726	3,772
Dividends received	995,419	718,282
Investment Manager's fees paid	(301,545)	(205,884)
Other expenses paid	(200,649)	(145,097)
Income tax paid	-	-
Net Cash Inflow from Operating Activities	647,083	185,079
Cash Flows from Investing Activities
Proceeds from sale of investments	8,304,203	11,340,277
Purchase of investments	(9,202,599)	(10,246,106)
Net Cash Inflow/(Outflow) from Investment Activities	(898,396)	1,094,171
Cash Flows from Financing Activities
Dividends paid	(980,428)	(675,885)
On market buyback of shares	(776,808)	(424,920)
Proceeds from issue of shares	266,702	-
Net Cash Outflow from Financing Activities	(1,490,534)	(1,100,805)
Net Increase/(Decrease) in Cash Held	(1,741,847)	178,445
Cash at the beginning of the half-year	6,628,605	2,437,517
Cash at the end of the half-year	4,886,758	2,615,962

The Condensed Cash Flow Statement should be read in conjunction with the Notes to the Financial Statements.

1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Accounting

The half-year financial statements are a general purpose financial report prepared in accordance with the Corporations Act 2001, Australian Accounting Standard AASB 134: Interim Financial Reporting, Australian Accounting Interpretations and other authoritative pronouncements of the Australian Accounting Standards Board.

It is recommended that this half-year financial report be read in conjunction with the Annual Report for the year ending 30 June 2007 and any public announcements made by the Company during the half-year in accordance with any continuous disclosure obligations arising under the Corporations Act 2001.

The accounting policies have been consistently applied by the Company and are consistent with those applied in the 30 June 2007 Annual Report, unless otherwise stated.

The half-year report does not include full disclosures of the type normally included in an annual financial report.

The statements are prepared from the records of the Company on an accrual basis.

(b) Holdings of securities

Classification

Securities are classified into either the investment portfolio (long term) or trading portfolio (short term) at acquisition.

Recognition

Financial instruments are initially measured at cost on trade date, which includes transaction costs on trade date, for the investment portfolio where the related contractual rights or obligations exist. Subsequent to initial recognition these instruments are measured as set out below.

Investment Portfolio

Securities are classified as available-for-sale. After initial recognition at cost, securities are measured at fair value.

Gains or losses on available-for-sale securities are recognised as a separate component of equity until the securities are sold, collected or otherwise disposed of, or until the securities are determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the income statement.

Trading Portfolio

Securities are classified as held for trading financial assets if acquired principally for the purposes of selling in the short term or if so designated by management and within the requirements of AASB139: recognition and measurement of financial instruments.

Realised and unrealised gains and losses arising from changes in the fair value of these assets are included in the income statement in the period which they arise.

Determination of Fair Value

AIFRS defines fair value for the purpose of valuing holdings of securities that are listed or traded on an exchange to be based on quoted "bid" prices for securities prevailing at the close of business on the balance date.

AASB 139 and AG72 state that the current bid price is usually the appropriate price to be used in measuring the fair value of actively traded financial assets. Financial assets should be valued at their fair values without any deduction for transaction costs that may be incurred on sale or other disposal. Certain costs in acquiring investments, such as brokerage and stamp duty, are expensed in the Income Statement.

Impairment

At each reporting date, the Company assess whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments, a prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. Impairment losses are recognised in the Income statement.

1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT)

(c) Taxation

Income tax expense comprises of current and deferred tax. The charge for current income tax expense is based on profit or loss for the period adjusted for any non-assessable or disallowed items except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted by the Balance Sheet date, and any adjustment to tax payable in respect of previous periods.

Deferred tax is recognised for using the Balance Sheet liability method, in respect of temporary differences arising between the tax base of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled.

Deferred tax is credited in the Income Statement except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity.

A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which deductible temporary difference can be utilised. The amount of benefits brought to account of which may be realised in the future is based on the assumption that no adverse change will occur in the income taxation legislation and the anticipation that the company will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law.

Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability to pay the related dividend is recognised.

Trading Portfolio

A tax provision is made for the unrealised gain or loss on securities valued at fair value through the Income Statement.

Where the Company disposes of such securities, tax is calculated on gains made according to the particular parcels allocated to the sale for tax purposes offset against any losses carried forward.

Investment Portfolio

A tax provision is made for the unrealised gain or loss on securities valued at fair value through the Investment Portfolio Revaluation Reserve.

The expected tax on disposal of securities in the investment portfolio is recognised directly in equity and as deferred tax liability. Where the Company disposes of such securities, tax is calculated on gains made according to the particular parcels allocated to the sale for tax purposes offset against any capital losses carried forward. At this time the tax recognised directly in equity is transferred to net profit and adjusted to actual tax expense. The associated deferred tax liability is similarly adjusted and transferred to tax payable.

		Half-year ended 31 December	Half-year ended 31 December
		2007	2006
		\$	\$
2.	REVENUE
(a)	REVENUE FROM INVESTMENT PORTFOLIO
	Dividends and Trust distributions received	803,850	546,737
	Interest received	142,648	85,136
		946,498	631,873
(b)	REVENUE FROM TRADING PORTFOLIO
	Dividends received	23,200	23,200
	Underwriting income	5,725	3,773
		28,925	26,973
	TOTAL	975,423	658,846

3. SHARE CAPITAL

During the reporting period, the Company bought back 733,866 ordinary shares under an on-market share buy back (30 June 2007: 1,651,932). A total of 266,702 options were exercised during the reporting period (30 June 2007: 1,898,149).

4.	DIVIDENDS PAID OR PROVIDED FOR	Half-year ended 31 December 2007 \$	Half-year ended 31 December 2006 \$
	Dividends paid on ordinary shares	980,428	675,885
	TOTAL	980,428	675,885

2007	Dividend Rate	Total Amount \$	Date of Payment	% Franked
Ordinary Shares Final	3.0 cps	980,428	24/10/2007	100%

Since the end of the Half-Year, the Directors have declared the following dividends:

Ordinary Shares
Interim	3.0 cps	942,524	4/04/2008	100%

The financial effect of these dividends have not been brought to account in the financial statements for the half-year ended 31 December 2007 and will be recognised in subsequent financial reports.

5. EARNINGS PER SHARE

	Half-year ended 31 December 2007	Half-year ended 31 December 2006
Basic earnings per share (excluding net realised gains/(losses) on investment portfolio)	1.46 cents	1.35 cents
Basic earnings per share (including net realised gains/(losses) on investment portfolio)	5.93 cents	5.36 cents
Diluted earnings per share (excluding net realised gains/(losses) on investment portfolio)	1.40 cents	n/a
Diluted earnings per share (including net realised gains/(losses) on investment portfolio)	5.66 cents	n/a
Weighted average number of ordinary shares used in the calculation of basic and diluted earnings per share	32,442,667	31,997,677
Weighted average number of ordinary shares used in the calculation of basic and diluted earnings per share	34,014,348	n/a

6. SEGMENT INFORMATION

The Company was engaged in investment activities conducted in Australia and derived revenue from dividends, interest income and the sale of investments.

7. CONTINGENT LIABILITIES

There has been no change in contingent liabilities since the last annual reporting date.

8. SUBSEQUENT EVENTS

No matters or circumstances have arisen since the end of the reporting period which have significantly affected or may significantly affect the operations of the Company, the results of those operations or the state of affairs of the Company in subsequent financial periods.

The dividend as recommended by the Directors in Note 4 will be paid subsequent to balance date and is not provided for in the Condensed Income Statement.

The financial effects of this transaction has not been taken into account for the half-year reporting period.

ABN 62 111 772 359

DIRECTORS' DECLARATION

The Directors of Fat Prophets Australia Fund Limited declare that:

• 1. The financial statements and notes, as set out on pages 5 to 12:
• (a) comply with Accounting Standard AASB 134: Interim Financial Reporting and the Corporations Regulations; and
• (b) give a true and fair view of the financial position of the Company as at 31 December 2007 and of its performance for the half-year ended on that date.
• 1. In the Directors' opinion there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

This declaration is made in accordance with a resolution of the Board of Directors.

R.J. Bolton Director

Dated at Sydney this 25th day of February 2008