INVESTSMART GROUP LIMITED — Net Asset Value 2005

Oct 13, 2005

Fat Prophets Australia Fund Limited ACN 111 772 359 Level 33, 2 Park St Sydney, NSW 2000 1 300 88 11 77 fatfund@fatprophets.com.au

SEPTEMBER 2005 NTA RELEASE

14 October, 2005

Net Tangible Asset Backing as of:
	Sept 30	Aug 31	July 31	June $301$	May $31$	April 30
Before Tax' \$	1.133	1.077	1.067	1.032	0.981	0.976
After Tax \$	1.092	1.048	1.042	1.014	0.980	0.976
Cash Holdings %	9.7	12	20	25	41	70

Portfolio Sector Allocation including Cash as of September 30
GICS Sector Positions + Cash S&P/ASX 300 Index	Index ℅	Fund ℅	Active Position $pp^2$
Energy	4.6	8.3	3.7
Materials	21.0	25.0	4.1
Industrials	8.7	23.3	14.5
Consumer Discretionary	5.3	0.0	$-5.3$
Consumer Staples	6.7	2.5	$-4.2$
Health Care	3.5	5.7	$-0.4$
Financials	44.0	20.9	$-23.1$
Information Technology	0.7	1.7	0.9
Telecommunications Services	3.6	2.9	-0.6
Utilities	1.5	0.0	-1.5
Cash		9.7

$^3$ defined as before providing for the estimated tax on unrealised income and gains.
$^2$ Percentage points

Top 15 Holdings

As the portfolio is largely established, we release the top 15 holdings and will continue this practice on a monthly basis.

Top 15 Holding by Portfolio Weight as of 30 Sept 2005
Company	Code	Portfolio Weight %
BHP BILLITON LIMITED	BHP	10.4
OIL SEARCH LIMITED	OSH	8.6
ESPREON LIMITED	EON	7.7
REPCOL LIMITED	RPC	7.0
ANZ BANKING GROUP LIMITED	ANZ	6.8
COMMONWEALTH BANK OF AUSTRALIA	CBA	5.5
PERSEVERANCE CORPORATION LTD	PSV	4.3
WESTPAC BANKING CORPORATION	WBC	3.8
MACQUARIE INFRASTRUCTURE GROUP	MIG	3.3
AMMTEC LIMITED	AEC.	3.3
TOWER LIMITED	TWR	3.2
GROPEP LIMITED	GRO	3.2
TELSTRA LIMITED	TLS	3.1
IMAGE RESOURCES NL	IMA.	2.8
TRIBECA CORPORATION LTD	твс	2.8

Dear Fat Fund Shareholders.

The Fat Fund's pre-tax NTA appreciated by 5.2% on a before-tax basis in September 2005. Since inception the pre-tax NTA has appreciated by 16% or 34.9% on a hypothetical annualised basis. In dollar terms, the pre-tax NTA rose from \$1.077 to \$1.133 for a gain of 5.6 cents.

Against its benchmark, the S&P/ASX 300 Accumulation Index, the pre-tax NTA out-performed by 0.11% in September 2005.

The portion of cash held within the portfolio continues to fall and at the end of September 2005 was 9.7% compared to 12% at the end of August 2005.

Managers Commentary - FATS Price vs. NTA

On September 30, 2005 FATS closed at \$0.96 representing a discount of 18% to the pre-tax NTA of \$1.13

This is frustrating to Investors and Management alike and we thought it appropriate to discuss how and why this situation can occur.

The Fat Prophets Australia Fund Limited ("Fat Fund") is a listed investment company. Its primary asset is its investment portfolio. Its share price is determined by buyers and sellers on the Australian Stock Market.

Over the long term, in an efficient market driven by fundamentals it is reasonable to expect that the share price will approximate the NTA. However, investor sentiment can upset this equation in the short term and this seems to be occurring.

In very strong markets, such as we have experienced lately, some investors may be suffering from "irrational exuberance" (to borrow Alan Greenspan's turn of phrase). This thinking can lead to a willingness to assume greater risk for what is perceived to be much greater return.

The Fat Fund is a diversified and relatively conservative investment vehicle. In short, the Fat Fund may be perceived as a "boring" investment in this market. This perception may cause potential buvers to overlook the Fat Fund. Other investors with short-term time horizons may be willing to sell at a discount to the NTA to chase higher returns elsewhere.

We have looked at a range of other Australian LICs (Listed Investment Companies) and found that many are trading at a discount to their published pre-tax NTA. This seems to indicate that it is LICs generally that are out of favour with potential buyers, rather than the Fat Fund itself.

We (The Manager) believe that the market moves in cycles. When the market corrects, that old phrase "boring is beautiful" may come back into yogue and potential buyers may be more interested in LICs and FATS in particular. When this happens it is possible that the FATS price may increase.

The Manager cannot control the price at which the stapled securities trade. The focus of the Manager remains to seek value investments that will over time see the pre-tax NTA rise. At some point, if the market is rational and efficient (over the long term we believe it is) the Manager expects that the FATS price will respond to this underlying value.

Company Commentary

As has become our practice, we discuss a recent investment made on behalf of the Company.

Perseverance (PSV)

Perseverance is a gold mining company with a large ground position in the historic Ballarat gold district of Victoria. Tenements held have numerous old gold workings.

Previous mining by the "old timers" concentrated on near surface workings where the gold was able to be easily extracted. As they dug deeper and moved from open pit mining to underground mining they encountered "un-oxidised gold bearing rock". With the technology of the day, it was difficult to extract the gold as it was locked within sulphur bearing minerals.

The company recently completed construction of a processing plant that includes a biox module (bio oxidation). BIOX is simply the use of sulphur loving bacteria to breakdown the existing gold bearing minerals, allowing the gold to be extracted by conventional metallurgical techniques. The process is fairly simple with the ground rock being mixed in an aerated slurry along with trillions of bacteria and kept at a 'happy' (for the 'bugs') temperature and PH.

Cash costs are likely to be approximately A\$350 per ounce of gold leaving significant margins at the current gold price of US\$470 / oz (A\$620 / oz).

We have been interested in PSV for some time as the market tends to over discount risk for such items as $B$ IOX $-$ and our modelling indicated a possible opportunity for investment $$ however we were unable to visit the operation until early September 2005.

As the plant is now commissioned and operating well the focus is twofold; (1) develop the underground operation and (2) explore in more detail the areas of gold mineralisation surrounding the mine.

Should exploration be successful (released results to-date have been encouraging across a wide area) the plant can be expanded at low incremental capital cost.

Staff turnover is low unlike many gold operations, because the mine is 20 minutes from Ballarat - an attractive place to live compared to many isolated Western Australian mine sites.

Lastly, we like the "gold gorilla" neighbours of PSV. To both the north and south major gold companies are exploring extensions to the gold bearing mineralisation that PSV has now proved to be extractable using BIOX.

As of 30 September 2005, PSV made up 3.9% of the portfolio.

Stocks Disclosed to Date - Summary

To date we have written about the following stock positions. The weight of these positions within the Fat Fund portfolio at close of business September 30, 2005 was:

Company	ASX Code	Portfolio Weight	ాSee Monthly అం
		$\left( \frac{\%}{\%} \right)$	$\blacksquare$ Report for $\lhd$
			Commentary
AMMTEC	AEC	3.0	June 05
AUST WORLDWIDE EXPLORATION	AWE	0.6	May 05
COFFEY INTERNATIONAL	COF	1.9	June 05
ESPREON	EON	7.0	July 05
GROPEP	GRO	2.9	June 05
KONEKT	KKT	1.6	Aug 05
OIL SEARCH	OSH	7.8	April 05
PERSERVERANCE	PSV	3.9	Sept 05
REPCOL	RPC	6.4	April 05
TRIBECA	твс	2.5	June 05

Change in Manager's Discretion to Invest Outside Index

As set out in the Fat Prophets Australia Fund Limited prospectus dated 9 February 2005 (Sec 2.1) the Manager has a discretion to invest up to 30% of the portfolio outside the benchmark index, the ASX 300 Accumulation Index. The purpose of this discretion is to allow the Manager to seek value in over-looked sectors of the market.

The Manager feels that it has been successful in identifying and securing holdings in several investments within this category. These investments are now beginning to appreciate in value. As they appreciate, these cumulative holdings test the 30% discretion limit. If the limit remains unchanged the Manager may be forced to sell what it believes are under-valued investments.

The Manager has requested that the Fat Prophets Australia Fund Board increase the percentage of the portfolio that may be invested outside the Benchmark Index from 30% to 40%. The Board has resolved to approve an increase of the limit to 40%. This will allow the Manager to continue to seek value in over-looked areas of the market.

Annual General Meeting

The date of the AGM is Friday, 25 November 2005. The meeting will be held at 10 am in the Smith Room of the Wesley Centre, 220 Pitt St. Sydney.

Unstapling Date

As always, we remind you that the share and option that make up each stapled security can not be traded separately, until after the unstapling date of 20 April 2006.

Again, on behalf of the Board we thank you for your support and look forward to updating you again next month.

Kindest Regards

Your Board of Directors and the Fat Prophets Funds Management* Team

*Fat Prophets Funds Management (Australia) Pty Ltd is the Manager of the Fat Prophets Australia Fund Limited investment portfolio.

This report has been prepared solely for the benefit of the Fat Fund and its shareholders. It summarises information on the financial products held by the Fat Fund and the views of the Fat Fund as at the date of preparation of the report. These views and financial products may and will change after the issue of this report. No assurance can be given by the Fat Fund or Fat Prophets Funds Management Australia Pty Limited (the Manager) as to the accuracy and completeness of the information used to compile this report. Past performance is not necessarily indicative of future performance.

By making this report available, the Fat Fund and the Manager are not providing any general advice or personal advice within the meaning of section 766B of the Corporations Act regarding the Fat Fund, any potential investment in the Fat Fund or any investments or potential investments of the Fat Fund. This report is made without consideration of any specific person's investment objectives, financial situation or needs. The Fat Fund, the Manager and directors and employees of the Fat Fund and the Manager do not accept any liability for the results of any action taken or not taken on the basis of the information contained in this report, any negligent mis-statements, errors or omissions.