INVESTSMART GROUP LIMITED — Net Asset Value 2007

Oct 11, 2007

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September 2007 NTA Release

1. Details of Performance and Net Asset Backing at Month end

The net asset backing (“ NTA ”) of Fat Prophets Australia Fund Limited (“ Fat Fund ”) at 30 September 2007 was $1.4625 per share CUM DIVIDEND on a before tax basis, calculated in accordance with ASX Listing Rule 19:12, and represents an increase of 6.29% over the month. By comparison, the Fat Fund’s benchmark, the S&P/ASX 300 Accumulation Index firmed by 5.58% in September 2007.

After adjusting for the impact of taxation on both realised and unrealised gains, the Fat Fund’s after tax NTA at the end of September 2007 was $1.3668 per share CUM DIVIDEND , undiluted for the $1.00 strike price options which can be exercised until 20 April 2008. If all of the April 2008 options were exercised at $1.00; the fully diluted after tax NTA/share CUM DIVIDEND would be $1.19.

Readers should note that the shares of Fat Fund are currently trading on an EX DIVIDEND basis; a 2cent per share final dividend and 1c per share special dividend are due for payment on 24 October 2007.

2. Performance Commentary

The major influences on the Fat Fund’s performance versus the benchmark during the month of September 2007 were as follows:

Positive Influences			Negative Influences
Company	% move	Position	Company	% move	Position
Perserverance	86%	Overweight	National Aust Bank	-0.6%	Overweight
Mundo Minerals	47%	Overweight	Macquarie Bank	15%	Underweight
Lihir Gold	28%	Overweight	Fortescue Metals	40%	Underweight
Rio Tinto	16%	Overweight	SP Telemedia	-7%	Overweight
BHP Billiton	16%	Overweight	CoffeyInternational	-5%	Overweight

The strength in the S&P/ASX 300 Accumulation index largely occurred in the last eight days of the month, with a dramatic 6% rise over that period. The market’s gains were heavily focused in cyclical areas, most notably resources, where the S&P/ASX 300 Resources index rose by over 15%. The Fat Fund has maintained overweight positions in the two largest resource companies – BHP and RIO Tinto - for the past eighteen months. These companies are benefiting from very positive sentiment regarding upcoming bulk commodity negotiations, with a number of “spot” deals in iron ore and both types of coal transacting well above (in some cases double) current contract prices. The long held position in gold shares was also of material benefit with a 27 year high in bullion prices being reached, as global investors grapple with a weak US$ and very easy monetary conditions pursued by global central banks.

The significant gain in resources shares has started to elevate these securities close to their long term average P/E ratios, at a time of startling profits and stunning returns on capital. The sector appears to be reaching a “blow off” phase which may gain further momentum when the expected upgrades to contract prices eventuate. Our next move is likely to be reducing rather than increasing these exposures.

Fat Prophets Australia Fund Limited ACN 111 772 359 Level 33, 2 Park Street, SYDNEY, NSW 2000

Contact: Steve O’Hanna (02) 8258 0015 fatfund@fatprophets.com.au

Not that industrial shares offer any solace from a valuation perspective. With the S&P/ASX300 Industrials index rising by 2.5% over the month, valuations are becoming increasingly stretched, with forward PER’s of just under 18x. Comparing the yields on industrial shares with local bond yields – which rose nearly 0.25% over the month – risk premiums for investing in equities are now starting to look very skinny. There is little new momentum for overall upward revisions in earnings growth with economic uncertainty likely to grow and the A$/US$ cross at close to $0.90 starting to be a major dampener on all but the import sector.

The Fat Fund was relatively inactive during the month, initiating no new positions, and carrying a cash weighting of around 6%. Since the end of September, we have trimmed a few strongly outperforming positions. We expect the next few months to be particularly interesting with AGM commentaries likely to be more interesting than for some years, coinciding with likely strong results from the banking sector. Overall, our level of caution is increasing significantly, through we still see pockets of value, notably in the smaller oil companies, and in selected asset plays.

3. Top 15 Holdings at 30 September 2007

Company	Symbol	% Weighting
BHP Billiton	BHP	13.86
National Aust. Bank	NAB	7.97
Westpac Banking Corp	WBC	6.39
ANZ Banking Group	ANZ	5.68
Commonwealth Bank	CBA	5.51
RIO Tinto Ltd	RIO	5.06
QBE Insurance	QBE	3.06
Woolworths	WOW	2.91
UXC Limited	UXC	2.34
Lion Selection Group	LST	2.17
Perseverance Corp.	PSV	2.13
Lihir Gold	LGL	2.13
Mundo Minerals	MUN	2.10
Publishing & Broadcasting Limited	PBL	2.07
Great Southern Limited	GTP	1.87

Andrew Brown[a & ] Steve O’Hanna[a ] 12 October

2007

On behalf of Fat Prophets Funds Management Australia P/L

• a: Andrew Brown and Steve O’Hanna are employees of Tidewater Investments Limited. A controlled entity of Tidewater Investments Limited, Tidewater Asset Management P/L (AFSL# 302802) currently manages the Fat Fund under a subcontract agreement dated 24 May 2007.

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

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