INVESTSMART GROUP LIMITED — Net Asset Value 2007

Sep 13, 2007

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August 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 31 August 2007 was $1.3759 per share on a before tax basis, calculated in accordance with ASX Listing Rule 19:12, and represents a decrease of 1.19% over the month. By comparison, the Fat Fund’s benchmark, the S&P/ASX 300 Accumulation Index firmed by 2.22% in August 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 August 2007 was $1.3022 per share , 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 would be $1.1564.

2. Performance Commentary

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

Positive Influences	Positive Influences			Negative Influences
Company		% move	Position	Company	% move	Position
Telstra		-5.0	Underweight	Perserverance Corp	-40.7	Overweight
QBE Insurance		16.3	Overweight	Lion Selection	-18.8	Overweight
Zinifex		-15.2	Underweight	Brambles	24.5	Underweight
Telstra Inst. Rec		-7.1	Underweight	SP Telemedia	-30.9	Overweight
ConnectEast		11.9	Overweight	Mundo Minerals	-18.0	Overweight

August was the ultimate football cliché: “a game of two halves”. The benchmark S&P300 index fell by some 11% to its low point in the first sixteen days of the month, before fully recovering – and more – all of the losses. Quite typically, in such a volatile environment, blue chip shares recovered far more strongly than their smaller counterparts, leading to a massive divergence between the performance of large and small cap securities during the month. As a guide, the S&P/ASX100 index rose by 3.05% in August; the S&P/ASX Small Ordinaries fell by 3.87% - a near 7% divergence between large and small company benchmarks.

The significant exposure of the Fund to smaller companies obviously hindered its performance over the August month. Of note, however, was the lack of volatility displayed by the fund against the overall market. The S&P/ASX 300 Accumulation benchmark moved by over 1.5% on nine daily occasions with an average daily change (up or down) of 1.6%; the Fund’s corresponding absolute daily change was only 1.3%.

We are not overly concerned by the lagged recovery in the smaller company area – a number of the shares have recovered strongly in the September month to date and represented outstanding value at their August levels. One exposure – PCH Group – has already received a takeover offer. This is the second takeover offer received by the Fat Fund in the past two months, to add to that of IWL which was received at the start of August.

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

The Fat Fund was extremely active over the month given the reshaping of price relative to value which took place over the period. We further increased our exposure to two blue chips – Publishing and Broadcasting and QBE Insurance – and, as noted last month, purchased two new exposures from the “Babcock and Brown camp” – BCM and EBI.

We successfully traded our exposure to Macquarie Bank over the course of the month and have restored some of our cash position as the overall market has rallied far harder than we would have anticipated; we currently carry just over 6% cash. Within the portfolio, two of our laggard stocks – Commander Communications and Perseverance – suffered badly in a “risk-averse” climate, although recent announcements from the latter, allied to a gold price over US$700/oz continue to suggest a cheap asset play. We hold a number of such situations in the fund across the property, investment company and telephony sectors which look increasingly attractive from a valuation perspective.

Overall, our risk profile against the benchmark index has declined in recent months, mainly as a result of finding some cheaper blue chip exposures; the tracking error of the Fat Fund against the S&P/ASX 300 is now around 4.7%, down from 5.8% or so in May – June 2007.

3. Top 15 Holdings at 31 August 2007

Company	Symbol	% Weighting
BHP Billiton	BHP	12.74
National Aust. Bank	NAB	8.54
Westpac Banking Corp	WBC	6.50
ANZ Banking Group	ANZ	5.91
Commonwealth Bank	CBA	5.74
RIO Tinto Ltd	RIO	4.66
QBE Insurance	QBE	3.36
Woolworths	WOW	3.13
UXC Limited	UXC	2.56
Macquarie Bank	MBL	2.09
Great Southern Plantation	GTP	2.14
Publishing & Broadcasting Limited	PBL	2.00
Everest Babcock Brown Alt Inv. Trust	EBI	1.99
Lion Selection Group	LST	1.97
Soul Pattinson(W.H)	SOL	1.91

Andrew Brown[a & ] Steve O’Hanna[a ] 14 September 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.