INVESTSMART GROUP LIMITED — Net Asset Value 2007

Jul 12, 2007

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

June 2007 NTA Release

13 July 2007

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 29 June 2007 was $1.4304 per share on a before tax basis, calculated in accordance with ASX Listing Rule 19:12, and represents an increase of 2.30% over the month. By comparison, the Fat Fund’s benchmark, the S&P/ASX 300 Accumulation Index declined by 0.11% in June 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 June 2007 was $1.3364 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 $1.1740.

2. Performance Commentary

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

Positive Influences	Positive Influences	Positive Influences	Negative Influences	Negative Influences	Negative Influences
Company	% move	Position	Company	% move	Position
Great Southern Plant.27.7OverweightCommander Comm.-28.2OverweightMundo Minerals31.8OverweightWesfarmers20.5UnderweightIWL Limited25.5OverweightPerseverance-6.2OverweightUXC Limited11.6OverweightNational Aust. Bank-3.6OverweightImage Resources14.4OverweightWoodside Petrol.6.4Underweight

3. Top 15 Holdings at 30 June 2007

Company	**Symbol **	% Weighting
BHP Billiton	BHP	11.20
National Aust. Bank	NAB	8.46
Westpac Banking Corp	WBC	5.91
ANZ Banking Group	ANZ	5.70
Commonwealth Bank	CBA	5.54
RIO Tinto Ltd	RIO	4.75
Lihir Gold	LGL	2.84
Woolworths	WOW	2.72
UXC Limited	UXC	2.51
Great Southern Plantation	GTP	2.48
Perseverance Corp	PSV	2.24
Tap Oil	TAP	2.04
Lion Selection	LST	1.98
Soul Pattinson (W.H)	SOL	1.97
Image Resources	IMA	1.94

4. Commentary

The Fat Fund had an excellent June month with a number of individual stock selections being re-rated - six of the 37 stocks we held throughout the month rose by more than 10% reflecting a variety of factors – takeover approaches (PCH Group, Great Southern), new contracts and earnings upgrades (UXC), increased recognition of reserve potential (Image, Mundo) and positive reassessment of their strategic position (IWL).

For the year to 30 June 2007, based on unaudited management analysis, the Fat Fund portfolio returned 29.84% gross of expenses and taxes, compared to the S&P/ASX 300 Accumulation index (“ Benchmark ”) of 29.18%. This excess return of 0.66% is regarded as respectable by the sub-contract manager on the basis that:

• on this measure, the Fat Fund lost 0.65% from engaging in the BHP off-market to gain significant franking credits;

• the Fat Fund was still hamstrung by certain legacy micro cap positions for part of the year;

• the median professional fund manager was trailing the Benchmark over one year, measured on this basis, by 1.4% at the end of May 2007 (source: “ Investment and Technology ” issue 30/7/07);

• the Fat Fund carried between 8 – 15% cash during the last four months of the fiscal year, during which time the Benchmark rose by 9.1%;

• the sub-contract manager exhibited a strong value disposition during an effusive market environment.

This analysis calculates that in the year to 30 June 2007, the Fat Fund portfolio returned 28.53% after expenses but before any taxes and 26.05% after (30%) taxes on realised gains in accordance with ASX Listing Rule 19.12.

At the present time, it’s worth reiterating the overall themes (such as there are any) within the Fat Fund portfolio. The key ones are:

• Overweight to large cap diversified resources – the key is cash flow repatriation to shareholders from all of the “cream” they are currently earning;

• Selected picks within the pure resource producer area;

• Overweight to gold

• Preference for the smaller oils against the larger counters with the chance of some corporate activity as well as cheap pricing;

• Overweight to banks – they are still attractive against other industrials considering the credit quality cycle and ability to manage capital – same story as heavyweight resources really;

• Preference for competitors to Telstra rather than the incumbent – Australian rates for broadband and mobile are farcically expensive considering the concentration of the population – they can only go one way;

• Selected overweight to IT and services sector where growth/business model is robust and we have a small number of exceptional companies;

• Underweight to non bank financial services – great macro dynamic but the stocks are ludicrously expensive and many investors don’t understand the real leverage within these groups to asset based fees;

• Own no major property trusts, but are finding some interesting value in a few second liners – we now own three.

Over the past month we have purchased two new stocks, both of which have been affected by the strong A$ but have strong businesses and thematics. Integrated Research is a world leader in the monitoring of business critical computer systems through its PROGNOSIS toolset and has a massive opportunity in the VoIP telephony area. The shares trade at 12.6x downgraded 2007 year earnings. Galileo Japan Trust (GJT) is a REIT with exposure to 24 Japanese retail shopping centres valued at $800million or so. Japan is far less heavily retailed than Australia or the USA, and the GJT portfolio is focused in areas of retail scarcity relative to the Japanese market. The REIT trades at a minor premium to NTA, and through financial engineering (long term fixed rate Yen debt at 2.3%) generates an 8.4%+ yield to investors. We are also participating in the exercise to recapitalise Perseverance Corp , where weather, equipment and short term grade issues have conspired to put a hole in the company’s cash flow. The company is a great asset play with enterprise values per ounce of resource and production at the very low end of the Australian scale

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Andrew Brown[a & ] Steve O’Hanna[a]

On behalf of Fat Prophets Funds Management Australia P/L

• a: Andrew Brown and Steve O’Hanna are employees of Tidewater Investments Limited who currently manage the Fat Fund under a sub-contract 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 Investments 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.