INVESTSMART GROUP LIMITED — Net Asset Value 2008

Sep 11, 2008

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August 2008 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 ”) as at 29 August 2008 was $1.0695 per share on a before tax basis, calculated in accordance with ASX Listing Rule 19:12, and represents an increase of 1.56 % over the month. By comparison, the Fat Fund’s benchmark, the S&P/ASX 300 Accumulation Index increased 4% in August 2008.

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 2008 was $1.0814 per share .

2. Performance Commentary

The major influences on the Fat Fund’s performance versus the benchmark during the month of August 2008 were as follows (* denotes acquired during month):

Positive Influences			Negative Influences
Company	%	Position	Company	%	Position
	move			move
Coffey Int.	34%	Overweight	Woodside	17%	Underweight
Wesfarmers	-10%	Underweight	Lihir Gold	-12%	Overweight
Telstra	-3%	Underweight	CSL Limited	18%	Underweight
Macquarie Group	-14%	Underweight	Mundo Minerals	-21%	Overweight
Suncorp	-15%	Underweight	Premier Invest.	-19%	Overweight

The August return of just over 4% by the benchmark S&P/ASX 300 came amidst generally very low volume against a backdrop of a reporting season which was slightly worse than expected, although far from apocalyptic. Once again, the overall indices masked significant intra-market divergence with defensive sectors significantly outstripping the returns from commodity type producers. Smaller resources shares, in particular, have certainly lost their lustre in recent times amidst a sharp decline in the gold price (down 9% over the month against the backdrop of a rising US$) and weakness in numerous base metals. The quantum of profit earned in the calendar 2007 year from product price in the base metal arena has hit home dramatically, and a number of smaller companies now face the evils of low product price but high costs. Zinc mining, as usual, turned out to have a half life of about two years.

The Fat Fund portfolio did well in the larger stocks, but was held back by its exposure to smaller companies, which generally underperform over the short term in such an environment. We remain happy with the vast majority of our smaller company exposure, which contains a hefty component of discount to asset situations. In the majority of these companies, management are executing equity retirement schemes – in some cases, quite aggressively.

We remain very bullish about markets. Whilst the short term economic situation remains poor, Australian share prices have factored in a far worse than likely outcome, and significant value exists across large areas –

FAT PROPHETS AUSTRALIA FUND LIMITED ACN 62 111 772 359

Level 33, 2 Park St, Sydney NSW 2000 telephone 02 8258 0015 fatfund@fatprophets.com.au

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notably financials and REIT’s which are discounting extreme scenarios. However, over the course of last month, we sold our exposure to CSR having collected a 30% gain in less than eight weeks.

Since the month-end, the area of the market where real value resides, despite a declining product price – the smaller oils, has seen further scrip based takeover offer: Cooper oil’s 60%+ scrip laden play for Incremental Petroleum – a stock we believe to be exceptional value. This follows on from similar cash/scrip takeovers of Arc Energy by AWE and the scrip based Roc oil bid for Anzon. This scrip exchange is a little surprising in the oil sector, given the healthy cash flows currently being emitted, but as noted previously, is a phenomenon to be expected in these straightened times, when banker’s wallets remain firmly closed.

Further short term volatility seems inevitable, until market volumes across the globe improve, and the influence of hedge fund traders over the short term is reduced. However, within Australian industrial shares, the market bottom appears to have conclusively passed, about 13% ago in mid-July. Whilst the influence of the extraordinary events of recent days in the USA will continue to be felt, the next major domestic tests are likely to be some further high profile debt delinquencies, as assets prove hard to move at other than basement prices. A less than cataclysmic response to this type of news should reaffirm that domestic financial shares are cheap, leading into the banking results reports and AGM season in November. Further, by that stage, the unwinding of the distortions in economic data from the Beijing Olympics (such as Poms returning to their losing ways) may start to bring forth a new bout of enthusiasm for resources shares – the translation effect at an 80 cent Australian dollar is now very significant. Expect to see us remain fairly fully invested.

FAT PROPHETS AUSTRALIA FUND LIMITED ACN 62 111 772 359

Level 33, 2 Park St, Sydney NSW 2000 telephone 02 8258 0015 fatfund@fatprophets.com.au

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3. Top 15 Holdings at 29 August 2008

Company	Symbol	% Weighting
BHP Billiton	BHP	14.46
Westpac Banking Corp	WBC	7.45
National Aust. Bank	NAB	6.94
Commonwealth Bank	CBA	5.84
QBE Insurance	QBE	4.06
Woolworths	WOW	3.92
Rio Tinto	RIO	3.75
ANZ Bank	ANZ	3.32
Beach Petroleum	BPT	2.82
Lion Selection	LST	2.80
Lihir Gold	LGL	2.66
Soul Pattinson (W.H)	SOL	2.64
St.George Bank	SGB	2.38
Everest Babcock & Brown Alt. Inv. Trust	EBI	2.34
GPT Group	GPT	1.92

Andrew Brown[a & ] Steve O’Hanna[a ] 12 September 2008

• 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 sub-contract agreement dated 24 May 2007 with fat Prophets Funds Management Australia P/L.

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.