INVESTSMART GROUP LIMITED — Net Asset Value 2008

Apr 13, 2008

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March 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 ”) at 31 March 2008 was $1.1618 per share on a before tax EX-DIVIDEND basis, calculated in accordance with ASX Listing Rule 19:12, and represents a decline of 5.58 % over the month. By comparison, the Fat Fund’s benchmark, the S&P/ASX 300 Accumulation Index declined 3.42% in March 2008.

Adjusting for the payment of the 3c per share in interim and special dividends during the month, the ASX LR 19.12 NTA declined by 3.22%.

After adjusting for the impact of taxation on both realised and unrealised gains, the Fat Fund’s after tax NTA at the end of March 2008 was $1.1463 XD per share , undiluted for the $1.00 strike price options which can be exercised until 20 April 2008. If all of the remaining 29,972,130 April 2008 options were exercised at $1.00, the fully diluted pre tax NTA would be $1.0829 per share and the after tax NTA would equate to $1.0749 per share .

2. Performance Commentary

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

Positive Influences	Positive Influences	Positive Influences	Negative Influences	Negative Influences	Negative Influences
Company	%move	Position	Company	%move	Position
Lion Selection18%OverweightSP Telemedia18%OverweightNational Aust Bank4.5%OverweightTelstra-10%UnderweightBravura Solutions6%Overweight			UXC Limited-32%OverweightLihir Gold-17%OverweightWesfarmers6%UnderweightBeach Petroleum-13%OverweightMundo Minerals-15%Overweight

March proved to be another fear-filled and volatile month for Australian shares, with the benchmark index falling by 8.3% at its worst (18/3/08) before a last week recovery. The non-salacious details of the Opes Prime stockbroking collapse (for that’s all that’s missing amongst Maseratis, alleged misappropriation and high profile investigators/victims) have cast a further pall over investor confidence. That’s to add to a banking sector which is tightening credit, a Reserve Bank fraying investors’ nerves by rapidly backtracking on its erroneous policy stances of the past two years, the heat being taken out of residential property markets, and more earnings warnings. The great French investing proverb, attributed (but never acknowledged) as spoken by one of the Rothschilds in the 19[th] century, “acheter aux canons, vendez aux clairons” has loomed large in our thinking after a quarter where the industrial share benchmark fell by 17.5%.

“Le son du canons” ensured we were sufficiently awake to put funds to work in what is usually one of the least exciting sectors of the market – listed property trusts (or A-REITS to give them the new ASX “sponsordriven” moniker). The sector benchmark fell by as much as 38.5% in less than six months from its best to worst in the wake of the Centro/MFS/Rubicon refinancing problems. With the exception of the very largest vehicles (Westfield/Stockland) which are superbly positioned and cheaper than they were, but not cheap enough, the sector has thrown up a plethora of contrarian opportunities. In many cases, trusts with gearing (debt/total assets) of the high 40%’s but very little required refinancing for two to three years were trading at 50% plus discounts to NTA, meaning that the market had already discounted falls in gross

property values of well over 25%. In some cases, that’s justified, in others not so. As a consequence, the Fat Fund acquired exposures in GPT Group, Macquarie Office and Tishman Speyer during the month. Apart from Perth, your correspondent fails to see masses of cranes on Australia’s CBD horizons, whilst acknowledging that the financial services industry will start to shed labour fairly soon and create some involuntary supply. The potential magnitude of the opportunity in the sector is highlighted by the fact that GPT Group has not traded at a historic (and prospective) 10% dividend yield since 1993 (that’s fifteen YEARS) – worth noting it now has a funds management business as well as some high class properties.

Market sentiment will remain clouded for the next few months as a succession of companies report worsening trading conditions and guidance downgrades. The first real test is the banking sector later this month where share prices should have already discounted the worsening credit quality environment – but may still fall further as the analytical community is hamstrung by AIFRS accounting rules which mandate mechanistic, rather than prescient, delinquent loan provisioning.

The banking sector provides a neat backdrop to the conundrum facing all value investors at present. The tendency to buy a little early, since (significant) value exists, is exacerbated, for brief periods, by the accelerated speed of markets. When investors start to see indices taking bad but historic news in their stride, the signs of a more significant turn will be at hand. Our prevailing thinking is that the current quarter might prove particularly interesting in this respect.

And just to show how bizarre events are at present, this past weekend’s ‘speeding ticket’ issued by ASX to W. H. Soul Pattinson was probably the first since 21 January 1903. Good to see in the wake of Opes Prime that ASX have their eyes on the ball.

3. Top 15 Holdings at 31 March 2008

Company	Symbol	% Weighting
BHP Billiton	BHP	11.2
National Aust. Bank	NAB	7.66
Westpac Banking Corp	WBC	6.74
Commonwealth Bank	CBA	5.17
ANZ Bank	ANZ	4.05
Woolworths	WOW	3.60
QBE Insurance	QBE	3.38
Rio Tinto	RIO	3.24
Lion Selection	LST	2.94
Soul Pattinson (W.H)	SOL	2.44
Beach Petroleum	BPT	2.46
Lihir Gold	LGL	2.46
GPT Group	GPT	2.03
Everest Babcock & Brown Alt. Inv. Trust	EBI	1.85
Guiness Peat Group	GPG	1.84

Andrew Brown[a & ] Steve O’Hanna[a ] 14 April 2008

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.