INVESTSMART GROUP LIMITED — Regulatory Filings 2008

May 13, 2008

==> picture [450 x 98] intentionally omitted <==

April 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 30 April 2008 was $1.2073 per share on a before tax basis, calculated in accordance with ASX Listing Rule 19:12, and represents an increase of 3.92 % over the month. By comparison, the Fat Fund’s benchmark, the S&P/ASX 300 Accumulation Index rose by 4.51% in April 2008. The NTA per share was diluted by 0.8c per share as a result of option exercises. Excluding this dilution, performance would have exceeded that of the benchmark by around 0.1% during the month.

After adjusting for the impact of taxation on both realised and unrealised gains, the Fat Fund’s after tax NTA at the end of April 2008 was $1.1771 per share .

These figures for pre and post tax NTA confirm the estimates contained in the ASX release of 1 May 2008. The 20 April 2008 options have now expired and there is no other contingent equity outstanding.

2. Performance Commentary

The major influences on the Fat Fund’s performance versus the benchmark during the month of April 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
Allco FRN. Unsec 11/17 131% Overweight Coffey International 28% Overweight Soul Pattinson (W.H) 14% Overweight Wesfarmers -4% Underweight Newcrest -13% Underweight			Origin Energy 52% Underweight Lihir Gold -18% Overweight Image Resources -13% Overweight Ambition Recruit. -32% Overweight Magellan Financial -15% Overweight

The rally in April was hardly surprising after the cataclysmic events of the March quarter’s 14.6% decline in the S&P/ASX300 Accumulation index. As we noted last month, prices of a number of stocks and sectors, notably in and around financial services/asset holders had been hit far too hard. As a consequence, we are running some of our lowest cash balances since the Fat Fund began.

Our conundrum in running the fund has been the nature of allocating money between the two diametrically opposite sectors of the market: resources and financials. The former sector is buoyed by hitherto unseen nominal prices for its core commodities, but with a market differentiating in rating terms in an exceptional manner across producers of such raw materials. Bulk and esoteric metal producers have seen rapid runs ups in price and rating, against the most frustrating part of our portfolio: the smaller oil producers. Whilst AWE has finally broken into new ground, our other smaller counters such as Beach Petroleum and Incremental continue to languish. Beach – having sold two tranches of its BMG field for the equivalent of around A$33/barrel of 2P reserves, is itself valued at a mere $14.30 per barrel equivalent – despite continuing to more than replace its production. Incremental has the risk burden of Turkey but is even cheaper. We have maintained a general overweight stance to resources over the past two years, but these smaller oil counters have held back our performance. We are hopeful that the recent AWE/Arc tie up will spur more consolidation in the sector.

The financial sector and asset holding sector has turned up some rich pickings in recent months. We are now in receipt of an underpriced bid for Bravura Solutions (BVA), largely due to the circumstances of two key executives having their shares tied up with a securities lending agreement with a now defunct lender; the listed market’s enemies – private equity – have lobbed in a lowball bid which the board of BVA deem acceptable. The market clearly doesn’t. The bank reporting season has been far less exciting than portrayed ahead of time, with strong management in most cases building liquidity at relatively modest cost to the bottom line, maintaining some semblance of growth, toughing out higher bad debt charges, but indicating real competitive confidence with some aggressive dividend increases. And now we have a bid for St George Bank – this correspondent fondly recalls CBA (especially) and CBC in 1981!

Whilst not quite as excited as Warren Buffett’s famous October 1974 “oversexed guy in a whorehouse”, we do get more than a few tingles from “investing and getting rich” in the “asset sector”. 18% of the portfolio is invested in securities (including LPT’s) which trade at a discount to stated NTA/share. Intriguingly, a few redoubtable overseas investors who focus on these situations have turned up in Australia – in a few of the same stocks we own. We added to this list in April by purchasing Allco Equity Partners (AEP) which, adjusted for cash trades at close to an 80% discount to the value of its invested assets (54% including cash), of which by far the largest is an effective 30% stake in the listed IBA Health. Given that it is 35% owned by the Allco parent (which has commitments to other shareholders at $5/AEP share!) and seems to be the only ready source of cash in the Allco orbit, there should be plenty of catalysts to move. Many of the attractive deep discount asset vehicles were spawned by the Big 3 – Babcock, Allco and Macquarie, showing there’s a time to buy the vehicles, not the manager. The one manager we’re happy to own is Magellan Financial Group , which until recently was trading at NTA – half of which is cash, the other half investments, with two highly capable executives running over $400million of mainly closed end money. Against this sort of value, there’s not much room for core industrials, into earnings headwinds.

3. Top 15 Holdings at 30 April 2008

Company	Symbol	% Weighting
BHP Billiton	BHP	12.95
National Aust. Bank	NAB	7.5
Westpac Banking Corp	WBC	6.80
Commonwealth Bank	CBA	5.42
ANZ Bank	ANZ	3.85
QBE Insurance	QBE	3.77
Rio Tinto	RIO	3.51
Woolworths	WOW	3.48
Lion Selection	LGL	2.85
Soul Pattinson (W.H)	SOL	2.77
Beach Petroleum	BPT	2.30
GPT Group	GPT	2.03
Everest Babcock & Brown Alt. Inv. Trust	EBI	2.02
Lihir Gold	LGL	1.97
St.George Bank	SGB	1.83

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