INVESTSMART GROUP LIMITED — Regulatory Filings 2009

Aug 26, 2009

Appendix 4E

________________________________________________________________________

Preliminary Final Report to the Australian Stock Exchange

Name of Entity	Fat Prophets Australia Fund Limited
ABN	62 111 772 359
Financial Year Ended	30 June 2009
Previous Corresponding Reporting Period	30 June 2008

Results for Announcement to the Market

			2009 \$ '000	Percentage increase /(decrease) over previous corresponding period #
Revenue from ordinary activities			1,394	(24%)
Profit/(loss) from ordinary activities after tax attributable to members (excluding realised capital gains/(losses))			806	(18%)
Profit / (loss) for the period attributable to members (including realised capital gains /(losses)			(2,257)	(252%)
Dividends (distributions)	Amount per			Franked amount per
	security			security
Final Dividend	Nil			n/a
Previous corresponding 2.75 cents period				100%
Record date for determining entitlements to the dividends (if any)			n/a

Dividends

Date the dividend is payable	n/a
Record date to determine	n/a
entitlement to the dividend
Amount per security	Nil
Total dividend	Nil
Amount per security of foreign	n/a
sourced dividend or distribution
Details of any dividend reinvestment	n/a
plans in operation

	____________
The last date for receipt of an	n/a
election notice for participation in
any dividend reinvestment plans

NTA Backing

	Current Period To 30/06/09	Previous corresponding period
Net tangible asset backing per ordinary security – pre deferred capital gains tax	\$0.9144	\$1.1178

Other Significant Information Needed by an Investor to Make an Informed Assessment of the Entity's Financial Performance and Financial Position:

See attached Annual Report

The earnings per security and the nature of any dilution aspects: Refer Annual Report

Returns to shareholders including distributions and buy backs: Refer Annual Report

Significant features of operating performance: Refer Annual Report

The results of segments that are significant to an understanding of the business as a whole: Refer Annual Report

Discussion of trends in performance: Refer Annual Report

Any other factor which has affected the results in the period or which are likely to affect results in the future, including those where the effect could not be quantified:

Refer Annual Report

Audit/Review Status

This report is based on accounts to which one of the following applies: (Tick one)
The accounts have been audited	5	The accounts have been subject to review
The accounts are in the process of being audited or subject to review		The accounts have not yet been audited or reviewed
If the accounts have not yet been audited or subject to review and are likely to be subject to dispute or qualification, a description of the likely dispute or qualification: Refer Annual Report
If the accounts have been audited or subject to review and are subject to dispute or qualification, a description of the dispute or qualification:
Refer Annual Report

________________________________________________________________________

Attachments Forming Part of Appendix 4E

Attachment #	Details
1	Annual Report

Signed By Director
Print Name	Andrew Brown
Date	27 August 2009

FAT PROPHETS AUSTRALIA FUND LIMITED

ABN 62 111 772 359

ANNUAL REPORT

For the year ended 30 June 2009

1. Directory

Investment Manager Registered Office

Fat Prophets Funds Management Australia Pty Ltd Level 33 AFSL 284171 2 Park Street ACN 112 466 887 Sydney NSW 2000 ABN 42 112 466 887 Level 33 Share Registry 2 Park Street Registries Limited Sydney NSW 2000 ACN 003 209 836 Telephone: 02 9024 6725 ABN 14 003 209 836

Robert J Bolton (Chairman) Sydney NSW 2000 John Reynolds Andrew Brown Shareholder Enquiries Angus Geddes Telephone: (02) 9290 9600 Richard Fabricius (Alternate Director)

Company Secretary

Richard Fabricius

Accounting & Administration

White Outsourcing Pty Limited ACN 074 709 210 ABN 76 074 709 210 Level 7 20 Hunter Street Sydney NSW 2000 Telephone: (02) 8236 7700 Fax: (02) 9221 1194

Auditors

MNSA ABN 12 225 759 072 Level 2 333 George Street Sydney NSW 2000 Telephone: (02) 9299 0901 Fax: (02) 9299 8104

Level 7 Directors 207 Kent Street

Contents	Page
1. Directory	1
2. Chairman's Report	3
3. Investment Manager's Report	6
4. Portfolio and Sector Allocation as at 31 July 2009	9
5. Corporate Governance Statement	11
6. Directors' Report	20
7. Auditor's Independence Declaration	27
8. Income Statement	28
9. Balance Sheet	29
10. Statement of Changes in Equity	30
11. Cash Flow Statement	31
12. Notes to the Financial Statements	32
13. Directors' Declaration	44
14. Independent Audit Report to the Members	45
15. ASX Additional Information	47

2. Chairman's Report

Fellow shareholders,

The Directors are pleased to present the annual report for the Fat Prophets Australia Fund Limited ("Fat Fund") for the fiscal year ended 30 June 2009.

The crisis that commenced in the US sub-prime credit market and the ensuing maelstrom that engulfed global financial markets will characterise this period as one of the most volatile and challenging for investors in recent history. This environment has however revealed some unique opportunities for the shrewd investor.

It is immensely gratifying to see that the manager of the Fat Fund has continued to adhere to the boards' principal guideline of capital preservation. It continues to remain overwhelmingly value focused in terms of its investment style; the Investment Manager's report that follows will provide some detail on this.

Profit

The Fat Funds Net loss attributable to shareholders for the year ending 30 June 2009 was \$ 2,257,026. This compares with the Net profit attributable to shareholders of \$1,482,682 for the year ending 30 June 2008.

For accounting purposes the Fat Fund has recorded an impairment charge in the financial year in accordance with applicable accounting standards. The net impairment losses are unrealised accounting expenses, which has no effect on Fat Fund's net asset backing and the value of long-term investments as the company revalues its investments on a monthly basis.

Earnings per share and dividends

The weighted average earnings per share declined from 2.96 cents to 2.57cents, a decline of 13% over the fiscal year. This is the Basic and diluted earning per share excluding net realised gains and losses on the Investment Portfolio.

The Fat Fund Directors aim to provide shareholders with a consistent fully franked dividend income stream. The table overleaf shows the fully franked dividends that have been paid since inception of the Fat Fund. For the year ending 30 June 2009 the board has declared that there is no dividend payable. The dividend decision will be reviewed again at the half year and should market conditions remain supportive, will likely resume.

Dividend Type	Dividend per share	Paid on
	(cents per share)
Interim - 2006	1.2	26th April 2006
Final - 2006	2.1	24th October 2006
Interim - 2007	2.0	30th March 2007
Special - 2007	1.0	30th March 2007
Final - 2007	2.0	24th October 2007
Special – 2007	1.0	24th October 2007
Interim - 2008	2.5	4th April 2008
Special – 2008	0.5	4th April 2008
Final – 2008	2.75	23rd September 2008
Total Paid to date	15.05 cents

Net Asset Backing (NTA)

The net tangible assets (NTA) per share as at 30 June 2009 before the provision for tax on the unrealised capital gain was \$0.9144. This compares with \$1.1178 at 30 June 2008, a loss of 18% for the year.

Capital Management

The Directors continually review the Capital Management program to address the ongoing discount between the company's share price and the Net Tangible Asset (NTA) backing. The On-Market Share Buy Back program that was previously adopted has continued.

Fat Fund Share Buy Back

During the financial year ending 30th June 2009, 1,822,325 shares were bought back under this program.

The majority of these shares were bought back at a discount to pre- tax NTA ranging between 13-16%. The issued capital of the Fat Fund is now 30,724,489 ordinary shares at a paid up value of \$30,554,273.

Board Composition and Management of the Fund

There have been no changes to the board of Directors. Richard Fabricius now fulfils the role of company secretary as well as Alternate Director for Angus Geddes.

Outlook

The outlook for the Fat Fund remains very positive. Your board is confident that the manager will continue to identify opportunities that will add significant value over the coming period and indeed over the medium term. Many leading economic indicators both here and overseas show significant improvement and normalisation from levels seen in March of this year.

We will continue to communicate regularly with shareholders via the website www.fatprophets.com.au/fatfund and via the monthly NTA release to the ASX.

Together with my fellow Directors, I thank you for your support and look forward to meeting many of you at the upcoming Annual General Meeting in Sydney.

Following the meeting, there will be a presentation by the company's Investment Manager, Andrew Brown.

Yours sincerely,

Robert Bolton Chair

3. Investment Manager's Report

Andrew Main's book "Other people's Money" published in 2003 about the 2001 collapse of HIH has the wonderful, if harsh sub-title: "A Chronicle of Arrogance, Ignorance and Self-Delusion". What more apposite phrase could be used to describe the goings-on in financial markets and many major investment banks from around 2005 to late 2007, the unravelling of which has proved just as severe as the localised ramifications of HIH's demise. Jail, loss of trust, destroyed savings, amazing stories of largesse and other astonishing events to write a book about.

We won't, since behind all the stories and descriptions of the GFC which will soon fill a library, the mechanics of the worst peak to trough decline (57.6%) in Australian industrial share prices since September 1974 – and the second worst since 1936 when indices were properly compiled – can be simply ascribed to four small words: "the price of risk". Few of us have ever seen pricing at the lows of April 2007, but none of us have ever seen the unravelling of all financial markets to the extent of the events of fiscal 2009.

In the market commentary accompanying the results release for the six months to 31 December 2008, we described the quantum shift in risk measures which took place in the first half period, postulated that there were real signs of a more positive environment emerging, and noted that stocks were ludicrously cheap. We were right. Volatility in equity market futures in the US is back down in to the mid 20% area, from a high of 84% and the mid 40%'s at the turn of the calendar year. High yield bonds have staged an amazing rally with global spreads against relevant Treasuries falling from a never seen 22% down to "normal" cycle highs of around 12% - remember the lows were 2.4%!!

As a consequence, the clichéd game of two halves has proved to be apt, even if, realistically, we were into the final quarter before things became more exciting:

% change1	S&P 300	Small Ordinaries	Industrials	Resources
30/6/08 – 31/12/08	-27.2%	-42.0%	-18.8%	-42.0%
31/12/08 – 6/3/09	-14.0%	-16.8%	-17.7%	-4.4%
6/3/09 – 30/6/09	+27.3%	+48.1%	+28.0%	+25.6%
Fiscal year 2009	-20.3%	-28.6%	-14.4%	-30.4%

1: S&P/ASX Accumulation (total return) indices

The strong revival over the last four months of the financial year has, of course, continued into the 2010 fiscal year with July 2009's rise being the strongest monthly gain since December 1993 (and the 34th strongest monthly gain since July 1936). Not surprising considering the magnitude of declines, and to the degree that equities have effectively hit a sweet spot, insofar as:

• Equity valuations were extraordinarily cheap in absolute terms and versus bonds;
• Interest rates collapsed from the ludicrous RBA enforced levels of early 2008;
• Australia's economic performance is clearly outstripping most other developed economies;
• A strong oligopolistic banking sector supported by Government guarantees, forced savings, superannuation and devoid of overseas or financial market "adventures";
• Proximity to growing positive demographics China and Asia rather than the horror stories of emerging Europe.

The last two of these factors are likely to be long lived; the first two will change and evolve – and we have probably seen the best of them already.

Whilst valuations are by no means expensive, neither are they anywhere near as compelling as the levels seen early in 2009, given the degree of uncertainty which prevails in the global economy. This incertitude relates more to the ramifications of large scale Government funding required to protect and stimulate. Whilst on this occasion, Governments have taken equity in the recovery –from Lloyds Bank to AIG to Goldman Sachs warrants – there's still a major call on consumer savings required, and the risk profile of all central authorities has, by definition, increased markedly in absolute terms. Be wary that the risk free rate is far from risk free in many countries, and that the "benchmark" from which all other financial assets are priced is a far less stable number than since the mid 1970's.

The level of shift in valuations is best seen with a particularly crude table, comparing the forward earnings yield of the Australian industrials market with prevailing bond rates at its 6th March 2009 extreme and that currently prevailing:

	(A)	(B)	1/(B) = C	C - A
	10 year	2009E	2009 equity	Earnings
	bond yield	P/E ratio	earnings yield	yield gap
6 March 2009	4.23%	9.9x	10.10%	5.87%
6 August 2009	5.64%	14.6x	6.85%	1.21%

Source: Tidewater Asset Management Pty. Limited

Long term average equity earnings yield gaps are marginally negative – in other words the bond yield is slightly greater than the equity earnings yield, and long term average P/E ratios for industrial shares are in the low 14's. Since we are pretty much there already, it suggests the bulk of the work from a three standard deviation event of shares being so cheap against bonds has already been done. Remember: bond yields have jumped 140 basis points which holding a ten year maturity piece of paper with a 6% coupon would correspond to a total return of - 7.8% over the five months. In that same period, industrial shares have risen by 36% and have a total return with dividends of about 38.1%. That's a near 46% excess return of one asset class against another in five months – enough to correct the bulk of any medium to long term mispricing.

Moreover, these coincident P/E ratios of around the long term average suggest that to push far higher, markets will either require bond yields to fall sharply or for there to be earnings growth. In the midst of large scale deficit funding, the former seems unlikely (some might say highly unlikely), suggesting there is little impetus for a valuation re-rating. Earnings growth will inevitably occur from the current depressed levels of corporate profitability, but it may be a little more of a drawn out phenomenon. That's not to say that a re-rating above long term average P/E's can't happen for a period, but more that the forces which drive it could be transitory and

unreliable. This is interesting in the context of the types of securities which have been performing above the market in most recent times.

The Fat Fund portfolio has changed remarkably little in construct over the past six months – a logical event given that we felt very confident about valuations back in February 2009. We consistently noted our preference for financial services rather than businesses hooked to the real economy, on the basis that financial markets move first, there are strong franchises amongst selected securities in this arena, and they were very cheap. As a consequence, we have run a consistent large overweighting to the banking sector over recent months. We know it will be some time before the stellar returns on capital of the decade to 2007 are restored, but the shares were not priced for that eventuality; their strong underlying (pre bad debt/investment experience) earnings growth, scope for expansion and capacity to exploit oligopoly conditions has been underappreciated until recently.

Our portfolio has performed well ahead of the benchmark over the past year, recording a gross (pre fees, expenses and tax) return of -14.6%; that's around 5.7% better than the index. Bring some element of taxes and fees into the equation, the pre tax NTA/share move of -15.8% is about 4.5% better than the benchmark.

Moreover, our portfolio currently has its highest weight since inception to large capitalization securities. This is symptomatic of a market where investors were so underweight equities at their nadir, that many are chasing beta – exposure to low quality cyclical businesses – in an attempt to recoup performance. It is noteworthy that three of the strongest fundamental listed ASX businesses – Westfield Group, QBE Insurance and CSL Limited, all owned in the portfolio – have been rampant under-performers in this market rally, despite the very modest valuation ratings for these securities, relative to their past.

A number of our undervalued asset plays are now starting to bear fruit – Alternative Investment Company, Oceania Capital Partners, Lion Selection and Eircom Holdings have all announced corporate initiatives in recent months ranging from capital returns to more corporate based reconstructions and approaches. We have restructured our real estate investment trust exposures to provide a more diversified exposure to this risky but undervalued area, as gearing in the sector has now come down. We retain some lower geared quality portfolios – Dexus, Mirvac, GPT – along with higher geared counters – Westpac Office and Macquarie Office.

In the coming period, we expect a less thematic portfolio, one more reflective of specific spots of undervaluation. We are bullish over the medium term, but believe much of the easy money has been made.

4. Portfolio and Sector Allocation as at 31 July 2009

We provide a breakdown of the investment portfolio by value and sector as a means of highlighting the main areas of the economy we have exposure to:

Security	Market Value	Percentage (%)
Consumer Discretionary
APN News And Media Ltd	382,520.83	1.31%
Seven Network Limited	427,460.00	1.46%
Consumer Staples
Wesfarmers Limited	1,331,275.00	4.54%
Woolworths Limited	1,025,962.50	3.50%
Energy
Australian Worldwide Exploration	315,001.26	1.07%
Beach Petroleum Limited	677,051.35	2.31%
Beach Petr. Ltd \$2.00 Opt Ex 300610	2,031.67	0.01%
Metgasco Limited	182,249.76	0.62%
Financials
Alternative Investment Trust	312,400.00	1.07%
ANZ Banking Group Limited	1,621,375.00	5.53%
BT Funds Management Ltd	310,377.10	1.06%
Bravura Solutions Limited	83,167.00	0.28%
Clime Capital Limited	200,678.98	0.68%
Commonwealth Bank Of Australia	2,289,800.00	7.81%
Dexus Property Group	365,000.00	1.25%
Eircom Holdings Limited	112,386.38	0.38%
Galileo Japan Trust	30,600.00	0.10%
Guinness Peat Group PLC	364,375.20	1.24%
General Property Trust	411,814.24	1.41%
Lion Selection Limited	290,188.16	0.99%
Magellan Financial Group	370,205.00	1.26%
Mirvac Group	408,382.50	1.39%
Macquarie Office Trust	211,500.00	0.72%
National Australia Bank Limited	2,204,298.00	7.52%
Oceania Capital Partners Limited	547,562.60	1.87%
Premier Investments Limited	431,132.64	1.47%
QBE Insurance Group Limited	1,140,750.00	3.89%
Westpac Banking Corporation	3,033,780.30	10.35%
Westfield Group	453,200.00	1.55%
Westpac Office Trust	241,538.76	0.82%
Health Care CSL Limited	840,125.00	2.87%
Industrials
Asciano Group Limited	28,800.00	0.10%
Ambition Group Limited	73,500.00	0.25%
Coffey International Ltd	258,505.74	0.88%
Konekt Limited	96,869.43	0.33%
Savcor Group Limited	26,280.00	0.09%
Information Technology
Altium Limited	203,553.71	0.69%
Integrated Research Limited	314,357.99	1.07%
UXC Limited	231,350.00	0.79%

Materials
BHP Billiton Limited	3,952,183.45	13.48%
Kingsgate Consolidated Limited	326,094.00	1.11%
Lihir Gold Limited	434,890.00	1.48%
Mundo Minerals Limited	280,241.70	0.96%
Newcrest Mining Limited	495,000.00	1.69%
Rio Tinto Limited	887,940.40	3.03%
Telecommunication Services
SP Telemedia Limited	402,445.05	1.37%
Telstra Limited	211,800.00	0.72%
Cash	453,863.06
Accrued Dividends	14,650.47
Total Portfolio Value	29,310,514.20

5. Corporate Governance Statement

CORPORATE GOVERNANCE

In March 2003, the ASX Corporate Governance Council ("ASXCGC") issued the Principles of Good Corporate Governance and Best Practice Recommendations ("ASX Recommendations") as a guide to the top 500 ASX listed companies. The guidelines were reviewed as at 31 March 2004 by the Implementation Review Group and some relaxations agreed particularly in respect to non top 300 ASX listed companies. The ASX recommendations were extensively revised in August 2007 as a "Second Edition" in respect of which Fat Prophets Australia Fund Limited ("Fat Fund" or "the Company") is required to report for the first time in the current year.

Corporate Governance is the framework by which the Company is effectively managed, in respect of its ethics and honest approach to doing business, the accountability of the board of Directors to shareholders of the Company for financial performance and growth, and the management of the inevitable risks which are encountered in running a company reliant upon the performance of financial assets and investments.

The Company is a small company with a strong commitment to containing costs. This commitment, when related to the size and outsourced nature of operations of the Company, makes it difficult to fully attain all of the recommended principles; indeed, many of the principles have limited relevance to the operation of the Company, and as a consequence, the corporate governance framework has been adapted to the operation of a smaller entity. In any event, shareholders are significantly advantaged by the fact that the board of Directors of the Company own approximately 10% of the equity in the Company.

Further, all of the Board and staff are experienced company officers and are well aware of their responsibilities to the Company, to the security holders and to all other stakeholders, and some fulfil similar roles in other corporations. As a consequence, the Company looks to attract Directors who exhibit the requisite innate characteristics of honesty and integrity, rather than simply adopt a series of boilerplate documents, and attempt to justify divergence from them.

The Fat Fund Board largely supports and is largely, though not totally, in compliance with the ASX Recommendations published by the ASXCGC. The Company's constitution and various charters and statements in relation of corporate governance discussed in this section are available from the Company upon request in writing.

PRINCIPLE 1: LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT

A. THE ROLE OF THE BOARD AND MANAGEMENT

The Board does not have a formal Board Charter given the extensive use of outsourced partners to operate the Company resulting in a clear division between the role of the Board and that of the Investment Manager: The Board believes its primary functions are:

• Acting as an interface between the Company and its shareholders;

• Setting the goals of the Company including short, medium and longer term objectives;

• Providing the overall strategic direction of the Company;

• Interfacing with the Investment manager in respect of capital management;
• Approving all mergers and acquisitions and the establishment of controlled entities;
• Approving investments where a potential conflict of interest may arise or where the investment may breach internally set benchmarks in respect of size of exposure; and
• Ensuring the Investment Manager manages the Company's investment portfolio in the prescribed manner, with respect to style, exposure limits and other facets which will govern the overall performance of the portfolio.

The Board specifically delegates the day to day management of the Company's affairs to three external parties:

• Management of the investment portfolio, via Fat Prophets Funds Management Australia Pty. Limited ("Investment Manager") and Tidewater Asset Management Pty. Limited ("Sub-contract Manager") pursuant to a management agreement effective 20 April 2005 and a sub-contract agreement of 24 April 2007 between the Investment Manager and Sub-contract Manager;
• back office functions, such as trade settlement and accounting via White Outsourcing Pty Limited; and
• share registry services via Registries Limited.

B. LETTERS OF APPOINTMENT

Letters of appointment are prepared for non-executive directors covering duties, time commitments, induction and company policies and corporate governance. Given the small number of these individuals, their remuneration structure and main elements of terms of employment are reproduced in the Remuneration Report section of this Annual Report.

C. INDUCTION OF SENIOR EXECUTIVES

The Company has no executives with all functions being outsourced, and it is not planned to hire such individuals in the near future.

. D. PERFORMANCE EVALUATION OF SENIOR EXECUTIVES

There is no specific performance appraisal of senior executives. Every six months, the Investment Manager formally presents to the Board and certifies that it has acted in accordance with the Management Agreement.

During the year to 30 June 2009, Fat Fund comprised a Non Executive Chairman, a Non Executive Director, two Executive Directors and an alternate Director who also acted as the Company Secretary. The Company also utilises the services of the outsource partners noted above.

PRINCIPLE 2: STRUCTURE THE BOARD TO ADD VALUE

A. SIZE AND COMPOSITION OF THE BOARD

The composition of the Board is determined in accordance with the following principles and guidelines:

• The Board shall comprise not less than three Directors nor more than such number as the Directors may determine at any time.
• The Chairman should preferably be an Independent or Non-Executive Director.
• The Board shall comprise Directors with a diverse and appropriate range of qualifications and expertise and in the event of retirement of a Director with particular expertise, the Board will appoint a Director with skills and experience to balance the needs of the Board in the operations of the Company.
• The Board shall meet at least quarterly and follow meeting guidelines established to ensure that all Directors are made aware of, and have available all necessary information in a timely manner, to participate in an informed discussion of all agenda items.

At the date of this report, the Board of the Company comprises a Non Executive Chairman, a Non Executive Director, two Executive Directors and an alternate Director who also acted as the Company Secretary. The Directors' Report provides the details of the Directors in office during the year together with their experience, expertise and qualifications.

The Directors in office at the date of this Statement are:

Independent Non Executive Chairman:	Robert Bolton
Independent Non Executive Director:	John Reynolds
Executive Director:	Angus Geddes
Executive Director:	Andrew Brown
Alternate Director:	Richard Fabricius

B. DIRECTORS' INDEPENDENCE

Independent Directors are independent of management, do not have a substantial shareholding (i.e. less than 5%) and are free from any business or other relationship which could materially interfere with the exercise of their judgement. The Company presently has two Independent Directors. In light of the size and activities of the Company, the Directors do not see any advantage in appointing additional directors.

CONFLICT OF INTEREST

The Board has in place a process to ensure that conflicts of interest are managed appropriately. If a potential conflict of interest arises, the director concerned does not receive the relevant Board papers and/or leaves the Board meeting while the matter is considered. Directors must advise the Board immediately of any interests that could potentially conflict with those of Fat Fund.

C. ELECTION OF DIRECTORS

The Directors of the Company are elected or re-elected (on a rotational basis) at the Company's Annual General Meeting. Details of the members of the Board, their experience, expertise and qualifications are set out in the Director's Report. It is the Board's policy to determine the terms and conditions relating to the appointment and retirement of Non Executive Directors on a case by case basis and in conformity with the requirements of the Listing Rules and the Corporations Act.

D. BOARD COMMITTEES

Establishment of Board committees is commensurate with the size of the Company and is as follows:

Audit Committee

At the date of this statement, the members of the Audit Committee are John Reynolds (Chairman of the Audit Committee) and Robert Bolton.

Having regard to the small size of the Company, the duties of a Remuneration Committee and Nomination Committee are handled by the full Board.

E. DIRECTOR'S ACCESS TO INFORMATION AND ADVICE

Directors receive a monthly report from the Investment Manager – whether or not a Board meeting is scheduled – and have unrestricted access to company records and information.

Directors may obtain independent professional advice at Fat Fund's expense on matters arising in the course of their Board and Committee duties, after obtaining the Chairman's approval. The Board requires that all directors be provided with a copy of such advice and be notified if the chairman's approval is withheld.

It is the Board's policy that any committees established by the Board should:

• Be entitled to obtain independent professional or other advice at the cost of the Company, unless the Board determines otherwise.
• Be entitled to obtain such resources and information from the Company including direct access to employees of and advisers to the Company as they might require.
• Operate in accordance with terms of reference established by the Board.

The Board appoints and removes the Company Secretary. All directors have direct access to the Company Secretary and, through the Chairman, to the Board on all governance matters.

F. BOARD EVALUATION

Since the Company is small in nature, the Board does not undertake a formal annual evaluation process.

PRINCIPLE 3: PROMOTE ETHICAL AND RESPONSIBLE DECISION MAKING

A. BUSINESS CONDUCT AND ETHICS

The Directors have adopted a Code of Conduct ("Code") of which the following is a summary:

• Directors must act honestly, in good faith and in the best interests of the Company as a whole at all times.
• Directors have a duty to use due care and diligence in fulfilling the functions of the office and exercising the powers attached to that office.
• Directors must always use the powers of the office for a proper purpose.
• Directors must recognise that their primary responsibility is to the Company's security holders as a whole but should, where appropriate, have regard for the interests of all stakeholders of the Company.
• Directors must not make improper use of information acquired as a Director.
• Directors must not allow personal interests, or the interests of any Associated Person, to conflict with the interests of the Company.
• Directors have an obligation to be independent in judgement and actions and to take all reasonable steps to be satisfied as to the soundness of all decisions taken by the Board.
• Confidential information received by a Director in the course of the exercise of Directors duties remains the property of the company from which it was obtained and it is improper to disclose it, or allow it to be disclosed, unless that disclosure has been authorised by that company, or required by law.
• Directors should not engage in conduct likely to bring discredit upon the Company.
• Directors have an obligation, at all times, to comply with the spirit, as well as the letter of the law and with the principles of this Code.
• Directors have an obligation to ensure that the continuous and periodic disclosure requirements as set out in the ASX Listing Rules are adhered to at all times.

The policy also includes detailed guidelines for interpretation of the principles of the Code.

B. TRADING IN COMPANY SECURITIES

Directors and executives are not permitted to buy or sell the Company's shares other than in the five days after release of the monthly net tangible assets statement to the ASX, unless there is additional price sensitive information known to Directors. Trading at other times is only permitted with the express permission of the Chairman.

PRINCIPLE 4: SAFEGUARD INTEGRITY IN FINANCIAL REPORTING

A. AUDIT COMMITTEE FUNCTION

Detailed terms of reference for the Audit Committee in the form of an Audit Committee Charter have been adopted. At present, the Audit Committee does not meet the requirements of the ASX Recommendations, since whilst it contains only non-executive directors and is chaired by an Independent Director, it only has two rather than three members. The board believes that due to the small scale of the Company and clear

transparency and simplicity of accounts that the Audit Committee can function adequately in its current composition.

The Audit Committee responsibilities are:

• to review the adequacy of systems and standards of internal control with emphasis on risk management, financial reporting procedures and compliance;
• to review proposed announcements of financial results, financial statements, management questionnaires and external audit reports in advance of the Board;
• to receive any information it requires from the Investment Manager;
• to report its findings and recommendations directly to the Board; and
• to provide a direct link from the Board to the external auditor; the nomination of the external auditor and reviewing the adequacy of the scope and quality of the annual statutory audit and half year audit review.

The Audit Committee meets separately with the auditors as required from time to time to discuss the audit reviews and reports, to ensure that there are no outstanding issues and to assess the auditor's continuing independence.

At the date of this statement, the members of the Audit Committee are John Reynolds (Chairman of the Audit Committee) and Robert Bolton.

Full compliance with the ASX Recommendations (requires three members including an independent Chairman) will not be achieved unless the Board resolves to appoint an independent Director/Chairman. The Directors do not believe there is any advantage in appointing additional directors at this time. Current members of the Audit Committee have adequate qualifications and are financially literate.

The Audit Committee seeks to ensure the independence of the external auditor. The policy on auditor independence applies to services supplied by the external auditor and their related firms to the Company. Under the policy on auditor independence, the external auditor is not to provide non-audit services under which the auditor assumes the role of management, becomes an advocate for the group, or audits its own professional expertise. Fat Fund has a very limited number and scope of permissible non-audit assignments. In addition, the external audit engagement partner and review partner must be rotated every five years.

The external auditor annually confirms its independence within the meaning of applicable legislation and professional standards.

B. FINANCIAL REPORT ACCOUNTABILITY

While the Company has no full time staff, no CEO and no CFO, Andrew Brown, performs these "chief executive functions". Andrew Brown has given a declaration to the Board in writing that the Company's financial reports present a true and fair view, in all material respects, of the Company's financial condition and operational results and are in accordance with relevant accounting standards.

Accounting functions and back office functions have been outsourced to an independent party, White Outsourcing Pty Limited.

The Board considers that the independence of the external providers of accounting and back office services ensures that no collusion can occur within the ranks of senior

management (if it existed) or the Board of the Company with the outcome that the financial accounts received by the Board are not likely to be significantly flawed.

PRINCIPLE 5: MAKE TIMELY AND BALANCED DISCLOSURE

The Board has always been very conscious of its disclosure obligations and has adopted a detailed continuous and periodic disclosure policy.

All Directors and the Company Secretary are responsible to ensure that disclosure policy is adhered to. The Investment Manager and Sub-contract Manager works with the Chairman in dealing with media contact and any external communications.

Current and archived news items announced by the Company are available free of charge at www.asx.com.au.

Fat Fund provides a review of operations and financial performance in the 2009 Annual Report which includes the company's financial report. Results announcements to the ASX, analyst presentations and the full text of the Chairman's address at the Company's Annual General Meeting are lodged with ASX and available at www.asx.com.au.

PRINCIPLE 6: RESPECT THE RIGHTS OF SHAREHOLDERS

The Board is committed to ensuring that the security holders are at all times provided with information sufficient to allow effective monitoring of the Company's performance by means of:

• the Annual Report which is distributed to security holders (at their election);
• the Half Yearly Report;
• periodic reports and special reports when matters of material interest arise;
• the Annual General Meeting and other meetings called to obtain approval of any Board action as required; and
• Continuous disclosure.

The Directors' Code of Conduct supports this principle.

The Company's auditor is required to attend the Annual General Meeting and be available to answer any questions the Security holders may care to ask in respect to the audit of the financial statements of the Company.

PRINCIPLE 7: RECOGNISE AND MANAGE RISK

A. OVERSIGHT OF RISK

The Board of Directors is the ultimate sponsor of risk oversight within the Company, but does so in a manner which reflects the transparent nature of the Company's systems. The Company pays significant attention to risk as a consequence of its activities which involve dealing in financial assets. As a consequence of the core equity investing activities of the

Company, Fat Fund deliberately assumes a level of risk of capital loss, the quantum of which is regularly discussed and debated by the Board.

Through the reporting of the Investment Manager, the Board is able to monitor various measurements of absolute and relative risk. Relative risk assesses the level of risk being taken by the Investment Manager relative to the construction of the benchmark return index for the Fat Fund, the S&P/ASX 300 Accumulation index ("Benchmark").

The Audit Committee Terms of Reference include a requirement for the Committee to review and monitor the risk management practices and activities of the Company.

B. IMPLEMENTATION OF RISK MANAGEMENT SYSTEMS

The Company has access to a series of internal and external controls through the Investment Manager which govern the Company's material business risks. These controls include, but are not restricted to:

• an compliance officer who provides training in respect of certain risk assessment procedures on a quarterly basis to all employees of Tidewater Asset Management Pty. Limited;
• external providers of accounting services to the Company; and
• regular reporting by the Investment Manager to the Board of Directors.

The Company has not appointed a specific internal auditor. The Company does not have a Risk Management Committee due to its small size and scale of activities, but the Audit Committee has a mandate to review and monitor the risk management practices and activities of the Company.

The Investment Manager is highly cognisant of the risks being run at any given time relative to the Benchmark, as well as the overall risk that equity prices may be over-valued in the opinion of the Investment Manager, which may result in the Investment Manager moving a greater percentage of the Company's assets into cash. Risk relative to the benchmark is governed by:

• weighting in an individual security relative to its weighting in the Benchmark;
• the volatility of an individual security included in the Benchmark (whether held or not in the portfolio); and
• the correlation between and volatility of securities held within the portfolio e.g. a high correlation between securities of companies in the same industry, and the nature of volatility of securities in that industry.

The Investment Manager is required to be cognisant of securities not held by Fat Fund if such securities have share price patterns which are more volatile than the overall market, and such securities represent a significant weighting in the Benchmark. The Investment Manager utilises specialist software to measure the overall expected deviation of return of the Fat Fund portfolio at any given moment in time, with that of the Benchmark. It should be noted that due to major structural shifts in the measured volatilities of individual securities, the Investment Manager believes such software can have significant shortcomings. As a consequence, the Investment Manager places great store on the collective experience of its employees in making value judgements of likely changes in volatility patterns, correlations and weightings to individual securities and sectors.

C. ACCOUNTABILITY

In the 2009 financial year, Andrew Brown, the Key person of the Investment Manager has provided a statement to the Board in writing in respect to the integrity of the financial statements and the efficient and effective operation of the risk management and internal compliance and control systems.

As part of the process of approving the financial statements, at each reporting date the Investment Manager provides a statement in writing to the Board on the quality and effectiveness of the Company's risk management and internal compliance and control systems.

The Board has also received statements from Andrew Brown certifying that, having made all reasonable enquiries and to the best of his knowledge and belief:

• the statements made in relation to the financial integrity of the financial reports are founded on a sound system of risk management and internal compliance and control;
• the system of risk management in operation at 30 June 2009 implements the policies adopted and delegated by the Board and was operating effectively; and
• the systems relating to financial reporting were operating effectively in all material respects.

Further, the Board received the relevant declarations required under section 295A of the Corporations Act 2001 and the relevant assurances required under recommendation 7.3 of the Second Edition of the ASX Recommendations.

PRINCIPLE 8: REMUNERATE FAIRLY AND RESPONSIBLY

The duties and responsibilities of a Remuneration Committee are handled by the full Board, to ensure that the remuneration practices of the Company are fair and reasonable and structured to encourage enhanced performance. Full details of the remuneration quantum and structure for key personnel is contained in the Remuneration Report within this Annual Report.

Directors Remuneration

If an Executive Director is appointed, suitable remuneration will be approved by the Board. Such an appointment is not currently envisaged.

The maximum aggregate amount of Non Executive Director's fees must be approved by the company in a General Meeting. Non Executive Directors are not granted options over unissued shares in the Company, and receive no bonus payments nor retirement entitlements other than superannuation.

The Board does not currently offer equity based remuneration for Executive or Non Executive Directors and it is not intended to do so.

6. Directors' Report

The Directors present their report on the Company for the financial year ended 30 June 2009.

A. Directors

The names and details of the Directors of the Company who held office during the year and at the date of this report are :

Robert Bolton (Appointed 19 January 2005)

Independent Non-Executive Chairman

Bachelor of Engineering (civil), MBA, GAICD Age 49

Robert has over 23 years of executive management and project management experience in the construction, mining, IT, financial services and consulting sectors.

In 1996 Robert founded "Probative Solutions" to provide innovative constraint management solutions. More recently he has led a number of business development teams in start-up environments in roles encompassing innovative business and project turnaround often in an interim executive and director capacity. Robert is a leading Australian advocate of the Theory of Constraints (TOC) approach to management.

He holds a B. Engineering (Civil) from the University of Sydney, an MBA from Ashridge Management College United Kingdom and is a graduate member of the Australian Institute of Company Directors (AICD).

Robert became a Non-Executive Director and Chairman of the Company in January 2005. He is a member of the Audit Committee.

Andrew Brown (Appointed 22 December 2005)

Executive Director

Bachelor of Arts (Economics) Honours

Age 50

Andrew Brown has 29 years experience in the Australian equity market as a stockbroker, corporate investor and funds manager. Andrew has an honours degree majoring in economics and econometrics from the University of Manchester, England.

During the past three years, Andrew has served as a Director of the following other public companies:

• Adelaide Resources (Non-Executive Director ongoing)
• Aequs Capital Limited (Non-Executive Director ongoing)
• Cheviot Bridge Limited (Non-Executive Director ongoing)
• Enerji Limited (appointed 20/8/2007; resigned 8/7/2008)
• Equities and Freeholds Limited (Chairman ongoing)
• Mariner Wealth Management Limited (appointed 6 March 2003; resigned 26 October 2006)
• Retail Star Limited (appointed 2 August 2004; resigned 15 August 2006)

• Signature Brands Limited (appointed 9 December 2004; resigned 14 July 2006)

• Snowball Group Limited (appointed 25 June 2003; resigned 9 October 2007)

• Tidewater Investments Limited (Managing Director ongoing)

Andrew became a Director of the Company in December 2005 and is an Executive Director.

Angus Geddes

Non-Executive Director (Appointed 12 September 2006)

Bachelor of Commerce, FFin

Age 40

Angus has 19 years experience in the international and domestic financial markets in stockbroking, investment banking and research.

In 2000, Angus co-founded Fat Prophets Group - which trades as Fat Prophets and currently holds the position of Chief Executive Officer for Fat Prophets Pty Limited.

Angus has a Commerce Degree (Otago University, New Zealand) and a Graduate Diploma in Applied Finance and Investment.

Angus was appointed as a Director of the Company on 12 September 2006. He was previously a Director of the Company from November 2004 to February 2005 and an Alternative Director from March 2005 until October 2005.

Mr Richard Fabricius (Appointed 19 September 2008)

(Alternate Director for Angus Geddes)

Bachelor of Science (Combined Honours in Business Administration and Political Studies) Age 52

Richard has worked in financial markets for almost 30 years, the last seven of which have been in Australia. During his career he has spent time as both an investment and business manager working for a number of financial services companies that include such names as Robert Fleming and Aberdeen Asset Management. Throughout much of this period he has been actively involved in Listed Investment Companies and has previously served as a Director on the Boards of the Aberdeen New Thai Investment Company, Aberdeen Leaders Limited and Equity ELink Limited.

John Reynolds (Appointed 30 June 2008) Independent Non-Executive Director

FFin

Age 41

John Reynolds is a Senior client advisor with Bell Potter Securities. Bell Potter is one of the largest retail brokers in Australia with close to 300 securities advisors. Bell Financial is listed on the ASX. John has over 17 years experience in the securities industry. He has worked the last 6 years at Bell Potter and with firms JB Were, Credit Suisse and Challenger prior to that. He is an accredited securities dealer in Australian and International equities, derivatives and numerous equity and non-equity related products.

John has completed a Diploma in Applied Finance and Investment through FINSIA in addition real estate licensing certificate. John specialised in portfolio construction and portfolio management in his diploma. The majority of his advisory work is

focused on the Top 50 stocks listed on the ASX. John is also a regular contributor to CNBC and Boardroom Radio.

John became a director of the company on 30 June 2008. He is the Chairman of the Audit Committee.

All of the Directors have been in office from the commencement of the 2009 financial year until the date of this report unless otherwise stated.

B. Company Secretary

The following person held the position of Company Secretary during the financial year:

Angus Begg (Appointed 30 June 2008, resigned 19 September 2008)

Richard Fabricius (Appointed 19 September 2008)

C. Interests in the Securities of the Company

The relevant interests of each Director in the securities of the Company shown in the Register of Directors' Shareholdings as at the date of this report is:

Director	Ordinary Shares
Robert Bolton (Chairman)	40,600
Andrew Brown	1,825,346
Angus Geddes	1,317,020
Richard Fabricius	-
(Alternate Director)
John Reynolds	-

Directors are not required under the Company's constitution to hold any Shares, Options or any other Securities in the Company.

D. Interests in Contracts or Proposed Contracts with the Company

Fat Prophets Funds Management Pty Limited, of which Angus Geddes is a Director, has a contract to manage the Fat Prophets Australia Fund Limited which is disclosed in the Remuneration Report of this Directors' Report (on page 24).

E. Principal Activities

The principal activity of the Company during the year was investment in securities listed on the Australian Stock Exchange.

There were no changes in the nature of the Company's principal activity during the financial year.

F. Operating Results

The profit of the Company after providing for income tax and before capital gains is \$805,644 (2008: \$951,662).

G. Dividends

No dividend has been declared for the financial year ended 30 June 2009 (2008: 2.75 cent per share). For further details in respect of the dividends paid or recommended, refer to Note 18 of the financial statements.

H. Review of operations

	2009 \$	2008 \$
Profit from ordinary activities before income tax benefit and capital gains	718,593	824,517
Income tax benefit	87,051	127,145
Profit from ordinary activities before capital gains	805,644	951,662

The net tangible asset backing of the Company as at 30 June 2009 was \$0.9144 per share before tax (\$0.9555 after tax). 2008: 1.1178 per share before tax (\$1.1140 after tax).

I. Significant changes in state of affairs

During the 2009 financial year an on-market buy-back was operational from 15 November 2007 to 19 November 2008 which resulted in the buy-back and subsequent cancellation of 2,815,742 ordinary shares. A second on-market buy-back commenced from 19 November 2008 for a 12 month duration. Refer to Note 8 of the Financial Report for further details.

J. Earnings per share

Basic and diluted earnings (excluding net realised gains/losses on investment portfolio) were 2.57 cents per share (2.96 cents per share in 2008). Basic and Diluted earnings (including net realised gains/losses on investment portfolio) were (7.20) cents per share (4.61 cents per share in 2008).

K. Environmental regulation

The Company's operations are not subject to any significant environmental regulations under either Commonwealth or State legislation.

To the extent that any environmental regulations may have an incidental impact on the Company's operations, the Directors of the Company are not aware of any breach by the Company of those regulations.

L. Future Developments

The Company will continue to pursue its investment objectives for the long term benefit of the members. This will require continual review of the investment strategies that are currently in place and may require changes to these strategies to maximise returns.

Further information on likely developments in the operations of the Company and the expected results of operations have not been included in this report because the Directors believe it would be likely to result in unreasonable prejudice to the Company.

M. Events Subsequent to Balance Date

No matter or circumstance has arisen since the end of the financial year which has significantly affected or may significantly affect:

• (a) the Company's operations in future financial years; or
• (b) the results of those operations in future financial years ; or
• (c) the Company's state of affairs in future financial years.

N. Meetings of Directors

The number of Directors' Meetings (including Meetings of committees of Directors) and number of Meetings attended by each of the Directors of the Company during the 2009 financial year were:

	Directors' Meetings		Audit Committee Meetings
	No. of meetings eligible to attend	No. of meetings attended	No. of meetings eligible to attend	No. of meetings attended
Robert Bolton	5	5	4	4
Andrew Brown	5	5	-	-
Angus Geddes	5	5	-	-
Richard Fabricius (Alternative Director)	-	-	-	-
John Reynolds	5	5	4	4

The number of Directors' Meetings and Audit Committee Meetings has been adjusted for each member to reflect the number of Meetings held during their tenure.

O. Remuneration Report

The Company has no employees other than its Directors. The Company's policy is to offer a sufficient level of remuneration to attract employees (Directors) who are financially literate and knowledgeable of investment management best practice. All Directors must have a deep understanding and commitment to good corporate governance.

As the Company has a performance fee scheme in place with the Manager, the Company has effectively linked performance with compensation in relation to the management of the Company's assets. With regard to Directors, no performance-based compensation exists nor is planned. This is because the primary role of the Directors is to ensure adherence to good governance and oversight of the Manager. In this capacity, performance based compensation schemes are not deemed to be appropriate by the Board.

Under the Company's constitution, each Director (other than a Managing Director or an Executive Director) may be paid out remuneration for ordinary services performed as a Director. Salary is the only form of compensation. No option or bonus plans are in place.

Under ASX Listing Rules, the maximum fees payable to directors may not be increased without prior approval from the Company at a general meeting. Directors will seek approval from time to time as deemed appropriate.

The Directors will be entitled to receive the following benefits:

• (a) the maximum total remuneration of the Directors of the Company has been set at \$135,000 per annum to be divided amongst them in such proportions as they agree. The Board is not required to allocate the entire amount.
• (b) Angus Geddes is a Director of the Manager. The Manager will receive a management fee and performance fee (where relevant) for managing the Portfolio.
• (c) An entity associated with Angus Geddes is a shareholder of the Manager. The Manager will receive a management fee and performance fee (where relevant) for managing the Portfolio.

The Directors' remuneration for the year ended 30 June 2009 is detailed in the following table:

Name of Director	Base fee	Superannuation	Total
	\$	\$	\$
Robert Bolton (Chairman)	40,000	3,600	43,600
Andrew Brown	Nil	Nil	Nil
Angus Geddes	Nil	Nil	Nil
Richard Fabricius	Nil	Nil	Nil
(Alternative Director)
John Reynolds	30,000	2,700	32,700
TOTAL	70,000	6,300	76,300

The Directors' remuneration for the year ended 30 June 2008 is detailed in the following table:

Name of Director	Base fee \$	Superannuation \$	Total \$
Robert Bolton (Chairman)	40,000	3,600	43,600
Andrew Brown	Nil	Nil	Nil
Angus Geddes	Nil	Nil	Nil
Bruce Holman	30,000	2,700	32,700
John Reynolds	Nil	Nil	Nil
TOTAL	70,000	6,300	76,300

Angus Geddes, who is also a Director of the Manager and a shareholder in the ultimate holding company of the Manager, is not entitled to be paid Directors' fees.

No Director of the Company has received or become entitled to receive a benefit, other than a remuneration benefit as disclosed in note 12(b) to the financial statements, by reason of a contract made by the Company or a related entity with the Director or with a firm of which they are a member, or with a Company in which they have a substantial interest.

P. Insurance of Directors

During the financial year, the Company has given indemnity and paid insurance premiums to insure Directors against liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in the capacity of Directors of the Company, other than conduct involving a wilful breach of duty in relation to the Company. During the year, premiums were paid in respect of the key management personnel liability and legal expenses insurance contract. Details of the nature of the liabilities covered and the amount of premiums paid have not been disclosed as disclosure is prohibited under the terms of the contract.

Q. Proceedings on behalf of the Company

There are no legal or other proceedings being made on behalf of the Company or against the Company as at the date of this report.

R. Non-Audit Services

No non-audit services have been provided by the Auditor or by another person on the Auditor's behalf during the year. This statement has been made in accordance with advice provided by the Company's audit committee and has been endorsed by a resolution of that committee.

S. Auditor's Independence Declaration

The lead auditor's independence declaration for the year ended 30 June 2009 has been received and can be found on page 27.

Signed in accordance with a resolution of the Board of Directors.

Robert Bolton Chairman Dated this 27th day of August 2009 at Sydney

8. Income Statement

For the year ended 30 June 2009

	Notes	2009 \$	2008 \$
Investment Revenue from ordinary activities	3 (a)	1,337,075	1,773,273
Income from trading portfolio
Revenue from trading portfolio	3 (b)	13,050	42,775
Net realised gains/(losses) on disposal Net unrealised gains/(losses)		(186,764) 230,182	258,479 (346,317)
Expenses
Administrative expenses		(64,460)	(64,923)
Management fees		(342,920)	(549,511)
Audit fees	11	(30,800)	(27,600)
Share registry fees		(43,333)	(50,236)
Directors' fees		(76,300)	(76,300)
Company secretarial fees		(20,500)	(22,532)
ASX listing fees		(23,754)	(24,050)
Legal Fees Other		(14,860) (58,023)	(35,163) (53,378)
Total expenses from ordinary activities		(674,950)	(903,693)
Operating profit before income tax benefit and realised gains on investments		718,593	824,517
Income tax benefit relating to ordinary activities	5 (c)	87,051	127,145
Operating profit before realised gains/(losses) on investments		805,644	951,662
Capital (losses)/profits realised
Net realised gains/(losses) on investment portfolio		(2,297,795)	594,125
Impairment losses on investment portfolio		(2,300,754)	-
Income tax (expense)/benefit on investment portfolio		1,535,879	(63,105)
Net realised (losses)/gain on investment portfolio		(3,062,670)	531,020
Profit/(Loss) attributable to members of Fat Prophets Australia Fund
Limited		(2,257,026)	1,482,682
		2009	2008
		Cents	Cents
Basic and diluted earnings per share	17	2.57	2.96
(excluding net realised capital profits/losses on investment portfolio)
Basic and diluted earnings per share	17	(7.20)	4.61
(including net realised capital profits/losses on investment portfolio)

The above income statement should be read in conjunction with the accompanying notes to the financial statements.

9. Balance Sheet

As at 30 June 2009

The above balance sheet should be read in conjunction with the accompanying notes to the financial statements.

10. Statement of Changes in Equity For the year ended 30 June 2009

Notes \$ \$ \$ \$ As at 1 July 2007 10,924,083 31,763,329 807,267 43,494,679 Direct equity adjustments Costs associated with initial public offer (1,342) - - (1,342) Investment portfolio Net unrealised losses on investment portfolio - (9,747,070) - (9,747,070) Tax on unrealised losses on investment portfolio - 2,924,121 - 2,924,121 Total direct equity adjustments (6,822,949) (1,342) - (6,824,291) Profit for the year - - 1,482,682 1,482,682 Net realised losses on investment portfolio - - - - Income tax expense on investment portfolio - - - - Total recognised income and expense for year - - 1,482,682 1,482,682 Transactions with shareholders Dividends paid from retained earnings 18 - - (1,922,952) (1,922,952) Issue of shares 1,567,919 - - 1,567,919 Shares bought back (1,452,323) - (34,860) (1,487,183) As at 30 June 2008 4,101,134 31,877,583 332,137 36,310,854 Direct equity adjustments Costs associated with initial public offer - - - - Investment portfolio Net unrealised gains/(losses) on investment portfolio - (5,787,914) - (5,787,914) 1,736,375 1,736,375 1,610,525 - - 1,610,525 Total direct equity adjustments (2,441,014) - - (2,441,014) Profit for the year - - (2,257,026) (2,257,026) Net realised gains/(losses) on investment portfolio - (2,297,795) 2,297,795 - Income tax expense on investment portfolio - 845,653 (845,653) - Total recognised income and expense for year (1,452,142) - (804,884) (2,257,026) Transactions with shareholders Dividends paid from retained earnings 18 - - (887,337) (887,337) Issue of shares - - - - Shares bought back (1,323,310) - - (1,323,310) As at 30 June 2009 207,978 30,554,273 (1,360,084) 29,402,167 Tax effected Impairment loss recognised in income statement Retained Earnings Tax on unrealised (gains)/losses on investment portfolio Share Capital Investment Portfolio Revaluation Reserve/ Realised Capital Profits Reserve Total

The above statement of changes in equity should be read in conjunction with the accompanying notes to the financial statements.

11. Cash Flow Statement

For the year ended 30 June 2009
---------------------------------	--

	Notes	2009 \$	2008 \$
Cash flows from operating activities
Proceeds from sale of trading portfolio		546,568	790,512
Purchase of trading portfolio		-	-
Interest received		57,826	264,380
Dividends received		1,321,062	1,220,866
Trust distributions		130,282	217,559
Other income received		-	5,725
Investment manager's fees paid		(378,596)	(561,991)
Other expenses paid		(298,267)	(361,488)
Income Tax paid		-	(971,992)
Net cash provided by/(used in) operating activities	15	1,378,875	603,571
Cash flows from investing activities
Proceeds from sale of investments portfolio		7,693,949	15,896,394
Purchase of investments portfolio		(8,043,346)	(19,254,143)
Net cash provided by/(used in) investing activities		(349,397)	(3,357,749)
Cash flows from financing activities
Proceeds from issue of shares		-	1,556,874
On market buyback of shares		(1,323,309)	(1,487,186)
Dividends paid		(887,337)	(1,922,952)
Net cash provided by/(used in) financing activities		(2,210,646)	(1,853,264)
Net (decrease)/increase in cash held		(1,181,168)	(4,607,442)
Cash at the beginning of the financial year		2,021,163	6,628,605
Cash at the end of the financial year		839,995	2,021,163

The above cash flow statement should be read in conjunction with the accompanying notes to the financial statements.

For the year ended 30 June 2009

1 Reporting Entity

Fat Prophets Australia Fund Limited is a company domiciled in Australia. The financial statements of Fat Prophets Australia Fund Limited are for the year ended 30 June 2009. The Company is primarily involved in making investments and deriving revenue and investment income from listed securities and unit trusts in Australia.

2 Summary of significant accounting policies

(a) Basis of Preparation

This general purpose financial report has been prepared in accordance with Australian Accounting Standards, including Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001.

Australian Accounting Standards set out accounting policies that the AASB has concluded would result in a financial report containing relevant and reliable information about transactions, events and conditions to which they apply. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards.

The financial report covers Fat Prophets Australia Fund Limited which is a listed public company, incorporated and domiciled in Australia. The financial report has been prepared on an accruals basis, and is based on historical cost, with the exception of valuation of investments as described in Note 2(b) below.

The following is a summary of the material accounting policies adopted by the Company in the preparation of the financial report. The accounting policies have been consistently applied, unless otherwise stated.

(b) Investments

Classification

Securities are classified into either the investment portfolio (long term) or trading portfolio (short term) at acquisition.

Recognition

Financial instruments are initially measured at fair value on trade date, which includes transaction costs on trade date, for the investment portfolio where the related contractual rights or obligations exist. Transaction costs related to instruments designated as trading portfolio are expensed to the profit and loss immediately. Subsequent to initial recognition these instruments are measured as set out below.

Trade date accounting is adopted for financial assets that are delivered within time frames established by market place conventions.

Investment portfolio

Securities are classified as available-for-sale. After initial recognition as per above, securities are measured at fair value. Gains or losses on available-for-sale securities are recognised as a separate component of equity until the securities are sold, collected or otherwise disposed of, or until the securities are determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the income statement.

Trading portfolio

Securities are classified as held for trading financial assets if acquired principally for the purposes of selling in the short term or if so designated by management and within the requirements of AASB139: recognition and measurement of financial instruments.

Realised and unrealised gains and losses arising from changes in the fair value of these assets are included in the income statement in the period which they arise.

Determination of fair value

AIFRS defines fair value for the purpose of valuing holdings of securities that are listed or traded on an exchange to be based on quoted "bid" prices for securities prevailing at the close of business on the balance date.

AASB 139 and AG72 state that the current bid price is usually the appropriate price to be used in measuring the fair value of actively traded financial assets. Financial assets should be valued at their fair values without any deduction for transaction costs that may be incurred on sale or other disposal. Certain costs in acquiring investments held for trading, such as brokerage and stamp duty, are expensed in the Income Statement.

Impairment

The Company assesses at each balance date whether there is objective evidence that a financial asset or group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of a security below its cost is considered as an indicator that the securities are impaired. A prolonged decline is assessed in terms of the company's investments strategy. [Significant is assessed in terms of the security, the company's investment portfolio and market volatility]. If any such evidence exists the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss - is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments classified as available-for-sale are not reversed through the income statement.

(c) Income Tax

The income tax expense (revenue) for the year comprises current income tax expense (income) and deferred tax expense (income).

Current income tax expense charged to the profit or loss is the tax payable on taxable income calculated using the applicable income tax rates enacted, or substantially enacted, as at reporting date. Current tax liabilities (assets) are therefore measured at the amounts expected to be paid to (recovered from) the relevant taxation authority.

For the year ended 30 June 2009

2 Summary of significant accounting policies (continued)

(c) Income Tax (continued)

Deferred income tax expense reflects movements in deferred tax asset and deferred tax liability balances during the year as well as unused tax losses.

Current and deferred income tax expense (income) is charged or credited directly to equity instead of the profit or loss when the tax relates to items that are credited or charged directly to equity.

Deferred tax assets and liabilities are ascertained based on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax assets also result where amounts have been fully expensed but future tax deductions are available. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss.

Deferred tax assets and liabilities are calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates enacted or substantively enacted at reporting date. Their measurement also reflects the manner in which management expects to recover or settle the carrying amount of the related asset or liability.

Deferred tax assets relating to temporary differences and unused tax losses are recognised only to the extent that it is probable that future taxable profit will be available against which the benefits of the deferred tax asset can be utilised.

Where temporary differences exist in relation to investment in subsidiaries, branches, associates and joint ventures, deferred tax assets and liabilities are not recognised where the timing of the reversal of the temporary difference can be controlled and it is not probable that the reversal will occur in the foreseeable future.

Current tax assets and liabilities are offset where a legally enforceable right of set-off exists and it is intended that net settlement or simultaneous realisation and settlement of the respective asset and liability will occur. Deferred tax assets and liabilities are offset where a legally enforceable right of set-off exists, the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where it is intended that net settlement or simultaneous realisation and settlement of the respective assets and liability will occur in future periods in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled.

Trading portfolio

A tax provision is made for the unrealised gain or loss on securities valued at fair value through the income statement.

Where the Company disposes of such securities, tax is calculated on gains made according to the particular parcels allocated to the sale for tax purposes offset against any losses carried forward.

Investment portfolio

A tax provision is made for the unrealised gain or loss on securities valued at fair value through the investment portfolio revaluation reserve.

The expected tax on disposal of securities in the investment portfolio is recognised directly in equity and as deferred tax liability. Where the Company disposes of such securities, tax is calculated on gains made according to the particular parcels allocated to the sale for tax purposes offset against any capital losses carried forward. At this time the tax recognised directly in equity is transferred to net profit and adjusted to actual tax expense. The associated deferred tax liability is similarly adjusted and transferred to tax payable.

(d) Revenue Recognition

• ► Trading Income - profit and losses realised from the sale of investments and unrealised gains and losses on securities held at fair value are included in the income statement in the year they are incurred.
• ► Dividend Income - dividends and distributions are brought to account when the right to receive a dividend has been established.
• ► Interest Income - interest revenue is recognised as it accrues, taking into account the effective yield on the financial asset.
• ► Other Income - other revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and when the revenue can be reliably measured.

(e) Income to pay dividends

The Company may pay dividends from the profit, dividend and interest income it receives from its investments to the extent permitted by law and prudent business practices. Dividends will be franked to the extent that available imputation credits permit. Dividends that are paid from the realisation of a capital gain may be passed on to shareholders.

Provisions for dividends payable are recognised in the reporting period in which they are declared, for the entire undistributed amount, regardless of the extent to which they will be paid in cash.

(f) Cash and cash equivalents

Cash and cash equivalents include cash on hand, deposits held at call with bank, other short term highly liquid investments with original maturities of three months or less, and bank overdrafts.

For the purposes of the cash flow statement, cash includes deposits held at call with financial institutions net of bank overdrafts. Bank overdrafts are shown within short-term borrowings in current liabilities on the balance sheet.

(g) Trade and other receivables

Receivables may include amounts for dividends, interest and securities sold. Dividends are receivable when they have been declared and are legally payable. Interest is accrued at the period end from the time of last payment. Amounts received for securities sold are recorded when a sale has occurred. Amounts are generally received within 30 days of being recorded as a receivable.

For the year ended 30 June 2009

2 Summary of significant accounting policies (continued)

(h) Trade and other payables

Payables represent liabilities for goods and services provided to the Company prior to the end of the financial year which are unpaid at the reporting date. Payables are unsecured and are usually paid within 30 days of recognition.

(i) Goods and services tax (GST)

Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the balance sheet are shown inclusive of GST.

Cash flows are presented in the cash flow statement on a gross basis, except the GST component of investing and financing activities, which are disclosed as operating cash flows.

(j) Earnings per share

Basic and diluted earnings per share including realised profits and losses on the investment portfolio are calculated by dividing profit attributable to members of the Company by the weighted average number of ordinary shares outstanding during the year, adjusted for any bonus element.

(k) Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

(l) Adoption of new and revised accounting standards

Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2009 reporting periods. The entity's assessment of the impact of these new standards and interpretations is set out below.

(i) AASB 8: Operating Segments and AASB 2007-3: Amendments for Australian Accounting Standards arising from AASB 8 (effective from 1 January 2009)

AASB 8 will result in a significant change in the approach to segment reporting, as it requires adoption of a 'management approach' to reporting on financial performance. The information being reported will be based on what the key decision makers use internally for evaluating segment performance and deciding how to allocate resources to operating segments. The entity will adopt AASB 8 from 1 July 2009. It is likely to result in an increase in the number of reportable segment presented. In addition, the segments will be reported in a manner that is more consistent with the internal reporting provided to the chief operating decision-maker.

(ii) Revised AASB 101: Presentation of Financial Statements and AASB 2007-8: Amendments to Australian Accounting Standards arising from AASB 101 (effective from 1 January 2009)

The September 2007 revised AASB 101 required the presentation of a statement of comprehensive income and makes changes to the statement of changes in equity, but will not affect any of the amounts recognised in the financial statements. If an entity has made a prior period adjustment or has reclassified items in the financial statements, it will need to disclose a third balance sheet (statement of financial position), this one being at the beginning of the comparative period. The entity will apply the revised standard from 1 July 2009.

(iii) AASB Interpretation 17: Distribution of Non-cash Assets to Owners and AASB 2008-13: Amendments to Australian Accounting Standards arising from AASB Interpretation 17

AASB-I 17 applies to situation where an entity pays dividends by distributing non-cash assets to its shareholders. These distributions will need to be measured at fair value and the entity will need to recognise the difference between the fair value and the carrying amount of the distributed assets in the income statement on distribution. This is different to the entity's current policy which is to measure distributions of non -cash assets at their carrying amounts. The interpretation further clarifies when a liability for the dividend must be recognised and that it is also measured at fair value. The entity will apply the interpretation prospectively from 1 July 2009.

(m) Functional and presentation currency

The functional and presentation currency of the Company is Australian dollars.

(n) Fair value of financial assets and liabilities

The fair value of cash and cash equivalents, and non-interest bearing monetary financial assets and liabilities of the Company approximates their carrying value. The fair value for assets that are actively traded on market is defined by AASB 139 as 'last bid price'.

(o) Critical accounting estimates and judgements

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectation of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances.

The Company follows the guidance of AASB 139 Financial Instruments: Recognition and Measurement on determining when an available-for-sale financial asset is impaired. This determination requires significant judgement. In making this judgement the Company evaluates among other factors, the duration and extent to which the fair value of an investment is less than its cost and the financial health of the near term business outlook for investee, including factors such as industry and sector performance, changes in technology and operational and financing cash flows.

12. Notes to the financial statements

	For the year ended 30 June 2009

		2009	2008
		\$	\$
3	Revenue
(a)	Revenue from investment portfolio
	Dividends received	1,153,735	1,311,708
	Trust distributions	130,282	217,559
	Interest received	53,058	238,281
	Underwriting income	-	5,725
	Total	1,337,075	1,773,273
(b)	Revenue from trading portfolio
	Dividends received	13,050	42,775
	Total	13,050	42,775
4	Trade and other receivables
	Current
	Accrued interest and dividends	193,887	352,932
	Unsettled sales	633,593	-
	GST receivable	11,614	16,594
	Other	-	-
		839,094	369,526

Receivables are non-interest bearing and unsecured. Outstanding settlements are on the terms operating in the securities industry, which usually require settlement within three days of the date of a transaction.

The credit risk exposure of the Company in relation to receivables is the carrying amount.

5 Income tax benefit (a) Income tax benefit recognised in the Income Statement The components of income tax benefit Current income benefit 76,077 148,065 Deferred tax income relating to the origination and reversal of temporary differences (61,014) 51,068 Total income tax benefit (excluding realised gains/losses on investment portfolio) 87,051 127,145 (b) Income tax recognised directly in equity The following current and deferred amounts were charged directly to equity during the period: Current tax (benefit) Share-issue expenses - - Deferred tax Revaluation of investment portfolio 1,065,243 (2,850,298) (2,850,298) 1,065,243 (c) Income tax benefit The prima facie income tax benefit on accounting profit (before realised gains/losses on investment portfolio) reconciles to income tax benefit as follows: Prima facie income tax benefit calculated at 30% (2008: 30%) on the operating profit before realised gains/(losses) on the investment portfolio (215,578) (247,355) Add/(Less) effect of: Imputation gross up on dividends received (139,007) (150,077) Franking credits on dividends received 463,358 500,257 Under provision of tax in prior year 8,672 - Timing differences 15,648 (21,722) Income tax benefit (before realised gains/(losses) on investment portfolio) 87,051 127,145 The applicable weighted average effective tax benefit rates are as follows: 12.11% 15.42%

The weighted average effective rate for 2009 is as a result of significant imputation credits received.

12. Notes to the financial statements For the year ended 30 June 2009

5 Income tax benefit (Cont.)

		2009 \$	2008 \$
(d)	Deferred tax assets
	Deferred tax assets comprises the estimated expenses at current income
	tax rates on the following items:
	Transaction costs on equity issue	-	58,590
	Temporary differences	4,000	74,329
	Tax losses	1,056,588	4,281
	Provision for unrealised losses on investments	1,257,848	-
	Total provision	2,318,436	137,200
(e)	Income tax liability
	Income tax payable	-	-
(f)	Deferred tax liabilities
	Provision for deferred income tax comprises the estimated expense
	at current income tax rates of 30% on the following items:
	Provision for capital gains tax on unrealised investments	-	192,605
	Temporary differences	751	10,072
		751	202,677
	(g) Reconciliations
	The overall movement in the deferred tax account is as follows:
	Opening balance	(65,477)	(2,860,714)
	(Charge)/credit to income statement	1,003,038	(55,061)
	Charge to Equity	1,380,124	2,850,298
	Closing balance	2,317,685	(65,477)
6	Other Financial Assets
(a)	Current
	Trading portfolio - at fair value	-	503,150
	(b) Non-Current
	Investment portfolio - at fair value
	Shares & equities in listed companies	24,288,649	31,678,887
	Listed property trusts	1,531,996	1,881,484
		25,820,645	33,560,371
	Listed securities are readily saleable with no fixed terms.
7	Trade and other payables
	Current
	Trade creditors	47,471	42,278
	Unsettled purchases	344,266	-
	Management fees	30,812	41,397
		422,549	83,675

Payables are non-interest bearing and unsecured. Outstanding settlements are on the terms operating in the securities industry, which usually require settlement within three days of the date of a transaction.

8 Share capital

Ordinary shares			30,554,273	31,877,583
	2009	2009	2008	2008
	No.	\$	No.	\$
Opening balance	32,546,814	31,877,583	32,431,218	31,763,329
Share issue costs	-	-	-	(1,342)
Share buy backs during the year	(1,822,325)	(1,323,310)	(1,452,323)	(1,452,323)
Options exercised	-	-	1,567,919	1,567,919
Closing balance	30,724,489	30,554,273	32,546,814	31,877,583

12. Notes to the financial statements For the year ended 30 June 2009

8 Share capital (Continued)

a. Terms and conditions

The Company has ordinary shares on issue. Prior to 20 April 2006, the Company had stapled securities on issue with each stapled security consisting of one fully paid ordinary share and one option exercisable at \$1.00 per share that were joined together (or stapled) and treated as one security quoted on the Australian Stock Exchange. Each stapled security became unstapled on 20 April 2006, at which time the ordinary share and option traded separately.

Options expired on 20 April 2008. No options were exercised during the financial year ended 2009 (2008: 1,567,919).

Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholder meetings.

In the event of winding up the Company, ordinary shareholders rank after creditors and are fully entitled to any proceeds of liquidation.

b. Capital Management

The Board's policy is to maintain a strong capital base so as to maintain investor and market confidence.

To achieve this the Board of Directors monitor the monthly NTA results, investment performance, the Company's management expense ratio (MER), and share price movements.

The Company commenced an on-market share buy-back in November 2007 for a twelve month period. During this time 2,815,742 ordinary shares were bought back. The Company announced a second on-market share buy-back in November 2008 for a twelve month period. During this time 1,822,325 ordinary share were bought back.

The Company is not subject to any externally imposed capital requirements.

		2009	2008
9	(a) Investment portfolio revaluation reserve	\$	\$
	Balance at the beginning of the financial year	(810,323)	6,012,626
	Unrealised gains/(losses) during the year	(5,787,914)	(9,747,061)
	Deferred income tax on movement in the year	1,736,375	2,924,112
	Tax effected Impairment loss recognised in income statement	1,610,525	-
	Transfer to the income statement	-	-
	Balance at the end of the financial year	(3,251,337)	(810,323)
	(b) Realised capital profits reserve
	Balance at the beginning of the financial year	4,911,457	4,911,457
	Transfer from the income statement	(1,452,142)	-
	Balance at the end of the financial year	3,459,315	4,911,457

The investment portfolio revaluation reserve and realised capital profits reserve are used to record increments and decrements on the continuous revaluation of investments to fair value and on the revaluation of investments disposed during the year respectively, as described in accounting policy note 2(b).

10	Retained earnings
	Opening balance	332,137	807,267
	Profit attributable to members of the Company
	(including net realised gains on the investment portfolio)	(2,257,026)	1,482,682
	Dividends provided for or paid	(887,337)	(1,922,952)
	Market share buyback	-	(34,860)
	Transfer of net gains to realised capital profits reserve on realisation	1,452,142	-
		(1,360,084)	332,137

11 Auditor's remuneration

	Auditing and reviewing the financial reports	30,800	27,600
		30,800	27,600
12	Related party information

(a) Key management personnel

The names of the persons who were key management personnel of the Company during the financial year were:

Robert Bolton (Chairman) Andrew Brown (Director) Angus Geddes (Director) John Reynolds (Director) Richard Fabricius (Alternate Director for Angus Geddes)

For the year ended 30 June 2009

12 Related party information (continued.)

(b) Key management personnel remuneration

Income paid to key management personnel by the Company and related parties in connection with the management of affairs of the Company were:

	Short-term Employee Benefit	Post-Employment Benefit
	Cash salary & Fees	Superannuation	Total
2009	70,000	6,300	76,300
2008	70,000	6,300	76,300

The directors' remuneration excludes insurance premiums paid and payable by the Company in respect of directors' liability insurance.

Apart from the details disclosed in this note, no key management personnel have entered into a material contract with the Company during the financial year.

The Board of Directors of Fat Prophets Australia Fund Ltd is responsible for determining and reviewing compensation arrangements for the Directors. The Board of Directors assess the appropriateness of the nature and amount of emoluments of each Director on a periodic basis by reference to workload and market conditions. The overall objective is to ensure maximum stakeholder benefit from the retention of a high quality Board whilst constraining costs.

Key management personnel remuneration has been included in the remuneration report section of the Directors Report.

(c) Shareholdings of key management personnel (and their related entities)

For the year ended 30 June 2009

Ordinary Shares	Balance at 1 July 2008	Shares held on appointment	Shares acquired / (disposed)	Shares issued upon option exercise	Balance at 30 June 2009
Robert Bolton
(Chairman)	40,600	-	-	-	40,600
Andrew Brown	1,808,346	-	17,000	-	1,825,346
Angus Geddes	1,592,019	-	(274,999)	-	1,317,020
Richard Fabricius
(alternate to Angus Geddes)	-	-	-	-	-
John Reynolds	-	-	-	-	-
	3,440,965	-	(257,999)	-	3,182,966

For the year ended 30 June 2008

Ordinary Shares	Balance at 1 July 2007	Shares held on appointment	Shares acquired / (disposed)	Shares issued upon option exercise	Balance at 30 June 2008
Robert Bolton
(Chairman)	40,600	-	-	-	40,600
Bruce Holman	40,000	-	-	-	40,000
Andrew Brown	1,741,346	-	67,000	-	1,808,346
Angus Geddes	1,242,770	-	349,249	-	1,592,019
Richard Fabricius
(alternate to Angus Geddes)	-	-	-	-	-
	3,064,716	-	416,249	-	3,480,965

For the year ended 30 June 2009

• 12 Related party information (continued)
• (c) Shareholdings of key management personnel (and their related entities)

For the year ended 30 June 2008

Options	Balance at 1 July 2007	Options lapsed	Options acquired / (exercised)	Balance at 30 June 2008
Robert Bolton (Chairman)	-	-	-	-
Bruce Holman	-	-	-	-
Andrew Brown	-	-	-	-
Angus Geddes	1,042,770	(1,042,770)	-	-
Richard Fabricius
(alternate to Angus Geddes)	-	-	-	-
	1,042,770	(1,042,770)	-	-

Note: On 20 April 2006, the stapled securities unstapled to become one ordinary share and one option exercisable at \$1.00 each between 20 April 2006 and 20 April 2008. There were no shares granted during the reporting period as compensation.

Key management personnel transactions concerning dividends and ordinary shares are on the same terms and conditions applicable to ordinary members.

(d) Transactions with related parties

Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated.

Andrew Brown is a Director of Tidewater Investments Limited ("Tidewater"). A controlled entity of Tidewater has a sub-contract arrangement with Fat Prophets Funds Management Australia Pty. Limited, the entity appointed to manage the investment portfolio of the Company. Tidewater receives no direct remuneration from the Company for those services. Fat Prophets Fund Management Australia Pty Limited recorded \$20,500 (2008: \$22,532) for company secretarial services to the Fat Prophets Australia Fund Limited. In its capacity as manager, Fat Prophets Funds Management Australia Pty Limited received \$342,920 (2008: \$549,511) in management fees.

In addition, Fat Prophets Funds Management Australia Pty Limited may receive a performance fee monthly of 15% of the gross return of the Portfolio that it is in excess of the ASX 300 Accumulation Index. In its capacity as manager, Fat Prophets Funds Management Australia Pty Limited was not entitled to performance fees for the year ended 30 June 2009 (2008: Nil).

13 Segment information

The Company was engaged in investment activities conducted in Australia and derived revenue from dividend, interest income and from the sale of investments.

14 Financial risk management

The company's financial instruments consist mainly of deposits with banks, held for trading and available for sale investment portfolios, accounts receivable and payable.

AASB 7 Financial Instruments: Disclosures identify three types of risk associated with financial instruments (i.e. the Company's investments, receivables and payables):

For the year ended 30 June 2009

14 Financial risk management (continued)

(i) Credit risk

The standard defines this as the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation.

The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date to recognised financial assets, is the carrying amount, net of any provisions for impairment of those assets, as disclosed in the balance sheet and notes to the financial statements.

There are no other material amounts of collateral held as security at 30 June 2009.

Credit risk is managed as shown in Note 4 and with respect to cash and receivables and Note 15(a) for cash and cash equivalents. None of these assets are over-due or considered to be impaired.

(ii) Liquidity risk

The standard defines this as the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities.

The Investment Manager monitors its cash-flow requirements daily in relation to the trading account taking into account upcoming dividends, tax payments and trading activity.

The Company's inward cash-flows depend upon the level of dividend and distribution revenue received. Should these decrease by a material amount, the Company would amend its outward cash-flows accordingly. As the Company's major cash outflows are the purchase of securities and dividends paid to shareholders, the level of both of these is managed by the Board and Investment Manager.

Furthermore, the assets of the Company are largely in the form or readily tradeable securities which can be sold on-market if necessary.

The table below analyses the Company's financial liabilities in relevant maturity groupings based on the remaining period to the earliest possible contractual maturity date at the year end date. The amounts in the table are contractual undiscounted cash flows.

	Less than 1 month	More than 1 month
	\$000	\$000	Total
At 30 June 2009
Trade and other payables	422,549	-	422,549
Current tax liabilities	-	-	-
Total financial liabilities	422,549	-	422,549
At 30 June 2008
Trade and other payables	83,675	-	83,675
Current tax liabilities	-	-	-
Total financial liabilities	83,675	-	83,675

(iii) Market risk

The standard defined this as the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices.

By its nature as a Listed Investment Company that invests, the Company can never be free of market risk as it invests its capital in securities which are not risk free - the market price of these securities can fluctuate.

A general fall in market prices of 5 per cent and 10 per cent, if spread equally over all assets in the investment portfolio would lead to a reduction in the Company's equity of \$1.0 million and \$2.0 million respectively (2008: 1.3 million and 2.5 million respectively), assuming a flat tax-rate of 30 per cent.

The Available for sale financial assets investment revaluation reserve dropped by \$4,051,539 during the financial year ended 30 June 2009 . In accordance with Accounting Standards, any further falls in value of the investment portfolio would continue to be recognised in equity as unrealised losses, thereby impacting the shareholders' equity of the Company. However in case of prolonged decline in the value of instrument and if determined to be impaired; impairment losses will be recognised in the Income Statement. For the year ended 30 June 2009 the Company transferred an impairment loss of \$2,300,754 before tax from the Available for sale financial assets investment revaluation reserve to the Income Statement. When identifying impaired stocks the company considered factors discussed in Note 2 (o).

The Company seeks to manage and constrain market risk by diversification of the investment portfolio across multiple stocks and industry sectors. The Manager of the investment portfolio has been granted specific risk tolerance boundaries and compliance with these are monitored at monthly Board meetings. As such positions held that are within the fund stated benchmark, (ASX 300 Accum) are monitored and managed within set limits away from the benchmark whilst positions outside the index are strictly limited to 2% of the portfolio.

For the year ended 30 June 2009

14 Financial risk management (continued)

(iii) Market risk (continued)

The Company's investment sectors as at 30 June 2009 is as below:	2009 %	2008 %
Consumer discretionary	2.56	0.58
Consumer staple	8.36	5.03
Energy	4.29	7.47
Financials	52.46	47.05
Healthcare	3.42	0.18
Industrials	1.68	3.13
Information technology	2.22	5.29
Materials	23.09	30.76
Telecommunications services	1.92	0.51
	100.00	100.00

Securities representing over 5 per cent of the investment portfolio at 30 June 2009 were:

	2009	2008
	%	%
ANZ Banking Group Limited	5.59	-
BHP Billiton Limited	14.04	15.45
Commonwealth Bank of Australia	8.08	5.60
National Australia Bank Limited	7.87	7.59
Westpac Banking Corporation	10.97	6.40
	46.55	35.04

No other security represents over 5 per cent of the Company's investment and trading portfolios.

The Company is also not directly exposed to currency risk as all its investments are quoted in Australian dollars.

(iv) Interest rate risk

The Company's interest bearing financial assets expose it to risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows.

As at 30 June 2009, the Company's exposure to interest rate risk and the effective weighted average interest rate for each class of financial asset and financial liability is set out in the table below:

	Weighted average	Floating interest	Non interest
	interest rate (% pa)	rate \$'000	bearing \$'000	Total \$'000
Financial assets
Cash assets	5.81%	839,995	-	839,995
Trade and other receivables		-	839,094	839,094
Held for trading portfolio &
Available for sale portfolios		-	25,820,645	25,820,645
		839,995	26,659,739	27,499,734
Financial liabilities
Current tax liabilities
Trade and other payables			422,549	422,549
		-	422,549	422,549
Net financial assets		839,995	26,237,190	27,077,185

As at 30 June 2008, the Company's exposure to interest rate risk and the effective weighted average interest rate for each class of financial asset and liability is set out in the table below:

	Weighted average	Floating interest	Non interest
	interest rate (% pa)	rate \$'000	bearing \$'000	Total \$'000
Financial assets
Cash assets	7.00%	2,021,163	-	2,021,163
Trade and other receivables		-	352,932	352,932
Held for trading portfolio &
Available for sale portfolios		-	34,063,521	34,063,521
		2,021,163	34,416,453	36,437,616
Financial liabilities
Trade and other payables			83,675	83,675
		-	83,675	83,675
Net financial assets		2,021,163	34,332,778	36,353,941

For the year ended 30 June 2009

		2009	2008
15	Cash Flow Statement	\$	\$
(a)	Reconciliation of net profit from ordinary activities after
	income tax to net cash utilised in operating activities
	Operating profit before capital gains	805,644	951,662
	Unrealised and realised changes in the trading portfolio	(43,418)	87,838
	Change in operating assets and liabilities:
	Decrease / (increase) in trading portfolio	546,568	790,512
	(Increase)/decrease in trade and other receivables	164,025	(107,518)
	(Increase)/decrease in prepayments	(1,501)	8,151
	Increase/(decrease) in trade and other payables	(5,392)	(21,574)
	Increase/(decrease) in tax liabilities	(87,051)	(1,105,500)
	Net cash inflow/(outflow) from operating activities	1,378,875	603,571

The effective interest rate on bank deposits was 5.81% (2008:7%).

The credit risk exposure of the Company in relation to cash is the carrying amount and any accrued unpaid interest. Cash investments are made with ANZ which is rated AA by Standard and Poor's.

(b) Reconciliation of Cash

Cash at the end of the financial year as shown in the cash flow statement is reconciled to the related items in the balance sheet

as follows:
Cash on hand	1	1
Cash at bank	839,994	2,021,162
	839,995	2,021,163

16 Events occurring after reporting date

No matter or circumstance has arisen since the end of the financial year which has significantly affected or may significantly affect the Company.

The financial report was authorised for issue on the 27th August 2009 by the Board of Directors.

17 Earnings per share

	2009 cents	2008 cents
Basic and diluted earnings per share (cents per share) (excluding net realised gains/losses on investment portfolio)	2.57	2.96
Basic and diluted earnings per share (cents per share) (including net realised gains/losses on investment portfolio)	(7.20)	4.61
Weighted average number of ordinary shares outstanding during the year used in calculating basic and diluted earnings per share	31,352,202	32,166,157

Diluted earnings per share is the same as basic earnings per share. The company has no securities outstanding which have the potential to convert to ordinary shares and dilute the basic earning per share.

	For the year ended 30 June 2009
		2009	2008
18	Dividends	\$	\$
	Final 2007 - Ordinary Shares	-	980,428
	Interim 2008 - Ordinary Shares	-	942,524
	Final 2008 - Ordinary Shares	887,337	-
	Total Dividends for financial year	887,337	1,922,952

2009

No Interim dividend was declared during the year ended 30 June 2009.

		Dividend rate	Total Amount \$	Date of payment	Franking %
	2008
	Ordinary Shares
	Final	2.75 cps	887,335	23/09/2008	100%
19	Franking account			2009 \$	2008 \$
	Franking account balance at the end of the financial year			1,531,313	1,463,158
	Franking credits that will arise from the payment of income tax payable as at the end of the financial year			-	-
	Franking credits that will arise from the receipt of dividends recognised as receivables at the
	reporting date			75,743	106,831
	Adjusted franking account balance			1,607,056	1,569,989
	Impact on the franking account of dividends proposed or declared before the financial report
	is authorised for issue but not recognised as a distribution to equity holders during the year			-	(383,587)
				1,607,056	1,186,402

20 Contingent liabilities

The Investment Management Agreement entered into by the company with Fat Prophets Funds Management Australia Pty Limited is for an initial period of twenty five years, commencing from the date of listing.

21 Company details

The registered office and principal place of business of the Company is: Level 33, 2 Park Street Sydney NSW 2000

12. Directors' declaration

The Directors of Fat Prophets Australia Fund Limited declare that

• 1 The financial statements and notes as set out on pages 28 to 43, are in accordance with the Corporations Act 2001, and:
• (a) comply with Accounting Standards and the Corporations Regulations 2001; and
• (b) give a true and fair view of the financial position of the company as at 30 June 2009 and of its performance for the year ended on that date.
• 2 Andrew Brown as a person who performs the "Chief Executive Officer" and "Chief Finance Officer" functions for the purposes of the Act declared that:
• (a) the financial records of the company for the financial year have been properly maintained in accordance with section 286 of the Corporations Act 2001;
• (b) the financial statements and notes for the financial year comply with the Accounting Standards; and
• (c) the financial statements and notes for the financial year give a true and fair view.
• 3 At the date of this declaration, in the Directors' opinion there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

Signed in accordance with a resolution of the Board of Directors.

Robert Bolton Director

Dated this 27th day of August 2009 at Sydney

14. Additional ASX Information – Year Ended 30 June 2009

Additional information required by the Australian Stock Exchange Limited Listing Rules and not disclosed elsewhere in this Annual Report is set out below.

The security holder information set out below was applicable as at 14 August 2009.

A. Distribution of shareholders

As at 14 August 2009, there were 30,724,489 shares held by 1,611 shareholders, all of which were quoted on the ASX. There are no restricted shares on issue. There are no unquoted shares on issue.

Category (size of holding)	Number of
	shareholders	Shares	Percentage
1 - 1,000	54	41,845	0.136
1,001 - 5,000	594	2,671,887	8.696
5,001 - 10,000	473	4,146,539	13.496
10,001 - 100,000	469	13,226,872	43.050
100,001 and over	21	10,637,346	34.622
	1,611	30,724,489	100.0

The number of shareholders holding less than a marketable parcel of ordinary shares is 15 .

B. Top 20 Shareholders as at 14 August 2009

Holder Name	No of shares held	%
Cogent Nominees Pty Limited	3,343,103	10.881
Rowe Street Investments Pty Ltd	1,741,346	5.668
Mint Financial Group Pty Ltd	1,317,019	4.287
Ubs Nominees Pty Ltd	862,145	2.806
Huoncan Super Pty Ltd	447,815	1.458
Mr Robert Iain Horden & Mrs Frances Dorothy Horden	340,000	1.107
Dr Stephanie Phillips	305,877	0.996
Somoke Pty Limited	270,000	0.879
Innovative Solutions Pty Ltd	225,000	0.732
Di Iulio Homes Pty Limited	200,000	0.651
Mr Robert Bruce Ralston & Mrs Deborah Eileen Ralston	195,000	0.635
Ms Deborah Elizabeth Kneebone & Prof Alexander Cowell Mcfarlane	182,607	0.594
Paderne Holdings Pty Ltd	177,000	0.576
Mr Alan Udell & Mrs Rosemary Udell	168,000	0.547
Mon Nominees Pty Ltd	156,000	0.508
Mr Terrence Clifford Jorgensen	140,000	0.456
Mr James Philip Grote	125,000	0.407
Mr Robert Maxwell Hill	120,001	0.391
Mr Rohan John Armstrong & Mrs Laura Armstrong	109,945	0.358
Mr Leigh Andrew Mcgarvie & Mrs Elaine Mcgarvie	108,500	0.353
	10,534,358	34.29

14. Additional ASX Information – Year Ended 30 June 2009 (Continued)

C. Voting rights

At a general meeting, Shareholders are entitled to one vote for each share held. On a show of hands, every shareholder present in person or by proxy shall have one vote and upon a poll, every shareholder so present shall have one vote for every share held.

D. Substantial Shareholders

The Company has been notified of two shareholders who hold relevant interests of in excess of 5% of the Company's ordinary shares as at 14 August 2009:

Entity	No of shares held	%
Select Asset Management Limited	3,343,103	10.88
Tidewater Investments Limited	1,741,346	5.67

E. Buy-back

There is a current on-market buy back program in effect.

F. Security Transactions

The Company conducted 296 (2008: 242) security transactions during the financial year. Brokerage paid during the year including GST was \$1,809.23 (2008: \$2,616.73) for the trading portfolio and \$42,738.34 (2008: \$82,809.59) for the available for sale portfolio.

G. Company Secretary

The company secretary is Richard Fabricius.

H. Registered Address and Principal Place of Business

Level 33 2 Park Street Sydney NSW 2000 The registered office and principal place of business of the Company is:

I. Registry

Share registry functions are maintained by Registries Limited and their details are as follows:

Registries Limited ACN 003 209 836 Level 7 207 Kent Street Sydney NSW 2000 ABN 14 003 209 836

J. Stock Exchange Listing

Quotation has been granted for all the ordinary shares of the Company on all Member Exchanges of the Australian Stock Exchange

K. Corporate Governance

The Company has followed all applicable best practice recommendations set by ASX Corporate Governance Council during the reporting period, unless otherwise stated.

L. Management Agreement

The Manager is entitled to receive a management fee payable monthly in arrears equivalent to 0.1035746% of the value of the portfolio calculated on the last business day of each month.

In addition, Fat Prophets Funds Management Australia Pty Limited may receive a performance fee monthly of 15% of the gross return of the Portfolio that it is in excess of the ASX 300 Accumulation Index. In its capacity as manager, Fat Prophets Funds Management Australia Pty Limited was not entitled to performance fees for the year ended 30 June 2009 (2008: Nil).