INVESTSMART GROUP LIMITED — Capital/Financing Update 2012

Aug 26, 2012

Merricks Capital Special Opportunity Fund Limited ACN 111 772 359

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Level 1, 600 Chapel Street South Yarra VIC 3141 Australia Telephone +613 8319 8111 Fax +613 9827 9145

27 August 2012

Companies Announcements Office ASX Limited 20 Bridge Street Sydney New South Wales 2000

REPAYMENT OF DIGITAL HARBOUR LOAN & COMPANY UPDATE

• $7.38 million of Digital Harbour Mezzanine debt repaid achieving 17% interest rate return per annum

• The fund currently holds cash of $7.6m (27 cents per share)

• No dividend will be declared for 2012 as the fund lacks the accumulated profits that would allow for the use of the funds franking credit

• IEF Real Estate has successfully completed the restructuring of its loan to Panthers Investment Corporation.

• An update on Straits Resources should be provided in the coming weeks as Merricks Capital is participating in active discussions with the management of Straits Resources regarding their refinancing and restructuring

Digital Harbour High Yield Investment Maturity

On 31 May 2011, Merricks Capital Special Opportunity Fund Limited (“ MEF ”) announced the investment of $6.1 million in mezzanine funding to Digital Harbour Holdings (“ DHH ”) for the construction of 990 LaTrobe Street in the Docklands precinct of Melbourne. The funding was for a fifteen month period with principal and interest to be repaid upon completion and settlement of the building.

In November 2011, MEF advanced further funds to DHH in a similar higher yielding instrument, and in May 2012 sold down part of its initial exposure to DHH. At 30 June 2012, inclusive of all capitalised interest to that date, MEF carried its total investment in DHH at $7.38 million.

MEF are pleased to confirm that the handover of the building to its new owner took place on 23 August 2012 and that funds of $7.57 million (27 cents per share) were received on 24 August 2012 by MEF. An effective interest rate of 17% was received for the duration of the loan.

Dividend Update

At 30 June 2012, MEF has a tax paid franking account balance of $1.72 million, which would allow, if appropriate income is earned, to facilitate payments of fully franked dividends of 14 cents per MEF share.

In the DHH announcement of 31 May 2011, MEF noted that “subject to ongoing stability within the MEF portfolio, income from this (DHH) investment should underpin a 4 cents per share fully franked dividend for the 2012 financial year to June 30.”

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The decline in share price of Straits Resources Limited (“ SRQ ”), MEF’s then largest investment, between 30 April 2012 and 30 June 2012, had the impact of ensuring an accounting loss for the 2012 financial year, and reduced accumulated profits to a deficit. Hence, whilst MEF would be able to pay dividends based on the 28 June 2010 amendments to section 245T of the Corporations Act, the ATO’s 2012/5 Taxation Ruling, released on 27 June 2012, meant that it would not be possible to attach franking credits to such a dividend.

Consequently, no dividend will now be declared at the time of release of the 2012 financial year results, anticipated next week.

IEF Real Estate Entertainment Group (“IEF”)

MEF holds 110.4 million units of IEF or 11.3% of IEF’s issued capital. This investment, at prevailing share prices of IEF represents approximately $5.63 million (20 cents per share) of the current NTA of MEF.

On 24 August 2012 IEF announced the restructuring and part repayment of IEF’s $62.9 million loan to Panthers Investment Corporation, and the conversion of IEF’s equity holding in Panthers Property Unit Trust into senior secured debt. In total IEF currently have outstanding loans to the Panthers Group of $78m paying an annual interest rate of 9.6%. This loan represents approximately 66% of the NTA of IEF and is a core part of the investment thesis for the MEF investment. MEF has long held the view that the market has not recognized the Panthers Group loan as senior secure loan paying attractive interest. MEF sees these recent developments in a positive light, with the belief that it will focus more attention on the quality of the Panthers investment and IEF’s wholly owned hotel portfolio. The repayment of the majority of the Panthers Investment in the coming year also highlights the pathway towards reduced gearing within the IEF portfolio. MEF believes this should lead to a revaluation of IEF’s unit price from 5.1 cents closer to its NTA of 12 cents.

Research undertaken by MEF indicates that underlying business in the pub sector has improved significantly over the last year and provides further support to the fundamentals of the investment of IEF.

Outlook for IEF Investment

IEF is part way through its transition from an over levered, externally managed hotel REIT which over paid for assets and into a focused hotel owner / operator with moderate levels of leverage whose assets are generating 10%+ cash yields relative to its equity value.

•  Continued assets sales, with IEF ultimately being focused on owning and operating hotels in NSW.

•  Operational improvements from the hotels which IEF now manages as the benefits of capex investments start to emerge.

•  Cash from asset sales and internally generated cash flow used to pay down debt and return capital to unit holders by way of share buy backs or dividends.

This transformation will take another 12 to 18 months to complete and we expect will result in IEF trading closer to book value. A return to 12 cents per unit would have a see through value in MEF NTA of $13 million (45 cents per share).

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Straits Resources (“SRQ)

MEF holds 22.39 million shares in SRQ (6 cents per share). The SRQ share price has declined 74% since 30 June 2012 resulting a 22 cent per share decline in the MEF NTA.

On 31 July 2012 Strait Resources announced “As Mt Muro requires financial support until December 2012, Straits is in advanced discussions for additional funding of up to $50 million of primarily mezzanine finance. The funds are intended to provide the necessary support to Mt Muro and general Group working capital.” The company also indicated “A process has been initiated to investigate future options for Mt Muro, including a potential demerger or sale of the mine.”

Merricks Capital is currently participating in active discussions with the management of Straits Resources regarding their refinancing and restructuring. MEF expects to be in a position to update unit holders on their position in regards to Straits Resources in the coming weeks.

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H. Adam Lindell Director

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