INVESTSMART GROUP LIMITED — Net Asset Value 2010

Jul 14, 2010

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June 2010 NTA Release

Dear Shareholders,

1. Details of Performance and Net Asset Backing at Month end.

The net asset backing (“ NTA ”) of Fat Prophets Australia Fund Limited (“ Fat Fund ”) as at the end of June 2010 was $1.0885 per share , before tax basis, calculated in accordance with ASX Listing Rule 19:12, and represents a fall of 1.38% over the month. By comparison, the Fat Fund’s benchmark, the S&P/ASX 300 Accumulation Index fell 2.65% over the same period.

After adjusting for the impact of taxation on both realised and unrealised gains, the Fat Fund’s after tax NTA at the end of June 2010 was $1.0591 per share .

2. Performance Commentary

The major influences on the Fat Fund’s performance versus its benchmark during the month were as follows;

Positive Influences			Negative Influences
Company	%	Position	Company	%	Position
	move			move
Lihir Gold	8.2%	Overweight	QBE	-7.4%	Overweight
Kingsgate	13%	Overweight	Coca-Cola Amatil	10%	Underweight
Magellan Financial	7.6%	Overweight	Premier Invest	-7%	Overweight
Macquarie Grp	-14%	Underweight	AGL Energy	6.3%	Underweight
Newcrest	9.3%	Overweight	Amcor	3.8%	Underweight

The Fat Fund outperformed its benchmark by 1.27% during the month of June, mainly due to the outperformance of certain sectors positioned within the portfolio. Our strategy of overweight precious metals remains firmly in place, and this added value during the month. Our large cash position that was held throughout May has been significantly reduced and invested back into existing core portfolio stocks. We have re-established overweight positions in BHP and Rio. Other changes included sale of Oceania Capital at a profit following the recent capital return and the addition of Transurban (TCL).

After a meaningful correction in May, the local market rebounded a modest 2.5% in June helped by stabilising foreign exchange markets and the disastrous RSPT being withdrawn and replaced with a more palatable alternative. Despite the bounce in the All Ords, markets continue to wallow in pessimism with bearishness being widely pervasive at the time of writing.

With the Australian dollar rebounding, resource stocks outperformed their industrial counterparts by a margin of more than 2%. The banks were the hardest hit falling 5% throughout the month on concerns over rising wholesale funding costs, which in some part offsets the benefit of improving debt impairment levels.

FAT PROPHETS AUSTRALIA FUND LIMITED ACN 62 111 772 359

Level 33, 2 Park St, Sydney NSW 2000 telephone 02 9024 6727 fatfund@fatprophets.com.au

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Despite our 3.5% overweight position in the four banks (which is well down from last year) the Fat Fund managed to outperform the index during the month due to our continued defensive posture.

The focus of markets has returned to Europe, with rising fears of ‘deflation’ surfacing over the recent introductions of fiscal austerity measures. The debate over the economic impact of tightening expenditure prematurely before the recovery in the Eurozone gains traction. Some economists fear the world maybe witnessing similar historic parallels with the 1930s when following the 1929 crash, the authorities reigned in spending early, balanced budgets and increased interest rates. This had the effect of stifling the recovery and was one of the factors that caused the Great Depression.

We believe that these fears are somewhat overplayed at present. Much pessimism and negative rhetoric has emerged in recent weeks, which leads us to believe that the lows for this particular correction may now be in. Despite the current negativity, company valuations are once again attractive.

Whilst real risks do remain for the global recovery, it would appear that both equity and bond markets have adequately discounted these risks for the time being. Bonds are pricing in a severe recession and possibly the onset of deflation in the US with 2 year Treasury yields at around 0.6% and the Ten year at around 2.9%. Markets appear to be signalling not only nil expectations for rates to rise in the US anytime soon but moreover, little in the way of economic growth. With risk aversion back on the table, investors seem to be clearly more concerned about return of capital than return on capital!

We believe however Australian equities presently represent good relative value. Historically, a yield gap between bonds and equities at levels of less than 400 basis points has tended to be a bullish indicator for stocks. In March of 2003 this gap had shrunk to around 150 basis points and in the 3 years that followed the All Ordinaries Index rallied more than 60% excluding dividends. Current spreads are now below levels in March 2003, this appears to us to be a clear relative value signal that at the very least illustrates that equity markets are oversold.

Whilst forex markets have stabilised, we continue to believe the US dollar will come under further sustained pressure with significant structural headwinds lying ahead for the currency. The economic numbers are staggering when one considers that the $3.5 trillion of Obama administration spending over the last 12 months accounts for one in four dollars of US GDP over the same period. Even more worrisome is total spending exceeds the Federal Government tax take of $2.1 trillion, by a staggering $1.4 trillion. At the State level, California has 12% unemployment and a budget gap of $US19bn, which is far greater than Greece, Portugal, Ireland, Hungary and Romania combined!

The US Government faces a difficult time, balancing economic recovery (and the ongoing threat of deflation) against rising debt levels and the attendant growing risks for the US dollar. There now appears to be a genuine resolve amongst US lawmakers to tackle the debt problem in the US, however it will require much political will and bi-partisanship to bring current spending (and future spending obligations) under control.

Despite a growing chorus calling for a double dip recession in the US, history suggests that it would take a substantial shock to bring about the second leg of an economic contraction. In the US, corporate balance sheets are in sound shape as companies prepare for the upcoming reporting season which is now getting

FAT PROPHETS AUSTRALIA FUND LIMITED ACN 62 111 772 359

Level 33, 2 Park St, Sydney NSW 2000 telephone 02 9024 6727 fatfund@fatprophets.com.au

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underway. We are positive in our outlook and anticipate double digit levels of earnings growth for many companies, albeit off a low base. This should be enough to for equity markets to gain some positive traction.

Transurban (TCL) was added to the portfolio in June. Following the recent failure of a takeover by a Canadian pension fund, TCL fell by around 25%, and in our opinion now represents sound value. TCL is a collection of world class toll roads assets that are quite unique. These include the M2, M5, Citylink in Melbourne, and now the Lane Cove Tunnel (LCT) in Sydney.

There are several aspects of toll road assets that appeal to us. There is a high degree of predictability with revenue streams accompanied by low cyclicality. Operating margins tend to be high, typically north of 60% and maintenance capital expenditure is relatively low . This coupled with historically compelling valuation metrics and a sustainable and growing yield that importantly matches cashflow, all screens very positively to us.

FAT PROPHETS AUSTRALIA FUND LIMITED ACN 62 111 772 359

Level 33, 2 Park St, Sydney NSW 2000 telephone 02 9024 6727 fatfund@fatprophets.com.au

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3. Top 15 Holdings at 30th June 2010

Company	Symbol	% Weighting
BHP Billiton	BHP	13.0
ANZ Bank	ANZ	7.4
Commonwealth Bank	CBA	7.3
Westpac Bank	WBC	6.9
National Australia Bank	NAB	5.9
Lihir Gold	LGL	4.2
QBE	QBE	3.6
Rio Tinto	RIO	3.6
Woolworths	WOW	3.5
Wesfarmers	WES	3.5
Telstra	TLS	3.4
Newcrest	NCM	3.0
CSL Limted	CSL	2.7
Woodside Petroleum	WPL	2.1
Magellan Financial Group	MFG	2.1

Angus Geddes[ & ] Steve O’Hanna 15 July 2010 Fat Prophets Funds Management Australia

This report has been prepared solely for the benefit of the Fat Fund and its shareholders. It summarises information on the financial products held by the Fat Fund and the views of the Fat Fund as at the date of preparation of the report. These views and financial products may and will change after the issue of this report. No assurance can be given by the Fat Fund or Fat Prophets Funds Management Australia Pty Limited (the Manager) as to the accuracy and completeness of the information used to compile this report. Past performance is not necessarily indicative of future performance. By making this report available, the Fat Fund and the Manager are not providing any general advice or personal advice within the meaning of section 766B of the Corporations Act regarding the Fat Fund, any potential investment in the Fat Fund or any investments or potential investments of the Fat Fund. This report is made without consideration of any specific person's investment objectives, financial situation or needs. The Fat Fund, the Manager and directors and employees of the Fat Fund and the Manager do not accept any liability for the results of any action taken or not taken on the basis of the information contained in this report, any negligent mis-statements, errors or omissions.

FAT PROPHETS AUSTRALIA FUND LIMITED ACN 62 111 772 359

Level 33, 2 Park St, Sydney NSW 2000 telephone 02 9024 6727 fatfund@fatprophets.com.au