INVESTSMART GROUP LIMITED — Net Asset Value 2010

Jan 14, 2010

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December 2009 NTA Release

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

The net asset backing (“ NTA ”) of Fat Prophets Australia Fund Limited (“ Fat Fund ”) as at 31 December 2009 was $1.2002 per share on a before tax basis, calculated in accordance with ASX Listing Rule 19:12, and represents an increase of 2.7% over the month. By comparison, the Fat Fund’s benchmark, the S&P/ASX 300 Accumulation Index firmed 3.69% 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 December 2009 was $1.1487 per share .

2. Performance Commentary

The major influences on the Fat Fund’s performance versus its benchmark during the month of December 2009 were as follows;

2009 were as follows;	2009 were as follows;	2009 were as follows;
Positive Influences			Negative Influences
Company	%move	Position	Company	%move	Position
QBE Insurance15%OverweightMagellan Fin. Grp16%OverweightFosters-2%UnderweightSonic Healthcare9%OverweightStockland-2%Underweight			Lihir Gold-9%OverweightPremier Invest-4.6%OverweightKingsgate-5%OverweightCatalpa-21%OverweightIncitec Pivot25%Underweight

2009 was a tumultuous year for financial markets. The recovery rally in equity indices off the March lows through to calendar year end was quite spectacular. Financials which were ‘ground zero’ of the global financial crisis led the way up with our four major banks all posting substantial gains, particularly CBA and ANZ, up 89% and 49% respectively. Australian banks now account for four of only eight banks globally rated AA! This has encouraged many foreign investors onto their share registers. Moreover, the favourable competitive environment for banks will likely continue in 2010. The focus toward the end of 2009 was on resources with the resources index managing a 10% gain in the last quarter and leading to a 47% gain for the year, far ahead of the broader index, which managed 38% for the year.

The economic recovery appears to be gaining traction both here and abroad. In the US many indicators have improved markedly, however it is yet to be seen whether these will be sufficient to result in meaningful employment growth. Elsewhere manufacturing, which accounts for about 12 percent of the US economy, has been a driver of the recovery and is projected to continue to expand.

Overall, we believe the global economy will gather momentum in 2010. Not only will the unprecedented mix of near-zero interest rates and high budget deficits engineer an economic recovery that is real and sustainable but the strong bounce already seen in economic activity across much of Asia will help to offset the inevitable deleveraging within developed economies such as the US and UK. However, we aren’t expecting a swift return to robust growth (as alluded to above regarding the US unemployment). In fact, the recovery will likely lag behind those of previous recessions, but we believe that the world economy will

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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perform far better than the economic consensus would indicate. The benefit of lax policy settings and other direct measures such as quantitative easing have yet to fully impact on the global economy. Domestically, the bulk of the Rudd governments deficits are also yet to be felt as only a portion were in the form of cash handouts. Hence we expect growth to be strong, this however against a backdrop which will likely exhibit the following challenges;

• Rising interest rates - November retail sales numbers were four times consensus and will likely put upward pressure on rates in addition to strong employment numbers

• Overheating Chinese economy - the property market has risen 57% over the course of 2009 and may be subject to Government intervention to engineer a slowdown

• Capacity constraints - due to long lead times to expand infrastructure such as ports, processing plants etc..

• Rising Australian dollar - a potential headwind for the resources space and other exporters.

Corporate balance sheets have undergone a significant amount of repair over the last 12 months, with gearing reduced back toward long term averages. Earnings per share growth will be hampered by all the additional shares on issue as debt has been switched to equity. ASX listed companies raised a record $100bn in new equity in 2009. Notwithstanding these challenges, on balance we remain optimistic.

Last month we mentioned that we had lifted our resources exposure, this has proved timely indeed. Resource stocks have been rallying hard in the last month, fed by robust economic data from China, India, Korea and the US! Since the last update there have been no major changes to the portfolio. We did however take a small placement in an emerging platinum (platinum group metals, PGMs) producer called Nkwe Platinum. This is a small company with exposure to a large undeveloped resource of some 70m oz of PGM’s in the prolific platinum producing region of Bushveld province in South Africa. The feasibility study for the project is due out this month, at which point Xstrata will have the option of proceeding with development whilst taking a 50% stake and fully funding the $1.5bn required to do so. This leaves Nkwe with a significant stake of approximately 40% of the 70m oz project. Importantly, under this agreement with Xstrata, Nkwe are free carried through to production.

The NTA lagged the index over the month as the gold price experienced a short and sharp correction into year end alongside a rally in the USD. This has since reversed as we expected. We remain of the view that any strength is the USD will be short-lived and hence retain our 8% weighting to precious metals, primarily gold.

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 31 December 2009

Company	Symbol	% Weighting
BHP Billiton	BHP	14.0
Commonwealth Bank	CBA	8.7
Westpac Bank	WBC	8.1
National Australia Bank	NAB	6.1
ANZ Bank	ANZ	5.9
QBE Insurance	QBE	4.4
Telstra	TLS	4.3
Rio Tinto	RIO	3.8
Wesfarmers	WES	3.3
Woolworths	WOW	3.1
CSL Limted	CSL	2.7
Lihir Gold	LGL	2.5
Woodside Petroleum	WPL	2.0
Santos Ltd	STO	1.8
Premier Investments	PMV	1.8

Angus Geddes[ & ] Steve O’Hanna 15 January 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) or Tidewater Asset Management Pty. Limited (the sub contract manager) as to the accuracy and completeness of the information used to compile this report. Past performance is not necessarily indicative of future performance. By making this report available, the Fat Fund and the Manager are not providing any general advice or personal advice within the meaning of section 766B of the Corporations Act regarding the Fat Fund, any potential investment in the Fat Fund or any investments or potential investments of the Fat Fund. This report is made without consideration of any specific person's investment objectives, financial situation or needs. The Fat Fund, the Manager and directors and employees of the Fat Fund and the Manager do not accept any liability for the results of any action taken or not taken on the basis of the information contained in this report, any negligent mis-statements, errors or omissions.

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