INVESTSMART GROUP LIMITED — Regulatory Filings 2010

Jun 14, 2010

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May 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 May 2010 was $1.1037 per share , before tax basis, calculated in accordance with ASX Listing Rule 19:12, and represents a fall of 5.85% over the month. By comparison, the Fat Fund’s benchmark, the S&P/ASX 300 Accumulation Index fell 7.54% 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 May 2010 was $1.0667 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	Positive Influences	Positive Influences	Negative Influences	Negative Influences	Negative Influences
Company	% move	Position	Company	% move	Position
Healthscope 26% Overweight Lihir Gold 4.5% Overweight Magellan Financial 10.5% Overweight Oceania 3% Overweight Macquarie Group -14% Underweight			Sonic Healthcare -29% Overweight Fosters Group 3% Underweight Atlas Iron -18% Overweight Nkwe Platinum -14% Overweight Westpac -15% Overweight

May was a bad month for equities as risk aversion skyrocketed as evidenced by declining stock markets and commodity prices. Australia experienced a double shock when the announcement of the RSPT caused a sharp fall in the Australian dollar as foreign capital made a fast exodus. The fact that Canadian dollar has fallen only 6.5% since early May versus the 11% fall of the AUD highlights the fact that the tax is deeply unpopular with international investors, who correctly perceive rising regulatory risk in Australia.

The convergence of a number of headwinds have created the ‘perfect storm’ for equity markets most recently, consider the following;

• A European debt crisis, seeing sovereign risks increase sharply, firstly with Greece being downgraded and then the subject of a €750bn rescue plan by the EU. Rating agency Fitch then downgrades Spain – a far more significant member of the Euro-zone.

• The Euro hitting a four year low versus the USD having declined 14% this year

• Fears regarding the strength of the recovery in the US as reflected in recent US payroll numbers. Private sector jobs growth are yet to ramp up and the prospect of stimulus fade weighs on investors minds. Chinese PMI numbers released for May were very weak coupled with other activity measures, indicate a marked slowdown brought about by broad tightening measures.

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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• The proposed introduction of RSPT on the mining industry casts a pall over the sector and the AUD falls sharply as uncertainty over the implications for valuations prompts foreign investors to flee. AUD falls 11% in less than a week. Timing of this proposal certainly did not help.

• Commodity prices also fall sharply especially base metals which decline between 12-20% over recent weeks.

Equity markets hate uncertainty, and Australia’ perceived regulatory risk is a major catalyst for the current volatility. Our approach to date has been somewhat cautious, as stated last month, the Fat Fund holds has held around 10% in cash until very recently, in addition to a large exposure to the gold sector which we view as being very defensive.

We believe there is a high probability the RSPT will not actually get through parliament in the current proposed form and that the Government will compromise. There is also a good possibility that the Labor Government loses the next election. Either way, resource stocks are now looking increasingly attractive and we are looking to increase exposure to the sector.

There is little doubt that value is starting to emerge with current PE multiples materially below their ten year average. We have started to deploy cash very selectively into names which we believe have compelling valuations along with defensive earnings streams. Recent additions to the portfolio that meet this criteria include M2 Communications, Austar and MacArthur Coal.

MacArthur Coal (MCC) has been the subject of a flurry of corporate activity in recent times. For starters, a takeover offer for MCC was received from both Peabody (a large US based producer) and Xstrata ( Swiss mining giant) whilst MCC itself was in the midst of a takeover of Gloucester Coal. Following the end of corporate takeover activity, Macarthur’s share price fell significantly as the takeover premium was swiftly removed. The price moved from a high of $16.50 to around the $10 level which is where we were more than comfortable buying in. Value had returned to a sector which had not been apparent for some time. MCC is the No. 1 producer globally of seaborne LV PCI coal and also a significant player in the hard coking coal market. To acquire this business on less than 10 times prospective PE and an EV/ebitda of just on 5x in our opinion represents very good value.

M2 Communications is another recent addition to the portfolio. MTU is a telco that resells a broad range of fixed line, mobile and data products from Telstra, Optus and Vodafone. We like the track record of this company. It has been highly acquisitive over the last few years and very importantly has demonstrated the ability to integrate these successfully. Meaningful value accretion results when a public company such as M2 is trading on 6-7x Ebitda and acquires private companies trading on half that multiple. M2 has also improved margins over the last few years in a meaningful way. This is largely accomplished with scale, as with any company with a fixed cost base, however as they grow their bargaining position with Telstra, Optus also improves. Finally, it has a compelling valuation and a healthy yield of around 7%.

Lastly, Austar which is a subscription television provider has also been a recent addition. It’s the virtual monopoly subscription television service in regional and rural Australia. We believe that there is much more growth to come with this business which on our valuation is not reflected in the price. Operating profit growth has been outstanding in this business over virtually any period examined and importantly is growing at virtually twice the rate of programming expense growth.

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[st] May 2010

Company	Symbol	% Weighting
BHP Billiton	BHP	12.0
Commonwealth Bank	CBA	7.5
ANZ Bank	ANZ	7.5
Westpac Bank	WBC	7.3
National Australia Bank	NAB	6.1
QBE Insurance	QBE	3.8
Lihir Gold	LGL	3.8
Wesfarmers	WES	3.5
Woolworths	WOW	3.3
Rio Tinto	RIO	2.8
Newcrest	NCM	2.7
CSL Limted	CSL	2.6
Telstra	TLS	2.2
Woodside Petroleum	WPL	2.1
Magellan Financial Group	MFG	1.9

Angus Geddes[ & ] Steve O’Hanna 15 June 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