INVESTSMART GROUP LIMITED — Regulatory Filings 2011

Nov 24, 2011

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

CHAIRMAN’S ADDRESSS TO ANNUAL GENERAL MEETING OF MERRICKS CAPITAL SPECIAL OPPORTUNITY FUND ANNUAL GENERAL MEETING 25 NOVEMBER 2011

In the period since MEF’s last Annual General Meeting on 15 November 2010, the Australian equity market has fallen around 12% in capital terms, as measured by the S&P/ASX 300 index, with an approximate 4% reinvested dividend yield softening the overall return loss to index based investors to just above 8%, before fees. The general optimism seen late in 2010 has given way to the opposite, with persistent trends of earnings downgrades in domestically exposed securities, fears over the ability of Governments across the world to come to grips with higher relative levels of sovereign debt, generally declining commodity prices and continuing greater imposts of compliance with more stringent capital and corporate regulation.

Whilst the correlation of change in MEF’s portfolio with moves in the market has largely been of a random nature – indeed as we illustrated in the annual report and accounts, albeit with a small number of data points, arguably negative – the performance of the underlying portfolio has not, and cannot be totally immune from such economic and financial market influences. However, the board of MEF are largely happy with the ”on the ground” progress of the businesses or projects underpinning the three large exposures within MEF’s portfolio. The two proportionally large ASX listed positions in ING Real Estate Entertainment Fund and Straits Resources Limited – have both seen underlying progress on strategies designed to release value for shareholders, even if that is not apparent in the presently quoted share price. In this respect, given that both investments have some corporate potential for this and other reasons, it is worth noting that in recent Australian corporate takeovers, the level of control premium required to be paid has increased noticeably.

A recent study by RSM Bird Cameron noted that control premiums in the final years 2009 and 2010 had increased to 42.1% and 40% above the 20 days average share price pre-announcement; these figures compare to a five year average over 180 transactions of some 30%. A simple exercise by your author shows that of 29 ASX companies delisted since 30 June 2011 for merger and acquisition reasons, the average return from 31 December 2010 to the date of cessation of listing was some 42.2%. In simple terms, both of these exercises show that the undervaluation of selected listed securities has increased markedly to potential corporate predators, be they other industry players or private equity funds. Both have to pay far greater premiums, against the depressed prices, to get their prey.

Moreover, the dislocation between share prices and corporate value is partly being fuelled by the current equity market environment. The prevailing domination of high frequency trading, and seeming absence of private clients and institutions, has served to accelerate the decline in average trade size on the ASX to levels around $7,500 against over $40,000 six to seven years ago. This is inducing further market volatility.

These phenomena, whilst arguably not secular, certainly have the capacity to be medium term trends; they are being supplemented by a more cyclical trend, namely the absence of initial public offerings and placements. The value of permanent capital, even a small quantum, is extraordinarily high at present.

With high corporate control premia over arguably distressed quoted prices for businesses allied to a lack of permanent capital, this is a very propitious time for “opportunity” funds. Like any

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investment fund, taking such “opportunity” exposures has its risks, and all of them will not work out to the managers objectives.

Moreover, as we have seen to a small degree already in 2011 – mainly with Straits Resources – the return profile of this type of “fund” is very lumpy – whilst the use of capital to earn mezzanine finance interest should provide a smooth underlying income return, it is inevitable in such a portfolio that there will be occasional short term outsized returns from the realisation of single individual positions.

With this style of portfolio only being represented for a thirteen month period, MEF has not yet seen such a realisation, nor adequate recognition by the passive marketplace of hidden value in our positions. The Board of Directors are confident that such an outcome will be obtained at some stage in the future, and that this will serve to illustrate in a more transparent manner, the real ambitions of the Manager with regard to MEF, for the distinct benefit of shareholders.

It is against this backdrop that the Directors consider the cost of our own equity capital. With a last stated net tangible asset backing per share at 31 October 2011 of $1.02 pre tax and a share price of $0.70 – a 31% discount - the cost of our equity is extortionate. Of course, when account is taken of the underlying value perceived to be present within the investments themselves, the REAL discount of the MEF share price is even more significant. We have put in place a refreshed on market buy-back capability, but its use does need to be judged against the wider opportunity set.

So, of course, does the suggestion of winding up MEF, which some shareholders have advocated in correspondence during the year. Given the prevailing conditions I have outlined, and the comments to be made by the investment manager, a winding-up, in the opinion of the Directors, would be a sub-optimal outcome for MEF shareholders. It’s worth noting that over a fifth of the company’s shares are held around the board table so that we have a vested interest in seeing the quoted price improve. It may be partially being held back as a result of the recent distribution by Tidewater Investments of its 1.7million share holding in MEF; however, a reasonable proportion of these shares have gone into the hands of longer term holders.

I would like to thank you for your continued support of the Company and hope the year ahead will be a more rewarding one for the quoted price of your investment.

Andrew Brown Chairman

Merricks Capital Special Opportunity Fund Limited

MEF Chairmans speech AGM 2011.doc