WAM ACTIVE LIMITED — Annual Report 2012

Aug 9, 2012

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10 Aug 2012

WAM ACTIVE LIMITED ABN 49 126 420 719 RESULTS SUMMARY FOR YEAR ENDED 30 JUNE 2012

“INVESTMENT PORTFOLIO OUTPERFORMS MARKET BY 12.5% AND DIVIDEND INCREASED BY 12.5%”

Key Highlights

• 12.5% increase in the fully franked full year dividend to 4.5 cents per share. A fully franked dividend yield of 8.1% based on the 9 August 2012 closing price.

• The investment portfolio increased 5.5% for the 12 months to 30 June 2012. This was achieved with an average equity weighting of 50.2% for the year.

• Over the course of the year the equity component of the portfolio turned over 6.5 times. The best performing strategies were trades based on relative value arbitrage, Listed Investment Company (LIC) discount to NTA and takeover arbitrage.

The strong performance of the WAM Active Investment Portfolio against the S&P/ASX All Ordinaries Accumulation Index is shown in the table below. The Investment Portfolio performance is before expenses, fees and taxes.

Performance as at 30 June 2012	1 Yr %	2 Yrs %pa	3 Yrs %pa	Since Inception (Jan–08) %pa
WAM Active Investment Portfolio S&P/ASX All Ordinaries Accumulation Index Outperformance	+5.5% -7.0% +12.5%	+8.5% +2.1% +6.4%	+13.0% +5.9% +7.1%	+11.3% -5.3% +16.6%

Level 11, 139 Macquarie Street, Sydney NSW 2000 | GPO Box 4658 Sydney NSW 2001 | ABN 49 126 420 719 Phone 02 9247 6755 | Fax 02 9247 6855 | info@wamfunds.com.au | www.wamfunds.com.au

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Results

WAM Active Limited (WAA) today announced an operating profit before tax for the year ended 30 June 2012 of $322,300 (FY2011: $1,143,352), and an after tax operating profit of $394,535 (FY2011: $1,205,441).

The after tax profit was boosted by a $72k income tax benefit resulting from franking credit offsets. The decrease in profit compared to the previous year is a reflection of the investment portfolio returning 5.5% compared to 11.5% in FY2011.

Under Australian Accounting Standards, realised gains and losses and dividend income are added to or reduced by the changes in the market value of WAM Active’s investments. This can lead to large variations in reported profits. Therefore, percentage changes in income and profit are not reflective of underlying performance.

“This is our fifth year of operation and as an absolute return fund we are pleased to deliver another positive result” said Geoff Wilson, Chairman of WAM Active.

WAM Active’s investment portfolio increased 5.5% for the 12 months to 30 June 2012 while the S&P/ASX All Ordinaries Accumulation Index fell 7.0%. This represents an outperformance of 12.5%.

Over the course of the year, the equity component of the portfolio turned over 6.5 times and we traded in 274 individual stocks.

The best performing Market Driven strategies employed were trades based on relative value arbitrage, Listed Investment Company (LIC) discount to NTA and takeover arbitrage. The top contributing stocks for the year were Signature Capital Investments Limited (SGI), Contango Capital Partners Limited (CCQ) and the Ethane Pipeline Income Fund (EPX).

“We believe the coming 12 months will see continued volatility in the Australian sharemarket, providing opportunities. Given the weak backdrop for equities, deep value has emerged, similar to during the start of the GFC in 2008,” said Chris Stott, Chief Investment Officer.

Dividends

The Board’s policy of paying a growing stream of fully franked dividends when possible was continued with the Board declaring a fully franked final dividend of 4.5 cents per share. This brings the fully franked full year dividend to 9.0 cents per share. This is a 12.5% increase on the previous year.

“In what has been another challenging year in the equity markets, we are pleased with the 12.5% increase in fully franked dividends,” said Geoff Wilson, Chairman of WAM Active.

� Dividend ex date 8 October 2012 � Dividend record date 12 October 2012 � DRP election date 12 October 2012 � Dividend payment date 19 October 2012 � Last day for Option holders to exercise options in order to be eligible for the dividend 5 October 2012

Level 11, 139 Macquarie Street, Sydney NSW 2000 | GPO Box 4658 Sydney NSW 2001 | ABN 49 126 420 719 Phone 02 9247 6755 | Fax 02 9247 6855 | info@wamfunds.com.au | www.wamfunds.com.au

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Dividends (continued)

The Board is committed to paying an increasing stream of fully franked dividends to shareholders provided the Company has sufficient franking credits and it is within prudent business practices. It must also comply with Government legislation and the ATO’s interpretation of a company’s ability to pay franked dividends. Dividends are paid on a six-monthly basis. Dividend payments will also be made with consideration to cash flow, cash holdings and available franking credits.

The dividend reinvestment plan will operate at a 2.5% discount to the weighted average market price of shares sold on the ASX on the books closing date (12 October 2012) and the three trading days preceding that date.

To participate in the dividend reinvestment plan, please send your election form to our share registrar no later than 12 October 2012.

Option holders are required to exercise their options by Friday 5 October 2012 to participate in the 4.5 cent final fully franked dividend.

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Option issue – 1 for 1 bonus issue

On 4 May 2012, the Board announced a 1 for 1 bonus issue of options to acquire ordinary shares in the capital of the Company. The options were allotted to shareholders on 25 June 2012. The options have an exercise price of $1.08 per share and can be exercised at any time on or before 12 December 2013. The options are currently trading on the ASX under the code WAAO.

As at 9 August 2012, 8,360 options have been exercised for a total consideration of $9,029 with a remaining balance of outstanding options being 16,301,585.

Level 11, 139 Macquarie Street, Sydney NSW 2000 | GPO Box 4658 Sydney NSW 2001 | ABN 49 126 420 719 Phone 02 9247 6755 | Fax 02 9247 6855 | info@wamfunds.com.au | www.wamfunds.com.au

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Net Asset Backing

The net tangible assets (NTA) on listing in January 2008 were 98.4 cents per share.

Below is a table of the Company’s position as at 30 June 2012.

NTA before tax (cents per share) 106.23c 108.02c[] NTA after tax and before tax on unrealised gains (cents per share) 106.47c[*] NTA after tax (cents per share)

• *Includes tax assets of 1.80 cents per share

• **Includes the net effect of 1.80 cents of tax assets and 1.56 cents of deferred tax liabilities

The above figures have not been diluted for the options on issue and are after the payment of 20.5 cents a share in fully franked dividends since inception in 2008.

Performance

• The gross portfolio increased 5.5% for the 12 months to 30 June 2012.

• The performance was achieved with an average cash weighting of 49.8% during the year. The return on our cash holdings was 5.2% while the return on our equity portion was 5.9%.

• The after tax NTA, adjusted for dividends, increased 2.1% for the year ended 30 June 2012.

• The share price, adjusted for dividends, rose 9.5% for the year ended 30 June 2012.

Set out below is the investment performance of WAM Active since listing to 30 June 2012. The performance data is before all expenses, fees and taxes and is used as a guide to how the Company has performed against the S&P/ASX All Ordinaries Accumulation Index, which is also a before tax and expenses measure.

Financial Year	WAM Active Investment Portfolio	S&P/ASX All Ordinaries Accumulation Index	Outperformance
2007/2008 2008/2009 2009/2010 2010/2011 2011/2012	+2.2% +9.6% +22.7% +11.5% +5.5%	-15.2% -22.2% +13.8% +12.2% -7.0%	+17.4% +31.8% +8.9% -0.7% +12.5%

Level 11, 139 Macquarie Street, Sydney NSW 2000 | GPO Box 4658 Sydney NSW 2001 | ABN 49 126 420 719 Phone 02 9247 6755 | Fax 02 9247 6855 | info@wamfunds.com.au | www.wamfunds.com.au

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Investment Process and Strategy

The investment objectives of WAM Active are as follows:

• To deliver investors a regular income stream in the form of fully franked dividends;

• To provide investors with a positive return, after fees, over most periods of time; and

• To preserve capital in both the short term and long term.

To achieve these objectives, WAM Active aims to take advantage of relative short term arbitrages and mispricings in the Australian equities market, rather than investing in any individual companies or portfolio of companies for a prolonged period of time. The Manager refers to this as its “Market Driven” process where it scours the market for trading opportunities. These could include participating in initial public offerings, placements, block trades, rights issues, corporate transactions (such as takeovers, mergers, schemes of arrangements and share spilts), corporate spin-offs, restructurings, arbitrage opportunities, LIC discount arbitrages, relative value arbitrages and trading market themes or trends.

In a bid to preserve shareholder’s capital, the Manager spends a significant amount of time attempting to mitigate the risk associated with trading in listed securities. The following measures are taken to implement this strategy:

• An investment in cash if no trades can be identified. On average the Fund has held approximately 53.5% per cent since listing in January 2008;

• A spread of investments;

• A strong awareness of each investee company’s liquidity;

• The ability to short sell securities in a bid to profit from a decline in a company’s share price; and

• A stop loss for short term trading opportunities.

Portfolio Structure

	As at 30 June 2011	As at 30 June 2011		As at 30 June 2012	As at 30 June 2012
Investment Type	$m %			$m %
Listed Equities	7.3	39.0%		9.3	51.4%
Fixed Interest and Cash	11.4	61.0%		8.8	48.6%
Total Long Portfolio	18.7	100.0%		18.1	100.0%
Total Short Portfolio	(0.2)	(0.9%)		(0.5)	(3.0%)
Total Fund Size	$18.5m			$17.6m*
	No.			No.
Total ordinary shares on issue	16,066,653			16,309,945
Total options on issue	-			16,309,945

• This is after the payment of $1.4m in fully franked dividends since 30 June 2011.

Level 11, 139 Macquarie Street, Sydney NSW 2000 | GPO Box 4658 Sydney NSW 2001 | ABN 49 126 420 719 Phone 02 9247 6755 | Fax 02 9247 6855 | info@wamfunds.com.au | www.wamfunds.com.au

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Portfolio Structure (continued)

At 31 July 2012 the top 20 securities held in the portfolio were:

Code	Company	Market Value $	Market Value as % Gross Assets
CBAPB	CBA Perpetual Exc Resale Listed Sec-PERLS IV	705,340	3.9%
CCQ	Contango Capital Partners Limited	580,254	3.2%
ALS	Alesco Corporation Limited	553,268	3.1%
CYG	Coventry Group Limited	530,895	2.9%
INA	Ingenia Communities Group (previously ILF)	506,955	2.8%
SDG	Sunland Group Limited	495,055	2.7%
EPX	Ethane Pipeline Income Fund	463,671	2.6%
CIF	Challenger Infrastructure Fund	419,835	2.3%
LWB	Little World Beverages Limited	406,380	2.3%
FRI	Finbar Group Limited	396,700	2.2%
FLT	Flight Centre Limited	380,866	2.1%
GLG	Gerard Lighting Group Limited	375,765	2.1%
SVW	Seven Group Holdings Limited	373,752	2.1%
RHG	RHG Limited	362,212	2.0%
TWO	Talent2 International Limited	339,664	1.9%
CLO	Clough Limited	320,332	1.8%
SHV	Select Harvests Limited	305,435	1.7%
MMX	Murchison Metals Limited	297,631	1.7%
PRV	Premium Investors Limited	293,911	1.6%
CND	Clarius Group Limited	231,433	1.3%

Market Outlook

While we have a conservative view on the Australian equity market for FY13, we believe that WAM Active can continue to find trading opportunities in all market environments. WAM Active has outperformed in both up and down markets since inception. We think this current low growth environment, coupled with our prediction of further interest rate reductions by the RBA, will lead companies to look at accretive mergers and acquisitions to provide growth. These events should provide WAM Active with attractive low risk trading opportunities; a few of which have already arisen in recent weeks. Our current cash weighting of 48.6% provides flexibility to take advantage of these opportunities.

We continue to believe that analyst earnings estimates for companies are too high for FY13 and this will present trading opportunities around results announcements on both the long and the short side. Discount to asset plays have been a large part of our trading strategy over the course of the year. We foresee them continuing to be a source of profitable trading opportunities in the coming year, when we can identify a relevant catalyst to narrow the discount to assets.

Level 11, 139 Macquarie Street, Sydney NSW 2000 | GPO Box 4658 Sydney NSW 2001 | ABN 49 126 420 719 Phone 02 9247 6755 | Fax 02 9247 6855 | info@wamfunds.com.au | www.wamfunds.com.au

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We would like to thank our investors for their continued support throughout the financial year. We look forward to seeing you in November when we will provide a further update on the Company’s performance and the broader equity market.

For more information

Please contact Geoff Wilson, Chris Stott or Kate Thorley.

Wilson Asset Management Level 11, 139 Macquarie Street, Sydney NSW 2000 GPO Box 4658 Sydney NSW 2001

Phone: 02 9247 6755 Fax: 02 9247 6855 info@wamfunds.com.au

www.wamfunds.com.au

Level 11, 139 Macquarie Street, Sydney NSW 2000 | GPO Box 4658 Sydney NSW 2001 | ABN 49 126 420 719 Phone 02 9247 6755 | Fax 02 9247 6855 | info@wamfunds.com.au | www.wamfunds.com.au

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