How We Invest

WAM Capital Limited is a company which has been formed to invest in a portfolio of permitted investments (refer below).  This portfolio is managed by Wilson Asset Management (International) Pty Limited (Manager), an AFSL holder owned by Geoff Wilson.  The Company provides investors with the opportunity to invest in an actively managed portfolio of investments and gain access to the management experience and expertise of the management team of the Manager.

The Company will predominantly invest in ASX listed Securities.  It is anticipated that the majority of the monies raised will be invested in Australian equities.  The Company will have the flexibility to buy or short sell securities.

Investment Objectives

The 2 investment objectives of the Company are to:

* achieve a high real rate of return, comprising both income and capital growth, within risk parameters acceptable to the Directors; and
* preserve the capital of the Company.

Investment Philosophy

The investment philosophy of the Company is exemplified by the following broad principles:

* The universe of potential investments for the Company will be all Securities quoted on the ASX, bills of exchange, other negotiable investments, debentures and other permitted investments identified below. The prime focus will be on ASX listed entities that exhibit the investment characteristics outlined below.The Company believes a higher percentage of these entities will be found in medium to small industrial companies but size will not be a limiting factor for inclusion in the Company's Portfolio.
* The Company's philosophy is to invest predominantly in industrial companies with an emphasis on companies that are under-researched and mispriced, a tendency more pronounced in the small to medium end of the market as measured by capitalisation.
* The Company's priority will be to undertake investments on a portfolio basis. While all investments will be considered on a case-by-case basis, the Company will usually refrain from taking a majority position in investee entities. This will assist the Company to diversify its investments and so reduce its exposure to abnormal falls in the market price of any single investment.
* The Company believes it achieves acceptable diversification by owning Securities in 20-30 investee entities. The Company will seek to manage investment risk by spreading investments over a range of industry sectors.
* The Company will only invest in Securities quoted on a securities exchange located outside Australia if those Securities are also quoted on ASX and the Board considers that the reporting obligations and trading procedures applicable to that exchange are no less rigorous than those of ASX.
* The Company will look to concentrate on absolute returns and preservation of capital. To achieve this objective, the Company's mandate to the Manager includes the ability to short sell Securities, offering investors potential downside protection. This is a distinguishing feature of the Company.

The Directors consider that the investment philosophy outlined above is shared by the Manager.

Investment Process

The Manager has two investment approaches:

a) Research Driven - Buying shares in companies after extensive research. This typically involves detailed discussion with management of the company and many of the company's competitors in their industry.

The key criteria we look for when appraising potential research based investment is:
* Management strength
* Earnings growth potential
* Low earnings multiple
* Advantageous industry position
* Generation of free cash flow
* Return on equity

This investment approach is to seek a combination of value and growth or expressed another way, growth at a reasonable price.   The ideal investment is an attractively priced company relative to its appraised value, one that has strong growth characteristics, generates surplus free cash flow, is well managed and has a sound position in its industry.

All companies researched are ranked on each criteria and an aggregate score for the company is obtained.  There is a set benchmark score that companies have to obtain to be considered for investment.  Upon meeting the benchmark, the Manager will seek to identify a catalyst or an event that will alter the markets perception of the company.  This will be an event which will likely lead to a re-rating of the company's share price by the market.  Upon identification of the catalyst/event the company is eligible for investment.

b) Market Driven - Buying securities in entities through initial public offerings, placements or the purchase of a block of stock below what the Manager believes is the entity's fair value.  This requires close monitoring of market activity.  Companies in this portfolio are actively traded.

Competitive Advantage of the Company

What distinguishes the Manager from others is:

a) a total focus on managing money;
b) its unique research and market driven investment processes; and
c) a high level of contact with company management.

Permitted Investments

The Manager is permitted to undertake investments on behalf of the Company without Board approval. However, if the proposed investment is not in accordance with written guidelines issued by the Board from time to time, Board approval for the investment is required.

The Company's portfolio comprises of the following investments:

(a) listed securities, being any Security quoted on ASX and other markets including, without limitation, shares, units or notes which are redeemable, preference or deferred, fully or partly paid, with or without any right, title or interest thereto or therein (including a right to subscribe for or convert to any such Security whether listed on ASX or not), and any Security of whatsoever nature which the Manager expects will be quoted on ASX within a 12 month period from the date of investment;
(b) listed Securities for the purpose of short selling.
(c) warrants and options to purchase any investment and warrants and options to sell any investment which is a permitted investment.
(d) discount or purchase of bills of exchange, promissory notes or other negotiable instruments accepted, drawn or endorsed by any bank or by the Commonwealth of Australia, and State or Territory of Australia, or by any corporation of at least an investment grade credit rating granted by a recognised credit rating agency in Australia;
(e) deposits with any bank or corporation declared to be an authorised dealer in the short-term money market;
(f) debentures, unsecured notes, loan stock, bonds, promissory notes, certificates of deposit, interest bearing accounts, certificates of indebtedness and any other evidence of indebtedness issued by any bank or by the Commonwealth of Australia, and State or Territory of Australia, or any governmental organisation, body or instrumentality of Australia, or, if authorised by its Directors, a corporation of at least an investment grade credit rating granted by a recognised credit rating agency in Australia; and
(g) units or other interests in cash management trusts.
 
Under the Management Agreement, the Manager may only undertake investments in accordance with the above criteria.