WAM ACTIVE LIMITED — Investor Presentation 2015

May 18, 2015

Investor Presentation

May / June 2015

Disclaimer

This presentation has been prepared for use in conjunction with a verbal presentation and should be read in that context. Information for the graphs, charts and quoted indices contained in this presentation has been sourced from IRESS Market Technology, Deltec, Macquarie Group Research, WAM Capital Ltd, WAM Research Ltd, WAM Active Ltd and Future Generation Investment Company Limited unless otherwise stated. The information in this presentation is only intended for Australian residents. The purpose of this presentation is to provide information only and the contents of the presentation does not purport to provide investment advice. We strongly suggest that investors consult a financial advisor prior to making any investment decision. The presentation does not take into account the investment objectives, financial situation or particular needs of any person and should not be used as the basis for making investment, financial or other decisions. The information is selective and may not be complete or accurate for your particular purposes and should not be construed as a recommendation to invest in any particular investment or security, or Fund offered by Wilson Asset Management. The information provided in the presentation is given in good faith and is believed to be accurate at the time of compilation. Neither Wilson Asset Management, WAM Capital Ltd, WAM Research Ltd and WAM Active Ltd nor its directors or employees make any representation or warranty as to the accuracy, reliability, timeliness or completeness of the information. To the extent permissible by law, Wilson Asset Management, WAM Capital Ltd, WAM Research Ltd and WAM Active Ltd and its director and employees disclaim all liability (whether arising in contract, tort, negligence or otherwise) for any error, omission, loss or damage (whether direct, indirect, consequential or otherwise). Performance figures quoted in the report are past performance. Past performance is not an indicator of future performance. Neither Wilson Asset Management, WAM Capital Ltd, WAM Research Ltd and WAM Active Ltd nor its directors or employees guarantee or make any representation as to the performance of the Funds, the maintenance or repayment of capital, the price at which shares may trade or any particular rate of return.

Agenda

• About Wilson Asset Management

• Market overview and outlook

• Investment portfolio

• Our listed investment companies

• WAM Capital Limited

• WAM Research Limited

• WAM Active Limited

• Investor communications

• Making a difference

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About Wilson Asset
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Management
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About Wilson Asset Management

• Our team is passionate about making a difference

• We are innovative, agile and entrepreneurial. Our investment approach and results are proven

• We invest our time and expertise in causes that resonate most with our people

Winner of the Listed Investment Companies category at the Professional Planner / Zenith Fund Awards 2014

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Experienced team

Geoff Wilson B Sc GMQ FAICD FFinsia Chairman / Portfolio Manager

Kate Thorley B Com CPA Grad Dip ACG Chief Executive Officer / Company Secretary

Chris Stott

B Bus Grad Dip App Fin Chief Investment Officer / Portfolio Manager

Martin Hickson

B Bus B Comp Senior Equity Analyst / Dealer

Matthew Haupt CFA B Com Grad Dip App Fin Senior Equity Analyst

Tobias Yao

CFA B Com Equity Analyst

6

Listed investment companies

	(ASX: WAM)	(ASX: WAX)	(ASX: WAA)	(ASX: FGX)
Gross assets	$836 million	$185 million	$37 million	$210 million
Share price*	$1.92	$1.20	$1.07	$1.13
Pre tax NTA	$1.83	$1.20	$1.04	$1.14
Premium/
(Discount) to	4.9%	0.0%	2.9%	-0.9%#
NTA*
Fully franked
dividend	7.3%	6.7%	-	-
yield*^
Investment strategy	Research Driven / Market Driven	Research Driven	Market Driven	Long equities, market neutral and absolute bias

As at 30 April 2015

• *As at 13 May 2015

• ^Interim dividend annualised

• Undiluted for options on issue

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Future Generation Investment Company

• Launched in September 2014, Future Generation Investment Company (FGX) is a philanthropic wealth creation vehicle

• Provides access to the best of the best Australian fund managers without the cost of management and performance fees

• Donates 1% of assets to Australian charities supporting children at risk each year

• FGX market capitalisation has grown to $210 million, with annualised donations currently totalling $2.1 million

As at 30 April 2015

8

Future Generation Global Investment Company

• We are looking to establish a new entity – Future Generation Global Investment Company

• The Future Generation Global Investment Company would provide shareholders with access to global fund managers

• It would operate under the same arrangement as FGX – without management or performance fees, donating 1% of net assets to charities each year

• A senior management team has been appointed

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Investment process

Exposure to both research and market driven strategies

• Extensive company research (meeting 1,000+ companies per year) focused on forecasting free cashflows and rating investment attributes

• Scour the market for trading opportunities

• Allows sound return with a low correlation to traditional markets

• Identify a catalyst and sell when the company reaches our valuation

• Provides the opportunity to perform in both bull and bear markets

• Provides exposure to undervalued growth companies

• High portfolio turnover

• Low portfolio turnover

• Flexibility to hold cash

• Flexibility to hold cash

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Research driven investment process

Investment universe 2,000+ Investment ideas Preparation and company meetings (1,000+ p.a.) 250 companies under review Analysis: qualitative and quantitative Stock rankings Catalyst identified PORTFOLIO 20-60 stocks selected

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Market driven investment process

• We utilise our extensive information network in the investment community and exploit mispricing in the market. These opportunities include:

• initial public offerings

• capital raisings

• block trades

• oversold positions

• takeovers

• LIC discount to NTA

• stocks trading at a discount to their NTA

• earnings momentum / surprise

• short selling

• market themes and trends

12

Capital preservation

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Average cash since inception	Cash at 30 April 2015	Objective to deliver risk- adjusted returns and preserve capital • Default to cash • Closed pool of capital • Nimble and flexible mandate • Use of stop losses • Weighting of investments
34%	38%
33%*	44%
47%	29%

*Since the change in investment strategy July 2010

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Our LICs trading at premiums to NTA

Share price trading at premium/discount to Net Tangible Assets (pre-tax)

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35%
25%
15%
5%
-5%
-15%
-25%
-35%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
35%
25%
15%
5%
-5%
-15%
-25%
-35%
Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15
35%
25%
15%
5%
-5%
-15%
-25%
-35%
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
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As at 30 April 2015
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Growing funds under management

• We have recently grown our funds under management (FUM), reaching more than $1 billion across three LICs

• Larger FUM has a range of benefits to shareholders:

• Reduced fixed management expense ratio (MER)

• Increased liquidity in shares

• Greater relevance in the market:

  • Increased broker and research coverage

  • Additional interest from platforms, financial planners and SMSFs

  • Improved access to investee companies and capital raisings

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Imputation system under review?

Chairman David Murray, Financial System Inquiry, December 2014

“The case for retaining dividend imputation is less clear than in the past. To the extent that dividend imputation distorts the allocation of funding, a lower company tax rate would likely reduce such distortions”

“For investors (including superannuation funds) subject to low tax rates, the value of imputation credits received may exceed tax payable. Unused credits are fully refundable to these investors, with negative consequences for Government revenue”

Treasurer Joe Hockey, Tax Reform White Paper, March 2015

“[Dividend imputation] makes little contribution to attracting foreign investment to Australia other than eliminating dividend withholding tax for franked dividends paid to foreign shareholders. It also involves a significant cost to revenue and may impose more compliance costs to achieve similar outcomes to other jurisdictions”

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Imputation system under review?

• Last year we lodged two separate submissions to the Financial System Inquiry advocating for a fairer, more effective Australian financial system

• Next month we will lodge a submission to Treasury in response to the Tax White Paper

• We will argue for dividend imputation to remain in place as it leads to: • efficient capital allocation

• higher payout ratios

• reduced cyclicality

• Removing dividend imputation would be detrimental to efficient capital formation in Australia

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Market overview
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and outlook
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Equity market outlook

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Banks Equity
capital valuations
requirements full
Bond market Interest rates
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The way you shop for groceries will change…

• Woolworths (ASX: WOW) and Wesfarmers-owned Coles (ASX: WES) quasi-duopoly structure and industry leading margins are under threat

• Woolworths and Coles’ now face an onslaught of new competition from Aldi, Lidl and Costco, which offer consumers significantly lower prices for everyday products

• The UK experience shows high-margin local supermarkets, such as Tesco, struggled to fend off these entrants

• Tesco’s share price is down 50% in 5 years driven by an increase in competition

• Despite Woolworths and Coles’ opportunity to learn from the global trend, we predict many of you will not be shopping with them in years to come

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As will the way you watch television…

• Consumers are starting to stream television content on demand as opposed to watching via the traditional digital signal

• Netflix, which entered Australia in March, along with Stan and Presto are set to gain significant local market share

• In recent months we have seen Foxtel, significantly reduce prices for its various consumer packages

• How the three major free-to-air networks react to this changing industry landscape will be a significant driver of their share prices over the next decade

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Equity valuations look full…

ASX 200 1 Year Forward PE

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Source: Deltec

While earnings growth is lacking

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Update chart
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Source: Macquarie Group Research

When US interest rates rise

There is a growing risk of retreat from US equities when rates finally rise

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Source: IRESS

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Top 10 research driven holdings

ASX Code Company ASB Austal Limited SGH Slater & Gordon Limited TPM TPG Telecom Limited ECX Eclipx Group Limited RFG Retail Food Group Limited Held in ENE Energy Developments Limited WAM Capital ISU iSelect Limited and MTR Mantra Group Limited WAM Research CSV CSG Limited CCP Credit Corp Group Limited As at 30 April 2015 26

As at 30 April 2015

Top 10 market driven holdings

ASX Code	Company	Held in WAM Capital and WAM Active
HHV	Hunter Hall Global Value Limited
TOL	Toll Holdings Limited
CYA	Century Australia Investments Limited
MYX	Mayne Pharma Group Limited
EGP	Echo Entertainment Group Limited
BAP	Burson Group Limited
FXJ	Fairfax Media Limited
MMS	McMillan Shakespeare Limited
CSR	CSR Limited
QAN	Qantas Airways Limited

As at 30 April 2015

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Top contributors and detractors

Research Driven Investment Strategy	Research Driven Investment Strategy	Research Driven Investment Strategy	Research Driven Investment Strategy	Research Driven Investment Strategy	Research Driven Investment Strategy	Research Driven Investment Strategy	Research Driven Investment Strategy	Research Driven Investment Strategy	Research Driven Investment Strategy
Contributors			%		Detractors			%
IPH		IPH Limited	6.9		SGN	STW Communications GroupLimited		-2.1
MTR		Mantra Group Limited	6.8		GXL	Greencross Limited		-1.8
CTD		Corporate Travel Management Limited	6.1		NVT	Navitas Limited		-1.5
Market Driven Investment Strategy
Contributors			%		Detractors				%
ALL	Aristocrat Leisure Limited		3.5		HIL		Hills Limited		-3.9
HHV	Hunter Hall Global Value Limited		3.4		ARI		Arrium Limited		-2.4
QAN	Qantas Airways Limited		2.9		WIC		Westoz Investment CompanyLimited		-2.0

9 months to 31 March 2015

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What we like

Blackmores Limited (ASX: BKL)

Profile

• Australia’s leading natural health brand

• • Market cap $1.2 billion

Background

• PE of 29x

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•
EPS growth of 60%
•
Key products include vitamins, herbal
and mineral nutritional supplements
•
Catalysts Earnings momentum
•
Growth in Asian markets
•
Product supply
Started buying at $47
$
75.00
65.00
55.00
45.00
35.00
25.00
Jan-15 Feb-15 Mar-15 Apr-15 May-15
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Catalysts

Risks

Source: Wilson Asset Management Research

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What has worked

Smartgroup Corporation Ltd (ASX: SIQ)

Profile

• Salary packaging and novated lease administrator

Background

• Listed on the ASX in July 2014

• Market cap: $200 million

• PE ratio 10.5 times

• Growth of 16%

Catalysts

• Favourable outsourcing trends within the government sector

• Renewal of significant contracts

• Acquisition opportunities

• Positive earnings momentum, recently upgraded earnings guidance

Risks

• Potential loss of contracts

• Regulatory risks – changes to the fringe benefits tax regime

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$ Bought at IPO - $1.60
2.00
1.80
1.60
1.40
1.20
Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15
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What didn’t work

STW Communications Group Limited (ASX: SGN)

Profile

• Australasia’s leading marketing and communications services group

Background

• Market Cap $278 million, PE of 5.9x with low growth

• 75 operating companies

• Major brands include: Ogilvy, Ikon and Buchanan Group

Catalysts

• Stock was trading on a low PE which sparked our interest

• The company gave guidance on 15 December 2014

What went wrong

• The company released their full year results in February and missed their December guidance

• The complex structure of the group was blamed for the difficulty in forecasting earnings

• STW are now reviewing the structure and reporting lines of the group

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$
1.70 Started buying at $0.88
1.50 Exited position at
1.30 $0.74
1.10
0.90
0.70
0.50
May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15
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WAM Capital Limited
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(ASX: WAM)
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Recent highlights

14.0c

7.3%

Fully franked annualised interim Fully franked dividend yield[*] dividend

16.1%

38%

Investment portfolio performance[**] Current cash weighting[^]

As 13 May 2015 *12 months to 30 April 2015 ^As at 30 April 2015

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Dividend growth

WAM Capital dividends since inception

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Cents per share
18.0
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
Ordinary fully franked dividend Special fully franked dividend Equal access share buy-back
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*Annualised interim dividend

• Estimated profit reserve is 18.5 cents per share and the franking account has a balance of $1.0 million

• The Company’s ability to pay franked dividends is dependent upon the size of the profit reserve and the level of franking credits derived from franked dividends received and tax payments

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As at 30 April 2015

Outperformance

					Since
Performance at 30 April 2015 (% pa)	1 Yr	3 Yrs	5 Yrs	10 Yrs	Inception (Aug 1999)
WAM Investment Portfolio*	16.1%	18.3%	15.2%	14.2%	18.0%
S&P/ASX All
Ordinaries	10.2%	13.7%	8.2%	8.4%	8.7%
Accumulation Index
Outperformance	+5.9%	+4.6%	+7.0%	+5.8%	+9.3%

*Investment performance and Index returns are before expenses, fees and taxes

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Capital management

Shareholder Purchase Plan (SPP) and Placement

• WAM Capital raised $193.5 million through an SPP and placement

• More than 8,800 existing WAM shareholders invested $103.4 million at $1.90 through the SPP

• The Placement was oversubscribed, raising $90.1 million

• Capital raising will deliver a range of benefits to shareholders beyond the opportunity to purchase shares at a discount to the market price

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WAM Research
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(ASX: WAX)
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Recent highlights

8.0c

6.7%

Fully franked annualised interim Fully franked dividend yield[*] dividend

23.8%

44%

Investment portfolio performance[**]

Current cash weighting[^]

• *As at 13 May 2015

**12 months to 30 April 2015

^As at 30 April 2015

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Dividend growth

WAM Research dividends since inception

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Cents per share
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Ordinary fully franked dividend Special fully franked dividend
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*Annualised interim dividend

• Estimated profit reserve is 26.7 cents per share and the franking account has a balance of $4.6 million

• The Company’s ability to pay franked dividends is dependent upon the size of the profit reserve and the level of franking credits derived from franked dividends received and tax payments

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Outperformance

				Since
				change in
Performance at 30 April 2015 (% pa)	1 Yr	2 Yrs	3 Yrs	investment strategy (July 2010)
WAX Investment Portfolio*	23.8%	20.4%	23.9%	19.6%
S&P/ASX All Ordinaries Accumulation Index	10.2%	10.3%	13.7%	10.8%
Outperformance	+13.6%	+10.1%	+10.2%	+8.8%

*Investment performance and Index returns are before expenses, fees and taxes

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Capital management

• 1 for 2 Bonus Option Issue announced 28 October 2013

• Exercise price: $1.20 Exercise

• Options must be exercised by 17 June 2015

• Options trading at: $0.001[*] (ASX: WAXO)

• Share price: $1.20[*] (ASX: WAX)

• $24.3m received to date[*] from options exercised

*As at 13 May 2015

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WAM Active Limited
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(ASX: WAA)
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Recent highlights

4.0c 2.4% Capital Return Premium to NTA[*]

7.6% 29% Investment portfolio performance[**] Current cash weighting[^]

As at 13 May 2015 *12 months to 30 April 2015

^As at 30 April 2015

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Dividend growth

WAM Active dividends since inception

Cents per share

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12.0
10.0
8.0
6.0
4.0
2.0
0.0
2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15
Fully franked dividends Capital Return
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• Estimated profit reserve is 3.2 cents per share and the franking account deficit of $55,000 (including the FY15 income tax provision)

• The Company’s ability to pay franked dividends is dependent upon the size of the profit reserve and the level of franking credits derived from franked dividends received and tax payments

44

Capital management

• Capital return approved at EGM 19 May 2015

• Intention to pay 4.0 cents per share

Key Dates Ex date 21 May 2015 Record date 25 May 2015 Payment date 1 June 2015

45

Positive performance

				Since
Performance at 30 April 2015 (% pa)	1 Yr	3 Yrs	5 Yrs	Inception (Jan 08)
WAA Investment Portfolio*	7.6%	13.4%	10.4%	12.5%
S&P/ASX All Ordinaries Accumulation Index	10.2%	13.7%	8.2%	2.9%
Outperformance	-2.6%	-0.3%	+2.2%	+9.6%
UBS Bank Bill Index (cash)	2.7%	3.0%	3.7%	4.2%
Outperformance	+4.9%	+10.4%	+6.7%	+8.3%

*Investment performance and Index returns are before expenses, fees and taxes

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Investor
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communications
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Investor communication

Weekly emails Half yearly Monthly NTA Half & full year including market national investor announcement financial results & investment update presentations update Website Media Industry Independent research wamfunds.com.au conferences

Website Media wamfunds.com.au

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Community investment

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All donations are made by Wilson Asset Management (the investment manager) and/or its staff, not the listed entities. 49

Making a difference

WAM Gives

• New initiative empowering each individual to identify causes close to them

• The management company then gifts financial support for a charitable donation

Variety cycle

• Geoff took part in the 2015 Variety Cycle ride

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Contact us
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Email: info@wamfunds.com.au
Phone: (02) 9247 6755
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Fax: (02) 9247 6855
Website: www.wamfunds.com.au
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