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Absa Asset Management Private Clients

31 December 2012

A private client portfolio of direct investments and not a collective investment scheme (CIS)

Preference Share Portfolio

Portfolio facts

Type Comparable industry category Portfolio manager Preference Shares Income Funds, Dividend Income Funds Craig Pheiffer Gary Smith Trevor O'Callaghan Jacques Theron Paul Steven Lance Gordon FSB-approved Portfolio Managers Absa Asset Management Private Clients Discretionary Private Client Susan Buys (011) 647 0874 Bronwen de Klerk (011) 647 0827 Laurna Edwards (011) 647 0860

Risk profile and advisable minimum term

Low Low-Medium Medium Medium-High High

X

Short Term Short to Medium Term Medium Term Medium to Long Term Long Term

X

Portfolio fees

Management fee Upfront fee Brokerage 0.50% p.a. (excl. VAT) Negotiable 0.25% per equity transaction plus 0.25% STT on purchase.

Qualifications Asset management company Mandate Contact

Structure of portfolio

Portfolio details

Minimum investment Minimum fee Income Performance

Preference shares ("prefs") listed on the FTSE/JSE are not expected to provide long term rising price performance as with general equities. Pref share prices fluctuate on periodic dividend content, supply and demand imbalances and changes in interest rates.

R 1 000 000 R 8 000 p.a. (excl. VAT)

Reinvested or paid out at the client's discretion

Dividends

Pref shares provide an equity dividend calculated as a fixed percentage of the official Prime Lending Rate based on the share's deemed face value. A dividend yield of 5% received on a pref share is equivalent to a fully taxable money-market yield of 8.3% at a marginal tax rate of 40%.

Historical performance to 31 December 2012 (%)

One year Preference Portfolio (Total Return) SA Pref Share Index 5.05 4.86 Three years (cmpd p.a.) 8.84 8.89 Five years (cmpd p.a.) 9.19 n/a Source: PortCIS

Dividend changes

The level of income received on preference shares changes proportionately with changes in Prime i.e. if Prime is increased by 1%, the yield on a pref share paying 70% of Prime will rise by 0.7%. Income rises if the Prime rate is raised, and declines if it is cut. Dividends are paid half-yearly, as declared and paid by the issuing banks.

Holdings

Prime Rate First Rand Prefs (75.56% of prime) Investec Prefs (83.33% of prime) Nedbank Prefs (83.33% of prime) Standard Prefs (77% of prime) Absa Prefs (70% of prime) Steinhoff (82.50% of prime) PSG (83.33% of prime) Yield (weighted average)

Current yield (%) after 15% div tax

8.50 5.7 6.3 5.6 5.6 5.5 6.7 6.9 5.9

Investment objective

To invest in FTSE/JSE-listed preference shares of the five major SA banks (Absa, Standard, Nedbank, First and Investec) and also in any other listed preference shares with the purpose of achieving a favourable dividend yield with moderate risk. Funds are available on short notice (subject to normal market settlement periods).

Taxation

The tax-exempt status of dividend income changed on 1 April 2012 when STC was replaced with a 15% tax on dividends. As expected most issuers increased their distributions to compensate investors ­ albeit in many cases only by some 10-11.1% and not the full 15% of the dividend tax. The overall effect of the change on our Preference Share Portfolio is therefore minimal ­ approximately a 0.3% reduction in the Portfolio yield. Dividend tax is deducted directly at the scrip custodian level. Some entities are exempt eg. SA resident companies and public benefit organisations. In this case a Declaration is required.

The yield to our clients in the first year is 4.9% i.e. net of initial purchase transaction costs of approx 0.5% and the annual management fee of 0.5% (neg). The yield thereafter will be 5.4% p.a. The RISK on listed pref shares relates to the standing of the bank or company that issues the pref shares. Pref share capital has a greater protection in law than ordinary shares in the capital structure of companies and is therefore favoured in case of insolvency. A company that passes its ordinary dividend may also pass its pref dividend and the pref dividend may then not be paid as the listed banks' pref dividends are all "non-cumulative". The history of SA banks suggests that this is unlikely.

The information contained in this communication does not constitute an offer or solicitation to enter into any transaction, nor does it constitute any recommendation, guidance or proposal to enter into any transaction. The information is provided for illustrative purposes only and is not guaranteed. Past performance is no indication of future performance.

Absa Portfolio Managers (Pty) Limited trading as Absa Asset Management Private Clients, Registration No: 1954/001116/07, Authorised Financial Services Provider (licence No. 552)

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