Marriott News

Restructuring of Marriott Funds

15 April 2010

We would like to update you about the planned restructure of the Marriott High Income Fund and Marriott Core Income Fund portfolios that is to take place over the next few weeks.

During 2009, the portfolios were restructured in order to produce a relatively high and consistent distribution using a spread of deposits and premium NCD’s. The yield investors received has been a consistent 9% net of costs, however there has been a capital loss of 2.7%. The net result is a return that equates to the cash averages. Going forward it is our intention to replace the maturing deposits with the following range of instruments in order to maintain the 9% net yield with an expected total return of 7% - 9.5%. It must be noted that the portfolio now includes instruments that are priced in the market and can lose or gain in capital value :

• Floating corporate debt and CLN’s   20% - 40%
• Listed preference shares                10% -20%
• Premium deposits                             30%
• NCD’s and cash                                20%

Property and long bonds will only be included when yields reflect real value and an expectation of higher longer term inflation; currently this is not the case. The inclusion of quality listed corporate preference shares is a result of yields in the region of 8% reflecting valuable income streams. There is also now the potential for capital appreciation in the light of the new Reserve Bank Governor’s stance on monetary policy.

The above allocation has been made in the light of current interest rates, increasing inflationary pressures and the growing need for capital, both from government and the private sector. Credit exposure will be limited to floating corporate debt whose equity we are comfortable holding within other Marriott portfolios.

Floating corporate debt and Credit Linked Notes offer a high degree of capital stability with an income stream linked to cash rates. Select listed preference shares offer relatively high levels of income, also linked to cash rates, with some capital volatility, both positive and negative but with a greater likelihood of capital gain in the year ahead as the yield spread relative to cash is high. Premium deposits offer relatively high levels of income with known levels of capital loss when held to maturity.

The effect of the restructuring of the portfolios will result in income remaining at current levels until the end of 2010 with the possibility of limited capital loss or capital gain. If the Reserve Bank maintains the low interest rate policy for the remainder of the year, it is likely that the fund will be relatively capital stable and deliver a 9% net yield.

We look forward to seeing you at our next presentation and will be only too happy to deal with any questions with regards to the restructuring.