32G iPhone 5 only shows 28g capacity.  Is that correct?

Just activated new iPhone 5.  32G only showing 28.08 capacity in iTunes.  I understand a couple of G for the OS, but 4G?  Is that correct?

Yes.
This is how memory is reported.  The same is true of your computer:
http://en.wikipedia.org/wiki/Gigabyte
How OS X and iOS report storage capacity

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