Sustainability Report PREVI 2009

Investments policy and responsible management

The conviction that there is an intense correlation between the best corporate governance practices and socio-environmental responsibility, and the viability or growth capacity of long term undertakings, has made PREVI move forward towards the definition of more and more rigorous criteria in its investment guidelines.

The investment policies of all PREVI's plans already consider a series of socio-environmental criteria (RSA). Such criteria, at the same time that help in the risk management associated to long term investments have a potential positive contribution to make to society by encouraging the construction of a fairer, more inclusive, and environmentally better balanced development.

The definition of those criteria considers PREVI's corporate attitude, as defined in its Socio-environmental Responsibility Policy, is in accordance with the contents of the codes about the Best Corporate Governance Practices, Codes of Ethics, Best Practices of Corporate Governance in Real Estate Ventures, in addition to agreeing with the Principles for a Responsible Investment (PRI).

The construction and implementation of those criteria, however, is not a simple matter of immediate application. It is the result of the continuous efforts of several organizations for the construction of adequate mechanisms and instruments for the evaluation of assets, risks and potential returns involved in the different transactions.

That process has already generated meaningful results. However, there is still a long way to go.

RSA criteria considered in investments

The non existence of a formal mechanism to reflect quantitatively the sustainability aspects in the pricing model has been subject to an ample discussion in PREVI. He creation of methodologies and parameters to make possible consider those variables, the evaluation of which is mostly qualitative, in the processes of evaluation of corporations and projects, will still undergo great improvements in the coming years.

PREVI has invested aiming at improving the skills of its technical sustainability staff, by means of their participation in external courses in forums, as well as in seminars carried out by other institutions, besides organizing clinics and internal training courses.

During the past few years great steps were taken through objective and consistent initiatives with regard to the incorporating sustainability criteria to PREVI's investment policies and practices. For example: PREVI's signaling not investing anymore in assets of corporations, the main production of which were tobacco or weapons; the adoption of the Sustainability Index of the São Paulo Stock Exchange (ISE - BOVESPA) as one of the criteria in the selection of variable income investments; and the incorporation of RSA criteria to the

Policy and Guideline Document applicable to PREVI's investments.

PREVI has in its portfolio fixed income investments, variable income investments (with an expressive amount in large corporations), participations in real estate ventures (like commercial buildings and shopping centers), among others.

The great diversity in investments and the peculiarities of each one of the benefit plans

require the definition not only of the general guidelines, but also of specific RSA criteria for the evaluation of assets in each segment and plan involved.

Generally, carefully considered , for example, aspects related to labor conditions and staff's professional skills, as well as the potential socio-environmental impact associated to the undertaking in question.

Such analysis, at the same time that reveals the principal positive and negative impacts of that venture to the society, seeks to evaluate the form by which those questions may affect the results of that investment in the future.

In investment acquisitions in Private Equity and Venture Capital, for example, normally preceded by a rigorous due-diligence on occasion of their evaluation, besides the economic and financial aspects, other factors are considered, like: social and environmental impacts of the undertaking, compliance with the socio-environmental principles, the non utilization child or forced labor, etc.

It is further requested to the managers for them to include in the funds rules their preference for investments in target-companies that have already or are in the process of incorporating basic principles of social, environmental and ethical responsibility - PRI - in their practices, such as: publication of a social balance sheet or sustainability report; declaration of non utilization of child labor or any other form of compulsory work; equal treatment between their own labor force and outsource one; initiatives aiming the protection of the environment; policies of social inclusion and income generation; participation in social projects; ethics and transparency; certifications relative to socio-environmental aspects.

It is also recommended to observe the inclusion of the companies in the ISE Bovespa Sustainability Index, and the adhesion to external pacts and initiatives having to do with sustainability and corporate responsibility.

The investment policies recommend also giving priority to doing business with companies listed or in the process of adhesion to the Bovespa's Corporate Governance list and that adjust to PREVI's Code of Best Practices of Corporate Governance.

Evaluation and monitoring

A follow up report about investments policies is issued quarterly. That document, currently made under essentially economic and financial criteria, will be enlarged, as recommended in the RSA Policy, to include variables which consider RSA general principles aiming at the establishment of specific indicators that might allow effectively measuring and following up the sustainability actions and practices related to the assets held by PREVI.

In relation to companies in which PREVI participates in one of other way, the control of investments already takes into consideration the analysis of the company's annual strategic planning by checking information about the socio-environmental policy adopted and the data published in the respective sustainability reports.

Risk management

PREVI uses a series of mechanisms and internal controls to adequately manage the risks resulting from its operations. They are a number of procedures set up to reduce and control the different risks involved in the administration processes of the entity's benefit plans. The fulfillment of each of them aims at the balance, at the optimization of the portfolio performance, at the compliance with the legal regulations, and last but not least, at maintaining the entity's capacity to meet its obligations concerning the payment of benefits to its participants.

Among those procedures, we mention below the following:

• The definition of operational limits concerning financial institutions and classification of Credit Risk;
• System control of Non Planned Deviation (Tracking Error) and VaR;
• Risk Management and Integrated Management of Assets and Liabilities;
• Identification and monitoring of operational risks;
• To keep track of and circulate legislation referring to Private Pension Funds;
• To control PI, the various Scenarios, Minimum Cash Limits and Liquidity Cushion.

The level of excellence achieved by PREVI under the current management can be verified by the quite satisfactory results of its plans, even under a difficult period due to the financial crisis that impacted all markets, the effects of which had to be carefully watched and managed.

Under that situation, the responsible teams adopted still other procedures, enlarging the quantity and quality of information available and reducing the time necessary for the evaluation of the risks involved in PREVI's investments.

PREVI praises the ethics and the conduct of its collaborators in their relationship with all publics involved in its activities. The entity's Code of Ethics is duly supported by conduct rules with procedures defined for all possible occurrences and respective sanctions. All policies and rules set up by that entity are published in PREVI's regulatory systems.

All PREVI actions towards the management of its investments are regulated by policies formally approved that must obey all the applicable legal parameters. Besides observing the pertinent legislation, the preparation of the investment policies for the plans managed by PREVI is done on the basis of different studies, projecting several economic scenarios and the respective actuarial liabilities, aiming at guaranteeing the payment of benefits to its participants.

Last period results

PREVI finished 2009 managing a total of R$142.4 billion in investment assets. The largest portion of those assets (63.5%) was invested in the variable income segment.

Investments in fixed income come next and represent 31.1 % of total assets, followed by real estate investments and loans and financing, each one of them responsible for 2.7 % of the portfolio.

Those funds represent the total assets of all three plans administered by PREVI. To Plano 1, the oldest one, corresponds (obviously) nearly all assets (almost 99 %). The remainder is shared between Plan PREVI Futuro and Carteira de Pecúlios (Capec).

The results obtained during that period were quite positive, harnessing the good moment of the Brazilian economy during a recovery period from the financial crisis. The accumulated profitability during the year reached 28.21%, exceeding the actuarial goal of 10.10 %.

In the investments field stand out the acquisition of four new office buildings, of which two in São Paulo and two in Brasília; PREVI's participation in the creation of BRFoods with the merger of Sadia with Perdigão; the restructuring of Ivepar, that with the admission of new partners, obtained the concession to explore the Raposo Tavares Highway in São Paulo and acquired the subway system in Rio de Janeiro.

Plano 1

Plano 1 reached again R$140 billion in assets. After deducting the funds not intended to support the Pension Funds, we come to a net amount of R$139 billion.

The maturity of Plano 1 prevents it from producing positive net-funding results, since the contributions received (contribution fund and pre-67 agreement) totaled R$2.2 billion against a volume of R$5.5 billion in paid benefits.

Its investments generated R$31.7 billion, as a result of an excellent performance of the variable income assets due to the recovery of the Stock Exchange during 2009.

Plano PREVI Futuro

Plano PREVI Futuro finished 2009 with total assets of approximately R$1,693 billion. After deducting the funds not dedicate to social security (basically, the "Fundo de Quitação por Morte" - [Remission due to Death] CARIM and ES), we come to a total of net assets close to R$1,689 billion.

The net amount of funds raised by that plan reached 587 million, which corresponds to 53.37 % of Total Assets outstanding at the end of 2008.

The income from investments, resulting from a profitability rate of 26.16 % in 2009, added to PREVI Futuro's assets R$323, 2 million.

During the year, approximately R$879 thousand were paid in terms of pension plan benefits.

Capec

"Carteira de Pecúlios" (Reserve Fund [nest-egg type]) concluded 2009 with R$140 million in assets invested in fixed income funds. Its profitability during the period reached 11.53 %.

Active participation in the management of investments

More and more PREVI has become a reference in terms of active participation in the management of the undertakings in which it participates. PREVI believes that pension funds must participate, as well as the other partners, in the orientation to be followed by the ventures in which it invests. To PREVI, the full practice of governance in the companies and other ventures in which it invests is more than a right; it is a duty closely related to responsibility assumed in the adequate management of its participants' funds.

That active attitude allows pension funds to contribute to the management of the undertakings in which they participate by means of elements inherent to the nature of their activity such as a long term outlook and financial discipline, among others.

Their contribution and participation in the management of the undertaking are through different ways, since by following up the investments carried out by the managers till indicating board members to those companies in which PREVI maintains an important stake. In addition, PREVI studies and publishes material about the best practices and gives references and directions concerning activities in different areas.

In accordance to its RSA policy in its relationship with companies in which it has a stock participation or keeps other kinds of investments, PREVI stimulates - directly or indirectly - the elaboration, implementation, strengthening and propagation of practices that increase its contribution to Brazil's economic, environmental, social and cultural development.

PREVI stimulates also the companies in which it invests to associate themselves to institutions or organizations aimed at the development t of sustainability practices, and to align their patterns of corporate governance to those standards already acknowledged and legitimated by the market.

Governance management references in participated ventures

Aiming at orientating the corporate governance practices carried out by the companies in which it invests, PREVI published in 2004 the PREVI Code of Best Corporate Governance Practices. Based on standards such as transparency, divulgation and responsibility, shareholders' rights, equal treatment, and corporate ethics, that code has become a fundamental instrument to guide the relationship among all agents who work in the participated outfits, or even in other companies who share the same ideals.

In 2009 PREVI extended its recommendations concerning governance to the real estate ventures, launching the PREVI Code of Best Corporate Management Practices in Real Estate Ventures. That code brings subsidies to discuss important blanks in the legislation that refers to real estate investments. As stated in that document, governance practices and laws already inserted in the capital market have not yet been properly propagated throughout the real estate one.

Those above referred to publications also include several recommendations related to sustainability and socio-environmental responsibility like, for instance: a greater transparency with regard to the divulgation of sustainability initiatives and practices, as per GRI (Global Reporting Initiative) directions; a prompt response to socio-environmental issues; to prioritize ethics and the development and protection of the natural environment; the adoption of practices that will produce economic, social, environmental returns compatible with the expectations of the several publics who interrelate with the companies involved.

The recommendation of good governance practices and socio-environmental responsibility serve as a benchmark to the work of the board members elected with the institutional support of PREVI and aim at the propagation of such practices in their respective companies.

Appointment of board members to the companies in which PREVI holds a minority interest

The professionals appointed to the Administrative Boards or the Audit Committees of the companies in which PREVI holds minority interests are identified according to their profile and for having the skills necessary for the function they are about to exercise, in agreement with the entity's policy for selection and appointment of board members.

The appointment of board member is certain in the companies in which it holds a majority interest. In those cases in which it holds a minority interest, PREVI tries to articulate with other minority holders in order to succeed in the election of board members.

At the end of 2009, 114 members in the boards of companies in which it holds a minority interest had been elected with PREVI's institutional support.

It is through work of those board members elected with its support, that PREVI tries to widen the dissemination of corporate governance practices and RSA, the purpose of which being: to optimize the company's performance; to protect investors, employees, creditors and other interested parties; to facilitate the company's access to capital markets. It aims also at providing a structure which clearly defines the business objectives, the best way to reach them, the control of its performance, orientating the company towards a sustainable growth and a socially responsible attitude.

PREVI pursues to motivate the board members elected with its institutional support to the importance of stimulating the insertion of sustainability aspects in the businesses of the companies in which that entity has a minority interest as well as in their relationships within the business chain. It further stimulates the members to bring up subjects related to socio-environmental responsibility in the boards' monthly meetings. Annually, PREVI sets up a meeting, in addition to other periodical seminars, with the participation of the members elected in the outfits where they have a stock participation. Among other goals, those meetings aim at the transmission of information related with socio-environmental responsibility and sustainability.