EXPLANATORY NOTES 1.Operational Context | 2. Benefit Plans | 3. Presentation of the Financial Statements | 4. Relevant Fact |
5. Main Accounting Practices | 6. Receivables - Pension Program | 7. Receivables - Investment Program | 8. Fixed Income | 9. Variable Income | 10. Real Estate Investments | 11. Operations with Participants |
12. Investments - PREVI Futuro Plan | 13. Investments - Annuity Portfolio - CAPEC | 14. Operating Liabilities | 15. Contingency Liabilities | 16. Actuarial Liabilities | 17. Mathematical Provisions - Benefit Plan 1 | 18. Mathematical Provisions - PREVI Futuro | 19. Technical Balance | 20. Found | 21. Income Statement

FIXED INCOME

The Fixed Income portfolio on December 31st, 2006 and 2005 can be demonstrated as follows:


(1) Allocated to PREVi's own portfolio

(2) Exclusive Investment Funds: 86. 80% of the allocated assets are represented by Federal Government bonds.

(3) Exclusive Investment Fund: 100% allocated to Federal Government bonds


The movement of the Fixed Income portfolio, with a variation of R$ 5,152,129 thousand, presented the following composition: investments totaling R$ 10,616,208 thousand, disinvestments totaling R$ 10,359,199 thousand, valuation equal to R$ 34,844,162 thousand, amounts receivable totaling R$ 227,861 thousand and provision for losses (restatement of debentures) of R$ 176,903 thousand.


The investments in Federal Government bonds included in PREVI's own portfolio were increased to R$ 4,900,195 (R$ 2,014,888 thousand in 2005), motivated by the benefits resulting from the Investment Account, such as the non-incidence of CPMF (Provisional Contribution on Financial Operations) on the re-application of investments. These funds are the result of entries in PREVI's cash flow, such as rents, dividends and the sale of variable income assets, in this last case in order to contribute to the adjustment of the percentage of this segment to the limits required by CNM Resolution No. 3121/2003. These investments are concentrated in Financial Treasury Bills (LFT), indexed to the SELIC rate, and in NTN-B (National Treasury Notes), which are indexed to the IPCA inflation rate.


The applications in Financial Institutions include the recording of Bank Deposit Certificates and Investment Fund quotas, of which 97.5% belong to the Benefit Program 1. The remaining 2.5% is distributed between the PREVI Futuro Plan (BB Maxi) and the Annuity Portfolio (BB Capec).


Part of the Litel Participações/Vale do Rio Doce and of the 521 Participações/CPFL/Neoenergia shares was acquired in the past by means of the exclusive BB Fixed Income IV Investment Fund. These shares continue recorded in this fund, although they represent Variable Income assets. The restatement of these assets, by the economic value criterion, positively impacted the Fixed Income portfolio in R$ 729,379 thousand, as shown in the following table:


See item 9 -b of these Notes (Variable Income).


The amounts relative to the Embaúba, Invesc, Teka, Hopi Hari and Eletrometrô company debentures, acquired during the period between 1984 and 1999 are recorded in a provision for losses.


In observance of Article 8 of CGPC Resolution No. 4 dated 01/30/02, the amounts of the own portfolio securities and those allocated to exclusive investment funds classified as "securities for negotiation" and "securities to be held until maturity" are presented below (by maturity group, in years):


a) Securities for Negotiation


* For simple comparison, the securities for negotiation that are valuated at market price are presented at their restated acquisition cost.


b) Securities Held Until Maturity


* For simple comparison, the securities that are valuated at restated acquisition cost are presented at their market price.


The "Securities Held Until Maturity", all included in Benefit 1 Plan, are allocated in exclusive investment funds and in the own portfolio. From the total of R$ 9,320,719 thousand relative to NTN-B, indicated above, R$ 2,769,365 thousand were reclassified on 12/29/2006 from the category "Securities for Negotiation" to "Securities Held until Maturity", based on market price, for the following reasons:


a) immunity to market variations;


b) improved risk management of the fixed income portfolio, considering that the restatement of these assets will occur in the same proportion as the actuarial liability;


c) Adjustment of the fixed income portfolio's maturity to the long-term cash flow;


d) PREVI's financial capacity to maintain these securities and bonds until their maturity, as corroborated by the actuarial management.



Justifications:


a) the disposal operations of the Federal Government bonds, classified in the category ""Securities Held until Maturity", were conducted simultaneously to the purchase of new bonds of the same type, with longer maturity dates and in an amount superior to the disposed bonds, not mischaracterizing the EFPC intention upon classifying the same in the referred category, in accordance with CGPC Resolution No. 5, dated 08/23/2005;


b) The roll over operations of bonds already accounted for by the yield curve (paragraph "a") were performed in National Treasury exchange auctions and were justified by the following reasons:


high perspective of return with the operation, in relation to PREVI's internal scenarios and the market, relative to the evolution of the nominal and real interest rate;

mitigation of the risk of re-investment of the investments in fixed income;

maintenance of the coupon receipt flow for an extended period of time, contributing to PREVI's cash management.