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The Social Security Institution of Banco do Brasil employees – PREVI – is a closed institution of complementary social security, with no profit purpose, which obeys by the regulations of the Social Security Ministry – MPS, through the Complementary Social Security Management Council (GCPC) and the Secretary of Complementary Social Security (SPC). By the end of 2004, the SPC changed it’s title to Complementary Social Security Policy Secretary (SPPC), agreeing with art. # 15 of MP (Provisional Measure set by Law) #233, of Dec. 30, 2004. The fiscalization and supervision activities of the closed institutions of Complementary Social Security moved then to the custody of the Complementary Social Security National Superintendence (PREVIC). The same MP established the Complementary Social Security Fiscalization and Control Rate – TAFIC, a quarterly indicator, which generator factor are the institution’s guaranteeing resources. The resources PREVI possesses are represented by contributions from its sponsors, mainly Banco do Brasil S.A., and from its associates, inflowing in a parity way, as well as from these resources investment returns, obeying the limits set by the National Monetary Council’s resolutions. During the 2004 administration, PREVI got on to many operations on the financial market with Banco do Brasil S.A. and it subsidiary BB DTVM. In fact, PREVI also has with Banco do Brasil a financial liquidation and custody of fixed and variable income assets service agreement, in accordance to Resolution CVM #3121/03. With the amendment to Law #11.053 of Dec. 29, 2004 Complementary social security non-profit institutions are exempted from IRS contribution.
Benefit Plan 1 Assigned benefit plan. Are associated to this plan those who were PREVI associates in Dec 23, 1997; and PREVI Futuro Benefit Plan Assigned contribution for programmed benefits, and assigned benefit for risk benefits. Its regulation has been approved by the SPC in June 10, 1998. The SPC inaugurated, by means of the Resolution CGPC #14, of Oct. 1, 2004, the National Registration of Complementary Social Security Institutions Benefit Plans (CNPB), which goals are to sharpen the control mechanisms over each benefit plan. With this tool, plans will gain greater visibility, which means more transparency and legal security for the parts involved, especially associates, sponsors and institutions.
The 2004 Accounting Statements were prepared and are being exposed in conformity to the current Brazilian accounting norms, observing the Resolution #5, of Jan. 30, 2002 and its late alterations. PREVI balance sheets are divided by Benefit plan, in order to donate greater transparency on the accuracy of results and to keep fiercer control of resources migration amongst the different programs and benefit plans. Accounting statements are reported in million R$, in accordance to the specific legislation applicable to institutions of complementary social security, in a consolidated form and by benefit plan.
The legal process held against PREVI in December 2002, referring to Social Contribution over Net Profit – CSLL – of the 1997 administration, in the amount of R$2,161,189 thousand, updated by the Selic rate, reached a total charge cost of R$2,700,000 thousand in Dec. 31, 2004. The legal report that had previously evaluated the lawsuit as very likely to succeed has changed its forecast to a “possible success” opinion. The Board, basing their judgment on this report and on the Brazilian and international accounting practices guidelines, has maintained the relief of constituting the provision.
The result is attained by means of a competence regimen. In the same way are assessed yields such as bonuses, dividends and interests over own capital. Fixed income bonds are categorized under “for negotiation” and “to be held until maturity”, recorded at purchase cost, added to reported pro rata/day yields up until balance date, adjusted to the probable value of the realization, as determined by Resolution CGPC #4, of Jan. 1, 2002. Any or none goodwill on acquisition are amortized pro rata from the acquisition term until the bond’s maturity. Shares purchased in the spot market are recorded based on their purchase value, plus brokerage and other taxes, and evaluated at market price by the average quotation on the date closest to balance date, on the stock market where the share has the most liquidity. Shares purchased in the spot market and over-the-counter market, for a longer-than-6-months term, are appraised by their last asset value or share cost, whichever is the lowest. Amounts relating to investment funds are represented by their quotas price on balance date. Real Estate investments are recorded at acquisition or construction price and regularly adjusted according to re-evaluations. They suffer straight-line depreciation (except for land) at a 2% rate y/y or at the rates corresponding to the usefulness term fixed on the re-evaluations. Facilities suffer 10% y/y linear depreciation. Real estates are re-evaluated on a regular basis, according to operative legislation. Re-evaluation adjustments, whether positive or negative, are accounted for on the specific accounts as compensation to the result. Operations with associates refer to simplified loans and real estate/home financing and their balance includes mainly interests and monetary correction up until balance date. Provisions referring to doubtful liquidation credit rights were arranged, according to the criteria set by CGPC Resolution #5, of Jan. 30, 2002. Intangible assets suffer linear depreciation at the rates corresponding to the usefulness term fixed by kind (In). Software expenses are amortized at 20%y/y rate. PREVI started applying INPC as actuarial index from June 1st, 2004, with proper SPC approval, replacing the previous index IGP-DI. Private Income tax was calculated and collected based on the Special Taxing Regimen RET, as per MP #2.222, of Sep. 4, 2001, effective until Dec. 31, 2004, revoked by Dec. 29, 2004 Law #11.053.
6.1. Realizable – Social Security Program
The values listed under “Resources to Receive” in 2003 refer to additional Social Security contributions (June through December 2003), an outcome from the Institution’s decision to adjust benefits by the total IGP-DI variation, received in early 2004. The INSS advance payments represent the amount to be put back by the INSS regarding payment of benefits under their responsibility, advanced by PREVI on the associate’s payroll. Under “Others” are recorded values to be received by associates on account of payments made, like: advance on benefit, benefits canceling, ending of benefits due to fatality.
6.2. Realizable – Investment Program The investment program, which comprises fixed and variable income bonds, real estate investments and operations with associates, has reached the amount of R$70,332,029 thousand (R$57,854,138 thousand in 2003).
6.2.1. Fixed Income
1Committed Transactions
The Fixed income portfolio variation, in the total of R$5,458,246 thousand, is a product of the valuation of new investments (R$3,466,385) and redemptions (R$815,086) portfolios. Under Financial Institutions Investments are reported Investment Funds represented by quotas, of which 98% belong to Benefit Plan 1. The remaining 2% are shared between PREVI Futuro Plan (BB Maxi) and BB Capec. PREVI has received R$4,763 thousand in Brasil Telecom S.A and Telemar Norte Leste S.A. shares, due to an agreement referring to debentures issued by Teletrust S.A., in a total amount of R$83,432 thousand already accrued; the R$78,669 thousand was put down as loss. The investments track record had been divulged on the PREVI Bulletin #102, of October/November 2004. Remain listed under provision for losses the values related to debentures of Invesc (R$571,353 thousand), Teka (19,866 thousand) and Hopi Hari (25,664 thousand) acquired in 1995, 1996 and 1997 respectively. According to art. #8 of CGPC Resolution #4, of Jan. 30, 2002, below are listed the own portfolio bonds, as well as the ones allocated on exclusive investment funds, categorized as “for negotiations” and “to maintain until maturity” (for maturity term, in years):
The “Maintain until Maturity Bonds”, all from Benefit Plan 1, are allocated on exclusive investment funds and were reclassified in Dec. 31, 2004 from “Bonds for negotiation” to “Maintain until Maturity”, based on market price, for the following reasons: a) Immunity to market variations; b) Improved risk management of fixed income portfolio, keeping in mind that assets restatement will occur in the same proportion as actuarial liabilities’; c) Conformation of fixed income portfolio's maturity to long term cash flow; d) PREVI’s financial capacity to maintain these bonds and real estates values until maturity, as attested by actuarial management.
6.2.1. Variable Income
The spot market encompasses shares from several companies, with highlights to the ones with greater financial volume: Banco do Brasil, Petrobras, Ambev, Itaubanco, Embraer, Usiminas, Neoenergia, Vale do Rio Doce, Bradesco, Itausa, Belgo Mineira, Telemar and Caemi. The BB Multimarket Portfolio Fund holds 84% of 521 Participações S.A, a specific purpose partnership with stakes on companies of the electricity sector like CPFL Energia, Neoenergia and Itapebi. Based on CGPC #4 Resolution of Jan. 30, 2002, and CVM Instruction #340, of June 29, 2000, an economic evaluation of Litel Participações S.A. was conducted. Litel holds stakes on Valdepar, major controller of Cia. Vale do Rio Doce, that has shares on the BB Active Portfolio, BB Fixed Income IV and Proprietary investment funds, in a total value of R$11,761,554 thousand (R$8,329,712 thousand in 2003), with positive adjustment of R$3,481,842 thousand, as can be observed on the following chart:
Remains reported under provision for losses the amount of R$18,770 thousand, referring to accountable value of shares of the companies in bankruptcy process (Banco Econômico, Casa Anglo and Banco Nacional), acquired in the 1991 to 1998 period. Below are listed the Proprietary Portfolio and exclusive investment funds shares that have not been negotiated in the stock market or over-the-counter market, in the past 6 months:
1Cost: Acquisition Cost
1Cost: Acquisition Cost
6.2.3. Real Estate Investments
A provision for loss was constituted in the amount of R$20,000 thousand, related to the ordinary injunction on the trade issue of the 7th floor and technical floor of the Centro Empresarial Mourisco building, issued by Brascam Imobiliária Incorporações S.A. and AC Lobato Engenharia S.A. Provision for losses regarding the “Fundação Umberto Advances to Recoup” was reinforced in R$14,873 thousand, totaling R$72,262 thousand in Dec. 31, 2004 (R$57,389 thousand in 2003). CMN Resolution #3121, of Sep. 25, 2003, establishes that real estates must be re-evaluated at least once every three years. Out of the 108 estates that make up PREVI’s portfolio, 48 have been re-evaluated based on reports of independent companies, out of which only 13 were mandatory. The other 35 estates were re-evaluated in consequence of the decision to dilute the concentration of re-evaluations in one single administration’s term.
The negative R$45,218 thousand result regarding to 2004 re-evaluations can be explained, mainly, by the re-evaluation of the Sauípe Complex, which accounting value suffered a reduction of R$130,500 thousand. From amongst the methods used by the appraisal company and allowed by Brazilian Technical Norms Association – ABNT - the Board of Directors decided, based on prudence and judging the fact that there are no similar ventures in the market for comparison effects (as a still maturing resort model), to use the same criteria used in the re-evaluation of Le Méridien Hotel in 2003, the “economic valuation” one (discounted cash flow), which resulted in a conservative re-evaluation. 6.2.4. Operations with Associates
The decision to raise simplified loan table limits from R$15 thousand to R$25 thousand, at the end of 2003, had a positive impact on the 2004 loan portfolio, raising the value of concessions and renovations in 27,64%, compared to the previous year, highlighting the PREVI Futuro Plan that totaled R$22,566 thousand (R$5,518 thousand in 2003). Real Estate Financing Portfolio went through a sanitizing process started-off by the end of 2002 with the setting up of project “Nova Carim”, which main goal was to eliminate potential risks of contracts through advanced settlements. In 2004, there were 1,957 advanced settlements with homeowner’s own resources, which represented an inflow of R$105,624 thousand to the portfolio, 4,532 contracts reviewed, with adjustments in the amount of R$200,394 thousand compensated against the real estate financing fund. On Oct. 31, 2004, a new real estate financing portfolio control and management system was implemented, allowing the revision of contracts. Observed alterations were incorporated to debit balances, which represented an increase of R$75,917 thousand in portfolio balance. The provision for Real Estate financing portfolio outstanding debtors reached R$853,976 thousand (R$691,673 thousand in 2003). 6.3. 6.3 Recurring – Deferred On Dec. 30, 2004 the expense balances of the Controller (R$1,217 thousand) and Organizational Architecture (R$411 thousand) project were completely amortized, since they already had produced results for PREVI.
7.1. Operational Demanded The Operational Demanded Liability category is subdivided in Social Security, Administrative and Investment Programs, and reports PREVI’s operations obligations. 7.1.1. Social Security Program Under this program are accounted advanced amortizing contributions foreseen on the PREVI / Banco do Brasil S.A. contract signed on Dec. 24, 1997, amended on Feb. 9, 1998. On Dec. 31 2004 the balance reported R$9,044,823 thousand (R$6,832,723b thousand in 2003) updated based on INPC plus 6% y/y as from June 2004 (until May 2004 based on IGP-DI + 6%y/y). 7.1.2. Administrative Program Under “Bills to be Paid” were reported values in the amount of R$1,364 related to general expenses and acquisition of permanent assets (computers, peripherals and software) on the 2004 administration, payment for which will occur in 2005. 7.1.3. Investments Program Highlighted under this category is the fiscal obligation in the value of R$18,719 thousand, regarding income tax over investments of 4Q04, calculated according to the Special Taxing Regimen – RET.
7.2. Contingency Demanded The chart below shows the structure of contingency provisions, by Programs, reporting facts that may call for decisions that might or might not generate disbursement.
7.2.1. Social Security Contingencies Based on the Legal Counsel’s opinion and having observed the risks pointed out, PREVI constituted a provision that reached R$ 367,552 thousand (against R$337,819 thousand in 2003) to be able to face suits by former associates on personal and assets contributions devolutions. 7.2.2. Fiscal / Tributary Contingencies In November 2004, the provision related to income tax over fixed income yields attested on the previous administration in the amount of R$116,343 thousand was reversed due to the fact that PREVI had obtained a favorable result to its court appeal with the Tax Payers Council. 7.2.3. Other Contingencies Remain reported under the Investments Program contingencies the R$271,570 thousand destined to provide for debt balances of real estate financing contracts by adhesion to the Nova Carim project, as well as R$19,672 thousand for workforce and taxes debts’ liabilities related to Fundação Umberto I.
7.3. Actuarial Demanded The mathematic provisions were defined based on actuarial calculations made by Board of Directors of Security experts, according to a report dated Feb. 2, 2005.
The actuarial evaluation of Benefit Plan 1 and PREVI Futuro Plan was based on record data of December 2004. The Modified Mortality Table GAM 71 was utilized in the evaluation. The actuarial report proposes the adoption of the Mortality Table GAM 83 for Benefit Plan 1 and PREVI Futuro Plan. The proposal “shall be subjected to actuarial, legal and accounting analysis jointly with the Sponsor, in order to have it implemented on this administration.” (2005, our quote), according to the Advisory Council’s decision of Jan. 24, 2005. 7.3.1. Mathematic Provision’s Mutations
7.3.2. Mathematic Provisions – Benefit Plan 1
These values were arrived at based on the following costing plan: Active Associates: 3% over PREVI’s profit-sharing-remuneration, plus 2% over gap between profit-sharing-remuneration and Parcela PREVI’s 50% difference, plus 8% incising on difference between profit-sharing-remuneration and Parcela PREVI; Assisted Associates: 8% of retirement pension’s total value; Sponsors: Identical value to associates’ contributions. Besides these contributions, Benefits Plan 1 costing foresees, in the form of a deal signed on Dec. 24, 1997 with Banco do Brasil S.A., amended on Feb. 9, 1998, that the Plan shall make monthly contributions equaling the totals of expenses with payment of complementary retirement benefits to associates who joined BB until April 14, 1967 and retired after that date. Part of this contribution is accounted as “Ordinary Amortizing Contribution” (53,6883529% of the total expenses), and the rest as “Advanced Amortizing Contribution”.
7.3.3. Mathematic Provision – PREVI Futuro Plan
These values were obtained as per the following costing plan: a) PREVI Futuro Plan is divided in two parts, essentially: Part I is managed as assigned benefit and Part II as assigned contribution; b) Associates and sponsors’ contributions are of parity and mandatory, and correspond to 7% of profit-sharing-remuneration; c) Part I (related to active associates’ disability and death risks) had its rate fixed in 0,58% incising over the associate’s profit-sharing-remuneration, with equal ratio credited by sponsors; d) Part II (related to Retirement Monthly Income, Advanced Retirement Monthly Income and Pension by Death Monthly Income’s programmed risks) had its rate fixed in 6,42% incising over the associate’s profit-sharing-remuneration, with equal ratio credited by sponsors;
The surplus is calculated by the difference between Liquid Assets (Assets minus Operational and Contingencies Demanded and Funds) and Mathematic Provisions. It is reported under Contingencies Reserve up until the limit of 25% with relation to total commitments. Whatever goes over this limit is reported under Plan Revision Reserves. Benefit Plan 1: The administration’s results in the amount of R$5,714,302 thousand, added up to the accumulated results reached R$9,762,765 thousand, parallel to 22% of total commitment. PREVI Futuro Benefit Plan: Because it is a mixed plan, though essentially of assigned contribution, it is not regular for this plan to report surplus/deficit, only residual variations of actuarial taxes, when applied to Part I, where risk benefits are calculated, corresponding to an assigned benefit regimen.
Funds progression is depicted below:
9.1. Social Security Program Remains unchanged the legal situation regarding the Fiscal Director’s decision that originated parity funds constitution. It is under course an understanding between Banco do Brasil and SPC around this matter. These funds continue to be reported under social security program’s funds, adjusted by IGP-DI + 6% y/y until May 2004 and by INPC + 6% y/y from June 2004 onwards, and had reached R$5,596,895 thousand by the end of the administration (R$4,840,619 thousand in 2003).
9.2. Administrative Program The administrative program fund’s finality is to work as a guarantee to exceeding PREVI’s administration maintenance expenses. It comprises the positive result from the program’s revenue/expenses calculations. By the end of 2004 it had reached the amount of R$R$154,379 thousand (R$121,093 thousand in 2003). Since Jan. 2004 the Administrative Fund started to be remunerated based on the net results of the investments program. The change in remuneration criteria was defined by the Executive Board, in accordance to CGPC Resolution #5, of Jan. 30, 2002. 9.3. Investments Program The investments program fund comprises monthly rates charged over simplified loan and house financing installments, established by the effective legislation. It is directed to the pay-off of such transactions, in the event of the associate’s death, of any residuals that may exists after contractual term, as well as to the support of debit balances of house financing contracts of associates that have joined the “Nova Carim” project. To this end, R$200,394 thousand was spent.
The administration’s results came in positive, at R$5,714,302 thousand (R$7,670,086thousand in 2003). As a consequence, accumulated surplus reached R$9,762,765 thousand. To this picture have contributed variable income investments (32,99%), fixed income investments (19.06%), reported above actuarial target (15,70%). The variable income sector, with a 59,22% share of the investments by the end of the administration, was highly impacted by the stock market behavior. Also worth mentioning are the IGP-DI variations, since until May 2004 it has been the actuarial adjusting index. We must highlight still, on the results composition, the positive R$3,431,842 thousand adjustment on Litel Participações S.A.’s evaluation by its economic value, held in December 2004. The table below shows the result’s structure, divided by programs and stressing – other than origin programs – Mathematic Provisions and the BB-PREVI contract.
10.1. Investments’ Results Out of the Investment’s Program total sported result of R$13,714,881 thousand, R$13,685,665 thousand were transferred to the social security program and R$29,216 thousand to the administrative program, standing in as the respective programs investment remunerations. 10.2 Social Security Program Result Under this program we highlight the Collected Resources (contributions from sponsors and associates) in the amount of R$2,506,219 thousand; as well as Utilized Resources, at a total R$5,674,103 thousand, referring to retirement and pension benefits payments; updating of the BB-PREVI contract; RESOURCES DEVOLUTION; Capec; and CPMF.
The management costing’s main objective is to provide for the Institution’s management expenses, and it is generated by the following sources: a) Social security management costing – refers to 5% of social security ordinary resources collected monthly, allocated directly on the program, as foreseen on the benefit plan’s policy guidebook; b) Investment’s management costing – based on the monthly pass through of investments program's resources corresponding to management expenses originated during the program’s administration. In order to identify all common areas’ management expenses, the apportionment criterion is used, based on each area’s personnel expenses (social security and investments) plus the percentage of the actual “physical” area taken up by the activities. Applying these parameters, the attained ratio is of 68,41% for investments management and of 31,59% for social security management. With regards to assessment of management costing of the benefit plans’ investment, is applied the net-asset share ratio of each plan over the investment’s management expenses.
Established by Banco do Brasil S.A. and PREVI in order to serve associates who joined BB from 1998 onwards as well as those on PREVI’s payroll. The Plan reported an R$104,418 thousand increase on investment assets, partially in consequence of the achieved profitability and of new associations in 2004.
Capec manages – under conditions defined by self-regulation - a portfolio system that comprises plans covering death and disability, maintained with specific contributions from its associates, which reached in 2004 the total amount of R$69,015 thousand (R$72,302 thousand in 2003). The Capec reserves are self-reliant and cannot be mixed up with the ones from the retirement and pension plans, though included in the social security program. The Capec Fund accumulated R$98.542 thousand (against R$89,183 thousand in 2003) as the administration’s result.
13.1. Balance Sheet – Capec
13.2. Results Statement – Capec
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