PREVI - Relatório Anual 2007

The profitability in the Variable Income Segment was of 50.94 %, exceeding Bovespa's (43.65 %) and very close to that of IBrX-50 (51.22 %). Despite the excellent performance, the stock exchange in 2007 showed some sharp fluctuations due, particularly, to problems abroad: restrictions with regard to the activity of speculators in the Chinese Stock Exchange; first indications of the real estate credit crunch (sub prime) in the U.S.A., in June; worries as to a recession in the American economy, in November. Those same factors started to produce more instability starting in the beginning of 2008, forcing the price of stock shares to fall in relation to the closing of 2007.

The Variable Income segment represents 65.73 % of total assets of Plano 1. The appreciation of the stock shares compensated the sale of R$5,512 billion in shares (against the acquisition of only 246 million). All sales were made in competitive conditions and at adequate prices, particularly that of PREVI's participation in Arcelor (R$1,617 billion), in which the final price was only defined after a staunch stand before that company's new owner. This portfolio produced also dividends and interests paid by the companies that reached R$2,4 billion and which directly contributed to the payment of benefits.

With regard to the accounting criteria, approximately half of the portfolio was evaluated by the method "Economic Evaluation" (as per regulation issued jointly by CVM and SPC), in which the responsible financial institutions applied fairly conservative premises. Consequently, the amounts entered in our balance sheet for that portion of our total portfolio is already "protected" from the recent market falls. The revaluations effected in December of Litel (that represents our participation in the controlling interest of Vale), of 521 Participações and of Neoenergia generated a positive impact of R$15,2 billion.

Portfolios
Previ's Variable Income segment is divided into four portfolios: Participations, Reorganization, Market and Special Management. This assures a better management of those assets and a more accurate follow-up of the liquidity and governing indicators, by example.

PREVI's Own Portfolio

1. Participations
Are assets in which PREVI participates of the controlling block. Represent 48.50 % of the Variable Income portfolio. In 2007, those shares reached a profitability of 57.53 %. Since 2006, to comply with the determinations of the Stock Exchange Commission (Comissão de Valores Mobiliários - CVM) as expressed in the Notice CVM / GMA - 3 / n°0072, of April / 25 / 06, PREVI adopts the annual periodicity to revaluate the economic value of those assets which show no liquidity, held in several finds. Shares which have a poor or no liquidity held in PREVI's own portfolio are also revalued by their economic value, in order to reach an equanimity as to the value of same, independently or where they might be allocated., whether in its own portfolio or in investments funds.

Assets representing shares of 521 Participações / CPFL Energia, Neoenergia and Litel - the vehicle through which PREVI participates in Vale do Rio Doce - represent 30.3 % of the amount that guarantees Plano 1. Such assets represent 91 % of the Participation Portfolio, which paid R$1,13 billion in dividends and interest on capital. The asset variation produced by the economic revaluations of those assets reached R$15,2 billion.

2. Reorganization
In 2007 the process of Kepler Weber's financial and operational reorganization was concluded, an essential step towards the strategy of appreciating that company and provide it with liquidity in the future. According to the terms of Reorganization Agreement, shareholders PREVI, BB Investments and Serpros, capitalized the totality of their credits against that company e put in new money through stock subscription.

The profitability accumulated in 2007 was 38.43 %, lower than the 51.22 % of its benchmark. We should point out the excellent profitability attained in Usiminas ON (32.30 %), Bradesco On (25.20 %), Ambev ON (35.56 %) and Acesita PN (84.37 %).

3. Market
R$39.01 billion, or 41.50 % of investments in Variable Income are allocated in this portfolio. It includes leading market companies that show a perspective of good results, such as Banco do Brasil, Petrobras, Ambev and Embraer, which belong to the IBrX-50 index. Their profitability of 45.19 % exceeded that of Ibovespa index (43.65 %) during 2007.

4. Special Management
Shares from companies which do not fit in the other portfolios are placed here. In includes amounts reaching R$278,98 million, or 0.3 % of total Variable Income investments. Their profitability in 2007 was of 53.83 %, higher than that o IBrX-50 (51.22 %)

Third Party Portfolio

Composed by papers representing short term transactions (Marisol and Alfa, for example) and papers managed via investment funds (BB Ações Price, FIEE, Infra Fund, among others). Their profitability was of 19.45 %. Resources allocated in that portfolio reach R$669.4 million, or 0.74 % of total investments in Variable Income.

PREVI, in 2007, continued with its investments in private equity and venture capital funds, initiating a second process of selection of funds, which is now in the phase of due diligence - occasion during which take place profound studies on the information provided by their managers.

The Investment Committees of the funds approved in the previous process - InfraBrasil FIP and Fundo Logística Brasil FIP (Private Equity); Fundotec II and Rio Bravo Nordeste (Venture Capital) - approved the investment of new funds in companies, amounting to R$518,7 million. Out of the total PREVI investment commitments - R$177 million, R$25 million were subscribed. The remainder will be invested in proportion to the concretion of investments by those funds in the companies.

Alienations: in search of liquidity and adjustment of PREVI's position in the Variable Income segment.
PREVI has gradually sold stock participation in compnies, in a process technically known as "desfazimento" (undoing). Suchs strategy is part of the actions contemplated in that Institution's Adjustment Plan, which requires the reduction of our exposure in Variable Income - now reaching 65.73 % -, to 50 % in 2012. Within that context, the acquisition of new assets through subscriptions is only related to strategies aiming at the recuperation and reorganization of companies.

In 2007, approximately R$5,5 billion in shares from the Market, Special Management, Reorganization and Third Party Management were alienated. Special emphasis should be given to the sales made through Public Offerings: Arcelor ordinary shares (R$1,6 billion) and Banco do Brasil ordinary shares (close to R$440 million of the basic offer). Also through Public Offer, in partnership with BNDESPAR, PREVI sold a portion of its Banco do Brasil shares. The objective here was that of appraising the remaining stock. Other stock shares were sold during that year, particularly the 30 % share of capital held in Usiminas, by R$535 million. That sale was made by means of a local and international secondary offer, together with Vale.

Dividends and interests on companies' capital

In 2007, PREVI received close to R$2,4 billion in dividends an interests on companies' own capital. In the table below, are listed the companies that paid the equivalent to more than 80 % of total dividends and interests recorded by PREVI.