Annual Report 2011 Stichting Pensioenfonds Fluor Nederlandnls.fluor.com/files/ANNUAL REPORT...

Annual Report 2011 Stichting Pensioenfonds Fluor Nederland


Page 3 of 69

Table of contents

Annual Report 6

1. Key figures 8 2. Report of the Management Board 10 3. Report from the Members’ Representation Council 25 4. Investment report 27 5. Report from the Accountability Body 29


Page 4 of 69


Page 5 of 69


Page 6 of 69

Annual Report


Page 7 of 69

Disclaimer: This is a translation of the Annual Report 2011 of Stichting Pensioenfonds Fluor Nederland. In case of differences between the Dutch and this English translation, the Dutch version will prevail.


Page 8 of 69

1. Key figures

2011 2010 2009 2008 2007 Members (numbers) Active members 743 758 868 901 837 Disabled persons 15 15 16 0 0

Subtotal 758 773 884 901 837 Former members 714 678 602 593 565 Pensioners 499 471 439 421 401 Total number of members 1,971 1,922 1,925 1,915 1,803

Amounts (x €1,000) Investments at the risk of pension fund - Real estate investments 18,360 19,460 15,723 3,777 6,637 - Equities 62,760 72,625 68,198 41,648 63,055 - Fixed-income securities 222,696 169,689 148,545 138,418 140,660 - Derivatives 0 0 0 2,246 713 - Other investments (including

investment claims) 19,775 21,251 18,083 6,382 7,032 - Total investments 323,591 283,025 250,549 192,471 218,097 Founding capital and reserves 15,132 21,777 17,751 (4,739) 41,948 Underwriting reserves 305,677 263,377 232,748 218,735 176,006 Cover ratio FTK (%) 104.95 108.27 107.63 97.83 123.83 Market interest RTS 2.73 3.45 3.96 3.44 4.91 Indexation pensions commenced (%) - - - 1.3 1.7 Premium contributions - Actual premium 10,564 10,197 11,149 11,274 10,373 - Break-even premium 7,066 11,234 10,606 11,995 7,341 - Moderated Premium 6,647 11,068 - - - Pension benefits paid 9,190 9,253 7,871 7,466 6,873 Past-service single premium 3,602 400 3,166 3,417 5,980 Pension administration costs 397 460 339 458 416 Investment result at the risk of the pension fund 34,366 34,576 33,049 (27,306) (4,904) Investment return1 (%) 14.92 13.56 14.55 (12.30) (2.20) State pension offset 16,500 16,400 16,000 15,600 15,300

FTK = Financial Assessment Framework (Financieel Toetsingskader); describes the basis on which the pension commitments are calculated effective from 1 January 2007.

1 For 2009 this percentage is based on the investment result realised from the moment of transfer of the investments to AEGON Asset Management in early February of 17.7% and the return in the month of January at Fortis ASR of -/-2.7%.


Page 9 of 69

RTS = Interest Term Structure; a series of interest swap securities in terms of percentage for a period of 60 years. For each year an interest percentage is established by which the commitments for that year are discounted. For commitments with a term exceeding 60 years, the interest percentage of 60 years is used. This interest curve replaces the traditional 4% notional interest rate. The RTS is part of the FTK and is published monthly by the Dutch Central Bank (DNB).


Page 10 of 69

2. Report of the Management Board

All amounts in this report are in euros, unless indicated otherwise.

2.1. General

2.1.1. Scope of application of the Fund The foundation "Stichting Pensioenfonds Fluor Nederland (the "Fund") is the service provider of the pension scheme of Fluor B.V., Fluor Consultants B.V and Fluor Infrastructure B.V. For a description of the scheme executed by the Fund in the financial year 2011, reference is made to the foundation’s pension regulations as amended at July 2008. These regulations have meanwhile been updated on a number of points (version January 2012) and will be placed on the Fund’s website in the spring of 2012 (pension.fluor.nl). A popular version has been created of the pension regulations, which can also be found on the website.

2.1.2. Reinsurance Effective from 1 January 2009 a five-year reinsurance agreement has been concluded between the Fund and AEGON Levensverzekering N.V. (AEGON). Since September 2011, the asset management is fully conducted by AEGON Asset Management (AEGON). Before this period, the fund used Alliance Bernstein as 2nd asset manager. Due to disappointing results over a considerable period, the Fund’s Management Board decided in 2011, on the advice of the investment committee, to end the relationship with this asset manager. AEGON Investment Management reports monthly to the Fund on the investments. This report is discussed at the monthly board meetings and explained in more detail by the investment committee, after which the report is also discussed at the consultative meeting with the Members’ Representation Council. The investment result fully accrues to or is fully charged to the Fund. The pension commitments for the financial year 2011 are valued at market value as laid down in Financial Assessment Framework (FTK) prescribed by the Dutch Central Bank (DNB). For the contract years 2009 up to and including 2013 a profit sharing scheme has been agreed. The Fund shares for 70% in a positive result. Any negative result will be charged in full to the reinsurer. Although in legal terms this is still referred to as reinsurance, in practice this involves an almost fully own-risk bearing fund. The Fund is therefore considered as such and is held to comply with the comprehensive disclosure requirements as set out in the DNB guidelines.

2.2. Course of events in 2011

2.2.1. General The year 2011 was an extraordinarily interesting year for pensions. In June 2011, the cabinet reached an agreement with the employers’ organisations and trade unions about the future of the pension system in the so-called pension agreement (pensioenakkoord). This pension agreement contains various measures that are required to keep the pension provisions affordable, amongst which a higher retirement age and a flexible state pension (AOW). The details of the pension agreement will affect both the employment conditions (contract, working longer, a change of the social insurance system) and the pension schemes. In January 2011, the pensions register also became operational. This register is an initiative of the joint Dutch pension funds, pension insurers and the Social Insurance Bank (SVB). Via the website www.mijnpensioenoverzicht.nl every Dutch citizen can view the pension entitlements he or she has accrued with pension funds and pension insurers and/or his or her state pension (AOW) rights. Please note: this site is in Dutch only and requires a Digid (digital ID issued by the Dutch government) In addition, the Financial Assessment Framework was adjusted and the interest rates fell to a historical low.


Page 11 of 69

The year 2011 is also characterised as the year in which, as in the financial year 2010, the subject of pension frequently featured in the media, in particular as far as the cover ratio or the cutting back of pension entitlements was involved. Four consultations with the Members’ Representation Council took place in 2011 and 11 board meetings were held. There were also several changes in the composition of the Management Board. In 2011, the Management Board and the administrator dealt with a large number of action points that will be explained briefly in this report.

2.2.2. Slight recovery of the financial markets and the capital position of the pension fund The cover ratio is the capital position indicator for a pension fund. A cover ratio of 100% means that a pension fund’s assets exactly cover its liabilities. The government wants pension funds to have extra cash and requires a cover ratio of at least 105%. In addition, a pension fund must have a reserve that is related to the investment risks. For the Fund this means a cover ratio of 111.6%. In the course of 2008 the Fund was faced with a cover ratio that was below 111.6%, which resulted in a so-called reserve deficit. This was reported in October 2008 to the Dutch Central Bank (DNB), the regulator of the pension funds. In December 2008 the fund was required to report a situation of underfunding (cover ratio below 105%). As a result of this, a recovery plan had to be submitted to DNB in early 2009. In this recovery plan, the Management Board indicates how and when the situation of underfunding and reserve deficit will be remedied. This recovery plan is evaluated annually by the regulator, who looks at the yearly progress of recovery, and what measures contributed to this recovery. An evaluation of such a recovery plan is reported in the month of February. Like in 2010, the first six months showed a recovery with improvements seen on the financial markets, and slightly increasing interest rates. In June, the cover ratio was 110.9%. From July onwards, the market interest dropped and fell to a historic low in September. In this month the cover ratio dropped to 101.2% (when interest rates fall, the pension commitments increase). Because the Fund has hedged the interest rate risk for 75%, the cover ratio decreases less rapidly than it does at many other (large) pension funds. Ultimately, owing to the defensive investment policy and an additional contribution from the employer, the cover ratio at the end of 2011 was at 105%. This percentage is equal to the minimum required equity capital a pension fund or pension insurer is required to maintain in accordance with the guidelines of DNB.

2.2.3. The pension agreement In June 2011, the cabinet reached an agreement with the employers’ organisations and trade unions about the future of the pension system. The pension agreement contains various measures that are required to keep the pension provisions affordable, amongst which a higher retirement age and a flexible state pension (AOW). Below we have listed the main measures: - Increase of the state pension (AOW) age - Increase of the retirement age: ‘Witteveen Framework’ - Lower premium, longer period of saving - Increase of the state pension (AOW) amount - Flexible AOW - More transparency on the risks relating to pensions - Lower incomes will receive higher elderly person’s tax credits - Stable pension premiums - Vitality package: earned income tax credit and mobility tax credit


Page 12 of 69

- Reinforcement of management board of pension funds We will explain in more detail some of the above measures: - Increase of the state pension (AOW) age: The cabinet wishes to increase the state pension (AOW) age

from 65 to 66 years in 2020 and to 67 years in 2025. In addition (after 2025), the state pension age will be linked to the life expectancy;

- Increase of state pension (AOW) amount: the cabinet intends to increase the state pension by 0.6% for everyone from 2013 onwards;

- Flexible state pension (AOW): In 2020 the retirement age will be 66 years. If anyone decides to retire at the age of 65 years, this will still be possible, but the state pension (AOW) will then be cut back by 6.5 %.

Further details of the pension agreement are expected in 2012. In the annual report for 2012 this matter will be discussed again.

2.2.4. The Pensions Register and the AEGON PensionSite On 6 January 2011 the Pensions Register was introduced. This Pensions Register is an initiative of the joint Dutch Pension funds, the pension insurers and the Social Insurance Bank (SVB). From this date, this partnership will make the website www.mijnpensioenoverzicht.nl available to each Dutch citizen. The website allows every Dutch citizen to view the pension entitlements he or she has accrued with pension funds and pension insurers and his or her state pension (AOW) rights. The service of the Pensions Register is free and is regarded as a public facility. Please note: this site is in Dutch only and requires a Digid (digital ID issued by the Dutch government) The pension fund’s website was adjusted during 2011. On the website pension.fluor.nl, under the tab "Actueel" ("Current Affairs"), a link was added that directs to Ganeo, AEGON’s employee portal. Ganeo contains a lot of information about pension matters, provides the possibility to surf to the government website www.mijnpensioenoverzicht.nl and also to log in on the AEGON PensionSite (APS), where you can find your personal pension information. Access codes are required in order to access the websites. Please note: the Aegon home page is in Dutch only, however from there you can log in to APS and view your pension details in English.

2.2.5. The Financial Assessment Framework The Financial Assessment Framework (FTK) arises from the Pensions Act (Pensioenwet) and serves to protect the pension commitment to the members of a pension fund. These rules were tightened in 2011 resulting in more transparency with regard to the risks of pension funds.

2.2.6. Activities Management Board Meetings of the Management Board During 2011 the Management Board met eleven times. The main subjects on the agenda were: Asset Management, Pension Fund Governance, the Fund’s cover ratio, evaluation of the recovery plan, adjustment of legal documents and evaluation of the administrative process.

2.2.7. Legal documents In the year 2011 the following legal documents were amended; - The ABTN (actuarial and technical business report) has been updated and submitted to the regulator

(DNB). - The structure of the pension regulations has been adjusted increasing clarity of the text and bringing the

regulations more in line with the way in which AEGON executes the scheme.


Page 13 of 69

- The Articles have been reviewed in accordance with the requirements laid down in the Pensions Act.

It is important to observe that there was a difference of opinion between the Members’ Representation Council and the Management Board about deleting an article in the Articles with regard to the right of consent of the (active) members and the interpretation of Section 108 in the Pensions Act. This difference of opinion ultimately resulted in the Members’ Representation Council bringing the case before the Enterprise Section of the Amsterdam Court of Appeal. The Enterprise Section ruled that the appeal of the Members’ Representation Council against the decision of the pension fund’s Management Board to delete the article in the Articles (giving the members the right of consent via a referendum), was disallowed. The Management Board had taken this decision in order to comply with the Pensions Act. Subsequently the legal proceedings were evaluated by the Members’ Representation Council and the Management Board during the consultative meeting of September. It was decided to set up a working group which had to produce a proposal for an amendment of the Articles, in which the original intent of the deleted article would be reinstated as much as possible, while complying with the Pensions Act. This initiative was put in motion in response to the Management Board’s promise to investigate in what way the intention of the deleted article regarding the referendum could be reintroduced in a different form, such that it would not be in violation of the Pensions Act.

2.2.8. Asset and Liability Management Study It was mentioned in the previous annual report that in December 2009 the Fund had received a letter from the Board of Directors with the request to investigate the possible consequences for the Fund if the present pension scheme is closed to new members. In 2010, Ortec conducted an Asset and Liability Management Study to determine the consequences of closing the scheme to new members. In 2011, a follow-up study to the consequences of closing the scheme to new members was conducted by the Management Board. The pension fund’s Management Board is awaiting the decision of the Board of Directors of Fluor B.V. A new pension scheme for new members is expected to be introduced in the course of 2012. Despite the fact that nothing will change for the current employees because the present scheme will not be adjusted, all information with regard to the new pension scheme will be shared with all employees.

2.2.9. Provision of Uniform Pension Overview (UPO) In 2011, as in previous years, all employees received a Uniform Pension Overview (UPO) from AEGON. This overview states your pension rights and, if applicable, you also receive a UPO for your AIP capital. The insurer (AEGON) is obliged to send you a UPO annually. For pensioners this takes place annually from 2011 onwards. The paid-up policyholders (sleepers) receive a UPO for the first time in 2012. The Pensions Act prescribes that this group must receive an overview once every five years.

2.2.10. AFM and DNB Under the Financial Supervisions Act, which became effective as from 1 January 2007, the Fund formally has to deal with two regulators. The Financial Markets Authority (AFM) for business conducts supervision and the Dutch Central Bank (DNB) for the prudential supervision. Neither of these two regulators conducted any direct inspection of the Fund in the financial year 2011. However, the Fund is currently in the process of attuning its communication policy to the requirements set by AFM. In addition, AFM requested all pension funds in July 2011 to complete a Self-Assessment. The self-assessment consists of three elements, being the supply of information, the duty of care and questions relating to the evaluation of the pension legislation.


Page 14 of 69

The Self-Assessment was sent to AFM on 20 July. On 30 September 2011 the AFM informed us that the assessment was received positively. An assessment is one of the instruments that AFM uses for its supervision. The results of the Self-Assessment may prompt AFM to conduct a further investigation. This was not the case with regard to our Fund. In February 2011 an integral assessment with regard to the Funds’ Articles and regulations took place. No additional questions came up following this assessment.

2.2.11. Introduction of supplementary benefits label The Government Gazette of April 2011 states that pension funds and insurers are to investigate whether a supplementary benefits label on the appropriate documents will increase the quality of information to the members. The supplementary benefits label was introduced on 1 January 2009 to provide information on the granting of pension supplements and to express this in a so-called qualitative and representative manner. Like almost all other Dutch pension funds, the pension fund’s Management Board has decided to not introduce this label.

2.2.12. Pension Fund Governance In 2011 the Management Board was also involved in Pension Fund Governance. In accordance with the Pensions Act for the internal supervision, the Fund has opted for an on-site review committee (visitatiecommissie) and an Accountability Body (verantwoordingsorgaan). As mentioned in the previous annual report, the Management Board had the on-site review conducted in 2010 by an external party, being VC-Holland. On 10 June 2010, the Management Board received the final report from VC-Holland listing their findings and several recommendations. The Management Board intends, in accordance with the guidelines, to have an on-site review conducted by an external party once every three years. In 2010 the main conclusion of the on-site review committee was that the Fund was well managed by the Management Board and that the latter responded proactively to developments relevant to the Fund. The final report stated that the implementation of the new Pensions Act (PW) and the introduction of the Financial Assessment Framework (FTK) had been taken on expeditiously. In addition, the Fund had also adopted an active attitude in implementing the Principles of Good Pension Fund Governance. There is sufficient expertise within the Fund, which was clearly demonstrated during the interviews conducted, and was also supported by the expertise matrix present. The main recommendations are: - Pay attention to an integral approach to the risk management in relation to asset management. - Verify that the communication plan complies with requirements of the AFM. - Improve the follow-up of and feedback on action points resulting from board meetings. - Following a review of the most recent continuity analysis results the Fund’s ambition to supplement the

pensions needs to be examined. - Perform a so-called stress test on the current investment portfolio and include tracking errors in the

investment reports. All recommendations have been worked out in more detail or are currently being implemented. The Accountability Body was formed and took up its duties in the summer of 2009. This body is made up of active members, pensioners and employer representatives. After extensive consultation with Members’ Representation Council it was decided for the entire Members’ Representation Council to be represented in the Accountability Body, supplemented by two employer representatives. On voting the three sections within the Accountability Body each have one vote. The Accountability Body has the right to annually give its views on: - the performance of the Management Board based on the annual report, the financial statements and other

relevant information;


Page 15 of 69

- the policy pursued by the Management Board in the past year; - any decisions relating to the future; The Accountability Body reports annually. Their findings and recommendations will be communicated to the pension fund’s Management Board. Openness and transparency are considered very important in this context.

2.2.13. Board meetings 2011 and action item list The pension fund’s Management Board meets every last Friday of the month with the exception of the month of July (holiday period). In addition to an extensive agenda, an action item list is prepared. This actions item list shows the committees that will handle a pension subject (an action item) that is to be worked out in more detail, such as the regulations and Articles, the Asset and Liability Management Study, details of the pension agreement, making the pension scheme more flexible, preparing the quality manual and, for example, the monitoring of the costs of asset management. The committees meet on a regular basis. The action items are discussed and completed at the board meeting. All resolutions taken at the board meetings are minuted on the list of resolutions.

2.2.14. Consultation with the Members' Council (Deelnemersraad) in 2011 During 2011 four consultative meetings took place between the Members’ Representation Council and the Management Board. At the meeting of 1 June 2011, the report was studied in more detail and the remarks and comments from the Members’ Representation Council were discussed. Where necessary, adjustments were made. The Management Board subsequently submitted a request for advice to the Members’ Representation Council with regard to the annual report 2010. At the board meeting of 10 June 2011, which was also attended by representatives of KPMG, Milliman actuaries, AEGON and the Members’ Representation Council, the annual report 2010 was approved by the full Management Board (unanimously) and the Management Board received a positive advice from the Members’ Representation Council. In the extra consultative meetings of 9 March and 28 September the amendments to the legal documents, in particular the financial position of the Fund, the evaluation of the recovery plans and communication, were discussed. Consultation on granting of supplementary benefits On 30 November 2011 a consultative meeting took place between the Members’ Representation Council and the Management Board. The main item on the agenda was the conditional granting of supplementary benefits in 2012. During the meeting the Management Board mentioned that it is the Board’s yearly ambition to increase the pensions of pensioners and sleepers by the adjusted/derived Consumer Price Index all households (CPI derived). However, after having sought the advice form the Members’ Representation Council and based on the preliminary figures, the Management Board decided not to grant any voluntary supplementary benefits on the pensions commenced as at 1 January 2012. This is in line with the guideline for indexation in the ABTN. The pension fund’s Management Board explained its decision as follows: - Based on the guidelines of the Dutch Central Bank, the Fund still finds itself in a situation of reserve

deficit. In this situation, the Fund will not grant any supplementary benefits in order to avoid negative influence to the recovery from the reserve deficit.


Page 16 of 69

Although many pension funds apply a curtailment of pension entitlements for the purpose of restoring the cover ratio of the pension fund, for the time being this does not apply to our Fund.

2.2.15. Investment policy and performance The general objective of the investment policy is to realise the best possible return within the preconditions of an acceptable risk. In order to secure the intended pension benefits both in the short and long term, the Management Board wishes to invest the assets entrusted to the Fund in a sound way. The main object of the investment policy is therefore to realise the best possible return starting from the strategic investment policy at an acceptable risk, taking into account the Fund’s liabilities structure. Although the return on the portfolio has a high priority, a somewhat defensive nature of the investment policy and a cautious balance of risk versus return have an even higher priority. The investment year 2011 was characterised by a slight recovery of the financial markets. At year-end 2011 the return was + 14.92%. The LDO (hedging of the interest rate risk via Long Duration Overlay) was taken into account in this context. The investment portfolio exclusive of LDO shows an annual return of 2.83%, relative to the benchmark of 2.64%. The hedging of the interest rate risk via LDO therefore realised an additional return of 12.09%. In particular the drop of the interest rate (RTS) caused the positive contribution of the LDO to the performance. In August 2011 the Management Board decided to dispense with the services of the 2nd asset manager, Alliance Bernstein (AB). The main reason for this decision was the continued underperformance of the AB Global Equity Fund relative to the benchmark. The assets were transferred to AEGON, which demonstrated better performance on the equity market and already executed a large part of the asset management for the Fund. Due to the turmoil on the financial markets at the end of the 3rd quarter, the Management Board decided to temporarily stop the rebalancing activities. This prevented making extra investments in poorly performing asset classes. This mechanism resulted in a more prudential investment mix and a declined investment risk. The Management Board is aware that this potentially limits the return and that, in the long run, it is not sensible to keep the position in equity frozen. The Management Board regularly checks whether rebalancing should be started again.

2.2.16. Current pension news The partner’s pension after the age of 65 years It is important for the members to the pension scheme to be aware that, with the introduction of the new pension scheme in the year 2005, only 50% of the partner’s pension is capitalised. From 2005 onwards, the member accrues only 35% partner’s pension. Because this will continue to be a point of attention for all active members to the pension scheme, this subject will be included annually in the Fund’s annual report. If a member dies after reaching the age of 65 years or on leaving the employer’s service, the effect of the 50% accrual of the partner’s pension becomes very visible. In that case your partner will not receive 70% of your accrued retirement pension, but less. If the membership started after 1 January 2005, this will be only 35%. If the member dies during the active service, this is 70% of your prospective pension, because in addition to the 35% accrual of capital sum for the partner’s pension, the other 35% is insured. The pension regulations provide that on commencement of the pension, the partner’s pension will be automatically increased up to 70% of the retirement pension (OP). This will however be at the expense of your retirement pension. This measure has been included in the regulations in order to guarantee the duty of care towards the dependant.


Page 17 of 69

There is a possibility to reverse this automatic exchange. The member and his/her partner will need to sign a statement of their agreement to abandon this automatic exchange.

2.2.17. The A.I.P. scheme In 2011, it is only possible for the policyholders of the "former" Additional Individual Pension Scheme (AIP) to have the AIP capital paid out in three years (36 instalments) from the age of 62 years if the member was born before 1 January 1950. The option of having the capital paid out in five years is no longer permitted by law. From 2015 onwards, also the three-year option will be abolished and from then on the AIP capital can only be converted into a lifelong entitlement. From that point in time, it will only be possible to convert the AIP capital into a lifelong pension whether or not combined with a partner’s pension.

2.2.18. Annuity The 3rd pension pillar arranges how an employee, in addition to the state pension (AOW) and the company pension, can make individual savings for his/her (supplementary) pension. Because Fluor’s A.P.P. scheme (the additional pension scheme) has been abolished as from 1 January 2010 and no alternatives offered in 2011 either, it is currently only possible to make additional savings through an annuity or via a bank savings (banksparen) scheme. For information on the latter option we refer to your bank. Annuities are tax deductible (within certain fiscal limits) and tax deductibles can be determined via a fiscal annual margin calculation and/or reserve margin calculation. Annuities are paid out periodically during a specified period (e.g. in a maximum of five years) starting at a predefined age. It is not possible to convert the accrued capital into lifelong retirement pension payments and/or partner’s pension payments. After abolishment of the APP scheme at Delta Lloyd, the employer is currently examining the various possibilities in the market. For a new additional savings scheme, it is still being considered whether this shall be done collectively or by the employees individually.

2.2.19. General Dependants Act (ANW) Very important (please check your personal situation with regard to this subject). Everyone residing or working in the Netherlands may receive a benefit under the General Dependants Act (Algemene nabestaandenwet; ANW). This benefit, however, is subject to a number of conditions. You may only receive an ANW benefit if you are younger than 65 years and if the deceased partner lived or worked in the Netherlands. In addition, the following conditions apply: - you were born before 1950; - or you have the care of a child younger than 18 years; - or you are disabled for at least 45%. If you do not meet at least one of these conditions upon the passing away of your partner, you will NOT receive an ANW benefit from the state. This may imply a considerable drop in your income. For this reason Fluor has included the Dependants Protection Plan in its group insurance contract with Centraal Beheer. This plan protects your dependants via a monthly payment that will continue until the partner reaches the age of 65 years. However, the insurance needs to be taken out individually by the employee (but enjoys the group discount of Fluor). We urgently request you to examine whether this dependants’ insurance is necessary in your situation. Information about this insurance can be obtained from the Human Resources department or the funds administrator.


Page 18 of 69

2.2.20. From the administration The Management Board is responsible for the complete policy and reporting. The day-to-day policy is determined by the full Management Board in which context the Executive Committee, consisting of the chairman and secretary, together with the administrator of the Fund, are the direct point of contact. The Management Board has delegated a number of its powers, fully or partially, to the administrator or to one or more of the committees appointed by the Management Board from within the Board. The person, to whom a power has been delegated, is at all times accountable to the Management Board in exercising this power. With regard to monitoring of the administration, the administrator provides information at each board meeting about the actual situation concerning: - the processing of changes - the annual work planning - updating the Funds’ website - current issues in the area of pensions and statutory amendments - asset management - reporting to DNB and AFM - feedback on any reviews performed by the accountant and the actuary - miscellaneous administrative business. Twice a year, the Executive Committee / administrator and AEGON’s relationship manager and account manager meet and discuss the provisions laid down in the Service Level Agreement. AEGON’s financial administration, charged with preparing the annual report, formulates the annual work planning stating which party provides what input for the annual report and by which date this is to be submitted. This planning applies to the auditor, the actuary, AEGON’s financial administration and the Fund’s administrator. Administration also reports monthly to the Dutch Central Bank. AEGON is the first point of contact as they are charged with the pension administration. If an employee has any questions, he or she can contact AEGON’s Pension Advice Centre (PAC), telephone: +31 (0)70-3444 999. Further information on the pension scheme and pension matters applicable at Fluor can be found on the Fund’s pension website: pension.fluor.nl. If the Pension Advice Centre is unable to help you, you can contact the fund administrator, Mr. J.Vledder. In the context of the expertise plan, the board members of pension funds and the administrator are expected to keep up-to-date annually in regard to their knowledge of pensions and to ensure that within the Management Board and the administration a number of persons have expertise level 2 in the expertise matrix.


Page 19 of 69

2.2.21. Risk management

Introduction The Management Board is responsible for the organisation and proper functioning of the internal risk management and control system for all risks to which the Fund is exposed. During 2011, the Management Board has been engaged in listing and detailing all the risks and the corresponding risk management. In this part of the annual report you will find a brief overview of the main risks and the decisions taken in 2011 to manage these risks. The purpose of the risk management is to control these risks and to render account on the risk management conducted.

2.2.22. Process risk management The risk management process is as follows: 1. identifying the risks 2. assessing the risks 3. assessing the control measures 4. formulating a policy In 2011, the Management Board identified the risks in a structured manner and assessed to what extent these are relevant and compelling. The revised set-up and classification has not been completed as yet and the Management Board will continue with this in 2012. In 2011, a number of risks were identified and control measures have subsequently been assessed. With regard to the control measures, it has been determined whether the four control steps, i.e. identification, policy formulation, implementation and monitoring were applied. In this approach, the Management Board was supported by the report of the on-site review committee. Based on the results, the Management Board formulated a policy with regard to risk management and a number of specific risks. An analysis of the supervisory legislation acts has shown that in particular solvency, liquidity, and the organisation and control of sound operational management are sensitive to risks. DNB regulates pension funds and insurers using "FIRM" for the risk management. Firm is an integrated method for analysis of all types of business regulated by DNB. Risk analysis is used by the regulator to obtain insight into the risks related to the activities conducted by a pension fund, and the extent to which, potentially, these may pose a threat to the Fund. Governance structure The governance structure with regard to risk management is determined by a number of internal and external entities. The mutual roles and relationships are explained in a diagram. These internal and external entities each have their own responsibilities relating to risk management. - The Management Board has the final responsibility for the risk management and formulating a policy. - For the Executive Committee, risk management is an area of particular interest on the basis of which

the Executive Committee monitors the implementation of the risk management policy and sees to it that the Management Board has all the necessary information on risk management.

- An external party assists the Management Board in analysing the risks and control measures. Once every three years, the Management Board requests an investigation by an on-site review committee. The results, conclusions and action points formulated in the report of the on-site review committee are used in improving the risk management. This investigation was conducted for the last time in 2010. The Accountability Body, which is made up of representatives of the pensioners, active members and the employer, also monitors the risks within the Fund, on the basis of an analysis of the annual report, among other things.


Page 20 of 69

Action points individual risks In this section, a number of specific action points for identified risks are discussed. If no action points are stated, the Management Board considers the risk in combination with the amount of control to be acceptable for 2011. These points have also been discussed elsewhere in the annual report, but are included again in the context of specific risk management. Matching risk Matching risk is the risk resulting from a mismatch of liabilities and assets in terms of interest rate, fixed-rate periods, base currency and sensitivity to price level developments. The Fund strives to hedge approximately 75% of the interest rate risk and close to 100% of the currency risk. Especially in view of the volatility of interest rates in July 2011, the choice to use the Long Duration Overlay to hedge the interest rate risk, has proven successful. Underwriting risk Underwriting risk is the risk that benefit payments (now or in the future) cannot be funded out of the premium income or investment income as a result of incorrect and/or incomplete (technical) assumptions in the development and determining of premium rates for the product. Reinsurance agreement The Fund is reinsured via a capital sum contract. Under this contract, risks (for example the risk of active members passing away before retirement) are insured with an insurance company for which the Fund pays insurance premiums. If the amount of premiums paid is higher than the benefit payments, there is a positive underwriting result; if it is the other way around, there is a negative underwriting result. In case of a cumulatively positive underwriting result, this will be shared (at the end of the contract term with the insurance company) such that the Fund receives 70% and the reinsurer 30%. In case of a cumulatively negative result, 100% is for the account of the reinsurer. The reinsurance contract therefore acts as a stop-loss mechanism. Basis for liabilities In 2010, new life expectancy tables were published by the Association of Actuaries (AG). These tables have their effect on the funds’ liabilities of 2011. The new tables resulted in a larger required provision for pension liabilities because of longer life expectancies. The actuary has informed the Management Board that these new tables (AG 2010-2060) will be used as a basis for determining the provisions required. Also in 2011, the calculations for the cover ratio are based on the tables AG 2010-2060. The backward age adjustment, previously applied to the tables CR2003, has been abolished because the tables AG 2010-2060 already provide for increased life expectancy. Also, in addition to the tables AG 2010-2060, a provision will be created based on the empirical mortality rates as published by the Verbond van Verzekeraars (Dutch Association of Insurers) (2008). External risk External risk is the risk that arises from changes unrelated to the company or group in competitive conditions, stakeholders, reputation and business climate. The external risk for the Fund is relatively high because it is dependent on the employer and external advisers. The employer has sought advice regarding the possible consequences of closing the pension scheme to new members. The risks for both employer and the Pension Fund have meanwhile been identified on the basis of the ALM study. The closing of the current final pay scheme to new members is being evaluated and the results are expected in 2012.


Page 21 of 69

Integrity risk Integrity risk is the risk that the integrity of the institution or the financial system is affected as a result of lack of integrity or unethical conduct of the organisation, staff or the management with regard to legislation and regulations, social standards and standards formulated by the institution. Code of Conduct In principle the Management Board follows the Model Code of Conduct of the OPF, which contains the prescribed references to specific requirements. Fluor’s Code of Conduct is also applied in this context. The Management Board has established that the Code of Conduct requires more detailed provisions, which are expected to be finalised in the spring of 2012. Legal risk Legal risk is the risk associated with (changes in and compliance with) legislation and regulations, possible threats to its legal position, including the possibility that contractual provisions cannot be enforced or have not been documented correctly. There was a difference of opinion between the Management Board and the Members’ Representation Council about the deletion of a number of articles from the foundation’s Articles which were labelled as unlawful by the legal adviser. Because the Management Board and Members’ Representation Council did not reach agreement on this issue, the case was submitted to the Enterprise Section of the Amsterdam Court of Appeal in January 2011. The Enterprise Section ruled that the Members’ Representation Council’s objection was inadmissible and that the Pension Fund’s Management Board had acted in accordance with the requirements set by law. However, the Management Board and the Members’ Representation Council will jointly seek alternatives for the deletion of the referendum from the Articles. Operational risk Operational risk is the risk related to inefficient or insufficiently effective process planning or process implementation. Procedures manual The Management Board has established that the documentation of the internal processes and exchange of data with external parties is to be improved. An evaluation was started in 2010 which was followed up in 2011 and will result in a procedures manual. The administrator and a member of the Management Board are currently working closely together to produce this procedures manual, the completion of which is scheduled for 2012. Expertise The Management Board is responsible for its own expertise and periodically checks whether the expertise meets expertise level 2. The expertise matrix includes the following areas of attention: 1) Management and organisation 2) Relevant legislation and regulations 3) Pension schemes and types of pension 4) Underwriting and actuarial aspects 5) Administrative organisation and internal controls 6) Outsourcing of activities 7) Communication. The Management Board has decided that all board members are to follow training at expertise level 2. The training programmes will be followed by rotation and will result in a situation in which each board member will have followed a course at all seven expertise levels within a period of four years.


Page 22 of 69

In March and April 2012 a Board Member representing the employees, a Board Member representing the employer and the administrator will follow a four-day training programme for risk management and control. Communication plan The Fund’s communication plan is being re-evaluated. In view of the requirements set to communication, in particular by the AFM, the communication plan will be adjusted in 2012 as appropriate.

2.3. Articles and Regulations

2.3.1. Changes in the composition of the Management Board In 2011 many changes were made to the Management Board. On 25 February Mr. T.B. Duzijn informed the Management Board that he had to resign as employer representative due to his busy schedule. The Board of Directors of Fluor B.V. nominated Mr. B.A. de Hoog as new employer representative. After the approval of DNB, the definitive appointment by the Management Board took place. At the end of April 2011 the Management Board’s employer representative and Chairman Mr. M. Van Dansik indicated that he was also compelled to resign from the Management Board due to his busy schedule at Fluor B.V. The chairmanship was taken over by Mr. A. Touw. The Board of Directors of Fluor B.V. nominated Mr. G. van der Schaaf as of 29 April as employer representative. After the approval of DNB, the definitive appointment by the Management Board took place. According to the rotation schedule, Mr. A. Touw and Mr. E.P. Hamer, both employer representatives, and Mr. Pluimers, employee representative, were scheduled to resign in 2011. All three indicated that they wished to continue as board members. In accordance with the Articles, Mr. Pluimers was nominated by the Works Council for a new period as a board member. The Management Board subsequently reappointed Mr. Pluimers as a board member. On 1 August 2011 Mr. E.P. Hamer, employer representative board member and Director of Human Resources of Fluor B.V., died. Mr. Hamer had been an employer representative board member since 2002 and with his passing the Fund loses a highly competent board member and a congenial colleague. The Board of Directors nominated Mr. M. Bechger as a new employer representative board member as of 1 October 2011. The actual appointment by the Management Board took place at the board meeting of November, after approval of DNB.


Page 23 of 69

2.3.2. Composition of the Management Board

The composition of the Management Board as at the end of the year 2011 was as follows: Appointed by the Works Council from the active members: R. van Lohuizen board member and chairman of the investment committee P. Mali board member P. Pluimers secretary R. Slop board member Appointed by the Fluor BV Board of Directors: M. Bechger board member B.A. de Hoog deputy chairman G. van der Schaaf board member A. Touw chairman

2.3.3. Code of Conduct and Remuneration The members of the Management Board and the administrator have all declared to adhere to the rules of the Model Code of Conduct prepared by the OPF. The members of the Management Board do not receive any remuneration. Travel and accommodation costs and other expenses incurred in the interest of the Fund will, at the discretion of the Management Board, be compensated by the Fund. Rotation schedule After adoption of the annual report for the year: 2011: R. van Lohuizen, R.H. Slop 2012: P. Mali, G. van der Schaaf 2013: P.J. Pluimers, A. Touw 2014: B.A. de Hoog, M. Bechger Administrator The administration of the Fund is executed by Mr. J. Vledder. Accountant KPMG Accountants N.V. in De Meern is charged with auditing the Fund’s annual accounts. Advisers Aon/Hewitt Nederland B.V. in Rotterdam provides technical, policy and market support. In addition to this, Aon/Hewitt Nederland and Loyens and Loeff provide legal support. Ortec B.V. in Rotterdam conducts the Asset Liability Management Study and the continuity analysis. Ortec also advises the Management Board and administrator on the evaluation of the recovery plan. Actuary Milliman Pensioenen & Actuarissen in Amsterdam prepares the actuarial statement.


Page 24 of 69

Discharge of the Management Board As a result of the approval of the annual report for 2010 the Management Board has been discharged for the year under review. Articles The Articles dated 18 October 2010 apply to the year under review. These Articles are available (upon request) at the offices of the Fund. Regulations The pension regulations dated July 2008 apply to the year under review. These pension regulations have been placed on the Fund’s website. A popular version of the pension regulations can also be found on the website. All documents can be found on pension.fluor.nl under chapter: "Documents". Annual report This annual report is sent to all pensioners. For all active members the annual report 2011 is placed on the website of the Fund and is available on request from the pension administration (location 048). Haarlem, 13 June 2012 Stichting Pensioenfonds Fluor Nederland The Management Board M. Bechger B.A. de Hoog R. Van Lohuizen P. Mali P. Pluimers G. van der Schaaf R. Slop A. Touw


Page 25 of 69

3. Report from the Members’ Representation Council

Members’ Representation Council of the foundation Pensioenfonds Fluor Nederland The Members’ Representation Council met with the Management Board four times this year; six times internally and twice as a member of the Accountability Body.

3.1.1. State of affairs with regard to the (C) DC scheme As referred to in the previous reports of the Members’ Representation Council, the employer no longer intends to offer the current pension scheme to new employees. New employees would be offered a so-called DC (Defined Contribution) scheme. Because this turned out to be a complex matter, also in the year under review the employer has conducted extensive research and has not taken a formal decision yet. The new scheme is expected to commence on 1 April 2012 and the current scheme will be closed as per the same date. The Members’ Representation Council continues to be very concerned about this development because it fears negative effects on closing the Fund to new members. In particular there is the fear that the indexation of pensions will be negatively affected.

3.1.2. Right of referendum In the Articles of before March 2009, the members were given the right of referendum for amendments in the Articles and the regulations that affect their rights or obligations. The new Pensions Act, Section 108, provides that only bodies of the pension fund can have such a right. Taking this Section as starting point, the Management Board has deleted the members’ referendum from the Articles. The Articles have been executed by a civil-law notary in March 2009 without any notification to the Members’ Representation Council and therefore also without the positive advice from this body. When the Members’ Representation Council took cognisance of this amendment in 2010, it requested the Management Board for this right to be reinstated or, if this was impermissible by law, to include it directly or indirectly in the Articles in another way. The Management Board has promised that it will investigate in what way the purpose of the article on the referendum can be re-introduced in another form such that it is not inconsistent with the Pensions Act and that the scope would be as similar as possible to the original article. Despite the above promise the Management Board unfortunately did not come up with any proposals and in order not to lose the right to appeal, which is only eight weeks, the Members’ Representation Council felt compelled to request the Enterprise Section of the Amsterdam Court of Appeal to nullify the amendment of the Articles. Unfortunately the Court of Appeal rejected the request on formal grounds, but the Court also ruled that the Management Board was reasonably justified in making this amendment to the Articles. The Court of Appeal did however state that the Management Board is to keep the promise it had made. A working group has meanwhile been composed consisting of members of the Management Board and the Members’ Representation Council who are addressing this issue. Results are expected in the course of 2012. A lesson learned by the Members’ Representation Council is that it is difficult for the Council to conduct legal proceedings for reason of being fully dependent on the Pension Fund’s Management Board for financial resources required to obtain proper legal advice. Since the Management Board is a party to the conflict, this proved to be an awkward process.

3.1.3. Communication between Members’ Representation Council and Management Board Both the Members’ Representation Council and the Management Board do not consider the communication between both parties to be optimal. The problems with the lawsuit were a case in point in this respect. It has been agreed to communicate more openly and to address any matters of advice in a more formal manner.


Page 26 of 69

The Management Board is currently working on a quality manual that provides a representative picture of all the work processes. It will also include a procedure which describes the work processes of the Members’ Representation Council in relation to the Pension Fund’s Management Board and a clear description of how the communication is organized. Unfortunately the preparation of the quality manual experienced some delay, but it is scheduled to be completed in the spring of 2012. Indexation According to the Consumer Price Index, if any indexation were granted, it would amount to 2.4%. The reference date for granting indexation is year-end 2011. Unfortunately it has been established that this year again, there is no room for indexation. The Members’ Representation Council regrets that it again had to provide a positive advice to not apply indexation to the pensions. Miscellaneous Other subjects covered in the consultation with the Management Board included: - Pension agreement

The Members’ Representation Council is closely following the developments surrounding this agreement. - Asset management - Cover ratio

As is apparent from the extensive coverage in the press, the cover ratio is a source of great concern for many funds. This also applies to Stichting Pensioenfonds Nederland, but, again this year, it has succeeded in maintaining a cover ratio of above 100%.

- Annual report of the Fund The Members’ Representation Council has discussed its comments on the annual report 2010 with the Management Board and where necessary and desired, these have been incorporated by AEGON.

Composition Members’ Representation Council At the end of 2011 the composition of the Members’ Representation Council was as follows: - Mr. E. Enzerink, elected by the members - Mr. H. Huiser, elected by the members - Mr. R. Joghems, dep. Secretary, elected by the pensioners - Mr. H. Liesting, Secretary elected by the members - Mr. P. Post, Chairman, elected by the pensioners - Mr. J. Spiekermann, dep. Chairman elected by the members - Mr. G.J Zieleman, elected by the members


Page 27 of 69

4. Investment report

4.1.1. Review of 2011

2011 saw a continuation and further worsening of the crisis in the eurozone in which the downfall of Greece also threatened to pull along large countries such as Spain and Italy. Worldwide, the economic growth expectations were adjusted downwards. The political debate in the US on the extent of the public debt and the measures to bring this down caused even more turmoil on the financial markets with the downgrade of the triple A credit status of the US adding extra fuel to the flames. As a result of the above developments, the volatility on the financial markets increased considerably reminding us of Lehman’s downfall back in September 2008. The volatility caused investors to flee collectively to the safest havens, which, as far as the eurozone is concerned, was the market for German government bonds. Only at the end of the year, when the ECB came to the rescue with a long-term credit facility, did things settle down again to a certain extent resulting in margins on loans declining again.

4.1.2. Investment policy In the third quarter of 2011 the position in Alliance Bernstein’s worldwide equity fund was liquidated and the proceeds were added to the equity portfolio as managed by AEGON. In doing so, the risk profile of the investment mandate remained unchanged. In SPFN’s total investment portfolio 64% is strategically invested in a widely diversified portfolio of fixed-income securities whereas the remaining 36% of the portfolio is invested in equities, real estate and commodities. In addition, an overlay structure is used in the portfolio to implement the tactical asset allocation policy. The fixed-income part of the portfolio (investment grade) is extended via an overlay structure resulting in the interest rate being hedged for approximately 75%.

4.1.3. Asset classes Equities Due to the unrest and the risk aversion of investors, the return on equities over the whole of 2011 was negative. In Fluor’s portfolio, the total drop was 6.3%. On the European stock markets, the decline was approximately 6% as a result of the crisis in the eurozone. The US stock market showed a slight increase. The US portfolio, the dollar risk had been hedged during the whole year, produced a slight negative contribution in the year under review. With performance figures around -13% with extremes of -16% for the emerging markets in the Far East, this region showed the most negative sentiment. For most currencies, the currency risk in SPFN’s equities portfolio has been hedged to the euro. Real estate SPFN strategically invests 50% of the real estate portfolio in listed real estate and 50% in non-listed funds. In 2011, in line with equities, the listed real estate investments showed a decline. Ultimately, the performance of this part of the portfolio was -3.0% over the whole of 2011. The Pension Fund invests in a worldwide diversified portfolio of listed real estate funds where, in addition to a global diversification, the portfolio also shows a great spread across the various segments of the real estate market. The currency risks of this part of the portfolio have not been hedged. This result is at odds with the price development of the non-listed real estate that is also included in SPFN’s portfolio. Over the whole of 2011, the portfolio showed a net performance of +4.6% of the TKP Real Estate Fund that invests directly in various segments of the European real estate markets. Fixed-income securities In the fixed-income securities portfolio investors also made a distinction between high-risk and low-risk investments in the year under review. This resulted in the highest returns in the market for the most secure government bonds, whereas very moderate returns were achieved in the more high-risk bond markets such


Page 28 of 69

as the higher-risk government bonds and loans of emerging markets. The fall in interest rates in government loans also made for substantially higher returns due to the hedging of the interest rate risk in the portfolio. For the whole year the returns varied from +10.2% for the Mortgages fund to -2.5% for Asset Backed Securities. Commodities In line with the other more high-risk asset classes, Commodities, too, ultimately showed a negative performance in the year under review. The developments in this asset class were however highly varied; due to sustained demand from the emerging markets and unrest in the Middle East, the prices of energy remained stable. On balance, the AEGON Commodity Fund showed a decline of 1.6%. Currency markets The currency markets were faced with a repetition of events of 2010. Due to the deepening of the crisis in the eurozone, the euro lost ground compared with its main trade partners. Later in the year, a recovery took place, as a result of which, on balance, a very limited depreciation of the euro relative to (for example) the US dollar was involved.

4.1.4. Performance of the investment portfolio Over 2011, the ultimate result in the total investment portfolio of the Fluor pension fund Fluor was +14.9% (net, after costs). In the year under review, the total return of the portfolio was very positively influenced by the interest rate hedging as carried through in the portfolio. This interest rate hedging makes that the investment portfolio largely follows the development of the commitments of the Pension Fund at market value. The returns according to asset class are:

Pension Fund Benchmark Outperformance Real estate investments -0.2% -1.6% 1.4% Equity -6.7% -6.7% 0.1% Fixed-income securities 22.8% 5.2% 17.6% Derivatives 0.0% 0.0% 0.0% Other investments -9.1% -0.9% -8.3%

4.1.5. Outlook for 2012 For 2012 we expect a further economic slowdown whereby in particular the European region will stagnate under the influence of the euro crisis. Worldwide, inflation is expected to remain low as a result of declining economic growth. In 2012 also, the financial markets will be dominated by the crisis surrounding national debts in general and the euro crisis in particular. For the time being, we believe the situation requires us to ‘stick it out and just carry on’. It will also lead to sustained high volatility on the financial markets with the sentiment being a major contributor. Based on this increased uncertainty, there is little reason to take up definite positions. We do believe that the eurozone as a whole will recover from this crisis, but in the interim there will be great uncertainty among investors. When we look at the valuations, the main and most secure markets for government loans appear to be overpriced but in the most probable scenarios are expected to continue to be safe havens. In the longer term, we expect a gradual recovery of the economic growth and an increase of the chances of slightly increasing inflation and interest rates.


Page 29 of 69

5. Report from the Accountability Body

5.1. Statutory assignment The Accountability Body assesses the policy choices made by the Management Board, the policy pursued and compliance with the Principles of Pension Fund Governance, starting with whether the Management Board has taken due account of the interests of all stakeholders. The Accountability Body has the right to provide advice in respect of the following:

- adopting and amending the remuneration of board members; - changing the policy in respect of the Accountability Body; - the form, organisation and composition of the internal controls; - adopting and amending the internal complaints and disputes procedure; - adopting and amending communication and PR policy.

5.2. Composition For calendar year 2010, the Accountability Body had the same composition as over 2009 and consisted of:

On behalf of the employer On behalf of the persons entitled to pension

On behalf of the pensioners

T. Blommestijn Kroon E. Enzerink R. Joghems

F. van Heijningen H. Huiser P. Post H. Liesting J. Spiekermann G. Zieleman

5.3. Accountability and operating procedure For the assessment of the policy decisions made, the policy implemented and compliance with the Principles for Good Pension Fund Management during 2010, the Accountability Body started with an assessment of the 2010 annual report, published on 10 June 2011. For the assessment a request was made for specific information and accountability of the Management Board of the Fund. The assessment was subsequently finalised at a meeting with the Management Board of the Fund. The Accountability Body held one meeting for the assessment of the calendar year 2010. The points of attention for the Accountability Body that were identified with regard to the calendar year 2010 were:

- Pension Fund Governance - Follow-up of the measures related to the points of attention of calendar year 2008

At the request of the Accountability Body the Management Board has submitted all identified documents to the Accountability Body. After studying the relevant documents, formal questions were issued to the Management Board. These questions have subsequently been answered in a meeting with the Management Board.

5.4. Points of attention and findings The points of attention have been discussed with the Management Board. The findings have been laid down in the following action points.


Page 30 of 69

Pension Fund Governance The Accountability Body has evaluated the execution of the advice given by the on-site review committee in 2010. The main recommendations of the on-site review committee in 2009 were:

1. with regard to asset management the committee recommends to pay attention to an

integral approach to risk management.

2. with regard to the communication plan the committee recommends to assess this plan against the requirements set by AFM.

3. with regard to the board meetings the on-site review committee observed that the minuting and follow-up of and feedback on action points are to be improved.

4. based on the outcome of the most recent continuity analysis the committee recommends to review the Fund’s supplements (indexation) ambition.

5. it was also observed that it is recommended to perform so-called stress tests on current investment portfolios and to include so-called tracking errors in the investment reports.

These points of attention have been discussed with the Management Board and have been assessed as follows: Sub 1: The interest rate risk has been adequately and successfully managed by the Fund. Sub 2: The Management Board has prepared a communication plan. The communication plan has

been assessed by completing the AFM questionnaire and sending it to AFM. AFM has given the completed list a mark 8.3, which confirmed that the communication plan meets the requirements of AFM.

Sub 3: Action points resulting from the board meetings and meetings with the asset manager

(AEGON) are minuted and followed up until their completion. The list with action points is part of the minutes of meeting.

Based on this it can be concluded that action points are listed and completed in a systematic, well-documented way.

Sub 4: The supplements ambition of the Fund has not been reviewed by the Management Board,

because the Management Board did not see an urgent reason to do so. The Management Board pointed out that it intends to evaluate the supplements ambition based on the current continuity analysis being conducted (due in 2012).

Sub 5: The stress test will be performed by the asset manager (AEGON) after a 36-month history.

This point will be addressed in 2012.

Points of attention annual report 2010

The Accountability Body has established that, to a large extent, the Management Board has addressed the proposed points of attention and agreements in the reporting over 2010. It is observed that the website does not clearly indicate that the ABTN can be inspected. The communication to the various bodies of the Pension Fund continues to be a point for improvement (see Pension Fund Governance).

5.5. Opinion Based on the points of attention formulated by the Accountability Body, the Accountability Body has evaluated the actions of the Management Board. Based on the activities described, the Accountability Body concluded that the Management Board has arrived at a sound decision-making process and sound policy choices in accordance with the Fund’s policy framework


Page 31 of 69

with due observance of the necessary care and balancing of interests of the members, former members and employer involved in the Fund. The Accountability Body also reached the conclusion that, in general, improvements can be made in the area of communication. The points of attention formulated by the on-site review committee in 2009 have been addressed and where possible implemented by the Management Board. Haarlem, 4 May 2012

On behalf of the employer On behalf of the persons entitled to pension

On behalf of the pensioners

T. Blommestijn Kroon E. Enzerink R. Joghems

F. van Heijningen H. Huiser P. Post H. Liesting J. Spiekermann G. Zieleman


Page 32 of 69

Annual Accounts


Page 33 of 69

6. Balance sheet as at 31 December 2011

(Amounts in whole euros and after appropriation of the result)

Assets 2011 2010

Investments for risk of the Fund

Real estate investments Error! Reference source not found.

18,359,666 19,459,832

Equities Error! Reference source not found.

62,759,703 72,624,766

Fixed-income securities Error! Reference source not found.

222,695,650 169,689,374

Other investments 10.2.4 18,302,346 21,662,391

Investment claims and debts 10.2.5 1,472,775 (411,637)

323,590,140 283,024,726

Receivables and prepayments

Claims from reinsurance 10.4.1 0 2,423,040

Other claims 10.4.2 704,805 196,663

704,805 2,619,703

Total assets 324,294,945 285,644,429


Page 34 of 69

Liabilities 2011 2010 Foundation capital and reserves Reserves required by law and the Articles 10.5.1 (16,280,119) (6,141,448) Other reserves 10.5.2 31,412,000 27,918,000

15,131,881 21,776,552 Underwriting reserves Provision for pension liabilities for risk of the Fund

10.6.1 302,074,792 262,977,372

Other underwriting reserves 10.6.2 3,602,405 400,000

305,677,197 263,377,372 Other liabilities and accruals Amounts owed on account of reinsurance 10.7.1 218,886 0 Other liabilities 10.7.2 3,266,981 490,505

3,485,867 490,505

Total liabilities 324,294,945 285,644,429


Page 35 of 69

7. Statement of income and expenditure over 2011

(Amounts in euros after appropriation of the result)

Statement of income and expenditure 2011 2010 INCOME Premium contributions Error!

Reference source not found.

10,564,279 10,196,663

Investment result for risk of the Fund 11.2 34,366,290 34,576,410 Other income 11.3 156,198 509,043

Total income 45,086,767 45,282,116 EXPENDITURE Pension benefits paid Error!


9,189,664 9,252,531

Pension administration costs Error! Reference source not found.

396,907 460,249

- Pension accrual 11.6.1 7,066,128 11,234,000 - Indexation and other supplementary benefits 11.6.2 0 19,000 - Interest added Error!


3,408,187 2,992,000

- Transfer for pension benefits 11.6.4 (9,189,664) (9,283,000) - Transfer for pension administration costs 11.6.5 (396,907) (460,000) - Change in market interest rate 11.6.6 38,271,471 20,234,618 - Change resulting from transfer of rights 11.6.7 458,675 (1,011,000) - Change resulting from actuarial assumptions 11.6.8 0 17,221,000 - Other movements provision for pension

liabilities 11.6.9 (520,470) (648,000)

Movement provision for pension liabilities for risk of the Fund

39,097,420 40,298,618

Movement other underwriting reserves 11.7 3,202,405 (9,669,041) Balance transfer of rights 11.8 (154,958) 914,653


Page 36 of 69

Total expenditure 51,731,438 41,257,010

Balance income and expenditure

(6,644,671) 4,025,106


Page 37 of 69

Appropriation of the result 2011 2010 Reserves required by law and the Articles

Movement General Reserve (10,211,671) 2,895,106

Reserve investment and actuarial risks 3,567,000 1,130,000

Total appropriation of the result (6,644,671) 4,025,106


Page 38 of 69

8. Cash flow statement over 2011

(Amounts x €1,000 and after appropriation of the result)

2011 2010

Cash flow from pension activities

Premiums received 12,891,793 9,559,513

Received in connection with transfer of rights 588,100 255,585

Pension benefits paid (9,968,524) (8,473,002)

Paid in connection with transfers of rights (771,403) (914,653)

Pension administration costs paid 56,779 32,620

Payments received from reinsurers 3,435,783 (2,491,367)

6,232,528 (2,031,304)

Cash flow from investment activities

Sale and redemption of investments 76,117,920 40,180,423

Direct investment proceeds received 33,980,614 29,283,720

Investments received (114,289,764) (67,319,999)

Costs paid asset management (140,471) 42,824

(4,331,701) 2,186,968

Net cash flow 1,900,827 155,664

Exchange and conversion differences 0 0

Movement cash and short-term deposits 1,900,827 155,664

Cash and short-term deposits at the end of the year

1,472,775 (428,052)

Cash and short-term deposits at the start of the year

(428,052) (583,716)

Movement cash and short-term deposits 1,900,827 155,664


Page 39 of 69

9. Explanatory notes to the principles

9.1. General The financial statements have been prepared in accordance with the statutory provisions of Title 9 of Book 2 Dutch Civil Code (DCC) and the Guidelines for Annual Reporting issued by the Council for Annual Reporting. The financial statements are stated in euros. Investments and pension commitments are valued at market value. The other assets and liabilities are valued at the acquisition price or cost of manufacture. If no specific accounting principles are stated, valuations take place at acquisition price. In the balance sheet the statement of income and expenditure and the cash flow statement include references that refer to the explanatory note.

9.2. Recognition in balance sheet or statement of income and expenditure An asset is recognised in the balance sheet if it is likely that the future economic benefits will accrue to the Fund and its value can be reliably determined. A liability is recognised in the balance sheet if it is likely that the settlement thereof will entail an outflow and the amount involved can be reliably determined. Income is recognised in the statement of income and expenditure if an increase of the economic potential, relating to an increase in an asset or a decrease in a liability has occurred the extent of which can be reliably determined. Expenditure is recognised if a decrease in the economic potential relating to a decrease of an asset or an increase of a liability has occurred the extent of which can be reliably determined.

9.3. Foreign currency Assets and liabilities in foreign currency are converted into euros at the price as at balance sheet date. This valuation is part of the valuation at market value. Income and expenditure arising from transactions in foreign currency are converted at the price as at the transaction date. The pension fund has used the following currency rates:

2011 Closing price

2010 Closing price

USD 0.7700 0.7454 GBP 1.1970 1.1670 JPY 0.0100 0.0092

9.4. Estimates and assumptions

In applying the assumptions and rules for preparing the financial statements the Fund’s Management Board made various assessments and estimates that may be essential for the amounts included in the financial statements. If required for providing the insight prescribed in Section 2:362 subsection 1 DCC, the nature of these assessments and estimates including the corresponding assumptions have been included in the explanatory notes to the items of the financial l statements.

9.5. Taxes The activities of the pension fund are tax exempt as far as corporation tax is involved.

9.6. Investments for risk of the Fund


Page 40 of 69

9.6.1. General

Holdings in investment funds Holdings in investment funds, specialised in specific types of investments are classified and valued according to the principles for these types of investments, i.e. at market value.

Profit recognition All realised and non-realised results are directly recognised in the statement of income and expenditure.

9.6.2. Real estate investments Listed (indirect) real estate investments are valued at market value, being the share price as at balance sheet date.

9.6.3. Equities Listed equities and holdings in listed investment institutions are valued at the share price as at balance sheet date.

9.6.4. Fixed-income securities Listed fixed-income securities and holdings in listed investment institutions are valued at the share price as at balance sheet date. If fixed-income securities or holdings in investment institutions are not listed, the value is determined on the basis of the estimated future net cash flows (interest and redemptions) generated by these investments, discounted at the effective market rates and taking into account their risk profile (credit risk; irrecoverability) and maturity.

9.6.5. Derivatives Derivatives are valued at market value, namely the relevant market quotations or, if unavailable, the value determined using market-based and verifiable valuation models.

9.6.6. Other investments The other investments are holdings in investment institutions that cannot be classified in an asset class. These investments are valued at market value, being the share price as at balance sheet date.

9.7. Reinsurance share in underwriting reserves Outgoing reinsurance premiums are recognised in the period to which the reinsurance relates. Claims relating to profit sharing schemes in reinsurance contracts are recognised at the moment of these being granted by the reinsurer. The Fund has concluded an execution agreement with AEGON Levensverzekering N.V. as at 1 January 2009 with a 5-year duration, in the form of a separated investment deposit with underwriting profit sharing. The current profit sharing period started on 1 January 2009 and runs until 1 January 2014. If the balance of the accumulated results is positive at the end of this period, 70% of this balance is paid out to the Fund. Any negative balance is paid by AEGON. The balance of the accumulated underwriting results for 2009 up to and including 2011, on the basis of reinsurance assumptions, is negative. For this reason the annual accounts do not include a claim on the reinsurer under the underwriting profit sharing scheme.

9.8. Receivables and prepayments Insofar as necessary, a value adjustment to receivables and prepayments to take account of uncollectable debts has been made.

9.9. Underwriting reserves

9.9.1. Provision for pension commitments The provision for pension commitments is valued at market value. The market value is determined on the basis of the present value of the best estimate of the future cash flows relating to the unconditional pension


Page 41 of 69

commitments as at balance sheet date. Unconditional pension commitments are the accrued nominal entitlements. The present value is determined using the market interest rate. In calculating the provision for pension commitments the pension regulations applicable as at balance sheet date have been used as a basis as well as the accrued entitlements over past years of membership. The Management Board decides annually whether the accrued pension entitlements are index-linked. All indexation decisions existing as at balance sheet date are included in the calculation. Future salary developments are not taken into account. In calculating the provision, the non-contributory pension accrual in connection with disability is taken into account, based on the present value of the premiums for which a waiver of premium payment on account of disability has been granted. The calculations have been performed based on the following actuarial bases and assumptions. a the interest rate is the DNB yield curve as at year-end and based on the duration of the provision of 16.6

roughly equals a fixed actuarial interest rate of 2.75%. b. the mortality rates have been derived from the AG generation table 2010-2060, initial year 2012,

including the empirical mortality rates of the Dutch Association of Insurers (table 2008). c. for the partner’s pension it has been assumed that the partner is three years younger than the insured

male member, and three years older than the insured female member. d. the rate of partner occurrences (including spouses and registered) have been established in accordance

with the fifth CRC report. After the date of commencement of the retirement pension, reservation of the exchangeable partner’s pension takes place in accordance with the specified partner system.

The mix factors for gender-neutral rates for purchase of pension at the age of 65 years from expiring capital for members of the AIP scheme are for the retirement pension and dependant’s pension, respectively:

Retirement pension Partner’s pension Men 0.8194 0.9304 Women 0.1806 0.0696 e. The net premium reserve has been calculated at market value and increased by a disbursement reserve of

2% of the net premium reserve. f. The net claims reserve has been calculated at market value by projecting the pension entitlements to be

accrued under waiver of premium payment on account of disability as future cash flows and by discounting these on the basis of the nominal interest rate term structure (zero coupon) as published by DNB in the column under 31 December of calendar year j, increased by a disbursement reserve of 2%.

g. The provision for run-off risk is determined as 1,04 x {1,04 x BP(j-1) + BP(j)}, whereby BP is equal to the

surcharge for co-insurance of waiver of premium in the event of disability that is included in the premiums.

The indexation of pensions in principle takes place on the basis of the development of the Consumer Price Index figures, as calculated by Netherlands Statistics. The indexation takes place insofar as the Fund has sufficient assets (clause 18 of the pension regulations). As at 1 January 2011 the indexation was 0% (2010: 0%).

9.9.2. Other underwriting reserves Provision for past-service The provision for past-service single premium concerns the amount on salary adjustments in the financial year 2010 that will be processed into the provision for pension liabilities in the financial year 2012. Based on


Page 42 of 69

FTK assumptions we have approximated the level of this provision as at 31 December 2011. This amounted to €3,602,405.

9.10. Cash flow statement The cash flow statement has been prepared in accordance with the direct method.


Page 43 of 69

10. Explanatory notes to the balance sheet

10.1. General

Investments in premium contributing company or companies The Fund does not have any investments in premium contributing companies.

Hedging transactions The AEGON funds make use of derivatives with the purpose of enabling an effective and efficient execution of the investment policy and hedging of investment risks.

10.2. Investments for risk of the Fund

10.2.1. Real estate investments These investments can be classified as follows:

2011 2010 Indirect real estate investments 18,359,666 19,459,832 Balance as at year-end 18,359,666 19,459,832

The development of this item is as follows:

2011 2010 Balance as at the beginning of the financial year 19,459,832 15,722,621 Purchases 6,657,300 1,293,017 Sales (7,717,301) (560,000) Movements in value (40,165) 3,004,194 Balance as at year-end 18,359,666 19,459,832

10.2.2. Equities

These investments can be classified as follows:

2011 2010 Equity investment funds 62,759,703 72,624,766 Balance as at year-end 62,759,703 72,624,766


2011 2010 Balance as at the beginning of the financial year 72,624,766 68,198,123 Purchases 35,660,000 3,250,000 Sales (38,660,510) (6,010,000) Movements in value (6,864,553) 7,186,643 Balance as at year-end 62,759,703 72,624,766


Page 44 of 69

10.2.3. Fixed-income securities These investments can be classified as follows:

2011 2010 Credit Funds 65,685,764 60,012,793 Mortgages 30,922,552 26,175,095 Bond funds 107,396,819 72,801,467 Other fixed-income securities 18,690,515 10,700,019 Balance as at year-end 222,695,650 169,689,374


2011 2010 Balance as at the beginning of the financial year 169,689,374 148,545,211 Reallocation (27,374,755) (23,066,683) Purchases 70,895,137 59,996,982 Sales (25,619,650) (30,810,423) Movements in value 35,105,544 15,024,287 Balance as at year-end 222,695,650 169,689,374

10.2.4. Other investments

These investments can be classified as follows:

2011 2010 Commodities (raw materials, precious metals) 16,189,571 19,177,876

GTAA + Fund 2,112,775 2,484,515 Balance as at year-end 18,302,346 21,662,391

The GTAA + Fund has a so-called overlay structure (a relatively high exposure is entered into with relatively little value) with the purpose of linking the tactical policy of the asset manager to the Fund’s portfolio. GTAA invests mainly in liquidities and in derivatives. The development of this item is as follows:

2011 2010 Balance as at the beginning of the financial year 21,662,391 18,602,199 Purchases 1,279,000 2,780,000 Sales (4,050,000) (2,800,000) Movements in value (589,045) 3,080,192 Balance as at year-end 18,302,346 21,662,391


Page 45 of 69

10.2.5. Investment claims and debts

This item can be specified as follows:

2011 2010 Tax on dividends to be claimed 0 16,415 Cash and short-term deposits (relating to investments)

1,472,775 (428,052)

Balance as at year-end 1,472,775 (411,637)

10.3. Risks of financial instruments

In the notes below to the risk of investments, a “look through method” has been applied. This means that the underlying risk profile of the investments within the investment funds has been closely examined instead of the holdings in the investment funds only. Thus the Fund seeks to give insight into the risks relating to the investments in which it has participated.

10.3.1. Price risk The notes to the components of the price risk are stated below.

Currency risk Most equity funds invest in equities listed in other currencies than the euro making them vulnerable for currency risks. Only in the hedged option of an investment fund is the risk largely hedged. The bond fund only contains investments denominated in euros as a result of which there is no exposure to any currency risk. The other funds may contain investments with a denomination in a different European currency from the euro, but all these positions are hedged to euros via 1-month currency forward contracts, limiting the currency risk of these investment funds. Since High Yield and Emerging Market bonds can be listed in other currencies than euros, these investment funds may be subject to currency risk. Since all investments are denominated in euros, the LDO fund is not exposed to any currency risk. The Commodity funds are made up of instruments in euros or are hedged via 1-month forward contracts to euros thus hedging the currency risk. Non-listed real estate in other currencies than euros are also fully hedged to euros via currency contracts as a result of which they are not exposed to any currency risk. In the GTAA fund currency positions can be taken, in which event the participants in the fund run a currency risk. The breakdown of investments in financial instruments according to currency is as follows:

Description

2011 Euro

Percentage

2010 Euro

Percentage

EUR 307,407,621 95.0% 265,582,542 93.8% USD (3,176,263) -1.0% 3,069,526 1.1% GBP (857,093) -0.3% 161,207 0.1% JPY (237,763) -0.1% 927,184 0.3% Other currencies (incl.

investment claims)

20,453,638 6.4% 13,284,267 4.7%

Balance as at year-end 323,590,140 100.0% 283,024,726 100.0%

The "other currencies" refer to: AUD (Australian Dollar), CAD (Canadian Dollar), HKD (Hong Kong Dollar), BRL (Brazilian Real), and CHF (Swiss Franc).


Page 46 of 69

Interest rate risk All equity funds are subject to interest rate risk because fluctuations in interest can affect the price of equities. All bond funds are subject to interest-rate risk which even increases with the maturity of the bonds. Only within government bond funds and the tactical overlay fund active positions are taken to profit from expected changes in interest. High Yield and Emerging Market Debt funds are subject to interest-rate risk which even increases with the maturity of the bonds. Fluctuations in interest affect the price of fixed-income products, including bonds and swaps. The interest-rate risk also increases as the maturity progresses. No active policy is pursued within the LDO funds to profit from expected changes in interest rate. Since fluctuations in interest rate can affect the price of swaps, all Commodity funds are due to interest-rate risk. The GTAA fund is due to interest-rate risk since fluctuations in interest can affect the price of the investment instruments. The breakdown of investments in financial instruments according to interest rate review date or redemption date if earlier, and the average effective interest rate is as follows:

Description 2011 2010 Less than one year 31,037,351 22,982,386

1 – 5 years 103,634,719 70,973,572

6 – 10 years 38,588,839 42,978,087

More than 10 years 40,229,954 25,118,462

Non-interest bearing instruments

110,099,277 120,972,219

Balance as at year-end 323,590,140 283,024,726

Market risk Market risk the risk that the value of a financial instrument will fluctuate as a result of changes in market prices, caused by factors that only apply to a specific instrument or by factors that affect market conditions at large. Equity funds are subject to market risks. At any time all bonds will run risks on the market in case of large price fluctuations, because of, among other things, major changes in interest rates, spreads or currency differences. Commodity investments are always subject to market risk in view of the risk of large price fluctuations, because of, among other things, large fluctuations in interest rates or currency differences. Real estate investments are always subject to market risk in view of large price fluctuations because of, among other things, major changes in interest rates or currency differences. The GTAA fund is subject to market risks.


Page 47 of 69

The breakdown of investments according to geographical area is as follows:

Description 2011 2010

€ % € % The Netherlands 55,690,919 17.3% 55,534,942 19.6% Germany 34,412,195 10.7% 34,817,847 12.3% France 49,889,397 15.5% 35,603,231 12.6% United Kingdom 19,889,573 6.2% 24,160,710 8.5% Spain 4,929,381 1.5% 3,965,526 1.4% Austria 13,890,594 4.3% 7,115,755 2.5% Luxemburg 10,740,984 3.3% 12,791,777 4.5% Scotland 4,662,371 1.4% 0 0% Australia 3,429,864 1.1% 3,229,526 1.1% United States 45,375,835 14.1% 40,298,600 14.3% Japan 5,222,588 1.6% 6,587,796 2.3% Other countries (including investment claims)

75,456,439 23.0% 58,919,016 21.0%


The breakdown of investments according to sector is as follows:


€ % € % Industry 33,159,017 10.2% 24,512,329 8.6%

Financial Institutions1) 99,570,788 30.8% 128,707,165 45.5%

Government 113,536,690 35.1% 81,523,450 28.8%

Oil 6,359,143 2.0% 3,072,285 1.1%

Other sectors (including investment claims)

70,964,502 21.9% 45,209,497 16.0%


1) The sector financial institutions consists of, among others, banks, investment institutions, insurers and real estate developers.

10.3.2. Credit risk Equity funds only run a credit risk during the settlement of transactions. Since companies are not held to distribute dividends, there is no risk of a counterparty not meeting its payment obligations. The economic state of the underlying enterprises and sovereign states can change and the market will reflect this risk in the price of the bonds. Bond funds are also subject to settlement risks at the time of purchase and sale and coupon payments. The economic state of the underlying enterprises and sovereign states can change and the market will reflect this risk in the price of the bonds. In case of bonds issued by HighYield companies and Emerging Market countries this risk is greater than for Investment grade investments or the more developed sovereign states. The risk exists that the counterparty in a swap cannot meet its obligations. This risk is limited by collateral agreements concluded with all the counterparties. The bonds in the funds are government bonds which have only a limited credit risk. The risk in the mortgage fund is that the mortgagor is unable to meet its obligations, after which the fund retains a right of ownership on the underlying dwelling. For part of the mortgages however this risk is limited


Page 48 of 69

by a Dutch Mortgage Guarantee. Perceptions on the total extent of this risk will be discounted by the market in the price of mortgages. In case of investments in commodities however, the investments are made in swaps which do not involve a direct counterparty risk. In addition, credit risk is run over the investments of any excess liquidity in the money market instruments. Since the GTAA fund deals in OTC instruments, the GTAA fund is subject to settlement risks. The breakdown of the investments according to rating is as follows:


€ % € % AAA 108,190,329 48.6% 81,096,069 47.8%

AA 7,791,503 3.5% 8,796,448 5.2%

A 33,426,887 15.0% 31,451,404 18.5%

BBB 24,185,608 10.9% 17,142,231 10.1%

BB 2,881,357 1.3% 3,124,376 1.8%

B 2,245,138 1.0% 1,960,664 1.2%

Other ratings 235,883 0.1% 172,732 0.1%

No rating (including investment claims)

43,738,945 19.6% 25,945,450 15.3%


10.3.3. Liquidity risk

The liquidity risk is the risk that investments cannot be converted into cash and short-term deposits in time and/or at an acceptable price, as a result of which the Fund is unable to meet its obligations on account of financial instruments. This risk is controlled by maintaining sufficient allowance for liquidity positions in the strategic and tactical investment policy.

10.3.4. Concentration risk The Fund has diversified the investments as much as possible over currencies, regions, sectors and issuers. All equity funds have a widely diversified portfolio whereby concentration deviations have been maximised compared with the benchmark. Most of the bond funds have a widely diversified portfolio whereby concentration deviations have been maximised compared with the benchmark. The benchmark for the government bond fund on the other hand consists of no more than 8 governments and thus the portfolio is exposed to concentration risk. The HighYield and Emerging Market Debt funds have a widely diversified portfolio whereby concentration deviations have been maximised compared with the benchmark. The Long Duration Overlay fund only concludes swaps with a limited list of approved counterparties through which it is exposed to concentration risk. The mortgage fund invests solely in mortgages with Dutch residential properties as collateral. This risk is limited by maximum geographical diversification within the Netherlands. However, in accordance with the index, commodity funds have a major exposure to the energy sector, in particular the oil sector. In addition, swaps are only concluded with a limited list of approved counterparties through which it is exposed to concentration risk. All property funds have a widely diversified portfolio whereby concentration deviations have been maximised compared with the benchmark. The GTAA fund has a widely diversified portfolio. As at 31 December 2011 and 31 December 2010 the Fund had the following individual investments or investments of one and the same issuer in portfolio which are larger than 2% of the balance sheet total.


Page 49 of 69


€ % € % Germany (government bonds) 29,933,472 9.3% 29,386,645 10.4% France (government bonds) 39,800,600 12.3% 24,613,143 8.7% The Netherlands (government bonds)

17,318,832 5.3% 9,709,290 3.4%

Austria (government bonds) 12,884,448 4.0% 6,221,095 2.2% Other investments (including investment claims)

223,652,788 69.1% 213,094,553 75.3%


10.3.5. Operational risk

Operational risk is the risk of an incorrect settlement of transactions, errors in the processing of data, information getting lost, fraud and such. Such risks are controlled by setting high quality requirements to the organisations involved in the execution, in areas such as internal organisation, procedures, processes and checks, quality of the automated systems, and suchlike. These quality requirements are periodically assessed by the Management Board. Operational risks are limited as much as possible by extensive AOICs with built-in checks. However, human actions can always result in errors despite tight protocols.

10.3.6. Systemic risk Systemic risk is the risk of the global financial system (the international financial markets) no longer functioning properly, resulting in investments of the investment funds in which the Fund participates no longer being tradable and even losing their value. This risk cannot be controlled by the Fund, or by other market parties.

10.4. Receivables and prepayments

10.4.1. Claims from reinsurance This item can be broken down as follows:

2011 2010 To be deposited by AEGON in the separated investments account

0 2,423,040

Balance as at year-end 0 2,423,040


Page 50 of 69

10.4.2. Other receivables

This item can be broken down as follows:

2011 2010 Contributions receivable 605,415 196,663 Prepaid transferred pension commitments 83,445 0 Prepaid invoices 15,945 0

Balance as at year-end 704,805 196,663

All receivables fall due within one year.

10.5. Foundation capital and reserves

10.5.1. Statutory reserves and reserves under the Articles This item can be broken down as follows:

2011 2010 General reserve (16,280,119) (6,141,448)

Balance as at year-end (16,280,119) (6,141,448)

The development of the general reserve is as follows:

2011 2010 Balance as at the beginning of the financial year (6,141,448) (9,036,554) Movement via profit appropriation (10,138,671) 2,895,106

Balance as at year-end (16,280,119) (6,141,448)

10.5.2. Other reserves


2011 2010 Reserve investment risk and actuarial risk 31,412,000 27,918,000


The development of the reserve investment risk and actuarial risk is as follows:

2011 2010 Balance as at the beginning of the financial year 27,918,000 26,788,000 Movement via profit appropriation 3,494,000 1,130,000



Page 51 of 69

10.5.3. Solvency and recovery plan

Solvency The Fund’s solvency is as follows:

2011 2010 Minimum equity capital requirement 15,132,000 13,169,000 Equity capital requirement 31,412,000 27,918,000

In accordance with the Pensions Act a pension fund is to maintain a minimum equity capital requirement or an equity capital requirement. The Fund can obtain an exemption from maintaining a minimum equity capital requirement from DNB. The equity capital requirement is to be of such a size that it is avoided with a certainty of 97.5% that the Fund will have less value than the level of the underwriting reserves within a period of one year. The capital position of the Fund can be characterised as reserve shortfall. In calculating the equity capital requirement, a standard model as prescribed by DNB is used, the so-called S-assessment.

Recovery plan In 2009 the Management Board drew up a recovery plan which was submitted to DNB. Evaluation of the recovery plan has shown that, as at 31 December 2011, the cover ratio is below the recovery ratio estimated in the recovery plan (108.9%). The main reason for this decrease is the interest rate. In the recovery plan, during the first four years there will be no result at the actuarial interest rate used because the system of the forward interest rate term structure (RTS) is used. In the actual calculation of the provision for pension liabilities (VPV) as at year-end 2011, the RTS of year-end 2011 was used. This actuarial interest rate was considerably lower and resulted in an increase of the VPV. In the year 2011, this was the main reason why the cover ratio as at year-end 2011 was lower than the cover ratio in accordance with the recovery plan. The minimum equity capital requirement is equal to a certain percentage of the provision for pension liabilities. The Management Board uses a percentage of 5% for this. This percentage has been checked against the minimum equity capital requirement as determined on the basis of the Financial Assessment Framework decision, article 1. The equity capital requirement has been set on the basis of the standard model adopted by DNB. This percentage is 10.3% of the provision for pension liabilities. The equity capital requirement based on the standard model is determined using the so-called S square root formula taking into account eight risks (interest rate, equities and real estate, currency, commodities, lending, underwriting and concentration).

10.6. Underwriting reserves The underwriting reserves include the following pension schemes:

Basic Scheme Top-up Scheme AIP Scheme


Page 52 of 69

The Basic Scheme is applicable to the salary component from 1 up to and including 3x the state pension offset The retirement pension is accrued on a capital base. The accrual of pension entitlements amounts to: for retirement pension 1,7% per year past-service: 1.7% over entitlements accrued in the past for partner’s pension: 50% capitalised (after 1 January 2005) The Top-up Scheme is applicable to the salary component from 3 up to and including 8x the state pension offset The retirement pension is accrued on a capital base. The accrual of pension entitlements amounts to: for retirement pension 1.3% per year past-service: 1.3% over entitlements accrued in the past (after 1 January 2005) for partner’s pension: 50% capitalised (after 1 January 2005) In addition to the group pension scheme, the Funds executes the Additional Individual Pension (AIP) Scheme. Access to the AIP Scheme is no longer possible after 1 January 2004. Also, after 1 January 2004 it is no longer allowed to make any deposits into the AIP Scheme. In principle the member can make use of his entitlement on the first day of the month in which he reaches the age of 65 to purchase a lifelong pension. The regulations of the AIP Scheme were amended to this end in 2005. However, in the context of the law allowing the application of a pre-pension scheme, the AIP can also be used in the original way, as described below, provided the member was born before 1 January 1950: The member can make use of his entitlement on the first day of the month in which he reaches the age of 62 years to purchase a temporary (partial) pension until the 65th year. The option to have the pension paid out from the age of 60 is no longer permitted by law. If the member decides not to do this, at the age of 65 the available capital is used to purchase a lifelong pension. The capital paid out upon death is to be used by the partner or his children, respectively, as a single premium for one or more pensions. Within the AIP scheme no supplements are granted on benefits commenced.

10.6.1. Provision for pension liabilities for risk of the Fund The provision for pension liabilities for risk pension of the Fund is divided into categories of members as follows:

2011 2010 Active members 122,044,314 109,942,821 Disabled members 3,990,053 3,494,360 Former members 39,314,343 29,361,020 Pensioners 126,447,300 110,654,776 AIP capital 4,293,166 4,385,753

Net provision for pension liabilities 296,172,813 257,838,730 Disbursement provision 5,901,979 5,138,642 Balance as at year-end 302,074,792 262,977,372

At the maturity date the insured capital of the AIP scheme amounts to €5,030,414 and on death before the maturity date, €1,711,174.


Page 53 of 69

The development of the provision for pension liabilities for risk of the Fund is as follows:

2011 2010 Balance as at the beginning of the financial year 262,977,372 222,678,754 Pension accrual 7,066,128 11,234,000 Indexation and other supplements 0 19,000 Added interest 3,408,187 2,992,000 Transfer for pension benefits paid (9,189,664) (9,283,000) Transfer for pension administration costs (396,907) (460,000) Change in market interest 38,271,471 20,234,618 Change resulting from transfer of entitlements 458,675 (1,011,000) Changes in actuarial assumptions 0 17,221,000 Other changes (520,470) (648,000)


10.6.2. Other underwriting reserves


2011 2010 Provision past-service single premium 3,602,405 400,000

Balance as at year-end 3,602,405 400,000

Provision past-service single premium The development of this item is as follows:

2011 2010 Balance as at the beginning of the financial year 400,000 3,166,000 Allocation 3,602,405 400,000 Release (400,000) (3,166,000)


Provision for adjustment life expectancy table The development of this item is as follows:

2011 2010 Balance as at the beginning of the financial year 0 6,903,041 Release 0 (6,903,041)

Balance as at year-end 0 0


Page 54 of 69

10.7. Other liabilities and accruals

10.7.1. Amounts owed on account of reinsurance


2011 2010 To be withdrawn from the separated investment account by AEGON 218,886 0

Balance as at year-end 218,886 0

10.7.2. Other liabilities


2011 2010

Contributions received in advance 3,000,000 0 Pension commitments taken over and received in advance 202,981 426,505 Accountant charges payable 26,000 26,000 Actuary fees payable 32,000 32,000 Administration fee payable 6,000 6,000


10.8. Assets and liabilities not included in the balance sheet

10.8.1. Indexations that have not been applied; past-service ambition

The indexation ambition is 100% of the increase of the Consumer Price Index (CPI). The expected realisation of the indexation ambition is approximately 78%. In 2011, because of the Fund’s financial position as at year-end 2011 (reserve deficit), no indexation was applied. No indexation will be applied to 2012 either, in view of the financial position of the Fund as at year-end 2011 (reserve deficit).

10.8.2. Outsourcing The Fund has entered into an outsourcing agreement with reinsurer AEGON Levensverzekeringen N.V. for a period of five years. The annual fee is approximately €149,000.

10.8.3. Collateral and guarantees The Fund has not received any collateral or guarantees from third parties.

10.8.4. Collateral and guarantees furnished The Fund has not furnished any collateral or guarantees to third parties.


Page 55 of 69

11. Explanatory notes to the statement of income and expenditure

11.1. Premium contributions This item can be broken down as follows:

2011 2010 Employer’s contribution 7,471,654 7,169,615 Members’ contribution 3,092,625 3,027,048 Total 10,564,279 10,196,663

The break-even premium and actual premium are as follows:

2011 2010 Actual premium 10,564,279 10,196,663 Break-even premium 7,066,000 11,234,000

The actual premium to be allocated to the financial year has been recognised as income. The breakdown of the break-even premium is as follows:

2011 2010 Actuarial contributions active members 6,185,000 9,815,000 Expense charge (minus release of benefit payment expenses)

213,000 290,000

Solvency surcharge 668,000 1,129,000 Total 7,066,000 11,234,000

11.2. Investment result for risk of pension fund


2011 2010 Direct investment income 6,599,007 6,168,206 Indirect investment income 27,611,781 28,295,316 Costs of asset management 155,502 112,888 Total 34,366,290 34,576,410

11.2.1. Direct investment income


2011 2010 Dividend income equities 0 109,431 Interest income fixed-income securities 6,596,301 6,056,961 Cash and short-term deposits 347 1,814 Other income from deposit 2,359 0 Direct investment income 6,599,007 6,168,206


Page 56 of 69

11.2.2. Indirect investment income


2011 2010 Movements in value real estate investments (40,165) 3,004,194 Movements in value equities (6,864,553) 7,186,643 Movements in value fixed-income securities 35,105,544 15,024,287 Movements in value other investments (589,045) 3,080,192 Indirect investment income 27,611,781 28,295,316

11.2.3. Costs of asset management


2011 2010 Fixed management costs 155,502 112,888 Costs of asset management 155,502 112,888

It is not possible to make a reliable allocation of the total costs in investment funds, the purchase and selling costs which are included in the participating interests, to the various asset classes. For this reason such an allocation has not been included. The amount of management costs of €155,502 consists of a fixed management fee of €13,646 (is index-linked) for the asset management including administration of the 2nd asset manager Alliance Bernstein until 1 August 2011. In addition, a variable fee is charged to the amount of 0.1% of the assets sold as at 1 August 2011 with the 2nd asset manager; for seven months this is €22,988. Lastly, a volume discount to the amount of -/- €192,136 has been granted on the variable management costs deducted from the unit values of the AEGON funds. These variable management costs are part of the (non)realised price result on investments.

11.3. Other income This item can be broken down as follows:

2011 2010 Share of reinsurer in (negative) underwriting result

147,514 481,167

Interest income 8,684 27,876 Total 156,198 509,043

The interest income is explained in section 11.9.


Page 57 of 69

11.4. Pension benefits paid

In total the following was paid out to retired members:

2011 2010 Retirement pension 7,167,396 6,825,566 Pre-pension 182,593 209,972 Dependant’s pension 1,525,742 1,443,498 Orphan’s pension 35,903 13,140 Commutation on account of small pension 0 3,707 Capital benefit 278,030 756,648 Total 9,189,664 9,252,531

11.5. Pension administration costs


2011 2010 Auditor’s fees - annual report and DNB annual statements by KPMG 45,815 55,750 Actuary’s fees 34,205 81,254 Management costs 42,296 129,476 Contributions 16,017 5,042 Administration costs charged by AEGON 148,926 136,185 Consultancy fees 0 18,842 Disbursement expenses benefits 192 (409) Membership fee DNB 36,210 6,343 Costs ALM study 31,376 27,766 Legal costs 41,870 0 Total 396,907 460,249

In accordance with Section 96 of the Pensions Act we can state that the Fund did not incur any penalties or fines in the year under review 2010. The fees charged by KPMG Accountants N.V. consist entirely of the fees for the statutory audit of the annual accounts and the reporting statements.

11.6. Movement provision for pension liabilities for risk of Fund Below follows an explanation of the various components of the movement in the provision for pension liabilities for risk of the Fund.

11.6.1. Pension accrual The pension accrual is the present value of the pension entitlements granted during the financial year. The composition is as follows:

2011 2010 Gross contribution 6,630,128 5,911,000 Gross single premiums 436,000 5,323,000 Total pension accrual 7,066,128 11,234,000


Page 58 of 69

11.6.2. Indexation and other supplements The Fund strives to annually adjust the pensions commenced and the non-contributory pension rights (former members) to the development of the Consumer Price Index adjusted for the reference period, whereby the reference period is from July of the previous year to July of the present year. The indexation is conditional. This means that there is no right to indexation and that it is uncertain whether and to what extent indexation can take place in the future. Any arrears in indexation in principle can be made up. As of 1 January 2011 and 1 January 2010 no indexation has been granted.

11.6.3. Interest added The pension commitments have accrued an interest of 1.3% (previous financial year: 1.3%) for an amount of €3,408,187 (previous financial year €2,992,000).

11.6.4. Transfer for pension benefits The actuarial value of expected future pension benefit payments is calculated in advance and is included in the provision for pension commitments. The reduction in the provision included under this heading is accounted for by the amount that is released for the purpose of funding the pensions for the reporting period. The composition can be broken down as follows.

2011 2010 Benefits (9,189,664) (9,283,000) Commutation small pensions 0 0 Commutation to Fund 0 0 Total benefits (9,189,664) (9,283,000)

11.6.5. Transfer for pension administration costs

Future pension administration costs (in particular benefit payment expenses) are calculated in advance and included in the provision for pension commitments. The reduction in the provision included under this heading is accounted for by the amount that is released for the purpose of funding the costs for the reporting period. The transfer relating to the year under review amounted to €(396,907) (previous financial year € (460,000)).

11.6.6. Change in market interest rate The market value of the underwriting reserves is recalculated annually, on 31 December, based on the interest rate term structure applicable at that time. The impact of the change in the interest rate term structure is accounted for under the heading of change in market interest rate. The interest rate used as at 31 December amounted to 2.7% and was derived from the interest rate term structure as published as at 31 December 2011 by DNB. The financial consequences based on the change of the market interest rate relating to the year under review amounted to €38,271,471 (previous financial year: €20,234,618).

11.6.7. Change resulting from transfer of rights This includes the balance of the single premiums necessary from an actuarial perspective for pension commitments taken over and the release of the provision relating to the amount to be released for funding pension commitments transferred. The balance can be represented as follows:


Page 59 of 69

2011 2010 Single premium transfer value taken over 1,196,873 0 Commutation of transfers of accrued benefits (738,198) (1,011,000) Total 458,675 (1,011,000)

11.6.8. Change resulting from actuarial assumptions

Each years, the actuarial assumptions and/or methods are assessed and if necessary revised for the purpose of calculating the current value of the pension commitments, using internal and external actuarial expertise. This involves, among other things, a comparison of assumptions regarding mortality, longevity, occupational disability with the actual data for the general population as well as for the population of the Fund. The assessment of the adequacy of the provision for pension commitments is an inherently uncertain process, which involves using estimates and judgements by the Fund's Management Board. The impact of these changes is recognised in the result at the time that the actuarial assumptions are revised. The financial consequences based on the changes in actuarial assumptions amounted to €0 (previous financial year: €17,221,000).

11.6.9. Other movements provision for pension liabilities The balance can be broken down as follows:

2011 2010 Underwriting result mortality 264,530 469,000 Underwriting result disability (80,000) 35,000 Underwriting result movements (705,000) (1,152,000) Underwriting result other underwriting assumptions

0 0

Total (520,470) (648,000)

11.7. Movement other underwriting reserves

The balance can be broken down as follows:

2011 2010 Movement provision past-service single premium 3,202,405 (2,766,000) Movement provision adjustment mortality table 0 (6,903,041) Total 3,202,405 (9,669,041)

11.8. Balance transfer of rights


2011 2010 Pension commitments taken over (842,916) 0 Pension commitments transferred 687,958 914,653 Total (154,958) 914,653


Page 60 of 69

The increase of the provision for pension liabilities related to the pension commitments taken over and the release of the provision for pension liabilities related to the pension commitments transferred are recorded in the item Change in the provision for pension liabilities.

11.9. Interest income and expenses The total of the items interest income and interest expenses can be broken down according to the various income and expense elements:

2011 2010 Interest overdue payments 8,684 27,876 Total interest income 8,684 27,876 Total interest expenses 0 0

Total balance interest income and expenses 8,684 27,876

11.10. Number of staff

The Fund does not employ any staff. Its activities are carried out by staff of the employer. The costs of these are for the account of the employer.

11.11. Bodies connected with the Fund

11.11.1. Management Board The Management Board is charged with the policy and the daily affairs of the Fund. The Management Board members do not receive any remuneration for their activities.

11.11.2. Accountability Body The Accountability Body charged with the supervision of the Management Board. The remuneration over the year 2010 for the members of the accountability body together was nil (2010: nil).

11.11.3. Identity of related parties There is a relationship between the related parties: the fund and the sponsor, the affiliated companies and their managing directors.


Page 61 of 69


Page 62 of 69

Other data


Page 63 of 69

12. Appropriation balance of income and expenditure

No provision has been included in the articles of the Fund on the appropriation of the balance of the income and expenditure. The appropriation is described in more detail in the ABTN. For the year under review it is proposed to appropriate the results as follows.

2011 Statutory reserves and reserves under the Articles

Movement General Reserve (10,211,671) Other reserves

Reserve investment and actuarial risks 3,567,000

Total appropriation of the result (6,644,671)


Page 64 of 69

13. Execution agreement

The Stichting Pensioenfonds Fluor Nederland (SPFN) has defined the mutual relationships between itself and Fluor B.V., Fluor Consultants B.V. and Fluor Infrastructure B.V. in written agreements. These agreements also define the maximum contributions payable by the companies concerned and the date on which these contributions are due. The Management Board will annually set the contributions payable for the next year, but these contributions shall never exceed the maximum level laid down in the execution agreement. The agreement sets out the method for calculating the employer’s contribution. This contribution is determined partly by the total wage bill and by the weighted average age of the members. An important clause in the agreement is the guarantee provided by the employer that if the total assets fall below the total liabilities, the employer will upon DNB’s first request supplement the assets of the Fund to make up the shortfall. This clause was added when the employer asked the Fund to invest a greater proportion of its assets in investment products that carry a relatively high degree of risk, such as equities, rather than in bonds.


Page 65 of 69

14. Events after balance sheet date

There are no special events to report.


Page 66 of 69

15. Actuarial statement

Instruction Stichting Pensioenfonds Fluor Nederland in Haarlem instructed Milliman Pensioenen vof to issue an actuarial statement as referred to in the Pensions Act for the financial year 2011 Data The data on which my audit is based were provided by and prepared under the responsibility of the Management Board of the Fund. I have based my assessment of the fund’s assets and its financial position on the financial data that form the basis for the financial statements.

In accordance with the guideline on “Co-operation between auditors and actuaries regarding the audit of the accounts of insurance companies”, the Fund’s auditor has informed me about the reliability and completeness of the administrative source data and any other fundamental information that are relevant for my judgment. Scope In carrying out the instruction I investigated whether the provisions of Sections 126 up to and including 140 of the Pensions Act were met. The administrative source data provided by the Fund and the findings of the auditor regarding these data are such that I have accepted those data as the basis for my audit.

The audit involved: • examining, among other things, whether the underwriting reserves, minimum required equity capital and

required equity capital were set at an adequate level and • forming an opinion regarding the financial position of the Fund. These checks were performed and planned in such a manner that I was able to ascertain with reasonable assurance that the financial statements are free of material misstatement. I have formed an opinion about the degree of certainty that the Fund will be able to meet the commitments that it has assumed until the balance sheet date, also taking into account the financial policy of the Fund. The activities described above and the methods employed are in accordance with the usual standards and practices accepted by the Dutch Actuarial Association and in my opinion provide a sound basis for the opinion presented below. Opinion The underwriting provisions have been set at an adequate level, in accordance with the accounting rules and assumptions described. The Fund’s equity capital as per the balance sheet date did not meet the statutorily required equity capital, but it did meet the statutorily minimum required equity capital. Measured against the statutory yardstick there is a reserve shortfall with respect to the commitments assumed until the balance sheet date.


Page 67 of 69

With due observance of the above I have established that the Sections 126 up to and including 140 of the Pensions Act have been met with the exception of Sections 132. The Fund does not have the required equity capital. In my opinion the capital position of Stichting Pensioenfonds Fluor Nederland is insufficient, due to a reserve deficit. Amsterdam, 13 June 2012 drs R.K. Sagoenie AAG


Page 68 of 69

16. Audit report of the independent auditor

To: the Management Board of Stichting Pensioenfonds Fluor Nederland

Report on the financial statements

We have audited the financial statements for 2011 accompanying the annual report of Stichting Pensioenfonds Fluor Nederland in Haarlem. These financial statements comprise the balance sheet as at 31 December 2011, the cash flow statement and the statement of income and expenditure for the year 2011 and the notes, including an overview of the assumptions used for financial reporting and other notes.

Management Board’s responsibility

The Management Board of the foundation is responsible for the preparation of the financial statements which have to state truthfully the capital and the result, as well as for the preparation of the management report, both in accordance with Part 9 of Book 2 of the Civil Code prevailing in the Netherlands. The Management Board is also responsible for such internal controls as it deems necessary to allow the preparation of the annual report free from material misstatement, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with Dutch law, including the Dutch audit standards. This requires that we comply with the applicable ethical standards and plan and perform the audit in such a manner that reasonable assurance is obtained that the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s professional judgment, including an assessment of the risks of material misstatement of the financial statements due to fraud or error. In making those risk assessments, the auditor considers the internal controls relevant to preparing the annual report and to the true and fair view thereof, aimed at setting up audit activities which are fitting in the circumstances. These risk assessments however are not aimed at expressing an opinion on the effectiveness of the foundation’s internal controls. An audit also involves the evaluation of the suitability of the assumptions used for financial reporting and the reasonableness of estimates made by the foundation’s Management Board, as well as an overall evaluation of the financial statements. We are of the opinion that the audit information obtained by us is sufficient and appropriate to substantiate our audit opinion.


Page 69 of 69

Opinion

In our opinion, the financial statements give a true and fair view of the financial position of Stichting Pensioenfonds Fluor Nederland as at 31 December 2011 and of the result over the financial year 2010 in accordance with Part 9 of Book 2 of the Dutch Civil Code.

Report on other requirements set by law

Pursuant to Section 2:393 subsection 5 sub e and f Dutch Civil Code, we report that no shortcomings have become apparent in connection with the audit, to the extent of our competence, whether the management report has been prepared in accordance with Part 9 of Book 2 of the Dutch Civil Code, and whether the information required in Section 2:392 subsection 1 sub b up to and including h Dutch Civil Code has been added. We also report that the management report, to the extent of our competence, is consistent with the financial statements as required by Section 2:391 subsection 4 of the Dutch Civil Code. Utrecht, 13 June 2012 KPMG ACCOUNTANTS N.V. H.P. van der Horst RA

Date post:	31-Jul-2020
Category:	Documents
Upload:	others
View:	5 times
Download:	0 times