NOTES TO THE CONSOLIDATED INCOME STATEMENTS Amounts in EUR millions Expenses include allocated internal rent related to real estate for AEGON’s own use of EUR 11 million (2002: EUR 14 million and 2001: EUR 17 million), based on current market conditions. Claims processing costs are included in benefits and surrenders respectively in claims for own account; investment expenses are included in investment charges. The liabilities related to the various stock appreciation right plans are valued at market value and included in other payables. The value was estimated using the binomial option pricing model, taking into account the period of time until the vesting date, the remaining period of time until maturity and the expected decreasing number of entitled employees. At the balance sheet date, market value of the 2003 and 2002 plans amounted to EUR 20 million (2002: nil). The change in market value is recognized in other expenses and amounted to EUR 20 million for 2003 (2002 and 2001: nil). AEGON has non-contributory defined benefit plans and defined contribution plans covering substantially all AEGON employees. In a number of countries, including the Netherlands and the United Kingdom, retirement benefits are insured with our life insurance companies based on the appropriate actuarial formulas and assumptions. In the remaining countries, including the United States, the provisions for pension obligations are vested in separate legal entities, not forming part of AEGON. In the United States US GAAP (SFAS 87) is applied for the US pension plans. SFAS calculations require several assumptions, including future performance of financial markets, future composition of work force and best estimates of long-term actuarial assumptions. The pension expense in the income statement in a certain year under SFAS 87 includes the expected return on assets. The expected return on assets is calculated by applying the long-term return on a five year moving average of the market value of the plan assets. In a period of market declines, such as recently experienced, this moving average is higher than the market value of the assets at the reporting date. The difference between the expected return reflected in the income statements and the actual return on the assets in a certain year is deferred. Deferred gains or losses are amortized to the income statement applying a corridor approach. The corridor is defined as 10% of the greater of the moving average value of the plan assets or the projected benefit obligation. To the extent that the prepaid pension costs at the beginning of the year exceed the moving average asset value less the pension benefit obligation by more than the 10% corridor, the excess is amortized over the employees’ average future years of service (approximately seven years). The amount in note 10 (page 94) for Prepaid pension costs on employee pension plans relates entirely to AEGON in the United States. The amount is a combination of unrecognized net losses, unrecognized prior service costs and the positive difference between the market value of the pension plan assets at the reporting date and the projected benefit obligation.  In the Netherlands employees participate in a defined benefit scheme based on average salary and for the amount exceeding a certain level employees may opt for a defined contribution scheme. Indexation of vested rights are fully funded yearly and immediately charged to the income statements. In the United Kingdom, AEGON UK has a defined benefit scheme which covers the great majority of employees. With effect from April 1, 2003, this fund was closed to new entrants who are now placed in a defined contribution scheme. In addition, current employees in the defined benefit scheme will either have future benefit entitlements reduced or will have to pay 5% of salary to maintain benefits at current level. Employer contributions at the rate of 14% commenced with effect from January 1, 2003. In the other countries pension costs are fully charged to the income statements in the years in which they are earned by the employees. The average number of employees was 28,521 of which 5,136 agent-employees (2002: 25,903 of which 3,985 agent-employees and 2001: 25,790 of which 4,298 agent-employees). The specification per geographical area is as follows: The average number of employees of joint ventures have been included proportionally. The total number employed at these joint ventures was 333 (2002: 49 and 2001: 931). The 2002 figures have been adjusted for self-employed agents which are no longer included. The increase in the average number of employees in the Netherlands is due to the consolidation of the Meeùs group and other distribution companies. AEGON GROUP ANNUAL REPORT 2003 116 2003 2002 2001 Americas 14,921 15,628 16,007 The Netherlands 6,016 2,986 3,073 United Kingdom 5,130 4,942 4,574 Other Countries 2,454 2,347 2,136 TOTAL 28,521 25,903 25,790