NOTES TO CONSOLIDATED FINANCIAL STATEMENTS KEYCORP AND SUBSIDIARIES The realized net investment income for the postretirement healthcare plan VEBA is subject to federal income taxes. Consequently, the weighted- average expected return on plan assets shown in the preceding table reflects the effect of income taxes. Management assumptions regarding healthcare cost trend rates are as follows: Key uses a September 30 measurement date for its postretirement benefit plans. Changes in the accumulated postretirement benefit obligation (“APBO”) are summarized as follows: Increasing or decreasing the assumed healthcare cost trend rate by one percentage point each future year would not have a material impact on net postretirement benefit cost or obligations since the postretirement plans have cost-sharing provisions and benefit limitations. Changes in the fair value of postretirement plan assets are summarized as follows: December 31, 2003 2002 Healthcare cost trend rate assumed  for next year 9.50% 10.00% Rate to which the cost trend rate  is assumed to decline 5.00 5.00 Year that the rate reaches the  ultimate trend rate 2013 2013 Year ended December 31, in millions 2003 2002 APBO at beginning of year $128 $114 Service cost 3 3 Interest cost 8 8 Plan participantsGLYPH<213> contributions 6 5 Actuarial losses (gains) (4) 17 BeneGLYPH<222>t payments (19) (19) APBO at end of year $122 $128 Year ended December 31, in millions 2003 2002 FVA at beginning of year $ 39 $ 39 Employer contributions 18 18 Plan participantsGLYPH<213> contributions 6 5 BeneGLYPH<222>t payments (19) (19) Actual return (loss) on plan assets 9 (4) FVA at end of year $ 53 $ 39 December 31, 2003 2002 Equity securities 82% 56% Cash equivalents 18 44 Total 100% 100% Key’s weighted-average asset allocations for its postretirement VEBAs at the September 30 measurement date are summarized as follows: Management’s determination of expected returns on plan assets in the VEBAs is similar to the method Key employs for its pension funds. The primary investment objectives of the VEBAs are also similar.  In accordance with Key’s current investment policies, weighted-average target allocation ranges for the VEBAs’ assets are as follows: The funded status of the postretirement plans at the September 30 measurement date, reconciled to the amounts recognized in the consolidated balance sheets at December 31, 2003 and 2002, is as follows: Although the investment policy permits the use of derivative contracts subject to certain limitations and restrictions, no such contracts have been entered into. There are no foreseeable plans to employ such contracts in the future.  To determine the accumulated postretirement benefit obligation at the September 30 measurement date, management assumed weighted- average discount rates of 6.00% at December 31, 2003, 6.50% at December 31, 2002, and 7.25% at December 31, 2001. a The excess of the accumulated postretirement beneGLYPH<222>t obligation over the fair value  of plan assets. Asset Class Investment Range Equity securities 70% GLYPH<209> 90% Fixed income securities 0 GLYPH<209> 10 Convertible securities 0 GLYPH<209> 10 Cash equivalents and other assets 10 GLYPH<209> 30 December 31, in millions 2003 2002 Funded status a $(69) $(89) Unrecognized net loss 22 35 Unrecognized prior service cost 2 2 Unrecognized transition obligation 36 40 Contributions/beneGLYPH<222>ts paid subsequent  to measurement date 8 10 Accrued postretirement  beneGLYPH<222>t cost recognized $ (1) $ (2) Year ended December 31, 2003 2002 2001 Discount rate 6.50% 7.25% 7.75% Expected return on plan assets 5.73 5.71 5.71 There are no regulatory provisions that require contributions to the VEBAs. Consequently, there is no minimum funding requirement. Discretionary contributions to the VEBAs are permitted, subject to certain IRS restrictions and limitations. Key anticipates making discretionary contributions into the VEBA trusts of approximately $10 million in 2004. To determine net postretirement benefit cost, management assumed the following weighted-average rates: 75 NEXT PAGE BACK TO CONTENTS SEARCH PREVIOUS PAGE