PRODUCT LINE OVERVIEW 1 VARIABLE ANNUITIES FEE BUSINESS Variable annuities contributed 2% to AEGON’s income before tax in 2003 (minus 21% in 2002 and 3% in 2001). Variable annuities are sold to individuals and pension funds through (independent) agents, marketing organizations, brokers and financial institutions in the United States and Canada. Variable annuities allow a customer to save for the future on a tax-deferred basis and to select payout options that meet the customer’s need for income upon maturity, including lump sum payment or income for life or for a period of time. Premiums paid on variable annuity contracts are invested in funds offered by AEGON, including bond and equity funds, and selected by a client based on the client’s preferred level of risk. The assets and liabilities related to this product are legally segregated for the benefit of particular policyholders in separate accounts of the insurance company (classified as investments for account of policyholders).  The account value of the variable annuities reflects the performance of the funds. AEGON earns mortality charges for providing a minimum guaranteed death benefit and may also provide guaranteed income benefits upon annuitization. This category includes segregated funds (Canada). Fee business contributed 0.2% to AEGON’s income before tax in 2003 (0.1% in 2002 and 3% in 2001). The products are sold to individuals, pension funds and asset managers through (independent) agents, marketing organizations, financial institutions and direct marketing in the United States, Canada, the Netherlands, the United Kingdom and Hungary. AEGON’s fee business comprises products that generate fee income by providing management, administrative or risk services related to off balance sheet assets (i.e. equity or bond funds, third-party managed assets and collective investment trusts). AEGON’s operations in the United States provide various investment products and administrative services, individual and group variable annuities, mutual funds, collective investment trusts, and asset allocation (retirement planning) services. AEGON serves the following retirement plan markets: corporate defined benefit plans, corporate defined contribution plan, 401(k) plans, not-for-profit organizations qualifying for tax qualified annuities under section 403(b) of the United States Internal Revenue Code  and non-qualified 457 plans available to government and  tax exempt organizations. Bundled retirement plans are sold to mid-sized and large employers. A ’manager of managers’ investment approach is used specifically for the retirement plans market, which allows clients access to institutional investment managers across the major asset classes. These funds are available in a ‘core-and- feeder’ structure, in which the core is similar to a mutual fund and the feeder provides an institutional customer with a choice of products that are directly linked to the performance of the mutual fund, such as a registered or non-registered variable annuity, a collective investment trust (off balance sheet) or a mutual fund (off balance sheet). The United States operations provide the fund manager oversight for the IDEX and Diversified Investors Funds Group family of mutual funds. AEGON builds alliances with investment companies and selects and retains external managers based upon performance from a variety of investment firms. The external manager remains with the investment company and acts as a sub-advisor for AEGON’s mutual funds. AEGON earns investment management fees on these investment products. A synthetic GIC is generally characterized as an off balance sheet fee-based product sold primarily to tax qualified institutional entities such as 401(k) plans and other retirement plans, as well as college savings plans. AEGON insurance companies provide a synthetic GIC ‘wrapper’ around fixed income invested assets, which are owned by the plan and managed by the plan or a third party money manager. The synthetic GIC provides a smoothed return to plan participants and book value benefit-responsiveness in the event that qualified plan benefit requests exceed plan cash flows. In certain contracts, AEGON agrees to make advances to meet benefit payment needs and earns a market interest rate on these advances. The periodically adjusted contract crediting rate is the means by which investment and benefit responsive experience is passed through to participants. In Canada, fees are earned through several special service and fund management companies. Fees are earned by providing administrative back office services that facilitate the sale of mutual funds and segregated fund products. In addition, a national network of financial planning franchises and representatives earn fees when products of non-affiliated companies are sold. Investment management fees are also earned by providing portfolio management and investment advisory services. AEGON’s operations in the Netherlands offer financial advice and are involved in intercession activities in real estate. The financial advice activities include selling insurance, pensions, mortgages, financing, savings and investment $^{1}$Income before tax in this section refers to income before tax excluding interest charges and other and the income of Transamerica Finance Corporation. AEGON GROUP ANNUAL REPORT 2003 44 CUSTOMERS individuals pension funds DISTRIBUTION (independent) agents marketing organizations brokers financial institutions CUSTOMERS individuals pension funds asset managers DISTRIBUTION (independent) agents marketing organizations financial institutions direct