Shareholders’ equity December 31,				Net income
Amounts in EUR millions	2004	20031	2004	20031	20021
Amounts in accordance with Dutch accounting principles	14,413	13,947	1,663	1,033	(228)
Adjustments for:
Real estate	(843)	(817)	(39)	(33)	(48)
Bonds and private placements — valuation	3,959	3,824	-	-	-
— realized gains and (losses)	1,472	1,132	245	893	8
Deferred policy acquisition costs	(2,111)	(2,253)	(210)	(308)	(626)
Goodwill	2,939	2,959	-	(219)	(670)
Technical provisions	72	715	(58)	1	534
Realized gains and (losses) on shares and real estate	-	-	13	145	(150)
Derivatives	(142)	(239)	5	90	32
Deferred taxation	(632)	(670)	(47)	(33)	(30)
Deferred taxation on US GAAP adjustments	(680)	(771)	130	(266)	(184)
Balance of other items	(131)	9	12	228	329
AMOUNTS DETERMINED IN ACCORDANCE WITH US GAAP	18,316	17,836
Income before cumulative effect of accounting changes			1,714	1,531	(1,033)
Cumulative effect of adopting SOP 03-01			(207)	-	-
Cumulative effect of adopting DIG B36			(77)	-	-
Cumulative effect of adopting FAS 142 (goodwill)			-	-	(1,295)
NET INCOME IN ACCORDANCE WITH US GAAP			1,430	1,531	(2,328)
Other comprehensive income, net of tax:
Foreign currency translation adjustments			(971)	(2,384)	(2,749)
Unrealized gains and (losses) on available for sale securities during the period			911	1,223	(673)
Reclassification adjustment for (gains) and losses included in net income			(526)	7	1,193
Net unrealized gains on cash flow hedges			66	26	-
Minimum pension liability adjustment			(47)	-	-
Other comprehensive income / (loss)			(567)	(1,128)	(2,229)
COMPREHENSIVE INCOME IN ACCORDANCE WITH US GAAP			863	403	(4,557)

In 2004 major differences between amounts on Dutch accounting principles and those on US GAAP compared to the amounts of prior years are explained as follows:
Net income of EUR 1,267 million was reported for 2004 based on US GAAP, compared to a net profit of EUR 1,531 million for 2003.
Capital gains and losses on bonds and private placements realized less the amortization charge of deferred gains and losses totaled EUR 245 million for the year ended December 31, 2004 (2003: EUR 893 million). Under Dutch accounting principles gains and losses are deferred and amortized to the income statement over future periods. Under US GAAP these gains and losses, together with the annual amortization charge, are reported in the income statement when they are realized.
Goodwill impairment charges are recorded on a US GAAP basis while goodwill is charged to equity on a Dutch accounting basis at the time of acquisition. The required annual goodwill impairment test under SFAS 142 was performed in the fourth quarter of 2004 and resulted in no additional goodwill impairment charge (2003: EUR 219 million). This impairment charge was reported as a 2003 US GAAP operating expense.
The following is a summary of differences between Dutch accounting principles and US GAAP which have an impact on reported shareholders’ equity or net income.


REAL ESTATE
Under Dutch accounting principles real estate is shown at market value, which is the selling-value under normal market circumstances. New property is valued at construction cost including interest during the construction period, or at purchase price. Unrealized gains and losses on real estate investments as well as results, expenses and currency exchange rate differences from hedging transactions are recognized in the revaluation account, taking into account the related (deferred) taxes. Realized gains and losses are recognized in the income statement.
Under US GAAP real estate is carried at historical cost less accumulated depreciation and is adjusted for any impairment in value. Depreciation is provided over the estimated economic life of the property. Realized gains or losses and all other operating income and expense are reported in the income statement.
The adjustment shown in the reconciliation in the shareholders’ equity column represents the reduction from market value to the historical cost less depreciation.
The adjustment shown in the reconciliation in the net income column represents the annual depreciation charge and the differences in results on disposals arising from the reversal of cumulative depreciation changes on the disposals under US GAAP.

BONDS AND PRIVATE PLACEMENTS - VALUATION
Under Dutch accounting principles bonds and private placements are shown at amortized cost less provisions for uncollectable amounts, representing the cash value at the balance sheet date of future interest and principal repayment components based on the effective interest rate on the date of acquisition.

Under US GAAP debt securities are classified in three categories and accounted for as follows:

AEGON has classified the vast majority of its debt securities as available-for-sale securities and the remainder as trading securities. Under US GAAP, when evidence indicates there is a decline in a debt security’s value, which is other than temporary, the security is written down to fair value and the difference is charged to current year’s earnings.
The adjustment shown in the reconciliation in the shareholders’ equity column represents the difference between the amortized cost basis less write-downs for uncollectable amounts and the market value.

BONDS AND PRIVATE PLACEMENTS - REALIZED GAINS AND LOSSES
Under Dutch accounting principles realized gains and losses from transactions within the bonds and private placements portfolios, unless a loss is considered a default loss, are deferred and released to the income statements in annual installments over the estimated average remaining maturity term of the investments sold.
Under US GAAP realized gains and losses on sales of debt securities are recorded in the earnings of the period in which the sales occurred. Gains and losses, both realized and unrealized, on debt securities classified as trading are included in net income.
The adjustment shown in the reconciliation in the shareholders’ equity column represents the reclassification of the deferred results on the sale of bonds from liabilities to shareholders’ equity.
The adjustment shown in the reconciliation in the net income column represents the difference between the release of the deferred results on a Dutch accounting principles basis and the realized results on a US GAAP basis, and also includes gains and losses on debt securities in the trading portfolio.

DEFERRED POLICY ACQUISITION COSTS AND VALUE OF BUSINESS ACQUIRED
Under Dutch accounting principles, policy acquisition costs, which are costs that are directly or indirectly related to the acquisition of new or renewal insurance contracts, are deferred to the extent that they are recoverable from future expense charges in the premiums or from expected gross profits, depending on the nature of the contract. Acquisition costs are also deferred for certain non-insurance investment type products related to 401(k) plans in the United States. Deferred policy acquisition costs (DPAC) are amortized over the life of the underlying contracts, which are periods not to exceed the premium-paying periods for fixed premium products (traditional life and fixed universal life) and for flexible premium insurance contracts and investment type contracts in proportion to the emergence of estimated gross profits.
For fixed premium products in all countries, the DPAC are tested at least annually by country unit and product line to assess the recoverability. The amount not recoverable is recognized as an expense in the income statement in the period of determination. In the United States and Canada, the DPAC on flexible premium products, including fixed and variable annuities, variable universal life and unit-linked contracts, are amortized at a constant rate based on the present value of the estimated gross profit amounts expected to be realized over the life of the policies. If appropriate, the assumptions included in the determination of estimated gross profits are adjusted. A significant assumption related to estimated gross profits on variable annuities and life insurance products is the annual long term net growth rate of the underlying assets. The reconsideration of assumptions may affect the original DPAC amortization schedule, referred to as DPAC unlocking. The difference between the original DPAC amortization schedule and the revised schedule, which is based upon actual gross profits earned to date and revised estimates of future gross profits, is recognized in the income statement as an expense or a benefit. In the Netherlands, the United Kingdom and Other countries the impact of equity market movements on estimated gross profits on flexible premium products is covered by the yearly or, if appropriate, quarterly recoverability testing; a negative outcome is charged to the income statement in the period of determination. If appropriate, the assumptions included in the determination of estimated gross profits are adjusted for future periods.
Under US GAAP for fixed premium products the accounting is the same as under Dutch accounting principles in all countries. For flexible premium products sold in the United States and Canada, US GAAP is the same as Dutch accounting principles. For flexible premium products sold in the Netherlands, the United Kingdom and Other countries an unlocking adjustment is made using a revised DPAC amortization schedule based on actual gross profits earned to date and revised estimates of future gross profits. Acquisition costs related to non-insurance investment type products related to 401(k) plans in the United States are expensed as incurred as opposed to being deferred and amortized in accordance with Dutch accounting principles.
The adjustment in the reconciliation in the shareholders’ equity column and the adjustment in the reconciliation in the net income column include the effect of unlocking for DPAC on flexible premium products in the United Kingdom and the Netherlands and the difference in accounting for acquisition costs related to non-insurance investment type products related to 401(k) plans in the United States. Also included, in accordance with practice subsequent to the issuance of SFAS 115, is the adjustment of DPAC to reflect the change in amortization that would have been necessary if unrealized investment gains or losses related to debt securities had been realized. The effect on US GAAP equity related to SFAS 115 is EUR (1,371) million (2003: EUR (1,421) million).

GOODWILL
Under Dutch accounting principles goodwill is charged to shareholders’ equity in the year of acquisition.
Under US GAAP goodwill is capitalized and prior to January 1, 2002 goodwill was amortized over the expected periods to be benefited with adjustments for impairment, if necessary. For US GAAP accounting purposes goodwill was amortized over various periods, not exceeding 20 years for years prior to 2002. Goodwill was tested for impairment based on undiscounted cash flows.
Pursuant to the adoption of SFAS 142, ‘Goodwill and Other Intangible Assets’, as of January 1, 2002, goodwill is reviewed and tested for impairment under a fair value approach. Goodwill must be tested for impairment at least annually or more frequently as a result of an event or change in circumstances that would indicate impairment may be necessary. Impairment testing requires the determination of the fair value for each of the identified reporting units. The reporting units identified for AEGON based upon the SFAS 142 rules include: AEGON USA, AEGON Canada, AEGON The Netherlands, AEGON UK insurance companies and AEGON UK distribution companies and Other Countries. The fair value of the insurance operations is determined using valuation techniques consistent with market appraisals for insurance companies, a discounted cash flow model requiring assumptions as to a discount rate, the value of existing business and expectations with respect to future growth rates and term. The valuation utilized the best available information, including assumptions and projections considered reasonable and supportable by management. The assumptions used in the determination of fair value involve significant judgments and estimates. The discount rates used are believed to represent market discount rates, which would be used to value businesses of similar size and nature.
The goodwill write-down in 2002 primarily reflects impairments for Transamerica non-insurance amounting to EUR 1,234 million and for AEGON USA insurance operations.

TECHNICAL PROVISIONS
The provision for life insurance represents the present value of future benefits to be paid to or on behalf of policyholders and related expenses less the present value of future net premiums. The provision is calculated using actuarial methods that include assumptions such as estimates of premiums, mortality, investment performance, lapses, surrenders and expenses. These assumptions are initially based on best estimates of future experience at policy inception date, in some instances taking into account a margin for the risk of adverse deviation. The assumptions used are regularly reviewed, compared to actual experience and, if necessary, and depending on the type of products, updated.
For products that have guaranteed benefits over the lifetime of the policy or at maturity, the premiums also include loadings for the expected cost of the guarantee. The pricing of the guarantee is based on assumptions for future investment performance, including reinvestment assumptions.
The provision for life insurance comprises also the provision for unexpired risks as well as the provision for claims outstanding.
In case the premium-paying period is shorter than the lifetime of the policy, a provision for future expenses is set up to cover any estimated future expenses after the premium-paying period. Future costs in connection with benefit payments are also provided for.
In various countries products are sold that contain minimum guarantees. For these products the regular technical provision is recognized under technical provisions with investments for account of policyholders. The technical provision life insurance includes provisions for guaranteed minimum benefits related to contracts where the policyholder otherwise bears the investment risk.
In the United States, a common feature in variable annuities is a guaranteed minimum death benefit (GMDB). This means that when the insured dies, the beneficiaries receive the highest of the account balance or the guaranteed amount. Many variable annuity products also contain a guaranteed minimum income benefit (GMIB) feature that provides for minimum payments if the contract holder elects to convert to an immediate payout annuity. The guaranteed amount is calculated using the total deposits made by the contract holder, less any withdrawals and sometimes includes a roll-up or step-up feature that increases the value of the guarantee with interest or with increases in the account value, respectively.
The Statement of Position 03-01 (SOP 03-01), issued by AcSEC, changed the provisioning for mortality on universal life contracts and for guaranteed living and death benefits on variable annuity and variable life contracts in the United States. AEGON USA has adopted this standard for both DAP and US GAAP as of January 1, 2004. The implementation mainly changed the timing of the recognition of mortality profits in earnings. For the purposes of comparison and as required under Dutch Law, the reported 2003 DAP net income and shareholders’ equity have been adjusted in the reconciliation to reflect the accounting adjustments to the 2003 reported results.
The GMDB liability is determined each period end by estimating the expected value of death benefits in excess of the projected account balance and recognizing the excess ratably over the accumulation period based on total expected assessments. AEGON regularly evaluates estimates used and adjusts the additional liability balance, with a related charge or credit to benefit expense, if actual experience or other evidence suggests that earlier assumptions should be revised. The assumptions used in estimating the liability as of December 31, 2004 are consistent with those used for amortizing DPAC, including the mean reversion assumption. The assumptions of investment performance and volatility are consistent with historical experience. The benefits used in calculating the liabilities are based on the average benefits payable over a range of scenarios.
The GMIB liability is determined each period end by estimating the expected value of the annuitization benefits in excess of the projected account balance at the date of annuitization and recognizing the excess ratably over the accumulation period based on total expected assessments. AEGON regularly evaluates estimates used and adjusts the additional liability balance, with a related charge or credit to benefit expense, if actual experience or other evidence suggests that earlier assumptions should be revised. The assumptions used for calculating the GMIB liability as of December 31, 2004, are consistent with those used for calculating the GMDB liability.
In addition, the calculation of the GMIB liability incorporates a percentage of the potential annuitizations that may be elected by the contract holder.
Universal life-type contracts that assess charges for a mortality benefit feature in a manner that is expected to result in profits in earlier years and losses in subsequent years are now required to establish a reserve in addition to the account balance to recognize the portion of such assessments that compensates the insurance enterprise for benefits to be provided in future periods. The consequence of SOP 03-01 is that a product that fails this test for any future year is required to establish a reserve that would cause mortality margins to be more level over the policy life. The reserve is not limited to the amount of the losses for those years with a mortality loss.
In Canada the variable annuity products sold are known as segregated funds. The provision for life insurance includes a provision in connection with the guarantees issued. A cap and a floor for this provision is calculated using stochastic prospective methods (probability weighted calculation using multiple future scenarios) and current assumptions. Within the cap and floor corridor, the accrual method based on pricing assumptions with valuation interest less actual claims incurred is followed. Outside the cap and floor corridor, a surplus or shortfall of the provision will cause an extra credit or charge to the income statement.
In the Netherlands Fundplan policies have a guaranteed return of 3% or 4% at maturity or upon the death of the insured if the premium paid for a consecutive period of ten years is invested in Mixed Fund and/or Fixed Income Fund. For this guaranteed return, a provision is established based on stochastic modeling. The provision is developed applying the accrual method based on pricing assumptions less actual claims incurred. A corridor for the provision is determined regularly based on stochastic modeling methods.
If the provisions develop outside the corridor, a charge or credit to the income statement is recorded. Minimum interest guarantees on group pension contracts in The Netherlands are given for nominal benefits, based on the 3% or 4% actuarial interest, after retirement of the employees. Due to the nature of the product, these guarantees have a long term horizon of about 30 to 60 years.
The provision is developed applying the accrual method based on pricing assumptions less actual deductions.
Provisions for fixed annuities, guaranteed investment contracts (GICs) and funding agreements (FAs) are equal to the accumulated contract balance.
Under US GAAP the technical provisions for traditional life insurance contracts are computed using the net level premium method with investment yields, mortality, lapses and expenses based on historical assumptions, and include a provision for adverse deviation. For universal life contracts and investment type contracts (annuities) the technical provisions are equal to the policyholder account balances at the balance sheet date. The technical provision in the United Kingdom is reduced to equal the contract holder balance. The technical provision for fixed annuities, GICs and FAs is the same as under DAP.
The reserve for guaranteed living and death benefits on variable annuity and variable life contracts in the United States is the same as described for DAP. For US GAAP, the impact from the adoption of SOP 03-01 was recorded as a cumulative effect of a change in accounting principles as of January 1, 2004.
Also, US GAAP technical provisions include the part of the change in value of the debt securities that must be allocated to policyholders based on the effects of the application of SFAS 115. The SFAS 115 effect on US GAAP equity is at December 31, 2004 EUR (533) million (year-end 2003: EUR (300) million).
In addition, to the extent that the contract contains an embedded derivative as defined by US GAAP, the contract is unbundled and the derivative is marked to fair value with changes recognized in the income statement. This adjustment is included in the Derivatives line in the reconciliation.

REALIZED GAINS AND LOSSES ON SHARES AND REAL ESTATE
As of January 1, 2004 AEGON no longer applies the indirect return method to its capital gains and losses on investments in shares
and real estate. Under the new accounting principle the unrealized capital gains and losses are recognized in a revaluation reserve (a component of shareholders’ equity). The realized gains and losses are recognized in the income statement at the time of realization. Direct income (interest and dividend) is recognized in the income statement. The comparative figures have, in accordance with DAP, been adjusted to reflect the new accounting policy.
US GAAP accounting for shares is consistent with DAP, except for shares designated in a trading portfolio where changes in fair value from period to period are reported in net income. Real estate is carried at historical cost less accumulated depreciation and gains and losses are only recognized upon sale.

DERIVATIVES
AEGON uses common derivative financial instruments such as swaps, options, futures and cross-currency derivatives to hedge its exposures related to investments, liabilities and borrowings. In general, under Dutch accounting principles the accounting treatment of derivatives mirrors the accounting treatment of the underlying financial instrument. In the balance sheet, the book values of the derivatives are recognized under the captions of the related underlying financial instrument. Foreign currency amounts are converted at the year-end exchange rates. Realized and unrealized results on derivative financial instruments are recognized in the same period and likewise as the results of the related investments, liabilities and debt.
US GAAP requires that all derivatives, including embedded derivatives, be recognized as either assets or liabilities in the balance sheet and be measured at fair value. Derivatives that do not qualify for hedge accounting treatment under US GAAP must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through income or recognized in other comprehensive income and amortized to income when the hedged transaction impacts income. Any portion of a derivative’s change in fair value determined to be ineffective at offsetting the hedged risk will be immediately recognized in income.

DEFERRED TAXATION
Under Dutch accounting principles deferred taxation is calculated on the basis of the difference between book value and valuation for tax purposes of the appropriate assets and liabilities. The provision is equal to the discounted value of the future tax amounts. In the calculation discounted tax rates ranging from 0% to nominal rates are used, taking into account the estimated term to maturity of the related differences.
US GAAP requires an asset and liability approach for financial accounting and reporting for income taxes. Deferred tax assets and liabilities are measured using those enacted tax rates expected to apply to taxable income in the periods in which the deferred tax asset or liability is expected to be realized or settled and such tax rates are not discounted. Deferred tax assets are reduced, if necessary, by a valuation allowance to reflect the fact that (part of) the assets are not expected to be realized.

BALANCE OF OTHER ITEMS
Certain items are recorded differently or in different periods on the two bases of accounting.

Comprehensive income is the change in shareholders’ equity during the year from transactions and other events and circumstances from non-shareholders’ sources. It includes all changes in shareholders’ equity during the year except those resulting from investments by owners and distributions to owners.

A PDF of the Quarterly Results is available to download here.