NOTES TO THE FINANCIAL STATEMENTS Investment managers are permitted to use derivatives as efficient substitutes for traditional securities and to manage exposure to foreign  exchange and interest rate risks. Interest rate and foreign currency derivative instruments are used for the purpose of hedging changes  in the fair value of assets that result from interest rate changes and currency fluctuations. Derivatives may not be used to leverage or to  alter the economic exposure to an asset class outside the scope of the mandate to which an investment manager has been appointed. The equity allocation shown at year-end 2004 and 2003 includes public equity securities, private equity investments, and REITS.  Direct real estate investments shown separately reflect a liquidation strategy that has been in place for several years. Other  assets include cash held for near-term benefit funding; cash held by investment managers for liquidity purposes is included in the  appropriate asset class balance. The long-term return assumption at year-end 2004 is 8.75% for U.S. plans, 8.00% for U.K. plans and averages 7.76% for non- U.S. plans. A generally consistent approach is used worldwide to develop this assumption. This approach considers various inputs,  including a review of historical plan returns and peer data, as well as long-run inputs from a range of internal and external advisors  for capital market returns, inflation and other variables, adjusted for specific aspects of our strategy. At December 31, 2004, our actual 10-year annual rate of return on pension plan assets was 11.20% and 8.41% for U.S. and the  U.K. plans, respectively. Health Care and Life Insurance. VEBA assets totaling $6.8 billion at December 31, 2004 include $5.2 billion of long-term investments,  which are managed in a strategy similar to the pension investment strategy described previously. The remaining VEBA assets are  invested in short-term fixed income securities, a portion of which is managed internally, with the remainder managed externally. Ford  securities comprised less than one-half of one percent of the market value of the total retiree VEBA assets during 2004 and 2003.  The equity allocation shown at year-end 2004 includes public equity securities and REITS. There were no investments in private  equity or direct real estate investments at year-end 2004. Cash held by investment managers for liquidity purposes is included in the  appropriate asset class balance. Investment managers are permitted to use derivatives as efficient substitutes for traditional securities and to manage exposure  to foreign exchange and interest rate risks. Interest rate and foreign currency derivative instruments are used for the purpose of  hedging changes in the fair value of assets that result from interest rate changes and currency fluctuations. Derivatives may not  be used to leverage or to alter the economic exposure to an asset class outside the scope of the mandate to which an investment  manager has been appointed. The expected return assumption applicable to the total retiree VEBA is 7.93%, reflecting the weighted average of the expected  returns on the long-term and short-term portions of the portfolio. Since the assets in the long-term portion of the portfolio are  managed in a strategy similar to the U.S. pension plan, the expected return on this portion of the portfolio is identical to that  used for the U.S. pension plan. The methodology used to develop the expected return assumption for the short-term portion of the  portfolio considers inputs from a range of internal and external advisors for capital market returns. Our operating activity consists of two operating sectors, Automotive and Financial Services. Segment selection is based on the  organizational structure we use to evaluate performance and make decisions on resource allocation, as well as availability and  materiality of separate financial results consistent with that structure. During 2004, we changed the reporting of our Automotive  sector to show three segments, The Americas, Ford Europe and PAG, and Ford Asia Pacific and Africa/Mazda. Automotive sector  prior period information has been reclassified to conform to current period presentation. The Americas segment includes primarily the sale of Ford, Lincoln and Mercury brand vehicles and related service parts in North  America (U.S., Canada and Mexico) and Ford-brand vehicles and related service parts in South America, together with the  associated costs to design, develop, manufacture and service these vehicles and parts.  The Ford Europe and PAG segment includes primarily the sale of Ford-brand vehicles and related service parts in Europe and  Turkey and the sale of PAG-brand vehicles (i.e., Volvo, Jaguar, Land Rover and Aston Martin) and related service parts throughout  the world (including North America and South America), together with the associated costs to design, develop, manufacture and  service these vehicles and parts. The Asia Pacific and Africa/Mazda segment includes primarily the sale of Ford-brand vehicles and related service parts in the  Asia Pacific region and South Africa, together with the associated costs to design, develop, manufacture and service these vehicles  and parts, and also includes our share of the results of Mazda and certain of our Mazda-related investments.  The Other Automotive component of the Automotive sector consists primarily of certain centrally managed net interest expense,  which is not managed individually by the three segments.  Transactions among Automotive segments are presented on an absolute cost basis, eliminating the effect of legal entity transfer  prices within the Automotive sector for vehicles, components and product engineering.  The Financial Services sector includes two segments, Ford Credit and Hertz. Ford Credit provides vehicle-related financing, leasing,  and insurance. Hertz rents cars, light trucks and industrial and construction equipment.  8 7 NOTE 23. SEGMENT INFORMATION