Merrill Lynch Master Corporate/Government Bond Index returned 4.15 percent in the year. The out-performed corporate and government indices returning 5.5 percent in the year. We continue to stress a high coupon approach (above seven percent) to this market, which reduces the interest rate risk in these securities. The jumped 10.9 percent in 2004 and has average 11.7 percent return over the past three years.

Global bonds, when measured in US dollars, also performed well for the third consecutive year, with the . Investors remained concerned about the US fiscal problems as the trade-weighted US dollar declined 6.4 percent in 2004 after dropping 15 percent in 2003. The euro rose 8.0 percent during the year and Sterling also performed well advancing 7.6 percent. Anchor?s global bond portfolios also benefited from increases in other currencies, incluidng a 7.9 percent rise in the Canadian Dollar and a 10.2 percent surge in the Norwegian Krona.

Although short-term interest rates in the US remain low, we recommend a laddered portfolio of short and intermediate term corporate bonds combined with high coupon tier-one preferred securities and callable corporate bonds. This ?cushion? strategy is designed to increase yields without adding significant interest-rate risk as US interest rates slowly rise to historical norms. Risk premiums have contracted but improving fundamentals and strong cash flows have created several upgrade candidates in the corporate sector.

We believe that the large current account and budget deficits in the US will drive fixed income money flows into higher yielding economies with sound fiscal discipline. We continue to over-weight higher yielding Sovereign and high quality international corporate debt, in Australia, Canada, New Zealand, Norway, Sweden and the UK. This allows investors to benefit from higher yields and potential further weakening of the US dollar due to the twin US deficits.