MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Prudential Financial’s Common Stock was issued to eligible policyholders in Prudential Insurance’s demutualization and sold to investors in Prudential Financial’s initial public offering.
The Common Stock began trading on the New York Stock Exchange under the symbol “PRU” on December 13, 2001.
The following table presents the high and low closing prices for the Common Stock on the New York Stock Exchange during the periods indicated and the dividends declared per share during such periods:
## Table 0 ##
On January 31, 2006, there were 2,716,119 registered holders of record for the Common Stock and 495 million shares outstanding.
The Class B Stock was issued to institutional investors (two subsidiaries of American International Group, Inc.  and Pacific Life Corp. ) in a private placement pursuant to Section 4(2) of the Securities Act of 1933 on the date of demutualization.
There is no established public trading market for the Class B Stock.
During the fourth quarter of 2005 and 2004, Prudential Financial paid an annual dividend of $9.625 per share of Class B Stock.
On January 31, 2006, there were three holders of record for the Class B Stock and 2.0 million shares outstanding.
Prudential Financial’s Board of Directors currently intends to continue to declare and pay annual dividends on the Common Stock and Class B Stock.
Future dividend decisions will be based on, and affected by, a number of factors including the financial performance of the Financial Services Businesses and Closed Block Business; our overall financial condition, results of operations, cash requirements and future prospects; regulatory restrictions on the payment of dividends by Prudential Financial’s subsidiaries; and such other factors as the Board of Directors may deem relevant.
Dividends payable by Prudential Financial are limited to the amount that would be legally available for payment under New Jersey corporate law.
For additional information on dividends and related regulatory restrictions, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Liquidity and Capital Resources” and Note 13 to the Consolidated Financial Statements.
On the date of demutualization, Prudential Financial and Prudential Financial Capital Trust I, or the Trust, a statutory business trust, co-issued 13.8 million 6.75% equity security units, or the Units.
Each Unit had a stated amount of $50 and initially consisted of a purchase contract (requiring the holder to purchase shares of Prudential Financial’s Common Stock in November 2004, at a price determined by a formula described in the contract) and a redeemable capital security of the Trust with a stated liquidation amount of $50.
Prudential Financial settled the purchase contracts associated with the Units in November 2004.
Each purchase contract was settled for 1.47 shares of Prudential Financial’s Common Stock resulting in the issuance of 20.3 million shares of Common Stock.
Prudential Financial received $690 million in proceeds from the issuance, to be used for general corporate purposes.
In November 2005, Prudential Financial issued in a private placement $2.0 billion of floating rate convertible senior notes, convertible by the holders at any time after issuance into cash and shares of the Company’s Common Stock.
The Company used substantially all of the offering proceeds to purchase an investment grade fixed income investment portfolio as well as to repurchase, under the Company’s existing share repurchase authorization, shares of its Common Stock.
For additional information about these notes see Note 11 to the Consolidated Financial Statements.
(2) Benefits and expenses exclude related charges which represent the unfavorable (favorable) impact of Realized investment gains (losses), net, on interest credited to policyholders’ account balances.
For a discussion of these items see “—Realized Investment Gains and General Account Investments— Realized Investment Gains.
” Adjusted Operating Income 2005 to 2004 Annual Comparison.
Adjusted operating income increased $50 million, from $174 million in 2004 to $224 in 2005, primarily due to an increase in net investment income and growth in the segment’s group life insurance business, as well as lower costs in 2005 related to legal and regulatory matters.2004 to 2003 Annual Comparison.
Adjusted operating income increased $5 million, from $169 million in 2003 to $174 million in 2004.
Adjusted operating income for 2003 included a net favorable effect of $8 million from refinements in group life reserves for waiver of premium features and estimates of amounts due policyholders on experience rated cases.
Excluding these items, adjusted operating income increased $13 million primarily due to more favorable mortality experience in our group life insurance business which was partially offset by less favorable claims experience in our group disability business and costs related to legal and regulatory matters that were incurred during 2004.
Revenues 2005 to 2004 Annual Comparison.
Revenues, as shown in the table above under “—Operating Results,” increased by $308 million, from $3.892 billion in 2004 to $4.200 billion in 2005.
Group life insurance premiums increased by $272 million, from $2.274 billion in 2004 to $2.546 billion in 2005, primarily reflecting growth in business in force resulting from new sales and continued strong persistency, which improved from 94% in 2004 to 95% in 2005.
Group disability premiums, which include long-term care products, increased by $48 million, from $676 million in 2004 to $724 million in 2005, primarily reflecting growth in business in force resulting from new sales and continued strong persistency, which declined slightly from 86% in 2004 to 85% in 2005.
Net investment income increased by $32 million, primarily reflecting a larger base of invested assets due to business growth.2004 to 2003 Annual Comparison.
Revenues increased by $175 million, from $3.717 billion in 2003 to $3.892 billion in 2004.
Group life insurance premiums increased by $71 million, from $2.203 billion in 2003 to $2.274 billion in 2004, primarily reflecting growth in business in force resulting from new sales and continued strong persistency, which improved slightly from 93% in 2003 to 94% in 2004.
Group disability premiums, which include long-term care products, increased by $46 million, from $630 million in 2003 to $676 million in 2004, primarily reflecting growth in business in force resulting from new sales and continued strong persistency, which improved slightly from 85% in 2003 to 86% in 2004.
The increase in premiums also reflects the negative effect in 2003 of a $9 million increase in our estimate of amounts due policyholders on experience rated cases, as discussed above.
Policy charges and fee income increased by $80 million, which includes the negative effect in 2003 of a $17 million increase in our estimate of amounts due policyholders on experience rated cases, as discussed above.
Excluding the effect of this refinement, policy charges and fee income increased by $63 million, primarily reflecting higher charges and fees on experienced rated contracts sold to employers for funding of employee benefit programs.
Partially offsetting these increases was a decrease in net investment income of $24 million, due primarily to a decrease in income from policyholder loans.
The decrease in income from policyholder loans reflects reductions in the balances of these loans, which also results in a corresponding decline in interest credited to policyholders’ account balances.
Benefits and Expenses The following table sets forth the Group Insurance segment’s benefits and administrative operating expense ratios for the periods indicated.
## Table 1 ##
(1) Ratio of policyholder benefits to earned premiums, policy charges and fee income.
Group disability ratios include long-term care products.
(2) Ratio of administrative operating expenses (excluding commissions) to gross premiums, policy charges and fee income.
Group disability ratios include long-term care products.2005 to 2004 Annual Comparison.
Benefits and expenses, as shown in the table above under “—Operating Results,” increased by $258 million, from $3.718 billion in 2004 to $3.976 billion in 2005.
The increase was primarily driven by an increase of $284 million in policyholders’ benefits, including the change in policy reserves, reflecting the growth of business in force.
The group life benefits ratio deteriorated 1.4 percentage points from 2004 to 2005, primarily as a result of lower charges and fees in 2005 on experience rated contracts sold to employers for funding of employee benefit programs.
These lower charges and fees resulted in a corresponding decrease in administrative expenses.
The group disability benefits ratio deteriorated by 0.8 percentage points from 2004 to 2005, reflecting less favorable claims experience.
The group life administrative operating expense ratio improved from 2004 to 2005, primarily reflecting the increases in premiums discussed above, lower legal and regulatory costs in 2005 and the decrease in administrative expenses discussed above.
The group disability administrative operating expense ratio improved from 2004 to 2005 primarily reflecting the increases in premiums discussed above.
2005 to 2004 Annual Comparison.
On a constant exchange rate basis, new annualized premiums increased $217 million, from $958 million in 2004 to $1.175 billion in 2005.
On the same basis, new annualized premiums from our Japanese Life Planner operation increased $130 million, reflecting sales of U. S.  dollar denominated life insurance products with a retirement income feature introduced in November 2004 and an increase in the number of Life Planners.
Sales in all other countries, also on a constant exchange rate basis, increased $42 million, primarily reflecting increases in sales in Korea and Taiwan.
New annualized premiums from our Gibraltar Life operation increased $45 million, on a constant exchange rate basis, from 2004 to 2005 as sales results in the current period benefited $48 million from the sales of single pay contracts, for which the prior year period benefited $40 million, and $47 million from a recently introduced single pay U. S.  dollar denominated deferred annuity product.2004 to 2003 Annual Comparison.
On a constant exchange rate basis, new annualized premiums declined $15 million from $973 million in 2003 to $958 million in 2004.
On the same basis, new annualized premiums from our Japanese Life Planner operation increased $28 million, reflecting an increase in the number of Life Planners.
Sales in all other countries, also on a constant exchange rate basis, declined $3 million, primarily reflecting a decline in sales in Korea resulting from the appointment of Life Planners to sales management positions in newly opened agencies as well as weakness in economic conditions in that country.
New annualized premiums from our Gibraltar Life operation declined $41 million, on a constant exchange rate basis, from 2003 to 2004 as sales results in 2003 benefited $95 million from the sales of single pay contracts for which 2004 benefited $40 million.
Sales of single pay contracts in 2004 declined due to a reduction in guaranteed rates in the latter half of 2003.
Sales other than single pay contracts increased 6%.
Investment Margins and Other Profitability Factors Many of our insurance products sold in international markets provide for the buildup of cash values for the policyholder at contractually fixed guaranteed interest rates.
Japanese authorities regulate interest rates guaranteed in our Japanese insurance contracts.
The guaranteed interest rates do not necessarily match the actual returns on the underlying investments and there may be times when the spread between the actual investment returns and these guaranteed rates of return to the policyholder is negative and in which this negative spread may not be offset by the mortality, morbidity and expense changes we earn on the products.
With regulatory approval, guaranteed rates may be changed on new business.
While these actions enhance our ability to set rates commensurate with available investment returns, the major sources of profitability on our products sold in Japan, other than at Gibraltar, are margins on mortality, morbidity and expense charges rather than investment spreads.
We base premiums and cash values in most countries in which we operate on mandated mortality and morbidity tables.
Our mortality and morbidity experience in the International Insurance segment on an overall basis in 2005, 2004, and 2003 was well within our pricing assumptions and below the guaranteed levels reflected in the premiums we charge.
International Investments Operating Results The following table sets forth the International Investments segment’s operating results for the periods indicated.
## Table 2 ##
(1) Revenues exclude Realized investment gains (losses), net.
For a discussion of these items see “—Realized Investment Gains and General Account Investments—Realized Investment Gains.
” (2) Benefits and expenses exclude related charges which represent the unfavorable (favorable) impact of Realized investment gains (losses), net, on minority interest.
For a discussion of these items see “—Realized Investment Gains and General Account Investments—Realized Investment Gains.
” On February 27, 2004, we acquired an 80% interest in Hyundai Investment and Securities Co. , Ltd.  and its subsidiary Hyundai Investment Trust Management Co. , Ltd. , a Korean asset management firm, from an agency of the Korean government for $301 million in cash, including $210 million used to repay debt assumed.
The acquired company was subsequently renamed Prudential Investment & Securities Co. , Ltd, or PISC.
The results of these operations are included in our consolidated results beginning March 1, 2004.
See Note 3 to the Consolidated Financial Statements for further discussion of this acquisition.
Adjusted Operating Income 2005 to 2004 Annual Comparison.
Adjusted operating income increased $24 million, from $86 million in 2004 to $110 million in 2005.
This increase is primarily a result of the acquisition of PISC, as the prior year reflects only ten months of results of the acquired business.
Also contributing to the increase in adjusted operating income is higher fee and commission income from PISC, partially offset by a corresponding increase in operating expenses, including minority interest, during the current year.
During 2005, PISC contributed $74 million of adjusted operating income, including $24 million of fee revenue from the Korean government under an agreement entered into in
Public Fixed Maturities—Credit Quality The following table sets forth our public fixed maturity portfolios by NAIC rating attributable to the Financial Services Businesses as of the dates indicated.
## Table 3 ##
(1) Reflects equivalent ratings for investments of the international insurance operations that are not rated by U. S.  insurance regulatory authorities.
(2) Includes, as of December 31, 2005 and 2004, respectively, 18 securities with amortized cost of $146 million (fair value, $147 million) and 10 securities with amortized cost of $151 million (fair value, $152 million) that have been categorized based on expected NAIC designations pending receipt of SVO ratings.
(3) Includes $33 million of gross unrealized gains and $51 million gross unrealized losses as of December 31, 2005, compared to $38 million of gross unrealized gains and $21 million of gross unrealized losses as of December 31, 2004 on securities classified as held to maturity that are not reflected in other comprehensive income.
The following table sets forth our public fixed maturity portfolios by NAIC rating attributable to the Closed Block Business as of the dates indicated.
## Table 4 ##
(1) Includes, as of December 31, 2005 and 2004, respectively, 8 securities with amortized cost of $2 million (fair value, $2 million) and 9 securities with amortized cost of $23 million (fair value, $24 million) that have been categorized based on expected NAIC designations pending receipt of SVO ratings.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Union Pacific Corporation and Subsidiary Companies For purposes of this report, unless the context otherwise requires, all references herein to the “Corporation”, “Company”, “UPC”, “we”, “us”, and “our” mean Union Pacific Corporation and its subsidiaries, including Union Pacific Railroad Company, which will be separately referred to herein as “UPRR” or the “Railroad”.1.
Nature of Operations Operations and Segmentation – We are a Class I railroad operating in the U. S.  Our network includes 31,838 route miles, linking Pacific Coast and Gulf Coast ports with the Midwest and eastern U. S.  gateways and providing several corridors to key Mexican gateways.
We own 26,009 miles and operate on the remainder pursuant to trackage rights or leases.
We serve the western two-thirds of the country and maintain coordinated schedules with other rail carriers for the handling of freight to and from the Atlantic Coast, the Pacific Coast, the Southeast, the Southwest, Canada, and Mexico.
Export and import traffic is moved through Gulf Coast and Pacific Coast ports and across the Mexican and Canadian borders.
The Railroad, along with its subsidiaries and rail affiliates, is our one reportable operating segment.
Although we provide and review revenue by commodity group, we analyze the net financial results of the Railroad as one segment due to the integrated nature of our rail network.
The following table provides freight revenue by commodity group:

<table><tr><td></td><td> High </td><td> Low </td><td> Dividends </td></tr><tr><td> 2005:</td><td></td><td></td><td></td></tr><tr><td>Fourth Quarter</td><td>$77.96</td><td>$63.27</td><td>$0.780</td></tr><tr><td>Third Quarter</td><td>68.30</td><td>63.09</td><td>—</td></tr><tr><td>Second Quarter</td><td>66.30</td><td>55.23</td><td>—</td></tr><tr><td>First Quarter</td><td>59.32</td><td>52.62</td><td>—</td></tr><tr><td> 2004:</td><td></td><td></td><td></td></tr><tr><td>Fourth Quarter</td><td>$55.09</td><td>$42.87</td><td>$0.625</td></tr><tr><td>Third Quarter</td><td>48.10</td><td>44.30</td><td>—</td></tr><tr><td>Second Quarter</td><td>46.47</td><td>41.05</td><td>—</td></tr><tr><td>First Quarter</td><td>48.11</td><td>41.62</td><td>—</td></tr></table>
<table><tr><td></td><td colspan="3"> Year ended December 31, </td></tr><tr><td></td><td>2005</td><td>2004</td><td> 2003 </td></tr><tr><td> Benefits ratio-1:</td><td></td><td></td><td></td></tr><tr><td>Group life</td><td>88.9%</td><td>87.5%</td><td>89.9%</td></tr><tr><td>Group disability</td><td>95.4</td><td>94.6</td><td>92.4</td></tr><tr><td> Administrative operating expense ratio-2:</td><td></td><td></td><td></td></tr><tr><td>Group life</td><td>8.9</td><td>10.9</td><td>9.7</td></tr><tr><td>Group disability</td><td>20.9</td><td>22.1</td><td>22.5</td></tr></table>
<table><tr><td></td><td colspan="3">Year ended December 31,</td></tr><tr><td></td><td> 2005 </td><td>2004</td><td>2003</td></tr><tr><td></td><td colspan="3">(in millions)</td></tr><tr><td> Operating results:</td><td></td><td></td><td></td></tr><tr><td>Revenues</td><td>$486</td><td>$447</td><td>$240</td></tr><tr><td>Expenses</td><td>376</td><td>361</td><td>250</td></tr><tr><td>Adjusted operating income</td><td>110</td><td>86</td><td>-10</td></tr><tr><td>Realized investment gains (losses), net(1)</td><td>—</td><td>-48</td><td>-52</td></tr><tr><td>Related charges-2</td><td>—</td><td>—</td><td>—</td></tr><tr><td>Income (loss) from continuing operations before income taxes, extraordinary gain on acquisition and cumulative effect of accountingchange</td><td>$110</td><td>$38</td><td>$-62</td></tr></table>
<table><tr><td> -1(2)</td><td></td><td colspan="4"> December 31, 2005 </td><td colspan="4"> December 31, 2004 </td></tr><tr><td> NAIC Designation</td><td> Rating Agency Equivalent</td><td> Amortized Cost </td><td> Gross Unrealized Gains-3 </td><td> Gross Unrealized Losses-3 </td><td> Fair Value </td><td> Amortized Cost </td><td> Gross Unrealized Gains-3 </td><td> Gross Unrealized Losses-3 </td><td> Fair Value </td></tr><tr><td></td><td></td><td colspan="8"> (in millions)</td></tr><tr><td>1</td><td>Aaa, Aa, A</td><td>$68,533</td><td>$2,289</td><td>$304</td><td>$70,518</td><td>$63,553</td><td>$2,500</td><td>$276</td><td>$65,777</td></tr><tr><td>2</td><td>Baa</td><td>15,439</td><td>747</td><td>139</td><td>16,047</td><td>16,463</td><td>980</td><td>123</td><td>17,320</td></tr><tr><td></td><td>Subtotal Investment Grade</td><td>83,972</td><td>3,036</td><td>443</td><td>86,565</td><td>80,016</td><td>3,480</td><td>399</td><td>83,097</td></tr><tr><td>3</td><td>Ba</td><td>2,715</td><td>124</td><td>43</td><td>2,796</td><td>2,096</td><td>176</td><td>72</td><td>2,200</td></tr><tr><td>4</td><td>B</td><td>1,109</td><td>72</td><td>20</td><td>1,161</td><td>839</td><td>93</td><td>1</td><td>931</td></tr><tr><td>5</td><td>C and lower</td><td>103</td><td>6</td><td>5</td><td>104</td><td>85</td><td>13</td><td>2</td><td>96</td></tr><tr><td>6</td><td>In or near default</td><td>28</td><td>10</td><td>1</td><td>37</td><td>25</td><td>9</td><td>—</td><td>34</td></tr><tr><td></td><td>Subtotal Below Investment Grade</td><td>3,955</td><td>212</td><td>69</td><td>4,098</td><td>3,045</td><td>291</td><td>75</td><td>3,261</td></tr><tr><td></td><td>Total Public Fixed Maturities</td><td>$87,927</td><td>$3,248</td><td>$512</td><td>$90,663</td><td>$83,061</td><td>$3,771</td><td>$474</td><td>$86,358</td></tr></table>
<table><tr><td> -1</td><td></td><td colspan="4"> December 31, 2005 </td><td colspan="4"> December 31, 2004 </td></tr><tr><td> NAIC Designation</td><td> Rating Agency Equivalent</td><td> Amortized Cost </td><td> Gross Unrealized Gains </td><td> Gross Unrealized Losses </td><td> Fair Value </td><td> Amortized Cost </td><td> Gross Unrealized Gains </td><td> Gross Unrealized Losses </td><td> Fair Value </td></tr><tr><td></td><td></td><td colspan="8"> (in millions)</td></tr><tr><td>1</td><td>Aaa, Aa, A</td><td>$24,333</td><td>$1,141</td><td>$110</td><td>$25,364</td><td>$22,141</td><td>$1,291</td><td>$22</td><td>$23,410</td></tr><tr><td>2</td><td>Baa</td><td>6,456</td><td>353</td><td>56</td><td>6,753</td><td>7,202</td><td>546</td><td>8</td><td>7,740</td></tr><tr><td></td><td>Subtotal Investment Grade</td><td>30,789</td><td>1,494</td><td>166</td><td>32,117</td><td>29,343</td><td>1,837</td><td>30</td><td>31,150</td></tr><tr><td>3</td><td>Ba</td><td>2,469</td><td>119</td><td>33</td><td>2,555</td><td>2,102</td><td>199</td><td>4</td><td>2,297</td></tr><tr><td>4</td><td>B</td><td>1,332</td><td>38</td><td>19</td><td>1,351</td><td>1,021</td><td>86</td><td>1</td><td>1,106</td></tr><tr><td>5</td><td>C and lower</td><td>99</td><td>2</td><td>6</td><td>95</td><td>104</td><td>12</td><td>2</td><td>114</td></tr><tr><td>6</td><td>In or near default</td><td>13</td><td>3</td><td>1</td><td>15</td><td>11</td><td>5</td><td>—</td><td>16</td></tr><tr><td></td><td>Subtotal Below Investment Grade</td><td>3,913</td><td>162</td><td>59</td><td>4,016</td><td>3,238</td><td>302</td><td>7</td><td>3,533</td></tr><tr><td></td><td>Total Public Fixed Maturities</td><td>$34,702</td><td>$1,656</td><td>$225</td><td>$36,133</td><td>$32,581</td><td>$2,139</td><td>$37</td><td>$34,683</td></tr></table>

Question: Which year is Ba for Fair Value greater than 30 ?
Answer: 2005