ENTERGY ARKANSAS, INC.  MANAGEMENT'S FINANCIAL DISCUSSION AND ANALYSIS Results of Operations Net Income 2004 Compared to 2003 Net income increased $16.2 million due to lower other operation and maintenance expenses, a lower effective income tax rate for 2004 compared to 2003, and lower interest charges.
The increase was partially offset by lower net revenue.2003 Compared to 2002 Net income decreased $9.6 million due to lower net revenue, higher depreciation and amortization expenses, and a higher effective income tax rate for 2003 compared to 2002.
The decrease was substantially offset by lower other operation and maintenance expenses, higher other income, and lower interest charges.
Net Revenue 2004 Compared to 2003 Net revenue, which is Entergy Arkansas' measure of gross margin, consists of operating revenues net of: 1) fuel, fuel-related, and purchased power expenses and 2) other regulatory credits.
Following is an analysis of the change in net revenue comparing 2004 to 2003.
## Table 0 ##
Deferred fuel cost revisions includes the difference between the estimated deferred fuel expense and the actual calculation of recoverable fuel expense, which occurs on an annual basis.
Deferred fuel cost revisions decreased net revenue due to a revised estimate of fuel costs filed for recovery at Entergy Arkansas in the March 2004 energy cost recovery rider, which reduced net revenue by $11.5 million.
The remainder of the variance is due to the 2002 energy cost recovery true-up, made in the first quarter of 2003, which increased net revenue in 2003.
Gross operating revenues, fuel and purchased power expenses, and other regulatory credits Gross operating revenues increased primarily due to: ?
an increase of $20.7 million in fuel cost recovery revenues due to an increase in the energy cost recovery rider effective April 2004 (fuel cost recovery revenues are discussed in Note 2 to the domestic utility companies and System Energy financial statements); ?
an increase of $15.5 million in Grand Gulf revenues due to an increase in the Grand Gulf rider effective January 2004; ?
an increase of $13.9 million in gross wholesale revenue primarily due to increased sales to affiliated systems; and ?
an increase of $9.5 million due to volume/weather primarily resulting from increased usage during the unbilled sales period, partially offset by the effect of milder weather on billed sales in 2004.
PRUDENTIAL FINANCIAL, INC.  Notes to Consolidated Financial Statements 18.
FAIR VALUE OF FINANCIAL INSTRUMENTS (continued) The carrying amount approximates or equals fair value for the following instruments: fixed maturities classified as available for sale, equity securities, short-term investments, cash and cash equivalents, restricted cash and securities, separate account assets and liabilities, trading account assets supporting insurance liabilities, other trading account assets, broker-dealer related receivables and payables, securities purchased under agreements to resell, securities sold under agreements to repurchase, cash collateral for loaned securities, and securities sold but not yet purchased.
The following table discloses the Company’s financial instruments where the carrying amounts and fair values differ at December 31,
## Table 1 ##
19.
DERIVATIVE INSTRUMENTS Types of Derivative Instruments and Derivative Strategies used in a non- dealer or broker capacity Interest rate swaps are used by the Company to manage interest rate exposures arising from mismatches between assets and liabilities (including duration mismatches) and to hedge against changes in the value of assets it anticipates acquiring and other anticipated transactions and commitments.
Swaps may be specifically attributed to specific assets or liabilities or may be used on a portfolio basis.
Under interest rate swaps, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts calculated by reference to an agreed upon notional principal amount.
Generally, no cash is exchanged at the outset of the contract and no principal payments are made by either party.
Cash is paid or received based on the terms of the swap.
These transactions are entered into pursuant to master agreements that provide for a single net payment to be made by one counterparty at each due date.
Exchange-traded futures and options are used by the Company to reduce market risks from changes in interest rates, to alter mismatches between the duration of assets in a portfolio and the duration of liabilities supported by those assets, and to hedge against changes in the value of securities it owns or anticipates acquiring or selling.
In exchange-traded futures transactions, the Company agrees to purchase or sell a specified number of contracts, the values of which are determined by the values of designated classes of securities, and to post variation margin on a daily basis in an amount equal to the difference in the daily market values of those contracts.
The Company enters into exchange-traded futures and options with regulated futures commissions merchants who are members of a trading exchange.
Futures typically are used to hedge duration mismatches between assets and liabilities.
Futures move substantially in value as interest rates change and can be used to either modify or hedge existing interest rate risk.
Currency derivatives, including exchange-traded currency futures and options, currency forwards and currency swaps, are used by the Company to reduce market risks from changes in currency exchange rates with respect to investments denominated in foreign currencies that the Company either holds or intends to acquire or sell.
The Company also uses currency forwards to hedge the currency risk associated with net investments in foreign operations and anticipated earnings of its foreign operations.
Under currency forwards, the Company agrees with other parties to deliver a specified amount of an identified currency at a specified future date.
Typically, the price is agreed upon at the time of the contract and payment for such a contract is made at the specified future date.
As noted above, the Company uses currency forwards to mitigate the risk that unfavorable changes in currency exchange rates will reduce U. S.  dollar equivalent earnings generated by certain of its non-U.
S.  businesses, primarily its international insurance and investment operations.
The Company executes forward sales of the hedged currency in exchange for U. S.  dollars at a specified exchange rate.
The maturities of these forwards correspond with the future periods in which the non-U.
S.  earnings are expected to be generated.
These earnings hedges do not qualify for hedge accounting.
Under currency swaps, the Company agrees with other parties to exchange, at specified intervals, the difference between one currency and another at an exchange rate and calculated by reference to an agreed principal amount.
Generally, the principal amount
shares were transferred to our corporate operations during the first quarter of 2006.
Subsequent to this transfer, changes in market value of the transferred shares are reflected within Corporate and Other results.2005 to 2004 Annual Comparison.
Adjusted operating income decreased $10 million, from a loss of $245 million in 2004 to a loss of $255 million in 2005.
The segment’s results for 2005 include our share of earnings from Wachovia Securities, on a pre-tax basis and excluding transition costs, of $217 million, compared to $172 million in 2004.
The segment’s results also include expenses of $452 million in 2005 related to obligations and costs we retained in connection with the contributed businesses primarily for litigation and regulatory matters, compared to $227 million in 2004.
These expenses included accruals for estimated settlement costs related to market timing issues.
Our results for 2005 reflect a decrease of $174 million in transition costs, from $194 million in 2004 to $20 million in 2005, reflecting the completion of the business integration during the first half of 2005.
In addition, results include income of zero and $4 million from our equity sales and trading operations for 2005 and 2004, respectively.
Retirement Operating Results The following table sets forth the Retirement segment’s operating results for the periods indicated.
## Table 2 ##
(1) Revenues exclude Realized investment gains (losses), net, and related adjustments.
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 change in reserves and the amortization of deferred policy acquisition costs.
(3) Revenues exclude net investment gains and losses on trading account assets supporting insurance liabilities.
See “—Trading account assets supporting insurance liabilities.
” (4) Benefits and expenses exclude changes in contractholder liabilities due to asset value changes in the pool of investments supporting these experiencerated contracts.
See “—Trading account assets supporting insurance liabilities.
” On April 1, 2004, we acquired the retirement business of CIGNA Corporation for cash consideration of $2.1 billion.
Beginning April 1, 2004, the results of the former CIGNA retirement business have been included in our consolidated results.
The majority of these results are reflected within our Retirement segment, as discussed below, and the remaining portion is reflected in our Asset Management segment.
In addition, as a result of a change in the reinsurance arrangement governing the purchase of the guaranteed cost business from CIGNA, the results of this business that were previously presented on a net basis in “Asset management fees and other income” are, beginning on April 1, 2006, presented on a gross basis in our results of operations.
See Note 3 to the Consolidated Financial Statements for further discussion of this acquisition and its purchase price allocation, as well as discussion of the change in the reinsurance arrangement associated with the guaranteed cost business.
Adjusted Operating Income 2006 to 2005 Annual Comparison.
Adjusted operating income for the Retirement segment increased $11 million, from $498 million in 2005 to $509 million in 2006.
Results for 2006 include $25 million from mortgage prepayment income, a $13 million benefit from the disposition of real estate within an investment joint venture, $12 million from reserve releases mainly reflecting updates of client census data on a group annuity block of business and $6 million of transition expenses related to the integration of the retirement business acquired from CIGNA, which was completed in the first quarter of 2006.
Results for 2005 include $49 million from mortgage prepayment income, $27 million from reserve releases mainly reflecting updates of client census data on a group annuity block of business, $36 million of transition expenses and $7 million from the collection of investment income on a previously defaulted bond.
Excluding the items discussed above, adjusted operating income for the Retirement segment increased $14 million.
This increase primarily reflects an increase in adjusted operating income from our institutional investment products business reflecting a greater contribution from investment results due principally to a larger base of invested assets.
Partially offsetting this increase was a decrease in adjusted operating income from our full service business.
The decrease in our full service business reflects higher general and
Account values in our institutional investment products business amounted to $48.1 billion as of December 31, 2005, an increase of $400 million from December 31, 2004.
The increase in account values was driven by interest on general account business, market value increases and client reinvestment of interest income and dividends on customer funds, mainly offset by net withdrawals.
Net withdrawals deteriorated $559 million largely due to the transfer in 2005 of approximately $1.2 billion in account values to our Asset Management segment.
An increase in structured settlement sales during 2005 partially offset these transfers.
In addition, the prior year reflects only the initial nine months of sales and withdrawal activity from the retirement business acquired from CIGNA.
International Insurance and Investments Division As a U. S. -based company with significant business operations outside the U. S. , we seek to mitigate the risk that future unfavorable foreign currency exchange rate movements will reduce our U. S.  dollar equivalent earnings.
The operations of our International Insurance and International Investments segments are subject to currency fluctuations that can materially affect their U. S.  dollar results from period to period even if results on a local currency basis are relatively constant.
As discussed further below, we enter into forward currency derivative contracts, as well as “dual currency” and “synthetic dual currency” investments as part of our strategy to effectively fix the currency exchange rates for a portion of our prospective non-U.
S.  dollar denominated earnings streams.
The financial results of our International Insurance segment and International Investments segment, excluding the global commodities group, for all periods presented reflect the impact of an intercompany arrangement with Corporate and Other operations pursuant to which the segments’ non-U.
S.  dollar denominated earnings in all countries are translated at fixed currency exchange rates.
The fixed rates are determined in connection with a currency hedging program designed to mitigate the risk that unfavorable exchange rate changes will reduce the segments’ U. S.  dollar equivalent earnings.
Pursuant to this program, Corporate and Other operations executes forward currency contracts with third parties to sell the hedged currency in exchange for U. S.  dollars at a specified exchange rate.
The maturities of these contracts correspond with the future periods in which the identified non-U.
S.  dollar denominated earnings are expected to be generated.
This program is primarily associated with the International Insurance segment’s businesses in Japan, Korea and Taiwan and the International Investments segment’s businesses in Korea and Europe.
The intercompany arrangement with Corporate and Other operations increased (decreased) revenues and adjusted operating income of each segment as follows for the periods indicated:
## Table 3 ##
Results of Corporate and Other operations include any differences between the translation adjustments recorded by the segments and the gains or losses recorded from the forward currency contracts.
The net effect of this program within the Corporate and Other operations was losses of $1 million, $11 million, and $9 million for the years ended December 31, 2006, 2005, and 2004, respectively.
In addition, our Japanese insurance operations hold dual currency investments in the form of fixed maturities and loans.
The principal of these dual currency investments are yen-denominated while the related interest income is U. S.  dollar denominated.
These investments are the economic equivalent of exchanging what would otherwise be fixed streams of yen-denominated interest income for fixed streams of U. S.  dollars.
Our Japanese insurance operations also hold investments in yen-denominated investments that have been coupled with crosscurrency coupon swap agreements, creating synthetic dual currency investments.
The yen/U.
S.  dollar exchange rate is effectively fixed, as we are obligated in future periods to exchange fixed amounts of Japanese yen interest payments generated by the yen-denominated investments for U. S.  dollars at the yen/U.
S.  dollar exchange rates specified by the cross-currency coupon swap agreements.
The effect of these reverse dual currency and synthetic reverse dual currency investments is taken into account as part of our currency hedging program.
As of December 31, 2006 and December 31, 2005, the principal of these investments were ￥545 billion, or $4.9 billion, and ￥225 billion, or $2.0 billion, respectively.
For the years ended December 31, 2006, and 2005, the weighted average yield generated by these investments was 2.7% and 2.5%, respectively.
For information regarding the weighted average exchange rate resulting from these investments see “—Dual Currency Investments,” below.
Presented below is the fair value of these instruments as reflected on our balance sheet for the periods presented.
## Table 4 ##
Our Japanese insurance operations also hold U. S.  dollar denominated securities in their investment portfolio, which are discussed in further detail in “—Realized Investment Gains and General Account Investments—General Account Investments.
”
The majority of referenced names in the credit derivatives where we have sold credit protection, as well as all the counterparties to these agreements, are investment grade credit quality and our credit derivatives generally have maturities of five years or less.
As of December 31, 2006 and December 31, 2005, we had $1,550 million and $1,608 million, respectively, in outstanding notional amounts of credit derivative contracts where we have sold credit protection.
The Financial Services Businesses had $1,172 million and $1,182 million of outstanding notional amounts as of December 31, 2006 and December 31, 2005, respectively.
The Closed Block Business had $378 million and $426 million, as of December 31, 2006 and December 31, 2005, respectively.
Credit derivative contracts are recorded at fair value with changes in fair value, including the premium received, recorded in “Realized investment gains (losses), net.
” The premium received for the credit derivatives we sell was $12 million and $6 million for the years ended December 31, 2006 and 2005, respectively, and is included in adjusted operating income as an adjustment to “Realized investment gains (losses), net” over the life of the derivative.
The following table sets forth our exposure where we have sold credit protection through credit derivatives in the Financial Services Businesses by NAIC rating of the underlying credits as of the dates indicated.
## Table 5 ##
(1) First-to-default credit swap baskets, which may include credits of varying qualities, are grouped above based on the lowest credit in the basket.
However, such basket swaps may entail greater credit risk than the rating level of the lowest credit.
The following table sets forth our exposure where we have sold credit protection through credit derivatives in the Closed Block Business portfolios by NAIC rating of the underlying credits as of the dates indicated.
## Table 6 ##
(1) First-to-default credit swap baskets, which may include credits of varying qualities, are grouped above based on the lowest credit in the basket.
However, such basket swaps may entail greater credit risk than the rating level of the lowest credit.
In addition to selling credit protection, in limited instances we have purchased credit protection using credit derivatives in order to hedge specific credit exposures in our investment portfolio.
Similar to the above, the premium paid for the credit derivatives we purchase was $1 million and $1 million for the years ended December 31, 2006 and 2005, respectively, and is included in adjusted operating income as an adjustment to “Realized investment gains (losses), net” over the life of the derivative.

<table><tr><td></td><td>(In Millions)</td></tr><tr><td>2003 net revenue</td><td>$998.7</td></tr><tr><td>Deferred fuel cost revisions</td><td>-16.9</td></tr><tr><td>Other</td><td>-3.4</td></tr><tr><td>2004 net revenue</td><td>$978.4</td></tr></table>
<table><tr><td></td><td colspan="2"> 2006</td><td colspan="2"> 2005</td></tr><tr><td></td><td> Carrying Amount</td><td> Fair Value</td><td> Carrying Amount</td><td> Fair Value</td></tr><tr><td></td><td colspan="4"> (in millions)</td></tr><tr><td>Fixed maturities, held to maturity</td><td>$3,469</td><td>$3,441</td><td>$3,249</td><td>$3,228</td></tr><tr><td>Commercial loans</td><td>25,739</td><td>26,143</td><td>24,441</td><td>25,095</td></tr><tr><td>Policy loans</td><td>8,887</td><td>9,837</td><td>8,370</td><td>9,440</td></tr><tr><td>Investment contracts</td><td>68,320</td><td>68,372</td><td>64,509</td><td>64,529</td></tr><tr><td>Short-term and long-term debt</td><td>23,959</td><td>24,276</td><td>19,384</td><td>19,845</td></tr><tr><td>Bank customer liabilities</td><td>903</td><td>903</td><td>503</td><td>503</td></tr></table>
<table><tr><td></td><td colspan="3">Year ended December 31,</td></tr><tr><td></td><td>2006</td><td>2005</td><td>2004</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>$4,378</td><td>$4,025</td><td>$3,225</td></tr><tr><td>Benefits and expenses</td><td>3,869</td><td>3,527</td><td>2,891</td></tr><tr><td>Adjusted operating income</td><td>509</td><td>498</td><td>334</td></tr><tr><td>Realized investment gains (losses), net, and related adjustments(1)</td><td>-137</td><td>26</td><td>76</td></tr><tr><td>Related charges-2</td><td>5</td><td>-12</td><td>-11</td></tr><tr><td>Investment gains (losses) on trading account assets supporting insurance liabilities, net(3)</td><td>9</td><td>-219</td><td>-111</td></tr><tr><td>Change in experience-rated contractholder liabilities due to asset value changes-4</td><td>39</td><td>142</td><td>57</td></tr><tr><td>Income from continuing operations before income taxes, equity in earnings of operating joint ventures, extraordinary gain on acquisition andcumulative effect of accounting change</td><td>$425</td><td>$435</td><td>$345</td></tr></table>
<table><tr><td></td><td colspan="3">Year ended December 31,</td></tr><tr><td></td><td>2006</td><td>2005</td><td>2004</td></tr><tr><td></td><td colspan="3">(in millions)</td></tr><tr><td>Impact on revenues and adjusted operating income:</td><td></td><td></td><td></td></tr><tr><td>International Insurance</td><td>$50</td><td>$-38</td><td>$-75</td></tr><tr><td>International Investments</td><td>-7</td><td>-6</td><td>—</td></tr><tr><td>Total International Insurance and Investments Division</td><td>$43</td><td>$-44</td><td>$-75</td></tr></table>
<table><tr><td></td><td> December 31, 2006</td><td> December 31, 2005</td></tr><tr><td></td><td colspan="2"> (in millions)</td></tr><tr><td>Forward currency contracts</td><td>$105</td><td>$110</td></tr><tr><td>Cross-currency coupon swap agreements</td><td>54</td><td>41</td></tr><tr><td>Foreign exchange component of interest on dual currency investments</td><td>11</td><td>19</td></tr><tr><td>Total</td><td>$170</td><td>$170</td></tr></table>
<table><tr><td> -1</td><td></td><td colspan="2"> December 31, 2006</td><td colspan="2">December 31, 2005</td></tr><tr><td> NAIC Designation</td><td> Rating Agency Equivalent</td><td> Notional</td><td> Fair Value</td><td> Notional</td><td>Fair Value</td></tr><tr><td></td><td></td><td colspan="4">(in millions)</td></tr><tr><td>1</td><td>Aaa, Aa, A</td><td>$952</td><td>$12</td><td>$1,040</td><td>$-1</td></tr><tr><td>2</td><td>Baa</td><td>162</td><td>2</td><td>132</td><td>-1</td></tr><tr><td></td><td>Subtotal Investment Grade</td><td>1,114</td><td>14</td><td>1,172</td><td>-2</td></tr><tr><td>3</td><td>Ba</td><td>20</td><td>—</td><td>10</td><td>—</td></tr><tr><td>4</td><td>B</td><td>38</td><td>—</td><td>—</td><td>—</td></tr><tr><td>5</td><td>C and lower</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>6</td><td>In or near default</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td></td><td>Subtotal Below Investment Grade</td><td>58</td><td>—</td><td>10</td><td>—</td></tr><tr><td></td><td>Total</td><td>$1,172</td><td>$14</td><td>$1,182</td><td>$-2</td></tr></table>
<table><tr><td> -1</td><td></td><td colspan="2"> December 31, 2006</td><td colspan="2"> December 31, 2005</td></tr><tr><td> NAIC Designation</td><td> Rating Agency Equivalent</td><td> Notional</td><td> Fair Value</td><td> Notional</td><td> Fair Value</td></tr><tr><td></td><td></td><td colspan="4"> (in millions)</td></tr><tr><td>1</td><td>Aaa, Aa, A</td><td>$363</td><td>$4</td><td>$396</td><td>$3</td></tr><tr><td>2</td><td>Baa</td><td>10</td><td>—</td><td>30</td><td>—</td></tr><tr><td></td><td>Subtotal InvestmentGrade</td><td>373</td><td>4</td><td>426</td><td>3</td></tr><tr><td>3</td><td>Ba</td><td>5</td><td>—</td><td>—</td><td>—</td></tr><tr><td>4</td><td>B</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>5</td><td>C and lower</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td>6</td><td>In or near default</td><td>—</td><td>—</td><td>—</td><td>—</td></tr><tr><td></td><td>Subtotal Below Investment Grade</td><td>5</td><td>—</td><td>—</td><td>—</td></tr><tr><td></td><td>Total</td><td>$378</td><td>$4</td><td>$426</td><td>$3</td></tr></table>

Question: In which year is Aaa, Aa, A for Notional positive?
Answer: 2005,2006