countries with higher tax rates. As compared with the effective tax rate in 2003, the effective tax rate in 2004 benefited from changes in the income tax laws for certain international operations, a change in the mix of international upstream earnings occurring in countries with different tax rates and favorable corporate consolidated tax effects. Refer also to the discussion of income taxes in Note 16 to the Consolidated Financial Statements, beginning on page FS-47.

INFORMATION RELATED TO INVESTMENT IN DYNEGY INC.

At year-end 2005, Chevron owned an approximate 24 percent equity interest in the common stock of Dynegy, a provider of electricity to markets and customers throughout the United States. The company also held an investment in Dynegy preferred stock.

     Investment in Dynegy Common Stock At December 31, 2005, the carrying value of the company’s investment in Dynegy common stock was approximately $300 million. This amount was about $200 million below the company’s proportionate interest in Dynegy’s underlying net assets. This difference is primarily the result of write-downs of the investment in 2002 for declines in the market value of the common shares below the company’s carrying value that were deemed to be other than temporary. The difference had been assigned to the extent practicable to specific Dynegy assets and liabilities, based upon the company’s analysis of the various factors associated with the decline in value of the Dynegy shares. The company’s equity share of Dynegy’s reported earnings is adjusted quarterly when appropriate to recognize a portion of the difference between these allocated values and Dynegy’s historical book values. The market value of the company’s investment in Dynegy’s common stock at the end of 2005 was approximately $470 million.

     Investments in Dynegy Preferred Stock At the end of 2005, the company held $400 million face value of Dynegy Series C Convertible Preferred Stock with a stated maturity of 2033. The stock is accounted for at its fair value, which was estimated to be $360 million at year-end 2005. Temporary changes in the estimated fair value of the preferred stock are reported in “Other Comprehensive Income.” However, if in any future period a decline in fair value is deemed to be other than temporary, a charge against income in the period would be recorded. Dividends received from the preferred stock are recorded to income in the period received.

LIQUIDITY AND CAPITAL RESOURCES

Cash, cash equivalents and marketable securities Total balances were $11.1 billion and $10.7 billion at December 31, 2005 and 2004, respectively. Cash provided by operating activities in 2005 was $20.1 billion, compared with $14.7 billion in 2004 and $12.3 billion in 2003.

     The 2005 increase in cash provided by operating activities mainly reflected higher earnings in the upstream segment, including earnings from the former Unocal operations. Cash provided by operating activities was net of contributions to employee pension plans of $1.0 billion, $1.6 billion and $1.4 billion in 2005, 2004 and 2003, respectively. Cash provided by investing activities included proceeds from asset sales of