Additionally, the health care cost trend rates used in the calculation of U.S. postretirement obligations for the years shown were: International Paper determines these actuarial assumptions, after consultation with our actuaries, on December 31 of each year to calculate liability information as of that date and pension and postretirement expense for the following year. The discount rate assumption is determined based on a yield curve that incorporates approximately 570 Aa-graded bonds. The plan’s projected cash flows are then matched to this yield curve to develop the discount rate. SFAS No. 87, “Employers’ Accounting for Pensions,” provides for delayed recognition of actuarial gains and losses, including amounts arising from changes in the estimated projected plan benefit obligation due to changes in the assumed discount rate, differences between the actual and expected return on plan assets, and other assumption changes. These net gains and losses are recognized in pension expense prospectively over a period that approximates the average remaining service period of active employees expected to receive benefits under the plans (approximately 13 years) to the extent that they are not offset by gains and losses in subsequent years. At December 31, 2004, unrecognized net actuarial losses for International Paper’s U.S. pension plans totaled approximately $2.6 billion. While actual future amortization charges will be affected by future gains/losses, amortization of cumulative unrecognized losses as of December 31, 2004 is expected to increase U.S. pension expense by approximately $53 million in 2005, an additional $41 million in 2006, then decreasing expense by $14 million in 2007. The expected long-term rate of return on plan assets reflects projected returns for an investment mix, determined upon completion of a detailed asset/liability study that meets the plans’ investment objectives. Increasing (decreasing) the expected long-term rate of return on U.S. plan assets by an additional 0.25% would decrease (increase) 2005 pension expense by approximately $16 million, while a (decrease) increase of .25% in the discount rate would (increase) decrease pension expense by approximately $22 million. The effect on net postretirement benefit cost from a 1% increase or decrease in the annual trend rate would be approximately $4 million. Net periodic pension and postretirement plan expense (income), calculated for all of International Paper’s plans were as follows: Actual rates of return earned on U.S. pension plan assets for each of the last 10 years were: The following chart, prepared by International Paper, illustrates the quarterly performance ranking of our pension fund investments compared with approximately 100 other corporate and public pension funds. The peer group, of which International Paper is one, is the “State Street Corporate and Public Master Trusts Universe.” 26 (b) Excludes $42.7 million of income in 2004 for curtailments and settlements related to divestitures that were recorded in Net losses (gains) on sales and impairments of businesses held for sale in the consolidated statement of operations. (a) Excludes $4.8 million, $10.9 million and $1.0 million of expense in 2004, 2003 and 2002, respectively, for curtailments, settlements and special termination benefits related to divestitures and restructurings that were recorded in Restructuring and other charges and Net losses (gains) on sales and impairments of businesses held for sale in the consolidated statement of operations. Pension Fund Rolling Three-Year Performance vs. Peers 0% 1998 1999 2000 2001 2002 2003 2004 25% 100% Percentile Ranking (100% = Best) 75% 50% Year Return Year Return 2004 14.1)% 1999 21.4% 2003 26.0)% 1998 10.0% 2002 (6.7)% 1997 17.2% 2001 (2.4)% 1996 13.3% 2000 (1.4)% 1995 19.9% In millions 2004 2003) 2002) Pension expense (income) - U.S. plans  (non-cash) (a) $111 $ 60 $(75) Pension expense - non-U.S. plans (b) 44 3926 ) Postretirement benefit cost -  U.S. plans (a) 53 55 59) Postretirement benefit cost -  non-U.S. plans (b) 5 5 2 ) Net expense  $213 $159$ 12) % 2004% 2003% 2002% Health care cost trend rate  assumed for next year 10.00% 10.00% 10.00% Rate that the cost trend rate  gradually declines to 5.00% 5.00% 5.00% Year that the rate reaches the  rate it is assumed to remain 2009 2008 2007