UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2006

Commission file number: 000-23745

BNP U.S. Funding L.L.C.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	13-3972207 (I.R.S. Employer Identification No.)

787 Seventh Avenue, New York, N.Y. (Address of principal executive offices)	10019 (Zip Code)

Registrant’s telephone number, including area code:

(212) 841-2000

Securities registered pursuant to Section 12(b) of the Act: None

Title of Each Class	Name of Each Exchange on which Registered
None	None

Securities registered pursuant to Section 12(g) of the Act:

Noncumulative Preferred Securities, Series A
(Liquidation Preference US$10,000 per Series A Preferred Security)
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No x

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes o No x

Form 10-K Index

		PAGE
PART I
Item 1:	Business	3

Item 1A:	Risk Factors	7

Item 1B:	Unresolved Staff Comments	8

Item 2:	Properties	8

Item 3:	Legal Proceedings	8

Item 4:	Submission of Matters to a Vote of Securityholders	8

PART II
Item 5:	Market for Registrant’s Common Equity, Related Securityholder Matters and Issuer
	Purchases of Equity Securities	8

Item 6:	Selected Financial Data	9

Item 7:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9

Item 7A:	Quantitative and Qualitative Disclosures About Market Risk	15

Item 8:	Financial Statements and Supplementary Data	18

Item 9:	Changes In and Disagreements with Accountants on Accounting and
	Financial Disclosure	36

Item 9A:	Controls and Procedures	36

Item 9B:	Other Information	36

PART III
Item 10:	Directors, Executive Officers of the Registrant and Corporate Governance	36

Item 11:	Executive Compensation	37

Item 12:	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	37

Item 13:	Certain Relationships and Related Transactions and Director Independence	38

Item 14:	Principal Accounting Fees and Services	38

PART IV
Item 15:	Exhibits and Financial Statement Schedules	38

Part I

Item 1: Business

General

BNP U.S. Funding L.L.C. (the “Company” or the “Registrant”) is a Delaware limited liability company formed on October 14, 1997, for the purpose of acquiring and holding certain types of eligible securities that generate net income for distribution to the holders of its Series A Preferred Securities (as defined below) and its redeemable Common Securities (as defined below). The Company has no subsidiaries and is a wholly owned subsidiary of the New York Branch (the “Branch”) of BNP PARIBAS (formerly, Banque Nationale de Paris), a société anonyme or limited liability corporation organized under the laws of the Republic of France (the “Bank”, “BNP PARIBAS” or “BNPP”). The Company was continued pursuant to the Amended and Restated Limited Liability Company Agreement of the Company (the “Company’s Charter” or the “Charter”) entered into on December 5, 1997, by the Branch.

The Company was initially capitalized on October 14, 1997, with the issuance to the Branch of one share of the Company’s redeemable common securities, $10,000 par value (the “Common Securities”). On December 5, 1997 (inception), the Company commenced operations concurrent with the issuance of 50,000 non-cumulative preferred securities, Series A, liquidation preference $10,000 per security (the “Series A Preferred Securities”), to qualified institutional buyers, and the issuance of an additional 53,010 Common Securities to the Branch. These issuances raised in the aggregate $1,030,115,873 of net capital (including $5,873 of additional paid-in capital). This entire amount was used to acquire a portfolio of debt securities (the “Initial Portfolio”) at their fair values from the Branch. The Branch contributed additional paid-in capital of $3,400,000, $6,800,000, $8,500,000, $7,500,000, $5,500,000 and $3,000,000, on June 2, 2005, December 2, 2004, June 3, 2004, December 3, 2003, June 3, 2003, and December 3, 2002, respectively. On June 20, 2006 and December 19, 2006 the Company repaid $6,000,000 and $7,000,000 of these contributions, respectively.

The Company entered into a services agreement (the “Services Agreement”) with the Branch on December 5, 1997, pursuant to which the Branch maintains the securities portfolio of the Company (the “Portfolio”) and performs other administrative functions. The Company has no employees. All of the Company’s officers are officers or employees of the Branch or the Bank or their affiliates. The securities in the Portfolio are held by Citibank N.A., acting as trustee (the “Trustee”) under the trust agreement between the Company and Citibank N.A. dated December 1, 1997 (the “Trust Agreement”).

The accounting and financial reporting policies of the Company conform to U.S. generally accepted accounting principles and current industry practices. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts and disclosures and may vary from actual results.

General Description of the Portfolio

Types of Eligible Securities

Pursuant to its Charter and resolutions adopted by its Board of Directors, the Company may invest only in specified types of securities (“Eligible Securities”). Eligible Securities currently consist of (i) mortgage pass-through securities issued or guaranteed by the Government National Mortgage Association (“GNMA”), the Federal National Mortgage Association (“FNMA”) or the Federal Home Loan Mortgage Corporation (“FHLMC”) that represent fractional undivided interests in pools of the relevant mortgage loans (“Agency Securities”); (ii) REMIC securities that are issued or guaranteed by GNMA, FHLMC or FNMA and that represent beneficial ownership interests in trusts established by GNMA, FHLMC or FNMA, the assets of which consist directly or indirectly of Agency Securities or other, previously issued REMIC securities of this type (“REMIC Agency Securities”); (iii) REMIC securities that are issued by an unrelated private company and secured directly or indirectly by Agency Securities and rated AAA by Standard & Poor’s as to creditworthiness, that represent beneficial ownership interests in a trust established by such private company, the assets of which consist directly or indirectly of Agency Securities, REMIC Agency Securities, or other previously issued REMIC securities of this type (“Agency Collateralized Securities”); (iv) unsecured, current pay, direct debt obligations of FNMA and FHLMC (“Agency Debentures”); (v) U.S. Treasury securities with a maturity of up to ten years (“Treasuries”); and (vi) specified short-term investments not subject to U.S. withholding tax (“Short-Term Instruments” and, collectively with the securities included in (i)-(v) above, the “Eligible Securities”). Categories (i) through (iii) above are referred to herein as “Mortgage-Backed Securities”. REMIC Agency Securities include GNMA REMIC Securities, FHLMC REMIC Securities and FNMA REMIC Securities. The trusts set up in connection with REMIC Agency Securities and Agency Collateralized Securities may have elected to be treated as real estate mortgage investment conduits (“REMICs”) for federal income tax purposes.

The types of Agency Securities in the Portfolio are (i) securities backed only by mortgages with adjustable rates that reset annually at a given rate plus a net margin (“Agency ARMs”); (ii) securities backed by mortgages with a fixed rate for a specified period of time, after which they reset annually at a given rate plus a net margin (“Agency Hybrid ARMs”); (iii) unsubordinated debentures which bear interest at a fixed rate and are not redeemable by the issuer prior to maturity (“Agency Debentures”); and (iv) securities backed by fixed rate loans on multifamily properties (“Agency DUSs”).

Set forth below is a description, as of December 31, 2006, of the Portfolio. As of December 31, 2006, the Eligible Securities included in the Portfolio had an aggregate amortized cost of $669,799,604 and an estimated fair value of $675,226,748. The composition of the Portfolio, stated in terms of amortized cost, is presented in the following table:

December 31, 2006

Type of Security	Percentage of Portfolio by Aggregate Amortized Cost			Number of Securities		Aggregate Amortized Cost ($000)
Floating-Rate REMICs		0.35	%		5	$	2,319
Fixed-Rate REMICs		4.62			1		30,915
Agency ARMs		0.69			19		4,614
Agency Hybrid ARMs		1.17			15		7,836
Agency DUSs		17.85			17		119,592
Agency Debentures		75.32			13		504,524
December 31, 2006 Total Portfolio		100.00	%		70	$	669,800

Description of Types of Securities

Floating-Rate REMICs

Floating-Rate REMICs are backed by Agency Securities where a particular portion of the cash flows are directed to these instruments. FNMA, FHLMC, and GNMA all guarantee the full and timely payment of principal and interest on the pools of mortgages, which flow through to the REMICs. These REMICs are floating-rate securities whose interest rates reset monthly at the then-current rate of one-month LIBOR plus a margin. The interest rate is subject to a lifetime cap and floor. The interest cap, floor, and margin all vary by security. The amortized cost of securities (in thousands):

December 31, 2006

Series	Current Coupon		Life Cap		Weighted Average Life (Years)		Maturity Date		Amortized Cost
FANNIE MAE 1997-28 FA		5.48		10.00		1.65		5-25-2027		373
FANNIE MAE 1990-121 F		6.18		11.50		2.98		10-25-2020		818
FANNIE MAE 1992-141 FA		5.88		10.50		.24		8-25-2007		20
FREDDIE MAC 1040 H		6.33		11.00		1.74		2-15-2021		798
FANNIE MAE G92 60 F		5.00		10.00		3.16		10-25-2022		310
Total Floating-Rate REMICs									$	2,319

Fixed-Rate REMICs

Fixed-Rate REMICs are backed by Agency Securities where a particular portion of the cash flows is directed to these instruments. FNMA, GNMA and FHLMC all guarantee the full and timely payment of principal and interest on the pools of mortgages, which flow through to the Fixed-Rate REMICs. The amortized cost of securities (in thousands):

December 31, 2006

Series		Current Coupon			Weighted Average Life (Years)			Maturity Date			Amortized Cost
FANNIE MAE 1997-M5 C			6.74			.64			8-25-2007		$	30,915

Agency ARMs

The Agency ARMs in the Adjustable Rate Mortgage (“ARM”) pools consist of securities having the timely payment of principal and interest generally guaranteed by GNMA, FNMA and FHLMC. The securities consist of pools of adjustable rate mortgages, whose interest rates reset annually at a rate equal to the then-current rate of the One-Year Constant Maturity Treasury Index (as defined below) plus a net margin. The interest rate for each ARM pool is subject to a periodic cap and a lifetime cap, which vary by agency and pool.

The One-Year Constant Maturity Treasury Index (“CMT”) is the weekly average yield on U.S. Treasury securities adjusted to a constant maturity of one year as published by the Federal Reserve Board in Statistical Release H. 15(519) or any similar publication or, if not so published, as reported by any Federal Reserve Bank or by any U.S. Government department or agency. The Three-Year Constant Maturity Treasury Index is the weekly average yield on U.S. Treasury securities adjusted to a constant maturity of three years as published in a similar manner as The One-Year Constant Maturity Treasury Index. The amortized cost of securities (in thousands):

December 31, 2006

Pool No.⁽¹⁾	Current Coupon			Life Cap			Weighted Average Life (Years)		Maturity Date		Amortized Cost
FH 846384		7.20	%		11.77	%		10.16		12-1-2026	$	408
FN 313190		7.20			12.12			1.56		9-1-2026		326
FN 313242		7.35			11.96			3.66		11-1-2026		79
FN 313311		7.15			11.86			2.86		12-1-2026		130
FN 313377		6.70			11.74			12.42		2-1-2027		385
FN 313432		7.42			11.84			12.23		2-1-2027		95
FN 363057		6.58			11.38			12.56		2-1-2027		48
FN 363070		6.58			11.49			12.68		3-1-2027		68
FN 370478		6.72			11.37			12.66		2-1-2027		69
FN 370479		6.72			11.31			4.29		3-1-2027		73
FN 374711		6.93			11.72			12.83		7-1-2027		155
FN 391247		7.01			11.37			12.32		4-1-2027		249
FN 397901		7.34			11.89			12.97		8-1-2027		85
FH 610727		7.02			12.35			.05		5-1-2027		30
G 280094		5.75			11.00			3.89		7-20-2027		752
G 28506		5.75			12.50			3.40		9-20-2024		1,017
G 280001		5.13			11.00			8.04		10-20-2026		91
FH 786213		6.74			12.55			1.63		12-1-2027		354
FH 786088		6.34			12.26			.67		12-1-2027		200
Total Agency ARMs											$	4,614

(1) ”FN”= FNMA; “G”= GNMA; and “FH”= FHLMC

Agency Hybrid ARMs

The Agency Hybrid ARMs consist of securities having the timely payment of principal and interest generally guaranteed by FNMA and FHLMC. The securities consist of mortgages that have a fixed interest rate for a specified period of time, after which the interest rate resets annually at a rate equal to the then-current rate of the One-Year Constant Maturity Treasury Index (as defined above) plus a security net margin, except that pools underlying the Fannie Mae 422268 have a coupon that resets every three years at a rate equal to the then-current rate of the Three-Year Constant Maturity Treasury Index (as defined above) plus a security net margin. The interest rate of each ARM pool is subject to a periodic cap and a lifetime cap which vary by pool. The amortized cost of securities (in thousands):

December 31, 2006

Pool No.⁽¹⁾	Current Coupon			Life Cap			Weighted Average Life (Years)		Maturity Date		Amortized Cost
FN 312824		6.87	%		12.38	%		1.30		6-1-2025	$	62
FN 345856		7.20			11.87			1.33		8-1-2036		616
FN 361370		6.94			13.57			3.03		7-1-2026		1,512
FN 361372		6.89			12.90			4.80		7-1-2026		1,175
FN 374138		6.50			11.35			.63		3-1-2027		385
FN 397136		7.67			13.76			9.53		6-1-2027		416
FN 362968		7.01			12.24			4.43		1-1-2026		152
FN 374917		6.45			11.75			1.08		4-1-2027		158
FN 404484		7.15			11.50			12.94		11-1-2027		155
FN 422265		5.42			13.26			8.74		1-1-2026		874
FN 422268		6.27			12.94			5.75		12-1-2024		278
FN 422276		7.08			13.23			2.98		12-1-2027		1,510
FN 415286		6.92			12.38			1.53		2-1-2028		145
FN 417833		6.86			11.45			12.51		3-1-2028		316
FH 786414		6.89			12.03			12.73		7-1-2028		82
Total Agency Hybris ARMs											$	7,836

(1)	“FN”= FNMA; and “FH”= FHLMC

Agency DUSs

Pursuant to a Board of Directors resolution of November 4, 1998, the Company may invest in Agency DUSs. A Delegated Underwriting and Servicing (DUS) pool is 100% guaranteed by FNMA and backed by loans on multifamily properties. These are fixed-rate loans ranging in size from $1 million to $70 million. FNMA guarantees timely payment of interest and principal, including any balloon payments. Loans include yield maintenance provisions that permit the borrower to prepay his mortgage but only with a penalty that is sufficient to compensate the investor for early prepayment. Any yield maintenance collected is passed through to the investor. The amortized cost of securities (in thousands):

December 31, 2006

Security Description	Current Coupon		Weighted Average Life (Years)	Maturity Date		Amortized Cost
FNMA 380491	6.11	%	1.54	7-1-2008	$	5,298
FNMA 381608	5.93		2.34	5-1-2009		1,593
FNMA 381640	5.86		2.26	4-1-2009		5,371
FNMA 380933	5.92		1.94	12-1-2008		7,382
FNMA 381294	5.81		2.10	2-1-2009		1,803
FNMA 381488	6.19		2.27	4-1-2009		4,042
FNMA 381514	6.19		2.27	4-1-2009		4,647
FNMA 381730	6.39		2.43	6-1-2009		14,756
FNMA 381115 FNMA 381117	5.97 5.80		1.94 2.02	12-1-2008 1-1-2009		10,693 4,578
FNMA 380798	5.64		1.78	10-1-2008		4,232
FNMA 535642	6.95		.14	10-1-2007		969
FNMA 313672	6.981		.48	6-1-2007		3,284
FNMA 382497	7.41		.56	7-1-2007		7,249
FNMA 460685	4.90		.58	8-1-2007		26,500
FNMA 313744	6.86		.72	10-1-2007		4,090
FNMA 323539	5.96		2.10	2-1-2009		13,105
Total Agency DUSs					$	119,592

Agency Debentures

Pursuant to a Board of Directors resolution of November 4, 1998, the Company may invest in Agency Debentures. The Agency Debentures consist of conventional debt securities issued periodically directly by either FNMA or FHLMC. Such Agency Debentures are not secured by any collateral and represent general unsecured obligations of FNMA or FHLMC. The Company is permitted to purchase only unsubordinated debentures which pay interest on a current basis. The Agency Debentures purchased by the Company bear interest at a fixed rate and are not redeemable by the issuer prior to maturity. The amortized cost of securities (in thousands):

December 31, 2006

Security Description	Current Coupon		Life to Maturity(Years)	Maturity Date		Amortized Cost
FHLMC 3134A2DT2	5.75	%	1.30	4-15-2008	$	25,038
FNMA 31359MCY7	2.13		.78	10-9-2007		129,400
FNMA 31359MDR1	1.75		1.24	3-26-2008		60,099
FNMA 31359MDU4	6.00		1.38	5-15-2008		46,805
FNMA 31364C5BO	6.44		.62	8-14-2007		23,989
FNMA 31364C6C7	6.48		.66	8-27-2007		7,500
FNMA 31364CU55	6.70		.47	6-19-2007		12,133
FNMA 31364CYE2	6.68		.18	3-5-2007		50,000
FNMA 31359MGH0	6.63		.79	10-15-2007		50,547
FNMA 31364CYX0	6.80		.21	3-14-2007		50,000
FNMA 31364C5Q7	6.55		.64	8-20-2007		19,008
FNMA 31359MPZ0	3.25		.88	11-15-2007		20,007
FHLMC 3134A4NW0	4.88		.21	3-15-2007		9,998
Total Agency Debentures					$	504,524

Available Information

The Company files reports and other information with the Securities and Exchange Commission (the “SEC”) pursuant to Section 13 or 15(d) of the Exchange Act. All such reports and other information may be read and copied at the Public Reference Room of the SEC, 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-202-551-8090. The SEC also maintains a website (http://www.sec.gov) that contains reports and other information regarding registrants that file electronically with the SEC, including the Company.

Item 1A: Risk Factors

The following important factors, among others, could adversely affect the Company’s results of operations and financial condition.

Since the major source of the Company’s income is from interest payments, the Company is subject to interest rate risk.

The purpose of the Company is to acquire and hold eligible securities that will generate net income for distribution to the holders of the Series A Preferred Securities and the Common Securities. The eligible securities in the Portfolio carry either fixed, adjustable or floating interest rates. Some of the fixed rate securities are hedged with derivatives instruments that aim to transform the fixed rate exposure into floating rate income, based on one-month and three-month Libor rates. As a consequence, a decreasing or low interest rate environment will negatively affect the net income of the Company through the floating rate component of the Portfolio, which may affect the ability of the Company to distribute dividends to the holders of the Series A Preferred Securities. Conversely, in an increasing or high interest rate environment, the net income of the Company will benefit from higher interest income.

The Company’s investments are subject to prepayment and reinvestment risks.

Mortgage-backed securities are subject to prepayment of the underlying loans. In a declining or low interest rate environment, mortgage-backed securities are exposed to more prepayments that shorten their average term. Prepayments received in such a situation may be reinvested into securities that carry a lower current yield. In an increasing or high interest rate environment, mortgage-backed securities are less subject to prepayment.

The Company is subject to changes in French bank regulatory policies that may affect its ability to pay dividends.

As a subsidiary of the Branch, the company is subject to the risk that French Banking Commission (Commission Bancaire), in their exercise of regulatory oversight with respect to the Bank, may make determinations that would restrict the Company’s ability to make distributions to holders of its securities (including dividend payments to the holders of the Series A Preferred Securities) or to redeem its securities, or render other regulatory decisions that may impair or alter the Company’s current operations.

A Shift Event could have materially adverse consequences for the Company and the Security holders.

If a Shift Event (as defined below) occurs, then substantially all the Common Securities would be automatically redeemed without prior redemption of the Series A Preferred Securities. In addition, if the Bank’s Tier 1 risk-based capital ratio were to decline below the minimum percentage required by French banking regulations (currently 4%), the Company would pay a special dividend consisting of all of its net assets (other than assets having a total market value of approximately $40,000,000) to the Branch as holders of the Common Securities.

A Shift Event would be deemed to have occurred if (i) the Bank’s total risk-based capital ratio or Tier 1 risk-based capital ratio were to decline below the minimum percentages required by French banking regulations, (ii) the Bank were to become subject to certain specified receivership proceedings or (iii) the French Banking Commission, in its sole discretion, were to notify the Bank and the Company that it has determined that the Bank’s financial condition was deteriorating such that either of the foregoing clauses(i) or (ii) would apply in the near term. French banking regulations currently require French banks to maintain a minimum total risk-based capital ratio of at least 8.0% and a minimum Tier 1 risk-based capital ratio of at least 4.0%. BNP PARIBAS Group’s total and Tier 1 risk-based capital ratios at December 31, 2006 were 10.5% and 7.4%.

The Company has business relationships with affiliated parties that may generate conflicts of interest.

Because of the relationship between the Company and the Branch, the Bank and their affiliates, conflicts of interest may arise between the Branch, the Bank and their affiliates and the Company. The Company’s officers, employees and directors (other than the independent director) are officers and employees of the Branch, the Bank or an affiliate. Conflicts of interest may arise in between the discharge by such individuals of their duties as officers, employees or directors of the Company on the one hand and the Branch, the Bank and its affiliates on the other hand.

Item 1B: Unresolved Staff Comments

Not Applicable

Item 2: Properties

The Company does not own or lease any property. It uses the facilities of the Branch located at 787 Seventh Avenue, New York, New York 10019.

Item 3: Legal Proceedings

None.

Item 4: Submission of Matters to a Vote of Securityholders

None.

Part II

Item 5: Market for Registrant’s Common Equity, Related Securityholder Matters and Issuer Purchases of Equity Securities

Market Information

There is no established public trading market for the Company’s Common Securities, all of which are held by the Branch. The Bank has agreed with the Company that, so long as any Series A Preferred Securities are outstanding, it will maintain direct or indirect ownership of 100% of the outstanding Common Securities.

Dividends

Holders of Common Securities are entitled to receive dividends when, as and if declared by the Company’s Board of Directors, out of net gains from the disposition of securities in the Portfolio and net income not required to be applied to fund dividends with respect to the Series A Preferred Securities. During 2006, the Company did not declare or pay any dividends with respect to Common Securities. On June 20, 2006 and December 19, 2006 the Company repaid $6,000,000 and $7,000,000 of the additional paid-in capital contributions, respectively.

Item 6: Selected Financial Data

The following table sets forth selected financial data for the years then ended (in thousands, except share and yield data):

	December 31, 2006			December 31, 2005			December 31, 2004			December 31, 2003			December 31, 2002

Income Statement:
Interest income	$	52,146		$	39,954		$	26,091		$	26,219		$	34,548
Net income		57,603			47,494			23,365			22,760			32,894
Average number of Redeemable
Common Securities outstanding		53,011			53,011			53,011			53,011			53,011
Net income (loss) per Redeemable
Common Security		356.78			166.08			(289.09	)		(300.50	)		(109.34	)

Balance Sheet:
Investment securities at carrying value		675,336			812,144			1,007,087			1,119,539			1,099,570
Total assets		1,044,392			1,063,076			1,127,852			1,153,073			1,150,885
Series A Preferred Securities outstanding		500,000			500,000			500,000			500,000			500,000
Total Redeemable Common Securities,
Preferred Securities, and
Securityholders’ Equity	$	1,039,180		$	1,042,679		$	1,049,350		$	1,055,514		$	1,062,024

Other Data:
Comprehensive income	$	48,191		$	28,619		$	17,226		$	19,180		$	46,012
Dividends paid on Series A
Preferred Securities	$	38,690		$	38,690		$	38,690		$	38,690		$	38,690
Dividends paid on Redeemable
Common Securities	$	-		$	-		$	-		$	-		$	-
Number of Series A Preferred
Securities outstanding		50,000			50,000			50,000			50,000			50,000
Number of Redeemable Common
Securities outstanding		53,011			53,011			53,011			53,011			53,011
Average yield on investment securities
(before results of hedging activities)		6.03	%		5.86	%		6.20	%		6.03	%		6.02	%

Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD LOOKING DISCLOSURE STATEMENT

From time to time, the Company may publish, verbally or in written form, forward-looking statements relating to such matters as anticipated financial performance, economic conditions, interest rate levels, investment prospects and similar matters. In fact, this annual report on Form 10-K (or any other periodic reporting documents required by the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) may contain forward-looking statements reflecting the current views of the Company concerning potential future events or developments. The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. In order to comply with the terms of the “safe harbor,” the Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance and that a variety of factors could cause the Company’s actual results and experience to differ materially from the anticipated results or other expectations expressed in the Company’s forward-looking statements. The risks and uncertainties which may affect the operations, performance, development and results of the Company’s business include, but are not limited to, the following: uncertainties relating to economic conditions and interest rate levels, and uncertainties relating to government and regulatory policies. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statements were made.

Set forth on the following pages is management’s discussion and analysis of the results of operations for the years ended December 31, 2006, 2005 and 2004. Such information should be read in conjunction with our Financial Statements together with the Notes to the Financial Statements.

General

The Company was formed on October 14, 1997, and commenced operations on December 5, 1997, by the sale to qualified institutional buyers of 50,000 Series A Preferred Securities and the sale to the Branch of 53,010 Common Securities. Together, such sales raised net capital of $1,030,115,873, which the Company used to purchase the Initial Portfolio from the Branch. The Branch has contributed $3,400,000, $6,800,000, $8,500,000, $7,500,000, $5,500,000 and $3,000,000 of additional paid-in capital on June 2, 2005, December 2, 2004, June 3, 2004, December 3, 2003, June 3, 2003 and December 3, 2002 respectively. On June 20, 2006 and December 19, 2006 the Company repaid $6,000,000 and $7,000,000 of these contributions, respectively.

All of the Company’s officers and employees and all but one of the members of the Company’s Board of Directors are officers and employees of the Branch or BNP Paribas or their affiliates.

The Company’s sole business is to acquire, hold and manage debt instruments, largely consisting of mortgage obligations, in the Portfolio, which generate net income for distribution to securityholders. The Company’s major source of income is interest generated by the securities in the Portfolio.

SUMMARY OF CRITICAL ACCOUNTING POLICIES

The Notes to the Financial Statements contain a summary of the Company's significant accounting policies, including a discussion of recently issued accounting pronouncements. Certain of these policies as well as estimates made by management are considered to be important to the portrayal of the Company's financial condition, since they require management to make difficult, complex or subjective judgments and estimates, some of which may relate to matters that are inherently uncertain.

Investment Securities

Investments in debt securities are classified as available-for-sale (recorded on trade-date basis) and are carried at fair value. The debt securities are categorized as either hedged or non-hedged securities. Fair values of non hedged debt securities are estimated based on quoted market price for these securities. For the hedged securities, changes in the fair market value of both the securities and the derivatives used as hedging instruments (cross currency and interest rate swaps) are reported in current earnings in the Statements of Income, pursuant to application of SFAS 133, (see below, “Accounting for Derivatives and Hedging Activities”). Unrealized gains and losses on the non-hedged securities are reported as a component of “Other Comprehensive Income”. The hedged securities are generally valued using discounted cash flows in a yield-curve model based on LIBOR.

Interest on securities is included in interest income and is recognized using the interest method. Premiums and discounts are amortized in a manner that approximates the constant yield method.

Accounting for Derivatives and Hedging Activities

Statement of Financial Accounting Standards No. 133 (“SFAS 133”), “Accounting for Derivative Instruments and Hedging Activities”, requires that an entity measure all derivatives at fair value and recognize those derivatives as either assets or liabilities on the balance sheet. The change in the derivative’s fair value is generally to be recognized in current period earnings. However, if certain conditions are met, a derivative may be specifically designated as a hedge of an exposure to changes in fair value, variability of cash flows, or certain foreign currency exposures.

The Company has made an assessment of all its financial instruments and concluded that it holds freestanding derivative instruments but no embedded derivative instruments at December 31, 2006. As part of its asset management activities the Company uses foreign exchange and interest rate swaps to modify the interest rate and foreign exchange characteristics of existing assets. The interest rate swaps have a high correlation between the instrument and the asset being hedged, both at inception and throughout the hedge period. These instruments qualify for hedge accounting, therefore, the market value changes for both the underlying security and the swap will be shown on the balance sheet only.

Valuations of Financial Instruments

Investments include mortgage backed securities and derivatives. The Company carries its investments at fair value if they are considered to be available-for-sale. For a substantial majority of the Company's investments, fair values are determined based upon quoted prices or validated models with externally verifiable model inputs. If available, quoted market prices provide the best indication of fair value. If quoted market prices are not available for mortgage backed securities and derivatives, the Company discounts the expected cash flows using market interest rates commensurate with the duration of the investment.

All of the Company’s outstanding hedging transactions are fair value hedges. For years ended December 31, 2006 and 2005, the Company recognized gains of $0 and $407,622, respectively, in earnings related to the ineffective portion of fair value hedges. The fair value of the hedging instruments was $(3,744,241) and $(14,283,663) at December 31, 2006 and December 31, 2005, respectively, and has been recorded in “Other liabilities”. It has been offset, except for the ineffective portion of the hedge, by the revaluation of the respective hedged investment securities. The fair value of the hedging instruments does not include accrued interest receivable and payable, which are shown separately on the balance sheet.

Results of Operations

The following discussion pertains to the years ended December 31, 2006, December 31, 2005 and December 31, 2004 (the “2006 Period”, the “2005 Period” and the “2004 Period,” respectively).

Revenue

For the 2006 Period, 2005 Period and 2004 Period, the Company had revenues of $52,145,692, $39,953,748 and $26,091,163, respectively. These amounts consisted of interest income on the investment securities, the unrealized gain/loss on hedged securities and derivatives used as hedging instruments, and interest on deposits. The Company believes the factor having the greatest impact on revenues is the interest rate environment. The increase in revenues is mainly due to the derivatives used as hedging instruments. The floating rate component of the swaps has generated more income due to increasing interest rates in 2006 Period compared to 2005 Period and 2004 Period.

The Company’s net income for the 2006 Period, 2005 Period and 2004 Period was $57,602,668, $47,493,858 and $23,365,027, respectively. The Company has declared and paid dividends for the 2006 Period, 2005 Period and 2004 Period as follows:

Security	Amount		Date Paid
Series A Preferred	$	19,345,000		December 5, 2006
Series A Preferred	$	19,345,000		June 5, 2006
Series A Preferred	$	19,345,000		December 5, 2005
Series A Preferred	$	19,345,000		June 5, 2005
Series A Preferred	$	19,345,000		December 5, 2004
Series A Preferred	$	19,345,000		June 5, 2004

Interest Income and Yields

For the 2006 Period, 2005 Period and 2004 Period, interest on the securities in the Portfolio amounted to $31,389,953, $39,074,231 and $49,291,242, respectively, representing an aggregate yield of 6.03%, 5.89% and 6.20%, respectively. Interest earned and average yield with respect to each category of security in the Portfolio was as follows (yield based on average amortized cost):

	2006				2005				2004
Floating-Rate REMICs	$	137,530	5.17	%	$	140,465	2.89	%	$	130,041	1.58	%
Fixed-Rate REMICs	$	2,083,670	6.74	%	$	2,072,094	6.70	%	$	1,748,437	6.81	%
Agency ARMs	$	278,050	4.82	%	$	322,699	4.01	%	$	374,310	3.71	%
Agency Hybrid ARMs	$	506,637	5.32	%	$	572,358	4.01	%	$	760,707	4.18	%
Agency DUS	$	9,405,117	6.02	%	$	17,096,265	5.84	%	$	27,190,649	6.53	%
Agency Debentures	$	18,978,949	6.02	%	$	18,870,350	3.73	%	$	19,087,098	6.04	%

The yield on Agency Debentures is based on U.S. dollar denominated securities which excludes the Japanese Yen denominated securities.

During the 2006 Period, the yields on the Agency DUSs, Agency Debentures and Fixed-Rate REMICs were approximately 4.99%, 5.42% and 5.16%, respectively, when taking into account the income and expense from the derivative products used to hedge these securities. During the 2005 Period, the yields on the Agency DUSs, Agency Debentures and Fixed-Rate REMICS were approximately 2.95%, 4.51% and 3.34%, respectively, when taking into account the income and expense from the derivative products used to hedge these securities. During the 2004 Period, the yields on the Agency DUSs, Agency Debentures and Fixed-Rate REMICS were approximately 1.48%, 3.49% and 1.91%, respectively, when taking into account the income and expense from the derivative products used to hedge these securities. Due to the increase in the variable rate interest component of the hedges for the past three years, the yields have gradually increased over the past three years.

The Company also recorded interest income from short-term investments for the 2006 Period, 2005 Period and 2004 Period of $14,308,043, $6,590,570 and $515,903, respectively.

These amounts are attributable to the interest earned on (i) interest payments on securities in the Portfolio, (ii) prepayments of principal pending their reinvestment and (iii) short-term investments classified as cash equivalents. Beginning in 2004, the Company began reinvesting prepayments mainly into Certificates of Deposit.

Operating Expenses

Operating expenses for the 2006, Period 2005 Period and 2004 Period totaled $457,454, $1,365,587 and $1,327,138, respectively. Operating expenses consisted largely of fees paid to the Branch under the Services Agreement, fees to Citibank as Trustee, consulting fees and audit fees. The cost of Branch personnel servicing the Company is based on actual man-hours devoted to the activities of the Company and remains at arms length. Expenses incurred under the Services Agreement for the 2006 Period, 2005 Period and 2004 Period totaled $570,121, $964,217 and $938,513, respectively.

Financial Condition

Portfolio

The average amortized cost of the Portfolio during the 2006 Period, 2005 Period and 2004 Period was $669,799,604, $852,537,552 and $984,859,956 respectively. This reflects the following prepayments and reinvestments:

PREPAYMENTS	2006		2005		2004
Floating-Rate REMICs	$	820,595	$	3,034,468	$	5,209,663
Fixed-Rate REMICs	$	—	$	—	$	298,027
Agency ARMs	$	2,545,441	$	1,439,321	$	3,667,678
Agency Hybrid ARMs	$	3,527,371	$	4,542,778	$	5,567,144
Agency DUS	$	111,075,375	$	117,681,515	$	91,556,388
Agency Debentures	$	—	$	—	$	—

REINVESTMENTS	2006		2005		2004
Floating-Rate REMICs	$	—	$	—	$	—
Fixed-Rate REMICs	$	—	$	—	$	20,915,000
Agency ARMs	$	—	$	—	$	—
Agency Hybrid ARMs	$	—	$	—	$	—
Agency DUS	$	—	$	—	$	—
Agency Debentures	$	—	$	—	$	—

As of December 31, 2006, 2005 and 2004, as calculated by aggregate amortized cost, approximately 24.68%, 35.94% and 44.79%, respectively, of the Portfolio consisted of collateralized mortgage obligations (Floating-Rate REMICs and Fixed-Rate REMICs) and mortgage backed securities (Agency ARMs, Agency Hybrid ARMs and Agency DUSs), and approximately 75.32%, 64.06% and 55.21%, respectively, consisted of Agency Debentures. As of December 31, 2006, 2005 and 2004, floating rate securities accounted for approximately 2.21%, 2.77% and 3.38%, respectively, of the Portfolio’s collateralized mortgage obligations and mortgage backed securities. In addition, a significant portion of the Agency Debentures and the Agency DUSs are hedged so that in all but one case, the fixed interest rates received on the bonds are converted into prevailing floating rates.

The aggregate market value of the securities in the Portfolio as of December 31, 2006, 2005 and 2004 was higher than the amortized cost by approximately 0.81% 2.99% and 9.95%, respectively, due to a net increase in interest rates from the time of their original purchase. For the hedged securities, changes in the fair market value of both the securities and the derivatives used as hedging instruments (cross currency and interest rate swaps) are reported in current earnings in the Statements of Income, pursuant to application of SFAS 133 (see Note 2 to the Financial Statements in Item 8). Unrealized gains and losses on the non-hedged securities are reported as a component of Other Comprehensive Income.

Receivable Arising from Payment for Securities

Due to the potential consequences of a Shift Event (as defined in Item 8 Note 2 herein), the Company’s purchase of the Initial Portfolio (as defined in Item 8 herein) from the Branch did not meet certain SFAS 125, as replaced by SFAS 140, sale accounting requirements. Accordingly, the Company recorded at December 5, 1997 a receivable for the consideration paid to the Branch for the Initial Portfolio treated as collateral. As a legal and economic matter, however, there is no such receivable since (a) neither the Bank nor the Branch has any obligation to repay any part of the purchase price for the Initial Portfolio or to repurchase or redeem any of the securities included therein, and (b) the Company has no obligation to return any of such securities to the Bank or the Branch (except in the limited circumstances and to the extent that the occurrence of a Shift Event under the Charter would require the transfer of any assets held by the Company at the time). As the securities in the Initial Portfolio are paid, the receivable will be deemed to be realized by an amount corresponding to the amount of the payments received. At December 31, 2006 and December 31, 2005, the receivable arising from payment for securities amounted to $9,127,130 and $13,690,440, respectively. The decrease in the amount of such receivable between the two dates reflects the prepayment of securities in the Initial Portfolio. The Company recognized the cash proceeds of such prepayments as a reduction in the receivable. Such decreases in the receivable did not affect the Company’s results of operations or cash flow. Disclosures required under SFAS 125, as replaced by SFAS 140, are included in Note 3 to the Financial Statements.

Investment Income

The interest income on the investment securities includes interest income on the remaining securities in the Initial Portfolio, which are considered to be collateral held by the Company and which are no longer recognized on the balance sheet pursuant to guidance in Statement of Financial Accounting Standards No. 140 (“SFAS 140”), “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, a replacement of SFAS 125”, which modified SFAS 125 in this respect, as explained in Note 3 to the financial statements. The receivable for the consideration paid to the Branch for the Initial Portfolio is recognized on the balance sheet and is an asset of similar size as the remaining securities in the Initial Portfolio. The balance sheet presentation results from compliance with SFAS 140 but does not reflect the economic substance of the transaction, as further explained in the section on the application of SFAS 125, as replaced by SFAS 140, below. For all economic intent and purposes, the securities in the Initial Portfolio are owned by the Company and managed as any other investment security, with related revenues belonging to the Company and recorded as such in the income statements.

Liquidity and Capital Resources

The objective of liquidity management is to ensure the availability of sufficient cash flows to meet all of the Company’s financial commitments. The Company’s sole liquidity needs are to acquire reinvestment securities or invest in cash equivalents and certificates of deposit as original securities repay or prepay and to pay dividends on the Series A Preferred Securities. The acquisition of reinvestment securities and purchase of cash equivalents and certificates of deposit is funded with the proceeds of principal repayments or prepayments on original securities, and the payments of dividends on the Series A Preferred Securities are funded through interest income from the securities in the Portfolio.

The increase in prevailing interest rates until early August 2006 and the relative stabilization of interest rates during the remainder of the year had a positive impact on the interest income of the company. As a result, the Branch received returns of capital in June and December of 2006 in consideration of contributions made to the Company’s capital in previous years from 2002 to 2005. If interest rates remain at their current levels or increase further, the Company may have sufficient capital after paying the required dividends on the Series A Preferred Securities to return additional capital to the Company or pay one or more dividends to the Common Securities. However, no assurances can be given that interest rates will not decrease, which would have an adverse affect on the Company’s income and ability to return capital to the Company or pay dividends to the Common Securities.

BNP PARIBAS Group's total and Tier 1 risk-based capital ratios at December 31, 2006 were 10.5% and 7.4%, and at December 31, 2005 were 11.0% and 7.6%, which are well above the minimum standards required by French banking regulations, currently 8% for total risk-based capital and 4% for Tier 1 risk-based capital. A “Shift Event” would occur if BNP PARIBAS’ risk-based capital fell below these minimum standards of 8% and 4%, respectively. See Note 2 of the attached financial statements for a detailed explanation of “Shift Events”.

Accounting and Reporting Developments

In February 2006, the Financial Accounting Standard Board ("FASB") issued Statement of Financial Accounting Standard No. 155 “Accounting for Certain Hybrid Instruments, and amendment of FASB Statement No. 133 and 140” (“SFAS 155”). SFAS 155 contains a variety of provisions which address fair value of hybrid financial instruments containing an embedded derivative, clarifies which interest only and principal only strips are not subject to SFAS 133, establishes requirements to evaluate securitized financial assets to identify embedded derivatives and addresses certain aspects of SFAS 140 regarding qualifying special purpose entities and their holding of certain derivative financial instruments. SFAS 155 is effective for fiscal years beginning after September 15, 2006. Adoption of SFAS 155 is not expected to have a material impact on the Company’s financial condition or results of operations.

In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of Financial Assets" ("SFAS 156"). The Statement amends SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," with respect to accounting for separately recognized Mortgage Servicing Right (MSR). SFAS 156 requires all separately recognized MSR to be initially measured at fair value, if practicable. SFAS 156 permits an entity to choose either of the following subsequent measurement methods for each class of separately recognized servicing assets and liabilities: (1) amortizing servicing assets or liabilities in proportion to and over the period of estimated net servicing income or net servicing loss; or (2) reporting servicing assets or liabilities at fair value at each reporting date and reporting changes in fair value in earnings in the period in which the changes occur. In the event that the first method is selected, SFAS 156 requires an assessment of servicing assets or liabilities for impairment or increased obligation based on fair value at each reporting date. SFAS 156 further requires additional disclosures for all separately recognized MSR. SFAS 156 is effective as of commencement of the first fiscal year that begins after September 15, 2006. Adoption of SFAS 156 is not expected to have a material impact on the Company’s financial condition or results of operations.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS 157"), which defines fair value, establishes a framework for measuring fair value under GAAP, and expands disclosures about fair value measurements. Other current accounting pronouncements that require or permit fair value measurements will require application of SFAS 157. SFAS 157 does not require any new fair value measurements, however, does change the definition of fair value and the methods used to measure fair value, and expands disclosures about fair value measurements. SFAS 157 emphasizes fair value as a market-based measurement, not an entity-specific measurement. Under SFAS 157, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. SFAS 157 further establishes a fair value hierarchy that distinguishes between (1) market participants’ assumptions developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) the reporting entity’s own assumptions about market participants’ assumptions developed based on the best information available in the circumstances. SFAS 157 also expands disclosures about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Adoption of SFAS 157 is not expected to have a material impact upon the Company's financial condition or results of operations.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" ("SFAS 159"). SFAS 159 permits companies to choose to measure many financial instruments and certain other items at fair value. SFAS No. 159 seeks to improve the overall quality of financial reporting by providing companies the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is effective for fiscal years beginning after November 15, 2007. Management is evaluating the impact of SFAS 159 upon the Company's financial condition and results of operations.

In September 2006, the SEC Staff issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in the Current Year Financial Statements (“SAB No. 108”). SAB No. 108 requires the use of two alternative approaches in quantitatively evaluating materiality of misstatements. If the misstatement as quantified under either approach is material to the current year financial statements, the misstatement must be corrected. If the effect of correcting the prior year misstatements, if any, in the current year income statement is material, the prior year financial statements should be corrected. This guidance is effective for the calendar year ending 2006. In the year of adoption, the misstatements may be corrected as an accounting change by adjusting opening retained earnings rather than being included in the current year income statement. Adoption of SAB No. 108 did not have any impact upon the Company's financial condition or results of operations.

Item 7A: Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Sensitivity

The Company’s principal market risk exposure is to changes in interest rates. This exposure arises from its investments in collateralized mortgage obligations, mortgage-backed securities, agency debentures, agency DUSs and certain derivative instruments used by the Company to modify interest rate exposure.

The outstanding principal amount and estimated fair value as of December 31, 2006, by each category of investment, is depicted in Item 8.

Interest Rate Risk

The Company’s income consists primarily of interest payments on collateralized mortgage obligations, mortgage-backed securities, agency debentures and agency DUSs. Currently, the Company uses derivative products to manage a portion of its interest rate risk.

Increases in prevailing interest rates through August, 2006 and their relative stabilization since then have increased the Company’s income compared to prior periods, through the floating rate component of the portfolio, which is mainly indexed on short term rates such as one-month and three-month Libor. Increasing interest rates make the pre-payment of the loans underlying the mortgage-backed securities in the Portfolio less likely, making it more likely that such securities will be held to maturity without redemption. This situation should stabilize the structure of the portfolio to its natural pre-payment trend; however, sporadic large pre-payments can still occur at current mortgage rate levels and no assurances can be given that interest rates will not decrease in the future.

The Company regularly reviews its hedging requirements. In the future, the Company may enter into additional swaps and unwind all or any portion of the swaps described below and any future swaps. This strategy is implemented in order to rebalance the fixed and floating mix of interest obligations (including those arising as a result of previous interest rate swaps entered into) and the fixed and floating mix of interest payments.

The Company’s interest rate management strategy will continue to be rebalanced with any purchases of new investments. There can be no assurance, however, that the Company’s interest rate risk management strategies will be effective in this regard.

The Company is a party to sixteen interest rate swaps and six cross currency swaps with BNP PARIBAS, as set out in the table below. In all but one of these swaps, the Company pays a fixed coupon and receives floating rate payments on the notional balances. The notional amount of each swap is tied to the outstanding principal of the securities they hedge. The maturity dates of the swaps reflect the maturity of these securities. However, the maturity dates maybe earlier due to prepayments on some of these securities.

Trade Date

Maturity Date

Fixed Rate

Receive Rate

Fair Value at December 31, 2006 (in 000’s)

Notional Balance

(in 000’s)

February 11, 1999

March 14, 2007

U.S. 6.80

U.S. Three Month LIBOR Minus Two Basis Points

(992)

50,000

February 12, 1999

March 5, 2007

U.S. 6.68

U.S. Three Month LIBOR Minus Two Basis Points

(1,021)

50,000

February 25, 1999

February 25, 2009

U.S. 5.95

U.S. One Month LIBOR Plus Three Basis Points

(199)

14,483

June 25, 1999

June 25, 2009

U.S. 6.06

U.S. One Month LIBOR Plus Three and Half Basis Points

(309)

15,654

July 1, 1999

June 25, 2009

U.S. 6.39

U.S. One Month LIBOR Plus Three and Half Basis Points

(432)

14,756

September 27, 1999

March 25, 2009

U.S. 5.858

U.S. One Month LIBOR Plus Four Basis Points

(214)

15,271

June 26, 2000

October 1, 2008

U.S. 6.26

U.S. One Month LIBOR

(34)

4,232

October 2, 2000

June 1, 2007

U.S. 7.024

U.S. One Month LIBOR Minus Two Basis Points

(10)

1,203

October 2, 2000

July 1, 2007

U.S. 7.405

U.S. One Month LIBOR Minus Two Basis Points

(87)

7,249

Trade Date

Maturity Date

Fixed Rate

Receive Rate

Fair Value at December 31, 2006 (in 000’s)

Notional Balance

(in 000’s)

March 25, 2001

October 25, 2007

U.S. 6.94

U.S. One Month LIBOR Plus Two Basis Points

(9)

968

May 3, 2002

August 25, 2007

U.S. 6.74

U.S. One Month LIBOR Plus One Basis Point

(89)

10,000

August 25, 2002

August 25, 2007

U.S. 4.90

U.S. One Month LIBOR Plus Five Basis Points

26,500

September 25, 2002

June 25, 2007

U.S. 7.007

U.S. One Month LIBOR Plus Seven Basis Points

(16)

2,081

March 21, 2003

February 25, 2009

U.S. 5.945

U.S. One Month LIBOR Plus Nine Basis Points

(194)

13,105

August 1, 2003

October 25, 2007

U.S. 6.812

U.S. One Month LIBOR Plus Ten Basis Points

(42)

4,090

April 1, 2004

August 25, 2007

U.S. 6.74

U.S. One Month LIBOR Plus Five Basis Points

(180)

20,915

Total Swaps- Fair Value Hedges

(3,744)

250,507

November 25, 1998

March 26, 2008

JPY 1.75

U.S. Three Month LIBOR Plus Six Basis Points

(610)

42,000

November 25, 1998

October 9, 2007

JPY 2.125

U.S. Three Month LIBOR Plus Six Basis Points

(729)

58,000

March 29, 1999

October 9, 2007

JPY 2.125

U.S. Three Month LIBOR Minus Two and Half Basis Points

497

30,000

April 6, 1999

October 9, 2007

JPY 2.125

U.S. Three Month LIBOR Minus One Basis Point

(327)

26,400

November 2, 2000

October 9, 2007

JPY 2.125

U.S. Three Month LIBOR Minus Two Basis Points

1,358

15,000

January 17, 2001

March 26, 2008

JPY 1.750

U.S. 5.80

716

18,000

Other Swap

905

189,400

Total Swap Portfolio (Other liabilities)

(2,839)

439,907

The fair value of the swap portfolio was $(2,839,278) and $(17,468,967) at December 31, 2006 and December 31, 2005, respectively. The change in fair value was primarily due to changes in prevailing market interest rates.

A significant feature to consider when investing in mortgage-backed securities is their sensitivity to the prepayment of mortgage loans, creating a contraction risk when interest rates decline and an extension risk when interest rates increase. The Company estimates prepayment rate using either the CPR (Conditional Prepayment Rate) or the PSA (Public Securities Association) prepayment model. Because of this risk, the securities are valued based on their weighted average life and the prepayments rather than on their stated maturity date. The Company periodically evaluates conditions relating to this prepayment risk analyzes the impact such conditions might have on the structure of the portfolio and the whether the Company’s re-investment policy should be adjusted accordingly.

The breakdown of the Company’s securities by category and weighted average life distribution (stated in terms of amortized cost) is summarized below based on management’s prepayment assumptions (see Note 4 to the Financial Statements for yield information) (actual maturities may differ from contractual maturities shown below due to prepayments) (in thousands):

December 31, 2006

Non-Collateral	Due In 2007		Due after 2007		Due after 2008		Due after 2009		Due after 2010		Due after 2011		Total

Fixed-Rate Instruments:
Fixed-Rate REMICs	$	30,915	$	—	$	—	$	—	$	—	$	—	$	30,915
Agency DUS		42,092		27,605		49,895		—		—		—		119,592
Agency Debentures		372,582		131,942		—		—		—		—		504,524
Total Fixed-Rate Instruments		445,589		159,547		49,895		—		—		—		655,031

Floating-Rate Instruments:
Floating-Rate REMICs		—		—		—		310		—		—		310
Agency ARMs		200		354		—		1,017		—		91		1,662
Agency Hybrid ARMs		—		303		1,510		—		152		1,705		3,670
Total Floating-Rate Instruments		200		657		1,510		1,327		152		1,796		5,642

Total Non-Collateral	$	445,789	$	160,204	$	51,405	$	1,327	$	152	$	1,796	$	660,673

Collateral
Fixed-Rate Instruments:
Fixed-Rate REMICs	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Agency DUS		—		—		—		—		—		—		—
Agency Debentures		—		—		—		—		—		—		—
Total Fixed-Rate Instruments		—		—		—		—		—		—		—

Floating-Rate Instruments:
Floating-Rate REMICs		20		1,171		818		—		—		—		2,009
Agency ARMs		30		326		130		830		73		1,563		2,952
Agency Hybrid ARMs		385		678		—		1,512		1,175		416		4,166
Total Floating-Rate Instruments		435		2,175		948		2,342		1,248		1,979		9,127

Total Collateral	$	435	$	2,175	$	948	$	2,342	$	1,248	$	1,979	$	9,127
December 31, 2006 Total Portfolio	$	446,224	$	162,379	$	52,353	$	3,669	$	1,400	$	3,775	$	699,800

December 31, 2005

Non-Collateral	Due In 2006		Due after 2006		Due after 2007		Due after 2008		Due After 2009		Due After 2010		Total

Fixed-Rate Instruments:
Fixed-Rate REMICs	$	—	$	30,915	$	—	$	—	$	—	$	—	$	30,915
Agency DUS		10,572		91,665		56,536		71,894		—		—		230,667
Agency Debentures		—		373,285		131,807		—		—		—		505,092
Total Fixed-Rate Instruments		10,572		495,865		188,343		71,894		—		—		766,674

Floating-Rate Instruments:
Floating-Rate REMICs		—		—		—		390		—		—		390
Agency ARMs		—		—		—		1,332		—		1,438		2,770
Agency Hybrid ARMs		105		—		206		2,192		310		2,141		4,954
Total Floating-Rate Instruments		105		—		206		3,914		310		3,579		8,114

Total Non-Collateral	$	10,677	$	495,865	$	188,549	$	75,808	$	310	$	3,579	$	774,788

Collateral
Fixed-Rate Instruments:
Fixed-Rate REMICs	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Agency DUS		—		—		—		—		—		—		—
Agency Debentures		—		—		—		—		—		—		—
Total Fixed-Rate Instruments		—		—		—		—		—		—		—

Floating-Rate Instruments:
Floating-Rate REMICs		115		1,070		545		1,029		—		—		2,759
Agency ARMs		41		291		176		982		84		2,867		4,441
Agency Hybrid ARMs		—		2,982		2,693		—		—		815		6,490
Total Floating-Rate Instruments		156		4,343		3,414		2,011		84		3,682		13,690

Total Collateral	$	156	$	4,343	$	3,414	$	2,011	$	84	$	3,682	$	13,690
December 31, 2005 Total Portfolio	$	10,833	$	500,208	$	191,963	$	77,820	$	394	$	7,261	$	788,478

Part II

Item 8: Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Securityholders

of BNP U.S. Funding L.L.C.:

We have audited the accompanying balance sheet of BNP U.S. Funding L.L.C. (the “Company”) as of December 31, 2006, and the related statements of income, comprehensive income, changes in redeemable common securities, preferred securities, and securityholders’ equity, and cash flows for the year ended December 31, 2006. Our audit also included financial statement schedules 11, 12(a) and 12(b) (“the financial statement schedules”) included in Item 15. These financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimate s made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2006, and the results of its operations and cash flows for the year ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.

March 30, 2007

/s/ Deloitte & Touche LLP

New York, New York

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Securityholders

of BNP U.S. Funding L.L.C.:

In our opinion, the balance sheet as of December 31, 2005 and the related consolidated statements of income and comprehensive income, of retained earnings and of cash flows

for each of two years in the period ended December 31, 2005 present fairly, in all material respects, the financial position of BNP U.S. Funding L.L.C. at December 31, 2005, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amoun ts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

New York, NY

March 30, 2006

FINANCIAL STATEMENTS

BNP U.S. FUNDING L.L.C.

BALANCE SHEETS
(in thousands, except per share data)

	December 31, 2006			December 31, 2005

ASSETS

Cash and cash equivalents	$	26,821		$	19,485

Certificates of deposit		325,000			220,000

Investment securities (Note 4)
Available-for-sale, at fair value		666,209			798,454

Receivable arising from payment for securities, pursuant
to the application of SFAS 125, as replaced by
SFAS 140 (Note 3), at amortized cost		9,127			13,690

Accounts receivable		11			16

Accrued interest receivable		17,224			11,431

TOTAL ASSETS	$	1,044,392		$	1,063,076

LIABILITIES

Accrued interest payable	$	2,247		$	2,385
Accrued expenses		126			543
Other liabilities		2,839			17,469

TOTAL LIABILITIES		5,212			20,397

Redeemable common securities, par value and redeemable
value $10,000 per security; 150,000 securities authorized,
53,011 securities issued and outstanding (Note 5)		530,110			530,110

Preferred securities, liquidation preference $10,000 per
security; 150,000 securities authorized, 50,000 securities
issued and outstanding		500,000			500,000

Additional paid-in capital		803			803
Accumulated other comprehensive loss		(11,457	)		(2,045	)
Retained earnings		19,724			13,811

TOTAL REDEEMABLE COMMON SECURITIES,
PREFERRED SECURITIES AND
SECURITYHOLDERS’ EQUITY		1,039,180			1,042,679

TOTAL LIABILITIES AND TOTAL REDEEMABLE
COMMON SECURITIES, PREFERRED
SECURITIES AND SECURITYHOLDERS’ EQUITY	$	1,044,392		$	1,063,076

The accompanying Notes to the Financial Statements are an integral part of these statements.

BNP U.S. FUNDING L.L.C.

STATEMENTS OF INCOME
(in thousands, except per share data)

	For the Years Ended December 31,
	2006			2005			2004
INTEREST INCOME

Collateralized Mortgage Obligations:
Floating-Rate REMICs	$	137		$	140		$	130
Fixed-Rate REMICs		1,594			1,033			492
Mortgage Backed Securities:
Agency ARMs		278			323			374
Agency Hybrid ARMs		507			572			761
Agency DUSs		7,802			8,528			6,160
Agency Debentures		27,520			22,767			17,658
Interest on deposits		14,308			6,591			516

Total		52,146			39,954			26,091

NONINTEREST INCOME

Gain on swaps		5,914			8,905			-

NONINTEREST (EXPENSE)

Loss on swaps		-			-			(1,399	)
Fees and expenses		(457	)		(1,365	)		(1,327	)
		(457	)		(1,365	)		(2,726	)

NET INCOME APPLICABLE TO PREFERRED AND
REDEEMABLE COMMON SECURITIES	$	57,603		$	47,494		$	23,365

NET INCOME (LOSS) APPLICABLE TO REDEEMABLE
COMMON SECURITIES	$	18,913		$	8,804		$	(15,325	)

NET INCOME (LOSS) PER REDEEMABLE
COMMON SECURITIES	$	356.78		$	166.08		$	(289.09	)

The accompanying Notes to the Financial Statements are an integral part of these statements.

	For the Years Ended December 31,
	2006			2005			2004

NET INCOME	$	57,603		$	47,494		$	23,365

OTHER COMPREHENSIVE (LOSS)

Net change in unrealized (loss) in fair value
of available-for-sale securities that are not treated
as collateral (Note 3) and that are not hedged by
derivative instruments		(9,412	)		(18,875	)		(6,139	)

TOTAL OTHER COMPREHENSIVE (LOSS)		(9,412	)		(18,875	)		(6,139	)

COMPREHENSIVE INCOME	$	48,191		$	28,619		$	17,226

The accompanying Notes to the Financial Statements are an integral part of these statements.

BNP U.S. FUNDING L.L.C.

STATEMENT OF CHANGES IN REDEEMABLE COMMON SECURITIES,
PREFERRED SECURITIES AND SECURITYHOLDERS' EQUITY
(in thousands)

For the Years Ended December 31, 2006, 2005 and 2004

	Redeemable Common Securities		Preferred Securities		Additional Paid-in Capital			Accumulated Other Comprehensive Income			Retained Earnings			Total Redeemable Common Securities, Preferred Securities and Securityholders' Equity

Balance at December 31, 2003	$	530,110	$	500,000	$	229		$	22,969		$	2,206		$	1,055,514

Net income												23,365			23,365
Other comprehensive loss									(6,139	)					(6,139	)
Additional paid-in capital						15,300									15,300
Dividends paid - preferred securities						(14,878	)					(23,812	)		(38,690	)

Balance at December 31, 2004	$	530,110	$	500,000	$	651		$	16,830		$	1,759		$	1,049,350

Net income												47,494			47,494
Other comprehensive loss									(18,875	)					(18,875	)
Additional paid-in capital						3,400									3,400
Dividends paid - preferred securities						(3,248	)					(35,442	)		(38,690	)

Balance at December 31, 2005	$	530,110	$	500,000	$	803		$	(2,045	)	$	13,811		$	1,042,679

Net income												57,603			57,603
Other comprehensive loss									(9,412	)					(9,412	)
Return of Capital to Common Shareholder												(13,000	)		(13,000	)
Dividends paid - preferred securities												(38,690	)		(38,690	)

Balance at December 31, 2006	$	530,110	$	500,000	$	803		$	(11,457	)	$	19,724		$	1,039,180

The accompanying Notes to the Financial Statements are an integral part of these statements.

	For the Years Ended December 31,
	2006			2005			2004
OPERATING ACTIVITIES

Net income	$	57,603		$	47,494		$	23,365
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of premium		711			736			811
(Gain) loss on swaps		(5,914	)		(8,905	)		1,399
(Gain) loss on hedge activity		-			(407	)		(462	)
Changes in assets and liabilities:
Interest receivable		(5,793	)		(2,900	)		(232	)
Accounts receivable		5			11			27
Accrued expenses		(417	)		205			94
Accrued interest payable		(138	)		(364	)		30
Net cash provided by operating activities		46,057			35,870			25,032

INVESTING ACTIVITIES

Purchase of investment securities:
Fixed-Rate REMICs		-			-			(20,915	)
Certificates of Deposit		(105,000	)		(220,000	)		-
Proceeds from principal payments of securities,
not treated as collateral		113,509			119,655			96,672
Proceeds from principal payments of securities,
treated as collateral		4,460			7,043			9,627
Net cash provided by (used in) investing activities		12,969			(93,302	)		85,384

FINANCING ACTIVITIES

(Return of Capital)/Additional paid-in capital		(13,000	)		3,400			15,300
Dividends - preferred securities		(38,690	)		(38,690	)		(38,690	)
Net cash used in financing activities		(51,690	)		(35,290	)		(23,390	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		7,336			(92,722	)		87,026

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		19,485			112,207			25,181

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	26,821		$	19,485		$	112,207

NONCASH FINANCING AND INVESTING ACTIVITIES

Decrease in receivable arising from payment for securities, pursuant to the application of SFAS 125, as replaced by SFAS 140 (Note 3)	$	4,460		$	7,179		$	9,794

SUPPLEMENTAL CASH FLOW INFORMATION

Swap interest paid	$	2,181		$	9,301		$	22,393

The accompanying Notes to the Financial Statements are an integral part of these statements.

NOTE 1—ORGANIZATION AND BASIS OF PRESENTATION

The Company was initially capitalized on October 14, 1997, with the issuance to the Branch of one share of the Company’s redeemable common securities, $10,000 par value (the “Common Securities”). On December 5, 1997 (inception), the Company commenced operations concurrent with the issuance of 50,000 noncumulative preferred securities, Series A, liquidation preference $10,000 per security (the “Series A Preferred Securities”), to qualified institutional buyers, and the issuance of an additional 53,010 Common Securities to the Branch. These issuances raised in the aggregate $1,030,115,873 of net capital (including $5,873 of additional paid-in capital). This entire amount was used to acquire a portfolio of debt securities (the “Initial Portfolio”) at their fair values from the Branch. The Branch contributed additional paid-in capital of $3,000,000, $5,500,000, $7,500,000, $8,500,000, $6,800,000 and $3,400,000 on December 3, 2002, June 3, 2003, December 3, 2003, June 3, 2004, December 2, 2004 and June 2, 2005, respectively. On June 20, 2006 and December 19, 2006 the Company repaid $6,000,000 and $7,000,000 of these contributions, respectively.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Investment Securities

Investments in debt securities are classified as available-for-sale (recorded on trade-date basis) and are carried at fair value. The debt securities are can be categorized as hedged or non-hedged securities. Fair values of non hedged debt securities are estimated based on quoted market price for these securities. For the hedged securities, changes in the fair market value of both the securities and the derivatives used as hedging instruments (cross currency and interest rate swaps) are reported in current earnings in the Statements of Income, pursuant to application of SFAS 133, (see below, “Accounting for Derivatives and Hedging Activities”). Unrealized gains and losses on the non-hedged securities are reported as a component of “Other Comprehensive Income”. The hedged securities are generally valued using discounted cash flows in a yield-curve model based on LIBOR.

Interest on securities is included in interest income and is recognized using the interest method. Premiums and discounts are amortized in a manner that approximates the constant yield method.

Accounting for Derivatives and Hedging Activities

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less at acquisition date to be cash equivalents.

Certificates of Deposits

The Company has seven certificates of deposits at cost that mature in eleven months or less.

Dividends

Dividends on the Series A Preferred Securities, when, as and if declared by the Company’s Board of Directors, are payable semi-annually in arrears on a non-cumulative basis on the fifth day of June and December of each year, commencing June 5, 1998, at a rate per annum of 7.738% of the liquidation preference through and including December 5, 2007. Thereafter, dividends, when, as and if declared by the Company’s Board of Directors, will be payable quarterly in arrears on the third Wednesday of March, June, September, and December of each year and will be calculated on a weekly basis in each quarter at a rate per annum of the liquidation preference equal to 2.8% per annum above one-week LIBOR for the week concerned as determined on the related LIBOR Determination Date. Holders of Common Securities are entitled to receive dividends when, as and if declared by the Company’s Board of Directors out of the Company’s net income not required to be applied to fund dividends with respect to the Series A Preferred Securities. Dividends to the Preferred Securityholders may be paid out of (i) net income, determined without regard to capital gains or losses, or (ii) amounts contributed by the Bank or the Branch to the Company’s capital. As of December 31, 2006, the Branch has contributed a total of $21,700,000 of additional paid-in capital, which was used to facilitate the semi-annual payments of dividends to the holders of the Series A Preferred Securities.

To date, the Company has declared and paid dividends as follows:

Security	Amount		Date Paid
Series A Preferred Securities	$	19,345,000		June 5, 1998
Common Securities	$	5,347,365		June 22, 1998
Series A Preferred Securities	$	19,345,000		December 5, 1998
Common Securities	$	8,787,127		December 15, 1998
Series A Preferred Securities	$	19,345,000		June 5, 1999
Common Securities	$	8,454,284		June 15, 1999
Series A Preferred Securities	$	19,345,000		December 5, 1999
Common Securities	$	10,352,672		December 15, 1999
Series A Preferred Securities	$	19,345,000		June 5, 2000
Common Securities	$	12,508,486		June 19, 2000
Series A Preferred Securities	$	19,345,000		December 5, 2000
Common Securities	$	14,792,297		December 19, 2000
Series A Preferred Securities	$	19,345,000		June 5, 2001
Common Securities	$	10,718,708		June 19, 2001
Series A Preferred Securities	$	19,345,000		December 5, 2001
Series A Preferred Securities	$	19,345,000		June 5, 2002
Series A Preferred Securities	$	19,345,000		December 5, 2002
Series A Preferred Securities	$	19,345,000		June 5, 2003
Series A Preferred Securities	$	19,345,000		December 5, 2003
Series A Preferred Securities	$	19,345,000		June 5, 2004
Series A Preferred Securities	$	19,345,000		December 5, 2004
Series A Preferred Securities	$	19,345,000		June 5, 2005
Series A Preferred Securities	$	19,345,000		December 5, 2005
Series A Preferred Securities	$	19,345,000		June 5, 2006
Series A Preferred Securities	$	19,345,000		December 5, 2006

If the Bank’s financial condition were to deteriorate with the consequence that a Shift Event (as defined below) were to occur, substantially all of the Common Securities would be redeemed automatically without prior redemption of the Series A Preferred Securities and dividends payable on each Series A Preferred Security could be substantially reduced or completely eliminated. In addition, if the Bank’s Tier 1 risk-based capital ratio were to decline below the minimum percentage required by French banking regulations (currently 4%), the Company would pay a special dividend consisting of all of the Company’s net assets (other than assets having a total market value of approximately $40,000,000) to the Branch as holder of the Common Securities.

A “Shift Event” would be deemed to have occurred if (i) the Bank’s total risk-based capital ratio or Tier 1 risk-based capital ratio were to decline below the minimum percentages required by French banking regulations, (ii) the Bank were to become subject to certain specified receivership proceedings or (iii) the French Banking Commission (Commission Bancaire), in its sole discretion, were to notify the Bank and the Company that it has determined that the Bank’s financial condition was deteriorating such that either of the foregoing clauses (i) or (ii) would apply in the near term. French banking regulations currently require French banks to maintain a minimum total risk-based capital ratio of at least 8.0% and a minimum Tier 1 risk-based capital ratio of at least 4.0%.

The Company may not pay dividends or make other distributions on the Common Securities or the Series A Preferred Securities if, after giving effect to the distributions, the Company’s liabilities would exceed the fair value of its assets. Additionally, as long as any Series A Preferred Securities are outstanding, except during a Shift Period (i.e., following the occurrence of a Shift Event causing a shift in dividend preference and before the termination thereof), the amount of dividends on the Common Securities in any fiscal year may not exceed the amount by which the net income of the Company for such fiscal year exceeds the stated dividends on the Series A Preferred Securities scheduled to be paid during such fiscal year irrespective of whether dividends on the Series A Preferred Securities are in fact declared and paid. Additionally, other than during a Shift Period, no dividends may be declared, paid or set apart for payment on the Common Securities (a) with respect to any period of time included in any Dividend Period unless full dividends have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof is set apart for such payment on the Series A Preferred Securities for the then-current Dividend Period and (b) the Company may not declare, pay or set apart funds for any dividends or other distributions with respect to any Common Securities unless and until (x) full dividends on the Series A Preferred Securities for the two most recent preceding Dividend Periods are declared and paid, or declared and a sum sufficient for payment has been paid over to the dividend disbursing agent for payment of such dividends and (y) the Company has declared a cash dividend on the Series A Preferred Securities at the annual dividend rate for the then-current Dividend Period, and sufficient funds have been paid over to the dividend disbursing agent for payment of such cash dividends for such then-current Dividend Period.

Comprehensive Income

Statement of Financial Accounting Standards No. 130, (“SFAS 130”), “Reporting Comprehensive Income,” established standards for reporting and display of comprehensive income and its components. Components of comprehensive income include net income. Other comprehensive income consists of unrealized gains and losses on marketable securities available for sale.

Net Income per Redeemable Common Security

Net income per redeemable common security is calculated by dividing net income after preferred dividends by the weighted average number of Common Securities outstanding.

Income Taxes

The Company expects to be treated as a partnership for U.S. federal income tax purposes. As a partnership is not a taxable entity, the Company will not be subject to U.S. federal, state and local income tax on its income. Instead, each securityholder is required to take into account its allocable share of items of income, gain, loss and deduction of the partnership in computing its U.S. federal tax liability. Accordingly, the Company has made no provision for income taxes in the accompanying statements of income.

Foreign Currency Translation

Assets denominated in foreign currencies are translated to U.S. dollars using applicable rates of exchange.

All of the Company’s assets denominated in a foreign currency are included in its available-for-sale securities portfolio, and their foreign currency exchange risk is hedged by means of cross currency swaps. In accordance with the requirements of SFAS 133, the change in fair value, due to the change in the foreign currency exchange rate, of both the hedged securities and the hedging instruments is recorded in current period earnings.

Revenues and expenses are translated monthly at amounts which approximate weighted average exchange rates.

Valuations of Financial Instruments

All of the Company’s outstanding hedging transactions are fair value hedges. For years ended December 31, 2006 and 2005, the Company recognized gains of $0 and $407,622, respectively, in earnings related to the ineffective portion of fair value hedges. The fair value of these hedging instruments was $(3,744,241) and $(14,283,663) at December 31, 2006 and December 31, 2005, respectively, and has been recorded in “Other liabilities”. It has been offset, except for the ineffective portion of the hedge, by the revaluation of the respective hedged investment securities. The fair value of the hedging instruments does not include accrued interest receivable and payable, which are shown separately on the balance sheet.

New Accounting Pronouncements

In February 2006, the FASB issued Statement of Financial Accounting Standard No. 155 “Accounting for Certain Hybrid Instruments, and amendment of FASB Statement No. 133 and 140” (“SFAS 155”). SFAS 155 contains a variety of provisions which address fair value of hybrid financial instruments containing an embedded derivative, clarifies which interest only and principal only strips are not subject to SFAS 133, establishes requirements to evaluate securitized financial assets to identify embedded derivatives and addresses certain aspects of SFAS 140 regarding qualifying special purpose entities and their holding of certain derivative financial instruments. SFAS 155 is effective for fiscal years beginning after September 15, 2006. Adoption of SFAS 155 is not expected to have a material impact on the Company’s financial condition or results of operations.

NOTE 3—RECEIVABLE ARISING FROM PAYMENT FOR SECURITIES

Statement of Financial Accounting Standards No. 140 (“SFAS 140”), “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” addresses the accounting for the transfer of financial assets. Under SFAS 140, transfers of financial assets that do not meet certain sale accounting requirements must be accounted for as a secured borrowing transaction with a pledge of collateral. Due to the potential consequences of a Shift Event (as described above), the Company’s purchase of the Initial Portfolio from the Branch did not meet certain SFAS 125, as replaced by SFAS 140, sale accounting requirements. Therefore, the purchase of the Initial Portfolio has been accounted for as a secured borrowing transaction with a pledge of collateral. In accounting for this transaction as a secured borrowing transaction in accordance with SFAS 125, as replaced by SFAS 140, the Company has recorded a receivable in an amount equal to the remaining amount paid to the Branch to acquire the Initial Portfolio. In this case, however, having delivered the securities in the Initial Portfolio to the Company, neither the Branch nor BNPP has any further obligation to the Company to repay any part of the purchase price for the Initial Portfolio or otherwise to repurchase or redeem any securities in the Initial Portfolio.

The Company has not sold or repledged the collateral; the securities within the Initial Portfolio mature or prepay over time. As they do, the Company recognizes the cash proceeds as a reduction in the receivable arising from payment for securities. The collateral at December 31, 2006 and December 31, 2005 is reported in Note 4 below.

NOTE 4—INVESTMENT SECURITIES

The amortized cost and estimated fair value of the securities were as follows based on management’s prepayment assumptions (in thousands):

December 31, 2006

Non-Collateral	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Collateralized Mortgage Obligations:
Floating-Rate REMICs	$	310	$	3	$	—	$	313
Fixed-Rate REMICs		30,915		268		—		31,183
Mortgage Backed Securities:
Agency ARMs		1,662		—		24		1,638
Agency Hybrid ARMs		3,670		16		16		3,670
Agency DUSs		119,592		1,547		84		121,055
Agency Debentures		504,524		4,238		412		508,350
Total Non-Collateral	$	660,673	$	6,072	$	536	$	666,209

Collateral
Collateralized Mortgage Obligations:

Floating-Rate REMICs	$	2,009	$	—	$	28	$	1,981
Fixed-Rate REMICs		—		—		—		—
Mortgage Backed Securities:
Agency ARMs		2,952		1		15		2,938
Agency Hybrid ARMs		4,166		5		72		4,099
Agency DUSs		—		—		—		—
Agency Debentures		—		—		—		—
Total Collateral	$	9,127	$	6	$	115	$	9,018

December 31, 2006 Total Portfolio	$	669,800	$	6,078	$	651	$	675,227

December 31, 2005

Non-Collateral	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Collateralized Mortgage Obligations:
Floating-Rate REMICs	$	390	$	—	$	—	$	390
Fixed-Rate REMICs		30,915		942		—		31,857
Mortgage Backed Securities:
Agency ARMs		2,770		9		46		2,733
Agency Hybrid ARMs		4,954		47		2		4,999
Agency DUSs		230,667		7,508		—		238,175
Agency Debentures		505,092		15,754		546		520,300
Total Non-Collateral	$	774,788	$	24,260	$	594	$	798,454

Collateral
Collateralized Mortgage Obligations:
Floating-Rate REMICs	$	2,759	$	—	$	32	$	2,727
Fixed-Rate REMICs		—		—		—		—
Mortgage Backed Securities:
Agency ARMs		4,441		15		6		4,450
Agency Hybrid ARMs		6,490		16		59		6,447
Agency DUSs		—		—		—		—
Agency Debentures		—		—		—		—
Total Collateral	$	13,690	$	31	$	97	$	13,624

December 31, 2005 Total Portfolio	$	788,478	$	24,291	$	691	$	812,078

The following summarizes the gross unrealized losses and fair value of investment securities with unrealized losses as of December 31, 2006, aggregated by investment category and the length of time that the securities were in a continuous unrealized loss position:

	Less than 12 Months Consecutive Unrealized Losses				12 Months or More Consecutive Unrealized Losses
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Total Fair Value		Total Unrealized Losses
Non-Collateral
Collateralized Mortgage Obligations:
Floating-Rate REMICs	$	—	$	—	$	—	$	—	$	—	$	—
Fixed-Rate REMICs		—		—		—		—		—		—
Mortgage Backed Securities:
Agency ARMs		200		1		1,438		23		1,638		24
Agency Hybrid ARMs		151		2		1,773		14		1,924		16
Agency DUSs		—		—		26,416		84		26,416		84
Agency Debentures		68,583		63		29,656		349		98,239		412
Total Non-Collateral	$	68,934	$	66	$	59,283	$	470	$	128,217	$	536

Collateral
Collateralized Mortgage Obligations:
Floating-Rate REMICs	$	—	$	—	$	1,981	$	28	$	1,981	$	28
Fixed-Rate REMICs		—		—		—		—		—		—
Mortgage Backed Securities:
Agency ARMs		942		10		756		6		1,698		16
Agency Hybrid ARMs		609		7		3,100		65		3,709		72
Agency DUSs		—		—		—		—		—		—
Agency Debentures		—		—		—		—		—		—
Total Non-Collateral	$	1,551	$	17	$	5,837	$	99	$	7,388	$	116

Total	$	70,485	$	83	$	65,120	$	569	$	135,605	$	652

At December 31, 2006 the Company had 21 investment security positions that possessed 12 months or more of consecutive unrealized losses. Management does not believe that any of the unrealized losses as shown in the above table qualified as other-than temporary impairments at December 31, 2006. In making this determination, management considered the severity and duration of the loss, as well as management’s intent and ability to hold the security until recovery of loss. Management also has no current intention to dispose of these investments.

The breakdown of the Company’s securities by category and weighted average life distribution (stated in terms of amortized cost) is summarized below based on management’s prepayment assumptions (Actual maturities may differ from maturities shown below due to prepayments) (in thousands):

December 31, 2006

Non-Collateral	Due in 1 year or less		Due after 1 through 5 years		Due after 5 through 10 years		Due after 10 years		Total
Collateralized Mortgage Obligations:
Floating-Rate REMICs	$	—	$	310	$	—	$	—	$	310
Fixed-Rate REMICs		30,915		—		—		—		30,915
Mortgage Backed Securities:
Agency ARMs		200		1,371		91		—		1,662
Agency Hybrid ARMs		—		1,966		1,151		553		3,670
Agency DUSs		42,092		77,500		—		—		119,592
Agency Debentures		372,582		131,942		—		—		504,524
Total Non-Collateral	$	445,789	$	213,089	$	1,242	$	553	$	660,673
Collateral
Collateralized Mortgage Obligations:
Floating-Rate REMICs	$	20	$	1,989	$	—	$	—	$	2,009
Fixed-Rate REMICs		—		—		—		—		—
Mortgage Backed Securities:
Agency ARMs		30		1,359		—		1,563		2,952
Agency Hybrid ARMs		385		3,365		416		—		4,166
Agency DUSs		—		—		—		—		—
Agency Debentures		—		—		—		—		—
Total Collateral	$	435	$	6,713	$	416	$	1,563	$	9,127

December 31, 2006 Total Portfolio	$	446,224	$	219,802	$	1,658	$	2,116	$	669,800

December 31, 2005

Non-Collateral	Due in 1 year or less		Due after 1 through 5 years		Due after 5 through 10 years		Due after 10 years		Total
Collateralized Mortgage Obligations:
Floating-Rate REMICs	$	—	$	390	$	—	$	—	$	390
Fixed-Rate REMICs		—		30,915		—		—		30,915
Mortgage Backed Securities:
Agency ARMs		—		1,332		339		1,099		2,770
Agency Hybrid ARMs		105		2,708		940		1,201		4,954
Agency DUSs		10,572		220,095		—		—		230,667
Agency Debentures		—		505,092		—		—		505,092
Total Non-Collateral	$	10,677	$	760,532	$	1,279	$	2,300	$	774,788
Collateral
Collateralized Mortgage Obligations:
Floating-Rate REMICs	$	115	$	2,644	$	—	$	—	$	2,759
Fixed-Rate REMICs		—		—		—		—		—
Mortgage Backed Securities:
Agency ARMs		41		1,533		490		2,377		4,441
Agency Hybrid ARMs		—		5,676		—		814		6,490
Agency DUSs		—		—		—		—		—
Agency Debentures		—		—		—		—		—
Total Collateral	$	156	$	9,853	$	490	$	3,191	$	13,690
December 31, 2005 Total Portfolio	$	10,833	$	770,385	$	1,769	$	5,491	$	788,478

The breakdown of the Company’s securities by category and yield, before the result of hedges, is summarized below:

December 31, 2006	Due in 1 year or less			Due after 1 through 5 years			Due after 5 through 10 years			Due after 10 years			Total			Yield after Hedging
Collateralized Mortgage Obligations:
Floating-Rate REMICs		4.63	%		5.18	%		—	%		—	%		5.17	%		5.17	%
Fixed-Rate REMICs		6.74			—			—			—			6.74			5.16
Mortgage Backed Securities:
Agency ARMs		4.16			4.67			4.89			5.31			4.82			4.82
Agency Hybrid ARMs		5.40			5.29			5.12			6.13			5.32			5.32
Agency DUSs		5.97			6.07			—			—			6.02			4.99
Agency Debentures		3.91			6.14			—			—			6.02			5.42
Total		6.04	%		6.03	%		5.11	%		5.51	%		6.03	%		5.31	%
December 31, 2005
Collateralized Mortgage Obligations:
Floating-Rate REMICs		1.76	%		3.25	%		—	%		—	%		2.89	%		2.89	%
Fixed-Rate REMICs		—			6.70			—			—			6.70			3.34
Mortgage Backed Securities:
Agency ARMs		3.12			3.33			4.36			4.60			4.01			4.01
Agency Hybrid ARMs		4.40			3.63			4.64			5.58			4.01			4.01
Agency DUSs		4.85			6.08			—			—			5.84			2.95
Agency Debentures		—			3.73			—			—			3.73			4.51
Total		4.78	%		5.98	%		4.52	%		4.97	%		5.86	%		3.91	%

NOTE 5—REDEEMABLE COMMON SECURITIES AND PREFERRED SECURITIES

REDEEMABLE COMMON SECURITIES

General

The Company is authorized to issue up to 150,000 Common Securities; as of December 31, 2006 and December 31, 2005, the Company had outstanding 53,011 Common Securities, all of which were held by the Branch. The Bank has agreed with the Company in the Contingent Support Agreement that, so long as any Series A Preferred Securities are outstanding, it will maintain direct or indirect ownership of 100% of the outstanding Common Securities.

Dividends

Holders of Common Securities are entitled to receive dividends when, as and if declared by the Company’s Board of Directors out of the Company’s net income not required to be applied to fund dividends with respect to the Series A Preferred Securities; provided that so long as any Series A Preferred Securities are outstanding, no dividends or other distributions (including redemptions and purchases) may be made with respect to the Common Securities unless full dividends on all Series A Preferred Securities have been paid for the current and the two immediately preceding Dividend Periods (except during a Shift Period if the Bank does not distribute dividends on its common stock). As disclosed in Note 1, the Branch contributed additional paid-in capital of $21,700,000 since formation of the Company. On June 20, 2006 and December 19, 2006 the Company repaid $6,000,000 and $7,000,000 of the additional paid-in capital contributions, respectively.

In the event the dividends to the Series A Preferred Securities cannot be funded out of net income, determined without regard to capital gains or losses, or out of contributions by the Bank or the Branch to the Company’s capital, such dividends would not be accrued as they are noncumulative.

Redemption Requirements

If the Bank’s financial condition were to deteriorate with the consequence that a Shift Event were to occur, substantially all the Common Securities would be redeemed automatically without prior redemption of any Series A Preferred Securities.

Voting Rights

Subject to the rights, if any, of the holders of Series A Preferred Securities (in particular the right to remove and replace any Independent Director and to elect an additional director, in certain circumstances), all voting rights are vested in the Common Securities. The holders of Common Securities are entitled to one vote per security.

Rights upon Liquidation

In the event of the dissolution, liquidation or winding up of the Company, whether voluntary or involuntary, after there shall have been paid or set aside for the holders of all Series A Preferred Securities the full preferential amounts to which such holders are entitled, the holders of Common Securities will be entitled to share equally and ratably in any assets remaining after the payment of all debts and liabilities. Upon a liquidation of the Company during a Shift Period, the Common Securities will have a preference over the Series A Preferred Securities to the extent, if any, that the liabilities of the Bank (including any debt instruments, such as titres participatifs and prêts participatifs) have not been paid in full.

PREFERRED SECURITIES

The Series A Preferred Securities will not be redeemable prior to December 5, 2007. On or after December 5, 2007, the Series A Preferred Securities will be redeemable at the option of the Company, in whole or in part, at a redemption price of $10,000 per security. Prior to December 5, 2007, the Company will also have the right to redeem the Series A Preferred Securities upon the occurrence of a Regulatory Event, which is defined as either a Change of Capital Event or a Tax Event, for a redemption price equal to the higher of $10,000 per security or a Make-Whole Amount per security. A "Change of Capital Event" means a notification to the Bank by the French Banking Commission (Commission Bancaire) of its determination that the Series A Preferred Securities do not constitute Tier 1 capital of BNP PARIBAS on a consolidated basis for purposes of the application of French banking regulations. A "Tax Event" means the receipt by the Company of an opinion of a nationally recognised law firm that there is more than an insubstantial risk that (i) the Company is, or will be subject to more than a de minimis amount of additional taxes, duties or other governmental charges or civil claims or (ii) the payments on the Series A Preferred Securities will not be respected as payments to Series A Preferred Securities for tax purposes, and, as a result, the bank is or will be subject to more than a de minimis amount of additional taxes, duties, governmental charges or civil claims. The "Make-Whole Amount" consists of the present value of the liquidation preference of the Series A Preferred Securities at December 5, 2007 together with the present values of scheduled noncumulative dividend payments from the Regulatory Event Redemption Date to December 5, 2007.

NOTE 6—RELATED PARTY TRANSACTIONS

The Company entered into a Services Agreement with the Branch on December 5, 1997 pursuant to which the Branch manages the securities portfolio of the Company and performs other administrative functions. Expenses incurred under such Agreement were $570,121 and 964,217 for the periods ended December 31, 2006 and 2005, respectively. Under a specific allocation methodology, the costs of personnel servicing the Company are based on actual man-hours devoted to the activities of the Company and remains at arms length.

The counterparty to all cross currency and interest rate swaps is BNP Paribas. The fair value of these swap transactions is disclosed in Note 7.

The Branch also serves as the dividend paying agent, registrar and transfer agent with respect to the Series A Preferred Securities. The fee is $4,000 per annum for these services.

All of the Company’s officers and employees and all but one of the members of the Company’s Board of Directors are officers and employees of the Branch or BNP Paribas or their affiliates.

NOTE 7—FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair values of securities at December 31, 2006 and December 31, 2005 were obtained from independent market sources and are summarized in Note 4. The carrying values of securities, as shown in Note 4, approximate their fair value. The fair value of the receivable arising from payment for securities, pursuant to the application of SFAS 125, as replaced by SFAS 140, was $9,017,295 and $13,624,480 at December 31, 2006 and December 31, 2005, respectively.

The carrying value of cash and cash equivalents, accounts receivable, accrued interest receivable, accrued expenses, and accounts payable approximates fair value due to their short-term maturity of less than nine months.

The fair value of the cross currency and interest rate swaps was $(2,839,278) and $(17,468,967) at December 31, 2006 and December 31, 2005, respectively, and are reflected in “Other liabilities”.

NOTE 8—DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to hedge the interest rate risk and foreign currency risk of fixed-income securities. As a result of interest rate or exchange rate fluctuations, hedged fixed-rate assets will appreciate or depreciate in market value. The effect of this unrealized appreciation or depreciation is expected to substantially offset the Company’s gains or losses on the derivative instruments that are linked to these hedged assets and liabilities. The Company considers its use of derivatives to be a prudent method of managing interest rate and foreign currency rate sensitivity, as it prevents earnings from being exposed to undue risk posed by changes in interest and exchange rates in compliance with the Company’s policies.

Derivative instruments that are used as part of the Company’s interest rate risk management strategy include interest rate and cross currency swap contracts that have indices related to the pricing of specific balance sheet assets and liabilities. As a matter of policy, the Company does not use highly leveraged derivative instruments for interest rate risk management. Interest rate swaps generally involve the exchange of fixed and variable rate interest payments between two parties, based on a common notional principal amount and maturity date.

By using derivative instruments, the Company exposes itself to credit and market risk. If a counterparty fails to fulfill its performance obligations under a derivative contract, the Company’s credit risk will equal the fair value gain in a derivative. Generally, when the fair value of a derivative contract is positive, this indicates that the counterparty owes the Company, thus creating a repayment risk for the Company. When the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, assumes no repayment risk. The Company minimizes the credit (or repayment) risk in derivative instruments by entering into transactions with BNP PARIBAS S.A. Consequently, the Company does not require that collateral be provided by the counterparty.

Market risk is the adverse effect that a change in interest rates, currency, or implied volatility rates might have on the value of a financial instrument. The Company does not expose itself to market risk by using derivatives but rather reduces market risk since it uses derivatives only for fair value hedges that effectively offset fluctuations in the fair value of the hedged items.

The Company formally documents all relationships between derivatives and hedged items, as well as its risk management objectives and strategies for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair value or cash flow hedges to (1) assets and liabilities on the balance sheet, (2) firm commitments or (3) forecasted transactions.

At December 31, 2006 and December 31, 2005, the Company had outstanding interest rate and cross currency swap agreements with notional principal amounts of $439,906,912 and $550,982,287, respectively.

Fair Value Hedges

The Company mainly enters into interest rate swaps and cross currency interest rate swaps to convert fixed rate Agency Debentures, Agency DUSs and Fixed-Rate REMICs into variable rate securities.

The fair value of the hedging instruments was $(3,744,241) and $ (14,283,663) at December 31, 2006 and December 31, 2005, respectively, and has been recorded in “Other liabilities”. It has been offset, except for the ineffective portion of the hedge, by the revaluation of the respective hedged investment securities. The fair value of the hedging instruments does not include accrued interest receivable and payable, which are shown separately on the balance sheet. The Company also recognized a gain of $5,914,430 in current year’s earnings related to cross currency swaps that no longer meet the requirements of FAS 133 for the hedge effectiveness to qualify as a fair value hedging instrument.

Cash Flow Hedges

For the years ended December 31, 2006 and December 31, 2005, the Company did not enter into cash flow hedge transactions and it is not the intention of the Company to use interest rate swaps to convert floating rate financial instruments to fixed rate financial instruments as part of a cash flow hedge strategy.

BNP U.S. FUNDING L.L.C.

FINANCIAL INFORMATION BY QUARTER (UNAUDITED)

(in thousands, except per share data)

2006 for Quarter Ended	03/31/06		06/30/06			09/30/06		12/31/06			Total
INTEREST INCOME:		12,024		12,690			13,613		13,819			52,146
NONINTEREST INCOME (EXPENSE)		796		(4,317	)		5,880		3,098			5,457
NET INCOME APPLICABLE TO PREFERRED AND REDEEMABLE COMMON SECURITIES	$	12,820	$	8,373		$	19,493	$	16,917		$	57,603
NET INCOME (LOSS) PER REDEEMABLE COMMON SECURITY	$	241.84	$	(206.97	)	$	367.71	$	(45.81	)	$	356.78

2005 for Quarter Ended	03/31/05			06/30/05			09/30/05			12/31/05			Total
INTEREST INCOME:		5,781			12,111			10,983			11,079			39,954
NONINTEREST EXPENSE (INCOME)		(49	)		578			(184	)		7,195			7,540
NET INCOME APPLICABLE TO PREFERRED AND REDEEMABLE COMMON SECURITIES	$	5,732		$	12,689		$	10,799		$	18,274		$	47,494
NET INCOME (LOSS) PER REDEEMABLE COMMON SECURITY	$	108.13		$	(125.52	)	$	203.73		$	(20.21	)	$	166.08

Item 9: Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A: Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We have evaluated, with the participation of our President and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of December 31, 2006. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our President and Chief Financial Officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. There have been no significant changes in the Company’s internal control over financial reporting that occurred during the fiscal year that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B: Other Information

None

Part III

Item 10: Directors, Executive Officers of the Registrant and Corporate Governance

The following table sets forth information concerning the directors and executive officers of the Company. The directors serve 3-year terms (5 years in the case of the independent director), subject to earlier resignation or removal. On August 12, 2002, the Board of Directors of the Company elected Diana Mitchell as Assistant Secretary. Donald J. Puglisi, the independent director, was reappointed by the Board of Directors and the Branch, as holder of the Common Securities of the Company, and his current term of office commenced as of December 5, 2002. As of December 5, 2006, Michel Eydoux was reappointed as Chairman and as a Director, and Martine Billeaud, Sady Karet and Thomas Clyne were reappointed as Directors. On December 16, 2005, Martine Billeaud replaced Olivier Meisel as President. On March 21, 2006 Betty Whelchel was appointed by Board of Directors to replace John Powers as Secretary and Olivier Meisel resigned from the Board of Directors.

Name and Age		Position and Offices Held
Michel Eydoux (56)		Chairman and Director
Martine Billeaud (61)		President and Director
Betty Whelchel (50)		Secretary
Donald J. Puglisi (61)		Independent Director
Sady Karet (52)		Treasurer and Director
Thomas Clyne (50)		Chief Financial Officer and Director
Diana E. Mitchell (51)		Assistant Secretary

The following is a summary of the experience of the executive officers and directors of the Company:

Michel Eydoux is currently Head of Treasury for Asset and Liability Management of BNP PARIBAS, and a member of the Executive Committee for Corporate and Investment Banking. Born in 1950, he graduated in 1973 from Ecole des Hautes Etudes Commerciales de Paris. He started his career with Banque Paribas, where he handled several assignments. In 1989, he was appointed Deputy General Manager for Banque Paribas in Spain and in 1991, Head of ALM Treasury for Banque Paribas. He was appointed to his current position in 1999.

Martine Billeaud is Head of the Bank’s medium and long term funding activities related to Asset and Liability Management. She is also Vice-President and Manager of the BNP Paribas US Medium-Term Note Program and the BNP Paribas US Structured Medium-Term Note Program, and a director of BNP Paribas Capital Preferred L.L.C., BNP Paribas Capital Preferred II L.L.C., BNP Paribas Capital Preferred III L.L.C., BNP Paribas Capital Preferred IV L.L.C., BNP Paribas Capital Preferred V L.L.C. and BNP Paribas Capital Preferred VI L.L.C. She was previously responsible for domestic treasury business. Ms. Billeaud was born in Choisy-le-Roi, France.

Betty Whelchel is a Managing Director and General Counsel for BNP Paribas in North America. In her last position, she was the Global General Counsel for Deutsche Asset Management, with offices in U.S., Europe and Asia. Prior to that, Betty was the Deputy General Counsel for Deutsche Bank’s New York branch, an attorney with Shearman Sterling both in New York and Tokyo and Attorney-Advisor with the U. S. Treasury in Washington, D.C.

Donald J. Puglisi, the Independent Director, is the MBNA America Professor of Business Emeritus at the University of Delaware, where he was on the faculty from 1971 until retiring in 2001. In addition, he is the Managing Director of Puglisi and Associates, a company which provides investment management, accounting and other administrative services to a variety of different companies.

Sady Karet is Vice President in charge of Asset and Liability analysis of the Bank's US branches. He was previously posted in Hong Kong where he was in charge of Market Risks for North Asia (excluding Japan). Mr. Karet was born in Paris, France in 1954.

Thomas Clyne is a Managing Director in Finance responsible for U.S. Non-Banking subsidiaries of BNP Paribas in North America. Mr. Clyne has been with BNP Paribas since 1998. He has worked in the investment banking and financial services industry for over thirty years. Prior to joining the Bank, he worked for Credit Lyonnais as Managing Director and Chief Financial Officer of Credit Lyonnais Securities (USA) Inc. Mr. Clyne was born in Brooklyn, New York in 1956.

Diana E. Mitchell is a Director and Assistant General Counsel for BNP Paribas in North America. In her current position, she assists the General Counsel for the corporate and investment banking businesses of BNP Paribas in North America on matters with broad relevance to the U.S. operations of BNP Paribas, focusing, in particular, on regulatory and compliance related issues. Ms. Mitchell joined the corporate banking legal department for Paribas in 1994. Prior to this time, Ms. Mitchell worked as an associate at Brown Raysman & Millstein starting in 1991 and Lord Day & Lord, Barrett Smith starting in 1989.

Audit Committee Financial Expert

The Board of Directors serves as the Audit Committee of the Company. The Board of Directors has sole and direct authority to engage, appoint, evaluate and replace the independent auditor. The Board of Directors has determined that Donald J. Puglisi is an Audit Committee Financial Expert as defined under the Exchange Act and is independent as defined in the listing standard of the New York Stock Exchange.

Code of Ethics

The Company has adopted a Code of Ethics that applies to the President, Chief Financial Officer, controller and other persons performing similar functions. A copy of the Code of Ethics is filed as an exhibit to this Annual Report on Form 10-K.

Item 11: Executive Compensation

The Independent Director Donald J. Puglisi, receives director’s fees of $6,000 per year. All of the other members of the Company’s Board of Directors and Officers are also officers or employees of the Branch or the Bank or their affiliates and do not receive compensation from the Company or additional compensation from the Branch or the Bank or any affiliate for services rendered to the Company.

Item 12: Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

None.

Item 13: Certain Relationships and Related Transactions and Director Independence

Reference is hereby made to Item 1. Business and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion of the Company’s various relationships with the Bank, including the Branch, the sole holder of all its outstanding Common Securities.

The Board of Directors has determined that Donald J. Puglisi, the independent director, is independent as defined in the listing standard of the New York Stock Exchange.

Item 14: Principal Accounting Fees and Services

Set forth below are the services rendered and related fees billed by Deloitte & Touche LLP and PricewaterhouseCoopers LLP for 2006 and PricewaterhouseCoopers LLP for 2005:

Audit Fees	2006		2005
Financial Statement Audit	$	58,200	$	46,400
Audit-Related Fees		—		5,000

Other Fees		—		—
Total fees	$	58,200	$	51,400

Engagement of the Independent Auditor

The Board of Directors is responsible for approving every engagement of the Company’s independent auditor for the performance of audit or non-audit services before any such service is provided. The Board of Directors does not rely on pre-approval policies or procedures.

Auditor Selection for 2007

Deloitte & Touche LLP has been selected to serve as the Company’s independent auditor for the year ending December 31, 2007.

Part IV

Item 15: Exhibits and Financial Statement Schedules

EXHIBITS

A) Exhibits:

11)

Computation of net gain per common security

12)

(a) Computation of ratio of earnings to fixed charges

(b)

Computation of ratio of earnings to fixed charges and preferred security dividends

14)

Code of Ethics for Finance Professionals

31.1)

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2)

Certification of President pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32)

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.


	BNP U.S. FUNDING L.L.C.
	Registrant

Date: April 2 , 2007	By	/s/ Martine Billeaud
		Martine Billeaud
		President and Director


Date: April 2 , 2007	By	/s/ Thomas Clyne
		Thomas Clyne
		Chief Financial Officer and Director

		For the Year Ended December 31, 2006
Net income	$	57,603
Fixed charges:
Audit fees		46
Trustee fees		130
Administrative and consulting fees		281
Total fixed charges		457
Earnings before fixed charges	$	58,060
Fixed charges, as above		457
Ratio of earnings to fixed charges		127.05

		For the Year Ended December 31, 2006
Net income	$	57,603
Fixed charges:
Audit fees		46
Trustee fees		130
Administrative and consulting fees		281
Total fixed charges		457
Earnings before fixed charges	$	58,060
Fixed charges, as above		457
Preferred securities dividend		38,690
Fixed charges including preferred securities dividends	$	39,147
Ratio of earnings to fixed charges and preferred securities dividend		1.48

BNP U.S. FUNDING L.L.C.

STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)