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
                RegisteredNone
            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




PAGEPART
                IItem
                1:
            
            Business
            
            3Item
                1A:
            
            Risk
                Factors
            
            7Item
                1B:
            
            Unresolved
                Staff Comments
            
            8Item
                2:
            
            Properties
            
            8Item
                3:
            
            Legal
                Proceedings
            
            8Item
                4:
            
            Submission
                of Matters to a Vote of Securityholders
            
            8PART
                IIItem
                5:
            
            Market
                for Registrant’s Common Equity, Related Securityholder Matters and IssuerPurchases
                of Equity Securities
            
            8Item
                6:
            
            Selected
                Financial Data
            
            9Item
                7:
            
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            9Item
                7A:
            
            Quantitative
                and Qualitative Disclosures About Market Risk
            
            15Item
                8:
            
            Financial
                Statements and Supplementary Data
            
            18Item
                9:
            
            Changes
                In and Disagreements with Accountants on Accounting andFinancial
                Disclosure
            
            36Item
                9A:
            
            Controls
                and Procedures
            
            36Item
                9B:
            
            Other
                Information
            
            36PART
                IIIItem
                10:
            
            Directors, Executive Officers of the Registrant and Corporate Governance
            
            36Item
                11:
            
            Executive
                Compensation
            
            37Item
                12:
            
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            
            37Item
                13:
            
            Certain
                Relationships and Related Transactions and Director Independence
            
            38Item
                14:
            
            Principal
                Accounting Fees and Services
            
            38PART
                IVItem
                15:
            
            Exhibits
                and Financial Statement Schedules
            
            38




2




**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.




3




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
            
            $
            2,319Fixed-Rate
                REMICs
            
            
            4.62
            
            
            1
            
            
            30,915Agency
                ARMs
            
            
            0.69
            
            
            19
            
            
            4,614Agency
                Hybrid ARMs
            
            
            1.17
            
            
            15
            
            
            7,836Agency
                DUSs
            
            
            17.85
            
            
            17
            
            
            119,592Agency
                Debentures
            
            
            75.32
            
            
            13
            
            
            504,524December
                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
            
            
            373FANNIE
                MAE 1990-121 F
            
            
            6.18
            
            
            11.50
            
            
            2.98
            
            
            10-25-2020
            
            
            818FANNIE
                MAE 1992-141 FA
            
            
            5.88
            
            
            10.50
            
            
            .24
            
            
            8-25-2007
            
            
            20FREDDIE
                MAC 1040 H
            
            
            6.33
            
            
            11.00
            
            
            1.74
            
            
            2-15-2021
            
            
            798FANNIE
                MAE G92 60 F
            
            
            5.00
            
            
            10.00
            
            
            3.16
            
            
            10-25-2022
            
            
            310Total
                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




4




***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
              
              $
              408FN
                  313190
              
              
              7.20
              
              
              12.12
              
              
              1.56
              
              
              9-1-2026
              
              
              326FN
                  313242
              
              
              7.35
              
              
              11.96
              
              
              3.66
              
              
              11-1-2026
              
              
              79FN
                  313311
              
              
              7.15
              
              
              11.86
              
              
              2.86
              
              
              12-1-2026
              
              
              130FN
                  313377
              
              
              6.70
              
              
              11.74
              
              
              12.42
              
              
              2-1-2027
              
              
              385FN
                  313432
              
              
              7.42
              
              
              11.84
              
              
              12.23
              
              
              2-1-2027
              
              
              95FN
                  363057
              
              
              6.58
              
              
              11.38
              
              
              12.56
              
              
              2-1-2027
              
              
              48FN
                  363070
              
              
              6.58
              
              
              11.49
              
              
              12.68
              
              
              3-1-2027
              
              
              68FN
                  370478
              
              
              6.72
              
              
              11.37
              
              
              12.66
              
              
              2-1-2027
              
              
              69FN
                  370479
              
              
              6.72
              
              
              11.31
              
              
              4.29
              
              
              3-1-2027
              
              
              73FN
                  374711
              
              
              6.93
              
              
              11.72
              
              
              12.83
              
              
              7-1-2027
              
              
              155FN
                  391247
              
              
              7.01
              
              
              11.37
              
              
              12.32
              
              
              4-1-2027
              
              
              249FN
                  397901
              
              
              7.34
              
              
              11.89
              
              
              12.97
              
              
              8-1-2027
              
              
              85FH
                  610727
              
              
              7.02
              
              
              12.35
              
              
              .05
              
              
              5-1-2027
              
              
              30G
                  280094
              
              
              5.75
              
              
              11.00
              
              
              3.89
              
              
              7-20-2027
              
              
              752G
                  28506
              
              
              5.75
              
              
              12.50
              
              
              3.40
              
              
              9-20-2024
              
              
              1,017G
                  280001
              
              
              5.13
              
              
              11.00
              
              
              8.04
              
              
              10-20-2026
              
              
              91FH
                  786213
              
              
              6.74
              
              
              12.55
              
              
              1.63
              
              
              12-1-2027
              
              
              354FH
                  786088
              
              
              6.34
              
              
              12.26
              
              
              .67
              
              
              12-1-2027
              
              
              200TotalAgency
                  ARMs
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              4,614




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


5




***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
              
              $
              62FN
                  345856
              
              
              7.20
              
              
              11.87
              
              
              1.33
              
              
              8-1-2036
              
              
              616FN
                  361370
              
              
              6.94
              
              
              13.57
              
              
              3.03
              
              
              7-1-2026
              
              
              1,512FN
                  361372
              
              
              6.89
              
              
              12.90
              
              
              4.80
              
              
              7-1-2026
              
              
              1,175FN
                  374138
              
              
              6.50
              
              
              11.35
              
              
              .63
              
              
              3-1-2027
              
              
              385FN
                  397136
              
              
              7.67
              
              
              13.76
              
              
              9.53
              
              
              6-1-2027
              
              
              416FN
                  362968
              
              
              7.01
              
              
              12.24
              
              
              4.43
              
              
              1-1-2026
              
              
              152FN
                  374917
              
              
              6.45
              
              
              11.75
              
              
              1.08
              
              
              4-1-2027
              
              
              158FN
                  404484
              
              
              7.15
              
              
              11.50
              
              
              12.94
              
              
              11-1-2027
              
              
              155FN
                  422265
              
              
              5.42
              
              
              13.26
              
              
              8.74
              
              
              1-1-2026
              
              
              874FN
                  422268
              
              
              6.27
              
              
              12.94
              
              
              5.75
              
              
              12-1-2024
              
              
              278FN
                  422276
              
              
              7.08
              
              
              13.23
              
              
              2.98
              
              
              12-1-2027
              
              
              1,510FN
                  415286
              
              
              6.92
              
              
              12.38
              
              
              1.53
              
              
              2-1-2028
              
              
              145FN
                  417833
              
              
              6.86
              
              
              11.45
              
              
              12.51
              
              
              3-1-2028
              
              
              316FH
                  786414
              
              
              6.89
              
              
              12.03
              
              
              12.73
              
              
              7-1-2028
              
              
              82TotalAgency
                  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
            
            $
            5,298FNMA
                381608
            
            
            5.93
            
            
            2.34
            
            
            5-1-2009
            
            
            1,593FNMA
                381640
            
            
            5.86
            
            
            2.26
            
            
            4-1-2009
            
            
            5,371FNMA
                380933
            
            
            5.92
            
            
            1.94
            
            
            12-1-2008
            
            
            7,382FNMA
                381294
            
            
            5.81
            
            
            2.10
            
            
            2-1-2009
            
            
            1,803FNMA
                381488
            
            
            6.19
            
            
            2.27
            
            
            4-1-2009
            
            
            4,042FNMA
                381514
            
            
            6.19
            
            
            2.27
            
            
            4-1-2009
            
            
            4,647FNMA
                381730
            
            
            6.39
            
            
            2.43
            
            
            6-1-2009
            
            
            14,756FNMA
                381115
              FNMA
                381117
            
            
            5.97
              5.80
            
            
            1.94
              2.02
            
            
            12-1-2008
              1-1-2009
            
            
            10,693
              4,578FNMA
                380798
            
            
            5.64
            
            
            1.78
            
            
            10-1-2008
            
            
            4,232FNMA
                535642
            
            
            6.95
            
            
            .14
            
            
            10-1-2007
            
            
            969FNMA
                313672
            
            
            6.981
            
            
            .48
            
            
            6-1-2007
            
            
            3,284FNMA
                382497
            
            
            7.41
            
            
            .56
            
            
            7-1-2007
            
            
            7,249FNMA
                460685
            
            
            4.90
            
            
            .58
            
            
            8-1-2007
            
            
            26,500FNMA
                313744
            
            
            6.86
            
            
            .72
            
            
            10-1-2007
            
            
            4,090FNMA
                323539
            
            
            5.96
            
            
            2.10
            
            
            2-1-2009
            
            
            13,105Total
                Agency DUSs
            
            
            
            
            
            
            
            
            
            
            $
            119,592


6


***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
            
            $
            25,038FNMA
                31359MCY7
            
            
            2.13
            
            
            .78
            
            
            10-9-2007
            
            
            129,400FNMA
                31359MDR1
            
            
            1.75
            
            
            1.24
            
            
            3-26-2008
            
            
            60,099FNMA
                31359MDU4
            
            
            6.00
            
            
            1.38
            
            
            5-15-2008
            
            
            46,805FNMA
                31364C5BO
            
            
            6.44
            
            
            .62
            
            
            8-14-2007
            
            
            23,989FNMA
                31364C6C7
            
            
            6.48
            
            
            .66
            
            
            8-27-2007
            
            
            7,500FNMA
                31364CU55
            
            
            6.70
            
            
            .47
            
            
            6-19-2007
            
            
            12,133FNMA
                31364CYE2
            
            
            6.68
            
            
            .18
            
            
            3-5-2007
            
            
            50,000FNMA
                31359MGH0
            
            
            6.63
            
            
            .79
            
            
            10-15-2007
            
            
            50,547FNMA
                31364CYX0
            
            
            6.80
            
            
            .21
            
            
            3-14-2007
            
            
            50,000FNMA
                31364C5Q7
            
            
            6.55
            
            
            .64
            
            
            8-20-2007
            
            
            19,008FNMA
                31359MPZ0
            
            
            3.25
            
            
            .88
            
            
            11-15-2007
            
            
            20,007FHLMC
                3134A4NW0
            
            
            4.88
            
            
            .21
            
            
            3-15-2007
            
            
            9,998Total
                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.




7




*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.




8




**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
            
            $
            34,548Net
                income
            
            
            57,603
            
            
            47,494
            
            
            23,365
            
            
            22,760
            
            
            32,894Average
                number of RedeemableCommon
                Securities outstanding
            
            
            53,011
            
            
            53,011
            
            
            53,011
            
            
            53,011
            
            
            53,011Net
                income (loss) per RedeemableCommon
                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
            
            
            1,099,570Total
                assets
            
            
            1,044,392
            
            
            1,063,076
            
            
            1,127,852
            
            
            1,153,073
            
            
            1,150,885Series
                A Preferred Securities outstanding
            
            
            500,000
            
            
            500,000
            
            
            500,000
            
            
            500,000
            
            
            500,000Total
                Redeemable Common Securities,Preferred
                Securities, andSecurityholders’
                Equity
            
            $
            1,039,180
            
            $
            1,042,679
            
            $
            1,049,350
            
            $
            1,055,514
            
            $
            1,062,024Other
                Data:Comprehensive
                income
            
            $
            48,191
            
            $
            28,619
            
            $
            17,226
            
            $
            19,180
            
            $
            46,012Dividends
                paid on Series APreferred
                Securities
            
            $
            38,690
            
            $
            38,690
            
            $
            38,690
            
            $
            38,690
            
            $
            38,690Dividends
                paid on RedeemableCommon
                Securities
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -Number
                of Series A PreferredSecurities
                outstanding
            
            
            50,000
            
            
            50,000
            
            
            50,000
            
            
            50,000
            
            
            50,000Number
                of Redeemable CommonSecurities
                outstanding
            
            
            53,011
            
            
            53,011
            
            
            53,011
            
            
            53,011
            
            
            53,011Average
                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.




9




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.




10




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.





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
                PaidSeries
                A Preferred
            
            $
            19,345,000
            
            
            December
                5, 2006Series
                A Preferred
            
            $
            19,345,000
            
            
            June
                5, 2006Series
                A Preferred
            
            $
            19,345,000
            
            
            December
                5, 2005Series
                A Preferred
            
            $
            19,345,000
            
            
            June
                5, 2005Series
                A Preferred
            
            $
            19,345,000
            
            
            December
                5, 2004Series
                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
            %




11




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





**REINVESTMENTS**
            
            **2006**
            
            **2005**
            
            **2004**Floating-Rate
                REMICs
            
            $
            —
            
            $
            —
            
            $
            —Fixed-Rate
                REMICs
            
            $
            —
            
            $
            —
            
            $
            20,915,000Agency
                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.




12




**** **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.




13




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.




14




**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)
            
            50,000February
                12, 1999
            
            March
                5, 2007
            
            U.S.
                6.68
            
            U.S.
                Three Month LIBOR Minus Two Basis Points
            
            (1,021)
            
            50,000February
                25, 1999
            
            February
                25, 2009
            
            U.S.
                5.95
            
            U.S.
                One Month LIBOR Plus Three Basis Points
            
            (199)
            
            14,483June
                25, 1999
            
            June
                25, 2009
            
            U.S.
                6.06
            
            U.S.
                One Month LIBOR Plus Three and Half Basis Points
            
            (309)
            
            15,654July
                1, 1999
            
            June
                25, 2009
            
            U.S.
                6.39
            
            U.S.
                One Month LIBOR Plus Three and Half Basis Points
            
            (432)
            
            14,756September
                27, 1999
            
            March
                25, 2009
            
            U.S.
                5.858
            
            U.S.
                One Month LIBOR Plus Four Basis Points
            
            (214)
            
            15,271June
                26, 2000
            
            October
                1, 2008
            
            U.S.
                6.26
            
            U.S.
                One Month LIBOR
            
            (34)
            
            4,232October
                2, 2000
            
            June
                1, 2007
            
            U.S.
                7.024
            
            U.S.
                One Month LIBOR Minus Two Basis Points
            
            (10)
            
            1,203October
                2, 2000
            
            July
                1, 2007
            
            U.S.
                7.405
            
            U.S.
                One Month LIBOR Minus Two Basis Points
            
            (87)
            
            7,249




15




**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)
                  
                  
                  968May
                      3, 2002
                  
                  August
                      25, 2007
                  
                  U.S.
                      6.74
                  
                  U.S.
                      One Month LIBOR Plus One Basis Point
                  
                  
                  (89)
                  
                  
                  10,000August
                      25, 2002
                  
                  August
                      25, 2007
                  
                  U.S.
                      4.90
                  
                  U.S.
                      One Month LIBOR Plus Five Basis Points
                  
                  
                  84
                  
                  
                  26,500September
                      25, 2002
                  
                  June
                      25, 2007
                  
                  U.S.
                      7.007
                  
                  U.S.
                      One Month LIBOR Plus Seven Basis Points
                  
                  
                  (16)
                  
                  
                  2,081March
                      21, 2003
                  
                  February
                      25, 2009
                  
                  U.S.
                      5.945
                  
                  U.S.
                      One Month LIBOR Plus Nine Basis Points
                  
                  
                  (194)
                  
                  
                  13,105August
                      1, 2003
                  
                  October
                      25, 2007
                  
                  U.S.
                      6.812
                  
                  U.S.
                      One Month LIBOR Plus Ten Basis Points
                  
                  
                  (42)
                  
                  
                  4,090April
                      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)
                  
                  $
                  250,507November
                      25, 1998
                  
                  March
                      26, 2008
                  
                  JPY
                      1.75
                  
                  U.S.
                      Three Month LIBOR Plus Six Basis Points
                  
                  
                  (610)
                  
                  
                  42,000November
                      25, 1998
                  
                  October
                      9, 2007
                  
                  JPY
                      2.125
                  
                  U.S.
                      Three Month LIBOR Plus Six Basis Points
                  
                  
                  (729)
                  
                  
                  58,000March
                      29, 1999
                  
                  October
                      9, 2007
                  
                  JPY
                      2.125
                  
                  U.S.
                      Three Month LIBOR Minus Two and Half Basis Points
                  
                  
                  497
                  
                  
                  30,000April
                      6, 1999
                  
                  October
                      9, 2007
                  
                  JPY
                      2.125
                  
                  U.S.
                      Three Month LIBOR Minus One Basis Point
                  
                  
                  (327)
                  
                  
                  26,400November
                      2, 2000
                  
                  October
                      9, 2007
                  
                  JPY
                      2.125
                  
                  U.S.
                      Three Month LIBOR Minus Two Basis Points
                  
                  
                  1,358
                  
                  
                  15,000January
                      17, 2001
                  
                  March
                      26, 2008
                  
                  JPY
                      1.750
                  
                  U.S.
                      5.80
                  
                  
                  716
                  
                  
                  18,000**Othe****r
                      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.




16




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
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            30,915Agency
                DUS
            
            
            42,092
            
            
            27,605
            
            
            49,895
            
            
            —
            
            
            —
            
            
            —
            
            
            119,592Agency
                Debentures
            
            
            372,582
            
            
            131,942
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            504,524Total
                Fixed-Rate Instruments
            
            
            445,589
            
            
            159,547
            
            
            49,895
            
            
            —
            
            
            —
            
            
            —
            
            
            655,031Floating-Rate
                Instruments:Floating-Rate
                REMICs
            
            
            —
            
            
            —
            
            
            —
            
            
            310
            
            
            —
            
            
            —
            
            
            310Agency
                ARMs
            
            
            200
            
            
            354
            
            
            —
            
            
            1,017
            
            
            —
            
            
            91
            
            
            1,662Agency
                Hybrid ARMs
            
            
            —
            
            
            303
            
            
            1,510
            
            
            —
            
            
            152
            
            
            1,705
            
            
            3,670Total
                Floating-Rate Instruments
            
            
            200
            
            
            657
            
            
            1,510
            
            
            1,327
            
            
            152
            
            
            1,796
            
            
            5,642Total
                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
            
            
            —
            
            
            —
            
            
            —
            
            
            2,009Agency
                ARMs
            
            
            30
            
            
            326
            
            
            130
            
            
            830
            
            
            73
            
            
            1,563
            
            
            2,952Agency
                Hybrid ARMs
            
            
            385
            
            
            678
            
            
            —
            
            
            1,512
            
            
            1,175
            
            
            416
            
            
            4,166Total
                Floating-Rate Instruments
            
            
            435
            
            
            2,175
            
            
            948
            
            
            2,342
            
            
            1,248
            
            
            1,979
            
            
            9,127Total
                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
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            30,915Agency
                DUS
            
            
            10,572
            
            
            91,665
            
            
            56,536
            
            
            71,894
            
            
            —
            
            
            —
            
            
            230,667Agency
                Debentures
            
            
            —
            
            
            373,285
            
            
            131,807
            
            
            —
            
            
            —
            
            
            —
            
            
            505,092Total
                Fixed-Rate Instruments
            
            
            10,572
            
            
            495,865
            
            
            188,343
            
            
            71,894
            
            
            —
            
            
            —
            
            
            766,674Floating-Rate
                Instruments:Floating-Rate
                REMICs
            
            
            —
            
            
            —
            
            
            —
            
            
            390
            
            
            —
            
            
            —
            
            
            390Agency
                ARMs
            
            
            —
            
            
            —
            
            
            —
            
            
            1,332
            
            
            —
            
            
            1,438
            
            
            2,770Agency
                Hybrid ARMs
            
            
            105
            
            
            —
            
            
            206
            
            
            2,192
            
            
            310
            
            
            2,141
            
            
            4,954Total
                Floating-Rate Instruments
            
            
            105
            
            
            —
            
            
            206
            
            
            3,914
            
            
            310
            
            
            3,579
            
            
            8,114Total
                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
            
            
            —
            
            
            —
            
            
            2,759Agency
                ARMs
            
            
            41
            
            
            291
            
            
            176
            
            
            982
            
            
            84
            
            
            2,867
            
            
            4,441Agency
                Hybrid ARMs
            
            
            —
            
            
            2,982
            
            
            2,693
            
            
            —
            
            
            —
            
            
            815
            
            
            6,490Total
                Floating-Rate Instruments
            
            
            156
            
            
            4,343
            
            
            3,414
            
            
            2,011
            
            
            84
            
            
            3,682
            
            
            13,690Total
                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**




17




**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 estimates 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




18




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 amounts 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


19




FINANCIAL
                STATEMENTS**BNP
                U.S. FUNDING L.L.C.****BALANCE
                SHEETS****(in
                thousands, except per share
                data)**





**December
                31, 2006**
            
            **December
                31, 2005**ASSETSCash
                and cash equivalents
            
            $
            26,821
            
            $
            19,485Certificates
                of deposit
            
            
            325,000
            
            
            220,000Investment
                securities (Note 4)Available-for-sale,
                at fair value
            
            
            666,209
            
            
            798,454Receivable
                arising from payment for securities, pursuantto
                the application of SFAS 125, as replaced bySFAS
                140 (Note 3), at amortized cost
            
            
            9,127
            
            
            13,690Accounts
                receivable
            
            
            11
            
            
            16Accrued
                interest receivable
            
            
            17,224
            
            
            11,431TOTAL
                ASSETS
            
            $
            1,044,392
            
            $
            1,063,076LIABILITIESAccrued
                interest payable
            
            $
            2,247
            
            $
            2,385Accrued
                expenses
            
            
            126
            
            
            543Other
                liabilities
            
            
            2,839
            
            
            17,469TOTAL
                LIABILITIES
            
            
            5,212
            
            
            20,397Redeemable
                common securities, par value and redeemablevalue
                $10,000 per security; 150,000 securities authorized,53,011
                securities issued and outstanding (Note 5)
            
            
            530,110
            
            
            530,110Preferred
                securities, liquidation preference $10,000 persecurity;
                150,000 securities authorized, 50,000 securitiesissued
                and outstanding
            
            
            500,000
            
            
            500,000Additional
                paid-in capital
            
            
            803
            
            
            803Accumulated
                other comprehensive loss
            
            
            (11,457
            )
            
            (2,045
            )Retained
                earnings
            
            
            19,724
            
            
            13,811TOTAL
                REDEEMABLE COMMON SECURITIES,PREFERRED
                SECURITIES ANDSECURITYHOLDERS’
                EQUITY
            
            
            1,039,180
            
            
            1,042,679TOTAL
                LIABILITIES AND TOTAL REDEEMABLECOMMON
                SECURITIES, PREFERREDSECURITIES
                AND SECURITYHOLDERS’ EQUITY
            
            $
            1,044,392
            
            $
            1,063,076





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




20




**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
              INCOMECollateralized
                Mortgage Obligations:Floating-Rate
                REMICs
            
            $
            137
            
            $
            140
            
            $
            130Fixed-Rate
                REMICs
            
            
            1,594
            
            
            1,033
            
            
            492Mortgage
                Backed Securities:Agency
                ARMs
            
            
            278
            
            
            323
            
            
            374Agency
                Hybrid ARMs
            
            
            507
            
            
            572
            
            
            761Agency
                DUSs
            
            
            7,802
            
            
            8,528
            
            
            6,160Agency
                Debentures
            
            
            27,520
            
            
            22,767
            
            
            17,658Interest
                on deposits
            
            
            14,308
            
            
            6,591
            
            
            516Total
            
            
            52,146
            
            
            39,954
            
            
            26,091NONINTEREST
                INCOMEGain
                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 ANDREDEEMABLE
                COMMON SECURITIES
            
            $
            57,603
            
            $
            47,494
            
            $
            23,365NET
                INCOME (LOSS) APPLICABLE TO REDEEMABLECOMMON
                SECURITIES
            
            $
            18,913
            
            $
            8,804
            
            $
            (15,325
            )NET
                INCOME (LOSS) PER REDEEMABLECOMMON
                SECURITIES
            
            $
            356.78
            
            $
            166.08
            
            $
            (289.09
            )




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





21




**BNP
                U.S. FUNDING L.L.C.****STATEMENTS
                OF COMPREHENSIVE INCOME****(in
                thousands)**





**For
                the Years Ended December 31,****2006**
            
            **2005**
            
            **2004**NET
                INCOME
            
            $
            57,603
            
            $
            47,494
            
            $
            23,365OTHER
                COMPREHENSIVE (LOSS)Net
                change in unrealized (loss) in fair valueof
                available-for-sale securities that are not treatedas
                collateral (Note 3) and that are not hedged byderivative
                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.




22




**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
            
            $
            1,055,514Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            23,365
            
            
            23,365Other
                comprehensive loss
            
            
            
            
            
            
            
            
            
            
            
            (6,139
            )
            
            
            
            
            (6,139
            )Additional
                paid-in capital
            
            
            
            
            
            
            
            
            15,300
            
            
            
            
            
            
            
            
            15,300Dividends
                paid - preferred securities
            
            
            
            
            
            
            
            
            (14,878
            )
            
            
            
            
            (23,812
            )
            
            (38,690
            )**Balance
                at December 31, 2004**
            
            $
            530,110
            
            $
            500,000
            
            $
            651
            
            $
            16,830
            
            $
            1,759
            
            $
            1,049,350Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            47,494
            
            
            47,494Other
                comprehensive loss
            
            
            
            
            
            
            
            
            
            
            
            (18,875
            )
            
            
            
            
            (18,875
            )Additional
                paid-in capital
            
            
            
            
            
            
            
            
            3,400
            
            
            
            
            
            
            
            
            3,400Dividends
                paid - preferred securities
            
            
            
            
            
            
            
            
            (3,248
            )
            
            
            
            
            (35,442
            )
            
            (38,690
            )**Balance
                at December 31, 2005**
            
            $
            530,110
            
            $
            500,000
            
            $
            803
            
            $
            (2,045
            )
            $
            13,811
            
            $
            1,042,679Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            57,603
            
            
            57,603Other
                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.




23




**BNP
                U.S. FUNDING L.L.C.****STATEMENTS
                OF CASH FLOWS****(in
                thousands)**





**For
                the Years Ended December 31,****2006**
            
            **2005**
            
            **2004****OPERATING
                ACTIVITIES**Net
                income
            
            $
            57,603
            
            $
            47,494
            
            $
            23,365Adjustments
                to reconcile net income to net cashprovided
                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
            
            
            27Accrued
                expenses
            
            
            (417
            )
            
            205
            
            
            94Accrued
                interest payable
            
            
            (138
            )
            
            (364
            )
            
            30Net
                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
            
            
            96,672Proceeds
                from principal payments of securities,treated
                as collateral
            
            
            4,460
            
            
            7,043
            
            
            9,627Net
                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
            
            
            15,300Dividends
                - 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
            )
            
            87,026CASH
                AND CASH EQUIVALENTS, BEGINNING OF PERIOD
            
            
            19,485
            
            
            112,207
            
            
            25,181CASH
                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, pursuantto
                  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.




24




**NOTE
      1—ORGANIZATION
      AND
      BASIS OF PRESENTATION**




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 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.




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.




**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**




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.




25




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.




**C** **ash** **and** **C** **ash** **E** **quivalents**




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




**C** **ertificates
      of Deposits**




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




**D** **ividends**




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, 200 6 ,
      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, 1998Common
                Securities
            
            $
            5,347,365
            
            
            June
                22, 1998Series
                A Preferred Securities
            
            $
            19,345,000
            
            
            December
                5, 1998Common
                Securities
            
            $
            8,787,127
            
            
            December
                15, 1998Series
                A Preferred Securities
            
            $
            19,345,000
            
            
            June
                5, 1999Common
                Securities
            
            $
            8,454,284
            
            
            June
                15, 1999Series
                A Preferred Securities
            
            $
            19,345,000
            
            
            December
                5, 1999Common
                Securities
            
            $
            10,352,672
            
            
            December
                15, 1999Series
                A Preferred Securities
            
            $
            19,345,000
            
            
            June
                5, 2000Common
                Securities
            
            $
            12,508,486
            
            
            June
                19, 2000Series
                A Preferred Securities
            
            $
            19,345,000
            
            
            December
                5, 2000Common
                Securities
            
            $
            14,792,297
            
            
            December
                19, 2000Series
                A Preferred Securities
            
            $
            19,345,000
            
            
            June
                5, 2001Common
                Securities
            
            $
            10,718,708
            
            
            June
                19, 2001Series
                A Preferred Securities
            
            $
            19,345,000
            
            
            December
                5, 2001Series
                A Preferred Securities
            
            $
            19,345,000
            
            
            June
                5, 2002Series
                A Preferred Securities
            
            $
            19,345,000
            
            
            December
                5, 2002Series
                A Preferred Securities
            
            $
            19,345,000
            
            
            June
                5, 2003Series
                A Preferred Securities
            
            $
            19,345,000
            
            
            December
                5, 2003Series
                A Preferred Securities
            
            $
            19,345,000
            
            
            June
                5, 2004Series
                A Preferred Securities
            
            $
            19,345,000
            
            
            December
                5, 2004Series
                A Preferred Securities
            
            $
            19,345,000
            
            
            June
                5, 2005Series
                A Preferred Securities
            
            $
            19,345,000
            
            
            December
                5, 2005Series
                A Preferred Securities
            
            $
            19,345,000
            
            
            June
                5, 2006Series
                A Preferred Securities
            
            $
            19,345,000
            
            
            December
                5, 2006




26


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.
  27
  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**
  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.
 
 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.
 
 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.
  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.
  28
 
 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.
  **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, 200 6 and
        December 31, 200 5 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
              
              $
              —
              
              $
              313Fixed-Rate
                  REMICs
              
              
              30,915
              
              
              268
              
              
              —
              
              
              31,183Mortgage
                  Backed Securities:Agency
                  ARMs
              
              
              1,662
              
              
              —
              
              
              24
              
              
              1,638Agency
                  Hybrid ARMs
              
              
              3,670
              
              
              16
              
              
              16
              
              
              3,670Agency
                  DUSs
              
              
              119,592
              
              
              1,547
              
              
              84
              
              
              121,055Agency
                  Debentures
              
              
              504,524
              
              
              4,238
              
              
              412
              
              
              508,350Total
                  Non-Collateral
              
              $
              660,673
              
              $
              6,072
              
              $
              536
              
              $
              666,209
  **Collateral**Collateralized
                  Mortgage Obligations:Floating-Rate
                  REMICs
              
              $
              2,009
              
              $
              —
              
              $
              28
              
              $
              1,981Fixed-Rate
                  REMICs
              
              
              —
              
              
              —
              
              
              —
              
              
              —Mortgage
                  Backed Securities:Agency
                  ARMs
              
              
              2,952
              
              
              1
              
              
              15
              
              
              2,938Agency
                  Hybrid ARMs
              
              
              4,166
              
              
              5
              
              
              72
              
              
              4,099Agency
                  DUSs
              
              
              —
              
              
              —
              
              
              —
              
              
              —Agency
                  Debentures
              
              
              —
              
              
              —
              
              
              —
              
              
              —Total
                  Collateral
              
              $
              9,127
              
              $
              6
              
              $
              115
              
              $
              9,018**December
                  31, 2006 Total Portfolio**
              
              **$**
              **669,800**
              
              **$**
              **6,078**
              
              **$**
              **651**
              
              **$**
              **675,227**
 29
 **December
          31, 2005**
 **Non-Collateral**
                  
                  **Amortized
                      Cost**
                  
                  **Gross
                      Unrealized Gains**
                  
                  **Gross
                      Unrealized Losses**
                  
                  **Fair
                      Value**Collateralized
                      Mortgage Obligations:Floating-Rate
                      REMICs
                  
                  $
                  390
                  
                  $
                  —
                  
                  $
                  —
                  
                  $
                  390Fixed-Rate
                      REMICs
                  
                  
                  30,915
                  
                  
                  942
                  
                  
                  —
                  
                  
                  31,857Mortgage
                      Backed Securities:Agency
                      ARMs
                  
                  
                  2,770
                  
                  
                  9
                  
                  
                  46
                  
                  
                  2,733Agency
                      Hybrid ARMs
                  
                  
                  4,954
                  
                  
                  47
                  
                  
                  2
                  
                  
                  4,999Agency
                      DUSs
                  
                  
                  230,667
                  
                  
                  7,508
                  
                  
                  —
                  
                  
                  238,175Agency
                      Debentures
                  
                  
                  505,092
                  
                  
                  15,754
                  
                  
                  546
                  
                  
                  520,300Total
                      Non-Collateral
                  
                  $
                  774,788
                  
                  $
                  24,260
                  
                  $
                  594
                  
                  $
                  798,454**Collateral**Collateralized
                      Mortgage Obligations:Floating-Rate
                      REMICs
                  
                  $
                  2,759
                  
                  $
                  —
                  
                  $
                  32
                  
                  $
                  2,727Fixed-Rate
                      REMICs
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Mortgage
                      Backed Securities:Agency
                      ARMs
                  
                  
                  4,441
                  
                  
                  15
                  
                  
                  6
                  
                  
                  4,450Agency
                      Hybrid ARMs
                  
                  
                  6,490
                  
                  
                  16
                  
                  
                  59
                  
                  
                  6,447Agency
                      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
              
              
              24Agency
                  Hybrid ARMs
              
              
              151
              
              
              2
              
              
              1,773
              
              
              14
              
              
              1,924
              
              
              16Agency
                  DUSs
              
              
              —
              
              
              —
              
              
              26,416
              
              
              84
              
              
              26,416
              
              
              84Agency
                  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
              
              $
              28Fixed-Rate
                  REMICs
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —**Mortgage
                  Backed Securities:**Agency
                  ARMs
              
              
              942
              
              
              10
              
              
              756
              
              
              6
              
              
              1,698
              
              
              16Agency
                  Hybrid ARMs
              
              
              609
              
              
              7
              
              
              3,100
              
              
              65
              
              
              3,709
              
              
              72Agency
                  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**
 30
  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
                
                $
                —
                
                $
                —
                
                $
                310Fixed-Rate
                    REMICs
                
                
                30,915
                
                
                —
                
                
                —
                
                
                —
                
                
                30,915Mortgage
                    Backed Securities:Agency
                    ARMs
                
                
                200
                
                
                1,371
                
                
                91
                
                
                —
                
                
                1,662Agency
                    Hybrid ARMs
                
                
                —
                
                
                1,966
                
                
                1,151
                
                
                553
                
                
                3,670Agency
                    DUSs
                
                
                42,092
                
                
                77,500
                
                
                —
                
                
                —
                
                
                119,592Agency
                    Debentures
                
                
                372,582
                
                
                131,942
                
                
                —
                
                
                —
                
                
                504,524Total
                    Non-Collateral
                
                $
                445,789
                
                $
                213,089
                
                $
                1,242
                
                $
                553
                
                $
                660,673**Collateral**Collateralized
                    Mortgage Obligations:Floating-Rate
                    REMICs
                
                $
                20
                
                $
                1,989
                
                $
                —
                
                $
                —
                
                $
                2,009Fixed-Rate
                    REMICs
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —Mortgage
                    Backed Securities:Agency
                    ARMs
                
                
                30
                
                
                1,359
                
                
                —
                
                
                1,563
                
                
                2,952Agency
                    Hybrid ARMs
                
                
                385
                
                
                3,365
                
                
                416
                
                
                —
                
                
                4,166Agency
                    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**




31




**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
              
              $
              —
              
              $
              —
              
              $
              390Fixed-Rate
                  REMICs
              
              
              —
              
              
              30,915
              
              
              —
              
              
              —
              
              
              30,915Mortgage
                  Backed Securities:Agency
                  ARMs
              
              
              —
              
              
              1,332
              
              
              339
              
              
              1,099
              
              
              2,770Agency
                  Hybrid ARMs
              
              
              105
              
              
              2,708
              
              
              940
              
              
              1,201
              
              
              4,954Agency
                  DUSs
              
              
              10,572
              
              
              220,095
              
              
              —
              
              
              —
              
              
              230,667Agency
                  Debentures
              
              
              —
              
              
              505,092
              
              
              —
              
              
              —
              
              
              505,092Total
                  Non-Collateral
              
              $
              10,677
              
              $
              760,532
              
              $
              1,279
              
              $
              2,300
              
              $
              774,788**Collateral**Collateralized
                  Mortgage Obligations:Floating-Rate
                  REMICs
              
              $
              115
              
              $
              2,644
              
              $
              —
              
              $
              —
              
              $
              2,759Fixed-Rate
                  REMICs
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Mortgage
                  Backed Securities:Agency
                  ARMs
              
              
              41
              
              
              1,533
              
              
              490
              
              
              2,377
              
              
              4,441Agency
                  Hybrid ARMs
              
              
              —
              
              
              5,676
              
              
              —
              
              
              814
              
              
              6,490Agency
                  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
                
                
                5.16Mortgage
                    Backed Securities:Agency
                    ARMs
                
                
                4.16
                
                
                4.67
                
                
                4.89
                
                
                5.31
                
                
                4.82
                
                
                4.82Agency
                    Hybrid ARMs
                
                
                5.40
                
                
                5.29
                
                
                5.12
                
                
                6.13
                
                
                5.32
                
                
                5.32Agency
                    DUSs
                
                
                5.97
                
                
                6.07
                
                
                —
                
                
                —
                
                
                6.02
                
                
                4.99Agency
                    Debentures
                
                
                3.91
                
                
                6.14
                
                
                —
                
                
                —
                
                
                6.02
                
                
                5.42Total
                
                
                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
                
                
                3.34Mortgage
                    Backed Securities:Agency
                    ARMs
                
                
                3.12
                
                
                3.33
                
                
                4.36
                
                
                4.60
                
                
                4.01
                
                
                4.01Agency
                    Hybrid ARMs
                
                
                4.40
                
                
                3.63
                
                
                4.64
                
                
                5.58
                
                
                4.01
                
                
                4.01Agency
                    DUSs
                
                
                4.85
                
                
                6.08
                
                
                —
                
                
                —
                
                
                5.84
                
                
                2.95Agency
                    Debentures
                
                
                —
                
                
                3.73
                
                
                —
                
                
                —
                
                
                3.73
                
                
                4.51Total
                
                
                4.78
                %
                
                5.98
                %
                
                4.52
                %
                
                4.97
                %
                
                5.86
                %
                
                3.91
                %




32




**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, 200 6 and
      December 31, 200 5 ,
      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
      u** **pon** **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.




33





**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, 200 6 and
      200 5 ,
      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, 200 6 and
      December 31, 200 5 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, 200 6 and
      December 31, 200 5 ,
      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, 200 6 and
      December 31, 200 5 ,
      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.




34





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, 200 6 and
      December 31, 200 5 ,
      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 r ecognized
      a gain of $5,914,430 in
      current year’s earnings related to cross
      currency swap s that no
      longer meet
      the
      requirements of FAS 133 for the hedge effectiveness to qualif y as
      a fair
      value hedging instrument.





**Cash
      Flow Hedges**




For
      the
      years ended December 31, 200 6 and
      December 31, 200 5 ,
      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
              
              
              52,146NONINTEREST
                  INCOME (EXPENSE)
              
              
              796
              
              
              (4,317
              )
              
              5,880
              
              
              3,098
              
              
              5,457NET
                  INCOME APPLICABLE TO PREFERRED AND REDEEMABLE COMMON
                  SECURITIES
              
              $
              12,820
              
              $
              8,373
              
              $
              19,493
              
              $
              16,917
              
              $
              57,603NET
                  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
              
              
              39,954NONINTEREST
                  EXPENSE (INCOME)
              
              
              (49
              )
              
              578
              
              
              (184
              )
              
              7,195
              
              
              7,540NET
                  INCOME APPLICABLE TO PREFERRED AND REDEEMABLE COMMON
                  SECURITIES
              
              $
              5,732
              
              $
              12,689
              
              $
              10,799
              
              $
              18,274
              
              $
              47,494NET
                  INCOME (LOSS) PER REDEEMABLE COMMON SECURITY
              
              $
              108.13
              
              $
              (125.52
              )
              $
              203.73
              
              $
              (20.21
              )
              $
              166.08




35




**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, 200 6.  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, 200 6 , **** 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 DirectorMartine
                Billeaud (61)
            
            President
                and DirectorBetty
                Whelchel (50)
            
            SecretaryDonald
                J. Puglisi (61)
            
            Independent
                DirectorSady
                Karet (52)
            
            Treasurer
                and DirectorThomas
                Clyne (50)
            
            Chief
                Financial Officer and DirectorDiana
                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.




36





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.




37




**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 P ricewaterhouseCoopers
      LLP for 2005 :




**Audit
                  Fees**
              
              2006
              
              2005Financial
                  Statement Audit
              
              $
              58,200
              
              $
              46,400Audit-Related
                  Fees
              
              
              —
              
              
              5,000Other
                  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 service s before
      any such service
      is provided. The
      Board of Directors does not  rely
      on
      pre-approval policies or procedures.





**Auditor
      Selection for 200** **7**




Deloitte
      & Touche LLP has been
      selected to serve as the Company’s independent auditor for the year ending December
      31, 200 7 .




**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




38




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.**RegistrantDate:
                    April 2,
                    2007
            By
            /s/Martine BilleaudMartine
                BilleaudPresident
                and Director




Date: April 2, 2007
            By
            /s/ Thomas ClyneThomas
                ClyneChief
                Financial Officer and Director