Federal Deposit
Insurance Corporation

FSLIC Resolution Fund Balance Sheet at December 31 Dollars in Thousands
	2006	2005
Assets
Cash and cash equivalents	$3,616,466	$3,602,703
Receivables from thrift resolutions and other assets, net(Note 3)	36,730	38,746
Receivables from U.S. Treasury for goodwill judgments(Note 4)	251,827	0
Total Assets	$3,905,023	$3,641,449
Liabilities
Accounts payable and other liabilities	$5,497	$7,799
Contingent liabilities for litigation losses and other(Note 4)	279,327	257,503
Total Liabilities	284,824	265,302
Resolution Equity (Note 5)
Contributed capital	127,453,996	127,007,441
Accumulated deficit	(123,833,797)	(123,631,294)
Total Resolution Equity	3,620,199	3,376,147
Total Liabilities and Resolution Equity	$3,905,023	$3,641,449
The accompanying notes are an integral part of these financial statements.

FSLIC Resolution Fund Statement of Income and Accumulated Deficit for the Years Ended December 31 Dollars in Thousands
	2006	2005
Revenue
Interest on U.S. Treasury obligations	$151,648	$98,260
Other revenue	17,650	24,176
Total Revenue	169,298	122,436
Expenses and Losses
Operating expenses	12,002	24,626
Provision for losses	(19,257)	(16,112)
Goodwill/Guarini litigation expenses (Note 4)	411,056	975,598
Recovery of tax benefits	(34,783)	(45,946)
Other expenses	2,783	10,333
Total Expenses and Losses	371,801	948,499
Net (Loss)	(202,503)	(826,063)
Accumulated Deficit - Beginning	(123,631,294)	(122,805231)
Accumulated Deficit - Ending	$(123,833,797)	$(123,631,294)
The accompanying notes are an integral part of these financial statements.

FSLIC Resolution Fund Statement of Cash Flows for the Years Ended December 31 Dollars in Thousands
	2006	2005
Operating Activities
Net (Loss)	$(202,503)	$(826,063)
Adjustments to reconcile net (loss) to net cash (used by) operating activities:
Provision for losses	(19,257)	(16,112)
Change in Assets and Liabilities:
Decrease in receivables from thrift resolutions and other assets	21,273	59,630
(Decrease)/Increase in accounts payable and other liabilities	(2,302)	2,196
Increase in contingent liabilities for litigation losses and other	21,824	257,104
Net Cash (Used by) Operating Activities	(180,965)	(523,245)
Financing Activities
Provided by:
U.S. Treasury payments for goodwill litigation	194,728	624,564
Net Cash Provided by Financing Activities	194,728	624,564
Net Increase in Cash and Cash Equivalents	13,763	101,319
Cash and Cash Equivalents - Beginning	3,602,703	3,501,384
Cash and Cash Equivalents - Ending	$3,616,466	$3,602,703
The accompanying notes are an integral part of these financial statements.

1. Legislative History and Operations/Dissolution of the FSLIC Resolution Fund

Legislative History
The Federal Deposit Insurance Corporation (FDIC) is the independent deposit insurance agency created by Congress in 1933 to maintain stability and public confidence in the nation's banking system. Provisions that govern the operations of the FDIC are generally found in the Federal Deposit Insurance (FDI) Act, as amended, (12 U.S.C. 1811, et seq). In carrying out the purposes of the FDI Act, as amended, the FDIC insures the deposits of banks and savings associations, and in cooperation with other federal and state agencies promotes the safety and soundness of insured depository institutions by identifying, monitoring and addressing risks to the deposit insurance funds established in the FDI Act, as amended. In addition, FDIC is charged with responsibility for the sale of remaining assets and satisfaction of liabilities associated with the former Federal Savings and Loan Insurance Corporation (FSLIC) and the Resolution Trust Corporation (RTC).

The U.S. Congress created the FSLIC through the enactment of the National Housing Act of 1934. The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) abolished the insolvent FSLIC, created the FSLIC Resolution Fund (FRF), and transferred the assets and liabilities of the FSLIC to the FRF-except those assets and liabilities transferred to the RTC-effective on August 9, 1989. Further, the FIRREA established the Resolution Funding Corporation (REFCORP) to provide part of the initial funds used by the RTC for thrift resolutions.

The RTC Completion Act of 1993 (RTC Completion Act) terminated the RTC as of December 31, 1995. All remaining assets and liabilities of the RTC were transferred to the FRF on January 1, 1996. Today, the FRF consists of two distinct pools of assets and liabilities: one composed of the assets and liabilities of the FSLIC transferred to the FRF upon the dissolution of the FSLIC (FRF-FSLIC), and the other composed of the RTC assets and liabilities (FRF-RTC). The assets of one pool are not available to satisfy obligations of the other.

Pursuant to the Federal Deposit Insurance Reform Act of 2005, the Bank Insurance Fund and the Savings Association Insurance Fund were merged into a new fund, the Deposit Insurance Fund (DIF). The FDIC is the administrator of the FRF and the DIF. These funds are maintained separately to carry out their respective mandates.

Operations/Dissolution of the FRF
The FRF will continue operations until all of its assets are sold or otherwise liquidated and all of its liabilities are satisfied. Any funds remaining in the FRF-FSLIC will be paid to the U.S. Treasury. Any remaining funds of the FRF-RTC will be distributed to the REFCORP to pay the interest on the REFCORP bonds. In addition, the FRF-FSLIC has available until expended $602.2 million in appropriations to facilitate, if required, efforts to wind up the resolution activity of the FRF-FSLIC.

The FDIC has conducted an extensive review and cataloging of FRF's remaining assets and liabilities and is continuing to explore approaches for concluding FRF's activities. An executive-level Steering Committee was established in 2003 to facilitate the FRF dissolution. Some of the issues and items that remain open in FRF are: 1) criminal restitution orders (generally have from 5 to 10 years remaining to enforce); 2) collections of settlements and judgments obtained against officers and directors and other professionals responsible for causing or contributing to thrift losses (generally have from 6 months to 12 years remaining to enforce); 3) numerous assistance agreements entered into by the former FSLIC (FRF could continue to receive tax-sharing benefits through year 2008); 4) goodwill and Guarini litigation (no final date for resolution has been established; see Note 4); and 5) environmentally impaired owned real estate assets. The FDIC is considering whether enabling legislation or other measures may be needed to accelerate liquidation of the remaining FRF assets and liabilities. The FRF could realize substantial recoveries from the tax-sharing benefits, criminal restitution orders and professional liability claims ranging from $165 million to $271.4 million; however, any associated recoveries are not reflected in FRF's financial statements given the significant uncertainties surrounding the ultimate outcome.

Receivership Operations
The FDIC is responsible for managing and disposing of the assets of failed institutions in an orderly and efficient manner. The assets held by receivership entities, and the claims against them, are accounted for separately from FRF assets and liabilities to ensure that receivership proceeds are distributed in accordance with applicable laws and regulations. Also, the income and expenses attributable to receiverships are accounted for as transactions of those receiverships. Receiverships are billed by the FDIC for services provided on their behalf.

2. Summary of Significant Accounting Policies

General
These financial statements pertain to the financial position, results of operations, and cash flows of the FRF and are presented in conformity with U.S. generally accepted accounting principles (GAAP). These statements do not include reporting for assets and liabilities of closed thrift institutions for which the FDIC acts as receiver. Periodic and final accountability reports of the FDIC's activities as receiver are furnished to courts, supervisory authorities, and others as required.

Use of Estimates
Management makes estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. Where it is reasonably possible that changes in estimates will cause a material change in the financial statements in the near term, the nature and extent of such changes in estimates have been disclosed. The more significant estimates include allowance for losses on receivables from thrift resolutions and the estimated losses for litigation.

Provision for Losses
The provision for losses represents the change in the valuation of the receivables from thrift resolutions and other assets.

Fair Value of Financial Instruments
Cash equivalents, which consist of Special U.S. Treasury Certificates, are short-term, highly liquid investments with original maturities of three months or less and are shown at fair value. The carrying amount of short-term receivables and accounts payable and other liabilities approximates their fair market value, due to their short maturities.

The net receivable from thrift resolutions is influenced by the underlying valuation of receivership assets. This corporate receivable is unique and the estimate presented is not necessarily indicative of the amount that could be realized in a sale to the private sector. Such a sale would require indeterminate, but substantial, discounts for an interested party to profit from these assets because of credit and other risks. Consequently, it is not practicable to estimate its fair market value.

Other assets primarily consist of credit enhancement reserves, which are valued by performing projected cash flow analyses using market-based assumptions (see Note 3).

Disclosure about Recent Accounting Pronouncements
Recent accounting pronouncements have been adopted or deemed to be not applicable to the financial statements as presented.

Related Parties
The nature of related parties and a description of related party transactions are discussed in Note 1 and disclosed throughout the financial statements and footnotes.

Reclassifications
Reclassifications have been made in the 2005 financial statements to conform to the presentation used in 2006.

3. Receivables From Thrift Resolutions and Other Assets, Net

Receivables From Thrift Resolutions
The receivables from thrift resolutions include payments made by the FRF to cover obligations to insured depositors, advances to receiverships for working capital, and administrative expenses paid on behalf of receiverships. Any related allowance for loss represents the difference between the funds advanced and/or obligations incurred and the expected repayment. Assets held by the FDIC in its receivership capacity for the former FSLIC and SAIF-insured institutions are a significant source of repayment of the FRF's receivables from thrift resolutions. As of December 31, 2006, 20 of the 850 FRF receiverships remain active primarily due to unresolved litigation, including goodwill matters.

As of December 31, 2006 and 2005, FRF receiverships held assets with a book value of $33 million and $139 million, respectively (including cash, investments, and miscellaneous receivables of $26 million and $113 million at December 31, 2006 and 2005, respectively). The estimated cash recoveries from the management and disposition of these assets that are used to derive the allowance for losses are based on a sampling of receivership assets in liquidation. Assets in the judgmental sample, which represents 96 percent of the asset book value for all active FRF receiverships, are generally valued by estimating future cash recoveries, net of applicable liquidation cost estimates, and then discounting these net cash recoveries using current market-based risk factors based on a given asset's type and quality. Resultant recovery estimates are extrapolated to the non-sampled assets in order to derive the allowance for loss on the receivable. These estimated recoveries are regularly evaluated, but remain subject to uncertainties because of potential changes in economic and market conditions. Such uncertainties could cause the FRF's actual recoveries to vary from the level currently estimated.

Other Assets
Other assets primarily include credit enhancement reserves valued at $20.2 million and $16.7 million as of December 31, 2006 and 2005, respectively. The credit enhancement reserves resulted from swap transactions where the former RTC received mortgage-backed securities in exchange for single-family mortgage loans. The RTC supplied credit enhancement reserves for the mortgage loans in the form of cash collateral to cover future credit losses over the remaining life of the loans. These reserves may cover future credit losses through 2020.

Receivables From Thrift Resolutions and Other Assets, Net at December 31 Dollars in Thousands
	2006	2005
Receivables from closed thrifts	$11,308,460	$16,080,789
Allowance for losses	(11,299,448)	(16,065,703)
Receivables from Thrift Resolutions, Net	9,012	15,086
Other assets	27,718	23,660
Total	$36,730	$38,746

Gross receivables from thrift resolutions subject the FRF to credit risk. An allowance for loss of $11.3 billion, or 99.9 percent of the gross receivable, was recorded as of December 31, 2006. Of the remaining 0.1 percent of the gross receivable, 65 percent is expected to be repaid from receivership cash and investments.

4. Contingent Liabilities for:

Litigation Losses
The FRF records an estimated loss for unresolved legal cases to the extent those losses are considered probable and reasonably estimable. In addition to the amount recorded as probable, the FDIC has determined that losses from unresolved legal cases totaling $3 million are reasonably possible.

Additional Contingency

Goodwill Litigation
In United States v. Winstar Corp., 518 U.S. 839 (1996), the Supreme Court held that when it became impossible following the enactment of FIRREA in 1989 for the federal government to perform certain agreements to count goodwill toward regulatory capital, the plaintiffs were entitled to recover damages from the United States. Approximately 26 remaining cases are pending against the United States based on alleged breaches of these agreements.

On July 22, 1998, the Department of Justice's (DOJ's) Office of Legal Counsel (OLC) concluded that the FRF is legally available to satisfy all judgments and settlements in the goodwill litigation involving supervisory action or assistance agreements. OLC determined that nonperformance of these agreements was a contingent liability that was transferred to the FRF on August 9, 1989, upon the dissolution of the FSLIC. On July 23, 1998, the U.S. Treasury determined, based on OLC's opinion, that the FRF is the appropriate source of funds for payments of any such judgments and settlements. The FDIC General Counsel concluded that, as liabilities transferred on August 9, 1989, these contingent liabilities for future nonperformance of prior agreements with respect to supervisory goodwill were transferred to the FRF-FSLIC, which is that portion of the FRF encompassing the obligations of the former FSLIC. The FRF-RTC, which encompasses the obligations of the former RTC and was created upon the termination of the RTC on December 31, 1995, is not available to pay any settlements or judgments arising out of the goodwill litigation.

The goodwill lawsuits are against the United States and as such are defended by the DOJ. On November 15, 2006, the DOJ again informed the FDIC that it is "unable at this time to provide a reasonable estimate of the likely aggregate contingent liability resulting from the Winstar-related cases." This uncertainty arises, in part, from the existence of significant unresolved issues pending at the appellate or trial court level, as well as the unique circumstances of each case.

The FDIC believes that it is probable that additional amounts, possibly substantial, may be paid from the FRF-FSLIC as a result of judgments and settlements in the goodwill litigation. Based on representations from the DOJ, the FDIC is unable to estimate a range of loss to the FRF-FSLIC from the goodwill litigation. However, the FRF can draw from an appropriation provided by Section 110 of the Department of Justice Appropriations Act, 2000 (Public Law 106-113, Appendix A, Title I, 113 Stat. 1501A-3, 1501A-20) such sums as may be necessary for the payment of judgments and compromise settlements in the goodwill litigation. This appropriation is to remain available until expended. Because an appropriation is available to pay such judgments and settlements, any liability for goodwill litigation should have a corresponding receivable from the U.S. Treasury and therefore have no net impact on the financial condition of the FRF-FSLIC.

The FRF paid $194.7 million as a result of judgments and settlements in four goodwill cases for the year ended December 31, 2006, compared to $624.6 million for seven goodwill cases for the year ended December 31, 2005. As described above, the FRF received appropriations from the U.S. Treasury to fund these payments. At December 31, 2006, the FRF accrued a $251.8 million contingent liability and offsetting receivable from the U.S. Treasury for judgments in two additional cases that were fully adjudicated as of year end. These funds were paid in January 2007.

In addition, the FRF-FSLIC pays the goodwill litigation expenses incurred by DOJ based on a Memorandum of Understanding (MOU) dated October 2, 1998, between the FDIC and DOJ. Under the terms of the MOU, the FRF-FSLIC paid $17.5 million and $18.3 million to DOJ for fiscal years (FY) 2007 and 2006, respectively. DOJ returns any unused fiscal year funding to the FRF unless special circumstances warrant these funds be carried over and applied against current fiscal year charges. At September 30, 2006, DOJ had an additional $3.4 million in unused fiscal year 2006 funds that were applied against FY 2007 charges of $20.9 million.

Guarini Litigation
Paralleling the goodwill cases are similar cases alleging that the government breached agreements regarding tax benefits associated with certain FSLIC-assisted acquisitions. These agreements allegedly contained the promise of tax deductions for losses incurred on the sale of certain thrift assets purchased by plaintiffs from the FSLIC, even though the FSLIC provided the plaintiffs with tax-exempt reimbursement. A provision in the Omnibus Budget Reconciliation Act of 1993 (popularly referred to as the "Guarini legislation") eliminated the tax deductions for these losses.

Eight Guarini cases were originally filed seeking damages relating to the government's elimination of certain tax deductions. Seven of those eight cases have now concluded. One case settled in 2002 for $20,000, and a second case concluded in 2004 with no damage award. Judgments were paid in four cases in 2005 and 2006 for a total of $152.6 million. In a seventh case settled in 2006 for $99 million, the settlement agreement further obligates the FRF-FSLIC as a guarantor for all tax liabilities in the event the settlement amount is determined by tax authorities to be taxable. The maximum potential exposure under this guarantee through 2009 is approximately $81 million. After reviewing relevant case law in relation to the nature of the settlement, the FDIC believes that it is very unlikely the settlement will be subject to taxation. Therefore, the FRF is not expected to fund any payment under this guarantee and no liability has been recorded. The eighth Guarini case is currently before the U. S. Court of Federal Claims for consideration of one remaining issue.

The FDIC has established a contingent liability of approximately $27.5 million for the remaining Guarini litigation loss exposure.

Representations and Warranties
As part of the RTC's efforts to maximize the return from the sale of assets from thrift resolutions, representations and warranties, and guarantees were offered on certain loan sales. The majority of loans subject to these agreements have been paid off, refinanced, or the period for filing claims has expired. The FDIC's estimate of maximum potential exposure to the FRF is $30 million based on an assessment of remaining portfolio balances still covered by representations and warranties. No claims in connection with representations and warranties have been asserted since 1998 on the remaining open agreements. Because of the age of the remaining portfolio and lack of claim activity, the FDIC does not expect new claims to be asserted in the future. Consequently, the financial statements at December 31, 2006 and 2005 do not include a liability for these agreements.

5. Resolution Equity

As stated in the Legislative History section of Note 1, the FRF is comprised of two distinct pools: the FRF-FSLIC and the FRF-RTC. The FRF-FSLIC consists of the assets and liabilities of the former FSLIC. The FRF-RTC consists of the assets and liabilities of the former RTC. Pursuant to legal restrictions, the two pools are maintained separately and the assets of one pool are not available to satisfy obligations of the other.

The following table shows the contributed capital, accumulated deficit, and resulting resolution equity for each pool.

Resolution Equity at December 31, 2006 Dollars in Thousands
	FRF-FSLIC	FRF-RTC	FRF Consolidated
Contributed capital - beginning	$44,808,104	$82,199,337	$127,007,441
Add: U.S. Treasury payments for goodwill litigation	446,555	0	446,555
Contributed capital - ending	45,254,659	82,199,337	127,453,996
Accumulated deficit	(42,212,338)	(81,621,459)	(123,833,797)
Total	$3,042,321	$577,878	$3,620,199

Contributed Capital
The FRF-FSLIC and the former RTC received $43.5 billion and $60.1 billion from the U.S. Treasury, respectively, to fund losses from thrift resolutions prior to July 1, 1995. Additionally, the FRF-FSLIC issued $670 million in capital certificates to the Financing Corporation (a mixed-ownership government corporation established to function solely as a financing vehicle for the FSLIC) and the RTC issued $31.3 billion of these instruments to the REFCORP. FIRREA prohibited the payment of dividends on any of these capital certificates. Through December 31, 2006, the FRF-RTC has returned $4.556 billion to the U.S. Treasury and made payments of $4.572 billion to the REFCORP. These actions serve to reduce contributed capital.

During 2006, the FRF-FSLIC received $194.7 million for U.S. Treasury payments for goodwill litigation and established a receivable for $251.8 million (see Note 4).

Accumulated Deficit
The accumulated deficit represents the cumulative excess of expenses over revenue for activity related to the FRF-FSLIC and the FRF-RTC. Approximately $29.8 billion and $87.9 billion were brought forward from the former FSLIC and the former RTC on August 9, 1989, and January 1, 1996, respectively. The FRF-FSLIC accumulated deficit has increased by $12.4 billion, whereas the FRF-RTC accumulated deficit has decreased by $6.3 billion, since their dissolution dates.

6. Employee Benefits

Pension Benefits
Eligible FDIC employees (permanent and term employees with appointments exceeding one year) are covered by the federal government retirement plans, either the Civil Service Retirement System (CSRS) or the Federal Employees Retirement System (FERS). Although the FRF contributes a portion of pension benefits for eligible employees, it does not account for the assets of either retirement system. The FRF also does not have actuarial data for accumulated plan benefits or the unfunded liability relative to eligible employees. These amounts are reported on and accounted for by the U.S. Office of Personnel Management. The FRF's pension-related expenses were $850 thousand and $2.9 million for 2006 and 2005, respectively.

Postretirement Benefits Other Than Pensions
The FRF no longer records a liability for the postretirement benefits of life and dental insurance as a result of FDIC's change in funding policy for these benefits and elimination of the separate entity formerly used to account for such estimated future costs. In implementing this change, management decided not to allocate either the plan assets or the revised net accumulated postretirement benefit obligation (a long-term liability) to the FRF due to the expected dissolution of the FRF. However, the FRF does continue to pay its proportionate share of the yearly claim expenses associated with these benefits.