2006										2005
					Assets (liabilities)								Assets (liabilities)
December 31 (In millions)	Notional amount			Carrying amount (net)			Estimated fair value			Notional amount			Carrying amount (net)			Estimated fair value
GE
Assets
Investments and notes receivable		$  (a)			$ 494			$ 494			$  (a)			$ 573			$ 625
Liabilities
Borrowings(b)(c)		(a)			(11,297	)		(11,204	)		(a)			(10,208	)		(10,223	)
GECS
Assets
Loans		(a)			266,055			265,578			(a)			223,855			224,259
Other commercial and residential mortgages held for sale		(a)			7,296			7,439			(a)			6,696			6,696
Other financial instruments(d)		(a)			3,714			4,158			(a)			4,138			4,494
Liabilities
Borrowings(b)(c)		(a)			(426,279	)		(432,275	)		(a)			(362,069	)		(369,972	)
Investment contract benefits		(a)			(5,089	)		(5,080	)		(a)			(6,034	)		(6,020	)
Insurance — credit life(e)		2,634			(81	)		(61	)		2,365			(8	)		(8	)

(a)	These financial instruments do not have notional amounts.
(b)	Included effects of interest rate and cross-currency swaps.
(c)	See note 18.
(d)	Principally cost method investments.
(e)	Net of reinsurance of $840 million and $292 million at December 31, 2006 and 2005, respectively.

Assets and liabilities not carried at fair value in our Statement of Financial Position are discussed below. Apart from certain of our borrowings and certain marketable securities, few of the instruments discussed below are actively traded and their fair values must often be determined using financial models. Realization of the fair value of these instruments depends upon market forces beyond our control, including marketplace liquidity. Therefore, the disclosed fair values may not be indicative of net realizable value or reflect future fair values.

A description of how we estimate fair values follows.

Loans
Based on quoted market prices, recent transactions and/or discounted future cash flows, using rates at which similar loans would have been made to similar borrowers.

Borrowings
Based on discounted future cash flows using current market rates which are comparable to market quotes.

Investment contract benefits
Based on expected future cash flows, discounted at currently offered rates for immediate annuity contracts or cash surrender values for single premium deferred annuities.

All other instruments
Based on comparable market transactions, discounted future cash flows, quoted market prices, and/or estimates of the cost to terminate or otherwise settle obligations. The fair values of our cost method investments that are not exchange traded represent our best estimates of amounts we could have received other than on a forced or liquidation basis.

Assets and liabilities that are reflected in the accompanying financial statements at fair value are not included in the above disclosures; such items include cash and equivalents, investment securities and derivative financial instruments.

Additional information about certain categories in the table above follows.

Residential mortgages
Residential mortgage products amounting to $13,325 million (23% of all residential mortgages) and $12,633 million (27% of all residential mortgages) at December 31, 2006 and 2005, respectively, were either high loan-to-value, those permitting interest-only payments or those with below market introductory rates. We originate such loans either for our portfolio or for sale in secondary markets. The portfolio was geographically diverse, with Europe and North America the most significant market segments.

Insurance — credit life
Certain insurance affiliates, primarily in GE Money, issue credit life insurance designed to pay the balance due on a loan if the borrower dies before the loan is repaid. As part of our overall risk management process, we cede to third parties a portion of this associated risk, but are not relieved of our primary obligation to policyholders.

loan Commitments

		Notional amount
December 31 (In millions)		2006			2005
Ordinary course of business lending commitments(a)
Fixed rate		$ 3,186			$ 4,188
Variable rate		9,515			6,068
Unused revolving credit lines(b)
Commercial
Fixed rate		868			779
Variable rate		24,095			20,779
Consumer — principally credit cards
Fixed rate		136,920			170,367
Variable rate		341,656			281,113

(a)	Excluded investment commitments of $2,881 million and $1,418 million as of December 31, 2006 and 2005, respectively.
(b)	Excluded inventory financing arrangements, which may be withdrawn at our option, of $11,044 million and $11,383 million as of December 31, 2006 and 2005, respectively.

Derivatives and hedging
We conduct our business activities in diverse markets around the world, including countries where obtaining local funding is sometimes inefficient. The nature of our activities exposes us to changes in interest rates and currency exchange rates. We manage such risks using straightforward techniques including debt whose terms correspond to terms of the funded assets, as well as combinations of debt and derivatives that achieve our objectives. We also are exposed to various commodity price risks and address certain of these risks with commodity contracts. We value derivatives that are not exchange-traded with internal market-based valuation models. When necessary, we also obtain information from our derivative counterparties to validate our models and to value the few products that our internal models do not address.

We use interest rate swaps, currency derivatives and commodity derivatives to reduce the variability of expected future cash flows associated with variable rate borrowings and commercial purchase and sale transactions, including commodities. We use interest rate swaps, currency swaps and interest rate and currency forwards to hedge the fair value effects of interest rate and currency exchange rate changes on local and non-functional currency denominated fixed-rate borrowings and certain types of fixed-rate assets. We use currency swaps and forwards to protect our net investments in global operations conducted in non-U.S. dollar currencies. We intend all of these positions to qualify as hedges and to be accounted for as hedges.

We use swaps, futures and option contracts, including caps, floors and collars, as economic hedges of changes in interest rates, currency exchange rates and equity prices on certain types of assets and liabilities. We sometimes use credit default swaps to hedge the credit risk of various counterparties with which we have entered into loan or leasing arrangements. We occasionally obtain equity warrants as part of sourcing or financing transactions. Although these instruments are derivatives, their economic risks are similar to, and managed on the same basis as, risks of other equity instruments we hold. These instruments are marked to market through earnings.

Earnings effects of derivatives designated as hedges
At December 31, 2006, approximately 57% of our total interest rate swaps accounted for as hedges were exempt from ongoing tests of effectiveness. The following table provides information about the earnings effects of derivatives designated and qualifying as hedges, but not qualifying for the assumption of no ineffectiveness.

Pre-tax gains (losses)

December 31 (In millions)	2006			2005			2004
Cash flow hedges
Ineffectiveness		$ 10			$ (27	)		$ 20
Amounts excluded from the measure of effectiveness		(16	)		17			25
Fair value hedges
Ineffectiveness		(47	)		4			11
Amounts excluded from the measure of effectiveness		33			(8	)		3

In 2006 and 2005, we recognized insignificant gains and losses related to hedged forecasted transactions and firm commitments that did not occur by the end of the originally specified period. In 2004, we recognized a pre-tax loss of $46 million, before cancellation penalties, for terminating a forward euro contract when our customer cancelled its hedged, firm order for equipment and services.

Additional information regarding the use of derivatives is provided in note 18 and note 23.

Counterparty credit risk
We manage counterparty credit risk, the risk that counterparties will default and not make payments to us according to the terms of the agreements, on an individual counterparty basis. Thus, when a legal right of offset exists, we net certain exposures by counterparty and include the value of collateral to determine the amount of ensuing exposure. When net exposure to a counterparty, based on the current market values of agreements and collateral, exceeds credit exposure limits (see following table), we take action to reduce exposure. Such actions include prohibiting additional transactions with the counterparty, requiring collateral from the counterparty (as described below) and terminating or restructuring transactions.

Swaps are required to be executed under master agreements containing mutual credit downgrade provisions that provide the ability to require assignment or termination in the event either party is downgraded below A3 or A–. In certain cases we have entered into collateral arrangements that provide us with the right to hold collateral (cash or U.S. Treasury or other highly-rated securities) when the current market value of derivative contracts exceeds a specified limit. We evaluate credit risk exposures and compliance with credit exposure limits net of such collateral.

Fair values of our derivatives assets and liabilities represent the replacement value of existing derivatives at market prices and can change significantly from period to period based on, among other factors, market movements and changes in our positions. At December 31, 2006, our exposure to counterparties, after consideration of netting arrangements and collateral, was about $1,400 million.

Following is GECS policy relating to initial credit rating requirements and to exposure limits to counterparties.

Counterparty credit criteria

				Credit rating
					Moody's		S&P
Foreign exchange forwards and other derivatives less than one year					P-1			A-1
All derivatives between one and five years					Aa3	(a)		AA-	(a)
All derivatives greater than five years					Aaa	(a)		AAA	(a)

(a)	Counterparties that have an obligation to provide collateral to cover credit exposure in accordance with a credit support agreement must have a minimum A3/A- rating.

Exposure Limits

(In millions)
	Minimum rating							Exposure(a)
		Moody's			S&P			With collateral arrangements			Without collateral arrangements
		Aaa			AAA			$100			$75
		Aa3			AA-			50			50
		A3			A-			5			—

(a)	For derivatives with maturities less than one year, counterparties are permitted to have unsecured exposure up to $150 million with a minimum rating of A-1/P-1.

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