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USAA 2006 Report to Members

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					The Legacy of Membership
       usaa 2006 report to members
The mission of the association is to
facilitate the financial security of its
members, associates, and their families
through provision of a full range of
highly competitive financial products
and services; in so doing, USAA seeks
to be the provider of choice for the
military community.
Our responsibility is to ensure the
continuation of USAA as a world-class
company — no matter what.



For information about USAA’s
products and services, log on to
usaa.com or call (800) 531-6419.


Contents
 3   Letter to Members
 9   Our Legacy
20   usaa.com
22   Performance Overview
23   Ratings                       About the cover
24   Awards                        This 1969 photo captures USAA member Jim Berger beside a
25   Financial Report              T-38 aircraft he flew as a second lieutenant. Captain Berger’s
31   A Legacy of Giving            daughter, Diana Haag, has passed the family’s legacy of
32   Board of Directors            USAA membership to her five children. The two oldest, Sara
35   Executive Council             and Matthew, are pictured in this 1993 photo. For more
36   Advisory Panel                on the Berger family, see pages 16–17 or visit them at
37   Additional Information        www.usaa.com/reporttomembers.
Since 1922, millions of
members have shared a
special legacy with their
children and grandchildren:
membership in USAA.
Not everyone qualifies to
join the association—it is a
privilege earned through
military service.


                        usaa 2006 report to members   1
                                   robert g. dAvis
                                          Chairman and
                                  Chief Executive Officer
2   usaa 2006 report to members
Dear Fellow
USAA Members,
USAA membership is a legacy passed down
through families who share a common bond of
military service. In this report, you will meet five
of the 4.7 million American families who rely on
USAA to protect their loved ones and help build
their financial futures.
My family is much like theirs — and yours. I am a
former Army officer, the son of a Naval officer,
and a second-generation USAA member. My adult
children trust USAA with their financial security,
and I hope one day my grandchildren will become
members of our association. It is one way they will
benefit from my family’s military service.


                                          usaa 2006 report to members   3
    the benefits of membership                             two weeks, and to earn rewards faster by
                                                           combining points on purchases made with
    At USAA, our goal is to continually increase           debit and credit cards.
    the value of USAA membership for all of us.
    In 2006, we:                                          • Continued to offer no-load, low-fee invest-
                                                            ments; checking accounts and credit cards
    • Returned more than $6.2 billion*— nearly half         that are among the most competitive in the
      the association’s total revenue — to members          nation; and free access to ATMs worldwide.
      in the form of distributions, dividends, claims
      payments, price reductions, and other monetary      • Provided one of the most valuable benefits
      benefits.                                             of membership: free financial advice from
                                                            certified experts who receive salaries —
    We lowered prices on nearly                             not commissions.
    all of our products, including
                                                          A growing legacy
    auto, home, and life insurance;
    auto loans; mortgages; and                            In 1922, 25 Army officers met in San Antonio,
                                                          Texas, and decided to insure each other’s
    brokerage commissions.                                Model-T Fords. Today, USAA is the only fully
    • Reduced automobile insurance rates in most          integrated financial services company in
      states by a total of $495 million, saving members   America, and each of its 5.9 million members
      an average of $125 in annual premiums.              owns an average of five banking, investment,
                                                          or insurance products. In the past seven years,
    • Helped members maximize their earnings and          USAA has experienced:
      retirement savings by increasing annuity rates
      to some of the highest levels in the industry.      • A 45 percent increase in members.
    • Reduced brokerage trade commission rates            • A 63 percent increase in products.
      to as low as $5.95.
                                                          • A 69 percent increase in productivity.
    • Introduced a new term life insurance policy
                                                          • A 93 percent increase in assets owned
      with coverage for military members, providing
                                                            and managed.
      dismemberment benefits and continued
      protection after separation from the military.      • And a 90 percent increase in net worth.
      We also provide coverage for military aviators
                                                          Despite change and growth, you can count on
      and for death caused by war.
                                                          USAA to uphold its commitment to helping
    • Offered new banking capabilities, such as the       military families achieve financial security.
      ability to scan and deposit checks from home,       That is the heart of our mission, and it is upheld
      to apply for and close mortgages in less than       by our core values of service, loyalty, honesty,




4   usaa 2006 report to members
USAA returned more than $6.2 billion to members
in 2006 — almost half of total revenue.
tHe vALUe oF MeMbersHiP
(in millions)


    Returned to Members (SSA and Auto Dividends)                                       $     475.5
    Bank Rebates and Rewards                                                                 275.6
    Reduced Prices                                                                           148.4
    Life Policyholder Dividends                                                               44.3
    Eliminated or Reduced Fees                                                                37.3
    Free Services                                                                             40.5
    Increased Interest Paid                                                                   14.6

    Member Savings and Distributions                                                       1,036.3
    Claims Paid                                                                            5,186.6

    total returned to Members                                                          $6,222.9




and integrity. They are the values the association   No matter how you define financial security,
was founded upon, the values upon which it           our goal is to help you achieve it. We do that by
continues to operate, and the values that will       focusing on you, and refusing to be satisfied
sustain it into the future.                          with past accomplishments.

                                                     We are constantly looking for ways to serve you
Financial security — your way                        better. For instance, USAA members have told
USAA members have different definitions of           us they prefer the ease and convenience of doing
financial security. For some, it means being able    business electronically. As a result, we are con-
to pay the monthly bills. For others, it means       centrating on helping you manage your finances
having at least a million dollars in the bank.       online from anywhere in the world, anytime, via
                                                     usaa.com. You will continue to notice improve-
                                                     ments to usaa.com throughout 2007.




                                                                                  usaa 2006 report to members   5
      A strong net worth ensures you can
      depend on us now and in the future.

      Net WortH
      (in billions)                                                                                     $13.1
                                                                                                           2006
                                                                                         $11.2
                                                                          $10.1             2005
                                                            $9.1            2004

                                    $7.4      $7.9           2003

    $6.9             $7.1           2001
                                                2002
    1999              2000




                                                                                        +90%
                                                                                        In SEvEn yEARS




      UsAA’s 2006 performance                             worth increased from $11.2 billion to $13.1 billion.
                                                          Strong net worth ensures USAA can pay your
      USAA’s financial strength is reflected in consis-   claims now and in the future, meet regulatory and
      tent superior marks from independent rating         rating agency requirements, and fund current
      agencies. Last year, Moody’s Investors Service,     and future operations. It also helps protect USAA
      A.M. Best, and Standard and Poor’s again            from uncontrollable forces such as interest
      awarded the association their highest ratings for   rates, the stock market, and catastrophes.
      market and financial strength.
                                                          USAA’s investment style remained conservative,
      In 2006, we continued to focus on expense           with more than 80 percent of pre-tax income
      management — a strategy that allowed us to          coming from operations, and only 20 percent from
      reduce prices on almost all of our products         investment earnings. Nevertheless, the total
      while simultaneously building financial strength.   return of our well-managed portfolio has out-
      Your association ended the year with owned          performed the Standard & Poor’s 500 Index by
      and managed assets of $113.5 billion, and its net   35 percent since 2000.




6     usaa 2006 report to members
one of the benefits of UsAA                         Corporation and chairman of Loea Corporation
                                                    and Sago Systems Inc., both Trex subsidiaries.
membership is belonging                             He is a graduate of the U.S. Naval Academy
to an association whose                             and during his 35-year military career served as
                                                    commander of the U.S. Pacific Command and
members contribute to its                           commander in chief of the U.S. Pacific Fleet.
ability to lower prices.
                                                    share the tradition
For example, USAA received fewer auto claims
last year, a reminder that caution behind the       USAA is a special company, because it serves the
wheel is important for safety reasons and to keep   military community. We never forget the sacri-
costs down for everyone.                            fices our military personnel and their families
                                                    make each day, and we are honored to strive for
Other ways you can help keep prices down for        excellence on their behalf.
yourself and for fellow members include taking
care of your health; maintaining your home          We thank you for trusting us with your financial
and remembering that homeowner’s insurance          security, and ask you to share the legacy of USAA
is designed to cover significant losses and not     membership with your children, and your chil-
routine home maintenance; and using usaa.com        dren’s children. In return, we will never lose
to transact business, service your accounts, and    sight of our promise to serve those who serve our
receive USAA documents online.                      nation, and we will continue to ensure that
                                                    USAA is here to serve you and your family today,
                                                    tomorrow, and for generations to come.
Commitment to good governance
                                                    Sincerely,
USAA operates under a corporate governance
process that is among the most rigorous in the
nation, and the association could not support its
members or sustain its financial strength without
                                                    robert g. dAvis
the sound leadership of its board of directors.
                                                    Chairman and Chief Executive Officer
At the 2006 Members’ Meeting, eight directors
were re-elected: Patricia C. Barron, John D.
Buckelew, Stephen B. Croker, Frederick M.
Hamilton, William J. Hybl, Jay L. Johnson,
John H. Moellering, and Joseph C. Strasser.

In addition, one new director was elected.
He is Thomas B. Fargo, a USAA member since
1970 who is president of Trex Enterprises




                                                                                usaa 2006 report to members   7
    A record 5.9 million members
    trust USAA. Half of them have
    served in the military.

    A groWiNg LegACY
    (in millions of members)


                                                                                                             5.9
                                                                                              5.5            2006


                                                               5.0             5.2            2005

                                           4.6          4.8    2003
                                                                               2004

            4.1             4.4            2001
                                                        2002
                            2000
            1999




    oUr diverse MeMbersHiP                                      ProdUCts
    (membership composition as of 2006)                         (in millions of products)
                                                                                                                    23.9
                                                                                                             21.8
                                                                                                      19.8
                                                                                              18.4
                                                                                       17.6
                                            22%                         15.9
                                                                                16.8

                     31%                     Enlisted           14.7
                      Officers




                                    47%
                                                                                                     +63%
                                   Children &
                                  Grandchildren

                                                                                                     In SEvEn yEARS


                                                                 1999   2000    2001   2002   2003    2004   2005   2006




8   usaa 2006 report to members
“Others laid the
 foundation for my
 membership.
 It’s my privilege
 to pass it on.”
 Ed Rohrbach, USAA member since 1998




 Meet five USAA families who have shared the USAA tradition
 for several generations. We hope their stories will inspire you
 to share the powerful legacy of USAA membership with your
 own loved ones.


                                                      usaa 2006 report to members   9
     The Goodman Family
       iNsUrANCe                             bANkiNg

       Auto, Homeowner’s, Flood, Umbrella,   Credit Card, Consumer Loan
       valuable Personal Property, Life




10   usaa 2006 report to members
                 “At 21, I thought I knew more than my dad so I
                  shopped around for better insurance. Now I’m 37,
                  with a wife and two kids. I’m older and wiser and,
                  thanks to my dad, happy to say my family is
                  covered by USAA.” — Jon Goodman, Portland, Maine

                         For more on the goodman family, watch their video
                         at www.usaa.com/reporttomembers.




iNvestMeNts    oNLiNe

Mutual Funds   USAA Documents Online, usaa.com user




                                                  usaa 2006 report to members   11
     The McLean Family
       iNsUrANCe                   bANkiNg

       Auto, Homeowner’s, Fire     Checking, Savings, Credit Card, Auto Loan, Consumer Loan,
                                   Individual Retirement Account




12   usaa 2006 report to members
                                       “I’m the first in my family to serve in the military,
                                        leave my home state, and join USAA. My wife is
                                        also a USAA member. And we can hardly wait for
                                        the birth of our son, who we hope will follow in
                                        our footsteps.” — Timothy McLean, Lorton, Virginia

                                             For more on the McLean family, watch their video
                                             at www.usaa.com/reporttomembers.




oNLiNe

USAA Documents Online, usaa.com user




                                                                    usaa 2006 report to members   13
     The Gonzales Family
       iNsUrANCe                   bANkiNg

       Auto, Renter’s, Life        Checking, Savings, Credit Card




14   usaa 2006 report to members
                                       “USAA rocks! We love the rates. And we couldn’t
                                        be happier with the convenient banking service.
                                        Because my dad served, one day our five children
                                        will be able to enjoy the benefits of membership
                                        in USAA.” — Sylvia Gonzales, Panama City, Florida

                                             For more on the gonzales family, watch their video
                                             at www.usaa.com/reporttomembers.




oNLiNe

USAA Documents Online, usaa.com user




                                                                     usaa 2006 report to members   15
     The Berger Family
       iNsUrANCe                                                 bANkiNg

       Auto, Homeowner’s, Umbrella, valuable Personal Property   Checking, Savings, Credit Card, Consumer Loan




16   usaa 2006 report to members
                                       “USAA has been a fringe benefit of marrying Jim.
                                        His membership and confidence in USAA has
                                        extended not only to our children, but our grand-
                                        children as well.” — Judy Berger, Phoenix, Arizona

                                             For more on the berger family, watch their video
                                             at www.usaa.com/reporttomembers.




oNLiNe

USAA Documents Online, usaa.com user




                                                                     usaa 2006 report to members   17
     The Seim Family
       iNsUrANCe                   bANkiNg

       Auto, Homeowner’s           Checking, Savings, Credit Card, MoversAdvantage®




18   usaa 2006 report to members
                                      “My father, brother, wife, and I have a combined
                                       49 years of service in three branches of the armed
                                       forces. We are all proud USAA members. My chil-
                                       dren will undoubtedly carry on the USAA tradition
                                       for years to come.” — Price Seim, Layton, Utah

                                              For more on the seim family, watch their video
                                              at www.usaa.com/reporttomembers.




iNvestMeNts                         oNLiNe

Mutual Funds, Brokerage Services,   USAA Documents Online, usaa.com user, Web BillPay
Individual Retirement Account




                                                                        usaa 2006 report to members   19
     Share the Legacy of Membership
     Get to know the families featured in this
     annual report by logging on to usaa.com, where
     they welcome you into their homes and share
     their USAA legacies in short video profiles.
     While you are online, be sure to take a closer
     look at usaa.com. We think you’ll be surprised
     by the wealth of services, products, and free
     financial advice. At usaa.com, you’ll find the
     tools you need to continue your own family’s
     USAA legacy, or even to refer family and friends.



                                                      In 2006…
                                    51 million bills paid online.
                                         26 million documents
                                        delivered electronically.
                                   12.9 million funds transfers.
                                      2.5 million online trades.




20   usaa 2006 report to members
                               usaa.com
                               Manage your accounts and policies in one secure
                               place — online, anytime, anywhere.

                                iNsUrANCe

                               • Quickly quote, buy, and service your auto insurance —
                                 all online.
                               • Protect your family with a two-minute, no-obligation
                                 life insurance quote.
                               • Protect your belongings for as little as $5 per month
                                 with USAA Renters Insurance; quote and buy in minutes.

                                bANkiNg

                               • Online banking — checking, savings, credit cards, loans,
                                 and more. no lines, no waiting.
                               • Send money electronically to anyone or any business.
                               • Deposit your checks from any PC and a scanner with
                                 USAA Deposit@HomeSM — it’s fast, easy, and secure.

                                iNvestMeNts & AdviCe

                               • Complete a free assessment of your financial well-being —
                                 and get customized recommendations — in as little as
                                 10 minutes.
                               • Open a brokerage account or IRA, buy and sell stocks
                                 and bonds, and invest for as little as $20 per month.
                               • Place trades for as low as $5.95, one of the lowest
                                 commissions in the industry.
                               • E-mail USAA’s licensed financial advisors for fast,
                                 free answers to your questions.

                                otHer serviCes

                               • Stop hunting for paper — organize and archive your
                                 statements and bills with USAA Documents Online.
                               • Seamlessly download account information into
                                 TurboTax,® Quicken,® and Microsoft® Money.
                               • Get specialized advice for every stage of your life:
                                 buying a car, getting married, having a baby, moving,
                                 deployment, and planning for college and retirement.




See page 37 for disclosures.                                      usaa 2006 report to members   21
     Performance Overview
     UsAA returned more than $6.2 billion —             Consolidated total revenue grew
     almost half its $13.4 billion in revenue —         12 percent to $13.4 billion.
     to members in 2006.                                Despite lower prices, USAA’s revenue grew
     Nearly $5.2 billion was paid in the form of life   as membership expanded and products per
     insurance, and property and casualty claims.       household increased. Each member household
     Member savings and distributions added another     now owns an average of five USAA products.
     $1 billion.
                                                        In terms of assets, USAA is the 76th largest
     UsAA’s net worth grew from $11.2 billion           company on the Fortune 500 list, and 87th in
     in 2005 to $13.1 billion in 2006.                  net worth.
     Net worth, the most important indicator of         However, Fortune ranks USAA lower in revenue,
     financial strength, is used to cover members’      at 189th, and 121st in profits. The disparity can be
     insurance claims, meet regulatory and rating       attributed to USAA’s commitment to providing
     agency requirements, and fund current and          outstanding value through lower prices, which
     future operations.                                 reduces revenue, and operational excellence,
                                                        which increases profitability.
     UsAA’s owned and managed assets
     increased 18 percent to $113.5 billion.            UsAA maintained its disciplined focus
     The increase is due to a conservative and          on expense management, process
     well-managed investment portfolio, combined
                                                        improvement, and increased productivity.
     with a significant increase in business by
                                                        This rigor paid off as USAA lowered its
     USAA members.
                                                        expense-to-revenue ratio from 27.0 percent to
     debt levels remained low.                          25.2 percent.
     Although USAA has access to more than              The financial statements published in this docu-
     $36 billion through various funding sources,       ment have been selected so that you can see
     the association remains conservative and had       pertinent and necessary financial information
     only $808 million in outstanding debt at year-     about USAA.
     end. This resulted in a debt-to-total-capital
     ratio of just 5.8 percent.




22   usaa 2006 report to members
   ★
  ★★    Ratings of Financial Strength

usaa property
 & casualty
  insurance
                A++
                  (superior)
                                              Aaa
                                              (exceptional)
                                                                            AAA
                                                                        (extremely strong)
    group       A.M. Best Company         Moody’s Investors Service         Standard & Poor’s




  usaa life
 insurance
 companies
                A++
                  (superior)
                                              Aa1
                                               (excellent)
                                                                            AAA
                                                                        (extremely strong)
                A.M. Best Company         Moody’s Investors Service         Standard & Poor’s




usaa federal
savings bank
                top   25% of peer group                          superior
                  Highline Banking Data Services              IDC Financial Publishing Inc.




                                                                              usaa 2006 report to members   23
            ★
           ★★         Awards
           USAA seeks to balance the needs of members, the well-being of
           employees, and the association’s financial strength on a foundation
           of operational excellence. In 2006, the recognition USAA received
           from industry and media experts reflected that balance.




                                                  j.d. PoWer ANd AssoCiAtes
             member                 USAA was recognized by J.D. Power and Associates for its
             service               performance in the Automotive and Homeowner’s Insurance
                                    Studies as well as the Collision Repair Satisfaction Study.




                                                              FortUNe
                                              Fortune 500 Largest U.S. Corporations
                                       189th in Revenue, 87th in net Worth, 76th in Assets
           financial
           strength                                        WArd groUP
                                    USAA Property & Casualty Insurance Group and USAA Life
                                     Insurance Company were named to the Ward’s 50 lists,
                                   which benchmark the top-performing insurance companies.




                                         g.i. jobs                          LAtiNA stYLe
                                   Top 50 Military-Friendly             50 Best Employers for
           employee                      Employers                        Hispanic Women
          well-being
                                     C. everett kooP                     CoMPUterWorLd
                                   national Health Award             100 Best Places to Work in IT




24   usaa 2006 report to members
Management’s Responsibility
for Financial Reporting
The management of USAA is responsible for the       USAA’s transactions are authorized, executed,
integrity and objectivity of the financial infor-   and recorded properly. In addition, USAA has
mation presented in this annual report. Due to      a professional staff of internal auditors who
the volume of financial information contained       monitor these controls on an independent basis.
in the audited consolidated financial statements,   The Finance and Audit Committee of USAA’s
which includes the financial statements as well     board of directors engaged Ernst & Young LLP
as the accompanying footnotes, we have chosen       as independent auditors to audit USAA’s finan-
not to include the full audited consolidated        cial statements and express an opinion thereon.
financial statements in this Report to Members.     Ernst & Young LLP’s audit included reviews and
The financial statements that appear in this        tests of USAA’s internal controls to the extent
document have been selected from the audited        they believe necessary to determine and conduct
consolidated financial statements to give basic     the audit procedures that support their opinion.
and necessary financial information about USAA.
Certain prior year amounts were reclassified to     The Finance and Audit Committee of USAA’s
conform to the current year presentation. The       board of directors consists of eight members,
selected financial information was prepared by      who are not officers or employees of USAA.
USAA in accordance with Accounting Principles       This committee meets periodically with man-
Generally Accepted in the United States of          agement, internal auditors, and Ernst & Young
America (GAAP), except for the key statutory        LLP to ensure that management fulfills its
data, which was prepared in accordance with         responsibility for accounting controls and prep-
Statutory Accounting Principles (SAP).              aration of the consolidated financial statements
Management believes the financial information       and related data.
contained in the audited consolidated financial
statements fairly presents USAA’s financial
position, results of operations, and cash flows.
A copy of the complete audited consolidated         robert g. dAvis

financial statements of USAA, including Ernst &     Chairman and Chief Executive Officer
Young LLP’s unqualified independent auditors’
report thereon, is available upon request to
USAA headquarters in San Antonio, Texas.

USAA’s internal controls are designed to reason-    josUe robLes jr.

ably ensure that USAA’s assets are safeguarded      Executive Vice President, Chief Financial Officer
from unauthorized use or disposition and that       and Corporate Treasurer




                                                                                 usaa 2006 report to members   25
     USAA Highlights
     years ended december 31                                              2006      2005      2004


     Total members (in millions)                                           5.9       5.5       5.2
     Total products (in millions)                                         23.9      21.8      19.8
     Total employees (in thousands)                                       21.8      21.9      21.6


     usaa consolidated (Dollars in millions)

     Revenue                                                          $ 13,416   $11,980   $11,273
     Expenses                                                           11,086    10,592     9,676
     Net income                                                          2,330     1,388     1,597


     Assets owned                                                     $ 60,269   $51,038   $46,482
     Assets owned and managed                                          113,475    96,094    83,054
     Total liabilities                                                  47,145    39,882    36,338
     Net worth                                                          13,124    11,156    10,144




     Member Distributions
     years ended december 31          (Dollars in millions)               2006      2005      2004


     Automobile policyholder dividends                                   $105      $103      $126
     Subscriber’s Savings Account (SSA) distributions                     221       208       232

      Total automobile policyholder dividends and SSA distributions       326       311       358
     SSA senior bonus                                                      88        80        65
     SSA terminations                                                      62        58        57

      Total property and casualty distributions                           476       449       480
     Life insurance policyholder dividends                                 44        45        45
     Federal Savings Bank rebates and rewards                             275       200       145
     Total distributions to members                                      $795      $694      $670




26   usaa 2006 report to members
Consolidated Balance Sheets
years ended december 31    (Dollars in millions)      2006          2005           2004




assets

Investments                                        $25,984      $18,922       $19,073
Bank loans, net                                     20,159       17,536         15,520
Real estate investments, net                         1,194         1,287         1,266
Cash and cash equivalents                            2,092         3,376         1,972
Premiums due from policyholders                      1,681         1,612         1,494
Property and equipment, net                          1,398        1,383          1,333
Securities lending collateral                        2,688        1,455          1,481
Other assets                                         5,073         5,467         4,343
Total assets                                        60,269       51,038         46,482


liabilities

Insurance reserves                                 $10,641      $10,214       $ 9,229
Life insurance — funds on deposit                    8,095         7,740          7,711
Bank deposits                                       22,061       16,407         12,916
Borrowings                                            808            991         2,445
Securities lending payable                           2,688        1,455          1,481
Other liabilities                                    2,852         3,075         2,556
Total liabilities                                   47,145       39,882         36,338


net worth

Total net worth                                     13,124       11,156         10,144
Total liabilities and net worth                    $60,269      $51,038       $46,482




                                                             usaa 2006 report to members   27
Management’s Responsibility
for Financial Reporting
The management of USAA is responsible for the       USAA’s transactions are authorized, executed,
integrity and objectivity of the financial infor-   and recorded properly. In addition, USAA has
mation presented in this annual report. Due to      a professional staff of internal auditors who
the volume of financial information contained       monitor these controls on an independent basis.
in the audited consolidated financial statements,   The Finance and Audit Committee of USAA’s
which includes the financial statements as well     board of directors engaged Ernst & Young LLP
as the accompanying footnotes, we have chosen       as independent auditors to audit USAA’s finan-
not to include the full audited consolidated        cial statements and express an opinion thereon.
financial statements in this Report to Members.     Ernst & Young LLP’s audit included reviews and
The financial statements that appear in this        tests of USAA’s internal controls to the extent
document have been selected from the audited        they believe necessary to determine and conduct
consolidated financial statements to give basic     the audit procedures that support their opinion.
and necessary financial information about USAA.
Certain prior year amounts were reclassified to     The Finance and Audit Committee of USAA’s
conform to the current year presentation. The       board of directors consists of eight members,
selected financial information was prepared by      who are not officers or employees of USAA.
USAA in accordance with Accounting Principles       This committee meets periodically with man-
Generally Accepted in the United States of          agement, internal auditors, and Ernst & Young
America (GAAP), except for the key statutory        LLP to ensure that management fulfills its
data, which was prepared in accordance with         responsibility for accounting controls and prep-
Statutory Accounting Principles (SAP).              aration of the consolidated financial statements
Management believes the financial information       and related data.
contained in the audited consolidated financial
statements fairly presents USAA’s financial
position, results of operations, and cash flows.
A copy of the complete audited consolidated         robert g. dAvis

financial statements of USAA, including Ernst &     Chairman and Chief Executive Officer
Young LLP’s unqualified independent auditors’
report thereon, is available upon request to
USAA headquarters in San Antonio, Texas.

USAA’s internal controls are designed to reason-    josUe robLes jr.

ably ensure that USAA’s assets are safeguarded      Executive Vice President, Chief Financial Officer
from unauthorized use or disposition and that       and Corporate Treasurer




                                                                                 usaa 2006 report to members   25
Consolidated Statements of Net Worth
years ended december 31   (Dollars in millions)            2006           2005           2004




net worth

Beginning of year                                       $11,182       $10,140       $ 8,897
Distributions to policyholders                             (371)          (346)         (354)
Net income                                                2,330         1,388          1,597
End of year                                              13,141        11,182         10,140


accumulated other changes in net worth
from nonowner sources

Beginning of year                                           (26)             4           164
Unrealized (losses)/gains on securities during year,
 net of income taxes and reclassification adjustments       12             (39)         (146)
Other adjustments                                            (3)             9            (14)
End of year                                                 (17)           (26)             4
Total net worth                                         $13,124       $11,156       $10,144




                                                                   usaa 2006 report to members   29
     Consolidated Statements of Cash Flows
     years ended december 31       (Dollars in millions)         2006       2005       2004




     cash flows from operating activities

     Net income                                               $ 2,330    $ 1,388    $ 1,597
     Adjustments to reconcile net income to
     net cash provided by operating activities:
      Increase in insurance reserves                             529        512        543
      Interest credited on policyholder deposits                 350        338        316
      Net realized (gains)/losses                                (272)       (74)      (196)
      Increase in premiums due from policyholders                 (70)      (118)       (73)
      Depreciation and amortization                               54        188        295
      Decrease (increase) in loans held for sale                 145        (926)      (225)
      Change in other assets/liabilities                         (192)      186         (90)

        Net cash provided by operating activities               2,874      1,494      2,167


     cash flows from investing activities

     Proceeds from investments sold or matured                  9,441      9,886      8,404
     Cost of investments acquired                             (16,116)   (10,202)   (10,194)
     Net increase in bank loans                                (2,743)    (1,143)    (3,102)
     Other uses                                                   71        (237)      (369)

        Net cash used in investing activities                  (9,347)    (1,696)    (5,261)


     cash flows from financing activities

     Subscriber’s Savings Account distributions                  (371)      (343)      (354)
     Net (repayment) borrowing of debt                           (184)    (1,410)      243
     Net increase in bank deposits                              5,655      3,490      2,154
     Other                                                        89        (131)       95

        Net cash provided by financing activities               5,189      1,606      2,138

       Net increase (decrease) in cash and cash equivalents    (1,284)     1,404       (956)
     Cash and cash equivalents — Beginning of year              3,376      1,972      2,928
     Cash and cash equivalents — End of year                  $ 2,092    $ 3,376    $ 1,972




30   usaa 2006 report to members
 ★
★★           A Legacy of Giving
 Generations of USAA employees and retirees share a common legacy of service to the
 communities in which they live and work. That legacy was honored in 2006, when USAA
 received the Texas Governor’s Volunteer Award. The award celebrates the state’s most
 dedicated community volunteers, and USAA was recognized for its strong service ethic, its
 compassion, and for inspiring others to serve. In 2006, USAA, the USAA Federal Savings
 Bank, and The USAA Foundation distributed a combined $12.6 million to programs helping
 individuals from all walks of life.




               tHe UsAA FoUNdAtioN                                                    UNited WAY
     The USAA Foundation funded the renovation of a                      A record 97.4 percent of USAA employees
    family waiting room at Brooke Army Medical Center,                      participated in the 2006 United Way
and will fund three more in 2007. The waiting rooms provide                   campaign. Employees, retirees,
         families of injured soldiers with comfortable                     and The USAA Foundation contributed
    surroundings as doctors and nurses work to restore                           $7.3 million to United Way
                  their loved ones to health.                                      programs and agencies.


    tHe UsAA edUCAtioNAL FoUNdAtioN                                             seAsoN oF sHAriNg
      The USAA Educational Foundation distributed                      Since 1963, USAA’s Season of Sharing program
   2.2 million publications to individuals, organizations,             has provided cheer to thousands of individuals
        and military groups throughout the country.              and families. In 2006, more than 15,500 employees partici-
       Topics ranged from buying a first car to living                    pated, delivering holiday food and gifts to
                 comfortably in retirement.                                        more than 17,200 people.


            teeN driviNg CHALLeNge                                                   sAviNg Lives
       The USAA Educational Foundation launched its                 Through a relationship with the USAA General Agency
  “Cityville” series of online, interactive driving challenges     and Fireman’s Fund, USAA contributed $55,975 to the
  designed to help teens make good decisions behind the               San Antonio Fire Department for the purchase of
    wheel. The challenges expose teens to some of the            eight thermal-imaging cameras. Because thermal cameras
 most common driving dangers, including impaired driving,          quickly identify heat sources, they can save lives, make
      talking with other passengers, using cell phones,                firefighting safer, and reduce property damage.
                    and emotional distress.




               In 2006, 6,838 UsAA employees and retirees reported
                   330,087 hours of service to 374 organizations.
                    Their family members joined them for another
              56,257 volunteer hours, continuing the legacy of service.




                                                                                                      usaa 2006 report to members   31
     Board of Directors
     Sixteen accomplished individuals who have distinguished themselves through their
     military and civilian careers comprise USAA’s Board of Directors. Board members
     conduct regular, formal evaluations of the CEO and corporate performance.




                                                                                                                thomas b.
                                                                         marcelite j.               john h.       fargo
                                   leslie g.   william j.                  harris                  moellering
                 michael e.        denend        hybl                                    john d.
                                                            robert g.                   buckelew
                   ryan                                       davis




                                                                                      frederick m.
                                   joseph c.                stephen b.   thomas p.      hamilton
                 daniel w.                                    croker                                      lester l.
                christman          strasser       jay l.                  carney patricia c.
                                                johnson                                                     lyles
                                                                                   barron



32   usaa 2006 report to members
Biographies
patricia c. barron (Member since 1972. Elected 2000.)                      robert g. davis (Member since 1967. Elected 1999.)
A former professor at the Stern School of Business, New York               Davis is chairman, chief executive officer, and president of USAA.
University, Barron serves as a director on several corporations and is a   He joined USAA in 1996 after nearly 25 years in the financial services
trustee of the National Committee for Education and the Economy.           industry. The most highly decorated combat veteran to lead USAA,
She also served as president of two Xerox divisions and as vice            Davis served for seven years in the U.S. Army as a field artillery officer,
president, Business Operations Support. Barron graduated from              and led 685 combat missions in Vietnam as an attack helicopter flight
Bedford College of Physical Education in the United Kingdom and            commander. Davis holds a bachelor’s degree and a master’s degree in
holds a master’s degree in business administration from Harvard            business administration from the University of Texas at Arlington.
Business School. Member, Finance and Audit Committee.                      Chairman and chief executive officer; chair, Executive Committee.

john d. buckelew (Member since 1964. Elected 1994.)                        leslie g. denend (Member since 1962. Elected 1996.)
Most recently director of administration for an international law firm     A director of McAfee Inc., Exponent Corporation, and VeriFone
in Norfolk, Virginia, Buckelew is a graduate of the U.S. Naval             Corporation, Denend is the former president and chief executive
Academy and served in the U.S. Marine Corps as a combat engineer           officer of Network General Corporation. During his 20-year Air Force
officer and as a data systems officer. His final active-duty assignment    career, he served on President Reagan’s economic policy staff, was a
was oversight of the defense budget and organization in the Office of      member of President Carter’s National Security Council staff, and
the Chairman, Joint Chiefs of Staff. A Fulbright scholar at the            flew more than 190 combat missions. A distinguished graduate of
University of Vienna and the University of Bonn, Buckelew holds a          the U.S. Air Force Academy, he holds a master’s degree in business
doctorate in history from the University of California, San Diego.         administration and a doctorate in economics, public policy, and
Member, Finance and Audit Committee.                                       business from Stanford University. He was a Fulbright scholar in
                                                                           economics at the University of Bonn and a White House Fellow under
thomas p. carney (Member since 1963. Elected 1997.)                        President Ford. Vice chair of the board of directors; chair, Governance
A graduate of the U.S. Military Academy, Carney is an independent          Committee; vice chair, Executive Committee; ex officio member, Finance
consultant in strategic management, business process engineering,          and Audit and Personnel and Membership committees.
cost-benefit analysis, and activity-based management. After a 31-year
military career, he served as Deputy Librarian of Congress, where          thomas b. fargo (Member since 1970. Elected 2006.)
he was chief executive officer. Carney earned a master’s degree in         Fargo is president of Trex Enterprises and Chairman of Trex’s
operations research and systems analysis from the U.S. Naval Post-         subsidiaries — Loea Corp., a leader in high-speed, high-bandwidth
graduate School. Vice chair, Personnel and Membership Committee;           wireless communications; and Sago Systems Inc., a defense and
member, Governance and Executive committees.                               homeland security company. His 35-year Naval career included six
                                                                           tours in Washington, D.C., and five commands in the Pacific, Indian
daniel w. christman (Member since 1963. Elected 1995.)                     Ocean, and Middle East. He was the 20th officer to hold the position
Christman is senior vice president, international affairs, for the U.S.    of Commander U.S. Pacific Command and also served as the 29th
Chamber of Commerce. During his 36-year military career, Christman         commander in chief of the U.S. Pacific Fleet. Fargo earned a bachelor
served as assistant to the Chairman of the Joint Chiefs of Staff, U.S.     of science degree from the U. S. Naval Academy and has additional
representative to the North Atlantic Treaty Organization’s Military        business and related training from Harvard University and Stanford
Committee, and member of the National Security Council staff in the        University. Member, Finance and Audit Committee.
Office of the President. He also served as Superintendent of the U.S.
Military Academy at West Point. He graduated first in his class from       frederick m. hamilton (Member since 1965. Elected 1998.)
the U.S. Military Academy, holds master’s degrees in public affairs and    Hamilton is a recognized leader in the telecommunications
civil engineering from Princeton University, and a juris doctorate         infrastructure industry and has played a major role in shaping that
degree from George Washington University. Member, Personnel and            industry’s new competitive market. He was formerly a vice president of
Membership Committee.                                                      network construction and maintenance for Tyco Telecommunications
                                                                           in Morristown, New Jersey. The company designed, manufactured, and
stephen b. croker (Member since 1963. Elected 1996.)                       installed, as well as owned and operated, fiber optic telecommunications
An independent consultant, Croker trains officers and their staffs         submarine cable systems. During almost 27 years of military service,
from the 26 nations of NATO, as well as all U.S. military services, in     Hamilton held key command and staff positions in the U.S. Coast Guard.
joint warfare. During his Air Force career, Croker served with the         An honors graduate of the U.S. Coast Guard Academy, Hamilton holds
Air Combat Command and the Strategic Air Command, and                      a master’s degree in naval architecture and marine engineering and a
commanded the 8th Air Force at Barksdale Air Force Base, Louisiana.        master’s degree in mechanical engineering from Massachusetts
He served in the Office of the Chairman of the Joint Chiefs of Staff       Institute of Technology (MIT). He also earned a master’s degree in
and was the military assistant to the President’s special emissary on      management from the MIT Sloan School of Management. Member,
POW and MIA affairs. A U.S. Air Force Academy graduate, Croker             Finance and Audit Committee.
earned a master’s degree in international relations from Georgetown
University and a master’s degree in business administration from
Golden Gate University. Vice chair, USAA Advisory Panel; member,
Personnel and Membership Committee.



                                                                                                                       usaa 2006 report to members       33
     Biographies                 (Continued)



     marcelite j. harris (Member since 1967. Elected 1993.)                   john h. moellering (Member since 1959. Elected 1996.)
     Harris is the former chief of staff to the chancellor of the New York    The former president and chief executive officer of Lear Siegler
     City Department of Education. Prior to that, she was the logistics       Services Inc., Moellering is the founder of management consultancy
     process director and Florida site director for United Space Alliance.    JM Associates. He is a retired senior officer whose 28-year U.S. Army
     During her 31-year U.S. Air Force career, Harris was the first woman     career included key command assignments. Moellering was also a
     aircraft maintenance officer, one of the first two women air officers    White House Fellow, Commandant at West Point, and assistant to the
     commanding at the U.S. Air Force Academy, and the first woman            Chairman of the Joint Chiefs of Staff. A graduate of the U.S. Military
     deputy commander for maintenance for the U.S. Air Force. Harris          Academy, Moellering holds a master’s degree in engineering from the
     holds a bachelor’s degree in speech and drama, and an honorary           University of California, Berkeley, and is a graduate of the Stanford
     doctorate degree of humanities from Spelman College. She also holds      Business School Marketing Management Course for Senior
     a bachelor’s degree in business management from the University of        Executives. Chair, Finance and Audit Committee; member, Governance
     Maryland. Chair, USAA Advisory Panel; member, Personnel and              and Executive committees.
     Membership and Executive committees.
                                                                              michael e. ryan (Member since 1964. Elected 2002.)
     william j. hybl (Member since 1969. Elected 1994.)                       Ryan is president of the consulting firm Ryan Associates, focused on
     Hybl is chairman and chief executive officer of the El Pomar             national defense. During his Air Force career, he flew more than 150
     Foundation, which makes grants for education, healthcare, the            combat missions and commanded at all levels, from squadron through
     environment, amateur sports, human services, and the arts. A former      major command. He served as the NATO Air Commander directing
     member of the Colorado House of Representatives, and currently           combat operations in Bosnia, and as the 16th Chief of Staff of the
     vice chairman of the Broadmoor Hotel Board of Directors, Hybl also       U.S. Air Force. A graduate of the U.S. Air Force Academy, Ryan earned
     served as president of the U.S. Olympic Committee from 1991–1992         a master’s degree in business administration from Auburn University
     and 1996–2000 and currently serves as president emeritus. After          and completed the National Security Program at Harvard University.
     graduation from Colorado College and the University of Colorado Law      Member, Personnel and Membership Committee.
     School, Hybl became an officer in the U.S. Army. He was the U.S.
     representative to the 56th General Assembly of the United Nations for    joseph c. strasser (Member since 1964. Elected 1998.)
     2001–2002. Member, Personnel and Membership Committee.                   Strasser is the former executive director of the Naval War College
                                                                              Foundation in Newport, Rhode Island, and former dean of
     jay l. johnson (Member since 1968. Elected 2000.)                        Pennsylvania State University’s Commonwealth College. During his
     Johnson is president and chief executive officer of Dominion Delivery,   32-year Naval career, he commanded a frigate, a destroyer squadron, a
     Richmond, Virginia. He culminated a 32-year Naval career with service    cruiser-destroyer group, and the U.S.S. Enterprise carrier battle group.
     as 26th Chief of Naval Operations and as a member of the Joint Chiefs    He also served as executive assistant to the Chairman of the Joint
     of Staff from 1996 to 2000. He also served as 28th Vice Chief of         Chiefs of Staff and as president of the Naval War College. A U.S. Naval
     Naval Operations. He was a combat carrier aviator in Vietnam and         Academy graduate, Strasser earned master’s degrees in international
     commanded at every level from fighter squadron to numbered fleet.        relations and international law and diplomacy, and a doctorate in
     A U.S. Naval Academy graduate, Johnson flew 150 combat missions as       political science, all from Tufts University. Vice Chair, Finance and
     a fighter pilot in Vietnam. Chair, Personnel and Membership Committee;   Audit Committee; member, Governance and Executive committees.
     member, Governance and Executive committees.

     lester l. lyles (Member since 1968. Elected 2004.)
     Lyles is an independent technology consultant, partner in Four Seasons
     Ventures, and member of the NASA Advisory Council. He is also a
     director of Analytic Services Inc., Batelle Memorial Institute, Dayton
     Power & Light, General Dynamics Corp., and MTC Technologies Inc.
     During his 35-year military career, this distinguished graduate of the
     Air Force ROTC program served as commander of the Air Force
     Materiel Command, vice chief of staff of the headquarters of the U.S.
     Air Force, director of the Ballistic Missile Defense Organization, and
     commander of the Space and Missile Systems Center. Lyles received a
     bachelor’s degree in mechanical engineering from Howard University.
     He received a master’s degree in mechanical and nuclear engineering,
     as well as an honorary doctor of laws, from New Mexico State
     University. Member, Finance and Audit Committee.




34   usaa 2006 report to members
  Executive Council                                 (as of February 14, 2007)


  The day-to-day operations of USAA’s companies and staff agencies are managed by
  the 12 members of USAA’s executive council.




 robert g. davis       stuart parker        christopher w. claus s. wayne peacock                kristi a. matus          michael a. luby
Chairman and Chief        President,               President,                Executive              President,                President,
 Executive Officer    Property & Casualty    USAA Financial Services      vice President,       USAA Life Insurance      USAA Federal Savings
                       Insurance Group          Group and USAA          Enterprise Business         Company                     Bank
                                            Investment Management           Operations
                                                   Company




david h. garrison     wendi e. strong        steven a. bennett elizabeth d. conklyn             josue robles jr.         dawn m. johnson
      Executive            Executive              Executive                  Executive               Executive                Executive
   vice President,      vice President,        vice President,            vice President,      vice President, Chief       vice President,
 Corporate Services        Corporate         General Counsel and          People Services      Administrative Officer,        Marketing
                       Communications        Corporate Secretary                               Chief Financial Officer
                                                                                              and Corporate Treasurer



                                                                                                           usaa 2006 report to members   35
     Advisory Panel
     USAA’s 14-member Advisory Panel includes members of all ages and from all walks
     of life. Panel members provide candid and valuable feedback about USAA’s products,
     services, marketing campaigns, and delivery methods.




       marcelite harris              stephen croker             michael baumeister                carolyn dekok                 joshua gordon
              Chair                      vice Chair                        Major                      Widow of an                     Major
       USAA Advisory Panel          USAA Advisory Panel                 U.S. Army                   Air Force officer           U.S. Marine Corps
        Rockledge, Florida         Chestertown, Maryland       Fayetteville, north Carolina   Colorado Springs, Colorado       Corpus Christi, Texas
       Member since 1967            Member since 1963             Member since 1991              Member since 1968             Member since 1994




        charleta harvey                andrew kelly                 ann maggart                     jason ross              veronica bandrowsky
      Spouse of a naval officer     Son of a naval officer         Former spouse of           Son of an Air Force officer       Chief Petty Officer
        Lemoore, California        San Francisco, California        an Army officer           Murfreesboro, Tennessee           U.S. Coast Guard
        Member since 1999            Member since 1993            San Antonio, Texas            Member since 1998            Belle Chasse, Louisiana
                                                                  Member since 1966                                           Member since 1998




                  patricia lawrence               stephen sheehy               debra strickland                carolyn auman
                  Senior Master Sergeant               Colonel              Command Sergeant Major         Daughter of an Army officer
                     Air Force Reserve              U.S. Air Force                U.S. Army                  Santa Cruz, California
                    San Antonio, Texas           Beale Air Force Base,        Woodbridge, virginia           Member since 1992
                   Member since 1993                  California              Member since 1999
                                                 Member since 1980




36   usaa 2006 report to members
                                              Additional Information                                                                                                       usaa.com
                                              UsAA Headquarters                          Annual Meeting of
                                              USAA                                       UsAA Members
                                              9800 Fredericksburg Road                   Saturday, november 17,
                                              San Antonio, Texas 78288                   2007, 9 a.m. (Pacific time)
                                              (800) 531-8646                             The Island Hotel
                                              (annual report inquiries only)             690 newport Center Drive
                                                                                         newport Beach, Calif. 92660
                                              independent Public Accountants
                                              Ernst & young LLP                          the UsAA
                                              San Antonio, Texas                         educational Foundation
                                              USAA is not a publicly held com-           USAA
                                              pany and does not file an SEC              9800 Fredericksburg Road
                                              form 10-K.                                 San Antonio, Texas 78288
                                                                                         www.usaaedfoundation.org




                                              Regulatory Disclosures
                                              “USAA” and “association” mean United Services Automobile Association            usaa.com
                                               and its affiliates. Property and casualty insurance provided by United
                                                                                                                              investments/insurance:
                                               Services Automobile Association, USAA Casualty Insurance Company,
                                                                                                                              Not FDIC Insured • Not Bank Guaranteed • May Lose Value
                                               USAA General Indemnity Company, Garrison Property and Casualty
                                               Insurance Company, USAA County Mutual Insurance Company, USAA                  Restrictions apply for $5.95 trades. visit usaa.com for more information
                                               Texas Lloyds Company and USAA, Ltd (Europe), San Antonio, TX, and is           and a commission schedule.
                                               available only to persons eligible for P&C group membership. Investment        Quicken® and TurboTax® are registered trademarks of Intuit Inc.
                                               products and services provided by USAA Investment Management                   Microsoft® Money is a registered trademark of Microsoft Corporation.
                                               Company, a registered broker dealer. Life insurance and annuity products
                                               provided by USAA Life Insurance Company, San Antonio, TX. In ny, life          other
                                               insurance and fixed annuities provided by USAA Life Insurance Company
                                                                                                                              *As used in this report, $6.2 billion includes amounts returned
                                               of new york, Highland Falls, new york. Financial planning services and
                                                                                                                               to members, associates, and other customers.
                                               financial advice provided by USAA Financial Planning Services Insurance
                                               Agency, Inc. (known as USAA Financial Insurance Agency in California),         MoversAdvantage® offered by USAA Relocations Services Inc.,
                                               a registered investment adviser and insurance agency and its wholly            a licensed real estate broker and subsidiary of USAA Federal
                                               owned subsidiary, USAA Financial Advisors, Inc., a registered broker           Savings Bank.
                                               dealer. Merchandise provided by USAA Merchandise Services Company.
                                                                                                                              A++ (Superior) from A.M. Best Co., highest of 16 possible ratings;
                                               Alliance services provided through USAA Alliance Services, L.P. Banking
                                                                                                                              Aaa (Exceptional) from Moody’s Investors Service, highest of 21 possible
                                               products provided by USAA Federal Savings Bank, an equal housing
                                                                                                                              ratings; Aa1 (Excellent) from Moody’s, second highest of 21 possible
                                               lender. Credit cards provided by USAA Savings Bank. Both banks
                                                                                                                              ratings; AAA (Extremely Strong) from Standard & Poor’s, highest of
                                               Member FDIC.
                                                                                                                              21 possible ratings.
                                                                                                                              The USAA Foundation and The USAA Educational Foundation
Principal Photography: Erin Patrice O’Brien




                                                                                                                              (the “Foundations”) are nonprofit organizations sponsored by USAA.
                                                                                                                              The Foundations do not endorse or promote any commercial supplier,
                                              Member
                                                                                                                              product, or service.
                                              The term “member” generally refers to current USAA customers who
                                              are eligible for property and casualty insurance, and their spouses and
                                              children who are current USAA customers. Use of the term “member”
                                              does not convey any legal, eligibility, or ownership rights. To be a member
                                              of the USAA property and casualty insurance group, individuals must meet
                                              certain eligibility requirements and purchase a USAA property or casualty
                                              insurance group policy. Eligible parent must purchase property and
                                              casualty insurance for eligibility to pass down to children. Ownership rights
Design: VSA Partners, Inc.




                                              are limited to policyholders of United Services Automobile Association.
61485-0307

				
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