<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 11-K
X Annual Report Pursuant to Section 15(d) of the
--- Securities Exchange Act of 1934 (Fee Required)
or
--- Transition Report Pursuant to Section 15(d) of
the Securities Exchange Act of 1934(no fee required)
for the transition period from to .
--------- ----------
For the fiscal year ended December 31, 1998
Commission file number 0-3021
------------------------------
USF&G CAPITAL ACCUMULATION PLAN
THE ST. PAUL COMPANIES, INC.
385 WASHINGTON STREET
ST. PAUL MINNESOTA 55102
(Full title of the Plan and address of the Plan)
------------------------------
THE ST. PAUL COMPANIES, INC.
385 WASHINGTON STREET
ST. PAUL, MINNESOTA 55102
(Name and address of principal executive
offices of the issuer of the securities)
-------------------------------
<PAGE>
REQUIRED INFORMATION
--------------------
The USF&G Capital Accumulation Plan (the "Plan") is subject to the
provisions of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and for purposes of satisfying the requirements of
Form 11-K has included for filing herewith the Plan financial
statements and schedules prepared in accordance with the financial
reporting requirements of ERISA.
Financial Statements and Schedules Page
- ---------------------------------- ----
Independent Auditors' Report . . . . . . . . . . . 3
Statements of Net Assets Available
for Plan Benefits . . . . . . . . . . . . . . . . 4-5
Statements of Changes in Net Assets
Available for Plan Benefits . . . . . . . . . . . 6-7
Notes to Financial Statements . . . . . . . . . . . 8-13
Item 27a-Schedule of Assets Held for Investment Purposes 14
Item 27d-Schedule of Reportable Transactions . . . . 15
<PAGE>
INDEPENDENT AUDITORS' REPORT
------------------------------
The Plan Administrative Committee and Plan Participants
USF&G Capital Accumulation Plan:
We have audited the accompanying statement of net assets
available for plan benefits of the USF&G Capital Accumulation
Plan (the Plan) as of December 31, 1998, and the related
statement of changes in net assets available for plan benefits
for the year then ended. These financial statements
are the responsibility of the Plan administrator. Our
responsibility is to express an opinion on these financial
statements based on our audit. The accompanying financial
statements of the Plan as of, and for the year ended December 31,
1997, were audited by other auditors whose report thereon dated June 4,
1998, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the net assets
available for plan benefits of the USF&G Capital Accumulation
Plan as of December 31, 1998, and the changes in the net assets
available for plan benefits for the year then ended in
conformity with generally accepted accounting principles.
Our audit was performed for the purpose of
forming an opinion on the basic financial
statements taken as a whole. The supplemental schedules of
assets held for investment purposes and reportable transactions
are presented for the purpose of additional analysis and are not
a required part of the basic financial statements, but are
supplementary information required by the Department of Labor's
Rules and Regulations for Reporting and Disclosure under the
Employee Retirement Income Security Act of 1974. The fund
information in the statement of changes in net assets available
for plan benefits is presented for purposes of additional
analysis rather than to present the changes in net assets
available for plan benefits of each fund. The
supplemental schedules have been subjected to the auditing
procedures applied in the audit of the basic financial statements
and, in our opinion, are fairly stated in all material respects
in relation to the basic financial statements taken as a whole,
for the year ended December 31, 1998.
/s/ KPMG PEAT MARWICK LLP
---------------------
KPMG PEAT MARWICK LLP
Minneapolis, Minnesota
June 18, 1999
<PAGE>
USF&G CAPITAL ACCUMULATION PLAN
Statement of Net Assets Available for Plan Benefits
At December 31, 1998
Life Life
Life Strategy Strategy
Fixed Strategy Conser- Moderate
Income Stock Income vative Growth
(In thousands) Fund Fund Fund Fund Fund
------- ------- ------- ---------- -------
Assets:
Investments at fair value:
Mutual investment funds $ - $ - $ - $ - $ -
Group Annuity Contract 43,052* - - - -
Short-term investments 1,121 272 - - -
The St. Paul Companies,
Inc. common stock - 10,280 - - -
Employee loans - - - - -
------- ------- ------- -------- -------
Total investments 43,173 10,552 - - -
Open investment transactions - - 1,559 2,310 4,167
Cash - - - - -
Accrued investment income 4 74 - - -
------- ------- ------- -------- -------
Total assets 44,177 10,626 1,559 2,310 4,167
------- ------- ------- -------- -------
Liabilities:
Total liabilities - - - - -
------- ------- ------- -------- -------
Net assets available for plan
benefits $44,177 $10,626 $1,559 $2,310 $4,167
======= ======= ======= ======== =======
Inter-
Life mediate
Strategy Term
Growth Treasury Wellington Windsor II
(In thousands) Fund Fund Fund Fund
------- -------- ---------- ----------
Assets:
Investments at fair value:
Mutual investment funds $ - $ - $ - $ -
Group Annuity Contract - - - -
Short-term investments - - - -
The St. Paul Companies,
Inc. common stock - - - -
Employee loans - - - -
------- -------- -------- --------
Total investments - - - -
Open investment transactions 6,568 10,356 44,987 24,268
Cash - - - -
Accrued investment income - 48 - -
------- -------- -------- --------
Total assets 6,568 10,404 44,987 24,268
------- -------- -------- --------
Liabilities:
Total liabilities - - - -
------- -------- -------- --------
Net assets available for plan
benefits $6,568 $10,404 $44,987 $24,268
======= ======== ======== ========
PrimeCap Explorer International Employee
(In thousands) Fund Fund Fund Loans
------- ------- ------------- ----------
Assets:
Investments at fair value:
Mutual investment funds $ - $ - $ - $ -
Group Annuity Contract - - - -
Short-term investments - - - -
The St. Paul Companies,
Inc. common stock - - - -
Employee loans - - - 6,894
------- ------- ---------- ---------
Total investments - - - 6,984
Open investment
transactions 65,020 4,200 4,350 -
Cash - - - -
Accrued investment income - - - -
------- ------- ---------- ---------
Total assets 65,020 4,200 4,350 6,984
------- ------- ---------- ---------
Liabilities:
Total liabilities - - - -
------- ------- ---------- ---------
Net assets available for plan
benefits $65,020 $4,200 $4,350 $6,984
======= ======= ========== =========
(In thousands) Total
-------
Assets:
Investments at fair value:
Mutual investment funds $ -
Group Annuity Contract 43,052
Short-term investments 1,393
The St. Paul Companies,
Inc. common stock 10,280
Employee loans 6,894
-------
Total investments 61,619
Open investment
transactions 167,785
Cash -
Accrued investment income 126
-------
Total assets 229,530
-------
Liabilities:
Total liabilities -
-------
Net assets available for plan
benefits $229,530
=======
*Investment represents 5 percent or more of the Plan's net assets
available for plan benefits.
See accompanying notes to financial statements.
<PAGE>
USF&G CAPITAL ACCUMULATION PLAN
Statement of Net Assets Available for Plan Benefits
At December 31, 1997
Life Life
Life Strategy Strategy
Fixed Strategy Conser- Moderate
Income Stock Income vative Growth
(In thousands) Fund Fund Fund Fund Fund
------- ------- ------- ---------- -------
Assets:
Investments at fair value:
Mutual investment funds $ - $ - $475 $1,738 $3,111
Group Annuity Contract 45,424 - - - -
Short-term investments 571 1 - - -
The St. Paul Companies,
Inc. common stock - 14,845 - - -
Employee loans - - - - -
------- ------- ------- -------- -------
Total investments 45,995 14,846 475 1,738 3,111
Cash - - - - -
Accrued investment income 4 1 - - -
------- ------- ------- -------- -------
Total assets 45,999 14,847 475 1,738 3,111
------- ------- ------- -------- -------
Liabilities:
Total liabilities - - - - -
------- ------- ------- -------- -------
Net assets available for plan
benefits $45,999 $14,847 $475 $1,738 $3,111
======= ======= ======= ======== =======
Inter-
Life mediate
Strategy Term
Growth Treasury Wellington Windsor II
(In thousands) Fund Fund Fund Fund
------- ---------- --------- ----------
Assets:
Investments at fair value:
Mutual investment funds $4,333 $7,719 $45,199 $19,045
Group Annuity Contract - - - -
Short-term investments - - - -
The St. Paul Companies,
Inc. common stock - - - -
Employee loans - - - -
------- --------- -------- ---------
Total investments 4,333 7,719 45,199 19,045
Cash - - - -
Accrued investment income - - - -
------- --------- -------- ---------
Total assets 4,333 7,719 45,199 19,045
------- --------- -------- ---------
Liabilities:
Total liabilities - - - -
------- --------- -------- ---------
Net assets available for plan
benefits $4,333 $7,719 $45,199 $19,045
======= ========= ======== =========
PrimeCap Explorer International Employee
(In thousands) Fund Fund Fund Loans
------- ------- ------------ ----------
Assets:
Investments at fair value:
Mutual investment funds $57,451 $3,701 $3,948 $ -
Group Annuity Contract - - - -
Short-term investments - - - -
The St. Paul Companies,
Inc. common stock - - - -
Employee loans - - - 8,276
------- ------- --------- ---------
Total investments 57,451 3,701 3,948 8,276
Cash - - - -
Accrued investment income - - - -
------- ------- --------- ---------
Total assets 57,451 3,701 3,948 8,276
------- ------- --------- ---------
Liabilities:
Total liabilities - - - -
------- ------- --------- ---------
Net assets available for plan
benefits $57,451 $3,701 $3,948 $8,276
======= ======= ========= =========
(In thousands) Total
--------
Assets:
Investments at fair value:
Mutual investment funds $146,720
Group Annuity Contract 45,424
Short-term investments 572
The St. Paul Companies,
Inc. common stock 14,845
Employee loans 8,276
--------
Total investments 215,837
Cash -
Accrued investment income 5
--------
Total assets 215,842
--------
Liabilities:
Total liabilities -
--------
Net assets available for plan
benefits $215,842
========
See accompanying notes to financial statements.
<PAGE>
USF&G CAPITAL ACCUMULATION PLAN
Statement of Changes Net Assets Available for Plan Benefits
For the Year Ended December 31, 1998
Life Life
Life Strategy Strategy
Fixed Strategy Conser- Moderate
Income Stock Income vative Growth
(In thousands) Fund Fund Fund Fund Fund
------- ------- ------- ---------- -------
Additions:
Contributions:
Employees $2,111 $1,067 $96 $175 $607
Employer 681 288 25 44 133
------- ------- ------- ------- -------
Total contributions 2,792 1,355 121 219 740
Net appreciation
(depreciation) in
fair value of investments - (1,122) 75 216 517
Dividend and interest income 170 386 58 93 132
Interest income on annuity
contract 2,127 - - - -
------- ------- ------- ------- -------
Total additions 5,089 619 254 528 1,389
Deductions:
Withdrawals by participants 7,914 1,876 136 288 510
------- ------- ------- ------- -------
Net increase (decrease) before
interfund transfers (2,825) (1,257) 118 240 879
Interfund transfers 1,003 (2,964) 966 332 177
------- ------- ------- ------- -------
Net increase (decrease) (1,822) (4,221) 1,084 572 1,056
Net assets available for plan
benefits:
Beginning of year 45,999 14,847 475 1,738 3,111
------- ------- ------- ------- -------
End of year $44,177 $10,626 $1,559 $2,310 $4,167
======= ======= ======= ======= =======
Inter-
Life mediate
Strategy Term
Growth Treasury Wellington Windsor II
(In thousands) Fund Fund Fund Fund
------- ---------- ---------- ----------
Additions:
Contributions:
Employees $1,088 $548 $2,625 $2,154
Employer 218 142 735 502
------- -------- -------- --------
Total contributions 1,306 690 3,360 2,656
Net appreciation
(depreciation) in
fair value of investments 901 369 3,577 2,544
Dividend and interest income 155 528 1,736 529
Interest income on annuity
contract - - - -
------- -------- -------- --------
Total additions 2,362 1,587 8,673 5,729
Deductions:
Withdrawals by participants 566 1,935 6,311 2,817
------- -------- -------- --------
Net increase (decrease) before
interfund transfers 1,796 (348) 2,362 2,912
Interfund transfers 439 3,033 (2,574) 2,311
------- -------- -------- --------
Net increase (decrease) 2,235 2,685 (212) 5,223
Net assets available for plan
benefits:
Beginning of year 4,333 7,719 45,199 19,045
------- -------- -------- --------
End of year $6,568 $10,404 $44,987 $24,268
======= ======== ======== ========
PrimeCap Explorer International Employee
(In thousands) Fund Fund Fund Loans
------- ------- ------------ --------
Additions:
Contributions:
Employees $3,984 $581 $524 $ -
Employer 1,053 128 118 -
------- ------- ------- --------
Total contributions 5,037 709 642 -
Net appreciation
(depreciation) in
fair value of investments 12,892 126 539 -
Dividend and interest income 575 26 62 -
Interest income on annuity
contract - - - -
------- ------- ------- -------
Total additions 18,504 861 1,243 -
Deductions:
Withdrawals by participants 8,753 594 624 826
------- ------- ------- -------
Net increase (decrease) before
interfund transfers 9,751 267 619 (826)
Interfund transfers (2,182) 232 (217) (556)
------- ------- ------- -------
Net increase (decrease) 7,569 499 402 (1,382)
Net assets available for plan
benefits:
Beginning of year 57,451 3,701 3,948 8,276
------- ------- ------- -------
End of year $65,020 $4,200 $4,350 $6,984
======= ======= ======= =======
(In thousands) Total
-------
Additions:
Contributions:
Employees $15,560
Employer 4,067
-------
Total contributions 19,627
Net appreciation
(depreciation) in
fair value of investments 20,634
Dividend and interest income 4,450
Interest income on annuity
contract 2,127
-------
Total additions 46,838
Deductions:
Withdrawals by participants 33,150
-------
Net increase (decrease) before
interfund transfers 13,688
Interfund transfers -
-------
Net increase (decrease) 13,688
Net assets available for plan
benefits:
Beginning of year 215,842
-------
End of year $229,530
=======
See accompanying notes to financial statements.
<PAGE>
USF&G CAPITAL ACCUMULATION PLAN
Statement of Changes Net Assets Available for Plan Benefits
For the Year Ended December 31, 1997
Life Life
Life Strategy Strategy
Fixed Strategy Conser- Moderate
Income Stock Income vative Growth
(In thousands) Fund Fund Fund Fund Fund
------- ------- ------- ---------- -------
Additions:
Contributions:
Employees $3,057 $1,499 $63 $459 $576
Employer 980 425 20 42 126
------- ------- ------- ------- -------
Total contributions 4,037 1,924 83 501 702
Net appreciation
(depreciation) in
fair value of investments - 906 30 97 385
Dividend and interest income 210 234 24 53 104
Interest income on annuity
contract 2,361 - - - -
------- ------- ------- ------- -------
Total additions 6,608 3,064 137 651 1,191
Deductions:
Withdrawals by participants 6,403 1,150 38 38 276
------- ------- ------- ------- -------
Net increase (decrease) before
interfund transfers 205 1,914 99 613 915
Interfund transfers (6,140) (679) 114 533 32
------- ------- ------- ------- -------
Net increase (decrease) (5,935) 1,235 213 1,146 947
Net assets available for plan
benefits:
Beginning of year 51,934 13,612 262 592 2,164
------- ------- ------- ------- -------
End of year $45,999 $14,847 $475 $1,738 $3,111
======= ======= ======= ======= =======
Inter-
Life mediate
Strategy Term
Growth Treasury Wellington Windsor II
(In thousands) Fund Fund Fund Fund
------- ---------- --------- -----------
Additions:
Contributions:
Employees $1,081 $805 $3,003 $2,105
Employer 216 218 915 490
------- ------- ------- -------
Total contributions 1,297 1,023 3,918 2,595
Net appreciation
(depreciation) in
fair value of investments 552 177 6,900 3,580
Dividend and interest income 104 496 1,688 424
Interest income on annuity
contract - - - -
------- ------- ------- -------
Total additions 1,953 1,696 12,506 6,599
Deductions:
Withdrawals by participants 403 704 3,447 859
------- ------- ------- -------
Net increase (decrease) before
interfund transfers 1,550 992 9,059 5,740
Interfund transfers 189 (1,124) (1,244) 3,818
------- ------- ------- -------
Net increase (decrease) 1,739 (132) 7,815 9,558
Net assets available for plan
benefits:
Beginning of year 2,594 7,851 37,384 9,487
------- ------- ------- -------
End of year $4,333 $7,719 $45,199 $19,045
======= ======= ======= =======
PrimeCap Explorer International Employee
(In thousands) Fund Fund Fund Loans
------- -------- ------------ ----------
Additions:
Contributions:
Employees $4,413 $695 $821 $ -
Employer 1,213 169 182 -
------- ------- ------- -------
Total contributions 5,626 864 1,003 -
Net appreciation
(depreciation) in
fair value of investments 14,128 356 (2) -
Dividend and interest income 397 26 64 -
Interest income on annuity
contract - - - -
------- ------- ------- -------
Total additions 20,151 1,246 1,065 -
Deductions:
Withdrawals by participants 3,950 206 259 788
------- ------- ------- -------
Net increase (decrease) before
interfund transfers 16,201 1,040 806 (788)
Interfund transfers 3,140 (243) 552 1,052
------- ------- ------- -------
Net increase (decrease) 19,341 797 1,358 264
Net assets available for plan
benefits:
Beginning of year 38,110 2,904 2,590 8,012
------- ------- ------- -------
End of year $57,451 $3,701 $3,948 $8,276
======= ======= ======= =======
(In thousands) Total
-------
Additions:
Contributions:
Employees $18,577
Employer 4,996
-------
Total contributions 23,573
Net appreciation
(depreciation) in
fair value of investments 27,109
Dividend and interest income 3,824
Interest income on annuity
contract 2,361
-------
Total additions 56,867
Deductions:
Withdrawals by participants 18,521
-------
Net increase (decrease) before
interfund transfers 38,346
Interfund transfers -
-------
Net increase (decrease) 38,346
Net assets available for plan
benefits:
Beginning of year 177,496
-------
End of year $215,842
=======
See accompanying notes to financial statements.
<PAGE>
USF&G CAPITAL ACCUMULATION PLAN
Notes to Financial Statements
December 31, 1998 and 1997
NOTE 1 Significant Accounting Policies
The accompanying financial statements are presented on the accrual basis
of accounting and include all funds of the USF&G Capital Accumulation
Plan (Plan).
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of additions and
deductions during the reported period. Actual results could differ from
those estimates.
Certain amounts in the 1997 financial statements have been reclassified
to conform to the 1998 presentation.
Merger
------
On April 24, 1998, a merger between The St. Paul Companies, Inc. (The
St. Paul) and USF&G Corporation (USF&G) was consummated. This business
combination has been accounted for as a pooling of interests;
accordingly, reference in these notes to "the Company" encompasses the
combined company. The combined company operates under The St. Paul name
and is based in St. Paul, Minnesota. As a result of this merger, the
Plan received 346,446 shares of The St. Paul's common stock (as adjusted
for the May 6, 1998 two-for-one stock split) in exchange for the common
stock of USF&G held by the Plan.
Investment Valuation and Income Recognition
-------------------------------------------
The investment in common stock of the Company and in shares of
investment funds are carried at market value, based on published market
quotations. Realized gains or losses on sales of these investments and
the change in unrealized appreciation or depreciation in the market
value of these investments are presented in total in the statements of
changes in net assets available for plan benefits. The average cost
method is used to determine cost of shares sold or distributed.
Purchases and sales of investments are recorded on a trade date basis.
Short-term investments are carried at cost which approximates market
value.
<PAGE>
USF&G CAPITAL ACCUMULATION PLAN
Notes to Financial Statements
December 31, 1998 and 1997
NOTE 1 Significant Accounting Policies (continued)
Investment Contract
-------------------
The group annuity contract represents the accumulation of contributions
and investment income earned, net of any deductions, with the Fidelity
and Guaranty Life Insurance Company (F&G Life), a wholly-owned
subsidiary of the Company, since the inception of the employer's
contract.
The group annuity contract is a fully benefit-responsive investment
contract under which participants receive the contract value if they
initiate transactions under the terms of the ongoing plan. A minimum
credited interest rate of 4% is guaranteed and reset annually based on
projections of the investment returns for the forthcoming year. The
credited interest rate and average yield, which are the same, were 5.0%
during the years ended December 31, 1998 and 1997. This investment is
carried at contract value which was $43,051,949 and $45,424,336 at
December 31, 1998 and 1997, respectively. Contract value approximates
fair value.
Administrative Expenses
-----------------------
Administrative expenses of the Plan are paid by the Company and are not
reflected in the accompanying financial statements.
NOTE 2 Summary Description of the Plan
General Provisions
------------------
The Plan is a defined contribution plan available to employees who work
20 hours or more each week for the Company, its subsidiaries, and
certain affiliates. There is no age or length of service eligibility
requirement. Voluntary employee contributions are made through payroll
withholdings ranging from 1% to 17% (in whole percent increments) of the
participant's compensation, as defined by the Plan. Employees who earn
in excess of $80,000 for 1998 and 1997 are limited to contributions up
to 10% of their base compensation. The first 6% of the participant's
base compensation, as defined by the Plan, is matched by a contribution
of the Company on the basis of $.50 for each $1.00 contributed by an
employee.
The following brief description of the Plan is provided for general
information purposes. Participants should refer to the Plan document
and the employee benefits book for more complete information.
<PAGE>
USF&G CAPITAL ACCUMULATION PLAN
Notes to Financial Statements
December 31, 1998 and 1997
NOTE 2 Summary Description of the Plan (continued)
Vesting
-------
The participants' contributions are fully vested at all times. The
Company's matching contributions become vested on the last working day
of the calendar year following the Plan year in which the contributions
were made, provided that the participant is an active employee on that
day, or upon the event of the participants' retirement, total
disability or death. This vesting is maintained until the participant
has completed five years of continuous service. Thereafter, Company
contributions become 100% vested on the fifth anniversary of the
participant's date of hire.
Investment Funds
----------------
The Plan provides participants with twelve investment options as
described below:
i. Fixed Income Fund (F&G Life Group Fixed Annuity
Contract) - A fund set up under contract with F&G Life that
guarantees principal and interest at a rate that is determined
each year.
ii. Stock Fund - Designed to invest in common stock of the
Company.
iii. Life Strategy Income Fund (Vanguard) - Provides a mix of
stocks (20%), bonds (60%), and cash reserves (20%) with an
objective of providing current income at low to moderate level
of risk of short-term losses. On Dec. 31, 1998 the investment
in Vanguard Life Strategy Income Fund was sold and reinvested
in the Fidelity U.S. Bond Index Fund on Jan. 4, 1999.
iv. Life Strategy Conservative Fund (Vanguard) - Provides a mix
of stocks (40%), bonds (40%), and cash reserves (20%) with an
objective of providing current income and low to moderate
capital growth at a moderate level of risk of short-term
losses. On Dec. 31, 1998 the investment in Vanguard Life
Strategy Conservative Fund was sold and reinvested in the
Fidelity Puritan Fund on Jan. 4, 1999.
v. Life Strategy Moderate Growth Fund (Vanguard) - Provides a
mix of stocks (60%) and bonds (40%) with an objective of
providing moderate capital growth at a moderate level of risk
of short-term losses. On Dec. 31, 1998 the investment in
Vanguard Life Strategy Moderate Growth Fund was sold and
reinvested in the Fidelity Puritan Fund on Jan. 4, 1999.
vi. Life Strategy Growth Fund (Vanguard) - Provides a mix of
stocks (80%) and bonds (20%) with an objective of providing
long-term capital growth at a moderate level of risk of short-
term losses. On Dec. 31, 1998 the investment in Vanguard Life
Strategy Growth Fund was sold and reinvested in the Fidelity
Blue Chip Growth Fund on Jan. 4, 1999.
<PAGE>
USF&G CAPITAL ACCUMULATION PLAN
Notes to Financial Statements
December 31, 1998 and 1997
NOTE 2 Summary Description of the Plan (continued)
Investment Funds (continued)
----------------------------
vii. Intermediate-Term Treasury Fund (Vanguard) - A fixed-income
fund that seeks to provide a high level of current income by
investing in medium-term (five to ten years) U.S. Treasury
obligations. On Dec. 31, 1998 the investment in Vanguard
Intermediate-Term Treasury Fund was sold and reinvested in the
Fidelity U.S. Bond Index Fund on Jan. 4, 1999.
viii. Wellington Fund (Vanguard) - A balanced fund that seeks
conservation of principal, long-term growth of capital and
reasonable current income by investing 60% to 70% of assets in
common stocks and 30% to 40% in high quality corporate bonds
and U.S. Government securities. On Dec. 31, 1998 the
investment in Vanguard Wellington Fund was sold and reinvested
in the Fidelity Puritan Fund on Jan. 4, 1999.
ix. Windsor II Fund (Vanguard) - A growth and income fund that
uses a "value oriented" strategy to seek long-term capital
appreciation and dividend income by investing in common stocks.
On Dec. 31, 1998 the investment in Vanguard Windsor II Fund was
sold and reinvested in the Fidelity Equity Income Fund on Jan.
4, 1999.
x. PRIMECAP Fund (Vanguard) - A growth fund which seeks long-
term growth of capital by investing principally in a portfolio
of common stocks. On Dec. 31, 1998 the investment in Vanguard
PRIMECAP Fund was sold and reinvested in the Fidelity Blue Chip
Growth Fund on Jan. 4, 1999.
xi. Explorer Fund (Vanguard) - An aggressive growth fund that
seeks long-term growth of capital by investing primarily in
common stocks of small, emerging companies. On Dec. 31, 1998
the investment in Vanguard Explorer Fund was sold and
reinvested in the Franklin Small Cap Growth Fund on Jan. 4,
1999.
xii. International Fund (Vanguard) - An international fund which
seeks long-term growth of capital by investing in non-U.S.
equity securities of established companies. On Dec. 31, 1998
the investment in Vanguard International Fund was sold and
reinvested in the Fidelity Diversified International Fund on
Jan. 4, 1999.
The Trustee utilizes a short-term investing fund as a holding account
for subsequent cash disbursements. Money is transferred from the
various other funds to this account to pay for employee withdrawals.
The short-term investing fund is not an investment option for the
participants.
Participants may elect to invest 100% of their contributions in any one
of the twelve investment options or divide their contributions in
multiples of 1% between two or more funds. Participants have the
opportunity to change their investment fund selection daily.
<PAGE>
USF&G CAPITAL ACCUMULATION PLAN
Notes to Financial Statements
December 31, 1998 and 1997
NOTE 2 Summary Description of the Plan (continued)
Rollover Contribution
---------------------
Newly hired employees who participated in a former employer's qualified
savings, stock bonus, profit sharing, or company-sponsored IRA plan may
be able to roll over their cash distribution into the Plan.
Withdrawals, Terminations, and Forfeitures
------------------------------------------
Terminated, retired, totally disabled participants, and the beneficiary
of deceased participants are eligible to receive distributions of their
contribution account and the Company's matching contribution account in
a lump sum or in installments over a period not to exceed five years.
A participant who terminates employment and whose vested account balance
is less than $5,000 will receive the vested portion of their account in
a single lump-sum distribution. The nonvested portion of the terminated
participant's matching contribution account is forfeited and used to
reduce future matching contributions by the Company. Employer
contributions were reduced by $876,791 and $565,046 from forfeited
nonvested accounts for the years 1998 and 1997, respectively.
An active participant-employee may receive a distribution for a portion
of their vested account balance by taking a loan, by qualifying under
the financial hardship provisions of the Plan, by withdrawing vested
Company contributions and investment earnings, or after attaining the
age of 59-1/2 years.
Distributions are based on a participant's share of the market value of
the assets in the applicable funds at the time a distribution is
requested.
Loans
-----
A participant may apply for one loan per calendar year and may have no
more than two loans outstanding at any time. All loans are subject to
approval of the Plan's Loan Committee. Loans are repaid through payroll
deduction and must be repaid within five years unless they are used to
purchase a principal residence, in which case they may be repaid within
ten years. Interest on loans is based on the five-year U.S. Treasury
rate plus 1% and rounded to the nearest 0.25%.
<PAGE>
USF&G CAPITAL ACCUMULATION PLAN
Notes to Financial Statements
December 31, 1998 and 1997
NOTE 2 Summary Description of the Plan (continued)
Plan Income Tax Status
----------------------
The Internal Revenue Service has issued a determination letter stating
that the Plan qualifies under Section 401(a) of the Internal Revenue
Code and that the trust created thereunder is exempt from federal
income taxes under Section 501(a) of the Internal Revenue Code. Since
the receipt of the determination letter, certain Plan amendments
have been made. It is the opinion of the Company that the Plan continues
to qualify under Section 401(a) of the Internal Revenue Code.
Company match contributions invested in the Plan and pretax
contributions invested in the Plan for participants by their employers
are not taxed to the participant until received as a distribution from
the Plan.
Plan loans to participants are generally not considered taxable.
Taxes on rollover transfers are deferred until the rollover amounts are
received as a distribution from the plan.
NOTE 3 Party-in-Interest Transactions
Transactions resulting in Plan assets being transferred to or used by a
related party are prohibited under the Employee Retirement Income Security
Act of 1974 (ERISA) unless a specific exemption applies. Wells Fargo is a
party-in-interest as defined by ERISA as a result of being trustee of the
Plan. Wells Fargo is investing Plan assets in their short-term investment
fund. The Plan engages in transactions involving the acquisition or dispo-
sition of common stock of The St. Paul, a party-in-interest with respect to
the plan. The plan also engages in transactions involving F&G Life Group
Fixed Annuity Contract. F&G Life, a subsidiary of the Company, is a party-
in-interest with respect to the plan. These transactions are covered by
an exemption from the "prohibited transactions" provisions of ERISA and
the Internal Revenue Code.
NOTE 4 Subsequent Event
As of the close of business on Dec. 31, 1998 the Plan was merged with
The St. Paul Companies, Inc. Savings Plus Plan (Savings Plus). On Dec.
31, 1998 Vanguard fund investments were sold. On Jan. 4, 1999 these
sales proceeds were reinvested in similar mutual funds offered by
Savings Plus. Investments in the Fixed Income Fund and Stock Fund were
delivered to Fidelity Management and Trust Company who serves as trustee
for Savings Plus.
<PAGE>
SCHEDULE 1
USF&G CAPITAL ACCUMULATION PLAN
Item 27a - Schedule of Assets Held for Investment Purposes
December 31, 1998
Current
Identity of Issue Description of Investment Cost Value
- ------------------------ ------------------------- ---------- --------
*The St. Paul Companies, Common stock, no par value,
Inc. 295,284 shares $ 7,625,620 $10,279,574
*Fidelity & Guaranty Life
Insurance Company Group Annuity Contract, 5%
adjusted annually, no
maturity date 43,051,949 43,051,949
*Wells Fargo, Short Term
Income Fund due on demand 1,393,306 1,393,306
Participant Loans 5 year treasury rate plus
1%, rounded to
nearest 1/4% 6,894,461 6,894,461
----------- ----------
Total Investments $58,965,336 $61,619,290
=========== ==========
* Party-in-interest
** For ERISA reporting purposes current value is equal to market value,
except for the group annuity contract,
which is equal to contributions made plus accrued interest at the
contract rate less withdrawals for
benefits paid and participant loans, which are equal to unpaid
principal.
See accompanying independent auditors' report.
<PAGE>
SCHEDULE 2
USF&G CAPITAL ACCUMULATION PLAN
Item 27d - Schedule of Reportable Transactions **
December 31, 1998
Total Total
Identity of Party Total Total Dollar Dollar
Involved/Descrip- Number of Number of Value of Value of
tion of Asset Purchases Sales Purchases Sales Net Gain
------------------- --------- --------- --------- ---------- ----------
Vanguard
Intermediate
Treasury Fund/
Mutual Fund Shares: 107 137 $5,565,283 $13,705,547 $513,166
Vanguard Wellington
Fund/ Mutual
Mutual Fund Shares: 80 168 9,843,991 55,250,650 7,839,637
Vanguard PrimeCap
Fund/ Mutaul
Fund Shares: 82 163 9,526,140 78,173,577 27,704,398
Vanguard Windsor II
Fund/ Mutual
Fund Shares: 127 119 10,129,822 29,731,834 3,259,709
*Wells Fargo Short
Term Income Fund: 407 345 56,114,361 55,293,923 -
*F&G Life, Group
Annuity Contract/
5% Yield: 14 10 4,277,613 6,650,000 -
Vanguard Life
Strategy
Growth Fund/
Mutual Fund Shares: 120 107 2,873,204 8,017,169 1,349,500
* Party-in-interest
** No expense incurred with transactions.
See accompanying independent auditors' report.
<PAGE>
SIGNATURE
----------
The Plan. Pursuant to the requirements of the Securities Exchange
Act of 1934, the trustees (or other persons who administer the
employee benefit plan) have duly caused this annual report to be
signed on its behalf by the undersigned hereunto duly authorized.
June 28, 1999 USF&G CAPITAL ACCUMULATION PLAN
(The Plan)
By /s/ John P. Clifford Jr.
------------------------
John P. Clifford Jr.
Vice President Performance
and Reward Systems, Member
of the Administrative
Committee for the USF&G
Capital Accumulation Plan
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Description
------- -----------
23.1 Consent of Independent Auditors
23.2 Consent of Independent Auditors
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Plan Administrative Committee and Plan Participants
USF&G Capital Accumulation Plan:
We consent to incorporation by reference in the registration statement
(No. 333-50941) on Form S-8 of The St. Paul Companies, Inc. of our report
dated June 18, 1999, relating to the statement of net assets available
for benefits of the USF&G Capital Accumulation Plan as of December 31, 1998,
and the related statement of changes in net assets available for benefits
and related supplemental schedules for the year then ended which report
appears elsewhere in this December 31, 1998 annual report on Form 11-K
of the USF&G Capital Accumulation Plan.
/s/ KPMG PEAT MARWICK LLP
-------------------------
KPMG PEAT MARWICK LLP
Minneapolis, Minnesota
June 28, 1999
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement on Form S-8 (SEC File No. 333-50941) of The St. Paul Companies,
Inc. of our report dated June 4, 1998, with respect to the financial statements
and schedules of The USF&G Capital Accumulation Plan included in this
Annual Report (Form 11-K) of The St. Paul Companies, Inc. for the year
ended December 31, 1998.
/s/ ERNST & YOUNG LLP
---------------------
ERNST & YOUNG LLP
June 25, 1999
