Travelers 2004 Annual Report Download - page 132

THE ST. PAUL TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
There are various purposes for the Company’s involvement in these funds, including but not limited to the
following:
• to seek capital appreciation by investing and trading in securities including, without limitation,
investments in common stock, bonds, notes, debentures, investment contracts, partnership interests,
options and warrants;
• to buy and sell U.S. and non-U.S. assets with primary focus on a diversified pool of structured mortgage
and asset-backed securities offering attractive and relative value; and
• to sell securities short primarily to exploit arbitrage opportunities in a broad range of equity and fixed
income markets.
The Company has an unfunded commitment of $9 million associated with one of these funds. The
Company’s exposure to loss is limited to the investment carrying amounts reported in the consolidated balance
sheet.
The following entities, which were acquired in the merger, are consolidated under FIN 46R:
• Municipal Trusts—The Company owns interests in various municipal trusts that were formed for the
purpose of allowing more flexibility to generate investment income in a manner consistent with the
Company’s investment objectives and tax position. As of December 31, 2004, there were 36 such trusts,
which held a combined total of $450 million in municipal securities, of which $84 million were owned
by outside investors. The net carrying value of the trusts owned by the Company at December 31, 2004
was $366 million.
• Venture Capital Entities—In the Company’s venture capital investment portfolio, the Company has
investments in small-to-medium sized companies, in which the Company has variable interests through
stock ownership and, in some cases, loans. These investments are held for the purpose of generating
long-term investment returns, and the companies in which the Company invests span a variety of
business sectors. The Company consolidates three entities under the provisions of FIN 46R. The
combined carrying value of these entities at December 31, 2004 was $5 million. The Company had an
unfunded commitment of $1 million associated with one of these entities.
The following securities, which were acquired in the merger, are not consolidated under FIN 46R:
• Mandatorily redeemable preferred securities of trusts holding solely the subordinated debentures of the
Company—These securities were issued by five separate trusts that were established for the sole
purpose of issuing the securities to investors, and are fully guaranteed by the Company. The debt that
the Company issued to these trusts is included in the “Debt” section of liabilities on the Company’s
consolidated balance sheet. That debt had a carrying value of $1.04 billion at December 31, 2004.
In addition to the foregoing entities, the Company also acquired in the merger significant interests in other
VIEs which are not consolidated because the Company is not considered to be the primary beneficiary. These
entities are as follows:
• The Company has a significant variable interest in one real estate entity. This investment has total assets
of approximately $117 million as of December 31, 2004. The carrying value of the Company’s share of
this investment was approximately $38 million at December 31, 2004, which also represents its
maximum exposure to loss. The purpose of the Company’s involvement in this entity is to generate
investment returns.
120