Medium-Term Notes - The medium-term notes bear interest rates ranging from 5.9% to 8.3%, with a weighted average rate of 6.9%. Maturities range from five to 15 years after the issuance date. During 1998, we issued $150 million of medium-term notes bearing an interest rate of 6.4%.

Commercial Paper - Our commercial paper is supported by a $400 million credit agreement that expires in 2002. The credit agreement requires us to stay below a certain ratio of debt to equity, maintain a stated amount of common shareholders' equity and meet certain other requirements. As of year-end 1998, we had not borrowed any funds under the agreement, and we were in compliance with all of its provisions.Interest rates on commercial paper issued in 1998 ranged from 4.5% to 6.3%; in 1997 the range was 5.2% to 6.8%; and in 1996 the range was 5.1% to 6.6%. 8 3/8%

Senior Notes - The 8 3/8% senior notes mature in 2001.

Zero Coupon Convertible Notes - The zero coupon convertible notes are redeemable beginning in 1999 for an amount equal to the original issue price plus accreted original issue discount. In addition, on March 3, 1999 and March 3, 2004, the holders of the zero coupon convertible notes may require us to purchase their notes for the price of $640.82 and $800.51, respectively, per $1,000 of principal amount due at maturity.

7 1/8% Senior Notes - The 7 1/8% senior notes mature in 2005.

Real Estate Mortgages - The real estate mortgages represent a portion of the purchase price of two of our investments. One $13.2 million mortgage bears a fixed interest rate of 6.7% and matures in November 2000. A second $1.9 million mortgage bears a fixed rate of 8.1% and matures in February 2002.

Nuveen Short-Term Borrowings - Short-term borrowings at the end of 1998 and 1997 were obligations of our asset management segment that were collateralized by some of its inventory securities. These borrowings bore a weighted average interest rate of 6.3% and 7.4% at Dec. 31, 1998 and 1997, respectively.

7% Senior Notes - The 7% senior notes matured in May 1998.

Credit Facility - We maintained two committed, standby credit facilities totaling $450 million at Dec. 31, 1997. The facility in place for $200 million expired in December 1998 and the remaining facility will expire in 2002. These facilities require us to maintain a minimum net worth and debt-to-capital ratio. We were in compliance with the provisions contained in these agreements at Dec. 31, 1998 and 1997.

 Interest Expense - Our interest expense was $75.4 million in 1998, $86.1 million in 1997 and $87.2 million in 1996. Maturities - The amount of debt that becomes due in each of the next five years is as follows: 1999, $287.5 million; 2000, $13.2 million; 2001, $195.2 million; 2002, $50.6 million; and 2003, $67.3 million.

Company-obligated Mandatorily Redeemable Preferred Capital Securities of Subsidiaries or Trusts Holding Solely Convertible Subordinated Debentures of The Company

In 1995, we issued, through St. Paul Capital L.L.C. (SPCLLC), 4,140,000 company-obligated mandatorily redeemable preferred capital securities, generating proceeds of $207 million. These securities are also known as convertible monthly income preferred securities (MIPS). The MIPS pay a monthly dividend at an annual rate of 6% of the liquidation preference of $50 per security. We directly or indirectly own all of the common securities of SPCLLC, a special purpose limited liability company which was formed for the sole purpose of issuing the MIPS. We have effectively fully and unconditionally guaranteed SPCLLC's obligations under the MIPS. The MIPS are convertible into 1.695 shares of our common stock (equivalent to a conversion price of $29.50 per share). The MIPS are redeemable after May 31, 1999, but we may redeem them before then upon the occurrence of certain events.

In 1997 and 1996, USF&G issued three series of capital securities. After consummation of the merger with USF&G in 1998, The St. Paul assumed all obligations relating to these capital securities. These Series A, Series B and Series C Capital Securities were issued through separate wholly-owned business trusts (USF&G Capital I, USF&G Capital II and USF&G Capital III, respectively) formed for the sole purpose of issuing the securities. We have effectively fully and unconditionally guaranteed all obligations of the three business trusts.

In December 1996, USF&G Capital I issued 100,000 shares of 8.5% Series A Capital Securities, generating proceeds of $100 million. The proceeds were used to purchase $100 million of USF&G Corporation 8.5% Series A subordinated debentures, which mature on Dec. 15, 2045. The debentures are redeemable under certain circumstances related to tax events at a price of $1,000 per debenture. The proceeds of such redemptions will be used to redeem a like amount of the Series A Capital Securities.

In January 1997, USF&G Capital II issued 100,000 shares of 8.47% Series B Capital Securities, generating proceeds of $100 million. The proceeds were used to purchase $100 million of USF&G Corporation 8.47% Series B subordinated debentures, which mature on Jan. 10, 2027. The debentures are redeemable at our option at any time beginning in January 2007 at scheduled redemption prices ranging from $1,042 to $1,000 per debenture. The debentures are also redeemable prior to January 2007 under certain circumstances related to tax and other special events. The proceeds of such redemptions will be used to redeem a like amount of the Series B Capital Securities.

In July 1997, USF&G Capital III issued 100,000 shares of 8.312% Series C Capital Securities, generating proceeds of $100 million. The proceeds were used to purchase $100 million of USF&G Corporation 8.312% Series C subordinated debentures, which mature on July 1, 2046. The debentures are redeemable under certain circumstances related to tax events at a price of $1,000 per debenture. The proceeds of such redemptions will be used to redeem a like amount of the Series C Capital Securities.

Under certain circumstances related to tax events, we have the right to shorten the maturity dates of the Series A, Series B and Series C debentures to no earlier than June 24, 2016, July 10, 2016 and April 8, 2012, respectively, in which case the stated maturities of the related Capital Securities will likewise be shortened.

Preferred Shareholders' Equity

The preferred shareholders' equity on our balance sheet represents the par value of preferred shares outstanding that we issued to our Preferred Stock Ownership Plan (PSOP) Trust, less the remaining principal balance on the PSOP Trust debt. The PSOP Trust borrowed funds from a U.S. underwriting subsidiary to finance the purchase of the preferred shares, and we guaranteed the PSOP debt. The PSOP trust may at any time convert any or all of the preferred shares into shares of our common stock at a rate of eight shares of common stock for each preferred share. Our board of directors has reserved a sufficient number of our authorized common shares to satisfy the conversion of all preferred shares issued to the PSOP trust and the redemption of preferred shares to meet employee distribution requirements. Upon the redemption of preferred shares, we issue shares of our common stock to the trust to fulfill the redemption obligations. During the first half of 1997, we redeemed all of the remaining outstanding shares of USF&G's Series A Preferred Stock for $200 million cash.

Common Shareholders' Equity

Common Stock and Reacquired Shares - We are governed by the Minnesota Business Corporation Act. All authorized shares of voting common stock have no par value. Shares of common stock reacquired are considered unissued shares. The number of authorized shares of the company is 480 million.

Shareholder Protection Rights Plan - Our Shareholder Protection Rights Plan is designed to protect the interests of our shareholders in the event of unsolicited and unfair or coercive attempts to acquire control of the company. Our shareholders own one right for each common share owned, which would enable them to initiate specified actions to protect their interests. We may redeem this right under circumstances specified in the plan.

Pursuant to our Shareholder Protection Rights Plan we declared a dividend of one right ("Right") in respect of each outstanding share of our voting common stock held of record as of the close of business on Dec. 19, 1989. The Rights become exercisable if a person or group acquires 15 percent or more of our common stock and upon certain other events set forth in the agreement governing the Rights. Each Right entitles our shareholders to purchase one four-thousandth of a share of Series A Junior Participating Preferred Stock at an exercise price of $46.25. When the Rights become exercisable, the holder of each Right (other than the acquiring person or members of such group) is entitled (i) to purchase, at the Right's then current exercise price, a number of the acquiring company's common stock having a market value of twice such price, (ii) to purchase, at the Right's then current exercise price, a number of shares of our common stock having a market value of twice such price or (iii) under certain circumstances, at the option of our Board of Directors, to exchange each Right (other than the Rights owned by such acquiring person or group), at an exchange ratio of one share of common stock per Right. At the option of our Board of Directors, under certain circumstances, the Rights may be redeemed for $.005 per Right. The agreement governing the Rights is due to expire on Dec. 19, 1999. The Company will allow those rights to expire on that date, if not redeemed earlier.