SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 26, 1994
---------------------
The Travelers Inc.
-----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-9924 52-1568099
-------------- ----------------- ---------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
65 East 55th Street, New York, New York 10022
-----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 891-8900
-----------------------------------------------------------------
(Registrant's telephone number, including area code)
THE TRAVELERS INC.
Current Report on Form 8-K
Item 5. Other Events.
The Travelers Inc. (the "Company") has filed a
registration statement with the Securities and Exchange
Commission, to provide a prospectus that may be used by Smith
Barney Inc. in its market-making activities for certain debt
securities of the Company. In order to update the information
incorporated by reference into that registration statement, as
well as the Company's other shelf registration statements, the
Company is including in this Current Report on Form 8-K certain
information regarding pending transactions involving the Company
or its subsidiaries as well as information regarding derivative
financial instruments used by the Company's subsidiary Smith
Barney Holdings Inc.
Pending Transactions
On September 1, 1994, The Travelers Insurance Company
("TIC"), a subsidiary of the Company, and Metropolitan Life
Insurance Company ("MetLife") announced that they had signed a
definitive agreement to combine their group health insurance
businesses into a new company with a long-term, strategic focus
on managed care. TIC and MetLife will each own an equal interest
in the new company, which has not yet been named. Kennett L.
Simmons, former chairman and chief executive officer of United
HealthCare Corp., has been chosen to become chief executive
officer of the new managed care company. The new company will
have an independent board of directors comprised of ten members,
including representatives of TIC and MetLife.
Also on September 1, 1994, TIC and MetLife entered into a
definitive agreement for MetLife to purchase TIC's group life and
related group insurance businesses, including group dental, vision,
long-term disability and long-term care, accidental death and
dismemberment and short-term disability coverages.
Both transactions are subject to regulatory approvals,
and are expected to close on or before January 1, 1995.
On August 24, 1994, the Company announced that it had
agreed to combine the businesses of its subsidiary, American
Capital Management & Research, Inc. ("ACMR"), with The Van Kampen
Merritt Companies, Inc. ("VKM"). Under the terms of the
transaction, VKM will acquire the stock of ACMR from the Company
for approximately $430 million in cash and further compensation
of up to $10 million based on the achievement of certain
performance criteria. An investment fund managed by Clayton,
Dubilier & Rice, Inc. ("CDR"), the parent of VKM, will provide
the bulk of the equity financing for the transaction, and the Company
will purchase 4.9% of the outstanding common stock of
2
the new company for approximately $24 million on the same terms
and price as the CDR investment. The Company may receive an
option to acquire up to 5.0% of additional equity.
The transaction is subject to obtaining the necessary
financing, approval by the shareholders and the independent
Boards of Directors of the Common Sense(R) Trust/Closed End and
American Capital funds, and other regulatory approvals. The
transaction is expected to close around the end of 1994. The
Company expects to use the proceeds from this transaction to
continue its stock repurchase program and for other corporate
purposes.
On July 28, 1994, The Travelers Indemnity Company
("Indemnity"), a subsidiary of the Company, announced it had
signed a definitive agreement to sell its subsidiary, Bankers and
Shippers Insurance Company, to Integon Corporation for $142
million, subject to certain adjustments as provided in the stock
purchase agreement. The sale involves the non-standard personal
automobile insurance lines, which is the bulk of Bankers and
Shippers' business, and Indemnity will retain the rest of the
businesses. The proposed transaction is subject to certain
regulatory approvals, and is scheduled to be completed during the
fourth quarter of 1994.
Derivative Financial Instruments
Broker Dealer Activities - In the normal course of its business,
------------------------
Smith Barney Holdings Inc. and its subsidiaries (collectively,
"Smith Barney") use off-balance sheet derivatives to facilitate
customer transactions or to limit exposure to loss from interest rate,
currency and market risk by hedging other on- or-off-balance
sheet transactions. These derivatives are represented by
contractual agreements, primarily forward contracts and financial
futures contracts. Generally, these derivatives represent future
commitments to exchange currencies or to purchase or sell other
financial instruments at specific terms at specified future
dates.
As a broker-dealer, Smith Barney applies a mark-to-market
accounting policy to these off-balance-sheet contractual
commitments. The mark-to-market unrealized gain or loss is
recorded in the Consolidated Statement of Financial Condition
with the related income or loss reported in principal
transactions revenues. These activities, overall, generated less
than 1% of its revenues and less than 1% of after-tax income in
1993; and each of the individual activities generated less than
1% of revenues and not more than 3% of after-tax income.
Smith Barney manages market risk across on- and off-balance-sheet
products. Risk exposure is monitored at both the trading desk
and capital markets management levels. Each desk monitors its
net risk positions, including both on- and off-balance sheet
positions, versus preestablished guidelines (limits) throughout
each day. Daily reports, including both on- and off-balance
sheet exposure, are forwarded to senior management for review.
Because Smith Barney's activities through 1993 were related
primarily to servicing customer business, as opposed to
proprietary trading unrelated to customer transactions, the
objective was to minimize, as much as possible, interest rate and
market risk. Smith Barney is planning to expand its activities
to include dealing in structured over-the-counter derivatives on
a hedged basis. This activity is in its initial stages and is
not expected to be significant in 1994.
3
Smith Barney's credit analysis group establishes credit limits by
product type for each of the obligors with which transactions are
concluded. These credit limits are set based on the underlying
strength and management of the counterparty, taking into account
the perceived risk associated with the product. The usage and
resultant exposure of these credit limits are monitored regularly
by the credit analysis group as is the continued creditworthiness
of the counterparty.
The notional or contractual amounts of these instruments, which
have a weighted average maturity of less than 60 days at
December 31, 1993, are set forth below.
Purchased Sold
($millions)
Forward mortgage-backed securities contracts $7,402 $7,499
Forward foreign currency contracts 4,237 4,110
Futures contracts (all of which are exchange traded):
Foreign currency 701 854
U.S. Treasury and Eurodollar (Financial Futures) 100 541
Municipal Bond Index 0 209
Forward precious metals contracts 417 389
------- -------
$12,857 $13,602
====== ======
Forward Mortgage-Backed Securities Contracts. These instruments
---------------------------------------------
requiring forward settlement represent mortgage-backed "to be
announced" mortgage pools ("TBA"). Smith Barney enters into
these financial instruments to facilitate customer transactions
and as hedges of proprietary inventory positions. Over $6.5
billion each of purchase and sale positions at December 31, 1993
represent offsetting purchases and sales of the same security.
As of December 31, 1993, approximately 95% of the contract values
of TBA forwards were for settlement in 60 days or less and the
balance within 120 days.
Forward and Futures Foreign Currency Contracts. In its role as a
-----------------------------------------------
market intermediary, Smith Barney acts as a principal in
financial and commodities transactions primarily to facilitate
customer transactions. This exposes the firm to foreign exchange
rate risk, which is generally hedged by entering into forward and
futures positions that have market risk profiles inversely
related to the positions it has acquired through transactions
with its customers.
Smith Barney fills customer orders by taking offsetting positions
("back to back basis") with counterparties, usually major global
money center banks. Thus, the firm has little market risk since
the positions are effectively flat.
Financial Futures Contracts. In conjunction with activities as a
---------------------------
dealer of taxable fixed income securities (e.g., U.S. Government,
mortgage-backed and corporate bonds), Smith Barney uses financial
futures principally as hedges.
4
Municipal Bond Index Futures. Smith Barney has a municipal bond
----------------------------
arbitrage operation. The trading strategy is to profit from
opportunities arising from market discrepancies between the cash
market and the futures market, for which the firm trades
Municipal Bond Index futures.
Forward Precious Metals Contracts. To facilitate customer
----------------------------------
transactions, trading in forward precious metals contracts is
transacted in the "Loco London" Bullion Market, which is used
globally for hedging and trading purposes. Smith Barney often
uses Comex futures to hedge its forward book to reduce market
risk.
Option Contracts. The only option contracts traded by Smith
----------------
Barney in 1993 were listed equity contracts. Smith Barney does
not take speculative positions in this market. This business is
primarily driven by the need to facilitate customer transactions.
Any positions that Smith Barney takes to facilitate its customer
transactions are usually then hedged by purchase or sale of the
underlying equity security. Smith Barney also uses options on a
limited basis as hedges of other positions, primarily convertible
bonds. At December 31, 1993, Smith Barney carried open option
contracts written with a contract value of $6 million of puts and
$68 million of calls.
5
SIGNATURE
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
Dated: September 26, 1994 THE TRAVELERS INC.
By: /s/ Irwin Ettinger
-----------------------------
Irwin Ettinger
Senior Vice President
6