<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________
FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One):
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
For the fiscal year ended December 31, 1998
-----------------
[_] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the transition period from _______________ to _______________
Commission file number 333-53953
----------------
A. Full title of the plan and the address of the plan, if different from
that of the issuer named below: CONVERGENT COMMUNICATIONS, INC. 401(k) SAVINGS
----------------------------------------------
PLAN
- ----
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office: CONVERGENT COMMUNICATIONS, INC.
------------------------------------
400 Inverness Drive South, Suite 400
------------------------------------
Englewood, Colorado 80112
------------------------------------
<PAGE>
Convergent Communications, Inc.
401(k) Plan
Financial Statements
as of December 31, 1998 and 1997
and for the year ended December 31, 1998
Convergent Communications, Inc. 401(k) Plan
Table of Contents
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<TABLE>
<CAPTION>
Pages
<S> <C>
Report of Independent Accountants 1
Financial Statements:
Statements of Net Assets Available For Benefits With Fund Information
as of December 31, 1998 and 1997 2
Statement of Changes in Net Assets Available For Benefits With Fund
Information for the year ended December 31, 1998 3 - 8
Notes to Financial Statements 9 - 13
Supplemental Information:
Line 27(a) - Schedule of Assets Held For Investment Purposes
as of December 31, 1998 (Unaudited) 14
Line 27(d) - Schedule of Reportable Transactions
for the year ended December 31, 1998 (Unaudited) 15
</TABLE>
2
<PAGE>
Report of Independent Accountants
The Plan Administrator and Participants of the
Convergent Communications, Inc. 401(k) Plan:
We were engaged to audit the statements of net assets available for benefits
with fund information of the Convergent Communications, Inc. 401(k) Plan (the
"Plan") as of December 31, 1998 and 1997, and the related statement of changes
in net assets available for benefits with fund information for the year ended
December 31, 1998, and supplementary schedules as listed in the accompanying
table of contents. These financial statements and supplementary schedules are
the responsibility of the Plan's management.
As permitted by 29CFR 2520.103-8 of the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act 1974, the plan administrator instructed us not to perform, and we
did not perform, any auditing procedures with respect to the information
summarized in Note 5, which was certified by Great-West Life & Annuity Insurance
Company ("GWL&A"), the trustee of the Plan, except for comparing such
information with the related information included in the financial statements
and supplementary schedules. We have been informed by the plan administrator
that the trustee of the Plan holds the Plan's investment assets and executes
investment transactions. The plan administrator has obtained a certification
from the trustee of the Plan as of December 31, 1998 and 1997 and for the year
ended December 31, 1998, that the information provided to the plan administrator
by the trustee of the Plan is complete and accurate.
Because of the significance of the information that we did not audit, we are
unable to, and do not, express an opinion on the accompanying financial
statements and supplementary schedules taken as a whole. The form and content
of the information included in the financial statements and supplementary
schedules, other than that derived from the information certified by the trustee
of the Plan have been audited by us in accordance with generally accepted
auditing standards and, in our opinion, are presented in compliance with the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974.
Denver, Colorado
May 20, 1999
-1-
<PAGE>
Convergent Communications, Inc. 401(k) Plan
Statements of Net Assets Available for Benefits with Fund Information
as of December 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets 1998 1997
Investments, at fair value:
<S> <C> <C>
Guaranteed Certificate Fund $ 103,020 $ 1,090
American Century - Twentieth Century Ultra Fund 299,861* 52,242*
AIM Constellation Fund 99,170 14,795
Orchard Index 600 Portfolio 27,789 1,371
Maxim Growth Index Portfolio 213,763* 10,754
Maxim Small-Cap Aggressive Growth Portfolio 53,484 10,361
The Lord Abbett Developing Growth Fund 1,988 --
Maxim U.S. Government Mortgage Securities 18,603 --
Maxim Investment Grade Corporate Portfolio 4,037 --
Maxim Corporate Bond Portfolio 26,494 2,168
Putnam Global Governmental Income Fund 14,333 1,466
Maxim Short-Term Maturity Bond Portfolio 1,288 --
Fidelity Advisor Growth Opportunities Fund 67,554 8,434
Orchard Index 500 78,077 9,111
AIM Weingarten Fund 74,470 9,764
Maxim Small-Cap Value Portfolio 32,174 13,516
Maxim Mid-Cap Growth Portfolio 40,049 --
Maxim Blue Chip Portfolio 14,193 --
AIM Charter Fund 30,164 6,330
Maxim Value Index Portfolio 34,607 4,865
Putnam Fund For Growth and Income 65,621 10,666
Fidelity Advisor Equity Income Fund 36,447 2,160
Putnam Global Growth Fund 60,799 12,319
Maxim New England International Equity 2,125 --
Fidelity Advisor Overseas Fund 20,111 7,870
Orchard Index Pacific Fund 5,830 219
Orchard Index European Fund 22,332 474
Maxim Money Market Fund 338,553* 8,624
Profile Series I 502,012* 125,957*
Profile Series II 412,218* 118,653*
Profile Series III 103,621 17,256
Profile Series IV 10,605 107
Profile Series V 6,187 1,070
Company Stock Fund 732,404* --
-------------- --------------
Total investments 3,553,983 451,642
-------------- --------------
Contributions Receivable
Participants -- 17,922
Employer 712,596* 271,856*
-------------- --------------
Total contributions receivable 712,596 289,778
-------------- --------------
Total assets 4,266,579 741,420
Liabilities
Refunds payable -- (5,927)
-------------- --------------
Total liabilities -- (5,927)
-------------- --------------
Net assets available for benefits $ 4,266,579 $ 735,493
============== ==============
</TABLE>
* Represents 5% or more of the net assets available for benefits.
The accompanying notes are an integral part of these financial statements.
- 2 -
<PAGE>
Convergent Communications, Inc. 401(k) Plan
Statements of Changes Net Assets Available for Benefits with Fund Information
for the year ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
American Maxim
Century - Small-Cap
Guaranteed Twentieth AIM Orchard Maxim Growth Aggressive
Certificate Century Constellation Index 600 Index Growth
Fund Ultra Fund Fund Portfolio Portfolio Portfolio
<S> <C> <C> <C> <C> <C> <C>
Additions to net assets:
Investment and interest income:
Net appreciation (depreciation) in fair
value of investments $ -- $ 45,053 $ 12,498 $ 1,337 $ 33,086 $ 1,126
Investment and interest income 424 -- -- -- -- --
Participant contributions 10,137 209,836 74,024 26,394 161,455 43,192
Employer contributions -- -- -- -- -- --
Transfers in 91,369 1,783 442 -- 12,511 --
---------- ---------- ----------- --------- ---------- ----------
Total additions 101,930 256,672 86,964 27,731 207,052 44,318
---------- ---------- ----------- --------- ---------- ----------
Deductions from net assets attributable to:
Transfers out -- (229) (167) (184) (193) (240)
Distributions -- (8,824) (2,422) (1,129) (3,850) (955)
---------- ---------- ----------- --------- ---------- ----------
Total deductions -- (9,053) (2,589) (1,313) (4,043) (1,195)
---------- ---------- ----------- --------- ---------- ----------
Net change 101,930 247,619 84,375 26,418 203,009 43,123
Net assets available for benefits at:
December 31, 1997 1,090 52,242 14,795 1,371 10,754 10,361
---------- ---------- ----------- --------- ---------- ----------
December 31, 1998 $ 103,020 $ 299,861 $ 99,170 $ 27,789 $ 213,763 $ 53,484
========== ========== =========== ========= ========== ==========
</TABLE>
Continued
- 3 -
<PAGE>
Convergent Communications, Inc. 401(k) Plan
Statements of Changes Net Assets Available for Benefits with Fund Information
for the year ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
The Lord Maxim Maxim
Abbett Maxim U.S. Investment Maxim Putnam Short-term
Developing Government Grade Corporate Global Maturity
Growth Mortgage Corporate Bond Governmental Bond
Fund Securities Portfolio Portfolio Income Fund Portfolio
Additions to net assets:
<S> <C> <C> <C> <C> <C> <C>
Investment and interest income:
Net appreciation (depreciation) in fair
value of investments $ 205 $ 213 $ 36 $ 656 $ 915 $ 8
Investment and interest income -- -- -- -- -- --
Participant contributions 1,783 11,548 4,272 23,413 5,087 1,618
Employer contributions -- -- -- -- -- --
Transfers in -- 7,114 -- 442 7,114 --
---------- ---------- ----------- --------- ---------- ----------
Total additions 1,988 18,875 4,308 24,511 13,116 1,626
---------- ---------- ----------- --------- ---------- ----------
Deductions from net assets attributable to:
Transfers out -- -- -- -- -- --
Distributions -- (272) (271) (185) (249) (338)
---------- ---------- ----------- --------- ---------- ----------
Total deductions -- (272) (271) (185) (249) (338)
---------- ---------- ----------- --------- ---------- ----------
Net change 1,988 18,603 4,037 24,326 12,867 1,288
Net assets available for benefits at:
December 31, 1997 -- -- -- 2,168 1,466 --
---------- ---------- ----------- --------- ---------- ----------
December 31, 1998 $ 1,988 $ 18,603 $ 4,037 $ 26,494 $ 14,333 $ 1,288
========== ========== =========== ========= ========== ==========
</TABLE>
Continued
- 4 -
<PAGE>
Convergent Communications, Inc. 401(k) Plan
Statements of Changes Net Assets Available for Benefits with Fund Information
for the year ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fidelity
Advisor Maxim Maxim
Growth AIM Small-Cap Mid-Cap Maxim
Opportunities Orchard Weingarten Value Growth Blue-Chip
Fund Index 500 Fund Portfolio Portfolio Portfolio
Additions to net assets:
<S> <C> <C> <C> <C> <C> <C>
Investment and interest income:
Net appreciation (depreciation) in fair
value of investments $ 7,561 $ 7,873 $ 11,378 $ 1,930 $ 4,806 $ 464
Investment and interest income -- -- -- -- -- --
Participant contributions 52,710 62,290 53,563 16,728 35,670 13,942
Employer contributions -- -- -- -- -- --
Transfers in 442 22 -- -- -- --
---------- ---------- ----------- --------- ---------- ----------
Total additions 60,713 70,185 64,941 18,658 40,476 14,406
---------- ---------- ----------- --------- ---------- ----------
Deductions from net assets attributable to:
Transfers out -- -- -- -- (262) --
Distributions (1,593) (1,219) (235) -- (165) (213)
---------- ---------- ----------- --------- ---------- ----------
Total deductions (1,593) (1,219) (235) -- (427) (213)
---------- ---------- ----------- --------- ---------- ----------
Net change 59,120 68,966 64,706 18,658 40,049 14,193
Net assets available for benefits at:
December 31, 1997 8,434 9,111 9,764 13,516 -- --
---------- ---------- ----------- --------- ---------- ----------
December 31, 1998 $ 67,554 $ 78,077 $ 74,470 $ 32,174 $ 40,049 $ 14,193
========== ========== =========== ========= ========== ==========
</TABLE>
Continued
- 5 -
<PAGE>
Convergent Communications, Inc. 401(k) Plan
Statements of Changes Net Assets Available for Benefits with Fund Information
for the year ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Fidelity
Maxim Putnam Advisor Putnam Maxim New
AIM Value Fund for Equity Global England
Charter Index Growth and Income Growth International
Fund Portfolio Income Fund Fund Equity
Additions to net assets:
<S> <C> <C> <C> <C> <C> <C>
Investment and interest income:
Net appreciation (depreciation) in fair
value of investments $ 3,998 $ 1,990 $ 5,140 $ 2,426 $ 8,951 $ 71
Investment and interest income -- -- -- -- -- --
Participant contributions 22,275 30,901 51,798 32,793 53,616 2,054
Employer contributions -- -- -- -- -- --
Transfers in -- -- 442 -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Total additions 26,273 32,891 57,380 35,219 62,567 2,125
---------- ---------- ---------- ---------- ---------- ----------
Deductions from net assets attributable to:
Transfers out -- (141) -- (22) (11,310) --
Distributions (2,439) (3,008) (2,425) (910) (2,777) --
---------- ---------- ---------- ---------- ---------- ----------
Total deductions (2,439) (3,149) (2,425) (932) (14,087) --
---------- ---------- ---------- ---------- ---------- ----------
Net change 23,834 29,742 54,955 34,287 48,480 2,125
Net assets available for benefits at:
December 31, 1997 6,330 4,865 10,666 2,160 12,319 --
---------- ---------- ---------- ---------- ---------- ----------
December 31, 1998 $ 30,164 $ 34,607 $ 65,621 $ 36,447 $ 60,799 $ 2,125
========== ========== ========== ========== ========== ==========
</TABLE>
Continued
- 6 -
<PAGE>
Convergent Communications, Inc. 401(k) Plan
Statements of Changes Net Assets Available for Benefits with Fund Information
for the year ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Fidelity Orchard Orchard Maxim
Advisor Index Index Money
Overseas Pacific European Market Profile Profile
Fund Fund Fund Fund Series I Series II
Additions to net assets:
Investment and interest income:
Net appreciation (depreciation) in fair value
of investments $ 945 $ 347 $ 1,389 $ 4,794 $ 53,066 $ 46,258
Investment and interest income -- -- -- -- -- --
Participant contributions 13,821 5,264 17,721 330,055 400,947 290,003
Employer contributions -- -- -- -- -- --
Transfers in -- -- 3,062 11,786 3,615 25,753
--------- -------- --------- -------- --------- ---------
Total additions 14,766 5,611 22,172 346,635 457,628 362,014
--------- -------- --------- -------- --------- ---------
Deductions from net assets attributable to:
Transfers out (111) -- -- (8,569) (47,318) (66,735)
Distributions (2,414) -- (314) (8,137) (34,255) (1,714)
--------- -------- --------- -------- --------- ---------
Total deductions (2,525) -- (314) (16,706) (81,573) (68,449)
--------- -------- --------- -------- --------- ---------
Net change 12,241 5,611 21,858 329,929 376,055 293,565
Net assets available for benefits at:
December 31, 1997 7,870 219 474 8,624 125,957 118,653
--------- -------- --------- -------- --------- ---------
December 31, 1998 $ 20,111 $ 5,830 $ 22,332 $338,553 $ 502,012 $ 412,218
========= ======== ========= ======== ========= =========
</TABLE>
Continued
- 7 -
<PAGE>
Convergent Communications, Inc. 401(k) Plan
Statements of Changes Net Assets Available for Benefits with Fund Information
for the year ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Profile Profile Profile Company
Series III Series IV Series V Stock Fund Unallocated Total
Additions to net assets:
Investment and interest income:
Net appreciation (depreciation) in fair value
of investments $ 12,220 $ 348 $ 185 $ 207,446 $ -- $ 478,719
Investment and interest income -- -- -- -- -- 424
Participant contributions 109,849 10,150 4,932 -- -- 2,183,841
Employer contributions -- -- -- 1,049,872 -- 1,049,872
Transfers in -- -- -- -- -- 165,897
---------- --------- -------- ---------- ----------- ----------
Total additions 122,069 10,498 5,117 1,257,318 -- 3,878,753
---------- --------- -------- ---------- ----------- ----------
Deductions from net assets attributable to:
Transfers out (30,399) -- -- -- (11,995) (177,875)
Distributions (5,305) -- -- (84,174) -- (169,792)
---------- --------- -------- ---------- ----------- ----------
Total deductions (35,704) -- -- (84,174) (11,995) (347,667)
---------- --------- -------- ---------- ----------- ----------
Net change 86,365 10,498 5,117 1,173,144 (11,995) 3,531,086
Net assets available for benefits at:
December 31, 1997 17,256 107 1,070 271,856 11,995 735,493
---------- --------- -------- ---------- ----------- ----------
December 31, 1998 $ 103,621 $ 10,605 $ 6,187 $1,445,000 $ -- $4,266,579
========== ========= ======== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-8-
<PAGE>
Convergent Communications, Inc. 401(k) Plan
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. Plan Description
On March 1, 1997, Convergent Communications, Inc. (the "Company") established
the Convergent Communications, Inc. 401(k) Plan (the "Plan"). The Plan is a
defined contribution plan available to all employees 21 years of age and
older. The Plan is subject to the provisions of the Employee Retirement
Income Security Act of 1974 ("ERISA"). Employees may contribute up to 15% of
their salary, up to the Internal Revenue Service limit.
Under the savings plan feature of the Plan, the Company provides a
discretionary dollar for dollar match in Company stock up to 6% of employee
gross wages.
Employee contributions are invested according to investment options chosen by
the employee. Available investment options are described in Note 3.
Collectively these funds are referred to as the "Investment Funds." The Plan
permits conversion of the investment options on a daily basis, at which time
the participant may elect to transfer all or part of the account value
between the Investment Funds.
Administrative Expense
All administrative costs arising under the Plan are paid by the Company.
Vesting
Participant contributions are always 100% vested with respect to the current
value of their investments. Participants are also always 100% vested in their
employer match contributions account.
Distribution to Participants
The value of the participant's savings will be distributed in two lump sum
payments, one representing the participant's savings and one representing the
value of the employer match.
2. Summary of Significant Accounting Policies
The following is a description of significant accounting policies applied by
the Plan:
Basis of Accounting
The financial statements of the Plan are prepared under the accrual method of
accounting.
Use of Estimates
The preparation of the Plan's financial statements requires the plan
administrator to make significant estimates and assumptions that affect the
reported amounts of Plan assets and changes in Plan assets and, when
applicable, the disclosures of contingent assets and liabilities at the date
of the financial statements. Actual results could differ from those
estimates.
Investment Valuation and Income Recognition
The Plan's investments are stated at fair value. Shares of registered
investment companies are valued at quoted market prices which represent the
net asset value of shares held by the Plan at year end. Shares of Company
stock are valued based upon independent valuations.
Purchases and sales of securities are recorded on a trade-date basis.
Interest income is recorded on the accrual basis. The Plan presents in the
Statement of Changes in Net Assets Available for Benefits With Fund
Information, the net appreciation or depreciation in the fair value of its
investments, which consists of realized gains or losses and unrealized
appreciation or depreciation on those investments.
-9-
<PAGE>
Convergent Communications, Inc. 401(k) Plan
Notes to Financial Statements
- --------------------------------------------------------------------------------
Payment of Benefits
Benefits are recorded when paid.
Reinvested Earnings
Interest and dividends received are reinvested in the respective funds. Gains
or losses realized on the sale of stock held by the various mutual funds
investing in equity securities are charged or credited to the respective
funds.
3. Investment Options
All of the Plan's investments are held and managed by GWL&A. As part of an
agreement with the Plan, GWL&A maintains funds in which participants of the
Plan may invest:
. Guaranteed Certificate Fund--Provides investors with stable, long-term
investment growth. They are much like certificates of deposit: all money
deposited into a certificate during a "deposit period" earns a guaranteed
rate of return, credited daily until maturity. The deposit period for each
certificate is one calendar quarter. A new certificate with its own unique
interest rate is created at the start of each deposit period. All money
contributed during each deposit period will earn the same interest rate
until the certificate matures. Maturity periods may be 36, 60 or 84
months.
. American Century - Twentieth Century Ultra Fund--Seeks capital growth by
investing primarily in small- to medium-sized companies with better-than-
average prospects for appreciation. The fund targets companies with
accelerating earnings and revenues. Twentieth Century expects Ultra to be
rather volatile, but intends to stay fully invested in its holdings,
regardless of the movement of stock prices.
. AIM Constellation Fund--Seeks capital growth by investing in small- and
medium-sized companies. Stocks are typically held of firms that have had
significant growth in earnings over a ten-year period, or companies that
report significantly higher earnings than anticipated by the consensus of
Wall Street analysts. Companies that may benefit from new or innovative
products or services are of particular interest.
. Orchard Index 600 Portfolio--Seeks to mirror the performance (before fees)
of the general small-capitalization stock market by investing in stocks
that comprise the Russell 2000 Index.
. Maxim Growth Index Portfolio--Seeks to mirror the performance (before
fees) of large-capitalization, growth-oriented stocks by investing in
stocks that comprise the Russell 1000 Growth Index. This index contains
stocks from the Russell 1000 Index with above-average growth orientation,
and therefore, above-average earnings potential.
. Maxim Small-Cap Aggressive Growth Portfolio--Seeks long-term capital
growth by investing in common stocks or their equivalent. Emphasis is
placed on both undervalued securities and securities of companies with
significant growth potential. At least 65% of the fund's assets are
typically invested in companies with market capitalization of less than
$500 million, up to 35% in larger companies, and a limited amount in
foreign securities.
. The Lord Abbett Developing Growth Fund--Focuses on companies with above
average, long-term growth rates, strong management and proven commitment
to growth. Also focuses on companies with exciting prospects, unique
markets and companies with undervalued assets.
. Maxim U.S. Government Mortgage Securities--At least 65% of the fund's
holdings are securities related to government agency mortgages. These
holdings are backed by the full faith and credit of the U.S. Government,
one of its agencies or instrumentalities.
-10-
<PAGE>
Convergent Communications, Inc. 401(k) Plan
Notes to Financial Statements
- --------------------------------------------------------------------------------
. Maxim Investment Grade Corporate Portfolio--Generally invests in debt
securities with a credit rating of "A" or better. Invests strictly in
investment-grade corporate debt securities.
. Maxim Corporate Bond Portfolio--Seeks high total return through a
combination of current income and capital appreciation. Substantially all
of its assets are invested in investment-grade debt securities (including
convertibles), although up to 20% of its assets may be invested in
preferred stocks. At least 65% of its assets are typically invested in
bonds. The fund may invest up to 10% of its assets in foreign securities
and up to 35% in securities rated below investment grade.
. Putnam Global Governmental Income Fund--Seeks high current income.
Capital preservation and long-term return are secondary objectives.
Typically, the fund will invest at least 65% of its assets in debt
securities issued or guaranteed by national, provincial, state or other
governments with taxing authority of their agencies, or by supranational
entities such as World Bank. The fund purchases issues rated A or better
or those of comparable quality. U.S. issues may be rated BBB or better.
. Maxim Short-Term Maturity Bond Portfolio--Expected to be the least
volatile of the bond funds offered through the 401(k) plan. Focuses on
preservation of capital, liquidity and maximum total return through
investment in an actively managed portfolio of debt services. No
individual security will have a maturity of more than three years.
. Fidelity Advisor Growth Opportunities Fund--Seeks capital growth through
investment of at least 65% of its assets in common stock of U.S.
companies that have superior long-term growth potential. Additionally,
the fund invests in securities convertible into common stock that may
produce capital growth. The fund may invest in foreign securities.
. Orchard Index 500--Seeks to mirror the performance (before fees) of the
general stock market by investing in stocks that comprise the widely
recognized Standard & Poor's ("S&P") 500 Index and Mid-Cap Index. The S&P
500 is made up, for the most part, of the 500 largest companies on the
New York Stock Exchange. The S&P Mid-Cap is made up of companies that are
the next largest 400 and have a median capitalization of approximately
$600 million.
. AIM Weingarten Fund--Seeks capital growth through disciplined and
systematic selection of common stocks. The fund invests primarily in the
stocks of companies whose earnings are higher than those expected by
analysts. Secondarily, investments are made in the stocks of companies
whose earnings have grown at roughly twice the rate of the average
company in corporate America over the past ten years, with no more than
one down year. Current income is not an important criteria for selection.
. Maxim Small-Cap Value Portfolio--Seeks long-term capital growth by
investing primarily in common stocks. Up to 20% of assets may be invested
in other securities, including restricted stock, preferred stock and
foreign securities. The fund seeks undervalued small- and medium-sized
companies with financial strength, distinct market niches and proven
records of success.
. Maxim Mid-Cap Growth Portfolio--Seeks long-term growth of capital by
investing at least 65% of its total assets in a diversified pool of mid-
cap companies with well-above-average growth potential.
. Maxim Blue Chip Portfolio--Seeks long-term growth of both capital and
income, and invests at least 65% of assets in common stocks of companies
with market capitalizations of at least $1 billion. Focuses on companies
with proven records of earnings and dividends that appear to be in sound
financial condition.
. AIM Charter Fund--Seeks capital growth, with current income as a
secondary objective. Generally, stocks of large, well-known companies
with a history of stable and improving revenues and earnings are
selected. These stocks also typically have had increasing dividend
payouts. At least 90% of the fund's common stocks are expected to pay
dividends.
-11-
<PAGE>
Convergent Communications, Inc. 401(k) Plan
Notes to Financial Statements
- --------------------------------------------------------------------------------
. Maxim Value Index Portfolio--Seeks to mirror the performance (before
fees) of large-capitalization, value-oriented stocks by investing in
stocks that comprise the Russell 1000 Value Index. A value-oriented stock
is thought to be undervalued in relation to its future earnings
potential.
. Putnam Fund for Growth and Income--Seeks capital growth and current
income by investing primarily in common stocks that offer potential for
capital growth, current income or both. The fund may also purchase
preferred stocks, convertible securities, or corporate bonds, notes and
debentures. The fund may hold cash or cash equivalents, and may invest up
to 20% in foreign securities.
. Fidelity Advisor Equity Income Fund--Seeks to exceed the average yield of
the S&P 500 by holding a diversified selection of bonds and high-yielding
stocks. At least 65% of total assets are in undervalued, income-producing
equities with above-average and steadily increasing dividends. The
balance of the fund tends to be in convertible debt securities.
. Putnam Global Growth Fund--Seeks capital growth by investing in
securities traded in U.S. and foreign markets. All along the Pacific Rim,
across Europe, and within the Americas, the funds look for countries
whose markets are believed to offer the best value. Then, those companies
that have shown signs of solid growth are selected.
. Maxim New England International Equity--Seeks long-term capital growth
and dividend income. The fund normally invests at least 65% of assets in
equity securities of issuers headquartered outside the United States.
. Fidelity Advisor Overseas Fund--Invests mostly in equity securities of
foreign corporations. The fund selects countries in which to invest based
on economic growth, expected inflation, governmental policies and
currency outlook. The remainder of the assets may consist of debt
securities, including lower-quality, higher-yielding securities.
. Orchard Index Pacific Fund--This fund represents the performance of
stocks in the large-cap section of Pacific markets.
. Orchard Index European Fund--Seeks total return from a portfolio of
stocks in the large-cap section of European markets.
. Maxim Money Market Fund--Seeks to preserve capital, maintain liquidity
and earn the highest possible current income by investing in short-term
money market securities. Remaining maturities of holdings may not exceed
13 months, except for U.S. governmental securities which are limited to
25 months.
. Profile Series I--Designed for the aggressive investor. This portfolio
consists of a diversified blend of individual funds. All of its assets
are in equity-type investments.
. Profile Series II--Designed for the moderately aggressive investor. This
portfolio consists of diversified blend of individual funds. Of its total
assets, 80% are in equity-type investments and 20% are in fixed-income
investments.
. Profile Series III--Designed for the moderate investor. This portfolio
consists of a diversified blend of individual funds. Of its total assets,
60% are in equity-type investments and 40% are in fixed-income
investments.
. Profile Series IV--Designed for the moderately conservative investor.
This portfolio consists of a diversified blend of individual funds. Of
its total assets, 40% are in equity-type investments and 60% are in
fixed-income investments.
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<PAGE>
Convergent Communications, Inc. 401(k) Plan
Notes to Financial Statements
- --------------------------------------------------------------------------------
. Profile Series V--Designed for the conservative investor. This portfolio
consists of a diversified blend of individual funds. Of its total assets,
20% are in equity-type investments and 80% are in fixed-income
investments.
4. Federal Income Taxes
The Plan has not requested a tax determination letter from the Internal
Revenue Service. However, the form of the Plan is a standard form, which has
been previously approved by the Internal Revenue Service.
5. Information Certified by GWL&A (Unaudited)
The following unaudited information in the financial statements and
supplemental schedules was certified to be complete and accurate by GWL&A
within the meaning of 29 CFR 2520.103-8 of the Department of Labor's Rules
and Regulations for Reporting and Disclosure under ERISA:
. All amounts relating to investments as enumerated in the Statements of Net
Assets Available For Benefits With Fund Information as of December 31,
1998 and 1997.
. All amounts relating to investment income and net appreciation
(depreciation) in the fair value of investments as enumerated in the
Statement of Changes in Net Assets Available For Benefits With Fund
Information for the year ended December 31, 1998.
. All amounts enumerated in the Supplemental Schedule of Assets Held for
Investment Purposes as of December 31, 1998.
. All amounts enumerated in the Supplemental Schedule of Reportable
Transactions for the year ended December 31, 1998.
6. Concentration of Credit Risk
The Plan provides for various investment options in any combination of
stocks, bonds, fixed income securities, mutual funds and other investment
securities. Investment securities are exposed to various risks such as
interest rate, market and credit. Due to the level of risk associated with
certain investment securities and the level of market volatility resulting in
changes in the value of the investment securities, it is possible that the
changes in risks could materially affect participant account balances and the
amounts reported in the Statements of Net Assets Available for Benefits with
Fund Information and the Statement of Changes in Net Assets Available for
Benefits with Fund Information.
7. Plan Termination
Although it has not expressed any intent to do so, the Company has the right
under the Plan to discontinue its contributions at any time and to terminate
the Plan subject to the provisions of ERISA.
8. Subsequent Event
In January 1999, the Company changed one of the eligibility requirements to
enroll in the Plan from 21 to 18 years of age.
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<PAGE>
SUPPLEMENTAL INFORMATION
<PAGE>
Convergent Communications, Inc. 401(k) Plan
Line 27a - Schedule of Assets Held For Investment Purposes
as of December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e)
- -- ------------------------------------------ --------------------------------- ----------- -----------
Description of Investment
Including Maturity Date,
Identity of Issue, Borrower, Rate of Interest, Collateral, Current
Lessor, or Similar Party Par or Maturity Value Cost Value
- -- ------------------------------------------ --------------------------------- ----------- -----------
<C> <S> <C> <C> <C>
Guaranteed Certificate Fund Term of 36 months $ 96,327 $ 96,327
Guaranteed Certificate Fund Term of 60 months 5,714 5,714
Guaranteed Certificate Fund Term of 84 months 979 979
American Century - Twentieth Century
Ultra Fund Mutual Fund - Stock 252,417 299,861
AIM Constellation Fund Mutual Fund - Stock 86,750 99,170
Orchard Index 600 Portfolio Mutual Fund - Stock 26,392 27,789
Maxim Growth Index Portfolio Mutual Fund - Stock 180,799 213,763
Maxim Small-Cap Aggressive Growth
Portfolio Mutual Fund - Stock 51,775 53,484
The Lord Abbett Developing Growth Fund Mutual Fund - Mix 1,783 1,988
Maxim U.S. Government Mortgage Mutual Fund - Bonds 18,396 18,603
Securities
Maxim Investment Grade Corporate Mutual Fund - Bonds 4,006 4,037
Maxim Corporate Bond Portfolio Mutual Fund - Bonds 25,795 26,494
Putnam Global Governmental Income Fund Mutual Fund - Bonds 13,410 14,333
Maxim Short-Term Maturity Bond Mutual Fund - Bonds 1,287 1,288
Fidelity Advisor Growth Opportunities Mutual Fund - Stocks 59,618 67,554
Fund
Orchard Index 500 Mutual Fund - Stocks 69,522 78,077
AIM Weingarten Fund Mutual Fund - Stocks 62,496 74,470
Maxim Small-Cap Value Portfolio Mutual Fund - Stocks 28,597 32,174
Maxim Mid-Cap Growth Portfolio Mutual Fund - Bonds 35,219 40,049
Maxim Blue Chip Portfolio Mutual Fund - Stocks 13,724 14,193
AIM Charter Fund Mutual Fund - Stocks and Bonds 26,175 30,164
Maxim Value Index Portfolio Mutual Fund - Stocks and Bonds 32,562 34,607
Putnam Fund for Growth and Income Mutual Fund - Stocks and Bonds 60,191 65,621
Fidelity Advisor Equity Income Fund Mutual Fund - Stocks and Bonds 33,895 36,447
Putnam Global Growth Fund Mutual Fund - International 52,571 60,799
Stocks
Maxim New England International Equity Mutual Fund - International 2,054 2,125
Stocks
Fidelity Advisor Overseas Fund Mutual Fund - International 19,296 20,111
Stocks
Orchard Index Pacific Fund Mutual Fund - International 5,490 5,830
Stocks
Orchard Index European Fund Mutual Fund - International 20,910 22,332
Stocks
Maxim Money Market Fund Mutual Fund - International 333,682 338,553
Stocks
Profile Series I Mutual Fund - Mix 448,524 502,012
Profile Series II Mutual Fund - Mix 370,958 412,218
Profile Series III Mutual Fund - Mix 93,348 103,621
Profile Series IV Mutual Fund - Mix 10,256 10,605
Profile Series V Mutual Fund - Mix 5,987 6,187
$ 2,550,905 $ 2,821,579
</TABLE>
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<PAGE>
Convergent Communications, Inc. 401(k) Plan
Line 27d - Schedule of Reportable Transactions
as of December 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- -------------------------- ----------------------------- -------- ------- ------ ----------- ------- ----------- ---------
Expense Current
Description of Asset (Include Incurred Value of
Interest Rate and Maturity Purchase Selling Lease With Cost of Asset on Net Gain
Identity of Party Involved In Case of Loan) Price Price Rental Transaction Asset Transaction or (Loss)
- -------------------------- ----------------------------- -------- ------- ------ ----------- -------- ----------- ---------
<C> <S> <C> <C> <C> <C> <C> <C> <C>
Combined transactions:
GWL&A American Century - Twentieth
Century Ultra Fund $211,619 $ -- $ -- $ -- $211,619 $ 211,619 $ --
American Century - Twentieth
Century Ultra Fund 96,018 -- -- -- 96,018 96,018 --
AIM Constellation Fund 74,466 -- -- -- 74,466 74,466 --
Maxim Growth Index 173,966 -- -- -- 173,966 173,966 --
Maxim Small-Cap Aggressive
Growth Portfolio 43,192 -- -- -- 43,192 43,192 --
Fidelity Advisor Growth
Opportunities Fund 53,152 -- -- -- 53,152 53,152 --
AIM Charter Fund 62,312 -- -- -- 62,312 62,312 --
AIM Weingarten Fund 53,563 -- -- -- 53,563 53,563 --
Putnam Fund for Growth and
Income 52,239 -- -- -- 52,239 52,239 --
Putnam Global Growth Fund 53,616 -- -- -- 53,616 53,616 --
Profile Series III 109,849 -- -- -- 109,849 109,849 --
Profile Series I -- 81,573 -- -- 77,795 -- 3,778
Profile Series II -- 68,449 -- -- 61,456 -- 6,993
Maxim Money Market Fund 341,840 -- -- -- 341,840 341,840 --
Profile Series I 404,563 -- -- -- 404,563 404,563 --
Profile Series II 315,756 -- -- -- 315,756 315,756 --
</TABLE>
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustee has duly caused this Annual Report to be signed on its behalf by the
undersigned hereunto duly authorized.
CONVERGENT COMMUNICATION, INC. 401(k)
SAVINGS PLAN
Date: February 4, 2000 By: /s/ John R. Evans
---------------------------------
John R. Evans
Trustee
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