<PAGE> 1
FORM 11-K
ANNUAL REPORT
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
Commission File No.: 000-19147
COVENTRY CORPORATION RETIREMENT SAVINGS PLAN
(Full title of plan)
COVENTRY HEALTH CARE, INC.
6705 Rockledge Drive
Suite 100
Bethesda, Maryland 20817
(Name of issuer of securities held pursuant to the plan
and address of principal executive office)
<PAGE> 2
Pursuant to the requirements of the Securities Exchange Act of 1934,
the committee to administer the Coventry Corporation Retirement Savings Plan has
duly caused this annual report to be signed on its behalf by the undersigned
hereunto duly authorized.
COVENTRY CORPORATION
RETIREMENT SAVINGS PLAN
Date: October 19, 1998 By: /s/ Shirley R. Smith
------------------------- -----------------------------------
Name: Shirley R. Smith
-----------------------------------
Title: Plan Administrative Committee
-----------------------------------
Date: October 19, 1998 By: /s/ Dale B. Wolf
------------------------- -----------------------------------
Name: Dale B. Wolf
-----------------------------------
Title: Plan Administrative Committee
-----------------------------------
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants................................................ 1
Financial Statements
Statements of Net Assets Available for Benefits as of December 31,
1997 and 1996.................................................................. 2
Statement of Changes in Net Assets Available for Benefits for the
Year Ended December 31, 1997................................................... 3
Notes to Financial Statements and Schedules as of December 31, 1997 and 1996............ 5
Schedules Supporting Financial Statements
Schedule I: Item 27a - Schedule of Assets Held for Investment
Purposes as of December 31, 1997.................... 12
Schedule II: Item 27d - Schedule of Reportable Transactions for
the Year Ended December 31, 1997.................... 13
The following is a complete list of Exhibits filed or incorporated by reference
as part of this annual report:
EXHIBITS
1. Consent of Independent Auditors.................................................. E-1
</TABLE>
<PAGE> 4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Administrative Committee of the
Coventry Corporation Retirement Savings Plan:
We have audited the accompanying statements of net assets available for benefits
of Coventry Corporation Retirement Savings Plan (the "Plan") as of December 31,
1997 and 1996, and the related statement of changes in net assets available for
benefits for the year ended December 31, 1997. These financial statements are
the responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits 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 audits provide 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 benefits of the Plan as of
December 31, 1997 and 1996, and the changes in its net assets available for
benefits for the year ended December 31, 1997, in conformity with generally
accepted accounting principles.
Our audits were 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 supplemental schedules
have been subjected to the auditing procedures applied in the audits 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.
ARTHUR ANDERSEN LLP
Washington, D.C.
October 14, 1998
1
<PAGE> 5
COVENTRY CORPORATION RETIREMENT SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS:
Cash $ 127,331 $ 67,000
Investments, at fair value-
Schwab U.S Treasury Money Fund 3,154 63,009
Coventry Corporation Common Stock 2,752,025 1,982,178
Berger One Hundred Fund 7,084,603 8,391,961
Fidelity Balanced Fund -- 6,030,308
Fidelity Magellan Fund 13,573,356 13,542,507
INVESCO Stable Value Fund 4,667,358 4,429,729
PIMCO Total Return Fund 3,833,215 3,639,773
Brandywine Fund 1,426,543 568,118
Founders Balanced Fund 714,773 233,645
Harbor Capital Appreciation Fund 1,093,314 383,858
Janus Worldwide Fund 2,205,999 737,349
Mutual Series Beacon Fund 2,110,302 665,586
PBHG Growth Fund 2,083,797 1,051,997
Strong Government Securities Fund 433,964 287,803
Vanguard Asset Allocation Fund 7,174,083 376,698
Participant Loans 1,088,159 1,215,918
----------- -----------
Total cash and investments 50,371,976 43,667,437
----------- -----------
Receivables:
Participant contributions 31,585 78,118
Employer contributions 58,362 41,175
Interest and dividends receivable 48,117 --
----------- -----------
Total receivables 138,064 119,293
----------- -----------
Total assets available for benefits 50,510,040 43,786,730
----------- -----------
LIABILITIES:
Excess contributions payable 154,993 80,600
----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS $50,355,047 $43,706,130
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 6
COVENTRY CORPORATION RETIREMENT SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
NON-PARTICIPANT DIRECTED PARTICIPANT DIRECTED
------------------------ ------------------------------------------------------
SCHWAB COVENTRY
EXCESS U.S. CORP. BERGER ONE FIDELITY
CONTRIBUTIONS TREASURY COMMON HUNDRED BALANCED
CASH PAYABLE MONEY FUND STOCK FUND FUND
--------- --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ADDITIONS:
Contributions-
Employee $ 65,355 $(134,729) $ 172,656 $ -- $ 275,003 $ --
Employer, net of forfeitures (5,019) (20,264) 25,105 -- (74,107) --
--------- --------- --------- ----------- ----------- -----------
Total contributions 60,336 (154,993) 197,761 -- 200,896 --
--------- --------- --------- ----------- ----------- -----------
Investment income-
Interest and dividends 83 -- 9,759 -- 2,446,981 --
Net increase (decrease) in fair
market value of investments -- -- -- 1,178,991 (1,463,139) (38,496)
--------- --------- --------- ----------- ----------- -----------
Total investment income 83 -- 9,759 1,178,991 983,842 (38,496)
--------- --------- --------- ----------- ----------- -----------
Total additions 60,419 (154,993) 207,520 1,178,991 1,184,738 (38,496)
--------- --------- --------- ----------- ----------- -----------
DEDUCTIONS:
Benefit distributions -- 80,600 -- (377,988) (1,562,346) (7,174)
Administrative expenses -- -- -- -- (75) --
--------- --------- --------- ----------- ----------- -----------
Total deductions -- 80,600 -- (377,988) (1,562,421) (7,174)
--------- --------- --------- ----------- ----------- -----------
INTERFUND TRANSFERS (88) -- (267,375) (31,156) (929,675) (5,984,638)
--------- --------- --------- ----------- ----------- -----------
NET INCREASE (DECREASE) 60,331 (74,393) (59,855) 769,847 (1,307,358) (6,030,308)
NET ASSETS AVAILABLE FOR BENEFITS,
beginning of year 67,000 (80,600) 63,009 1,982,178 8,391,961 6,030,308
--------- --------- --------- ----------- ----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS,
end of year $ 127,331 $(154,993) $ 3,154 $ 2,752,025 $ 7,084,603 $ --
========= ========= ========= =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
PARTICIPANT DIRECTED
----------------------------------------------------------
FIDELITY INVESCO
MAGELLAN STABLE PIMCO TOTAL BRANDYWINE
FUND VALUE FUND RETURN FUND FUND SUBTOTAL
------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ADDITIONS:
Contributions-
Employee $ 415,873 $ 156,282 $ 280,061 $ 427,887 $ 1,658,388
Employer, net of forfeitures (112,436) 219,250 68,506 214,654 315,689
------------ ----------- ----------- ----------- ------------
Total contributions 303,437 375,532 348,567 642,541 1,974,077
------------ ----------- ----------- ----------- ------------
Investment income-
Interest and dividends 929,129 282,063 312,741 257,839 4,238,595
Net increase (decrease) in fair
market value of investments 2,319,155 -- 36,583 (162,531) 1,870,563
------------ ----------- ----------- ----------- ------------
Total investment income 3,248,284 282,063 349,324 95,308 6,109,158
------------ ----------- ----------- ----------- ------------
Total additions 3,551,721 657,595 697,891 737,849 8,083,235
------------ ----------- ----------- ----------- ------------
DEDUCTIONS:
Benefit distributions (2,390,467) (833,894) (577,348) (237,114) (5,905,731)
Administrative expenses (75) -- (75) (150) (375)
------------ ----------- ----------- ----------- ------------
Total deductions (2,390,542) (833,894) (577,423) (237,264) (5,906,106)
------------ ----------- ----------- ----------- ------------
INTERFUND TRANSFERS (1,130,330) 413,928 72,974 357,840 (7,498,520)
------------ ----------- ----------- ----------- ------------
NET INCREASE (DECREASE) 30,849 237,629 193,442 858,425 (5,321,391)
NET ASSETS AVAILABLE FOR BENEFITS,
beginning of year 13,542,507 4,429,729 3,639,773 568,118 38,633,983
------------ ----------- ----------- ----------- ------------
NET ASSETS AVAILABLE FOR BENEFITS,
end of year $ 13,573,356 $ 4,667,358 $ 3,833,215 $ 1,426,543 $ 33,312,592
============ =========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE> 7
COVENTRY CORPORATION RETIREMENT SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1997
(CONTINUED)
<TABLE>
<CAPTION>
PARTICIPANT DIRECTED
-----------------------------------------------------------------------------
HARBOR MUTUAL
FOUNDERS CAPITAL JANUS SERIES
BALANCED APPRECIATION WORLDWIDE BEACON PBHG GROWTH
FUND FUND FUND FUND FUND
--------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ADDITIONS:
Contributions-
Employee $ 223,810 $ 259,008 $ 552,987 $ 604,588 $ 840,982
Employer, net of forfeitures 115,010 110,311 253,133 301,665 406,392
--------- ----------- ----------- ----------- -----------
Total contributions 338,820 369,319 806,120 906,253 1,247,374
--------- ----------- ----------- ----------- -----------
Investment income-
Interest and dividends 65,959 158,396 156,565 250,729 13,652
Net increase (decrease) in fair
market value of investments 17,282 17,288 134,516 81,100 14,779
--------- ----------- ----------- ----------- -----------
Total investment income 83,241 175,684 291,081 331,829 28,431
--------- ----------- ----------- ----------- -----------
Total additions 422,061 545,003 1,097,201 1,238,082 1,275,805
--------- ----------- ----------- ----------- -----------
DEDUCTIONS:
Benefit distributions (141,290) (159,027) (217,927) (238,337) (200,833)
Administrative expenses (75) (75) (186) (150) (75)
--------- ----------- ----------- ----------- -----------
Total deductions (141,365) (159,102) (218,113) (238,487) (200,908)
--------- ----------- ----------- ----------- -----------
INTERFUND TRANSFERS 200,432 323,555 589,562 445,121 (43,097)
--------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) 481,128 709,456 1,468,650 1,444,716 1,031,800
NET ASSETS AVAILABLE FOR BENEFITS,
beginning of year 233,645 383,858 737,349 665,586 1,051,997
--------- ----------- ----------- ----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS,
end of year $ 714,773 $ 1,093,314 $ 2,205,999 $ 2,110,302 $ 2,083,797
========= =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
PARTICIPANT DIRECTED
----------------------------------------------------------
STRONG GOV. VANGUARD ASSET
SECURITIES ALLOCATION PARTICIPANT
FUND FUND RECEIVABLES LOANS TOTAL
--------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ADDITIONS:
Contributions-
Employee $ 104,945 $ 407,402 $ (46,533) $ -- $ 4,605,577
Employer, net of forfeitures 55,311 73,712 17,187 -- 1,648,410
--------- ----------- --------- ----------- ------------
Total contributions 160,256 481,114 (29,346) -- 6,253,987
--------- ----------- --------- ----------- ------------
Investment income-
Interest and dividends 19,318 569,342 48,117 -- 5,520,673
Net increase (decrease) in fair
market value of investments 11,649 1,048,944 -- -- 3,196,121
--------- ----------- --------- ----------- ------------
Total investment income 30,967 1,618,286 48,117 -- 8,716,794
--------- ----------- --------- ----------- ------------
Total additions 191,223 2,099,400 18,771 -- 14,970,781
--------- ----------- --------- ----------- ------------
DEDUCTIONS:
Benefit distributions (130,650) (1,171,732) -- (155,176) (8,320,703)
Administrative expenses (75) (150) -- -- (1,161)
--------- ----------- --------- ----------- ------------
Total deductions (130,725) (1,171,882) -- (155,176) (8,321,864)
--------- ----------- --------- ----------- ------------
INTERFUND TRANSFERS 85,663 5,869,867 -- 27,417 --
--------- ----------- --------- ----------- ------------
NET INCREASE (DECREASE) 146,161 6,797,385 18,771 (127,759) 6,648,917
NET ASSETS AVAILABLE FOR BENEFITS,
beginning of year 287,803 376,698 119,293 1,215,918 43,706,130
--------- ----------- --------- ----------- ------------
NET ASSETS AVAILABLE FOR BENEFITS,
end of year $ 433,964 $ 7,174,083 $ 138,064 $ 1,088,159 $ 50,355,047
========= =========== ========= =========== ============
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE> 8
COVENTRY CORPORATION RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS AND SCHEDULES
AS OF DECEMBER 31, 1997 AND 1996
1. PLAN DESCRIPTION:
The following description of the Coventry Corporation Retirement Savings Plan
(the "Plan") is provided for general information purposes only. More complete
information regarding the Plan's provisions may be found in the Plan document.
GENERAL
Coventry Corporation (the "Company") adopted a savings plan and trust effective
July 1, 1994. As of the adoption date, Group Health Plan, Inc. and Health
America Pennsylvania, Inc., subsidiaries of Coventry Corporation, merged their
plans with the Coventry Corporation Retirement Savings Plan. Two additional
subsidiaries' plans, Southern Health and Healthcare USA, were merged into the
Plan during 1996.
The Plan is a defined contribution plan established by Coventry Corporation
under the provisions of Section 401(a) of the Internal Revenue Code ("IRC"),
which includes a qualified cash or deferred arrangement as described in Section
401(k) of the IRC, for the benefit of eligible employees of the Company. All
employees of the Company who have completed one year of service, as defined, are
eligible to participate. The Plan is subject to the provisions of the Employee
Retirement Income Security Act of 1974 ("ERISA"), as amended.
PLAN ADMINISTRATION
Under a trust agreement dated July 1, 1994, Charles Schwab Trust Company was
appointed trustee for the Plan. The Plan is administered by an employee benefits
committee, which is appointed by the Board of Directors of the Company.
CONTRIBUTIONS
Eligible employees can contribute an amount up to 15 percent of compensation, as
defined by the Plan, subject to certain limitations under the IRC. In 1997 and
1996, the Company provided a matching contribution equal to 100 percent of each
participant's contribution up to a maximum of 3 percent, and 50 percent of each
participant's contribution in excess of 3 percent up to a maximum of 6 percent
of compensation.
EXCESS CONTRIBUTIONS PAYABLE
During 1997 and 1996, the Company determined an excess matching contribution
equal to approximately $20,264 and $80,600 respectively, was made in error to
employees. These amounts will be used to reduce future employer contributions.
In addition, during 1997 employee contributions include $134,729 in excess
contributions which were refunded to
5
<PAGE> 9
participants subsequent to year-end as the contributions were determined to be
in excess of maximum contribution levels for certain participants. A liability
for excess contributions payable in the amount of $154,993 and $80,600 has been
reflected in the statements of net assets available for benefits as of December
31, 1997 and 1996, respectively.
VESTING
Participants are fully vested in their contributions and the earnings thereon.
Vesting in employer matching contributions is based on years of continuous
service. A participant vests according to the following schedule:
<TABLE>
<CAPTION>
<S> <C>
Less than one year 0%
One year 20%
Two years 40%
Three years 60%
Four years 80%
Five years 100%
</TABLE>
FORFEITED ACCOUNTS
At December 31, 1997 and 1996, forfeited nonvested accounts totaled $275,173 and
$680,353, respectively. These accounts will be used to reduce future employer
contributions. During 1997, $800,747 in forfeited nonvested accounts were used
to reduce employer contributions.
BENEFITS
Upon termination of service due to death, disability, or retirement, a
participant may elect to receive an amount equal to the value of the
participant's vested interest in his or her account. The form of payment is a
lump-sum distribution.
PARTICIPANT ACCOUNTS
Individual accounts are maintained for each of the Plan's participants to
reflect the participant's contributions and related employer matching
contributions, as well as the participant's share of the Plan's income and any
related administrative expenses. Allocations are based on the proportion that
each participant's account balance has to the total of all participants' account
balances.
INVESTMENT OPTIONS
Participants may direct employee and employer contributions and any related
earnings into fourteen investment options in 10 percent increments. Participants
may change their investment elections monthly. A description of each investment
option is provided below:
COVENTRY CORPORATION COMMON STOCK - This fund invests exclusively in common
stock of the Company, which is traded "over-the-counter" and listed on the
NASDAQ/National Market System. Pending trades are temporarily held in the Schwab
U.S. Treasury Money Fund.
6
<PAGE> 10
BERGER ONE HUNDRED FUND - This fund seeks long-term capital appreciation by
investing primarily in common stocks of established companies.
FIDELITY BALANCED FUND - This fund seeks to maximize income while preserving
capital through investments in a mix of equity and fixed-income securities. The
Fund also aims for some capital growth.
FIDELITY MAGELLAN FUND - This fund seeks growth of capital through investments
in common stocks or securities convertible into common stock.
INVESCO STABLE VALUE FUND - This fund seeks to offer income levels comparable to
those generated by intermediate-term, high-quality debt obligations, while
guaranteeing principal. The fund is a conservatively managed, broadly
diversified pool of investment contracts guaranteed by insurance companies.
PIMCO TOTAL RETURN FUND - This fund seeks to earn total return consistent with
conservative investment management. The fund invests in fixed-income securities,
including corporate bonds, U.S. government securities, mortgage-related
securities, and money market instruments.
BRANDYWINE FUND - This fund seeks long-term capital appreciation by investing in
profitable companies with strong earnings momentum. The fund invests primarily
in corporate stock.
FOUNDERS BALANCED FUND - This fund seeks to earn current income and capital
appreciation by investing in dividend-paying stocks of established companies,
government and corporate bonds.
HARBOR CAPITAL APPRECIATION FUND - This fund seeks long-term growth of capital
by investing primarily in a portfolio of equity securities of established
companies with above average prospects for growth.
JANUS WORLDWIDE FUND - This fund invests primarily in stocks of foreign and
domestic issuers.
MUTUAL SERIES BEACON FUND - This fund invests primarily in common stock,
preferred stock and debt securities. The principal objective of the fund is
capital appreciation. Its secondary objective is income.
PBHG GROWTH FUND - This fund invests in companies believed by its investment
advisor to have an outlook for strong growth in earnings and the potential for
significant capital appreciation.
STRONG GOVERNMENT SECURITIES FUND - This fund seeks a high level of current
income by investing in U.S. government securities.
VANGUARD ASSET ALLOCATION FUND - This fund seeks to maximize total return while
exhibiting less risk than a portfolio consisting entirely of equities. The fund
allocates assets among a common stock portfolio, a bond portfolio and money
market instruments.
7
<PAGE> 11
PARTICIPANT LOANS
A participant may borrow a maximum of the lesser of $50,000 or 50 percent of his
or her vested account balance with a minimum loan amount of $500. Loans are
repayable through payroll deductions over periods ranging up to five years. The
interest rate is determined by the plan administrator based on prevailing market
rates available for similar loans from commercial lending institutions and is
fixed over the life of the note. The interest rates at December 31, 1997, ranged
from 7.00 percent to 10.00 percent.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF ACCOUNTING
The accompanying financial statements are prepared on the accrual basis of
accounting.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires the Plan's 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 revenues and expenses during the
reporting period. Actual results could differ from these estimates.
INCOME RECOGNITION
Interest income is recorded as earned on the accrual basis. Dividend income is
recorded on the ex-dividend date.
INVESTMENT VALUATION
Investments of the Plan are stated at fair market value based on quoted net
asset values on the last business day of the Plan year. Participant loans are
valued at cost which approximates fair value.
ADMINISTRATIVE EXPENSES
The Company pays all administrative expenses of the Plan, except for the
administrative costs of mutual funds and loan processing fees. Administrative
expenses paid by the Company were $186,749 and $271,211 in 1997 and 1996,
respectively.
PAYMENT OF BENEFITS
Benefits are recorded when paid out of the Plan.
8
<PAGE> 12
3. INVESTMENTS:
The values of individual assets that represent 5 percent or more of the Plan's
net assets as of December 31, 1997 and 1996, are as follows:
<TABLE>
<S> <C>
1997:
Coventry Corporation Common Stock $ 2,752,025
Berger One Hundred Fund 7,084,603
Fidelity Magellan Fund 13,573,356
INVESCO Stable Value Fund 4,667,358
PIMCO Total Return Fund 3,833,215
Vanguard Asset Allocation Fund 7,174,083
1996:
Berger One Hundred Fund $ 8,391,961
Fidelity Balanced Fund 6,030,308
Fidelity Magellan Fund 13,542,507
INVESCO Stable Value Fund 4,429,729
PIMCO Total Return Fund 3,639,773
</TABLE>
4. TAX STATUS:
The Plan obtained it's latest determination letter on November 17, 1997, in
which the Internal Revenue Service stated that the Plan, as then designed, was
in compliance with the applicable requirements of the IRC. The Plan has been
amended since receiving the determination letter. However, the Plan
Administrator believes that the Plan is currently designed and is being operated
in compliance with the applicable requirements of the IRC. Therefore, no
provision for income taxes has been included in the Plan's financial statements.
5. 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. In the event of plan termination,
participants will become 100 percent vested in their account balances.
6. DEPARTMENT OF LABOR REVIEW:
The Department of Labor (DOL) is conducting a review of the Plan to determine if
the Plan has been operated in accordance with the DOL's rules and regulations.
In the opinion of the Plan's Administrator, the review will not result in any
findings that could have a material adverse effect on the Plan.
9
<PAGE> 13
7. SUBSEQUENT EVENTS:
Effective April 1, 1998, Coventry Corporation (which changed its name to
"Coventry Health Care, Inc.") completed its acquisition of certain assets of
Principal Health Care, Inc. ("PHC") from Principal Mutual Life Insurance
Company.
On April 1, 1998, the Coventry Health Care, Inc. Retirement Savings Plan (the
"New Plan") was established and any prior PHC participant account balances
included in the assets of another qualified retirement plan were rolled over
into the New Plan at the election of the former PHC employees. Effective October
1, 1998, the Plan was merged with the New Plan. All employees that were
participants under the Plan became participants in the New Plan.
On October 1, 1998, the assets of the Plan were merged and transferred to: (1)
Principal Life Insurance Company, as funding agent of the assets held under the
terms of the Flexible Investment Annuity Contract with Coventry Health Care,
Inc., (2) Delaware Charter Guarantee and Trust Company, as custodial trustee of
the mutual funds and (3) Bankers Trust Company, as custodial trustee of the New
Plan's participant loans and the Coventry Health Care, Inc. common stock.
Participants should refer to the New Plan document for a complete description of
their available investment options subsequent to October 1, 1998.
The significant differences between the provisions of the Coventry Corporation
Retirement Savings Plan and the New Plan are as follows: (1) the employer
matching contributions under the New Plan are invested exclusively in Coventry
Health Care, Inc. common stock under the direction of Coventry Health Care,
Inc.; (2) the New Plan's vesting provisions allow participants to vest in the
employer matching contributions upon completion of one year of service, and; (3)
the administrative expenses of the Plan, including, but not limited to the
trustee and investment management fees, will be paid by the Plan and allocated
to the participant account balances. Participants should refer to the New Plan
document for a complete description of the New Plan's provisions.
Although the New Plan has not yet received a determination letter from the
Internal Revenue Service, the New Plan Administrator believes that the New Plan
is currently designed and is being operated in compliance with the applicable
requirements of the IRC.
8. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500:
The following is a reconciliation of net assets available for benefits per the
accompanying financial statements to the Plan's Form 5500 tax filing:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Net assets available for benefits per the accompanying
financial statements $50,355,047 $43,706,130
Amounts allocated to withdrawing participants (14,952) -
----------- -----------
Net assets available for benefits per the Form 5500
$50,340,095 $43,706,130
=========== ===========
</TABLE>
10
<PAGE> 14
The following is a reconciliation of benefits paid to participants per the
accompanying financial statements to the Plan's Form 5500 tax filing:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
----------
<S> <C>
Benefits paid to participants per the accompanying
financial statements $8,320,703
Add- Amounts allocated to withdrawing participants at
December 31, 1997 14,952
----------
Benefits paid to participants per the Form 5500 $8,335,655
==========
</TABLE>
Amounts allocated to withdrawing participants are recorded on the Form 5500 for
benefit claims that have been processed and approved for payment prior to
December 31, but not yet paid as of that date.
11
<PAGE> 15
COVENTRY CORPORATION RETIREMENT SAVINGS PLAN
ITEM 27(A) - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
DESCRIPTION OF INVESTMENT
INCLUDING MATURITY DATE, RATE OF
IDENTITY OF ISSUE, BORROWER, INTEREST, COLLATERAL, PAR, OR CURRENT
LESSOR, OR SIMILAR PARTY MATURITY VALUE COST VALUE
------------------------ -------------- ----------- -----------
<S> <C> <C> <C>
* Charles Schwab Cash $ 127,331 $ 127,331
* Schwab U.S. Treasury Money
Fund Money market 3,154 3,154
* Coventry Corporation Common stock 3,082,692 2,752,025
Berger One Hundred Fund Equity mutual fund 9,207,082 7,084,603
Fidelity Balanced Fund Mixed mutual fund 431 -
Fidelity Magellan Fund Equity mutual fund 11,121,103 13,573,356
INVESCO Stable Value Fund Fixed income fund 4,667,358 4,667,358
PIMCO Total Return Fund Fixed income fund 3,750,965 3,833,215
Brandywine Fund Equity mutual fund 1,610,364 1,426,543
Founders Balanced Fund Mixed mutual fund 711,033 714,773
Harbor Capital Appreciation
Fund Equity mutual fund 1,102,901 1,093,314
Janus Worldwide Fund Equity mutual fund 2,156,670 2,205,999
Mutual Series Beacon Fund Mixed mutual fund 2,095,627 2,110,302
PBHG Growth Fund Equity mutual fund 2,066,044 2,083,797
Strong Government Securities
Fund U.S. government bond fund 425,618 433,964
Vanguard Asset Allocation
Fund Mixed mutual fund 6,310,213 7,174,083
* Participant Loans Maturing at various dates,
interest rates ranging from 7.00%
to 10.00% 1,088,159 1,088,159
----------- -----------
$49,526,745 $50,371,976
=========== ===========
</TABLE>
* Party-in-interest
The accompanying notes are an integral part of this schedule.
12
<PAGE> 16
SCHEDULE II
COVENTRY CORPORATION RETIREMENT SAVINGS PLAN
ITEM 27(D)--SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PURCHASES SALES
----------------------- -----------------------------------------------
NUMBER OF PURCHASE NUMBER OF SELLING COST OF NET GAIN
IDENTITY OF PARTY INVOLVED DESCRIPTION OF ASSET TRANSACTIONS PRICE TRANSACTIONS PRICE ASSETS (LOSS)
-------------------------- -------------------- ------------ ---------- ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
* Charles Schwab Trust Company Berger One Hundred Fund 166 $3,010,934 653 $2,763,740 $2,534,950 $ 228,790
* Charles Schwab Trust Company Fidelity Balanced Fund 1 17,892 3 5,991,812 6,030,309 (38,497)
* Charles Schwab Trust Company Fidelity Magellan Fund 212 1,968,131 800 4,111,262 3,832,477 278,785
* Charles Schwab Trust Company INVESCO Stable Value Fund 278 2,065,432 671 1,831,014 1,831,014 --
* Charles Schwab Trust Company Janus Worldwide Fund 268 2,041,665 353 608,897 626,798 (17,901)
* Charles Schwab Trust Company Mutual Series Beacon Fund 260 1,981,110 474 499,594 544,956 (45,362)
* Charles Schwab Trust Company PBHG Growth Fund 236 1,669,334 572 623,535 643,487 (19,952)
* Charles Schwab Trust Company Vanguard Asset Allocation Fund 201 7,502,271 736 1,621,735 1,565,801 55,934
</TABLE>
* Party-in-interest
The accompanying notes are an integral part of this schedule.
13
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated October 14, 1998, included in this Form 11-K, into
the Company's previously filed registration statements on Form S-8 (File No.
333-36735 and File No. 333-39581).
/s/ Arthur Andersen LLP
Washington, D.C.
October 14, 1998
