<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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.
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from ___________ to ________________
Commission file number 000-19147
A. Full title of the plan and the address of the plan, if different
from that of the issuer named below:
COVENTRY HEALTH CARE, INC.
RETIREMENT SAVINGS PLAN
6705 Rockledge Drive, Suite 900
Bethesda, MD 20817
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office:
COVENTRY HEALTH CARE, INC.
6705 Rockledge Drive, Suite 900
Bethesda, MD 20817
<PAGE> 2
REQUIRED INFORMATION
1) Financial Statements and Schedules (and Notes thereto)
2) Consent of Independent Accountants to Incorporation By Reference
(attached)
SIGNATURES
Coventry Health Care, Inc. Retirement Savings Plan. Pursuant to the
requirements of the Securities Exchange Act of 1934, the Plan Administrators
have duly caused this Annual Report to be signed on its behalf by the
undersigned hereunto duly authorized.
COVENTRY HEALTH CARE, INC.
RETIREMENT SAVINGS PLAN
Date: June 25, 1999
By: /s/ DALE B. WOLF
-------------------------------
Dale B. Wolf, Plan Adminstrator
By: /s/ HARVEY C. DEMOVICK, JR.
-------------------------------
Harvey C. DeMovick, Jr., Plan Administrator
<PAGE> 3
COVENTRY HEALTH CARE, INC. RETIREMENT SAVINGS PLAN
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE> 4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Administrative Committee of the
Coventry Health Care, Inc. Retirement Savings Plan:
We have audited the accompanying statement of net assets available for benefits
of Coventry Health Care, Inc. Retirement Savings Plan (the "Plan") as of
December 31, 1998, and the related statement of changes in net assets available
for benefits for the nine-months ended December 31, 1998. 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 audit.
We conducted our audit 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 audit provides 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, 1998, and the changes in its net assets available for benefits for
the nine-months ended December 31, 1998, in conformity with generally accepted
accounting principles.
Our audit was 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 audit 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.
/s/ ARTHUR ANDERSEN LLP
Baltimore, Maryland
June 25, 1999
<PAGE> 5
COVENTRY HEALTH CARE, INC. RETIREMENT SAVINGS PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
As of December 31, 1998 1
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
For the Nine-Months Ended December 31, 1998 2
NOTES TO FINANCIAL STATEMENTS AND SCHEDULES
As of December 31, 1998 4
ITEM 27(a) - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
As of December 31, 1998 8
ITEM 27(d)--SCHEDULE OF REPORTABLE TRANSACTIONS
For the Nine-Months Ended December 31, 1998 9
SCHEDULES OMITTED BECAUSE THERE WERE NO SUCH ITEMS
As of and for the Nine-Months Ended December 31, 1998:
Item 27(b) - Schedule of Loans or Fixed-Income Obligations
Item 27(c) - Schedule of Leases in Default or Classified as Uncollectible
Item 27(e) - Schedule of Nonexempt Transactions
</TABLE>
<PAGE> 6
COVENTRY HEALTH CARE, INC. RETIREMENT SAVINGS PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
DECEMBER 31,
1998
--------------
<S> <C>
ASSETS:
Investments, at fair value-
Principal Life Insurance Company:
Guaranteed Interest Account $ 1,022,963
Money Market Separate Account 5,056,207
Government Securities Separate Account 875,004
Bond & Mortgage Separate Account 4,147,727
Stock Index 500 Separate Account 17,362,543
Medium Company Value Separate Account 3,796,865
Small Company Blend Separate Account 1,206,762
Small Company Growth Separate Account 1,105,417
International Stock Separate Account 3,500,568
Neuberger & Berman Genesis Trust 880,218
T. Rowe Price Mid-Cap Growth Fund 3,022,553
Vanguard Asset Allocation Fund 10,199,888
Vanguard Growth & Income Fund 7,533,397
Vanguard PRIMECAP Fund 3,391,894
Vanguard U.S. Growth Fund 3,897,470
Coventry Health Care, Inc. Common Stock 5,237,377
Participant Loans 1,313,393
--------------
Total investments 73,550,246
--------------
Receivables
Participant contributions 171,296
Employer contributions 98,386
Interest and dividends receivables 14,919
--------------
Total receivables 284,601
--------------
Total assets available for benefits 73,834,847
--------------
LIABILITIES:
Excess contributions payable 3,439
--------------
NET ASSETS AVAILABLE FOR BENEFITS $73,831,408
==============
</TABLE>
The accompanying notes are an integral part of this statement.
- 1 -
<PAGE> 7
COVENTRY HEALTH CARE, INC. RETIREMENT SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE NINE-MONTHS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
NON-PARTICIPANT DIRECTED PARTICIPANT DIRECTED
------------------------ ------------------------------- --------------
PRINCIPAL PRINCIPAL
PRINCIPAL MONEY GOVERNMENT
GUARANTEED MARKET SECURITIES
EXCESS CONTRIBUTIONS INTEREST SEPARATE SEPARATE
PAYABLE ACCOUNT ACCOUNT ACCOUNT
------------------------ ------------- ------------ --------------
<S> <C> <C> <C> <C>
ADDITIONS:
Contributions-
Employee $ - $ 658,028 $ 604,229 $275,054
Employer, net of forfeitures (3,439) - - -
------- ---------- ---------- --------
Total contributions (3,439) 658,028 604,229 275,054
------- ---------- ---------- --------
Investment income-
Interest and dividends - - - -
Net increase (decrease) in fair
market value of investments - - - -
Net investment income in pooled
separate accounts - 13,918 93,416 10,116
------- ---------- ---------- --------
Investment earnings - 13,918 93,416 10,116
------- ---------- ---------- --------
Total additions (3,439) 671,946 697,645 285,170
------- ---------- ---------- --------
DEDUCTIONS:
Benefit distributions - (37,425) (114,776) (8,419)
Administrative expenses - (453) (855) (221)
------- ---------- ---------- --------
Total deductions - (37,878) (115,631) (8,640)
PARTICIPANT LOAN REPAYMENTS - 5,020 16,337 2,320
PARTICIPANT LOAN DISTRIBUTIONS - (6,467) (14,518) (3,568)
TRANSFERS FROM COVENTRY CORPORATION
RETIREMENT SAVINGS PLAN - - 4,843,258 617,465
INTERFUND TRANSFERS - 390,342 (370,884) (17,743)
------- ---------- ---------- --------
NET INCREASE (DECREASE) (3,439) 1,022,963 5,056,207 875,004
NET ASSETS AVAILABLE FOR BENEFITS,
BEGINNING OF YEAR - - - -
------- ---------- ---------- --------
NET ASSETS AVAILABLE FOR BENEFITS,
END OF YEAR $(3,439) $1,022,963 $5,056,207 $875,004
======= ========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
PARTICIPANT DIRECTED
-----------------------------------------------------------------------
PRINCIPAL PRINCIPAL
PRINCIPAL MEDIUM SMALL
BOND & PRINCIPAL COMPANY COMPANY
MORTGAGE STOCK INDEX VALUE BLEND
SEPARATE 500 SEPARATE SEPARATE SEPARATE
ACCOUNT ACCOUNT ACCOUNT ACCOUNT
------------- ----------------- -------------- --------------
<S> <C> <C> <C> <C>
ADDITIONS:
Contributions-
Employee $ 679,230 $ 2,196,624 $1,862,131 $1,181,721
Employer, net of forfeitures - - - -
---------- ----------- ---------- ----------
Total contributions 679,230 2,196,624 1,862,131 1,181,721
---------- ----------- ---------- ----------
Investment income-
Interest and dividends - - - -
Net increase (decrease) in fair
market value of investments - - - -
Net investment income in pooled
separate accounts 26,175 3,371,441 301,949 (58,845)
---------- ----------- ---------- ----------
Investment earnings 26,175 3,371,441 301,949 (58,845)
---------- ----------- ---------- ----------
Total additions 705,405 5,568,065 2,164,080 1,122,876
---------- ----------- ---------- ----------
DEDUCTIONS:
Benefit distributions (182,903) (372,716) (137,873) (108,000)
Administrative expenses (1,110) (2,778) (1,426) (609)
---------- ----------- ---------- ----------
Total deductions (184,013) (375,494) (139,299) (108,609)
PARTICIPANT LOAN REPAYMENTS 6,529 19,164 10,204 6,838
PARTICIPANT LOAN DISTRIBUTIONS (14,063) (50,757) (16,730) (11,735)
TRANSFERS FROM COVENTRY CORPORATION
RETIREMENT SAVINGS PLAN 3,931,830 13,014,218 1,939,578 -
INTERFUND TRANSFERS (297,961) (812,653) (160,968) 197,392
---------- ----------- ---------- ----------
NET INCREASE (DECREASE) 4,147,727 17,362,543 3,796,865 1,206,762
NET ASSETS AVAILABLE FOR BENEFITS,
BEGINNING OF YEAR - - - -
---------- ----------- ---------- ----------
NET ASSETS AVAILABLE FOR BENEFITS,
END OF YEAR $4,147,727 $17,362,543 $3,796,865 $1,206,762
========== =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------
PRINCIPAL
SMALL PRINCIPAL
COMPANY INTERNATIONAL
GROWTH STOCK NEUBERGER &
SEPARATE SEPARATE BERMAN
ACCOUNT ACCOUNT GENESIS TRUST SUBTOTAL
----------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
ADDITIONS:
Contributions-
Employee $1,116,469 $1,047,982 $414,575 $10,036,043
Employer, net of forfeitures - - - (3,439)
---------- ---------- -------- -----------
Total contributions 1,116,469 1,047,982 414,575 10,032,604
---------- ---------- -------- -----------
Investment income-
Interest and dividends - - 4,471 4,471
Net increase (decrease) in fair
market value of investments - - 3,746 3,746
Net investment income in pooled
separate accounts 26,351 468,629 - 4,253,150
---------- ---------- -------- -----------
Investment earnings 26,351 468,629 8,217 4,261,367
---------- ---------- -------- -----------
Total additions 1,142,820 1,516,611 422,792 14,293,971
---------- ---------- -------- -----------
DEDUCTIONS:
Benefit distributions (83,194) (127,845) (29,941) (1,203,092)
Administrative expenses (583) (1,184) - (9,219)
---------- ---------- -------- -----------
Total deductions (83,777) (129,029) (29,941) (1,212,311)
PARTICIPANT LOAN REPAYMENTS 6,718 8,378 1,856 83,364
PARTICIPANT LOAN DISTRIBUTIONS (8,920) (23,654) (2,296) (152,708)
TRANSFERS FROM COVENTRY CORPORATION
RETIREMENT SAVING PLAN - 2,370,840 - 26,717,189
INTERFUND TRANSFERS 48,576 (242,578) 487,807 (778,670)
---------- ---------- -------- -----------
NET INCREASE (DECREASE) 1,105,417 3,500,568 880,218 38,950,835
NET ASSETS AVAILABLE FOR BENEFITS,
BEGINNING OF YEAR - - - -
---------- ---------- -------- -----------
NET ASSETS AVAILABLE FOR BENEFITS,
END OF YEAR $1,105,417 $3,500,568 $880,218 $38,950,835
========== ========== ======== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
- 2 -
<PAGE> 8
COVENTRY HEALTH CARE, INC. RETIREMENT SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE NINE-MONTHS ENDED DECEMBER 31, 1998
(CONTINUED)
<TABLE>
<CAPTION>
PARTICIPANT DIRECTED
-----------------------------------------------------
T. ROWE PRICE VANGUARD
MID-CAP ASSETS VANGUARD
GROWTH ALLOCATION GROWTH &
FUND FUND INCOME FUND
---------------- --------------- ---------------
<S> <C> <C> <C>
ADDITIONS:
Contributions-
Employee $ 872,184 $ 848,749 $ 959,919
Employer, net of forfeitures - - -
---------- ----------- ----------
Total contributions 872,184 848,749 959,919
---------- ----------- ----------
Investment income-
Interest and dividends - 215,555 40,163
Net increase (decrease) in fair market
value of investments 580,124 1,060,042 1,290,126
Net investment income in pooled separate
accounts - - -
---------- ----------- ----------
Investment earnings 580,124 1,275,597 1,330,289
---------- ----------- ----------
Total Additions 1,452,308 2,124,346 2,290,208
---------- ----------- ----------
DEDUCTIONS:
Benefits distributions (86,756) (196,710) (133,118)
Administrative expenses - - -
---------- ----------- ----------
Total deductions (86,756) (196,710) (133,118)
PARTICIPANT LOAN REPAYMENTS 9,601 8,600 12,286
PARTICIPANT LOAN DISTRIBUTIONS (14,055) (11,490) (14,688)
TRANSFERS FROM COVENTRY CORPORATION RETIREMENT
SAVINGS PLAN 1,558,558 8,606,118 5,164,884
INTERFUND TRANSFERS 102,897 (330,976) 213,825
---------- ----------- ----------
NET INCREASE (DECREASE) 3,022,553 10,199,888 7,533,397
NET ASSETS AVAILABLE FOR BENEFITS, BEGINNING
OF YEAR - - -
---------- ----------- ----------
NET ASSETS AVAILABLE FOR BENEFITS, END OF YEAR $3,022,553 $10,199,888 $7,533,397
========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
PARTICIPANT DIRECTED
------------------------------------------------------
COVENTRY
VANGUARD VANGUARD HEALTH CARE,
PRIMECAP U.S. GROWTH INC.
FUND FUND COMMON STOCK
--------------- --------------- -----------------
<S> <C> <C> <C>
ADDITIONS:
Contributions-
Employee $1,132,898 $1,039,750 $ 242,158
Employer, net of forfeitures - - 2,090,653
---------- ---------- ----------
Total contributions 1,132,898 1,039,750 2,332,811
---------- ---------- ----------
Investment income-
Interest and dividends 21,439 16,908 -
Net increase (decrease) in fair market
value of investments 596,337 679,226 838,543
Net investment income in pooled separate
accounts - - -
---------- ---------- ----------
Investment earnings 617,776 696,134 838,543
---------- ---------- ----------
Total Additions 1,750,674 1,735,884 3,171,354
---------- ---------- ----------
DEDUCTIONS:
Benefits distributions (62,562) (147,177) (84,241)
Administrative expenses - - -
---------- ---------- ----------
Total deductions (62,562) (147,177) (84,241)
PARTICIPANT LOAN REPAYMENTS 8,701 11,123 36,148
PARTICIPANT LOAN DISTRIBUTIONS (8,576) (14,374) (1,482)
TRANSFERS FROM COVENTRY CORPORATION RETIREMENT
SAVINGS PLAN 1,363,595 1,745,909 2,228,841
INTERFUND TRANSFERS 340,062 566,105 (113,243)
---------- ---------- ----------
NET INCREASE (DECREASE) 3,391,894 3,897,470 5,237,377
NET ASSETS AVAILABLE FOR BENEFITS, BEGINNING
OF YEAR - - -
---------- ---------- ----------
NET ASSETS AVAILABLE FOR BENEFITS, END OF YEAR $3,391,894 $3,897,470 $5,237,377
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
PARTICIPANT DIRECTED
----------------------------------
PARTICIPANT
LOANS RECEIVABLES TOTAL
--------------- ------------- ---------------
<S> <C> <C> <C>
ADDITIONS:
Contributions-
Employee $ 270,971 $171,296 $15,573,968
Employer, net of forfeitures - 98,386 2,185,600
---------- -------- -----------
Total contributions 270,971 269,682 17,759,568
---------- -------- -----------
Investment income-
Interest and dividends - 14,919 313,455
Net increase (decrease) in fair market
value of investments - - 5,048,144
Net investment income in pooled separate
accounts - - 4,253,150
---------- -------- -----------
Investment earnings - 14,919 9,614,749
---------- -------- -----------
Total Additions 270,971 284,601 27,374,317
---------- -------- -----------
DEDUCTIONS:
Benefits distributions - - (1,913,656)
Administrative expenses - - (9,219)
---------- -------- -----------
Total deductions - - (1,922,875)
PARTICIPANT LOAN REPAYMENTS (169,823) - -
PARTICIPANT LOAN DISTRIBUTIONS 217,373 - -
TRANSFERS FROM COVENTRY CORPORATION RETIREMENT
SAVINGS PLAN 994,872 - 48,379,966
INTERFUND TRANSFERS - - -
---------- -------- -----------
NET INCREASE (DECREASE) 1,313,393 284,601 73,831,408
NET ASSETS AVAILABLE FOR BENEFITS, BEGINNING
OF YEAR - - -
---------- -------- -----------
NET ASSETS AVAILABLE FOR BENEFITS, END OF YEAR $1,313,393 $284,601 $73,831,408
========== ======== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
- 3 -
<PAGE> 9
COVENTRY HEALTH CARE, INC. RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS AND SCHEDULES
AS OF DECEMBER 31, 1998
1. PLAN DESCRIPTION:
The following description of the Coventry Health Care, Inc. 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 Health Care, Inc. (the "Company") adopted a savings plan and trust
effective April 1, 1998. The Plan is a defined contribution plan established by
Coventry Health Care, Inc. 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 are
automatically enrolled to participate in the Plan upon commencement of
employment. The Plan is subject to the provisions of the Employee Retirement
Income Security Act of 1974 ("ERISA"), as amended.
Effective April 1, 1998, Coventry Health Care, Inc. (formerly "Coventry
Corporation") completed its acquisition of certain health plans of Principal
Health Care, Inc. ("PHC") from Principal Life Insurance Company.
The Plan commenced operations on April 1, 1998. On April 1, 1998, any prior
PHC participant account balances, including participant loans, included in the
assets of another qualified retirement plan were rolled over into the Plan at
the election of the former PHC employees. During 1998, approximately $11.5
million in PHC participant account balances were rolled over into the Plan and
are included in employee contributions in the accompanying statement of changes
in net assets available for benefits. Effective October 1, 1998, the Plan was
merged with the Coventry Corporation Retirement Savings Plan (the "Former
Plan") and substantially all of the assets of the Former Plan were transferred
to the Plan. All employees that were participants under the Former Plan became
participants in the Plan on April 1, 1998.
PLAN ADMINISTRATION
Under a trust agreement dated March 13, 1998, the Bankers 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
addition, the Company provides a matching contribution equal to 100 percent of
each participant's contribution up to a maximum of 3 percent of compensation,
and 50 percent of each participant's contribution in excess of 3 percent up to
a maximum of 6 percent of compensation.
VESTING
Participants are fully vested in their contributions and the earnings thereon.
Vesting in employer matching contributions is based on years of service. For
former PHC employees, if the employment date was before July 1, 1997,
participants are fully vested in their employer matching contributions. If the
employment commencement date with PHC occurred on or after July 1, 1997, but
before April 1, 1998, a participant vests in their employer matching
contributions according to the following schedule:
Less than one year 0%
One year or more 100%
- 4 -
<PAGE> 10
If the employment commencement date with the Company occurs on or after April
1, 1998, a participant vests in their employer matching contributions according
to the following schedule:
Less than one year 0%
One year 50%
Two years or more 100%
FORFEITED ACCOUNTS
At December 31, 1998, forfeited nonvested accounts totaled $475,972. These
accounts will be used to reduce future employer contributions. During 1998,
$386 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 contributions and any related earnings into
sixteen investment options. Participants may change their investment elections
daily. Employer contributions are funded with Coventry Health Care, Inc.
Common Stock. A description of each investment option is provided below:
PRINCIPAL GUARANTEED INTEREST ACCOUNT-- This account invests in private-market
bonds, commercial mortgages, and mortgage-backed securities. Money placed in
this account earns a guaranteed interest rate for a specific number of years.
PRINCIPAL MONEY MARKET SEPARATE ACCOUNT -- This account invests in high-quality
commercial paper (short-term, unsecured corporate loans). The average maturity
is usually less than one month.
PRINCIPAL GOVERNMENT SECURITIES SEPARATE ACCOUNT -- This account invests in
various types of government securities such as Government National Mortgage
Association Certificates (GNMA), Fannie Maes (FNMA Federal National Mortgage
Association), Freddie Macs (FHLMC Federal Home Loan Mortgage Company) and Sallie
Maes (SLMA Student Loan Marketing Association).
PRINCIPAL BOND & MORTGAGE SEPARATE ACCOUNT -- This account invests in
intermediate-term, investment-grade fixed-income securities; mainly private
placement bonds and commercial mortgages. This account may also invest in
publicly traded bonds.
PRINCIPAL STOCK INDEX 500 SEPARATE ACCOUNT -- This account invests in the
common stocks of those companies listed in the Standard & Poor's 500 Stock
Index ("S & P 500"). The S & P 500 Index is a measure of stock earnings based
on the stocks of 500 of the largest companies.
PRINCIPAL MEDIUM COMPANY VALUE SEPARATE ACCOUNT -- This account invests in
medium-sized stocks whose prices -- relative to their companies' profits,
assets, and other value measures -- are lower than average. Many of these
stocks are temporarily out of favor with investors and can be bought at bargain
prices.
PRINCIPAL SMALL COMPANY BLEND SEPARATE ACCOUNT -- This account invests in
stocks of smaller, seasoned companies where potential for long-term growth is
expected to be above average. The account looks both at "growth" and "value"
stocks, resulting in a "blend" portfolio.
PRINCIPAL SMALL COMPANY GROWTH SEPARATE ACCOUNT -- This account invests in
small stocks with above-average growth characteristics. Companies held in this
account are in the early stages of development, which means a higher level of
risk.
PRINCIPAL INTERNATIONAL STOCK SEPARATE ACCOUNT -- This account invests in
common stocks of companies located outside the U.S., mainly in Western Europe
and Asia. Countries and industries are selected after evaluating the economic,
social, and political factors of each market.
NEUBERGER & BERMAN GENESIS TRUST -- This trust invests primarily in common
stocks of companies with small market capitalization up to $1.5 billion at the
time of investment. The fund seeks to achieve long-term capital appreciation
by investing in stocks that appear to be undervalued and are issued by
companies with proven management, sound finances, and strong potential for
market growth.
T. ROWE PRICE MID-CAP GROWTH FUND -- This fund seeks long-term growth and
invests in the common stocks of medium-sized companies.
- 5 -
<PAGE> 11
VANGUARD ASSET ALLOCATION FUND -- This fund invests in a mix of stocks,
long-term U.S. Treasury bonds, and short-term money market instruments.
Computer analysis is used to determine how much of the Fund's assets to direct
to each category at any given time.
VANGUARD GROWTH & INCOME FUND -- This fund invests in companies that are less
expensive than the market as a whole. These companies pay relatively high
dividends and are fairly stable.
VANGUARD PRIMECAP FUND --This fund primarily invests in companies with market
values between $1 billion and $5 billion.
VANGUARD U.S. GROWTH FUND -- This fund invests in stocks of high-quality,
seasoned U.S. Companies with records of exceptional growth. The portfolio
emphasizes companies with strong positions in their markets, reasonable
financial strength, and low sensitivity to changing economic contributions.
COVENTRY HEALTH CARE, INC. COMMON STOCK -- This fund invests primarily in
Coventry Health Care, Inc. Common Stock. Due to the trading limitations or the
need for liquidity, a portion of the fund may be invested in short-term money
market investments. Because of the lack of diversification, this fund has a
high degree of volatility and investment risk.
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,
1998, 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
During the nine-months ended December 31, 1998, the Company paid all
administrative expenses on behalf of the Plan. Administrative expenses paid by
the Company were $89,456 in 1998. Starting January 1, 1999, administrative
expenses will be paid by the Plan and allocated to individual participant
accounts.
PAYMENT OF BENEFITS
Benefits are recorded when paid out of the Plan.
3. INVESTMENTS:
The values of individual assets that represent 5 percent or more of the Plan's
net assets as of December 31, 1998, are as follows:
1998
-------------
Principal Money Market Separate Account $ 5,056,207
Principal Bond & Mortgage Separate Account 4,147,727
Principal Stock Index 500 Separate Account 17,362,543
Principal Medium Company Value Separate Account 3,796,865
- 6 -
<PAGE> 12
Vanguard Asset Allocation Fund 10,199,888
Vanguard Growth & Income Fund 7,533,397
Vanguard U.S. Growth Fund 3,897,470
Coventry Health Care, Inc. Common Stock 5,237,377
4. TAX STATUS:
The Plan has not yet received a determination letter from the Internal Revenue
Service stating that the Plan, as designed, is in compliance with the
applicable requirements of the Internal Revenue Code. However, the Plan
Administrator and the Plan's tax counsel believe that the Plan is currently
designed and being operated in compliance with the applicable requirements of
the Internal Revenue Code. 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.
- 7 -
<PAGE> 13
SCHEDULE I
COVENTRY HEALTH CARE, INC. RETIREMENT SAVINGS PLAN
ITEM 27(a) - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
IDENTITY OF ISSUE, BORROWER,
LESSOR, OR SIMILAR PARTY DESCRIPTION OF INVESTMENT COST CURRENT VALUE
- -------------------------------- ---------------------------------- --------------- ---------------
<S> <C> <C> <C>
Principal Life Insurance
Company:
Guaranteed Interest
Accounts Fixed income fund $ 1,009,165 $ 1,022,963
Money Market Separate
Account Money market 5,019,221 5,056,207
Government Securities
Separate Account U.S. government bond fund 864,630 875,004
Bond & Mortgage Separate
Account Fixed income fund 4,093,975 4,147,727
Stock Index 500 Separate
Account Equity mutual fund 15,579,737 17,362,543
Medium Company Value
Separate Account Equity mutual fund 3,635,047 3,796,865
Small Company Blend
Separate Account Equity mutual fund 1,244,834 1,206,762
Principal Small Company
Growth Separate Account Equity mutual fund 1,059,094 1,105,417
International Stock
Separate Account Equity mutual fund 3,294,131 3,500,568
Neuberger & Berman Genesis Trust Equity mutual fund 879,176 880,218
T. Rowe Price Mid-Cap Growth Fund Equity mutual fund 2,662,362 3,022,553
Vanguard Asset Allocation Fund Mixed mutual fund 9,975,576 10,199,888
Vanguard Growth & Income Fund Equity mutual fund 6,980,616 7,533,397
Vanguard PRIMECAP Fund Equity mutual fund 3,065,959 3,391,894
Vanguard U.S. Growth Fund Equity mutual fund 3,617,974 3,897,470
Coventry Health Care, Inc.
Common Stock Common stock 4,594,905 5,237,377
* Participant Loans Maturing at various dates;
interest rates ranging from
7.00% to 10.00% 1,313,393 1,313,393
------------- -------------
$ 68,889,795 $ 73,550,246
============= =============
</TABLE>
* Party-in-interest
The accompanying notes are an integral part of this schedule.
- 8 -
<PAGE> 14
SCHEDULE II
COVENTRY HEALTH CARE, INC. RETIREMENT SAVINGS PLAN
ITEM 27(d)--SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE NINE-MONTHS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PURCHASES
------------------------------
NUMBER OF PURCHASE
IDENTITY OF PARTY INVOLVED DESCRIPTION OF ASSET TRANSACTIONS PRICE
--------------------------------------------- ---------------------------------------- -------------- ------------
<S> <C> <C> <C>
* Principal Life Insurance Company Money Market Fund 107 $7,590,923
* Principal Life Insurance Company Bond and Mortgage Fund 114 5,841,957
* Principal Life Insurance Company Stock Index 500 Fund 159 21,489,882
* Principal Life Insurance Company Medium Company Fund 124 4,604,817
* Principal Life Insurance Company International Stock Fund 123 4,437,768
* Delaware Charter Guarantee & Trust Company T. Rowe Price Mid-Cap Growth Fund 124 3,393,935
* Delaware Charter Guarantee & Trust Company Vanguard Asset Allocation Fund 141 13,633,054
* Delaware Charter Guarantee & Trust Company Vanguard Growth and Income Fund 147 9,300,276
* Delaware Charter Guarantee & Trust Company Vanguard PRIMECAP Fund 127 3,771,942
* Delaware Charter Guarantee & Trust Company Vanguard U.S. Growth Fund 148 4,658,494
* Bankers Trust Company Coventry Health Care, Inc. Common Stock 138 4,932,058
</TABLE>
<TABLE>
<CAPTION>
SALES
-------------------------------
NUMBER OF
IDENTITY OF PARTY INVOLVED DESCRIPTION OF ASSET TRANSACTIONS SELLING PRICE
--------------------------------------------- ---------------------------------------- ------------ ---------------
<S> <C> <C> <C>
* Principal Life Insurance Company Money Market Fund 127 $2,586,272
* Principal Life Insurance Company Bond and Mortgage Fund 140 1,768,073
* Principal Life Insurance Company Stock Index 500 Fund 191 6,391,202
* Principal Life Insurance Company Medium Company Fund 166 969,420
* Principal Life Insurance Company International Stock Fund 158 1,183,206
* Delaware Charter Guarantee & Trust Company T. Rowe Price Mid-Cap Growth Fund 75 771,416
* Delaware Charter Guarantee & Trust Company Vanguard Asset Allocation Fund 78 3,719,953
* Delaware Charter Guarantee & Trust Company Vanguard Growth and Income Fund 75 2,453,207
* Delaware Charter Guarantee & Trust Company Vanguard PRIMECAP Fund 74 757,495
* Delaware Charter Guarantee & Trust Company Vanguard U.S. Growth Fund 75 1,095,037
* Bankers Trust Company Coventry Health Care, Inc. Common Stock 116 342,516
</TABLE>
<TABLE>
<CAPTION>
SALES
----------------------------------
IDENTITY OF PARTY INVOLVED DESCRIPTION OF ASSET COST OF ASSETS NET GAIN (LOSS)
--------------------------------------------- ---------------------------------------- ---------------- -----------------
<S> <C> <C> <C>
* Principal Life Insurance Company Money Market Fund $2,571,702 $ 14,570
* Principal Life Insurance Company Bond and Mortgage Fund 1,747,983 20,090
* Principal Life Insurance Company Stock Index 500 Fund 5,910,144 481,058
* Principal Life Insurance Company Medium Company Fund 969,771 (351)
* Principal Life Insurance Company International Stock Fund 1,143,637 39,569
* Delaware Charter Guarantee & Trust Company T. Rowe Price Mid-Cap Growth Fund 731,573 39,843
* Delaware Charter Guarantee & Trust Company Vanguard Asset Allocation Fund 3,657,478 62,475
* Delaware Charter Guarantee & Trust Company Vanguard Growth and Income Fund 2,319,660 133,547
* Delaware Charter Guarantee & Trust Company Vanguard PRIMECAP Fund 705,984 51,511
* Delaware Charter Guarantee & Trust Company Vanguard U.S. Growth Fund 1,040,519 54,518
* Bankers Trust Company Coventry Health Care, Inc. Common Stock 337,153 5,363
</TABLE>
* Party-in-interest
The accompanying notes are an integral part of this schedule.
- 9 -
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated June 25, 1999, included in this Form 11-K, into
the Company's previously filed registration statements on Form S-8 (File No.
333-36735, File No. 333-39581, and File No. 333-75615).
/s/ Arthur Andersen LLP
Baltimore, Maryland
June 25, 1999
