<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 CORPORATION
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 Corporation 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 CORPORATION
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 CORPORATION RETIREMENT SAVINGS PLAN
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
<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, 1998 and 1997, and the related statement of changes in net assets
available for benefits for the year 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 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, 1998 and 1997, and the changes in its net assets available for
benefits for the year ended December 31, 1998, 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.
/s/ ARTHUR ANDERSEN LLP
Baltimore, Maryland
June 25, 1999
<PAGE> 5
COVENTRY CORPORATION RETIREMENT SAVINGS PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
As of December 31, 1998 and 1997 1
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
For the Year Ended December 31, 1998 2
NOTES TO FINANCIAL STATEMENTS AND SCHEDULES
As of December 31, 1998 and 1997 4
ITEM 27(a) - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
As of December 31, 1998 10
ITEM 27(d)--SCHEDULE OF REPORTABLE TRANSACTIONS
For the Year Ended December 31, 1998 11
SCHEDULES OMITTED BECAUSE THERE WERE NO SUCH ITEMS
As of and for the Year 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 CORPORATION RETIREMENT SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS: 1998 1997
--------------- ----------------
<S> <C> <C>
Cash $ 157 $ 127,331
Investments, at fair value-
Schwab U.S Treasury Money Fund - 3,154
Coventry Corporation Common Stock 987 2,752,025
Berger One Hundred Fund - 7,084,603
Fidelity Magellan Fund - 13,573,356
INVESCO Stable Value Fund 293 4,667,358
PIMCO Total Return Fund 187 3,833,215
Brandywine Fund 543 1,426,543
Founders Balanced Fund - 714,773
Harbor Capital Appreciation Fund 377 1,093,314
Janus Worldwide Fund 699 2,205,999
Mutual Series Beacon Fund 276 2,110,302
PBHG Growth Fund 829 2,083,797
Strong Government Securities Fund - 433,964
Vanguard Asset Allocation Fund - 7,174,083
Participant Loans - 1,088,159
--------------- ----------------
Total cash and investments $ 4,348 $ 50,371,976
--------------- ----------------
Receivables:
Participant contributions - 31,585
Employer contributions - 58,362
Interest and dividends receivable - 48,117
--------------- ----------------
Total receivables - 138,064
--------------- ----------------
Total assets available for benefits - 50,510,040
--------------- ----------------
LIABILITIES:
Excess contributions payable - 154,993
--------------- ----------------
NET ASSETS AVAILABLE FOR BENEFITS $ 4,348 $ 50,355,047
=============== ================
</TABLE>
The accompanying notes are an integral part of these statements.
- 1 -
<PAGE> 7
COVENTRY CORPORATION RETIREMENT SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
NON-PARTICIPANT DIRECTED
-----------------------------------------------
EXCESS CONTRIBUTIONS PAYABLE
CASH ------------------------------
---------------
<S> <C> <C>
ADDITIONS:
Contributions-
Employee $ (65,355) $ 134,729
Employer, net of forfeitures - 20,264
------------- -------------
Total contributions (65,355) 154,993
------------- -------------
Investment income-
Interest and dividends 157 -
Net increase (decrease) in fair market value of investments - -
------------- -------------
Total investment income 157 -
------------- -------------
Total additions (65,198) 154,993
------------- -------------
DEDUCTIONS:
Benefit distributions - -
Administrative expenses - -
------------- -------------
Total deductions - -
------------- -------------
PARTICIPANT LOAN REPAYMENTS - -
PARTICIPANT LOAN DISTRIBUTIONS - -
INTERFUND TRANSFERS - -
TRANSFERS (TO) FROM THE COVENTRY HEALTH CARE, INC. RETIREMENT SAVINGS
PLAN (61,976) -
------------- -------------
NET (DECREASE) INCREASE (127,174) 154,993
NET ASSETS AVAILABLE FOR BENEFITS, beginning of year 127,331 (154,993)
------------- -------------
NET ASSETS AVAILABLE FOR BENEFITS, end of year $ 157 $ -
============= =============
<CAPTION>
------------------------------------------------------
COVENTRY CORPORATION
SCHWAB U.S. TREASURY MONEY COMMON STOCK
FUND -----------------------
------------------------------
<S> <C> <C>
ADDITIONS:
Contributions-
Employee $ 149,421 $ -
Employer, net of forfeitures 1,519,112 -
--------------- ------------------
Total contributions 1,668,533 -
--------------- ------------------
Investment income- 2,930 -
Interest and dividends
Net increase (decrease) in fair market value of investments - (1,997,573)
--------------- ------------------
Total investment income 2,930 (1,997,573)
--------------- ------------------
Total additions 1,671,463 (1,997,573)
--------------- ------------------
DEDUCTIONS:
Benefit distributions - (205,306)
Administrative expenses - -
--------------- ------------------
Total deductions - (205,306)
--------------- ------------------
PARTICIPANT LOAN REPAYMENTS - 11,627
PARTICIPANT LOAN DISTRIBUTIONS - (15,806)
INTERFUND TRANSFERS (1,668,034) 1,616,846
TRANSFERS (TO) FROM THE COVENTRY HEALTH CARE, INC. RETIREMENT SAVINGS
PLAN (6,583) (2,160,826)
--------------- ------------------
NET (DECREASE) INCREASE (3,154) (2,751,038)
NET ASSETS AVAILABLE FOR BENEFITS, beginning of year 3,154 2,752,025
--------------- ------------------
NET ASSETS AVAILABLE FOR BENEFITS, end of year $ - $ 987
=============== ==================
<CAPTION>
PARTICIPANT DIRECTED
----------------------------------------------------
BERGER ONE HUNDRED FUND
------------------------- FIDELITY MAGELLAN FUND
-------------------------
<S> <C> <C>
ADDITIONS:
Contributions-
Employee $ 138,621 $ 356,915
Employer, net of forfeitures (14,451) (30,510)
------------------ --------------------
Total contributions 124,170 326,405
------------------ --------------------
Investment income-
Interest and dividends 5,088 389,718
Net increase (decrease) in fair market value of investments (558,136) 350,324
------------------ --------------------
Total investment income (553,048) 740,042
------------------ --------------------
Total additions (428,878) 1,066,447
------------------ --------------------
DEDUCTIONS:
Benefit distributions (685,853) (1,022,401)
Administrative expenses (75) (150)
------------------ --------------------
Total deductions (685,928) (1,022,551)
------------------ --------------------
PARTICIPANT LOAN REPAYMENTS 21,076 32,658
PARTICIPANT LOAN DISTRIBUTIONS (42,865) (99,530)
INTERFUND TRANSFERS (783,339) (536,162)
TRANSFERS (TO) FROM THE COVENTRY HEALTH CARE, INC. RETIREMENT SAVINGS
PLAN (5,164,669) (13,014,218)
------------------ --------------------
NET (DECREASE) INCREASE (7,084,603) (13,573,356)
NET ASSETS AVAILABLE FOR BENEFITS, beginning of year 7,084,603 13,573,356
------------------ --------------------
NET ASSETS AVAILABLE FOR BENEFITS, end of year $ - $ -
================== ====================
<CAPTION>
----------------------------------------------------------
PIMCO TOTAL
INVESCO STABLE RETURN FUND
VALUE FUND ------------- BRANDYWINE FUND SUBTOTAL
---------------- --------------- ------------
<S> <C> <C> <C> <C>
ADDITIONS:
Contributions-
Employee $ 171,529 $ 136,833 $ 294,611 $ 1,317,304
Employer, net of forfeitures 133,501 (5,098) (3,658) 1,619,160
------------- ----------- ------------ ------------
Total contributions 305,030 131,735 290,953 2,936,464
------------- ----------- ------------ ------------
Investment income-
Interest and dividends 211,919 179,658 3,918 793,388
Net increase (decrease) in fair market value of investments (5,604) 176,408 (232,861) (2,267,442)
------------- ----------- ------------ ------------
Total investment income 206,315 356,066 (228,943) (1,474,054)
------------- ----------- ------------ ------------
Total additions 511,345 487,801 62,010 1,462,410
------------- ----------- ------------ ------------
DEDUCTIONS:
Benefit distributions (849,801) (379,805) (139,734) (3,282,900)
Administrative expenses - (75) - (300)
------------- ----------- ------------ ------------
Total deductions (849,801) (379,880) (139,734) (3,283,200)
------------- ----------- ------------ ------------
PARTICIPANT LOAN REPAYMENTS 18,853 16,638 17,602 118,454
PARTICIPANT LOAN DISTRIBUTIONS (34,021) (23,439) (24,569) (240,230)
INTERFUND TRANSFERS 529,817 (2,318) 22,286 (820,904)
TRANSFERS (TO) FROM THE COVENTRY HEALTH CARE, INC. RETIREMENT SAVINGS
PLAN (4,843,258) (3,931,830) (1,363,595) (30,546,955)
------------- ----------- ------------ ------------
NET (DECREASE) INCREASE (4,667,065) (3,833,028) (1,426,000) (33,310,425)
NET ASSETS AVAILABLE FOR BENEFITS, beginning of year 4,667,358 3,833,215 1,426,543 33,312,592
------------- ----------- ------------ ------------
NET ASSETS AVAILABLE FOR BENEFITS, end of year $ 293 $ 187 $ 543 $ 2,167
============= =========== ============ ============
</TABLE>
2
<PAGE> 8
COVENTRY CORPORATION RETIREMENT SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1998
(CONTINUED)
<TABLE>
<CAPTION>
---------------------------------------------
HARBOR CAPITAL
FOUNDERS BALANCED FUND APPRECIATION FUND
------------------------ --------------------
<S> <C> <C>
ADDITIONS
Contributions-
Employee $ 108,269 $ 275,737
Employer, net of forfeitures (992) (3,473)
-------------- ----------------
Total contributions 107,277 272,264
-------------- ----------------
Investment income-
Interest and dividends 17,211 2,941
Net increase (decrease) in fair market value of investments 29,714 (12,211)
-------------- ----------------
Total investment income 46,925 (9,270)
-------------- ----------------
Total additions 154,202 262,994
-------------- ----------------
DEDUCTIONS:
Benefit distributions (124,505) (199,612)
Administrative expenses - -
-------------- ----------------
Total deductions (124,505) (199,612)
-------------- ----------------
PARTICIPANT LOAN REPAYMENTS 17,026 14,485
PARTICIPANT LOAN DISTRIBUTIONS (11,982) (25,879)
INTERFUND TRANSFERS 26,653 600,768
TRANSFERS (TO) FROM THE COVENTRY HEALTH CARE, INC. RETIREMENT SAVINGS
PLAN (776,167) (1,745,693)
-------------- ----------------
NET (DECREASE) INCREASE (714,773) (1,092,937)
NET ASSETS AVAILABLE FOR BENEFITS, beginning of year 714,773 1,093,314
-------------- ----------------
NET ASSETS AVAILABLE FOR BENEFITS, end of year $ - $ 377
============== ================
<CAPTION>
----------------------------------------------------
MUTUAL SERIES
JANUS WORLDWIDE BEACON FUND PBHG GROWTH
FUND ---------------- FUND
----------------- ---------------
<S> <C> <C> <C>
ADDITIONS
Contributions-
Employee $ 327,012 $ 342,502 $ 345,461
Employer, net of forfeitures (6,513) (5,176) (2,711)
-------------- -------------- ---------------
Total contributions 320,499 337,326 342,750
-------------- -------------- ---------------
Investment income-
Interest and dividends 6,204 52,227 8,738
Net increase (decrease) in fair market value of investments 78,044 (226,001) (392,624)
-------------- -------------- ---------------
Total investment income 84,248 (173,774) (383,886)
-------------- -------------- ---------------
Total additions 404,747 163,552 (41,136)
-------------- -------------- ---------------
DEDUCTIONS:
Benefit distributions (428,617) (259,749) (202,584)
Administrative expenses 36 - -
-------------- -------------- ---------------
Total deductions (428,581) (259,749) (202,584)
-------------- -------------- ---------------
PARTICIPANT LOAN REPAYMENTS 30,978 33,683 41,915
PARTICIPANT LOAN DISTRIBUTIONS (23,901) (26,374) (36,954)
INTERFUND TRANSFERS 182,297 (81,560) (285,651)
TRANSFERS (TO) FROM THE COVENTRY HEALTH CARE, INC. RETIREMENT SAVINGS
PLAN (2,370,840) (1,939,578) (1,558,558)
-------------- -------------- ---------------
NET (DECREASE) INCREASE (2,205,300) (2,110,026) (2,082,968)
NET ASSETS AVAILABLE FOR BENEFITS, beginning of year 2,205,999 2,110,302 2,083,797
-------------- -------------- ---------------
NET ASSETS AVAILABLE FOR BENEFITS, end of year $ 699 $ 276 $ 829
============== ============== ===============
<CAPTION>
--------------------------------------------------
STRONG VANGUARD ASSET
GOVERNMENT ALLOCATION FUND PARTICIPANT
SECURITIES FUND ----------------- LOANS
---------------- --------------
<S> <C> <C> <C>
ADDITIONS
Contributions-
Employee $ 61,352 $ 333,878 $ -
Employer, net of forfeitures (2,893) (21,000) -
-------------- -------------- ---------------
Total contributions 58,459 312,878 -
-------------- -------------- ---------------
Investment income-
Interest and dividends 21,357 72,295 -
Net increase (decrease) in fair market value of investments 20,650 622,384 -
-------------- -------------- ---------------
Total investment income 42,007 694,679 -
-------------- -------------- ---------------
Total additions 100,466 1,007,557 -
-------------- -------------- ---------------
DEDUCTIONS:
Benefit distributions (36,743) (602,551) (209,861)
Administrative expenses - (75) -
-------------- -------------- ---------------
Total deductions (36,743) (602,626) (209,861)
-------------- -------------- ---------------
PARTICIPANT LOAN REPAYMENTS 3,975 24,991 (285,507)
PARTICIPANT LOAN DISTRIBUTIONS (2,224) (34,537) 402,081
INTERFUND TRANSFERS 118,027 260,370 -
TRANSFERS (TO) FROM THE COVENTRY HEALTH CARE, INC. RETIREMENT SAVINGS
PLAN (617,465) (7,829,838) (994,872)
-------------- -------------- ---------------
NET (DECREASE) INCREASE (433,964) (7,174,083) (1,088,159)
NET ASSETS AVAILABLE FOR BENEFITS, beginning of year 433,964 7,174,083 1,088,159
-------------- -------------- ---------------
NET ASSETS AVAILABLE FOR BENEFITS, end of year $ - $ - $ -
============== ============== ===============
<CAPTION>
---------------
RECEIVABLES TOTAL
--------------- --------------
<S> <C> <C>
ADDITIONS
Contributions-
Employee $ (31,585) $ 3,079,930
Employer, net of forfeitures (58,362) 1,518,040
--------------- --------------
Total contributions (89,947) 4,597,970
--------------- --------------
Investment income-
Interest and dividends (48,117) 926,244
Net increase (decrease) in fair market value of investments - (2,147,486)
--------------- --------------
Total investment income (48,117) (1,221,242)
--------------- --------------
Total additions (138,064) 3,376,728
--------------- --------------
DEDUCTIONS:
Benefit distributions - (5,347,122)
Administrative expenses - (339)
--------------- --------------
Total deductions - (5,347,461)
--------------- --------------
PARTICIPANT LOAN REPAYMENTS - -
PARTICIPANT LOAN DISTRIBUTIONS - -
INTERFUND TRANSFERS - -
TRANSFERS (TO) FROM THE COVENTRY HEALTH CARE, INC. RETIREMENT SAVINGS
PLAN - (48,379,966)
--------------- --------------
NET (DECREASE) INCREASE (138,064) (50,350,699)
NET ASSETS AVAILABLE FOR BENEFITS, beginning of year 138,064 50,355,047
--------------- --------------
NET ASSETS AVAILABLE FOR BENEFITS, end of year $ - $ 4,348
=============== ==============
</TABLE>
3
<PAGE> 9
COVENTRY CORPORATION RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS AND SCHEDULES
AS OF DECEMBER 31, 1998 AND 1997
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.
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 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, substantially all of the Plan's assets 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 electronically linked 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 two years 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, effective January 1, 1999. Participants
should refer to the New Plan document for a complete description of the New
Plan's provisions.
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 1998
and 1997, the Company provided 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.
4
<PAGE> 10
EXCESS CONTRIBUTIONS PAYABLE
During 1997, the Company determined that an excess matching contribution equal
to approximately $20,264 was made in error to employees. This amount was used to
reduce 1998 employer contributions. In addition, during 1997 employee
contributions included $134,729 in excess contributions which were returned to
participants in 1998 as the contributions were determined to be in excess of
maximum contribution level for certain participants. A liability for excess
contributions payable in the amount of $154,993 was reflected in the statement
of net assets available for benefits as of December 31, 1997.
VESTING
Participants are fully vested in their contributions and the earnings thereon.
Vesting in employer matching contributions is based on years of continuous
service. Prior to January 1, 1998, a participant vests according to the
following schedule:
<TABLE>
<S> <C>
Less than one year 0%
One year 20%
Two years 40%
Three years 60%
Four years 80%
Five years 100%
</TABLE>
Matching contributions made on or after January 1, 1998 are subject to the
following vesing schedule:
<TABLE>
<S> <C>
Less than one year 0%
One year 50%
Two years or more 100%
</TABLE>
FORFEITED ACCOUNTS
At December 31, 1997, forfeited nonvested accounts totaled $275,173. Effective
October 1, 1998, any forfeited nonvested account balances were transferred to
the New Plan. During 1998 and 1997, respectively, $22,461 and $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
Prior to January 1, 1998, participants could direct employee and employer
contributions and any related earnings into thirteen investment options in 10
percent increments. Effective January 1, 1998, employer contributions are
funded with Coventry Health Care, Inc. common stock. Participants may change
their investment elections daily. 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.
BERGER ONE HUNDRED FUND - This fund seeks long-term capital appreciation by
investing primarily in common stocks of established companies.
FIDELITY MAGELLAN FUND - This fund seeks growth of capital through investments
in common stocks or securities convertible into common stock.
5
<PAGE> 11
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.
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. There were no participant
loans at December 31, 1998.
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 $183,369 and $186,749 in 1998 and 1997,
respectively.
PAYMENT OF BENEFITS
6
<PAGE> 12
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 and December 31, 1997, are as follows:
<TABLE>
<S> <C>
DECEMBER 31, 1998:
Coventry Corporation Common Stock $ 987
INVESCO Stable Value Fund 293
Brandywine Fund 543
Harbor Capital Appreciation Fund 377
Janus Worlwide Fund 699
Mutual Series Beacon Fund 276
PBHG Growth Fund 829
</TABLE>
7
<PAGE> 13
<TABLE>
<S> <C>
DECEMBER 31, 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
</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. DEPARTMENT OF LABOR REVIEW:
The Department of Labor (DOL) conducted a review of the Plan through January
1997 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.
6. 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
-------------------------------------------
1998 1997
-------------------- -------------------
<S> <C> <C>
Net assets available for benefits per the accompanying
financial statements $ 4,348 $ 50,355,047
Amounts allocated to withdrawing participants (4,348) (14,952)
---------------- -----------------
Net assets available for benefits per the
Form 5500 $ - $ 50,340,095
================ =================
</TABLE>
8
<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, 1998
--------------------
<S> <C>
Benefits paid to participants per the accompanying
financial statements $5,347,122
Less- Amounts allocated to withdrawing participants
at December 31, 1997 (14,952)
Add- Amounts allocated to withdrawing participants
at December 31, 1998 4,348
-------------
Benefits paid to participants per the Form 5500 $5,336,518
=============
</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.
9
<PAGE> 15
SCHEDULE I
COVENTRY CORPORATION 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>
* Charles Schwab Cash $ 157 $ 157
* Coventry Corporation Common stock 987 987
INVESCO Stable Value Fund Fixed income fund 293 293
PIMCO Total Return Fund Fixed income fund 187 187
Brandywine Fund Equity mutual fund 543 543
Harbor Capital Appreciation Fund Equity mutual fund 377 377
Janus Worldwide Fund Equity mutual fund 699 699
Mutual Series Beacon Fund Mixed mutual fund 276 276
PBHG Growth Fund Equity mutual fund 829 829
------------- -------------
$ 4,348 $ 4,348
============= =============
</TABLE>
* Party-in-interest
The accompanying notes are an integral part of this schedule.
10
<PAGE> 16
SCHEDULE II
COVENTRY CORPORATION RETIREMENT SAVINGS PLAN
ITEM 27(d)--SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PURCHASES
------------------------------------------
IDENTITY OF PARTY INVOLVED DESCRIPTION OF ASSET NUMBER OF TRANSACTIONS PURCHASE PRICE
----------------------------- ------------------------------------ ---------------------- ---------------
<S> <C> <C> <C>
* Charles Schwab Trust Company Berger One Hundred Fund 105 $ 395,485
* Charles Schwab Trust Company Fidelity Magellan Fund 108 1,093,756
* Charles Schwab Trust Company INVESCO Stable Value Fund 140 1,753,891
* Charles Schwab Trust Company PIMCO Total Return Fund 78 581,037
* Charles Schwab Trust Company Vanguard Asset Allocation Fund 104 1,056,022
* Charles Schwab Trust Company Coventry Corporation Common Stock 148 1,975,844
* Charles Schwab Trust Company Janus Worldwide Fund 100 936,601
* Charles Schwab Trust Company Mutual Series Beacon Fund 76 803,832
<CAPTION>
SALES
-------------------------------------------------
IDENTITY OF PARTY INVOLVED DESCRIPTION OF ASSET NUMBER OF TRANSACTIONS SELLING PRICE
----------------------------- ------------------------------------ ------------------------ --------------------
<S> <C> <C> <C>
* Charles Schwab Trust Company Berger One Hundred Fund 154 $ 6,921,953
* Charles Schwab Trust Company Fidelity Magellan Fund 126 15,017,436
* Charles Schwab Trust Company INVESCO Stable Value Fund 153 6,415,645
* Charles Schwab Trust Company PIMCO Total Return Fund 155 4,590,660
* Charles Schwab Trust Company Vanguard Asset Allocation Fund 155 8,852,489
* Charles Schwab Trust Company Coventry Corporation Common Stock 159 2,726,192
* Charles Schwab Trust Company Janus Worldwide Fund 148 3,220,644
* Charles Schwab Trust Company Mutual Series Beacon Fund 154 2,688,132
<CAPTION>
SALES
----------------------------------------------------
IDENTITY OF PARTY INVOLVED DESCRIPTION OF ASSET COST OF ASSETS NET GAIN (LOSS)
----------------------------- ------------------------------------ --------------------- ---------------------
<S> <C> <C> <C>
* Charles Schwab Trust Company Berger One Hundred Fund $ 9,602,299 $(2,680,346)
* Charles Schwab Trust Company Fidelity Magellan Fund 12,209,796 2,807,640
* Charles Schwab Trust Company INVESCO Stable Value Fund 6,415,625 20
* Charles Schwab Trust Company PIMCO Total Return Fund 4,334,035 256,625
* Charles Schwab Trust Company Vanguard Asset Allocation Fund 7,366,360 1,486,129
* Charles Schwab Trust Company Coventry Corporation Common Stock 5,098,874 (2,372,682)
* Charles Schwab Trust Company Janus Worldwide Fund 3,093,402 127,242
* Charles Schwab Trust Company Mutual Series Beacon Fund 2,899,653 (211,521)
</TABLE>
* Party-in-interest
The accompanying notes are an integral part of this schedule.
11
<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 and File No. 333-39581).
/s/ ARTHUR ANDERSEN LLP
-----------------------
Baltimore, Maryland
June 25, 1999
