<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 15(D) OF THE SECURITIES EXCHANGE ACT OF
-
1934 [FEE REQUIRED].
For the FISCAL YEAR ENDED December 31, 1996
------------------
OR
___ TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED].
For the transition period from ______________to_______________
Commission file number 0-21098
--------
A. Full title of the plan and the address of the plan, if different
from that of the issuer named below:
Physicians Health Services, Inc. 401(k) Profit Sharing Plan
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office:
Physicians Health Services, Inc.
One Far Mill Crossing
Shelton, CT 06484-0944
<PAGE>
-2-
REQUIRED INFORMATION
Financial Statements and Exhibits Index
Financial Statements: Page No.
--------
1. Financial Statements of the Physicians Health
Services, Inc. 401(k) Profit Sharing Plan:
Independent Auditors' Report F-1
Statements of Net Assets
Available for Plan Benefits F-2
Statements of Changes in Net Assets
Available for Plan Benefits F-4
Notes to Financial Statements F-7
2. Schedules:
Schedule I: Assets Held for Investment
Purposes S-1
Schedule II: Schedule of Reportable
Transactions S-2
Exhibit 1: Auditors' Consent
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Trustees (or other persons who administer the Employee Benefit Plan) have duly
caused this annual report to be signed on its behalf by the undersigned
thereunto duly authorized.
Physicians Health Services, Inc.
401(k) Profit Sharing Plan
By:__________________________________
Craig S. Dupont
Vice President, Finance
Date: June 13, 1997
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Physicians Health Services, Inc.
Pension Committee
We have audited the accompanying statements of net assets available for plan
benefits of Physicians Health Services, Inc. 401(k) Profit Sharing Plan (the
"Plan") as of December 31, 1996 and 1995, and the related statements of changes
in net assets available for plan benefits for each of the three years in the
period ended December 31, 1996. 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 plan benefits of the Plan at
December 31, 1996 and 1995, and the changes in its net assets available for plan
benefits for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedules of assets
held for investment purposes as of December 31, 1996, and reportable
transactions for the year then ended, are presented for purposes of complying
with the Department of Labor's Rules and Regulations for Reporting and
Disclosure under the Employee Retirement Income Security Act of 1974, and are
not a required part of the financial statements. The Fund Information in the
statement of net assets available for plan benefits and the statement of changes
in net assets available for plan benefits is presented for purposes of
additional analysis rather than to present the net assets available for plan
benefits and changes in net assets available for plan benefits of each fund. The
supplemental schedules and Fund Information have been subjected to the auditing
procedures applied in our audits of the financial statements and, in our
opinion, are fairly stated in all material respects in relation to the financial
statements taken as a whole.
June 13, 1997 ERNST & YOUNG LLP
F-1
<PAGE>
PHYSICIANS HEALTH SERVICES, INC.
401(k) PROFIT SHARING PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS WITH FUND INFORMATION
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PHS INT'L AGGRESSIVE
STOCK EQUITY GROWTH
TOTAL FUND FUND FUND
<S> <C> <C> <C> <C>
Investments:
Common Stock of Physicians Health
Services, Inc. at fair value: 74,836 shares
(cost $1,806,572) $1,103,831 $1,103,831
International Equity Fund 624,695 $ 624,695
Aggressive Growth Equity Fund 3,715,397 $3,715,397
SBS Balanced Fund 2,810,903
Government Income Fund 453,166
Guaranteed Investment Contract Fund 802,853
--------------------------------------------------------------
Total investments 9,510,845 1,103,831 624,695 3,715,397
Cash and cash equivalents 413 413 -- --
Employer contributions and interfund
transfers receivable (payable) 59,493 87,761 (4,570) 81,042
Loans to participants 406,758
--------------------------------------------------------------
Net assets available for
plan benefits $9,977,509 $1,192,005 $ 620,125 $3,796,439
==============================================================
<CAPTION>
SBS GOVERNMENT GUARANTEED
BALANCED INCOME INV. CONTRACT LOAN
FUND FUND FUND ACCT
<S> <C> <C> <C> <C>
Investments
Common Stock of Physicians Health
Services, Inc. at fair value: 74,836 shares
(cost $1,806,572)
International equity fund
Aggressive growth equity fund
SBS balanced fund $2,810,903
Government income fund $ 453,166
Guaranteed investment contract fund $ 802,853
--------------------------------------------------------------------
Total Investments 2,810,903 453,166 802,853 --
Cash and cash equivalents -- -- --
Employer contributions and interfund
transfers receivable (payable) 48,452 17,416 (170,608)
Loans to participants $ 406,758
Net assets available for
plan benefits --------------------------------------------------------------------
$2,859,355 $ 470,582 $ 632,245 $ 406,758
===================================================================
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
PHYSICIANS HEALTH SERVICES, INC.
401(k) PROFIT SHARING PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS WITH FUND INFORMATION
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PHS INT'L AGGRESSIVE
STOCK EQUITY GROWTH
TOTAL FUND FUND FUND
<S> <C> <C> <C> <C>
Investments:
Common Stock of Physicians Health
Services, Inc. at fair value: 44,304 shares
(cost $1,164,165) $ 1,639,248 $ 1,639,248
International Equity Fund 503,978 $ 503,978
Aggressive Growth Equity Fund 2,715,208 $ 2,715,208
SBS Balanced Fund 1,948,932
Government Income Fund 433,467
Guaranteed Investment Contract Fund 681,436
-----------------------------------------------------
Total investments 7,922,269 1,639,248 503,978 2,715,208
Cash and cash equivalents 17,777 17,777 -- --
Employer contributions and interfund
transfers receivable (payable) 43,058 (362,774) 27,988 315,015
Loans to participants 284,479
Net assets available for ------------------------------------------------------
plan benefits $ 8,267,583 $ 1,294,251 $ 531,966 $ 3,030,223
======================================================
<CAPTION>
SBS GOVERNMENT GUARANTEED
BALANCED INCOME INV. CONTRACT LOAN
FUND FUND FUND ACCT
<S> <C> <C> <C> <C>
Investments:
Common Stock of Physicians Health
Services, Inc. at fair value: 44,304 shares
(cost $1,164,165)
International equity fund
Aggressive growth equity fund
SBS balanced fund $ 1,948,932
Government income fund $ 433,467
Guaranteed investment contract fund 681,436
-------------------------------------------------------
Total Investments 1,948,932 433,467 681,436 --
Cash and cash equivalents -- -- -- --
Employer contributions and interfund
transfers receivable (payable) 227,034 (22,911) (141,294)
Loans to participants $ 284,479
Net assets available for -------------------------------------------------------
plan benefits $ 2,175,966 $ 410,556 $ 540,142 $ 284,479
=======================================================
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
PHYSICIANS HEALTH SERVICES, INC.
401(k) PROFIT SHARING PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
WITH FUND INFORMATION
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PHS INT'L AGGRESSIVE
STOCK EQUITY GROWTH
TOTAL FUND FUND FUND
<S> <C> <C> <C> <C>
Contributions:
Rollovers $ 140,473
Participants 1,397,587 $ 296,806 $ 106,286 $ 486,813
Employer 904,906 180,269 68,008 323,051
--------------------------------------------------------
2,442,966 477,075 174,294 809,864
Investment income:
Interest 1,309 1,098 18 84
Dividends --
--------------------------------------------------------
1,309 1,098 18 84
Loan interest repaid 32,637
--------------------------------------------------------
Total additions 2,476,912 478,173 174,312 809,948
Withdrawals and distributions to
participants (471,789) (53,798) (45,519) (155,105)
Investment expenses (61,380) (4,086) (4,786) (27,723)
--------------------------------------------------------
Total deductions (533,169) (57,884) (50,305) (182,828)
Interfund transfers -- 599,528 (75,146) (294,888)
Net realized gain on
securities sold or distributed 277,031 55,761 6,139 125,045
Changes in unrealized appreciation
(depreciation) of investments (510,848) (1,177,824) 33,159 308,939
--------------------------------------------------------
Net increase (decrease) in net
assets available for plan benefits 1,709,926 (102,246) 88,159 766,216
Net assets available for plan
benefits, December 31, 1995 8,267,583 1,294,251 531,966 3,030,223
--------------------------------------------------------
Net assets available for plan
benefits, December 31, 1996 $ 9,977,509 $ 1,192,005 $ 620,125 $ 3,796,439
========================================================
<CAPTION>
SBS GOVERNMENT GUARANTEED
BALANCED INCOME INV. CONTRACT LOAN ROLLOVER
FUND FUND FUND ACCT ACCT
<S> <C> <C> <C> <C> <C>
Contributions:
Rollovers $ 140,473
Participants $ 344,804 $ 79,818 $ 83,060
Employer 227,044 49,195 57,339
----------------------------------------------------------------------
571,848 129,013 140,399 -- 140,473
Investment income:
Interest 61 14 34
Dividends
-----------------------------------------------------------------------
61 14 34 -- --
Loan interest repaid $ 32,637
-----------------------------------------------------------------------
Total additions 571,909 129,027 140,433 32,637 140,473
Withdrawals and distributions to
participants (175,086) (15,220) (27,061)
Investment expenses (20,097) (2,846) (1,842)
-----------------------------------------------------------------------
Total deductions (195,183) (18,066) (28,903) -- --
Interfund transfers (51,303) (67,545) (59,815) 89,642 (140,473)
Net realized gain on
securities sold or distributed 61,734 10,278 18,074
Changes in unrealized appreciation
(depreciation) of investments 296,232 6,332 22,314
-----------------------------------------------------------------------
Net increase (decrease) in net
assets available for plan benefits 683,389 60,026 92,103 122,279 --
Net assets available for plan
benefits, December 31, 1995 2,175,966 410,556 540,142 284,479 --
Net assets available for plan ----------------------------------------------------------------------
benefits, December 31, 1996 $ 2,859,355 $ 470,582 $ 632,245 $ 406,758 $ --
======================================================================
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
PHYSICIANS HEALTH SERVICES, INC.
401(k) PROFIT SHARING PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
WITH FUND INFORMATION
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PHS INT'L AGGRESSIVE
STOCK EQUITY GROWTH
TOTAL FUND FUND FUND
<S> <C> <C> <C> <C>
Contributions:
Rollovers $ 372,812
Participants 966,338 $ 167,204 $ 90,957 $ 345,275
Employer 652,504 115,675 57,271 236,358
--------------------------------------------------------
1,991,654 282,879 148,228 581,633
Investment income:
Interest 849 701 16 57
Dividends --
--------------------------------------------------------
849 701 16 57
Loan interest repaid 21,938
--------------------------------------------------------
Total additions 2,014,441 283,580 148,244 581,690
Withdrawals and distributions to
participants (323,612) (16,291) (19,654) (65,903)
Investment expenses (42,559) (2,654) (4,608) (17,983)
--------------------------------------------------------
Total deductions (366,171) (18,945) (24,262) (83,886)
Interfund transfers -- 129,628 (145,110) 169,196
Net realized gain (loss) on
securities sold or distributed 83,901 5,080 (10,952) 41,660
Changes in unrealized appreciation
(depreciation) of investments 1,282,770 392,721 26,530 463,540
--------------------------------------------------------
Net increase (decrease) in net
assets available for plan benefits 3,014,941 792,064 (5,550) 1,172,200
Net assets available for plan
benefits, December 31, 1994 5,252,642 502,187 537,516 1,858,023
--------------------------------------------------------
Net assets available for plan
benefits, December 31, 1995 $ 8,267,583 $ 1,294,251 $ 531,966 $ 3,030,223
========================================================
<CAPTION>
SBS GOVERNMENT GUARANTEED
BALANCED INCOME INV. CONTRACT LOAN ROLLOVER
FUND FUND FUND ACCT ACCT
<S> <C> <C> <C> <C> <C>
Contributions:
Rollovers $ 372,812
Participants $ 233,071 $ 65,738 $ 64,093
Employer 160,635 41,871 40,694
----------------------------------------------------------------------
393,706 107,609 104,787 -- 372,812
Investment income:
Interest 39 10 26
Dividends
----------------------------------------------------------------------
39 10 26 -- --
Loan interest repaid $ 21,938
----------------------------------------------------------------------
Total additions 393,745 107,619 104,813 21,938 372,812
Withdrawals and distributions to
participants (102,302) (89,777) (29,685)
Investment expenses (12,652) (2,820) (1,842)
----------------------------------------------------------------------
Total deductions (114,954) (92,597) (31,527) -- --
Interfund transfers 187,248 (77,986) 23,016 86,820 (372,812)
Net realized gain (loss) on
securities sold or distributed 28,613 10,099 9,401
Changes in unrealized appreciation
(depreciation) of investments 331,071 42,280 26,628
----------------------------------------------------------------------
Net increase (decrease) in net
assets available for plan benefits 825,723 (10,585) 132,331 108,758 --
Net assets available for plan
benefits, December 31, 1994 1,350,243 421,141 407,811 175,721 --
----------------------------------------------------------------------
Net assets available for plan
benefits, December 31, 1995 $ 2,175,966 $ 410,556 $ 540,142 $ 284,479 $ --
======================================================================
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
PHYSICIANS HEALTH SERVICES, INC.
401(k) PROFIT SHARING PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
WITH FUND INFORMATION
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
PHS INT'L AGGRESSIVE SBS GOVERNMENT
STOCK EQUITY GROWTH BALANCED INCOME
TOTAL FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C>
Contributions:
Rollovers $ 134,831
Participants 746,186 $ 48,682 $ 52,569 $ 143,468 $ 90,129 $ 27,548
Employer 519,746 43,726 44,997 126,799 79,983 26,503
--------------------------------------------------------------------------------------
1,400,763 92,408 97,566 270,267 170,112 54,051
Investment income:
Interest 18,459 403 313 963 649 222
Dividends 27,805
--------------------------------------------------------------------------------------
46,264 403 313 963 649 222
Loan interest repaid 13,068
--------------------------------------------------------------------------------------
Total additions 1,460,095 92,811 97,879 271,230 170,761 54,273
Withdrawals and distributions to
participants (181,102) (15,761) (6,457) (23,028) (13,470) (18,012)
Investment expenses (22,125) (815) (1,992) (6,260) (4,326) (1,136)
--------------------------------------------------------------------------------------
Total deductions (203,227) (16,576) (8,449) (29,288) (17,796) (19,148)
Interfund transfers -- 342,315 463,134 1,501,488 1,152,893 384,643
Net realized gain (loss) on
securities sold or distributed (244,288) 1,275 163 1,582 1,051 92
Changes in unrealized appreciation
(depreciation) of investments 321,832 82,362 (15,211) 113,011 43,334 1,281
-------------------------------------------------------------------------------------
Net increase (decrease) in net
assets available for plan benefits 1,334,412 502,187 537,516 1,858,023 1,350,243 421,141
Net assets available for plan
benefits, December 31, 1993 3,918,230 -- -- -- -- --
------------------------------------------------------------------------------------
Net assets available for plan
benefits, December 31, 1994 $ 5,252,642 $ 502,187 $ 537,516 $ 1,858,023 $ 1,350,243 $ 421,141
--------------------------------------------------------------------------------------
<CAPTION>
GUARANTEED MONEY WRIGHT GROWTH
INV. CONTRACT MARKET BALANCED EQUITY LOAN ROLLOVER
FUND FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C>
Contributions:
Rollovers $ 134,831
Participants $ 22,823 $ 60,200 $ 134,520 $ 166,247
Employer 13,844 33,846 69,346 80,702
--------------------------------------------------------------------------------------
36,667 94,046 203,866 246,949 -- 134,831
Investment income:
Interest 433 11,702 3,223 551
Dividends 21,120 6,685
--------------------------------------------------------------------------------------
433 11,702 24,343 7,236 -- --
Loan interest repaid $ 13,068
--------------------------------------------------------------------------------------
Total additions 37,100 105,748 228,209 254,185 13,068 134,831
Withdrawals and distributions to
participants (26,934) (14,619) (21,209) (41,612)
Investment expenses (810) (1,662) (2,553) (2,571)
--------------------------------------------------------------------------------------
Total deductions (27,744) (16,281) (23,762) (44,813) -- --
Interfund transfers 381,551 (835,511) (1,597,336) (1,637,568) (20,778) (134,831)
Net realized gain (loss) on
securities sold or distributed 2,895 (73,016) (178,330)
Changes in unrealized appreciation
(depreciation) of investments 14,009 (6,534) 89,580
--------------------------------------------------------------------------------------
Net increase (decrease) in net
assets available for plan benefits 407,811 (746,044) (1,472,439) (1,516,316) (7,710) --
Net assets available for plan
benefits, December 31, 1993 -- 746,044 1,472,439 1,516,316 183,431 --
--------------------------------------------------------------------------------------
Net assets available for plan
benefits, December 31, 1994 $ 407,811 $ -- $ -- $ -- $ 175,721 $ --
======================================================================================
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
PHYSICIANS HEALTH SERVICES, INC. 401(k) PROFIT SHARING PLAN
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. DESCRIPTION OF PLAN
The following description of the Physicians Health Services, Inc. 401(k) Profit
Sharing Plan (the "Plan") provides general information. Participants should
refer to their Summary Plan Description for a more complete description of the
Plan's provisions.
General:
The Plan is a defined contribution plan which covers substantially all employees
of Physicians Health Services, Inc. and its wholly owned subsidiaries (the
"Employer") who have completed one year of service and have attained 21 years of
age. The Plan provides for retirement, death and disability benefits.
Contributions:
Employees who participate in the Plan may elect to defer up to 10%, on a pre-tax
and after-tax basis of their compensation. The Plan also allows transfers into
the Plan from other plans which satisfy the applicable requirements of the
Internal Revenue Code. The Employer's contributions consist of the following:
(a) a matching contribution equal to 75% of each participant's elective
deferrals for the Plan year, up to 4% of the participant's compensation, and (b)
at the discretion of the Employer, an additional amount equal to 1% of each
participant's compensation, provided such participant has completed 1,000 hours
of service during the Plan year and is still actively employed on the last day
of the Plan year. Any employee or employer matching contribution in excess of
the IRS maximum is treated as an after tax contribution. It is the Employer's
policy to fund amounts as accrued.
Forfeitures are used to reduce the contributions of the Employer for the Plan
year in which such forfeitures occur.
Vesting:
Each participant's account is credited with the participant's contributions, an
allocation of the Employer's contributions and Plan earnings allocated to their
account. Participants are immediately vested in their contributions plus actual
earnings thereon. Participants are also 100% vested with regard to the
Employer's contributions; however, a participant must be employed on the last
day of the Plan year in order to be credited with an allocation of the
Employer's contribution for that year.
Investments:
Upon enrollment, each participant directs that their contributions be invested
in one or more of the investment programs set forth below in 5% increments. The
current investment programs of the Plan are as follows:
The Physicians Health Services, Inc. Stock Fund is invested in the Class A
Common Stock of Physicians Health Services, Inc.
F-7
<PAGE>
PHYSICIANS HEALTH SERVICES, INC. 401(k) PROFIT SHARING PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF PLAN (CONTINUED)
The International Equity Fund is invested in a diversified portfolio of
international equities as evidenced by American Depository Receipts, which are
traded as U.S. share equivalents backed by specific shares of the underlying
foreign currencies.
The Aggressive Growth Fund is invested in a portfolio of high quality, smaller
sized growth companies that are widely diversified as to industry and number of
securities held.
The SBS Balanced Fund is invested in a combination of high quality equity and
near term bonds with a conservative mix range of 40% to 60% equities and 60% to
40% bonds of the total fund.
The Government Income Fund is invested in U.S. Treasury Securities with a
maximum average maturity of five years and none longer than 10 years.
The Guaranteed Investment Contract ("GIC") Fund is invested in insurance
investment contracts, alternative synthetic GICs, and bank investment contracts
issued by highly rated companies and banks, and in cash equivalents designed to
provide stable investment returns with a high degree of capital protection.
Prior to July 1, 1994, participants in the Plan could elect to invest their
contributions in 10% increments into the following funds:
The Money Market Fund that invested in short-term liquid investments such as
short-term money market instruments, certificates of deposit and Treasury Bills.
The Wright Balanced Fund that invested in mutual funds including common and
preferred stocks and bonds.
The Growth Equity Fund that invested in a mutual fund of selected Blue Chip
equity securities.
At December 31, 1996, there was a total of 641 participants in the Plan. The
number of participants in each fund was as follows:
Physicians Health Services, Inc. Stock Fund 381
International Equity Fund 246
Aggressive Growth Fund 540
SBS Balanced Investment Fund 457
Government Income Fund 165
Guaranteed Investment Contract Fund 166
The total number of participants in the Plan was less than the sum of the number
of participants shown above because many were participating in more than one
fund.
F-8
<PAGE>
PHYSICIANS HEALTH SERVICES, INC. 401(k) PROFIT SHARING PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. DESCRIPTION OF PLAN (CONTINUED)
Participant Loans:
Participants may borrow from their fund accounts a minimum of $1,000 up to a
maximum of $50,000 or 50% of their account balances. Loan transactions are
treated as transfers from (to) the investment funds to (from) the loan fund.
Loan terms range from 1-5 years or up to 10 years for the purchase of a primary
residence. The loans are secured by the balance in the participants' accounts
and bear interest at a rate of 1 1/2% above the regional prime.
Withdrawals:
Withdrawals can only be made under certain circumstances, including early or
normal retirement, death, disability, termination of employment, hardship (as
defined under the Internal Revenue Code) and the attainment of 59 1/2 years of
age. Amounts allocated to the accounts of such participants which have not yet
been paid at December 31, 1996 and 1995 amounted to $68,665 and $69,873
respectively.
The Employer intends to continue the Plan indefinitely, but reserves the right
to terminate the Plan or permanently discontinue contributions for any reason at
any time. In the event of such termination or permanent discontinuance of
contributions, participants shall be fully vested in their accounts. (Refer to
Note 6.)
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting:
The accompanying financial statements have been prepared on the accrual basis of
accounting and present the net assets available for plan benefits and the
changes in net assets available for plan benefits of the Plan.
Investment Valuation:
The investment in the Physicians Health Services, Inc. Stock Fund is stated at
fair value based upon the closing sales price on the National Association of
Securities Dealers Automated Quotation National Market System. The closing price
of Physicians Health Services, Inc. Class A Common Stock was $14.75 and $37.00
per share at December 31, 1996 and 1995, respectively.
The investments in the International Equity Fund, the Aggressive Growth Fund,
the SBS Balanced Fund and the Government Income Fund are stated at fair values
based on the market value of the underlying securities in the respective
portfolios plus investment income credited to the account.
F-9
<PAGE>
PHYSICIANS HEALTH SERVICES, INC. 401(k) PROFIT SHARING PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
For the Guaranteed Investment Contract Fund, the fair value represents cost plus
accrued interest income on the underlying contracts. Such accrued interest
income is treated as unrealized until such time as units of the fund are sold or
disposed of at which time the unrealized amounts are reported as realized.
The change in the difference between fair value and the cost of investments is
reported in the statement of changes in net assets available for plan benefits
as unrealized appreciation (depreciation) of investments. Realized gains
(losses) from the sale or distribution of investments represents the difference
between the proceeds received and the cost of investments sold determined by the
average cost method for the six month period ended December 31, 1994 and for the
years ended December 31, 1995 and 1996. For the six month period ended June 30,
1994 the cost of investments sold was determined by the specific identification
method.
Interfund Transfers:
Interfund transfers for 1994 include the transfer of funds from the Money
Market, Wright Balanced and Growth Equity funds into the new investment programs
established effective July 1, 1994.
Expenses of the Plan:
All administrative expenses incurred by the Plan are paid by the Employer.
Use of Estimates:
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Certain reclassifications were made to conform the 1994 and 1995 amounts to the
1996 presentation.
F-10
<PAGE>
PHYSICIANS HEALTH SERVICES, INC. 401(k) PROFIT SHARING PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS
The unrealized appreciation (depreciation) of investments included in Plan net
assets is as follows:
<TABLE>
<CAPTION>
Balance at 1994 Balance at 1995 Balance at 1996 Balance at
Dec 31, 1993 Change Dec 31, 1994 Change Dec 31, 1995 Change Dec 31, 1996
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PHS Stock Fund $ -- $ 82,362 $ 82,362 $ 392,721 $ 475,083 $(1,177,824) $ (702,741)
International Equity Fund -- (15,211) (15,211) 26,530 11,319 33,159 44,478
Aggressive Growth Fund -- 113,011 113,011 463,540 576,551 308,939 885,490
SBS Balanced Fund -- 43,334 43,334 331,071 374,405 296,232 670,637
Government Income Fund -- 1,281 1,281 42,280 43,561 6,332 49,893
Guaranteed Investment
Contract Fund -- 14,009 14,009 26,628 40,637 22,314 62,951
Wright Balanced Fund 6,534 (6,534) -- -- -- -- --
Growth Equity Fund (89,580) 89,580 -- -- -- -- --
--------------------------------------------------------------------------------------------------------
Total $ (83,046) $ 321,832 $ 238,786 $ 1,282,770 $ 1,521,556 $ (510,848) $ 1,010,708
========================================================================================================
</TABLE>
The net realized gain (loss) on securities sold or distributed was as follows:
1994
----------------------------------------
Net
Amount Realized
Realized Cost Gain(Loss)
----------------------------------------
PHS Stock Fund $ 14,275 $ 13,000 $ 1,275
International Equity Fund 7,166 7,003 163
Aggressive Growth Fund 29,688 28,106 1,582
SBS Balanced Fund 18,078 17,027 1,051
Government Income Fund 23,894 23,802 92
Guaranteed Investment
Contract Fund 237,772 234,877 2,895
Wright Balanced Fund 1,554,719 1,627,735 (73,016)
Growth Equity Fund 1,585,560 1,763,890 (178,330)
---------------------------------------
Total $ 3,471,152 $ 3,715,440 $ (244,288)
=======================================
1995
----------------------------------------
Net
Amount Realized
Realized Cost Gain(Loss)
----------------------------------------
PHS Stock Fund $ 23,746 $ 18,666 $ 5,080
International Equity Fund 271,492 282,444 (10,952)
Aggressive Growth Fund 244,416 202,756 41,660
SBS Balanced Fund 223,925 195,312 28,613
Government Income Fund 164,497 154,398 10,099
Guaranteed Investment
Contract Fund 229,594 220,193 9,401
Wright Balanced Fund -- -- --
Growth Equity Fund -- -- --
---------------------------------------
Total $ 1,157,670 $ 1,073,769 $ 83,901
=======================================
1996
----------------------------------------
Net
Amount Realized
Realized Cost Gain(Loss)
----------------------------------------
PHS Stock Fund $ 364,164 $ 308,403 $ 55,761
International Equity Fund 137,068 130,929 6,139
Aggressive Growth Fund 554,457 429,412 125,045
SBS Balanced Fund 291,598 229,864 61,734
Government Income Fund 109,689 99,411 10,278
Guaranteed Investment
Contract Fund 255,775 237,701 18,074
Wright Balanced Fund -- -- --
Growth Equity Fund -- -- --
----------------------------------------
Total $ 1,712,751 $ 1,435,720 $ 277,031
========================================
F-11
<PAGE>
PHYSICIANS HEALTH SERVICES, INC. 401(k) PROFIT SHARING PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INVESTMENTS
The fair value of investments held which exceeded 5% of net assets available for
plan benefits at December 31 was as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
ISSUER DESCRIPTION 1996 1995
--------------- --------------
<S> <C> <C> <C>
Physicians Health Services, Physicians Health Services, Inc.
Inc. Stock Fund $1,103,831 $1,639,248
Smith Barney Corporate Trust
International Equity Fund 1 International Equity Fund $624,695 $503,978
Smith Barney Corporate Trust
Small-Cap Equity Fund 5
Aggressive Growth Equity Fund $3,715,397 $2,715,208
Smith Barney Corporate Trust
Flexible Growth Balanced
Fund 2 SBS Balanced Fund $2,810,903 $1,948,932
Smith Barney Corporate Trust
Intermediate Government
Income Fund 2 Government Income Fund $453,166 $433,467
Smith Barney Corporate Trust
Guaranteed Investment Guaranteed Investment
Contract Income Fund 4 Contract Fund $802,853 $681,436
</TABLE>
F-12
<PAGE>
PHYSICIANS HEALTH SERVICES, INC. 401(k) PROFIT SHARING PLAN
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. INCOME TAX STATUS
The Internal Revenue Service ruled that the Plan qualifies under Section 401(k)
of the Internal Revenue Code ("IRC") and, therefore, the related trust is not
subject to tax under present income tax law. Once qualified, the Plan is
required to operate in conformity with the IRC to maintain its qualification.
The Pension Plan Committee of Physicians Health Services, Inc. is not aware of
any course of action or series of events that have occurred that would adversely
affect the Plan's qualified status.
5. PARTY IN INTEREST TRANSACTIONS
Transactions with parties in interest during 1996 were as follows:
SALES NET REALIZED
DESCRIPTION OF TRANSACTION COST PROCEEDS GAIN
-------------------------- ---- -------- ----
Purchased 42,066 shares of
Physicians Health Services,
Inc. Class A Common Stock $950,810 $ - $ -
Disposed of 11,534 shares of
Physicians Health Services,
Inc. Class A Common Stock $308,403 $364,164 $55,761
6. SUBSEQUENT EVENT (UNAUDITED)
On May 8, 1997, Physicians Health Services, Inc. ("Parent Company") and
Foundation Health Systems, Inc. ("FHS") executed a merger agreement pursuant to
which FHS would acquire all of the shares of common stock of the Parent Company
for $29.25 per share in cash, or a total consideration to the Parent Company's
stockholders of approximately $280 million. FHS announced that it intends to
finance the purchase with a combination of cash and bank debt. As a part of the
transaction, the Parent Company has entered into a voting trust agreement with
the Greater Bridgeport Individual Practice Association ("GBIPA"), which owned at
April 30, 1997 shares constituting approximately 61% of the voting power of the
Parent Company. The agreement stipulates that such shares will be voted in favor
of the transaction by GBIPA. The transaction is subject to certain closing
conditions, including receipt of regulatory approvals and entering into certain
agreements with Guardian Life Insurance Company of America. This transaction is
expected to close by the end of 1997.
F-13
<PAGE>
PHYSICIANS HEALTH SERVICES, INC. 401(k) PROFIT SHARING PLAN
Assets Held for Investment Purposes
December 31, 1996
<TABLE>
<CAPTION>
NUMBER FAIR
DESCRIPTION OF INVESTMENT OF UNITS COST VALUE
- ------------------------- -------- ---- -----
<S> <C> <C> <C>
PHS STOCK FUND
- --------------
Physicians Health Services, Inc. Class A Common Stock 74,836 $1,806,572 $1,103,831
INTERNATIONAL EQUITY FUND
- -------------------------
Diversified portfolio of equity investments
Smith Barney Corporate Trust International Equity Fund 1 56,029 580,217 624,695
AGGRESSIVE GROWTH FUND
- ----------------------
Diversified portfolio of equity investments
Smith Barney Corporate Trust Small Cap Equity Fund 5 43,486 2,829,907 3,715,397
SBS BALANCED FUND
- -----------------
Portfolio of equity investments and near term bonds
Smith Barney Corporate Trust Flexible Growth
Balanced Fund 2 46,364 2,140,266 2,810,903
GOVERNMENT INCOME FUND
- ----------------------
Portfolio of U.S. Treasury Securities
Smith Barney Corporate Trust Intermediate Government
Income Fund 2 19,690 403,273 453,166
GUARANTEED INVESTMENT CONTRACT FUND
- -----------------------------------
Portfolio of fixed interest rate contracts
Smith Barney Corporate Trust Guaranteed Investment
Contract Income Fund 4 61,256 739,902 802,853
LOANS to PARTICIPANTS
- --------------------- 406,758 406,758
---------- ----------
$8,906,895 $9,917,603
========== ==========
</TABLE>
S-1
<PAGE>
PHYSICIANS HEALTH SERVICES, Inc. 401(k) PROFIT SHARING PLAN
Schedule of Reportable Transactions
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Number Purchase Selling Cost of Net Realized Total Number
of Units Price Price Asset Gain -----------------
Description of Assets Purchases Sales
- ----------------------------------------------------------------------------------------------------------------------------------
Category (iii) - A Series of Transactions In Excess of 5% of Plan Assets
<S> <C> <C> <C> <C> <C> <C> <C>
PHS Stock Fund * 42,066 $ 950,810 $ 950,810 31
11,534 $ 364,164 308,403 $ 55,761 10
Aggressive Growth Fund ** 14,003 1,120,662 1,120,662 57
6,817 554,457 429,412 125,045 55
SBS Balanced Fund ** 14,224 795,603 795,603 56
5,130 291,598 229,864 61,734 45
Guaranteed Investment
Contract Fund ** 26,363 336,804 336,804 48
20,264 255,775 237,701 18,074 38
</TABLE>
* Transactions involved Physicians Health Services, Inc. Class A Common Stock.
** Transactions conducted with Smith Barney Corporate Trust.
There were no category (i), (ii) or (iv) reportable transactions during 1996.
S-2
<PAGE>
PHYSICIANS HEALTH SERVICES, INC.
Annual Report on Form 11-K
for the Fiscal Year Ended
December 31, 1996
Exhibit No.
-----------
1 Auditor's Consent
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8, No. 33-81142) pertaining to the Physicians Health Services, Inc. 401(k)
Profit Sharing Plan of our report dated June 13, 1997, with respect to the
financial statements and schedules of the Physicians Health Services, Inc.
401(k) Profit Sharing Plan included in this Annual Report (Form 11-K) for the
year ended December 31, 1996.
Ernst & Young LLP
Stamford, Connecticut
June 27, 1997
