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                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO ________

Commission file number:    1-15907



                         RIGHTCHOICE MANAGED CARE, INC.

             (Exact name of registrant as specified in its charter)


              DELAWARE                                     43-0303080
(State or other jurisdiction of              (I.R.S. Employer Identification
 incorporation or organization)                             Number)


         1831 CHESTNUT STREET
          ST. LOUIS, MISSOURI                              63103-2275
(Address of principal executive offices)                   (Zip Code)

Registrant's telephone number, including area code:  (314) 923-4444

Securities registered pursuant to Section 12(b) of the Act:

COMMON STOCK, $0.01 PAR VALUE                   NEW YORK STOCK EXCHANGE, INC.
    (Title of each class)                       (Name of each exchange on which
                                                            registered)

Securities registered pursuant to Section 12(g) of the Act:  NONE

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes   [X]    No   [ ]
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Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.

[  ]

The aggregate market value of common stock (voting) held by non-affiliates of
the Registrant as of March 21, 2001, was approximately $141,295,762 (based on
last reported sale price of $37.60 per share on March 21, 2001, on the New York
Stock Exchange).

As of March 21, 2001, 18,742,125 shares of the Registrant's common stock, par
value $0.01 per share, were issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders of the Registrant to be held on June 8, 2001. Certain information
therein is incorporated by reference into Part III hereof.


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                                     PART I

                                ITEM 1. BUSINESS

BUSINESS

OVERVIEW

We are the largest provider of managed health care benefits in Missouri based on
number of members. As of December 31, 2000, we served approximately 2.7 million
members, of which approximately 2.2 million were in Missouri and approximately
0.5 million were in the contiguous states of Arkansas, Illinois, Indiana, Iowa,
Kentucky and West Virginia. We have the exclusive license to use the "Blue
Cross" and "Blue Shield" names and service marks for all of the managed health
care products and services that we offer in our Missouri service area, which
consists of 85 of the 115 counties in Missouri and includes four of the five
largest cities in Missouri, but does not include Kansas City. We believe that
our exclusive right to use the Blue Cross and Blue Shield names and service
marks provides us with an important marketing advantage in our service area.

We offer our managed health care benefits through a variety of provider networks
utilizing a range of benefit designs and funding options. We design our products
and services to meet the needs and objectives of individuals and a wide range
and size of employers and other groups. We offer our managed health care
products and services in two funding types: (1) underwritten products, for which
we receive premium revenue in exchange for the assumption of medical, selling
and administrative risks, and (2) self-funded products, for which we generally
assume no risk, or reinsure the risk, for medical costs and receive compensation
for providing the requested services.

Our combination of underwritten and self-funded products and services provides
us with a diversified and complementary source of revenue and earnings. We
believe that this diversification offers an attractive combination of earnings
growth potential from our underwritten business and earnings stability from our
self-funded business.

Products in our underwritten segment include preferred provider organizations
(PPO), point of service (POS), health maintenance organizations (HMO), Medicare
supplement, specialty managed care, short-term medical and managed indemnity
benefit plans. We provide our self-funded groups with access to our PPO and HMO
provider networks which enables them to realize savings through our favorable
provider arrangements and medical management, while allowing self-funded groups
the ability to design health benefit plans in accordance with their own
requirements and objectives. Products in our self-funded segment include
third-party administrator services, administrative services


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only (ASO) for self-insured organizations, network rental services for
self-insured organizations, insurance companies and other organizations,
including network rental for workers' compensation, and life insurance agency
services. Our other segment includes our commercial real estate holdings.
Financial information regarding our segments is included in Note 14, "Segment
Information" of the Notes to Consolidated Financial Statements of Part II, Item
8, which is incorporated herein by reference.

We provide access to the following health care benefits through our underwritten
and self-funded products and services:

-        hospital care;

-        ambulatory and outpatient care;

-        physician services;

-        pharmacy;

-        dental care;

-        vision care;

-        behavioral health care;

-        health education; and

-        life insurance products through non-affiliated life insurance carriers.

We conduct business in our Blue Cross and Blue Shield service area under the
names "Blue Cross and Blue Shield of Missouri" and "Alliance Blue Cross Blue
Shield." In Missouri, we also offer non-Blue Cross and Blue Shield branded
products under the brand "HealthLink." We conduct business outside of Missouri
under both the "RightCHOICE" and "HealthLink" brands.

REORGANIZATION

On November 30, 2000, the reorganization of our predecessor, RightCHOICE Managed
Care, Inc., a Missouri corporation, referred to herein as "Old RightCHOICE," and
its parent corporation, Blue Cross and Blue Shield of Missouri, was completed.
The reorganization was part of a settlement agreement with the state of Missouri
which resolved litigation related to Blue Cross and Blue Shield of Missouri's
operation of Old RightCHOICE following its organization in 1994. As a result of
the reorganization, The Missouri Foundation For Health received 14,962,500
shares of our common stock, representing approximately 80% of our outstanding
shares. The state of Missouri established the Foundation as a non-profit
corporation to serve the needs of underinsured and uninsured Missourians in Blue
Cross and Blue Shield of Missouri's Blue Cross and Blue Shield service area. We
describe the reorganization in greater detail under "Reorganization" below.

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MANAGED HEALTH CARE INDUSTRY OVERVIEW

An increasing focus on costs by employers and consumers has spurred the growth
of health maintenance organizations, or HMOs, preferred provider organizations,
or PPOs, point of service options, or POS, and other forms of managed care plans
as alternatives to traditional indemnity health insurance. Typically, HMOs and
PPOs, as well as hybrid plans such as POS plans that incorporate features of
each, develop health care provider networks by entering into contracts with
hospitals, physicians and other providers to deliver health care at favorable
rates that incorporate health care utilization management and other
cost-containment measures as well as network credentialing and health promotion
and care management programs. HMO, PPO and POS members generally are charged
periodic, prepaid premiums and incur copayments, coinsurance or deductibles.
PPOs, POS plans and a number of HMOs allow out-of-network usage, typically at
substantially higher out-of-pocket costs to



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members. HMO members generally select one primary care physician from a network
who is responsible for coordinating health care services for the member, while
PPOs and other "open access" plans generally allow members to select physicians
without coordination through a primary care physician. Hybrid plans, such as POS
plans, typically involve the selection of primary care physicians similar to
HMOs, but allow members to choose non-network providers at higher out-of-pocket
costs similar to PPOs.

OUR MANAGED HEALTH CARE PRODUCTS AND SERVICES

We provide our managed health care benefit products on both an underwritten and
self-funded basis. Our principal products are described below.

UNDERWRITTEN PRODUCTS

PPO PRODUCT GROUP

Our Alliance PPO is our Blue Cross and Blue Shield branded PPO and is one of the
largest PPOs in Missouri based on the number of members with services provided
to approximately 157,200 underwritten members as of December 31, 2000. Our
Alliance PPO network includes 9,200 physicians and 102 hospitals. In the St.
Louis metropolitan area, the Alliance PPO network provides access to
approximately 95% of all hospital beds.

Our Alliance PPO products incorporate many managed care characteristics,
including per diem hospital rates, case management, pre-admission certification,
concurrent review of hospital admissions and retrospective claims review. Higher
deductibles, coinsurance and out-of-pocket maximums and other financial
incentives encourage members to use network provider services. Alliance PPO
benefit plans also include mental health and chemical dependency programs,
optional well-child care, optional physician office copayments, pharmacy benefit
options such as three-tier copayments and vision services. This broad range of
Alliance PPO benefit plans enables the subscriber or employer group to choose
the mix of benefits that is suited to the member's or employer's needs.

Through our Illinois PPO, we offer non-Blue Cross and Blue Shield branded group
and individual PPO coverage in southern and central Illinois under the
"RightCHOICE" brand. We utilize the provider network of our subsidiary,
HealthLink, to offer these products to the residents in this region. These PPO
products accounted for approximately 29,500 underwritten members as of December
31, 2000.

Under the Federal Employee Program, we provide PPO benefits to federal employees
and retirees who choose to enroll in the Blue Cross and Blue Shield Service
Benefit Plan pursuant to an arrangement between the Blue Cross Blue Shield
Association and the United States Office of Personnel Management. As of December
31, 2000, approximately 47,300 federal employees, dependents and retirees in our
Blue Cross and Blue Shield service area were enrolled in this program.

We participate in the Blue Cross Blue Shield Association's BlueCard(R) PPO
program. The BlueCard(R) PPO program allows our Alliance PPO members access to
Blue Cross Blue Shield plans' PPO providers throughout the nation. As of
December 31, 2000, approximately 95% of our Alliance PPO members were enrolled
in the program. Members who need to seek medical attention while living in or
traveling to another part of the country do not pay more out of pocket for being
out of our Blue Cross and Blue Shield service area's provider network and
accessing other Blue Cross and Blue Shield plans' PPO providers. Blue Cross and
Blue Shield plans' provider networks are offered throughout essentially all of
the United States and 200 countries worldwide.


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POS PRODUCT GROUP

We offer complementary hospital and physician networks in the St. Louis
metropolitan area through AllianceChoice POS and AlliancePreferred POS, our Blue
Cross and Blue Shield branded POS products. The AllianceChoice POS network
serves approximately 141,500 underwritten members as of December 31, 2000.
AllianceChoice POS includes both group and individual members and includes
contractual arrangements with approximately 5,800 physicians and 17 hospitals.
We began offering our AlliancePreferred POS product to both groups and
individuals in January 2001. AlliancePreferred POS is available in the St. Louis
metropolitan area and is often marketed in conjunction with AllianceChoice POS.
AlliancePreferred POS offers the same benefits and service area as
AllianceChoice POS, but with a complementary network of providers. By offering
the dual option of AllianceChoice POS and AlliancePreferred POS, our clients are
given an extensive choice of providers through two comparable programs that
encompass all of the major provider systems in the St. Louis metropolitan area.
Our BlueCard(R) PPO program is also available with AllianceChoice POS and
AlliancePreferred POS. As of December 31, 2000, approximately 95% of our
AllianceChoice POS members were enrolled in the program.

HMO PRODUCT GROUP

BlueCHOICE is our Blue Cross and Blue Shield branded federally qualified HMO
offering in metropolitan St. Louis, southwest Missouri, portions of southeast
Missouri, and central Missouri through the BlueCHOICE HMO network. As of
December 31, 2000, there were approximately 112,400 underwritten BlueCHOICE HMO
and POS members. BlueCHOICE is an independent practice association model,
through which we contract directly with local providers for plan members' health
care services. The BlueCHOICE network, which supports both HMO and POS products,
has contractual arrangements with approximately 5,100 physicians and 68
hospitals.

BlueCHOICE provides members with comprehensive coverage for network health care
services with modest copayment requirements. When using their primary care
physician as a coordinator of care, members incur the lowest out-of-pocket costs
for preventive care, referred specialist services, and inpatient services.

In some areas, the BlueCHOICE HMO and POS products are supported by risk
arrangements with various provider groups. These risk arrangements are with
providers in Springfield, Missouri and Joplin, Missouri and included
approximately 32,000 underwritten members as of December 31, 2000.

Our HealthNet Blue POS product is sold through BlueCHOICE and is offered to
employee groups within a seven-county region in southeast Missouri. This product
provides members with comprehensive coverage for network health care services,
including preventive care, in-office physician care, and maternity coverage for
a modest office visit copayment charge. As of December 31, 2000, there were
approximately 13,600 group members enrolled in the underwritten HealthNet Blue
POS product. To the extent possible, we are in the process of transitioning
enrollment in the HealthNet Blue POS product to our standard Alliance PPO
products.

We exited the Medicare risk market at the end of 2000 primarily as a result of
the provider contract termination. The product was offered in three Missouri
counties in the metropolitan St. Louis area and, through the end of 2000, had
contractual agreements with approximately 1,300 physicians and 11 hospitals. Our
subsidiary, BlueCHOICE, shared risk with a large St. Louis provider group for
the majority of the membership that was enrolled in this product. That provider
declined to continue to participate in the product under the risk arrangement.
The Blue Horizons Medicare HMO was a Medicare+Choice plan as authorized by the
Balanced Budget Act of 1997. As of December 31, 2000, there were approximately
2,100 members enrolled in the Blue Horizons Medicare HMO product.


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MEDICARE SUPPLEMENT PRODUCT GROUP

We offer Blue Cross and Blue Shield branded Medicare supplement coverage to
individuals eligible to enroll in Medicare for medical expenses in excess of the
coverage limitations of Medicare. The products are marketed under the "Blue
Horizons" banner of Medicare products and include a 24-hour nurse assist line
and value-added services such as discount dental, vision, hearing, and pharmacy
programs. As of December 31, 2000, we had approximately 49,300 members enrolled
in our Medicare supplement products.

MANAGED INDEMNITY PRODUCT GROUP

With the exception of a short-term medical product, we no longer sell managed
indemnity products, but we continue to renew coverage for those members who are
enrolled in the managed indemnity programs. Our Blue Cross and Blue Shield
branded managed indemnity products include fee-for-service indemnity benefits
that include review and coordination of health care services used by members and
other cost-management measures, but do not require coordination of care through
a primary care physician or use of network providers. These products include
certain cost-management features, such as the use of deductibles, coinsurance,
pre-admission certification, concurrent review, large case management and
retrospective review. As of December 31, 2000, there were approximately 1,500
members enrolled in our managed indemnity products.

SPECIALTY PRODUCTS

We offer Blue Cross and Blue Shield branded pharmacy benefits, dental care,
vision care, behavioral health care and health care education to supplement our
medical coverage products. We use Express Scripts, Inc., a pharmacy benefits
manager, to assist with the management of the pharmacy benefits program. We
continue our efforts to manage rising prescription drug costs while offering
members freedom of choice. We provide a three-tier copayment program that
encourages physicians and members to use the most cost-effective drugs within a
drug class. The program includes a higher member copayment for brand name drugs
that are included on our preferred drug list as compared to their generic
equivalents. If a generic drug is available, the member pays the generic
copayment plus the difference in cost between the generic drug and the branded
drug. If no generic is available, the member pays the preferred brand copayment,
which is higher than the generic copayment. The program also allows for the
purchase of brand name drugs that are not included on our preferred drug list by
requiring an even higher (third-tier) member copayment. As of December 31, 2000,
approximately 95% of our members with a pharmacy benefit underwritten by us
participated in the three-tier copayment program. We use Magellan Health
Services, Inc. to handle the review, management and coordination of behavioral
health care for all of our mental health and substance abuse programs. We do not
separately report membership related to specialty products in our total
underwritten membership because these members are already counted as members of
our other underwritten products.

SELF-FUNDED PRODUCTS

Our subsidiary HealthLink is our regional non-Blue Cross and Blue Shield branded
managed health care organization that serves the states of Missouri, Illinois,
Iowa, Arkansas, Indiana, Kentucky and West Virginia. HealthLink is not an
insurance company and does not assume any underwriting risks. HealthLink
provides provider network contracting services and review, management and
coordination of health care services used by members, and a 24-hour health
information hotline. These services are provided primarily to employers that
fund their own health plans, commercial insurers, unions and Taft-Hartley
Trusts.


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HealthLink also derives its revenues from providers for support and
administrative services.

HealthLink had 893,800 group health PPO administrative services members and
745,200 workers' compensation members as of December 31, 2000. In addition,
HealthLink owns HealthLink HMO, Inc., a Missouri corporation with approximately
182,300 members as of December 31, 2000, located primarily in the greater St.
Louis area. HealthLink HMO is a state-qualified HMO licensed in Missouri,
Illinois and Arkansas that provides health care services for a predetermined,
prepaid periodic fee to enrolled subscriber groups and individuals of certain
insurance companies. The risk associated with the services provided by
HealthLink HMO for such enrolled subscriber groups and individuals of the
certain insurance companies is fully reinsured by the certain insurance
companies. Of HealthLink's 893,800 group health PPO administrative services
members, 29,500 are enrolled in our underwritten Illinois PPO products.
Approximately 56% of HealthLink's PPO members, 63% of HealthLink's HMO members
and 89% of HealthLink's workers' compensation members reside in Missouri. The
remaining members reside in the six contiguous states of Arkansas, Illinois,
Indiana, Iowa, Kentucky and West Virginia.

We also offer our Alliance PPO, AllianceChoice POS and BlueCHOICE HMO and POS on
a self-funded basis. As of December 31, 2000, we had on a self-funded basis
approximately 47,100 Alliance PPO members, approximately 1,300 AllianceChoice
POS members, and approximately 7,300 BlueCHOICE HMO and POS members. We process
and pay claims for these self-funded members and receive claims reimbursement
from the self-funded group. In addition, we offer PPO network rental services to
approximately 53,100 members. These network rental arrangements allow employers
to utilize our network to realize savings through our provider arrangements,
while arranging for claim payment directly from their own resources.

We participate with other Blue Cross and Blue Shield plans to provide health
care benefits through BlueCard(R) PPO for members living or traveling within our
Blue Cross and Blue Shield service area who are employed by companies
headquartered in other plans' service areas. BlueCard(R) PPO utilizes a standard
processing system used by all plans called the Inter-Plan Teleprocessing
Service, which allows members to receive care in any participating plan's
service area. Under standard financial arrangements, each participating plan is
paid an administrative fee for providing local processing services and an access
fee for providing access to its provider network by the plan that has the
enrolled membership. As of December 31, 2000, we had 64,000 non-risk members
living in our Blue Cross and Blue Shield service area that participate in the
BlueCard(R) PPO programs of other Blue Cross and Blue Shield health plans.

We act as a participating plan providing health benefits within our Blue Cross
and Blue Shield service area for members of the national Blue Cross and Blue
Shield accounts. Participation in large national accounts is processed on the
National and Special Accounts system, which is a centralized processing system
used to administer health benefit programs by some plans for large national
account arrangements. We are paid fixed administrative fees, based on
membership, for providing network access, customer service and claims
processing. Any underwriting risk is maintained either by the self-funded group
or by the plan controlling the national contract. As of December 31, 2000, we
had approximately 51,200 non-risk members living in our Blue Cross and Blue
Shield service area enrolled in arrangements processed on the National and
Special Accounts system.

The EPOCH Group, L.C. is an equally owned joint venture between our company and
Blue Cross and Blue Shield of Kansas City. It was created in 1995 and combined
most of the respective organizations' then existing third-party administrator
businesses. EPOCH served over 300 businesses representing approximately 596,200
members primarily in the Midwest as of December 31, 2000. EPOCH's membership
includes 171,200 members whose employers are primarily located in our Blue Cross
and Blue Shield service area.


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We offer, in conjunction with our underwritten products, life insurance benefits
that are underwritten by two non-affiliated life insurance carriers. We receive
commissions from the life insurance carriers. For the year ended December 31,
2000, we received $3.5 million for providing this service.

SALES AND MARKETING

We market our products and services through a network of independent brokers and
our direct sales staff. Independent brokers and agents are compensated pursuant
to commission arrangements that vary depending on which of our products or
services are sold. Our direct sales staff is compensated through a combination
of base salary plus production and profitability incentives.

Our independent broker and agent network and direct sales staff market our
products and services to new customers and manage existing accounts to enhance
customer satisfaction and retention. Our marketing and sales efforts are
targeted at the following markets: individuals, small employers, which we define
as groups with 2 to 25 employees, emerging markets, which we define as groups
with 26 to 99 employees, and middle/strategic markets, which we define as groups
with 100 or more employees. For the year ended December 31, 2000, approximately
67% of our revenues were derived from sales to underwritten employer groups,
typically those with fewer than 100 employees, approximately 22% of our revenues
were derived from underwritten sales to individuals, and approximately 11% of
our revenues were from fees paid by self-funded employers and other groups,
typically those with more than 100 employees.

Our sales effort includes the use of a small group marketing unit that has been
successful in supporting sales to small group employers in an efficient and
timely manner. We are currently focusing our sales and marketing efforts on
larger employer groups, which have historically not been a strategic focus of
our company, in an effort to achieve a market share similar to that which we
enjoy in smaller groups.

We believe that significant growth opportunities exist within Missouri and
through continued expansion into new geographic markets. Our marketing strategy
for underwritten products includes leveraging our provider network, which we
believe is one of the broadest in Missouri. Our network was augmented in 2000 in
the central and southeast regions of Missouri, which we believe will result in
further growth opportunities. We also intend to seek continued growth from the
marketing of the Blue Cross Blue Shield Association's BlueCard(R) PPO Program
which allows members access to providers throughout essentially all of the
United States and 200 countries worldwide. Our marketing strategy for our
self-funded business will focus on expanding the sales of our HealthLink
products and services into new and existing markets by leveraging relationships
with unions, insurance carriers and self-funded employers.

We are focused on a pricing strategy which attempts to price our products and
services in a manner which fully covers current and anticipated changes to the
health care costs and operating costs, inclusive of targeted profits associated
with the benefit plan or services purchased.

MEDICAL MANAGEMENT

Our medical management program includes our Blue Print information project which
is designed to provide early detection of medical cost trends and variances,
population-based programs which are designed to manage medical costs associated
with certain conditions such as asthma and high risk pregnancies and the
Physician Group Partners Program(R) which is designed to establish long-term
business relationships with providers. With respect to our medical management
programs and our focus on client service, we have received accreditation from
the Utilization Review Accreditation Commission and the National Committee for
Quality Assurance as well as national recognition for best practices for asthma
management and the establishment of the St. Louis diabetes coalition program. We
believe that these accreditations and recognitions provide us with a competitive
advantage in our markets.



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Our Blue Print information project is designed to provide consistent and
standardized electronic views of medical cost performance organized around the
underlying drivers that we can proactively address and correct. Those drivers
include provider contracting, medical policy, procedures and utility, as well as
benefit design. The multi-phased approach to the project delivers basic
information contained in our propriety data warehouse using standard medical
cost categories and provides finely segmented data that can be used to identify
cost trends. The eventual design is targeted to produce exception-based
reporting.

Our population-based care management and disease management programs attempt to
identify members that have or are at risk to develop high cost chronic and
catastrophic diseases and conditions. These members typically have high
utilization of health care services, which can result in significant costs.
We believe that 20% of our membership accounts for 90% of the total medical
costs we incur. By identifying high risk members and enrolling them in
specialized programs involving patient education, lifestyle modification
including changes in diet and intensive care management, we seek to improve
patient satisfaction, manage medical costs and improve medical outcomes. We plan
to expand these programs in 2001 to include diabetes, congestive heart failure
and oncology.

The Physician Group Partners Program(R) strives to increase collaborative
managed care initiatives with primary care physicians in BlueCHOICE's commercial
HMO and to provide those physicians with the opportunity to earn additional
compensation by improving patient satisfaction and improving performance levels
using nationally recognized health care industry standards while effectively
managing the trend of costs for health care benefits. We recognize the
physician's expertise in managing patient care, and we want to facilitate
physicians' autonomy in the practice of medicine by offering physician groups
the information needed to manage the delivery of health care services while
achieving high levels of patient satisfaction. As a result, our philosophy is to
manage provider networks rather than to manage members. Our Physician Group
Partners Program(R) establishes long term business relationships with
physicians. This program, in which 35% of the primary care physicians in our HMO
network participate, has already resulted in reduced intervention and oversight
of physicians, enhanced member satisfaction and improved quality measure scores.
Since inception, physicians participating in our Physician Group Partners
Program(R) have collectively managed the medical care cost trend 50% lower than
non-participating Physician Group Partners Program(R) physicians. We launched
the specialist model of the Physician Group Partners Program(R) in our PPO
network in October 2000 and, as of March 2001, we have contracted with 10
medical specialty group practices in the program. Initial specialties to be
included in the specialist model are internal medicine/family practice,
pediatrics, OB/GYN, cardiology, orthopedics and general surgery. Like the
current program for HMO physicians, the program for our PPO specialist program
includes patient satisfaction and quality measures.

In addition to the Physician Group Partners Program(R), we have started other
initiatives to enhance our business relationships with the physician community.
These initiatives are the Physician Consultative Committee, Individual
Consideration Committee, and the Office Management Council. The focus of these
groups is to work in collaboration with our business partners to develop
policies, discuss initiatives and communicate issues. The Physician Consultative
Committee is comprised of physician community leaders and focuses on a variety
of business processes and community issues. The Individual Consideration
Committee, comprised of physicians selected from the St. Louis and state medical
societies, focuses on facilitating claim issue resolutions. The office managers
of leading physician practices serve on the Office Management Council and deal
with issues related to the operational relationship between physician practices
and our company. All of these committees have received acknowledgement for their
innovative approach to working together to improve the organization's business
relationships.



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In addition to these programs, a major focus of our service efforts has been to
reduce the number of rules and processes in order to simplify member access to
health care and reduce unnecessary administrative costs. We require
precertification for all inpatient admissions, other than normal childbirth
deliveries, but we have eliminated precertification requirements on hundreds of
outpatient procedures. Currently, the 11 outpatient procedures that still
require precertification are generally those where experience suggests, based on
recognized standards of care, that members may be at risk for over-utilization
of such procedures.

INFORMATION TECHNOLOGY

We believe that managing health care benefits will continue to be dependent on
readily accessing both member and provider medical information at a detailed
level that provides real-time analytical support. Our primary transaction
functions, including enrollment, membership maintenance, billing, rating,
medical management, provider payments and customer service, are currently
processed by a combination of legacy applications and newer software packages.
As part of our information and operations strategy project, in 1999 we completed
a successful migration of our HMO product line from an older, transaction based
system to Facets(R), a commercially available client server software package.
Cumulatively, since 1995, we have incurred total expenditures of $68.6 million
on this information and operations strategy project, of which $57.3 million was
capitalized. Substantial efforts in the year 2000 were focused on replacing
server and storage hardware in order to expand capacity and increase processing
power, redesigning batch schedules to decrease processing time, improving
electronic claim processing percentages, and product migration analysis. Also,
production hours and locations were expanded during the year. We believe that
expanded production hours and locations improve service to our clients and
increase flexibility for our employees. We also augment our processing
applications with other technologies such as:

-        electronic data interface for claim capture;

-        imaging for claim storage and workflow;

-        middleware for inter-platform communication and routing logic; and

-        a robust data network to support our personal computer based
         workstations and remote locations.

We have a data warehouse that allows us to package and analyze archived data
from the past five years to make critical business decisions concerning pricing,
provider negotiations, network performance, performance based reimbursement,
physician quality indicators and medical cost drivers. We utilize data gathered
annually from more than 8.6 million claims, 37,000 provider IDs and nearly eight
million member months. We received international best practices recognition for
information technology from the Data Warehouse Institute for our data warehouse.

In 2001, our technology strategy continues to include electronic commerce
through the internet. We began these efforts in 1999 by completing the redesign
of our current internet web site as well as increasing links to other related
internet web pages. Overall, we have focused our effort on increasing access to
standard information, providing transaction functionality for high volume
processes and increasing connectivity with targeted clients. In 2001, we intend
to roll out a broad array of basic transactions targeted to providers, members
and group leaders hosted on our website rather than through a portal solution.
These basic transactions include inquiry capabilities for claims and
eligibility, update capabilities for membership information, changes to primary
care physician selections, submission and inquiry for referrals and
precertifications, requests for new ID cards, and basic benefits information,
among others. We expect future features will include premium billing
enhancements, claim submission and online claim adjudication. These capabilities
support our goals of improving service and retaining




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members.

The Health Insurance Portability and Accountability Act of 1996 is a compendium
of government regulations, a part of which focuses on the security and privacy
of a member's transactions with health care providers and payers, as well as the
standardization of certain electronic transaction code sets and provider
identifiers. In 2000, we formulated our technical approach to the requirements
for standard transaction and code sets, and we are in the process of developing
a central translator/data mapping/routing/logging functionality for all covered
inbound and outbound transactions whether handled via batch, for example through
clearinghouse files, or real time, for example through the internet. We have
also identified and contacted transaction trading partners in order to capture
requirements and estimate future testing timelines. In anticipation that the
proposed security regulations will be made final in a form close to those
proposed, we have already constructed a security workplan, and we are
participating in pilot projects with the Blue Cross Blue Shield Association to
test public key encryption methods.

PROVIDER ARRANGEMENTS

The health care services received by our members are provided primarily by
physicians, hospitals and ancillary health care providers in our provider
networks. We have multiple managed care provider networks, which include our PPO
and HMO networks. In selecting providers for our networks, we first consider
network needs, such as the geographic locale of the provider and, when
applicable, the appropriateness of the provider's specialty in the particular
region for that network, as well as the convenience and accessibility for our
membership. In selecting physicians, we also evaluate the physician's
credentials and experience, including licensing status, malpractice claims
history and hospital affiliations. Likewise, in selecting hospitals, we consider
qualifications and experience, including licensing status, malpractice claims
history and accreditation status. In addition, we have arrangements with
numerous entities and individuals to provide a variety of ancillary health care
services, including dental and behavioral health services, pharmacy benefit
management and vision and hearing care. With the exception of the provider
networks utilized by our subsidiaries, HealthLink and HealthLink HMO, we
coordinate our contractual and other arrangements with health care providers
through a centralized effort generally handled by our Network Management
Department. HealthLink and HealthLink HMO coordinate their provider arrangements
through a separate Network Management Department at HealthLink.

Our provider networks are monitored regularly in order to identify ways to
manage medical cost trends, improve provider relationships and enhance member
satisfaction. Through network monitoring and benefit designs that provide
greater benefits when members utilize our contracted providers, we seek to
reduce the use of out-of-network providers that are not subject to our provider
reimbursement methodologies and performance evaluations.

Our large plan membership often enables us to negotiate with providers for
favorable discounted rates. Our managed care contracts with providers
incorporate utilization management and quality improvement. We generally
contract with network physicians to pay them either a fixed fee per member
monthly amount (known as a capitation payment) or on the basis of a fixed fee
schedule which is generally lower than standard billing rates. All of the PPO
and POS physicians are compensated on the basis of a fixed fee schedule.
Virtually all of the primary care physicians in our HMO provider networks are
compensated on a capitated basis, while most specialist physicians are
compensated on the basis of a fixed fee schedule. Hospital contracts generally
provide for inpatient per diem payments (that is, a fixed fee schedule where the
daily rate is based on the type of service), which provide for a reimbursement
that is below the hospital's standard billing rates for an inpatient stay. We
are able to obtain prices for




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<PAGE>   14
hospital and physician services at a discount to standard billing rates because
of the benefit design features included in our benefit plans that encourage
members to obtain services from our contracted providers. Hospital per diem
rates are generally negotiated on an annual or multi-year basis. Physician fee
schedule rates are adjusted from time to time.

COMPETITION

The managed care industry is highly competitive, both nationally and in our
market area. Participants compete for members primarily on the basis of price,
scope and design of benefits, access to providers and reputation of the plan
sponsor and participants. We also compete with other managed care organizations
for contracts with hospitals, independent physicians, physician groups and other
providers.

In the St. Louis metropolitan area, and certain other regions in Missouri, the
managed care market is highly competitive, with a number of established
competitors offering a variety of benefit plans. The penetration of managed
health care is substantially less in other regions of Missouri where we compete
with traditional indemnity plans and smaller networks. Our major competitors
include commercial insurance carriers, other HMOs and PPOs as well as provider
service organizations, third-party administrators, utilization review companies,
and others, many of which are operated as part of a regional or national
network. Our three largest competitors in Missouri are UnitedHealth Group, Inc.,
Aetna, Inc., and Coventry Health Care, Inc.

BLUE CROSS AND BLUE SHIELD LICENSES

We are a licensee of the Blue Cross Blue Shield Association. The Blue Cross Blue
Shield Association is a national trade association of Blue Cross and Blue Shield
licensees which strives to promote and preserve the integrity of the Blue Cross
and Blue Shield names and service marks as well as provide certain coordination
among plan and provider services. As a licensee of the Association, we and some
of our subsidiaries have the exclusive right to use the Blue Cross and Blue
Shield names and service marks for all of our products and their products in 85
of the 115 counties in Missouri, which includes four of the five largest cities
in Missouri, but does not include Kansas City.

The licenses require us to pay an annual fee to the Blue Cross Blue Shield
Association equal to total association expenses allocated to our members based
upon enrollment and premium. Each Association licensee is an independent legal
organization and is not responsible for obligations of other Association member
organizations. We do not have the right to use the Blue Cross and Blue Shield
names and service marks outside of our Blue Cross and Blue Shield service area,
except in certain limited circumstances.

Our license agreements require us to pay the Blue Cross Blue Shield
Association a specific amount upon termination of the license agreements,
subject to certain limited exceptions. The amount payable upon termination of
our license agreement is equal to the product of $25 multiplied by the number of
our members receiving products or services sold or administered under the Blue
Cross or Blue Shield names or service marks, subject to reduction to the extent
the payment of the fee would cause us to fall below certain capital requirements
established by the Association.

The Blue Cross Blue Shield Association could terminate our license agreements if
we do not satisfy its financial and service performance requirements or if other
events described in the license agreements, some of which are outside of our
control, occur including, but not limited to:

-  violation of the ownership limitations contained in our certificate of
   incorporation;

-  termination of the voting trust and divestiture agreement before The Missouri
   Foundation For Health's ownership of our common stock falls to less than 5%;

-  the acquisition of our company without the prior consent of a majority of
   the other disinterested licensees of the Association and a majority of the
   then current weighted vote of the other disinterested licensees of the
   Association;

-  violation of the Foundation's divestiture deadlines; or

-  determination by the Association that fewer than 80% of our directors are
   independent.

Our certificate of incorporation and bylaws include various provisions required
by the Blue Cross Blue Shield Association for its for-profit licensees.
These provisions are designed to protect the independence of the Association's
for-profit licensees from any single stockholder.


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<PAGE>   15

REGULATION

We are subject to extensive government regulation of our products and services,
which varies from jurisdiction to jurisdiction and is subject to change. We and
our subsidiaries are primarily subject to the insurance laws and regulations of
Missouri and Illinois, the insurance laws and regulations of the other
jurisdictions in which we and our subsidiaries are licensed or authorized to do
business and certain federal laws and regulations. These insurance laws and
regulations generally give state and federal regulatory authorities broad
supervisory, regulatory and administrative powers over insurance companies and
insurance holding companies. This regulation is intended primarily for the
benefit of the policyholders of the insurance companies.

INSURANCE HOLDING COMPANY REGULATION

We are subject to regulation as a member of an insurance holding company.
Missouri and Illinois insurance holding company laws and regulations generally
require us to file certain reports with the respective departments of insurance
describing our capital structure, ownership, financial condition, certain
intercompany transactions and general business operations. Missouri and Illinois
insurance holding company laws and regulations require us to obtain prior
regulatory approval or provide prior notice of certain material intercompany
transfers of assets as well as certain transactions with our subsidiaries.

Additionally, the Missouri and Illinois holding company laws and regulations
restrict the ability of any person to obtain control of an insurance company or
health maintenance organization without prior regulatory approval. Under those
laws and regulations, the acquisition of control of an insurer or a person
controlling an insurer, including us and our insurance subsidiaries, requires
the prior approval of the director of insurance. "Control" is generally defined
as the direct or indirect power to direct or cause the direction of the
management and policies of a person and is presumed to exist if a person
directly or indirectly owns or controls 10% or more of the voting securities of
another person.

INSURANCE COMPANY REGULATION

State regulators regulate and supervise our subsidiaries, Healthy Alliance Life
Insurance Company, BlueCHOICE, HealthLink HMO, and RightCHOICE Insurance Company
in the states where they are licensed to conduct business. Regulatory
authorities exercise extensive supervisory power over insurance companies and
HMOs in the following areas, among others :

-        licensing;

-        the amount of reserves that must be maintained;

-        the approval of their forms and policies used;

-        the nature of, and limitation on, their investments;

-        the periodic examination of their operations;

-        the form and content of annual statements and other reports required to
         be filed on their financial condition;

-        the establishment of their capital requirements; and

-        the payment of dividends.

Our insurance company and HMO subsidiaries must file periodic statutory
financial statements in each jurisdiction where they are licensed. In addition,
the department of insurance in each state where they are licensed examines them
from time to time.


                                       15
<PAGE>   16

RISK-BASED CAPITAL REQUIREMENTS

States in which our insurance company and HMO subsidiaries are licensed to do
business have enacted the statutory risk-based capital requirements adopted by
the National Association of Insurance Commissioners. The National Association of
Insurance Commissioners designed the formula for calculating risk-based capital
requirements to take into account asset risks, insurance risks, interest rate
risks and other relevant risks of an insurer's business. Under these laws, life
and health insurance companies and HMOs must report their risk-based capital
level as of the end of the previous calendar year. In addition, the Blue Cross
Blue Shield Association requires our insurers and HMOs offering branded products
to meet more stringent risk-based capital requirements than are required under
the National Association of Insurance Commissioners' risk-based capital
requirements.

The total adjusted capital of our regulated insurance subsidiaries exceeds the
minimum risk-based capital requirements, including the requirements of the Blue
Cross Blue Shield Association. From time to time, we have issued surplus notes
to our regulated insurance subsidiaries so that they can meet their growing
capital needs. We believe that the risk-based capital requirements do not have
any immediate impact upon those companies or their operations. If the risk-based
capital requirements are not met in the future, the resulting financial
implications could have a material effect upon their operations and potentially
increase regulatory oversight.

The National Association of Insurance Commissioners has adopted the Codification
of Statutory Accounting Principles, which replaces the manual of Accounting
Practices and Procedures adopted by the National Association of Insurance
Commissioners that was in effect through December 31, 2000. The National
Association of Insurance Commissioners considers from time to time amendments to
the Codification of Statutory Accounting Principles. The Codification of
Statutory Accounting Principles provides interpretive guidance for certain
statutory accounting principles, changes statutory accounting principles in some
areas and requires the filing of new insurance reports. The cumulative effect of
these changes will be first recorded as a direct adjustment to the statutory
surplus of our insurance subsidiaries on March 31, 2001. We have not estimated
the potential effect of the Codification of Statutory Accounting Principles and
all amendments. We expect, however, that our insurance subsidiaries' statutory
surplus after adoption will continue to be in excess of the regulatory
risk-based capital requirements as well as the Blue Cross Blue Shield
Association requirements.

RESTRICTIONS ON DIVIDENDS (FOR INSURANCE SUBSIDIARIES)

The insurance laws of Missouri restrict the payment of dividends by insurance
companies, including HMOs, in a holding company system. Missouri law limits the
dividends that a Missouri life insurance company may pay without the approval of
the director of insurance to an amount which, together with the amount of
dividends and distributions paid by the insurance company during the immediately
preceding 12 months, does not exceed the greater of: (1) 10% of the insurance
company's surplus as regards policyholders as of the preceding December 31, or
(2) the insurance company's net gain from operations for the 12-month period
ending as of the preceding December 31, as determined in accordance with
statutory accounting principles.

For all other Missouri insurers, including HMOs, the insurance holding company
law of Missouri limits the dividends that a company may pay without the approval
of the director of insurance, to an amount which, together with the amount of
dividends and distributions paid by the insurer during the immediately preceding
12 months, does not exceed the lesser of: (1) 10% of the insurer's surplus as
regards policyholders as of the preceding December 31, or (2) the net investment
income for the 12-month period ending as of the preceding December 31, as
determined in accordance with statutory accounting principles.

The insurance laws of Illinois restrict the payment of dividends by insurance
companies, including HMOs, in a holding company system. Illinois law limits the
dividends that an Illinois insurance company




                                       16
<PAGE>   17
may pay without the approval of the
director of insurance to an amount which, together with the amount of dividends
and distributions paid by the insurance company during the immediately preceding
12 months, does not exceed the greater of: (1) 10% of the insurance company's
surplus as regards policyholders as of the preceding December 31, or (2) the
insurance company's net income for the 12-month period ending as of the
preceding December 31, as determined in accordance with statutory accounting
principles.

Under Missouri and Illinois insurance holding company laws, the company's
surplus as regards to policyholders following any dividends or distributions to
security holders or affiliates must be reasonable in relation to the company's
outstanding liabilities and adequate to its financial needs.

PPO REGULATION

In connection with its PPO services, HealthLink has obtained a certificate of
authority from the departments of insurance in certain states where it operates.
HealthLink also is subject to various statutory requirements including provider
and client contracting requirements and notice and reporting requirements.

HMO REGULATION

BlueCHOICE and HealthLink HMO are subject to health care related regulation by
both state and federal regulatory authorities. BlueCHOICE, as a federally
qualified HMO, is subject to regulation and review by the U.S. Department of
Health and Human Services and other federal authorities. In 1997, a
comprehensive managed care law, known as House Bill 335, became effective in
Missouri. This law, together with other state and federal laws, governs many
aspects of the operations of BlueCHOICE and HealthLink HMO, including:

-        procedures for managing utilization of health care services;

-        procedures for quality assurance;

-        enrollment requirements;

-        covered benefits;

-        relationships between the HMO and its members and health care
         providers; and

-        financial condition, including reserves and cash flow requirements.

THIRD-PARTY ADMINISTRATOR REGULATION

Our company and our applicable subsidiaries each have obtained a certificate of
authority from the departments of insurance in the various states in which they
operate in connection with providing certain benefit administration services.
These companies also are subject to various statutory requirements, including:

-        record-keeping and retention;

-        fiduciary obligations with respect to premiums collected;

-        limitations on commissions and fees; and

-        notice and reporting requirements.

Third-party administrator activities also are subject to the provisions of the
Employee Retirement Income Security Act of 1974, commonly known as ERISA.


                                       17
<PAGE>   18

UTILIZATION REVIEW REGULATION

Our company and HealthLink provide management, review and coordination of the
utilization of health care services. As required, our company and HealthLink
have registered with, or obtained a certificate of authority from, the
departments of insurance in the various states in which they operate in
connection with their utilization review services. They also are subject to
various statutory requirements, including notice and reporting requirements. Our
insured HMO and PPO programs in Missouri are also subject to comprehensive
medical management regulations contained in Missouri House Bill 335.

OTHER REGULATION

The Health Insurance Portability and Accountability Act of 1996, known as HIPAA,
and its regulations impose obligations for issuers of health insurance coverage
and health benefit plan sponsors. This law requires guaranteed health care
coverage for small employers having 50 or fewer employees and for individuals
who meet certain eligibility requirements. It also requires guaranteed
renewability of health care coverage for most employers and individuals. The law
limits exclusions based on preexisting conditions for individuals covered under
group policies to the extent the individuals had prior creditable coverage.

In addition, HIPAA authorized the Secretary of the United States Department of
Health and Human Services, known as HHS, to issue standards for the privacy and
security of medical records and other individually identifiable patient data.
HIPAA requirements apply to health plans, health care providers and health care
clearinghouses that transmit health information electronically. Regulations
adopted to implement HIPAA also require that business associates acting for or
on behalf of these HIPAA-covered entities be contractually obligated to meet
HIPAA standards.

Although HIPAA was intended ultimately to reduce administrative expenses and
burdens faced within the health care industry, we believe the law will initially
bring about significant and, in some cases, costly changes. HHS has released two
rules to date mandating the use of new standards with respect to certain health
care transactions, including health information. The first rule requires the use
of uniform standards for common health care transactions, including health care
claims information, plan eligibility, referral certification and authorization,
claims status, plan enrollment and disenrollment, payment and remittance advice,
plan premium payments and coordination of benefits, and it establishes standards
for the use of electronic signatures. The new transaction standards became
effective in October 2000, and we will be required to comply with them by
October 16, 2002.

Second, HHS has developed new standards relating to the privacy of individually
identifiable health information. In general, these regulations restrict the use
and disclosure of medical records and other individually identifiable health
information held or disclosed by health plans and other affected entities in any
form, whether communicated electronically, on paper, or orally, subject only to
limited exceptions. In addition, the regulations provide patients with
significant new rights to understand and control how their health information is
used. These regulations do not preempt more stringent state laws and regulations
that may apply to us. The privacy standards were issued on December 28, 2000.
Since issuing the standards, HHS has postponed the effective date of the final
privacy regulations to April 14, 2001, and provided for an additional comment
period. The compliance date is April 14, 2003.

We anticipate spending approximately $4 million to $5 million in 2001, of which
approximately $2 million to $3 million will be capitalized, in our efforts to
comply with HIPAA health care transaction code sets and provider indentifier
standards. We have not fully assessed the additional financial impact related to
full compliance with HIPAA, particularly the privacy and security standards, but
we believe that the financial impact could be material.

Our company and some of our subsidiaries have contracts with or provide services
in connection with the Federal Employee Program. Prime contractors and
subcontractors under this program are subject to extensive regulation. The
Office of Personnel Management, which contracts for the Federal Employee


                                       18
<PAGE>   19
Program, has extensive audit rights over both prime contractors and
subcontractors, including the rates charged.

ERISA regulates the services provided to certain employee health benefit plans.
ERISA is a complex set of laws and regulations generally enforced and
interpreted by the Department of Labor and Internal Revenue Service. Some of the
services we and our affiliates provide to employers with ERISA plans are subject
to ERISA. ERISA regulates and impacts the manner in which some of our services
are provided to these employers.

As a result of our current and prior ownership and leasing of real estate and
related activities, we are subject to a variety of federal, state and local laws
and regulations relating to environmental protection and health and safety.
Complying with these laws and regulations can involve considerable time and
expense, and we can become subject to significant fines and other liabilities
for non-compliance.

Under insolvency or guaranty association laws in most states, insurers licensed
in a state, including Healthy Alliance Life Insurance Company, RightCHOICE
Insurance Company and, in some states, HMO Missouri, Inc. and HealthLink
HMO, Inc., can be assessed for amounts paid by guaranty funds for policyholder
losses incurred by impaired or insolvent insurers. Most state insolvency or
guaranty association laws provide for assessments based upon the amount of
premiums received on insurance written within that state and, in some cases,
allocated only based on the line of business of insolvent or impaired insurers
causing the loss. There have been no assessments, other than minimal
administrative charges, in the past three years paid by our insurance
subsidiaries. We cannot estimate the amount and timing of any future assessments
that our insurance subsidiaries may be required to pay.

Missouri has a state health insurance pool, known as the Missouri Health
Insurance Pool, that provides major medical expense coverage for, in general,
certain high-risk Missouri residents who cannot obtain coverage or cannot obtain
coverage at standard rates. Missouri insurance companies and health maintenance
organizations, including our insurance and HMO subsidiaries, are required to be
members of the Pool and are assessed by the Pool to cover the cost of its
operation. Insurers (other than HMOs) are assessed based upon the insurer's
proportionate share of the aggregate premiums received for health insurance
written in Missouri and 110% of all claims paid under other Missouri insurance
arrangements (such as self-funded plans). HMOs are assessed in accordance with
an equitable formula based upon the value of services provided. While we are
responsible for a substantial portion of assessments under the Pool (because we
possess a large share of the managed health care market in Missouri), our
assessments to date have been insignificant to our overall results of
operations. However, we cannot assure you that assessments will not be
significant in the future.

RECENT AND PROPOSED HEALTH CARE REFORM LEGISLATION

In 1999, Illinois passed legislation known as the Managed Care Reform and
Patient Rights Act, which imposes a number of contracting requirements, quality
of care standards, grievance procedures, and access and continuity of care
requirements on insurance companies, HMOs, utilization review organizations and
PPOs. Many of these requirements are similar to the requirements of Missouri
House Bill 335, which already applies to our business. Illinois also enacted new
small group reform legislation for employer groups of two to 50 employees.

As noted above, the U.S. Department of Health and Human Services issued final
privacy rules subject to an additional comment period, and proposed security
standards, which, if they become effective in the form issued or proposed, will
impose privacy and security requirements with respect to a member's transactions
with health care providers and payors. Other recent federal legislation includes
the Gramm-Leach-Bliley Act, which generally requires insurers to provide
affected customers with the opportunity to "opt out" of any disclosure before
the insurer shares non-public personal information with a non-affiliated third
party.

The federal and state governments continue to enact and seriously consider many
legislative and regulatory proposals that have impacted, or would materially
impact, various aspects of the operations and business of our company and our
subsidiaries. A number of patients' bill of rights proposals have been made
which would, if they became law, impose limits on the methods of operation for
group health plans and health insurance issuers, limit the ability of group
health plans and health insurance issuers to define medical necessity for
purposes of coverage and permit plaintiffs to sue group health plans and health
insurance issuers in state courts for coverage determinations and could impose
additional restrictions or obligations on our operations.

We are uncertain whether we would be able to recoup, through higher premiums or
other measures, the increased costs caused by any new legislation or regulation
or any court or regulatory decision that expands or reduces the interpretation
or application of existing statutes and regulations, for example, decisions that
increase the responsibilities we and our subsidiaries have under ERISA or reduce
the scope of this law's preemption. We cannot provide any assurances that our
company or our subsidiaries will be able to obtain or maintain required
governmental approvals or licenses or that any current or proposed federal and
state legislation or other regulatory reform imposed on us and our subsidiaries
will not have a material adverse effect on our and their business or results of
operations in the future.

EMPLOYEES

We employed approximately 2,155 employees, including 550 HealthLink employees,
as of December 31, 2000, compared to 1,985 employees, including 510 HealthLink
employees, as of December 31, 1999. None of our employees is subject to a
collective bargaining agreement. We believe that our employee relations are
good.





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<PAGE>   20
OTHER BUSINESS

Our other business segment consists of commercial real estate owned by our
subsidiaries. Real estate includes a 425,057 square foot office building of
which 313,017 square feet serves as our corporate headquarters with the
remaining square footage leased to two non-affiliated tenants as of December 31,
2000. Our subsidiaries also own a 73,211 square foot office building, which is
approximately 95% leased to non-affiliated tenants, a parking garage and surface
parking lots, all of which are contiguous covering approximately three and
one-half city blocks in downtown St. Louis, Missouri.

REORGANIZATION

On November 30, 2000, our predecessor, RightCHOICE Managed Care, Inc., a
Missouri corporation we refer to as "Old RightCHOICE," and its parent
corporation, Blue Cross and Blue Shield of Missouri, completed their
reorganization. The parties completed the reorganization as part of a settlement
agreement among the Attorney General of the state of Missouri, the Missouri
Department of Insurance, Blue Cross and Blue Shield of Missouri and Old
RightCHOICE. The reorganization and the related settlement agreement resolved
litigation between Blue Cross and Blue Shield of Missouri and Old RightCHOICE,
on the one hand, and the state of Missouri, on the other hand, over Blue Cross
and Blue Shield of Missouri's operation of Old RightCHOICE following the
organization of Old RightCHOICE in 1994.

The reorganization included the separate merger of each of Blue Cross and Blue
Shield of Missouri and Old RightCHOICE into our company.

In our merger with Old RightCHOICE:

-        each outstanding share of Old RightCHOICE class A common stock (which
         was publicly traded on the New York Stock Exchange) was converted into
         one share of our common stock;

-        the 14,962,500 issued and outstanding shares of Old RightCHOICE class B
         common stock (which Blue Cross and Blue Shield of Missouri owned
         immediately prior to the first step of the reorganization) were
         cancelled;

-        the one outstanding share of our common stock (which The Missouri
         Foundation For Health owned) was converted into 14,962,500 shares of
         our common stock; and

-        all outstanding stock options to acquire shares of Old RightCHOICE's
         class A common stock became stock options to acquire shares of our
         common stock on the same terms and conditions.

In connection with the reorganization, the state of Missouri established The
Missouri Foundation For Health in 2000 as a non-profit public benefit
corporation. The Foundation was organized to serve the needs of underinsured and
uninsured Missourians in our Blue Cross and Blue Shield service area. The
Foundation holds and is required to sell the shares of our common stock that it
received in the reorganization and use the proceeds for its non-profit purposes.
The Foundation is a Missouri non-profit public benefit corporation, exempt from
federal income tax as a social welfare organization pursuant to Section
501(c)(4) of the Internal Revenue Code. No officer, director or employee of our
company or our affiliates, predecessors or successors is permitted to serve as
an officer, director or employee of the Foundation.

As a result of the reorganization, The Missouri Foundation For Health received
14,962,500 shares of our common stock, representing approximately 80% of our
outstanding stock.





                                       20
<PAGE>   21
In connection with the reorganization, Blue Cross and Blue Shield of Missouri
also paid $12.78 million to The Missouri Foundation For Health in partial
satisfaction of claims by various parties, including the Missouri Attorney
General, the Missouri Department of Insurance and public interest advocacy
groups, that Blue Cross and Blue Shield of Missouri had a public purpose
obligation. Immediately after the reorganization, we paid $175,000 to the
Foundation in partial satisfaction of any obligation Blue Cross and Blue Shield
of Missouri may have had under Missouri law resulting from its conversion from a
non-profit non-stock health services corporation to a for-profit stock
corporation.

In connection with the reorganization, we entered into Blue Cross and Blue
Shield license agreements with the Blue Cross Blue Shield Association under
which the Blue Cross Blue Shield Association granted us the exclusive right to
use the Blue Cross and Blue Shield names and service marks for all of the
managed care products and services we offer in the 85 Missouri counties,
including the St. Louis, Missouri metropolitan area, that comprise our Blue
Cross and Blue Shield service area. Our license agreements contain a number of
requirements, including ownership limitations which provide that no
institutional investor may beneficially own 10% or more of the voting power of
our stock, no noninstitutional investor may beneficially own 5% or more of the
voting power of our stock, and no person or entity may beneficially own 20% or
more of our outstanding equity securities. Pursuant to an addendum to our
license agreements, The Missouri Foundation For Health is exempt from these
ownership limitations provided that it meets the divestiture requirements set
forth in the voting trust and divestiture agreement referred to below.

In connection with the reorganization, we also entered into a voting trust and
divestiture agreement, a registration rights agreement and an indemnification
agreement with the Foundation, each of which we describe below.

VOTING TRUST AND DIVESTITURE AGREEMENT

As part of our reorganization, we entered into license agreements with the Blue
Cross Blue Shield Association to use the Blue Cross and Blue Shield names
and service marks. The Blue Cross Blue Shield Association requires us to
impose limitations on the ownership of our stock in order to maintain our
independence from the control of any single stockholder or group of
stockholders.

The Missouri Foundation For Health's ownership of approximately 80% of our
outstanding shares of common stock following the reorganization would ordinarily
exceed the ownership limitations required by the Blue Cross Blue Shield
Association. The Blue Cross Blue Shield Association agreed to waive the
ownership limitations for the Foundation provided the Foundation agreed to the
terms of the voting trust and divestiture agreement described below.

Under the voting trust and divestiture agreement:

-        14,029,536 of the Foundation's shares of our common stock, which
         equaled approximately 75% of all of the outstanding shares of our
         common stock as of November 30, 2000, were deposited into a voting
         trust. These shares remain subject to the voting trust until the
         Foundation sells them or the trust terminates. The remaining 932,964
         shares of our common stock owned by the Foundation are not subject to
         the voting trust;

-        the trustee of the voting trust will vote our shares of common stock
         owned by the Foundation which are held in the voting trust for nominees
         for director as approved by, and on other matters as recommended or
         directed by, our board of directors, except that the Foundation will
         decide how to vote these shares on a merger or similar business
         combination proposal which, if consummated, would result in our then




                                       21
<PAGE>   22
         existing stockholders owning less than 50.1% of the resulting company.
         Unless initiated by our board of directors, the trustee may not vote
         for removal of any of our directors or any change to our certificate of
         incorporation or bylaws, may not nominate any candidate to fill any
         vacancy on our board of directors, may not call any special meeting of
         stockholders and may not take any action to subvert the voting
         requirements described above. The Foundation also may not nominate any
         persons to our board of directors and may not support, endorse or
         otherwise encourage the election of any person to our board of
         directors other than a person nominated by a majority of our
         independent directors and a majority of all of our directors;

-        the Foundation must sell the shares deposited in the voting trust so
         that it:

         --       owns less than 50% of our outstanding shares of common stock
                  by November 30, 2003, subject to a possible one-year
                  extension, and

         --       owns less than 20% of our outstanding shares of common stock
                  by November 30, 2005, subject to a possible two-year
                  extension.

These divestiture deadlines are subject to further possible extensions under
various circumstances described in the voting trust and divestiture agreement
with the approval of the Blue Cross Blue Shield Association.

-        the Foundation may dispose of our shares only in a manner that would
         not violate the ownership requirements contained in our certificate of
         incorporation and the other agreements we have with the Foundation
         (described below). The Foundation also may not acquire beneficial
         ownership of any more of our shares, unless it receives the shares in a
         stock split or other similar transaction;

-        if the Foundation fails to meet a divestiture deadline, we are entitled
         to arrange for the sale of our shares that the Foundation failed to
         sell and pay the proceeds received in the sale to the Foundation, after
         deducting any expenses incurred by us. Until sold, the trustee of the
         voting trust will vote these shares as described above, except that, on
         any change of control proposal approved by our board of directors and
         submitted to our stockholders for approval, the trustee will vote these
         shares in the exact proportion our stockholders vote all shares of our
         common stock not held in the voting trust;

-        if we declare and pay dividends on shares of our common stock, the
         Foundation will receive all cash dividends paid on shares held in the
         voting trust, after the trustee deducts its fees and expenses. Any
         stock dividends paid on our shares of common stock held in the voting
         trust will be subject to the voting trust as if originally deposited in
         the voting trust;

-        the Foundation may not solicit or encourage inquiries or proposals with
         respect to, or provide any confidential information to or have any
         discussions, meetings or other communications with, a person relating
         to a merger, tender offer or other business combination, involving our
         company. The Foundation, however, may have discussions with the
         counter-party to a business combination transaction after our board of
         directors submits the transaction to our stockholders for approval and
         may have discussions with any person or entity concerning the sale of
         our common stock as permitted by the voting trust and divestiture
         agreement and the registration rights agreement;

-        the Foundation may not join any litigation that alleges that any of
         the provisions of our certificate of incorporation or bylaws are not
         enforceable, that our board of directors should not enforce the
         provisions of our certificate of incorporation or bylaws in any
         particular case or circumstance or that our board of directors should
         approve or disapprove any business combination transaction involving
         our company, but the Foundation may join any litigation that alleges
         that our board of directors should solicit business combination
         transactions involving our company or should initiate a bidding process
         seeking proposals to acquire all of our outstanding stock;

-        for so long as the Foundation owns at least 20% of the outstanding
         shares of our common stock, we must consult with the Foundation before
         soliciting, or upon receiving, a business combination proposal in which
         our then existing stockholders would own less than a majority of the
         outstanding shares of the resulting entity if the proposal were
         consummated; and

-        the voting trust terminates when the Foundation owns less than 5% of
         our issued and outstanding shares of capital stock.

REGISTRATION RIGHTS AGREEMENT

The registration rights agreement gives The Missouri Foundation For Health the
right to require us to register with the Securities and Exchange Commission the
sale of the Foundation's shares of our common stock so the Foundation may
satisfy the divestiture deadlines contained in the voting trust and divestiture
agreement without having to solely rely on private or other nonregistered sales.





                                       22
<PAGE>   23
Under the registration rights agreement:

-        we will register with the Securities and Exchange Commission the
         Foundation's shares of our common stock for sale to the public when
         requested by the Foundation, or, subject to various exceptions, when we
         register shares of our common stock for a public offering and the
         Foundation requests that its shares be included in the registration.
         The Foundation's demand registration rights last so long as the
         Foundation owns shares of our common stock. In order to minimize the
         disruptive effect of these registrations on us and the market for our
         common stock, we are not required to file a registration statement for
         shares the Foundation desires to sell if:

         --       we previously registered shares of our common stock at the
                  request of the Foundation at any time during the immediately
                  preceding 180-day period;

         --       we previously registered shares of our common stock at the
                  request of the Foundation at any time during the calendar year
                  in which the Foundation made a demand;

         --       we previously effected a registration of shares of our common
                  stock for sale by us during the preceding 120 days, other than
                  shares registered pursuant to acquisitions, employee benefit
                  plans or dividend reinvestment or similar plans;

         --       the amount of our common stock the Foundation seeks to
                  register has a market value of less than $30 million, unless
                  the shares are all of the remaining shares of our common stock
                  the Foundation owns; or

         --       we determine in good faith that a demand registration would
                  materially interfere with a previously announced business
                  combination transaction in which we intend to issue shares of
                  our common stock, or would result in the premature disclosure
                  of any pending development involving our company, in which
                  case the agreement does not require us to file a demand
                  registration for a 120-day period.

-        we have the option, subject to various conditions, to purchase the
         Foundation's shares of our common stock at a price based upon the
         market value of our stock at the time of purchase:

         --       on an ongoing basis after the Foundation owns less than 50% of
                  our outstanding shares, or

         --       whenever the Foundation exercises its demand registration
                  rights;

-        we have a right of first refusal to purchase the Foundation's shares of
         our common stock at the price agreed to between the Foundation and a
         qualified investor whenever the Foundation desires to sell the shares
         in a private transaction to the qualified investor;

-        the Foundation may not sell any shares of our common stock that it owns
         pursuant to Rule 144 under the Securities Act until it has received at
         least $50 million from the sale of our common stock to purchasers that
         are not its affiliates. Any sales pursuant to Rule 144 must comply with
         our certificate of incorporation, the registration rights agreement and
         the voting trust and divestiture agreement. Under Rule 144, the amount
         of stock that a party can sell in any three month period is limited,
         and the party can sell the stock only in specified unsolicited broker
         transactions or transactions with a market maker;

-        we will pay all registration expenses in connection with a demand
         registration or a piggy-back registration by the Foundation, except for
         the Foundation's legal fees, any underwriting discounts or commissions
         or transfer taxes; and

-        the Foundation will, if required by us, sell some of our shares it owns
         in an underwritten public offering within six months after the
         reorganization if we and the Foundation agree on the number of shares
         the Foundation will sell and the other terms of the offering, and we
         may also offer shares in that offering. Otherwise, we have agreed not
         to file a registration statement for the sale of shares by us until
         May 30, 2001 without the consent of the Foundation.





                                       23
<PAGE>   24
INDEMNIFICATION AGREEMENT

The Missouri Foundation For Health agreed in the indemnification agreement to
indemnify us and our affiliates from any income tax liabilities that we or they
may incur as a result of the reorganization. The Foundation also agreed to
indemnify us and our subsidiaries and affiliates and our officers, directors,
agents, employees and independent contractors against claims both arising out of
or related to:

-    either the reorganization or the events that gave rise to the litigation
     between Blue Cross and Blue Shield of Missouri and the state of Missouri;
     and

-    either Blue Cross and Blue Shield of Missouri's status as a mutual benefit
     or public benefit corporation under Missouri law or the ownership or rights
     to the assets, surplus or equity of Blue Cross and Blue Shield of Missouri
     or any subsidiary or affiliate of Blue Cross and Blue Shield of Missouri.

The Foundation is not obligated to provide indemnification to us and the other
indemnified parties on account of any conduct that a court finally adjudges to
have been knowingly fraudulent, deliberately dishonest or willful misconduct.

In connection with the reorganization, we agreed to keep in place for a period
of six years the directors' and officers' liability insurance maintained by Blue
Cross and Blue Shield of Missouri and Old RightCHOICE, or comparable substitutes
acceptable to the Foundation. Under the indemnification agreement, the
Foundation must reimburse us promptly upon request for the premiums we pay to
maintain in effect the required insurance related to Blue Cross and Blue Shield
of Missouri. If we fail to maintain the insurance policies as required, the
Foundation will not be obligated to indemnify against losses that the insurance
policies would have otherwise covered.

The indemnification agreement requires that the Foundation must maintain a net
worth of not less than $85,136,625 for six years following the filing by Blue
Cross and Blue Shield of Missouri of its federal income tax return for the year
2000. However, the Foundation's net worth may not be sufficient in amount, or
sufficiently liquid, to permit the Foundation to effectively discharge its
indemnification obligations. Moreover, the Foundation might contend its
indemnification obligation is not valid under law, and our attempts to enforce
this obligation might be unsuccessful.

The indemnification agreement lasts for as long as the applicable statutes of
limitation related to matters for which the Foundation has agreed to provide
indemnification last. Until the indemnification agreement terminates, the
Foundation must maintain its status as a tax-exempt organization under Section
501(c)(4) of the Internal Revenue Code and may not take any action, or refrain
from taking any action, that would cause it to qualify as a "private foundation"
as defined under Section 509(a) of the Internal Revenue Code.

RESTRICTIONS ON OWNERSHIP AND TRANSFER

In connection with our reorganization, we entered into license agreements with
the Blue Cross Blue Shield Association which granted us the exclusive license to
use the Blue Cross and Blue Shield name in our Blue Cross and Blue Shield
service area in Missouri. The license agreements require as a condition to our
retention of the license that we have restrictions on the ownership and transfer
of our shares.

Our certificate of incorporation provides that no person or entity may
beneficially own shares of voting capital stock of our company in excess of the
ownership limits. Although the ownership limits do not apply to the shares of
our common stock that The Missouri Foundation For Health received in the
reorganization, the ownership limits will apply to any shares of our common
stock that the Foundation transfers to another person or entity.

The ownership limits, which are included in Article VII of our certificate of
incorporation, are as follows:

-  no "institutional investor" may beneficially own 10% or more of the combined
   voting power of all of our outstanding securities;

-  no "noninstitutional investor" may beneficially own 5% or more of the
   combined voting power of all of our outstanding securities; and

-  no person or entity may own 20% or more of all of our outstanding equity
   securities.

"Institutional Investor" means any person if (but only if) such person is:

-  a broker or dealer registered under Section 15 of the Securities Exchange Act
   of 1934;

-  a bank as defined in Section 3(a)(6) of the Securities Exchange Act;

-  an insurance company as defined in Section 3(a)(19) of the Securities
   Exchange Act;

-  an investment company registered under Section 8 of the Investment Company
   Act of 1940;

-  an investment adviser registered under Section 203 of the Investment Advisers
   Act of 1940;

-  an employee benefit plan, or pension fund which is subject to the provisions
   of the Employee Retirement Income Security Act of 1974 or an endowment fund;

-  a parent holding company, provided that the aggregate amount held directly by
   the parent, and directly and indirectly by its subsidiaries which are not
   persons specified in the six bullet points listed above, does not exceed one
   percent of the securities of the subject class; or

-  a group, provided that all the members are persons or entities specified in
   the seven bullet points listed above.

In addition, every filing made by such person or entity with the Securities and
Exchange Commission under Regulations 13D-G (or any successor regulations) under
the Securities Exchange Act with respect to that person's or entity's beneficial
ownership must contain a certification (or a substantially similar one) that our
common stock acquired by that person or entity was acquired in the ordinary
course of business and was not acquired for the purpose of and does not have the
effect of changing or influencing the control of our company and was not
acquired in connection with or as a participant in any transaction having such
purpose or effect.

"Noninstitutional Investor" means any person or entity that is not an
institutional investor.

"Beneficial ownership" includes securities:

-  which a person or entity has a direct or indirect beneficial ownership
   interest;

-  which a person or entity has an option to purchase;

-  which a person or entity has the right to vote;

-  with respect to which a person or entity would be required to file a Schedule
   13D or Schedule 13G under the Securities Exchange Act; or

-  which any affiliate or associate would beneficially own under any agreement,
   arrangement or understanding.

The definition of beneficial ownership in Article VII of our certificate of
incorporation includes several exceptions. For example, Article VII of our
certificate of incorporation provides that a person or entity will not be deemed
to "beneficially own" securities if that person or entity has entered into an
agreement with our company pursuant to which that person or entity, or its
affiliates or associates, will acquire all the outstanding stock of our company
by means of a merger, consolidation or stock sale, so long as:

-  the agreement is approved by a majority of our independent directors and a
   majority of all of our directors;

-  the acquiring party is not already in violation of the stock ownership
   limitations described above;

-  the acquisition is subject to the approval of our stockholders, and

-  neither the acquiring party, nor its affiliates or associates, have acquired
   any of our securities after the execution of the agreement, other than in
   accordance with the terms of the agreement.

The exception to the definition of beneficial ownership described above would
allow us to enter into an agreement with a third party for the acquisition of
all of our securities without violating the ownership limits included in our
certificate of incorporation. However, in order to consummate the transaction,
the ownership limitations contained in our certificate of incorporation must
either be amended or repealed. Our certificate of incorporation generally
provides that a change to the ownership limitations requires the vote of the
holders of at least 75% of the shares of our common stock. However, if a
majority of our independent directors (as described in our certificate of
incorporation) and a majority of all of our directors approve the amendment in
connection with a proposal to acquire all of the outstanding stock of our
company, then the amendment would only require the vote of the holders of at
least a majority of our shares of common stock, or a greater amount as may be
required under Delaware law.

Article VII of our certificate of incorporation provides that any transfer of
our securities that would result in any person or entity beneficially owning our
securities in excess of the ownership limits will result in the intended
transferee acquiring no rights in the securities (with various exceptions), and
the person's or entity's shares will be deemed transferred to a share escrow
agent to be held until the shares are transferred to a person or entity whose
ownership of the shares will not violate the ownership limits. The share escrow
agent will be entitled to receive all dividends and distributions on the excess
shares that it holds. The share escrow agent will hold these dividends or
distributions until it sells the excess shares as described below. In the event
of any liquidation, dissolution or winding up of our company, the share escrow
agent will be entitled to receive its pro rata share of our assets based upon
the number of excess shares that it holds compared to the total number of
securities outstanding.

The share escrow agent must sell the excess shares as we determine. The excess
owner will be responsible for all of the costs and expenses of the sale. Excess
shares that a party purchases from the share escrow agent without violating the
ownership limits will become ordinary outstanding securities of our company. To
the extent permitted by law, neither our company, the share escrow agent nor
anyone else will have any liability to the owner of the excess shares for any
action or inaction taken in good faith when selling the excess shares. The share
escrow agent will distribute the proceeds from the sale of excess shares and the
receipt of excess share dividends in the following manner: First, to the share
escrow agent for any costs and expenses incurred in administering the excess
shares for which we have not reimbursed the share escrow agent; second, to us
for all costs and expenses incurred in connection with the sale of the excess
shares, and finally, the remainder to the owner of the excess shares.

The share escrow agent must vote all excess shares that it holds in the
following manner:

-  for each nominee to our board of directors nominated by a majority of our
   independent directors (as described in our certificate of incorporation) and
   a majority of all of our directors;

-  against any candidate for our board of directors for whom a majority of our
   independent directors (as described in our certificate of incorporation) and
   a majority of all of our directors have not nominated or selected a competing
   candidate;

-  unless the action is initiated by or with the consent of our board of
   directors, against the removal of any director, against any change to our
   certificate of incorporation or bylaws, against nominating a candidate to
   fill a vacancy on our board of directors, against the holding of a special
   meeting of our stockholders, and against any action that would have the
   effect of defeating these voting requirements;

-  on any proposal requiring the approval of our board of directors as a
   prerequisite to become effective and not provided for above, in the same
   proportion as the stockholders vote all of our other securities on such
   proposal; and

-  on all other matters, as recommended by our board of directors.

FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS

This Annual Report contains forward-looking statements that involve risks and
uncertainties. We intend these forward-looking statements to be covered by the
safe harbor provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995, and we are including this statement
for purposes of those safe harbor provisions. These forward-looking statements
are often accompanied by words such as "believe," "anticipate," "plan,"
"expect," "estimate," "intend," "seek," "goal," "may," "will," "could" and
similar expressions. These statements include, without limitation, statements
about our market opportunities, our growth strategies, competition, expected
activities and future acquisitions and investments and the adequacy of our
available cash resources. These statements may be found in Part I, Item I,
"Business" and Part I, Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" of this Annual Report. Investors
are cautioned that matters subject to forward-looking statements involve risks
and uncertainties, including economic, regulatory, competitive and other factors
that may affect our business. These statements are not




                                       24
<PAGE>   25
guarantees of future performance and are subject to risks, uncertainties and
assumptions. We undertake no obligation to publicly update any forward-looking
statements for any reason after the date of this Annual Report or to conform
these statements to actual results or to changes in our expectations. Factors
that can cause actual results to differ from those projected include, but are
not limited to, those discussed below.

TRADING VOLUME FOR OUR COMMON STOCK HAS BEEN LIMITED, AND SIGNIFICANT SALES OF
OUR COMMON STOCK BY THE FOUNDATION, OR THE EXPECTATION OF THESE SALES, COULD
CAUSE OUR STOCK PRICE TO FALL.

Since the completion of the reorganization on November 30, 2000 until March 21,
2001, the average daily trading volume of our common stock was 34,428 shares per
day. Given the limited trading volume of our common stock, significant sales of
our common stock by the Foundation, or the expectation of these sales, could
cause our stock price to fall.

Our principal stockholder, The Missouri Foundation For Health, is obligated to
reduce its ownership of our common stock to certain levels by specified dates.
As of December 31, 2000, the Foundation is required to sell approximately 5.63
million shares of our common stock prior to November 30, 2003, subject to a
possible one year extension, and it must sell a total of approximately 11.23
million shares of our common stock prior to November 30, 2005, subject to a
possible two year extension. The Foundation has the right to require us to
periodically file registration statements covering sales of stock by the
Foundation. If the Foundation fails to meet the divestiture requirements
described above, we are entitled to arrange for the sale of the Foundation's
shares.

OUR STOCK AND THE STOCKS OF OTHER COMPANIES IN THE HEALTH CARE INDUSTRY ARE
SUBJECT TO STOCK PRICE AND TRADING VOLUME VOLATILITY.

From time to time, the stock price and the number of shares traded of companies
in the health care industry experience periods of significant volatility. Both
company-specific issues and developments generally in the health care industry
and in the regulatory environment may cause this volatility. Our stock price may
fluctuate in response to a number of events and factors, including:

-        quarterly variations in operating results;

-        changes in financial estimates and recommendations by securities
         analysts;

-        operating and stock price performance of other companies that investors
         may deem comparable;

-        news reports relating to trends in our markets;

-        acquisitions and financings in our industry; and

-        sales of stock by insiders.

OUR PROFITABILITY MAY DECREASE BECAUSE OF RISING HEALTH CARE COSTS AND CHANGES
IN THE DELIVERY OF HEALTH CARE SERVICES.

The future results of our underwritten products largely depend on our ability to
accurately estimate and manage future health care costs. Much of the premium
revenue we receive is based upon rates set months before we deliver services,
and we usually incur the related costs on a prospective annual basis. Although
we attempt to base the premiums charged on an estimate of future health care
costs over the fixed premium period, competition, regulations and other
circumstances may limit our ability to fully base premiums on these estimated
costs.



                                       25
<PAGE>   26
We use a large portion of our premium revenue to pay the costs of health care
services and supplies that our members receive. As a result, our financial
condition or results of operations could be hurt because of rising costs and
other changes in the delivery of health care services. These changes could
include:

-        higher than expected utilization of services;

-        an increase in the number of high-cost cases;

-        changes in the population or demographic characteristics of members
         served, including aging of the population;

-        medical cost inflation;

-        periodic renegotiation of hospital, physician and other provider
         contracts;

-        consolidation of physician, hospital and other provider groups;

-        advances in medical technology and pharmaceuticals;

-        government-imposed limitations on Medicare reimbursement; and

-        other regulatory changes.

Historically, the managed health care market has been subject to a cyclical
pattern of profitability and losses. We think that our diversified operations
would temper the impact of downturns in the business cycle on us. We cannot
assure you, however, that our results of operations will not be harmed by a
business downturn or that our financial results are not impacted by business
cycles.

In addition, medical claims payable in our financial statements include our
estimated reserves for incurred but not reported and unpaid claims, which we
call IBNR. The estimates for submitted claims and IBNR are made on an accrual
basis. We believe that our reserves for IBNR are adequate to satisfy our medical
claims liabilities, but we cannot assure you of this. Inaccurate IBNR estimates
could adversely affect our results of operations in future periods.

COMPETITION IN OUR INDUSTRY MAY LIMIT OUR ABILITY TO INCREASE OR MAINTAIN OUR
PREMIUM RATES, WHICH WOULD DECREASE OUR PROFITABILITY.

We operate in a highly competitive environment which may affect our ability to
increase premium rates. We face competition from other managed care companies,
hospitals, health care facilities and other health care providers that have
substantially greater financial and other resources than we have.

We believe there are no significant impediments facing potential competitors who
wish to enter the markets we serve. As a result, the entry of new competitors
into our markets can occur relatively easily, which affords our customers
significant flexibility in moving to other managed care providers. Our managed
care operations may encounter competition from companies with broader
geographical markets or narrower geographical markets which allows for greater
cost control and lower prices or greater market share. Our financial condition
or results of operations may be adversely affected by significant premium
decreases by any major competitor or by any other limitation on the ability of
our subsidiaries to increase or maintain premium levels.

REGULATORY OR OTHER HEALTH CARE DEVELOPMENTS IN MISSOURI OR AN ECONOMIC DOWNTURN
IN THE MISSOURI ECONOMY MAY ADVERSELY AFFECT OUR RESULTS.

We conduct business primarily within the state of Missouri, and a large
proportion of our membership is in the St. Louis metropolitan area. Therefore,
our business may be more sensitive to local or state conditions, such as pricing
dynamics, regulatory developments or general economic conditions, than
organizations servicing larger, more diverse markets. For example, national
competitors can subsidize losses in the Missouri market with profits from other
markets in which they operate. We may be competitively disadvantaged, or
otherwise adversely affected, by our regional focus.


                                       26
<PAGE>   27
OUR PROFITABILITY WILL DECLINE IF WE ARE UNABLE TO ENTER INTO FAVORABLE PROVIDER
AGREEMENTS OR OTHER APPROPRIATE AGREEMENTS.

Our profitability depends upon our ability to contract on cost-effective terms
with hospitals, physicians and other health care providers. If we fail to obtain
cost-effective health care provider contracts, we may lose some of our members
or incur higher medical costs. In addition, our inability to contract with
providers, or the inability of providers to provide adequate care, could
significantly harm us.

A REDUCTION IN THE NUMBER OF SUBSCRIBERS TO OUR HEALTH CARE PROGRAMS COULD HURT
OUR BUSINESS AND DECREASE OUR PROFITABILITY.

A reduction in the number of subscribers to our health care programs could
adversely affect our financial position, results of operations and cash flows.
Factors that could contribute to the loss of membership include:

-        failure to obtain new customers or retain existing customers;

-        a reduction in the number of employers offering health care coverage;

-        premium increases and benefit changes;

-        reduction of prices or premiums by our competitors;

-        our exit from markets;

-        reductions in work force by existing customers; or

-        negative publicity and news coverage.

OUR BUSINESS IS DEPENDENT ON THE SERVICE OF NON-EXCLUSIVE INDEPENDENT AGENTS AND
BROKERS WHO MAY REFER THEIR BUSINESS TO OUR COMPETITORS.

We depend on the services of independent agents and brokers in the marketing of
health care plans, particularly to individual and small employer group members.
Independent agents and brokers are typically not exclusively dedicated to one
company and may frequently market health care products of our competitors. In
addition, we face intense competition for the services and allegiance of
independent agents and brokers.

NEGATIVE PUBLICITY REGARDING THE HEALTH CARE INDUSTRY COULD DECREASE OUR
PROFITABILITY.

The health care industry is subject to negative publicity. Negative publicity
may result in increased regulation and legislative review of industry practices,
which may further increase our costs of doing business and decrease our
profitability by:

-        adversely affecting our ability to market our products or services;

-        requiring us to change our products and services; or

-        increasing the regulatory burdens under which we operate.

In addition, as long as we use the Blue Cross and Blue Shield names and service
marks in marketing our managed care products, any negative publicity concerning
the Blue Cross Blue Shield Association or other Blue Cross Blue Shield
Association licensees may adversely affect our business and the sales of our
managed care products.

WE CONDUCT BUSINESS IN A HEAVILY REGULATED INDUSTRY AND CHANGES IN REGULATIONS
OR VIOLATIONS OF REGULATIONS COULD SIGNIFICANTLY HARM US.





                                       27
<PAGE>   28
Our business is heavily regulated on federal, state and local levels.
Legislation or other regulatory reform that increases the regulatory
requirements imposed on us may significantly harm our business or results of
operations in the future. Legislative or regulatory changes that could
significantly harm us and our subsidiaries include:

-        legislation that holds insurance companies, HMOs or managed care
         companies liable for adverse consequences of medical decisions;

-        limitations on premium levels;

-        increases in minimum capital, reserves, and other financial viability
         requirements;

-        impositions of fines or other penalties for the failure to promptly pay
         claims;

-        prohibitions or limitations on network rental activities;

-        prohibitions or limitations on provider financial incentives and
         provider risk-sharing arrangements;

-        new benefit mandates; and

-        limitations on the ability to manage care and utilization due to "any
         willing provider" and direct access laws that limit or eliminate
         product features that encourage members to seek services from
         contracted providers or through referral by a primary care provider.

We need to obtain and maintain regulatory approvals to market many of our
products. Delays in obtaining or failure to obtain or maintain these approvals
could significantly harm us.

A portion of our revenues relate to Medicare supplement programs. Changes in
these programs, particularly changes affecting enrollment or changes in premium
payment or reimbursement levels, could significantly harm our business and
decrease our profitability.

We are also subject to various governmental reviews, audits and investigations.
Any adverse investigation, audit results or sanctions could result in:

-        damage to our reputation in various markets;

-        increased difficulty in selling our products and services;

-        loss of a license to act as an insurer or HMO or to otherwise provide a
         service;

-        loss of the right to participate in various federal programs, including
         the Medicare supplement programs; or

-        imposition of fines, penalties and other sanctions.

THE INABILITY TO RETAIN OR ATTRACT MANAGEMENT AND EMPLOYEES COULD HARM US.

Our success depends, to a significant extent, on retaining and attracting key
management members and qualified employees. The competition for highly skilled
people with extensive experience in the health care industry is intense. We
believe that our key management members have significant experience and
competence in the managed care industry that would be difficult to replace. All
of our key management members are able to voluntarily terminate their employment
with us at any time. The loss of current key management members or a number of
other significant qualified employees could hurt our results of operations,
financial condition or business.



                                       28
<PAGE>   29
OUR BUSINESS AND OPERATIONS MAY BE HARMED IF WE DO NOT MAINTAIN OUR INFORMATION
SYSTEMS AND THE INTEGRITY OF OUR PROPRIETARY INFORMATION.

We are dependent on our information systems. Failure to maintain effective and
efficient information systems or disruptions in our information systems could
cause disruptions in our business operations, the loss of existing customers,
difficulty in attracting new customers, customer and provider disputes,
regulatory problems, increases in administrative expenses or other adverse
consequences. The use of patient data by all of our businesses is regulated at
federal, state, and local levels. These laws and rules change frequently. These
changes could harm our business, financial condition and results of operations.

OUR BLUE CROSS AND BLUE SHIELD LICENSE AGREEMENTS COULD TERMINATE UPON THE
OCCURRENCE OF EVENTS SPECIFIED IN THE LICENSE AGREEMENTS, AND TERMINATION WOULD
SIGNIFICANTLY HARM OUR BUSINESS.

Under license agreements with the Blue Cross Blue Shield Association, we
have the right to use the Blue Cross and Blue Shield names and service marks in
the managed health care business in the 85 Missouri counties that comprise our
Blue Cross and Blue Shield service area. We believe that our exclusive right to
use the Blue Cross and Blue Shield names and service marks provides us with an
important marketing advantage in our service area. Loss of these licenses would
significantly harm our ability to compete in our markets and subject us to a
significant monetary penalty to the Blue Cross Blue Shield Association.

The Blue Cross Blue Shield Association could terminate our license
agreements if we do not satisfy its financial and service performance
requirements or if other events described in the license agreements, some of
which are outside of our control, occur including, but not limited to:

-        violation of the ownership limitations contained in our certificate of
         incorporation;

-        termination of the voting trust and divestiture agreement before The
         Missouri Foundation For Health's ownership of our common stock falls to
         less than 5%;

-        the acquisition of our company without the prior consent of a majority
         of the other disinterested licensees of the Association and a majority
         of the then current weighted vote of the other disinterested licensees
         of the Association;

-        violation of the Foundation's divestiture deadlines; or

-        determination by the Association that fewer than 80% of our directors
         are independent.

Our certificate of incorporation includes ownership limitations required by the
Association. Although we believe that these limitations are enforceable under
Delaware law for a corporation like ours, we are not aware of any case in which
a court has specifically addressed this issue. If one of our stockholders
violates the ownership limitations and a court does not enforce the provisions
of our certificate of incorporation, we could lose our licenses to use the Blue
Cross and Blue Shield names and service marks.

WE WILL NOT BE ABLE TO SELL OR MERGE WITHOUT THE APPROVAL OF THE FOUNDATION AS
LONG AS THE FOUNDATION OWNS 50% OR MORE OF OUR OUTSTANDING SHARES.

The Missouri Foundation For Health currently owns approximately 80% of our
outstanding shares. The Foundation is not required to reduce its ownership to
less than 50% of our outstanding shares until November 30, 2003, subject to a
possible one year extension. The acquisition of our company by means of a merger
or consolidation will require the approval of our board of directors and the
holders of a majority of the shares of our common stock. As long as the
Foundation owns more than 50% of our shares, it will be able -- by itself -- to
vote down a sale of our company even if our board of directors and other
stockholders would otherwise favor the transaction. In addition, the Missouri
Attorney General




                                       29
<PAGE>   30
must approve any sale of all or substantially all of the Foundation's assets.
Therefore, as long as the Foundation owns 50% or more of our shares and the
shares owned by the Foundation constitute all or substantially all of the
Foundation's assets, the Missouri Attorney General will also have the right to
approve the acquisition of our company by a third party. The Missouri Attorney
General and the Foundation may have interests that differ from your interests in
any acquisition proposal involving our company. This ability to block an
acquisition could prevent you from being paid an acquisition premium for your
stock.

OUR DIRECTORS WILL BE ABLE TO CONTROL THE OUTCOME OF ALL MATTERS SUBMITTED TO
OUR STOCKHOLDERS FOR A VOTE, OTHER THAN CHANGE OF CONTROL PROPOSALS, AS LONG AS
THE FOUNDATION OWNS A SUBSTANTIAL NUMBER OF OUR SHARES.

As of December 31, 2000, the Foundation has placed approximately 94% of its
shares, equal to approximately 75% of all of our outstanding shares in a voting
trust for a trustee to vote and dispose of under the terms of the voting trust
and divestiture agreement. The trustee of the voting trust must, as a general
matter, vote all of the Foundation's shares held in the voting trust as directed
by a majority of our independent directors and a majority of all of our
directors on all proposals or matters, including amendments to our certificate
of incorporation and bylaws and the election and removal of our directors, that
may come before our stockholders, except for matters relating to proposed merger
and sale transactions if our stockholders did not own a majority of the shares
of the resulting company. Thus, for so long as the Foundation owns a significant
number of our shares, our board of directors will be able to control the outcome
of most matters brought before our stockholders for a vote. Our board may not
vote in a manner you think is in your best interests.

THE FOUNDATION MAY HAVE INTERESTS IN OUR COMPANY THAT DIFFER FROM YOUR INTERESTS
AS A PUBLIC STOCKHOLDER.

The Foundation is a non-profit corporation with health care purposes to benefit
the uninsured and underinsured in our Blue Cross and Blue Shield service area in
Missouri. You should expect the Foundation to vote its shares of our stock on
proposed merger and sale transactions based upon its best interests. The
interests of the Foundation in a merger or sale transaction may be different
than your interests. For example, your primary interests may be to receive the
maximum possible price for your shares. The Foundation, on the other hand, may
be interested in price but may also be interested in how the transaction will
impact the availability of health care to the uninsured and underinsured in the
Foundation's service area.

THE FOUNDATION'S REGISTRATION RIGHTS AND OBLIGATIONS TO SELL OUR STOCK MAY LIMIT
OUR ABILITY TO RAISE ADDITIONAL FUNDS THROUGH EQUITY OFFERINGS, WHICH COULD
RESTRICT OUR FUTURE GROWTH, INHIBIT OUR ABILITY TO MAKE REQUIRED INVESTMENTS AND
ADVERSELY AFFECT OUR ABILITY TO COMPETE.

Our industry is in a state of change, and, in order to take advantage of
acquisition and other investment opportunities that may arise in the future, we
may desire the flexibility to raise funds quickly by selling our stock in the
equity markets. The registration rights agreement with The Missouri Foundation
For Health could limit or make more difficult our ability to raise funds through
equity offerings upon terms that we desire or at times when we may require
funds.

Our failure to raise additional equity capital when required could:

-        restrict our growth, both internally and through acquisitions;

-        inhibit our ability to invest in technology and other products and
         services that we may need; and



                                       30
<PAGE>   31
-        adversely affect our ability to compete in our markets.

Our agreements with the Foundation do not prevent us from issuing our common
stock as consideration to buy another company or from borrowing money to buy a
business. If, however, we want to buy a business for cash and we need to raise
money for the acquisition by selling our common stock, the restrictions in the
registration rights agreement may limit our flexibility. We may not be able to
sell our stock at the most opportune times.

PROVISIONS IN OUR CHARTER DOCUMENTS WILL MAKE IT MORE DIFFICULT FOR A THIRD
PARTY TO ACQUIRE US UNLESS OUR BOARD OF DIRECTORS APPROVES THE SALE AND MAY
LIMIT OR EVEN ELIMINATE INCREASES IN OUR STOCK PRICE BASED ON "TAKEOVER"
SPECULATION.

Our charter documents include provisions required by the Blue Cross Blue
Shield Association designed to protect our independence from any single
stockholder. These provisions include the following:

-        we have ownership limitations that prohibit any institutional investor
         from owning 10% or more of our voting securities and any other investor
         from owning 5% or more of our voting securities; and

-        at least 80% of our directors must be independent directors who are not
         affiliated or associated with The Missouri Foundation For Health or any
         stockholder that owns our shares in excess of the ownership limits.

These provisions will make it more difficult for a third party to acquire us in
a transaction that our board of directors has not negotiated or approved, but in
which our stockholders may receive a premium for their shares. Also, these
provisions will deter a party from acquiring a significant ownership position in
our company prior to submitting an offer to our board of directors, and, as a
result, our stock may trade at lower prices relative to other companies that do
not have similar ownership limitations in their charter documents.

WE ARE NOW A DEFENDANT IN A CLASS ACTION LAWSUIT RELATING TO MEDICARE SUPPLEMENT
PREMIUMS.

Prior to the reorganization, Old RightCHOICE and Blue Cross and Blue Shield of
Missouri were parties to a purported class action lawsuit over allegedly
unauthorized premiums that Blue Cross and Blue Shield of Missouri collected on
Medicare supplement policies issued by Blue Cross and Blue Shield of Missouri
from July 1, 1992 through August 10, 1994. The plaintiffs sought recovery of $29
million in allegedly unauthorized premiums plus pre-judgment interest and
punitive damages. The claims that represented $27 million of the $29 million in
allegedly unauthorized premiums have been dismissed without prejudice. A motion
for class certification of the remaining claims remains pending before the
circuit court. As the successor to Blue Cross and Blue Shield of Missouri and
Old RightCHOICE, an adverse decision in this lawsuit could subject us to
substantial damages.

IF THE COURT FINDS IN A PENDING APPEAL THAT BLUE CROSS AND BLUE SHIELD OF
MISSOURI WAS A MUTUAL BENEFIT CORPORATION, A COURT COULD COMPEL US TO PAY
SUBSTANTIAL DAMAGES TO THE BLUE CROSS AND BLUE SHIELD OF MISSOURI AND OLD
RIGHTCHOICE SUBSCRIBERS OR UNDO THE REORGANIZATION.

A Missouri circuit court has entered an order and judgment in the certified
subscriber class action over Blue Cross and Blue Shield of Missouri's status as
a mutual benefit corporation or public benefit corporation. The circuit court
ruled that Blue Cross and Blue Shield of Missouri was a public benefit
corporation, holding its assets for the benefit of the general public, rather
than a mutual benefit corporation, holding its assets for the benefit of its
subscribers. This ruling was consistent with the




                                       31
<PAGE>   32
positions taken by all the parties to the settlement agreement and the related
reorganization. On December 12, 2000, the class representative, on behalf of the
subscriber class, appealed this ruling. That appeal is now pending in the
Missouri Court of Appeals. If the judgment of the circuit court is reversed, our
company, as successor to Blue Cross and Blue Shield of Missouri, could be
obligated to pay substantial damages. It is also possible that if a court enters
a judgment that Blue Cross and Blue Shield of Missouri was a mutual benefit
corporation, a court could order that the reorganization be undone, although we
believe that this type of order would be unlikely.

The Missouri Foundation For Health is required to maintain a minimum net worth
of approximately $85 million and is required by contract to indemnify us against
claims asserted in this litigation that arise out of the reorganization and
relate to the corporate status of Blue Cross and Blue Shield of Missouri.
However, this indemnification may not be sufficient to reimburse us for all of
the damages we could suffer.

WE ARE SUBJECT TO LITIGATION IN THE ORDINARY COURSE OF OUR BUSINESS, INCLUDING
LITIGATION BASED ON NEW OR EVOLVING LEGAL THEORIES, WHICH COULD SIGNIFICANTLY
LESSEN OUR PROFITABILITY.

Due to the nature of our business, we and our subsidiaries are subject to a
variety of legal actions relating to our business operations including claims
relating to:

-        denial of health care benefits;

-        claims of vicarious liability for providers' actions or medical
         malpractice claims;

-        provider disputes over compensation and termination of provider
         contracts;

-        disputes related to self-funded business, including actions alleging
         breach of fiduciary duties, claim administration errors and the failure
         to disclose network rate discounts and other fee and rebate
         arrangements;

-        disputes over copayment calculations; and

-        claims relating to customer audits and contract performance.

In addition, plaintiffs continue to bring new types of purported legal claims
against managed care companies. Recent court decisions and legislative activity
increase our exposure and the exposure of our subsidiaries to these types of
claims. In some cases, plaintiffs may seek substantial non-economic or punitive
damages. The loss of even one of these claims, if it resulted in a significant
punitive damage award, could significantly lessen our financial condition or
results of operations. This risk of potential liability may make reasonable
settlements of claims more difficult to obtain. We cannot determine with any
certainty what new theories of recovery may evolve or what their impact may be
on the managed care industry in general or on our subsidiaries or us in
particular.

We and our subsidiaries currently have, and expect to maintain, insurance
coverage for some of these potential liabilities. Other potential liabilities
may not be covered by insurance, insurers may dispute coverage, or the amount of
insurance may not be enough to cover the damages awarded. In addition, we may
not be able to obtain insurance coverage for all or some forms of liability on a
cost-effective basis, if at all, in the future.


                                       32
<PAGE>   33
EXECUTIVE OFFICERS

<TABLE>
<CAPTION>
NAME                                       AGE     POSITION(S)
<S>                                        <C>     <C>
John A. O'Rourke........................   57      Chairman of the Board and Chief Executive Officer

Sandra A. Van Trease....................   40      Director (effective April 1, 2001), President, Chief Operating Officer and
                                                   Chief Financial Officer

Angela F. Braly.........................   39      Executive Vice President, General Counsel and Corporate Secretary

Stuart K. Campbell......................   39      Senior Vice President, Finance

Michael Fulk............................   53      Senior Vice President and Chief Marketing Executive

Mary Lou Redshaw........................   48      Senior Vice President, Client Services

Herbert B. Schneiderman.................   55      Senior Vice President, Medical Delivery Systems

John J. Seidenfeld, M.D.................   54      Senior Vice President and Corporate Medical Officer

Connie L. Van Fleet.....................   48      Senior Vice President and Chief Information Officer

Kathleen M. Zorica......................   45      Senior Vice President, Business Analysis and Product Management

David T. Ott............................   46      President, Chief Executive Officer and Director of HealthLink

Courtney B. Walter......................   45      Executive Vice President and Chief Financial Officer of HealthLink

Dale Stegeman, M.D......................   45      Chief Medical Officer/Senior Vice President of Medical Affairs of
                                                   HealthLink
</TABLE>

John A. O'Rourke was named Chairman and Chief Executive Officer in February
1997. Mr. O'Rourke came to our company from his position as President and Chief
Executive Officer of HealthLink. Mr. O'Rourke was appointed President and Chief
Executive Officer of HealthLink in January 1985. Initially established by a
consortium of St. Louis hospitals, HealthLink became the largest PPO in Missouri
under Mr. O'Rourke's leadership. Earlier, Mr. O'Rourke was Deputy Director of
the Office of HMOs in the U.S. Department of Health and Human Services.

Sandra A. Van Trease was named President in December 2000. Ms. Van Trease also
is our Chief Operating Officer and Chief Financial Officer. Ms. Van Trease
joined our company in June 1994, was promoted to Chief Financial Officer in
November 1995 and was also named Chief Operating Officer in October 1997. Prior
to joining our company, Ms. Van Trease was a Senior Manager with Price
Waterhouse LLP.

Angela F. Braly was named Executive Vice President, General Counsel and
Corporate Secretary in January 1999. Ms. Braly acted as Interim General Counsel
from September 1997 through December 1998 while a member of the St. Louis law
firm of Lewis, Rice & Fingersh, L.C. where she had practiced law since 1987.

Stuart K. Campbell was named Senior Vice President, Finance in February 2001.
Prior to then, he served as Senior Vice President, Client Services since August
1997. Mr. Campbell joined our company as Chief Internal Auditor in September
1994 and was named Corporate Compliance Officer in 1996. Prior to joining our
company, Mr. Campbell was a Senior Manager with Price Waterhouse LLP.

Michael Fulk joined our company as Senior Vice President and Chief Marketing
Executive in January 1998. Mr. Fulk joined our company from UnitedHealthcare,
Birmingham, Alabama, where he was Senior Vice President of Sales and Marketing
from April 1995 until December 1997. Earlier, Mr. Fulk served as the top sales
and marketing executive for UnitedHealthcare's HMO, POS and PPO operations in
Texas, Alabama, Louisiana, Tennessee, Arkansas, Mississippi and the Gulf Coast
region.



                                       33
<PAGE>   34
Mary Lou Redshaw was named Senior Vice President, Client Services in February
2001. Ms. Redshaw has been with our company since 1970 during which time she
served in many management roles, most recently Vice President, Client Services.
Ms. Redshaw has served in training, claims, customer service and membership
roles.

Herbert B. Schneiderman joined our company as Senior Vice President, Medical
Delivery Systems in July 1995. Mr. Schneiderman came to our company after
spending 21 years at Saint Louis University Hospital, the last seven as its
Chief Executive Officer.

John J. Seidenfeld, M.D. was named Senior Vice President and Corporate Medical
Officer in June 1999. He came to our company from CIGNA Health Care of Texas
where he had served as Vice President and Corporate Medical Director beginning
1996. In 1995, Dr. Seidenfeld was in private practice as a pulmonary and
critical care physician, the Executive Director and Medical Director at the
Solomon Anthony Clinic in San Antonio, a clinical professor at the University of
Texas at San Antonio and a Consultant Medical Director of Humana Health Plan of
Texas.

Connie L. Van Fleet was named Senior Vice President and Chief Information
Officer in November 1997. Ms. Van Fleet joined our company in 1990 and
immediately prior to her current position served as Vice President, Business
Analysis and Development. Prior to joining our company, Ms. Van Fleet was with
MetLife Health Care Management Corporation.

Kathleen M. Zorica was named Senior Vice President, Business Analysis and
Product Management in July 1999. She joined Blue Cross and Blue Shield of
Missouri in 1977. Ms. Zorica was named Vice President, Product Management in
November 1994 and has been Director, Product Development Director, Account
Operations and Services, Director, Financial Analysis, and immediately prior to
her current position, Vice President, Business Analysis and Product Management.

David T. Ott was named President and Chief Executive Officer of HealthLink in
March 1997. Mr. Ott had been Executive Vice President of HealthLink since July
1990. Mr. Ott joined HealthLink in 1986 as Director of Marketing and later was
promoted to Vice President of Sales and Marketing.

Courtney B. Walter was named Executive Vice President and Chief Financial
Officer of HealthLink in March 1997. Mr. Walter has been with HealthLink since
1993. Prior to joining HealthLink, Mr. Walter worked for Ernst & Young LLP,
MetLife Health Care Management Corporation and Spectrum Emergency Care.

Dale Stegeman, M.D. was named Chief Medical Officer/Senior Vice President of
Medical Affairs of HealthLink in May 2000. Dr. Stegeman had been Senior
Medical Director since 1998. Dr. Stegeman joined HealthLink in 1992 as a
physician reviewer and served as Medical Director of HealthLink HMO from 1996
until 1998.

                               ITEM 2. PROPERTIES

As of December 31, 2000, we owned or leased the following facilities in the
state of Missouri, which we consider material to our operating segments:

<TABLE>
<CAPTION>
                                                                                                 OWNED OR
TYPE OF FACILITY                           CITY                            SQUARE FOOTAGE         LEASED
----------------                           ----                            --------------        --------
<S>                                        <C>                             <C>                   <C>
Corporate Headquarters                     St. Louis                           425,057            Owned
Office Building                            St. Louis                            73,211            Owned
Document Storage Warehouse                 St. Louis                            91,119            Leased
</TABLE>



                                       34
<PAGE>   35
<TABLE>
<CAPTION>
                                                                                                 OWNED OR
TYPE OF FACILITY                           CITY                            SQUARE FOOTAGE         LEASED
----------------                           ----                            --------------        --------
<S>                                        <C>                             <C>                   <C>
HealthLink, Inc. Headquarters              St. Louis                            61,829            Leased
Southwest Regional Office                  Springfield                          59,470            Leased
Southeast Claims Training Office           Cape Girardeau                        6,314            Leased
Southeast Claims Office                    Cape Girardeau                       42,000            Leased
Central Marketing Office                   Columbia                              5,000            Leased
</TABLE>

                            ITEM 3. LEGAL PROCEEDINGS

LITIGATION WITH THE MISSOURI ATTORNEY GENERAL AND MISSOURI DEPARTMENT OF
INSURANCE

As a result of the reorganization and related settlement that occurred on
November 30, 2000, Old RightCHOICE and Blue Cross and Blue Shield of Missouri
and their affiliates, on the one hand, and the state of Missouri, on the other
hand, have resolved all of their outstanding litigation and regulatory issues
related to Blue Cross and Blue Shield of Missouri's operation of Old RightCHOICE
following the organization of Old RightCHOICE in 1994. There remains pending,
however, the appeal of a judgment related to the corporate status of Blue Cross
and Blue Shield of Missouri described below under "Litigation relating to
corporate status of Blue Cross and Blue Shield of Missouri."

LITIGATION RELATING TO CORPORATE STATUS OF BLUE CROSS AND BLUE SHIELD OF
MISSOURI

On November 3, 1997, our predecessor, Blue Cross and Blue Shield of Missouri,
filed an action in the Circuit Court of Cole County, Missouri against the
Missouri Attorney General seeking declarations that (1) Blue Cross and Blue
Shield of Missouri was a mutual benefit type of non-profit corporation, and (2)
Blue Cross and Blue Shield of Missouri did not hold its assets in constructive,
charitable, or other trust for the benefit of the public generally but rather
held its assets for the benefit of its subscribers. The Missouri Attorney
General filed an answer and counterclaim seeking a declaration that Blue Cross
and Blue Shield of Missouri is a public benefit type of non-profit corporation.

Two individuals who are or have been subscribers of Blue Cross and Blue Shield
of Missouri moved to intervene and then were joined in this action as parties
contending that Blue Cross and Blue Shield of Missouri was a mutual benefit
corporation, that its assets should not be transferred to a charitable trust or
other charitable organization such as The Missouri Foundation For Health and
that the existing parties to the action would not adequately represent their
interests in the resolution of the question whether Blue Cross and Blue Shield
of Missouri is a public benefit or a mutual benefit corporation.

On November 3, 2000, the circuit court entered a judgment finding that Blue
Cross and Blue Shield of Missouri is a public benefit corporation. This ruling
was consistent with the ultimate positions taken by all parties to our
settlement agreement.

On December 12, 2000, one of the two individuals appealed the circuit court's
judgment of November 3, 2000. If the circuit court's judgment is reversed, our
company, as successor to Blue Cross and Blue Shield of Missouri, could be
obligated to pay substantial money damages. It is also possible that if the
circuit court's judgment is reversed a court could order the reorganization be
rescinded as if it never happened, although we believe that this would be
unlikely. If a court enters those orders or orders like those, it would have a
material adverse effect on us.

LITIGATION RELATING TO MEDICARE SUPPLEMENT PREMIUMS

Our predecessor, Blue Cross and Blue Shield of Missouri, was a party to a class
action lawsuit originally filed in August 1995 in St. Louis City Circuit Court
against both Blue Cross and Blue Shield of Missouri and Old RightCHOICE. The
plaintiffs were subscribers to Medicare supplement policies that Blue Cross




                                       35
<PAGE>   36
and Blue Shield of Missouri issued from July 1, 1992 through August 10, 1994 and
sought to represent a class of all subscribers during those years.

The subscribers fell into two groups, those holding standardized Medicare
supplement policies and those holding pre-standardized Medicare supplement
policies. Both plaintiffs claimed that from July 1, 1992 through August 10, 1994
Blue Cross and Blue Shield of Missouri collected premiums on Medicare supplement
policies that were in excess of the premiums approved by the Missouri Department
of Insurance in violation of the contracts between Blue Cross and Blue Shield of
Missouri and its members. The plaintiffs also claimed that Blue Cross and Blue
Shield of Missouri made fraudulent representations about these premium
increases. While Blue Cross and Blue Shield of Missouri won summary judgment in
the trial court and appellate court, the Missouri Supreme Court reversed in part
and remanded in part the case to the trial court. The plaintiffs claimed that
Blue Cross and Blue Shield of Missouri collected allegedly unauthorized premiums
totaling more than $29 million. They sought recovery of at least that amount as
damages, plus prejudgment interest and punitive damages. The representative of
subscribers holding pre-standardized policies was disqualified from service as
class representative due to ill health.

In December 2000, the circuit court conducted a hearing on the plaintiffs'
motion for class certification and Blue Cross and Blue Shield of Missouri's
partial motions to dismiss or for summary judgment. After the hearing, and while
the motions were pending, the class representative of subscribers holding
pre-standardized Medicare supplement policies voluntarily dismissed her claim.
She also dismissed without prejudice the claims she had sought to make on behalf
of other pre-standardized plan subscribers. The pre-standardized policies
represent approximately $27 million of the approximately $29 million in
allegedly unauthorized premiums. As a result of the dismissal by the class
representative, there are now no claims pending on behalf of holders of the
pre-standardized policies. There can be no assurance, however, that a new claim
will not be asserted on their behalf. The plaintiffs' motion for certification
of a class of standardized plan subscribers as well the partial motion to
dismiss on behalf of Blue Cross and Blue Shield of Missouri have been argued and
are now under submission. As successor to Blue Cross and Blue Shield of
Missouri, we are now the defendant in that action. An adverse decision in this
lawsuit could subject us to substantial damages.

           ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On November 30, 2000, The Missouri Foundation For Health, which was our sole
stockholder immediately prior to the merger of Old RightCHOICE and our company
as part of the reorganization, voted the one share of our common stock that it
then owned in favor of the merger of our company with Old RightCHOICE.

On November 28, 2000, Old RightCHOICE held a special meeting of its shareholders
to vote upon the merger of Old RightCHOICE into our company. See Note 1,
"Organization" of the Notes to Consolidated Financial Statements of Part II,
Item 8, which is incorporated herein by reference. The merger required the
approval of (1) the holders of Old RightCHOICE's class A common stock and Old
RightCHOICE's class B common stock voting together as a single class, and (2)
the holders of Old RightCHOICE's class A common stock voting as a single class,
excluding any shares of Old RightCHOICE's class A common stock owned by Blue
Cross and Blue Shield of Missouri and by any executive officer or director of
Old RightCHOICE or Blue Cross and Blue Shield of Missouri. Each share of Old
RightCHOICE's class A common stock had one vote per share, and each share of Old
RightCHOICE's class B common stock had ten votes per share.

The vote of the holders of Old RightCHOICE's class A common stock and Old
RightCHOICE's class B common stock voting together as a single class was as
follows:



                                       36
<PAGE>   37
<TABLE>
<CAPTION>
                                votes for            votes against         votes abstained          broker non-votes
                                ---------            -------------         ---------------          ----------------
<S>                             <C>                  <C>                   <C>                      <C>
class A common stock            3,170,794            9,862                 753                      0
class B common stock            149,625,000          0                     0                        0
</TABLE>

The vote of the holders of Old RightCHOICE's class A common stock, excluding any
shares of Old RightCHOICE's class A common stock owned by Blue Cross and Blue
Shield of Missouri and any executive officer or director of Old RightCHOICE or
Blue Cross and Blue Shield of Missouri, was as follows:

<TABLE>
<CAPTION>
                                votes for            votes against         votes abstained          broker non-votes
                                ---------            -------------         ---------------          ----------------
<S>                             <C>                  <C>                   <C>                      <C>
class A common stock            3,096,941            9,862                 753                      0
</TABLE>


We have changed the previously announced anticipated date of our 2001 annual
meeting of stockholders from May 8, 2001 to June 8, 2001. As a result, our
corporate secretary must receive any stockholder proposal to be included in our
proxy statement for our 2001 annual meeting of stockholders and which meets the
rules of the Securities and Exchange Commission no later than April 10, 2001. In
accordance with our bylaws, our corporate secretary also must receive notice of
any stockholder proposal not be included in the proxy statement but to be
brought before the annual meeting of stockholders no later than April 10, 2001.

                                     PART II

  ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The following table sets forth for the calendar quarters indicated the high and
low sales prices of our common stock, which trades on the New York Stock
Exchange under the symbol "RIT". There were 180 common stockholders of record on
March 21, 2001. Our reorganization was completed on November 30, 2000. Sales
prices for periods prior to that date relate to the class A common stock of our
predecessor, Old RightCHOICE. On November 30, 2000, the class A shareholders of
Old RightCHOICE exchanged their Old RightCHOICE common shares for an equal
number of RightCHOICE common shares. The number of outstanding common shares
reported below at the end of the quarters prior to the reorganization exclude
the minority shareholders' 3.7 million shares of Old RightCHOICE because the
exchange of the minority shareholders' Old RightCHOICE class A common stock for
shares of RightCHOICE common stock was treated as a purchase. See Note 1,
"Organization" of the Notes to Consolidated Financial Statements of Part II,
Item 8, of which is incorporated herein by reference.

STOCKHOLDERS' DATA

<TABLE>
<CAPTION>
                                  2000
                                  4TH QUARTER            3RD QUARTER           2ND QUARTER            1ST QUARTER
<S>                            <C>                    <C>                   <C>                    <C>
Outstanding common shares          18,678,503             14,962,500            14,962,500             14,962,500
Market price:
Quarter ending                      $34 13/16              $24 1/4                $15 3/4               $13 1/8
Range                          $22 3/16 - $35 3/4     $15 7/8 - $24 1/4     $12 1/8 - $18 7/16     $11 1/2 - $15 1/2
</TABLE>



                                       37
<PAGE>   38
<TABLE>
<CAPTION>
                                  1999
                                  4TH QUARTER            3RD QUARTER           2ND QUARTER            1ST QUARTER
<S>                            <C>                    <C>                   <C>                    <C>
Outstanding common shares          14,962,500             14,962,500            14,962,500             14,962,500
Market price:
Quarter ending                       $11 1/2               $10 9/16              $11 7/16               $10 3/4
Range                             $9 1/2 - $12        $10 3/8 - $11 5/8      $10 3/4 - $12 1/8       $10 1/4 - $13
</TABLE>

DIVIDENDS

We have not paid dividends on our common stock and anticipate that no dividends
will be paid on our common stock in the foreseeable future. Further, we are
currently restricted in our ability to pay cash dividends as explained in Note
10, "Long-term debt and commitments" of the Notes to Consolidated Financial
Statements. In addition, see Note 2, "Summary of significant accounting
policies" of the Notes to Consolidated Financial Statements for a description of
the dividend restrictions applicable to our insurance and HMO subsidiaries.

UNREGISTERED SALES

On March 14, 2000, as part of the incorporation of our company, we issued one
share of our common stock to The Missouri Foundation For Health for $1,000. This
sale was exempt from registration under the Securities Act in reliance on
Section 4(2) of the Securities Act as a transaction by an issuer not involving a
public offering.

On November 30, 2000, in connection with the merger of Old RightCHOICE into our
company, the one issued and outstanding share of the our common stock issued on
March 14, 2000 (as described above), which The Missouri Foundation For Health
owned, was converted into 14,962,500 shares of our common stock. Our issuance of
these shares to The Missouri Foundation For Health was exempt from registration
under the Securities Act in reliance on Section 4(2) of the Securities Act as a
transaction by an issuer not involving a public offering. We did not receive any
proceeds in this transaction.

                ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (a)

The following table sets forth our selected consolidated financial information
for the years indicated and should be read in conjunction with our consolidated
financial statements and the notes to our consolidated financial statements and
the "Management's discussion and analysis of financial condition and results of
operation" section of this Annual Report.

<TABLE>
<CAPTION>
                                                                   AS OF AND FOR THE YEARS ENDED DECEMBER 31,
                                                -------------------------------------------------------------------------------
                                                    2000             1999             1998             1997             1996
                                                -----------      -----------      -----------      -----------      -----------
<S>                                             <C>              <C>              <C>              <C>              <C>
                                                     (in thousands, except per share data and operating statistics)
INCOME STATEMENT DATA:
Revenues:

  Premium ..................................    $   939,284      $   817,544      $   775,159      $   735,589      $   662,374
  Fees and other income ....................        121,526          105,075           88,608           77,848           68,734
                                                -----------      -----------      -----------      -----------      -----------
      Total revenues .......................      1,060,810          922,619          863,767          813,437          731,108
                                                -----------      -----------      -----------      -----------      -----------
Operating expenses:
  Health care services .....................        768,456          674,602          650,834          629,903          550,321
  Commissions ..............................         36,525           32,505           31,436           29,344           26,887
  General and administrative ...............        202,188          187,447          182,276          186,413          171,014
  Charge for contract loss reserves ........                                                            29,510
  Non-recurring charges ....................                                              900            3,301            4,534
                                                -----------      -----------      -----------      -----------      -----------
      Total operating expenses .............      1,007,169          894,554          865,446          878,471          752,756
                                                -----------      -----------      -----------      -----------      -----------
Operating income (loss) ....................         53,641           28,065           (1,679)         (65,034)         (21,648)
                                                -----------      -----------      -----------      -----------      -----------
</TABLE>




                                       38
<PAGE>   39
<TABLE>
<S>                                             <C>              <C>              <C>              <C>              <C>
Investment income:
  Interest and dividends ...................         17,202           15,262           15,329           16,702           15,454
  Realized gains (losses), net .............            247             (516)             619           17,213            3,900
                                                -----------      -----------      -----------      -----------      -----------
      Net investment income ................         17,449           14,746           15,948           33,915           19,354
                                                -----------      -----------      -----------      -----------      -----------
Other:
  Interest expense .........................         (3,798)          (4,344)          (4,541)          (4,723)          (5,532)
  Other income, net ........................          1,941              259             (266)          (1,060)            (803)
                                                -----------      -----------      -----------      -----------      -----------


      Total other, net .....................         (1,857)          (4,085)          (4,807)          (5,783)          (6,335)
                                                -----------      -----------      -----------      -----------      -----------


Income (loss) before minority interest,
   (provision) benefit for income taxes and
   cumulative effect of accounting change ..         69,233           38,726            9,462          (36,902)          (8,629)
Minority interest in consolidated
   subsidiary ..............................         (6,422)          (3,387)          (1,113)           4,725              397
(Provision) benefit for income taxes .......        (27,285)         (15,442)          (3,181)          10,693            1,242
                                                -----------      -----------      -----------      -----------      -----------
Income (loss) before cumulative effect
  of accounting change .....................    $    35,526      $    19,897      $     5,168      $   (21,484)     $    (6,990)
                                                -----------      -----------      -----------      -----------      -----------
Cumulative effect of accounting change
  for startup costs ........................                          (1,076)
                                                -----------      -----------      -----------      -----------      -----------


Net income (loss) ..........................    $    35,526      $    18,821      $     5,168      $   (21,484)     $    (6,990)
                                                ===========      ===========      ===========      ===========      ===========
Basic earnings (loss) per share ............    $      2.33      $      1.26      $      0.35      $     (1.44)     $     (0.47)
Diluted earnings (loss) per share ..........    $      2.27      $      1.25      $      0.34      $     (1.44)     $     (0.47)

OPERATING STATISTICS:

  Medical cost ratio(b) ....................           81.8%            82.5%            84.0%            85.6%            83.1%
  General and administrative expense
      ratio(c) .............................           19.1%            20.3%            21.1%            22.9%            23.4%
  Adjusted general and administrative
      expense ratio(d) .....................           17.1%            18.1%            18.5%            19.8%            21.0%

BALANCE SHEET DATA:

Cash and investments .......................    $   318,065      $   291,530      $   263,266      $   260,455      $   307,407
Available cash and investments(e) ..........         64,445           53,439           27,325           17,689           60,069
Total assets ...............................        693,414          624,678          596,453          596,800          622,307
Medical claims payable .....................        145,980          141,037          122,224          127,349          123,817
Long-term debt (including the current
  portion) .................................         26,063           34,063           43,063           47,000           62,000
Minority interest in consolidated
  subsidiary ...............................                          30,996           28,699           27,706           34,056
Stockholders' equity .......................        302,769          213,724          199,360          194,723          222,333

Book value per share .......................    $     16.21      $     14.28      $     13.32      $     13.01      $     14.86
Tangible book value per share ..............    $     11.29      $      9.47      $      8.31      $      7.78      $      9.24
</TABLE>

(a)      The financial data for all periods presented reflect the reorganization
         of our company as more fully described in Note 1, "Organization" of the
         Notes to Consolidated Financial Statements of Part II, Item 8, which is
         incorporated herein by reference. Prior to our reorganization, Blue
         Cross and Blue Shield of Missouri owned 14,962,500 shares, or
         approximately 80%, of Old RightCHOICE's 18.7 million shares of common
         stock outstanding, and the public minority stockholders owned the
         remainder. As of December 31, 2000, The Missouri Foundation For Health
         owned approximately 80% of our outstanding common stock. In conjunction
         with the reorganization, the public minority stockholders exchanged
         their 3.7 million shares of Old RightCHOICE common stock for an equal
         number of shares of our common stock. As a result of the
         reorganization, the results of operations up to and including November
         30, 2000 reflect a charge against earnings for the public minority
         stockholders' interest in Old RightCHOICE. For the purpose of computing
         basic earnings per share prior to the reorganization, the public
         minority stockholders' 3.7 million shares of Old RightCHOICE common
         stock reduced the weighted average common shares. After the
         reorganization, the weighted average share calculations include the 3.7
         million shares of our common stock issued to Old RightCHOICE's public
         minority stockholders.



                                       39
<PAGE>   40
(b)      The medical cost ratio is calculated as health care services expense as
         a percentage of premium revenue.

(c)      The general and administrative expense ratio is calculated as general
         and administrative expense as a percentage of total revenue.

(d)      The adjusted general and administrative expense ratio is calculated as
         general and administrative expense excluding depreciation and
         amortization as a percentage of total revenue.

(e)      Amounts represent cash and investments available for general corporate
         uses without regulatory approval.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

The following presents our management's discussion and analysis of our financial
condition and results of operations as of the dates and for the periods
indicated. You should read this discussion in conjunction with the Consolidated
Financial Statements and Notes thereto and the information set forth under
"Factors That May Affect Future Results of Operations" of Part I, Item I,
"Business" and under "Legal Proceedings" of Part I, Item 3 of this Annual
Report. This discussion contains forward-looking statements that involve risks
and uncertainties. Actual results could differ significantly from those
anticipated in these forward-looking statements.

OVERVIEW

We offer our managed health care products and services through a variety of
provider networks, utilizing a range of benefit designs and funding options. We
design our products and services to meet the needs of individuals and a wide
range and size of employers and other groups. We offer our managed health care
products and services in two funding types: (1) underwritten products, for which
we receive premium revenue in exchange for the assumption of medical, selling
and administrative risks, and (2) self-funded products, for which we generally
assume no risk, or reinsure the risk, for medical costs and receive compensation
for providing the requested services. Products in our underwritten segment
include preferred provider organizations (PPO), point of service (POS), health
maintenance organizations (HMO), Medicare supplement, specialty managed care,
short-term medical and managed indemnity benefit plans. Products in our
self-funded segment include third-party administrator services, administrative
services only (ASO) for self-insured organizations, network rental services for
self-insured organizations, insurance companies and other organizations,
including network rental for workers' compensation, and life insurance agency
services. Our other segment includes our commercial real estate business.

Our combination of underwritten and self-funded products and services provides
us with a diversified and complementary source of revenue and earnings. For the
year ended December 31, 2000, our underwritten products accounted for
approximately 89% of revenue and 20% of operating profits compared to 11% and
75%, respectively, for our self-funded products. As of December 31, 2000, we had
554,252 members in our underwritten products and 2,187,000 members in our
self-funded products. For the year ended December 31, 2000 compared to the prior
year, revenue for our underwritten products increased 15% and revenue for our
self-funded products increased by 15%. Operating results for our underwritten
segment increased from a loss of $4.9 million to a gain of $10.6 million while
operating profit for our self-funded segment increased from $30.2 million to
$40.3 million in 2000 as compared to 1999. We believe that the profitability and
growth dynamics of our underwritten and self-funded businesses are
complementary. We believe that our diversification offers an attractive
combination of earnings growth potential from our underwritten business and
earnings stability from our self-funded business.

Our self-funded segment has had significantly greater operating margins than our
underwritten segment over the past five years. For example, in 2000 our
underwritten segment had revenues of $940.1 million and operating income of
$10.6 million, while our self-funded segment had revenues of $117.9 million and
operating income of $40.3 million. We have focused on improving our
underwritten segment's operating margins over time through focused pricing and
medical cost management initiatives. From 1998 to 2000, we have improved our
underwritten segment operating margins from -3.0% to 1.1%. See Note 14, "Segment
information," to our Consolidated Financial Statements included in Part I, Item
8 of this Annual Report.

Our net income and earnings per share for all of 2000, and the comparable
results for prior periods, reflect the November 30, 2000 reorganization, which
included the merger of Old RightCHOICE with its parent, Blue Cross and Blue
Shield of Missouri. Prior to the reorganization, Blue Cross and Blue Shield of
Missouri owned 14,962,500 shares, or approximately 80%, of Old RightCHOICE's
18.7 million shares, with the remaining 3.7 million shares owned by the public
minority stockholders. The reorganization was accounted for in a manner similar
to a pooling of interests, except for the exchange of the 3.7 million shares
held by the public minority stockholders, which was accounted for as a purchase.
The results of our operations up to and including November 2000 reflect a charge
against earnings for the public minority stockholders' interest, and the
weighted average common shares used to compute basic earnings per share includes
only the 14,962,500 shares owned by Blue Cross and Blue Shield of Missouri, and
not the additional 3.7 million shares owned by the public minority stockholders.
The Missouri Foundation




                                       40
<PAGE>   41
For Health, which was created as part of the reorganization, now owns
approximately 80% of our outstanding common stock and the remainder is owned by
public stockholders.

RESULTS OF OPERATIONS

REVENUES

The following table sets forth revenue by funding type and product group for the
years ended December 31, 2000, 1999, and 1998:

<TABLE>
<CAPTION>
                                              FOR THE YEARS ENDED DECEMBER 31,
                                            ------------------------------------
                                               2000          1999        1998
                                            ----------    ----------  ----------
<S>                                         <C>           <C>         <C>
                                                       (IN THOUSANDS)
UNDERWRITTEN PREMIUM REVENUE:
   PPO ..................................   $  363,215    $  294,463  $  272,023
   POS ..................................      198,156       167,392     151,034
   HMO (includes other POS) .............      220,625       211,910     206,292
   Medicare supplement ..................       89,086        92,314      94,951
   Managed indemnity ....................        2,776         4,076       8,131
   Other specialty services .............       65,426        47,389      42,728
                                            ----------    ----------  ----------
     TOTAL PREMIUM REVENUE ..............      939,284       817,544     775,159
                                            ----------    ----------  ----------
SELF-FUNDED PPO/POS, HMO AND ASO
   (INCLUDES HEALTHLINK AND OTHER
   INCOME)...............................      118,732       102,617      86,157
NON-AFFILIATED REAL ESTATE RENTAL
   INCOME ...............................        2,794         2,458       2,451
                                            ----------    ----------  ----------
     Total fees and other income ........      121,526       105,075      88,608
                                            ----------    ----------  ----------
     TOTAL REVENUES .....................   $1,060,810    $  922,619  $  863,767
                                            ==========    ==========  ==========
</TABLE>

OPERATING RATIOS

The following table sets forth selected operating ratios. The medical cost ratio
reflects health care services expense as a percentage of premium revenue. All
other ratios are shown as a percentage of total revenues:



                                       41
<PAGE>   42
<TABLE>
<CAPTION>
                                               FOR THE YEARS ENDED DECEMBER 31,
                                               --------------------------------
                                                2000        1999         1998
                                               ------      ------       ------
<S>                                            <C>         <C>          <C>
Operating revenues:
    Premium revenue ........................     88.5%       88.6%        89.7%
    Self-funded fees and other income ......     11.2        11.1         10.0
    Non-affiliated rental income ...........      0.3         0.3          0.3
                                               ------      ------       ------
                                                100.0%      100.0%       100.0%
                                               ======      ======       ======
Operating ratios:
    Medical cost ratio .....................     81.8%       82.5%        84.0%
    Commission expense ratio ...............      3.4%        3.5%         3.6%
    General and administrative expense
       ratio................................     19.1%       20.3%        21.1%
    Adjusted general and administrative
       expense ratio (excludes depreciation
       and amortization) ...................     17.1%       18.1%        18.5%
</TABLE>

MEMBERSHIP

The following table sets forth the number of members by funding type and product
group:

<TABLE>
<CAPTION>
                                                          AS OF DECEMBER 31,
                                                       ------------------------   % INCREASE/
                                                          2000           1999      (DECREASE)
                                                       ---------      ---------   -----------
<S>                                                    <C>            <C>         <C>
UNDERWRITTEN:
    PPO............................................      233,960        197,734       18.3
    POS............................................      141,498        130,192        8.7
    HMO (includes other POS).......................      128,052        133,129       (3.8)
    Medicare supplement............................       49,253         53,460       (7.9)
    Managed indemnity..............................        1,489          2,040      (27.0)
                                                       ---------      ---------
       TOTAL UNDERWRITTEN MEMBERSHIP...............      554,252        516,555        7.3
                                                       ---------      ---------
SELF-FUNDED:
    PPO/POS........................................       48,362         44,355        9.0
    HMO............................................        7,312          7,152        2.2
    ASO (includes HealthLink):
       Workers' compensation(1)....................      745,212        516,107       44.4
       Other ASO(1), (2)...........................    1,386,114      1,357,141        2.1
                                                       ---------      ---------
       TOTAL SELF-FUNDED MEMBERSHIP................    2,187,000      1,924,755       13.6
                                                       ---------      ---------

TOTAL MEMBERSHIP...................................    2,741,252      2,441,310       12.3
                                                       =========      =========
</TABLE>

         (1)      Approximately 86,000 of our workers' compensation members are
                  also included in the member counts for our other ASO products
                  as of December 31, 2000.

         (2)      Does not include 425,053 and 391,021 additional third-party
                  administrator members as of December 31, 2000, and 1999,
                  respectively, that are part of The EPOCH Group, L.C., a joint
                  venture with Blue Cross and Blue Shield of Kansas City formed
                  in December 1995. Our share of the earnings of EPOCH are
                  included in our income statement under the caption "Other,
                  net."



                                       42
<PAGE>   43
COMPARISON OF RESULTS FOR 2000 TO THE RESULTS FOR 1999

Revenues

UNDERWRITTEN

Premium revenue increased $121.8 million, or 14.9%, to $939.3 million in 2000
from $817.5 million in 1999. As described below, components of premium revenue
were affected by shifts in product mix, rate increases and other factors. As a
result, such increase in premium revenue may not be indicative of future
periods. We will continue to strive to establish premium rates based on
anticipated health care costs. Depending on future competition, customer
acceptance of premium increases, future health care cost trends and other
factors, we cannot provide any assurances that we will be able to price the
products of our subsidiaries in excess of health care cost trends.

In the past year, several of our competitors have announced their intention to
exit the Missouri market, which is our primary sales area. A reduction in the
number of competitors for the Missouri market share has had a positive impact on
our ability to attract and maintain membership. We cannot, however, provide any
assurances that we will continue to attract or retain membership. Our membership
has also benefited from our participation in the BlueCard(R) PPO program. The
BlueCard(R) PPO program allows our Alliance PPO and POS members access to Blue
Cross and Blue Shield plans' providers throughout essentially all of the United
States and 200 countries worldwide.

PPO premium revenue, including our Illinois PPO products and Federal Employee
Program, increased $68.7 million, or 23.3%, to $363.2 million in 2000 from
$294.5 million in 1999 -- $27.1 million of the increase was due to an 8.4%
increase in net premium rates and $41.6 million of the increase resulted from a
13.8% increase in member months. The term member months refers to the cumulative
number of members added together over a specific time period. Thus, for a year,
member months are determined by adding together the membership counts for all
twelve months. Net premium rates increased due in part to our premium renewal
rate increases, which are affected by medical cost inflation, changes in
deductibles, the timing of group renewals throughout the year and product mix
changes. Member months increases reflect our PPO products that we began offering
in Illinois under the RightCHOICE of Illinois brand at the end of the first
quarter of 1997. Included in the number of our underwritten PPO members are
29,536 PPO Illinois members as of December 31, 2000, an increase of 15,288
members from December 31, 1999. PPO premium revenue for the Federal Employee
Program increased $11.5 million, or 14.0%, to $93.6 million in 2000 from $82.2
million in 1999. Included in the $82.2 million in PPO premium revenue for 1999
is $2.3 million in administrative cost reimbursement related to administrative
costs incurred in 1994 through 1998 we received as a result of a focused effort
to recover administrative costs from prior years which the Federal Employee
Program had not reimbursed. Federal Employee Program revenue typically
fluctuates based on actual administrative costs incurred and claims submitted.
The increase in revenue is due to an increase in claims costs of approximately
$13.4 million. The increase in both revenue and claims is partially due to a
4.6% increase in member months in 2000 as compared to 1999.

POS premium revenue, which includes our AllianceChoice group and individual
products, increased $30.8 million, or 18.4%, to $198.2 million in 2000 from
$167.4 million in 1999 -- $15.7 million of the increase due to a 9.4% increase
in net premium rates and $15.1 million of the increase resulting from an 8.2%
increase in member months. Net premium rates increased due in part to our
premium renewal rate increases, which are affected by medical cost inflation,
changes in deductibles, the timing of group renewals throughout the year and
product mix changes.





                                       43
<PAGE>   44
HMO (including other POS) premium revenue increased $8.7 million, or 4.1%, to
$220.6 million in 2000 from $211.9 million in 1999 -- $19.6 million of the
increase due to a 7.2% increase in net premium rates (inclusive of the 12% rate
increase for the Missouri Consolidated Health Care Plan described below),
partially offset by a $10.9 million decrease resulting from a 2.9% decrease in
member months. Membership declines were partially due to increases in premium
rates and partially due to a general migration by employers from HMO products to
other managed care products such as PPO products.

Effective December 31, 2000, we terminated our participation in two HMO
products, the Missouri Consolidated Health Care Plan and Blue Horizons Medicare
HMO. Membership in the Missouri Consolidated Health Care Plan increased by 1,007
members to 40,492 members from December 31, 1999 to December 31, 2000. Effective
January 1, 2000, the Missouri Consolidated Health Care Plan premium rates
increased by approximately 12% pursuant to a contract amendment. Total revenue
during 2000 for the Missouri Consolidated Health Plan was $59.1 million, and our
2000 medical cost ratio for this group exceeded 100% (excluding any benefit from
the loss reserve). Excluding the Missouri Consolidated Health Care Plan,
membership in our HMO products decreased over the same time period by 6,084
members, partially due to a reduction in Blue Horizons Medicare HMO members from
4,914 to 2,132.

Medicare supplement premium revenue decreased by $3.2 million, or 3.5%, to $89.1
million in 2000 from $92.3 million in 1999 -- $7.5 million of the decrease
resulting from a 7.8% decrease in member months, partially offset by a $4.3
million increase due to a 4.7% increase in net premium rates.

Membership in our Medicare supplement products has decreased in part due to
subscribers opting for competitors' Medicare-risk HMO programs in which medical
benefits are at least as comprehensive as benefits for persons eligible to
receive benefits under a Medicare supplement program. These Medicare-risk HMO
programs have historically been offered at no additional cost to the member. In
addition, our new Medicare supplement sales decreased in 2000 as compared to
1999 due to mandated changes by the state of Missouri in the pricing
methodologies for these products.

Managed indemnity premium revenue decreased by $1.3 million, or 31.9%, to $2.8
million in 2000 from $4.1 million in 1999, primarily as a result of a 28.0%
decline in member months. Member month declines are consistent with our strategy
to move toward more managed health care products. With the exception of a
short-term medical product, we no longer sell managed indemnity products, but we
continue to renew coverage for those members who wish to remain in these managed
indemnity programs.

Other specialty services premium revenue, which is derived from our PPO and POS
group pharmacy plans as well as all of our group dental benefit plans, increased
$18.0 million, or 38.1%, to $65.4 million in 2000 from $47.4 million in 1999 --
$9.4 million of the increase as a result of a 21.2% increase in net premium
rates and $8.6 million resulting from a 14.0% increase in member months.
Specialty product membership related to our pharmacy products increased in 2000
as a result of growth in our related underwritten membership. The increase in
membership for pharmacy products was offset slightly by decreases in our dental
product member months, which decreased by 7.0% due to competition from dental
products that have lower premiums than our dental product. We continue to work
towards revising our dental product to be more competitive in the market. We do
not separately report membership related to other specialty services in our
total underwritten membership because these members are already counted as
members of our other underwritten products. The 21.2% increase in net premium
rates primarily related to our pharmacy products and corresponded to the high
levels of prescription utilization and trends that our company, as well as the
industry as a whole, have experienced in recent years.


                                       44
<PAGE>   45
Self-funded

Fees and other income from ASO, self-funded network services and life insurance
commission revenues increased $16.1 million, or 15.7%, to $118.7 million in 2000
from $102.6 million in 1999. These increases are primarily due to increased 2000
revenues of $13.3 million from HealthLink, our network rental and managed care
service subsidiary. HealthLink's increase in revenues was partially due to
expansion into new territories as well as membership growth in HealthLink's
managed health care and workers' compensation programs and increases in client
access fees. In addition, our BlueCard(R) PPO and National Account ASO
revenues increased by $4.3 million due to a 15.6% increase in member months. Our
administrative service revenue decreased by $2.1 million in 2000 as compared to
1999 due to the termination of an administrative fee contract between us and
another unaffiliated Blue Cross and Blue Shield licensee. This contract, under
which we provided electronic data processing services, was terminated in June
1999.

Other income

Rental income related to non-affiliated tenants increased $0.3 million, or
13.7%, to $2.8 million in 2000 from $2.5 million in 1999.

Operating expenses

Our medical cost ratio decreased to 81.8% in 2000 from 82.5% in 1999. The
medical cost ratio represents health care services expense divided by premium
revenue. The medical cost ratio in 2000 is lower compared to that in 1999 due in
part to our pricing strategy, which resulted in an overall increase in the
premium per member per month of approximately 8.9% in 2000 as compared to 1999.
The medical expense on a per member per month basis increased by approximately
7.9% in 2000 as compared to 1999. Inclusive in the medical expense on a per
member per month basis in 2000 is a pharmacy cost trend increase of
approximately 21%, which was driven by a combination of factors, including
introduction of new drug therapies, physicians' use of newer, more expensive
drugs, and greater utilization of drugs driven in part by direct-to-consumer
advertising. We are managing our medical costs through a variety of medical
management programs. See Part I, Item 1 "Business--Medical Management" of this
Annual Report.




                                       45
<PAGE>   46
Commission expense increased by $4.0 million, or 12.4%, to $36.5 million in 2000
from $32.5 million in 1999. Our commission expense ratio decreased to 3.4% for
2000 compared to 3.5% in 1999. This ratio represents commission expense divided
by total revenues. The increase in commission expense in 2000 is primarily due
to an increase in overall premium and membership.

General and administrative expenses, excluding depreciation and amortization,
increased $14.2 million, or 8.5%, to $181.6 million in 2000 from $167.4 million
in 1999. The increase in these expenses is partially attributable to
HealthLink's geographic and member expansion efforts, which resulted in
increased HealthLink expenses of $4.9 million in 2000 as compared to 1999. The
increase in general and administrative expenses is also attributable to an
increase of 7.3% in underwritten membership in 2000 as compared to 1999. Also,
we incurred $2.0 million and $3.8 million of general and administrative expenses
in 2000 and 1999, respectively, related to our reorganization which was
completed on November 30, 2000. See description of the reorganization in Note 1,
"Organization" of the Notes to Consolidated Financial Statements of Part II,
Item 8, which is incorporated by reference.

Our general and administrative expense ratio, excluding depreciation and
amortization, decreased to 17.1% for 2000 compared to 18.1% in 1999. This ratio
represents general and administrative expenses, excluding depreciation and
amortization, divided by total revenues. The decrease of 1.0% reflected
increased economies of scale associated with premium and revenue growth in 2000.

Depreciation and amortization expenses increased $0.6 million, or 2.6%, to $20.6
million in 2000 from $20.0 million in 1999. Amortization expenses for completed
components of our information and operations strategy project increased by $0.4
million in 2000 compared to 1999. The increase in amortization for the
information and operations strategy project is due to additional completed
modules of the project that we are amortizing over an estimated seven-year
useful life. In addition, during 2000, we amortized $0.1 million of the goodwill
and intangible assets resulting from our reorganization on November 30, 2000.

Operating expenses for our underwritten segment include health care service
costs, commissions, and general and administrative expenses, as well as any
non-recurring charges attributable to that segment's operations. Operating
expenses for our self-funded segment include commissions, general and
administrative expenses, and non-recurring charges attributable to that
segment's operations. Operating expenses for our other segment include general
and administrative expenses and non-recurring charges related to the company's
real estate activities. Operating expenses for our underwritten segment
increased $106.6 million, or 13.0%, to $929.5 million in 2000 from $822.9
million in 1999 primarily due to an increase in health care service costs of
$93.9 million in 2000 as compared to 1999. Health care service costs increased
due to an increase in our underwritten membership as well as an increase in per
member claims costs, as previously described. General and administrative
expenses and commission expenses also increased by $8.5 million and $4.2
million, respectively, in 2000 to $125.0 million and $36.1 million as compared
to 1999. These increases were also partially attributable to an increase in our
underwritten membership of 7.3% during 2000. Operating expenses for our
self-funded segment increased $5.6 million, or 7.8%, to $77.6 million in 2000
from $72.0 million in 1999. This increase was primarily due to the increase in
HealthLink's general and administrative expenses, as


                                       46
<PAGE>   47
previously described. Operating expenses for our other segment increased $0.2
million, or 4.1%, to $4.9 million in 2000 from $4.7 million in 1999.

Operating income (loss)

Operating income increased $25.5 million, or 91.1%, to $53.6 million in 2000
from $28.1 million in 1999.

Operating income for our underwritten segment increased $15.5 million to $10.6
million in 2000 from a loss of $4.9 million in 1999. The significant improvement
was due to enrollment growth and improved pricing for our underwritten products.

Operating income for our self-funded segment increased $10.1 million, or 33.5%,
to $40.3 million in 2000 from $30.2 million in 1999. This improvement is due
primarily to HealthLink's continued profit growth from increased membership and
regional expansion. HealthLink's operating income increased by $8.2 million in
2000 as compared to 1999. HealthLink's operating income is inclusive of $2.7
million and $2.8 million in 2000 and 1999, respectively, for amortization
expenses related to goodwill and other intangible assets that were acquired
through our acquisition of HealthLink in 1995.

Operating income for our other segment remained unchanged at $2.8 million in
2000 and 1999.

Net investment income

Net investment income increased $2.7 million, or 18.3%, to $17.4 million in 2000
from $14.7 million in 1999, as a result of comparatively higher cash and
investment levels in 2000 as well as an increase of $0.8 million in net realized
gains. Net investment income includes investment income in the form of interest
and dividend income and net realized gains or losses from the sale of portfolio
securities.

Other, net

Other, net expenses decreased $2.2 million, or 54.5%, to $1.9 million in 2000
from $4.1 million in 1999. Other, net includes interest expense, realized gains
and losses from the sale of property and equipment, equity in unconsolidated
affiliates, and other items. We realized a $0.7 million gain on the sale of our
Southwest Missouri regional office building in May 2000. We relocated the
employees and our operations to a larger leased facility within the same region.
In addition, our share of the earnings of an unconsolidated affiliate, The EPOCH
Group, L.C., increased $0.5 million, or 73.1%, to $1.2 million in 2000 from $0.7
million in 1999. Our interest expense decreased by $0.5 million to $3.8 million
in 2000 from $4.3 million in 1999, primarily due to a reduction in the total
amount of debt outstanding under our credit facility.

Minority interest in consolidated subsidiary

The charge for minority interest increased $3.0 million, or 89.6%, to $6.4
million in 2000 from $3.4 million in 1999, due to the increase in Old
RightCHOICE's earnings in 2000 through the November 30, 2000 reorganization date
as compared to Old RightCHOICE's earnings for the full year 1999. The charge for
the minority interest relates to the public minority stockholders' interest in
Old RightCHOICE's results of operations up to and including November 30, 2000,
the date of our reorganization as further described in Note 1, "Organization" of
the Notes to Consolidated Financial Statements. The public minority stockholders
consisted of the holders of the 3.7 million class A common shares of Old
RightCHOICE, which represented approximately 20% of the total outstanding shares
of Old RightCHOICE.



                                       47
<PAGE>   48
Provision for income taxes

Our effective income tax provision rate was 39.4% and 39.9% for 2000 and 1999,
respectively. Our effective tax provision rates for 2000 and 1999 were affected
by non-deductible goodwill amortization, among other things. Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," requires
a valuation allowance against deferred tax assets if, based on the weight of
available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized. Based upon all the available evidence, we
believe it is more likely than not that we will realize our deferred tax assets
as of December 31, 2000, and, accordingly, no valuation allowance has been
provided against such assets as of December 31, 2000.

Cumulative effect of accounting change

In the first quarter of 1999, we adopted the Accounting Standards Executive
Committee Statement of Position 98-5, "Reporting on the Costs of Start-up
Activities." The SOP requires that certain costs of start-up activities,
including organization costs, should be expensed as incurred. Our adoption of
this SOP resulted in a $1.3 million expense write-off ($1.1 million, net of tax)
in 1999 relating to costs incurred in 1998 for legal, consulting, accounting and
other fees related to our reorganization. We have reported the cumulative effect
of this accounting change in our 1999 statement of income.

Net income

Net income increased $16.7 million, or 88.8%, to $35.5 million in 2000 from
$18.8 million in 1999, as a result of the factors noted above. Basic and diluted
earnings per share for 2000 were $2.33 and $2.27, respectively, compared to
basic and diluted earnings per share for 1999 of $1.26 and $1.25, respectively.
Basic and diluted earnings per share for the year ended December 31, 2000 are
based upon weighted average shares outstanding of 15.3 million and 15.6 million,
respectively. Basic and diluted earnings per share for the year ended December
31, 1999 are based upon weighted average shares outstanding of 15.0 million. The
increase in weighted average shares outstanding in 2000 primarily relates to the
effect of the reorganization on November 30, 2000 which resulted in the issuance
of 3.7 million shares as further described in Note 1, "Organization" of the
Notes to Consolidated Financial Statements. In addition, in 2000 the increase in
weighted average shares outstanding assuming full dilution was primarily due to
the aforementioned reorganization as well as the impact of the increase in our
stock price during the year.

COMPARISON OF RESULTS FOR 1999 TO THE RESULTS FOR 1998

Revenues

Underwritten

Premium revenue increased $42.3 million, or 5.5%, to $817.5 million in 1999 from
$775.2 million in 1998. As described below, components of premium revenue were
affected by shifts in product mix, rate increases and other factors. As a
result, such increase in premium revenue may not be indicative of future
periods.

PPO premium revenue, including the Federal Employee Program, increased $22.5
million, or 8.2%, to $294.5 million in 1999 from $272.0 million in 1998 -- $30.3
million of this increase due to a 10.7% increase in net premium rates, partially
offset by a $7.8 million decrease resulting from a 2.2% decrease in member
months. Net premium rates increased due in part to our premium renewal rate
increases,




                                       48
<PAGE>   49
which are affected by changes in deductibles, the timing of group renewals
throughout the year and product mix changes. We began offering PPO products in
Illinois at the end of first quarter 1997. Included in the number of our
underwritten PPO members are 14,248 PPO Illinois members as of December 31,
1999, an increase of 7,212 members from December 31, 1998. PPO premium revenue
for the Federal Employee Program increased $5.0 million, or 6.4%, to $82.2
million in 1999 from $77.2 million in 1998. Federal Employee Program revenue
typically fluctuates based on actual administrative costs incurred and claims
submitted. A portion of the increase resulted from an increase in claims costs
of $3.0 million. Additionally, as a result of a focused effort to recover
administrative costs from prior years, which had not been reimbursed by the
Federal Employee Program, we received $2.3 million in administrative cost
reimbursement in 1999 related to administrative costs incurred in 1994 through
1998. We also received payments of $0.3 million in 1999 related to the
achievement of superior service levels for the Federal Employee Program.

POS premium revenue, which includes our AllianceChoice group and individual
products, increased $16.4 million, or 10.8%, to $167.4 million in 1999 from
$151.0 million in 1998 -- $21.8 million of this increase due to a 14.6% increase
in net premium rates, partially offset by a $5.4 million decrease resulting from
a 3.3% decrease in member months. Net premium rates increased due in part to our
premium renewal rate increases which are affected by changes in deductibles, the
time of group renewals throughout the year and product mix changes.

HMO (including other POS) premium revenue increased $5.6 million, or 2.7%, to
$211.9 million in 1999 from $206.3 million in 1998 -- $22.4 million of this
increase due to a 10.0% increase in net premium rates, partially offset by a
$16.8 million decrease resulting from a 6.6% decrease in member months. The
Missouri Consolidated Health Care Plan comprised approximately 39,500 of our
underwritten HMO members as of December 31, 1999. We have historically had a
limited ability to increase premium rates for this large group. Membership in
the Missouri Consolidated Health Care Plan increased by 6,277 members from
December 31, 1998 to December 31, 1999. Excluding the Missouri Consolidated
Health Care Plan, membership in our HMO products decreased over the same time
period by 7,997 members, partially due to our pricing strategy.

Medicare supplement premium revenue decreased by $2.7 million, or 2.8%, to $92.3
million in 1999 from $95.0 million in 1998 -- $7.3 million of this decrease
resulting from a 7.4% decrease in member months, partially offset by a $4.6
million increase due to a 5.0% increase in net premium rates. Membership in our
Medicare supplement products decreased in part due to subscribers opting for
competitors' Medicare-risk programs in which medical benefits are at least as
comprehensive as Medicare benefits for persons eligible to receive benefits
under a Medicare supplement program. These Medicare-risk programs have
historically been offered at no additional cost to the member.

Managed indemnity premium revenue decreased by $4.0 million, or 49.9%, to $4.1
million in 1999 from $8.1 million in 1998, primarily as a result of a 55.4%
decline in member months. Member month declines are consistent with our strategy
to move toward more focused managed care products.

Other specialty services premium revenue, which is derived from our PPO and POS
group pharmacy plans as well as our dental benefit plans, increased $4.7
million, or 10.9%, to $47.4 million in 1999 from $42.7 million in 1998 -- $7.3
million of this increase as a result of a 17.6% increase in net premium rates
partially offset by a $2.6 million decrease resulting from a 5.7% decrease in
member months. We do not include membership related to other specialty services
in our total underwritten membership because these members are already counted
as members of other underwritten medical products. Specialty product membership
related to our pharmacy products increased slightly in 1999 as a result of
growth in our related underwritten membership. The increase in membership for
pharmacy products was offset by larger decreases in our dental product member
months, which decreased by 22.4% due to competition




                                       49
<PAGE>   50
from dental products that are priced below our dental product. The large net
premium rate increases primarily relate to our pharmacy products and correspond
to the high levels of prescription utilization and trends that our company, as
well as the industry as a whole, have experienced in recent years.

Self-funded

Fees and other income from ASO, self-funded network services and life insurance
commission revenues increased $16.4 million, or 19.1%, to $102.6 million in 1999
from $86.2 million in 1998. These increases are primarily due to increased 1999
revenues of $14.2 million from HealthLink, our network rental and managed care
service subsidiary. HealthLink's increase in revenues was partially due to
expansion into new territories as well as membership growth in HealthLink's
managed health care and workers' compensation programs and increases in client
access fees. Additionally, HealthLink's membership increases during this period
included a transfer of approximately 10,000 members to HealthLink from our other
self-funded plans. In addition, our BlueCard(R) PPO and National Account ASO
revenues increased by $5.6 million in 1999 due to a 27.3% increase in member
months. Administrative service revenue was reduced by the cancellation in June
1999 of an administrative fee contract for electronic data processing services
resulting in a decrease to 1999 revenue of $1.0 million as compared to 1998.

Other income

Rental income related to non-affiliated tenants remained unchanged at $2.5
million in 1999 and 1998.

Operating expenses

Our medical cost ratio decreased to 82.5% in 1999 from 84.0% in 1998. The
medical cost ratio in 1999 was lower compared to that in 1998 due in part to our
pricing strategy, which resulted in an overall increase in the premium per
member per month of approximately 10.7% in 1999 as compared to 1998. The medical
expense on a per member per month basis increased by approximately 8.8% in 1999
as compared to 1998.

Commission expense increased by $1.1 million, or 3.4%, to $32.5 million in 1999
from $31.4 million in 1998. Our commission expense ratio decreased to 3.5% for
1999 compared to 3.6% in 1998.

General and administrative expenses, excluding depreciation and amortization,
increased $7.3 million, or 4.5%, to $167.4 million in 1999 from $160.1 million
in 1998. Our general and administrative expense ratio, excluding depreciation
and amortization, decreased to 18.1% in 1999 compared to 18.5% in 1998. This
increase in these expenses is partially attributable to HealthLink's geographic
and member expansion efforts. In addition, we incurred general and
administrative expenses of $3.8 million in 1999 for costs related to our
reorganization which was completed on November 30, 2000. See description of the
reorganization in Note 1, "Organization" of the Notes to Consolidated Financial
Statements of Part II, Item 8, which is incorporated herein by reference.

Depreciation and amortization expenses decreased $2.1 million, or 9.5%, to $20.0
million in 1999 from $22.1 million in 1998. Amortization expenses for completed
components of our information and operations strategy project decreased by $1.3
million in 1999 compared to 1998. The decrease in amortization for the
information and operations strategy project is due in part to our change in the
estimated useful life of the capitalized software from five to seven years.



                                       50
<PAGE>   51
Operating expenses for our underwritten segment increased $24.0 million, or
3.0%, to $822.9 million in 1999 from $798.9 million in 1998, due to an increase
in health care service costs of $23.8 million in 1999 as compared to 1998.
Operating expenses for our self-funded segment increased $6.0 million, or 9.1%,
to $72.0 million in 1999 from $66.0 million in 1998. This increase was primarily
due to an increase in HealthLink's general and administrative expenses of $6.6
million, as previously described. Operating expenses for our other segment
decreased $0.1 million, or 1.1%, to $4.7 million in 1999 from $4.8 million in
1998.

Operating income (loss)

Operating income increased $29.8 million to $28.1 million in 1999 from a loss of
$1.7 million in 1998. Pricing strategies, medical cost management, and
controlled general and administrative expenses contributed to the increase in
operating income in 1999.

Operating loss for our underwritten segment decreased $18.6 million, or 79.1%,
to $4.9 million in 1999 from $23.5 million in 1998. The significant improvement
is due to our aforementioned successful pricing strategies and cost management
efforts.

Operating income for our self-funded segment increased $10.2 million, or 51.1%,
to $30.2 million in 1999 from $20.0 million in 1998. This improvement is due
primarily to HealthLink's continued profit growth from increased membership and
regional expansion. HealthLink's operating income increased by $7.7 million in
1999 as compared to 1998. HealthLink's operating income is inclusive of $2.8
million and $2.8 million in 1999 and 1998, respectively, for amortization
expenses related to goodwill and other intangible assets that were acquired
through our acquisition of HealthLink in 1995. The improvement is also due in
part to the increase in BlueCard(R) PPO and National Account membership, as
previously described.

Operating income for our other segment increased $0.9 million, or 50.3%, to $2.8
million in 1999 from $1.9 million in 1998, due to the increased rent charged to
our company by our real estate subsidiaries.

Net investment income

Net investment income decreased $1.2 million, or 7.5%, to $14.7 million for 1999
from $15.9 million in 1998, primarily as a result of a $1.1 million decrease in
net realized gains.

Other, net

Other, net expenses decreased $0.7 million, or 15.0%, to $4.1 million in 1999
from $4.8 million in 1998, partially due to a reduction in the total amount of
debt outstanding under our credit facility. In addition, our share of the
earnings of The EPOCH Group, L.C. increased by $0.3 million in 1999 as compared
to 1998.

Minority interest in consolidated subsidiary

The charge for minority interest increased $2.3 million, or 204.3%, to $3.4
million in 1999 from $1.1 million in 1998, due to the increase in Old
RightCHOICE's earnings in 1999 as compared to Old RightCHOICE's earnings in
1998.


                                       51
<PAGE>   52
Provision for income taxes

Our effective income tax provision rate was 39.9% and 33.6% for 1999 and 1998,
respectively. Our effective tax provision rates for 1999 and 1998 were affected
by non-deductible goodwill amortization, among other things. Due to a change in
the filing status for the state of Missouri during 1998, our 1999 and 1998 state
income tax provisions were favorably impacted.

Cumulative effect of accounting change

In the first quarter of 1999, we adopted the Accounting Standards Executive
Committee Statement of Position 98-5, "Reporting on the Costs of Start-up
Activities." As previously described, our adoption of this SOP resulted in a
$1.3 million expense write-off ($1.1 million, net of tax) in 1999 relating to
costs incurred in 1998 for legal, consulting, accounting and other fees related
to the reorganization of the company. We have reported the cumulative effect of
this accounting change in our 1999 statement of income.

Net income

Our net income for 1999 increased $13.6 million, or 264.2% to $18.8 million in
1999 from $5.2 million for 1998, as a result of the factors noted above. Basic
and diluted earnings per share for 1999 were $1.26 and $1.25, respectively,
compared to basic and diluted earnings per share for 1998 of $0.35 and $0.34,
respectively. Basic and diluted earnings per share for the years ended December
31, 1999 and 1998 are based upon weighted average shares outstanding of 15.0
million.

Liquidity And Capital Resources

Our working capital as of December 31, 2000 was $143.4 million, an increase of
$38.8 million from $104.6 million as of December 31, 1999. The increase is
partially attributable to the net income of $35.5 million in 2000. Net income
for 2000 includes the charge for public minority interest of $6.4 million.
Depreciation and amortization expenses related to noncurrent assets was $20.6
million. We capitalized $9.0 million of costs for property and equipment
purchases, $5.5 million of which relates to capitalized information and
operations strategy development costs. We sold our Southwest Missouri regional
office building in May 2000 for $3.6 million realizing a gain on sale of $0.7
million. Our unrealized depreciation of investments available for sale (net of
tax) decreased (improved) by $3.0 million in 2000. In addition, during 2000, we
repaid $8.0 million of the debt from our credit facility as well as $4.6 million
of debt related to capital leases. We also paid approximately $13 million to The
Missouri Foundation For Health in conjunction with our reorganization on
November 30, 2000. The reorganization is described in Note 1, "Organization" of
the Notes to Consolidated Financial Statements of Part II, Item 8, which is
incorporated herein by reference.

Net cash provided by operations totaled $45.8 million for the year ended
December 31, 2000 as compared to $58.4 million for the year ended December 31,
1999. For 2000, our net income was $35.5 million, which included $20.6 million
of depreciation and amortization expenses and $7.3 million related to the net
reduction in the Missouri Consolidated Health Care Plan contract loss reserve.
In addition, receivables, accounts payable and accrued expenses, medical claims
payable, and unearned premiums were affected by the timing of operating cash
payments and receipts as well as changes in membership and premium rates and
claims payments. Receivables increased by $36.8 million in part due to an
increase of $9.3 million related to HealthLink receivables, rate increases
related to our underwritten products, and other timing factors. This increase in
receivables was offset in part by an increase in unearned premiums of $5.7
million. Accounts payable and accrued expenses increased by $14.5 million




                                       52
<PAGE>   53
due to the timing of various operating cash payments and accruals. Medical
claims payable increased by $4.9 million, or approximately 3.5%, due to the
increase in the cost of health care services and an increase in underwritten
membership, partially offset by our efforts to reduce our claims inventory.

We primarily invest our cash balances in fixed income securities. Our investment
policies are designed to preserve principal, maximize yield and provide
liquidity to meet anticipated obligations. Our available-for-sale securities
primarily include fixed-rate government securities and corporate bonds as well
as mortgage-backed and other asset-backed securities. We also have invested
approximately $16.0 million in various equity index funds, the value of which
was approximately $14.5 million, which represents 5.5% of the total value of our
investments available for sale, as of December 31, 2000.

Under applicable state regulations, some of our subsidiaries are required to
retain cash generated from their operations. After giving effect to these
restrictions, we had approximately $64.4 million in cash and investments
available for general corporate purposes without regulatory approval at December
31, 2000.

Our credit agreement requires that in 2001 we repay $6.0 million of the amount
borrowed. To secure our obligations under the credit agreement, we have pledged
to the lender the stock of our direct subsidiaries. In addition, the credit
facility is currently scheduled to terminate on January 2, 2002 as described in
Note 10, "Long-term debt and commitments" of the Notes to Consolidated Financial
Statements of Part II, Item 8 of this Annual Report. On March 28, 2001, we filed
a registration statement with the Securities and Exchange Commission to offer
for sale to the public shares of our common stock. If our offering is completed,
we are required to use the net proceeds to reduce our borrowings under our
credit agreement. Once repaid, there will be no further borrowings available
under the credit agreement.

In 2001, we anticipate that we will expend approximately $13 million to $14
million, of which $8 million to $9 million will be capitalized, related to our
information and operations strategy project. We anticipate that we will expend
approximately $4 million to $5 million, of which approximately $2 million to $3
million will be capitalized, to prepare for compliance with the Health Insurance
Portability and Accountability Act. We anticipate that we will expend
approximately $2 million to $3 million, of which approximately $1 million to $2
million will be capitalized, on various internet initiatives. We expect to
continue to pay annual license fees of approximately $1 million related to our
licenses from the Blue Cross Blue Shield Association to use the Blue Cross and
Blue Shield service marks. However, the amount of the license fees may vary from
year to year based on our total revenue as compared to that of all Blue Cross
and Blue Shield licensees as well as changes adopted by the Blue Cross Blue
Shield Association to its overall formulas for computing the license fees.

Other than the commitments noted above and normal operating needs, we currently
have no definitive material commitments for future use of our current or
expected levels of available cash resources. We continually evaluate
opportunities to expand our operations. Our expansion options may include
additional acquisitions and internal development of new products and programs.
Our available cash resources will remain primarily in interest-bearing
investments until they are utilized for such purposes. We believe that we will
have sufficient cash flow and cash available without regulatory approval to fund
our expected capital expenditures described above in 2001.

MEDICAL COST INFLATION

Health care costs in the United States have increased more rapidly than the
national consumer price index in recent years and that trend is expected to
continue. Our pricing strategy is designed to anticipate medical cost trends. As
an additional effort to lessen the impact of health care cost inflation on our
premiums, we have implemented certain programs including the three-tier
copayment levels for pharmacy coverages and various deductible and copayment
options for medical coverages and programs such as the Physician Group Partners
Program(R). However, we cannot provide any assurances that our efforts to reduce
the impact of medical cost inflation will be effective or that premium increases
will equal or exceed increasing health care costs.



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<PAGE>   54
HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF 1996

The United States Department of Health and Human Services has issued rules, as
mandated by the Health Insurance Portability and Accountability Act of 1996,
known as HIPAA, which would, among other things, impose security and privacy
requirements with respect to individually identifiable patient data, including a
member's transactions with health care providers and payors, as well as
requirements for the standardization of certain electronic transaction code sets
and provider identifiers. We anticipate expending approximately $4 million to $5
million in 2001, of which approximately $2 million to $3 million will be
capitalized, related to our efforts to comply with the electronic transaction
code sets and provider identifier standards. We have not fully assessed the
additional financial impact related to compliance with security and patient
information privacy standards. Since issuing the standards in December 2000, the
Department of Health and Human Services has postponed the effective date until
April 2001 and the compliance date until April 2003, and provided for an
additional comment period. In addition, final security regulations have not been
issued. We believe, however, the additional financial impact could be material.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133 establishes standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires an entity to recognize all
derivatives as either assets or liabilities in the statement of financial
position and measures those instruments at fair value. SFAS No. 133 is effective
for all fiscal years beginning after June 15, 2000, as extended by SFAS No. 137.
Earlier application of SFAS No. 133 is encouraged but should not be applied
retroactively to financial statements of prior periods. We believe that the
adoption of SFAS No. 133 will not have a material impact on our financial
position or results of operations. We have minimal use of derivatives as defined
by SFAS No. 133 and do not use derivatives for hedging activities.

In March 1998, the Accounting Standards Executive Committee issued Statement of
Position 98-1, "Accounting for Computer Software Developed For or Obtained For
Internal Use," which is effective for fiscal years beginning after December 15,
1998. SOP 98-1 requires preliminary stage project costs to be expensed as
incurred. Once a project is in the application development stage, SOP 98-1
requires all external direct costs for materials and services and payroll and
related fringe benefit costs to be capitalized and subsequently amortized over
the estimated useful life of the project. The adoption of SOP 98-1 did not have
a material impact on our financial position or results of operations.

In April 1998, the Accounting Standards Executive Committee issued Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities," which is
effective for fiscal years beginning after December 15, 1998. SOP 98-5 requires
that certain costs of start-up activities, including organization costs, should
be expensed as incurred. We adopted SOP 98-5 in the first quarter of 1999 and
this adoption resulted in a $1.3 million expense write-off ($1.1 million, net of
tax) in 1999 relating to costs incurred in 1998 for legal, consulting,
accounting and other fees related to the reorganization. We have reported the
cumulative effect of this accounting change in our 1999 statement of income. In
total, we expensed $2.0 million and $5.1 million (including the $1.3 million
noted above) of costs in 2000 and 1999, respectively, related to the
reorganization.

CONTINGENCIES

See description under the same caption in Note 13 of the Notes to Consolidated
Financial Statements of Part II, Item 8, which is incorporated herein by
reference.



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<PAGE>   55
       ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

INVESTMENTS AVAILABLE FOR SALE

Our available-for-sale securities are exposed to market risk from changes in
interest rates, as rate volatility will cause fluctuations in the market value
of held investments and the earnings potential of future investments. See Note
4, "Investments available for sale," of the Notes to Consolidated Financial
Statements for further breakdown of the available-for-sale securities. Our
objective in managing interest rate risk is to meet the strategic operating
needs by safeguarding principal, providing sufficient liquidity to meet business
needs and realizing optimal real returns within acceptable risk levels, while at
all times adhering to the restrictions of the Missouri and Illinois Departments
of Insurance. Our management is responsible for recommending external portfolio
managers, and our Finance and Investment Committee, comprised of certain members
of our board of directors, is responsible for approving the selection of these
external managers, including the specific portfolio guidelines and restrictions
to be included in the management agreements. Our investment guidelines are
generally conservative and are established with the expectation of receiving
reasonable rates of return at reasonable levels of risk. Our management is also
responsible for recommending the percentage distribution of the portfolio
between short-term, fixed income, and equity investments for the Finance and
Investment Committee's approval. Our objective is to diversify our portfolio to
reduce volatility through exposure to various investment styles. Managers of
each external portfolio are expected to exceed a specific index which is
comparable to its style of management.

We classify our investments as available-for-sale. Accordingly, our investments
are reported on our consolidated balance sheets at fair value. Changes in market
interest rates or prices result in an unrealized gain or loss, which is included
in the reported fair value of the recorded securities, with an offsetting amount
(net of taxes) recorded in stockholders' equity, and no related or immediate
impact to the results of operations. At December 31, 2000, we recorded a net
unrealized loss of $1.6 million on these investments and the fair value of the
securities could potentially decrease further, depending upon changes in market
rates and other factors. As of December 31, 2000, we had $262.0 million invested
in available-for-sale securities at fair value. The analyses below are based on
$192.6 million of our available-for-sale fixed maturity securities that are
managed externally, with a weighted-average yield to maturity of 6.33%. Our
available-for-sale securities primarily include fixed-rate government securities
and corporate bonds as well as mortgage-backed securities and other asset-backed
securities. We also have approximately $16.0 million invested in various equity
index funds, the value of which at December 31, 2000 was approximately $14.5
million. These funds utilize passive investment strategies that are designed to
track the performance of a variety of published indices. The funds' total return
may fluctuate, like stock prices generally, within a wide range. The remaining
$54.9 million of our available-for-sale securities were not included in the
analyses as the investments are primarily either internally managed or represent
short-term securities or money market funds. The market risks related to these
internally managed and short-term investments are not deemed to be material to
the analyses presented below. A breakdown of the effective maturity and
effective duration of the $192.6 million of externally managed fixed maturity
investments is as follows:



                                       55
<PAGE>   56
<TABLE>
<CAPTION>
 EFFECTIVE MATURITY (IN   % OF TOTAL HELD   EFFECTIVE DURATION   % OF TOTAL HELD
         YEARS)                                 (IN YEARS)
<S>                       <C>               <C>                  <C>
      0.00 - 0.99               8.0             0.00 -0.99             8.8
      1.00 - 2.99              20.4             1.00 -2.99            26.2
      3.00 - 4.99              28.1             3.00 -3.99            23.4
      5.00 - 9.99              36.1             4.00 -5.99            23.8
     10.00 -19.99               2.1             6.00 -7.99            12.2
     20.00 +                    5.3             8.00 +                 5.6
</TABLE>

The following table shows the effect of changes in interest rates on our
investment return, duration and market value. The analysis below incorporates
the prepayment risk associated with our investments in callable securities as
well as the optionality of our mortgage-backed and asset-backed securities. The
analysis includes a 12-month projection of market values given the applicable
changes in yields that we believe are reasonably possible in the near term from
that which existed at year-end 2000 with the assumption that investment income
is reinvested.

<TABLE>
<CAPTION>
                              RETURN %
                     --------------------------
                                                                     CHANGE IN
   YIELD CHANGE                                     EFFECTIVE      MARKET VALUE
  (BASIS POINTS)     TOTAL     INCOME     PRICE      DURATION     (IN THOUSANDS)
<S>                  <C>       <C>        <C>       <C>           <C>
         -200        10.88      4.33       6.55         3.12           $15,316
         -100         8.60      5.33       3.27         3.13             7,649
          -50         7.48      5.83       1.65         3.18             3,856
            0         6.33      6.33       0.00         3.26                 0
           50         5.16      6.82      -1.66         3.32           (3,875)
          100         3.99      7.32      -3.33         3.37           (7,781)
          200         1.73      8.31      -6.58         3.36          (15,388)
</TABLE>

To summarize, a decrease in effective interest rates would result in an increase
in the fair value of our portfolio with an offsetting increase (net of taxes)
recorded in stockholders' equity. Alternatively, an increase in interest rates
would result in a decrease in the fair value of our portfolio with an offsetting
decrease (net of taxes) recorded in stockholders' equity. We cannot provide any
assurances that actual changes in interest rates will have the effects as
presented above, as this analysis includes various assumptions, and changes in
these assumptions, as well as various other factors causing market volatility,
could result in material differences from the figures presented above.

LONG-TERM DEBT

During 2000, we were exposed to changes in interest rates through our revolving
credit facility with Bank of America National Association, formerly known as
Bank of America National Trust and Savings Association, and another bank. This
exposure was primarily linked to the adjusted London Interbank Offered Rate,
known as LIBOR. Our debt under the credit agreement was subject to interest at
2.25% above the adjusted LIBOR and was adjusted monthly accordingly. A
hypothetical 10% increase in the adjusted LIBOR would have increased our
interest expense by approximately $0.3 million during 2000. At December 31,
2000, we had $26.1 million outstanding under the credit agreement. See Note 10,
"Long-term debt and commitments," of the Notes to Consolidated Financial
Statements for further information related to our credit agreement. In addition
to denominating the borrowings under the credit agreement at the adjusted LIBOR
plus 2.25%, we may, at our discretion, denominate borrowings as a base rate loan
which bears interest at 1.25% above the higher of the latest federal funds rate
plus 0.5% or the bank's reference rate, which approximates the prime rate. In
either case, the applicable interest rate is




                                       56
<PAGE>   57
subject to adjustment on a monthly basis. The maximum commitment of the credit
agreement was reduced to $26.1 million as of December 31, 2000, with $2.0
million quarterly reductions scheduled through September 30, 2001, with the
balance due January 2, 2002. In addition, mandatory reductions to the
commitment, together with prepayments, are required upon the happening of
extraordinary events, such as the issuance of debt or equity securities or the
sale of a subsidiary. On March 28, 2001, we filed a registration statement with
the Securities and Exchange Commission to offer for sale to the public shares of
our common stock. If our offering is completed, we are required to use the net
proceeds we receive to reduce our borrowings under the credit agreement. Once
repaid, there will be no further borrowings available under the credit
agreement.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Financial Statements:

<TABLE>
<CAPTION>
                                                                                                   Page
<S>                                                                                                <C>
Report of Independent Accountants.............................................................      66
Consolidated Balance Sheets as of December 31, 2000, and 1999.................................      67
Consolidated Statements of Income for the years ended
         December 31, 2000, 1999 and 1998.....................................................      68
Consolidated Statements of Changes in Stockholders' Equity for the years ended
         December 31, 2000, 1999 and 1998.....................................................      69
Consolidated Statements of Cash Flows for the years ended
         December 31, 2000, 1999 and 1998.....................................................      70
Notes to Consolidated Financial Statements....................................................      71
Report of Independent Accountants.............................................................      95
Financial Statement Schedule - Condensed Financial Information of Registrant..................      96
</TABLE>


                                       57
<PAGE>   58
    ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                              FINANCIAL DISCLOSURE

None.

                                    PART III

           ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information included under the heading "Information About Nominees and Other
Directors" (except the information set forth under the subcaptions thereunder,
"Director Compensation" and "Meetings" and "Committees") and the information
included under the heading "Section 16(a) Beneficial Ownership Reporting
Compliance" in the company's definitive Proxy Statement for the Annual Meeting
of Stockholders to be held June 8, 2001 is incorporated herein by reference.

Pursuant to General Instruction G(3) to Form 10-K, information as to executive
officers of the company is set forth in Part I of this Form 10-K under separate
caption.

                         ITEM 11. EXECUTIVE COMPENSATION

The information included under the headings "Executive Compensation and Other
Information" (except the information set forth under the subcaptions thereunder,
"Compensation Committee Report") and "Information About Nominees and Other
Directors - Director Compensation" in the company's definitive Proxy Statement
for the Annual Meeting of Stockholders to be held June 8, 2001 is incorporated
herein by reference.

          ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                                   MANAGEMENT

The information included under the heading "Ownership of Our Common Stock" in
the company's definitive Proxy Statement for the Annual Meeting of Stockholders
to be held on June 8, 2001 is incorporated herein by reference.

             ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information included under the heading "Related Party Transactions" in the
company's definitive Proxy Statement for the Annual Meeting of the Stockholders
to be held on June 8, 2001 is incorporated herein by reference.

                                     PART IV

          ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
                                   ON FORM 8-K

a)       The following documents are filed as part of this report:

1)       Financial Statements:

         The financial statements required to be filed as part of this Form 10-K
Annual Report are set forth in the index in Part II, Item 8 of this report.


                                       58
<PAGE>   59
2)       Financial Statement Schedules:

                                                                            Page
         The schedule required to be filed as part of this report is
         as follows:

         I.       Condensed Financial Information of Registrant              96

Schedules not included herein have been omitted because of the absence of
conditions under which they are required or because the required information,
where material, is shown in the consolidated financial statements or related
notes thereto.

3)       Exhibits

      Number      Exhibit
      ------      -------

         2.1      Agreement and Plan of Reorganization, dated as of March 14,
                  2000, by and among Blue Cross and Blue Shield of Missouri, a
                  Missouri nonprofit health services corporation, RightCHOICE
                  Managed Care, Inc., a Missouri corporation, The Missouri
                  Foundation For Health, a Missouri nonprofit public benefit
                  corporation, and RightCHOICE Managed Care, Inc., a Delaware
                  corporation (incorporated by reference to Exhibit 2 of the
                  Registrant's Registration Statement on Form S-4 (File No.
                  333-34750)).

         3.1      Certificate of Incorporation of RightCHOICE Managed Care,
                  Inc., a Delaware corporation (incorporated by reference to
                  Exhibit 3(a) of the Registrant's Registration Statement on
                  Form S-4 (File No. 333-34750)).

         3.2      Bylaws of RightCHOICE Managed Care, Inc., a Delaware
                  corporation, as amended.

         4.1      Specimen of common stock certificate of RightCHOICE Managed
                  Care, Inc., a Delaware corporation.

         4.2      Certificate of Incorporation of RightCHOICE Managed Care,
                  Inc., a Delaware corporation (included in Exhibit 3.1).

         4.3      Bylaws of RightCHOICE Managed Care, Inc., a Delaware
                  corporation, as amended (included in Exhibit 3.2).

         9.1      Voting Trust and Divestiture Agreement, dated as of November
                  30, 2000, by and among RightCHOICE Managed Care, Inc., a
                  Delaware corporation, The Missouri Foundation For Health, a
                  Missouri nonprofit public benefit corporation, and Wilmington
                  Trust Company, a Delaware banking corporation, as trustee
                  (incorporated by reference to Exhibit 9 of the Registrant's
                  Registration Statement on Form S-4 (File No. 333-34750)).

         10.1     Blue Cross License Agreement, dated November 30, 2000, by and
                  between the Blue Cross Blue Shield Association and RightCHOICE
                  Managed Care, Inc., a Delaware corporation (incorporated by
                  reference to Exhibit 10.1 of the Registrant's Current Report
                  on Form 8-K filed December 15, 2000).

         10.2     Blue Shield License Agreement, dated November 30, 2000, by and
                  between the Blue Cross Blue Shield Association and RightCHOICE
                  Managed Care, Inc., a Delaware corporation (incorporated by
                  reference to Exhibit 10.2 of the Registrant's Current Report
                  on Form 8-K) filed December 15, 2000).

         10.3     Missouri Blue Cross/Blue Shield License Addendum, dated as of
                  November 30, 2000, by and between the Blue Cross Blue Shield
                  Association and RightCHOICE Managed Care, Inc., a Delaware
                  corporation (incorporated by reference to Exhibit 10.3 of the
                  Registrant's Current Report on Form 8-K filed December 15,
                  2000).


                                       59
<PAGE>   60
         10.4     Blue Cross Controlled Affiliate License Agreement, dated
                  November 30, 2000, by and among RightCHOICE Managed Care,
                  Inc., a Delaware corporation, Healthy Alliance Life Insurance
                  Company and the Blue Cross Blue Shield Association
                  (incorporated by reference to Exhibit 10.4 of the Registrant's
                  Current Report on Form 8-K filed December 15, 2000).

         10.5     Blue Shield Controlled Affiliate License Agreement, dated
                  November 30, 2000, by and among RightCHOICE Managed Care,
                  Inc., a Delaware corporation, Healthy Alliance Life Insurance
                  Company and the Blue Cross Blue Shield Association
                  (incorporated by reference to Exhibit 10.5 of the Registrant's
                  Current Report on Form 8-K filed December 15, 2000).

         10.6     Blue Cross Controlled Affiliate License Agreement, dated
                  November 30, 2000, by and among RightCHOICE Managed Care,
                  Inc., a Delaware corporation, HMO Missouri, Inc. and the Blue
                  Cross Blue Shield Association (incorporated by reference to
                  Exhibit 10.6 of the Registrant's Current Report on Form 8-K
                  filed December 15, 2000).

         10.7     Blue Shield Controlled Affiliate License Agreement, dated
                  November 30, 2000, by and among RightCHOICE Managed Care,
                  Inc., a Delaware corporation, HMO Missouri, Inc. and the Blue
                  Cross Blue Shield Association (incorporated by reference to
                  Exhibit 10.7 of the Registrant's Current Report on Form 8-K
                  filed December 15, 2000).

         10.8     Summary of Approved Changes to Blue Cross and Blue Shield
                  Primary License Agreements.

         10.9     Summary of Approved Changes to Blue Cross and Blue Shield
                  Controlled Affiliate License Agreements.

        10.10     Parental Guarantee of RightCHOICE Managed Care, Inc., a
                  Delaware corporation, dated November 30, 2000 (incorporated by
                  reference to Exhibit 10.8 of the Registrant's Current Report
                  on Form 8-K filed December 15, 2000).

        10.11     Registration Rights Agreement, dated as of November 30, 2000,
                  by and between RightCHOICE Managed Care, Inc., a Delaware
                  corporation, and The Missouri Foundation For Health, a
                  Missouri nonprofit corporation (incorporated by reference to
                  Exhibit 10.9 of the Registrant's Current Report on Form 8-K
                  filed December 15, 2000).

        10.12     Indemnification Agreement, dated as of November 30, 2000, by
                  and between RightCHOICE Managed Care, Inc., a Delaware
                  corporation, and The Missouri Foundation For Health, a
                  Missouri nonprofit corporation (incorporated by reference to
                  Exhibit 10.10 of the Registrant's Current Report on Form 8-K
                  filed December 15, 2000).

        10.13     Share Escrow Agent Agreement, dated as of November 30, 2000,
                  by and between RightCHOICE Managed Care, Inc., a Delaware
                  corporation, and U.S. Trust Company, National Association, as
                  share escrow agent (incorporated by reference to Exhibit 10.11
                  of the Registrant's Current Report on Form 8-K filed December
                  15, 2000).

        10.14     Amended and Restated Settlement Agreement, dated January 6,
                  2000, by and among Jeremiah W. "Jay" Nixon, Attorney General
                  of the State of Missouri, the Missouri Department of Insurance
                  and Keith A. Wenzel, its Director, Blue Cross and Blue Shield
                  of Missouri, a Missouri nonprofit health services corporation,
                  and RightCHOICE Managed Care, Inc., a Missouri corporation
                  (incorporated by reference to Exhibit 10(a) of the
                  Registrant's Registration Statement on Form S-4 (File No.
                  333-34750)).

        10.15     Settlement Agreement Notification and Confirmation of
                  Fulfillment of Certain Obligations and Conditions, dated as of
                  November 27, 2000, among Jeremiah W. "Jay" Nixon, Attorney
                  General of the State of Missouri, the Missouri Department of
                  Insurance and Keith A. Wenzel, its Director, Blue Cross and
                  Blue Shield of Missouri, a Missouri nonprofit health services
                  corporation, and RightCHOICE Managed Care, Inc., a Missouri
                  corporation.

                                       60
<PAGE>   61
        10.16     Settlement Agreement, dated September 20, 1998, by and among
                  the Director of Department of Insurance of the State of
                  Missouri, Blue Cross and Blue Shield of Missouri, HMO
                  Missouri, Inc. and Healthy Alliance Life Insurance Company
                  (incorporated by reference to Exhibit 99(b) to the Form 8-K of
                  RightCHOICE Managed Care, Inc., a Missouri corporation, filed
                  September 23, 1998).

        10.17     Letter Agreement, dated January 5, 2000, amending the
                  Settlement Agreement, dated September 20, 1998, by and among
                  the Director of the Department of Insurance of the State of
                  Missouri, Blue Cross and Blue Shield of Missouri, HMO
                  Missouri, Inc. and Healthy Alliance Life Insurance Company
                  (incorporated by reference to Exhibit 99(b) to the Form 8-K of
                  RightCHOICE Managed Care, Inc., a Missouri corporation, filed
                  on January 11, 2000).

        10.18     Settlement Agreement, dated September 20, 1998, by and among
                  Jeremiah W. (Jay) Nixon, Attorney General, on behalf of the
                  state of Missouri, Blue Cross and Blue Shield of Missouri,
                  RightCHOICE Managed Care, Inc., HMO Missouri, Inc. d/b/a
                  BlueCHOICE, Healthy Alliance Life Insurance Company and
                  Preferred Health Plans of Missouri, Inc. (incorporated by
                  reference to Exhibit 99(c) to the Form 8-K of RightCHOICE
                  Managed Care, Inc., a Missouri corporation, filed on September
                  23, 1998).


        10.19     Letter Agreement, dated January 4, 2000, amending the
                  Settlement Agreement, dated September 20, 1998, by and among
                  Jeremiah W. (Jay) Nixon, Attorney General, on behalf of the
                  State of Missouri, Blue Cross Blue Shield of Missouri,
                  RightCHOICE Managed Care, Inc., HMO Missouri, Inc. d/b/a
                  BlueChoice, Healthy Alliance Life Insurance Company and
                  Preferred Health Plans of Missouri, Inc. (incorporated by
                  reference to Exhibit 99(c) to the Form 8-K of RightCHOICE
                  Managed Care, Inc., a Missouri corporation, filed on January
                  11, 2000).

        10.20     Settlement Agreement, dated September 20, 1998, by and among
                  Healthy Alliance Life Insurance Company, the Director of
                  Revenue of the State of Missouri and the Director of the
                  Department of Insurance of the State of Missouri (incorporated
                  by reference to Exhibit 99(d) to the Form 8-K of RightCHOICE
                  Managed Care, Inc., a Missouri corporation, filed on September
                  23, 1998).

        10.21     Letter Agreement, dated January 5, 2000, amending the
                  Settlement Agreement, dated September 20, 1998, by and among
                  Healthy Alliance Life Insurance Company, the Director of
                  Revenue of the State of Missouri and the Director of the
                  Department of Insurance of the State of Missouri (incorporated
                  by reference to Exhibit 99(d) to the Form 8-K of RightCHOICE
                  Managed Care, Inc., a Missouri corporation, filed on January
                  11, 2000).

        10.22     RightCHOICE Managed Care, Inc., Non-Employee Directors' Stock
                  Option Plan (incorporated by reference to Exhibit 10.18 to the
                  Registration Statement on Form S-1 of RightCHOICE Managed
                  Care, Inc., a Missouri corporation (File No. 33-77798)).

        10.23     RightCHOICE Managed Care, Inc. 1994 Equity Incentive Plan
                  (incorporated by reference to Exhibit 4(c) of the Registrant's
                  Post-Effective Amendment No. 2 on Form S-8 to Registration
                  Statement on Form S-4 (File No. 333-34750)).

        10.24     RightCHOICE Managed Care, Inc. Amended and Restated
                  Nonemployee Directors' Nonqualified Deferred Compensation Plan
                  (incorporated by reference to Exhibit 4(c) of the Registrant's
                  Registration Statement on Form S-8 (File No. 333-51334)).

        10.25     RightCHOICE Managed Care, Inc. Executive Deferred Compensation
                  Plan (incorporated by reference to Exhibit 4(c) of the
                  Registrant's Registration Statement on Form S-8 (File No.
                  333-51336)).

        10.26     RightCHOICE Managed Care, Inc. Supplemental Executive
                  Retirement Plan as restated (incorporated by reference to
                  Exhibit 10.22.1 to Form 10-K for the year ended December 31,
                  1999 of RightCHOICE Managed Care, Inc., a Missouri
                  corporation).*

        10.27     Management Incentive Plan*

        10.28     Form of Indemnification Agreement between RightCHOICE Managed
                  Care, Inc., a Missouri corporation, and its Directors and
                  Officers (incorporated by reference to Exhibit 10.22 to the
                  Registration Statement on Form S-1 of RightCHOICE Managed
                  Care, Inc., a Missouri corporation (File No. 33-77798)).

        10.29     List of Directors and Officers who have executed
                  Indemnification Agreement.


        10.30     Executive Employment Agreement of John A. O'Rourke, dated
                  February 27, 1997 (incorporated by reference to Exhibit 10.51
                  of Form 10-Q for the quarter ended September 30, 1997 of
                  RightCHOICE Managed Care, Inc., a Delaware corporation).*

        10.31     First Amendment to Executive Employment Agreement of John A.
                  O'Rourke, dated December 28, 1999 (incorporated by reference
                  to Exhibit 10.45.1 of the Form 10-K for the year ended
                  December 31, 1999 of RightCHOICE Managed Care, Inc., a
                  Missouri Corporation).*

        10.32     Executive Severance Agreement between RightCHOICE Managed
                  Care, Inc., a Delaware corporation, and Sandra A. Van Trease,
                  dated March 20, 2001.*

        10.33     Executive Severance Agreement between RightCHOICE Managed
                  Care, Inc., a Delaware corporation, and Angela F. Braly,
                  dated March 15, 2001.*


                                       61
<PAGE>   62
        10.34     Executive Severance Agreement between RightCHOICE Managed
                  Care, Inc., a Delaware corporation, and Dr. John S.
                  Seidenfeld, dated March 19, 2001.*

        10.35     Executive Severance Agreement between RightCHOICE Managed
                  Care, Inc., a Delaware corporation, and Michael Fulk, dated
                  March 19, 2001.*

        10.36     Officer Severance Agreement between RightCHOICE Managed Care,
                  Inc., a Delaware corporation, and Sandra A. Van Trease, dated
                  March 20, 2001.*

        10.37     Officer Severance Agreement between RightCHOICE Managed Care,
                  Inc., a Delaware corporation, and Angela F. Braly, dated
                  March 15, 2001.*

        10.38     Officer Severance Agreement between RightCHOICE Managed Care,
                  Inc., a Delaware corporation, and Dr. John J. Seidenfeld,
                  dated March 19, 2001.*

        10.39     Officer Severance Agreement between RightCHOICE Managed Care,
                  Inc., a Delaware corporation, and Michael Fulk, dated March
                  19, 2001.*

        10.40     Form of Executive Severance Agreement between RightCHOICE
                  Managed Care, Inc., a Delaware corporation, and certain senior
                  vice presidents of RightCHOICE Managed Care, Inc., a Delaware
                  corporation.*

        10.41     List of senior vice presidents who have executed an Executive
                  Severance Agreement.

        10.42     Form of Officer Severance Agreement between RightCHOICE
                  Managed Care, Inc., a Delaware corporation, and certain senior
                  vice presidents of RightCHOICE Managed Care, Inc., a Delaware
                  corporation.*

        10.43     List of senior vice presidents who have executed an Officer
                  Severance Agreement.

        10.44     Form of Officer Severance Agreement between RightCHOICE
                  Managed Care, Inc., a Delaware corporation, and certain vice
                  presidents of RightCHOICE Managed Care, Inc., a Delaware
                  corporation.*

        10.45     List of vice presidents who have executed an Officer Severance
                  Agreement.

        10.46     Form of Officer Severance Agreement between RightCHOICE
                  Managed Care, Inc., a Missouri corporation, and certain vice
                  presidents of RightCHOICE Managed Care, Inc., a Delaware
                  corporation (incorporated by reference to Exhibit 10.54 of the
                  Form 10-K for the year ended December 31, 1997 of RightCHOICE
                  Managed Care, Inc., a Missouri corporation).*

        10.47     List of certain vice presidents of RightCHOICE Managed Care,
                  Inc., a Delaware corporation, who have executed an Officer
                  Severance Agreement with RightCHOICE Managed Care, Inc., a
                  Missouri corporation.

        10.48     Amended and Restated Company/Subsidiaries Tax Allocation
                  Agreement.

        10.49     Amended and Restated State Income Tax Allocation Agreement.

        10.50     Amended and Restated Tax Allocation Agreement between
                  RightCHOICE Managed Care, Inc., a Missouri corporation,
                  and Blue Cross and Blue Shield of Missouri (incorporated by
                  reference to Exhibit 10.5.1 of the Form 10-K for the year
                  ended December 31, 1997 of RightCHOICE Managed Care, Inc., a
                  Missouri corporation).

        10.51     State Income Tax Allocation Agreement by and among Blue Cross
                  and Blue Shield of Missouri and RightCHOICE Managed Care,
                  Inc., a Missouri corporation (incorporated by reference to
                  Exhibit 10.1 to the Form 10-Q for the quarter ended
                  September 30, 1999 of RightCHOICE Managed Care, Inc., a
                  Missouri corporation).

        10.52     Amended and Restated Administrative Services Agreement between
                  Blue Cross and Blue Shield of Missouri and RightCHOICE Managed
                  Care, Inc., a Missouri corporation (incorporated by reference
                  to Exhibit 10.4.1 to the Form 10-K for the year ended December
                  31, 1997 of RightCHOICE Managed Care, Inc., a Missouri
                  corporation).

        10.53     Credit Agreement dated as of August 10, 1995 among RightCHOICE
                  Managed Care, Inc., as the Borrower, Bank of America National
                  Trust and Savings Association, as Administrative Agent, The
                  Boatmen's National Bank of St. Louis, as Co-Agent and the
                  other Financial Institutions Party thereto arranged by BA
                  Securities, Inc. (incorporated by reference to Exhibit 10.1 to
                  the Form 10-Q for the year ended June 30, 1995 of RightCHOICE
                  Managed Care, Inc., a Missouri corporation).

        10.54     First Amendment to the Credit Agreement (incorporated by
                  reference to Exhibit 10.36.1 to the Form 10-K for the year
                  ended December 31, 1995 of RightCHOICE Managed Care, Inc., a
                  Missouri corporation).

        10.55     Consent and Second Amendment to the Credit Agreement
                  (incorporated by reference to Exhibit 10.36.2 to the Form 10-K
                  for the year ended December 31, 1995 of RightCHOICE Managed
                  Care, Inc., a Missouri corporation).

        10.56     Third amendment to the Credit Agreement (incorporated by
                  reference to Exhibit 10.2 to the Form 10-Q for the period
                  ending June 30, 1996 of RightCHOICE Managed Care, Inc., a
                  Missouri corporation).


                                       62
<PAGE>   63
        10.57     Fourth amendment to the Credit Agreement (incorporated by
                  reference to Exhibit 10.36.4 to the Form 10-K for the year
                  ended December 31, 1996 of RightCHOICE Managed Care, Inc., a
                  Missouri corporation).

        10.58     Fifth amendment to the Credit Agreement (incorporated by
                  reference to Exhibit 10.36.5 to the Form 10-K for the year
                  ended December 31, 1996 of RightCHOICE Managed Care, Inc., a
                  Missouri corporation).

        10.59     Sixth amendment to the Credit Agreement (incorporated by
                  reference to Exhibit 10.36.6 to the Form 10-Q for the period
                  ending September 30, 1997 of RightCHOICE Managed Care, Inc., a
                  Missouri corporation).

        10.60     Seventh amendment to the Credit Agreement (incorporated by
                  reference to Exhibit 10.36.7 to the Form 10-Q for the period
                  ending September 30, 1999 of RightCHOICE Managed Care, Inc., a
                  Missouri corporation).

        10.61     Lease between Forty-Four Forty-Four Forest Park Redevelopment
                  Corporation and RightCHOICE Managed Care, Inc. dated January
                  1, 1995 (incorporated by reference to Exhibit 10.2 to the Form
                  10-Q for the period ending June 30, 1995 of RightCHOICE
                  Managed Care, Inc., a Missouri corporation).

        10.62     Building Services Agreement between Forty-Four Forty-Four
                  Forest Park Redevelopment Corporation and RightCHOICE Managed
                  Care, Inc. dated January 1, 1995 (incorporated by reference to
                  Exhibit 10.4 to the Form 10-Q for the period ending June 30,
                  1995 of RightCHOICE Managed Care, Inc., a Missouri
                  corporation).

        10.63     Network Rental Agreement, dated August 8, 1994, between
                  RightCHOICE Managed Care, Inc. and Healthy Alliance Life
                  Insurance Company (incorporated by reference to Exhibit 10.3
                  to Form 10-K for the year ended December 31, 1994 of
                  RightCHOICE Managed Care, Inc., a Missouri Corporation).

         21.1     List of Subsidiaries of the Registrant.

         23.1     Consent of PricewaterhouseCoopers LLP with regard to the
                  Registrants' Registration Statements on Form S-8,
                  Registration Statement No. 333-34750, Registration Statement
                  No. 333-51334, Registration Statement No. 333-51336,
                  Registration Statement No. 333-53736).

*        Document constitutes a management contract or compensatory plan or
         arrangement.

b)       Reports on Form 8-K:

The Registrant filed a report with the SEC on Form 8-K on December 15, 2000,
regarding the completion of the Reorganization of Blue Cross and Blue Shield of
Missouri, the Registrant, The Missouri Foundation for Health and RightCHOICE
Managed Care, Inc. (a Missouri corporation) which occurred on November 30, 2000.


                                       63
<PAGE>   64
The Registrant filed a report with the SEC on Form 8-K/A on January 29, 2001.
This amendment included certain financial statements and pro forma financial
information which were not available at the time of the filing of the 8-K report
that was filed on December 15, 2000.

c)       See Exhibits listed in Item 14(a) hereof and the attached to this Form
         10-K Annual Report.


                                       64
<PAGE>   65
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


Dated: March 27, 2001                         RightCHOICE Managed Care, Inc.

                                              By: /s/  JOHN A. O'ROURKE
                                                  ---------------------------
                                                  John A. O'Rourke
                                                  Chief Executive Officer

Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.


<TABLE>
<CAPTION>
         Signature                          Title                                    Date
         ---------                          -----                                    ----
<S>                                <C>                                          <C>
/s/  JOHN A. O'ROURKE              Chairman of the Board                        March 27, 2001
-------------------------------    and Chief Executive Officer
John A. O'Rourke

/s/  SANDRA A. VAN TREASE          President, Chief Operating                   March 27, 2001
-------------------------------    Officer and Chief Financial
Sandra A. Van Trease               Officer (Principal Financial Officer)


/s/  STUART K. CAMPBELL            Senior Vice President, Finance               March 27, 2001
-------------------------------    (Principal Accounting Officer)
Stuart K. Campbell

/s/  WILLIAM H. T. BUSH             Director                                    March 27, 2001
-------------------------------
William H. T. Bush

/s/ EARLE H. HARBISON, JR.          Director                                    March 27, 2001
-------------------------------
Earle H. Harbison, Jr.

/s/ ROGER B. PORTER, PH.D.          Director                                    March 27, 2001
-------------------------------
Roger B. Porter, Ph.D.

/s/  WILLIAM J. SCHICKER            Director                                    March 27, 2001
-------------------------------
William J. Schicker

/s/    GLORIA W. WHITE              Director                                    March 27, 2001
-------------------------------
Gloria W. White
</TABLE>


                                       65

<PAGE>   66
                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors
of RightCHOICE Managed Care, Inc.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of changes in stockholders' equity and of
cash flows present fairly in all material respects, the financial position of
RightCHOICE Managed Care, Inc., and its subsidiaries ("RightCHOICE") at December
31, 2000 and 1999, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2000, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of RightCHOICE's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

/s/  PricewaterhouseCoopers LLP
--------------------------------------
PricewaterhouseCoopers LLP
St. Louis, Missouri
February 9, 2001


                                       66
<PAGE>   67
                         RIGHTCHOICE MANAGED CARE, INC.
                           CONSOLIDATED BALANCE SHEETS
                (in thousands, except shares and per share data)

<TABLE>
<CAPTION>
                                                                                       DECEMBER 31,
                                ASSETS                                            2000             1999
                                                                                  ----             ----
<S>                                                                              <C>              <C>
Current assets:
     Cash and cash equivalents............................................       $56,026          $63,477
     Investments available for sale, at market value......................       262,039          228,053
     Receivables, net of allowances.......................................       132,260           95,460
     Deferred income taxes................................................        10,430            9,874
     Other assets.........................................................        18,798           29,029
                                                                                --------         --------
          Total current assets............................................       479,553          425,893
Property and equipment, net...............................................       110,010          117,406
Deferred income taxes.....................................................         5,413            3,493
Investments in affiliates.................................................         6,475            5,905
Goodwill and intangible assets, net.......................................        91,963           71,981
                                                                                --------         --------
          Total assets................................................ ...      $693,414         $624,678
                                                                                ========         ========

        LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' EQUITY

Current liabilities:
     Medical claims payable...............................................      $145,980         $141,037
     Unearned premiums....................................................        69,073           63,368
     Accounts payable and accrued expenses................................        88,720           74,102
     Current portion of long-term debt....................................         6,000            8,000
     Reserve for loss contract............................................                          7,259
     Obligations for employee benefits....................................         1,574            1,577
     Income taxes payable.................................................        20,938           21,853
     Obligations under capital leases.....................................         3,883            4,071
                                                                                --------         --------
          Total current liabilities.......................................       336,168          321,267
Long-term debt............................................................        20,063           26,063
Obligations for employee benefits.........................................        29,554           27,449
Obligations under capital leases..........................................         4,860            5,179
                                                                                --------         --------
          Total liabilities...............................................      $390,645         $379,958
                                                                                --------         --------

Minority interest in consolidated subsidiary..............................                         30,996
                                                                                --------         --------

Stockholders' equity:
     Preferred stock, $0.01 par, 25,000,000 shares authorized,
          no shares issued and outstanding................................
     Common stock, $0.01 par, 225,000,000 shares authorized,
          18,696,040 and 0 shares issued, 18,678,503 and 0
          shares outstanding, respectively................................           187
     Net assets available for the benefit of members......................                        217,281
     Additional paid-in capital...........................................       300,317
     Retained earnings....................................................         3,976
     Treasury stock, 17,537 and 0 shares, respectively, at cost ..........         (234)
     Accumulated other comprehensive loss.................................       (1,477)          (3,557)
                                                                                --------         --------
          Total stockholders' equity......................................       302,769          213,724
                                                                                --------         --------
          Total liabilities, minority interest and stockholders' equity ..
                                                                                $693,414         $624,678
                                                                                ========         ========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.


                                       67

<PAGE>   68
                         RIGHTCHOICE MANAGED CARE, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                (in thousands, except shares and per share data)

<TABLE>
<CAPTION>
                                                                        FOR THE YEAR ENDED DECEMBER 31,
                                                                     2000             1999           1998
                                                                     ----             ----           ----
<S>                                                               <C>             <C>            <C>
Revenues:
   Premium                                                          $939,284        $817,544       $775,159
   Fees and other income......................................       121,526         105,075         88,608
                                                                   ---------         -------        -------
             Total revenues...................................     1,060,810         922,619        863,767
                                                                   ---------         -------        -------

Operating expenses:
   Health care services......................................        768,456         674,602        650,834
   Commissions...............................................         36,525          32,505         31,436
   General and administrative (excludes depreciation and
     amortization)...........................................        181,632         167,419        160,146
   Depreciation and amortization.............................         20,556          20,028         22,130
   Non-recurring charges.....................................                                           900
                                                                   ---------         -------        -------
             Total operating expenses........................      1,007,169         894,554        865,446
                                                                   ---------         -------        -------
Operating income (loss)......................................         53,641          28,065        (1,679)
                                                                   ---------         -------        -------

Investment income:
   Interest and dividends....................................         17,202          15,262         15,329
   Realized gains (losses), net..............................            247           (516)            619
                                                                   ---------         -------        -------
             Total investment income, net....................         17,449          14,746         15,948
                                                                   ---------         -------        -------

Other:
   Interest expense..........................................        (3,798)         (4,344)        (4,541)
   Other income (expense), net...............................          1,941             259          (266)
                                                                   ---------         -------        -------
             Total other, net................................        (1,857)         (4,085)        (4,807)
                                                                   ---------         -------        -------

Income before minority interest, provision for income taxes
   and cumulative effect of accounting change...............          69,233          38,726          9,462

Minority interest in consolidated subsidiary................         (6,422)         (3,387)        (1,113)

Provision for income taxes..................................        (27,285)        (15,442)        (3,181)
                                                                   ---------         -------        -------

Income before cumulative effect of accounting change........
                                                                     35,526           19,897          5,168

Cumulative effect of accounting change......................                         (1,076)
                                                                    -------          -------         ------

Net income..................................................        $35,526          $18,821         $5,168
                                                                    =======          =======         ======

Weighted average common shares outstanding..................      15,276,221      14,962,500     14,962,500
Potential dilutive common shares............................         346,874          43,438         17,924

Basic earnings per share....................................           $2.33           $1.26          $0.35
                                                                       =====           =====          =====

Diluted earnings per share..................................           $2.27           $1.25          $0.34
                                                                       =====           =====          =====
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.


                                       68
<PAGE>   69
                         RIGHTCHOICE MANAGED CARE, INC.
                       CONSOLIDATED STATEMENTS OF CHANGES
                            IN STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                           NET ASSETS       ACCUMULATED
                                                      ADDITIONAL                           AVAILABLE           OTHER
                                             COMMON    PAID IN     RETAINED   TREASURY   FOR THE BENEFIT   COMPREHENSIVE
                                              STOCK    CAPITAL     EARNINGS    STOCK       OF MEMBERS       INCOME (LOSS)   TOTAL
===================================================================================================================================
<S>                                          <C>      <C>          <C>        <C>        <C>               <C>             <C>
Balance at December 31, 1997                                                                $193,287           $1,436      $194,723

Comprehensive income:

  Net income                                                                                   5,168                          5,168

  Change in unrealized appreciation
  on available-for-sale securities, net
  of income tax benefit of $147 and net
  of minority interest benefit of $57                                                                            (240)         (240)

  Minimum pension liability adjustment,
  net of income tax benefit of $40 and
  net of minority interest benefit of $73                                                                        (297)         (297)

Comprehensive income                                                                                                          4,631

Other                                                                                              6                              6

Balance at December 31, 1998                                                                 198,461              899       199,360
-----------------------------------------------------------------------------------------------------------------------------------

Comprehensive income:

  Net income                                                                                  18,821                         18,821

  Change in unrealized appreciation
  on available-for-sale securities, net
  of income tax benefit of $3,198 and
  net of minority interest benefit
  of $1,108                                                                                                    (4,516)       (4,516)

  Minimum pension liability adjustment,
  net of income tax provision of $40
  and net of minority interest charge
  of $15                                                                                                           60            60

Comprehensive income                                                                                                         14,365

Other                                                                                             (1)                            (1)

Balance at December 31, 1999                                                                 217,281           (3,557)      213,724
-----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:


    Net income                                                        3,976                   31,550                         35,526

    Change in unrealized depreciation
    on available-for-sale securities, net
    of income tax provision of $1,744 and
    net of minority interest charge of $397                                                                     2,616         2,616

    Minimum pension liability adjustment,
    net of income tax benefit of $33                                                                              (63)          (63)

Comprehensive income                                                                                                         38,079

Other                                                                                            118                            118

Payment to The Missouri Foundation
For Health                                                                                   (12,780)                       (12,780)

Issuance of common stock pursuant
to the Reorganization                          187      300,277                  (490)      (236,169)            (473)       63,332

Common shares issued under the
company's stock option plan subsequent
to the Reorganization                                        40                   256                                           296

Balance at December 31, 2000                  $187     $300,317      $3,976     $(234)            $0          $(1,477)     $302,769
===================================================================================================================================
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.


                                       69
<PAGE>   70
                         RIGHTCHOICE MANAGED CARE, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                          FOR THE YEAR ENDED DECEMBER 31,
                                                                                        2000           1999           1998
                                                                                        ----           ----           ----
<S>                                                                                  <C>            <C>           <C>
Cash flows from operating activities:
    Net income.................................................................        $35,526        $18,821        $5,168
    Adjustments to reconcile net income to net cash provided by operating
    activities:
    (Benefit) provision for deferred income taxes..............................        (4,186)          1,298         1,449
    Depreciation and amortization..............................................         20,556         20,028        22,130
    (Gain) loss on sale of property and equipment..............................          (655)            514            53
    Undistributed (earnings) losses of affiliates..............................          (570)          (176)            48
    (Gain) loss on sale of investments.........................................          (247)            516         (619)
    Accretion of discounts and amortization of premiums, net...................          (151)             28           611
    Minority interest in consolidated subsidiaries...........................            6,422          3,387         1,113
(Increase) decrease in certain assets, net of effects from investment in
affiliates:
    Receivables from members...................................................       (36,800)        (7,142)      (10,519)
    Other assets...............................................................          6,454          1,380       (4,877)
Increase (decrease) in certain liabilities, net of effects from investment in
affiliates:
    Medical claims payable.....................................................          4,943         18,813       (5,125)
    Unearned premiums..........................................................          5,705          6,322       (1,227)
    Accounts payable and accrued expenses......................................         14,522        (5,572)        12,062
    Reserve for loss contract..................................................        (7,259)        (9,052)       (9,052)
    Obligations for employee benefits..........................................          2,102          1,106         2,227
    Income taxes payable.......................................................          (576)          8,124           103
                                                                                         -----          -----           ---
Net cash provided by operating activities......................................         45,786         58,395        13,545
                                                                                        ------         ------        ------
Cash flows from investing activities:
    Proceeds from matured investments:
       Fixed maturities........................................................         78,384         20,673        20,359
    Proceeds from investments sold:
       Fixed maturities........................................................        163,994        181,280       273,591
       Equity securities.......................................................         21,820          1,232
       Other...................................................................          2,747            101         9,866
    Investments purchased:
       Fixed maturities........................................................      (261,519)      (219,325)     (282,674)
       Equity securities.......................................................       (26,103)       (10,034)         (548)
       Other...................................................................        (2,054)          (489)         (796)
    Investment in other affiliates, net of cash acquired.......................                                       3,444
    Proceeds from property and equipment sold..................................          3,597             24         2,051
    Property and equipment purchased...........................................        (9,000)        (6,785)      (14,168)
                                                                                      --------       --------       -------
Net cash (used in) provided by investing activities............................       (28,134)       (33,323)        11,125
                                                                                      --------       --------       -------
Cash flows from financing activities:
    Payments of long-term debt.................................................        (8,000)        (9,000)       (3,937)
    Payments of capital lease obligations......................................        (4,618)        (4,550)       (5,247)
    Payment to Foundation.....................................................        (12,780)
    Other financing activities.................................................            295              2            16
                                                                                      --------       --------       -------
Net cash used in financing activities..........................................       (25,103)       (13,548)       (9,168)
                                                                                      --------       --------       -------
Net (decrease) increase in cash and cash equivalents...........................        (7,451)         11,524        15,502
Cash and cash equivalents at beginning of year.................................         63,477         51,953        36,451
                                                                                       -------        -------       -------
Cash and cash equivalents at end of year.......................................        $56,026        $63,477       $51,953
                                                                                       =======        =======       =======
Supplemental disclosure of cash information:
    Interest paid..............................................................         $3,785         $4,344        $4,729
    Income taxes paid (refund received), net...................................         32,047          5,790         (651)
Supplemental schedule of noncash investing and financing activities:
    Equipment acquired through capital leases..................................         $4,776         $7,631        $4,325
    Disposal of equipment under capital leases.................................            665          2,143           675
    Acquisition of minority stockholders' interest in Old RightCHOICE (see note 1)
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.


                                       70
<PAGE>   71
                         RIGHTCHOICE MANAGED CARE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

1.       ORGANIZATION

RightCHOICE Managed Care, Inc. (RightCHOICE or the company), a Delaware
corporation, is the largest provider of health care benefits in the state of
Missouri in terms of members. The company offers a comprehensive array of
managed health care products and services, including preferred provider
organizations (PPO), point of service (POS), health maintenance organizations
(HMO), Medicare supplement, specialty managed care, short-term medical and
managed indemnity benefit plans, third-party administrator (TPA) services,
administrative services only (ASO), network rental services and life insurance
agency services. The company offers these products and services to large and
small employers as well as individuals.

On November 30, 2000, the company completed a series of transactions
(collectively, the Reorganization) pursuant to the Agreement and Plan of
Reorganization, dated as of March 14, 2000 (the Reorganization Agreement), by
and among Blue Cross and Blue Shield of Missouri (BCBSMo), RightCHOICE Managed
Care, Inc., a Missouri corporation (Old RightCHOICE), The Missouri Foundation
For Health (the Foundation), and RightCHOICE. In connection with the
Reorganization, (a) BCBSMo transferred its insurance contracts and associated
assets and liabilities to Healthy Alliance Life Insurance Company, a subsidiary
of Old RightCHOICE, (b) BCBSMo converted from a Missouri non-profit non-stock
health services corporation to a Missouri for-profit stock corporation by
amending its charter documents, (c) BCBSMo then issued one share of its common
stock to the Foundation, (d) BCBSMo reincorporated as a Delaware corporation by
merging with RightCHOICE, which the Foundation owned at the time, and (e) Old
RightCHOICE merged with RightCHOICE with RightCHOICE emerging as the surviving
corporation in the merger. The last step of this transaction resulted in the
following: (a) the class A stockholders of Old RightCHOICE received an equal
number of shares of RightCHOICE in exchange for their shares of Old RightCHOICE,
(b) each outstanding share of class B common stock was cancelled, and (c) the
one outstanding share of RightCHOICE common stock owned by the Foundation was
converted into 14,962,500 shares of RightCHOICE common stock. Also, immediately
prior to the Reorganization, BCBSMo paid $12.8 million to the Foundation in
partial satisfaction of claims by various parties.

RightCHOICE accounted for the Reorganization in a manner similar to a pooling of
interests transaction except for (1) the class A stockholders' exchange of their
minority ownership of Old RightCHOICE class A common stock for RightCHOICE
common stock and (2) the exchange of options to purchase shares of Old
RightCHOICE class A common stock for options to purchase shares of RightCHOICE
common stock. RightCHOICE accounted for these exchanges of shares and options as
a purchase. In connection with this purchase accounting treatment, RightCHOICE
recorded goodwill and intangible assets of $25.3 million as of November 30,
2000, the effective date of the Reorganization. In addition, upon issuance of
the RightCHOICE shares to the minority stockholders of Old RightCHOICE, the
minority stockholders' interest in the net assets of Old RightCHOICE of $38.0
million was eliminated from the Consolidated Balance Sheet. The net change to
stockholders' equity due to the Reorganization is a combination of these two
items - goodwill and intangible asset recognition and minority interest
elimination - which total $63.3 million.

Upon completion of the Reorganization on November 30, 2000, there were
18,659,300 outstanding common shares of RightCHOICE, of which 14,962,500 shares
(or approximately 80%) were held beneficially by the Foundation. As of December
31, 2000, there were 18,678,503 shares outstanding of


                                       71
<PAGE>   72
which 14,962,500 shares (or approximately 80%) were held beneficially by the
Foundation. The Foundation had approximately 80% of the voting power of
RightCHOICE at December 31, 2000, although a voting trust holds approximately
94% of the Foundation's shares which the Foundation will vote and sell as
required by the voting trust and divestiture agreement.

RightCHOICE has not issued shares of its authorized preferred stock. In
addition, RightCHOICE provides certain guarantees relating to the financial
stability of certain affiliates.

See Note 17 for unaudited pro forma combined condensed financial statements
related to the Reorganization referred to above.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies used in the
preparation of the accompanying Consolidated Financial Statements. Such policies
are in accordance with generally accepted accounting principles. The preparation
of financial statements in conformity with generally accepted accounting
principles requires 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 those estimates.

PRINCIPLES OF CONSOLIDATION

The Consolidated Financial Statements include the accounts of RightCHOICE and
its subsidiaries after elimination of all significant intercompany transactions.
These subsidiaries include Healthy Alliance Life Insurance Company (HALIC), HMO
Missouri, Inc. (BlueCHOICE), Diversified Life Insurance Agency of Missouri,
Inc., C&S Properties, Inc., Forty-Four Forty-Four Forest Park Redevelopment
Corporation, and R&P Realty, Inc., all Missouri corporations, and HealthLink,
Inc. (HealthLink) and RightCHOICE Insurance Company (RIC), both Illinois
corporations. In addition, HealthLink owns HealthLink HMO, Inc. (HealthLink
HMO), a Missouri corporation. Investments in business entities in which the
company does not have control, but has the ability to exercise significant
influence over operating and financial policies (generally 20-50% ownership),
are accounted for by the equity method. Other investments are accounted for by
the cost method.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents are highly liquid investments with an original
maturity of three months or less when purchased.

INVESTMENTS AVAILABLE FOR SALE

Unaffiliated investments with readily determinable fair values have been
classified as available-for-sale. Unrealized gains and losses are computed on
the basis of specific identification and are included as other comprehensive
income in the stockholders' equity section of the balance sheet, net of
applicable deferred income taxes. Realized gains and losses on the disposition
of investments are included in investment income. The specific identification
method is used in computing the cost of debt and equity securities sold. In
addition, the company evaluates its portfolio of investments to determine
whether declines in value are temporary or permanent. A decline in value of an
investment security that is deemed to be permanent is recorded as a realized
loss in the period that the determination is made.


                                       72
<PAGE>   73
PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, net of accumulated depreciation and
amortization. Depreciation and amortization are provided on the straight-line
basis over the estimated useful life of the respective assets, ranging from 30
years for buildings, 3 to 10 years for furniture and equipment, 3 to 7 years for
capitalized software development costs, and 5 to 10 years for leasehold
improvements.

Improvements are capitalized while expenditures for maintenance and repairs are
charged to expense as incurred. Realized gains and losses are recognized upon
disposal or retirement of the related assets and are reflected in earnings.
RightCHOICE also capitalizes purchased and internally developed software costs
to the extent they are expected to benefit future operations. Software
amortization of such costs commences when specific components are operational.
Unamortized software development cost as of December 31, 2000 and 1999 was
$30,541 and $31,715, respectively. Software amortization expense for the years
ended December 31, 2000, 1999, and 1998, was $6,847, $6,407, and $7,701,
respectively.

CHANGE IN ESTIMATE

Based upon management's periodic review of the useful lives of its various
assets, RightCHOICE's estimate of the useful life of various modules of its
capitalized software changed from 5 years to 7 years, effective with the
beginning of 1999. The change relates to the software capitalized as part of the
company's information and operations strategy (IOS). This IOS software will
continue to replace the company's core operating systems for enrollment,
billing, claims payment, and customer service. Management believes that this
change will more appropriately match the amortization expense of the software
with the periods in which the software will be utilized. This change in estimate
on an after-tax basis and net of minority interest resulted in an increase to
RightCHOICE's net income and earnings per share for 2000 and 1999 of
approximately $1.9 million or $0.13 per share (basic) and $0.12 per share
(diluted), and $1.9 million or $0.13 per share (basic and diluted),
respectively.

GOODWILL AND INTANGIBLE ASSETS

Goodwill and intangible assets represent the excess of cost over the fair market
value of net assets acquired in purchase transactions. Gross goodwill and
intangible assets (excluding related accumulated amortization) was $109,324 and
$86,349 as of December 31, 2000 and 1999, respectively, and is amortized on a
straight-line basis over periods not exceeding 40 years. Gross goodwill is
inclusive of $25,296 of goodwill and intangible assets relating to the
Reorganization, as previously described. The intangible assets include the Blue
Cross and Blue Shield names and service marks (assigned value of $6,512 and
estimated useful life of 40 years), subscriber relationships ($12,522 and 14
years), assembled workers ($2,755 and 8 years), and provider relationships
($2,004 and 23 years). The goodwill of $1,503 related to the Reorganization is
amortized over 20 years while the $74,137 of goodwill related to the purchase of
HealthLink in 1995 is amortized over 40 years. All other goodwill and intangible
assets are amortized over periods not exceeding 10 years. Accumulated
amortization on goodwill and intangible assets as of December 31, 2000 and 1999
was $17,361 and $14,370, respectively. Accumulated amortization of the goodwill
and intangible assets related to the Reorganization was $130 as of December 31,
2000. Accumulated amortization of the HealthLink goodwill was $10,039 and $8,186
as of December 31, 2000 and 1999, respectively. Amortization expense of the
goodwill and other intangibles aggregated $2,991, $2,903, and $2,924 in 2000,
1999, and 1998, respectively, and includes the amortization of the goodwill and
intangible assets related to the Reorganization of $130 in 2000 and the
amortization of the goodwill and intangible assets related to the purchase of
HealthLink of $2,728, $2,769, and $2,769, in 2000, 1999, and 1998, respectively.


                                       73
<PAGE>   74
RightCHOICE reviews the carrying value of goodwill, intangibles and other
long-lived assets including software for impairment when events or changes in
circumstances indicate that the carrying value of the asset may not be
recoverable. This review is performed by comparing estimated undiscounted future
cash flows from use of the asset to the recorded value of the asset.

MEDICAL CLAIMS PAYABLE

In addition to the liability for processed but unpaid claims at period-end,
RightCHOICE provides for the estimated amount of liability arising from medical
care provided to members, net of coordination of benefit refunds, for claims
still in process, as well as undischarged and unreported claims. This estimate
is based on current membership statistics, claim run-off patterns and certain
actuarial formulas. The liability includes estimated processing expenses
relating to such claims. Such estimates are subject to revision. Management
believes, however, that these estimates reasonably approximate actual costs.

REINSURANCE

In the normal course of business, RightCHOICE's subsidiaries cede insurance to
other unrelated insurance carriers on an excess loss or quota share basis.
RightCHOICE's subsidiaries engage in such reinsurance activity to limit losses
from large exposures and to permit recovery of a portion of direct losses. The
company expensed $302, $1,060, and $1,042 for the years ended December 31, 2000,
1999, and 1998, respectively, for costs related to this stop loss coverage.
Recoveries in these years were not significant. In 2000, the company eliminated
its excess loss reinsurance coverage for its HALIC subsidiary due to the ability
of HALIC to manage its own large claim exposure. RightCHOICE and its HALIC
subsidiary also are parties to a network access and reinsurance agreement with
Blue Cross and Blue Shield of Kansas City (BCBSKC). As a result of the
agreements, members of either plan who are enrolled through statewide employers
or associations are able to use the provider network of the Blue Cross and Blue
Shield company where they live. The net impact of these reinsurance activities
is not significant to the Consolidated Financial Statements.

INCOME TAXES

RightCHOICE utilizes the asset and liability method of accounting for income
taxes. This approach requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of assets and liabilities.

RightCHOICE, along with its subsidiaries, files consolidated federal and
Missouri state income tax returns. In accordance with the federal tax-sharing
agreement of the consolidated group, federal income tax expense is allocated to
RightCHOICE and its subsidiaries based upon the consolidated income generated by
RightCHOICE and its subsidiaries.

DIVIDEND RESTRICTIONS

Missouri and Illinois insurance laws and regulations provide certain
restrictions on the payment of dividends by insurance companies and health
maintenance organizations in a holding company system. The Missouri and Illinois
Directors of Insurance may bring an action to enjoin or rescind the payment of
any dividend or distribution that would cause the insurer's statutory surplus to
be unreasonable or inadequate. The maximum amount available as of January 1,
2001 for payment of dividends to RightCHOICE by HALIC without the prior approval
of the Missouri Director of Insurance was approximately $16 million. Our
remaining insurance subsidiaries did not have a significant amount of dividends
available for payment without prior approval. HealthLink, which is not an
insurance company or HMO, is not subject to these restrictions.


                                       74
<PAGE>   75
EARNINGS PER SHARE

Basic earnings per share are computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding during the
year. Diluted earnings per share are calculated by dividing net income by the
number of weighted average shares outstanding plus additional shares
representing stock distributable under stock-based compensation plans using the
treasury stock method. Share and per share data for all periods presented give
effect to the Reorganization in a manner similar to a stock split (i.e., as if
the 14,962,500 shares of RightCHOICE existed for all prior periods before the
reorganization was completed in place of the one share of RightCHOICE that the
Foundation owned prior to the reorganization). Because the Reorganization was
accounted for in a manner similar to a pooling of interests, except for the
exchange of the 3.7 million common shares held by the minority stockholders of
Old RightCHOICE and the exchange of options to purchase shares of Old
RightCHOICE for options to purchase shares of RightCHOICE, the weighted average
shares outstanding used for computing the 1999 and 1998 earnings per share
consist only of the 14,962,500 shares owned by the Foundation as of November 30,
2000. For 2000, weighted average shares outstanding consist of the 14,962,500
shares through November 30, 2000, the date of the Reorganization, plus one month
of approximately 18.7 million shares outstanding to reflect the issuance of 3.7
million shares of RightCHOICE to the former minority stockholders of Old
RightCHOICE on that date. There were 346,874, 43,438, and 17,924 dilutive
potential common shares for 2000, 1999, and 1998, respectively.

CONCENTRATION OF CREDIT RISK

RightCHOICE primarily conducts business in the state of Missouri, and a
significant portion of its customer base is concentrated with companies that are
located in the metropolitan St. Louis area. No single customer generates in
excess of 10% of RightCHOICE's total revenue.

RightCHOICE invests its excess cash in interest-bearing deposits with major
banks, commercial paper and money market funds. Although a majority of the cash
accounts exceed the federally insured deposit amount, management does not
anticipate non-performance by the other parties. Management reviews the
stability of these institutions on a periodic basis.

Investments principally include U.S. Treasury and agency bonds and fixed
maturity bonds in a variety of companies A-rated or better by nationally
recognized rating services. Investments in life insurance contracts consist
primarily of flexible premium variable life products, invested in managed bond
and equity funds, purchased from an insurance company that has an A.M. Best
rating of A+. Such credit ratings are routinely reviewed by management.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount for cash and cash equivalents, receivables, and accounts
payable approximates fair value because of the short maturity of those
instruments. The fair value of investments available for sale at December 31,
2000, and 1999, determined based upon quoted market prices, is disclosed in Note
4. The carrying amount of the long-term debt approximates fair value as the
underlying instruments have variable interest rates at market value (see Note
10).

REVENUE RECOGNITION AND UNEARNED PREMIUMS

For the majority of members, premiums are billed in advance of coverage periods.
For all other members, premiums are billed based on actual incurred claims or
other contractual arrangements. Premiums are recognized when the payor is
obligated to pay and are recorded as earned revenue over the period to


                                       75
<PAGE>   76
which health care coverage relates. Amounts billed but unearned are recorded as
unearned premiums. RightCHOICE's TPA and ASO self-funded program revenue is
earned as services are performed and the payor is obligated to pay and consists
of administrative fees for services provided to third parties, including
management of medical services, claims processing and access to provider
networks. Under TPA and ASO contracts, self-funded employers retain the full
risk of financing benefits. Funds received from employers are equal to amounts
required to fund benefit expenses and administrative fees, and are shown net in
the financial statements. Net revenue for these programs is reflected in fees
and other income. RightCHOICE's TPA and ASO self-funded programs do not involve
the assumption of significant insurance or credit risks; therefore, revenue from
these programs is reflected in fees and other income. During the years ended
December 31, 2000, 1999, and 1998, RightCHOICE received reimbursements for
claims paid of $204,705, $161,860, and $131,898, respectively, from TPA and ASO
self-funded groups.

NON-RECURRING CHARGES

During the fourth quarter of 1998, RightCHOICE recorded a $0.9 million charge
related to the reduction of its workforce.

RECLASSIFICATIONS

Certain reclassifications have been made to the Consolidated Financial
Statements for 1998 and 1999 to conform to the 2000 presentation.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board (FASB) released Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It requires an entity to recognize
all derivatives as either assets or liabilities in the statement of financial
position and measures those instruments at fair value. SFAS No. 133 is effective
for all fiscal years beginning after June 15, 2000, as extended by SFAS No. 137.
Earlier application of SFAS No. 133 is encouraged but should not be applied
retroactively to financial statements of prior periods. RightCHOICE believes
that the adoption of SFAS No. 133 will not have a material impact on
RightCHOICE's financial position or results of operations. The company has
minimal use of derivatives as defined by SFAS No. 133 and does not use
derivatives for hedging activities.

In March 1998, the Accounting Standards Executive Committee (AcSEC) issued
Statement of Position (SOP) 98-1, "Accounting for Computer Software Developed
For or Obtained For Internal Use," which is effective for fiscal years beginning
after December 15, 1998. The SOP requires preliminary stage project costs to be
expensed as incurred. Once a project is in the application development stage,
the SOP requires all external direct costs for materials and services and
payroll and related fringe benefit costs to be capitalized, and subsequently
amortized over the estimated useful life of the project. The adoption of SOP
98-1 did not have a material impact on RightCHOICE's financial position or
results of operations.

In April 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of Start-up
Activities," which is effective for fiscal years beginning after December 15,
1998. The SOP requires that certain costs of start-up activities, including
organization costs, should be expensed as incurred. RightCHOICE adopted SOP 98-5
in the first quarter of 1999 and this adoption resulted in a $1.3 million
expense write-off ($1.1 million, net of tax) in 1999 relating to costs incurred
in 1998 for legal, consulting, accounting and other fees related to the
Reorganization as described in Note 1, "Organization." The company has reported
the


                                       76
<PAGE>   77
cumulative effect of this accounting change in the 1999 Statement of Income. In
total, the company expensed $2.0 million and $5.1 million (including the $1.3
million noted above) of costs in 2000 and 1999, respectively, related to the
Reorganization.

3.       COMPREHENSIVE INCOME

The components of other comprehensive income related to the unrealized gains or
losses on RightCHOICE's available-for-sale securities for the years ended
December 31, 2000, 1999, and 1998 are as follows:

<TABLE>
<CAPTION>
                                                                                        YEAR ENDED DECEMBER 31,
                                                                                    2000          1999         1998
                                                                                    ----          ----         ----
<S>                                                                                <C>          <C>           <C>
Unrealized holding gains (losses) arising during period, net of taxes
    and minority interest...................................................        $2,756       $(4,853)     $1,728
Less:  reclassification adjustment for (gains) losses included in net
    income, net of taxes....................................................          (140)          337      (1,968)
                                                                                   --------     ---------     -------
Net unrealized gains (losses) on securities, net of taxes and minority
    interest................................................................        $2,616       $(4,516)      $(240)
                                                                                   ========     =========     =======
</TABLE>

The components of accumulated other comprehensive income on the Consolidated
Balance Sheets include unrealized net (depreciation) appreciation of investments
as well as a minimum pension liability adjustment. The unrealized net
depreciation of investments, net of taxes and minority interest, was $1,119 and
$3,320 at December 31, 2000 and 1999, respectively. The minimum pension
liability increase, net of taxes and minority interest, was $358 and $237 at
December 31, 2000 and 1999, respectively.

4.       INVESTMENTS AVAILABLE FOR SALE

Investments available for sale are summarized below:

<TABLE>
<CAPTION>
                                                                            GROSS         GROSS       ESTIMATED
                                                           AMORTIZED      UNREALIZED    UNREALIZED      MARKET
                                                             COST           GAINS         LOSSES        VALUE
                                                             ----           -----         ------        -----
<S>                                                        <C>            <C>           <C>           <C>
December 31, 2000 Fixed maturities:
      U.S. government and agency securities..........       $126,989        $1,672         $(619)      $128,042
      Corporate bonds and notes......................         77,743           602        (1,752)        76,593
      Short-term investments.........................         35,662                         (32)        35,630
                                                            --------        ------       -------       --------
                                                             240,394         2,274        (2,403)       240,265
                                                            --------        ------       -------       --------

      Equity securities..............................         15,957                      (1,481)        14,476
                                                            --------        ------       -------       --------

      Other invested assets..........................          7,298                                      7,298
                                                            --------        ------       -------       --------

                                                            $263,649        $2,274       $(3,884)      $262,039
                                                            ========        ======       =======       ========
</TABLE>


                                       77
<PAGE>   78
<TABLE>
<S>                                                         <C>                <C>       <C>           <C>
December 31, 1999 Fixed maturities:
      U.S. government and agency securities..........       $106,228            $36      $(4,214)      $102,050
      Corporate bonds and notes......................         76,622             16       (3,437)        73,201
      Short-term investments.........................         34,665                                     34,665
                                                              ------           ----      -------         ------
                                                             217,515             52       (7,651)       209,916
                                                            --------           ----      -------       --------

      Equity securities..............................         10,446            925                      11,371

      Other invested assets.........................           6,766                                      6,766
                                                            --------           ----      -------       --------

                                                            $234,727           $977      $(7,651)      $228,053
                                                            ========           ====      ========      ========
</TABLE>

Interest and dividend income comprises the following:

<TABLE>
<CAPTION>
                                                                                    YEAR ENDED DECEMBER 31,
                                                                                 2000        1999         1998
                                                                                 ----        ----         ----
<S>                                                                            <C>         <C>          <C>
Interest on bonds....................................................          $13,181     $11,987      $13,323
Dividends on stocks..................................................              357         231          113
Accretion of discounts and amortization of premiums, net.............              151        (28)        (611)
Interest on cash equivalents and other investment income.............            4,272       3,807        3,165
                                                                                 -----       -----        -----
Gross investment income..............................................           17,961      15,997       15,990
Investment expenses..................................................            (759)       (735)        (661)
                                                                                 -----       -----        -----

                                                                               $17,202     $15,262      $15,329
                                                                               =======     =======      =======
</TABLE>

Realized (losses) gains on investments available for sale are as follows:

<TABLE>
<CAPTION>
                                                                                      YEAR ENDED DECEMBER 31,
                                                                                   2000         1999        1998
                                                                                   ----         ----        ----
<S>                                                                            <C>            <C>         <C>
Net realized (losses) gains:
    Fixed maturities.................................................          $(1,723)       $(530)      $3,054
    Equity securities................................................             1,556
    Other invested assets............................................               212
                                                                                  ----        ------      ------
                                                                                    $45       $(530)      $3,054
                                                                                  =====       ======      ======
</TABLE>

In addition, during 2000 and 1999, RightCHOICE realized a $202 gain and $14
gain, respectively, from the sale of other assets. During 1998, RightCHOICE
realized a $2,681 gain from the sale of a subsidiary that was accounted for
under the equity method and an $84 gain from the sale of other assets. In 1998,
the company realized a loss of $5,200 on the sale of the Cupples Properties that
were previously owned by the company's C&S Properties, Inc. subsidiary. Proceeds
from sales of available-for-sale securities were $188,561, $182,613 and
$283,457, during 2000, 1999, and 1998, respectively. Gross realized gains on
investments available for sale were $2,272, $929, and $3,553, during 2000, 1999,
and 1998, respectively. Gross realized losses on investments available for sale
were $2,227, $1,459, and $499, during 2000, 1999, and 1998, respectively.
Contractual maturities of fixed maturity investments, excluding other invested
assets (primarily consisting of variable life insurance contracts), held on
December 31, 2000 are as presented below. Actual maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations.


                                       78
<PAGE>   79
<TABLE>
<CAPTION>
                                                          AMORTIZED        ESTIMATED
                                                            COST          MARKET VALUE
<S>                                                       <C>             <C>
Due in one year or less..........................           $60,380          $60,202
Due after one year through five years............            68,705           68,512
Due after five years through 10 years............            46,015           46,365
Due after 10 years...............................            65,294           65,186
                                                             ------           ------
                                                           $240,394         $240,265
                                                           ========         ========
</TABLE>

5.       RECEIVABLES

Receivables consist of the following:

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                             2000            1999
                                                             ----            ----
<S>                                                       <C>              <C>
Individual underwritten subscribers..............          $19,261         $10,483
Underwritten groups..............................           73,270          54,710
Self-funded/ASO groups...........................           39,729          30,267
                                                            ------          ------
                                                          $132,260         $95,460
                                                          ========         =======
</TABLE>

The company maintained an allowance for doubtful accounts of $3,741 and $1,081
as of December 31, 2000 and 1999, respectively.

6.       PROPERTY AND EQUIPMENT, NET

Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                         2000            1999
                                                         ----            ----
<S>                                                    <C>            <C>
Land and building................................       $80,657        $84,195
Furniture and equipment, including
     capitalized leases..........................        45,702         44,913
Capitalized software development costs...........        57,462         51,790
Leasehold improvements...........................         4,722          3,953
                                                          -----          -----
                                                        188,543        184,851
Less accumulated depreciation
     and amortization............................       (78,533)       (67,445)
                                                        -------        -------
                                                       $110,010       $117,406
                                                       ========       ========
</TABLE>

Depreciation and amortization expense of property and equipment was $17,565,
$17,128, and $19,206, for the years ended December 31, 2000, 1999, and 1998,
respectively.

7.       INVESTMENTS IN AFFILIATES

RightCHOICE has a non-controlling, 50% interest in The EPOCH Group, L.C.
(EPOCH). EPOCH is a limited liability company that performs third-party
administrator (TPA) functions for self-insured organizations. EPOCH is not
consolidated with RightCHOICE's operations and is accounted for using the equity
method. The combined annual revenues of EPOCH were $25.8 million in 2000 and
$23.7 million in 1999. Operating income was $2.1 million and $1.5 million in
2000 and 1999,


                                       79
<PAGE>   80
respectively. EPOCH distributed $0.6 million and $0.5 million in dividends to
RightCHOICE during 2000 and 1999, respectively. Undistributed earnings to
RightCHOICE for 2000 and 1999 were $0.6 million and $0.2 million, respectively.
EPOCH serves over 300 businesses primarily in the Midwest as of December 31,
2000.

8.       MEDICAL CLAIMS PAYABLE

Medical claims payable represents the amounts needed to provide for the
estimated ultimate cost of settling claims related to insured events that have
occurred on or before December 31. The payable is estimated to include the
amounts required for future payment of medical claims that have been reported to
RightCHOICE and its subsidiaries, claims related to insured events that have
occurred but that have not been reported to RightCHOICE and its subsidiaries as
of December 31, and claims adjustment expenses. Claims adjustment expenses
include costs incurred in the claim settlement process such as costs to record,
process and adjust claims.

Activity in medical claims payable is summarized as follows:

<TABLE>
<CAPTION>
                                                               2000           1999
                                                               ----           ----
<S>                                                        <C>            <C>
Balance at January 1...........................            $141,037       $122,224
                                                           --------       --------
Incurred related to:
     Current year..............................             779,690        683,389
     Prior years...............................             (3,975)            265
                                                            ------            ----
             Total incurred....................             775,715        683,654
                                                            -------        -------

Paid related to:
     Current year..............................             660,645        561,996
     Prior years...............................             110,127        102,845
                                                            -------        -------
             Total paid........................             770,772        664,841
                                                            -------        -------
Net balance at December 31.....................            $145,980       $141,037
                                                           ========       ========
</TABLE>

The incurred amounts related to prior years represent the differences between
RightCHOICE's estimated claims payable for prior years' claims and the actual
amounts required to satisfy such claims. In addition, RightCHOICE's health care
services expense caption on the Consolidated Statements of Income has been
reduced by $7,259 and $9,052 for 2000 and 1999, respectively, related to the
beneficial effect of the reserve for loss contract that was recorded in 1997.

9.       ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                               2000           1999
                                                               ----           ----
<S>                                                         <C>            <C>
Accounts payable...............................             $34,072        $19,574
Accrued salaries and other expenses............              18,434         17,320
Other accrued expenses.........................              36,214         37,208
                                                             ------         ------
                                                            $88,720        $74,102
                                                            =======        =======
</TABLE>


                                       80
<PAGE>   81
10.      LONG-TERM DEBT AND COMMITMENTS

RightCHOICE currently has a reducing revolving credit facility (the Credit
Agreement) with Bank of America National Association (B of A), Administrative
Agent, and another bank as co-agent. At December 31, 2000, RightCHOICE had a
$26.1 million outstanding balance under the Credit Agreement, which represented
the maximum commitment. The maximum commitment will be reduced by $2.0 million
on a quarterly basis through September 30, 2001, with the remaining balance due
January 2, 2002. In addition, mandatory reductions to the commitment, together
with prepayments, are required upon the occurrence of certain extraordinary
events such as the issuance of debt or equity securities or the sale of a
subsidiary.

Borrowings under the Credit Agreement may be denominated, at the option of
RightCHOICE, as base rate loans or offshore rate loans. Base rate loans bear
interest at B of A's base rate, which is currently 1.25% above the higher of the
latest federal funds rate plus 0.5%, or B of A's reference rate, which
approximates the prime rate. Offshore rate loans bear interest currently at
2.25% above the adjusted London Interbank Offered Rate (LIBOR). At December 31,
2000, all of RightCHOICE's outstanding borrowings were in offshore rate loans.
The weighted average interest rate incurred by RightCHOICE was 8.87%, 8.01%, and
8.38% in 2000, 1999, and 1998, respectively.

As a condition to providing the Credit Agreement, RightCHOICE pledged the stock
of its direct subsidiaries and a guaranty of repayment was provided by
HealthLink. In addition, the Credit Agreement establishes certain covenants that
restrict RightCHOICE's ability to incur additional indebtedness or pay cash
dividends; limit future capital contributions, investments, acquisitions, and
capital expenditures, and limitations on indebtedness of RightCHOICE's
subsidiaries; and require the maintenance of certain financial ratios as well as
a minimum consolidated tangible net worth. As of December 31, 2000, RightCHOICE
was in compliance with these covenants.

RightCHOICE leases certain electronic data processing equipment under
non-cancellable lease agreements classified as either capital or operating
leases.

The following is a schedule of future minimum rental payments required under
capital leases and under non-cancellable operating leases that have initial or
remaining terms in excess of one year together with the present value of net
minimum lease payments under capital leases at December 31, 2000:

<TABLE>
<CAPTION>
                                                                  CAPITAL       OPERATING
                                                                  -------       ---------
<S>                                                               <C>           <C>
Year ending December 31,
     2001..............................................            $4,456         $4,779
     2002..............................................             3,387          3,892
     2003..............................................             1,734          2,899
     2004..............................................                84          1,507
     2005..............................................                            1,435
     Thereafter........................................                            1,968
                                                                    -----          -----
         Total minimum lease payments..................            $9,661        $16,480
                                                                                 =======
         Less amount representing interest.............             (918)
                                                                    -----
         Present value of net minimum lease payments,
           including current portion of $3,883.........            $8,743
                                                                   ======
</TABLE>


                                       81
<PAGE>   82
Total rental expense for all non-affiliated operating leases, except those with
terms of one month or less that were not renewed, was $6,304, $5,848, and
$6,119, for the years ended December 31, 2000, 1999, and 1998, respectively.

11.      INCOME TAXES

The components of the provision for income taxes are as follows:

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                                    2000           1999          1998
                                                    ----           ----          ----
<S>                                             <C>             <C>            <C>
Current:
     Federal...........................          $29,296        $13,769        $2,237
     State.............................            2,175            375          (505)
                                                   -----           ----          -----
                                                  31,471         14,144         1,732
Deferred:
     Federal...........................          (4,186)          1,298         1,449
                                                 -------          -----         -----
                                                $27,285         $15,442        $3,181
                                                =======         =======        ======
</TABLE>

The effective tax rate, expressed as a percentage of pre-tax income, differs
from the federal statutory rate as follows:

<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                                               2000           1999          1998
                                                               ----           ----          ----
<S>                                                           <C>            <C>           <C>
Tax provision based on federal statutory rate....              35.0%          35.0%         35.0%
State income taxes, net of federal provision.....               3.1            1.1          (6.0)
Goodwill amortization............................               1.1            2.0           7.8
Other............................................               0.2            1.8          (3.2)
                                                              -----          -----         -----
Effective tax provision rate.....................              39.4%          39.9%         33.6%
                                                              =====          =====         =====
</TABLE>

The primary temporary differences that gave rise to deferred income taxes were
as follows:


                                       82
<PAGE>   83
<TABLE>
<CAPTION>
                                                                             DECEMBER 31,
                                                                          2000           1999
                                                                          ----           ----
<S>                                                                    <C>            <C>
        Deferred tax assets:
            Capitalized vendor software.....................            $8,696         $6,976
            Medical claims payable discounting..............             1,454            559
            Employee benefits...............................             8,800          9,869
            Unearned premiums...............................             7,767          4,065
            Other capitalized expenses......................             2,219          2,324
            Reserve for loss contract.......................                            2,541
            Unrealized depreciation of securities...........               622          2,366
            Other...........................................            10,762          9,337
                                                                        ------          -----
                 Total deferred tax assets..................            40,320         38,037
                                                                        ------         ------

        Deferred tax liabilities:
            Depreciation and amortization...............                 4,283          3,747
            Capitalized internal software...................             7,541          8,081
            Other tax-deductible expenses...................            12,653         12,842
                                                                        ------         ------
                 Total deferred tax liabilities.............            24,477         24,670
                                                                        ------         ------
        Net deferred tax asset..............................           $15,843        $13,367
                                                                       =======        =======
</TABLE>

SFAS No. 109, "Accounting for Income Taxes," requires a valuation allowance
against deferred tax assets if, based on the weight of available evidence, it is
more likely than not that some or all of the deferred tax assets will not be
realized. Based upon all the available evidence, management believes it is more
likely than not that RightCHOICE will realize its deferred tax assets as of
December 31, 2000 and, accordingly, no valuation allowance has been provided
against such assets as of December 31, 2000.

12.      EMPLOYEE BENEFIT PROGRAMS

PENSION PLAN

RightCHOICE and its subsidiaries participate in a defined benefit pension plan
covering substantially all company employees (excluding HealthLink employees)
who meet the plan eligibility requirements as to age and length of service. The
national Blue Cross Blue Shield Association (BCBSA) is responsible for
administration of this defined benefit pension plan. The benefits are based on
years of service and average annual compensation for the employee's highest
consecutive five of the last 10 years.

Net periodic pension cost for RightCHOICE includes the following components:

<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                                                2000           1999        1998
                                                                ----           ----        ----
<S>                                                           <C>            <C>         <C>
         Service cost..................................       $1,866         $2,061      $1,834
         Interest cost.................................        3,549          3,273       2,989
         Expected return on plan assets................       (4,051)        (3,587)     (3,211)
         Amortization of transition asset..............         (284)          (304)       (304)
         Amortization of actuarial gains...............         (342)
         Amortization of prior service cost............         (171)          (230)       (230)
                                                                -----          -----       -----

         Net periodic pension cost.....................         $567         $1,213      $1,078
                                                                ====         ======      ======
</TABLE>


                                       83
<PAGE>   84
The following tables present the status of RightCHOICE's pension benefits:

<TABLE>
<CAPTION>
                                                                           DECEMBER 31,
                                                                        2000           1999
                                                                        ----           ----
<S>                                                                    <C>            <C>
          CHANGE IN BENEFIT OBLIGATION:
          Benefit obligation at beginning of year.............         $44,424        $49,736
          Service cost........................................           1,866          2,061
          Interest cost.......................................           3,549          3,273
          Benefit payments....................................          (1,403)        (1,350)
          Actuarial losses (gains)............................           4,212         (9,296)
                                                                        ------         -------
          Benefit obligation at end of year...................         $52,648        $44,424
                                                                       =======        =======
</TABLE>

The primary cause of the actuarial loss and gain in 2000 and 1999, respectively,
relates to the change in the discount rate assumptions. The discount rate
assumption dropped from 7.75% to 7.50% during 2000 and rose from 6.75% to 7.75%
during 1999. The effect on 2000 was an actuarial loss of $2.1 million and the
effect on 1999 was an actuarial gain of $8.7 million. In addition, other
factors, primarily demographic experience and compensation rates, resulted in an
additional actuarial loss of $2.1 million in 2000 and an additional actuarial
gain of $0.6 million in 1999.

<TABLE>
<CAPTION>
                                                                            DECEMBER 31,
                                                                        2000           1999
                                                                        ----           ----
<S>                                                                    <C>            <C>
          CHANGE IN PLAN ASSETS:
          Fair value of plan assets at beginning of year......         $50,801        $44,980
          Actual return on assets.............................          (2,456)         7,171
          Benefit payments....................................          (1,403)        (1,350)
                                                                        ------         ------
          Fair value of plan assets at end of year............         $46,942        $50,801
                                                                       =======        =======
</TABLE>

RightCHOICE did not make and was not required to make contributions to the plan
during 2000 and 1999.

The funded status of RightCHOICE's pension plan and the amount recorded as
accrued pension cost consist of the following:

<TABLE>
<CAPTION>
                                                                           DECEMBER 31,
                                                                        2000         1999
                                                                        ----         ----
<S>                                                                    <C>          <C>
          Unfunded status......................................         $5,706      $(6,377)
          Unrecognized actuarial gain..........................          5,643       16,704
          Unrecognized transition asset........................                         284
          Unrecognized prior service cost......................          (118)           53
                                                                       -------      -------
          Accrued pension cost.................................        $11,231      $10,664
                                                                       =======      =======
</TABLE>

Weighted average assumptions used in the development of pension data as of
December 31 are as follows:

<TABLE>
<CAPTION>
                                                          2000            1999
                                                          ----            ----
<S>                                                      <C>             <C>
Discount rate.....................................        7.50%           7.75%
Expected long-term rate of return on assets.......         9.0             9.0
Rates of increase in compensation levels..........       3.0-6.5         3.0-6.5
</TABLE>


                                       84
<PAGE>   85
HealthLink provides a defined contribution pension plan covering substantially
all HealthLink employees who meet the plan eligibility requirements as to age
and length of service. HealthLink contributes an amount equal to 4% of
participating employees' annual gross compensation levels. Additional amounts
can be contributed at HealthLink's discretion. HealthLink's pension expense
during 2000, 1999, and 1998 was $822, $640, and $377, respectively.

POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

RightCHOICE provides certain health care and life insurance benefits for retired
and terminated employees (excluding HealthLink employees). Substantially all of
RightCHOICE's employees may become eligible for those benefits if they reach
normal retirement age while working for RightCHOICE. The health care and life
insurance benefits for retired employees are provided through insurance
companies whose premiums are based on the benefits paid during the year. The
estimated cost of retiree benefit payments other than pensions is accrued over
the period such benefits are earned.

The net periodic cost for postretirement benefits includes the following
components:

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                                                      2000          1999           1998
                                                      ----          ----           ----
<S>                                                 <C>           <C>            <C>
Service cost...............................           $643          $629           $671
Interest cost..............................          1,369         1,161          1,165
Amortization of prior service cost.........            (94)          (94)           (25)
Amortization of actuarial loss.............            154           183            130
                                                       ---           ---            ---
Net periodic postretirement cost...........         $2,072        $1,879         $1,941
                                                    ======        ======         ======
</TABLE>

The amortization of any prior service cost is determined using straight-line
amortization over the average remaining service period of employees expected to
receive benefits under the plan as permitted by SFAS No. 106.

The assumed discount rate is 7.50% and 7.75% for 2000 and 1999, respectively.
The rate of compensation increase is assumed to be 4.0% for 2000 and 1999. The
health care cost trend rate is assumed to be 7.5% for 2000, 7.0% for 2001 and
grades down 0.5% each year to 5.5% in 2004 and thereafter. A one percentage
point change in the assumed trend rate would have the following effects as of
December 31, 2000:

<TABLE>
<CAPTION>
                                                                           ONE PERCENT      ONE PERCENT
                                                                             INCREASE         DECREASE
<S>                                                                        <C>              <C>
          Effect on postretirement accumulated benefit obligation...           $1,341         $(1,204)
          Effect on total service and interest cost components......           $  150         $  (134)
</TABLE>

RightCHOICE's postretirement benefit plan is currently not funded. The following
table presents the status of RightCHOICE's postretirement benefits:


                                       85
<PAGE>   86
<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                               2000          1999
                                                               ----          ----
<S>                                                           <C>           <C>
CHANGE IN ACCUMULATED BENEFIT OBLIGATION:
Accumulated benefit obligation at beginning of year...        $16,542       $18,370
Service cost..........................................            643           629
Interest cost.........................................          1,369         1,161
Plan amendments.......................................                         (814)
Benefit payments......................................           (896)         (938)
Actuarial losses (gains)..............................          2,317        (1,866)
                                                                -----        -------
Accumulated benefit obligation at end of year.........        $19,975       $16,542
                                                              =======       =======

CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year........             $0            $0
Employer contributions................................            896           938
Benefit payments .....................................           (896)         (938)
                                                                 -----         -----
Fair value of plan assets at end of year..............             $0            $0
                                                                =====         =====
</TABLE>

The funded status and accrued cost of RightCHOICE's postretirement plan consist
of the following:

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                                2000           1999
                                                                ----           ----
<S>                                                           <C>            <C>
Unfunded status.......................................        $19,975        $16,542
Unrecognized actuarial loss...........................         (5,346)        (3,183)
Unrecognized prior service cost.......................            971          1,065
                                                                  ---          -----
Accrued postretirement benefit cost...................        $15,600        $14,424
                                                              =======        =======
</TABLE>

POST EMPLOYMENT BENEFITS

RightCHOICE also provides certain severance benefits for employees who
involuntarily terminate their employment and long-term disability benefits for
employees who are disabled. Severance benefits include salary continuation,
medical benefits and career transition benefits. Disability benefits include
life insurance, medical coverage and salary continuation.

Postemployment benefits are accrued if attributable to service already rendered,
if the benefits accumulate or vest, if payment is probable and if the amounts
can be reasonably estimated. Postemployment benefit expense was $653, $(132),
and $1,150, for 2000, 1999, and 1998, respectively. The 1999 reduction to
expense was due to the increase in interest rates as well as the favorable
claims experience of the plan, among other factors.

STOCK-BASED COMPENSATION PLANS

RightCHOICE provides an Equity Incentive Plan and a Directors' Stock Option Plan
(the plans), which allow for the annual grant of stock options in the form of
incentive stock options, non-qualified stock options and restricted stock
grants, and are further described below. RightCHOICE applies APB Opinion 25 and
related interpretations in accounting for these plans. RightCHOICE does not
issue stock options to non-employees other than directors. Accordingly, no
compensation cost has been recognized for these plans. Had compensation cost for
RightCHOICE's plans been determined consistent with SFAS No. 123, net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:


                                       86
<PAGE>   87
<TABLE>
<CAPTION>
                                                                         2000       1999      1998
                                                                         ----       ----      ----
<S>                                            <C>                   <C>        <C>        <C>
Net income..................................   As reported........   $ 35,526   $ 18,821   $ 5,168
                                               Pro forma..........   $ 34,681   $ 18,314   $ 4,574
Basic and diluted earnings per share........   As reported:
                                                 Basic............   $   2.33   $   1.26   $  0.35
                                                 Diluted..........   $   2.27   $   1.25   $  0.34
                                               Pro forma:
                                                 Basic............   $   2.27   $   1.22   $  0.31
                                                 Diluted..........   $   2.22   $   1.22   $  0.31
</TABLE>

As of December 31, 2000, the maximum number of shares subject to options and
grants under the Equity Incentive Plan and Directors' Stock Option Plan is 1.5
million and 60,000, respectively. The exercise price of each option equals the
market price of RightCHOICE's stock on the date of grant and an option's maximum
term is 10 years. Options vest by the end of the third year.

The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for option grants in 2000, 1999, and 1998, respectively:
expected volatility of 40%, 37%, and 35%; risk-free interest rates of
approximately 6.5%, 5%, and 6%; and expected lives of 6.5 years. In addition,
for all three years, no dividend yield was assumed.

A summary of the status of the plans as of December 31, 2000, 1999, and 1998 and
changes during the years ended on those dates is presented below:

<TABLE>
<CAPTION>
                                                        NUMBER OF     WEIGHTED-AVERAGE     WEIGHTED-AVERAGE
                                                         SHARES        EXERCISE PRICE         FAIR VALUE
                                                         ------        --------------         ----------
<S>                                                     <C>           <C>                  <C>
Outstanding at December 31, 1997..............            469,766          $12.03
Granted.......................................            292,366           $9.68                $4.59
Exercised.....................................             (1,426)         $10.81
Forfeited.....................................            (58,003)         $11.17
                                                         ---------
Outstanding at December 31, 1998..............            702,703          $11.13
Granted.......................................            319,609          $11.50                $5.35
Exercised.....................................               (227)          $9.63
Forfeited.....................................            (49,502)         $11.60
                                                        ----------
Outstanding at December 31, 1999..............            972,583          $11.22
Granted.......................................            312,934          $11.66                $6.06
Exercised.....................................            (41,877)         $11.01
Forfeited.....................................           (213,595)         $11.35
                                                         ---------
Outstanding at December 31, 2000..............          1,030,045          $11.34
                                                        =========
</TABLE>

There were 505,568, 469,112, and 198,920 options exercisable at December 31,
2000, 1999, and 1998, respectively. The pro forma disclosures included above may
not be representative of the effects on reported net income or loss for future
years.

The following table summarizes information about stock options outstanding at
December 31, 2000:


                                       87
<PAGE>   88
<TABLE>
<CAPTION>
                                                  OPTIONS OUTSTANDING                          OPTIONS EXERCISABLE
                                                  -------------------                          -------------------
                                                      WEIGHTED
    RANGE OF                         NUMBER            AVERAGE             WEIGHTED          NUMBER            WEIGHTED
    EXERCISE                       OUTSTANDING        REMAINING            AVERAGE         EXERCISABLE         AVERAGE
     PRICES                        AT 12/31/00     CONTRACTUAL LIFE     EXERCISE PRICE     AT 12/31/00      EXERCISE PRICE
--------------------------------------------------------------------------------------------------------------------------
<S>                                <C>             <C>                  <C>                <C>              <C>
$9.00 to $11.00                       321,142          6.6 years            $10.00           247,625            $10.10
$11.01 to $13.00                      653,486          8.0 years            $11.65           213,287            $11.96
$13.01 to $20.00                       55,417          6.0 years            $15.42            44,656            $15.40
                                       ------                                                 ------
$9.00 to $20.00                     1,030,045          7.4 years            $11.34           505,568            $11.35
                                    =========                                                =======
</TABLE>

OTHER BENEFIT PLANS

RightCHOICE and HealthLink provide a pre-tax 401(k) plan covering substantially
all company employees. The company recognized expenses of $2,197, $1,772, and
$1,539 during 2000, 1999, and 1998, respectively, for costs related to these
plans. RightCHOICE also provides an incentive program to key management
personnel for the achievement of corporate and individual goals, a sales
incentive program to encourage exceptional performance in marketing to and
servicing clients, and a supplemental executive retirement plan (SERP) for
certain executives. RightCHOICE recognized expenses of $8,798, $7,785, and
$5,458, during 2000, 1999, and 1998, respectively, for costs related to these
plans. RightCHOICE also provides short-term disability and workers' compensation
benefits; the cost of providing these programs is not significant to
RightCHOICE's overall results of operations. At December 31, 2000 and 1999,
RightCHOICE had a minimum pension liability adjustment of $551 and $454,
respectively, related to the SERP that is included as a component of
RightCHOICE's other comprehensive income on the Consolidated Balance Sheet.

13.      CONTINGENCIES

LITIGATION WITH THE MISSOURI ATTORNEY GENERAL AND MISSOURI DEPARTMENT OF
INSURANCE

As a result of the reorganization and related settlement that occurred on
November 30, 2000, Old RightCHOICE and Blue Cross and Blue Shield of Missouri
and their affiliates, on the one hand, and the state of Missouri, on the other
hand, have resolved all of their outstanding litigation and regulatory issues
related to Blue Cross and Blue Shield of Missouri's operation of Old RightCHOICE
following the organization of Old RightCHOICE in 1994. There remains pending,
however, the appeal of a judgment related to the corporate status of Blue Cross
and Blue Shield of Missouri described below under "Litigation relating to
corporate status of Blue Cross and Blue Shield of Missouri."

LITIGATION RELATING TO CORPORATE STATUS OF BLUE CROSS AND BLUE SHIELD OF
MISSOURI

On November 3, 1997, our predecessor, Blue Cross and Blue Shield of Missouri,
filed an action in the Circuit Court of Cole County, Missouri against the
Missouri Attorney General seeking declarations that (1) Blue Cross and Blue
Shield of Missouri was a mutual benefit type of non-profit corporation, and (2)
Blue Cross and Blue Shield of Missouri did not hold its assets in constructive,
charitable, or other trust for the benefit of the public generally but rather
held its assets for the benefit of its subscribers. The Missouri Attorney
General filed an answer and counterclaim seeking a declaration that Blue Cross
and Blue Shield of Missouri is a public benefit type of non-profit corporation.

Two individuals who are or have been subscribers of Blue Cross and Blue Shield
of Missouri moved to intervene and then were joined in this action as parties
contending that Blue Cross and Blue Shield of Missouri was a mutual benefit
corporation, that its assets should not be transferred to a charitable trust or


                                       88
<PAGE>   89
other charitable organization such as The Missouri Foundation For Health and
that the existing parties to the action would not adequately represent their
interests in the resolution of the question whether Blue Cross and Blue Shield
of Missouri is a public benefit or a mutual benefit corporation.

On November 3, 2000, the circuit court entered a judgment finding that Blue
Cross and Blue Shield of Missouri is a public benefit corporation. This ruling
was consistent with the positions ultimately taken by all parties to our
settlement agreement.

On December 12, 2000, one of the two individuals appealed the circuit court's
judgment of November 3, 2000. If the circuit court's judgment is reversed, our
company, as successor to Blue Cross and Blue Shield of Missouri, could be
obligated to pay substantial money damages. It is also possible that if the
circuit court's judgment is reversed a court could order the reorganization be
rescinded as if it never happened, although we believe that this would be
unlikely. If a court enters those orders or orders like those, it would have a
material adverse effect on us.

LITIGATION RELATING TO MEDICARE SUPPLEMENT PREMIUMS

Our predecessor, Blue Cross and Blue Shield of Missouri, was a party to a class
action lawsuit originally filed in August 1995 in St. Louis City Circuit Court
against both Blue Cross and Blue Shield of Missouri and Old RightCHOICE. The
plaintiffs were subscribers to Medicare supplement policies that Blue Cross and
Blue Shield of Missouri issued from July 1, 1992 through August 10, 1994 and
sought to represent a class of all subscribers during those years.

The subscribers fell into two groups, those holding standardized Medicare
supplement policies and those holding pre-standardized Medicare supplement
policies. Both plaintiffs claimed that from July 1, 1992 through August 10, 1994
Blue Cross and Blue Shield of Missouri collected premiums on Medicare supplement
policies that were in excess of the premiums approved by the Missouri Department
of Insurance in violation of the contracts between Blue Cross and Blue Shield of
Missouri and its members. The plaintiffs also claimed that Blue Cross and Blue
Shield of Missouri made fraudulent representations about these premium
increases. While Blue Cross and Blue Shield of Missouri won summary judgment in
the trial court and appellate court, the Missouri Supreme Court reversed in part
and remanded in part the case to the trial court. The plaintiffs claimed that
Blue Cross and Blue Shield of Missouri collected allegedly unauthorized premiums
totaling more than $29 million. They sought recovery of at least that amount as
damages, plus prejudgment interest and punitive damages. The representative of
subscribers holding pre-standardized policies was disqualified by the circuit
court from service as class representative due to ill health.

In December 2000, the circuit court conducted a hearing on the plaintiffs'
motion for class certification and Blue Cross and Blue Shield of Missouri's
partial motions to dismiss or for summary judgment. After the hearing, and while
the motions were pending, the class representative of subscribers holding
pre-standardized Medicare supplement policies voluntarily dismissed her claim.
She also dismissed without prejudice the claims she had sought to make on behalf
of other pre-standardized plan subscribers. The pre-standardized policies
represent approximately $27 million of the approximately $29 million in
allegedly unauthorized premiums. As a result of the dismissal by the class
representative, there are now no claims pending on behalf of holders of the
pre-standardized policies. There can be no assurance, however, that a new claim
will not be asserted on their behalf. The plaintiffs' motion for certification
of a class of standardized plan subscribers as well as the partial motion to
dismiss on behalf of Blue Cross and Blue Shield of Missouri have been argued and
are now under submission. As successor to Blue Cross and Blue Shield of
Missouri, we are now the defendant in that action. An adverse decision in this
lawsuit could subject us to substantial damages.


                                       89
<PAGE>   90
OTHER CONTINGENCIES

In addition to the matters described above, from time to time in the ordinary
course of business, RightCHOICE and certain of its subsidiaries are parties to
various legal proceedings, including the claims of its members arising from
health plan benefit coverage issues for certain services under evolving theories
of liability. The financial and operational impact that such evolving theories
of recovery will have on the managed care industry generally, or RightCHOICE in
particular, is presently unknown.

14.      SEGMENT INFORMATION

RightCHOICE operates in three segments which it defines as underwritten,
self-funded, and other. RightCHOICE's underwritten segment includes a
comprehensive array of products including PPO, POS, HMO, Medicare supplement,
managed indemnity, specialty managed care and short-term medical coverages.
RightCHOICE's self-funded segment includes TPA, ASO for self-insured
organizations, network rental services for self-insured organizations, insurance
companies and other organizations, national service accounts through the BCBSA
for which RightCHOICE accepts no underwriting risk, and life insurance agency
services. The other segment primarily includes the company's real estate assets
and related rental and lease revenues and expenses. All of RightCHOICE's
revenues, including underwritten premiums and self-funded fees and other income
and real estate revenue, are derived from domestic (United States) sources and
no single customer accounts for more than 10% of total revenues.

Operating income for RightCHOICE's underwritten segment is determined by
deducting from premium revenue the health care service costs, commissions, and
general and administrative expenses, as well as any non-recurring charges, that
are attributable to that segment's operations. Operating income for the
self-funded segment is determined by deducting from fees and other income the
commissions, general and administrative expenses and non-recurring charges
attributable to the segment. Operating income for the other segment is
determined by deducting from rental revenues the general and administrative
expenses (including depreciation) attributable to the segment. Expenses not
directly traceable to an industry segment are allocated on a consistent and
reasonable basis utilizing membership, groups, claims, and other key drivers.
Net investment income is allocated to segments separately for each subsidiary of
the company based on the amount of segment revenue generated at each entity. Net
investment income of the parent company is allocated to segments based on the
company's total consolidated underwritten and self-funded segment revenue.
Corporate identifiable assets for the underwritten and self-funded segments
include only receivables from members since RightCHOICE does not produce more
detailed information by segment internally. Corporate identifiable assets for
the company's other segment includes the net book value for the company's real
estate and related assets. Intersegment revenues includes the rental income
related to the company's corporate headquarters. This related party transaction
is eliminated in the company's Consolidated Financial Statements. Financial
information by segment is as follows (in thousands):

<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 2000                         UNDERWRITTEN       SELF-FUNDED       OTHER       ELIMINATIONS      CONSOLIDATED
                                          ------------       -----------       -----       ------------      ------------
<S>                                       <C>                <C>               <C>         <C>               <C>
Revenues...............................     $940,114            $117,902       $7,685          $(4,891)        $1,060,810
Operating income.......................       10,574              40,278        2,789                              53,641
Investment income, net.................       15,915               1,534                                           17,449
Depreciation and amortization expense..       12,059               5,700        2,797                              20,556
Identifiable assets....................       92,531              39,729       59,181                             191,441
</TABLE>


                                       90
<PAGE>   91
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1999                         UNDERWRITTEN       SELF-FUNDED       OTHER       ELIMINATIONS      CONSOLIDATED
                                          ------------       -----------       -----       ------------      ------------
<S>                                       <C>                <C>               <C>         <C>               <C>
Revenues.............................       $817,988            $102,173       $7,498          $(5,040)          $922,619
Operating (loss) income..............         (4,902)             30,173        2,794                              28,065
Investment income, net...............         13,737               1,009                                           14,746
Depreciation and
    amortization expense.............         11,725               5,502        2,801                              20,028
Identifiable assets..................         65,193              30,267       61,928                             157,388
</TABLE>

<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1998                          UNDERWRITTEN       SELF-FUNDED       OTHER      ELIMINATIONS      CONSOLIDATED
                                           ------------       -----------       -----      ------------      ------------
<S>                                        <C>                <C>               <C>        <C>               <C>
Revenues..............................       $775,350             $85,966       $6,617         $(4,166)          $863,767
Operating (loss) income...............        (23,504)             19,966        1,859                             (1,679)
Investment income, net................         19,897               1,251       (5,200)                            15,948
Depreciation and
    amortization expense..............         13,795               5,579        2,756                             22,130
Non-recurring operating charges.......            777                 123                                             900
Identifiable assets...................         65,677              22,710       64,534                            152,921
</TABLE>

The following table sets forth revenue (in thousands) by product group for the
years ended December 31, 2000, 1999, and 1998. The ASO/self-funded and other
income category below includes $830, $444, and $191 of other income related to
RightCHOICE's underwritten segment for the years ended December 31, 2000, 1999,
and 1998, respectively.

<TABLE>
<CAPTION>
                                                                  Year ended December 31,
                                                             2000           1999            1998
                                                             ----           ----            ----
                                                                     (in thousands)
<S>                                                       <C>              <C>            <C>
UNDERWRITTEN PREMIUM REVENUE:
   PPO                                                      $363,215       $294,463       $272,023
   POS                                                       198,156        167,392        151,034
   HMO (includes other POS).......................           220,625        211,910        206,292
   Medicare supplement............................            89,086         92,314         94,951
   Managed indemnity..............................             2,776          4,076          8,131
   Other specialty services.......................            65,426         47,389         42,728
                                                           ---------       --------       --------
     TOTAL PREMIUM REVENUE........................           939,284        817,544        775,159
                                                           ---------       --------       --------

SELF-FUNDED PPO/POS, HMO AND ASO
   (INCLUDES HEALTHLINK AND OTHER INCOME).........           118,732        102,617         86,157
NON-AFFILIATED REAL ESTATE RENTAL INCOME..........             2,794          2,458          2,451
                                                          ----------       --------       --------
     Total fees and other income..................           121,526        105,075         88,608
                                                          ----------       --------       --------
     TOTAL REVENUES...............................        $1,060,810       $922,619       $863,767
                                                          ==========       ========       ========
</TABLE>

15.      STATUTORY INFORMATION

The operations of RightCHOICE and its subsidiaries, HALIC, BlueCHOICE,
HealthLink, HealthLink HMO, and RightCHOICE Insurance Company (RIC) are subject
to regulation and supervision by regulatory authorities of the various
jurisdictions in which they are licensed to conduct business. Regulatory
authorities exercise extensive supervisory power over the licensing of insurance
companies and health maintenance organizations; the amount of reserves that must
be maintained; the approval of forms and policies used; the nature of, and
limitation on, an insurance company's or a health maintenance


                                       91
<PAGE>   92
organization's investments; periodic examination of the operations of insurance
companies and health maintenance organizations; the form and content of annual
statements and other reports required to be filed on the financial condition of
insurance companies and health maintenance organizations; and the establishment
of capital requirements. HALIC, BlueCHOICE, HealthLink HMO, and RIC are required
to file periodic statutory financial statements in each jurisdiction in which
they are licensed. Additionally, these companies are also periodically examined
by the insurance departments of the jurisdictions in which they are licensed to
do business.

In addition to minimum capital requirements imposed by BCBSA, the company's
regulated subsidiaries must comply with certain minimum statutory surplus
requirements in each of the states in which they operate. The combined statutory
net book value of RightCHOICE's insurance and HMO subsidiaries was approximately
$135.8 million at December 31, 2000. At December 31, 2000, these subsidiaries
were required to maintain approximately $57.2 million of combined statutory net
book value in order to meet the minimum BCBSA capital and statutory surplus
requirements for these subsidiaries' states of domicile.

RightCHOICE's subsidiaries prepare their statutory financial statements in
accordance with accounting practices prescribed or permitted by the Missouri and
Illinois Departments of Insurance. Prescribed statutory accounting practices
include a variety of publications of the National Association of Insurance
Commissioners, as well as state laws, regulations, and general administrative
rules. Permitted statutory accounting practices encompass all accounting
practices not so prescribed. On January 1, 2001, significant changes to the
statutory basis of accounting will become effective based on the Codification of
Statutory Accounting Principles guidance (Codification) provided by the National
Association of Insurance Commissioners (NAIC). The NAIC is also considering
amendments to the Codification that would become effective on January 1, 2001 as
well. The cumulative effect of these changes will be recorded as a direct
adjustment to the statutory surplus of the company's subsidiaries. The
adjustments to surplus relate to changes in the recognition of deferred income
taxes as well as changes to the way that the company accounts for unidentified
cash receipts and claims overpayments, among other things. The company has not
completed its estimates of the potential effect of the Codification and all
amendments that are currently under review by the NAIC. The company expects that
its subsidiaries' statutory surplus after adoption will continue to be in excess
of the regulatory risk-based capital requirements as well as the Blue Cross Blue
Shield Association requirements.


                                       92
<PAGE>   93
16.      QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
         (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                        THREE MONTHS ENDED
2000                                                     31-MAR        30-JUN         30-SEP        31-DEC
----                                                     ------        ------         ------        ------
<S>                                                    <C>           <C>            <C>           <C>
Total revenues................................         $249,627      $260,171       $272,072      $278,940
Operating expenses............................          237,139       248,633        258,992       262,405
Operating income..............................           12,488        11,538         13,080        16,535
Investment income, net........................            4,097         5,374          4,438         3,540
Other, net....................................            (927)         (240)          (299)         (391)
Income before minority interest and taxes.....           15,658        16,672         17,219        19,684
Minority interest in consolidated subsidiary..          (1,468)       (1,674)        (1,879)       (1,401)
Provision for income taxes....................          (6,348)       (6,510)        (6,783)       (7,644)
Net income....................................           $7,842        $8,488         $8,557       $10,639
Basic earnings per share......................            $0.52         $0.57          $0.57         $0.66
Diluted earnings per share....................            $0.52         $0.56          $0.55         $0.64
Weighted average shares outstanding...........           14,953        14,953         14,953        16,211
Membership (in thousands).....................            2,568         2,591          2,694         2,741
</TABLE>

<TABLE>
<CAPTION>
                                                                         THREE MONTHS ENDED
1999                                                      31-MAR        30-JUN        30-SEP         31-DEC
----                                                      ------        ------        ------         ------
<S>                                                     <C>           <C>           <C>            <C>
Total revenues.................................         $224,140      $226,549      $232,936       $238,994
Operating expenses.............................          218,182       219,978       223,236        233,158
Operating income (loss)........................            5,958         6,571         9,700          5,836
Investment income, net.........................            3,785         3,173         3,611          4,177
Other, net.....................................            (827)         (546)       (1,250)        (1,462)
Income before minority interest, taxes and
    cumulative effect of accounting change.....            8,916         9,198        12,061          8,551
Minority interest in consolidated subsidiary...            (923)         (767)         (787)          (910)
Provision for income taxes.....................          (3,257)       (3,884)       (4,914)        (3,387)
Cumulative effect of accounting change.........          (1,076)
Net income.....................................           $3,660        $4,547        $6,360         $4,254
Basic earnings per share.......................            $0.24         $0.30         $0.43          $0.28
Diluted earnings per share.....................            $0.24         $0.30         $0.42          $0.28
Weighted average shares outstanding............           14,953        14,953        14,953         14,953
Membership (in thousands)......................            2,283         2,350         2,389          2,441
</TABLE>

17.      UNAUDITED PRO FORMA FINANCIAL INFORMATION
         (in thousands, except per share data)

In accordance with APB Opinion 16, Business Combinations, the following
unaudited pro forma summary presents revenue, operating income, net income and
per share data of RightCHOICE as if the Reorganization had occurred as of the
beginning of each period presented. The pro forma information includes the
results of operations of BCBSMo combined with Old RightCHOICE. In addition,
results include amortization of intangible assets resulting from the
Reorganization, additional premium tax expense for the underwritten business of
BCBSMo that was not previously subject to premium tax, foregone interest on the
cash that was paid to the Foundation, and the related income tax effects of such
adjustments. In addition, the results below exclude approximately $2.0 million
and $5.1 million of costs (before tax) incurred in 2000 and 1999, respectively,
for legal, consulting, and other fees resulting directly


                                       93
<PAGE>   94
from the Reorganization, along with the related tax effects of such costs. The
charge for the minority stockholders' interest in Old RightCHOICE has been
excluded since the information below assumes the Reorganization took place at
the beginning of each respective year. The pro forma financial information is
presented for informational purposes only and may not be indicative of the
results of operations as they would have been if BCBSMo and Old RightCHOICE had
been a single entity during the years ended December 31, 2000 and 1999, nor is
it indicative of the results of operations which may occur in the future. Pro
forma basic earnings per share is calculated based on approximately 18.7 million
shares for the years 2000 and 1999. Pro forma diluted earnings per share is
calculated based on approximately 19.0 million shares and 18.7 million shares
for the years ended 2000 and 1999, respectively.

<TABLE>
<CAPTION>
(unaudited)                                                                 YEAR ENDED DECEMBER 31,
                                                                            -----------------------
                                                                              2000               1999
                                                                              ----               ----
<S>                                                                     <C>                 <C>
Revenues...............................................                 $1,060,810          $ 922,619
Operating income.......................................                     52,978             28,806
Net income.............................................                     41,027             23,343
Basic earnings per share...............................                 $     2.20          $    1.25
Diluted earnings per share.............................                       2.16               1.25
</TABLE>


                                       94
<PAGE>   95
REPORT OF INDEPENDENT ACCOUNTANTS


To the Stockholders and Board of Directors
of RightCHOICE Managed Care, Inc.:

Our report on the consolidated financial statements of RightCHOICE Managed Care,
Inc. is included on page 66 of this Form 10-K. In connection with our audit of
such financial statements, we have also audited the related financial statement
schedules listed in Item 8 on page 57 of this Form 10-K.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included.


/s/  PricewaterhouseCoopers LLP
--------------------------------------
PricewaterhouseCoopers LLP
St. Louis, Missouri
February 9, 2001


                                       95
<PAGE>   96
                                                                      Schedule I
                                                                   (Page 1 of 3)

RIGHTCHOICE MANAGED CARE, INC.
CONDENSED FINANCIAL INFORMATION

Condensed balance sheets of RightCHOICE Managed Care, Inc. (parent company only)
as of December 31, 2000, and the condensed statement of income and cash flows
for the month ended December 31, 2000 are as follows. Prior period financial
statements are not presented as RightCHOICE's holding company structure became
effective in conjunction with the Reorganization on November 30, 2000.

BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                DECEMBER 31, 2000
                                                                                -----------------
<S>                                                                             <C>
ASSETS
Cash....................................................................              $10,231
Investments available for sale, at market value.........................               35,266
Investments in affiliates (2)...........................................              254,412
Property and equipment, net.............................................                3,116
Receivables from members................................................                  318
Receivables from affiliates (1).........................................              231,294
Other assets............................................................               35,279
                                                                                       ------
       Total assets.....................................................             $569,916
                                                                                     ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses...................................              $39,214
Payables to affiliates (1)..............................................              163,477
Obligations for employee benefits.......................................               31,128
Long-term debt, including current portion...............................               26,063
Income taxes payable, net...............................................                7,265
                                                                                        -----
       Total liabilities................................................              267,147
                                                                                      -------
Stockholders' equity:
       Preferred stock, $0.01 par, 25,000,000 shares authorized,
            no shares issued and outstanding............................
       Common stock:
           $0.01 par, 225,000,000 shares authorized,
               18,696,040 shares issued, 18,678,503
               shares outstanding.......................................                  187
       Additional paid-in capital.......................................              300,317
       Retained earnings................................................                3,976
       Treasury stock, 17,537 shares, at cost...........................                 (234)
       Accumulated other comprehensive loss.............................               (1,477)
                                                                                       -------
       Total stockholders' equity.......................................              302,769
                                                                                      -------
       Total liabilities and stockholders' equity.......................             $569,916
                                                                                     ========
</TABLE>

(1) These intercompany amounts are eliminated in the Consolidated Financial
Statements.

(2) As of December 31, 2000, $247,937 is eliminated in the Consolidated
Financial Statements.

The condensed financial information should be read in conjunction with the
Consolidated Financial Statements and the accompanying notes thereto.


                                       96
<PAGE>   97
                                                                      Schedule I
                                                                   (Page 2 of 3)

RIGHTCHOICE MANAGED CARE INC.
CONDENSED FINANCIAL INFORMATION

STATEMENT OF INCOME
(IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               MONTH ENDED DECEMBER 31, 2000
                                                               -----------------------------
<S>                                                            <C>
Revenue
     Reimbursement from affiliates (1)................                   $10,123
     Fees and other income............................                     1,731
                                                                           -----
Total revenue.........................................                    11,854

Expense
     General and administrative.......................                    11,959
                                                                          ------

Operating loss........................................                     (105)

Investment income and other...........................                     1,017
Interest expense......................................                     (207)
                                                                           -----

Income before equity in undistributed income
of subsidiaries and income tax provision..............                       705

Equity in undistributed income of
subsidiaries (1)......................................                     3,514
                                                                           -----

Income before taxes...................................                     4,219

Income tax provision..................................                      (243)
                                                                             ---

Net income............................................                    $3,976
                                                                          ======
</TABLE>

(1) Substantially all of the balances related to these intercompany items are
eliminated in the Consolidated Financial Statements.

The condensed financial information should be read in conjunction with the
Consolidated Financial Statements and the accompanying notes thereto.


                                       97
<PAGE>   98
                                                                      Schedule I
                                                                   (Page 3 of 3)

RIGHTCHOICE MANAGED CARE, INC.
CONDENSED FINANCIAL INFORMATION
STATEMENT OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               MONTH ENDED DECEMBER 31, 2000
                                                               -----------------------------
<S>                                                            <C>
Cash flows from operating activities:
Net income................................................                $3,976
Adjustments to reconcile net income
to net cash used in operating activities:
      Equity in undistributed income
        of subsidiaries...................................               (3,514)
      Provision for deferred income tax benefits..........                    79
      Depreciation and amortization.......................                   165
      Accretion of discounts and
        amortization of premiums..........................                   (1)

Increase in:
      Receivables from members............................                  (34)
      Receivables from affiliates.........................              (30,628)
      Other assets........................................               (2,246)
Increase (decrease) in:
      Accounts payable and accrued
         expenses.........................................                 1,060
      Payables to affiliates..............................                18,202
      Obligations for employee benefits...................                   486
      Income taxes payable, net...........................               (4,658)
                                                                         -------

Net cash used in operating activities.....................              (17,113)
                                                                        --------

Cash flows from investing activities:
      Investments purchased...............................              (24,226)
      Investments sold or matured.........................                23,344
      Property and equipment purchased....................                  (91)
                                                                            ----

Net cash used in investing activities.....................                 (973)
                                                                           -----

Cash flows from financing activities:
      Payments of long-term debt..........................               (2,000)
      Issuance of treasury stock..........................                   123
                                                                             ---
Net cash used in financing activities.....................               (1,877)
                                                                         -------

Net decrease in cash and cash equivalents.................              (19,963)
Cash and cash equivalents, beginning of month.............                30,194
                                                                          ------
Cash and cash equivalents, end of month...................               $10,231
                                                                         =======
</TABLE>

The condensed financial information should be read in conjunction with the
Consolidated Financial Statements and the accompanying notes thereto.


                                       98
<PAGE>   99
                                 EXHIBIT INDEX

      Number      Exhibit
      ------      -------

         2.1      Agreement and Plan of Reorganization, dated as of March 14,
                  2000, by and among Blue Cross and Blue Shield of Missouri, a
                  Missouri nonprofit health services corporation, RightCHOICE
                  Managed Care, Inc., a Missouri corporation, The Missouri
                  Foundation For Health, a Missouri nonprofit public benefit
                  corporation, and RightCHOICE Managed Care, Inc., a Delaware
                  corporation (incorporated by reference to Exhibit 2 of the
                  Registrant's Registration Statement on Form S-4 (File No.
                  333-34750)).

         3.1      Certificate of Incorporation of RightCHOICE Managed Care,
                  Inc., a Delaware corporation (incorporated by reference to
                  Exhibit 3(a) of the Registrant's Registration Statement on
                  Form S-4 (File No. 333-34750)).

         3.2      Bylaws of RightCHOICE Managed Care, Inc., a Delaware
                  corporation, as amended.

         4.1      Specimen of common stock certificate of RightCHOICE Managed
                  Care, Inc., a Delaware corporation.

         4.2      Certificate of Incorporation of RightCHOICE Managed Care,
                  Inc., a Delaware corporation (included in Exhibit 3.1).

         4.3      Bylaws of RightCHOICE Managed Care, Inc., a Delaware
                  corporation, as amended (included in Exhibit 3.2).

         9.1      Voting Trust and Divestiture Agreement, dated as of November
                  30, 2000, by and among RightCHOICE Managed Care, Inc., a
                  Delaware corporation, The Missouri Foundation For Health, a
                  Missouri nonprofit public benefit corporation, and Wilmington
                  Trust Company, a Delaware banking corporation, as trustee
                  (incorporated by reference to Exhibit 9 of the Registrant's
                  Registration Statement on Form S-4 (File No. 333-34750)).

         10.1     Blue Cross License Agreement, dated November 30, 2000, by and
                  between the Blue Cross Blue Shield Association and RightCHOICE
                  Managed Care, Inc., a Delaware corporation (incorporated by
                  reference to Exhibit 10.1 of the Registrant's Current Report
                  on Form 8-K filed December 15, 2000).

         10.2     Blue Shield License Agreement, dated November 30, 2000, by and
                  between the Blue Cross Blue Shield Association and RightCHOICE
                  Managed Care, Inc., a Delaware corporation (incorporated by
                  reference to Exhibit 10.2 of the Registrant's Current Report
                  on Form 8-K) filed December 15, 2000).

         10.3     Missouri Blue Cross/Blue Shield License Addendum, dated as of
                  November 30, 2000, by and between the Blue Cross Blue Shield
                  Association and RightCHOICE Managed Care, Inc., a Delaware
                  corporation (incorporated by reference to Exhibit 10.3 of the
                  Registrant's Current Report on Form 8-K filed December 15,
                  2000).
<PAGE>   100
         10.4     Blue Cross Controlled Affiliate License Agreement, dated
                  November 30, 2000, by and among RightCHOICE Managed Care,
                  Inc., a Delaware corporation, Healthy Alliance Life Insurance
                  Company and the Blue Cross Blue Shield Association
                  (incorporated by reference to Exhibit 10.4 of the Registrant's
                  Current Report on Form 8-K filed December 15, 2000).

         10.5     Blue Shield Controlled Affiliate License Agreement, dated
                  November 30, 2000, by and among RightCHOICE Managed Care,
                  Inc., a Delaware corporation, Healthy Alliance Life Insurance
                  Company and the Blue Cross Blue Shield Association
                  (incorporated by reference to Exhibit 10.5 of the Registrant's
                  Current Report on Form 8-K filed December 15, 2000).

         10.6     Blue Cross Controlled Affiliate License Agreement, dated
                  November 30, 2000, by and among RightCHOICE Managed Care,
                  Inc., a Delaware corporation, HMO Missouri, Inc. and the Blue
                  Cross Blue Shield Association (incorporated by reference to
                  Exhibit 10.6 of the Registrant's Current Report on Form 8-K
                  filed December 15, 2000).

         10.7     Blue Shield Controlled Affiliate License Agreement, dated
                  November 30, 2000, by and among RightCHOICE Managed Care,
                  Inc., a Delaware corporation, HMO Missouri, Inc. and the Blue
                  Cross Blue Shield Association (incorporated by reference to
                  Exhibit 10.7 of the Registrant's Current Report on Form 8-K
                  filed December 15, 2000).

         10.8     Summary of Approved Changes to Blue Cross and Blue Shield
                  Primary License Agreements.

         10.9     Summary of Approved Changes to Blue Cross and Blue Shield
                  Controlled Affiliate License Agreements.

        10.10     Parental Guarantee of RightCHOICE Managed Care, Inc., a
                  Delaware corporation, dated November 30, 2000 (incorporated by
                  reference to Exhibit 10.8 of the Registrant's Current Report
                  on Form 8-K filed December 15, 2000).

        10.11     Registration Rights Agreement, dated as of November 30, 2000,
                  by and between RightCHOICE Managed Care, Inc., a Delaware
                  corporation, and The Missouri Foundation For Health, a
                  Missouri nonprofit corporation (incorporated by reference to
                  Exhibit 10.9 of the Registrant's Current Report on Form 8-K
                  filed December 15, 2000).

        10.12     Indemnification Agreement, dated as of November 30, 2000, by
                  and between RightCHOICE Managed Care, Inc., a Delaware
                  corporation, and The Missouri Foundation For Health, a
                  Missouri nonprofit corporation (incorporated by reference to
                  Exhibit 10.10 of the Registrant's Current Report on Form 8-K
                  filed December 15, 2000).

        10.13     Share Escrow Agent Agreement, dated as of November 30, 2000,
                  by and between RightCHOICE Managed Care, Inc., a Delaware
                  corporation, and U.S. Trust Company, National Association, as
                  share escrow agent (incorporated by reference to Exhibit 10.11
                  of the Registrant's Current Report on Form 8-K filed December
                  15, 2000).

        10.14     Amended and Restated Settlement Agreement, dated January 6,
                  2000, by and among Jeremiah W. "Jay" Nixon, Attorney General
                  of the State of Missouri, the Missouri Department of Insurance
                  and Keith A. Wenzel, its Director, Blue Cross and Blue Shield
                  of Missouri, a Missouri nonprofit health services corporation,
                  and RightCHOICE Managed Care, Inc., a Missouri corporation
                  (incorporated by reference to Exhibit 10(a) of the
                  Registrant's Registration Statement on Form S-4 (File No.
                  333-34750)).

        10.15     Settlement Agreement Notification and Confirmation of
                  Fulfillment of Certain Obligations and Conditions, dated as of
                  November 27, 2000, among Jeremiah W. "Jay" Nixon, Attorney
                  General of the State of Missouri, the Missouri Department of
                  Insurance and Keith A. Wenzel, its Director, Blue Cross and
                  Blue Shield of Missouri, a Missouri nonprofit health services
                  corporation, and RightCHOICE Managed Care, Inc., a Missouri
                  corporation.

<PAGE>   101
        10.16     Settlement Agreement, dated September 20, 1998, by and among
                  the Director of Department of Insurance of the State of
                  Missouri, Blue Cross and Blue Shield of Missouri, HMO
                  Missouri, Inc. and Healthy Alliance Life Insurance Company
                  (incorporated by reference to Exhibit 99(b) to the Form 8-K of
                  RightCHOICE Managed Care, Inc., a Missouri corporation, filed
                  September 23, 1998).

        10.17     Letter Agreement, dated January 5, 2000, amending the
                  Settlement Agreement, dated September 20, 1998, by and among
                  the Director of the Department of Insurance of the State of
                  Missouri, Blue Cross and Blue Shield of Missouri, HMO
                  Missouri, Inc. and Healthy Alliance Life Insurance Company
                  (incorporated by reference to Exhibit 99(b) to the Form 8-K of
                  RightCHOICE Managed Care, Inc., a Missouri corporation, filed
                  on January 11, 2000).

        10.18     Settlement Agreement, dated September 20, 1998, by and among
                  Jeremiah W. (Jay) Nixon, Attorney General, on behalf of the
                  state of Missouri, Blue Cross and Blue Shield of Missouri,
                  RightCHOICE Managed Care, Inc., HMO Missouri, Inc. d/b/a
                  BlueCHOICE, Healthy Alliance Life Insurance Company and
                  Preferred Health Plans of Missouri, Inc. (incorporated by
                  reference to Exhibit 99(c) to the Form 8-K of RightCHOICE
                  Managed Care, Inc., a Missouri corporation, filed on September
                  23, 1998).


        10.19     Letter Agreement, dated January 4, 2000, amending the
                  Settlement Agreement, dated September 20, 1998, by and among
                  Jeremiah W. (Jay) Nixon, Attorney General, on behalf of the
                  State of Missouri, Blue Cross Blue Shield of Missouri,
                  RightCHOICE Managed Care, Inc., HMO Missouri, Inc. d/b/a
                  BlueChoice, Healthy Alliance Life Insurance Company and
                  Preferred Health Plans of Missouri, Inc. (incorporated by
                  reference to Exhibit 99(c) to the Form 8-K of RightCHOICE
                  Managed Care, Inc., a Missouri corporation, filed on January
                  11, 2000).

        10.20     Settlement Agreement, dated September 20, 1998, by and among
                  Healthy Alliance Life Insurance Company, the Director of
                  Revenue of the State of Missouri and the Director of the
                  Department of Insurance of the State of Missouri (incorporated
                  by reference to Exhibit 99(d) to the Form 8-K of RightCHOICE
                  Managed Care, Inc., a Missouri corporation, filed on September
                  23, 1998).

        10.21     Letter Agreement, dated January 5, 2000, amending the
                  Settlement Agreement, dated September 20, 1998, by and among
                  Healthy Alliance Life Insurance Company, the Director of
                  Revenue of the State of Missouri and the Director of the
                  Department of Insurance of the State of Missouri (incorporated
                  by reference to Exhibit 99(d) to the Form 8-K of RightCHOICE
                  Managed Care, Inc., a Missouri corporation, filed on January
                  11, 2000).

        10.22     RightCHOICE Managed Care, Inc., Non-Employee Directors' Stock
                  Option Plan (incorporated by reference to Exhibit 10.18 to the
                  Registration Statement on Form S-1 of RightCHOICE Managed
                  Care, Inc., a Missouri corporation (File No. 33-77798)).

        10.23     RightCHOICE Managed Care, Inc. 1994 Equity Incentive Plan
                  (incorporated by reference to Exhibit 4(c) of the Registrant's
                  Post-Effective Amendment No. 2 on Form S-8 to Registration
                  Statement on Form S-4 (File No. 333-34750)).

        10.24     RightCHOICE Managed Care, Inc. Amended and Restated
                  Nonemployee Directors' Nonqualified Deferred Compensation Plan
                  (incorporated by reference to Exhibit 4(c) of the Registrant's
                  Registration Statement on Form S-8 (File No. 333-51334)).

        10.25     RightCHOICE Managed Care, Inc. Executive Deferred Compensation
                  Plan (incorporated by reference to Exhibit 4(c) of the
                  Registrant's Registration Statement on Form S-8 (File No.
                  333-51336)).

        10.26     RightCHOICE Managed Care, Inc. Supplemental Executive
                  Retirement Plan as restated (incorporated by reference to
                  Exhibit 10.22.1 to Form 10-K for the year ended December 31,
                  1999 of RightCHOICE Managed Care, Inc., a Missouri
                  corporation).*

        10.27     Management Incentive Plan*

        10.28     Form of Indemnification Agreement between RightCHOICE Managed
                  Care, Inc., a Missouri corporation, and its Directors and
                  Officers (incorporated by reference to Exhibit 10.22 to the
                  Registration Statement on Form S-1 of RightCHOICE Managed
                  Care, Inc., a Missouri corporation (File No. 33-77798)).

        10.29     List of Directors and Officers who have executed
                  Indemnification Agreement.


        10.30     Executive Employment Agreement of John A. O'Rourke, dated
                  February 27, 1997 (incorporated by reference to Exhibit 10.51
                  of Form 10-Q for the quarter ended September 30, 1997 of
                  RightCHOICE Managed Care, Inc., a Delaware corporation).*

        10.31     First Amendment to Executive Employment Agreement of John A.
                  O'Rourke, dated December 28, 1999 (incorporated by reference
                  to Exhibit 10.45.1 of the Form 10-K for the year ended
                  December 31, 1999 of RightCHOICE Managed Care, Inc., a
                  Missouri Corporation).*

        10.32     Executive Severance Agreement between RightCHOICE Managed
                  Care, Inc., a Delaware corporation, and Sandra A. Van Trease,
                  dated March 20, 2001.*

        10.33     Executive Severance Agreement between RightCHOICE Managed
                  Care, Inc., a Delaware corporation, and Angela F. Braly,
                  dated March 15, 2001.*

<PAGE>   102
        10.34     Executive Severance Agreement between RightCHOICE Managed
                  Care, Inc., a Delaware corporation, and Dr. John S.
                  Seidenfeld, dated March 19, 2001.*

        10.35     Executive Severance Agreement between RightCHOICE Managed
                  Care, Inc., a Delaware corporation, and Michael Fulk, dated
                  March 19, 2001.*

        10.36     Officer Severance Agreement between RightCHOICE Managed Care,
                  Inc., a Delaware corporation, and Sandra A. Van Trease, dated
                  March 20, 2001.*

        10.37     Officer Severance Agreement between RightCHOICE Managed Care,
                  Inc., a Delaware corporation, and Angela F. Braly, dated
                  March 15, 2001.*

        10.38     Officer Severance Agreement between RightCHOICE Managed Care,
                  Inc., a Delaware corporation, and Dr. John J. Seidenfeld,
                  dated March 19, 2001.*

        10.39     Officer Severance Agreement between RightCHOICE Managed Care,
                  Inc., a Delaware corporation, and Michael Fulk, dated March
                  19, 2001.*

        10.40     Form of Executive Severance Agreement between RightCHOICE
                  Managed Care, Inc., a Delaware corporation, and certain senior
                  vice presidents of RightCHOICE Managed Care, Inc., a Delaware
                  corporation.*

        10.41     List of senior vice presidents who have executed an Executive
                  Severance Agreement.

        10.42     Form of Officer Severance Agreement between RightCHOICE
                  Managed Care, Inc., a Delaware corporation, and certain senior
                  vice presidents of RightCHOICE Managed Care, Inc., a Delaware
                  corporation.*

        10.43     List of senior vice presidents who have executed an Officer
                  Severance Agreement.

        10.44     Form of Officer Severance Agreement between RightCHOICE
                  Managed Care, Inc., a Delaware corporation, and certain vice
                  presidents of RightCHOICE Managed Care, Inc., a Delaware
                  corporation.*

        10.45     List of vice presidents who have executed an Officer Severance
                  Agreement.

        10.46     Form of Officer Severance Agreement between RightCHOICE
                  Managed Care, Inc., a Missouri corporation, and certain vice
                  presidents of RightCHOICE Managed Care, Inc., a Delaware
                  corporation (incorporated by reference to Exhibit 10.54 of the
                  Form 10-K for the year ended December 31, 1997 of RightCHOICE
                  Managed Care, Inc., a Missouri corporation).*

        10.47     List of certain vice presidents of RightCHOICE Managed Care,
                  Inc., a Delaware corporation, who have executed an Officer
                  Severance Agreement with RightCHOICE Managed Care, Inc., a
                  Missouri corporation.

        10.48     Amended and Restated Company/Subsidiaries Tax Allocation
                  Agreement.

        10.49     Amended and Restated State Income Tax Allocation Agreement.

        10.50     Amended and Restated Tax Allocation Agreement between
                  RightCHOICE Managed Care, Inc., a Missouri corporation,
                  and Blue Cross and Blue Shield of Missouri (incorporated by
                  reference to Exhibit 10.5.1 of the Form 10-K for the year
                  ended December 31, 1997 of RightCHOICE Managed Care, Inc., a
                  Missouri corporation).

        10.51     State Income Tax Allocation Agreement by and among Blue Cross
                  and Blue Shield of Missouri and RightCHOICE Managed Care,
                  Inc., a Missouri corporation (incorporated by reference to
                  Exhibit 10.1 to the Form 10-Q for the quarter ended
                  September 30, 1999 of RightCHOICE Managed Care, Inc., a
                  Missouri corporation).

        10.52     Amended and Restated Administrative Services Agreement between
                  Blue Cross and Blue Shield of Missouri and RightCHOICE Managed
                  Care, Inc., a Missouri corporation (incorporated by reference
                  to Exhibit 10.4.1 to the Form 10-K for the year ended December
                  31, 1997 of RightCHOICE Managed Care, Inc., a Missouri
                  corporation).

        10.53     Credit Agreement dated as of August 10, 1995 among RightCHOICE
                  Managed Care, Inc., as the Borrower, Bank of America National
                  Trust and Savings Association, as Administrative Agent, The
                  Boatmen's National Bank of St. Louis, as Co-Agent and the
                  other Financial Institutions Party thereto arranged by BA
                  Securities, Inc. (incorporated by reference to Exhibit 10.1 to
                  the Form 10-Q for the year ended June 30, 1995 of RightCHOICE
                  Managed Care, Inc., a Missouri corporation).

        10.54     First Amendment to the Credit Agreement (incorporated by
                  reference to Exhibit 10.36.1 to the Form 10-K for the year
                  ended December 31, 1995 of RightCHOICE Managed Care, Inc., a
                  Missouri corporation).

        10.55     Consent and Second Amendment to the Credit Agreement
                  (incorporated by reference to Exhibit 10.36.2 to the Form 10-K
                  for the year ended December 31, 1995 of RightCHOICE Managed
                  Care, Inc., a Missouri corporation).

        10.56     Third amendment to the Credit Agreement (incorporated by
                  reference to Exhibit 10.2 to the Form 10-Q for the period
                  ending June 30, 1996 of RightCHOICE Managed Care, Inc., a
                  Missouri corporation).

<PAGE>   103
        10.57     Fourth amendment to the Credit Agreement (incorporated by
                  reference to Exhibit 10.36.4 to the Form 10-K for the year
                  ended December 31, 1996 of RightCHOICE Managed Care, Inc., a
                  Missouri corporation).

        10.58     Fifth amendment to the Credit Agreement (incorporated by
                  reference to Exhibit 10.36.5 to the Form 10-K for the year
                  ended December 31, 1996 of RightCHOICE Managed Care, Inc., a
                  Missouri corporation).

        10.59     Sixth amendment to the Credit Agreement (incorporated by
                  reference to Exhibit 10.36.6 to the Form 10-Q for the period
                  ending September 30, 1997 of RightCHOICE Managed Care, Inc., a
                  Missouri corporation).

        10.60     Seventh amendment to the Credit Agreement (incorporated by
                  reference to Exhibit 10.36.7 to the Form 10-Q for the period
                  ending September 30, 1999 of RightCHOICE Managed Care, Inc., a
                  Missouri corporation).

        10.61     Lease between Forty-Four Forty-Four Forest Park Redevelopment
                  Corporation and RightCHOICE Managed Care, Inc. dated January
                  1, 1995 (incorporated by reference to Exhibit 10.2 to the Form
                  10-Q for the period ending June 30, 1995 of RightCHOICE
                  Managed Care, Inc., a Missouri corporation).

        10.62     Building Services Agreement between Forty-Four Forty-Four
                  Forest Park Redevelopment Corporation and RightCHOICE Managed
                  Care, Inc. dated January 1, 1995 (incorporated by reference to
                  Exhibit 10.4 to the Form 10-Q for the period ending June 30,
                  1995 of RightCHOICE Managed Care, Inc., a Missouri
                  corporation).

        10.63     Network Rental Agreement, dated August 8, 1994, between
                  RightCHOICE Managed Care, Inc. and Healthy Alliance Life
                  Insurance Company (incorporated by reference to Exhibit 10.3
                  to Form 10-K for the year ended December 31, 1994 of
                  RightCHOICE Managed Care, Inc., a Missouri Corporation).

         21.1     List of Subsidiaries of the Registrant.

         23.1     Consent of PricewaterhouseCoopers LLP with regard to the
                  Registrants' Registration Statements on Form S-8,
                  Registration Statement No. 333-34750, Registration Statement
                  No. 333-51334, Registration Statement No. 333-51336,
                  Registration Statement No. 333-53736.

*        Document constitutes a management contract or compensatory plan or
         arrangement.