<PAGE>

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Shareholders
U.S. Healthcare, Inc.

We have audited the accompanying consolidated balance sheets of U.S. 
Healthcare, Inc. as of December 31, 1995 and 1994, and the related 
consolidated statements of income, shareholders' equity and cash flows for 
each of the three years in the period ended December 31, 1995. These 
financial statements are the responsibility of the Company's management. Our 
responsibility is to express an opinion on these financial statements based 
on our audits.

We conducted our audits in accordance with generally accepted auditing 
standards. Those standards require that we plan and perform the audit to 
obtain reasonable assurance about whether the financial statements are free 
of material misstatement. An audit includes examining, on a test basis, 
evidence supporting the amounts and disclosures in the financial statements. 
An audit also includes assessing the accounting principles used and 
significant estimates made by management, as well as evaluating the overall 
financial statement presentation. We believe that our audits provide a 
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above 
present fairly, in all material respects, the consolidated financial position 
of U.S. Healthcare, Inc. at December 31, 1995 and 1994, and the consolidated 
results of its operations and its cash flows for each of the three years in 
the period ended December 31, 1995, in conformity with generally accepted 
accounting principles.

As discussed in Note 1 to the consolidated financial statements, the Company 
changed its method of accounting for marketable securities as of December 31, 
1993.

                                             /s/ ERNST & YOUNG LLP
      

Philadelphia, Pennsylvania
February 2, 1996

                                     22

<PAGE>

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                      December 31
                                                ------------------------
(amounts in thousands except per share data)       1995         1994
------------------------------------------------------------------------
<S>                                             <C>           <C>
ASSETS
   Current assets:
      Cash and cash equivalents                  $ 804,631    $  123,814
      Marketable securities                        450,006     1,009,244
      Receivables                                  144,571       103,465
      Other                                         31,945        38,453
                                                ------------------------
         Total current assets                    1,431,153     1,274,976

   Property and equipment, less accumulated 
      depreciation                                 142,137       127,562
   Marketable securities                            50,771        33,405
   Other long-term assets                           43,083        27,944
                                                ------------------------
         Total assets                           $1,667,144    $1,463,887
                                                ------------------------
                                                ------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY
   Current liabilities:
      Medical costs payable                      $ 505,832     $ 378,321
      Unearned premiums                             68,655        32,283
      Accounts payable and accrued liabilities      77,511        84,747
      Income taxes payable                          28,179        46,525
                                                ------------------------
         Total current liabilities                 680,177       541,876

   Long-term liabilities                            22,836        16,338
                                                ------------------------
      Total liabilities                            703,013       558,214
                                                ------------------------
Shareholders' equity:
   Common stock, $.005 par value-275,000 shares 
     authorized; 148,891 and 148,307 shares 
     issued in 1995 and 1994                           744           741
   Class B stock, $.005 par value-50,000 shares 
      authorized; 14,431 and 14,537 shares 
      issued and outstanding in 1995 and 1994           72            73
   Additional paid-in capital                      169,359       157,275
   Retained earnings                             1,121,616       899,072
   Net unrealized gains (losses) on marketable 
      securities, less applicable income 
      taxes                                          4,758       (27,203)
   Common stock held in treasury-at cost; 
      9,710 and 2,821 shares in 1995 
      and 1994                                    (311,767)     (105,892)
   Unearned portion of restricted common stock     (20,651)      (18,393)
                                                ------------------------
      Shareholders' equity                         964,131       905,673
                                                ------------------------
      Total liabilities and shareholders'equity $1,667,144    $1,463,887
                                                ------------------------
                                                ------------------------
</TABLE>

See accompanying notes.

                                     23

<PAGE>

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                            Years ended December 31
                                                    -----------------------------------
(amounts in thousands except per share data)            1995        1994        1993
---------------------------------------------------------------------------------------
<S>                                                  <C>         <C>         <C>
OPERATING REVENUE:
   Commercial premiums                               $2,971,365  $2,635,621  $2,402,431
   Government premiums                                  490,677     240,891     157,277
   Other, principally administrative services fees       55,764      32,770      20,212
                                                    -----------------------------------
                                                      3,517,806   2,909,282   2,579,920
OPERATING EXPENSES:
   Medical costs                                      2,577,833   1,994,780   1,861,985
   Administrative, marketing and other 
      operating costs                                   412,878     322,372     279,586
                                                    -----------------------------------
                                                      2,990,711   2,317,152   2,141,571
                                                    -----------------------------------
Income from operations                                  527,095     592,130     438,349
Investment income, including net realized 
   gains and losses                                      91,873      65,214      65,315
                                                    -----------------------------------
Income before income taxes                              618,968     657,344     503,664
Provision for income taxes                              238,303     266,225     203,989
                                                    -----------------------------------
NET INCOME                                            $ 380,665   $ 391,119   $ 299,675
                                                    -----------------------------------
                                                    -----------------------------------
NET INCOME PER COMMON AND COMMON 
   EQUIVALENT SHARE-PRIMARY AND 
   FULLY DILUTED                                          $2.42       $2.42       $1.84
                                                    -----------------------------------
                                                    -----------------------------------
Weighted average number of common and 
   common equivalent shares outstanding:
      Primary                                           157,015     161,646     162,654
      Fully diluted                                     157,436     161,704     162,798
</TABLE>

See accompanying notes.

                                     24


<PAGE>

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                    Common stock               Class B Stock
                                                               ----------------------    ------------------------
                                                                 Number                    Number
(amounts in thousands except per share data)                   of shares    Par value    of shares    Par value
-----------------------------------------------------------------------------------------------------------------
<S>                                                            <C>          <C>          <C>          <C>

BALANCE AT JANUARY 1, 1993                                       96,781      $484           10,751         $54
 Exercise of stock options and related tax benefits                 453         2                -           -
 Net unrealized gains on marketable securities,                
  less applicable income taxes                                        -         -                -           -
 Restricted common stock transactions, net                           20         -                -           -
 Conversion of Class B stock to common stock                        713         4             (713)         (4)
 Purchase of treasury stock                                           -         -                -           -
 Cash dividends paid:                                           
  $.3867 per common share                                             -         -                -           -
  $.3480 per Class B share                                            -         -                -           -
 Net income                                                           -         -                -           -
 Shares distributed under a 3 for 2 stock split                  48,984       245            5,019          25
                                                               -----------------------------------------------
BALANCE AT DECEMBER 31, 1993                                    146,951       735           15,057          75
 Exercise of stock options and related tax benefits                 402         2                -           -
 Net unrealized (losses) on marketable securities,              
  less applicable income taxes                                        -         -                -           -
 Restricted common stock transactions, net                          434         2                -           -
 Conversion of Class B stock to common stock                        520         2             (520)         (2)
 Purchase of treasury stock                                           -         -                -           -
 Cash dividends paid:                                            
  $.7233 per common share                                             -         -                -           -
  $.6510 per Class B share                                            -         -                -           -
 Net income                                                           -         -                -           -
                                                               -----------------------------------------------
BALANCE AT DECEMBER 31, 1994                                    148,307       741           14,537          73
 Exercise of stock options and related tax benefits                 333         1                -           -
 Net unrealized gains on marketable securities,                    
  less applicable income taxes                                        -         -                -           -
 Restricted common stock transactions, net                          145         1                -           -
 Conversion of Class B stock to common stock                        106         1             (106)         (1)
 Purchase of treasury stock                                           -         -                -           -
 Cash dividends paid:
  $1.0250 per common share                                            -         -                -           -
  $.9225 per Class B share                                            -         -                -           -
 Net income                                                           -         -                -           -
                                                               -----------------------------------------------
BALANCE AT DECEMBER 31, 1995                                    148,891      $744           14,431         $72
                                                               -----------------------------------------------
                                                               -----------------------------------------------
</TABLE>

See accompanying notes.

                                   25

<PAGE>
<TABLE>
<CAPTION>
                                                                                                  
                                                                                   Common stock       
                                                               Net unrealized    held in treasury   
                                         Additional            gains (losses)  --------------------
                                            paid-in  Retained  on marketable   Number             
                                            capital  earnings   securities     of shares   Cost   
---------------------------------------------------------------------------------------------------
<S>                                      <C>        <C>        <C>            <C>        <C>     
BALANCE AT JANUARY 1, 1993               $120,506     $385,011           -             -          - 
 Exercise of stock options and related
 tax benefits                               8,993            -           -             -          - 
 Net unrealized gains on marketable 
  securities,  less applicable income
  taxes                                         -            -     $23,301             -          - 
 Restricted common stock 
  transactions, net                         1,253            -           -             -          - 
 Conversion of Class B stock to 
  common stock                                  -            -           -             -          - 
 Purchase of treasury stock                     -            -           -          (155) $  (5,996)
 Cash dividends paid:
  $.3867 per common share                       -      (56,490)          -             -          -
  $.3480 per Class B share                      -       (5,381)          -             -          -
 Net income                                     -      299,675           -             -          -
 Shares distributed under a 3 for 2
   stock split                               (270)           -           -           (78)         -
                                         ----------------------------------------------------------
BALANCE AT DECEMBER 31, 1993              130,482      622,815      23,301          (233)    (5,996)
 Exercise of stock options and 
  related tax benefits                      8,146            -           -             -          -
 Net unrealized (losses) on 
  marketable securities,
  less applicable income taxes                  -            -     (50,504)            -          -
 Restricted common stock
  transactions, net                        18,647            -           -             -          -
 Conversion of Class B stock to
  common stock                                  -            -           -             -          -
 Purchase of treasury stock                     -            -           -        (2,588)   (99,896)
 Cash dividends paid:
  $.7233 per common share                       -     (105,157)          -             -          -
  $.6510 per Class B share                      -       (9,705)          -             -          -
 Net income                                     -      391,119           -             -          -
                                         ----------------------------------------------------------
BALANCE AT DECEMBER 31, 1994              157,275      899,072     (27,203)       (2,821)  (105,892)
 Exercise of stock options and
  related tax benefits                      6,575            -           -             -          -   
 Net unrealized gains on 
  marketable securities,
  less applicable income taxes                  -            -      31,961             -          -   
 Restricted common stock 
  transactions, net                         5,509            -           -             -          -   
 Conversion of Class B stock
  to common stock                               -            -           -             -          -   
 Purchase of treasury stock                     -            -           -        (6,889)  (205,875)
 Cash dividends paid:
  $1.0250 per common share                      -     (144,711)          -             -          -   
  $.9225 per Class B share                      -      (13,410)          -             -          -   
 Net income                                     -      380,665           -             -          -   
                                         ----------------------------------------------------------
BALANCE AT DECEMBER 31, 1995             $169,359   $1,121,616     $ 4,758        (9,710) $(311,767)
                                         ----------------------------------------------------------
                                         ----------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                            Unearned portion
                                            of restricted
                                             common stock
                                            ------------------- 
                                            Number              Shareholders'
                                           of shares   Amount        equity
--------------------------------------------------------------------------
<S>                                        <C>       <C>        <C>
BALANCE AT JANUARY 1, 1993                    (103)  $  (965)    $505,090
 Exercise of stock options and related
 tax benefits                                    -         -        8,995
 Net unrealized gains on marketable 
  securities,  less applicable income
  taxes                                          -         -       23,301
 Restricted common stock 
  transactions, net                             37      (720)         533
 Conversion of Class B stock to 
  common stock                                   -         -            -
 Purchase of treasury stock                      -         -       (5,996)
 Cash dividends paid:
  $.3867 per common share                        -         -      (56,490)
  $.3480 per Class B share                       -         -       (5,381)
 Net income                                      -         -      299,675
 Shares distributed under a 3 for 2
   stock split                                 (33)        -            -
                                         ---------------------------------
BALANCE AT DECEMBER 31, 1993                   (99)   (1,685)     769,727
 Exercise of stock options and 
  related tax benefits                           -         -        8,148
 Net unrealized (losses) on 
  marketable securities,
  less applicable income taxes                   -         -      (50,504)
 Restricted common stock
  transactions, net                           (370)  (16,708)       1,941
 Conversion of Class B stock to
  common stock                                   -         -            -
 Purchase of treasury stock                      -         -      (99,896)
 Cash dividends paid:
  $.7233 per common share                        -         -     (105,157)
  $.6510 per Class B share                       -         -       (9,705)
 Net income                                      -         -      391,119
                                         ---------------------------------
BALANCE AT DECEMBER 31, 1994                  (469)  (18,393)     905,673
 Exercise of stock options and
  related tax benefits                           -         -        6,576
 Net unrealized gains on 
  marketable securities,
  less applicable income taxes                   -         -       31,961
 Restricted common stock 
  transactions, net                            (48)   (2,258)       3,252
 Conversion of Class B stock
  to common stock                                -         -            -
 Purchase of treasury stock                      -         -     (205,875)
 Cash dividends paid:
  $1.0250 per common share                       -         -     (144,711)
  $.9225 per Class B share                       -         -      (13,410)
 Net income                                                -      380,665
                                         ---------------------------------
BALANCE AT DECEMBER 31, 1995                  (517) $(20,651)   $ 964,131
                                         ---------------------------------
                                         ---------------------------------
</TABLE>

                                     26

<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                        Years ended December 31
                                                                    ------------------------------
(amounts in thousands)                                                  1995         1994      1993
--------------------------------------------------------------------------------------------------------
<S>                                                                 <C>          <C>          <C>
OPERATING ACTIVITIES:
 Net income                                                         $  380,665   $  391,119   $  299,675
 Adjustments to reconcile net income to cash flow
  from operating activities:
   Depreciation and amortization                                        33,279       27,763       21,786
   Net realized (gains) losses on sales of marketable securities       (15,079)       2,461      (10,769)
   Other non-cash (credits) charges, net                                 9,297        3,267       (1,885)
Changes in operating assets and liabilities:
    Receivables                                                        (41,106)      (5,171)     (15,277)
    Medical costs payable                                              127,511      (40,577)      35,651
    Unearned premiums                                                   36,372        4,759        7,740
    Accounts payable and accrued liabilities                            (7,236)      40,151       12,610
    Income taxes payable                                               (15,969)      (2,327)      29,763
    Other, net                                                         (14,048)      (4,067)       2,863
                                                                    ------------------------------------
     Cash flow from operating activities                               493,686      417,378      382,157
                                                                    ------------------------------------
INVESTING ACTIVITIES:
 Purchase of marketable securities                                    (904,735)  (1,161,082)  (1,604,199)
 Purchase of property and equipment, net                               (42,100)     (27,219)     (40,871)
 Proceeds from maturities or sales of marketable securities          1,514,656    1,024,618    1,299,363
 Other                                                                 (20,893)     (16,122)      (7,614)
                                                                    ------------------------------------
     Cash flow from investing activities                               546,928     (179,805)    (353,321)
                                                                    ------------------------------------
FINANCING ACTIVITIES:
 Proceeds from exercise of stock options                                 4,199        4,660        3,804
 Purchase of treasury stock                                           (205,875)     (99,896)      (5,996)
 Cash dividends paid                                                  (158,121)    (114,862)     (61,871)
                                                                    ------------------------------------
     Cash flow from financing activities                              (359,797)    (210,098)     (64,063)
                                                                    ------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                       680,817       27,475      (35,227)
Cash and cash equivalents at beginning of year                         123,814       96,339      131,566
                                                                    ------------------------------------
Cash and cash equivalents at end of year                            $  804,631   $  123,814   $   96,339
                                                                    ------------------------------------
                                                                    ------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid, net of state income tax refunds                  $  258,170   $  270,476   $  176,904

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Income tax benefits related to exercise of stock options            $    2,377   $    3,488   $    5,191

</TABLE>

See accompanying notes.


                                   27



<PAGE>

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION-The consolidated financial statements include the 
accounts of U.S. Healthcare, Inc. and its subsidiaries (the Company), all of 
which are wholly owned except for certain subsidiaries which are not health 
maintenance organizations (HMOs). All significant intercompany transactions 
have been eliminated in consolidation.

USE OF ESTIMATES-The preparation of financial statements in conformity with 
generally accepted accounting principles requires management to make 
estimates and assumptions that affect the amounts reported in the 
consolidated financial statements and notes to consolidated financial 
statements. Actual results could differ from those estimates.

CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES-Cash equivalents classified 
with cash consist of all highly liquid instruments which mature within three 
months from the date of purchase. The carrying amounts of cash and cash 
equivalents reported in the accompanying consolidated balance sheets 
approximate fair value. Marketable securities consist of debt securities. The 
Company determines the appropriate classification of debt securities at the 
time of purchase and reevaluates such classification as of each balance sheet 
date. At December 31, 1995 and 1994, all securities are classified as 
available for sale. Such securities are carried at fair value and cumulative 
net unrealized gains or losses, less applicable income taxes, are recorded as 
a separate component of shareholders' equity. Realized gains and losses and 
unrealized losses judged to be other than temporary are included in net 
income. Fair values of marketable securities are based on quoted market 
prices, where available. If quoted market prices are not available, fair 
values are based on market prices of comparable instruments. The cost of 
securities sold is based on the specific identification method.

At December 31, 1995 and 1994, $50,771,000 and $33,405,000, 
respectively, of the Company's marketable securities were held by trustees
or state regulatory agencies in accordance with certain state requirements
relating principally to HMOs. Such securities are classified as non-current
assets. The Company determined that other marketable securities held as of
December 31, 1995 and 1994 were available for use in current operations and,
accordingly, classified such securities as current assets without regard to
the securities' contractual maturity dates. 

The Company adopted Statement of Financial Accounting Standards Number 115 
(FAS 115), "Accounting for Certain Investments in Debt and Equity Securities" 
as of December 31, 1993. The adoption of FAS 115 had no effect on net income 
but, as of December 31, 1993, increased marketable securities by $38,204,000, 
representing net unrealized gains, and shareholders' equity by $23,301,000 
(net unrealized gains less deferred income taxes of $14,903,000). 

PROPERTY AND EQUIPMENT-Property and equipment, stated at cost, are 
depreciated on the straight-line method over their estimated useful lives for 
financial reporting purposes and under accelerated methods for income tax 
purposes.

OPERATING REVENUE-Premiums for prepaid health care are recognized as income 
in the month in which the enrollees are entitled to health care services. 
Administrative services fees are recognized as income as services are 
rendered.

MEDICAL COSTS-Medical costs consist principally of medical claims and 
capitation costs. Medical claims include estimates of payments to be made on 
claims reported as of the balance sheet date and estimates of health care 
services rendered but not reported to the Company as of the balance sheet 
date. Such estimates include the cost of services which will continue to be 
rendered after the balance sheet date if the Company

                                     28
<PAGE>

is obligated to pay for such services in accordance with contract provisions 
or regulatory requirements. Medical claims payable are estimated periodically 
and any resulting adjustments are included in current operations. Capitation 
costs represent monthly fees to participating primary care physicians and 
other medical providers as retainers for providing continuing health care 
services.

ADVERTISING COSTS-The Company expenses advertising costs as incurred. 
Advertising costs were $47,057,000, $37,129,000 and $28,435,000 in 1995, 
1994, and 1993, respectively.

INCOME TAXES-Deferred income taxes reflect the net tax effects of temporary 
differences between the carrying amounts of assets and liabilities for 
financial reporting purposes and the amounts used for income tax purposes. 
Such temporary differences include depreciation and amortization, allowance 
for doubtful accounts, accrued compensated absences, deferred compensation 
and net unrealized gains or losses on marketable securities.

RETIREMENT PLANS-The Company has a defined contribution pension plan covering 
substantially all of its employees, subject to certain age and service 
requirements. The Company's contribution for each eligible employee is a 
percentage of the employee's compensation, as defined. The Company also has 
an employee savings plan (401(k)) available to all its employees, subject to 
certain age and service requirements. The Company matches 33 1/3% of the 
employee's contribution, up to a maximum of 2% of the employee's annual 
compensation. The Company funds pension and savings plan costs accrued. The 
Company has a retiree health benefit plan covering substantially all its 
employees (except for certain "key employees," as defined in the plan), 
subject to certain age and service requirements set forth in the plan. 
Company contributions, which are at the Company's sole discretion, are paid 
to a voluntary employees' beneficiary association (VEBA) trust. Any such 
contributions to the VEBA trust are allocated and credited to separate 
accounts established for each eligible employee and for each employee's 
eligible spouse. Funds accumulated in these separate accounts are used to 
fund all or a portion of the premiums for health care benefit coverage for 
eligible retired employees and their eligible spouses. When funds in these 
separate accounts are exhausted, neither the Company nor the VEBA trust have 
any obligation to make any further contributions or payments. Retirement plan 
costs were $14,199,000, $14,375,000 and $14,322,000 in 1995, 1994 and 1993, 
respectively.

NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE-Primary and fully diluted 
net income per common and common equivalent share are based upon the 
applicable weighted average number of common and common equivalent (Class B 
stock and stock options) shares outstanding during the year, after giving 
effect to the stock split explained in Note 7.

ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED-In March 1995, the Financial 
Accounting Standards Board (FASB) issued Financial Accounting Standard Number 
121 (FAS 121), "Accounting for the Impairment of Long-Lived Assets and for 
Long-Lived Assets to Be Disposed Of," which addresses accounting for the 
impairment of long-lived assets such as property and equipment, identifiable 
intangible assets and goodwill. The prospective implementation of FAS 121, 
which must be adopted in 1996, is not expected to have a material effect on 
the Company's consolidated financial position or results of operations. 

In October 1995, the FASB issued Financial Accounting Standard Number 123 
(FAS 123), "Accounting for Stock-Based Compensation," which prescribes 
accounting and reporting standards for all stock-based compensation plans, 
including employee stock options and restricted stock plans. Under FAS 123, 
companies may adopt a fair value method of expense recognition for all 
stock-based compensation or continue to account for all stock-based 
compensation under the measurement standards of Accounting Principles Board 
Opinion Number 25, "Accounting for Stock Issued to Employees" (APB 25). The 
implementation of FAS 123 in 1996 is not expected to affect the Company's 
consolidated financial position or results of operations because the Company 
presently expects to continue to apply the principles of APB 25.

                                     29
<PAGE>

2. MARKETABLE SECURITIES

The following is a summary of marketable securities as of December 31, 1995 
and 1994:

<TABLE>
<CAPTION>
                                                Gross        Gross   Estimated
                               Amortized   unrealized   unrealized        fair
(amounts in thousands)              cost        gains       losses       value
-------------------------------------------------------------------------------
<S>                           <C>          <C>          <C>         <C>
December 31, 1995
 Certificates of deposit      $    4,767            -            -  $    4,767
 U.S. Government obligations     338,377       $3,507     $   (519)    341,365
 Municipal tax-exempt bonds      146,699        5,580          (34)    152,245
 Other                             2,400            -            -       2,400
                              ------------------------------------------------
                              $  492,243       $9,087     $   (553) $  500,777
                              ------------------------------------------------
                              ------------------------------------------------
 Classified as current        $  441,570       $8,761     $   (325) $  450,006
 Classified as non-current        50,673          326         (228)     50,771
                              ------------------------------------------------
                              $  492,243       $9,087     $   (553) $  500,777
                              ------------------------------------------------
                              ------------------------------------------------

December 31, 1994
 Certificates of deposit      $    5,460            -            -  $    5,460
 U.S. Government obligations     962,493       $  237     $(40,863)    921,867
 Municipal tax-exempt bonds      117,632          505       (4,315)    113,822
 Other                             1,500            -            -       1,500
                              ------------------------------------------------
                              $1,087,085       $  742     $(45,178) $1,042,649
                              ------------------------------------------------
                              ------------------------------------------------

 Classified as current        $1,050,932       $  718     $(42,406) $1,009,244
 Classified as non-current        36,153           24       (2,772)     33,405
                              ------------------------------------------------
                              $1,087,085       $  742     $(45,178) $1,042,649
                              ------------------------------------------------
                              ------------------------------------------------
</TABLE>

The contractual maturities of marketable securities as of December 31, 1995 
were as follows:

<TABLE>
<CAPTION>
                                                                     Estimated
                                                         Amortized        fair
(amounts in thousands)                                        cost       value
------------------------------------------------------------------------------
<S>                                                      <C>         <C>
Due in one year or less                                   $110,318    $110,312
Due after one year through five years                      246,444     250,105
Due after five years through ten years                     113,131     116,991
Due after ten years                                         22,350      23,369
                                                         ---------------------
                                                          $492,243    $500,777
                                                         ---------------------
                                                         ---------------------
</TABLE>

Gross realized gains on sales of marketable securities were $18,081,000 and 
$13,890,000 in 1995 and 1994, respectively. Gross realized losses on sales of 
marketable securities were $3,002,000 and $16,351,000 in 1995 and 1994, 
respectively.

                                     30



<PAGE>

3. RECEIVABLES
Receivables consist of the following:

<TABLE>
<CAPTION>
                                                                          December 31
                                                                       -----------------
(amounts in thousands)                                                  1995      1994
----------------------------------------------------------------------------------------
<S>                                                                  <C>       <C>
Premiums (net of allowance for doubtful accounts of $15,779 in 1995
 and $12,910 in 1994)                                                $133,303  $ 83,711
Interest                                                                7,196    16,441
Other                                                                   4,072     3,313
                                                                     -------------------
                                                                     $144,571  $103,465
                                                                     -------------------
                                                                     -------------------
</TABLE>

For the years ended December 31, 1995, 1994 and 1993, premiums billed to the 
Federal Government, excluding premiums for Medicare beneficiaries, represented 
8%, 9% and 10%, respectively, of premium revenue. These premiums are 
classified as commercial premiums in the accompanying consolidated statements 
of income.

4. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                             December 31
                                                        ------------------
(amounts in thousands)                                      1995      1994
--------------------------------------------------------------------------
<S>                                                     <C>       <C>
Land                                                    $  5,899  $  5,888
Buildings                                                 58,936    55,297
Furniture and equipment                                  135,615   101,877
Aircraft                                                  35,767    37,881
                                                        ------------------
                                                         236,217   200,943
 Less accumulated depreciation                            94,080    73,381
                                                        ------------------
                                                        $142,137  $127,562
                                                        ------------------
                                                        ------------------
</TABLE>

5. INCOME TAXES

The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
                                                    Years ended December 31
                                               -----------------------------
(amounts in thousands)                             1995      1994       1993
----------------------------------------------------------------------------
<S>                                            <C>       <C>        <C>
Current provision:
  Federal                                      $198,958  $211,206   $165,657
  State                                          35,145    55,404     41,892
                                               -----------------------------
                                                234,103   266,610    207,549
Deferred provision (benefit):
  Federal                                         2,517      (307)    (3,055)
  State                                           1,683       (78)      (505)
                                               -----------------------------
                                                  4,200      (385)    (3,560)
                                               -----------------------------
                                               $238,303  $266,225   $203,989
                                               -----------------------------
                                               -----------------------------
</TABLE>
                                       31

<PAGE>

A reconciliation between the federal statutory income tax rate and the 
Company's effective income tax rates is as follows:

<TABLE>
<CAPTION>
                                                    Years ended December 31
                                                   ------------------------
(percentage of income before income taxes)           1995    1994     1993
---------------------------------------------------------------------------
<S>                                                 <C>     <C>      <C>
Federal statutory income tax rate                   35.0%   35.0%    35.0%
Income tax rates are affected by:
 State income taxes                                  3.7%    5.4%     5.3%
 Other, net                                         (0.2%)   0.1%     0.2%
                                                    ----------------------
Effective income tax rates                          38.5%   40.5%    40.5%
                                                    ----------------------
                                                    ----------------------
</TABLE>

6. LEGAL PROCEEDINGS

Two class action complaints have been filed the United States District Court 
for the Eastern District of Pennsylvania seeking unspecified damages. The 
complaints allege that the Company and two of its executive officers, through 
certain misrepresentations and omissions about the Company, violated federal 
securities laws and related state law. The Court has granted the plaintiffs' 
motion for class certification as to the federal claims but has denied it as 
to the state claims. The litigation is still in the preliminary stages, and 
merits discovery has just begun. The Company has denied the allegations and 
continues to defend the actions vigorously. 

The Company is also involved in legal actions concerning benefit plan coverage 
and other decisions by the Company, and alleged medical malpractice by 
participating providers. If found liable in such actions, which are vigorously 
defended on several grounds, the Company may bear financial responsibility. 
The Company is also involved in certain other claims and legal actions arising 
in the ordinary course of business. In the opinion of management, these claims 
and legal actions will not have a material adverse effect on the Company's 
consolidated financial position, results of operations or cash flows.

7. SHAREHOLDERS' EQUITY 

On February 22, 1994, the Board of Directors declared a 3 for 2 stock split on 
common and Class B stock effected in the form of a 50% stock dividend paid on 
March 29, 1994. The effects of this stock split have been reflected in 
shareholders' equity as of December 31, 1993 as if the stock split had 
occurred as of that date. Amounts shown as cash dividends paid per common and 
Class B share for all periods presented reflect the effects of this stock 
split.





Class B stock is convertible into common stock on a share for share basis and 
is entitled to receive cash dividends in an amount not to exceed 90% of cash 
dividends paid on common stock. Voting rights are one vote per share for 
common stock and fifty votes per share for Class B stock.

The Company is authorized to issue 50,000,000 shares of preferred stock with 
no par value. No shares were issued as of December 31, 1995 and 1994.

The Company has incentive stock plans that provide for grants of stock options 
and restricted stock awards. Recipients of stock options include employees, 
members of the Board of Directors and certain physicians who contract with the 
Company. Generally, the option price is not less than the market value of the 
stock when the options are granted. Options granted under the plans are 
generally exercisable commencing one year from the date of grant in increments 
ranging from 20% to 33 1/3% a year. Continued affiliation with the Company is a 
condition of vesting and exercise. Restricted stock awards of common stock are 
granted to selected employees and certain physicians who contract with the 
Company, subject to forfeiture if affiliation with the Company terminates or 
violations of other terms of the awards occur prior to the end of the 
prescribed restriction period. Shares are granted without payment to the 
Company. Recipients have all of 

                                       32

<PAGE>

the rights of shareholders except that the shares are deposited with the 
Company and cannot be disposed of until the restrictions have lapsed. The 
approximate fair value (as of the award date) of shares awarded is accrued, 
and charged to expense ratably as the restrictions are lifted and the shares 
released to the recipients.

Information concerning options outstanding for the two most recent years, 
after giving effect to the stock split described above, is as follows:

<TABLE>
<CAPTION>
                                                 Number of shares under option     
                                                 -----------------------------     Option price
(amounts in thousands except per share data)   Incentive  Non-Statutory    Total      per share
-----------------------------------------------------------------------------------------------
<S>                                            <C>        <C>              <C>     <C>
Outstanding at December 31, 1993                 2,253         510         2,763   $ 1.55-32.45
Granted                                            386         483           869   $37.09-46.09
Exercised                                         (383)        (26)         (409)  $ 1.55-29.73
Canceled                                           (81)        (39)         (120)  $13.67-37.98
                                                 -------------------------------
Outstanding at December 31, 1994                 2,175         928         3,103   $ 1.55-46.09
Granted                                          1,427         830         2,257   $12.33-43.18
Exercised                                         (258)        (75)         (333)  $ 1.55-37.98
Canceled                                          (516)        (75)         (591)  $ 6.50-46.09
                                                 -------------------------------
Outstanding at December 31, 1995                 2,828       1,608         4,436   $ 4.74-33.95
                                                 -------------------------------
                                                 -------------------------------
Exercisable at December 31, 1995                   726         186           912
                                                 -------------------------------
                                                 -------------------------------
</TABLE>

At December 31, 1995 and 1994, 27,055,000 and 28,018,000 shares, respectively, 
of common stock were reserved for issuance under the plans discussed above.

8. CONTRACTUAL ARRANGEMENTS WITH PROVIDERS

The Company generally compensates primary care physicians through prospective 
compensation arrangements which incorporate quality assessment standards, 
comprehensiveness of care, utilization and office status components. These 
components are used to adjust the capitation payments to individual physician 
offices and to determine the amount of additional periodic payments. The 
Company has prospective compensation arrangements for mental health, substance 
abuse, diagnostic laboratory, radiology and diagnostic imaging services, 
podiatric treatment, physical therapy and prescription drug dispensing. The 
Company has contracts that provide for all-inclusive per diem and per case 
hospitalization rates and fixed rates for ambulatory surgery, emergency room 
services and specialist services. The Company has also entered into 
quality-based compensation arrangements with certain hospitals, as well as 
agreements with certain integrated health delivery systems under which the 
systems are compensated on a substantially fixed prospective basis for medical 
services, including primary, specialist and hospital care. The arrangements 
described above cover the majority of medical services.

                                       33

<PAGE>

PRICE RANGE OF COMMON STOCK

The common stock of the Company is traded on The Nasdaq Stock Market under the 
symbol USHC. The following table sets forth for the indicated periods the high 
and low prices of the common stock as reported by Nasdaq. All quotations have 
been rounded to the nearest one-eighth.

<TABLE>
<CAPTION>
                                     1995               1994
                               ----------------    ----------------
                                High      Low       High     Low
-------------------------------------------------------------------
<S>                            <C>       <C>       <C>       <C>
First Quarter                  47 1/2    39 1/2    45 1/2    36 5/8
Second Quarter                 44 1/2    26 1/2    47 1/2    35
Third Quarter                  36 1/8    29 7/8    47 1/4    33 3/4
Fourth Quarter                 46 1/2    34 3/8    49        38

</TABLE>

On February 29, 1996, there were 3,679 and 19 shareholders of record of common 
and Class B stock, respectively. The Class B stock cannot be traded but is 
convertible into common stock on a share for share basis.

DIVIDENDS

The table below sets forth the cash dividends per share paid during 1995 and 
1994.


<TABLE>
<CAPTION>
                               1995                           1994
                    ----------------------------   ----------------------------
                    Common stock   Class B stock   Common stock   Class B stock
                    ------------   -------------   ------------    ------------
<S>                 <C>            <C>             <C>             <C>
First Quarter           $ .250        $.2250          $.1333         $.1200
Second Quarter            .250         .2250           .1700          .1530
Third Quarter             .250         .2250           .2100          .1890
Fourth Quarter            .275         .2475           .2100          .1890
                    ------------   -------------   ------------    ------------
 Total for year         $1.025        $.9225          $.7233         $.6510
                    ------------   -------------   ------------    ------------
                    ------------   -------------   ------------    ------------
</TABLE>

Future dividends will be declared and paid at the discretion of the Company's 
Board of Directors and will depend upon, among other things, future earnings, 
capital requirements and the general financial condition of the Company. Cash 
dividends on the Class B stock may be paid only when dividends on the common 
stock are declared and paid. Cash dividends on a share of Class B stock cannot 
exceed 90% of the cash dividends on a share of common stock.

                                       34


<PAGE>


SELECTED FINANCIAL DATA

This data should be read in conjunction with the accompanying financial 
statements and related notes thereto and Management's Discussion and Analysis 
of Financial Condition and Results of Operations included elsewhere in this 
report.

<TABLE>
<CAPTION>

                                                                   Years ended December 31
                                              -----------------------------------------------------------------
(amounts in thousands except per share data)    1995          1994         1993           1992         1991
---------------------------------------------------------------------------------------------------------------
<S>                                           <C>           <C>          <C>           <C>           <C>
INCOME STATEMENT DATA:
OPERATING REVENUE:
 Commercial premiums                          $2,971,365    $2,635,621   $2,402,431    $2,010,963    $1,584,860
 Government premiums                             490,677       240,891      157,277       105,600        74,807
 Other, principally administrative 
  services fees                                   55,764        32,770       20,212        12,522         4,733
                                              -----------------------------------------------------------------
                                               3,517,806     2,909,282    2,579,920     2,129,085     1,664,400
OPERATING EXPENSES:
 Medical costs                                 2,577,833     1,994,780    1,861,985     1,631,317     1,279,960
 Administrative, marketing and other
  operating costs                                412,878       322,372      279,586       227,770       182,723
                                              -----------------------------------------------------------------
                                               2,990,711     2,317,152    2,141,571     1,859,087     1,462,683
                                              -----------------------------------------------------------------
Income from operations                           527,095       592,130      438,349       269,998       201,717
Investment income, including
 net realized gains and losses                    91,873        65,214       65,315        60,139        44,101
Other income                                           -             -            -             -         1,485
                                              -----------------------------------------------------------------
Income before income taxes                       618,968       657,344      503,664       330,137       247,303
Provision for income taxes                       238,303       266,225      203,989       130,091        96,203
                                              -----------------------------------------------------------------
NET INCOME                                    $  380,665    $  391,119   $  299,675    $  200,046    $  151,100
                                              -----------------------------------------------------------------
                                              -----------------------------------------------------------------
NET INCOME PER COMMON AND 
 COMMON EQUIVALENT SHARE: (a)
  PRIMARY                                          $2.42         $2.42        $1.84         $1.23          $.93
  FULLY DILUTED                                    $2.42         $2.42        $1.84         $1.23          $.92
Weighted average number of common and
 common equivalent shares outstanding: (a)
  Primary                                        157,015       161,646      162,654       162,401       162,968
  Fully diluted                                  157,436       161,704      162,798       162,614       163,397

Cash dividends paid per common share (a)         $1.0250        $.7233       $.3867        $.2733        $.1600
Cash dividends paid per Class B share (a)        $ .9225        $.6510       $.3480        $.2460        $.1440

Medical costs as a percentage of premiums          74.5%         69.3%        72.7%         77.1%         77.1%

BALANCE SHEET DATA: (b)
 Total assets                                 $1,667,144    $1,463,887   $1,343,653    $  981,094    $  758,218
 Total liabilities                               703,013       558,214      573,926       476,004       411,324
 Shareholders' equity                            964,131       905,673      769,727       505,090       346,894

</TABLE>

(a) After giving effect to 3 for 2 stock splits effected in the form of 
    50% stock dividends paid in September 1992 and March 1994.

(b) After giving effect to a change in the method of accounting for marketable 
    securities as of December 31, 1993, explained in Note 1 of Notes to 
    Consolidated Financial Statements.

                                       35

<PAGE>

SUPPLEMENTARY FINANCIAL INFORMATION

The following table contains certain selected quarterly unaudited financial 
data for 1995 and 1994.

<TABLE>
<CAPTION>
                                                   First     Second      Third     Fourth
(amounts in thousands except per share data)     Quarter    Quarter    Quarter    Quarter     Total
----------------------------------------------------------------------------------------------------
<S>                                             <C>       <C>         <C>        <C>       <C>
1995
Operating revenue                               $814,029  $840,514    $909,225   $954,038  $3,517,806
Income from operations                           135,201   123,888     131,395    136,611     527,095
Income before income taxes                       155,002   150,052     149,859    164,055     618,968
Net income                                        94,552    93,056      92,163    100,894     380,665
Net income per common and common
 equivalent share-primary and
 fully diluted                                      $.59      $.59        $.60       $.65       $2.42

1994
Operating revenue                               $703,447  $712,036    $736,946   $756,853  $2,909,282
Income from operations                           137,650   141,938     152,472    160,070     592,130
Income before income taxes                       150,149   156,754     170,346    180,095     657,344
Net income                                        89,339    93,268     101,361    107,151     391,119
Net income per common and common     
 equivalent share-primary and
 fully diluted                                      $.55      $.58        $.63       $.67       $2.42

</TABLE>
                                       36

<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF 
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

Substantially all of the Company's revenue is generated from premiums received 
for health care coverage provided to its members. These premiums represent 
approximately 98%, 99% and 99% of the Company's operating revenue for the 
years ended December 31, 1995, 1994 and 1993, respectively. The Company's 
operating expenses are primarily medical costs consisting principally of 
medical claims and capitation costs.

The Company's results of operations depend in large part on accurately 
predicting and effectively managing medical costs and other operating 
expenses. A variety of factors and risks, including competition, changes in 
health care practices, changes in federal or state laws and regulations or the 
interpretations thereof, inflation, provider contract changes, new 
technologies, government-imposed surcharges, taxes or assessments, reductions 
in provider payments by governmental payors (including Medicare and Medicaid) 
(such reductions may cause providers to seek higher payments from private 
payors), major epidemics, disasters, changes in product mix and entry into new 
geographic markets (both of which may result in an increase in members 
obtaining care from providers not under contract with the Company) and 
numerous other factors affecting the delivery and cost of health care, may in 
the future affect the Company's ability to control its medical costs and other 
operating expenses. Governmental action (including downward adjustments to 
premium rates) or business conditions (including intensification of 
competition and the other factors described above) could result in premium 
revenues not increasing to offset increases in medical costs and other 
operating expenses. Once set, premiums are generally fixed for one-year 
periods and, accordingly, unanticipated costs during such periods cannot be 
recovered through higher premiums. The expiration, suspension, termination of, 
or failure to obtain contracts to provide health coverage for governmental 
entities or other significant customers would also negatively impact the 
Company. Due to these factors and risks, no assurance can be given with 
respect to the Company's premium levels or its ability to control its medical 
costs. 

Legislative and regulatory proposals have been made at the federal and state 
government levels related to the health care system, including but not limited 
to limitations on managed care organizations (including benefit mandates, 
provider contract limitations, restrictions on utilization management, premium 
assessments or taxes to pay for uncompensated care and any willing provider 
requirements) and changes in the Medicare and Medicaid programs. Legislative 
or regulatory action could also have the effect of reducing the premiums paid 
to the Company by governmental programs or increasing the Company's medical 
costs. Specifically, potential federal legislation would reduce the premiums 
payable to the Company under the Medicare program as compared to previously 
announced levels; other potential legislation and regulation could have the 
result of reducing the premiums payable to the Company under state Medicaid 
programs. The Company is unable to predict the specific content of any 
legislation or regulation that may be enacted or when or in what jurisdictions 
any such legislation or regulation will be adopted. Therefore, the Company 
cannot predict the effect of such legislation or regulation on the Company's 
business. For additional factors and risks, see the Company's Annual Report on 
Form 10-K for the year ended December 31, 1995.

OPERATIONS

1995 COMPARED TO 1994

Operating revenue increased $608,524,000 or 21%, principally due to growth in 
U.S. Healthcare-insured health plan enrollment (375,000 additional members). 

                                       37

<PAGE>

Commercial premiums increased $335,744,000 or 13%. The principal factor for 
the increase was a 13% increase in Commercial member months (the sum of 
members enrolled in each month during the year). The average premium for the 
Commercial plans, which at December 31, 1995, had about 1,874,000 members, 
decreased 1% to approximately $138 per member per month.

Government premiums consist principally of Medicare and Medicaid premiums. 
Medicare premiums increased $205,600,000 or 115%. The principal factor for the 
increase was a 125% increase in Medicare member months, offset by the effect 
of lower average premiums per member. The average premium for the Medicare 
plans, which at December 31, 1995, had about 108,000 members, decreased 4% to 
$437 per member per month. Medicaid and other premiums increased $44,186,000 
or 71%. The principal factor for the increase was a 105% increase in Medicaid 
member months offset by the effects of lower premiums per member. The average 
premium for the Medicaid plans, which at December 31, 1995, had about 81,000 
members, decreased 9% to $125 per member per month.

The following table shows total premiums earned in 1995 and the increase in 
premiums compared to 1994 by plan type.

<TABLE>
<CAPTION>
                                        1995
(amounts in thousands)              Premiums      Increase
----------------------------------------------------------
<S>                               <C>             <C>
Commercial plans                  $2,971,365      $335,744
Government plans:
 Medicare plans                      384,005       205,600
 Medicaid and other plans            106,672        44,186
                                  ------------------------
                                  $3,462,042      $585,530
                                  ------------------------
                                  ------------------------
</TABLE>

Other operating revenue, which consists principally of administrative services 
fees, increased $22,994,000 or 70%, principally due to a 37% increase in 
employer-funded health plan members. At December 31, 1995, the Company had 
about 371,000 members in employer-funded health plans.

Medical costs increased $583,053,000 or 29% over 1994, primarily due to a 17% 
growth in U.S. Healthcare-insured member months, and higher costs per member. 
Compared to 1994, the weighted average medical cost per member increased 11% 
to $111 per member per month. Factors for the per member increase include 
changes in product and geographic mix, contractual changes in provider rates, 
higher specialist usage, higher capitation rates and the inclusion of a 
pharmacy benefit for most Medicare members. Compared to 1994, medical costs 
rose 5% to $101 per member per month for Commercial plans, 6% to $352 per 
member per month for Medicare plans and 22% to $109 per member per month for 
Medicaid plans. 




Administrative, marketing and other operating costs increased $90,506,000 or 
28% over 1994. Personnel costs contributed the largest increase as a result of 
higher salaries and an increase in the number of employees necessitated, in 
part, by higher business volume and changes in product mix, and increased 
marketing capability.

Investment income increased $26,659,000 or 41% from 1994, principally due to
realized gains on sales of marketable securities and earnings on higher
average portfolio balances. Net realized gains were $15,079,000 in 1995
compared to net realized losses of $2,461,000 in 1994.

Net income for 1995 was $381 million compared to $391 million in 1994. On a 
per share basis, net income was $2.42 in 1995 and 1994, reflecting the effects 
of the Company's repurchase of 6.9 million shares of its common stock during 
1995. 

                                       38

<PAGE>

1994 COMPARED TO 1993

Operating revenue increased $329,362,000 or 13%, principally due to growth in 
U.S. Healthcare-insured health plan enrollment (175,000 additional members).

Commercial premiums increased $233,190,000 or 10%. The principal factors for 
the increase were an 8% increase in Commercial member months and higher premium 
rates. The average premium for the Commercial plans, which at December 31, 
1994, had about 1,595,000 members, increased 1% to approximately $139 per 
member per month.

Government premiums consist principally of Medicare and Medicaid premiums. 
Medicare premiums increased $43,581,000 or 32%. The principal factor for the 
increase was a 35% increase in Medicare member months, offset by the effect of 
lower average premiums per member. The average premium for the Medicare plans, 
which at December 31, 1994, had about 38,000 members, decreased 2% to $457 per 
member per month. Medicaid and other premiums increased $40,033,000 or 178%. 
The principal factor for the increase was a 216% increase in Medicaid member 
months offset by the effects of lower premiums per member. The average premium 
for the Medicaid plans, which at December 31, 1995, had about 51,000 members, 
decreased 7% to $138 per member per month. On December 31, 1994, the Company 
also had about 271,000 members in employer-funded health plans.

The following table shows total premiums earned in 1994 and the increase in 
premiums compared to 1993 by plan type.  

<TABLE>
<CAPTION>
                                 1994
(amounts in thousands)       Premiums     Increase
--------------------------------------------------
<S>                        <C>            <C>
Commercial plans           $2,635,621     $233,190
Government plans:
 Medicare plans               178,405       43,581
 Medicaid and other plans      62,486       40,033
                           -----------------------
                           $2,876,512     $316,804
                           -----------------------
                           -----------------------
</TABLE>

Medical costs increased $132,795,000 or 7% over 1993, primarily due to a 12% 
growth in U.S. Healthcare-insured membership, partly offset by lower costs per 
member.

Administrative, marketing and other operating costs increased $42,786,000 or 
15% over 1993. Personnel costs contributed the largest increase as a result of 
higher salaries and an increase in the number of employees necessitated, in 
part, by higher business volume and changes in product mix, and increased 
marketing capability.

Investment income was virtually unchanged from 1993, because net realized 
losses on sales of marketable securities and a decrease in the yield on 
investments combined to offset the effect of higher investment portfolio 
balances.

                                       39

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

The Company's liquidity requirements have been met from cash flows generated 
by operating activities. In 1995, net cash flows from such activities were 
$493,686,000. The Company believes that its existing financial resources are 
sufficient to meet its liquidity needs.

The Company's operations are conducted principally through HMO and insurance 
subsidiaries. These subsidiaries are subject to state regulations which 
require the subsidiaries to maintain certain levels of equity, as defined. 
Levels of required equity vary by state and, in some states, vary depending on 
premium revenue, medical costs, the cost of care delivered by providers not 
under contract to the Company and other factors. As of December 31, 1995, the 
amount of equity so required was approximately $88 million. The effect of this 
required equity is to limit, for use in the subsidiaries' own respective 
operations, assets such as cash, marketable securities and receivables in an 
amount equal to the sum of the subsidiaries' liabilities plus their required 
equity. As of December 31, 1995, cash and marketable securities limited for 
such use in the subsidiaries' operations under these requirements totaled 
approximately $560 million. Regulations which were adopted but were not yet 
effective would have increased the subsidiaries' required equity (and 
increased the amount of assets limited as aforesaid) by approximately $30 
million as of December 31, 1995. Other changes in equity requirements are 
being considered at the state and federal levels, which may cause the amount 
of equity required to be maintained by subsidiaries to increase. Changes in 
the factors underlying existing equity requirements (such as an increase in 
premium revenue, medical costs or the cost of care delivered by providers not 
under contract to the Company) and expansion into new geographic markets may 
also cause the amount of the subsidiaries' required equity to increase. Most 
states also require the subsidiaries to obtain approval or provide notice 
before funds in excess of certain thresholds are transferred to affiliates.

                                       40