<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                  AMENDMENT NO. 1 ON FORM 10-K/A TO 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, 1999
                                                        -----------------


Commission file number:  1-13248
                         -------

                        RIGHTCHOICE MANAGED CARE, INC.
                        ------------------------------
            (Exact name of registrant as specified in its charter)


            Missouri                                       43-1674052
-------------------------------                 -------------------------------
(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:

     Class A 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 _____
    -----

                                       1
<PAGE>

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.

[X]

The aggregate market value of class A common stock (voting) held by non-
affiliates of the Registrant as of March 8, 2000, was approximately $44,644,000
(based on last reported sale price of $12.25 per share on March 8, 2000, on the
New York Stock Exchange).

As of March 8, 2000, 3,710,880 shares of the Registrant's class A common stock,
par value $0.01 per share, were issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

Explanatory Note
----------------
In April 1999, RightCHOICE Managed Care, Inc., a Delaware corporation (New
RightCHOICE), filed with the Securities and Exchange Commission a registration
statement on Form S-4 to register the shares of New RightCHOICE common stock to
be issued to the holders of RightCHOICE Managed Care, Inc., a Missouri
corporation (the registrant), class A common stock in conjunction with the
merger of the registrant with and into New RightCHOICE as described in the
registration statement. In connection with the preparation and revision of the
registration statement, the notes to the registrant's financial statements, the
management's discussion and analysis of financial condition and results of
operations of the registrant, and the biographies of certain executive officers
of the registrant included in the registration statement were revised to add
more detailed disclosure. The purpose of this Form 10-K/A is to amend the
registrant's Form 10-K for the fiscal year ended December 31, 1999 to include
these changes. None of the additions or modifications had any effect on net
income, total assets, total liabilities or total equity as previously reported.
No part of the Form 10-K for the fiscal year ended December 31, 1999 previously
filed with the SEC other than Items 7, 7A, 8, 10, and 14 are affected by this
amendment.

                                       2
<PAGE>

                                    PART II

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

The following presents management's discussion and analysis of RightCHOICE's
financial condition and results of operations as of the dates and for the
periods indicated. You should read this discussion in conjunction with the
accompanying Consolidated Financial Statements and Notes thereto and the
information set forth under the caption "Risk Factors" of Part I, Item I,
General Business, of the Annual Report on Form 10-K, and under the caption in
Note 13 "Contingencies" of Part II, Item 8, Financial Statements and
Supplementary Data, of this amended Annual Report on Form 10-K/A.

This discussion contains forward-looking statements that involve risks and
uncertainties. Actual results could differ significantly from those anticipated
in these forward-looking statements.

Results of operations

RightCHOICE offers a comprehensive array of managed health care products and
services that it segregates into two distinct segments: underwritten and self-
funded. RightCHOICE's underwritten segment includes preferred provider
organization (PPO), point of service (POS), health maintenance organization
(HMO), Medicare supplement, specialty managed care, and managed indemnity
benefit plans. RightCHOICE's self-funded segment includes third-party
administrator services, administrative services only for self-insured
organizations, network rental services for self-insured organizations, insurance
companies and other organizations, and life insurance agency services.

Revenue

The following table sets forth revenue (in thousands) by product group for the
years ended December 31, 1999, 1998, and 1997:

<TABLE>
<CAPTION>
                                                         For the year ended December 31,
                                                         -------------------------------
          Product Group                                   1999        1998        1997
          -------------                                   ----        ----        ----
          <S>                                           <C>         <C>         <C>
              PPO:
                 Alliance PPO.....................      $209,487    $191,855    $197,329
                 AllianceCHOICE POS...............       167,392     151,034     124,890
              HMO (includes other POS)............       211,910     206,292     183,485
              Medicare supplement.................        92,314      94,951      97,157
              Managed indemnity...................         3,659       7,627      12,531
              Other specialty services............        47,389      42,728      38,875
                                                        --------    --------    --------
                   Total premium revenue..........       732,151     694,487     654,267
              ASO/Self-funded and other income....        84,761      73,025      65,144
                                                        --------    --------    --------
                   Total revenues.................      $816,912    $767,512    $719,411
                                                        ========    ========    ========
</TABLE>

Operating ratios

The following table sets forth selected operating ratios. The medical loss ratio
reflects health care services expense as a percentage of premium revenue. All
other ratios are shown as a percentage of premium revenue and fees and other
income combined:

                                       3
<PAGE>

<TABLE>
<CAPTION>
                                                         For the year ended December 31,
                                                         -------------------------------
                                                          1999        1998        1997
                                                          ----        ----        ----
        <S>                                              <C>         <C>         <C>
        Operating revenues:
          Premium revenue............................     89.6%       90.5%       90.9%
          Fees and other income......................     10.4%        9.5%        9.1%
                                                         ------      ------      ------
                                                         100.0%      100.0%      100.0%
                                                         ======      ======      ======
        Operating ratios:
          Medical loss ratio.........................     82.2%       83.5%       84.8%
                                                         ------      ------      ------
          Commission expense ratio...................      4.0%        4.1%        4.1%
                                                         ------      ------      ------
          General and administrative expense ratio...     20.0%       20.8%       22.7%
                                                         ------      ------      ------
          Adjusted general and administrative
             expense ratio (excludes depreciation
             and amortization).......................     17.9%       18.3%       19.5%
                                                         ------      ------      ------
</TABLE>

Membership

The following table sets forth the number of members by product category:

<TABLE>
<CAPTION>                                                     December 31,
                                                              ------------       % Increase/
        Product Group                                       1999       1998      (Decrease)
        -------------                                       ----       ----      ----------
        <S>                                              <C>         <C>         <C>
        Underwritten:
          PPO:
            Alliance PPO.............................      149,769     141,225        6.0
            AllianceCHOICE POS.......................      130,192     127,907        1.8
          HMO:
            Commercial (includes other POS)..........      128,215     129,417       (0.9)
            Blue Horizons Medicare HMO...............        4,914       5,432       (9.5)
          Medicare supplement........................       53,460      57,966       (7.8)
          Managed indemnity..........................        1,752       2,777      (36.9)
                                                         ---------   ---------
                                                           468,302     464,724        0.8
                                                         ---------   ---------
        Self-funded:
          PPO........................................       44,355      43,688        1.5
          HMO........................................        7,152       8,843      (19.1)
          ASO (includes HealthLink):
            Workers' compensation....................      516,107     449,986       14.7
            Other ASO*...............................    1,250,436   1,155,658        8.2
                                                         ---------   ---------
        Total membership.............................    2,286,352   2,122,899        7.7
                                                         =========   =========
</TABLE>

       * does not include 391,021 and 455,006 additional third-party
administrator members as of December 31, 1999, and 1998, 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.

Comparison of results for 1999 to the results for 1998

Revenues

Underwritten

Premium revenue increased $37.7 million to $732.2 million in 1999 from $694.5
million in 1998. As described below, components of premium revenue were affected
by shifts in product mix, rate increases

                                       4
<PAGE>

and other factors; and as a result, such increase in premium revenue may not be
indicative of future periods. RightCHOICE and its subsidiaries 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 or other factors, RightCHOICE cannot provide any
assurances that it will be able to price the products of its subsidiaries
consistent with health care cost trends.

Recently, competitors of RightCHOICE have announced their intention to exit the
Missouri market, which is RightCHOICE's primary sales area. A reduction in the
number of competitors for the Missouri market share may have a positive impact
on RightCHOICE's ability to attract and maintain membership; however,
RightCHOICE cannot provide any assurances that it will attract or retain
membership as a result of the changing competitive landscape.

PPO premium revenue increased $34.0 million in 1999 -- $40.5 million increase
due to an 11.5% increase in net premium rates, partially offset by a $6.5
million decrease resulting from a slight decrease 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 overall premium renewal rate increases ranging from 7%
to 19% during 1999 enrollment periods. Net premium rate increases are at the
lower end of the overall premium increase range due in part to changes in
deductibles, the timing of group renewals throughout the year and product mix
changes. Alliance PPO membership increased by 8,544 members from December 31,
1998, to December 31, 1999, and AllianceCHOICE POS membership increased by 2,285
over the same time period. RightCHOICE began offering PPO products in Illinois
at the end of first quarter 1997. Included in the Alliance PPO member count are
14,248 PPO Illinois members as of December 31, 1999, an increase of 7,212 from
December 31, 1998.

HMO premium revenue increased $5.6 million in 1999, or 2.7% -- $22.4 million 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. Net premium rates
increased in part due to overall premium renewal rate increases of 7% to 19%
during 1999 enrollment periods. Net premium rate increases are lower than the
overall premium increase range because of:

 .    HMO competition in BlueCHOICE's HMO service areas,
 .    shifts in chosen benefit levels,
 .    changes in the geographic mix of the HMO business,
 .    product mix shifts, and
 .    the status of a large group, the Missouri Consolidated Health Care Plan,
     comprised of approximately 39,500 members as of December 31, 1999, with
     which BlueCHOICE has historically had a limited ability to increase premium
     rates.

Membership in the Missouri Consolidated Health Care Plan increased by 6,277
members from December 31, 1998 to December 31, 1999. Effective January 1, 2000,
the Missouri Consolidated Health Care Plan pricing increased by approximately
21% pursuant to a contract amendment. See "Liquidity and Capital Resources"
below. Excluding the Missouri Consolidated Health Care Plan, membership in
RightCHOICE's HMO products decreased over the same time period by 7,997 members,
primarily due to RightCHOICE's pricing strategy.

Premium revenue from Medicare supplement decreased by $2.6 million in 1999 --
$7.3 million decrease resulting from a 7.4% decrease in member months, partially
offset by a $4.7 million increase because of a 5.0% increase in net premium
rates. Membership in RightCHOICE's Medicare supplement products has decreased in
part due to subscribers opting for Medicare-risk programs, similar to
RightCHOICE's Blue

                                       5
<PAGE>

Horizons Medicare HMO product, in which medical benefits are at least as
comprehensive as Medicare benefits for persons eligible to receive Medicare
(parts A and B) at no additional cost to the member.

Managed indemnity premium revenue decreased by $4.0 million primarily as a
result of a 58.5% decline in member months. Member month declines are consistent
with RightCHOICE's strategy to move toward more highly managed care products.
With the exception of a short-term medical product, RightCHOICE no longer sells
managed indemnity products, but continues to renew coverage for those members
who wish to remain in these managed indemnity programs.

Revenue from other specialty services, which includes certain of RightCHOICE's
drug and dental health care benefit plans, increased $4.7 million -- $7.3
million 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. Specialty product membership related to RightCHOICE's drug products
increased slightly in 1999 as a result of growth in RightCHOICE's Alliance group
membership, growth in the RightCHOICE Insurance Company group membership, and an
increase in the AllianceCHOICE group membership. The increase in membership for
drug products was offset by larger decreases in RightCHOICE's dental product
member months, which decreased by 22.4% due to competition from dental products
that are priced below RightCHOICE's dental product. RightCHOICE intends to
design a more competitive dental product in 2000. The large net premium rate
increases primarily relate to RightCHOICE's drug products and correspond to the
high levels of prescription utilization and trends that RightCHOICE, as well as
the industry as a whole, have experienced in recent years.

Self-funded

Fees and other income from administrative services only, network services and
life insurance commission revenues increased in 1999 by $11.7 million. These
increases are primarily due to increased 1999 revenues of $14.2 million from
HealthLink, RightCHOICE's network rental and managed care service subsidiary.
HealthLink's revenues increased as a result of an 11.5% increase in membership
during 1999 which was partially due to expansion into new territories.
Additionally, HealthLink's membership increases during this period included a
transfer of approximately 10,000 members to HealthLink from RightCHOICE's other
self-funded plans.

Operating expenses

The overall medical loss ratio of RightCHOICE and its subsidiaries decreased to
82.2% in 1999 from 83.5% in 1998. The medical loss ratio experienced in 1999 is
lower compared to that in 1998 due in part to RightCHOICE's pricing strategy,
which resulted in an overall increase in the premium per member per month of
approximately 10.2% in 1999 as compared to 1998. The medical expense on a per
member per month basis increased by approximately 8.4% in 1999 as compared to
1998.

RightCHOICE continues the efforts initiated in 1998 to modify its pharmacy
benefits management program and recontract with physicians and ancillary service
providers. The drug cost trend increase ranged from approximately 10% to 20%,
driven by a combination of factors, including:

 .    introduction of new drug therapies,
 .    physicians' use of newer, more expensive drugs, and
 .    physicians' decreased use of generic drugs in favor of specific drugs
     promoted by pharmaceutical companies.

RightCHOICE is continuing its strategy for managing drug costs by utilizing a
three-tier drug benefit design that allows members to make choices among
generic, preferred drugs (drugs which are part of RightCHOICE's preferred drug
list), or other brand name drugs, albeit at different copayment levels.

                                       6
<PAGE>

Approximately 79% of RightCHOICE's members with a drug benefit under a product
underwritten by a subsidiary of RightCHOICE were enrolled in the three-tiered
pharmacy benefit programs as of December 31, 1999. In 1999, RightCHOICE
recognized a 26% savings on the three-tier program as compared to the two-tier
drug program. Physician education, utilization and prescribing pattern analysis
will be increased through the assistance of an on-site pharmacist whose services
were negotiated through RightCHOICE's pharmacy benefit contract, which runs
through 2002. RightCHOICE will also continue its hospital, physician and service
recontracting strategy, using the more detailed data and analysis available
through RightCHOICE's information and operations strategy. RightCHOICE cannot
assure investors that its initiatives to manage future increases in medical and
pharmacy cost trends to improve the medical loss ratio will be effective.

Commission expense increased by $1.1 million, or 3.4%, in 1999. The commission
expense ratio of 4.0% for 1999 compares to 4.1% in 1998.

General and administrative expenses, excluding depreciation and amortization,
increased $5.7 million in 1999 compared to 1998. This increase is directly
attributable to HealthLink's geographic and member expansion efforts.
RightCHOICE's general and administrative expense ratio, excluding depreciation
and amortization, decreased to 17.9% in 1999 compared to 18.3% in 1998.

Depreciation and amortization expenses decreased to $17.2 million in 1999 from
$19.3 million in 1998. Amortization expenses for completed components of
RightCHOICE's 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 RightCHOICE's
change in the estimated useful life of the capitalized software from five to
seven years.

Operating expenses for RightCHOICE's 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 RightCHOICE's self-funded segment include commissions, general and
administrative expenses, and non-recurring charges attributable to the segment.
Operating expenses for the underwritten segment increased $19.3 million to
$737.0 million in 1999 from $717.7 million in 1998 primarily due to an increase
in health care service costs of $21.7 million in 1999 as compared to 1998.
Operating expenses for the self-funded segment increased $6.2 million to $60.3
million in 1999 from $54.0 million in 1998. This increase was primarily due to
the increase in HealthLink's general and administrative expenses of $6.6
million, as previously described.

Operating income (loss)

RightCHOICE's results from operations improved from an operating loss of $4.2
million in 1998 to an operating income of $19.7 million in 1999. Pricing
strategies, medical cost management, and controlled general administrative
expense contributed to the increase in operating income in 1999.

The operating loss for RightCHOICE's underwritten segment decreased to $4.4
million in 1999 from $23.1 million in 1998. The significant improvement is due
to RightCHOICE's aforementioned successful pricing strategies and cost
management efforts.

The operating income for RightCHOICE's self-funded segment increased to $24.1
million in 1999 from $18.8 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 RightCHOICE's
HealthLink acquisition.

                                       7
<PAGE>

Net investment income

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. Net investment income of $12.9 million represents a $5.8 million
decrease from 1998 primarily as a result of a $4.4 million decrease in net
realized gains.

Provision for income taxes

RightCHOICE's effective income tax provision rate was 39.4% and 40.4% for 1999
and 1998, respectively. RightCHOICE's 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,
RightCHOICE's 1999 and 1998 state income tax provisions were favorably impacted.
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. As of December 31, 1998,
RightCHOICE maintained a valuation allowance of $0.1 million relating to items
in which uncertainty existed with respect to the future realization of the
undistributed losses of minority-owned subsidiary companies. During 1999,
RightCHOICE determined that this uncertainty no longer existed. 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, 1999, and,
accordingly, no valuation allowance has been provided against such assets as of
December 31, 1999.

Net income

RightCHOICE's net income for 1999 increased to $17.2 million, or $0.92 per
share, as compared to net income of $5.7 million, or $0.30 per share for 1998,
as a result of the factors noted above.

Comparison of results for 1998 to the results for 1997

Revenues

Underwritten

Premium revenue increased $40.2 million to $694.5 million in 1998 from $654.3
million in 1997. As described below, components of premium revenue were affected
by shifts in product mix, rate increases and other factors; and as a result,
such increase in premium revenue may not be indicative of future periods.

PPO premium revenue increased $20.7 million in 1998 -- $36.3 million increase
due to an 11.0% increase in net premium rates, partially offset by a $15.6
million decrease resulting from a 4.1% decrease in member months. Net rates
increased due in part to overall premium renewal rate increases averaging 7% to
19% during 1998 enrollment periods. Net premium rate increases are at the lower
end of the overall premium increase range due in part to changes in deductibles,
the timing of group renewals throughout the year and product mix changes.
Alliance PPO membership decreased by 8,114 members from December 31, 1997, to
December 31, 1998, and AllianceCHOICE POS membership decreased by 4,017 over the
same time period. Net membership decreases are due primarily to RightCHOICE's
aforementioned pricing strategy during 1998. Included in the Alliance PPO member
count are 7,000 PPO Illinois members as of December 31, 1998, an increase of
4,800 from December 31, 1997.

                                       8
<PAGE>

HMO premium revenue increased $22.8 million, or 12.4% -- $16.7 million increase
due to an 8.0% increase in net premium rates and a $6.1 million increase
resulting from a 4.1% increase in member months. Net premium rates increased in
part due to overall premium renewal rate increases of 7% to 19% during 1998
enrollment periods. Net rate increases are lower than the overall premium
increase range because of:

 .    HMO competition in RightCHOICE's HMO service areas,
 .    shifts in chosen benefit levels,
 .    changes in the geographic mix of the HMO business,
 .    product mix shifts, and
 .    status of one large group, the Missouri Consolidated Health Care Plan,
     comprised of 33,200 members as of December 31, 1998, with which BlueCHOICE
     has historically had limited ability to increase premium rates.

Membership increases were driven primarily by an enrollment increase of 6,000
members in the Missouri Consolidated Health Care Plan products from December 31,
1997, to December 31, 1998. HMO membership in non-Missouri Consolidated Health
Care Plan products (and excluding RightCHOICE's Medicaid product) decreased over
the same period by 11,600 members or 10.2%, due primarily to RightCHOICE's
aforementioned pricing strategy during 1998.

Effective March 1, 1998, RightCHOICE discontinued its Medicaid product in an
18-county central Missouri region. RightCHOICE decided to discontinue these
services because it believed that the State of Missouri had proposed
unacceptable contract terms. As of December 31, 1997, RightCHOICE had
approximately 5,100 members enrolled in its Medicaid product.

Premium revenue from Medicare supplement decreased by $2.2 million in 1998.
Member months decreased by 8.1% partially offset by a 6.4% increase in net
premium rates. Membership declines are partially attributable to subscribers
opting for Medicare-risk programs, similar to RightCHOICE's Blue Horizons
Medicare HMO product, in which medical benefits are at least as comprehensive as
Medicare benefits for persons eligible to receive Medicare (parts A and B) at no
additional cost to the member.

Managed indemnity premium revenue decreased by $4.9 million because of a 44.3%
decline in member months. Member month declines are consistent with
RightCHOICE's strategy to move toward more highly managed care products.

Revenue from other specialty services, which includes certain of RightCHOICE's
drug and dental health care benefit plans, increased $3.9 million -- $6.3
million increase as a result of a 16.2% increase in net premium rates partially
offset by a $2.4 million decrease resulting from a 5.4% decrease in member
months. The large rate increases relate to RightCHOICE's drug products and
correspond to the high levels of prescription utilization and trends that
RightCHOICE, as well as the industry as a whole, have experienced in recent
years.

Self-funded

Fees and other income from administrative services only, network services and
life insurance commission revenues increased in 1998 by $7.9 million. These
increases are primarily due to increased 1998 revenues of $14.4 million from
HealthLink, RightCHOICE's network rental and managed care service subsidiary.
HealthLink's revenues increased due to a 21.1% increase in membership during
1998. Sales during this period included a 30,000-member group that enrolled in
HealthLink's self-funded ASO plan, transferring from RightCHOICE's other
self-funded business. HealthLink's increases to fees and other income were

                                      9
<PAGE>

partially offset by decreases to revenue caused by the loss of approximately
72,000 members in RightCHOICE's other self-funded business due to the nonrenewal
of three large groups.

Operating expenses

The overall medical loss ratio decreased to 83.5% in 1998 from 84.8% in 1997.
The medical loss ratio experienced in 1998 is lower compared to that in 1997 due
in part to RightCHOICE's pricing strategy, which resulted in an overall increase
in premium per member per month of approximately 9.5% in 1998 as compared to
1997. The medical loss ratio in 1998 is slightly higher than RightCHOICE
previously anticipated in the beginning of the year as a result of continued
escalation of the medical cost trend, driven by increased cost and utilization
of both outpatient services and drug therapies. RightCHOICE's medical expense on
a per member per month basis increased by approximately 7.8% in 1998 as compared
to 1997.

Commission expense increased by $2.1 million, or 7.1%, in 1998. The commission
expense ratio of 4.1% for 1998 remained unchanged from 1997.

General and administrative expenses (excluding depreciation and amortization)
increased $0.2 million in 1998 compared to 1997. RightCHOICE managed to keep
general and administrative expenses relatively consistent from 1997 to 1998
despite the fact that HealthLink's comparable expenses increased by $6.5 million
in 1998 as compared to 1997. This increase is directly attributable to
HealthLink's geographic and member expansion efforts. RightCHOICE's 1997 general
and administrative expenses include a write-off of $1.7 million for amounts due
to BlueCHOICE from MedAmerica HealthNet, Inc., a physician hospital organization
that filed for bankruptcy during the fourth quarter of 1997. RightCHOICE's
general and administrative expense ratio (excluding depreciation and
amortization) decreased to 18.3% in 1998 compared to 19.5% in 1997. Excluding
depreciation, amortization and the $1.7 million charge, the general and
administrative expense ratio for 1997 was 19.2%.

Depreciation and amortization expenses decreased to $19.3 million in 1998 from
$23.1 million in 1997. This reduction of depreciation and amortization expenses
primarily related to intangible assets that became fully amortized during 1997.
In 1997, Healthy Alliance Life Insurance Company recorded $4.3 million of
expense to complete the amortization of a prepaid reinsurance asset associated
with RightCHOICE's reinsurance agreements with Blue Cross and Blue Shield of
Kansas City. Amortization expenses for completed components of RightCHOICE's
information and operations strategy project increased by $2.4 million in 1998
compared to 1997.

A non-recurring charge of $0.9 million was recognized in the fourth quarter of
1998 related to a planned reduction of RightCHOICE's work force and changes in
its employee health care benefits. In 1997, RightCHOICE expensed $3.3 million
related to costs associated with the relocation of RightCHOICE's St. Louis-based
claims, customer service, billing, and provider services functions to its
Springfield, Missouri facility and a new facility in Cape Girardeau, Missouri.

In the third quarter of 1997, BlueCHOICE recorded a $29.5 million contract loss
reserve for estimated losses relating to its contract with the Missouri
Consolidated Health Care Plan. The reserve is based on actuarial estimates,
including projected limited rate increases, and projected enrollment and medical
cost trends accounted for through the year 2000. RightCHOICE cannot provide any
assurances that the amount of this loss reserve will be sufficient to cover all
future losses that may be associated with the Missouri Consolidated Health Care
Plan contract.

Operating expenses for the underwritten segment decreased $6.0 million to $717.7
million in 1998 from $723.8 million in 1997. This decrease is partially due to
the $29.5 million charge for loss reserves in

                                      10
<PAGE>

1997 related to the Missouri Consolidated Health Care Plan contract, as
previously described. Excluding this charge, operating expenses increased $23.5
million, primarily due to an increase in health care service costs of $24.7
million in 1998 as compared to 1997. Operating expenses for the self-funded
segment decreased $2.6 million to $54.0 million in 1998 from $56.7 million in
1997 despite the fact that HealthLink's general and administrative expenses
increased by $6.5 million over this same time period. This decrease was
primarily due to a reduction in RightCHOICE's other self-funded general and
administrative expenses due to the loss of approximately 72,000 members, as
previously described.

Operating loss

RightCHOICE's operating loss decreased from $61.0 million in 1997 to $4.2
million in 1998. Excluding the non-recurring relocation and restructuring
charges and the charge for the Missouri Consolidated Health Care Plan contract
loss reserve, the operating loss decreased from $28.2 million in 1997 to $3.3
million in 1998.

The operating loss for RightCHOICE's underwritten segment was $23.1 million in
1998 compared to an operating loss of $69.4 million in 1997. The decrease in
losses in 1998 is partially attributable to the aforementioned $29.5 million
contract loss reserve as well as an increase in RightCHOICE's overall premium
rates.

RightCHOICE's self-funded segment experienced operating income of $18.8 million
in 1998 as compared to operating income of $8.4 million for 1997. The
improvement in 1998 operating income is partially the result of the continued
positive performance of HealthLink, which added an additional $7.9 million to
this segment's operating income in 1998 as compared to 1997. HealthLink's
operating income is inclusive of $2.8 million and $3.1 million in 1998 and 1997,
respectively, for amortization expenses related to goodwill and other intangible
assets that were acquired through RightCHOICE's HealthLink acquisition.

Net investment income

Net investment income of $18.7 million in 1998 represents a decrease of $14.5
million from 1997, inclusive of a $13.3 million decrease in net realized gains.
Realized gains in 1997 included a $5.7 million gain on the sale of company-owned
life insurance policies as well as additional 1997 net realized gains from the
liquidation of equity securities due to RightCHOICE's intent to increase its
holdings of fixed income securities and decision to repay $15.0 million of its
debt in the first quarter of 1997.

Provision (benefit) for income taxes

RightCHOICE's effective income tax provision (benefit) rate was 40.4% and
(28.4)% for 1998 and 1997, respectively. RightCHOICE's effective tax provision
(benefit) rates for 1998 and 1997 were affected by non-deductible goodwill
amortization. RightCHOICE's 1998 state income tax provision was favorably
impacted by a change in the filing status of Missouri during 1998. RightCHOICE's
effective income tax benefit rate for 1997 was also affected by gains from the
liquidation of company-owned life insurance policies.

Net income (loss)

RightCHOICE's net income for 1998 was $5.7 million, or $0.30 per share, compared
to a net loss of $24.0 million, or $1.29 per share for 1997. Excluding the
non-recurring restructuring and relocation charges and the charge for the
Missouri Consolidated Health Care Plan loss reserve, RightCHOICE's net

                                      11
<PAGE>

income increased to $6.2 million, or $0.33 per share, in 1998, as compared to a
net loss of $2.7 million, or $0.14 per share, in 1997, as a result of the
factors noted above.

Liquidity and capital resources

RightCHOICE's working capital as of December 31, 1999 was $73.0 million, an
increase of $8.5 million from December 31, 1998. The increase is partially
attributable to the net income of $17.2 million in 1999. Depreciation and
amortization expenses related to noncurrent assets were $17.2 million.
RightCHOICE capitalized $6.6 million of costs for property and equipment
purchases, $4.3 million of which relates to capitalized information and
operations strategy development costs. RightCHOICE's unrealized net appreciation
of investments available for sale decreased by $5.6 million in 1999. In
addition, during 1999, RightCHOICE repaid $9.0 million of the debt from
RightCHOICE's reducing revolving credit facility as well as $4.6 million of debt
related to capital leases.

Net cash provided by operations totaled $28.7 million for the year ended
December 31, 1999 as compared to $11.0 million for the year ended December 31,
1998. For 1999, RightCHOICE's net income was $17.2 million, which included (on a
before-tax basis) $0.5 million of net realized losses from the sale of
investments, $17.2 million of depreciation and amortization expenses, and $9.1
million related to the reduction in the Missouri Consolidated Health Care Plan
contract loss reserve. In addition, receivables from members, accounts payable
and accrued expenses, medical claims payable, and net intercompany payables were
affected by the timing of operating cash payments and receipts, intercompany tax
settlements, as well as changes in membership and utilization and claims payment
trends. Receivables from members increased by $10.9 million in part due to an
increase of $9.1 million related to HealthLink receivables, rate increases
related to RightCHOICE's underwritten products, and other timing factors.
Accounts payable and accrued expenses decreased by $5.2 million due in part to a
$6.0 million settlement payment relating to a contingency that was previously
reserved. Medical claims payable increased by $14.4 million, approximately 13%,
due to the increase in the cost of health care services, the timing of claim
payments, and an increase in RightCHOICE's claims inventory. RightCHOICE's
efforts to reduce claims inventory during 2000 could reduce the level of
operating cash flows in future quarters of 2000. Net intercompany payables
decreased by $9.7 million due to the timing of operating cash receipts and
payments and intercompany tax settlements, among other things.

On August 29, 1997, RightCHOICE reported the commencement of the litigation with
the Missouri Consolidated Health Care Plan and estimated losses (giving effect
to all possible renewal terms of the Missouri Consolidated Health Care Plan
contract without requested rate increases) in the range of $30 million to $40
million. As a result of management's assessment of the profitability of its
contract for providing health care services to members of the Missouri
Consolidated Health Care Plan, RightCHOICE recorded a pre-tax charge for
probable future losses of $29.5 million during the third quarter of 1997. The
charge resulted from inadequate rate increases that were contractually limited
for the remainder of the Missouri Consolidated Health Care Plan contract, which
extended through the year 2000. The pre-tax charge was based on actuarial
estimates, including projected limited rate increases, and projected enrollment
and medical cost trends accounted for through the year 2000 in accordance with
generally accepted accounting principles. RightCHOICE was advised by the
Missouri Department of Insurance in March 1998 that the entire amount of the
reserve for the Missouri Consolidated Health Care Plan contract recorded by
RightCHOICE for projected losses under the contract through the year 2000 must,
for statutory accounting purposes, be recorded by RightCHOICE's subsidiary
BlueCHOICE on its statutory filings with the Missouri Department of Insurance.
With the prior regulatory approval of the Missouri Department of Insurance,
BlueCHOICE issued surplus notes to RightCHOICE in the amount of $29 million to
ensure the statutory solvency of BlueCHOICE. On August 6, 1999, the Missouri
Consolidated Health Care Plan executed an amendment to the contract providing a
rate increase that is anticipated to be approximately 21% for public entities,
modified rate factors for state employees, and modification of the

                                      12
<PAGE>

pharmacy benefit, effective January 1, 2000, for the 2000 contract year. While
management of RightCHOICE believes the current provision for losses is adequate,
particularly in light of the rate increases provided on August 6, 1999, if the
actual public entity membership in the Missouri Consolidated Health Care Plan
grows at a rate in excess of the rate used in the actuarial estimates, or if the
projected limited rate increases and medical cost trends should differ
materially from those assumed in the actuarial estimates, then the amount of the
reserve recorded to date could be insufficient to cover all future losses which
may be associated with the Missouri Consolidated Health Care Plan contract, and
such losses could have a material adverse effect on RightCHOICE.

In the first quarter of 1999, RightCHOICE received regulatory approval of a
reinsurance arrangement between its subsidiaries, Healthy Alliance Life
Insurance Company and BlueCHOICE. Under this arrangement, Healthy Alliance Life
Insurance Company will reinsure the Missouri Consolidated Health Care Plan
losses that exceed certain thresholds over the remaining term of the current
Missouri Consolidated Health Care Plan contract. RightCHOICE anticipates that
this arrangement will assist in mitigating the risk that additional surplus
notes or other funding will need to be provided to BlueCHOICE.

RightCHOICE primarily invests positive cash flow in fixed income securities.
RightCHOICE's investment policies are designed to preserve principal, maximize
yield and provide liquidity to meet anticipated obligations. RightCHOICE's
available-for-sale securities primarily include fixed-rate government securities
and corporate bonds as well as mortgage-backed securities and other asset-backed
securities. RightCHOICE also has approximately $10.9 million as of December 31,
1999, invested in a large capitalization equity index fund.

During the third quarter of 1999, RightCHOICE completed negotiations to
favorably amend the terms of its revolving credit facility, the material terms
of which are as follows:

 .    the borrowings under the credit agreement are to be denominated at reduced
     interest rates at either 2.5% above the one month floating London Interbank
     Offered Rate, or at 1.5% above the higher of the latest federal funds rate
     plus 0.5% or the bank's reference rate, which approximates the prime rate,

 .    several financial covenant calculations were favorably modified and the
     financial covenant requirements were favorably adjusted,

 .    the maximum commitment of the credit agreement of $36 million as of October
     1, 1999, will be reduced by $2.0 million quarterly through January 1, 2002,
     the new termination date, and

 .    an additional $7 million of surplus notes will be permitted to be incurred
     between RightCHOICE and its subsidiaries to provide for capital planning
     flexibility.

In addition, if RightCHOICE meets specified criteria, it may denominate the
borrowings at further reduced interest rates at LIBOR plus 2.25%, or as a base
rate loan 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.

Under applicable state regulations, some of RightCHOICE's subsidiaries are
required to retain cash generated from their operations. After giving effect to
these restrictions, RightCHOICE had approximately $9.1 million in cash and
investments available for general corporate purposes without regulatory
approval as of December 31, 1999.

                                      13
<PAGE>

Other than continued investment in information technology, debt repayment, and
license fees, RightCHOICE currently has no definitive material commitments for
future use of its current or expected levels of available cash resources.
RightCHOICE anticipates that in 2000 it will repay $8.0 million of its long-term
debt under the credit agreement's requirements, as described above. In
2000, RightCHOICE anticipates that it will expend approximately $8.6 million,
of which $6.5 million will be capitalized, related to RightCHOICE's information
and operations strategy project. RightCHOICE expects to continue to pay annual
license fees of approximately $0.7 million to $0.8 million related to its
licenses from the Blue Cross and 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 RightCHOICE's total revenue as compared to that of
all Blue Cross and Blue Shield licensees as well as changes adopted by the Blue
Cross and Blue Shield Association to its overall formulas for computing the
license fees. RightCHOICE's management continually evaluates opportunities to
expand RightCHOICE's operations. RightCHOICE's expansion options may include
additional acquisitions and internal development of new products and programs.
RightCHOICE's available cash resources will remain in interest-bearing
investments until they are utilized for such purposes.

Year 2000 issue

RightCHOICE executed a program to evaluate its major systems, processes and
equipment to minimize the possibility of a material disruption to its business
due to Year 2000 problems (e.g., the difficulties of certain computers, computer
programs and other equipment to distinguish between the year 1900 and the year
2000).

RightCHOICE substantially completed its Year 2000 program in December 1999. This
included necessary remediation, implementation of new packages, testing of
critical components, testing of critical external interfaces and completion of
contingency plans for critical processes.

As of February 1, 2000, RightCHOICE had not experienced any significant problems
relating to the Year 2000 transition. While there are some applications that
have not had their first production use in 2000, management does not anticipate
that any such problems would have a material adverse effect on RightCHOICE.
RightCHOICE will continue to monitor these and other systems for continued
processing. As of February 1, 2000, RightCHOICE was not aware of significant
Year 2000 problems encountered by its critical vendors, suppliers and providers
or in RightCHOICE's use of their services.

The total cost associated with modifications required to become Year 2000 ready
was approximately $12.9 million with $5.4 million expensed in 1999. RightCHOICE
expensed all costs associated with these changes as they were incurred. These
costs were funded internally through operating cash flows or investment sales
and represented less than 10% of RightCHOICE's information technology budget
over the life of the Year 2000 program.

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. In an effort to lessen the impact of health care cost inflation on its
premiums, RightCHOICE has implemented programs to strengthen its underwriting
standards. These programs include the three-tier copayment levels for drug
coverages and various deductible and copayment options for medical coverages, as
well as various provider networks and programs such as the Physician Group
Partners Program(R). However, RightCHOICE cannot provide any assurances that its
efforts to reduce the impact of inflation will be effective or that premium
increases will equal or exceed increasing health care costs.

                                      14
<PAGE>

Health Insurance Portability and Accountability Act of 1996

The United States Department of Health and Human Services has issued proposed
rules, as contemplated by the Health Insurance Portability and Accountability
Act of 1996, which would, if the rules are adopted, among other things, impose
security and confidentiality requirements with respect to 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. RightCHOICE has not fully assessed the financial impact related to
full compliance with the Health Insurance Portability and Accountability Act of
1996 and its regulations; however, RightCHOICE believes such financial impact
could be material.

Other proposed health care reform legislation

The United States House of Representatives has passed the "Bipartisan Consensus
Managed Care Improvement Act," also known as the Norwood-Dingell bill, which
would, if it became law, among other things, 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 group health plans and health insurance
issuers to be sued in state courts for coverage determinations. This law and
other proposals, including those referred to generally as the "Patients Bill of
Rights," could impose additional restrictions or obligations on the operations
of RightCHOICE.

It is uncertain whether RightCHOICE can recoup, through higher premiums or other
measures, the increased costs caused by the Bipartisan Consensus Managed Care
Improvement Act or any new legislation or regulation, or any court or regulatory
decision that expands or reduces the interpretation or application of existing
statutes and regulations. While certain of these measures would adversely affect
RightCHOICE and its subsidiaries, at this time RightCHOICE cannot predict the
extent of this impact or which of (or in what form) the pending laws or rules
will be enacted or adopted.

Recently issued accounting standards

See the description under the same caption in Note 2 of the Notes to
Consolidated Financial Statements of Part II, Item 8, of which is incorporated
herein by reference.

Contingencies

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

      ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
      ------------------------------------------------------------------

Investments available for sale

RightCHOICE's available-for-sale securities (See Note 4 of the Notes to
Consolidated Financial Statements for further breakdown of the
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.
RightCHOICE's 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. RightCHOICE's management is responsible for
recommending external portfolio managers and RightCHOICE's Finance and
Investment

                                      15
<PAGE>

Committee, comprised of certain members of RightCHOICE's 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. RightCHOICE's investment guidelines are generally
conservative and are established with the expectation of receiving reasonable
rates of return at reasonable levels of risk. RightCHOICE's 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. RightCHOICE's objective is to diversify 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.

RightCHOICE classifies its investments as available-for-sale. Accordingly,
RightCHOICE's investments are reported on its 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 shareholders'
equity, and no related or immediate impact to the results of operations. At
December 31, 1999, RightCHOICE recorded an unrealized loss 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,
1999, RightCHOICE had $201.9 million invested in available-for-sale securities
at fair value. The analyses below are based on $172.5 million of RightCHOICE's
available-for-sale securities that are managed externally, with a
weighted-average yield to maturity of 7.31%. RightCHOICE's available-for-sale
securities primarily include fixed-rate government securities and corporate
bonds as well as mortgage-backed securities and other asset-backed securities.
RightCHOICE also has $10.9 million invested in an equity index fund. This fund's
passive strategy is designed to track the performance of the Standard & Poor's
500 Composite Stock Price Index. The fund's total return may fluctuate, like
stock prices generally, within a wide range. The remaining $18.5 million of
RightCHOICE's 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 $172.5 million of externally managed fixed maturity investments is as
follows:

<TABLE>
<CAPTION>
        Effective Maturity    % of Total   Effective Duration   % of Total
            (in years)           Held          (in years)          Held
        ------------------------------------------------------------------
        <S>                   <C>          <C>                  <C>
             0.00 - 0.99          3.99          0.00 -0.99          4.73
             1.00 - 2.99         22.22          1.00 -2.99         24.47
             3.00 - 4.99         16.53          3.00 -3.99         19.06
             5.00 - 9.99         41.33          4.00 -5.99         38.18
            10.00 -19.99         11.58          6.00 -7.99          7.52
            20.00 +               4.35          8.00 +              6.04
</TABLE>

The following table shows the effect of changes in interest rates on
RightCHOICE's investment return, duration and market value. The analysis below
incorporates the prepayment risk associated with RightCHOICE's investments in
callable securities as well as the optionality of its mortgage-backed and
asset-backed securities. The analysis includes a 12-month projection of market
values given the applicable changes in yields that management believes are
reasonably possible in the near term from that which existed at year-end 1999
with the assumption that investment income is reinvested.

                                      16
<PAGE>

<TABLE>
<CAPTION>
                                 Return %
                    ------------------------------------
     Yield Change                                          Effective
    (basis points)     Total       Income      Price       Duration    Market Value
    -------------------------------------------------------------------------------
    <S>                <C>         <C>        <C>          <C>         <C>
        -200           15.71        7.23        8.48         3.98        $199,559
        -150           13.58        7.23        6.35         4.01         195,882
        -100           11.49        7.25        4.24         4.07         192,276
         -50            9.39        7.28        2.11         4.13         188,666
           0            7.31        7.31        0.00         4.16         185,068
          50            5.27        7.34       -2.07         4.16         181,554
         100            3.29        7.37       -4.08         4.12         178,138
         150            1.37        7.40       -6.03         4.08         174,834
         200           -0.48        7.43       -7.91         4.03         171,644
</TABLE>

To summarize, a decrease in effective interest rates would result in an increase
in the fair value of RightCHOICE's portfolio with an offsetting increase (net of
taxes) recorded in shareholders' equity. Alternatively, an increase in interest
rates would result in a decrease in the fair value of RightCHOICE's portfolio
with an offsetting decrease (net of taxes) recorded in shareholders' equity.
RightCHOICE 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 1999, RightCHOICE was exposed to changes in interest rates through
RightCHOICE's revolving credit facility with Bank of America National
Association, formerly known as Bank of America National Trust and Savings
Association, and a syndicate of banks. This exposure was primarily linked to the
adjusted London Interbank Offered Rate. RightCHOICE's debt under the credit
agreement was subject to interest at 2.75% above the adjusted London Interbank
Offered Rate, through September 30, 1999, and 2.5% above the adjusted London
Interbank Offered Rate, after September 30, 1999, and was adjusted monthly
accordingly. A hypothetical 10% increase in the adjusted London Interbank
Offered Rate would have increased RightCHOICE's interest expense by
approximately $0.3 million during 1999. At December 31, 1999, RightCHOICE had
$34.1 million outstanding under the credit agreement (see Note 10 of the Notes
to Consolidated Financial Statements for further information related to
RightCHOICE's credit agreement). RightCHOICE expects to continue to denominate
the borrowings under the credit agreement as an offshore rate loan bearing
interest at the adjusted London Interbank Offered Rate plus 2.5%. However, as an
alternative, RightCHOICE may denominate the borrowings as a base rate loan which
bears interest at 1.5% 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 subject to adjustment on a monthly basis.
In addition, if RightCHOICE meets specified criteria, RightCHOICE may denominate
the borrowings at reduced rates, either as an offshore rate loan at the adjusted
London Interbank Offered Rate plus 2.25%, or as a base rate loan 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. The maximum commitment of the credit
agreement was reduced to $34.1 million as of December 31, 1999, with $2.0
million quarterly reductions scheduled through January 1, 2002, the termination
date. In addition, mandatory reductions to the commitment, together with
prepayments, are required upon the happening of extraordinary events, such as
the issuance of debt securities or the sale of a subsidiary.

                                      17
<PAGE>

              ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
              ---------------------------------------------------

Index to Financial Statements:

<TABLE>
<CAPTION>
                                                                                      Page
                                                                                      ----
<S>                                                                                   <C>
Consolidated Balance Sheets, December 31, 1999, and 1998...........................     35
Consolidated Statements of Income for the years ended
     December 31, 1999, 1998 and 1997..............................................     36
Consolidated Statements of Changes in Shareholders' Equity for the years ended
     December 31, 1999, 1998 and 1997..............................................     37
Consolidated Statements of Cash Flows for the years ended
     December 31, 1999, 1998 and 1997..............................................     38
Notes to Consolidated Financial Statements.........................................     39
Report of Independent Accountants..................................................     71
Report of Independent Accountants..................................................     72
Financial Statement Schedule - Condensed Financial Information of Registrant.......     73
</TABLE>

                                      18
<PAGE>

                                   PART III

         ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
         ------------------------------------------------------------

The Board of Directors of RightCHOICE is divided into three classes of
directors, with the directors serving staggered terms of three years until their
respective successors are duly elected and qualified or until their respective
earlier resignation or removal.  The directors are William H. T. Bush and Norman
J. Tice, the Class III directors whose terms expire in 2000; Earle H. Harbison,
Jr. and Gloria W. White, the Class I directors whose terms expire in 2001; and
John A. O'Rourke and Roger B. Porter, Ph.D., the Class II directors whose terms
expire in 2002.  Ronald G. Evens, M.D., a Class II director, resigned in
October, 1999.

The following table sets forth certain information with respect to each director
of RightCHOICE.

<TABLE>
<CAPTION>
                                                                  Present Position            Director
       Name                                       Age             With RightCHOICE             Since
       ----                                       ---             ----------------            --------
<S>                                               <C>      <C>                                <C>
Class III:  Term to Expire in 2000
       William H.T. Bush                           61                 Director                  1994
       Norman J. Tice                              64                 Director                  1994

Class I:  Term to Expire in 2001
       Earle H. Harbison, Jr.                      71                 Director                  1994
       Gloria W. White                             65                 Director                  1994

Class II:  Term to Expire in 2002
       John A. O'Rourke                            56      Chairman, President and Chief        1997
                                                                 Executive Officer
       Roger B. Porter, Ph.D.                      53                 Director                  1994
</TABLE>

The business experience of each of the directors of RightCHOICE is as follows:

William H. T. Bush has served as a director of RightCHOICE since April 1994.
Mr. Bush currently serves as Chairman of the audit committee, the finance and
investment committee and the nominating committee.  He served on the Blue Cross
and Blue Shield of Missouri Board of Directors from 1989 to 1994 and as
Secretary of the Blue Cross and Blue Shield of Missouri Board of Directors from
1990 to 1994.  Mr. Bush is the Chairman of Bush-O'Donnell & Company, Inc. of St.
Louis, an investment management and financial advisory firm he founded in 1986.
Prior to 1986, Mr. Bush served as President and director of The Boatmen's
National Bank of St. Louis.  Mr. Bush currently is a director of Mississippi
Valley Bancshares, Inc., Maritz, Inc., D.T. Industries, Inc., the Lord-Abbett
Family of Mutual Funds and Engineered Support Systems, Inc.

Norman J. Tice has served as a director since April 1994.  Mr. Tice served as
Vice Chairman of RightCHOICE from September 1995 to October 1997 and as Chairman
of RightCHOICE from April 1994 to August 1995.  He also was a director of Blue
Cross and Blue Shield of Missouri from 1986 to July 1994 and has been a director
of Blue Cross and Blue Shield of Missouri since January 1996.  Mr. Tice served
as Chairman of the Blue Cross and Blue Shield of Missouri Board of Directors
from 1990 to 1994 and has served in that capacity since January 1996. Mr. Tice
is a consultant in the financial services industry. He retired from Boatmen's
Bancshares, Inc. in May 1996 where he had served in various senior management
positions. He is a member of the Mastercard International, Inc. Global Board of
Directors and serves as Chairman Emeritus. He is also a director of General
Credit Forms, Inc. and

                                      19
<PAGE>

Intelidata and is an advisory director of First National Bank of St. Louis and a
commissioner of the Bi-State Development Agency.

Earle H. Harbison, Jr. has served as a director of RightCHOICE since April 1994.
Mr. Harbison currently serves as Chairman of the compensation committee.  Since
September 1993, Mr. Harbison has served as Chairman of Harbison Corporation, a
manufacturing company located in St. Louis.  From May 1986 until his retirement
in September 1993, he served as President, Chief Operating Officer and a
director of Monsanto Company.  Mr. Harbison is a director of HealthLink, Inc.,
Angelica Corporation, National Life Insurance Co., Mutual of America, Washington
University, Barnes-Jewish Hospital, Automobile Club of Missouri and the National
Law Center, George Washington University.

Gloria W. White has served as a director of RightCHOICE since November 1994.
Mrs. White currently serves as Chair of the litigation committee.  She served on
the Board of Directors of Blue Cross and Blue Shield of Missouri from 1986 to
1996 and as Chair of the Blue Cross and Blue Shield of Missouri Board of
Directors from August 1994 to January 1996.  Mrs. White has been Vice Chancellor
Emerita of Washington University since June 1997 and has served in various other
capacities at Washington University since 1967.  She currently serves as Chair
of the American Red Cross North Central Region.  Mrs. White is also a director
of BlueCHOICE, Missouri Goodwill Industries, United Way of Greater St. Louis,
the St. Louis Symphony and the St. Louis Art Museum, a member of the Mercantile
Bank Trust Advisory Board, Chair of The Sheldon Foundation Board of Trustees and
a member of the Executive Committee of United Way of Greater St. Louis.

John A. O'Rourke has served as a director and as Chairman and Chief Executive
Officer of RightCHOICE since February 1997 and as President of RightCHOICE since
March 1997.  Mr. O'Rourke also has served as President and Chief Executive
Officer of Blue Cross and Blue Shield of Missouri since March 1997.  He served
as President and Chief Executive Officer of HealthLink from January 1985 to
February 1997.  Prior to joining HealthLink, Mr. O'Rourke was a member of the
Federal Senior Executive Service and served for approximately 15 years in the
United States Department of Health and Human Services in several capacities,
including Deputy Director of the Office of Health Maintenance Organizations,
Deputy Director of the Office of Health Practice Assessment and Senior Policy
Analyst in the Office of the Surgeon General.  Prior to serving in the
Department of Health and Human Services, Mr. O'Rourke was the Director of the
Department of Economic Research for the American Medical Association.

Roger B. Porter, Ph.D. has served as a director of RightCHOICE since April 1994.
Dr. Porter currently serves as Chairman of the business opportunities committee.
Since 1996, Dr. Porter has served as Director of Harvard University's Center for
Business and Government, and since 1993, Dr. Porter has served as IBM Professor
of Business and Government at the John F. Kennedy School of Government at
Harvard University.  From 1989 to 1993, Dr. Porter served as Assistant to the
President of the United States for Economic and Domestic Policy.  From 1985 to
1989, Dr. Porter was Professor of Business and Government at Harvard University
and Faculty Chairman of the Program for Senior Managers in Government.  He is a
director of BlueCHOICE, Zions Bancorporation, National Life Insurance Company,
Tenneco Automotive, and PACTIV Corporation.

There is no arrangement or understanding between any director and any other
person pursuant to which such director was selected as a director.  None of the
corporations or other organizations that employ or employed the directors of
RightCHOICE are parents, subsidiaries or affiliates of RightCHOICE.

                                      20
<PAGE>

Executive Officers

<TABLE>
<CAPTION>
            Name                 Age                 Position
            ----                 ---                 --------
      <S>                        <C>   <C>
      John A. O'Rourke            56   Chairman of the Board, President and Chief
                                       Executive Officer

      Sandra A. Van Trease        39   Senior Executive Vice President and Chief
                                       Operating Officer; Chief Financial Officer

      Angela F. Braly             38   Executive Vice President, General Counsel and
                                       Corporate Secretary

      Stuart K. Campbell          38   Senior Vice President, Client Services

      Michael Fulk                52   Senior Vice President and Chief Marketing
                                       Executive

      Herbert B. Schneiderman     54   Senior Vice President, Medical Delivery Systems

      John J. Seidenfeld, M.D.    53   Senior Vice President and Corporate Medical
                                       Officer

      Connie L. Van Fleet         47   Senior Vice President and Chief Information Officer

      Kathleen M. Zorica          43   Senior Vice President, Business Analysis and
                                       Product Management

      David T. Ott                45   President, Chief Executive Officer and Director of
                                       HealthLink

      Courtney B. Walter          44   Executive Vice President and Chief Financial
                                       Officer of HealthLink

      Robin Theiss                45   Senior Vice President, Strategic Affairs of
                                       HealthLink
</TABLE>

John A. O'Rourke was named Chairman and Chief Executive Officer of RightCHOICE
in February 1997 and President in March 1997.  Mr. O'Rourke came to RightCHOICE
from his position as President and Chief Executive Officer of HealthLink.
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 preferred provider organization in Missouri under
Mr. O'Rourke's leadership.  Earlier, Mr. O'Rourke was Deputy Director of the
Office of Health Maintenance Organizations in the U.S. Department of Health and
Human Services.

Sandra A. Van Trease was named Senior Executive Vice President, Chief Operating
Officer and Chief Financial Officer in December 1998.  She joined RightCHOICE 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 RightCHOICE,
she was a Senior Manager with Price Waterhouse LLP.

                                      21
<PAGE>

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, Client Services, in August
1997.  Mr. Campbell joined RightCHOICE as Chief Internal Auditor in September
1994 and was named Corporate Compliance Officer in 1996.  Prior to joining
RightCHOICE, Mr. Campbell was a Senior Manager with Price Waterhouse LLP.

Michael Fulk joined RightCHOICE as Senior Vice President and Chief Marketing
Executive in January 1998.  Mr. Fulk joined RightCHOICE from United HealthCare,
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 United HealthCare's HMO, POS and PPO operations in
Texas, Alabama, Louisiana, Tennessee, Arkansas, Mississippi and the Gulf Coast
region.

Herbert B. Schneiderman joined RightCHOICE as Senior Vice President, Medical
Delivery Systems, in July 1995.  Mr. Schneiderman came to RightCHOICE 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 RightCHOICE 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 RightCHOICE in 1990 and
immediately prior to her current position served as Vice President, Business
Analysis and Development.  Prior to joining RightCHOICE, 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.

Robin Theiss was named Senior Vice President, Strategic Affairs of HealthLink in
September 1997.  Ms. Theiss has been with HealthLink since 1990 and previously
held the position of Vice President, Operations.  Prior to joining HealthLink,
Ms. Theiss held positions with General American, SANUS Health Plan and MetLife
Healthcare Network.

                                      22
<PAGE>

            SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

To RightCHOICE's knowledge, based solely on review of the Forms 3, 4 and 5
furnished to RightCHOICE and written representations that no other reports were
required during the year ended December 31, 1999, its directors, executive
officers, greater than 10% shareholders and reporting trusts complied with
applicable Section 16(a) filing requirements.

                                    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/A
are set forth in the index in Part II, Item 8 of this report.

2)   Financial Statement Schedules:

<TABLE>
<CAPTION>
                                                                               Page
                                                                               ----
       <S>                                                                     <C>
       The schedule required to be filed as part of this report is as follows:

       I.  Condensed Financial Information of Registrant                         73
</TABLE>

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

2      Conceptual framework for agreement to resolve litigation and regulatory
issues with the Missouri Department of Insurance and the Missouri Attorney
General (portion omitted pursuant to request for confidential treatment) -
Incorporated by reference - previously filed as Exhibit 2 to the Registrant's
Form 10-Q for the period ending March 31, 1998.*

2.1    Reorganization Agreement between the Registrant, Healthy Alliance Life
Insurance Company (HALIC) and Blue Cross and Blue Shield of Missouri (BCBSMo) -
Incorporated by reference - previously filed as Exhibit 2.1 to the Registrant's
Form 10-K for the period ending December 31, 1994.*

2.1.1  Supplement to the Reorganization Agreement between the Registrant,
Healthy Alliance Life Insurance Company (HALIC) and Blue Cross and Blue Shield
of Missouri (BCBSMo) - Incorporated by reference - previously filed as Exhibit
2.1.1 to the Registrant's Form 10-K for the period ending December 31, 1995.*

2.2    Agreement and Plan of Reorganization, dated as of March 14, 2000, by and
among Blue Cross and Blue Shield of Missouri, RightCHOICE Managed Care, Inc., a
Missouri corporation, The Missouri Foundation for Health and RightCHOICE Managed
Care, Inc., a Delaware corporation - Incorporated by reference - previously
filed as Exhibit 2.2 to the Registrant's Form 10-K for the period ending
December 31, 1999.*

                                      23
<PAGE>

3.1    Articles of Incorporation of the Registrant - Incorporated by reference -
previously filed as Exhibit 3.1 to Registration Statement on Form S-1 under the
Securities Act of 1933 filed by the Registrant.  Registration Statement No. 33-
77798.*

3.1.1  Amendment to Articles of Incorporation of the Registrant - Incorporated
by reference - previously filed as Exhibit 3.1.1 to Registration Statement on
Form S-1 under the Securities Act of 1933 filed by the Registrant.  Registration
Statement No. 33-77798.*

3.2.1  Amended and Restated Bylaws of the Registrant dated October 27, 1997 -
Incorporated by reference - previously filed as Exhibit 3.2 to the Registrant's
Form 10-Q for the period ending September 30, 1997.*

4.1    Specimen of Class A Common Stock Certificate of the Registrant -
Incorporated by reference - previously filed as Exhibit 4.1 to Registration
Statement on Form S-1 under the Securities Act of 1933 filed by the Registrant.
Registration Statement No. 33-77798.*

4.2    Specimen of Class B Common Stock Certificate of Registrant - Incorporated
by reference - previously filed as Exhibit 4.2 to Registration Statement on Form
S-1 under the Securities Act of 1933 filed by the Registrant.  Registration
Statement No. 33-77798.*

10.2   Reinsurance Agreement between the Registrant and BCBSMo - Incorporated by
reference - previously filed as Exhibit 10.2 to the Registrant's Form 10-K for
the period ending December 31, 1994.*

10.3   Network Rental Agreement between the Registrant and BCBSMo - Incorporated
by reference - previously filed as Exhibit 10.3 to the Registrant's Form 10-K
for the period ending December 31, 1994.*

10.4.1 Amended and Restated Administrative Services Agreement between the
Registrant and BCBSMo - Incorporated by reference - previously filed as Exhibit
10.4.1 to the Registrant's Form 10-K for the period ending December 31, 1997.*

10.5.1 Amended and Restated Tax Allocation Agreement - Incorporated by
reference - previously filed as Exhibit 10.5.1 to the Registrant's Form 10-K for
the period ending December 31, 1997.*

10.5.2 State Income Tax Allocation Agreement by and among Blue Cross and Blue
Shield of Missouri and RightCHOICE Managed Care, Inc., dated September 30, 1999
- Incorporated by reference - previously filed as Exhibit 10.1 to the
Registrant's Form 10-Q for the period ending September 30, 1999.*

10.5.3 State Income Tax Allocation Agreement by and among RightCHOICE Managed
Care, Inc. and its subsidiaries, dated September 30, 1999 - Incorporated by
reference - previously filed as Exhibit 10.2 to the Registrant's Form 10-Q for
the period ending September 30, 1999.*

10.6.3 Letter Agreement with BCBSA regarding the issuance of Blue Cross and
Blue Shield licenses - Incorporated by reference - previously filed as Exhibit
10.6.3 to the Registrant's Form 10-K for the period ending December 31, 1997.*

10.6.4 Blue Cross License Agreement between Blue Cross and Blue Shield
Association (BCBSA) and BCBSMo - Incorporated by reference - previously filed as
Exhibit 10.6.4 to the Registrant's Form 10-K for the period ending December 31,
1997.*

                                      24
<PAGE>

10.6.5 Blue Cross License Agreement between BCBSA and BCBSMo - Incorporated by
reference - previously filed as Exhibit 10.6.5 to the Registrant's Form 8-K
filed on November 25, 1998.*

10.6.6 Addendum to Blue Cross License Agreement between BCBSA and BCBSMo -
Incorporated by reference - previously filed as Exhibit 10.6.6 to the
Registrant's Form 8-K filed on November 25, 1998.*

10.6.7 Summary of Approved Changes to the Blue Cross Primary License Agreement
- Incorporated by reference - previously filed as Exhibit 10.6.7 to the
Registrant's Form 10-K for the period ending December 31, 1998.*

10.6.8 Summary of Approved Changes to the Blue Cross Primary License Agreement
- Incorporated by reference - previously filed as Exhibit 10.1 to the
Registrant's Form 10-Q for the period ending June 30, 1999.*

10.6.9 Addendum to Blue Cross License Agreement between BCBSA and BCBSMo, dated
November 23, 1999 - Incorporated by reference - previously filed as Exhibit
10.6.9 to the Registrant's Form 10-K for the period ending December 31, 1999.*

10.7.3 Blue Shield License Agreement between BCBSA and BCBSMo - Incorporated by
reference - previously filed as Exhibit 10.7.3 to the Registrant's Form 10-K for
the period ending December 31, 1997.*

10.7.4 Blue Shield License Agreement between BCBSA and BCBSMo - Incorporated by
reference - previously filed as Exhibit 10.7.4 to the Registrant's Form 8-K
filed on November 25, 1998.*

10.7.5 Addendum to Blue Shield License Agreement between BCBSA and BCBSMo -
Incorporated by reference - previously filed as Exhibit 10.7.5 to the
Registrant's Form 8-K filed on November 25, 1998.*

10.7.6 Summary of Approved Changes to the Blue Shield Primary License Agreement
- Incorporated by reference - previously filed as Exhibit 10.7.6 to the
Registrant's Form 10-K for the period ending December 31, 1998.*

10.7.7 Summary of Approved Changes to the Blue Shield Primary License Agreement
- Incorporated by reference - previously filed as Exhibit 10.2 to the
Registrant's Form 10-Q for the period ending June 30, 1999.*

10.7.8 Addendum to Blue Shield License Agreement among BCBSA and BCBSMo, dated
November 23, 1999 - Incorporated by reference - previously filed as Exhibit
10.7.8 to the Registrant's Form 10-K for the period ending December 31, 1999.*

10.8.2 Blue Cross Controlled Affiliate License Agreement among BCBSA, HMO
Missouri, Inc., and BCBSMo - Incorporated by reference - previously filed as
Exhibit 10.8.2 to the Registrant's Form 10-K for the period ending December 31,
1997.*

10.8.3 Blue Cross Controlled Affiliate License Agreement among BCBSA, BCBSMo,
and HMO Missouri, Inc. - Incorporated by reference - previously filed as Exhibit
10.8.3 to the Registrant's Form 8-K filed on November 25, 1998.*

10.8.4 Addendum to Blue Cross Controlled Affiliate License Agreement among
BCBSA, BCBSMo, and HMO Missouri, Inc. - Incorporated by reference - previously
filed as Exhibit 10.8.4 to the Registrant's Form 8-K filed on November 25,
1998.*

                                      25
<PAGE>

10.8.5 Addendum to Blue Cross Controlled Affiliate License Agreement among
BCBSA, BCBSMo and HMO Missouri, Inc., dated November 23, 1999 - Incorporated by
reference - previously filed as Exhibit 10.8.5 to the Registrant's Form 10-K for
the period ending December 31, 1999.*

10.9.2 Blue Shield Controlled Affiliate License Agreement among BCBSA, HMO
Missouri, Inc., and BCBSMo - Incorporated by reference - previously filed as
Exhibit 10.9.2 to the Registrant's Form 10-K for the period ending December 31,
1997.*

10.9.3 Blue Shield Controlled Affiliate License Agreement among BCBSA, BCBSMo,
and HMO Missouri, Inc. - Incorporated by reference - previously filed as Exhibit
10.9.3 to the Registrant's Form 8-K filed on November 25, 1998.*

10.9.4 Addendum to Blue Shield Controlled Affiliate License Agreement among
BCBSA, BCBSMo, and HMO Missouri, Inc. - Incorporated by reference - previously
filed as Exhibit 10.9.4 to the Registrant's Form 8-K filed on November 25,
1998.*

10.9.5   Addendum to Blue Shield Controlled Affiliate License Agreement among
BCBSA, BCBSMo and HMO Missouri, Inc., dated November 23, 1999 - Incorporated by
reference - previously filed as Exhibit 10.9.5 to the Registrant's Form 10-K for
the period ending December 31, 1999.*

10.10.2  Blue Cross Controlled Affiliate License Agreement among BCBSA, BCBSMo
and the Registrant - Incorporated by reference - previously filed as Exhibit
10.10.2 to the Registrant's Form 10-K for the period ending December 31, 1997.*

10.10.3  Blue Cross Controlled Affiliate License Agreement among BCBSA, BCBSMo,
and the Registrant - Incorporated by reference - previously filed as Exhibit
10.10.3 to the Registrant's Form 8-K filed on November 25, 1998.*

10.10.4  Addendum to Blue Cross Controlled Affiliate License Agreement among
BCBSA, BCBSMo, and the Registrant - Incorporated by reference - previously filed
as Exhibit 10.10.4 to the Registrant's Form 8-K filed on November 25, 1998.*

10.10.5  Summary of Approved Changes to the Blue Cross Controlled Affiliate
License Agreement - Incorporated by reference - previously filed as Exhibit
10.10.5 to the Registrant's Form 10-K for the period ending December 31, 1998.*

10.10.6  Summary of Approved Changes to the Blue Cross Controlled Affiliate
License Agreement - Incorporated by reference - previously filed as Exhibit 10.3
to the Registrant's Form 10-Q for the period ending June 30, 1999.*

10.10.7  Addendum to Blue Cross Controlled Affiliate License Agreement among
BCBSA, BCBSMo and the Registrant, dated November 23, 1999 - Incorporated by
reference - previously filed as Exhibit 10.10.7 to the Registrant's Form 10-K
for the period ending December 31, 1999.*

10.11.2  Blue Shield Controlled Affiliate License Agreement among BCBSA, BCBSMo
and the Registrant - Incorporated by reference - previously filed as Exhibit
10.11.2 to the Registrant's Form 10-K for the period ending December 31, 1997.*

                                      26
<PAGE>

10.11.3  Blue Shield Controlled Affiliate License Agreement among BCBSA, BCBSMo,
and the Registrant - Incorporated by reference - previously filed as Exhibit
10.11.3 to the Registrant's Form 8-K filed on November 25, 1998.*

10.11.4  Addendum to Blue Shield Controlled Affiliate License Agreement among
BCBSA, BCBSMo, and the Registrant - Incorporated by reference - previously filed
as Exhibit 10.11.4 to the Registrant's Form 8-K filed on November 25, 1998.*

10.11.5  Summary of Approved Changes to the Blue Shield Controlled Affiliate
License Agreement - Incorporated by reference - previously filed as Exhibit
10.11.5 to the Registrant's Form 10-K for the period ending December 31, 1998.*

10.11.6  Summary of Approved Changes to the Blue Shield Controlled Affiliate
License Agreement - Incorporated by reference - previously filed as Exhibit 10.4
to the Registrant's Form 10-Q for the period ending June 30, 1999.*

10.11.7  Addendum to Blue Shield Controlled Affiliate License Agreement among
BCBSA, BCBSMo and the Registrant, dated November 23, 1999 - Incorporated by
reference - previously filed as Exhibit 10.11.7 to the Registrant's Form 10-K
for the period ending December 31, 1999.*

10.12.2  Blue Cross Controlled Affiliate License Agreement among BCBSA, BCBSMo
and HALIC - Incorporated by reference - previously filed as Exhibit 10.12.2 to
the Registrant's Form 10-K for the period ending December 31, 1997.*

10.12.3  Blue Cross Controlled Affiliate License Agreement among BCBSA, BCBSMo,
and Healthy Alliance Life Insurance Company (HALIC) - Incorporated by reference
- previously filed as Exhibit 10.12.3 to the Registrant's Form 8-K filed on
November 25, 1998.*

10.12.4  Addendum to Blue Cross Controlled Affiliate License Agreement among
BCBSA, BCBSMo, and HALIC - Incorporated by reference - previously filed as
Exhibit 10.12.4 to the Registrant's Form 8-K filed on November 25, 1998.*

10.12.5  Addendum to Blue Cross Controlled Affiliate License Agreement among
BCBSA, BCBSMo and HALIC, dated November 23, 1999 - Incorporated by reference -
previously filed as Exhibit 10.12.5 to the Registrant's Form 10-K for the period
ending December 31, 1999.*

10.13.2  Blue Shield Controlled Affiliate License Agreement among BCBSA, BCBSMo
and HALIC - Incorporated by reference - previously filed as Exhibit 10.13.2 to
the Registrant's Form 10-K for the period ending December 31, 1997.*

10.13.3  Blue Shield Controlled Affiliate License Agreement among BCBSA, BCBSMo,
and HALIC - Incorporated by reference - previously filed as Exhibit 10.13.3 to
the Registrant's Form 8-K filed on November 25, 1998.*

10.13.4  Addendum to Blue Shield Controlled Affiliate License Agreement among
BCBSA, BCBSMo, and HALIC - Incorporated by reference - previously filed as
Exhibit 10.13.4 to the Registrant's Form 8-K filed on November 25, 1998.*

10.13.5  Addendum to Blue Shield Controlled Affiliate License Agreement among
BCBSA, BCBSMo and HALIC, dated November 23, 1999 - Incorporated by reference -
previously filed as Exhibit 10.13.5 to the Registrant's Form 10-K for the period
ending December 31, 1999.*

                                      27
<PAGE>

10.16    Directors' Stock Option Plan of the Registrant - Incorporated by
reference - previously filed as Exhibit 10.18 to Registration Statement on Form
S-1 under the Securities Act of 1933 filed by the Registrant. Registration
Statement No. 33-77798.*

10.17    Equity Incentive Plan of the Registrant - Incorporated by reference -
previously filed as Exhibit 10.19 to Registration Statement on Form S-1 under
the Securities Act of 1933 filed by the Registrant.  Registration Statement No.
33-77798.*

10.17.1  Amendment to Equity Incentive Plan of the Registrant - Incorporated by
reference - previously filed as Exhibit 10.19.1 to the Registrant's Form 10-K
for the period ending December 31, 1994.*

10.20    Form of Indemnification Agreement between the Registrant and its
Directors and Officers (and list of parties who have executed indemnification
agreements) - Incorporated by reference - previously filed as Exhibit 10.22 to
Registration Statement on Form S-1 under the Securities Act of 1933 filed by the
Registrant.  Registration Statement No. 33-77798.*

10.21    Agreement of Indemnification between BCBSMo and the Registrant and its
subsidiaries - Incorporated by reference - previously filed as Exhibit 10.23 to
the Registrant's Form 10-K for the period ending December 31, 1994.*

10.22    Registrant Supplemental Executive Retirement Plan - Incorporated by
reference - previously filed as Exhibit 10.24 to Registration Statement on Form
S-1 under the Securities Act of 1933 filed by the Registrant.  Registration
Statement No. 33-77798.*

10.22.1  Registrant Supplemental Executive Retirement Plan as restated effective
September 24, 1999 - Incorporated by reference - previously filed as Exhibit
10.22.1 to the Registrant's Form 10-K for the period ending December 31, 1999.*

10.23    Registrant Executive Deferred Compensation Plan - Incorporated by
reference - previously filed as Exhibit 10.24 to Registration Statement on Form
S-1 under the Securities Act of 1933 filed by the Registrant.  Registration
Statement No. 33-77798.*

10.23.1  Amendment No. 1 to Registrant Executive Deferred Compensation Plan,
amended and restated as of February 1, 1998 - Incorporated by reference -
previously filed as Exhibit 10.23.1 to the Registrant's Form 10-K for the period
ending December 31, 1999.*

10.23.2  Basic Program Document of the Nonqualified Deferred Compensation
Program sponsored by INVESCO Retirement Plan Services - Incorporated by
reference - previously filed as Exhibit 10.5 to the Registrant's Form 10-Q for
the period ending June 30, 1999.*

10.23.3  Adoption Agreement for the Company's Executive Nonqualified Deferred
Compensation Program - Incorporate by reference - previously filed as Exhibit
10.6 to the Registrant's Form 10-Q for the period ending June 30, 1999.*

10.24    Amended Nonemployee Director Deferred Compensation Plan of the
Registrant- Incorporated by reference - previously filed as Exhibit 10.26 to the
Registrant's Form 10-K for the period ending December 31, 1994.*

                                      28
<PAGE>

10.24.1  Amendment No. 1 to February 1, 1998 Amended and Restated Nonemployee
Directors' Deferred Compensation Plan - Incorporated by reference - previously
filed as Exhibit 10.24.1 to the Registrant's Form 10-K for the period ending
December 31, 1999.*

10.24.2  Adoption Agreement for the Company's Directors Nonqualified Deferred
Compensation Program - Incorporated herein by reference - previously filed as
Exhibit 10.7 to the Registrant's Form 10-Q for the period ending June 30, 1999.*

10.24.3  Adoption Agreement for the Blue Cross and Blue Shield of Missouri Board
of Trustees Nonqualified Deferred Compensation Program - Incorporated by
reference - previously filed as Exhibit 10.8 to the Registrant's Form 10-Q for
the period ending June 30, 1999.*

10.30    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 Hereto arranged by BA
Securities, Inc. - Incorporated by reference - previously filed as Exhibit 10.1
to the Registrant's Form 10-Q for the period ending June 30, 1995.*

10.30.1  First Amendment to the Credit Agreement. - Incorporated by reference -
previously filed as Exhibit 10.36.1 to the Registrant's Form 10-K for the period
ending December 31, 1995.*

10.30.2  Consent and Second Amendment to the Credit Agreement - Incorporated by
reference - previously filed as Exhibit 10.36.2 to the Registrant's Form 10-K
for the period ending December 31, 1995.*

10.30.3  Third amendment to the Credit Agreement - Incorporated by reference -
previously filed as Exhibit 10.2 to the Registrant's Form 10-Q for the period
ending June 30, 1996.*

10.30.4  Fourth amendment to the Credit Agreement - Incorporated by reference -
previously filed as Exhibit 10.36.4 to the Registrant's Form 10-K for the period
ending December 31, 1996.*

10.30.5  Fifth amendment to the Credit Agreement - Incorporated by reference -
previously filed as Exhibit 10.36.5 to the Registrant's Form 10-K for the period
ending December 31, 1996.*

10.30.6  Sixth amendment to the Credit Agreement - Incorporated by reference -
previously filed as Exhibit 10.36.6 to the Registrant's Form 10-Q for the period
ending September 30, 1997.*

10.36.7  Seventh amendment to the Credit Agreement - Incorporated by reference -
previously filed as Exhibit 10.36.7 to the Registrant's Form 10-Q for the period
ending September 30, 1999.*

10.31    Lease between Forty-Four Forty-Four Forest Park Redevelopment
Corporation (Landlord) and RightCHOICE Managed Care, Inc. (Tenant) dated January
1, 1995 -Incorporated by reference - previously filed as Exhibit 10.2 to the
Registrant's Form 10-Q for the period ending June 30, 1995.*

10.32    Sublease between RightCHOICE Managed Care, Inc. and Blue Cross and Blue
Shield of Missouri dated January 1, 1995 - Incorporated by reference -
previously filed as Exhibit 10.3 to the Registrant's Form 10-Q for the period
ending June 30, 1995.*

10.33    Building Services Agreement between Forty-Four Forty-Four Forest Park
Redevelopment Corporation and RightCHOICE Managed Care, Inc. dated January 1,
1995 - Incorporated by reference - previously filed as Exhibit 10.4 to the
Registrant's Form 10-Q for the period ending June 30, 1995.*

                                      29
<PAGE>

10.45    Executive Employment Agreement of John A. O'Rourke dated February 27,
1997 - Incorporated by reference - previously filed as Exhibit 10.51 to the
Registrant's Form 10-Q for the period ending September 30, 1997.*,**

10.45.1  First Amendment to Executive Employment Agreement of John A. O'Rourke
dated December 28, 1999 - Incorporated by reference - previously filed as
Exhibit 10.45.1 to the Registrant's Form 10-K for the period ending December 31,
1999.*,**

10.47    Executive Severance Agreement between the Registrant and Sandra Van
Trease - Incorporated by reference - previously filed as Exhibit 10.47 to the
Registrant's Form 10-K for the period ending December 31, 1997.*,**

10.48    Executive Severance Agreement between the Registrant and Herbert B.
Schneiderman - Incorporated by reference - previously filed as Exhibit 10.48 to
the Registrant's Form 10-K for the period ending December 31, 1997.*,**

10.50    Officer Severance Agreement between the Registrant and Sandra Van
Trease- Incorporated by reference - previously filed as Exhibit 10.50 to the
Registrant's Form 10-K for the period ending December 31, 1997.*,**

10.51    Officer Severance Agreement between the Registrant and Herbert B.
Schneiderman - Incorporated by reference - previously filed as Exhibit 10.51 to
the Registrant's Form 10-K for the period ending December 31, 1997.*,**

10.52    Form of Executive Severance Agreement between the Registrant and
certain senior vice presidents of the Registrant (and list of parties who have
executed executive severance agreements) - Incorporated by reference -
previously filed as Exhibit 10.52 to the Registrant's Form 10-K for the period
ending December 31, 1997.*,**

10.52.1  Updated list of certain senior vice presidents who have executed
executive severance agreements - Incorporated by reference - previously filed as
Exhibit 10.52.1 to the Registrant's Form 10-K for the period ending December 31,
1999.*,**

10.52.2  Form of Amendment No. 1 to Executive Severance Agreement between the
Registrant and certain senior vice presidents of the Registrant (and list of
parties who have executed Amendment No. 1 to Executive Severance Agreement) -
Incorporated by reference - previously filed as Exhibit 10.52.2 to the
Registrant's Form 10-K for the period ending December 31, 1999.*,**

10.53    Form of Officer Severance Agreement between the Registrant and certain
senior vice presidents of the Registrant (and list of parties who have executed
officer severance agreements) - Incorporated by reference - previously filed as
Exhibit 10.53 to the Registrant's Form 10-K for the period ending December 31,
1997.*,**

10.53.1  Updated list of certain senior vice presidents who have executed
officer severance agreements - Incorporated by reference - previously filed as
Exhibit 10.53.1 to the Registrant's Form 10-K for the period ending December 31,
1999.*,**

10.54    Form of Officer Severance Agreement between the Registrant and certain
vice presidents of the Registrant (and list of parties who have executed officer
severance agreements) - Incorporated by

                                      30
<PAGE>

reference - previously filed as Exhibit 10.54 to the Registrant's Form 10-K for
the period ending December 31, 1997.*,**

10.54.1  Updated list of certain vice presidents who have executed officer
severance agreements - Incorporated by reference - previously filed as Exhibit
10.54.1 to the Registrant's Form 10-K for the period ending December 31,
1999.*,**

10.59.1  1999 Alliance Blue Cross Blue Shield Incentive Plan between the
Registrant and Herb Schneiderman - Incorporated by reference - previously filed
as Exhibit 10.59.1 to the Registrant's Form 10-K for the period ending December
31, 1998.*,**

10.60.1  1999 Alliance Blue Cross Blue Shield Incentive Plan between the
Registrant and Mike Fulk - Incorporated by reference - previously filed as
Exhibit 10.60.1 to the Registrant's Form 10-K for the period ending December 31,
1998.*,**

10.61.1  1999 Alliance Blue Cross Blue Shield / Blue Cross Blue Shield of
Missouri Incentive Plan between the Registrant and John O'Rourke - Incorporated
by reference - previously filed as Exhibit 10.61.1 to the Registrant's 10-K for
the period ending December 31, 1998.*,**

10.62.1  1999 Alliance Blue Cross Blue Shield Incentive Plan between the
Registrant and Sandra Van Trease - Incorporated by reference - previously filed
as Exhibit 10.62.1 to the Registrant's 10-K for the period ending December 31,
1998.*,**

10.64    Guarantor Agreement between HMO Missouri, Inc. and Blue Cross and Blue
Shield of Missouri - Incorporated by reference - previously filed as Exhibit
10.64 to the Registrant's Form 10-K for the period ending December 31, 1997.*

10.65    Line of Credit Agreement between HMO Missouri, Inc. and Blue Cross and
Blue Shield of Missouri - Incorporated by reference - previously filed as
Exhibit 10.65 to the Registrant's Form 10-K for the period ending December 31,
1997.*

10.66    Subordination Agreement between HMO Missouri, Inc. and Blue Cross and
Blue Shield of Missouri - Incorporated by reference - previously filed as
Exhibit 10.66 to the Registrant's Form 10-K for the period ending December 31,
1997.*

10.67    Agreement of Indemnification between Registrant and Blue Cross and Blue
Shield of Missouri - Incorporated by reference - previously filed as Exhibit
10.67 to the Registrant's Form 10-K for the period ending December 31, 1997.*

10.68    Order of Reference dated November 6, 1998 - Incorporated by reference -
previously filed as Exhibit 10 to the Registrant's Form 10-Q for the period
ending September 30, 1998.*

10.69    Executive Severance Agreement between the Registrant and Michael Fulk -
Incorporated by reference - previously filed as Exhibit 10.69 to the
Registrant's 10-K for the period ending December 31, 1998.*,**

10.70    Officer Severance Agreement between the Registrant and Michael Fulk -
Incorporated by reference - previously filed as Exhibit 10.69 to the
Registrant's 10-K for the period ending December 31, 1998.*,**

                                      31
<PAGE>

10.71    Executive Severance Agreement between the Registrant and Angela F.
Braly - Incorporated by reference - previously filed as Exhibit 10.71 to the
Registrant's Form 10-K for the period ending December 31, 1999.*,**

10.72    Officer Severance Agreement between the Registrant and Angela F.
Braly - Incorporated by reference - previously filed as Exhibit 10.72 to the
Registrant's Form 10-K for the period ending December 31, 1999.*,**

21.1     List of Subsidiaries of the Registrant - Incorporated by reference -
previously filed as Exhibit 21.1 to the Registrant's Form 10-K for the period
ending December 31, 1999.*

23.1     Consent of PricewaterhouseCoopers LLP with regard to the Registrant's
Registration Statements on Form S-8 - Registration Statement No. 33-90608,
Registration Statement No. 333-33293, and Registration Statement No. 333-33317.

27       Financial Data Schedule (Electronic Filing Only) - Incorporated by
reference - previously filed as Exhibit 27 to the Registrant's Form 10-K for
the period ending December 31, 1999.*

99.1     Order issued by the Missouri Supreme Court, dated December 9, 1999,
advising all parties to the proposed settlement agreement that court approval of
a proposed settlement agreement is not required - Incorporated by reference -
previously filed as Exhibit 99(b) to the Registrant's Form 8-K filed on December
15, 1999.*

99.2     Amended and Restated Settlement Agreement, dated January 6, 2000, by
and among RightCHOICE Managed Care, Inc., Blue Cross and Blue Shield of
Missouri, the Missouri Department of Insurance and Keith A. Wenzel, its
Director, and Jeremiah W. "Jay" Nixon, Attorney General of the State of
Missouri -Incorporated by reference - previously filed as Exhibit 99(a) to the
Registrant's Form 8-K filed on January 11, 2000.*

99.3     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., d/b/a BlueChoice, and Healthy Alliance Life Insurance
Company - Incorporated by reference - previously filed as Exhibit 99(b) to the
Registrant's Form 8-K filed on January 11, 2000.*

99.4     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 - previously filed as Exhibit 99(c) to the
Registrant's Form 8-K filed on January 11, 2000.*

99.5     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 - previously filed as Exhibit 99(d) to the Registrant's Form 8-K
filed on January 11, 2000.*

*Document has previously been filed with the Securities and Exchange Commission
and is incorporated by reference and made a part hereof.

                                      32
<PAGE>

**Documents identified herein constitute all management contracts and
compensatory plans and arrangements required to be filed as an exhibit pursuant
to Item 14(c) of this Form.

b)       Reports on Form 8-K:

The Registrant filed a report with the SEC on Form 8-K on January 11, 2000,
regarding the Amended and Restated Settlement Agreement and certain related
amendments to other settlement agreements,  with certain state agencies,
including the Department of Insurance of the State of Missouri and its Director,
Keith A. Wenzel, Attorney General of the State of Missouri, Jeremiah W. "Jay"
Nixon, and the Director of Revenue of the State of Missouri.

The Registrant filed a report with the SEC on Form 8-K on December 15, 1999,
relating to an Order issued by the Missouri Supreme Court on December 9, 1999,
that advised all parties to the proposed settlement agreement that court
approval of a proposed settlement agreement is not required.

The Registrant filed a report with the SEC on Form 8-K on November 18, 1999,
related to the Missouri Supreme Court ruling that it would hear the appeal of
the order of the Cole County Circuit Court Judge Thomas Brown III, disapproving
the settlement agreement and stayed further proceedings before Judge Brown and
disappointed Special Master, Robert G. Russell.

The Registrant filed a report with the SEC on Form 8-K on October 18, 1999,
relating to the recommendation made on October 8, 1999 by the Special Master
appointed by the County Circuit Court of Cole County, Missouri, that the March
1999 modification settlement agreement of litigation be disapproved.

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

                                      33
<PAGE>

SIGNATURES

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

Dated:  September 25, 2000             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
amendment 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,                        September 25, 2000
---------------------------------      President and Chief Executive
     John A. O'Rourke                  Officer


     /s/ Sandra A. Van Trease          Senior Executive Vice President, Chief        September 25, 2000
---------------------------------      Operating Officer, Chief Financial
     Sandra A. Van Trease              Officer (Principal Financial Officer
                                       and Principal Accounting Officer)


     /s/ William H. T. Bush            Director                                      September 25, 2000
---------------------------------
     William H. T. Bush

     /s/ Earle H. Harbison, Jr.        Director                                      September 25, 2000
---------------------------------
     Earle H. Harbison, Jr.

     /s/ Roger B. Porter, Ph.D.        Director                                      September 25, 2000
---------------------------------
     Roger B. Porter, Ph.D.

     /s/ Gloria W. White               Director                                      September 25, 2000
---------------------------------
     Gloria W. White

    /s/ Willian J. Schicker            Director                                      September 25, 2000
---------------------------------
    William J. Schicker

</TABLE>

                                      34
<PAGE>

                         RightCHOICE Managed Care, Inc.
                          Consolidated Balance Sheets
                (in thousands, except shares and per share data)

<TABLE>
<CAPTION>
                                                                               December 31,
                             ASSETS                                         1999             1998
                             ------                                         ----             ----
<S>                                                                        <C>              <C>
Current assets:
  Cash and cash equivalents......................................          $ 44,400         $ 39,409
  Investments available for sale, at market value................           201,926          208,281
  Receivables from members.......................................            78,947           68,024
  Receivables from related parties...............................            28,764           18,294
  Deferred income taxes..........................................             8,629            4,798
  Other assets...................................................            17,981           19,818
                                                                           --------         --------
     Total current assets........................................           380,647          358,624
Property and equipment, net......................................            55,470           58,234
Deferred income taxes............................................             9,791           11,583
Investments in affiliates........................................             5,905            5,729
Goodwill and intangible assets, net..............................            71,400           74,508
                                                                           --------         --------
     Total assets................................................          $523,213         $508,678
                                                                           ========         ========

             LIABILITIES AND SHAREHOLDERS' EQUITY
             ------------------------------------

Current liabilities:
  Medical claims payable.........................................          $124,428         $109,986
  Unearned premiums..............................................            62,824           56,407
  Accounts payable and accrued expenses..........................            59,476           64,754
  Current portion of long-term debt..............................             8,000           10,000
  Payables to related parties....................................            27,009           26,194
  Reserve for loss contract......................................             7,259            9,052
  Obligations for employee benefits..............................             1,577            2,954
  Income taxes payable...........................................            12,965           10,485
  Obligations under capital leases...............................             4,071            4,254
                                                                           --------         --------
     Total current liabilities...................................           307,609          294,086
Reserve for loss contract........................................                              7,259
Long-term debt...................................................            26,063           33,063
Obligations for employee benefits................................            26,819           24,338
Obligations under capital leases.................................             5,179            4,058
                                                                           --------         --------
     Total liabilities...........................................           365,670          362,804
                                                                           --------         --------
Shareholders' equity:
  Preferred stock, $0.01 par, 25,000,000 shares authorized,
     no shares issued and outstanding............................
  Common stock:
      Class A, $0.01 par, 125,000,000 shares authorized,
      3,737,500 shares issued, 3,710,653 and 3,710,426 shares
      outstanding, respectively..................................                37               37
      Class B, convertible, $0.01 par, 100,000,000 shares
      authorized, 14,962,500 shares issued and outstanding.......               150              150
  Additional paid-in capital.....................................           132,634          132,635
  Retained earnings..............................................            29,529           12,313
  Treasury stock, 26,847 and 27,074 class A shares,
   respectively, at cost.........................................              (380)            (383)
  Accumulated other comprehensive (loss) income..................            (4,427)           1,122
                                                                           --------         --------
     Total shareholders' equity..................................           157,543          145,874
                                                                           --------         --------
     Total liabilities and shareholders' equity..................          $523,213         $508,678
                                                                           ========         ========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

                                      35
<PAGE>

                        RightCHOICE Managed Care, Inc.
                       Consolidated Statements of Income
               (in thousands, except shares and per share data)


<TABLE>
<CAPTION>
                                                                               For the year ended December 31,
                                                                           1999             1998             1997
                                                                           ----             ----             ----
<S>                                                                      <C>              <C>              <C>
Revenues:
 Premium............................................................     $   732,151      $   694,487      $   654,267
 Fees and other income..............................................          84,761           73,025           65,144
                                                                         -----------      -----------      -----------
        Total revenues..............................................         816,912          767,512          719,411
                                                                         -----------      -----------      -----------

Operating expenses:
 Health care services...............................................         601,532          579,827          555,126
 Commissions........................................................          32,462           31,394           29,302
 General and administrative (excludes depreciation and amortization
  and excludes net intercompany charges of $11,728, $11,231 and
  $8,356, respectively, allocated to Blue Cross and Blue Shield of
  Missouri).........................................................         146,036          140,304          140,064
 Depreciation and amortization......................................          17,215           19,334           23,108
 Charge for loss reserves...........................................                                            29,510
 Other non-recurring charges........................................                              900            3,301
                                                                         -----------      -----------      -----------
        Total operating expenses....................................         797,245          771,759          780,411
                                                                         -----------      -----------      -----------
Operating income (loss).............................................          19,667           (4,247)         (61,000)
                                                                         -----------      -----------      -----------
Investment income:
 Interest and dividends.............................................          13,367           14,737           15,916
 Realized (losses) gains, net.......................................            (516)           3,932           17,268
                                                                         -----------      -----------      -----------
        Total investment income, net................................          12,851           18,669           33,184
                                                                         -----------      -----------      -----------
Other:
 Interest expense...................................................          (4,344)          (4,539)          (4,681)
 Other income (expense), net........................................             219             (379)          (1,058)
                                                                         -----------      -----------      -----------
        Total other, net............................................          (4,125)          (4,918)          (5,739)
                                                                         -----------      -----------      -----------

Income (loss) before provision (benefit) for income taxes...........          28,393            9,504          (33,555)
Provision (benefit) for income taxes................................          11,177            3,844           (9,521)
                                                                         -----------      -----------      -----------
Net income (loss)...................................................     $    17,216      $     5,660      $   (24,034)
                                                                         ===========      ===========      ===========

Weighted average common shares outstanding..........................      18,673,000       18,672,100       18,672,600
                                                                         -----------      -----------      -----------

Basic and diluted earnings (loss) per share.........................           $0.92            $0.30           $(1.29)
                                                                         ===========      ===========      ===========
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.

                                      36
<PAGE>

                         RIGHTCHOICE MANAGED CARE, INC.
                       CONSOLIDATED STATEMENTS OF CHANGES
                            IN SHAREHOLDERS' EQUITY
                         (in thousands, except shares)

<TABLE>
<CAPTION>
                                                                                                        Accumulated
                                                    Common Stock    Additional                             Other
                                                  ----------------    Paid In    Retained   Treasury   Comprehensive
                                                  Class A  Class B    Capital    Earnings     Stock    Income (Loss)     Total
===============================================================================================================================
<S>                                               <C>      <C>      <C>          <C>        <C>        <C>             <C>
Balance at December 31, 1996                          $37     $150    $132,640    $30,687      $(326)         $9,766   $172,954

Comprehensive loss:

 Net loss                                                                         (24,034)                              (24,034)

 Change in unrealized appreciation
 on available-for-sale securities, net
 of income tax benefit of $4,386                                                                              (7,977)    (7,977)
                                                                                                                       --------

Comprehensive loss                                                                                                      (32,011)

Purchase of 5,400 shares of
class A common stock, at cost                                                                    (78)                       (78)

Balance at December 31, 1997                           37      150     132,640      6,653       (404)          1,789    140,865
-------------------------------------------------------------------------------------------------------------------------------

Comprehensive income:

 Net income                                                                         5,660                                 5,660

 Change in unrealized appreciation
 on available-for-sale securities, net
 of income tax benefit of $147                                                                                  (297)      (297)

 Minimum pension liability adjustment,
 net of income tax benefit of $199                                                                              (370)      (370)
                                                                                                                       --------

Comprehensive income                                                                                                      4,993

1,426 shares issued under the
company's stock option plan                                                 (5)                   21                         16

Balance at December 31, 1998                           37      150     132,635     12,313       (383)          1,122    145,874
-------------------------------------------------------------------------------------------------------------------------------

Comprehensive income:

 Net income                                                                        17,216                                17,216

 Change in unrealized appreciation
 on available-for-sale securities, net
 of income tax benefit of $3,198                                                                              (5,624)    (5,624)

 Minimum pension liability adjustment,
 net of income tax provision of $40                                                                               75         75
                                                                                                                       --------

Comprehensive income                                                                                                     11,667

227 shares issued under the
company's stock option plan                                                 (1)                    3                          2

Balance at December 31, 1999                          $37     $150    $132,634    $29,529      $(380)        $(4,427)  $157,543
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.

                                      37
<PAGE>

                        RightCHOICE Managed Care, Inc.
                     Consolidated Statements of Cash Flows
                                (in thousands)

<TABLE>
<CAPTION>

                                                                                                  For the year ended December 31,
                                                                                                    1999        1998        1997
                                                                                                    ----        ----        ----
<S>                                                                                              <C>         <C>         <C>
Cash flows from operating activities:
   Net income (loss)...........................................................................  $  17,216   $   5,660   $ (24,034)
   Adjustments to reconcile net income (loss) to net cash provided by (used
   in) operating activities:
   Provision (benefit) for deferred income taxes...............................................      1,118       1,697      (6,507)
   Depreciation and amortization...............................................................     17,215      19,334      23,108
   Loss (gain) on sale of property and equipment...............................................        514          53         (44)
   Undistributed (earnings) losses of affiliates...............................................       (176)         48         916
   Loss (gain) on sale of investments..........................................................        516      (3,932)    (17,268)
   Accretion of discounts and amortization of premiums, net....................................        400         612           6
(Increase) decrease in certain assets, net of effects from investment in affiliates:
   Receivables from members....................................................................    (10,923)     (8,005)     (5,182)
   Receivables from related parties............................................................    (10,470)     (2,164)        943
   Other assets................................................................................      2,232      (4,556)     (2,859)
Increase (decrease) in certain liabilities, net of effects from investment in affiliates:
   Medical claims payable......................................................................     14,442      (2,353)        506
   Unearned premiums...........................................................................      6,417      (1,249)      4,957
   Accounts payable and accrued expenses.......................................................     (5,163)      8,293     (13,065)
   Payables to related parties.................................................................        815       5,981       3,064
   Reserve for loss contract...................................................................     (9,052)     (9,052)     25,363
   Obligations for employee benefits...........................................................      1,104       2,217         (33)
   Income taxes payable........................................................................      2,480      (1,566)       (755)
                                                                                                 ---------   ---------   ---------
Net cash provided by (used in) operating activities............................................     28,685      11,018     (10,884)
                                                                                                 ---------   ---------   ---------
Cash flows from investing activities:
   Proceeds from matured investments:
    Fixed maturities...........................................................................     10,489      20,359       3,975
   Proceeds from investments sold:
    Fixed maturities...........................................................................    157,505     273,591     311,599
    Equity securities..........................................................................        521                  40,734
    Other......................................................................................        101       4,482      32,469
   Investments purchased:
    Fixed maturities...........................................................................   (161,665)   (282,400)   (340,366)
    Equity securities..........................................................................    (10,034)       (548)       (230)
    Other......................................................................................       (489)       (796)     (2,039)
   Investment in other affiliates, net of cash acquired........................................                                 24
   Sale and redemption of affiliates...........................................................                  3,444
   Proceeds from property and equipment sold...................................................         24       2,051         561
   Property and equipment purchased............................................................     (6,598)    (12,496)    (18,544)
                                                                                                 ---------   ---------   ---------
Net cash (used in) provided by investing activities............................................    (10,146)      7,687      28,183
                                                                                                 ---------   ---------   ---------
Cash flows from financing activities:
   Sale (purchase) of class A treasury stock...................................................          2          16         (78)
   Payments of long-term debt..................................................................     (9,000)     (3,937)    (15,000)
   Payments of capital lease obligations.......................................................     (4,550)     (5,247)     (5,767)
                                                                                                 ---------   ---------   ---------
Net cash used in financing activities..........................................................    (13,548)     (9,168)    (20,845)
                                                                                                 ---------   ---------   ---------
Net increase (decrease) in cash and cash equivalents...........................................      4,991       9,537      (3,546)
Cash and cash equivalents at beginning of year.................................................     39,409      29,872      33,418
                                                                                                 ---------   ---------   ---------
Cash and cash equivalents at end of year.......................................................  $  44,400   $  39,409   $  29,872
                                                                                                 =========   =========   =========
Supplemental disclosure of cash information:
   Interest paid...............................................................................  $   4,344   $   4,687   $   5,036
   Income taxes paid (refund received), net....................................................      7,579         712      (2,262)
Supplemental schedule of noncash investing and financing activities:
   Equipment acquired through capital leases...................................................  $   7,631   $   4,325   $   9,730
   Disposal of equipment under capital leases..................................................      2,143         675       2,810
</TABLE>

          See accompanying Notes to Consolidated Financial Statements.

                                      38
<PAGE>

                         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) is a majority owned
subsidiary of Blue Cross and Blue Shield of Missouri (BCBSMo) incorporated in
the State of Missouri.  In connection with RightCHOICE's initial public offering
of class A common stock on August 1, 1994, BCBSMo transferred its managed health
care business to RightCHOICE.  The holders of class A common stock have one vote
per share and the holders of class B common stock have 10 votes per share.
BCBSMo is the sole holder of class B common stock.  Each share of class B common
stock is convertible into one share of class A common stock at the option of the
holder at any time.  At December 31, 1999, BCBSMo and all holders of class A
common stock have control over approximately 97.6% and 2.4%, respectively, of
the combined voting power of both classes of common stock.  There are no
liquidation preferences between the two classes of common stock.  RightCHOICE
has not issued shares of its authorized preferred stock.  In addition,
RightCHOICE provides certain guarantees relating to the financial stability of
certain affiliates.

RightCHOICE 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 and managed indemnity benefit plans, third-party administrator
(TPA) services, administrative services only (ASO), network rental services and
life insurance agency services.

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),
HealthLink HMO, Inc. (HealthLink HMO), HMO Missouri, Inc. (BlueCHOICE), and
Diversified Life Insurance Agency of Missouri, Inc., all Missouri corporations,
and HealthLink, Inc. (HealthLink) and RightCHOICE Insurance Company (RIC), both
Illinois corporations. 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% owership), 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.

                                      39
<PAGE>

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 shareholders' 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.

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, 1999, and 1998 was
$31,715 and $33,852, respectively.  Software amortization expense for the years
ended December 31, 1999, 1998, and 1997, was $6,407, $7,701, and $5,521,
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 resulted in an increase to RightCHOICE's net
income for 1999 of approximately $2.4 million or $0.13 per share.

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 $85,770 and
$85,975 as of December 31, 1999, and 1998, respectively, and is amortized on a
straight-line basis over periods not exceeding 40 years. Gross goodwill is
inclusive of $74,137 of goodwill related to the purchase of HealthLink in 1995
and 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, 1999, and 1998 was $14,370 and
$11,467, respectively. Accumulated amortization of the HealthLink goodwill was
$8,186 and $6,333 as of December 31, 1999 and 1998, respectively. Amortization
expense of the goodwill and other intangibles aggregated $2,903, $2,924, and
$7,487 in 1999, 1998, and 1997, respectively, including the amortization of the
intangibles related to the purchase of HealthLink in 1995 of $2,769, $2,769, and
$3,061 in 1999, 1998, and 1997, respectively.

                                      40
<PAGE>

RightCHOICE reviews the carrying value of goodwill, intangibles and other long-
lived assets 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; however,
management believes 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 $1,060, $1,042, and $1,009 for the years ended December 31,
1999, 1998, and 1997, respectively, for costs related to this stop loss
coverage.  Recoveries in these years were not significant.  RightCHOICE and its
subsidiary, Healthy Alliance Life Insurance Company, also reached a network
access and financial 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
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 with Blue Cross and Blue Shield of Missouri.
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 structure.  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.  At December 31, 1999, RightCHOICE's
insurance and HMO subsidiaries did not have a significant amount of earned
surplus available for dividend payments without the prior approval of the
Missouri or Illinois Directors of Insurance.  HealthLink, which is not an
insurance company or HMO, is not subject to these restrictions.

                                      41
<PAGE>

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. There were 43,438 and 17,924 dilutive potential common
shares for 1999 and 1998, respectively. Because 1997 results reflect a net loss,
basic and diluted earnings per share are calculated based on the same weighted
average number of shares outstanding. The antidilutive potential common shares
that could dilute earnings per share in the future were 464,615, 439,508, and
469,766 as of December 31, 1999, 1998, and 1997, 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,
1999, and 1998, 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 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

                                      42
<PAGE>

income. During the years ended December 31, 1999, 1998 and 1997, RightCHOICE
received reimbursements for claims paid of $54,232, $50,558, and $106,227,
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.  RightCHOICE also incurred charges to
earnings of $3.3 million in 1997, for costs associated with moving RightCHOICE's
claims, customer service, billing, and provider services functions from St.
Louis to Springfield, Missouri, and Cape Girardeau, Missouri.  In addition,
during the third quarter of 1997, BlueCHOICE recorded a $29.5 million loss
reserve for estimated losses relating to its contract with the Missouri
Consolidated Health Care Plan.  The reserve is based on actuarial estimates,
including projected limited rate increases, and projected enrollment and medical
cost trends accounted for through the year 2000 in accordance with generally
accepted accounting principles. The remaining balance of this loss reserve was
$7.3 million at December 31, 1999. As of December 31, 1999, management believed
that this remaining balance would be adequate to cover the actual losses
expected to be incurred on this contract during the year 2000.

Reclassifications

Certain reclassifications have been made to the Consolidated Financial
Statements for 1997 and 1998 to conform to the 1999 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.

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 did not have a material impact
on RightCHOICE's financial position or results of operations.

                                      43
<PAGE>

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, 1999, 1998, and 1997 are as follows:

<TABLE>
<CAPTION>
                                                                                    Year ended December 31,
                                                                                    -----------------------
                                                                                 1999         1998           1997
                                                                                 ----         ----           ----
<S>                                                                            <C>           <C>            <C>
Unrealized holding (losses) gains arising during period, net of
     taxes..............................................................       $(5,961)      $ 1,671        $  3,163
Less:  reclassification adjustment for losses (gains) included in net
     income (loss), net of taxes........................................           337        (1,968)        (11,140)
                                                                               -------       -------        --------
Net unrealized losses on securities.....................................       $(5,624)      $  (297)       $ (7,977)
                                                                               =======       =======        ========
</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) appreciation of investments was $(4,132) and $1,492 at
December 31, 1999 and 1998, respectively. The minimum pension liability increase
was $295 and $370 at December 31, 1999 and 1998, 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, 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............................           8,835                                    8,835
                                                             --------     --------     --------       --------
                                                              191,685           52       (7,651)       184,086
                                                             --------     --------     --------       --------

   Equity securities.................................          10,149          925                      11,074
                                                             --------     --------     --------       --------
   Other invested assets.............................           6,766                                    6,766
                                                             --------     --------     --------       --------
                                                             $208,600         $977      $(7,651)      $201,926
                                                             ========     ========     ========       ========
December 31, 1998
   Fixed maturities:
   U.S. government and agency securities..............       $ 92,281       $1,083        $(149)      $ 93,215
   Corporate bonds and notes..........................        100,927        2,039         (587)       102,379
   Short-term investments.............................          5,249                                    5,249
                                                             --------     --------     --------       --------
                                                              198,457        3,122         (736)       200,843
                                                             --------     --------     --------       --------

   Other invested assets..............................          7,501                       (63)         7,438
                                                             --------     --------     --------       --------
                                                             $205,958       $3,122        $(799)      $208,281
                                                             ========     ========     ========       ========
</TABLE>

Interest and dividend income comprises the following:

                                      44
<PAGE>

<TABLE>
<CAPTION>
                                                                               Year ended December 31,
                                                                               -----------------------
                                                                          1999           1998          1997
                                                                          ----           ----          ----
<S>                                                                     <C>           <C>           <C>
Interest on bonds................................................       $11,966       $13,152       $12,822
Dividends on stocks..............................................           231           112           102
Accretion of discounts and amortization of premiums, net.........          (400)         (612)           (6)
Interest on cash equivalents and other investment income.........         2,269         2,712         3,697
                                                                        -------       -------       -------
Gross investment income..........................................        14,066        15,364        16,615
Investment expenses..............................................          (699)         (627)         (699)
                                                                        -------       -------       -------
                                                                        $13,367       $14,737       $15,916
                                                                        =======       =======       =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                                              Year ended December 31,
                                                                              -----------------------
                                                                         1999          1998         1997
                                                                         ----          ----         ----
<S>                                                                      <C>          <C>        <C>
Net realized (losses) gains:
 Fixed maturities...............................................         $(530)       $3,054     $ 6,930
 Equity securities..............................................                                  10,338
                                                                        ------       -------     -------
                                                                         $(530)       $3,054     $17,268
                                                                        ======       =======     =======
</TABLE>

In addition, during 1999, RightCHOICE realized a $14 gain from the sale of other
assets.  During 1998, RightCHOICE realized a $794 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.  Proceeds from sales of available-for-sale securities
were $158,127, $278,073, and $384,802, during 1999, 1998, and 1997,
respectively.  Gross realized gains on investments available for sale were $929,
$3,553, and $19,203, during 1999, 1998, and 1997, respectively.  Gross realized
losses on investments available for sale were $1,459, $499, and $1,935, during
1999, 1998, and 1997, respectively.  Contractual maturities of fixed maturity
investments, excluding other invested assets (primarily consisting of variable
life insurance contracts), held on December 31, 1999, are as presented below.
Actual maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations.

                                                                    Estimated
                                                      Amortized       market
                                                         cost         value
                                                         ----         -----

Due in one year or less........................       $ 17,869     $ 17,843
Due after one year through five years..........         68,794       67,069
Due after five years through 10 years..........         43,205       40,610
Due after 10 years.............................         61,817       58,564
                                                      --------     --------
                                                      $191,685     $184,086
                                                      ========     ========
5.   Receivables from members

Receivables from members consist of the following:

                                      45
<PAGE>

                                                       December 31,
                                                       ------------
                                                    1999           1998
                                                    ----           ----
Individual subscribers.....................       $ 6,823        $ 6,202
Underwritten groups........................        42,268         40,109
Self-funded/ASO groups.....................        29,856         21,713
                                                  -------        -------
                                                  $78,947        $68,024
                                                  =======        =======

Based on historical collection experience, RightCHOICE considers its receivables
from members to be fully collectible; accordingly, no significant allowance for
doubtful accounts is recorded.

6.  Property and equipment, net

Property and equipment consist of the following:

                                                      December 31,
                                                      ------------
                                                   1999          1998
                                                   ----          ----
Land and building..........................     $  4,815      $  4,338
Furniture and equipment, including
  capitalized leases.......................       44,829        59,959
Capitalized software development costs.....       51,790        47,520
Leasehold improvements.....................        3,953         3,914
                                                --------      --------
                                                 105,387       115,731
Less accumulated depreciation
  and amortization.........................      (49,917)      (57,497)
                                                --------      --------
                                                $ 55,470      $ 58,234
                                                ========      ========

Depreciation and amortization expense was $14,312, $16,410, and $15,621, for the
years ended December 31, 1999, 1998, and 1997, 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 $23.7 million in 1999 and
$22.9 million in 1998.  Operating income was $1.5 million and $1.1 million in
1999 and 1998, respectively.  EPOCH distributed a $0.5 million dividend to
RightCHOICE during 1999.  Undistributed earnings to RightCHOICE for 1999 and
1998 were $176 and $330, respectively.  EPOCH serves approximately 275
businesses primarily in the Midwest as of December 31, 1999.

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.

                                      46
<PAGE>

Activity in medical claims payable is summarized as follows:

                                                    1999           1998
                                                    ----           ----
Balance at January 1.......................       $109,986      $112,339
                                                  --------      --------
Incurred related to:
  Current year.............................        609,150       585,469
  Prior years..............................          1,434         3,410
                                                  --------      --------
       Total incurred......................        610,584       588,879
                                                  --------      --------

Paid related to:
  Current year.............................        503,402       498,423
  Prior years..............................         92,740        92,809
                                                  --------      --------
       Total paid..........................        596,142       591,232
                                                  --------      --------
Net balance at December 31.................       $124,428      $109,986
                                                  ========      ========

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 $9,052 and $9,052 for 1999 and 1998, respectively, related to the
beneficial effect of the premium deficiency that was recorded in 1997.

9.  Accounts payable and accrued expenses

Accounts payable and accrued expenses consist of the following:

                                                       December 31,
                                                       ------------
                                                      1999          1998
                                                      ----          ----
Accounts payable............................        $21,702       $23,470
Accrued salaries and other expenses.........         15,110        13,010
Other accrued expenses......................         22,664        28,274
                                                    -------       -------
                                                    $59,476       $64,754
                                                    =======       =======

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 Mercantile Bank National Association, co-agent.  At December 31,
1999, RightCHOICE had a $34.1 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 January 1, 2002,
the termination date.  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 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 1.5% 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 at 2.5% above the adjusted London
Interbank Offered Rate (LIBOR).  At December 31, 1999, all of RightCHOICE's
outstanding borrowings were in offshore rate loans.  The weighted average
interest rate incurred by RightCHOICE was 8.01%, 8.38%, and 7.32% in 1999, 1998,
and 1997, respectively.

                                      47
<PAGE>

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, 1999, RightCHOICE
was in compliance with these covenants.

RightCHOICE has an agreement with Blue Cross and Blue Shield of Missouri to
lease certain office space, including an operating lease for its headquarters
facility (see Note 15 "Transactions with Blue Cross and Blue Shield of
Missouri").  RightCHOICE also 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, 1999:

                                                       Capital       Operating
                                                       -------       ---------
Year ending December 31,
  2000..............................................     $ 4,747         $13,369
  2001..............................................       2,732           9,081
  2002..............................................       1,877           8,509
  2003..............................................         847           7,701
  2004..............................................          83           6,310
  Thereafter........................................      ______           2,537
                                                                         -------
     Total minimum lease payments...................     $10,286         $47,507
                                                                         =======
     Less amount representing interest..............      (1,036)
                                                         -------
     Present value of net minimum lease
       payments, including
       current portion of $4,071....................     $ 9,250
                                                         =======

Total rental expense for all operating leases, except those with terms of one
month or less that were not renewed, was $10,707, $10,133, and $9,900, for the
years ended December 31, 1999, 1998, and 1997, respectively.

11.    Income taxes

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

                                            Year ended December 31,
                                            -----------------------
                                        1999          1998           1997
                                        ----          ----           ----
Current:
  Federal.......................      $ 9,684        $2,652        $(3,771)
  State.........................          375          (505)           757
                                      -------        ------        -------
                                       10,059         2,147         (3,014)
Deferred:
  Federal.......................        1,118         1,697         (6,507)
                                      -------        ------        -------
                                      $11,177        $3,844        $(9,521)
                                      =======        ======        =======

                                      48
<PAGE>

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

                                                    Year ended December 31,
                                                    -----------------------
                                                 1999        1998        1997
                                                 ----        ----        ----
Tax provision (benefit) based on federal
  statutory rate.............................    35.0%       35.0%     (35.0)%
State income taxes, net of federal
  provision (benefit)........................     1.3        (5.3)        2.3
Goodwill amortization........................     2.4         6.8         2.2
Other........................................     0.7         3.9         2.1
                                                 ----        ----      ------
Effective tax provision (benefit) rate.......    39.4%       40.4%     (28.4)%
                                                 ====        ====      ======

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

                                                       December 31,
                                                       ------------
                                                    1999         1998
                                                    ----         ----
Deferred tax assets:
 Capitalized vendor software.................     $ 6,223     $ 4,149
 Medical claims payable discounting..........       1,672       1,501
 Employee benefits...........................       8,738       7,910
 Unearned premiums...........................       4,065       3,767
 Other capitalized expenses..................       2,324       2,429
 Reserve for loss contract...................       2,541       5,709
 Unrealized depreciation of securities.......       2,366
 Other.......................................       5,775       8,136
                                                  -------     -------
     Total deferred tax assets...............      33,704      33,601
                                                  -------     -------
Deferred tax liabilities:
 Capitalized internal software...............       8,081       8,983
 Unrealized appreciation of securities.......                     832
 Other tax-deductible expenses...............       7,203       7,293
                                                  -------     -------
     Total deferred tax liabilities..........      15,284      17,108
                                                  -------     -------
Valuation allowance..........................                    (112)
                                                  -------     -------
Net deferred tax asset.......................     $18,420     $16,381
                                                  =======     =======

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.  As of December 31, 1998, RightCHOICE maintained a valuation allowance
of $112 relating to items in which uncertainty existed with respect to the
future realization of the undistributed losses of minority-owned subsidiary
companies.  During 1999, RightCHOICE determined that this uncertainty no longer
existed.  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, 1999 and, accordingly, no valuation allowance has been provided
against such assets as of December 31, 1999.

                                      49
<PAGE>

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 and 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:

                                                   Year ended December 31,
                                                   -----------------------
                                                1999        1998        1997
                                                ----        ----        ----

Service cost..............................    $ 2,061     $ 1,834    $ 1,802
Interest cost.............................      3,273       2,989      2,814
Expected return on plan assets............     (3,587)     (3,211)    (2,770)
Amortization of transition asset..........       (304)       (304)      (304)
Amortization of prior service cost........       (230)       (230)      (230)
                                              -------     -------    -------

Net periodic pension cost.................    $ 1,213     $ 1,078    $ 1,312
                                              =======     =======    =======

Other components (included in
non-recurring charges):
Curtailment gain..........................                           $  (816)
                                                                     =======
Special termination benefits..............                           $   198
                                                                     =======

The following tables present the status of RightCHOICE's pension benefits:

                                                        December 31,
                                                        ------------
                                                    1999          1998
                                                    ----          ----
Change in benefit obligation:
Benefit obligation at beginning of year.......     $49,736       $43,122
Service cost..................................       2,061         1,834
Interest cost.................................       3,273         2,989
Benefit payments..............................      (1,350)       (1,324)
Actuarial (gains) losses......................      (9,296)        3,115
                                                   -------       -------
Benefit obligation at end of year.............     $44,424       $49,736
                                                   =======       =======

The primary cause of the actuarial gain and loss in 1999 and 1998, respectively,
relates to the change in the discount rate assumptions. The discount rate
assumption dropped from 7.25% to 6.75% during 1998 and rose from 6.75% to 7.75%
during 1999. The effect on 1998 was an actuarial loss of $4.3 million and the
effect on 1999 was an actuarial gain of $8.7 million. In addition, other
factors, primarily demographic experience, resulted in actuarial gains in both
years. These other factors resulted in an actuarial gain of $0.6 million and
$1.2 million in 1999 and 1998, respectively.

                                      50
<PAGE>

                                                        December 31,
                                                        ------------
                                                    1999          1998
                                                    ----          ----
Change in plan assets:
Fair value of plan assets at beginning of year..   $44,980       $40,264
Actual return on assets.........................     7,171         6,040
Benefit payments................................    (1,350)       (1,324)
                                                   -------       -------
Fair value of plan assets at end of year........   $50,801       $44,980
                                                   =======       =======

RightCHOICE did not make and was not required to make contributions to the plan
during 1999 and 1998.

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

                                                      December 31,
                                                      ------------
                                                    1999       1998
                                                    ----       ----
Unfunded status............................       $(6,377)    $4,756
Unrecognized actuarial gain................        16,704      3,825
Unrecognized transition asset..............           284        588
Unrecognized prior service cost............            53        282
                                                  -------     ------
Accrued pension cost.......................       $10,664     $9,451
                                                  =======     ======

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

                                                    1999        1998
                                                    ----        ----
Discount rate..................................    7.75%        6.75%
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

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 1999, 1998, and 1997, was $640, $377, and $368, 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:

                                      51
<PAGE>

                                                Year ended December 31,
                                                -----------------------
                                              1999      1998        1997
                                              ----      ----        ----
Service cost.........................       $  629    $  671      $  522
Interest cost........................        1,161     1,165       1,171
Amortization of prior service cost...          (94)      (25)         (6)
Amortization of actuarial loss.......          183       130          82
                                            ------    ------      ------
Net periodic postretirement cost.....       $1,879    $1,941      $1,769
                                            ======    ======      ======

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 7.75% and 6.75% for 1999 and 1998, respectively.
The rate of compensation increase is assumed to be 4.0% for 1999 and 1998.  The
health care cost trend rate is assumed to be 6.0% for 1999, and 5.5% for 2000
and thereafter.  A one percentage point change in the assumed trend rate would
have the following effects as of December 31, 1999:

                                                     One percent   One percent
                                                       increase      decrease
                                                       --------      --------

Effect on postretirement accumulated benefit
obligation...........................................   $1,203        $(1,064)
Effect on total service and interest cost
components...........................................   $  144        $  (126)

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

                                                            December 31,
                                                            ------------
                                                        1999           1998
                                                        ----           ----

Change in accumulated benefit obligation:
Accumulated benefit obligation at beginning of year...  $18,370       $16,860
Service cost..........................................      629           671
Interest cost.........................................    1,161         1,165
Plan amendments.......................................     (814)         (394)
Benefit payments......................................     (938)       (1,214)
Actuarial (gains) losses..............................   (1,866)        1,282
                                                        -------       -------
Accumulated benefit obligation at end of year.........  $16,542       $18,370
                                                        =======       =======

Change in plan assets:
Fair value of plan assets at beginning of year........  $     0       $     0
Employer contributions................................      938         1,214
Benefit payments......................................     (938)       (1,214)
                                                        -------       -------
Fair value of plan assets at end of year..............  $     0       $     0
                                                        =======       =======

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

                                      52
<PAGE>

                                                     December 31,
                                                     ------------
                                                   1999       1998
                                                   ----       ----
Unfunded status...........................       $16,542    $18,370
Unrecognized actuarial loss...............        (3,183)    (5,233)
Unrecognized prior service cost...........         1,065        345
                                                 -------    -------
Accrued postretirement benefit cost.......       $14,424    $13,482
                                                 =======    =======

Postemployment 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 $(132), $1,150,
and $688, for 1999, 1998, and 1997, 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
(loss) and earnings (loss) per share would have been reduced or increased to the
pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                                       1999          1998           1997
                                                                       ----          ----           ----
<S>                                            <C>                   <C>            <C>          <C>
Net income (loss)...........................   As reported....       $17,216        $5,660       $(24,034)
                                               Pro forma......       $16,582        $4,917       $(24,677)
Basic and diluted earnings (loss) per
share. .....................................   As reported....       $  0.92        $ 0.30       $  (1.29)
                                               Pro forma......       $  0.89        $ 0.26       $  (1.32)
</TABLE>

As of December 31, 1999, 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 1999, 1998, and 1997, respectively:
expected volatility of 37%, 35%, and 34%; risk-free interest rates of
approximately 5%, 6%, 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, 1999, 1998, and 1997 and
changes during the years ended on those dates is presented below:

                                      53
<PAGE>

<TABLE>
<CAPTION>
                                             Number of        Weighted-average     Weighted-average
                                               shares          exercise price         fair value
                                               ------          --------------         ----------
<S>                                          <C>              <C>                  <C>
Outstanding at December 31, 1996.......         573,428             $12.45
Granted................................         310,787             $10.91                $5.18
Forfeited..............................        (414,449)            $11.77
                                               --------
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
                                               ========
</TABLE>

There were 469,112, 198,920 and 105,413 options exercisable at December 31,
1999, 1998, and 1997, respectively.  There were no options exercised during
1997.  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, 1999:

<TABLE>
<CAPTION>
                                   Options Outstanding                                Options Exercisable
                  -----------------------------------------------------       -----------------------------------
                                       Weighted
   Range of         Number             Average              Weighted             Number             Weighted
   Exercise       Outstanding         Remaining             Average           Exercisable           Average
    Prices        at 12/31/99      Contractual Life      Exercise Price       at 12/31/99        Exercise Price
-----------------------------------------------------------------------------------------------------------------
<S>               <C>              <C>                   <C>                  <C>                <C>

$9 to $12          817,269            7.9 years                $10.71             320,572              $10.58

$13 to $18         155,314            6.0 years                $13.92             148,540              $13.94
                   -------                                                        -------

$9 to $18          972,583            7.6 years                $11.22             469,112              $11.64
                   =======                                                        =======
</TABLE>

Other benefit plans

RightCHOICE provides a pre-tax 401(k) plan covering substantially all company
employees. RightCHOICE recognized expenses of $1,221, $1,144, and $1,083, during
1999, 1998, and 1997, respectively, for costs related to this plan. 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 $7,225, $5,002, and $3,709, during 1999,
1998, and 1997, 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, 1999 and 1998, RightCHOICE had a minimum pension
liability adjustment of $454 and $569, respectively, related to the SERP that is
included as a component of RightCHOICE's other comprehensive income on the
Consolidated Balance Sheet.

                                      54
<PAGE>

13.  Contingencies

Litigation of Blue Cross and Blue Shield of Missouri with the Missouri Attorney
General and Missouri Department of Insurance and related actions, settlement
efforts and proposed reorganization

In August 1994, Blue Cross and Blue Shield of Missouri created RightCHOICE as a
for-profit subsidiary.  Blue Cross and Blue Shield of Missouri transferred
certain of its assets to RightCHOICE, and offered to the public 20% of the
common stock of RightCHOICE (such events are referred to collectively as the
1994 Reorganization and Public Offering).  Although the Missouri Department of
Insurance (DOI) formally approved the 1994 Reorganization and Public Offering on
April 14, 1994, the DOI subsequently claimed that the 1994 Reorganization and
Public Offering violated state laws and that Blue Cross and Blue Shield of
Missouri was obligated to transfer all of its assets, including all of the stock
of RightCHOICE that it owned, to the State of Missouri or a charity designated
by the State of Missouri.

On May 13, 1996, Blue Cross and Blue Shield of Missouri filed a declaratory
judgment action in the Circuit Court of Cole County Missouri (the Circuit Court)
against the DOI and the Missouri Attorney General (the Missouri Attorney General
was a necessary party due to his sole authority to enforce nonprofit corporation
laws).  This litigation is described more fully below under "Litigation relating
to the 1994 Reorganization and Public Offering."

RightCHOICE, Blue Cross and Blue Shield of Missouri, the DOI and the Attorney
General reached agreement for settlement of this litigation.  The settlement is
described below under the caption "Agreement for Settlement of Certain
Litigation Matters and Reorganization of RightCHOICE."  The agreement provides
for the dismissal of the lawsuit and appeals in which the State officials
claimed Blue Cross and Blue Shield of Missouri violated state law.  The
agreement provides for a corporate reorganization of Blue Cross and Blue Shield
of Missouri and RightCHOICE and the creation of an independent public benefit
health care foundation by December 31, 2000. There are a number of contingencies
that might affect the closing of that reorganization. RightCHOICE cannot provide
any assurances that those contingencies will be fulfilled. The parties have
agreed to use their best efforts to effect the reorganization by December 31,
2000. If the settlement does not go forward, the Attorney General and DOI will
be free to further prosecute their claims against Blue Cross and Blue Shield of
Missouri arising from the 1994 Reorganization and Public Offering which would
have a material adverse effect on RightCHOICE and its stock.

Agreement for Settlement of Certain Litigation Matters and Reorganization of
RightCHOICE

Status of Proposed Settlement Agreements

Following many developments in the litigation described below, on January 6,
2000, RightCHOICE, Blue Cross and Blue Shield of Missouri, the Missouri Attorney
General, and the DOI signed the Amended and Restated Settlement Agreement which
would, if consummated, resolve all outstanding litigation and regulatory issues
between RightCHOICE, Blue Cross and Blue Shield of Missouri and their affiliates
and the State of Missouri described below and would create an independent public
benefit health care foundation.  This agreement modified the principal
settlement agreement first announced as a conceptual framework on April 22,
1998, which was reduced to definitive settlement agreements entered into on
September 20, 1998, and subsequently modified on March 12, 1999 (as amended, the
amended settlement agreement).

The amended settlement agreement included a number of significant conditions and
contingencies described further herein.  Among those conditions were approval by
an appropriate court and a judicial determination by the Circuit Court of Cole
County, Missouri, that the reorganization contemplated by the

                                      55
<PAGE>

amended settlement agreement was lawful as to the subscribers of Blue Cross and
Blue Shield of Missouri, RightCHOICE, and their affiliates. In the Amended and
Restated Settlement Agreement that the parties signed on January 6, 2000, the
parties removed the court approval and determination of lawfulness contingencies
from their settlement agreement. That action was the result of the following
events.

On October 29, 1999, the Cole County Circuit Court entered an order disapproving
the amended settlement agreements.  Blue Cross and Blue Shield of Missouri,
together with the Missouri Attorney General and the DOI, filed a notice of
appeal from that order to the Missouri Court of Appeals for the Western
District, and asked for immediate transfer of that appeal to the Missouri
Supreme Court.  Blue Cross and Blue Shield of Missouri and the Missouri Attorney
General also notified the Missouri Supreme Court of the Circuit Court's
disapproval of the amended settlement agreement, and asked the Missouri Supreme
Court to (1) deem the Circuit Court's order final for purposes of appeal, (2)
conduct its own review of the settlement agreement, and (3) enter a stay
prohibiting Judge Brown and the Special Master from further proceedings,
including consideration of alternatives, pending the appeal.

The Supreme Court of Missouri accepted the appeal and stayed further proceedings
in the Circuit Court.  Counsel for the Special Master whose role in these
proceedings is described further herein appeared in the appeal as Amici
Respondents, charged with defending the order of the Circuit Court.

Following oral arguments before the Supreme Court of Missouri on December 8,
1999, on December 9, the Supreme Court entered an order which stated that the
parties had "failed to establish that court approval is required or authorized
by law or that any such determination would be other than advisory."  The
Supreme Court stayed all proceedings until February 8, 2000, to permit the
parties to dismiss the underlying lawsuit and the appeals.

On January 6, 2000, the Amended and Restated Settlement Agreement was signed,
thereby removing the conditions requiring court approval and a determination of
lawfulness of the proposed reorganization.  On January 6, 2000, the parties
filed a joint stipulation of dismissal in the Cole County Circuit Court,
dismissing all pending claims in that court in the principal litigation between
the parties.  On February 8, 2000, the parties moved for dismissal of the appeal
pending in the Supreme Court of Missouri.  The Supreme Court granted that motion
and dismissed the appeals on February 9, 2000.

The litigation underlying the settlement is described below.  See "Litigation
relating to the 1994 Reorganization and Public Offering."

Terms of the Proposed Settlement Agreement

The principal terms of the Amended and Restated Settlement Agreement include the
following:

 .    Blue Cross and Blue Shield of Missouri would, through a series of
     transactions, (i) transfer its insurance-related assets, contracts and
     agreements and related liabilities to a wholly owned subsidiary of
     RightCHOICE; (ii) convert to a for-profit corporation; (iii) reincorporate
     in Delaware; and (iv) merge with RightCHOICE. Approximately 20% of the
     outstanding common stock of the resulting entity (referred to as New
     RightCHOICE) would be owned by RightCHOICE's current public shareholders
     and approximately 80% of the outstanding shares of New RightCHOICE would be
     owned by a charitable independent health care foundation (which equals the
     current aggregate ownership interests of the public shareholders and Blue
     Cross and Blue Shield of Missouri, respectively, in the equity of
     RightCHOICE).

                                      56
<PAGE>

 .    Blue Cross and Blue Shield of Missouri would pay approximately $12.78
     million to the Missouri Foundation For Health (in addition to $175 paid by
     New RightCHOICE).

 .    The Missouri Foundation For Health would be required to liquidate its
     shares of New RightCHOICE stock over a prescribed period of time not to
     exceed seven years under a divestiture plan. The Foundation would be
     required to reduce its ownership of New RightCHOICE stock to less than 50%
     of the total outstanding stock of New RightCHOICE within three years of the
     closing of the reorganization, subject to possible extension, and to less
     than 20% of the total outstanding stock of New RightCHOICE within five
     years of the closing of the reorganization, subject to possible extension.
     The proceeds would be used for health care purposes. All but up to 5% of
     the shares of New RightCHOICE stock owned by the Foundation would be
     subject to a voting trust that would, with certain exceptions, effectively
     vest voting control of such shares of New RightCHOICE stock owned by the
     Foundation in the board of directors of New RightCHOICE on all matters
     except that the Foundation would have the right to vote as it deems
     appropriate on a change of control transaction involving New RightCHOICE.

 .    The charter documents of New RightCHOICE would include the "basic
     protections" required by the Blue Cross and Blue Shield Association (BCBSA)
     of all of its for-profit licensees to provide for independence from the
     direction, control and influence of the Missouri Foundation For Health or
     any other shareholder. The "basic protections" would include limitations on
     the amount of New RightCHOICE stock that may be owned by certain categories
     of shareholders --(i) no "institutional" shareholder may own 10% or more of
     the voting power of New RightCHOICE, (ii) no "non-institutional"
     shareholder may own 5% or more of the voting power of New RightCHOICE, and
     (iii) no shareholder may own 20% or more of the equity of New RightCHOICE
     (with certain exceptions in the case of the Foundation as described above).
     Any shares owned by a shareholder in excess of the applicable ownership
     limits could be redistributed by New RightCHOICE.

The transactions contemplated by the Amended and Restated Settlement Agreement
are subject to a number of significant conditions and contingencies, including
approval by various regulators and the shareholders of RightCHOICE, receipt of
certain legal opinions, the receipt of rulings from the Internal Revenue Service
or tax opinions regarding the tax-free nature of the transactions, and the
satisfactory resolution of the Sarkis Litigation, which is now over.  The Sarkis
Litigation is described below under the caption Subscriber Class Action
Litigation.

Litigation relating to the 1994 Reorganization and Public Offering

In August 1994, Blue Cross and Blue Shield of Missouri effectuated the 1994
Reorganization and Public Offering.  The DOI had formally approved the 1994
Reorganization and Public Offering on April 14, 1994.  The DOI subsequently
claimed that the 1994 Reorganization and Public Offering violated Missouri state
laws and that Blue Cross and Blue Shield of Missouri was obligated to transfer
all of its assets, including all of the stock of RightCHOICE that it owned, to
the State of Missouri or a charity designated by the State of Missouri.  The DOI
threatened to bring legal action, seek a receivership, or terminate Blue Cross
and Blue Shield of Missouri's insurance license unless Blue Cross and Blue
Shield of Missouri surrendered its assets.

Blue Cross and Blue Shield of Missouri's extensive efforts to resolve the
dispute without litigation were unsuccessful.  On May 13, 1996, Blue Cross and
Blue Shield of Missouri filed a declaratory judgment action in the Circuit Court
against the DOI and the Missouri Attorney General (the Missouri Attorney General
was a necessary party due to his sole authority to enforce nonprofit corporation
laws).  The action sought a declaratory judgment that Blue Cross and Blue Shield
of Missouri followed all applicable laws

                                      57
<PAGE>

and regulations in the 1994 Reorganization and Public Offering resulting in the
creation of RightCHOICE. It also sought a permanent injunction forbidding the
DOI from refusing to renew Blue Cross and Blue Shield of Missouri's license or
taking other administrative action against Blue Cross and Blue Shield of
Missouri to pressure it into paying a "toll charge" or "charitable asset
assessment" or any other fee as a result of the 1994 Reorganization and Public
Offering.

On June 13, 1996, the DOI filed an answer and counterclaims setting forth
several affirmative defenses, including alleged fraud and negligent
misrepresentation with respect to the application filed by Blue Cross and Blue
Shield of Missouri seeking approval of the 1994 Reorganization and Public
Offering.  The counterclaims alleged violations of certain health services
corporation and nonprofit corporation statutes.  The DOI's counterclaims sought,
among other things: (i) permanent injunctions against Blue Cross and Blue Shield
of Missouri; (ii) imposition of a trust on Blue Cross and Blue Shield of
Missouri's assets for public benefit purposes; (iii) return of profits from
Medigap policies reinsured with a subsidiary; and (iv) an accounting of all
assets transferred by Blue Cross and Blue Shield of Missouri.

On June 20, 1996, the Missouri Attorney General filed an answer and counterclaim
alleging that the 1994 Reorganization and Public Offering, and its continued
operations through RightCHOICE and its subsidiaries, exceeded Blue Cross and
Blue Shield of Missouri's statutory purposes.  The Missouri Attorney General
requested a declaration that Blue Cross and Blue Shield of Missouri exceeded its
lawful authority and sought such relief as the Circuit Court would determine to
be appropriate under the circumstances based on a statute that authorizes
judicial dissolution or less drastic alternative relief in the Circuit Court's
discretion.

On September 9, 1996, the Circuit Court granted Blue Cross and Blue Shield of
Missouri's motion for summary judgment against the DOI, rejected all of the
DOI's affirmative defenses (including allegations of fraud), issued a permanent
injunction against the DOI and declared that: (i) under Missouri law the DOI had
no authority to demand that Blue Cross and Blue Shield of Missouri make a
payment as a result of the 1994 Reorganization and Public Offering; (ii) under
Missouri law the DOI had no jurisdiction to take any action, the practical
effect of which would be to amend, modify or reverse the DOI's April 14, 1994
final administrative approval of the 1994 Reorganization and Public Offering;
(iii) under Missouri law, the DOI had no jurisdiction to take any administrative
action, including, but not limited to, revoking, suspending or refusing to renew
Blue Cross and Blue Shield of Missouri's Certificate of Authority based in any
way on the 1994 Reorganization and Public Offering or Blue Cross and Blue Shield
of Missouri's refusal to make payment as the DOI had demanded; and (iv) (A) Blue
Cross and Blue Shield of Missouri was a mutual benefit type of nonprofit
corporation rather than a public benefit type of nonprofit corporation; (B) the
1994 Reorganization and Public Offering were authorized under all laws
applicable to nonprofit health services corporations; and (C) Blue Cross and
Blue Shield of Missouri did not owe the State or any person or entity a "toll
charge," "charitable asset settlement" or any other payment as a result of the
1994 Reorganization and Public Offering (the September 9 Order). On December 30,
1996, the Circuit Court issued orders (described more fully below) modifying the
findings and declarations set forth in (iv) above, on the grounds that it was
legally unnecessary to resolve such issues because the Circuit Court had already
ruled against the DOI for other reasons.

The September 9 Order permanently enjoined the DOI from, among other things, (i)
revoking, suspending or refusing to renew Blue Cross and Blue Shield of
Missouri's insurance license based in any part upon the 1994 Reorganization and
Public Offering; (ii) commencing a valuation of Blue Cross and Blue Shield of
Missouri's assets and demanding a payment as a result of the 1994 Reorganization
and Public Offering; (iii) commencing any administrative hearing or making any
administrative determination based in any part upon the 1994 Reorganization and
Public Offering; (iv) instituting any seizure, receivership, conservatorship or
similar action or proceeding against Blue Cross and Blue Shield of Missouri
based in any part upon the 1994 Reorganization and Public Offering; and (v)
taking any other action, however

                                      58
<PAGE>

denominated, against Blue Cross and Blue Shield of Missouri based in any part
upon the 1994 Reorganization and Public Offering.

On August 28, 1996, the DOI filed an amended answer asserting a new counterclaim
that the 1994 Reorganization and Public Offering were not reasonably designed to
serve any of Blue Cross and Blue Shield of Missouri's purposes as a health
services corporation and sought a declaration that Blue Cross and Blue Shield of
Missouri had exceeded or abused the authority conferred upon it by law.  Under
this counterclaim, the DOI sought an order to rehabilitate Blue Cross and Blue
Shield of Missouri or, in the alternative, injunctive relief.

On October 18, 1996, the Missouri Attorney General filed a motion for leave to
file an amended counterclaim against Blue Cross and Blue Shield of Missouri that
sought a declaration that Blue Cross and Blue Shield of Missouri was a public
benefit corporation, not a mutual benefit corporation, and requested an order
that Blue Cross and Blue Shield of Missouri amend its Articles of Incorporation
accordingly.  The Circuit Court granted the Missouri Attorney General's motion
for leave to file the amended counterclaim.

On December 30, 1996, the Circuit Court issued five orders (the December 30
Orders):  (i) denying Blue Cross and Blue Shield of Missouri's motion for
summary judgment against the Missouri Attorney General; (ii) granting the
Missouri Attorney General's motion for partial summary judgment against Blue
Cross and Blue Shield of Missouri; (iii) denying Blue Cross and Blue Shield of
Missouri's supplemental motion for summary judgment against the DOI on their
amended counterclaim; (iv) granting the DOI's motion for summary judgment
against Blue Cross and Blue Shield of Missouri on their amended counterclaim;
and (v) modifying, in part, the Circuit Court's previous September 9 Order.  The
December 30 Orders declared that (i) Blue Cross and Blue Shield of Missouri had
continued to exceed or abuse its statutorily permissible purposes and the
authority conferred on it by law; and (ii) Blue Cross and Blue Shield of
Missouri is subject to judicial dissolution proceedings, but that prior to
ordering dissolution, the Circuit Court is required to consider whether there
are alternatives to dissolution and whether dissolution is in the public
interest or is the best way of protecting the interests of its members.

The Circuit Court also (i) certified the December 30 Orders and the September 9
Order, as modified, for immediate appeal; (ii) held in abeyance further
proceedings on the Missouri Attorney General's counterclaim pending appeal; and
(iii) stayed the legal effect of the order granting the Director and the DOI
summary judgment pending the filing of an appeal bond (which Blue Cross and Blue
Shield of Missouri promptly filed).

On August 4, 1998, the Missouri Court of Appeals entered its opinion affirming
the judgments entered December 30, 1996.

On September 20, 1998, the company and certain of its affiliates entered into
various settlement agreements with the Missouri Attorney General and certain
state agencies, including the DOI.  The settlement agreements, as most recently
amended on January 6, 2000, (principally, the Amended and Restated Settlement
Agreement) are described above under the caption "Terms of the Proposed
Settlement Agreements."  If consummated, the Amended and Restated Settlement
Agreement would resolve the outstanding litigation and regulatory disputes
between Blue Cross and Blue Shield of Missouri and its affiliates and the State
of Missouri, including the litigation related to the 1994 Reorganization and
Public Offering, and create an independent public benefit health care
foundation.

Notwithstanding the fact that the litigation had not yet been remanded to the
Circuit Court, on October 29, 1998, the Circuit Court "acting on its own motion"
issued an Order (the October 29, 1998 Order) in the litigation.  The October 29,
1998 Order provided for, among other things, the appointment of Robert G.

                                      59
<PAGE>

Russell as receiver/custodian to, among other things, take exclusive possession
and control of all of the issued and outstanding shares of the company's common
stock owned by Blue Cross and Blue Shield of Missouri.  The October 29, 1998
Order cited concerns by the Circuit Court about the fairness of the transactions
set forth in the settlement agreements, alleged conflicts of interest and the
need for an independent examination of the proposed settlement and related
issues.   The October 29, 1998 Order also approved the engagement of legal
counsel and an investment banker to advise the receiver/custodian.  Had the
October 29, 1998 Order not been void "from the beginning" as described below, a
number of significant and adverse consequences would have resulted, including
the automatic termination of the company's Blue Cross and Blue Shield licenses
and a resultant event of default under RightCHOICE's Credit Agreement.

On November 2, 1998, Blue Cross and Blue Shield of Missouri filed a motion to
vacate the October 29, 1998 order and a supporting memorandum.  Blue Cross and
Blue Shield of Missouri alleged therein that (i) the Circuit Court lacked
jurisdiction to issue the October 29, 1998 Order because the case was still
pending before the Missouri Supreme Court; (ii) the Circuit Court issued the
order without notice and an opportunity to be heard; (iii) there were no exigent
circumstances that would warrant the appointment of a receiver without due
process; and (iv) the appointment of the receiver had the effect of frustrating
the purpose for which the receiver was to be appointed, namely, the preservation
of the nonprofit assets of Blue Cross and Blue Shield of Missouri.

On November 2, 1998, BCBSA filed a complaint against the company, its
subsidiaries and Blue Cross and Blue Shield of Missouri in the United States
District Court for the Northern District of Illinois alleging that the
appointment of the receiver/custodian caused the automatic termination of the
licenses to use the Blue Cross and Blue Shield service marks.  The complaint
alleged service mark infringement and breach of license agreements as a result
of the company's continued use of the Blue Cross and Blue Shield service marks
following the issuance of the October 29 Order. The BCBSA later dismissed its
complaint (as described below under "Status of Blue Cross and Blue Shield
licenses").

On November 4, 1998, the Circuit Court issued an Order (the November 4 Order)
vacating the October 29, 1998 Order and declaring it to be void  "from the
beginning".  The Circuit Court, in issuing the November 4 Order, acknowledged
that the significant and adverse consequences that could have resulted from the
October 29, 1998 Order were unintended.  On November 4, 1998, the Circuit Court
also issued an Order (the November 4 Special Master Order) appointing a special
master for the purpose of collecting and analyzing information related to the
proposed settlement.  The November 4 Special Master Order also approved the
engagement of legal counsel and such financial advisors as are approved by the
court to advise the special master.  The effect of the November 4 Order was to
void the October 29, 1998 Order as if it never existed.  The special master, at
that time, had expressed his interest in providing that RightCHOICE would
continue its business in the normal course during his review.

On November 6, 1998, the Circuit Court entered an Order of Reference (the
November 6 Order), among other things, directing the special master to collect
and analyze information as to the options and alternatives available to the
Circuit Court for disposition of the remaining issues in the litigation,
including, but not limited to, an examination of the settlement agreements.  The
special master was also directed to address several concerns of the Circuit
Court that were originally outlined in the October 29, 1998 Order.  The special
master was further directed to investigate issues concerning the Blue Cross and
Blue Shield licenses and marks and the company's Credit Agreement.

On November 19, 1998, the Blue Cross and Blue Shield license agreements were
reinstated with addenda that provided, among other things, that the licenses
would terminate on the date of the next scheduled meeting of the BCBSA Board of
Directors, then March 11, 1999, unless extended by the Board of Directors of the
BCBSA.  On March 11, 1999, and at subsequent meetings on June 17, September 17,

                                      60
<PAGE>

1999, and November 19, 1999 the BCBSA Board of Directors extended the licenses
until the next scheduled meeting, the next of which is scheduled for March 9,
2000.  See "Status of Blue Cross and Blue Shield licenses" below.

On November 24, 1998, the Supreme Court of Missouri granted the motion of Blue
Cross and Blue Shield of Missouri to accept transfer of the litigation related
to the 1994 Reorganization and Public Offering and, as a result of this action,
the opinion of the Missouri Court of Appeals dated August 4, 1998, (referred to
above) is of no effect.  The Supreme Court, on application of the parties,
deferred briefing of the appeal pending review of the parties' settlement
agreement in the Circuit Court.

The special master conducted a series of public hearings on December 4, December
16, and December 22, 1998, and on February 4, 1999, where evidence related to
the proposed settlement and other subjects was presented.

At the public hearing on December 16, representatives of Blue Cross and Blue
Shield of Kansas City presented an "alternative" to the proposed settlement
agreement by suggesting that the Kansas City plan would acquire the assets of
Blue Cross and Blue Shield of Missouri, including the stock of RightCHOICE that
it owns.  The Kansas City plan's proposal provided for a cash purchase price of
$13.50 per share for the shares of the company held by the public and $15.25 per
share for the other shares held by Blue Cross and Blue Shield of Missouri.  The
proposal included a number of conditions, such as a financing contingency and an
obligation that all litigation of Blue Cross and Blue Shield of Missouri be
resolved.  This proposal was not made directly to RightCHOICE or Blue Cross and
Blue Shield of Missouri.

Following the completion of the hearings and other investigation, on February
10, 1999, the special master issued his 47-page report (the first report of the
special master) which recommended that the settlement agreement "not be approved
in its present form" and that the Circuit Court "withhold a ruling on the
settlement agreement to give the parties and the public interest groups who had
filed briefs and participated in the proceedings as "friends of the court" an
opportunity to meet and confer, and engage in a good faith effort to address"
concerns that were noted in the report of the special master. While the special
master stated that "there are many things to commend the Settlement Agreement
for the Court's approval," he indicated he had concerns with its terms that
prevented him from recommending approval. Among the concerns he identified in
his first report were: (1) whether the charitable independent health care
foundation that would be created if the settlement were implemented would
receive full value of the present assets of Blue Cross and Blue Shield of
Missouri; (2) whether a contemplated method of divestiture of the New
RightCHOICE shares to be held by the foundation -- sale of the shares over time
pursuant to a Voting Trust and Divestiture Agreement and Registration Rights
Agreement -- would yield full value for the shares; (3) whether the proposed
provisions for governance of the foundation were reasonable; and (4) whether the
provisions for the purposes of the charitable independent health care foundation
were justified.

Following the first report of the special master, the parties and the public
interest groups discussed the concerns noted therein.  On March 12, 1999,
RightCHOICE, Blue Cross and Blue Shield of Missouri, the Missouri Attorney
General, and the DOI entered into an Amendment to Settlement Agreement.  The
parties to the amended settlement agreement, together with certain consumer
groups that had participated in the public hearings, filed with the Circuit
Court a joint motion seeking approval of the amended settlement agreement.

On March 12, 1999, the parties also filed with the Circuit Court their
respective objections and comments to the first report of the special master.
In its objections, Blue Cross and Blue Shield of Missouri asserted that the
special master made certain erroneous factual and unjustified legal conclusions
in the report and requested the Circuit Court to approve the amended settlement
agreement.

                                      61
<PAGE>

Although the Missouri Supreme Court initially had stayed the briefing schedule
for 120 days in the proceedings before it in order to permit the proceedings in
the Circuit Court concerning review of the settlement agreement to go forward,
that stay was lifted and oral arguments were heard by the Missouri Supreme Court
on September 8, 1999.  Following the oral arguments, on September 9, 1999, the
Supreme Court entered an order that the Circuit Court "finally dispose" of the
amended settlement agreement.

The special master conducted public hearings on September 3, and October 4,
1999.  On October 8, 1999, he issued a second report (the second report of the
special master).   The second report recommended that the amended settlement
agreement be disapproved because it failed to provide for the full value of the
Blue Cross and Blue Shield of Missouri assets for the public.  The report also
suggested that the settlement should provide for the forced sale of RightCHOICE
or provide that the foundation should have the right to cause the sale of
RightCHOICE.

On October 29, 1999 the Circuit Court issued an order in which it disapproved
the amended settlement agreement.  Subsequent proceedings were then had as
described above under the caption "Status of Proposed Settlement Agreements."

On January 6, 2000, as a result of the Amended and Restated Settlement
Agreement, the parties filed a joint notice of dismissal without prejudice of
the pending claims in the lawsuit in the Circuit Court of Cole County in which
the Attorney General and the DOI contended that Blue Cross and Blue Shield of
Missouri were in violation of the Missouri health services corporation law and
non-profit corporation law.  On February 8, 2000, Blue Cross and Blue Shield of
Missouri, the Attorney General and DOI moved in the Missouri Supreme Court to
dismiss their pending appeals in that litigation.  Their motions were granted on
February 9, 2000.

An effect of the dismissal of these appeals is to leave in place, without
further right of appeal, the December 30, 1996 Orders particularly the finding
that Blue Cross and Blue Shield of Missouri violated the non-profit law through
the continued operation of RightCHOICE.  If the Settlement Agreement is not
consummated, the Attorney General and DOI remain free to seek further relief in
enforcement of those judgments, including seeking to terminate the Certificate
of Authority of Blue Cross and Blue Shield of Missouri and seeking to dissolve
Blue Cross and Blue Shield of Missouri under the Missouri non-profit corporation
law.

Subscriber class action litigation

On March 15, 1996, a suit (the Sarkis Litigation) was filed in the Circuit Court
of the City of St. Louis, Missouri (the St. Louis Circuit Court), by Anthony J.
Sarkis, Sr. and James Hacking individually and on behalf of a purported class of
(i) subscribers in individual or group health plans insured or administered by
Blue Cross and Blue Shield of Missouri or RightCHOICE, and (ii) all persons
and/or entities who benefited from Blue Cross and Blue Shield of Missouri's tax-
exempt status (the Sarkis plaintiffs).  The petition named RightCHOICE, Blue
Cross and Blue Shield of Missouri, HealthLink, Inc. (a subsidiary of
RightCHOICE), and certain officers of RightCHOICE as defendants.  The named
plaintiffs later abandoned their claim to represent all persons or entities that
benefited from Blue Cross and Blue Shield of Missouri's tax-exempt status.

The Sarkis plaintiffs' claims related to an alleged conversion of Blue Cross and
Blue Shield of Missouri from a not-for-profit entity to a for-profit entity and
payment of excessive compensation to management.  The petition further alleged
that certain amendments to Blue Cross and Blue Shield of Missouri's Articles of
Incorporation were improper.  The petition also alleged that the purchase of
HealthLink was at an excessive price and that HealthLink operates under
contracts providing for illegal discounts by health care

                                      62
<PAGE>

providers. The Sarkis plaintiffs sought restitution, compensatory damages and
punitive damages in unspecified amounts, as well as injunctive and other
equitable relief.

On November 4, 1998, the St. Louis Circuit Court issued its judgment and order
granting the motion of the defendants to dismiss the action for lack of standing
and entering judgment in favor of the defendants.  The Sarkis plaintiffs
appealed the St. Louis Circuit Court's order.  James Hacking later dismissed his
appeal, leaving Anthony Sarkis as the only appellant.

On February 1, 2000, the Missouri Court of Appeals entered an Order affirming
the judgment of dismissal entered in the Circuit Court of the City of St. Louis
on November 4, 1998.  Appellant did not file a motion for rehearing or an
application for transfer of the appeal to the Missouri Supreme Court.  As a
result, the Sarkis Litigation is now over.

The obligations of the parties to consummate the reorganization contemplated by
the Amended and Restated Settlement Agreement is conditioned upon, among other
things, satisfactory final resolution of the Sarkis Litigation.

Anthony Sarkis, as a representative of a subscriber class, is also a party in
the actions 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, Blue Cross and Blue Shield of Missouri filed an action in
the Circuit Court against the Missouri Attorney General seeking declarations
that (1) Blue Cross and Blue Shield of Missouri is a mutual benefit type of
nonprofit corporation under Chapter 355 of the Missouri Revised Statutes; and
(2) Blue Cross and Blue Shield of Missouri does not hold its assets in
constructive, charitable, or other trust for the benefit of the public
generally, but rather holds its assets for the benefit of its subscribers. The
action was filed in response to continued public and private statements by the
Missouri Attorney General, the DOI and others that Blue Cross and Blue Shield of
Missouri was a public benefit type of nonprofit corporation that held its assets
for the benefit of the public generally. 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 nonprofit corporation.

On June 10, 1998, Anthony Sarkis and James Hacking (plaintiffs in the Sarkis
Litigation described above under "Subscriber class action litigation") moved to
intervene in this action as plaintiffs.  Sarkis and Hacking are or have been
subscribers of Blue Cross and Blue Shield of Missouri.  They sought to
intervene, contending that the present 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.  Thereafter, Blue Cross and Blue Shield of Missouri moved to file
an amended petition adding Sarkis, Hacking and the DOI as parties to the action.
For its relief, Blue Cross and Blue Shield of Missouri sought, among other
things, a declaration of its status as a public benefit or mutual benefit
corporation.  The Circuit Court granted Blue Cross and Blue Shield of Missouri's
motion to file the amended petition on August 17, 1998.

On June 17, 1999, the Circuit Court determined that this action would go forward
as a class action for declaratory relief.  On that date, Sarkis and Hacking
dismissed all claims other than their claims for declaratory relief.  On July 6,
1999, the Attorney General of Missouri filed a motion for a summary judgment
declaring that Blue Cross and Blue Shield of Missouri is a public benefit
corporation.  On August 5, 1999, Blue Cross and Blue Shield of Missouri filed a
motion for summary judgment that the class representatives and the class lack
standing to assert the claims for declaratory relief that they are asserted.
Those motions for summary judgment are under submission to the Circuit Court.

                                      63
<PAGE>

If Blue Cross and Blue Shield of Missouri is declared to be a mutual benefit
type of nonprofit corporation that does not hold its assets for the benefit of
the public generally, Blue Cross and Blue Shield of Missouri would be required
to exercise its ownership interest in RightCHOICE consistent with the best
interests of Blue Cross and Blue Shield of Missouri's subscribers, subject to
any final rulings made in the litigation described elsewhere herein.  If Blue
Cross and Blue Shield of Missouri is declared to be a public benefit type of
nonprofit corporation or if it is declared that Blue Cross and Blue Shield of
Missouri holds assets for the benefit of the public generally, Blue Cross and
Blue Shield of Missouri would be required to exercise its ownership interest in
RightCHOICE consistent with the best interests of the public at large.  The
subscriber class in this action has requested a declaration that Blue Cross and
Blue Shield of Missouri may not lawfully transfer its assets to a charitable
trust.  If such a judgment is entered, it might be followed by a claim seeking
an injunction against the closing of the reorganization, or money damages, or
both.  It could also cause conditions to the closing of the reorganization not
to be fulfilled.

Litigation relating to the Market Conduct Study and Copayment Calculations

On February 11, 1998, the DOI filed a Notice of Institution of Case (the Market
Conduct Proceeding) relating to a market conduct examination of RightCHOICE and
its affiliates.   On January 6, 2000, the settlement agreement relating to these
proceedings was consummated, and the Market Conduct Proceeding was dismissed.

On February 9, 1998, the Missouri Attorney General filed suit against
RightCHOICE, Blue Cross and Blue Shield of Missouri, BlueCHOICE, Healthy
Alliance Life Insurance Company (HALIC, a subsidiary of RightCHOICE), and
Preferred Health Plans of Missouri, Inc. (a subsidiary of RightCHOICE) in the
Circuit Court seeking injunctive relief, compensatory damages and civil
penalties under Missouri's Merchandising Practices Act for the way in which
RightCHOICE disclosed and marketed co-payment amounts prior to January 1996 (the
Attorney General Co-Payment Claim). RightCHOICE discontinued the challenged co-
payment practices in January 1996.

On September 20, 1998, RightCHOICE entered a settlement agreement with the
Attorney General for resolution of the Attorney General Co-Payment Claim
conditioned on court approval of the separate principal settlement agreement of
September 20, 1998 described above under the caption Terms of the Settlement
Agreement.  The Attorney General Co-Payment Claim was dismissed by the Missouri
Attorney General without prejudice pending the approval of the amended
settlement agreement described above.

On January 6, 2000, the parties agreed to remove the court approval condition
precedent to consummating the settlement of the Attorney General Co-Payment
Claim.  The settlement is now being implemented.  RightCHOICE anticipates that
the settlement will be consummated.

Status of Blue Cross and Blue Shield licenses

On March 11, June 17, September 17, and November 19, 1999, the Board of
Directors of the BCBSA unanimously voted to extend RightCHOICE's licenses to use
the Blue Cross and Blue Shield service marks until the next scheduled meeting of
the BCBSA Board of Directors.  The extensions on a "board to board" basis
followed the reinstatement by the BCBSA Board of Directors, effective as of
October 29, 1998, of the licenses to use the Blue Cross and Blue Shield service
marks, granted to RightCHOICE, Blue Cross and Blue Shield of Missouri, and two
wholly owned subsidiaries of RightCHOICE, HALIC and BlueCHOICE (the licensed
affiliates).  The approval clarified the rights of RightCHOICE and its licensed
affiliates to continue uninterrupted the use of the service marks following
actions taken by the BCBSA which resulted from the October 29 Order.  On March
9, 2000, the Board of Directors of the BCBSA

                                      64
<PAGE>

unanimously voted to fully reinstate the licenses so that extensions on a "board
to board" basis would no longer be required.

The October 29 Order (as described above under "Litigation relating to the 1994
Reorganization and Public Offering") provided for the appointment of Robert G.
Russell as receiver/custodian to, among other things, take exclusive possession
and control of all of the issued and outstanding shares of RightCHOICE's class B
common stock, all of which is owned by Blue Cross and Blue Shield of Missouri.
On November 2, 1998, the BCBSA notified RightCHOICE and its licensed affiliates
that their licenses to use the Blue Cross and Blue Shield service marks had
terminated automatically pursuant to their terms on October 29, 1998, as a
result of the October 29 Order, and filed a complaint against RightCHOICE and
its licensed affiliates alleging service mark infringement and breach of license
agreements as a result of the continued use of the service marks following the
issuance of the October 29 Order (the BCBSA Complaint).  On November 4, 1998,
after Blue Cross and Blue Shield of Missouri filed a motion seeking a revocation
of the October 29 Order and supporting memorandum, the Circuit Court issued the
November 4 Order and the November 4 Special Master Order.  The November 4 Order
set aside the October 29 Order and declared it to be "void from the beginning."
The November 4 Special Master Order appointed Robert G. Russell as special
master for the purpose of collecting and analyzing information related to the
proposed settlement of the litigation described above.  On November 6, 1998, the
Court issued an Order of Reference for the special master.  As a result of the
November 4 Order, the BCBSA agreed to dismiss the BCBSA Complaint.

Each of the reinstated license agreements approved by the BCBSA on November 19,
1998 included an addendum that provided, among other things, that the licenses
granted under such license agreements would be reviewed by the BCBSA at the next
regularly scheduled meeting of the BCBSA Board of Directors (originally, March
11, 1999, and pursuant to extensions, March 9, 2000).  If, on or before such
date, the BCBSA did not extend the termination dates for the license agreements
until the next regularly scheduled meeting of the BCBSA Board of Directors after
such date, or otherwise modify the addenda, the license agreements would have
terminated.  This "board-to-board" extension of the license agreements has been
adopted in conjunction with the issuance of reinstated licenses granted to other
BCBSA licensees following a license termination.  On March 9, 2000, the BCBSA
Board voted to reinstate the full license without board to board extensions as a
result of the dismissal of the principal litigation as contemplated by the
Amended and Restated Settlement Agreement described above under "Agreement for
Settlement of Certain Litigation Matters and Reorganization of RightCHOICE."

The licenses (which include the primary licenses granted to Blue Cross and Blue
Shield of Missouri and the controlled affiliate licenses to RightCHOICE, HALIC
and BlueCHOICE) give these companies the right to use the Blue Cross and Blue
Shield names and service marks in connection with health insurance products
marketed and sold in Blue Cross and Blue Shield of Missouri's licensed operating
area (consisting of 85 counties in eastern and central Missouri).  The licenses
require Blue Cross and Blue Shield of Missouri, RightCHOICE, HALIC and
BlueCHOICE to pay license fees to BCBSA for the use of the marks. These license
fees have aggregated approximately $0.7 million to $0.8 million per year for
1997 through 1999. The company expects to continue to incur annual license fees
of similar amounts; however, the amounts may vary from year to year based on the
company's total revenue as compared to that of all Blue Cross and Blue Shield
licensees as well as changes adopted by BCBSA to its overall formulas for
computing the license fees.

Each of the licenses provides that it automatically terminates if, among other
things: (i) the DOI or another regulatory agency assumes control of the
licensee or delinquency proceedings are instituted; (ii) a trustee, interim
trustee, receiver or other custodian for any of Blue Cross and Blue Shield of
Missouri's or the BCBSA's property or business is appointed, or (iii) an action
is instituted by any governmental entity or officer against the licensee seeking
dissolution or liquidation of its assets or seeking the appointment of

                                      65
<PAGE>

a trustee, interim trustee, receiver or custodian for any of its property or
business, which is consented or acquiesced to by the licensee or is not
dismissed within 130 days of the licensee being served with the pleading or
document commencing the action, provided that if the action is stayed or its
prosecution enjoined, the 130-day period is tolled for the duration of the stay
or injunction, and provided further that the BCBSA's Board of Directors may toll
or extend the 130-day period at any time prior to its expiration.  Each license
also provides that it may be terminated by BCBSA if, among other things, the
licensee fails to meet certain quality control standards or minimum capital or
liquidity requirements.  Pursuant to the addendum, which became part of the
reinstated license agreements following the November 19, 1998 BCBSA Board
meeting, an automatic termination will also occur (i) if the BCBSA Board does
not take action to extend the licenses on or before the date of the next
regularly scheduled BCBSA Board meeting, and (ii) upon any judicial act that (a)
provides for or approves a transaction pursuant to which a person, entity or
group other than the licensees of BCBSA, acquires the ability to select the
majority of the members of the Board of Directors of Blue Cross and Blue Shield
of Missouri, RightCHOICE or certain of its affiliates or otherwise gains control
of Blue Cross and Blue Shield of Missouri, RightCHOICE or such affiliates, or
(b) changes the composition of, or the voting rights of the members of the Board
of Directors of Blue Cross and Blue Shield of Missouri, RightCHOICE or such
affiliates.  The foregoing provision does not apply to a settlement or
resolution of the litigation described above that complies with all BCBSA rules,
regulations and standards and is approved by or conditioned on the approval of
the BCBSA.  In addition, the licenses may be terminated if Blue Cross and Blue
Shield of Missouri, RightCHOICE, or certain subsidiaries of RightCHOICE are
unable to achieve certain financial benchmarks as required by the BCBSA.

The affiliate licenses are derivative of the primary licenses and automatically
terminate if the primary licenses terminate.  According to their terms, if a
license is terminated, Blue Cross and Blue Shield of Missouri, RightCHOICE,
HALIC and BlueCHOICE are jointly liable to the BCBSA for payment of a
termination fee in an amount equal to $25 times the number of licensed enrollees
of the terminated entity and its licensed controlled affiliates, and must give
written notice of such termination to their enrollees.  In connection with the
reinstatement described above, the BCBSA waived the application of these
provisions to the alleged automatic termination resulting from the entry of the
October 29 Order.

RightCHOICE believes that the exclusive right to use the Blue Cross and Blue
Shield names and service marks provides it and its controlled affiliates with a
marketing advantage in Blue Cross and Blue Shield of Missouri's licensed
operating area, the loss of which would have a material adverse effect on
RightCHOICE and the market for its stock.  In addition, the loss of the licenses
would be an event of default under RightCHOICE's Credit Agreement which, if not
waived or otherwise addressed, could result in a material adverse effect on
RightCHOICE and the market for its stock.

In connection with the settlement agreements described above under "Status of
Proposed Settlement Agreements," Blue Cross and Blue Shield of Missouri and
RightCHOICE have filed a request with the BCBSA to transfer its primary license
to New RightCHOICE as part of the transactions contemplated by the Amended and
Restated Settlement Agreement.  The BCBSA had conditionally approved the
transfer as proposed under the Amended and Restated Settlement Agreement.
RightCHOICE cannot provide any assurances that the transactions contemplated by
the Amended and Restated Settlement Agreement will be effected.  The failure to
consummate the transactions contemplated by the Amended and Restated Settlement
Agreement could have a material adverse effect on RightCHOICE and the market for
its stock.

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, many of which involve claims relating to the denial
of health care benefits. In some cases, plaintiffs may seek

                                      66
<PAGE>

substantial punitive damages. The loss of even one of these claims, if it
resulted in a significant punitive damage award, could adversely affect
RightCHOICE's financial condition or results of operations. The risk of
potential liability under punitive damage theories also may make reasonable
settlements of claims more difficult to obtain.

In addition, plaintiffs continue to bring new types of purported legal claims
against managed care companies such as RightCHOICE. RightCHOICE cannot determine
with any certainty the impact that these evolving theories of recovery may have
on the managed care industry in general, or on RightCHOICE or its subsidiaries
in particular.

RightCHOICE anticipates that it will have 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.

14.   Segment information

RightCHOICE operates in two segments which it defines as underwritten and self-
funded.  RightCHOICE's underwritten segment includes a comprehensive array of
products including PPO, POS, HMO, Medicare supplement, managed indemnity and
specialty managed care 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, and life
insurance agency services.  All of RightCHOICE's revenues, both underwritten
premiums and self-funded fees and other income, 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.  Expenses not directly traceable to an industry
segment are allocated on a consistent and reasonable basis utilizing membership,
groups, claims, and other key drivers.  Corporate identifiable assets by segment
include only receivables from members since RightCHOICE does not produce more
detailed information by segment internally.  Intersegment revenues are not
material.  Financial information by segment is as follows (in thousands):

<TABLE>
<CAPTION>
As of and for the year ended                 Underwritten       Self-funded       Consolidated
December 31, 1999                            ------------       -----------       ------------
<S>                                          <C>                <C>               <C>
Revenues................................       $732,595           $84,317            $816,912
Operating (loss) income.................         (4,394)           24,061              19,667
Depreciation and amortization expense...         11,720             5,495              17,215
Identifiable assets.....................         49,091            29,856              78,947
<CAPTION>
As of and for the year ended                 Underwritten       Self-funded       Consolidated
December 31, 1998                            ------------       -----------       ------------
<S>                                          <C>                <C>               <C>
Revenues................................       $694,678           $72,834            $767,512
Operating (loss) income.................        (23,056)           18,809              (4,247)
Depreciation and amortization expense...         13,779             5,555              19,334
Non-recurring operating charges.........            777               123                 900
Identifiable assets.....................         46,311            21,713              68,024
</TABLE>

                                      67
<PAGE>

<TABLE>

<CAPTION>
As of and for the year ended                 Underwritten        Self-funded      Consolidated
December 31, 1997                            ------------        -----------      ------------
<S>                                          <C>                 <C>              <C>
Revenues................................       $654,315           $65,096            $719,411
Operating (loss) income.................        (69,437)            8,437             (61,000)
Depreciation and amortization expense...         16,821             6,287              23,108
Charge for loss reserves................         29,510                                29,510
Other non-recurring operating charges...          2,190             1,111               3,301
Identifiable assets.....................         44,763            15,256              60,019
</TABLE>

The following table sets forth revenue (in thousands) by product group for the
years ended December 31, 1999, 1998, and 1997.  The ASO/self-funded and other
income category below includes $444, $191 and $48 of other income related to
RightCHOICE's underwritten segment for the years ended December 31, 1999, 1998
and 1997, respectively.

<TABLE>
<CAPTION>
                                                        For the year ended December 31,
                                                  --------------------------------------------
Product Group                                         1999            1998           1997
-------------                                         ----            ----           ----
<S>                                               <C>            <C>             <C>
  PPO:
   Alliance PPO.................................       $209,487        $191,855       $197,329
   AllianceCHOICE POS...........................        167,392         151,034        124,890
  HMO (includes other POS)......................        211,910         206,292        183,485
  Medicare supplement...........................         92,314          94,951         97,157
  Managed indemnity.............................          3,659           7,627         12,531
  Other specialty services......................         47,389          42,728         38,875
                                                       --------        --------       --------
     Total premium revenue......................        732,151         694,487        654,267
  ASO/Self-funded and other income..............         84,761          73,025         65,144
                                                       --------        --------       --------
     Total revenues.............................       $816,912        $767,512       $719,411
                                                       ========        ========       ========
</TABLE>

15.    Transactions with Blue Cross and Blue Shield of Missouri

Pursuant to an administrative services agreement, RightCHOICE provides certain
administrative and support services, including computerized data processing and
management information systems, telecommunication systems and accounting,
finance, legal, actuarial and other management services to Blue Cross and Blue
Shield of Missouri.  These expenses are allocated to and paid by Blue Cross and
Blue Shield of Missouri in an amount equal to the direct and indirect costs and
expenses incurred in furnishing these services.  In addition, RightCHOICE
provides services to Blue Cross and Blue Shield of Missouri, which include
health plan services, processing claims related to such plans, provider
contracting, market research and advertising, to be reimbursed on a basis that
approximates cost.

BCBSMo provides office space and parking to RightCHOICE pursuant to lease
agreements between the companies. The cost to RightCHOICE associated with these
leases comprises the majority of the expenses detailed below beside the caption,
"Services provided by BCBSMo." Management of RightCHOICE and of Blue Cross and
Blue Shield of Missouri consider the allocation methodologies and cost
approximations utilized to be reasonable and appropriate.

General and administrative expense excludes net intercompany charges allocated
to Blue Cross and Blue Shield of Missouri by RightCHOICE for the respective
periods, as follows:

                                      68
<PAGE>

                                                   Year ended December 31,
                                                   ----------------------
                                                1999       1998        1997
                                                ----       ----        ----
Services provided to BCBSMo..............     $16,798     $15,642    $12,792
Services provided by BCBSMo..............      (5,070)     (4,411)    (4,436)
                                              -------     -------    -------
  Net expense allocated to BCBSMo........     $11,728     $11,231    $ 8,356
                                              =======     =======    =======

RightCHOICE has intercompany receivables and payables between HALIC and BCBSMo,
which include $9.8 million of receivables and $3.4 million of payables related
to the BCBSMo transfer of all economic risks and rewards on certain insurance
policies originally issued by BCBSMo, pursuant to a reinsurance agreement.  In
addition, the intercompany receivables and payables include net intercompany
transactions for general and administrative expenses as well as intercompany tax
settlements, settled on a quarterly basis.  Additional amounts of receivables
and payables relate to RightCHOICE's cash management activity which is typically
settled on a monthly basis.

16.  Statutory information

The operations of RightCHOICE's 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 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
surplus of RightCHOICE's insurance and HMO subsidiaries was $111,482 and
$102,489 at December 31, 1999 and 1998, respectively. At December 31, 1999 and
1998, these subsidiaries were required to maintain a combined minimum of $51,111
and $57,451, respectively, of combined statutory surplus 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.

In 1998, the National Association of Insurance Commissioners adopted the
Codification of Statutory Accounting Principles guidance (the Codification),
which will replace the current Accounting Practices and Procedures manual as the
National Association of Insurance Commissioners' primary guidance on statutory
accounting.  The National Association of Insurance Commissioners is now
considering amendments to the Codification guidance that would also be effective
upon implementation. The National Association of Insurance Commissioners has
recommended an effective date of January 1, 2001.

                                      69
<PAGE>

The Codification provides guidance for areas where statutory accounting has been
silent and changes current statutory accounting in some areas. Management
believes that it is more likely than not that the Missouri and Illinois
legislatures will enact the Codification. RightCHOICE has not estimated the
potential effect of the Codification guidance if adopted.

17.    Quarterly financial information (unaudited)
       (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                                    Three months ended
                                                                    ------------------
1999                                               31-Mar         30-Jun         30-Sep         31-Dec
----                                               ------         ------         ------         ------
<S>                                                <C>            <C>            <C>            <C>
Total revenues................................      $200,013       $199,211       $204,503       $213,185
Operating expenses............................       195,411        194,664        199,294        207,876
Operating income..............................         4,602          4,547          5,209          5,309
Investment income, net........................         3,475          2,787          3,076          3,513
Other, net....................................          (760)          (693)        (1,216)        (1,456)
Income before taxes...........................         7,317          6,641          7,069          7,366
Provision for income taxes....................         2,640          2,734          3,064          2,739
Net income....................................      $  4,677       $  3,907       $  4,005       $  4,627
                                                    --------       --------       --------       --------
Basic and diluted earnings per share..........         $0.25          $0.21          $0.21          $0.25
                                                    --------       --------       --------       --------
Weighted average shares outstanding...........        18,673         18,673         18,673         18,673
                                                    --------       --------       --------       --------
Membership (in thousands).....................         2,140          2,208          2,235          2,286
                                                    --------       --------       --------       --------
</TABLE>

<TABLE>
<CAPTION>
                                                                    Three months ended
                                                                    ------------------
1998                                               31-Mar         30-Jun         30-Sep         31-Dec
----                                               ------         ------         ------         ------
<S>                                                <C>            <C>            <C>            <C>
Total revenues................................      $191,852       $191,818       $189,804       $194,038
Operating expenses............................       193,101        192,433        192,384        193,841
Operating (loss) income.......................        (1,249)          (615)        (2,580)           197
Investment income, net........................         4,372          3,984          5,062          5,251
Other, net....................................        (1,065)        (1,237)        (1,204)        (1,412)
Income before taxes...........................         2,058          2,132          1,278          4,036
Provision for income taxes....................         1,090            930            763          1,061
Net income....................................      $    968       $  1,202       $    515       $  2,975
                                                    --------       --------       --------       --------
Basic and diluted earnings per share..........         $0.05          $0.06          $0.03          $0.16
                                                    --------       --------       --------       --------
Weighted average shares outstanding...........        18,672         18,672         18,672         18,673
                                                    --------       --------       --------       --------
Membership (in thousands).....................         1,998          2,013          2,092          2,123
                                                    --------       --------       --------       --------
</TABLE>

                                      70
<PAGE>

                       Report of Independent Accountants

To the Shareholders 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 shareholders' 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, 1999 and 1998, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States.  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
generally accepted auditing standards in the United States, 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
St. Louis, Missouri
February 9, 2000, except for Note 13
for which the date is March 9, 2000

                                      71
<PAGE>

                       Report of Independent Accountants


To the Shareholders 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 71 of this Form 10-K/A. In connection with our audit of
such financial statements, we have also audited the related financial statement
schedules listed in Item 8 on page 18 of this Form 10-K/A.

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


/s/ PricewaterhouseCoopers LLP
St. Louis, Missouri
February 9, 2000, except for Note 13
for which the date is March 9, 2000

                                      72
<PAGE>

                                                                      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, 1999 and 1998, and the condensed statements of income and
cash flows for the years ended December 31, 1999, 1998 and 1997 are as follows
(certain reclassifications have been made to the condensed financial statements
for 1997 and 1998 to conform to the 1999 presentation):

                                 Balance Sheets
                (in thousands, except shares and per share data)

<TABLE>
<CAPTION>
                                                                                    December 31,
                                                                              1999               1998
                                                                              ----               ----
<S>                                                                         <C>               <C>
                         ASSETS
                         ------
Cash..............................................................          $  4,877          $  2,998
Investments available for sale, at market value...................               560             4,703
Investments in affiliates (2).....................................           198,086           189,515
Property and equipment, net.......................................             3,683             5,941
Receivables from affiliates (1)...................................           147,931           136,042
Income taxes receivable, net......................................             2,627             7,268
Other assets......................................................             7,170             7,271
                                                                            --------          --------
   Total assets...................................................          $364,934          $353,738
                                                                            ========          ========
               LIABILITIES AND SHAREHOLDERS' EQUITY
               ------------------------------------
Accounts payable and accrued expenses.............................          $ 25,908          $ 23,707
Payables to affiliates (1)........................................           117,980           111,431
Obligations for employee benefits.................................            28,396            27,292
Long-term debt, including current portion.........................            34,063            43,063
Obligations under capital leases..................................             1,044             2,371
                                                                            --------          --------
   Total liabilities..............................................           207,391           207,864
                                                                            --------          --------
Shareholders' equity:
   Preferred stock, $.01 par, 25,000,000 shares authorized,
       no shares issued and outstanding...........................
   Common stock:
      Class A, $.01 par, 125,000,000 shares authorized,
        3,737,500 shares issued, 3,710,653 and 3,710,426
        shares outstanding, respectively..........................                37                37
      Class B, convertible, $.01 par, 100,000,000 shares
        authorized, 14,962,500 shares issued and outstanding......               150               150
   Additional paid-in capital.....................................           132,634           132,635
   Retained earnings..............................................            29,529            12,313
   Treasury stock, 26,847 and 27,074 class A shares,
    respectively, at cost.........................................              (380)             (383)
   Accumulated other comprehensive (loss) income..................            (4,427)            1,122
                                                                            --------          --------
   Total shareholders' equity.....................................           157,543           145,874
                                                                            --------          --------
   Total liabilities and shareholders' equity.....................          $364,934          $353,738
                                                                            ========          ========
</TABLE>

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

(1) The majority of these intercompany amounts are eliminated in the
Consolidated Financial Statements with the remaining amounts explained in Note
15 of the Notes to Consolidated Financial Statements.

(2) As of December 31, 1999 and 1998, $192,181 and $183,786, respectively, is
eliminated in the Consolidated Financial Statements.

                                      73
<PAGE>

                                                                      Schedule I
                                                                   (Page 2 of 3)

                         RIGHTCHOICE MANAGED CARE INC.
                        CONDENSED FINANCIAL INFORMATION

                              Statements of Income
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                     Year ended December 31,
                                                         1999                 1998                 1997
                                                    ---------------      --------------      ----------------
<S>                                                 <C>                  <C>                 <C>
Revenue
  Reimbursement from affiliates (1)...............        $107,642            $108,972             $ 116,380
  Dividends from affiliates (1)...................           7,300              15,203                13,813
                                                          --------            --------             ---------
Total revenue.....................................         114,942             124,175               130,193
Expense
  General and administrative......................         113,762             111,828               118,920
                                                          --------            --------             ---------

Operating income..................................           1,180              12,347                11,273

Investment income and other.......................           2,550               3,895                 4,802
Interest expense..................................          (3,713)             (4,223)               (4,418)
                                                          --------            --------             ---------

Income before equity in undistributed income (loss)
of subsidiaries and income tax (benefit) provision              17              12,019                11,657

Equity in undistributed income (loss) of
subsidiaries (1)..................................          14,321              (6,221)              (36,477)
                                                          --------            --------             ---------

Income (loss) before taxes........................          14,338               5,798               (24,820)

Income tax (benefit) provision....................          (2,878)                138                  (786)
                                                          --------            --------             ---------

Net income (loss).................................        $ 17,216            $  5,660              ($24,034)
                                                          ========            ========             =========
</TABLE>

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

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

                                      74
<PAGE>

                                                                      Schedule I
                                                                   (Page 3 of 3)

                         RIGHTCHOICE MANAGED CARE, INC.
                        CONDENSED FINANCIAL INFORMATION
                            Statements of Cash Flows
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                               Year ended December 31,
                                                                    1999                1998                 1997
                                                                    ----                ----                 ----
<S>                                                                <C>                <C>                  <C>
Cash flows from operating activities:
Net income (loss)........................................          $ 17,216           $  5,660             ($24,034)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
   Equity in undistributed (income) loss
    of subsidiaries......................................           (14,321)             6,221               36,477
   Depreciation..........................................             1,851              2,505                4,264
   Loss on sale of property and equipment................               805
   Gain on sale of investments...........................                                 (794)              (1,671)
   Accretion of discounts and
    amortization of premiums.............................                 1                (19)                (170)

(Increase) decrease in:
   Receivables from affiliates...........................           (11,889)           (89,887)             (30,444)
   Income taxes receivable, net..........................             4,532             (7,069)
   Other assets..........................................               277             (5,260)                (141)
Increase (decrease) in:
   Accounts payable and accrued
     expenses............................................             2,316              3,657               (1,755)
   Payables to affiliates................................             6,549             74,343               22,306
   Obligations for employee benefits.....................             1,104              2,218                  562
   Income taxes payable, net.............................                              (14,425)                 991
                                                                   --------           --------            ---------

Net cash provided by (used in) operating activities......             8,441            (22,850)               6,385
                                                                   --------           --------            ---------
Cash flows from investing activities:
   Investments purchased.................................              (427)            (4,845)             (14,970)
   Investments sold or matured...........................               425              5,661               35,940
   Investments purchased, sold or transferred
     from/to affiliates, net.............................             4,163             17,773
   Decrease (increase) in investment in affiliates.......                                3,256                 (814)
   Property and equipment purchased, sold or
     transferred from/to affiliates, net.................               (32)              (427)               2,995
                                                                   --------           --------            ---------

Net cash provided by investing activities................             4,129             21,418               23,151
                                                                   --------           --------            ---------
Cash flows from financing activities:
   Payments of long-term debt............................            (9,000)            (3,937)             (15,000)
   Payments on capital lease obligations.................            (1,693)            (2,797)              (3,509)
   Sale (purchase) of class A treasury stock.............                 2                 16                  (78)
                                                                   --------           --------            ---------
Net cash used in financing activities....................           (10,691)            (6,718)             (18,587)
                                                                   --------           --------            ---------

Net increase (decrease) in cash and cash equivalents.....             1,879             (8,150)              10,949
Cash and cash equivalents, beginning of year.............             2,998             11,148                  199
                                                                   --------           --------            ---------
Cash and cash equivalents, end of year...................          $  4,877           $  2,998            $  11,148
                                                                   ========           ========            =========
Supplemental Schedule of Noncash Investing
   And Financing Activities:
Equipment acquired through capital leases................          $    582                               $   4,001
Disposal of equipment under capital leases...............               216           $     43
</TABLE>


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

                                      75