<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                                 WASHINGTON, D.C.  20549
                                    FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For fiscal year ended DECEMBER 31, 2000

                                     OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period from ________ to ________

Commission file number 1-13340

Mid Atlantic Medical Services, Inc.
(Exact name of registrant as specified in its charter)

Delaware                                             52-1481661
(State or other jurisdiction of                   (I.R.S. Employer
incorporation or organization)                    Identification No.)

4 Taft Court, Rockville, Maryland                      20850
(Address of principal executive offices)             (Zip Code)

(301) 294-5140
(Registrant's  telephone  number,  including  area code)  Securities  registered
pursuant to Section 12(b) of the Act:
                                            Name of Each Exchange
Title of Each Class                          on Which Registered
-------------------                         ---------------------
Common Stock, $0.01 par value               The New York Stock
  per share.                                  Exchange, Inc.

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 [ ].

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation S-K (Sec.  229.405 of this chapter) is not contained  herein,  and
will not be contained,  to the best of the 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.
[  ]

Aggregate  market  value  of  voting  and  non-voting   common  equity  held  by
non-affiliates computed by reference to the price at which the common equity was
sold,  or the average  bid and asked price of such common  equity as of March 2,
2001: Approximately $756 million.

                      APPLICABLE ONLY TO CORPORATE REGISTRANTS:
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
                 48,097,422 shares of common stock as of March 2, 2001






<PAGE>



                                            DOCUMENTS INCORPORATED BY REFERENCE

The Proxy  Statement for the  Registrant's  annual meeting of shareholders to be
held on April 23, 2001 is  incorporated  by reference into Part III of this Form
10-K.

                                                                 2

<PAGE>



                               FORM 10-K

                                 INDEX

ITEM NO.   DISCLOSURE REQUIRED                                    PAGE

                                 PART I

Item 1     Business ..............................................   4
Item 2     Properties ............................................  15
Item 3     Legal Proceedings .....................................  15
Item 4     Submission of Matters to a Vote of Security Holders ...  15

                                 PART II

Item 5     Market for Registrant's Common Equity and Related
             Stockholder Matters ................................   16
Item 6     Selected Financial Data ..............................   17
Item 7     Management's Discussion and Analysis of Financial
             Condition and Results of Operations ................   18
Item 7A    Quantitative and Qualitative Disclosures About
             Market Risk ........................................   24
Item 8     Financial Statements and Supplementary Data ..........   25
Item 9     Changes in and Disagreements with Accountants on
             Accounting and Financial Disclosure ................   47

                                 PART III

Item 10    Directors and Executive Officers of the Registrant ...   48
Item 11    Executive Compensation ...............................   48
Item 12    Security Ownership of Certain Beneficial Owners
             and Management .....................................   48
Item 13    Certain Relationships and Related Transactions .......   48

                                 PART IV
Item 14    Exhibits, Financial Statement Schedules
             and Reports on Form 8-K ............................   49










                                                                 3

<PAGE>



                                     PART I

ITEM 1. BUSINESS

Mid Atlantic Medical Services, Inc. is a holding company for subsidiaries active
in managed health care and other life and health insurance  related  activities.
Mid Atlantic  Medical  Services,  Inc. and its  subsidiaries  (the  "Company" or
"MAMSI")  offer a broad  range of  managed  health  care  coverage  and  related
ancillary insurance and other products and deliver these services through health
maintenance  organizations ("HMOs"),  preferred provider organizations ("PPOs"),
and a life and health insurance company.  MAMSI owns a home health care company,
a pharmaceutical  services company and a hospice company. The Company also has a
partnership interest in an outpatient surgery center.


GENERAL DEVELOPMENT OF BUSINESS

Mid Atlantic  Medical  Services,  Inc. was  incorporated  in Delaware in 1986 to
serve as a holding company for MD - Individual Practice Association, Inc. ("M.D.
IPA") and Physicians  Health Plan of Maryland,  Inc.  ("PHP-MD").  MAMSI made an
exchange offer for all of the issued and  outstanding  shares of common stock of
M.D. IPA and PHP-MD in 1987.

M.D. IPA, a Federally qualified HMO, was organized as a non-stock corporation in
1979. M.D. IPA operated as a non-profit  organization until 1985 when it amended
its articles of  incorporation  and was  reorganized  into a stock  corporation.

PHP-MD, an individual practice association ("IPA"), was organized as a non-stock
corporation in 1979 to provide  physician and other medical services to M.D. IPA
enrollees.  PHP-MD  operated  as a non-stock  organization  until it amended its
articles of incorporation and was reorganized into a stock corporation in 1984.

MANAGED HEALTH ORGANIZATIONS

MAMSI's primary  business is providing health care coverage through its HMOs and
its life and health insurance  company.  During 2000, MAMSI offered HMO coverage
through four licensed HMO  subsidiaries  - M.D.  IPA,  Optimum  Choice,  Inc.(R)
("OCI"), Optimum Choice of the Carolinas, Inc. ("OCCI") and Optimum Choice, Inc.
of  Pennsylvania  ("OCIPA")  (hereinafter  M.D. IPA, OCI, OCCI and OCIPA will be
collectively  referred to as the "HMOs" or "MAMSI  HMOs").  MAMSI  offers  life,
health, dental and short-term disability insurance through MAMSI Life and Health
Insurance Company ("MLH").

M.D. IPA became a licensed HMO in Maryland in 1981,  in the District of Columbia
in 1996,  and in  Virginia  in 1985.  M.D.  IPA's  present  service  area (which
includes all geographic areas in which the HMO received  regulatory  approval to
cover health care services) includes the entire state of Maryland,  the District
of Columbia  and most  counties  and cities in Virginia  including  the Northern
Virginia, Richmond/Tidewater and Roanoke areas ("HMO Service Area"). In addition
to serving governmental entities such as the U.S. Office of Personnel Management
under the Federal Employees Health Benefits Program, M.D. IPA generally provides
coverage to the larger commercial group market.

OCI, a  non-Federally  qualified HMO, became a licensed HMO in Maryland in 1988,
in the  District of Columbia in 1996,  in Virginia in 1990,  in Delaware in 1993
and in West Virginia in 1994.  OCI generally  serves small and large  employers.
OCI no longer covers Medicaid recipients.  OCI's present commercial service area
includes the entire states of Maryland, West Virginia and Delaware, the District
of Columbia, and most counties and cities in Virginia.




                                                                 4

<PAGE>



OCCI, a non-Federally  qualified HMO, became a licensed HMO in North Carolina in
1995 and South Carolina in 1996. OCCI services small and large employers. OCCI's
present  service  area  includes  certain  areas of  North  Carolina  and  South
Carolina. OCCI has yet to market its products in South Carolina.

OCIPA, a  non-Federally  qualified HMO, became a licensed HMO in Pennsylvania in
1996. OCIPA ceased all operations in Pennsylvania in 2000.

MLH, a life and  health  insurance  company,  is  licensed  in 31 states and the
District of Columbia and actively markets in the states in which the Company has
licensed  HMOs,   including  Maryland,   Virginia,   West  Virginia,   Delaware,
Pennsylvania,  North  Carolina  and  South  Carolina.  MLH  sells  group  health
insurance,  including  managed  indemnity,  PPO,  and  point of  service  health
products to large and small  employers  and  individuals.  MLH also sells dental
insurance  and  group  term  life  insurance  as well as  short-term  disability
insurance.

GENERAL

HMOs  typically  provide or arrange for the provision of  comprehensive  medical
services  (including  physician  and hospital  care) to  enrollees  for a fixed,
prepaid premium regardless of the amount of care provided.  Enrollees  generally
receive  care from  participating  primary  care  physicians  ("PCPs")  who,  as
required,  refer  enrollees to  participating  specialists  and hospitals.  HMOs
require enrollees to utilize  participating  physicians and other  participating
health care practitioners.

The goal of an HMO is to encourage  quality  health care and to facilitate  care
coordination designed to encourage the efficient, effective, and appropriate use
of health care services.  This includes monitoring physician services,  hospital
admissions  and  lengths  of  stay  and  maximizing  the   appropriate   use  of
non-hospital based medical services.

The  Company's  HMO  network of  physicians  and health  care  practitioners  is
organized as an Individual Practice  Association  ("IPA").  Under the IPA model,
the HMO contracts with a broadly  dispersed  group of physicians and health care
practitioners  to provide  medical  services to enrollees in the physicians' own
offices and in  hospitals;  the  physicians  and health care  practitioners  are
generally paid on a capitated or a negotiated fee maximum basis.  Physicians and
health  care  practitioners  may  contract  directly  with the HMO or  through a
designated organization that, in turn, contracts with the HMO.

MAMSI'S HMO PRODUCTS

MAMSI's HMOs offer a range of benefit plans for  providing  health care coverage
to enrollees.  Generally, enrollees arrange for coverage through their employer.
However, in certain circumstances, group enrollees can convert their coverage to
an individual contract upon separation from their employer. Employers may or may
not renew their HMO agreements annually.  Moreover,  within each employer group,
the HMO may or may not  experience  increases  or  decreases  in  enrollment  by
individual  enrollees.  MAMSI's  HMOs  also  offer  individual  coverage  to the
commercial market in some of their service areas.

Under  traditional  HMO  coverage,  the  enrollee  selects  a PCP from the HMO's
network of physicians and health care practitioners. For benefits to be covered,
an enrollee  must  generally  coordinate  care through the PCP.  Generally,  the
enrollee pays a copayment for all PCP and specialist  office visits and may also
be  required to pay a copayment  for  hospital  admissions  and  emergency  room
services.

Except in  emergencies,  enrollees must  coordinate care through their PCP which
generally  utilizes those  participating  professional and institutional  health
care physicians and practitioners that have contracted with the IPA (see further
discussion under "HMO Arrangements with Physician and Institutional  Health Care
Practitioners").


                                                                 5

<PAGE>



OCI,  M.D.  IPA and OCCI also  offer  point-of-service  coverage.  In this plan,
enrollees  have the choice of seeking care from the PCP or from any physician of
their choice  (point-of-  service  option).  Whenever care is provided under the
point-of-service  option and the  enrollee  visits a  physician  or health  care
practitioner outside of the HMO network, the plan generally covers the lesser of
80% of the requested  charges or 100% of the maximum  allowable  charges for the
service  provided.  The enrollee  may be  responsible  for the  remainder of the
charge.

Additionally,  MAMSI, through its subsidiaries,  offers hybrid products to large
employer groups. These products offer the ability to tailor employee health care
offerings by varying benefit designs, funding methods and insurance risk. Hybrid
products  generally  compete  in  the  so-called   "self-funded"  employer  plan
marketplace.  A typical  hybrid  product  combines the use of capitated  PCPs to
serve as care  coordinators and employer funding of specialist and institutional
claims  on an "as  paid"  basis.  For some  large  groups,  MAMSI,  through  its
subsidiaries,  OCI and MLH,  underwrites  the risk of loss on a specific  and/or
aggregate stop loss basis.

OCI  offered  HMO  coverage  to  recipients  of  Title  XIX  Medical  Assistance
("Medicaid")  in Virginia.  Effective May 1, 2000, the Company  transferred  its
membership  in  the  Virginia  Medicaid  program  to a  non-affiliated  carrier.
Therefore,  as of May 1,  2000,  the  Company  ended  its  participation  in any
government entitlement health insurance programs.

Under all coverage  options,  enrollees  receive the following  basic  benefits:
primary and specialist physician services;  hospital services such as diagnostic
tests, x-rays, nursing and maternity services;  outpatient diagnostic tests such
as laboratory  tests,  x-rays,  and allergy testing and  injections.  A pharmacy
benefit is provided under most coverage options.

MLH currently  underwrites the indemnity  coverage of the HMOs  point-of-service
plans,  except OCCI, in addition to offering  stand-alone  indemnity  (including
PPO) health and dental insurance, aggregate and specific stop loss insurance for
self-insured groups, and group life,  accidental death and short-term disability
policies.  In addition,  MLH provides an  administrative  services  only ("ASO")
product to the State of Maryland.  ASO business  consists of allowing  access to
MAMSI's network of physicians and health care  practitioners,  without PCPs, and
the  processing  and  payment of  claims.  MAMSI has no  insurance  risk on this
product.

The  Company's  total health plan  (managed  care full risk and hybrid,  ASO and
indemnity  health  insurance)  membership  in the  HMOs  and  MLH  increased  to
approximately 772,000 at December 31, 2000 from 766,000 at December 31, 1999, an
increase of .8 percent.

The following table sets forth information relevant to MAMSI's HMO and indemnity
health plans as of December 31, 2000:

Employer Groups Served              28,100
Population of Aggregate HMO
  Service Area                  20,200,000
HMO Service Area Penetration
  (All HMO's)                           25%
Primary Care Physicians              7,700
Specialist Physicians               22,800
Other Affiliated Health
  Care Practitioners                10,900
Hospitals and Outpatient
  Facilities                         2,300
Pharmacies                          21,300





                                                                 6

<PAGE>



A significant  portion of the Company's premium revenue is derived from Federal,
state and local government agencies. For the years ended December 31, 2000, 1999
and 1998,  approximately  8%, 8% and 11%,  respectively,  of premium revenue was
derived from Federal  government  agencies which is included in the Medicare and
Risk segments (as described in Item 8 "Financial  Statements  and  Supplementary
Data", Note 14), and approximately 14%, 18% and 18%,  respectively,  was derived
from Maryland and Virginia state and local  government  agencies  located in the
Company's  service area which is included in the Risk  segment (as  described in
Item 8 "Financial Statements and Supplementary Data", Note 14).

PREFERRED PROVIDER ORGANIZATION ("PPO")

MAMSI offers access to its preferred provider networks through two subsidiaries:
Alliance PPO, LLC,  ("Alliance")  and Mid Atlantic  Psychiatric  Services,  Inc.
("MAPSI").

PPOs allow enrollees to receive care from a network of participating  physicians
and health care  practitioners  who agree to provide  services at  contractually
negotiated  rates in exchange for increased  patient volume.  A PPO is different
than an HMO in that PPOs  allow  participants  the choice of using  health  care
physicians and  practitioners  outside of the PPO network.  The enrollee usually
has a financial  incentive to seek  services from a  participating  physician or
health care  practitioner  and can avoid higher  out-of-pocket  expenses such as
co-payments, coinsurance or deductibles that are applied when an out-of- network
physician or health care practitioner is used.

A PPO operates by being incorporated into an employer's current benefit program,
and offers  access to  physician,  hospital and facility  services,  utilization
management  and claims  screening and  re-pricing.  The employer  determines the
level  of  the  benefits,   eligibility   and  any  applicable   co-payments  or
deductibles.

Alliance does not assume any insurance risk from medical utilization,  and it is
not the claims  payor.  The payor can be a self-funded  employer,  a third party
administrator  (TPA), a Union Health  Benefits Trust Fund or a health  insurance
company.  In return for access to the PPO's network,  Alliance charges the payor
either a per  employee  rate or a  percentage  of the  savings of actual  claims
processed for the services accessed.  MAMSI PPOs provide access to substantially
the same network of physicians and health care practitioners as MAMSI HMOs.

Alliance is marketed  primarily to and through  insurance  companies,  insurance
brokers,  consultants,  third party administrators,  self-insured  employers and
union health and welfare trusts.  The advantages of this marketing  approach are
minimized  marketing  costs and maximized  market coverage  through  established
employer  relationships.  Alliance also works directly with employers and unions
that are self-insured and that use direct marketing  efforts.  Major competition
comes from other PPOs and insurance carriers.

As of December 31, 2000, Alliance had contracts with approximately 16,500 payors
that had access to the Company's  entire  network of physicians  and health care
practitioners.

MAPSI is comprised of physicians and health care  practitioners  specializing in
behavioral health and substance abuse care. Similar to Alliance,  MAPSI does not
assume any insurance  risk and MAPSI's  products are marketed  directly to TPAs,
self-insured groups, brokers,  consultants,  indemnity insurance plans and union
health and benefit trusts. In addition,  MAPSI contracts with indemnity insurers
that want to offer  groups a  managed  care  behavioral  health  product.  MAPSI
believes  it has a  competitive  advantage  with its  unique  behavioral  health
screening  process that offers the employer the benefit of enhanced  coordinated
treatment  for  employees  as well as  increased  cost  savings.  MAPSI's  major
competitors are ValueOptions,  Magellan,  and MCC, Inc. As of December 31, 2000,
MAPSI had a network of over 4,200 psychiatrists,  psychologists, social workers,
and other affiliated licensed behavioral health physicians and practitioners.



                                                                 7

<PAGE>



Alliance and MAPSI products are most often marketed  jointly and the prospective
purchaser  may  also  purchase  the  MAPSI  products  separately.   A  total  of
approximately  1,019,000  lives  are  covered  under  one or both of  these  PPO
products as of December 31, 2000.

PPOs are not subject to HMO  regulations by virtue of their  business.  However,
PPOs are subject to certain  state  regulations  governing  the provision of PPO
services such as mandatory  state  registration.  It is  reasonably  likely that
PPO's may be subject to increased regulatory oversight in the future.

OTHER PRODUCTS

In October, 1994, MAMSI acquired all of the outstanding stock of HomeCall,  Inc.
("HomeCall") and its wholly-owned subsidiary, FirstCall, Inc. ("FirstCall"), for
approximately  $10  million,  including  direct  expenses.  HomeCall  is a state
licensed,  Medicare  certified  home health agency.  The combined  operations of
HomeCall and FirstCall  include 17 branch  locations that serve virtually all of
Maryland, the District of Columbia,  Northern Virginia and the Panhandle area of
West Virginia. HomeCall achieved full accreditation from the Joint Commission on
Accreditation of Healthcare Organizations ("JCAHO"), following its survey of all
services in November,  1995. The Company achieved  reaccreditation  in November,
1998.

Also during 1994, the Company formed a home infusion and a specialty  injectable
drug  distribution  services company,  HomeCall  Pharmaceutical  Services,  Inc.
("HCPS"),  which received its pharmacy license in 1994, its Federal license from
the Drug Enforcement Agency in 1995, and JCAHO accreditation in 1995 and 1998.

HomeCall,  FirstCall and HCPS provide  services  that are  generally  lower cost
alternatives to  institutional  treatment and care. The Company believes that it
can  provide  better  care to its  members  and  reduce  its  medical  costs  by
substituting,  where  medically  appropriate,  in- home  medical  treatment  for
treatment in an institutional setting.

Medical  services  provided by  HomeCall,  FirstCall  and HCPS  include  skilled
nursing,  advanced  nursing  in  support of  infusion  therapy,  maternal/infant
nursing,  physical,  speech  and  occupational  therapy,  medical  social  work,
nutrition  consultation  and home health care aides.  Services  provided by HCPS
include a comprehensive range of in-home drug infusion  therapies,  the delivery
of  infusion-ready  drugs for physician  office based infusion  therapy and some
hospice services.

In November, 1996, the Company started HomeCall Hospice Services, Inc. ("HHSI"),
which  received its  Maryland  state  license to operate a general  hospice care
program on December 3, 1996 and its Virginia  hospice  license on June 26, 1998.
Based in  Columbia,  Maryland,  HHSI  was  organized  to  address  the  needs of
terminally  ill  patients  and their  families.  The  hospice  program  provides
services  to  individuals  in the  comfort  of their  homes.  HHSI  underwent  a
voluntary  accreditation  review by JCAHO in November,  1998 and  received  full
accreditation.

HHSI currently  serves the  Baltimore,  Washington,  D.C. and Northern  Virginia
metropolitan  areas. It is the goal of HHSI to extend its service  delivery area
to all  geographical  areas served by MAMSI.  The  addition of hospice  services
complements  MAMSI's other home care products by having a full range of services
available to its members.

In  addition  to  providing  in-home  medical  care  to the  Company's  members,
HomeCall, FirstCall, HHSI and HCPS continue to provide services to other payors,
including Medicare, insurance companies, other HMOs and individuals.

The Company also has an equity interest in an ambulatory  surgery center located
in Rockville,  Maryland.  The surgery  center  conducts  outpatient  surgery and
services to HMO enrollees and other patients.


                                                                 8

<PAGE>



A summary of MAMSI's membership enrollment in all product lines is as follows:

<TABLE>
<CAPTION>
                                MEMBERSHIP DATA AT DECEMBER 31
                               ---------------------------------
PRODUCT LINE                     2000        1999        1998
------------                   ---------------------------------
                                         (in thousands)
<S>                            <C>         <C>           <C>
Commercial HMO (1)               453.1        452.5        424.9
Hybrid HMO (2)                   103.4        100.4         99.4
Medicaid                             -         12.3         30.9
Medicare                             -            -          7.0
Indemnity                        206.2        189.5        157.5
ASO (3)                            9.3         11.0         11.0
                               -------      -------      -------
                                 772.0        765.7        730.7
PPO (4)                        1,019.3      1,024.0      1,060.0
                               -------      -------      -------
Total Membership               1,791.3      1,789.7      1,790.7
                               =======      =======      =======
</TABLE>

(1) Commercial HMO includes traditional HMO and point-of-service members.

(2) Hybrid  HMO  includes  any  business  that uses  MAMSI's  network  and PCPs,
utilization  management  services,  claims adjudication and payment services and
that has a self-funded  component.  Generally,  these products  include specific
and/or aggregate stop loss provisions.

(3) ASO  includes  administrative  services  only  business  without PCPs and no
assumption of insurance risk by any MAMSI affiliate.

(4) PPO includes all business  whereby  access is granted to MAMSI's  network of
physicians  and health care  practitioners.  MAMSI assumes no insurance risk and
does not provide claims payment services on this business.

HMO ARRANGEMENTS WITH PHYSICIAN AND INSTITUTIONAL HEALTH CARE PRACTITIONERS

M.D.  IPA and OCI  contract  with PHP-MD to provide  physician  and other health
practitioner  services to their enrollees.  The HMOs are ultimately  responsible
for  ensuring  that an  adequate  number of  physicians  and other  health  care
practitioners  are under  contract in order to provide  health care  services to
enrollees.

The Company  contracts  with primary care and specialist  physicians,  dentists,
social workers,  psychologists,  physical  therapists and podiatrists.  PCPs are
paid either a monthly  capitation  payment for each enrollee who has chosen that
PCP or a discounted  fee for service  payment.  The  capitation  payment  varies
according to the age and sex of the  enrollee and  according to the primary care
designation  of  the  physician  chosen  by  the  enrollee.   The  primary  care
designations  fall into one of two  types:  (1)  family  and  general  practice,
pediatrics and internal medicine, and (2) obstetrics and gynecology.

The  HMOs  have  contractual   arrangements  with  a  combined  total  of  2,300
facilities, consisting of 300 hospitals and 2,000 non-hospital facilities, as of
December 31, 2000.  These  facilities  are located in the  Company's HMO Service
Area. Contracts with facilities are renewable annually.

HMO ARRANGEMENTS FOR OTHER SERVICES

The HMOs also contract with a number of entities to arrange for the provision of
other  services,   i.e.   emergency  care,  home  health  care,   pharmaceutical
assistance, laboratory testing and dental.


                                                                 9

<PAGE>



QUALITY ASSESSMENT AND OPERATIONS

MAMSI maintains a multi disciplinary  approach to its Quality Improvement ("QI")
Program to ensure the  provision of quality  health care and services to its HMO
enrollees in an appropriate and cost-efficient manner.

MAMSI  recognizes  the  importance  of a QI Program to  determine  and  allocate
appropriate  resources  that will have the greatest  impact for members.  The QI
Program  is  designed  to meet  and  serve  the  needs  of  employers,  members,
physicians  and health  care  practitioners  as well as to  monitor  timeliness,
appropriateness and effectiveness of services via ongoing and systematic reviews
of key  indicators  and  aspects of care and  service.  The QI Program  conducts
member  satisfaction  surveys,  identifies  opportunities  for  improvements  in
providing care, adopts strategies to improve outcomes and monitors  improvements
to report progress.

MAMSI's  HMO and PPO  Network QI  Committees  operate  under the  direction  and
oversight of MAMSI's Board of Directors and include administrative, clinical and
health care  practitioner  representation.  Each  Committee  evaluates  numerous
quality  related  issues and outcomes  measuring  overall  services  provided to
enrollees.

In addition,  MAMSI utilizes  several quality review  mechanisms.  Physician and
health care practitioner applications are reviewed by a Credentials Committee in
order to determine whether the applicant meets MAMSI's criteria, including board
certification or eligibility.

MAMSI  maintains  a physician  review  process to  determine  whether the needed
levels of medical  service are being provided in a timely and efficient  manner.
The Company  conducts  medical  reviews to monitor the quality of care provided.
The Company also monitors  hospital and out- of-plan referrals issued by primary
care physicians.

In most  situations,  prior  authorization  must be obtained  for  non-emergency
hospital  admissions.  Failure to secure prior  authorization  for non-emergency
hospital  admissions  of enrollees  may cause  claims to be denied,  and in some
situations,   practitioners   may  be   sanctioned.   Prior  to  admission   for
non-emergency  hospital  services,  MAMSI applies  certain  medical  criteria to
authorize the admission.

After  admission  of an HMO  enrollee,  MAMSI  monitors  the course of  hospital
treatment  and  coordinates  discharge  planning with the physician and hospital
utilization  department.  The  clinical  care  coordination  staff  works with a
physician  during the course of treatment.  If the physician  needs to extend an
enrollee's  stay beyond the  expected  length of stay,  the  physician  provides
medical  justification  for the  necessity of such  proposed  action in order to
obtain specific approval.

The HMOs have  established  a grievance  procedure  to respond to  enrollee  and
practitioner  complaints.  Persons  covered  by HMOs are given a right to seek a
fast and fair review of adverse  utilization review decisions,  first internally
by a medical  director of the HMO and then in certain states,  by an independent
review  organization  or by a State  regulator.  Enrollees are encouraged to use
this procedure. There is a similar grievance procedure for physician complaints.

M.D. IPA  received  Excellent  Accreditation  from the  National  Committee  for
Quality Assurance ("NCQA") for its commercial HMO and POS products. OCI received
Commendable Accreditation from NCQA for its commercial HMO and POS products.

The Company's  home health care,  home infusion,  and home hospice  subsidiaries
underwent  voluntary  reaccreditation  review by JCAHO in November,  1998.  Full
accreditation status was awarded as a result of this process.




                                                                 10

<PAGE>



COMPETITION AND MARKETING STRATEGY

The  health  care  industry  is  characterized  by  intense  competition.  MAMSI
recognizes the possibility that other entities with greater  resources may enter
into  competition  with  MAMSI  in the  future  by  either  entering  its HMO or
indemnity service area or by designing alternative health care delivery systems.
HMOs  compete not only with other HMOs and managed care  organizations,  such as
physician and health care practitioner  sponsored  organizations,  but also with
insurance companies that offer indemnity insurance products.

MAMSI's  HMOs  compete  with a  significant  number  of  HMOs or  other  prepaid
alternative  health  care  delivery  systems  that have a  presence  in  MAMSI's
significant  service  areas  (Maryland,  Virginia,  the District of Columbia and
North  Carolina).  The following  table sets forth MAMSI's best estimate of 2000
enrollment of HMOs operating in its significant service areas.

<TABLE>
<CAPTION>
                                                              Approximate
                                                                 Number
Insurer/HMO                                                    of Members
-------------                                                 ------------
<S>                                                           <C>
AETNA/U.S. Healthcare***.......................                  672,000
Mid Atlantic Medical Services, Inc.* ..........                  576,000
Kaiser Permanente Health Plan .................                  552,000
United Healthcare .............................                  518,000
Cigna Healthcare...............................                  478,000
FreeState Health Plan** .......................                  425,000
Partners Healthplan of North Carolina..........                  309,000
Trigon ........................................                  278,000
Optima ........................................                  229,000
Blue Cross/Blue Shield of North Carolina.......                  124,000

</TABLE>

Source: The InterStudy Competitive Edge - 10.2

* - Includes members covered by the Company's HMOs only.

** - This company is owned by Care First-Blue Cross/Blue Shield of Maryland.

*** - Includes Prudential membership.

MAMSI's  HMOs compete  with other HMOs and  insurance  companies on the basis of
price, network and range of services offered to enrollees.  PHP-MD competes with
the same entities and with other IPAs for physician  services.  PHP-MD  believes
that  its  capitation  payments  to PCPs  and the fee for  service  payments  to
specialists  are  competitive  with other HMOs.  MAMSI believes that the freedom
IPA-model  HMOs offer  their  enrollees  in  choosing  from a greater  number of
physicians  constitutes a competitive  advantage over group or staff model HMOs.
The ability to retain and attract enrollees will depend, in part, on how present
enrollees  assess  their  benefit  packages,  quality  of  service,  network  of
physicians and health care practitioners,  rates and the HMOs' responsiveness to
enrollee needs.

MAMSI subsidiaries employed  approximately 268 full-time individuals who provide
marketing  services for the Company's  products as of December 31, 2000. MAMSI's
marketing strategy includes  identifying and contacting employers in its Service
Area. In addition,  the Company  employs  prospecting,  telemarketing,  employer
group consultation, referrals by consultants, and the use of a minimum number of
selected brokers to acquire new accounts. Since 1994, the Company's strategy has
included  reducing  the use of brokers for new  business  while  increasing  its
internal sales force.





                                                                 11

<PAGE>



RISK MANAGEMENT

With the exception of certain small group markets and other markets regulated by
Federal and/or state law, OCI uses  underwriting  criteria as a part of its risk
management  efforts.  Underwriting  is the  process  of  analyzing  the  risk of
enrolling employer groups in order to establish an appropriate premium rate.

The  Company  maintains  professional,   directors  and  officers,   errors  and
omissions, general liability and property insurance coverage in amounts believed
to be  adequate.  The  Company  requires  participating  hospitals  to  maintain
professional  liability coverage and physicians to have malpractice insurance. A
professional  liability  insurance  policy  provides  coverage in the event that
legal  action is taken  against  any entity as a result of  medical  malpractice
committed by a physician.

In addition,  MAMSI's HMOs reduce the financial impact of catastrophic losses by
maintaining  reinsurance coverage for hospital costs. The reinsurer  indemnifies
either 90% of the approved per diem or fixed charge per procedure, or 80% of the
eligible  in and out of service  area acute care  medical  expenses in excess of
$200,000  per  enrollee  per year up to a  lifetime  maximum  of  $2,000,000  in
eligible  medical  costs  with no more than  $1,000,000  in any given  year,  or
$5,000,000  for  certain  PPO members  who have an  unlimited  lifetime  maximum
benefit. MLH reduces the financial impact of life and accidental death claims by
maintaining reinsurance coverage for settlement costs. The reinsurer indemnifies
all settlements in excess of $50,000 per person,  subject to a $950,000  maximum
recovery  per person for life  claims and  $1,000,000  per person on  accidental
death claims.

GOVERNMENT REGULATION

MAMSI's  HMOs and MLH are  subject  to state  and,  in some  instances,  Federal
regulation.  Among the areas  regulated  are:  (i) premium  rate  setting;  (ii)
benefits provided; (iii) marketing;  (iv) physician and health care practitioner
contracts; (v) quality assurance and utilization review programs; (vi) adherence
to   confidentiality   and  medical  records   requirements;   (vii)  enrollment
requirements;  (viii) financial reserves and other fiscal solvency requirements;
(ix) appeals and grievances;  (x) class adjudication processes; and (xi) privacy
and confidentiality of member personally identifiable information.

Under  applicable  law,  HMOs  must  generally  provide  services  to  enrollees
substantially  on a fixed,  prepaid basis without regard to the actual degree of
utilization  of  services.  The  HMOs  generally  fix the  premiums  charged  to
employers  for a 12 month  period and revise the premium with each  renewal.  In
setting  premiums,  the HMOs forecast health care utilization rates based on the
relevant  demographics and also consider competitive  conditions and the average
number of enrollees in the employer group.  In addition to these  premiums,  HMO
enrollees also make co-payments to physicians and health care practitioners.

Although premiums established may vary from account to account through composite
rate  factors and  special  treatment  of certain  broad  classes of  enrollees,
Federal regulations generally prohibit Federally qualified HMOs from traditional
experience  rating of accounts on a  retrospective  basis.  Consistent  with the
practices of other Federally qualified HMOs, M.D. IPA, in some situations, bases
the  premiums  it  charges  employers  in part on the  age,  sex and  geographic
location of the enrolled  employees.  M.D.  IPA  believes  that its premiums are
competitive  with other HMOs and health  insurers  and its health  coverage is a
better  value  for  members  because  of the  range of  physician  and  hospital
selection and other benefits provided.








                                                                 12

<PAGE>



M.D. IPA contracts with the Office of Personnel Management ("OPM") to provide or
arrange health  services under the Federal  Employees  Health  Benefits  Program
("FEHBP"). The contract with OPM and applicable government regulations establish
premium rating  requirements for the FEHBP. The premiums  established  under the
OPM contract are subject to periodic  review and audit to determine if they were
established in compliance with the community rating and other requirements under
the FEHBP.  The results of these audits  could  result in material  adjustments.
Through  1999,  OPM's review of the Company's  premium rates has been  completed
during  the  year  for  which  the  rates  were in  effect  without  significant
modification. OPM has not yet reviewed 2000.

MAMSI's HMOs must file periodic reports with, and are subject to periodic review
by  state  regulatory  authorities.  Although  MAMSI's  HMOs  are not  regulated
specifically as insurance companies, they must comply with certain provisions of
state  insurance  laws as well as other laws  specifically  enacted to  regulate
HMOs, such as minimum net worth and deposit requirements.

MLH is subject to  regulation  by the  department  of insurance in each state in
which it is licensed.  These regulations  subject MLH to extensive review of the
terms,  administration  and marketing of insurance  products offered and minimum
net worth  and  deposit  requirements.  In  addition,  MLH is  required  to file
periodic reports and is subject to periodic audits and continuing oversight. The
offering  of  certain  new  insurance  products  may  require  the  approval  of
regulatory agencies.

The Company's home health care  subsidiaries  are regulated  principally in four
areas:  home health care licensing;  certification  for participation in private
insurance and government reimbursement programs;  employee licensor and training
requirements;  and Federal occupational safety guidelines.  The Company believes
that  it is  in  compliance  with  all  applicable  regulations,  which  include
possessing  the  required  Certificates  of Need in all  locations in which such
certificates are required.  Additionally, the Company's pharmacy businesses have
obtained the necessary licenses and permits to operate.

MAMSI's  customers include employee health benefit plans subject to the Employee
Retirement Income Security Act of 1974 ("ERISA"). To the extent that the Company
has  discretionary  authority in the operation of these plans, the Company could
be considered a plan fiduciary  under ERISA.  Plan  fiduciaries  are barred from
engaging in various prohibited  transactions,  including self-dealing.  They are
also required to conduct the operations of employee benefits plans in accordance
with each plan's terms.

Due to continued  concern about privacy,  the  accountability of health insurers
and HMOs, and the cost and availability of health care coverage, legislation has
been considered and is likely to be considered by the United States Congress and
the  legislatures  of the state in which  the  Company  operates  or may seek to
operate.

In 1997,  the "Health  Insurance  Portability  and  Accountability  Act of 1996,
Public Law 104- 191", commonly called "HIPAA" was enacted. This bill established
certain  requirements for insurers,  health maintenance  organizations and ERISA
plans  regarding  eligibility  rules  for  health  care  coverage.  The law also
included  Administration  Simplification  provisions to regulate and standardize
information  exchanges and  establish  standards for the privacy and security of
individually identifiable health information.

The four key areas of  Administration  Simplification  are: 1) Transactions  and
Code Sets, 2) Unique Identifiers, 3) Security, and 4) Privacy. The Department of
Health and Human Services (HHS) has published final  regulations on Transactions
and Code Sets and Privacy and expects final  regulations for Unique  Identifiers
and  Security in 2001.  These rules will apply to insurers,  health  maintenance
organizations, providers and ERISA plans and will effect the business operations
of these entities.



                                                                 13

<PAGE>



MLH,  MAMSI's  HMOs  and  HomeCall  are  in the  process  of  accessing  current
procedures and developing plans to comply with the Administration Simplification
provisions of HIPAA. The Company believes it has sufficient  internal  resources
to address those issues related to HIPAA compliance. If internal resources prove
to be insufficient, the Company will engage outside resources. The statements in
this  paragraph  regarding  the  future  effects  of HIPAA  are  forward-looking
statements. See "Forward-Looking Information" for a description of risk factors.
Forward-looking  information is included in Item 7 "Management's  Discussion and
Analysis of Financial Condition and Results of Operations" on page 18. MAMSI has
two  (2)  years  plus  two (2)  months  from  the  effective  date of the  final
regulations to comply.

State  legislatures  and the U.S.  Congress  continue  to  debate  and  consider
legislation  to amend civil tort law so as to expand  "enterprise  liability" to
insurers,  HMOs and ERISA plans as well as other health care reform initiatives.
Neither  Congress nor any state  legislature in MAMSI's service area has enacted
laws that would expand an insurer's or HMO's liability in tort action.

States in the  Company's  service area have enacted laws  regarding the internal
and external review of adverse  utilization review decisions.  Under these laws,
persons  covered by insurers or HMOs (subject to state  regulation)  are given a
right to seek a fast and fair review of these  decisions,  first internally by a
medical  director and then  externally  by an  independent  review  organization
and/or a state regulator.  Maryland, the District of Columbia,  Virginia,  North
Carolina, West Virginia and Pennsylvania have enacted such laws.

State  legislatures are considering a variety of proposals to increase access to
health care  coverage.  This includes  expanding the  eligibility  rules for the
Medicaid  Program  and tax  credits  for the  purchase  of group  or  individual
insurance.  The U.S. Department of Labor recently  promulgated claims processing
regulations  which establish  processing times for pre- service and post-service
claims and time frames for claims appeals.  While the regulations are consistent
with the Company's current  operations,  MLH and MAMSI's HMOs may need to modify
some  procedures to comply.  The State of Maryland has proposed  similar  claims
processing regulations that MLH and MAMSI's HMOs will comply with by March 2001.
These  regulations  establish a new  definition  for clean  claims,  specify the
attachments  insurers and HMOs may require with the original  claim  submission,
and establish areas where an insurer or HMO may request additional information.

The Company expects that continued  legislative  scrutiny of health insurers and
HMOs may lead to additional  legislative  initiatives.  The Company is unable to
predict the ultimate impact of any federal or state  restructuring of the health
care  delivery or  financing  systems,  but such  changes  could have a material
adverse impact on the operations and financial condition of the Company.

INVESTMENTS

The  majority  of the  Company's  investments  are held by its  state  regulated
subsidiaries  to  provide  capital  for those  subsidiaries'  operations  and to
satisfy capital,  surplus and deposit requirements of the HMO and insurance laws
of the various  states in which the Company is licensed.  HMO and insurance laws
generally  protect  consumers of insurance  products  with one of the  principal
focuses being on financial  solvency of the companies that underwrite  insurance
risk. These laws and regulations limit the types of investments that can be made
by the regulated  entities with appropriate  investments  being deemed "admitted
assets."  Admitted  assets are those assets that can be used to fulfill  capital
and surplus  requirements.  The Company's  current  investment  policy generally
prohibits  investments  that would be  "non-admitted"  for  statutory  reporting
purposes. The Company has no investments in derivative financial instruments and
has no current intention of owning such investments.





                                                                 14

<PAGE>



EMPLOYEES

As of December 31, 2000, the Company had a total of 2,825  employees,  including
2,461  full-  time  and  364  part-time  employees.  MAMSI's  home  health  care
subsidiary  employed 596 of these employees (380 on a full-time basis and 216 on
a part-time basis).  None of the Company's employees are covered by a collective
bargaining agreement and the Company has not experienced any work stoppage since
its inception.

TRADEMARKS

The  Company  has  federally  registered  the  right to use the  trademark  name
"Optimum Choice, Inc."

SEGMENT INFORMATION

Segment   information   is  included  in  Item  8  "Financial   Statements   and
Supplementary Data" on pages 44 thru 45.

ITEM 2. PROPERTIES

The Company owns seven office buildings, one of which is sublet. These buildings
are located in Rockville and Frederick, Maryland and total approximately 350,000
square feet of office and warehouse space. The Company's headquarters is located
at 4 Taft Court, Rockville, Maryland 20850.

In addition,  the Company  leases  approximately  206,000  square feet of office
space in  various  locations  within  its  service  areas to  support  sales and
administrative operations.

ITEM 3. LEGAL PROCEEDINGS

In September  2000, the Company and other HMOs operating in Maryland were served
with similar class action suits  challenging  the  constitutionality  of the law
which allows the Company to subrogate  against other  insurance  companies.  The
Company's action was filed in the Circuit Court for Montgomery County,  Maryland
which   recently   ruled  in  another   case  that  the   subrogation   law  was
constitutional. The Company believes that its operations with respect to the law
are valid.  However,  the  Company  is not able to  predict,  at this time,  the
ultimate outcome of this action.

The Company is involved in other  various  legal  actions  arising in the normal
course of  business,  some of which seek  substantial  monetary  damages.  After
review, including consultation with legal counsel,  management believes that any
ultimate liability that could arise from these other actions will not materially
effect the Company's consolidated financial position or results of operations.

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

There were no matters  submitted for  shareholder  vote in the fourth quarter of
2000.





                                                                 15

<PAGE>



                                     PART II

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

The Company's  common stock is currently  listed on The New York Stock Exchange,
Inc.  ("NYSE") under the trading symbol MME. The following  table sets forth for
the indicated  periods the high and low reported sale prices of the common stock
as furnished by the NYSE.

<TABLE>
<CAPTION>

                                     2000                     1999
                              -----------------        -----------------
                               HIGH        LOW          HIGH        LOW
                              -----------------        -----------------
<S>                           <C>        <C>           <C>        <C>

First Quarter                 $10.13     $ 7.63        $12.88     $ 7.81
Second Quarter                 13.75       9.00         11.31       7.00
Third Quarter                  16.13      12.63         10.25       8.25
Fourth Quarter                 21.25      15.44          9.62       5.37
</TABLE>

The Company has never paid any cash  dividends on its common stock and presently
anticipates  that no cash dividends will be declared in the foreseeable  future.
Any dividends  will depend on future  earnings,  the financial  condition of the
Company and regulatory  requirements.  See Note 12 to the Consolidated Financial
Statements.

On August 4, 2000, the Company's Stock Compensation Trust ("SCT") purchased from
the Company 2,000,000 shares of Mid Atlantic Medical Services, Inc. common stock
at a price of $14.375 for $20,000 in cash and  $28,730,000 in the form of a note
payable to the Company. The sale was exempt under Section 4(2) of the Securities
Act of 1933, as amended, ("1933 Act"). The SCT is used to meet grant obligations
of the Company's  stock option plans,  and the shares  issuable upon exercise of
these options are registered under the 1933 Act.

As of March 2, 2001 there were  approximately  716 stockholders of record of the
Company's common stock.


                                                                 16

<PAGE>



ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                              2000          1999          1998          1997          1996
                                           ----------    ----------    ----------    ----------    ----------
                                           (in thousands except share amounts, key ratios and operating data)

<S>                                        <C>           <C>           <C>           <C>           <C>
SELECTED INCOME STATEMENT DATA

Revenue                                    $1,484,479    $1,317,316    $1,187,901    $1,111,653    $1,133,742
Expense                                     1,427,721     1,277,486     1,175,665     1,090,213     1,138,677
Income (loss) before income taxes
  (benefit)                                    56,758        39,830        12,236        21,440        (4,935)
Net income (loss)                              39,406        26,322         9,045        14,489        (2,768)
Earnings (loss) per common share
Basic                                           $1.04         $0.64         $0.20         $0.31        ($0.06)
Diluted                                         $1.00         $0.64         $0.20         $0.31        ($0.06)
Weighted Average Shares
  Basic                                    38,052,746    41,225,327    45,407,006    46,273,484    45,978,864
  Diluted                                  39,341,037    41,266,604    45,473,995    46,885,666    45,978,864
Dividends                                       ---           ---           ---           ---           ---

SELECTED BALANCE SHEET DATA (AT DECEMBER 31)

Working capital                           $   153,539   $   118,995   $   123,138   $   128,065   $   118,870
Total assets                                  467,023       388,584       362,775       345,959       334,719
Long-term debt                                      -             -            14            74           134
Stockholders' equity                          225,990       186,821       191,218       208,307       184,400
Cash dividends per common share (1)             ---           ---           ---           ---           ---
KEY RATIOS
Medical care ratio                               86.5%         87.9%         88.8%         89.4%         92.4%
Administrative expense ratio                     12.1%         11.6%         11.3%         11.7%         10.7%
Net income margin                                 2.7%          2.0%          0.8%          1.3%          (.2%)
OPERATING DATA
Annualized hospital days per
  1,000 enrollees:
All products and health services (3)              244           238           265           297           331
HMO only (2)                                      192           191           191           192           203
Medicare (3)                                        -             -         2,425         2,566         2,698
Medicaid (3)                                        -           496           375           552           454
Annualized hospital admissions per
  1,000 enrollees (3)                              63            61            72            78            77
HMO, hybrid, ASO and indemnity
  health enrollees at year end                772,000       766,000       731,000       682,000       745,000
PPO enrollees at year end                   1,019,000     1,024,000     1,060,000     1,006,000       935,000
</TABLE>

Notes

1.  MAMSI has not declared or paid cash dividends on its common stock.

2. Days are presented exclusive of skilled nursing,  neonatal intensive care and
   psychiatric inpatient care.

3.  Days include acute and non-acute,  skilled nursing,  neonatal intensive care
    and psychiatric inpatient care. The Company ceased participation in Medicare
    in 1999 and Medicaid in 2000.


                                                                 17

<PAGE>


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

FORWARD-LOOKING INFORMATION

All forward-looking  information  contained in this Management's  Discussion and
Analysis  of  Financial   Condition  and  Results  of  Operations  is  based  on
management's  current knowledge of factors  affecting MAMSI's business.  MAMSI's
actual  results  may  differ  materially  if these  assumptions  prove  invalid.
Significant risk factors, while not all-inclusive, are:

1. The  possibility of increasing  price  competition  in the Company's  service
area.

2. The possibility  that the Company is not able to increase its market share at
the anticipated premium rates.

3. The possibility of increased  litigation,  legislation or regulation (such as
the numerous class action lawsuits that have been recently filed against managed
care companies and the pending  initiatives to increase health care  regulation)
that  might  increase  regulatory  oversight  which,  in  turn,  would  have the
potential for increased costs.

4.     The potential for increased medical expenses due to:
       -  Increased utilization by the Company's membership.
       -  Increased practitioner and pharmaceutical costs.
       -   Federal  or state  mandates  that  increase  benefits  or  limit  the
           Company's oversight ability.

5. The  possibility  that the  Company is not able to  negotiate  new or renewal
contracts  with  appropriate   physicians,   other  health  care  practitioners,
hospitals and facilities.

GENERAL

During the three year period ended  December 31, 2000,  the Company  experienced
modest membership  expansion.  While membership in certain products continues to
grow,  other  products have  decreased  when  compared to 1999.  The Company has
achieved  its overall  size by  continually  expanding  its product  lines which
include  point-of-service,  small group,  indemnity health,  hybrid products and
group term-life and through expansion into new geographic markets. Premium rates
during this time have remained at or near  competitive  levels for the Company's
marketplace.  During 2000, the Company's  consolidated  operating  margin showed
improvement  over  1999.  The  Company  achieved  2000's  results,  in part,  by
implementing  product price increases and reducing or eliminating  membership in
products or effectively  terminating groups that had the potential for continued
unprofitability.  The  Company  anticipates  that it will  continue  to increase
premium  rates  during  2001.   This  is  a   forward-looking   statement.   See
"Forward-Looking Information" above for a description of those risk factors.

The Company generally receives a fixed premium amount per member per month while
the majority of medical  expenses are  variable  and  significantly  affected by
spontaneous member utilization. Even with managed care controls, unusual medical
conditions  can occur,  such as an outbreak of influenza or a higher than normal
incidence of high cost cases (such as premature births,  complex  surgeries,  or
rare diseases).  As a result, the Company's  quarterly results can be materially
affected and irregular.  However,  over the longer business  cycle,  the Company
believes that its managed care control  systems,  underwriting  procedures (when
allowed) and network of physicians and health care  practitioners  should result
in continued profitability.





                                                                 18

<PAGE>



Due to continued  concern about privacy,  the  accountability of health insurers
and HMOs, and the cost and availability of health care coverage, legislation has
been considered and is likely to be considered by the United States Congress and
the  legislatures  of the states in which the  Company  operates  or may seek to
operate.

In 1997,  the "Health  Insurance  Portability  and  Accountability  Act of 1996,
Public Law 104- 191", commonly called "HIPAA" was enacted. This bill established
certain  requirements for insurers,  health maintenance  organizations and ERISA
plans  regarding  eligibility  rules  for  health  care  coverage.  The law also
included  Administration  Simplification  provisions to regulate and standardize
information  exchanges and  establish  standards for the privacy and security of
individually identifiable health information.

The four key areas of  Administration  Simplification  are: 1) Transactions  and
Code Sets, 2) Unique Identifiers, 3) Security, and 4) Privacy. HHS has published
final  regulations on  Transactions  and Code Sets and Privacy and expects final
regulations for Unique  Identifiers and Security in 2001. These rules will apply
to insurers,  health  maintenance  organizations,  providers and ERISA plans and
will effect the business operations of these entities.

MLH,  MAMSI's  HMOs  and  HomeCall  are  in the  process  of  assessing  current
procedures and developing plans to comply with the Administration Simplification
provisions of HIPAA. The Company believes it has sufficient  internal  resources
to address those issues related to HIPAA compliance. If internal resources prove
to be insufficient, the Company will engage outside resources. The statements in
this  paragraph  regarding  the  future  effects  of HIPAA  are  forward-looking
statements. See "Forward-Looking Information" for a description of risk factors.
MAMSI has two (2) years plus two (2) months from the effective date of the final
regulations to comply.

State  legislatures  and the U.S.  Congress  continue  to  debate  and  consider
legislation  to amend civil tort law so as to expand  "enterprise  liability" to
insurers,  HMOs and ERISA plans as well as other health care reform initiatives.
Neither  Congress nor any state  legislature  in the Company's  service area has
enacted laws that would expand an insurer's or HMO's liability in tort action.

States in the  Company's  service area have enacted laws  regarding the internal
and external review of adverse  utilization review decisions.  Under these laws,
persons  covered by insurers or HMOs (subject to state  regulation)  are given a
right to seek a fast and fair review of these  decisions,  first internally by a
medical  director and then  externally  by an  independent  review  organization
and/or a state regulator.  Maryland, the District of Columbia,  Virginia,  North
Carolina, West Virginia and Pennsylvania have enacted such laws.

State  legislatures are considering a variety of proposals to increase access to
health care  coverage.  This includes  expanding the  eligibility  rules for the
Medicaid  Program  and tax  credits  for the  purchase  of group  or  individual
insurance.  The U.S. Department of Labor recently  promulgated claims processing
regulations  which establish  processing times for pre- service and post-service
claims and time frames for claims appeals.  While the regulations are consistent
with the Company's current  operations,  MLH and MAMSI's HMOs may need to modify
some  procedures  to comply with these  regulations.  The State of Maryland  has
proposed  similar claims  processing  regulations that MLH and MAMSI's HMOs will
comply with by March 2001.  These  regulations  establish a new  definition  for
clean  claims,  specify the  attachments  insurers and HMOs may require with the
original  claim  submission,  and  establish  areas  where an insurer or HMO may
request additional information.

The Company expects that continued  legislative  scrutiny of health insurers and
HMOs may lead to additional  legislative  initiatives.  The Company is unable to
predict the ultimate impact of any federal or state  restructuring of the health
care  delivery or  financing  systems,  but such  changes  could have a material
adverse impact on the operations and financial condition of the Company.


                                                                 19

<PAGE>



-----------------------------------------------------------------------------
THE YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999
-----------------------------------------------------------------------------

RESULTS OF OPERATIONS

The  Company's  consolidated  net income for the year ended  December  31,  2000
increased to $39,406,000  from $26,322,000 for the year ended December 31, 1999.
Diluted  earnings per share  increased from $.64 in year ended December 31, 1999
to $1.00 for the year ended  December  31,  2000.  The  increase  in earnings is
attributable  to an  increase in premiums  per  member,  a reduction  in medical
expenses as a percentage  of health  premium  revenue  ("medical  care  ratio"),
offset somewhat by an increase in administrative expense. The Company has priced
its health products  competitively  in order to increase its membership base and
thereby  enhance  its  strategic  position  in its  market  place.  The  Company
currently has one of the largest HMO and managed care  enrollments  and also the
largest network of contract providers of medical care in its service area (which
includes the entire states of Maryland and  Delaware,  the District of Columbia,
most counties and cities in Virginia and certain areas of West  Virginia,  North
Carolina and Pennsylvania).

Revenue for the year ended  December  31, 2000  increased  approximately  $167.2
million or 12.7  percent  over the year ended  December  31, 1999. A 2.2 percent
increase in net average HMO and indemnity  enrollment resulted in an increase of
approximately  $27.1  million in health  premium  revenue  while a 10.5  percent
increase in average  monthly  premium per  enrollee,  combined for all products,
resulted in a $134.7  million  increase in health  premium  revenue.  Management
believes that  commercial  health  premiums should continue to increase over the
next  twelve  months  as  the  Company  continues  to  increase  its  commercial
membership  and as new and renewing  groups are charged higher premium rates due
to  legislatively  mandated  benefit  enhancements  and general price  increases
initiated   by  the  Company.   This  is  a   forward-looking   statement.   See
"Forward-Looking  Information"  for a  description  of the risk factors that may
affect health premiums per member.

The Company has implemented  increased  premium rates across  essentially all of
its commercial products. As the Company's contracts are generally for a one year
period,  increased  pricing  cannot be  initiated  until a contract  reaches its
renewal date.  Therefore,  price  increases  cannot be made across the Company's
membership at the same time.  Commercial  premium rate increases are expected to
continue in 2001 in the range of 9.5% to 10.5%.  Management  believes that these
rate  increases may have the effect of slowing the Company's  future  membership
growth. In addition,  management  reevaluated  premium  reimbursement rates with
regard to its Medicare and Medicaid programs. Specifically, effective January 1,
1999,  the Company  withdrew  from  participation  in the Medicare  program.  In
October, 1999, the Company withdrew from participation in the North Carolina and
West Virginia Medicaid programs.  Effective May 1, 2000, the Company transferred
its membership in the Virginia  Medicaid  Program to a  non-affiliated  carrier.
Therefore,  as of May 1,  2000,  the  Company  ended  its  participation  in any
government entitlement health insurance programs.

The  Company's  future  membership  growth  depends on several  factors  such as
relative premium prices and product availability,  future increases or decreases
in the Company's service area and increased competition in the Company's service
area.

The Company's home health  operations  contributed  $26.3 million in revenue for
the year ended  December  31, 2000 as compared  with $23.6  million for the year
ended  December  31,  1999  reflecting  an  increase  in  services  provided  to
non-affiliated  companies.  Life and short-term  disability products contributed
$8.0 million in revenue for the year ended  December  31, 2000 as compared  with
$8.2 million for the year ended December 31, 1999.





                                                                 20

<PAGE>



The medical care ratio decreased to 86.5 percent for the year ended December 31,
2000 as compared to 87.9 percent for the year ended  December 31, 1999. On a per
member per month basis,  medical expenses increased 8.8 percent. The decrease in
the medical care ratio is due to a combination of factors  including  continuing
efforts by the Company to implement product specific cost containment  controls,
continued  activity in specialized  subrogation areas and claims review for dual
health coverage, the Company's withdrawal from state Medicaid programs, and also
increased  premiums per member.  The ongoing  initiatives should help to control
the Company's  medical care ratio.  The medical  expense trend is expected to be
between  8.5%  and 9.5% for  2001.  The  statements  in this  paragraph  and the
preceding  paragraphs  regarding  future  utilization  rates,  cost  containment
initiatives,  total  medical  costs  and trend and  future  increases  in health
premiums  per  member  are  forward-looking   statements.  See  "Forward-Looking
Information"  above for a  description  of risk factors that may affect  medical
expenses per member and the medical care ratio.

Administrative  expenses as a  percentage  of revenue  ("administrative  expense
ratio") increased from 11.6 percent for the year ended December 31, 1999 to 12.1
percent for the year ended  December  31,  2000.  Management  believes  that the
administrative  expense  ratio  will  increase  modestly  in 2001.  Management's
expectation  concerning the  administrative  expense ratio is a  forward-looking
statement.  The  administrative  expense  ratio is affected by changes in health
premiums and other  revenues,  development of the Company's  expansion areas and
increased administrative activity related to business volume.

Investment  income  increased  $2.4  million  primarily  due to an  increase  in
investment securities balances.

The effective tax rate  decreased  from 33.9 percent for the year ended December
31, 1999 to 30.6 percent for the year ended  December 31, 2000  primarily due to
the increase in tax exempt income,  the  restructuring of certain  operations to
increase tax efficiency and the benefit from certain one-time tax credits.

The net margin rate  increased  from 2.0 percent for the year ended December 31,
1999 to 2.7 percent  for the year ended  December  31,  2000.  This  increase is
consistent with the factors described above.

-----------------------------------------------------------------------------
THE YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------------------------------

RESULTS OF OPERATIONS

The  Company's  consolidated  net income for the year ended  December  31,  1999
increased to $26,322,000  from  $9,045,000 for the year ended December 31, 1998.
Earnings per share  increased  from $.20 in year ended December 31, 1998 to $.64
for the year ended December 31, 1999.  The increase in earnings is  attributable
to an increase in premiums  per member,  a reduction  in the medical care ratio,
offset somewhat by an increase in administrative  expense. In addition, the 1998
results  include  a  non-recurring  item  related  to the  results  of an  audit
conducted in connection with the Company's participation in the FEHBP as well as
the effect of certain real estate sales and retirements of equipment.

Revenue for the year ended  December  31, 1999  increased  approximately  $129.4
million or 10.9 percent over the year ended  December 31, 1998.  Revenue for the
year ended  December 31, 1998 includes $5.7 million in gains related to the sale
of certain  Company  owned real  estate no longer  required  in its  operations.
Excluding  these gains,  year-over-year  revenue  increased 11.4 percent.  A 6.9
percent  increase  in net average HMO and  indemnity  enrollment  resulted in an
increase of  approximately  $77.5 million in health premium  revenue while a 4.3
percent  increase in average  monthly  premium per  enrollee,  combined  for all
products,  resulted in a $51.3 million increase in health premium  revenue.  The
increase in HMO and indemnity  enrollment is principally due to increases in the
Company's commercial membership.

                                                                 21

<PAGE>



The  Company's  home health  operations  contributed  $23.6 million for the year
ended  December  31,  1999 as  compared  with $20.0  million  for the year ended
December 31, 1998 reflecting an increase in services provided to companies other
than MAMSI.

The medical care ratio decreased to 87.9 percent for the year ended December 31,
1999 as compared to 88.8 percent for the year ended  December 31, 1998. On a per
member per month basis,  medical expenses increased 3.2 percent. The decrease in
the medical care ratio is due to a combination of factors  including  continuing
efforts by the Company to implement product specific cost containment  controls,
expanded  activity in specialized  subrogation  areas and claims review for dual
health coverage,  the Company's withdrawal from the Medicare program and certain
state Medicaid programs, and also increased premiums per member.

The  administrative  expense  ratio  increased  from 11.4  percent  (adjusted to
exclude the effect of real estate gains in revenue) for the year ended  December
31,  1998 to 11.6  percent  for the year ended  December  31,  1999.  Management
believes that the administrative expense ratio will increase modestly in 2000 as
additional  personnel with specialized medical and other expertise who were only
with the Company for part of 1999 are reflected for a full year.

Included in the  Company's  year-to-date  1998 results is a  $16,500,000  charge
related to an audit conducted by the Office of Inspector General  concerning the
Company's  participation  in the FEHBP for the years 1992 - 1997.  The  report's
findings  indicated  that in the years 1992 - 1994 the FEHBP was  charged  rates
that  exceeded the then market  price.  The report had no findings for the years
1995 - 1997.

Also  reflected in the  Company's  1998 results is a $4.8 million  write down of
certain  computer and computer related assets that the Company had identified as
being no longer of use and which were discarded or sold.

The net margin rate  increased  from .8 percent for the year ended  December 31,
1998 to 2.0 percent  for the year ended  December  31,  1999.  This  increase is
consistent with the factors described above.

LIQUIDITY AND CAPITAL RESOURCES

The  Company's  business  is not  capital  intensive  and  the  majority  of the
Company's  expenses are payments to  physicians  and health care  practitioners,
which  generally  vary in  direct  proportion  to the  health  premium  revenues
received by the Company.  Although medical utilization rates vary by season, the
payments for such expenses lag behind cash inflow from  premiums  because of the
lag in physician and health care practitioner  billing procedures.  In the past,
the Company's cash  requirements  have been met principally  from operating cash
flow  and it is  anticipated  that  this  source,  coupled  with  the  Company's
operating line-of- credit, will continue to be sufficient in the future.

The Company's  cash and investment  securities  increased from $206.2 million at
December 31, 1999 to $275.2  million at December 31, 2000,  primarily due to the
timing of medical expense payments which traditionally lag behind the receipt of
increased  premiums per member,  the Company's net income and cash received from
exercise  of stock  options  offset by the effect of treasury  stock  purchases.
Accounts  receivable  increased from $83.6 million at December 31, 1999 to $90.0
million at December 31, 2000, principally due to the timing of customer billings
and  payments  offset by payment  on  receivables  due from the  FEHBP.  Prepaid
expenses,  advances and other  decreased from $27.3 million at December 31, 1999
to $26.4  million at December 31, 2000 due to  collection  of income tax refunds
from prior  years  offset by an  increase in working  capital  advances  paid to
Maryland hospitals.






                                                                 22

<PAGE>



Net property and equipment  increased from $43.7 million at December 31, 1999 to
$47.2 million at December 31, 2000  primarily  due to build-out  and  renovation
costs  associated  with the  purchase  of a building,  for use in the  Company's
operations, in late December 1999.

Medical  claims  payable  increased  from $154.4 million at December 31, 1999 to
$178.7 million at December 31, 2000,  primarily due to increased  membership and
an increase in medical expenses per member.

Additional paid-in capital increased from $152.6 million at December 31, 1999 to
$296.3  million at December 31, 2000 due to an additional  2.0 million shares of
the  Company's  stock  being  placed into the SCT, as well as an increase in the
market  value of the shares of the  Company's  stock held in the SCT.  This also
accounts for the change in the SCT balance.

Treasury  stock  increased  from $104.1  million at December  31, 1999 to $135.6
million at December 31, 2000 due to the purchase of 2,836,900  additional shares
by the Company at a total cost of $31,521,000.

The Company  currently has access to total revolving credit  facilities of $29.0
million,  which is used to provide short-term capital resources for routine cash
flow  fluctuations.  At December 31, 2000,  approximately $3.0 million was drawn
against  these  facilities.  In  addition,  the Company  maintains a $12 million
letter of credit for the benefit of the North Carolina  Insurance  Department in
support  of the  operations  of MLH,  and a  $100,000  letter of credit  for the
Company's home health subsidiary. While no amounts have been drawn against these
letters of credit, they reduce the Company's credit line availability.

Following is a schedule of the  short-term  capital  resources  available to the
Company (in thousands):

<TABLE>
<CAPTION>
                                                          December 31,    December 31,
                                                             2000             1999
                                                         ------------     ------------
<S>                                                      <C>              <C>
Cash and cash equivalents                                $      5,047     $      3,725
Investment securities                                         270,127          202,522
Working capital advances to Maryland hospitals                 17,008           15,390
                                                          -----------      -----------
Total available liquid assets                                 292,182          221,637
Credit line availability                                       13,900           13,292
                                                          -----------      -----------
Total short-term capital resources                       $    306,082     $    234,929
                                                          ===========      ===========
</TABLE>

The Company  believes that cash generated from operations along with its current
liquidity and borrowing  capabilities  are adequate for both current and planned
operations.

The Company's major business  operations are principally  conducted  through its
HMOs and insurance  company.  HMOs and insurance  companies are subject to state
regulations  that,  among other things,  may require those companies to maintain
certain  levels of  equity,  and  restrict  the  amount of  dividends  and other
distributions that may be paid to their parent  corporations (See Note 12 to the
Consolidated Financial Statements).  As of December 31, 2000, those subsidiaries
of the Company were in compliance with all minimum capital requirements.





                                                                 23

<PAGE>



At its May 2000 Board meeting,  the Board of Directors  authorized a $20 million
stock repurchase program to begin  immediately.  The authorized program included
any unspent  funds  carried  forward from the October 1999  repurchase  program.
During the six months ended  September  30,  2000,  the Company  repurchased  an
additional   1,331,500   shares  of  its  common  stock  for  a  total  cost  of
approximately  $14.6 million.  At its October 2000 Board  meeting,  the Board of
Directors   authorized  a  $20  million  stock   repurchase   program  to  begin
immediately.  The authorized  program included any unspent funds carried forward
from the May 2000 repurchase program. During the three months ended December 31,
2000, the Company  repurchased an additional  399,400 shares of its common stock
for a total cost of approximately $7.2 million. During January 2001, the Company
repurchased an additional 504,900 shares of its common stock for a total cost of
approximately  $7.2 million.  At its February 2001 Board  meeting,  the Board of
Directors   authorized  a  $20  million  stock   repurchase   program  to  begin
immediately.  The newly  authorized  program  includes any unspent funds carried
forward from the October 2000 repurchase program.

MARKET RISK

The  Company is exposed  to market  risk  through  its  investment  in fixed and
variable rate debt securities that are interest rate sensitive. The Company does
not use derivative financial instruments.  The Company places its investments in
instruments  that  meet high  credit  quality  standards,  as  specified  in the
Company's  investment  policy  guidelines;  the policy also limits the amount of
credit exposure to any one issue, issuer, or type of instrument.  A hypothetical
ten  percent  change  in market  interest  rates  over the next  year  would not
materially impact the Company's financial position or cash flow. The Company has
no significant market risk with regard to liabilities.  Debt securities (most of
which are exempt from Federal  taxes) at December  31, 2000 mature  according to
their contractual terms as follows (in thousands):

<TABLE>
<CAPTION>

                                                                                           There-                 Fair Value
Assets                             2001       2002       2003        2004       2005       after        Total      12/31/00
------                          --------     ------    -------     -------    -------     -------     --------     --------
<S>                             <C>          <C>       <C>         <C>        <C>         <C>         <C>          <C>
Available-for-Sale Securities   $123,647     $5,682    $18,025     $ 6,974    $10,804     $95,092     $260,224     $263,330

Average Interest Rate              5.08%      4.66%      5.15%       4.89%      5.26%       4.80%

Held-to-Maturity                $  4,992     $  601    $ 3,802     $ 1,542    $   820     $ 2,840     $ 14,597     $ 14,845

Average Interest Rate              5.51%      5.16%      4.35%       5.39%      5.47%       6.70%
</TABLE>


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The  information  required  by  Item  305  of  S-K  is  contained  in  Item  7 -
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations".






                                                                 24

<PAGE>



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA             PAGE
                                                                 ----

Consolidated Balance Sheets as of December 31, 2000 and 1999.....  26

Consolidated Statements of Operations for the years ended
  December 31, 2000, 1999 and 1998...............................  27

Consolidated Statements of Changes in Stockholders' Equity
  for the years ended December 31, 2000, 1999 and 1998...........  28

Consolidated Statements of Cash Flows for the years ended
  December 31, 2000, 1999 and 1998...............................  29

Notes to Consolidated Financial Statements.......................  30

Report of Ernst & Young LLP Independent Auditors.................  46

Selected Quarterly Financial Data for Fiscal Years 2000 and
  1999 (Unaudited)...............................................  47

                                                                 25

<PAGE>



                                     Mid Atlantic Medical Services, Inc.
                                        Consolidated Balance Sheets
<TABLE>
<CAPTION>
                                                                                     December 31,
(in thousands except share amounts)                                              2000          1999
                                                                               --------      --------
<S>                                                                            <C>           <C>
ASSETS
Current assets
  Cash and cash equivalents                                                    $  5,047      $  3,725
  Investment securities                                                         270,127       202,522
  Accounts receivable, net                                                       89,954        83,623
  Prepaid expenses, advances and other                                           26,420        27,287
  Deferred income taxes                                                             850           381
                                                                               --------      --------
Total current assets                                                            392,398       317,538

Property and equipment, net                                                      47,222        43,668
Statutory deposits                                                               14,597        14,043
Other assets                                                                      9,793        10,357
Deferred income taxes                                                             3,013         2,978
                                                                               --------      --------
    Total assets                                                               $467,023      $388,584
                                                                               ========      ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
  Notes payable                                                                $      -      $     14
  Short-term borrowings                                                           3,000         3,558
  Accounts payable                                                               37,841        21,980
  Medical claims payable, net                                                   178,685       154,403
  Deferred premium revenue                                                       18,494        16,949
  Deferred income taxes                                                             839         1,639
                                                                               --------      --------
Total current liabilities                                                       238,859       198,543
Deferred income taxes                                                             2,174         3,220
                                                                               --------      --------
    Total liabilities                                                           241,033       201,763

Stockholders' equity
Common stock, $0.01 par,  100,000,000  shares authorized,  61,772,502 issued and
 48,602,322   outstanding  at  December  31,  2000  and  59,772,502  issued  and
 49,439,222
 outstanding at December 31, 1999                                                   617           597
Additional paid-in capital                                                      296,347       152,607
Stock compensation trust (common stock held in trust),
  10,019,756 shares outstanding at December 31, 2000;
  10,010,850 shares outstanding at December 31, 1999                           (198,516)      (83,215)
Treasury stock, 13,170,180 shares at December 31, 2000;
  10,333,280 shares at December 31, 1999                                       (135,638)     (104,117)
Accumulated other comprehensive income (loss)                                     1,812        (1,013)
Retained earnings                                                               261,368       221,962
                                                                               --------      --------
    Total stockholders' equity                                                  225,990       186,821
                                                                               --------      --------
    Total liabilities and stockholders' equity                                 $467,023      $388,584
                                                                               ========      ========


The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
</TABLE>

                                                                 26

<PAGE>



                                    Mid Atlantic Medical Services, Inc.
                                   Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
(in thousands except per share amounts)                                2000          1999           1998
                                                                   ----------     ----------     ----------
<S>                                                                <C>            <C>            <C>
Revenue
  Health premium                                                   $1,414,847     $1,253,063     $1,124,248
  Fee and other                                                        21,811         21,352         20,501
  Life and short-term disability premium                                8,034          8,175          6,876
  Home health services                                                 26,304         23,630         19,962
  Investment                                                           13,483         11,096         10,622
  Gain on sale of real estate                                               -              -          5,692
                                                                   ----------     ----------     ----------
Total revenue                                                       1,484,479      1,317,316      1,187,901
                                                                   ----------     ----------     ----------
Expense
  Medical expense
    Referral and ancillary care                                       582,775        510,114        437,279
    Hospitalization, net of coordination of benefits                  373,349        336,002        342,852
    Primary care                                                       77,616         83,558         81,166
    Prescription drugs                                                189,388        170,745        136,767
    Reinsurance premiums, net                                             144            539            192
                                                                   ----------     ----------     ----------
                                                                    1,223,272      1,100,958        998,256
                                                                   ----------     ----------     ----------
  Life and short-term disability claims                                 3,108          4,033          3,760
                                                                   ----------     ----------     ----------
  Home health patient services                                         21,514         19,412         17,755
                                                                   ----------     ----------     ----------
  Administrative expense
    Salaries and benefits                                             114,561         99,682         85,166
    Promotion and advertising                                           5,246          4,311          3,939
    Professional services                                               8,029          6,070          6,233
    Licenses and taxes                                                 11,586          8,538          6,580
    Facilities, maintenance and supplies                               28,707         26,848         27,058
    Other (including interest expense of $1,045, $532 and $414)        11,698          7,634          5,631
                                                                   ----------     ----------     ----------
                                                                      179,827        153,083        134,607
                                                                   ----------     ----------     ----------

  Loss on retirement of equipment                                           -              -          4,787
  Federal Employees Health Benefits Program                                 -              -         16,500
                                                                   ----------     ----------     ----------
Total expense                                                       1,427,721      1,277,486      1,175,665
                                                                   ----------     ----------     ----------
Income before income taxes                                             56,758         39,830         12,236
Income tax expense                                                    (17,352)       (13,508)        (3,191)
                                                                   ----------     ----------     ----------
Net income                                                         $   39,406     $   26,322     $    9,045
                                                                   ==========     ==========     ==========

Basic earnings per common share                                    $     1.04     $      .64     $      .20
                                                                   ==========     ==========     ==========

Diluted earnings per common share                                  $     1.00     $      .64     $      .20
                                                                   ==========     ==========     ==========


The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
</TABLE>

                                                                 27

<PAGE>

<TABLE>
<CAPTION>



                                           Mid Atlantic Medical Services, Inc.
                               Consolidated Statements of Changes in Stockholders' Equity
                                                                                          Accumulated
                                                                                             Other
                                                  Additional       Stock                 Comprehensive
                                        Common     Paid-In     Compensation   Treasury       Income     Retained
(in thousands except share amounts)     Stock      Capital        Trust        Stock         (Loss)     Earnings    Total
                                        ------    ----------   ------------  ---------   -------------  --------   --------
<S>                                     <C>        <C>         <C>           <C>           <C>          <C>        <C>
Balance, December 31, 1997              $  567     $162,892    $(101,482)    $ (41,211)    $    946     $186,595   $208,307

Exercise of stock options for
  935,425 shares released from the
  Stock Compensation Trust                           (7,914)      13,330                                              5,416
Stock option tax benefit                              2,495                                                           2,495
Adjustment to market value for shares
  held in Stock Compensation Trust                  (19,226)      19,226                                                  -
Repurchase of 5,043,700 shares of
  MAMSI common stock                                                           (34,412)                             (34,412)

Comprehensive Income:
Net Income                                                                                                 9,045      9,045
Other comprehensive income
 net of tax of $239                                                                             367                     367
                                        ------     --------    ---------     ---------     --------     --------   --------
Total Comprehensive Income                                                                                            9,412
                                                                                                                   --------
Balance, December 31, 1998                 567      138,247      (68,926)      (75,623)       1,313      195,640    191,218

Exercise of stock options for
  13,100 shares released from the
  Stock Compensation Trust                             (105)         187                                                 82
Stock option tax benefit                                 19                                                              19
Purchase of 3,000,000 shares of MAMSI
  common stock to be held in the
  Stock Compensation Trust                  30       31,751      (31,781)                                                 -
Adjustment to market value for shares
  held in Stock Compensation Trust                  (17,305)      17,305                                                  -
Repurchase of 3,194,940 shares of
  MAMSI common stock                                                           (28,494)                             (28,494)

Comprehensive Income:
Net Income                                                                                                26,322     26,322
Other comprehensive loss,
 net of tax benefit of $(1,522)                                                              (2,326)                 (2,326)
                                        ------     --------    ---------     ---------     --------     --------   --------
Total Comprehensive Income                                                                                           23,996
                                                                                                                   --------
Balance, December 31, 1999                 597      152,607      (83,215)     (104,117)      (1,013)     221,962    186,821

Exercise of stock options for
  1,991,094 shares released from the
  Stock Compensation Trust                           (3,443)      28,373                                             24,930
Stock option tax benefit                              3,529                                                           3,529
Purchase of 2,000,000 shares of MAMSI
  common stock to be held in the
  Stock Compensation Trust                  20       28,730      (28,750)                                                 -
Adjustment to market value for shares
  held in Stock Compensation Trust                  114,924     (114,924)                                                 -
Repurchase of 2,836,900 shares of
  MAMSI common stock                                                           (31,521)                             (31,521)

Comprehensive Income:
Net Income                                                                                                39,406     39,406
Other comprehensive income,
 net of tax of $1,638                                                                         2,825                   2,825
                                        ------     --------    ---------     ---------     --------     --------   --------
Total Comprehensive Income                                                                                           42,231
                                                                                                                   --------
Balance, December 31, 2000              $  617     $296,347    $(198,516)    $(135,638)    $  1,812     $261,368   $225,990
                                        ======     ========    =========     =========     ========     ========   ========

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
</TABLE>

                                                            28

<PAGE>



                                        Mid Atlantic Medical Services, Inc.
                                       Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                  Year  Ended  December  31,
(in thousands)                                                                2000           1999           1998
                                                                            --------       --------       --------
<S>                                                                         <C>            <C>            <C>
Cash flows from operating activities:
  Net income                                                                $ 39,406       $ 26,322       $  9,045
Adjustments to reconcile net income to net cash provided by
  operating activities:
  Depreciation and amortization                                               10,263         10,249         10,796
  Provision for bad debts                                                        692            292             34
  Provision for deferred income taxes                                         (5,280)         2,415         (2,273)
  Loss (gain) on sale and disposal of assets                                     356             49           (833)
  Stock option tax benefit                                                     3,529             19          2,495
  (Increase) decrease in accounts receivable                                  (7,023)        (4,657)         8,563
  Decrease (increase) in prepaid expenses, advances and other                  2,159           (332)        (7,661)
  Increase in accounts payable                                                15,861          2,909          2,193
  Increase in medical claims payable, net                                     24,282         25,138         30,937
  Increase (decrease) in deferred premium revenue                              1,545           (218)         1,445
                                                                            --------       --------       --------
Total adjustments                                                             46,384         35,864         45,696
                                                                            --------       --------       --------
          Net cash provided by operating activities                           85,790         62,186         54,741
                                                                            --------       --------       --------
Cash flows used in investing activities:
  Purchases of investment securities                                        (428,185)      (355,996)      (329,400)
  Sales and maturities of investment securities                              365,043        325,117        307,763
  Purchases of property and equipment                                        (13,297)        (8,147)        (9,008)
  Purchases of statutory deposits                                             (3,394)        (1,476)          (100)
  Maturities of statutory deposits                                             2,782          1,125              -
  Purchases of other assets                                                     (631)        (2,598)          (893)
  Proceeds from sale of assets                                                   377            486         12,574
                                                                            --------       --------       --------
          Net cash used in investing activities                              (77,305)       (41,489)       (19,064)
                                                                            --------       --------       --------
Cash flows used in financing activities:
  Principal payments on notes payable                                            (14)           (60)           (60)
  (Decrease) increase in short-term borrowings                                  (558)         1,713           (404)
  Exercise of stock options                                                   24,930             82          5,416
  Purchase of treasury stock                                                 (31,521)       (28,494)       (34,412)
                                                                            --------       --------       --------
          Net cash used in financing activities                               (7,163)       (26,759)       (29,460)
                                                                            --------       --------       --------
Net increase (decrease) in cash and cash equivalents                           1,322         (6,062)         6,217
Cash and cash equivalents at beginning of year                                 3,725          9,787          3,570
                                                                            --------       --------       --------
Cash and cash equivalents at end of year                                    $  5,047       $  3,725       $  9,787
                                                                            ========       ========       ========


The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
</TABLE>

                                                                 29

<PAGE>



                       Mid Atlantic Medical Services, Inc.
                   Notes to Consolidated Financial Statements

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Mid  Atlantic  Medical  Services,  Inc.  ("MAMSI")  is a holding  company  whose
subsidiaries  are  active  in  managed  health  care and other  life and  health
insurance  related  activities.  MAMSI's  principal  markets  currently  include
Maryland,  Virginia, the District of Columbia,  Delaware,  West Virginia,  North
Carolina and Pennsylvania.  MAMSI and its subsidiaries (collectively referred to
as the  "Company")  have  developed  a broad  range of managed  health  care and
related ancillary products and deliver these services through health maintenance
organizations  ("HMOs"),  preferred provider organizations  ("PPOs"), a life and
health insurance company, home health care and home infusion services companies,
a hospice company and part ownership in an outpatient surgery center.

MAMSI delivers managed health care services  principally through HMOs. The HMOs,
MD-   Individual   Practice    Association,    Inc.   ("M.D.   IPA"),    Optimum
Choice,Inc.(R)("OCI"),  Optimum  Choice  of the  Carolinas,  Inc.  ("OCCI")  and
Optimum Choice, Inc. of Pennsylvania  ("OCIPA") arrange for health care services
to be provided to an  enrolled  population  for a  predetermined,  prepaid  fee,
regardless of the extent or nature of services  provided to the  enrollees.  The
HMOs offer a full complement of health benefits,  including physician,  hospital
and  prescription  drug services.  OCIPA ceased all  operations in  Pennsylvania
during 2000.

The following are other significant wholly-owned subsidiaries of MAMSI:

Physicians Health Plan of Maryland,  Inc.  ("PHP-MD") is an individual  practice
association ("IPA") that provides physician services to certain of the Company's
HMOs.

Alliance PPO, LLC ("Alliance") provides a delivery network of physicians (called
a preferred  provider  organization)  to employers  and  insurance  companies in
association with various health plans.

Mid Atlantic Psychiatric Services,  Inc. ("MAPSI") provides psychiatric services
principally to third party payors or self-insured employer groups.

MAMSI Life and Health Insurance  Company ("MLH") develops and markets  indemnity
health  products  and group life,  accidental  death and  short-term  disability
insurance.

HomeCall,  Inc.,  FirstCall,  Inc. and HomeCall  Pharmaceutical  Services,  Inc.
("HCPS") provide in-home medical care including  skilled  nursing,  infusion and
therapy to MAMSI's HMO members and other payors.

HomeCall Hospice Services,  Inc. ("HHSI") began operations in December, 1996 and
provides services to terminally ill patients and their families.

The significant  accounting  policies followed by MAMSI and its subsidiaries are
described below.

PRINCIPLES OF CONSOLIDATION

The  consolidated  financial  statements  include the  accounts of MAMSI and its
subsidiaries.  All  significant  intercompany  balances have been  eliminated in
consolidation.






                                                                 30

<PAGE>



MAJOR CUSTOMERS

A significant  portion of the Company's premium revenue is derived from federal,
state  and local  government  agencies,  including  governmental  employees  and
Medicaid and Medicare  recipients.  For the years ended December 31, 2000,  1999
and 1998,  approximately  8%, 8% and 11%,  respectively,  of premium revenue was
derived from federal  government  agencies which is included in the Medicare and
Risk  segments (as  described in Note 14), and  approximately  14%, 21% and 18%,
respectively,  was derived from Maryland and Virginia state and local government
agencies which is included in the Risk segment (as described in Note 14).

CASH EQUIVALENTS

Floating rate municipal  putable bonds,  which possess an insignificant  risk of
loss from changes in interest rates and are held less than three months from the
date of purchase, are classified as cash equivalents.

INVESTMENT SECURITIES

Investment  securities,  consisting  principally of municipal bonds and tax-free
bond funds are classified as available-for-sale. These securities are carried at
fair market value plus accrued  interest and any unrealized gains and losses are
reported in other comprehensive income, net of the related tax effect. Gains and
losses are  reported in  earnings  when  realized.  Gains and losses on sales of
securities are computed using the specific identification method.

PROPERTY AND EQUIPMENT

Property  and  equipment  is  stated  at  cost  less  accumulated  depreciation.
Depreciation  is provided on a  straight-line  basis over the  estimated  useful
lives of the property and equipment.  Leasehold  improvements are amortized on a
straight-line  basis over the lesser of the life of the  improvement or the term
of the related lease.

STATUTORY DEPOSITS

Statutory deposits, consisting principally of municipal bonds and treasury notes
held in custodial  accounts by state  regulatory  agencies,  are  classified  as
held-to-maturity. These securities are stated at amortized cost.

GOODWILL

The excess of cost over the fair value of net assets of the acquired  company in
the 1994 purchase  transaction  is recorded as goodwill and is classified in the
consolidated  balance  sheets as an other  asset.  Goodwill  is  amortized  on a
straight-line basis over 15 years.

HEALTH PREMIUM

Amounts  charged for health care services are  recognized as premium  revenue in
the month for which enrollees are entitled to receive care.  Included in premium
revenue are amounts due from  customers  that  utilize the  Company's  capitated
primary  care  physician  network,  its care  coordination  services  and  other
services  related  to  health  management  and who  self-fund,  generally  up to
specified limits, certain elements of medical costs, such as hospitalization and
specialist  physicians.  Premium  revenue  received  in advance is  recorded  as
deferred premium revenue.






                                                                 31

<PAGE>



FEE AND OTHER

Amounts charged to third party payors solely for use of the Company's network of
physicians and health care practitioners and its discounted fee-for-service rate
structure are  recognized  as fee revenue.  Amounts  charged for  administrative
services  only   arrangements,   entailing  only  claims  payment  services  and
utilization of the provider network without utilization of the Company's primary
care physician network and care coordination services, and for which the Company
bears no insurance risk, are recognized as fee revenue.

HOME HEALTH SERVICES

Amounts  charged to  patients,  third  party  payors and others for home  health
services  are  recorded  at net  realizable  amounts,  including  an estimate of
potential retroactive adjustments under cost reimbursement agreements with third
party payors.

MEDICAL EXPENSE

Medical  expense  consists  principally of medical claims and capitation  costs.
Medical claims include  payments to be made on claims reported as of the balance
sheet date and  estimates  of health care  services  incurred  but not  reported
("IBNR") to the Company as of the balance sheet date. IBNR is estimated using an
expense forecasting model that is based on historical claims incurrence patterns
modified to consider current trends in enrollment,  member utilization patterns,
timeliness of claims  submissions  and other  factors.  This  estimate  includes
medical  costs  to  be  incurred   beyond  the  premium  paying  date  that  are
contractually required.

Capitation  costs  represent  monthly fixed fees to  participating  primary care
physicians  and other  health care  practitioners  as  retainers  for  providing
continuing medical care.

Medical claims reversals result from the determination that the Company has paid
claims in excess of contractually obligated amounts.  Amounts recognized through
specific  identification  are  recorded  at  their  net  realizable  value  as a
reduction of medical expense in the consolidated statements of operations and as
an increase in accounts receivable in the consolidated balance sheets.

The Company has entered into certain  long-term  vendor  contracts some of which
include incentives or cost guarantees designed to provide savings to the Company
over several years. The Company typically  accounts for the benefit derived from
these  incentives or guarantees  ratably over the contract period as a reduction
to medical expense.  Because of the complexity of the Company's medical delivery
system as well as  obligations  imposed under the  contracts,  and the timing of
settlement of various contractual  periods,  disputes may arise as to the degree
of satisfaction  of the various  contractual  obligations  which could result in
material adjustments to the Company's financial statements. The Company believes
that it has complied  with its  contractual  obligations  and that its financial
statements are fairly stated with regard to the aforementioned contracts.

The  Company  believes  that its claims  reserves  are  adequate  to satisfy its
ultimate  claims  liabilities;  however,  the liability as established  may vary
significantly from actual claims amounts,  either negatively or positively,  and
as adjustments are deemed  necessary,  they are included in current  operations.
Establishment of claims estimates is an inherently uncertain process;  there can
be no certainty that currently established reserves will prove adequate to cover
actual ultimate expenses.  Subsequent actual experience could result in reserves
being  too high or too low which  could  positively  or  negatively  impact  the
Company's earnings in future periods.





                                                                 32

<PAGE>



COORDINATION OF BENEFITS

Coordination of benefits ("COB") results from the determination that the Company
has paid for  medical  claims  expenses  for  which an  enrollee  has  duplicate
coverage and for which another insurer is primarily  liable. In the consolidated
statements of operations,  such identified amounts are classified as a reduction
of hospitalization expense and, in the consolidated balance sheets, such amounts
are classified as a reduction of medical claims payable.

INCOME TAXES

The income tax provision  includes Federal and state income taxes both currently
payable and deferred because of differences  between financial reporting and tax
bases of assets  and  liabilities.  Deferred  tax  assets  and  liabilities  are
measured  using the  enacted  tax rates and laws that will be in effect when the
differences are expected to reverse.

EARNINGS PER COMMON SHARE

Basic  earnings  per common  share are based upon the  weighted  average  shares
outstanding.  Outstanding  stock options are treated as common stock equivalents
for  purposes  of  computing  diluted  earnings  per share.  Shares  held in the
Company's  Stock  Compensation  Trust  (see  Note  10)  are  excluded  from  the
calculation of basic and diluted earnings per share.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:

Cash and cash  equivalents - The carrying  amount  reported in the  consolidated
balance sheets approximates fair value.

Investment securities - Fair values are based on quoted market prices.

Statutory deposits - Fair values are based on quoted market prices.

Short-term borrowings - The carrying amount reported in the consolidated balance
sheets approximates fair value.

ESTIMATES

The  preparation  of the  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.  Such estimates and assumptions could change in the future as
more  information  becomes  known,  which could impact the amounts  reported and
disclosed herein.

STOCK OPTION PLANS

As permitted  by Financial  Accounting  Standards  No. 123, the Company  follows
Accounting  Principles  Board  Opinion No. 25,  "Accounting  for Stock Issued to
Employees"  ("APB 25") and related  interpretations  in accounting for its stock
option plans. Under APB 25, because the exercise price of the Company's employee
stock  options  equals the market value of the  underlying  stock on the date of
grant, no compensation expense is recognized.

RECLASSIFICATIONS

Certain   balances  in  the  1999  and  1998  financial   statements  have  been
reclassified to conform with the 2000 presentation.

                                                                 33

<PAGE>



NOTE 2 - INVESTMENTS

Investments   are  classified   into  two  categories   (available-for-sale   or
held-to-maturity)  and  are  valued  based  upon  this  designation.  Securities
classified as available-for-sale,  which include debt and equity securities that
the Company does not have the positive intent to hold to maturity, are marked to
market  with  the  resulting   unrealized   gain  or  loss  reflected  in  other
comprehensive income. Securities classified as held-to-maturity,  which are debt
securities  that the Company has both the positive intent and ability to hold to
maturity,  are carried at amortized  cost. The Company  classifies its statutory
deposits as  held-to-maturity  with no effect on the recorded  value.  All other
investments are classified as available-for- sale. Management re-evaluates these
designations  annually.  During  1999,  statutory  deposit  investments  with an
amortized  cost of  $1,166,000  were released by state  regulatory  agencies and
transferred to the Company's  investment  securities  portfolio.  The unrealized
loss at the date of transfer was $21,000.  There were no such  transfers  during
2000.

The following is a summary of available-for-sale and held-to-maturity securities
at December 31, 2000 and 1999:

<TABLE>
<CAPTION>
                                                       -----------------------------------------------------
                                                                                2000
                                                       -----------------------------------------------------
                                                                        Gross         Gross        Estimated
(in thousands)                                                       Unrealized     Unrealized       Fair
                                                          Cost          Gains         Losses         Value
                                                       -----------------------------------------------------
<S>                                                    <C>            <C>            <C>            <C>
AVAILABLE-FOR-SALE SECURITIES
U.S. Treasury securities and obligations of
  U.S. government agencies                             $  2,159       $   113        $     -        $  2,272
Obligations of states and political subdivisions        142,499         3,100             23         145,576
Municipal bond funds                                    113,465             -             84         113,381
Accrued interest                                          2,101             -              -           2,101
                                                       --------       -------        -------        --------
Debt securities                                         260,224         3,213            107         263,330
Equity securities                                         7,116             1            320           6,797
                                                       --------       -------        -------        --------

Investment securities                                  $267,340       $ 3,214        $   427        $270,127
                                                       ========       =======        =======        ========

HELD-TO-MATURITY SECURITIES
U.S. Treasury securities and obligations
 of U.S. government agencies                           $  3,160       $   204       $      -       $   3,364
Obligations of states and political subdivisions         10,583            44              -          10,627
Other investments                                           854             -              -             854
                                                       --------       -------        -------        --------

Statutory deposits                                     $ 14,597       $   248        $     -        $ 14,845
                                                       ========       =======        =======        ========
</TABLE>



















                                                                 34

<PAGE>



<TABLE>
<CAPTION>
                                                       -----------------------------------------------------
                                                                                1999
                                                       -----------------------------------------------------
                                                                        Gross         Gross        Estimated
(in thousands)                                                       Unrealized     Unrealized       Fair
                                                          Cost          Gains         Losses         Value
                                                       -----------------------------------------------------
<S>                                                    <C>            <C>            <C>            <C>
AVAILABLE-FOR-SALE SECURITIES
Obligations of states and political subdivisions       $121,344       $   172        $   939        $120,577
Municipal bond funds                                     74,720             -            358          74,362
Accrued interest                                          1,711             -              -           1,711
                                                       --------       -------        -------        --------
Debt securities                                         197,775           172          1,297         196,650
Equity securities                                         6,423            60            611           5,872
                                                       --------       -------        -------        --------

Investment securities                                  $204,198       $   232        $ 1,908        $202,522
                                                       ========       =======        =======        ========
HELD-TO-MATURITY SECURITIES
U.S. Treasury securities and obligations
  of U.S. government agencies                          $  2,597       $    17        $    18        $  2,596
Obligations of states and political subdivisions         10,592            64             44          10,612
Other investments                                           854             -              -             854
                                                       --------       -------        -------        --------

Statutory deposits                                     $ 14,043       $    81        $    62        $ 14,062
                                                       ========       =======        =======        ========
</TABLE>

For  the  years   ended   December   31,  2000  and  1999,   marketable   equity
available-for-sale  securities with a fair value at the date of sale of $317,000
and $2,524,000,  respectively, were sold. The gross realized gains on such sales
totaled  $71,000 and $50,000,  and the gross  realized  losses  totaled $-0- and
$75,000  for each of the  respective  periods.  Realized  gains and  losses  are
included in investment income.  Other sales of investment  securities  consisted
principally of redemptions on municipal bond funds.

The  amortized  cost and  estimated  fair  value of debt and  marketable  equity
securities  at December  31, 2000,  by  contractual  maturity,  are shown below.
Actual maturities may differ from contractual  maturities because the issuers of
the  securities  may have the right to  prepay  obligations  without  prepayment
penalties.

<TABLE>
<CAPTION>
                                                -------------------------
                                                                Estimated
                                                                  Fair
(in thousands)                                     Cost           Value
                                                -------------------------
<S>                                             <C>              <C>
AVAILABLE-FOR-SALE
Due in one year or less                         $123,647         $123,580
Due after one year through five years             41,485           41,830
Due after five years through ten years            76,284           78,410
Due after ten years                               18,808           19,510
                                                --------         --------
Debt securities                                  260,224          263,330
Equity securities                                  7,116            6,797
                                                --------         --------
                                                $267,340         $270,127
                                                ========         ========
HELD-TO-MATURITY
Due in one year or less                         $  4,992         $  5,049
Due after one year through five years              6,765            6,852
Due after five years through ten years             2,840            2,944
Due after ten years                                    -                -
                                                --------         --------
                                                $ 14,597         $ 14,845
                                                ========         ========
</TABLE>

                                                                 35

<PAGE>



NOTE 3 - ACCOUNTS RECEIVABLE

Accounts receivable consists of the following at December 31:

<TABLE>
<CAPTION>
                                                -------------------------
(in thousands)                                    2000             1999
                                                -------------------------
<S>                                             <C>              <C>
Premium and fee accounts                        $ 67,893         $ 62,269
Home health service accounts                      10,454            9,942
Medical recoverables                               6,969           10,574
Other                                             10,775            6,283
Less: allowance for doubtful accounts             (6,137)          (5,445)
                                                --------         --------
                                                $ 89,954         $ 83,623
                                                ========         ========
</TABLE>

Medical  recoverables  consist of refunds identified on paid claims. This amount
has  been  recorded  as a  reduction  of  medical  expense  in the  consolidated
statements of operations. Other receivables consist primarily of amounts due for
reinsurance  recoveries,  pharmacy  rebates and  interest  accrued on  statutory
deposits and amended tax returns.

NOTE 4 - PROPERTY AND EQUIPMENT

Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
                                                ------------------------
(in thousands)                                     2000           1999
                                                ------------------------
<S>                                             <C>              <C>
Land, buildings and improvements                $35,207          $32,086
Computer equipment and software                  36,477           31,259
Office furniture and equipment                   22,786           20,776
Leasehold improvements                            2,144            1,065
                                                -------          -------
                                                 96,614           85,186
Less: accumulated depreciation and
  amortization                                  (49,392)         (41,518)
                                                -------          -------
                                                $47,222          $43,668
                                                =======          =======
</TABLE>


NOTE 5 - NOTES PAYABLE

Notes payable consists of the following at December 31:

<TABLE>
<CAPTION>
                                                ------------------------
(in thousands)                                    2000             1999
                                                ------------------------
<S>                                             <C>              <C>
Notes payable                                   $     -          $    14
Current portion                                       -              (14)
                                                -------          -------
Noncurrent portion                              $     -          $     -
                                                =======          =======
</TABLE>






                                                                 36

<PAGE>



The Company has access to total line-of-credit and  letter-of-credit  facilities
of $29 million, which are subject to annual renewal. Borrowings bear interest at
a rate  based on the  Federal  Funds  rate plus .75% - 1.65% and are  secured by
certain  cash  balances  and  investment  securities.   At  December  31,  2000,
approximately  $3.0 million was outstanding on one of the  lines-of-credit at an
interest rate of 7.06% and  approximately  $12.10  million in  letters-of-credit
were outstanding, although no amounts had been drawn.

Interest  expense  paid in cash  during  2000,  1999 and 1998 was  approximately
$444,000, $523,000 and $417,000, respectively.

NOTE 6 - REINSURANCE

M.D. IPA, OCI, OCCI, OCIPA and MLH maintain  reinsurance coverage to provide for
reimbursement  of claims in excess of certain  limits.  The reinsurer for health
claims  indemnifies  either  90% of the  approved  per diem or fixed  charge per
procedure,  or 80% of the eligible in and out of service area acute care medical
expenses in excess of $200,000 per enrollee per year,  up to a lifetime  maximum
of $2,000,000 in eligible  medical costs with no more than $1,000,000 in a given
year,  or  $5,000,000  for certain PPO  members who have an  unlimited  lifetime
maximum  benefit.  Reinsurance  for life and accidental  death claims  generally
covers all  settlements  in excess of $50,000  per person  subject to a $950,000
maximum  recovery  per  person  for life  claims  and  $1,000,000  per person on
accidental death claims. Reinsurance recoveries for the years ended December 31,
2000, 1999 and 1998 were  approximately  $2,044,000,  $1,566,000 and $1,597,000,
respectively. In the consolidated statements of operations, reinsurance premiums
are shown net of the related recoveries.

NOTE 7 - INCOME TAXES

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's  deferred tax liabilities and assets are as follows as of December
31:
<TABLE>
<CAPTION>                                       --------------------------
(in thousands)                                    2000              1999
                                                --------------------------
<S>                                             <C>                <C>
Deferred tax liabilities:
  Accelerated depreciation                      $ 1,344            $ 1,770
  Receivable valuation adjustments                1,734              3,988
  Unrealized investment gains (losses)              975               (663)
                                                -------            -------
Total deferred tax liabilities                    4,053              5,095
                                                -------            -------
Deferred tax assets:
  Accrued medical expenses                        1,486              1,144
  Premium revenue adjustments                     1,140              1,248
  State net operating losses                      3,802              3,133
  Accrued pension expenses                        1,845                875
  Other                                             381                250
                                                -------            -------
Total deferred tax assets                         8,654              6,650
Valuation allowance for deferred tax assets      (3,751)            (3,055)
                                                -------            -------
Net deferred tax assets                           4,903              3,595
                                                -------            -------
                                                $   850            $(1,500)
                                                =======            =======
Included in the consolidated balance sheets:
  Current assets - deferred income taxes        $   850            $   381
  Non-current assets - deferred income taxes      3,013              2,978
  Current liabilities - deferred income taxes      (839)            (1,639)
  Non-current liabilities - deferred
    income taxes                                 (2,174)            (3,220)
                                                -------            -------
  Net deferred tax asset (liability)            $   850            $(1,500)
                                                =======            =======

                                                                 37

<PAGE>



</TABLE>
Significant  components  of the  provision  for  income  taxes  attributable  to
continuing operations are as follows for the years ended December 31:

<TABLE>
<CAPTION>
                                                ---------------------------------------
(in thousands)                                     2000            1999          1998
                                                ---------------------------------------
<S>                                             <C>            <C>            <C>
Current:
  Federal                                       $  22,041      $  10,536      $   4,105
  State                                               591            557          1,359
                                                ---------      ---------      ---------
  Total current                                    22,632         11,093          5,464
                                                ---------      ---------      ---------
Deferred:
  Federal                                          (5,019)         2,623         (1,250)
  State                                              (261)          (208)        (1,023)
                                                ---------      ---------      ---------
  Total deferred                                   (5,280)         2,415         (2,273)
                                                ---------      ---------      ---------
                                                $  17,352      $  13,508      $   3,191
                                                =========      =========      =========
</TABLE>


The Company's tax provision  differs from the statutory  rate for Federal income
taxes for the years ended December 31 as follows:

<TABLE>
<CAPTION>
                                                -------------------------------------
(in thousands)                                     2000          1999          1998
                                                -------------------------------------
<S>                                             <C>            <C>            <C>

Statutory rate (35%)                            $19,866        $13,940        $ 4,282
Tax-exempt interest                              (2,067)        (1,421)        (1,369)
State income taxes, net of Federal benefit         (436)          (163)          (580)
Increase in valuation allowance for
  deferred tax assets                               706            765          1,228
Other non-deductible items                          574            566            526
Tax credits                                        (664)           (16)          (173)
Other, net                                         (627)          (163)          (723)
                                                -------        -------        -------
                                                $17,352        $13,508        $ 3,191
                                                =======        =======        =======
</TABLE>

Total tax deposits made by the Company in 2000, 1999 and 1998 were approximately
$19,255,000, $10,027,000 and $6,870,000, respectively.

At December 31, 2000, the Company has state net operating loss  carryforwards of
$96,123,000 that expire in various years beginning 2006.

The Company  records a valuation  allowance  for  deferred tax assets when it is
management's  judgement that it is more likely than not that all or a portion of
a deferred  tax asset will not be realized.  At December 31, 2000 and 1999,  the
Company  recorded a  valuation  allowance  related to state net  operating  loss
carryforwards.

NOTE 8 - RELATED PARTIES

For the years ended  December 31, 2000,  1999 and 1998,  certain  members of the
Boards  of  Directors  of  MAMSI  and  affiliated   corporations  who  are  also
participating   physicians  provided  medical  services  to  enrollees  totaling
$4,954,000,   $1,790,000  and   $4,430,000,   respectively,   which   represents
approximately .8%, .3% and .9% in 2000, 1999 and 1998, respectively, of payments
to all physicians.  Board members are remunerated at the same contractual  level

                                                                 38

<PAGE>



as all other  participating  physicians  and are selected by enrollees to render
medical   services  under  the  same  guidelines  as  all  other   participating
physicians.

NOTE 9 - EMPLOYEE BENEFITS PLANS

PENSION PLANS

The  Company  has a  defined  contribution  401(k)  savings  plan  covering  all
full-time  employees.  Employees  are allowed to  contribute  up to 23% of their
pretax earnings annually up to a maximum contribution of $10,500 and the Company
makes a matching  contribution of 50% on the first 4% of  contributions  made by
employees.  Employees vest immediately in the employee contributions and ratably
over five years in the Company  contributions.  During 2000,  1999 and 1998, the
Company's contribution to the 401(k) plan aggregated $1,264,000,  $1,056,000 and
$681,000, respectively.

Pursuant  to the  employment  contracts  entered  into by the  Company  with key
executives,  effective  in 2000,  each  executive  is entitled  to  supplemental
retirement  income  benefits  based upon years of service  and  attained  salary
levels.  Expense  recognized related to this benefit was $2,866,000 for the year
ended December 31, 2000.

STOCK OPTION PLANS

The  Company  follows  APB 25  under  which  no  compensation  expense  has been
recognized in  connection  with its stock option  plans.  Pro forma  information
regarding  net income and earnings per share are required by Statement  123, and
has been  determined  as if the Company had  accounted  for its  employee  stock
options under the fair value method of that statement.  The fair value for these
options was estimated at the date of grant using a Black-Scholes  option pricing
model with the following  weighted average  assumptions for 2000, 1999 and 1998,
respectively:  risk-free  interest  rates of 6.6%,  5.2%,  and 5.6%;  volatility
factors of the expected market price of the Company's  common stock of .65, .59,
and .42 and a weighted  average life of the options of three years.  The Company
anticipates that it will declare no dividends.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded  options which have no vesting  restrictions  and are fully
transferable.  In addition,  option valuation models require the input of highly
subjective  assumptions  including the expected stock price volatility.  Because
the  Company's  employee  stock  options  have   characteristics   significantly
different from those of traded  options,  and because  changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion,  the  existing  models do not  necessarily  provide a  reliable  single
measure of the fair value of its employee stock options.

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the option's  vesting  period.  The  Company's  pro
forma information follows (in thousands except per share amounts):

                                                 2000         1999        1998
                                                -------      ------      ------

Pro forma net income                            $34,020     $19,856      $1,502
Pro forma basic earnings per share                  .90         .48         .03
Pro forma diluted earnings per share                .86         .48         .03

In years 1990 through  1996,  and years 1998 through 2000,  MAMSI  implemented a
non-qualified  stock option plan  whereby  options for the purchase of shares of
common stock may be granted to directors, officers and employees of the Company.
Unexpired authorized shares under the plans total 11,000,000.  Options under the
plans generally vest over a three-year period and are exercisable at 100% of the
fair market  value per share on the date the options  are  granted.  The Company
accounts  for  these  stock  option  grants  in  accordance  with  APB 25,  and,
accordingly,  recognizes no compensation  expense for these stock option grants.
Transactions relating to the plans are summarized as follows:

                                                                 39

<PAGE>




<TABLE>
<CAPTION>
                                              2000                       1999                       1998
                                     -----------------------    -----------------------    -----------------------
<S>                                  <C>            <C>         <C>            <C>         <C>            <C>
                                                    Weighted                   Weighted                   Weighted
                                                    Average                    Average                    Average
                                        2000        Exercise       1999        Exercise       1998        Exercise
                                       Shares        Price        Shares        Price        Shares        Price
                                     ---------      --------    ---------      --------    ---------      --------

Outstanding, January 1               9,524,599      $13.35      7,913,124      $14.98      8,099,231      $ 17.76
Granted                              3,100,763      $ 9.53      2,541,630      $ 9.32      6,304,558      $ 14.77
Exercised                           (1,991,094)     $12.52        (13,100)     $ 6.21       (935,425)     $  5.79
Forfeited                           (2,656,231)     $14.76       (917,055)     $16.37     (5,555,240)     $ 20.34
                                     ---------                  ---------                  ---------
Outstanding, December 31             7,978,037      $11.59      9,524,599      $13.35      7,913,124      $ 14.98
                                     =========                  =========                  =========
Available for grant, end of year     1,554,976                  1,581,308                  1,766,751
Exercisable, end of year             4,474,207                  5,910,801                  1,608,139
Option price range for exercised
  shares                             $5.06-$17.13               $5.06-$7.88                $4.54-$12.63
Option price range at end of year    $5.00-$21.00               $5.00-$20.00               $5.00-$27.13
Weighted average fair value of
  options granted during year           $4.10                      $3.85                      $4.49

</TABLE>

<TABLE>
<CAPTION>
                              OPTIONS OUTSTANDING                                         OPTIONS EXERCISABLE
-----------------------------------------------------------------------------     --------------------------------
                        Outstanding     Weighted Average                          Exercisable
      Range of             as of           Remaining         Weighted Average        as of        Weighted Average
   Exercise Prices      12/31/2000      Contractual Life      Exercise Price      12/31/2000       Exercise Price
-------------------     -----------     ----------------     ----------------     -----------     ----------------
<S>                     <C>                  <C>                <C>               <C>                <C>
$ 0.00   -  $  5.00           150             2.7               $ 5.00                  100          $ 5.00
$ 5.01   -  $ 10.00     4,094,324             3.9               $ 8.78            1,276,924          $ 8.61
$10.01   -  $ 15.00     1,776,207             2.3               $12.55            1,223,087          $12.50
$15.01   -  $ 20.00     2,086,536             1.1               $16.19            1,974,096          $16.15
$20.01   -  $ 25.00        20,820             4.9               $20.69                    0          $ 0.00
                        ---------                                                 ---------
                        7,978,037             2.8               $11.59            4,474,207          $13.00
                        =========                                                 =========
</TABLE>

On April  15,  1998,  the  Stock  Option  Committee  of the  Company's  Board of
Directors  authorized a voluntary  exchange  ("Exchange")  of all existing stock
options  with an exercise  price of $16.00 or more per share.  Each stock option
that was  voluntarily  tendered  was  replaced  with a newly issued stock option
priced at $16.00 per share.  As a  condition  of the  Exchange,  option  holders
agreed to extend the vesting period for one year. In addition,  the newly issued
stock  options  are  exercisable  for one  additional  year  beyond the  current
expiration  date.  Approximately  4.3 million  options were exchanged for a like
number of newly issued options.

INCENTIVE COMPENSATION PLAN

The Company has an incentive  compensation plan whereby managers receive bonuses
based upon the annual  operating  results of the Company.  During 2000 and 1999,
incentive  compensation  expense was  approximately  $6,956,000 and  $4,200,000,
respectively,   which  was  paid  to  employees  in  February   2001  and  2000,
respectively.  During 1998,  $800,000 was earned and  recognized as expense.  In
addition, certain individuals receive a cash bonus based upon the achievement of
certain  measurable  criteria  other  than the annual  operating  results of the
Company. These bonus amounts are not significant.

                                                                 40

<PAGE>



NOTE 10 - COMMON STOCK

The following table sets forth the computation of basic and diluted earnings per
share:

<TABLE>
<CAPTION>                                       -----------------------------------------
                                                    2000           1999           1998
                                                -----------------------------------------
<S>                                             <C>            <C>            <C>
Numerator:
  Net income                                    $39,406,000    $26,322,000    $ 9,045,000

Denominator:
  Denominator for basic earnings per share
    - weighted average shares                    38,052,746     41,225,327     45,407,006
  Dilutive securities - employee stock options    1,288,291         41,277         66,989
  Denominator for diluted earnings per share
    - adjusted weighted average shares           39,341,037     41,266,604     45,473,995

</TABLE>

On  August  26,  1996,  the  Company  established  the  MAMSI  SCT to  fund  its
obligations  arising from its various stock compensation  plans. MAMSI initially
funded the SCT with 9,130,000  shares of newly issued MAMSI stock.  In exchange,
the SCT delivered a promissory  note to MAMSI for  approximately  $129.9 million
which  represents the purchase  price of the shares.  Amounts owed by the SCT to
MAMSI are repaid by cash received by the SCT or will be forgiven by MAMSI, which
will result in the SCT releasing  shares to satisfy MAMSI  obligations for stock
compensation.

During 2000 and 1999,  the SCT purchased an  additional  2,000,000 and 3,000,000
shares, respectively,  of the Company's common stock for approximately $28.7 and
$31.8 million,  respectively.  The existing promissory note has been modified to
reflect these purchases.

For financial reporting  purposes,  the SCT is consolidated with MAMSI. The fair
market  value  of  the  shares  held  by the  SCT is  shown  as a  reduction  to
stockholders'   equity  in  the  Company's   consolidated  balance  sheets.  All
transactions  between the SCT and MAMSI are eliminated.  The difference  between
the cost and fair  value of  common  stock  held in the SCT is  included  in the
consolidated financial statements as additional paid-in capital. At December 31,
2000 and 1999, the SCT held 10,019,756 and 10,010,850  shares of common stock at
a fair market value of approximately $198.5 and $83.2 million, respectively.

Shares held by the SCT are excluded from  weighted  average  shares  outstanding
used in the computation of earnings per common share.

NOTE 11 - COMMITMENTS AND CONTINGENCIES

The  Company  leases  certain  equipment  and  office  space  under the terms of
non-cancelable  operating leases that expire at various dates through 2005. Rent
expense relating to these operating leases approximated  $3,470,000,  $3,429,000
and $3,502,000 in 2000, 1999 and 1998, respectively.












                                                                 41

<PAGE>



Future minimum lease  commitments under  non-cancelable  operating leases are as
follows for the years ended December 31 (in thousands):
<TABLE>
<CAPTION>

Year                    Amount
----                   -------
<S>                    <C>
2001                   $ 4,017
2002                     3,669
2003                     2,613
2004                     1,751
2005                     1,134
                       -------
                       $13,184
                       =======
</TABLE>

M.D. IPA  contracts  with OPM to provide or arrange  health  services  under the
FEHBP.  The contract with OPM and applicable  government  regulations  establish
premium rating  requirements for the FEHBP. The premiums  established  under the
OPM contract are subject to periodic review and audit to determine, if they were
established in compliance with the community rating and other requirements under
the program. The results of these audits could result in material adjustments to
the Company's  financial  statements.  The Company has been audited through 1999
with no significant findings other than noted in the next paragraph.

In 1998,  a  pretax  charge  of  approximately  $16.5  million,  which  includes
approximately  $4.4  million  of  interest,  was  recognized  in  the  Company's
financial  statements  in  anticipation  of  negotiations  relating to potential
governmental  claims for contracts with OPM related to an audit conducted by the
Office of Inspector General concerning the Company's  participation in the FEHBP
for the years  1992-1997  related to findings  for the years  1992-1994.  In the
normal  course of business,  OPM audits  health plans with which it contracts to
verify,  among other things, that the premiums calculated and charged to OPM are
established  in  compliance  with the best  price  community  rating  guidelines
established by OPM. OPM typically audits plans once every five or six years, and
each audit covers the prior five or six year period.  OPM's current  practice is
to audit large plans every year. While the  government's  initial on-site audits
are usually  followed by a post-audit  briefing as well as a  preliminary  audit
report  in  which  the  government  indicates  its  preliminary  results,  final
resolution  and  settlement of the audits can take two to three years.  In early
2000, the Company  settled all findings  without  material  modification  to its
original charge.

The Company is involved in various legal actions arising in the normal course of
business,  some of  which  seek  substantial  monetary  damages.  After  review,
including  consultation  with legal  counsel,  management  believes any ultimate
liability that could arise from these other actions will not  materially  effect
the Company's consolidated financial position or results of operations.

















                                                                 42

<PAGE>



NOTE 12 - STATUTORY REQUIREMENTS

M.D. IPA, OCI, OCCI and OCIPA are subject to insurance department regulations in
the states in which they are  licensed.  MLH is subject to insurance  department
regulations in Maryland, its state of domicile.

Minimum  required  statutory  net worth  and  actual  statutory  net worth as of
December 31 are as follows:

<TABLE>
<CAPTION>
                              2000                              1999
                   --------------------------        --------------------------
                     Minimum         Actual            Minimum         Actual
                   ----------     -----------        ----------     -----------
<S>                <C>            <C>                <C>            <C>
M.D. IPA           $3,000,000     $42,600,000        $3,000,000     $57,400,000
OCI                 3,000,000      67,700,000         3,000,000      64,100,000
MLH                   500,000      80,000,000           500,000      52,000,000
OCCI                2,500,000       3,600,000         2,500,000       2,500,000
OCIPA               1,500,000       2,100,000         1,500,000       2,300,000
</TABLE>

M.D. IPA, OCI,  OCCI,  OCIPA and MLH were in  compliance  with state  depository
rules at December  31, 2000 and 1999.  OCCI was in  compliance  with its working
capital  requirement of $1.6 million at December 31, 2000.  M.D. IPA, OCI, OCCI,
OCIPA  and  MLH  were in  compliance  with  the  applicable  risk-based  capital
requirements at December 31, 2000 and 1999. These MAMSI subsidiaries must notify
state  regulators  before the payment of any  dividends to MAMSI and, in certain
circumstances, must receive positive affirmation prior to such payment.

The National  Association  of  Insurance  Commissioners  revised the  Accounting
Practices and Procedures  Manual in a process referred to as  Codification.  The
revised  manual will be effective  January 1, 2001.  It is the  intention of the
domiciliary states of M.D. IPA, OCI, OCCI, OCIPA and MLH to adopt the provisions
of the  revised  manual.  The  revised  manual  has  changed,  to  some  extent,
prescribed  statutory  accounting  practices  and will  result in changes to the
accounting  practices  that M.D.  IPA, OCI,  OCCI,  OCIPA and MLH use to prepare
their statutory-basis  financial  statements.  Management believes the impact of
these changes to MAMSI and its insurance  subsidiaries'  statutory-basis capital
and surplus as of January 1, 2001 will not be significant.

NOTE 13 - RISK CONCENTRATIONS

Financial  instruments  that  potentially  subject  the  Company to credit  risk
consist  primarily of  investments  in marketable  securities  (including  money
market funds, floating rate municipal putable bonds, intermediate term municipal
bonds, and common stocks) and premiums  receivable.  The Company receives advice
through or assigns direct management of investment in securities to professional
investment  managers  selected for their  expertise in various  markets,  within
guidelines established by the Board of Directors. These guidelines include broad
diversification  of  investments.  Concentrations  of credit  risk and  business
volume with respect to commercial  premiums receivable are generally limited due
to the large number of employer groups  comprising the Company's  customer base.
As of December 31, 2000,  approximately  15% of premium and home health  service
receivables  were due from federal  government  agencies.  The Company  performs
ongoing  credit   evaluations  of  customers  and  generally  does  not  require
collateral.

                                                                 43

<PAGE>

NOTE 14 - REPORTABLE SEGMENTS

DESCRIPTION  OF THE TYPES OF PRODUCTS  AND SERVICES  FROM WHICH EACH  REPORTABLE
SEGMENT DERIVES ITS REVENUES

The Company has three reportable  segments:  Commercial risk products,  Medicare
products and Preferred Provider Organizations ("PPO").  Commercial risk products
include traditional HMO and point-of-service health care plans as well as hybrid
products.  Traditional  products  provide  for the  provision  of  comprehensive
medical care to enrollees for a fixed,  prepaid premium regardless of the amount
of care provided.  Hybrid  products offer the ability to tailor  employee health
care offerings by varying benefit  designs,  funding methods and insurance risk.
These  products  combine  the  use of  capitated  physicians  to  serve  as care
coordinators,  employer funding of specialist and institutional claims on an "as
paid" basis with MAMSI's  underwriting  of risk on a specific  and/or  aggregate
stop loss basis.  The Medicare product is health coverage offered to Title XVIII
Medicare  recipients.  Under a  contractual  arrangement  with the United States
Health Care Financing  Administration  ("HCFA"),  the Company received a monthly
premium for which the Company provided  comprehensive  medical coverage to those
individuals.  Effective  January 1, 1999, the Company no longer  participated in
the Medicare program.  MAMSI offers access to its preferred  provider network of
physicians  to employers  and insurance  companies in  association  with various
health  plans.   PPOs  allow  enrollees  to  receive  care  from  a  network  of
participating  physicians  and health  care  practitioners  who agree to provide
services at  contractually  negotiated  rates in exchange for increased  patient
volume. A PPO does not assume insurance risk from medical  utilization and it is
not the claims payor.

MEASUREMENT OF SEGMENT PROFIT OR LOSS

The Company  evaluates  performance  and allocates  resources based on profit or
loss  from  operations  before  income  taxes,  not  including  income  from the
Company's  investment  portfolio.  The  accounting  policies  of the  reportable
segments  are  the  same  as  those  described  in the  summary  of  significant
accounting policies.

Management  does not allocate  assets in the  measurement  of segment  profit or
loss;  therefore,  jointly  used  assets  are not  allocated  to the  reportable
segments.

FACTORS MANAGEMENT USED TO IDENTIFY THE COMPANY'S REPORTABLE SEGMENTS

The  Company's  reportable  segments  are  business  units that offer  different
products.  The reportable  segments are each managed  separately  because of the
range of benefit plans offered for providing health care coverage to enrollees.

<TABLE>
<CAPTION>

REPORTABLE SEGMENTS
                                                       -----------------------------------------------------------------
(in thousands)                                            Risk       Medicare        PPO        All Others      Totals
                                                       -----------------------------------------------------------------
<S>                                                    <C>            <C>          <C>          <C>           <C>
Year ended December 31, 2000:
Revenue from external customers                        $1,404,910     $  -         $21,811      $44,275       $1,470,996

Segment pretax profit                                      30,773        -          10,906        2,135           43,814

                                                       -----------------------------------------------------------------
(in thousands)                                            Risk       Medicare        PPO        All Others      Totals
                                                       -----------------------------------------------------------------
Year ended December 31, 1999:

Revenue from external customers                        $1,206,340     $  -         $21,352      $ 78,528      $1,306,220

Segment pretax profit (loss)                               20,086        -          11,103        (2,011)         29,178

                                                       -----------------------------------------------------------------
(in thousands)                                            Risk       Medicare        PPO        All Others      Totals
                                                       -----------------------------------------------------------------
Year ended December 31, 1998:

Revenue from external customers                        $1,040,701     $46,414      $20,501      $ 63,971      $1,171,587

Segment pretax profit (loss)                               13,251      (6,778)      10,748           519          17,740
</TABLE>

                                                                 44

<PAGE>



The  sources  of  revenue  included  in the All  Others  category  are  composed
primarily of Medicaid and miscellaneous.  The Company ended its participation in
Medicaid in 2000. All revenue is generated within the United States.

<TABLE>
<CAPTION>
                                                                --------------------------------------------
(in thousands)                                                     2000              1999             1998
                                                                --------------------------------------------
<S>                                                             <C>              <C>              <C>
Revenues

Total external revenues for reportable segments                 $1,426,721       $1,227,692       $1,107,616

Other revenues                                                      44,275           78,528           63,971

Investment revenue not allocated                                    13,483           11,096           10,622

Gain on sale of real estate                                           -                -               5,692
                                                                ----------       ----------       ----------
     Total consolidated revenues                                $1,484,479       $1,317,316       $1,187,901
                                                                ==========       ==========       ==========

Pretax Profit

Total profit from reportable segments                           $   41,679       $   31,189       $   17,221

Other profit (loss)                                                  2,135           (2,011)             519

Net investment income not allocated                                 12,944           10,652           10,091

Gain on sale of real estate                                           -                -               5,692

Federal Employees Health Benefits Program                             -                -             (16,500)

Loss on retirement of equipment                                       -                -              (4,787)
                                                                ----------       ----------       ----------
     Total consolidated pretax profit                           $   56,758       $   39,830       $   12,236
                                                                ==========       ==========       ==========
</TABLE>

NOTE 15 - COMPREHENSIVE INCOME

Changes  in  accumulated  other  comprehensive  income  related  to  changes  in
unrealized gains (losses) on securities, net-of-tax, were as follows:

<TABLE>
<CAPTION>
                                                                -----------------------------------------
(in thousands)                                                    2000             1999             1998
                                                                -----------------------------------------
<S>                                                             <C>              <C>              <C>
Unrealized holding gains (losses) arising
 during period                                                  $ 2,887          $(2,341)         $ 2,055

Less: Reclassification adjustment for
  net gains (losses) included in net income                          62              (15)           1,688
                                                                -------          -------          -------

Net unrealized gains (losses) recognized in
 other comprehensive income (loss)                              $ 2,825          $(2,326)         $   367
                                                                =======          =======          =======
</TABLE>










                                                                 45

<PAGE>










                                                  Report of Independent Auditors

Board of Directors and Stockholders
Mid Atlantic Medical Services, Inc.


We have audited the  accompanying  consolidated  balance  sheets of Mid Atlantic
Medical  Services,  Inc. and  subsidiaries as of December 31, 2000 and 1999, and
the related  consolidated  statements of  operations,  changes in  stockholders'
equity and cash flows for each of the three years in the period  ended  December
31, 2000. Our audits also included the financial  statement  schedule  listed in
the  Index at Item  14(a).  These  financial  statements  and  schedule  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial  position of Mid
Atlantic Medical Services,  Inc. and subsidiaries at December 31, 2000 and 1999,
and the  consolidated  results of their operations and their cash flows for each
of the three years in the period ended  December 31, 2000,  in  conformity  with
accounting  principles  generally  accepted in the United  States.  Also, in our
opinion,  the related financial statement schedule,  when considered in relation
to the financial  statements  taken as a whole,  presents fairly in all material
respects the information set forth therein.


                                          /s/ Ernst & Young LLP
                                          ----------------------
                                          Ernst & Young LLP



McLean, Virginia
February 12, 2001

                                                                 46

<PAGE>



SELECTED QUARTERLY FINANCIAL DATA FOR FISCAL YEARS 2000 AND 1999

<TABLE>
<CAPTION>
                                    2000       2000       2000       2000       1999       1999       1999       1999
                                    First     Second      Third     Fourth      First     Second      Third     Fourth
                                   Quarter    Quarter    Quarter    Quarter    Quarter    Quarter    Quarter    Quarter
                                   --------   --------   --------   --------   --------   --------   --------   --------
                                                             (in thousands except share amounts)
                                                                           (unaudited)
<S>                                <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>

Revenue                            $360,113   $368,339   $371,428   $384,599   $313,198   $323,530   $335,250   $345,338
Expense                             347,050    357,169    356,779    366,723    304,127    316,560    324,689    332,110

Income before income taxes           13,063     11,170     14,649     17,876      9,071      6,970     10,561     13,228
Net income                            8,602      7,313     10,974     12,517      5,871      4,506      7,120      8,825

Basic earnings per share                .22        .19        .29        .33        .14        .11        .17       .22
Diluted earnings per share              .22        .19        .28        .31        .14        .11        .17       .22

</TABLE>


ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

None.



                                                                 47

<PAGE>



                                    Part III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The  information  required  by  this  item is  incorporated  by  reference  from
"Directors and Executive  Officers"  section of the Proxy  Statement for MAMSI's
annual meeting of shareholders to be held on April 23, 2001.

ITEM 11. EXECUTIVE COMPENSATION

The  information  required  by  this  item is  incorporated  by  reference  from
"Directors  and Executive  Officers -- Directors'  Compensation"  and "Executive
Management  Compensation"  sections of the Proxy  Statement  for MAMSI's  annual
meeting of shareholders to be held on April 23, 2001.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The  information  required by this item is incorporated by reference from "Stock
Owned  by  Management"  and  "Principal  Stockholders"  sections  of  the  Proxy
Statement for MAMSI's  annual  meeting of  shareholders  to be held on April 23,
2001.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The  information  required  by  this  item is  incorporated  by  reference  from
"Executive  Management  Compensation" section of the Proxy Statement for MAMSI's
annual meeting of shareholders to be held on April 23, 2001.

                                                                 48

<PAGE>



                                     PART IV

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

(a)(1)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS                        PAGE
                                                                  ----
Consolidated Balance Sheets as of December 31, 2000 and 1999 ...    26
Consolidated Statements of Operations for the years ended
  December 31, 2000, 1999 and 1998 .............................    27
Consolidated Statements of Changes in Stockholders' Equity
  for the years ended December 31, 2000, 1999 and 1998 .........    28
Consolidated Statements of Cash Flows for the years ended
  December 31, 2000, 1999 and 1998 .............................    29
Notes to Consolidated Financial Statements .....................    30
Report of Ernst & Young LLP Independent Auditors ...............    46

(a)(2) and (d)
INDEX TO FINANCIAL STATEMENT SCHEDULE                             PAGE
                                                                  ----
II - Valuation and Qualifying Accounts as of December 31,
       2000, 1999 and 1998 .....................................    50

All other  schedules for which  provision is made in the  applicable  accounting
regulations of the Securities and Exchange  Commission are omitted  because they
are not required under the related instructions or are inapplicable.

                                                                 49

<PAGE>



                       Mid Atlantic Medical Services, Inc.
                  Schedule II - Valuation and Qualifying Accounts
                              (in thousands)
<TABLE>
<CAPTION>
                                    Additions
                Balance at     ------------------------------
                Beginning        Charged to      Charged to                      Balance
                    of              Costs          Other        Deductions-       at End
Description       Period        and Expenses      Accounts      Write-Offs      of Period
-----------     ----------     -------------     ----------     -----------     ---------
<S>             <C>            <C>               <C>            <C>             <C>

DEDUCTED FROM ASSET ACCOUNTS:

YEAR ENDED DECEMBER 31, 1998

Allowance for doubtful accounts - accounts receivable

                $  5,180       $    143          $   (309)(1)   $    200        $ 5,214
                ========       ========          ========       ========        =======

Valuation allowance - deferred tax assets

                $  1,062       $  1,228          $              $               $ 2,290
                ========       ========          ========       ========        =======

YEAR ENDED DECEMBER 31, 1999

Allowance for doubtful accounts - accounts receivable

                $  5,214       $    461          $   (230)(1)   $               $ 5,445
                ========       ========          ========       ========        =======

Valuation allowance - deferred tax assets

                $  2,290       $    765          $              $               $ 3,055
                ========       ========          ========       ========        =======

YEAR ENDED DECEMBER 31, 2000

Allowance for doubtful accounts - accounts receivable

                $  5,445       $    335          $    357 (1)   $               $ 6,137
                ========       ========          ========       ========        =======

Valuation allowance - deferred tax assets

                $  3,055       $    706          $              $     10        $ 3,751
                ========       ========          ========       ========        =======

</TABLE>

(1) The changes to the allowance were charged to premium revenue.



                                                                 50

<PAGE>



(a)(3)
EXHIBITS

See the Exhibit Index on pages 54-56 of this Form 10-K.

(b)
REPORTS ON FORM 8-K

None.

                                                                 51

<PAGE>



                                   SIGNATURES

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


      MID ATLANTIC MEDICAL SERVICES, INC. ("MAMSI")
      (Registrant)

      By: /s/ Mark D. Groban, M.D.                3/28/2001
         --------------------------------------------------
         Mark D. Groban, M.D.                          Date
         Chairman of the Board and Director

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


      By: /s/ Howard M. Arnold                    3/28/2001
         --------------------------------------------------
         Howard M. Arnold                             Date
         Director

      By: /s/ Thomas P. Barbera                   3/28/2001
         --------------------------------------------------
         Thomas P. Barbera                           Date
         Vice Chairman of the Board, President, Chief Executive Officer
         and Director

      By: /s/ Francis C. Bruno, M.D.              3/28/2001
         --------------------------------------------------
         Francis C. Bruno, M.D.                       Date
         Director

      By: /s/ John H. Cook, III, M.D.             3/28/2001
         --------------------------------------------------
         John H. Cook, III, M.D.                      Date
         Director

      By: /s/ Raymond H. Cypess, D.V.M., Ph.D.    3/28/2001
         --------------------------------------------------
         Raymond H. Cypess, D.V.M., Ph.D.             Date
         Director

      By: /s/ John W. Dillon                      3/28/2001
         --------------------------------------------------
         John W. Dillon                               Date
         Director

      By: /s/ Robert E. Foss                      3/28/2001
         --------------------------------------------------
         Robert E. Foss                               Date
         Senior Executive Vice President and Chief Financial Officer
         and Director
         (Principal Financial Officer)

      By: /s/ Mark D. Groban, M.D.                3/28/2001
         --------------------------------------------------
         Mark D. Groban, M.D.                         Date
         Chairman of the Board and Director
         (Principal Executive Officer)

      By: /s/ Christopher E. Mackail              3/28/2001
         --------------------------------------------------
         Christopher E. Mackail                       Date
         Senior Vice President, Controller and Chief Accounting Officer
         (Principal Accounting Officer)





                                                                 52

<PAGE>



      By: /s/ John P. Mamana, M.D.                3/28/2001
         --------------------------------------------------
         John P. Mamana, M.D.                         Date
         Director

      By: /s/ Edward J. Muhl                      3/28/2001
         --------------------------------------------------
         Edward J. Muhl                               Date
         Director

      By: /s/ Janet L. Norwood                    3/28/2001
         --------------------------------------------------
         Janet L. Norwood, Ph.D.                      Date
         Director

      By: /s/ John A. Paganelli                   3/28/2001
         --------------------------------------------------
         John A. Paganelli                            Date
         Director

      By: /s/
         --------------------------------------------------
         Ivan R. Sabel, CPO                           Date
         Director

      By: /s/ James A. Wild                       3/28/2001
         --------------------------------------------------
         James A. Wild                                Date
         Director



                                                                 53

<PAGE>



(a)(3), (b) and(C)List of Exhibits.


<TABLE>
<CAPTION>
                                  EXHIBIT INDEX
                                                                             Location of Exhibit
Exhibit                                                                        in Sequential
Number     Description of Document                                             Numbering System
-------    -----------------------                                           -------------------
<S>        <C>
 3.1       Copy of Certificate of Incorporation of MAMSI dated
           October 7, 1986..........................................................(1)
 3.2       Copy of Certificate of Amendment of MAMSI Certificate of
           Incorporation dated April 23, 1990.......................................(4)
 3.3       Amended and Restated By-laws of MAMSI as of February 15, 2000............
 3.4       Copy of Certificate of Amendment of MAMSI Certificate of
           Incorporation dated June 2, 1994.........................................(4)
10.41      Copy of Agreement between M.D. IPA and Surgical Care Affiliates, Inc.,
           dated April 22, 1985.....................................................(4)
10.60      1993 Non-Qualified Stock Option Plan.....................................(11)
10.61      1993 Non-Qualified Stock Option Letter Sent to Key Employees.............(11)
10.67      1994 Non-Qualified Stock Option Plan.....................................(3)
10.68      1994 Non-Qualified Stock Option Letter sent to Key Employees.............(3)
10.72      List of States in which MAMSI Life is Licensed to Operate................(3)
10.74      1995 Non-Qualified Stock Option Plan.....................................(4)
10.75      1995 Non-Qualified Stock Option Plan letter sent to Key Employees........(4)
10.76      Agreement between OCI and the Commonwealth of Virginia governing the
           Medical Assistance Program ("Medicaid") dated May 27, 1994...............(4)
10.79      1996 Non-Qualified Stock Option Plan.....................................(5)
10.80      Form of Agreement between MAMSI and Employees Granting Options
           under the 1996 Non-Qualified Stock Option Plan...........................(5)
10.81      Form of Agreement between MAMSI and George T. Jochum Granting Options
           under the 1996 Non-Qualified Stock Option Plan...........................(5)
10.82      Form of Agreement between MAMSI and Non-Employee Directors Granting
           Options under the 1996 Non-Qualified Stock Option Plan...................(5)
10         Amended and Restated Compensation Trust Agreement dated
           December 20, 1996........................................................(7)
10.1       Amended and Restated Common Stock Purchase Agreement dated
           December 20, 1996........................................................(7)
10.2       Replacement Promissory Note dated December 20, 1996......................(7)
10.83      1997 Management Bonus Program............................................(8)
10.84      Form of Non-Qualified Stock Option Agreement for Options Granted
           under 1991, 1992, 1993, 1994 and 1995 Non-Qualified Stock Option Plan....(9)
10.85      Agreement of Purchase of Real Property by Mid-Atlantic
           Medical Services, Inc....................................................(10)
10.86      1997 Amendment to Employment Agreement between George T. Jochum
           and the Company..........................................................(11)
10.87      1998 Non-Qualified Stock Option Plan.....................................(11)
10.88      1998 Senior Management Bonus Plan........................................(11)
10.89      1998 Management Bonus Plan...............................................(11)
10.90      Amendment to 1994 Non-Qualified Stock Option Plan........................(11)
10.91      Amendment to 1995 Non-Qualified Stock Option Plan........................(11)
10.92      Amendment to 1996 Non-Qualified Stock Option Plan........................(11)
10.93      1999 Employment Agreement Between George T. Jochum and the Company.......(11)
10.94      Form of Agreement between MAMSI and Employees Granting Options
           under the 1998 Non-Qualified Stock Option Plan...........................(12)
10.95      Form of Agreement between MAMSI and George T. Jochum Granting Options
           under the 1998 Non-Qualified Stock Option Plan...........................(12)
10.96      Form of Agreement between MAMSI and Non-Employee Directors Granting
           Options under the 1998 Non-Qualified Stock Option Plan...................(12)
10.97      Memorandum to Employees and Form for Election Of Exchange
           and Repricing of Stock Options...........................................(12)
10.98      Agreement of Purchase and Sale of Real Estate............................(13)
10.981     1999 Non-Qualified Stock Option Plan.....................................(14)
10.982     1999 Senior Management Bonus Plan........................................(14)
10.983     1999 Management Bonus Plan...............................................(14)
10.984     Amended and Restated Stock Compensation Trust Agreement
           dated January 11, 1999...................................................(14)
10.985     Common Stock Purchase Agreement dated January 11, 1999...................(14)
10.986     Allonge to Replacement Promissory Note dated January 11, 1999............(14)
10.987     Employment Agreement between the Company and Mark D. Groban..............(14)
10.988     Employment Agreement between the Company and Thomas P. Barbera...........(14)
10.989     Employment Agreement between the Company and Robert E. Foss..............(14)



                                                                 54

<PAGE>



10.990     Form of Executive Employment Agreement between the Company
           and Executive Staff......................................................(14)
10.991     Form of Agreement between MAMSI and Employees Granting Options
           under the 1999 Non-Qualified Stock Option Plan...........................(14)
10.992     Form of Agreement between MAMSI and Non-Employee Directors Granting
           Options under the 1999 Non-Qualified Stock Option Plan...................(14)
10.993     Employment Agreement between the Company and Mark D. Groban..............(15)
10.994     Employment Agreement between the Company and Thomas P. Barbera...........(15)
10.995     First Amendment to Employment Agreement between the Company
           and Mark D. Groban.......................................................(16)
10.996     First Amendment to Employment Agreement between the Company
           and Thomas P. Barbera....................................................(16)
10.997     First Amendment to Employment Agreement between the Company
           and Robert E. Foss.......................................................(16)
10.998     Amended and Restated Stock Compensation Trust Agreement
           dated August 20, 1999....................................................(16)
10.999     Common Stock Purchase Agreement dated August 20, 1999....................(16)
10.21      Allonge to Replacement Promissory Note dated
           August 20, 1999..........................................................(16)
10.22      2000 Non-Qualified Stock Option Plan.....................................(17)
10.23      2000 Senior Management Bonus Plan........................................(17)
10.24      2000 Key Management Bonus Plan...........................................(17)
10.25      Plan for Deferral of Directors Fees......................................(17)
10.26      Form of Agreement between MAMSI and Employees Granting Options
           Under the 2000 Non-Qualified Stock Option Plan...........................(17)
10.27      Form of Agreement between MAMSI and Non-Employee Directors Granting
           Options Under the 2000 Non-Qualified Stock Option Plan...................(17)
10.28      Form of Agreement between MAMSI and Directors Electing
           to Defer Director Fees...................................................(17)
10.29      Amended and Restated Stock Compensation Trust
           Agreement dated August 4, 2000...........................................(18)
10.30      Common Stock Purchase Agreement dated
           August 4, 2000...........................................................(18)
10.31      Allonge to Replace Promissory Note dated
           August 4, 2000...........................................................(18)
10.32      2001 Non-Qualified Stock Option Plan.....................................
10.33      Form of Agreement between MAMSI and Employees Granting Options
           Under the 2001 Non-Qualified Stock Option Plan...........................
10.34      Form of Agreement between MAMSI and Non-Employee Directors Granting
           Options under the 2001 Non-Qualified Stock Option Plan...................
10.35      Employment Agreement between the Company and Mark D. Groban..............
10.36      Employment Agreement between the Company and Thomas P. Barbera...........
10.37      Employment Agreement between the Company and Robert E. Foss..............
10.38      Employment Agreement between the Company and Sharon C. Pavlos............
21         Subsidiaries of the Company..............................................
23         Consent of Independent Auditors..........................................
27         Financial Data Schedule..................................................
</TABLE>

(1) Incorporated by reference to exhibits filed with the Company's  Registration
Statement filed under the Securities Act of 1933 on Form S-4  (Registration  No.
33-9803).

(2)  Incorporated  by reference to exhibits  filed with the Company's  Quarterly
Report  filed  under the  Securities  Exchange  Act of 1934 on Form 10-Q for the
quarterly period ended September 30, 1993.

(3) Incorporated by reference to exhibits filed with the Company's Annual Report
filed under the Securities Exchange Act of 1934 on Form 10-K for the fiscal year
ended December 31, 1993.

(4) Incorporated by reference to exhibits filed with the Company's Annual Report
filed under the Securities Exchange Act of 1934 on Form 10-K for the fiscal year
ended December 31, 1994.

(5)  Incorporated  by reference to exhibits  filed with the Company's  Quarterly
Report filed under the  Securities  Exchange Act on Form 10-Q for the  quarterly
period ended March 31, 1995.

(6) Incorporated by reference to exhibits filed with the Company's Annual Report
filed under the Securities Exchange Act of 1934 on Form 10-K for the fiscal year
ended December 31, 1995.



                                                                 55

<PAGE>


(7)  Incorporated  by reference to exhibits  filed with the Company's  Quarterly
Report  filed under the  Securities  Exchange Act of 1934 on Form 10-Q/A for the
quarterly period ended September 30, 1996.

(8) Incorporated by reference to exhibits filed with the Company's Annual Report
filed under the Securities Exchange Act of 1934 on Form 10-K for the fiscal year
ended December 31, 1996.

(9)  Incorporated  by reference to exhibits  filed with the Company's  Quarterly
Report  filed  under the  Securities  Exchange  Act of 1934 on Form 10-Q for the
quarterly period ended March 31, 1997.

(10)  Incorporated  by reference to exhibits filed with the Company's  Quarterly
Report  filed  under the  Securities  Exchange  Act of 1934 on Form 10-Q for the
quarterly period ended June 30, 1997.

(11)  Incorporated  by reference  to exhibits  filed with the  Company's  Annual
Report  filed  under the  Securities  Exchange  Act of 1934 on Form 10-K for the
fiscal year ended December 31, 1997.

(12)  Incorporated  by reference to exhibits filed with the Company's  Quarterly
Report  filed  under the  Securities  Exchange  Act of 1934 on Form 10-Q for the
quarterly period ended March 31, 1998.

(13)  Incorporated  by reference to exhibits filed with the Company's  Quarterly
Report  filed  under the  Securities  Exchange  Act of 1934 on Form 10-Q for the
quarterly period ended September 30, 1998.

(14)  Incorporated  by reference  to exhibits  filed with the  Company's  Annual
Report  filed  under the  Securities  Exchange  Act of 1934 on Form 10-K for the
fiscal year ended December 31, 1998.

(15)  Incorporated  by reference to exhibits filed with the Company's  Quarterly
Report  filed  under the  Securities  Exchange  Act of 1934 on Form 10-Q for the
quarterly period ended June 30, 1999.

(16)  Incorporated  by reference to exhibits filed with the Company's  Quarterly
Report  filed  under the  Securities  Exchange  Act of 1934 on Form 10-Q for the
quarterly period ended September 30, 1999.

(17)  Incorporated  by reference  to exhibits  filed with the  Company's  Annual
Report  filed  under the  Securities  Exchange  Act of 1934 on Form 10-K for the
fiscal year ended December 31, 1999.

(18)  Incorporated  by reference to exhibits filed with the Company's  Quarterly
Report  filed  under the  Securities  Exchange  Act of 1934 on Form 10-Q for the
quarterly period ended September 30, 2000.




                                                                 56

<PAGE>