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, 2002

                                       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
                    (Address of principal executive offices)

                                      20850
                                   (Zip Code)

                                 (301) 762-8205
              (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.
                                             [  ]

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Act).
                                Yes [X]. No [ ].


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 June 28,
2002: Approximately $1,235 million.


<PAGE>



                    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.
                 46,827,022 shares of common stock as of March 7, 2003

                       DOCUMENTS INCORPORATED BY REFERENCE

The Proxy  Statement for the  Registrant's  annual meeting of shareholders to be
held on April 28, 2003 is  incorporated  by  reference  into Part II, Item 5 and
Part III, Items 10, 11, 12 and 13 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 ............................................  14
Item 3     Legal Proceedings .....................................  14
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 ........................................   27
Item 8     Financial Statements and Supplementary Data ..........   28
Item 9     Changes in and Disagreements with Accountants on
             Accounting and Financial Disclosure ................   53

                                      PART III

Item 10    Directors and Executive Officers of the Registrant ...   54
Item 11    Executive Compensation ...............................   54
Item 12    Security Ownership of Certain Beneficial Owners
             and Management and Related Stockholder Matters......   54
Item 13    Certain Relationships and Related Transactions .......   54
Item 14    Controls and Procedures ..............................   54

                                      PART IV

Item 15    Exhibits, Financial Statement Schedules
             and Reports on Form 8-K ............................   55

Signatures..........................................................58

Certifications......................................................60

Exhibit Index.......................................................63










                                                                -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 health  care  coverage  and  related  ancillary
products and deliver these  services  through health  maintenance  organizations
("HMOs"),  a  preferred  provider  organization  ("PPO"),  and a life and health
insurance  company.  MAMSI also owns a home health care company, a home infusion
services company, a hospice company,  a coordination of benefits  identification
and  collections  company and maintains a partnership  interest in an outpatient
surgery center.

GENERAL DEVELOPMENT OF BUSINESS

MAMSI 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 2002, MAMSI offered HMO coverage
through  three  licensed HMO  subsidiaries  - M.D.  IPA,  Optimum  Choice,  Inc.
("OCI"),  and Optimum Choice of the Carolinas,  Inc. ("OCCI")  (hereinafter M.D.
IPA,  OCI and OCCI  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 Virginia in 1985,  and in
the  District  of Columbia  in 1996.  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").  M.D. IPA
serves  governmental  entities such as the U.S.  Office of Personnel  Management
under  the  Federal  Employees  Health  Benefits  Program,   State  of  Maryland
employees, and D.C. Government employees.

OCI, a  non-Federally  qualified HMO, became a licensed HMO in Maryland in 1988,
in Virginia in 1990,  in Delaware in 1993,  in West  Virginia in 1994 and in the
District of Columbia in 1996. OCI serves small as well as large employers. 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.

OCCI, a non-Federally  qualified HMO, became a licensed HMO in North Carolina in
1995 and South Carolina in 1996. OCCI serves 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.


                                                                -4-

<PAGE>



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 and North Carolina, as well as the District of Columbia.  MLH sells
group health insurance,  including  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  arrange for the  provision of  comprehensive  medical  services
(including  physician  and  hospital  care) to  enrollees  for a fixed,  prepaid
premium.  Enrollees  generally  receive  care from  participating  Primary  Care
Physicians  ("PCPs")  who,  when  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 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 discounted fee for service 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 HEALTH 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 experience  fluctuations in enrollment by individual enrollees.  OCI
also offers individual  coverage to the commercial market in some of its service
areas.

Under  traditional  HMO  coverage,  the  enrollee  selects  a PCP from the HMO's
network of physicians and health care practitioners.  Except in emergencies, and
certain other limited  circumstances,  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"). 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.

M.D. IPA and OCI, in conjunction with MLH, and OCCI also offer  point-of-service
coverage.  This coverage  allows  enrollees the flexibility 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.  Groups also have the option
of purchasing a Usual,  Customary and Reasonable  charges ("UCR")  reimbursement
for physician or health care practitioner visits outside of the HMO network that
generally  covers the lesser of 80% of the  requested  charges or 80% of the UCR
for the service  provided.  The enrollee may be responsible for the remainder of
the charge.



                                                                -5-

<PAGE>



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.

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.  The option of dental benefits
is also available.

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.  Under the MLH  indemnity  plan,  enrollees  may  receive  health care
services from a physician, health care practitioner or facility of their choice.
Enrollees in the MLH PPO plan are  encouraged  to receive  health care  services
from a  preferred  physician,  health care  practitioner  or  facility,  but may
receive these services from any physician, health care practitioner or facility.
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  and the processing and payment of
claims. MAMSI has no insurance risk on this product.

The Company's total health plan  membership  (managed care full risk and hybrid,
ASO  and  indemnity  health   insurance)  in  the  HMOs  and  MLH  increased  to
approximately  1,008,500 at December 31, 2002 from 874,000 at December 31, 2001,
an increase of 15.4 percent.

The following table sets forth information relevant to MAMSI's HMO and indemnity
health plans as of December 31, 2002:

Population of Aggregate HMO
  Service Area                  21,300,000
HMO Service Area Penetration
  (All HMO's)                           21%
Primary Care Physicians              8,500
Specialist Physicians               25,000
Other Affiliated Health
  Care Practitioners                15,400
Hospitals and Outpatient
  Facilities                         2,600
Pharmacies                          29,600

A significant  portion of the Company's premium revenue is derived from Federal,
state and local government agencies. For the years ended December 31, 2002, 2001
and 2000,  approximately 14%, 10% and 8%,  respectively,  of premium revenue was
derived from Federal government agencies which is included in the All Others and
Risk segments (as described in Item 8 "Financial  Statements  and  Supplementary
Data", Note 15), and approximately 13%, 15% and 14%,  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 15).




                                                                -6-

<PAGE>



PREFERRED PROVIDER ORGANIZATION

MAMSI offers access to its preferred  provider  network  through its  subsidiary
Alliance  PPO,  LLC  ("Alliance").  Effective  January 1, 2001,  MAMSI's  former
subsidiary Mid Atlantic  Psychiatric  Services,  Inc.  ("MAPSI") was merged into
Alliance.  MAPSI's  behavioral  health and substance  abuse network is a product
offering under Alliance.

PPOs allow  enrollees to receive care from a network of preferred  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 preferred
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.

Alliance  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 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.  Alliance provides 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,  TPAs, 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
use  direct  marketing  efforts.  Major  competition  comes  from other PPOs and
insurance carriers.

As of December 31, 2002, Alliance had contracts with approximately 21,100 groups
that had access to the Company's  entire  network of physicians  and health care
practitioners,  including MAPSI's  behavioral health and substance abuse network
of over 4,500 psychiatrists,  psychologists, social workers and other affiliated
licensed behavioral health physicians and practitioners.

Alliance offers optional access to its behavioral health network,  MAPSI,  which
is  comprised  of  physicians  and health  care  practitioners  specializing  in
behavioral health and substance abuse care. In addition, Alliance contracts with
indemnity  insurers that want to offer groups a managed care  behavioral  health
product.  Alliance believes that 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.

Alliance  products are most often marketed jointly;  however,  the purchaser may
purchase the MAPSI  product  only. A total of  approximately  968,000  lives are
covered under one or both of these PPO products as of December 31, 2002.

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 PPOs
may be subject to increased regulatory oversight in the future.



                                                                -7-

<PAGE>



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. In the fourth quarter of 2002,
HomeCall  reduced the number of branches it operates  from 17 to 14 by combining
operations  of the closed  branches  with other  nearby  branch  locations.  The
combined  operations of HomeCall and FirstCall  serve virtually all of Maryland,
the District of Columbia and Northern Virginia.

HomeCall achieved full  accreditation from the Joint Commission on Accreditation
of Healthcare  Organizations  ("JCAHO")  following its survey of all services in
1995 and 1998. The Company achieved reaccreditation in January, 2002.

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.
The Company achieved reaccreditation in January, 2002.

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 in June,  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. The Company achieved reaccreditation in January, 2002.

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.

In January,  2001,  the Company  established  Alliance  Recovery  Services,  LLC
("ARS") as a collection  agency which provides  coordination of benefit services
to TPAs and insurance companies.  ARS is licensed to do business in twenty-eight
states.

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                     2002        2001        2000
------------                   ---------------------------------
                                 (in thousands)
<S>                            <C>         <C>           <C>
Commercial HMO (1)               632.7        522.1        453.1
Hybrid HMO (2)                   126.0        122.4        103.4
Indemnity                        241.2        220.6        206.2
ASO (3)                            8.6          8.9          9.3
                               -------      -------      -------
                               1,008.5        874.0        772.0
PPO (4)                          968.4        958.4      1,019.3
                               -------      -------      -------
Total Membership               1,976.9      1,832.4      1,791.3
                               =======      =======      =======
</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 and
other  health  care  practitioners.  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, or pediatrics and internal medicine, and
(2) obstetrics and gynecology.

The  HMOs  have  contractual   arrangements  with  a  combined  total  of  2,600
facilities, consisting of 400 hospitals and 2,200 non-hospital facilities, as of
December 31, 2002.  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
and laboratory testing.


                                                                -9-

<PAGE>



QUALITY IMPROVEMENT AND OPERATIONS

MAMSI maintains a multi-disciplinary  approach to its Quality Improvement ("QI")
Program to ensure that its health  plan  members  have access to quality  health
care and services 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  standards,  including
appropriate training and experience.

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 in
inpatient and outpatient settings.

In most situations,  prior  authorization must be obtained for elective hospital
admissions.   Failure  to  secure  prior  authorization  for  elective  hospital
admissions  of enrollees  may cause claims to be denied.  Prior to admission for
elective hospital services,  MAMSI applies certain medical criteria to authorize
the admission.

After admission of an 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 and MLH have  established  a  procedure  to  respond  to  enrollee  and
practitioner  complaints and appeals.  Persons  covered by HMOs are also given a
right to seek a fast and fair review of adverse  utilization  review  decisions,
first  internally  by a medical  director  of the HMO or MLH 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 procedure for physician
complaints. In accordance with the new Department of Labor rules and regulations
relating  to claims  payment  and  grievance  procedures,  the Company is in the
process of reviewing its current procedures for compliance.

M.D. IPA  received  Excellent  Accreditation  from the  National  Committee  for
Quality Assurance ("NCQA") for its commercial HMO and POS products in September,
2000. OCI received an Excellent  Accreditation  from NCQA for its commercial HMO
and POS products in September, 2001.

The Company's  home health care,  home infusion,  and home hospice  subsidiaries
underwent  voluntary  reaccreditation  review by JCAHO in  January,  2002.  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 2002
enrollment of HMOs operating in its significant  service areas.  This table does
not include  indemnity  members of any of the listed companies  including MAMSI.
Certain companies listed have significant non-HMO membership.

<TABLE>
<CAPTION>
                                                                  Approximate
                                                                     Number
Insurer/HMO                                                        of Members
-------------                                                     ------------
<S>                                                                  <C>
Mid Atlantic Medical Services, Inc.......................            759,000
Kaiser Foundation Health Plans, Inc......................            514,000
United Health Group, Inc.................................            504,000
AETNA, Inc...............................................            401,000
Anthem, Inc. (formerly Trigon Blue Cross Blue Shield)....            364,000
CareFirst BlueCross BlueShield of Maryland**.............            363,000
CIGNA HealthCare, Inc....................................            343,000
Partners National Health Plan of North Carolina, Inc.....            278,000
Sentara Health System....................................            236,000
Blue Cross/Blue Shield of North Carolina.................            176,000
Coventry Health Care, Inc................................            161,000

</TABLE>

Source:  The InterStudy  Competitive  Edge - 12.2,  except for MAMSI  membership
which is as of December 31, 2002.

** - Includes  FreeState  Health Plan,  Inc.,  Delmarva  Health  Plan,  Inc. and
PHN-HMO, Inc. 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 discounted 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.

As of December 31, 2002, MAMSI subsidiaries employed approximately 327 full-time
individuals who provide marketing services for the Company's  products.  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 in the small group market, the
use of a minimum number of selected  independent  insurance producers to acquire
new accounts.  Since 1994, the Company's  strategy in the small group market has
been to market  primarily  through its internal sales force,  with less usage of
independent insurance producers.  In North Carolina and West Virginia,  however,
the  Company is  marketing  primarily  through  selected  independent  insurance
producers.

                                                                -11-

<PAGE>



RISK MANAGEMENT

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 and MLH reduce the financial  impact of  catastrophic
losses by maintaining reinsurance coverage for hospital costs. The reinsurer for
health  claims  indemnifies  either 90% of the approved per diem or fixed charge
per procedure  (whichever is less), or 80% of the eligible in and out of service
area  acute  care  medical  expenses  (if not paid at a fixed  fee) in excess of
$200,000  per  enrollee  per year.  Transplant  costs  conducted  in an approved
facility  are  reimbursed  at either 90% or 80% of eligible  charges and in non-
approved  facilities at 50% of eligible charges.  There is a lifetime maximum of
$2,000,000 in eligible  medical costs with no more than  $1,000,000 in any given
year. MLH reduces the financial  impact of life and  accidental  death claims by
maintaining reinsurance coverage for settlement costs.  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.   The  Company  is
contingently  liable for its reinsured losses to the extent that the reinsurance
company cannot meet its obligations under the reinsurance contracts.

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)  institutional  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;   and  (x)  claims  adjudication
processes, including timeliness of payment.

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 determine the premiums to be charged
to employers  for a 12 month period and revise the premium at 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,  special  treatment of certain  broad  classes of  enrollees  and
projected claims experience,  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.

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



                                                                -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 requirements  under the FEHBP. The results of
these audits could result in material adjustments. OPM's review of the Company's
premium rates has been  completed  for all years  through  1999. No  significant
modifications  resulted from the audit of the Company's 1999 rates.  OPM has not
yet audited 2000-2002.

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,   risk  based  capital  and  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,  risk based  capital 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.

The Health  Insurance  Portability  and  Accountability  Act  ("HIPAA")  privacy
regulations will be effective April 14, 2003. MAMSI's confidentiality  committee
has been working  towards  compliance and  anticipates  full  compliance by this
date. Additional information regarding HIPAA is included in Item 7 "Management's
Discussion  and Analysis of Financial  Condition and Results of  Operations"  on
page 21.

The  Department  of Labor has  issued  rules and  regulations  regarding  claims
payment and appeal procedures  effective January 1, 2003. MAMSI is adjusting its
claim  payment  and  appeal   procedures  to  comply  with  the  new  rules  and
regulations.  The Company  does not expect that the cost of  compliance  will be
significant.

INVESTMENTS

The  majority  of the  Company's  investments  are held by its  state  regulated
subsidiaries 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

                                                                -13-

<PAGE>



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.

EMPLOYEES

As of December 31, 2002, the Company had a total of 3,315  employees,  including
2,989  full-  time  and  326  part-time  employees.  MAMSI's  home  health  care
subsidiary  employed 555 of these employees (370 on a full-time basis and 185 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  names
"Optimum Choice", "MAMSI" and "emamsi".

SEGMENT INFORMATION

Segment   information   is  included  in  Item  8  "Financial   Statements   and
Supplementary Data", Note 15.

AVAILABLE INFORMATION

MAMSI  maintains  a website  with the  address  www.mamsi.com.  The  information
contained  on the  website  is not  included  as a part of, or  incorporated  by
reference into,  this Annual Report on Form 10-K.  MAMSI's Annual Report on Form
10-K,  quarterly  reports  on Form 10-Q and  current  reports  on Form 8-K,  and
amendments  to these  reports,  are made  available  via the  website as soon as
reasonably  practicable after MAMSI has electronically filed such material with,
or furnished such material to, the Securities and Exchange Commission.

ITEM 2. PROPERTIES

The  Company  owns eleven  office  buildings,  five of which are  sublet.  These
buildings   are  located  in  Rockville  and   Frederick,   Maryland  and  total
approximately  568,000 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  239,000  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 lawsuits challenging the  constitutionality of the law
which allows the Company to subrogate  against other  insurance  companies.  The
action against the Company was filed in the Circuit Court for Montgomery County,
Maryland.  The Company  filed a motion for removal of the case to federal  court
under ERISA which was denied on February 4, 2003. In a separate matter unrelated
to the Company,  but similar in facts,  the Maryland  Court of Appeals  recently
ruled  that the  retroactive  portion of the law is  unconstitutional  under the
Maryland constitution.  The Company believes that its operations with respect to
the law are valid and is pursuing all available  defenses.  The Company does not
believe,  at this time, the ultimate  outcome of this action will be material to
the Company's financial statements.

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

                                                                -14-

<PAGE>



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
2002.





















































                                                                -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  closing  prices of the common
stock as furnished by the NYSE.
<TABLE>
<CAPTION>

                                     2002                     2001
                              -----------------        -----------------
                               HIGH        LOW          HIGH        LOW
                              -----------------        -----------------
<S>                          <C>        <C>           <C>        <C>
First Quarter                 $28.90     $22.65        $20.30     $14.94
Second Quarter                 39.14      27.95         21.08      15.34
Third Quarter                  37.00      27.79         23.05      17.63
Fourth Quarter                 42.70      29.12         22.96      16.70

</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.
See Note 13 included in Item 8 "Financial Statements and Supplementary Data."

On September 6, 2002, the Company's Stock  Compensation  Trust ("SCT") purchased
from the Company  2,000,000  shares of the Company's  common stock at a price of
$34.95  per  share for  $20,000  in cash and  $69,880,000  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 7, 2003 there were  approximately  634 stockholders of record of the
Company's common stock.

The  information  regarding  securities  authorized  for  issuance  under equity
compensation  plans is incorporated  by reference from the "Equity  Compensation
Plans" section of the Proxy Statement for MAMSI's annual meeting of shareholders
to be held on April 28, 2003.


                                                                -16-

<PAGE>



ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                               2002         2001          2000          1999          1998
                                           ----------    ----------    ----------    ----------    ----------
                                           (in thousands except share amounts, key ratios and operating data)

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

Revenue                                    $2,328,029    $1,807,735    $1,484,479    $1,317,316    $1,187,901
Expense                                     2,180,711     1,723,393     1,427,721     1,277,486     1,175,665
Income before income taxes                    147,318        84,342        56,758        39,830        12,236
Net income                                     97,413        57,195        39,406        26,322         9,045
Earnings per common share
Basic                                           $2.49         $1.48         $1.04         $0.64         $0.20
Diluted                                         $2.34         $1.41         $1.00         $0.64         $0.20
Weighted Average Shares
  Basic                                    39,171,996    38,672,147    38,052,746    41,225,327    45,407,006
  Diluted                                  41,657,009    40,502,086    39,341,037    41,266,604    45,473,995
Dividends (1)                                   ---           ---           ---           ---           ---

SELECTED BALANCE SHEET DATA (AT DECEMBER 31)

Working capital                            $  225,994    $  193,026    $  153,717    $  118,995    $  123,138
Total assets                                  773,028       594,213       467,023       388,584       362,775
Long-term debt                                      -             -             -             -            14
Stockholders' equity                          346,565       281,471       225,990       186,821       191,218
Cash dividends per common share (1)             ---           ---           ---           ---           ---
KEY RATIOS
Medical care ratio                               84.2%         85.4%         86.5%         87.9%         88.8%
Administrative expense ratio                     10.8%         11.7%         12.1%         11.6%         11.3%
Net income margin                                 4.2%          3.2%          2.7%          2.0%          0.8%
OPERATING DATA
Annualized hospital days per
  1,000 enrollees:
All products and health services (3)              253           250           244           238           265
HMO only (2)                                      194           196           192           191           191
Medicare (3)                                        -             -             -             -         2,425
Medicaid (3)                                        -             -             -           496           375
Annualized hospital admissions per
  1,000 enrollees (3)                              66            64            63            61            72
HMO, hybrid, ASO and indemnity
  health enrollees at year end              1,009,000       874,000       772,000       766,000       731,000
PPO enrollees at year end                     968,000       958,000     1,019,000     1,024,000     1,060,000
</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  Management's  Discussion  and
Analysis  of  Financial   Condition  and  Results  of  Operations  is  based  on
management's  current knowledge of factors, all of which have inherent risks and
uncertainties  that affect 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 effect of a weak economy on the Company.

3.     The effect on the Company due to the acts of terrorism  and the threat of
       future attacks.

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

5.     The possibility of increased litigation,  legislation or regulation (such
       as the  numerous  class  action  lawsuits  that have been  filed  against
       managed care  companies and the pending  initiatives  to increase  health
       care  regulation)  that might have the  potential  for  increased  costs,
       and/or  increased  regulation  of rates which might have the potential to
       decrease revenue.

6.     The inability to predict and control 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.
          -    The ultimate accuracy of the Company's  estimate of the liability
               for incurred but not reported claims.
          -    The potential for disputes under its  risk-sharing  arrangements,
               and  the   Company's   ability  to   maintain   and  renew  these
               arrangements.

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

The list of significant risk factors is not intended to be exhaustive. There may
be other risk  factors  that would  preclude  the  Company  from  realizing  the
predictions  made in the  forward-looking  statements.  While  the  Company  may
periodically  update this  discussion  of risk  factors,  the  Company  does not
undertake  to update  any  forward-looking  statement  that may be made by or on
behalf of the Company prior to its next required  filing with the Securities and
Exchange Commission.

CRITICAL ACCOUNTING POLICIES

MAMSI,  through its 100% owned  subsidiary  companies,  is  predominately in the
business of selling various forms of health insurance.  In 2002, 97% of revenues
were earned from the sale of health insurance products,  mostly to employers who
purchase health insurance for their employees. Since premium rates are generally
fixed for a one year period, it is critical to the Company's continued financial
success that premiums are set at levels that will at least cover the next policy
year's  medical  costs for  members  plus  administrative  costs to pay  claims,
provide member services, pay taxes, and cover other related costs.



                                                                -18-

<PAGE>



This means that we have to  carefully  evaluate  data and  estimate  both future
utilization of medical services by our members and the cost of those services so
that we can set premiums at adequate  levels.  This is the single most important
factor in our business.  Very simply,  if our medical  expenses are greater than
our premiums, we lose money.

While  MAMSI's  business  is  somewhat  complex  from  an  insurance  regulatory
standpoint,   its   consolidated   balance   sheet  and  income   statement  are
straightforward  and  the  accounting  policies  and  procedures  that we use to
produce  them are  reasonable  and  appropriate.  MAMSI does not own any special
purpose entities, does not have any complex or extraordinarily risky investments
nor does it have any off balance sheet financing  arrangements.  In fact,  MAMSI
has almost no debt  outstanding.  The buildings that the Company owns and either
uses in its  operations  or are currently  leased to other  entities do not have
mortgages;  they are owned free and clear.  The Company's funds are held in cash
or invested  in money  market  accounts,  tax exempt  securities  and other debt
securities. All of the bonds we own have investment ratings of "A" or better.

Certain  of  our  accounting  policies  are  extremely  important  to  the  fair
presentation of our results and financial position.

We  think  that  the  single  most  important  accounting  issue  we have is the
recording,  at the end of each reporting  period,  of an adequate  liability and
corresponding  expense  for  medical  services  that have been  provided  to our
members but for which we have not yet received a bill.  This lag between date of
service  and  date of  billing  is  normal  in the  insurance  business  and the
liability for these claims is called  "liability for incurred,  but not reported
claims"  ("IBNR").  The IBNR  liability is included  with claims  payable in our
balance sheet.

The determination of the Company's IBNR is a fairly complex process. The Company
employs its own actuary to aid in its  determination.  The primary method we use
to estimate IBNR is consistent from period to period and uses historical  claims
data to develop the historical relationship of how many claims dollars have been
reported in any given month to what was received in total,  once all claims were
received.  This relationship  gives us an indication of how much medical expense
has been incurred in months for which we have not yet received all claims. While
we use a  consistent  method  in  developing  our  IBNR  estimate,  considerable
judgment is required.  Various  factors such as timing of the receipt of claims,
seasonal  utilization,   and  underlying  cost  inflation  affect  the  ultimate
development of claims expense.  To the extent that we over or under estimate our
IBNR at the end of any reporting period,  the adjustment is included in the next
period's  results.  The  table  below  indicates  how  much we  believe  we have
over-estimated or (under-estimated) our IBNR liability for the past three years:

<TABLE>
<CAPTION>
                                  Over/(Under)                  As a % of
             Year                  Estimated                  Medical Expense
             ----                 -----------                 ---------------
             <S>                 <C>                          <C>
             2001                 $31,294,000                      1.64%
             2000                   7,701,000                       .52%
             1999                  (4,407,000)                     (.36%)
</TABLE>

Another  important  accounting  policy  relates to our  risk-sharing  contracts.
Certain of the Company's larger vendors offer various forms of "risk-sharing" or
"guarantees"  as a  part  of  their  contractual  relationship  with  us.  These
arrangements  are  not  significant  in  relation  to  the  Company's  financial
statements with one exception,  the Company's risk-sharing  arrangement with its
Pharmacy  Benefits  Manager  ("PBM").  The  Company's  PBM  is  responsible  for
providing  administrative and technical support as well as providing the ability
to process

                                                                -19-

<PAGE>



pharmacy  transactions on a real time basis.  The Company's PBM through December
31, 2002 was Medco Health Solutions, Inc. (formerly known as Merck-Medco Managed
Care,  LLC)  ("Merck").  As a part of its  contract  with us,  Merck agreed to a
pharmacy cost guarantee  related to fiscal year 2000. We recorded the amount due
under this  guarantee  over the  contract  term of three  years,  which  expired
December 31, 2002.  The total value of the  guarantee  for  financial  statement
purposes  was  approximately  $41.0  million  which  has  been  recorded  in our
financial  statements as a reduction of medical  expense over the three years of
the  contract.  At  December  31,  2001,  approximately  $28.1  million was also
reported in the balance sheet as a reduction of claims  payable.  In April 2002,
the Company  received payment of $41.0 million from Merck. At December 31, 2002,
no amounts related to the 2000 guarantee remain unrecognized. In addition to the
2000 guarantee,  the Company's  former PBM contract  provided for a risk-sharing
arrangement for the years 2001 and 2002. The 2001 risk-sharing arrangement is in
the process of being  finalized  and settled.  It is  anticipated  that the 2002
risk-sharing arrangement will be settled in July, 2003. As of December 31, 2002,
the Company has  recorded  what it believes to be a  reasonable  estimate of the
results  of  these  risk-share  arrangements.  See  Note 1  included  in  Item 8
"Financial  Statements and Supplementary  Data".  Beginning January 1, 2003, the
Company retained Express Scripts, Inc. as its PBM.

Another accounting policy that is very important to the fair presentation of our
financial results is the proper valuation of the Company's accounts  receivable.
The Company  bills the majority of its health  insurance  customers on a monthly
basis.  The premium bill is  typically  sent out 15 days in advance of the month
being  billed  for, so that the Company can receive the cash at the start of the
month  for which the  insurance  is being  provided.  The vast  majority  of our
customers pay in a timely fashion but some do not. After some communication,  we
generally receive payment but we do not always collect what we are due. This can
happen for a variety of reasons such as customers having financial difficulties,
disputes  regarding  the amount of the bill or a  customer  failing to notify us
that they have obtained other health  insurance.  To properly value the accounts
receivable  at its net  realizable  value we must  determine  an  allowance  for
doubtful accounts.

The  allowance  for  doubtful  accounts  reduces  the gross  amount of  accounts
receivable that are recorded, based on the bills sent, to the net amount that we
actually think we will receive.  The allowance also reduces  premium  revenue by
the same  amount.  To  determine  how much to record as a reduction of the gross
accounts  receivable,  we  prepare  an  accounts  receivable  aging.  This aging
segments the total accounts receivable balance by category as to when it was due
to the Company.  This allows us to evaluate how old our accounts receivable are.
We then prepare an evaluation based on historical collection percentages applied
to various categories of accounts. We also identify individual accounts that are
unlikely  to  pay  due  to  financial   or  other   problems  and  analyze  them
individually.  The aforementioned  analyses are then summarized and an allowance
is developed and recorded.  The Company applies this methodology on a consistent
basis from period to period.

GENERAL

During the three year period ended  December 31, 2002,  the Company  experienced
significant  growth in membership.  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.  Premium rates
during  this time have  increased,  yet  remain at  competitive  levels  for the
Company's marketplace.  During 2002, the Company's consolidated operating margin
showed  improvement over 2001. The Company achieved 2002's results,  in part, by
implementing  product price increases and carefully  underwriting  groups,  when
allowed by regulation, that had the potential for continued unprofitability. The
Company anticipates that it will continue to increase premium rates during 2003.
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

                                                                -20-

<PAGE>



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.

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 further  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.  The U.S.
Department  of Health and Human  Services has  published  final  regulations  on
Transactions and Code Sets,  Privacy and the National Employer  Identifier,  and
Security. 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 have assessed  current  procedures and developed
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. MAMSI will comply with the regulations by
the applicable compliance deadlines.  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.

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, with
the exception of North Carolina, 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 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.


                                                                -21-

<PAGE>



-----------------------------------------------------------------------------
THE YEAR ENDED DECEMBER 31, 2002 COMPARED TO THE YEAR ENDED DECEMBER 31, 2001
-----------------------------------------------------------------------------

RESULTS OF OPERATIONS

Consolidated  net income for the year  ended  December  31,  2002  increased  to
$97,413,000  from  $57,195,000  for the year ended  December 31,  2001.  Diluted
earnings per share increased from $1.41 in year ended December 31, 2001 to $2.34
for the year ended December 31, 2002.  The increase in earnings is  attributable
to an increase in members,  an increase in premiums  per member,  a reduction in
medical  expenses as a  percentage  of health  premium  revenue  ("medical  care
ratio"),  and a reduction in  administrative  expenses as a percentage  of total
revenue  ("administrative  expense  ratio").  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).

Health  premium   revenue  for  the  year  ended  December  31,  2002  increased
approximately  $518.7  million or 29.8 percent over the year ended  December 31,
2001.  A 16.8  percent  increase  in net average  HMO and  indemnity  enrollment
resulted  in an  increase  of  approximately  $293.0  million in health  premium
revenue while an 11.1 percent  increase in average monthly premium per enrollee,
combined  for all  products,  resulted  in a $225.7  million  increase in health
premium  revenue.  Management  believes  that  commercial  health  premiums will
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
medical cost inflation,  both of which cause the Company to increase its premium
rates. 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 generally cannot be initiated until a contract reaches
its renewal date.  Therefore,  price  increases are not  implemented  across the
Company's  membership at the same time.  Overall,  commercial  premium rates are
currently expected to increase in 2003 by approximately 13.0%, net of buy-downs,
resulting  in a per member per month  increase  of  between  12.25% and  12.75%.
Management believes that these rate increases may have the effect of slowing the
Company's future membership growth.

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 currently  anticipates its 2003 membership growth to be in the
4% to 5% range.

The Company's home health  operations  contributed  $22.0 million in revenue for
the year ended  December  31, 2002 as compared  with $22.7  million for the year
ended December 31, 2001,  reflecting a decrease in Medicare  referrals.  Fee and
other revenue  increased to $22.4  million for the year ended  December 31, 2002
from $21.2  million for the year ended  December 31, 2001,  primarily  due to an
increase in rental income from company  owned  facilities.  Life and  short-term
disability  products  contributed  $9.1  million in  revenue  for the year ended
December 31, 2002 as compared with $8.1 million for the year ended  December 31,
2001.

Investment  income  increased from $14.8 million for the year ended December 31,
2001 to $15.0  million for the year ended  December 31, 2002.  While  investment
balances  increased,  investment  income  remained  stable  primarily due to the
decline in interest rates.


                                                                -22-

<PAGE>



The medical care ratio decreased to 84.2 percent for the year ended December 31,
2002 as compared to 85.4 percent for the year ended  December 31, 2001. On a per
member per month basis, medical expenses increased 9.5 percent. The reduction 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, and also increased premiums per member. The ongoing initiatives
should help to control the  Company's  medical  care ratio.  Included in medical
expense for the year ended  December 31, 2002 is a net favorable  development of
prior years' medical cost estimates of $31,294,000. This was due to the level of
completion of claims which in retrospect  was higher than that assumed for 2001.
For the year ended  December 31, 2001,  the net favorable  development  of prior
years' medical cost estimates approximated $7,701,000. The medical expense trend
is currently  expected to be between 11.5% and 12.5% for 2003. 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.

The administrative  expense ratio decreased from 11.7 percent for the year ended
December  31, 2001 to 10.8 percent for the year ended  December  31,  2002.  The
decrease in the administrative  expense ratio is principally due to increases in
premium rates and membership,  and management's  efforts to control costs as the
business volume increases. Management currently believes that the administrative
expense ratio will be approximately  10.8% for 2003.  Management's  expectations
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, increased administrative
activity  related to business  volume and to price  increases from the Company's
vendors.

The effective tax rate  increased  from 32.2 percent for the year ended December
31, 2001 to 33.9 percent for the year ended  December 31, 2002  primarily due to
the  increase  in pre-tax  income and the fact that tax  exempt  interest  was a
smaller portion of total income.

The net margin rate  increased  from 3.2 percent for the year ended December 31,
2001 to 4.2 percent  for the year ended  December  31,  2002.  This  increase is
consistent with the factors previously described.

-----------------------------------------------------------------------------
THE YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE YEAR ENDED DECEMBER 31, 2000
-----------------------------------------------------------------------------

RESULTS OF OPERATIONS

The  Company's  consolidated  net income for the year ended  December  31,  2001
increased to $57,195,000  from $39,406,000 for the year ended December 31, 2000.
Diluted  earnings per share increased from $1.00 in year ended December 31, 2000
to $1.41 for the year ended  December  31,  2001.  The  increase  in earnings is
attributable  to an increase in premiums per member,  a reduction in the medical
care ratio, and a reduction in the administrative expense ratio.

Revenue for the year ended  December  31, 2001  increased  approximately  $323.3
million or 21.8  percent  over the year ended  December  31, 2000. A 9.9 percent
increase in net average HMO and indemnity  enrollment resulted in an increase of
approximately  $140.7  million in health  premium  revenue while an 11.9 percent
increase in average  monthly  premium per  enrollee,  combined for all products,
resulted in a $185.3 million increase in health premium revenue.



                                                                -23-

<PAGE>



The Company's home health  operations  contributed  $22.7 million in revenue for
the year ended  December  31, 2001 as compared  with $26.3  million for the year
ended  December  31,  2000  reflecting  a  decrease  in  services   provided  to
non-affiliated companies and a write-off of uncollectible accounts receivable in
the amount of  approximately  $1.5 million.  Fee and other revenue  decreased to
$21.2  million for the year ended  December 31, 2001 from $21.8  million for the
year  ended  December  31,  2000.  Life  and  short-term   disability   products
contributed  $8.1  million in revenue  for the year ended  December  31, 2001 as
compared with $8.0 million for the year ended December 31, 2000.

Investment  income  increased from $13.5 million for the year ended December 31,
2000 to $14.8 million for the year ended December 31, 2001.

The medical care ratio decreased to 85.4 percent for the year ended December 31,
2001 as compared to 86.5 percent for the year ended  December 31, 2000. On a per
member per month basis,  medical  expenses  increased 10.5 percent.  Results for
2001  were  positively   impacted  by  approximately   $7,701,000  of  favorable
development of prior period  estimates of medical  costs.  Results for 2000 were
negatively  impacted by approximately  $4,407,000 of unfavorable  development of
prior period  estimates of medical costs. The decrease in the medical care ratio
is due to increased  premiums per member combined with 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 administrative  expense ratio decreased from 12.1 percent for the year ended
December  31, 2000 to 11.7 percent for the year ended  December  31,  2001.  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.

The effective tax rate  increased  from 30.6 percent for the year ended December
31, 2000 to 32.2 percent for the year ended  December 31, 2001  primarily due to
the benefit from certain one-time tax credits that were recognized in 2000.

The net margin rate  increased  from 2.7 percent for the year ended December 31,
2000 to 3.2 percent  for the year ended  December  31,  2001.  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 provider 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 to meet the Company's cash requirements in the future.

The Company's  cash and  investment  securities  increased  $121.1  million from
$372.8  million at December  31, 2001 to $493.9  million at December  31,  2002,
primarily due to the timing of medical expense payments which  traditionally lag
behind the receipt of increased  premiums per member,  the $41.0 million payment
received  from Merck in April 2002,  cash  received  from the  exercise of stock
options and net income  offset by the effect of  treasury  stock  purchases  and
purchases of three buildings and other capital expenditures. Accounts receivable
increased from $105.3 million at December 31, 2001 to $118.1 million at December
31, 2002,  principally due to increased membership.  Prepaid expenses,  advances
and other  increased from $27.4 million at December 31, 2001 to $37.1 million at
December 31, 2002  primarily  due to an increase in the  unamortized  portion of
prepayments for insurance policies which cover the Company's assets and business
operations  and an  increase  in  working  capital  advances  paid  to  Maryland
hospitals.

                                                                -24-

<PAGE>



Net property and equipment  increased from $57.3 million at December 31, 2001 to
$82.7 million at December 31, 2002 due to the purchase of furniture and computer
hardware  necessitated by the Company's growth, the purchase of a parcel of land
adjacent  to an  existing  Company  owned  facility,  and the  purchase of three
additional office buildings for  approximately  $22.0 million at the site of its
corporate  headquarters  in Rockville,  Maryland.  These  buildings will provide
additional contiguous office space for current and future operations.

Claims  payable  increased  from $212.0  million at December  31, 2001 to $297.3
million at December  31, 2002,  primarily  due to  increased  membership  and an
increase in medical  expenses per member,  the timing of payments to  physicians
and health care practitioners, and the receipt of the $41.0 million payment from
Merck of which $28.1 million had been recorded as a reduction of claims  payable
at December 31, 2001.  Deferred premium revenue  decreased from $37.7 million at
December  31, 2001 to $33.9  million at  December  31, 2002 due to a decrease in
cash  payments  received in advance of the  premium  coverage  period.  Unearned
revenue  increased  from $1.7 million at December  31, 2001 to $14.6  million at
December 31, 2002 primarily due to incentive cash payments  received  related to
certain long-term medical services vendor contracts.

Additional paid-in capital increased from $349.6 million at December 31, 2001 to
$466.2  million at December 31, 2002 due to an additional  2.0 million shares of
the Company's  stock being  acquired by the SCT, the exercise of employee  stock
options,  as well as an  increase  in the  market  value  of the  shares  of the
Company's stock held in the SCT.

The value of the SCT  increased  from  $204.7  million at  December  31, 2001 to
$269.3  million at December  31, 2002 due to the increase in the market value of
the  shares of the  Company's  stock  held in the SCT,  and the  purchase  of an
additional 2.0 million  shares of the Company's  stock being acquired by the SCT
offset by the  exercise of  employee  stock  options.  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.

Treasury  stock  increased  from $185.1  million at December  31, 2001 to $276.2
million at December 31, 2002 due to the purchase of 2,897,300  additional shares
by the Company at a total cost of $91.1 million.

The Company  currently has access to total revolving credit  facilities of $29.0
million which are subject to annual renewal and collateral requirements, and are
used to provide short-term capital resources for routine cash flow fluctuations.
At December  31,  2002,  the  Company's  investment  security  balances  used as
collateral,  which are parent company only  investments,  fell below the minimum
collateral  requirements  thereby reducing the credit line availability to $24.1
million. In addition, at December 31, 2002, approximately $3.2 million was drawn
against these facilities,  and approximately  $614,000 in letters of credit were
outstanding.  While no amounts have been drawn  against these letters of credit,
they reduce the Company's credit line availability.



                                                                -25-

<PAGE>



Following is a schedule of the  short-term  capital  resources  available to the
Company:
<Table>
<Caption>
                                                          December 31,    December 31,
(in thousands)                                               2002             2001
                                                         ------------     ------------
<S>                                                      <C>              <C>
Cash and cash equivalents                                $      7,144     $      4,510
Investment securities                                         486,740          368,327
Working capital advances to Maryland hospitals                 23,791           19,686
                                                          -----------      -----------
Total available liquid assets                                 517,675          392,523
Credit line availability                                       20,217           20,184
                                                          -----------      -----------
Total short-term capital resources                       $    537,892      $   412,707
                                                          ===========      ===========
</Table>

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

The Company's major business  operations are principally  conducted  through its
HMOs and its  insurance  company.  HMOs and  insurance  companies are subject to
state regulations that, among other things,  require those companies to maintain
certain levels of equity and Risk Based Capital ("RBC"), and restrict the amount
of  dividends  and  other  distributions  that  may  be  paid  to  their  parent
corporation  (See  Note  13  included  in  Item  8  "Financial   Statements  and
Supplementary Data"). As of December 31, 2002, those subsidiaries of the Company
were in compliance with all minimum capital  requirements and M.D. IPA, OCI, MLH
and OCIPA  exceeded  all RBC  requirements.  OCCI failed to meet its RBC Company
Action Level  ("CAL") of $3.8 million at December 31, 2002.  In February,  2003,
additional capital was provided to meet this requirement.

During the year ended December 31, 2002,  the Company  repurchased an additional
2,897,300  shares of its common  stock for a total cost of  approximately  $91.1
million.   On  December  31,  2002,   approximately   $1.3  million  of  unspent
authorization was available for future purchases. On January 16, 2003, the Board
of  Directors  authorized  a $20.0  million  stock  repurchase  program to begin
immediately.  During January 2003, the Company  repurchased an additional 85,000
shares of its common stock for a total cost of  approximately  $2.8 million.  On
February 12, 2003,  the Board of Directors  increased  the  outstanding  unspent
authorization by $31.5 million to a total of $50.0 million.

CONTRACTUAL OBLIGATIONS

The Company is  contractually  obligated to make payments as follows  within the
next five years (in thousands):

<TABLE>
<CAPTION>

   Contractual                        1         2-3       4-5      After 5
   Obligation              Total     Year      Years     Years      Years
 --------------           -------   -------   -------   -------   --------
<S>                       <C>       <C>       <C>       <C>      <C>
Short-term borrowings      $3,219    $3,219    $    -    $    -    $     -
Operating leases            8,041     3,659     3,904       478          -

</TABLE>



                                                                -26-

<PAGE>



Operating  lease terms range from one to five years with renewal  provisions  at
the Company's option.

The Company is subject to various  contracts  with certain health care providers
and pharmacy benefit managers. Such contracts involve payments from the Company,
generally on a monthly  basis,  in the  ordinary  course of business and are not
included in the above table.

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 affect the Company's financial position or cash flow. The Company has
no significant  market risk with regard to liabilities  and does not use special
purpose entities.  Debt securities (most of which are exempt from Federal taxes)
at December 31, 2002 mature according to their  contractual terms as follows (in
thousands):

<TABLE>
<CAPTION>

                                                                                          There-                Fair Value
Assets                            2003        2004       2005        2006       2007      after       Total      12/31/02
------                          --------    -------     -------    -------    -------    --------    --------    --------
<S>                            <C>         <C>         <C>        <C>        <C>        <C>         <C>

Available-for-sale securities   $229,879    $10,986     $18,517    $27,784    $39,102     $137,907   $464,175    $478,380

Average interest rate               4.20%      3.83%       4.20%      4.56%      4.20%        4.24%

Held-to-maturity                 $ 7,391    $ 1,528     $   962    $   623    $   350     $ 10,687   $ 21,541    $ 22,852

Average interest rate               3.74%      5.37%       5.42%      6.12%      5.71%        5.09%

</TABLE>


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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















                                                                -27-

<PAGE>



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

Consolidated Balance Sheets as of December 31, 2002 and 2001.....  29

Consolidated Statements of Operations for the years ended
  December 31, 2002, 2001 and 2000...............................  30

Consolidated Statements of Changes in Stockholders' Equity
  for the years ended December 31, 2002, 2001 and 2000...........  31

Consolidated Statements of Cash Flows for the years ended
  December 31, 2002, 2001 and 2000...............................  32

Notes to Consolidated Financial Statements.......................  33

Report of Ernst & Young LLP Independent Auditors.................  52

Selected Quarterly Financial Data for Fiscal Years 2002 and
 2001 (Unaudited)................................................  53



                                                                -28-

<PAGE>

<TABLE>
<CAPTION>


                                                Mid Atlantic Medical Services, Inc.
                                                   Consolidated Balance Sheets

                                                                                     December 31,
(in thousands except share amounts)                                              2002          2001
                                                                               --------      --------
<S>                                                                            <C>           <C>
ASSETS
Current assets
  Cash and cash equivalents                                                    $  7,144      $  4,510
  Investment securities                                                         486,740       368,327
  Accounts receivable, net                                                      118,050       105,343
  Prepaid expenses, advances and other                                           37,104        27,372
  Deferred income taxes                                                           3,419           216
                                                                               --------      --------
Total current assets                                                            652,457       505,768

Property and equipment, net                                                      82,683        57,329
Statutory deposits                                                               21,541        17,690
Other assets                                                                      8,951         9,207
Deferred income taxes                                                             7,396         4,219
                                                                               --------      --------
    Total assets                                                               $773,028      $594,213
                                                                               ========      ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
  Short-term borrowings                                                        $  3,219      $  3,681
  Accounts payable                                                               62,434        47,730
  Claims payable, net                                                           297,304       212,010
  Income taxes payable                                                           12,751         1,315
  Deferred premium revenue                                                       33,901        37,698
  Unearned revenue                                                               14,592         1,667
  Deferred income taxes                                                           2,262         8,641
                                                                               --------      --------
    Total liabilities                                                           426,463       312,742
                                                                               --------      --------

Stockholders' equity
Common stock, $0.01 par,  100,000,000  shares authorized,  65,772,502 issued and
 46,987,122 outstanding at December 31, 2002; 63,772,502 issued and 47,884,422
 outstanding at December 31, 2001                                                   657           637
Additional paid-in capital                                                      466,154       349,595
Stock compensation trust (common stock held in trust),
  8,311,590 shares outstanding at December 31, 2002;
  9,019,450 shares outstanding at December 31, 2001                            (269,296)     (204,742)
Treasury stock, 18,785,380 shares at December 31, 2002;
  15,888,080 shares at December 31, 2001                                       (276,205)     (185,110)
Accumulated other comprehensive income                                            9,279         2,528
Retained earnings                                                               415,976       318,563
                                                                               --------      --------
    Total stockholders' equity                                                  346,565       281,471
                                                                               --------      --------
    Total liabilities and stockholders' equity                                 $773,028      $594,213
                                                                               ========      ========


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

                                                                -29-

<PAGE>

<TABLE>
<CAPTION>

                                                Mid Atlantic Medical Services, Inc.
                                               Consolidated Statements of Operations


                                                                            Year Ended December 31,
(in thousands except per share amounts)                                2002          2001           2000
                                                                   ----------     ----------     ----------
<S>                                                                <C>            <C>            <C>
Revenue
  Health premium                                                   $2,259,600     $1,740,938     $1,414,847
  Fee and other                                                        22,416         21,244         21,811
  Life and short-term disability premium                                9,085          8,066          8,034
  Home health services                                                 21,961         22,715         26,304
  Investment                                                           14,967         14,772         13,483
                                                                   ----------     ----------     ----------
Total revenue                                                       2,328,029      1,807,735      1,484,479
                                                                   ----------     ----------     ----------
Expense
  Medical expense
    Referral and ancillary care                                       931,297        722,711        582,775
    Hospitalization                                                   580,181        455,267        373,349
    Primary care                                                       90,699         80,408         77,616
    Prescription drugs                                                299,796        227,760        189,388
    Reinsurance premiums, net                                           1,094          1,084            144
                                                                   ----------     ----------     ----------
                                                                    1,903,067      1,487,230      1,223,272
                                                                   ----------     ----------     ----------
  Life and short-term disability claims                                 3,901          3,589          3,108
                                                                   ----------     ----------     ----------
  Home health patient services                                         22,140         21,950         21,514
                                                                   ----------     ----------     ----------
  Administrative expense
    Salaries and benefits                                             163,376        141,430        117,021
    Promotion and advertising                                           6,277          4,668          5,246
    Professional services                                               9,298          6,208          5,568
    Licenses and taxes                                                 16,599         13,669         11,586
    Facilities, maintenance and supplies                               37,860         32,258         29,389
    Other (including interest expense of $743, $742 and $1,045)        18,193         12,391         11,017
                                                                   ----------     ----------     ----------
                                                                      251,603        210,624        179,827
                                                                   ----------     ----------     ----------
Total expense                                                       2,180,711      1,723,393      1,427,721
                                                                   ----------     ----------     ----------
Income before income taxes                                            147,318         84,342         56,758
Income tax expense                                                    (49,905)       (27,147)       (17,352)
                                                                   ----------     ----------     ----------
Net income                                                         $   97,413     $   57,195     $   39,406
                                                                   ==========     ==========     ==========

Basic earnings per common share                                    $     2.49     $     1.48     $     1.04
                                                                   ==========     ==========     ==========

Diluted earnings per common share                                  $     2.34     $     1.41     $     1.00
                                                                   ==========     ==========     ==========


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

                                                                -30-

<PAGE>
<TABLE>
<CAPTION>



                                               Mid Atlantic Medical Services, Inc.
                                   Consolidated Statements of Changes in Stockholders' Equity
                                                                                          Accumulated
                                                  Additional       Stock                     Other
                                        Common     Paid-In     Compensation   Treasury   Comprehensive  Retained
(in thousands except share amounts)     Stock      Capital        Trust        Stock      Income/(Loss) Earnings    Total
                                        ------    ----------   ------------  ---------   -------------  --------   --------
<S>                                     <C>        <C>         <C>           <C>           <C>          <C>        <C>
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
Exercise of stock options for
  3,000,306 shares released from the
  Stock Compensation Trust                           (2,695)      42,753                                             40,058
Stock option tax benefit                              6,984                                                           6,984
Purchase of 2,000,000 shares of MAMSI
  common stock to be held in the
  Stock Compensation Trust                  20       36,480      (36,500)                                                 -
Adjustment to market value for shares
  held in Stock Compensation Trust                   12,479      (12,479)                                                 -
Repurchase of 2,717,900 shares of
  MAMSI common stock                                                           (49,472)                             (49,472)
Comprehensive income:                                                                                              --------
Net income                                                                                                57,195     57,195
Other comprehensive income,
 net of tax of $386                                                                             716                     716
                                        ------     --------    ---------     ---------     --------     --------   --------
Total comprehensive income                                                                                           57,911
                                                                                                                   --------

Balance, December 31, 2001                 637      349,595     (204,742)     (185,110)       2,528      318,563    281,471
Exercise of stock options for
  2,707,860 shares released from the
  Stock Compensation Trust                           (5,480)      37,038                                             31,558
Stock option tax benefit                             20,467                                                          20,467
Purchase of 2,000,000 shares of MAMSI
  common stock to be held in the
  Stock Compensation Trust                  20       69,880      (69,900)                                                 -
Adjustment to market value for shares
  held in Stock Compensation Trust                   31,692      (31,692)                                                 -
Repurchase of 2,897,300 shares of
  MAMSI common stock                                                           (91,095)                             (91,095)
Comprehensive income:                                                                                              --------
Net income                                                                                                97,413     97,413
Other comprehensive income,
 net of tax of $3,635                                                                         6,751                   6,751
                                        ------     --------    ---------     ---------     --------     --------   --------
Total comprehensive income                                                                                          104,164
                                                                                                                   --------
Balance, December 31, 2002              $  657     $466,154    $(269,296)    $(276,205)    $  9,279     $415,976   $346,565
                                        ======     ========    =========     =========     ========     ========   ========

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

                                                                -31-

<PAGE>

<TABLE>
<CAPTION>

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


                                                                                  Year  Ended  December  31,
(in thousands)                                                                2002           2001           2000
                                                                            --------       --------       --------
<S>                                                                         <C>            <C>            <C>
Cash flows from operating activities:
Net income                                                                  $ 97,413       $ 57,195       $ 39,406
Adjustments to reconcile net income to net cash provided by
  operating activities:
  Depreciation and amortization                                               11,417         11,008         10,263
  Provision for bad debts                                                        421            510            692
  (Benefit) provision for deferred income taxes                              (16,394)           947         (5,280)
  Loss (gain) on sale and disposal of assets                                     156             (1)           356
  Stock option tax benefit                                                    20,467          6,984          3,529
  Increase in accounts receivable                                            (13,128)       (15,899)        (7,023)
  (Increase) decrease in prepaid expenses, advances and other                 (9,440)        (3,441)         2,139
  Increase in accounts payable                                                14,704         13,222         12,528
  Increase in income taxes payable                                            11,436          7,705              -
  Increase in claims payable, net                                             85,294         33,325         24,282
  (Decrease) increase in deferred premium revenue                             (3,797)        19,204          1,545
  Increase (decrease) in unearned revenue                                     12,925         (1,666)         3,333
                                                                            --------       --------       --------
Total adjustments                                                            114,061         71,898         46,364
                                                                            --------       --------       --------
          Net cash provided by operating activities                          211,474        129,093         85,770
                                                                            --------       --------       --------
Cash flows used in investing activities:
  Purchases of investment securities                                        (735,160)      (513,466)      (428,185)
  Sales and maturities of investment securities                              627,345        416,368        365,043
  Purchases of property and equipment                                        (36,753)       (20,237)       (13,297)
  Purchases of statutory deposits                                             (4,231)        (5,563)        (3,394)
  Maturities of statutory deposits                                               100          2,421          2,782
  Purchases of other assets                                                     (317)          (580)          (611)
  Proceeds from sale of assets                                                   175            160            377
                                                                            --------       --------       --------
          Net cash used in investing activities                             (148,841)      (120,897)       (77,285)
                                                                            --------       --------       --------
Cash flows used in financing activities:
  Principal payments on notes payable                                              -              -            (14)
  (Decrease) increase in short-term borrowings                                  (462)           681           (558)
  Exercise of stock options                                                   31,558         40,058         24,930
  Purchase of treasury stock                                                 (91,095)       (49,472)       (31,521)
                                                                            --------       --------       --------
          Net cash used in financing activities                              (59,999)        (8,733)        (7,163)
                                                                            --------       --------       --------
Net increase (decrease) in cash and cash equivalents                           2,634           (537)         1,322
Cash and cash equivalents at beginning of year                                 4,510          5,047          3,725
                                                                            --------       --------       --------
Cash and cash equivalents at end of year                                    $  7,144       $  4,510       $  5,047
                                                                            ========       ========       ========


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



                                                                -32-

<PAGE>



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


NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Mid Atlantic Medical Services,  Inc. is a holding company whose subsidiaries are
active in  managed  health  care and other  life and  health  insurance  related
activities.  MAMSI's principal markets are currently in Maryland,  Virginia, the
District of Columbia,  Delaware, West Virginia, North Carolina and Pennsylvania.
MAMSI  and  its  subsidiaries  (collectively  referred  to  as  "MAMSI"  or  the
"Company")  offer a broad range of health care  coverage  and related  ancillary
products and deliver these  services  through health  maintenance  organizations
("HMOs"),  a  preferred  provider  organization  ("PPO"),  and a life and health
insurance  company.  MAMSI also owns a home health care company, a home infusion
services company, a hospice company,  a coordination of benefits  identification
and  collections  company and maintains a partnership  interest 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.
("OCI"),  and Optimum Choice of the Carolinas,  Inc. ("OCCI") 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.  Optimum Choice,  Inc. of
Pennsylvania ("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,  and  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")  provides services to terminally ill
patients and their families.

Alliance  Recovery  Services,  LLC  ("ARS")  provides  coordination  of benefits
identification and collection  services to Third Party  Administrators  ("TPAs")
and insurance companies.

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 and transactions have been
eliminated in consolidation.




                                                                -33-

<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  recipients (through 2000). For the years ended December 31, 2002, 2001
and 2000,  approximately 14%, 10% and 8%,  respectively,  of premium revenue was
derived from Federal government agencies which is included in the All Others and
Commercial Risk segments (as described in Note 15), and  approximately  13%, 15%
and 14%,  respectively,  was derived from Maryland and Virginia  state and local
government  agencies  which is  included  in the  Commercial  Risk  segment  (as
described in Note 15).

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.

The Company  periodically  reviews its debt and equity  securities  to determine
whether  a  decline  in fair  value  below  the  carrying  value  exists  and is
other-than-temporary.  If a  decline  in market  value is noted  and  considered
other-than-temporary,  the cost  basis or  carrying  amount of the  security  is
written  down to fair  value and the amount of the  write-down  is  included  in
earnings.

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  companies
is recorded as goodwill and is classified in the consolidated  balance sheets as
an other asset.

In June 2001,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards No. 142, "Goodwill and Other Intangible Assets"
("Statement No. 142"), which establishes  standards for financial accounting and
reporting  for  intangible  assets at  acquisition  and for  goodwill  and other
intangible assets subsequent to their acquisition.  Statement No. 142 is applied
to existing  goodwill and  intangible  assets for fiscal years  beginning  after
December  15,  2001.  Statement  No.  142  requires  goodwill  to be tested  for
impairment on an annual basis and between annual tests in certain circumstances,
and  written  down when  impaired,  rather  than  being  amortized  as  previous
accounting standards required.

                                                                -34-

<PAGE>



The Company adopted this Statement  January 1, 2002, at which time  amortization
of the  remaining  book value of  goodwill  ceased.  The  Company is required to
perform an annual  impairment  review of its goodwill  balance  beginning with a
recurring  annual  measurement  date. The Company has chosen October 1 to be its
annual  measurement  date for its  impairment  review.  The Company  considers a
discounted  cash  flow  analysis,  which  includes  profitability   information,
including estimated future operating results,  potential savings to the Company,
trends and other available information,  in assessing whether the carrying value
of  intangible  assets can be  recovered.  Under  Statement  No.  142,  goodwill
impairment is deemed to exist if the carrying  value of a reporting unit exceeds
its estimated fair value. As of December 31, 2002, the Company's  estimated fair
value exceeded the carrying  value of its goodwill and therefore,  no impairment
to its goodwill was  identified.  As the Company does not have a material amount
of goodwill, the adoption of Statement No. 142 did not have a significant effect
on the consolidated financial statements.

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 excluding  co-payments from
members,  such as  hospitalization  and specialist  physicians.  Premium revenue
received in advance is recorded as deferred premium revenue.

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.

                                                                -35-

<PAGE>



The Company has entered into certain  long-term  medical services related 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  product  offerings 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. In the case of one of these contracts, a dispute
with the Company's  PBM,  Merck,  arose over its 2000  guarantee  which involved
approximately  $41.0 million which had been recorded in the Company's  financial
statements  as a  reduction  of  medical  expense  over the  three  years of the
contract. At December 31, 2001, approximately $28.1 million was also reported in
the balance  sheet as a reduction  of claims  payable.  On April 24,  2002,  the
Company  reached a settlement of its dispute with Merck.  Under the terms of the
settlement,  the Company has received  payment of $41.0 million.  In addition to
the  2000  guarantee,   the  Company's  former  PBM  contract   provided  for  a
risk-sharing  arrangement  for the years  2001 and 2002.  The 2001  risk-sharing
arrangement is in the process of being finalized and settled.  It is anticipated
that the 2002  risk-sharing  arrangement  will be settled in July,  2003.  As of
December 31, 2002,  the Company has recorded what it believes to be a reasonable
estimate of the results of these risk-share arrangements.

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  affect  the
Company's  earnings in future  periods.  For the years ended  December 31, 2002,
2001 and 2000, the Company estimates that it over-estimated or (under-estimated)
its claims reserves by $31,294,000,  $7,701,000 and $(4,407,000),  respectively.
See Note 5.

Premium deficiency reserves, if any, are recognized when it is probable that the
expected future health care cost of a group of existing contracts (and the costs
necessary to maintain those contracts) will exceed future anticipated  premiums,
investment  income and reinsurance  recoveries on those  contracts.  The Company
groups contracts  consistent with its  underwriting.  The Company  evaluates the
need for premium deficiency  reserves on a quarterly basis. An immaterial amount
of reserves was required at December 31, 2002 and 2001.

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 medical expense and, in the  consolidated  balance  sheets,  such amounts are
classified as a reduction of 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.






                                                                -36-

<PAGE>



EARNINGS PER COMMON SHARE

Basic earnings per common share are calculated using 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  11)  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

On December 31,  2002,  the  Financial  Accounting  Standards  Board issued FASB
Statement No. 148,  "Accounting  for  Stock-Based  Compensation - Transition and
Disclosure"  ("Statement  148").  Statement  148 amends FASB  Statement No. 123,
"Accounting  for  Stock-Based   Compensation"   ("Statement  123"),  to  provide
alternative  methods of transition  for an entity that changes to the fair value
method of accounting for stock-based employee  compensation.  Statement 148 does
not amend Statement 123 to require companies to account for stock-based employee
awards using the fair value method.

As permitted by Statement 123, as amended by Statement 148, 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.   See  Note  10  for  further
information on the Company's stock option plans.

RECLASSIFICATIONS

Certain   balances  in  the  2001  and  2000  financial   statements  have  been
reclassified to conform with the 2002 presentation.

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

                                                                -37-

<PAGE>



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.





















































                                                                -38-

<PAGE>



The following is a summary of available-for-sale and held-to-maturity securities
at December 31, 2002 and 2001:

<TABLE>
<CAPTION>
                                                       -----------------------------------------------------
                                                                                2002
                                                       -----------------------------------------------------
                                                                        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                             $  2,169       $   266        $     -        $  2,435
Obligations of states and political subdivisions        256,777        13,950             11         270,716
Municipal bond funds                                    201,864             -              -         201,864
Accrued interest                                          3,365             -              -           3,365
                                                       --------       -------        -------        --------
Debt securities                                         464,175        14,216             11         478,380
Equity securities                                         8,290           141             71           8,360
                                                       --------       -------        -------        --------

Investment securities                                  $472,465       $14,357        $    82        $486,740
                                                       ========       =======        =======        ========

Held-to maturity securities
U.S. Treasury securities and obligations
 of U.S. government agencies                           $ 12,007       $   917        $     -        $ 12,924
Obligations of states and political subdivisions          9,284           394              -           9,678
Other investments                                           250             -              -             250
                                                       --------       -------        -------        --------

Statutory deposits                                     $ 21,541       $ 1,311        $     -        $ 22,852
                                                       ========       =======        =======        ========
</TABLE>

<TABLE>
<CAPTION>

                                                       -----------------------------------------------------
                                                                                2001
                                                       -----------------------------------------------------
                                                                        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                             $  2,152       $   120        $     -        $  2,272
Obligations of states and political subdivisions        206,691         5,115          1,183         210,623
Municipal bond funds                                    145,010             -              -         145,010
Accrued interest                                          2,955             -              -           2,955
                                                       --------       -------        -------        --------
Debt securities                                         356,808         5,235          1,183         360,860
Equity securities                                         7,630           891          1,054           7,467
                                                       --------       -------        -------        --------

Investment securities                                  $364,438       $ 6,126        $ 2,237        $368,327
                                                       ========       =======        =======        ========

Held-to-maturity securities
U.S. Treasury securities and obligations
 of U.S. government agencies                           $  7,908       $   226        $     1        $  8,133
Obligations of states and political subdivisions          9,532           116              -           9,648
Other investments                                           250             -              -             250
                                                       --------       -------        -------        --------

Statutory deposits                                     $ 17,690       $   342        $     1        $ 18,031
                                                       ========       =======        =======        ========
</TABLE>





                                                                -39-

<PAGE>



For  the  years   ended   December   31,  2001  and  2000,   marketable   equity
available-for-sale  securities with a fair value at the date of sale of $900,000
and $317,000,  respectively,  were sold.  The gross realized gains on such sales
totaled  $18,000 and $71,000,  and the gross realized losses totaled $17,000 and
$-0- for each of the respective  periods.  There were no sales in 2002. Realized
gains and losses are included in investment  income.  Other sales and maturities
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, 2002,  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                         $229,879         $230,382
Due after one year through five years            128,205          136,598
Due after five years through ten years           102,921          108,230
Due after ten years                                3,170            3,170
                                                --------         --------
Debt securities                                  464,175          478,380
Equity securities                                  8,290            8,360
                                                --------         --------
                                                $472,465         $486,740
                                                ========         ========
Held-to-maturity
Due in one year or less                         $  7,391         $  7,421
Due after one year through five years              8,362            9,016
Due after five years through ten years             5,788            6,415
Due after ten years                                    -                -
                                                --------         --------
                                                $ 21,541         $ 22,852
                                                ========         ========
</TABLE>

NOTE 3 - ACCOUNTS RECEIVABLE

Accounts receivable consists of the following at December 31:

<TABLE>
<CAPTION>
                                                -------------------------
(in thousands)                                    2002             2001
                                                -------------------------
<S>                                             <C>              <C>
Premium and fee accounts                        $ 95,463         $ 84,969
Home health service accounts                       6,810            8,141
Medical recoverables                               4,059            5,165
Pharmacy rebates                                  15,094            9,009
Other                                              3,692            4,706
Less: allowance for doubtful accounts             (7,068)          (6,647)
                                                --------         --------
                                                $118,050         $105,343
                                                ========         ========
</TABLE>

Medical  recoverables consist of refunds identified on paid claims, and pharmacy
rebates consist of amounts due for contractual  arrangements  with the Company's
PBM.  These amounts have been recorded as a reduction of medical  expense in the
consolidated  statements of operations.  Other receivables  consist primarily of
amounts due for reinsurance  recoveries,  interest accrued on statutory deposits
and  amounts  related  to  contractual   arrangements  with  laboratory  service
providers.

                                                                -40-

<PAGE>



NOTE 4 - PROPERTY AND EQUIPMENT

Property and equipment consists of the following at December 31:

<TABLE>
<CAPTION>
                                                ------------------------
(in thousands)                                     2002           2001
                                                ------------------------
<S>                                             <C>             <C>
Land, buildings and improvements                $ 69,769        $ 44,416
Computer equipment and software                   48,682          42,345
Office furniture and equipment                    30,200          26,138
Leasehold improvements                             4,155           3,856
                                                --------         -------
                                                 152,806         116,755
Less: accumulated depreciation and
  amortization                                   (70,123)        (59,426)
                                                --------         -------
                                                $ 82,683        $ 57,329
                                                ========        ========
</TABLE>

NOTE 5 - CLAIMS PAYABLE

The following  tables show the  components of claims payable for the years ended
December 31, 2002, 2001 and 2000 (in thousands):

<TABLE>
<CAPTION>
                                      --------------------------------
                                       2002        2001        2000
                                      --------------------------------
<S>                                   <C>         <C>         <C>
Reserve for incurred but
not reported claims                   $247,983    $206,526    $165,806

Claims received, not yet
paid and other items                    49,321      33,598      27,776

Amortized value of
pharmacy cost guarantee
related to the year 2000                     -     (28,114)    (14,897)
                                      --------    --------    --------
Total claims payable                  $297,304    $212,010    $178,685
                                      ========    ========    ========
</TABLE>

The following table shows the components of the change in claims payable for the
years ended  December 31,  2002,  2001 and 2000 for each year's Dates of Service
("DOS") (in thousands except for percentages):

<TABLE>
<CAPTION>
                                                                                                     2001 &
For the Year Ended December 31, 2002:                       Life &                      2002         Prior
                                              Medical        STD         Total           DOS          DOS
                                             ------------------------------------    -----------------------
<S>                                          <C>           <C>         <C>           <C>           <C>
Beginning of the year                        $  210,700    $  1,310    $  212,010    $        -    $ 212,010

Components of medical expense:
  Estimated cost incurred                     1,934,361       3,901     1,938,262     1,938,262            -
  Estimated redundancy                          (31,294)          -       (31,294)            -      (31,294)
                                             ----------    --------    ----------    ----------    ---------
                                              1,903,067       3,901     1,906,968     1,938,262      (31,294)
Payments for medical expense                 (1,818,046)     (3,628)   (1,821,674)   (1,652,538)    (169,136)
                                             ----------    --------    ----------    ----------    ---------
End of the year                              $  295,721    $  1,583    $  297,304    $  285,724    $  11,580
                                             ==========    ========    ==========    ==========    =========
Prior year redundancy as a
percentage of current year
medical expense                                    1.64%
</TABLE>

                                                                -41-

<PAGE>



<TABLE>
<CAPTION>
For the Year Ended December 31, 2001:                                                               2000 &
                                                            Life &                     2001         Prior
                                              Medical        STD         Total          DOS          DOS
                                             -----------------------------------    -----------------------
<S>                                          <C>           <C>         <C>           <C>           <C>

Beginning of the year                        $  177,435    $  1,250    $  178,685    $        -    $ 178,685

Components of medical expense:
  Estimated cost incurred                     1,494,931       3,589     1,498,520     1,498,520            -
  Estimated redundancy                           (7,701)          -        (7,701)            -       (7,701)
                                             ----------    --------    ----------    ----------    ---------
                                              1,487,230       3,589     1,490,819     1,498,520       (7,701)
Payments for medical expense                 (1,453,965)     (3,529)   (1,457,494)   (1,277,361)    (180,133)
                                             ----------    --------    ----------    ----------    ---------
End of the year                              $  210,700    $  1,310    $  212,010    $  221,159    $  (9,149)
                                             ==========    ========    ==========    ==========    =========
Prior year redundancy as a
percentage of current year
medical expense                                    0.52%

</TABLE>

<TABLE>
<CAPTION>
For the Year Ended December 31, 2000:
                                                                                                     1999 &
                                                            Life &       Total         2000          Prior
                                              Medical        STD         Total          DOS           DOS
                                             ------------------------------------    ------------------------
<S>                                          <C>          <C>         <C>            <C>           <C>
Beginning of the year                        $  153,237    $  1,166    $  154,403    $        -    $ 154,403

Components of medical expense:
  Estimated cost incurred                     1,218,865       3,108     1,221,973     1,221,973            -
  Estimated deficiency                            4,407           -         4,407             -        4,407
                                             ----------     -------    ----------    ----------    ---------
                                              1,223,272       3,108     1,226,380     1,221,973        4,407
Payments for medical expense                 (1,199,074)     (3,024)   (1,202,098)   (1,048,160)    (153,938)
                                             ----------     -------    ----------     ---------    ---------
End of the year                              $  177,435    $  1,250    $  178,685    $  173,813    $   4,872
                                             ==========     =======    ==========    ==========    =========
Prior year deficiency as a
percentage of current year
medical expense                                   (0.36%)

The Company does not track the  redundancy/(deficiency)  related to its life and
short-term  disability  business.  Any actual  redundancy/(deficiency)  would be
immaterial to the tables above and the Company's financial statements.

</TABLE>

NOTE 6 - NOTES PAYABLE

The Company has access to total  revolving  credit  facilities  of $29  million,
which are subject to annual renewal and collateral requirements, and are used to
provide  short-term  capital  resources for routine cash flow  fluctuations.  At
December  31,  2002,  the  Company's   investment   security  balances  used  as
collateral,  which are parent company only  investments,  fell below the minimum
collateral  requirements  thereby reducing the credit line availability to $24.1
million.  Borrowings  bear  interest  at a rate based on Libor plus .65% and are
secured by certain cash  balances  and  investment  securities.  At December 31,
2002,  approximately $3.2 million was outstanding on one of the  lines-of-credit
at an interest  rate of 2.93% and  approximately  $614,000 in  letters-of-credit
were outstanding, although no amounts had been drawn.

Interest  expense paid in cash on  borrowings  and on claims paid  subsequent to
state mandated deadlines during 2002, 2001 and 2000 was approximately  $770,000,
$1,267,000 and $444,000, respectively.

                                                                -42-

<PAGE>



NOTE 7 - REINSURANCE

M.D.  IPA,  OCI,  OCCI 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 (whichever is less), or 80% of the eligible in and out of service area
acute care  medical  expenses (if not paid at a fixed fee) in excess of $200,000
per enrollee per year.  Transplant  costs conducted in an approved  facility are
reimbursed  at  either  90% or  80%  of  eligible  charges  and in  non-approved
facilities at 50% of eligible charges. There is a lifetime maximum of $2,000,000
in  eligible  medical  costs  with  no more  than  $1,000,000  in a given  year.
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, 2002, 2001
and 2000 were approximately $2,866,000, $2,319,000 and $2,044,000, respectively.
In the consolidated statements of operations, reinsurance premiums are shown net
of the related recoveries.  The Company is contingently liable for its reinsured
losses to the extent that the  reinsurance  company cannot meet its  obligations
under the reinsurance contracts.

NOTE 8 - 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)                                    2002              2001
                                                --------------------------
<S>                                             <C>                <C>
Deferred tax liabilities:
  Accelerated depreciation                      $ 1,407            $ 1,071
  Receivable valuation adjustments                    -                  9
  Vendor guarantee revenue                        3,183             10,739
  Unrealized investment gains                     4,996              1,361
                                                -------            -------
Total deferred tax liabilities                    9,586             13,180
                                                -------            -------
Deferred tax assets:
  Accrued medical expenses                        1,769              1,559
  Premium revenue adjustments                     2,661              2,639
  Receivable valuation adjustments                  658                  -
  State net operating losses                      4,152              4,144
  Accrued pension expenses                        7,563              3,864
  Accrued vacation                                  324                400
  Advanced revenue                                4,623                  -
  Other                                             466                146
                                                -------            -------
Total deferred tax assets                        22,216             12,752
Valuation allowance for deferred tax assets      (4,077)            (3,778)
                                                -------            -------
Net deferred tax assets                          18,139              8,974
                                                -------            -------
                                                $ 8,553            $(4,206)
                                                =======            =======
Included in the consolidated balance sheets:
  Current assets - deferred income taxes        $ 3,419            $   216
  Non-current assets - deferred income taxes      7,396              4,219
  Current liabilities - deferred income taxes    (2,262)            (8,641)
                                                -------            -------
  Net deferred tax asset (liability)            $ 8,553            $(4,206)
                                                =======            =======
</TABLE>



                                                                -43-

<PAGE>



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)                                     2002            2001          2000
                                                ---------------------------------------
<S>                                             <C>            <C>            <C>
Current:
  Federal                                       $  65,405      $  25,579      $  22,041
  State                                               894            621            591
                                                ---------      ---------      ---------
  Total current                                    66,299         26,200         22,632
                                                ---------      ---------      ---------
Deferred:
  Federal                                         (15,683)         1,771         (5,019)
  State                                              (711)          (824)          (261)
                                                ---------      ---------      ---------
  Total deferred                                  (16,394)           947         (5,280)
                                                ---------      ---------      ---------
                                                $  49,905      $  27,147      $  17,352
                                                =========      =========      =========
</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)                                     2002          2001          2000
                                                -------------------------------------
<S>                                             <C>            <C>            <C>

Statutory rate (35%)                            $51,561        $29,520        $19,866
Tax-exempt interest                              (3,314)        (2,870)        (2,067)
State income taxes, net of Federal benefit          474             22           (436)
Increase in valuation allowance for
  deferred tax assets                               299             27            706
Other non-deductible items                          451            529            574
Tax credits                                        (191)          (191)          (664)
Other, net                                          625            110           (627)
                                                -------        -------        -------
                                                $49,905        $27,147        $17,352
                                                =======        =======        =======
</TABLE>

Total tax deposits made by the Company in 2002, 2001 and 2000 were approximately
$34,750,000, $11,750,000 and $19,255,000, respectively.

At December 31, 2002, the Company has state net operating loss  carryforwards of
$94,399,000  that expire in various  years  beginning  in 2006.  The losses were
generated by certain operating subsidiaries of the Company, in the normal course
of their business.

The  Company  records a  valuation  allowance  for  deferred  tax assets when in
management's  judgment  it is more  likely  than not that all or a portion  of a
deferred  tax asset will not be  realized.  At December  31, 2002 and 2001,  the
Company  recorded a valuation  allowance  related to certain state net operating
loss carryforwards.



                                                                -44-

<PAGE>



NOTE 9 - RELATED PARTIES

For the years ended  December 31, 2002,  2001 and 2000,  certain  members of the
Boards  of  Directors  of  MAMSI  and  affiliated   corporations  who  are  also
participating   physicians  provided  medical  services  to  enrollees  totaling
$4,533,000,   $5,414,000  and   $4,954,000,   respectively,   which   represents
approximately .4%, .7% and .8% in 2002, 2001 and 2000, respectively, of payments
to all physicians.  Board members are remunerated at the same contractual  level
as all other  participating  physicians  and are selected by enrollees to render
medical   services  under  the  same  guidelines  as  all  other   participating
physicians.

NOTE 10 - 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 50% of their
pretax earnings annually up to a maximum contribution of $11,000 and the Company
makes a matching  contribution of 50% on the first 4% of  contributions  made by
employees.  Only Company  contributions may be invested in MAMSI stock. Employee
contributions  can be  invested  in a variety of mutual  funds.  Employees  vest
immediately  in the  employee  contributions  and ratably over five years in the
Company contributions. During 2002, 2001 and 2000, the Company's contribution to
the 401(k) plan aggregated $1,359,000, $1,355,000 and $1,388,000, respectively.

Pursuant to the  employment  contracts  entered into by the Company with certain
key  executives,  effective in 2000,  each executive is entitled to supplemental
retirement  income  benefits  based upon years of service  and  attained  salary
levels. The Company is accruing for the liability under these contracts based on
an estimated  present value  calculation of the future benefits  payable to each
executive.   Expense   recognized  related  to  this  benefit  was  $10,423,000,
$5,783,000 and $2,866,000 for the years ended December 31, 2002,  2001 and 2000,
respectively.

STOCK OPTION PLANS

The  Company  follows  APB 25  under  which  no  compensation  expense  has been
recognized for financial  statement purposes in connection with its stock option
plans.  Pro forma  information  regarding  net income and earnings per share are
required by Statement 123, as amended by Statement 148, 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 2002, 2001 and 2000,  respectively:
risk- free  interest  rates of 3.9%,  4.8% and 6.6%;  volatility  factors of the
expected  market price of the  Company's  common stock of .53, .65 and .65 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.



                                                                -45-

<PAGE>



For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the option's  vesting  period.  In accordance  with
Statement  148, the  following  table  illustrates  the effect on net income and
earnings  per  share if the  Company  had  applied  the fair  value  recognition
provisions of Statement 123 (in thousands except per share amounts):

<TABLE>
<CAPTION>
                                                -------------------------------
                                                  2002        2001        2000
                                                -------------------------------
<S>                                             <C>         <C>         <C>
Net income, as reported                         $97,413     $57,195     $39,406
Basic earnings per share, as reported              2.49        1.48        1.04
Diluted earnings per share, as reported            2.34        1.41        1.00

Stock-based compensation, net of tax            $ 9,218     $ 7,198     $ 5,386
Basic earnings per share                            .24         .19         .14
Diluted earnings per share                          .22         .18         .14

Pro forma net income                            $88,195     $49,997     $34,020
Pro forma basic earnings per share                 2.25        1.29         .90
Pro forma diluted earnings per share               2.12        1.23         .86

</TABLE>

In years 1990 through  1996,  and years 1998 through 2002,  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 9,000,000.  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:



<TABLE>
<CAPTION>
                                     -----------------------    -----------------------    -----------------------
                                              2002                       2001                       2000
                                     -----------------------    -----------------------    -----------------------
<S>                                  <C>            <C>         <C>            <C>         <C>            <C>
                                                    Weighted                   Weighted                   Weighted
                                                    Average                    Average                    Average
                                        2002        Exercise       2001        Exercise       2000        Exercise
                                       Shares        Price        Shares        Price        Shares        Price
                                     ---------      --------    ---------      --------    ---------      --------

Outstanding, January 1               7,148,763      $12.45      7,978,037      $11.59      9,524,599      $13.35
Granted                              2,169,070      $28.29      2,526,290      $16.46      3,100,763      $ 9.53
Exercised                           (2,707,860)     $11.65     (3,000,306)     $13.35     (1,991,094)     $12.52
Forfeited                             (208,252)     $18.69       (355,258)     $14.02     (2,656,231)     $14.76
                                     ---------                  ---------                  ---------
Outstanding, December 31             6,401,721      $17.95      7,148,763      $12.45      7,978,037      $11.59
                                     =========                  =========                  =========

Available for grant, end of year     1,249,017                  1,251,180                  1,554,976
Exercisable, end of year             3,638,899                  3,977,323                  4,474,207
Option price range for exercised
  shares                             $5.00-$28.20               $5.06-$20.63               $5.06-$17.13
Option price range at end of year    $5.37-$42.08               $5.00-$23.05               $5.00-$21.00
Weighted average fair value of
  options granted during year          $11.06                      $7.61                      $4.10

</TABLE>





                                                                -46-

<PAGE>



<TABLE>
<CAPTION>
                              OPTIONS OUTSTANDING                                         OPTIONS EXERCISABLE
-----------------------------------------------------------------------------     --------------------------------
                        Outstanding     Weighted Average                          Exercisable
      Range of             as of           Remaining         Weighted Average        as of        Weighted Average
   Exercise Prices      12/31/2002      Contractual Life      Exercise Price      12/31/2002       Exercise Price
-------------------     -----------     ----------------     ----------------     -----------     ----------------
<S>                     <C>                  <C>                <C>               <C>                <C>
$ 5.01   -  $ 10.00     1,854,635             2.0               $ 8.74            1,600,885          $ 8.68
$10.01   -  $ 15.00       311,494             1.0               $12.59              273,309          $12.45
$15.01   -  $ 20.00     2,104,611             3.1               $16.56            1,302,531          $16.73
$20.01   -  $ 25.00       826,660             4.0               $22.67              406,124          $22.68
$25.01   -  $ 30.00       294,411             4.1               $25.40                  950          $26.46
$30.01   -  $ 35.00       978,040             4.4               $33.27               55,100          $33.30
$35.01   -  $ 40.00        28,630             4.8               $36.67                    -          $    -
$40.01   -  $ 45.00         3,240             4.8               $41.61                    -          $    -
                        ---------                                                 ---------

                        6,401,721             3.1               $17.95            3,638,899          $13.78
                        =========                                                 =========
</TABLE>


INCENTIVE COMPENSATION PLAN

The Company has an incentive  compensation plan whereby managers receive bonuses
based upon  improvement in the annual operating  results of the Company.  During
2002,  2001  and  2000,   incentive   compensation   expense  was  approximately
$11,000,000,  $9,000,000  and  $7,000,000,   respectively,  which  was  paid  to
employees in February 2003, 2002 and 2001, respectively.

NOTE 11 - COMMON STOCK

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

<TABLE>
<CAPTION>
                                                -----------------------------------------
                                                    2002           2001           2000
                                                -----------------------------------------
<S>                                             <C>            <C>            <C>
Numerator:
  Net income                                    $97,413,000    $57,195,000    $39,406,000

Denominator:
  Denominator for basic earnings per share
    - weighted average shares                    39,171,996     38,672,147     38,052,746
  Dilutive securities - employee stock options    2,485,013      1,829,939      1,288,291
  Denominator for diluted earnings per share
    - adjusted weighted average shares           41,657,009     40,502,086     39,341,037

</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  represented 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 2002, the SCT purchased an additional  2,000,000 of the Company's  common
stock for  approximately  $69.9 million.  The existing  promissory note has been
modified to reflect these purchases.



                                                                -47-

<PAGE>



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.

NOTE 12 - COMMITMENTS AND CONTINGENCIES

The Company  leases  office  space under the terms of  non-cancelable  operating
leases that expire at various dates through 2007. Rent expense relating to these
operating  leases  approximated  $4,253,000,  $4,393,000 and $3,470,000 in 2002,
2001 and 2000, respectively.

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

Year                    Amount
----                   -------
2003                   $ 3,659
2004                     2,668
2005                     1,236
2006                       293
2007                       185
                       -------
                       $ 8,041
                       =======

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. 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 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.  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. The results of these audits could result
in material adjustments to the Company's financial  statements.  The Company has
been audited through 1999.  There were no significant  findings related to 1999.
OPM has not yet audited 2000-2002.

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  affect
the Company's consolidated financial position or results of operations.

NOTE 13 - 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.











                                                                -48-

<PAGE>



Minimum required levels of Risk Based  Capital-Company  Action Level ("RBC CAL")
and statutory net worth and actual  statutory net worth as of December 31 are as
follows:
<TABLE>
<CAPTION>
                                      2002                                             2001
                   ------------------------------------------       -----------------------------------------
                                   Required         Actual                          Required        Actual
                     RBC CAL       Net Worth      Net Worth           RBC CAL       Net Worth     Net Worth
                   -----------    -----------    ------------       -----------    ----------    ------------
<S>                <C>            <C>            <C>                <C>            <C>           <C>
M.D. IPA           $13,500,000    $ 3,000,000    $ 50,800,000       $ 9,700,000    $3,000,000    $ 40,500,000
OCI                 50,900,000      3,000,000      94,000,000        39,500,000     3,000,000      59,800,000
MLH                 43,600,000      1,125,000     175,200,000        35,600,000     1,125,000     108,280,000
OCCI                 3,800,000      2,500,000       3,400,000         2,500,000     2,500,000       7,100,000
OCIPA                    6,000      1,500,000       2,100,000            17,000     1,500,000       2,100,000

</TABLE>

M.D. IPA, OCI,  OCCI,  OCIPA and MLH were in  compliance  with state  depository
rules at December  31, 2002 and 2001.  OCCI was in  compliance  with its working
capital  requirement  of $1.6 million at December 31, 2002 and 2001.  M.D.  IPA,
OCI,  OCIPA and MLH exceeded the highest RBC  requirements  at December 31, 2002
and 2001.  OCCI failed to meet its RBC CAL of $3.8 million at December 31, 2002.
In February,  2003,  additional  capital was provided to meet this  requirement.
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 became effective January 1, 2001. The domiciliary  states of M.D.
IPA, OCI, OCCI, OCIPA and MLH have adopted the provisions of the revised manual.
The revised manual has changed, to some extent,  prescribed statutory accounting
practices  that  M.D.  IPA,  OCI,  OCCI,  OCIPA  and  MLH use to  prepare  their
statutory-basis annual statements.  The impact of these changes to MAMSI and its
insurance  subsidiaries'  statutory-basis  capital  and surplus as of January 1,
2001 was not significant.

NOTE 14 - 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, 2002,  approximately  24% 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.

NOTE 15 - REPORTABLE SEGMENTS

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

The Company has two reportable segments:  Commercial risk 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

                                                                -49-

<PAGE>



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.  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)
                                                       ---------------------------------------------------
                                                       Commercial
                                                          Risk        PPO        All Others      Totals
                                                       ---------------------------------------------------
<S>                                                    <C>            <C>          <C>          <C>
Year ended December 31, 2002:
Revenue from external customers                        $2,259,600     $22,416      $31,046      $2,313,062

Segment pretax profit (loss)                              124,064      10,311       (1,575)        132,800

                                                       ---------------------------------------------------
                                                       Commercial
                                                          Risk        PPO        All Others      Totals
                                                       ---------------------------------------------------
Year ended December 31, 2001:
Revenue from external customers                        $1,740,938     $21,244      $30,781      $1,792,963

Segment pretax profit (loss)                               60,448      10,622       (1,057)         70,013

                                                       ---------------------------------------------------
                                                       Commercial
                                                          Risk        PPO        All Others      Totals
                                                       ---------------------------------------------------
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

</TABLE>

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






                                                                -50-

<PAGE>



<TABLE>
<CAPTION>
                                                                --------------------------------------------
(in thousands)                                                     2002              2001             2000
                                                                --------------------------------------------
<S>                                                             <C>              <C>              <C>
Revenues

Total external revenues for reportable segments                 $2,282,016       $1,762,182       $1,426,721

Other revenues                                                      31,046           30,781           44,275

Investment revenue not allocated                                    14,967           14,772           13,483
                                                                ----------       ----------       ----------
     Total consolidated revenues                                $2,328,029       $1,807,735       $1,484,479
                                                                ==========       ==========       ==========

Pretax Profit

Total profit from reportable segments                           $  134,375       $   71,070       $   41,679

Other (loss) profit                                                 (1,575)          (1,057)           2,135

Net investment income not allocated                                 14,518           14,329           12,944
                                                                ----------       ----------       ----------
     Total consolidated pretax profit                           $  147,318       $   84,342       $   56,758
                                                                ==========       ==========       ==========
</TABLE>

NOTE 16 - COMPREHENSIVE INCOME

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

<TABLE>
<CAPTION>
                                                                -----------------------------------------
(in thousands)                                                    2002             2001             2000
                                                                -----------------------------------------
<S>                                                             <C>              <C>              <C>
Unrealized holding gains arising during
  period                                                        $ 6,781          $   722          $ 2,887

Less: Reclassification adjustment for
  net gains included in net income                                   30                6               62
                                                                -------          -------          -------

Net unrealized gains recognized in
 other comprehensive income                                     $ 6,751          $   716          $ 2,825
                                                                =======          =======          =======
</TABLE>



NOTE 17 - FOURTH QUARTER ADJUSTMENTS

The Company made  adjustments  in the fourth  quarter of 2002 resulting from the
determination  that certain estimates relating to claims flow patterns that were
assumed in establishing the IBNR liability for medical claims during 2002 should
be revised to reflect  faster  receipt of claims by the Company.  This change in
estimate  reduced  accounts  receivable  and premium  revenue by $3,000,000  and
reduced claims payable and medical expenses by $24,000,000. Net income increased
by $12,789,000 and fully diluted earnings per share by $.31.







                                                                -51-

<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, 2002 and 2001, 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, 2002. Our audits also included the financial  statement  schedule  listed in
the  Index at Item  15(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 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, 2002 and 2001, and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended December 31, 2002, 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 10, 2003

                                                                -52-

<PAGE>



SELECTED QUARTERLY FINANCIAL DATA FOR FISCAL YEARS 2002 AND 2001

<TABLE>
<CAPTION>
                                    2002       2002       2002       2002       2001       2001       2001       2001
                                    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                            $550,163   $575,263   $595,467   $607,136   $424,661   $450,475   $459,667   $472,932
Expense                             522,489    547,999    561,830    548,393    405,342    432,656    437,049    448,346

Income before income taxes           27,674     27,264     33,637     58,743     19,319     17,819     22,618     24,586
Net income                           18,853     18,423     22,523     37,614     12,882     11,986     15,036     17,291

Basic earnings per share                .48        .47        .57        .96        .34        .31        .38        .45
Diluted earnings per share              .45        .44        .54        .91        .32        .30        .36        .43

</TABLE>

The Company made  adjustments  in the fourth  quarter of 2002 resulting from the
determination  that certain estimates relating to claims flow patterns that were
assumed in establishing the IBNR liability for medical claims during 2002 should
be revised to reflect  faster  receipt of claims by the Company.  This change in
estimate  reduced  accounts  receivable  and premium  revenue by $3,000,000  and
reduced claims payable and medical expenses by $24,000,000. Net income increased
by $12,789,000 and fully diluted earnings per share by $.31.

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

None.
























                                                                -53-

<PAGE>



                                       PART III


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The  information  required by this item is  incorporated  by reference  from the
"Directors and Executive  Officers"  section of the Proxy  Statement for MAMSI's
annual meeting of shareholders to be held on April 28, 2003.

ITEM 11. EXECUTIVE COMPENSATION

The  information  required by this item is  incorporated  by reference  from the
"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 28, 2003.

ITEM 12.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The  information  required by this item is  incorporated  by reference  from the
"Stock Owned by Management" and "Principal  Stockholders"  sections of the Proxy
Statement for MAMSI's  annual  meeting of  shareholders  to be held on April 28,
2003.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The  information  required by this item is  incorporated  by reference  from the
"Executive  Management  Compensation" section of the Proxy Statement for MAMSI's
annual meeting of shareholders to be held on April 28, 2003.

ITEM 14. CONTROLS AND PROCEDURES

Based on the  evaluation  by the Chief  Executive  Officer  and Chief  Financial
Officer of the  Company as of a date  within 90 days of the filing  date of this
annual report, the Company's  disclosure  controls and procedures are adequately
designed to ensure that the  information  required to be included in this report
has been recorded,  processed,  summarized and reported on a timely basis. There
have not been any significant  changes in the Company's  internal controls or in
other factors that could significantly affect these controls and there have been
no corrective actions taken with regard to significant deficiencies and material
weaknesses subsequent to the date of such officers' evaluation.


                                                                -54-

<PAGE>



                                     PART IV


ITEM 15. 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, 2002 and 2001 ...    29
Consolidated Statements of Operations for the years ended
  December 31, 2002, 2001 and 2000 .............................    30
Consolidated Statements of Changes in Stockholders' Equity
  for the years ended December 31, 2002, 2001 and 2000 .........    31
Consolidated Statements of Cash Flows for the years ended
  December 31, 2002, 2001 and 2000 .............................    32
Notes to Consolidated Financial Statements .....................    33
Report of Ernst & Young LLP Independent Auditors ...............    52

(a)(2) and (d)
INDEX TO FINANCIAL STATEMENT SCHEDULE                             PAGE
                                                                  ----
II - Valuation and Qualifying Accounts as of December 31,
       2002, 2001 and 2000 .....................................    56

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.

                                                                -55-

<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, 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
                ========       ========          ========       ========        =======

YEAR ENDED DECEMBER 31, 2001

Allowance for doubtful accounts - accounts receivable

                $  6,137       $    152          $    358 (1)   $               $ 6,647
                ========       ========          ========       ========        =======

Valuation allowance - deferred tax assets

                $  3,751       $     27          $              $               $ 3,778
                ========       ========          ========       ========        =======

YEAR ENDED DECEMBER 31, 2002

Allowance for doubtful accounts - accounts receivable

                $  6,647       $    186          $    235 (1)   $               $ 7,068
                ========       ========          ========       ========        =======

Valuation allowance - deferred tax assets

                $  3,778       $    299          $              $               $ 4,077
                ========       ========          ========       ========        =======

</TABLE>

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



                                                                -56-

<PAGE>



(a)(3)
EXHIBITS

See the Exhibit Index on pages 63-66 of this Form 10-K.

(b) REPORTS ON FORM 8-K

None.


                                                                -57-

<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.                3/28/2003
         --------------------------------------------------
         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                    3/28/2003
         --------------------------------------------------
         Howard M. Arnold                             Date
         Director

      By: /s/ Thomas P. Barbera                   3/28/2003
         --------------------------------------------------
         Thomas P. Barbera                           Date
         Vice Chairman of the Board, President, Chief Executive Officer
         and Director
         (Principal Executive Officer)

      By: /s/ Francis C. Bruno, M.D.              3/28/2003
         --------------------------------------------------
         Francis C. Bruno, M.D.                       Date
         Director

      By: /s/ Raymond H. Cypess, D.V.M., Ph.D.    3/28/2003
         --------------------------------------------------
         Raymond H. Cypess, D.V.M., Ph.D.             Date
         Director

      By: /s/ John W. Dillon                      3/28/2003
         --------------------------------------------------
         John W. Dillon                               Date
         Director

      By: /s/ Robert E. Foss                      3/28/2003
         --------------------------------------------------
         Robert E. Foss                               Date
         Senior Executive Vice President and Chief Financial Officer
         and Director
         (Principal Financial Officer)

      By: /s/ Mark D. Groban, M.D.                3/28/2003
         --------------------------------------------------
         Mark D. Groban, M.D.                         Date
         Chairman of the Board and Director

      By: /s/ Christopher E. Mackail              3/28/2003
         --------------------------------------------------
         Christopher E. Mackail                       Date
         Senior Vice President, Controller and Chief Accounting Officer
         (Principal Accounting Officer)

      By: /s/ John P. Mamana, M.D.                3/28/2003
         --------------------------------------------------
         John P. Mamana, M.D.                         Date
         Director




                                                                -58-

<PAGE>



      By: /s/ Edward J. Muhl                      3/28/2003
         --------------------------------------------------
         Edward J. Muhl                               Date
         Director

      By: /s/ Janet L. Norwood                    3/28/2003
         --------------------------------------------------
         Janet L. Norwood, Ph.D.                      Date
         Director

      By: /s/ John A. Paganelli                   3/28/2003
         --------------------------------------------------
         John A. Paganelli                            Date
         Director

      By: /s/ Ivan R. Sabel                       3/28/2003
         --------------------------------------------------
         Ivan R. Sabel, CPO                           Date
         Director

      By: /s/ James A. Wild                       3/28/2003
         --------------------------------------------------
         James A. Wild                                Date
         Director






                                                                -59-

<PAGE>



                                  CERTIFICATION


I, Thomas P. Barbera, Chief Executive Officer, certify that:

1. I have  reviewed  this  annual  report on Form 10-K of Mid  Atlantic  Medical
Services, Inc.;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.  The  registrant's  other  certifying  officer  and  I  are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

       a)  designed  such  disclosure  controls  and  procedures  to ensure that
material  information  relating to the  registrant,  including its  consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this annual report is being prepared;

       b) evaluated the  effectiveness of the registrant's  disclosure  controls
and  procedures  as of a date  within 90 days prior to the  filing  date of this
annual report (the "Evaluation Date"); and

       c)  presented   in  this  annual   report  our   conclusions   about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date.

5. The registrant's other certifying officer and I have disclosed,  based on our
most recent evaluation,  to the registrant's auditors and to the audit committee
of the registrant's board of directors:

       a) all  significant  deficiencies  in the design or operation of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

       b) any fraud, whether or not material,  that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this annual
report whether or not there were significant  changes in internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.

Date: March 28, 2003


                                       /s/ Thomas P. Barbera
                                           ----------------------
                                           Thomas P. Barbera
                                           President and Chief Executive Officer


                                                                -60-

<PAGE>



                                    CERTIFICATION


I, Robert E. Foss, Chief Financial Officer, certify that:

1. I have  reviewed  this  annual  report on Form 10-K of Mid  Atlantic  Medical
Services, Inc.;

2.  Based on my  knowledge,  this  annual  report  does not  contain  any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

3.  Based  on my  knowledge,  the  financial  statements,  and  other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4.  The  registrant's  other  certifying  officer  and  I  are  responsible  for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

       a)  designed  such  disclosure  controls  and  procedures  to ensure that
material  information  relating to the  registrant,  including its  consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this annual report is being prepared;

       b) evaluated the  effectiveness of the registrant's  disclosure  controls
and  procedures  as of a date  within 90 days prior to the  filing  date of this
annual report (the "Evaluation Date"); and

       c)  presented   in  this  annual   report  our   conclusions   about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date.

5. The registrant's other certifying officer and I have disclosed,  based on our
most recent evaluation,  to the registrant's auditors and to the audit committee
of the registrant's board of directors:

       a) all  significant  deficiencies  in the design or operation of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

       b) any fraud, whether or not material,  that involves management or other
employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this annual
report whether or not there were significant  changes in internal controls or in
other factors that could  significantly  affect internal controls  subsequent to
the date of our most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.

Date: March 28, 2003


                                        /s/ Robert E. Foss
                                            ----------------------
                                            Robert E. Foss
                                            Senior Executive Vice President and
                                            Chief Financial Officer

                                                                -61-

<PAGE>



                     CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002



     In connection with the Annual Report of Mid Atlantic Medical Services, Inc.
("Company")  on Form 10-K for the period  ended  December 31, 2002 as filed with
the  Securities  and  Exchange  Commission  on the date hereof  ("Report"),  the
undersigned,  in the capacity and on the date indicated below,  hereby certifies
pursuant to 18 U.S.C.  Section 1350,  as adopted  pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that to his knowledge:

       1. The Report fully  complies with the  requirements  of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

       2. The  information  contained  in the  Report  fairly  presents,  in all
material  respects,  the  financial  condition  and results of operations of the
Company.


Dated: March 28, 2003



/s/ Thomas P. Barbera                    /s/ Robert E. Foss
    -----------------------                  ------------------------
    Thomas P. Barbera                        Robert E. Foss
    President and                            Senior Executive Vice President and
    Chief Executive Officer                  Chief Financial Officer




                                                                -62-

<PAGE>



(a)(3) 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)
10.67      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)
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)


                                                                -63-

<PAGE>



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.....................................(19)
10.33      Form of Agreement between MAMSI and Employees Granting Options
           Under the 2001 Non-Qualified Stock Option Plan...........................(19)
10.34      Form of Agreement between MAMSI and Non-Employee Directors Granting
           Options under the 2001 Non-Qualified Stock Option Plan...................(19)
10.35      Employment Agreement between the Company and Mark D. Groban..............(19)
10.36      Employment Agreement between the Company and Thomas P. Barbera...........(19)
10.37      Employment Agreement between the Company and Robert E. Foss..............(19)
10.38      Employment Agreement between the Company and Sharon C. Pavlos............(19)
10.39      Common Stock Purchase Agreement dated
           July 11, 2001............................................................(20)
10.40      Allonge to Replacement Promissory Note dated
           July 11, 2001............................................................(20)
10.42      2002 Non-Qualified Stock Option Plan.....................................(21)
10.43      Form of Agreement between MAMSI and Employees Granting Options
           under the 2002 Non-Qualified Stock Option Plan...........................(21)
10.44      Form of Agreement between MAMSI and Non-Employee Directors
           Granting Options under the 2002 Non-Qualified Stock Option Plan..........(21)
10.45      Common Stock Purchase Agreement dated
           September 6, 2002........................................................(22)
10.46      Allonge to Replacement Promissory Note dated
           September 6, 2002........................................................(22)
10.47      2003 Non-Qualified Stock Option Plan.....................................
10.48      Form of Agreement between MAMSI and Employees Granting Options
           under the 2003 Non-Qualified Stock Option Plan...........................
10.49      Form of Agreement between MAMSI and Non-Employee Directors
           Granting Options under the 2003 Non-Qualified Stock Option Plan..........
10.50      Plan for Deferral of Selected Executives' Compensation...................
21         Subsidiaries of the Company..............................................
23         Consent of Independent Auditors..........................................
</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.



                                                                -64-

<PAGE>



(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.

(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.

                                                                -65-

<PAGE>


(19)  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, 2000.

(20)  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, 2001.

(21)  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, 2001.

(22)  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, 2002.












































                                                                -66-