SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 11-K
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ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
Commission File No. 1-14177
UWSI/BCBSUW 401(k) PLAN
(Full title of the plan)
UNITED WISCONSIN SERVICES, INC.
401 West Michigan Street
Milwaukee, WI 53203
(Name of the issuer of the securities held pursuant to the
plan and the address of its principal executive office)
FINANCIAL STATEMENTS AND
SUPPLEMENTAL SCHEDULES
UWSI/BCBSUW 401(k) PLAN
YEARS ENDED
DECEMBER 31, 1998 AND 1997
UWSI/BCBSUW 401(k) Plan
Financial Statements
and Supplemental Schedules
Years ended December 31, 1998 and 1997
CONTENTS
Report of Independent Auditors.............................................................................1
Financial Statements
Statements of Assets Available for Benefits, with Fund Information.........................................2
Statements of Changes in Assets Available for Benefits, with Fund Information..............................3
Notes to Financial Statements..............................................................................5
Supplemental Schedules
Line 27(a) -- Schedule of Assets Held for Investment Purposes..............................................9
Line 27(d) -- Schedule of Reportable Transactions.........................................................10
Report of Independent Auditors
Employee Benefits Committee
UWSI/BCBSUW 401(k) Plan
We have audited the accompanying statements of assets available for benefits of
UWSI/BCBSUW 401(k) Plan (the Plan) as of December 31, 1998 and 1997, and the
related statements of changes in assets available for benefits for the years
then ended. These financial statements are the responsibility of the Plan's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets available for benefits of the Plan at December
31, 1998 and 1997, and the changes in its assets available for benefits for the
years then ended, in conformity with generally accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedules of assets
held for investment purposes as of December 31, 1998, and reportable
transactions for the year then ended, are presented for the purpose of
additional analysis and are not a required part of the financial statements but
are supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. These supplemental schedules are the responsibility of the
Plan's management. The Fund Information in the statements of assets available
for benefits and the statements of changes in assets available for benefits is
presented for purposes of additional analysis rather than to present the assets
available for benefits and changes in assets available for benefits of each
fund. The supplemental schedules and Fund Information have been subjected to the
auditing procedures applied in our audits of the financial statements and, in
our opinion, are fairly stated in all material respects in relation to the
financial statements taken as a whole.
Ernst & Young LLP
June 1, 1999
1
UWSI/BCBSUW 401(k) Plan
Statements of Assets Available for Benefits, with Fund Information
DECEMBER 31, 1998
-------------------------------------------------------------------------------------------------
American American Templeton
Express Express Trust PIMCO IDS AIM IDS New Foreign
Trust Income Equity Index Total Return Mutual Constellation Dimensions Fund
Fund II Fund II Fund Fund (Y) Fund Fund (Y) Class I
-------------------------------------------------------------------------------------------------
ASSETS
Investments, at fair
value (NOTE 3) $5,586,069 $19,542,595 $4,601,983 $8,249,470 $2,981,834 $3,430,059 $1,109,605
Receivables:
Interest and dividends - - 23,476 - - - -
Pending exchanges 6,500 23,652 (16,471) - - - -
-------------------------------------------------------------------------------------------------
Assets available for
benefits $5,592,569 $19,566,247 $4,608,988 $8,249,470 $2,981,834 $3,430,059 $1,109,605
=================================================================================================
DECEMBER 31, 1998
-------------------------------------------------------
UWSI AMSG
Common Common Loan
Stock Stock Fund Total
-------------------------------------------------------
ASSETS
Investments, at fair
value (NOTE 3) $2,565,089 $3,508,587 $1,321,760 $52,897,051
Receivables:
Interest and dividends (113) (81) - 23,282
Pending exchanges (6,500) (7,181) - -
-------------------------------------------------------
Assets available for
benefits $2,558,476 $3,501,325 $1,321,760 $52,920,333
=======================================================
DECEMBER 31, 1997
--------------------------------------------------------------------------------------------------------
American American Templeton
Express Express Trust PIMCO IDS AIM IDS New Foreign
Trust Income Equity Index Total Return Mutual Constellation Dimensions Fund
Fund II Fund II Fund Fund (Y) Fund Fund (Y) Class I
--------------------------------------------------------------------------------------------------------
ASSETS
Cash $ 13,404 $ 47,342 $ 13,203 $ 25,264 $ 12,457 $ 12,749 $ 6,757
Investments, at fair
value (NOTE 3) 5,038,571 15,116,162 4,009,283 7,833,142 2,288,686 2,333,885 1,380,381
Interest and dividends
receivable - - 122,549 - - - -
--------------------------------------------------------------------------------------------------------
Assets available for
benefits $5,051,975 $15,163,504 $4,145,035 $7,858,406 $2,301,143 $2,346,634 $1,387,138
========================================================================================================
DECEMBER 31, 1997
-----------------------------------------
AMSG
Common Loan
Stock Fund Total
-----------------------------------------
ASSETS
Cash $ 47,042 $ (22,682) $ 155,536
Investments, at fair
value (NOTE 3) 5,632,449 1,313,712 44,946,271
Interest and dividends
receivable - - 122,549
-----------------------------------------
Assets available for
benefits $5,679,491 $1,291,030 $45,224,356
=========================================
SEE ACCOMPANYING NOTES.
2
UWSI/BCBSUW 401(k) Plan
Statements of Changes in Assets Available for Benefits, with Fund Information
Year ended December 31, 1998
American American
Express Express Trust PIMCO IDS AIM IDS New
Trust Income Equity Index Total Mutual Constellation Dimensions
Fund II Fund II Return Fund Fund (Y) Fund Fund (Y)
------------------------------------------------------------------------------------
Additions:
Net investment income (loss) $ (2) $ 294 $ 426,354 $1,108,404 $ 73,416 $ 197,523
Net realized and unrealized
appreciation (depreciation)
in fair value of investments
(NOTE 3) 306,840 4,291,564 (36,290) (376,180) 385,389 483,245
-----------------------------------------------------------------------------------
306,838 4,291,858 390,064 732,224 458,805 680,768
Contributions:
Participants 301,483 1,253,225 308,735 613,042 387,973 382,000
Employers - - - - - -
-----------------------------------------------------------------------------------
301,483 1,253,225 308,735 613,042 387,973 382,000
-----------------------------------------------------------------------------------
Total additions 608,321 5,545,083 698,799 1,345,266 846,778 1,062,768
Deductions:
Cash transfers and rollovers (737,523) (48,227) (117,843) 361,290 (15,362) (276,813)
Benefits, withdrawals and taxes 805,250 1,190,567 352,689 592,912 181,449 256,156
Transfer for spin-off - - - - - -
-----------------------------------------------------------------------------------
Total deductions 67,727 1,142,340 234,846 954,202 166,087 (20,657)
-----------------------------------------------------------------------------------
Increase (decrease) in assets
available for benefits 540,594 4,402,743 463,953 391,064 680,691 1,083,425
Assets available for benefits at
beginning of year 5,051,975 15,163,504 4,145,035 7,858,406 2,301,143 2,346,634
-----------------------------------------------------------------------------------
Assets available for benefits
at end of year $5,592,569 $19,566,247 $4,608,988 $8,249,470 $2,981,834 $3,430,059
====================================================================================
Templeton
Foreign UWSI AMSG
Fund Common Common Loan
Class I Stock Stock Fund Total
----------------------------------------------------------------------
Additions:
Net investment income (loss) $ 118,912 $ 14,251 $ 80,777 $ 114,792 $ 2,134,721
Net realized and unrealized
appreciation (depreciation)
in fair value of investments (176,726) 716,212 (1,304,644) - 4,289,410
(NOTE 3) ----------------------------------------------------------------------
(57,814) 730,463 (1,223,867) 114,792 6,424,131
Contributions:
Participants 175,578 51,415 167,937 - 3,641,388
Employers - 298,135 841,116 - 1,139,251
----------------------------------------------------------------------
175,578 349,550 1,009,053 - 4,780,639
----------------------------------------------------------------------
Total additions 117,764 1,080,013 (214,814) 114,792 11,204,770
Deductions:
Cash transfers and rollovers 266,053 29,585 (16,880) (34,208) (589,928)
Benefits, withdrawals and taxes 129,244 21,281 450,903 118,270 4,098,721
Transfer for spin-off - (1,529,329) 1,529,329 - -
----------------------------------------------------------------------
Total deductions 395,297 (1,478,463) 1,963,352 84,062 3,508,793
----------------------------------------------------------------------
Increase (decrease) in assets
available for benefits (277,533) 2,558,476 (2,178,166) 30,730 7,695,977
Assets available for benefits at
beginning of year 1,387,138 - 5,679,491 1,291,030 45,224,356
----------------------------------------------------------------------
Assets available for benefits
at end of year $1,109,605 $ 2,558,476 $ 3,501,325 $1,321,760 $52,920,333
======================================================================
SEE ACCOMPANYING NOTES.
3
UWSI/BCBSUW 401(k) Plan
Statements of Changes in Assets Available for Benefits, with Fund Information
(continued)
Year ended December 31, 1997
American American
Express Express Trust PIMCO IDS AIM IDS New
Trust Equity Index Total Mutual Constellation Dimensions
Income Fund II Fund II Return Fund Fund (Y) Fund Fund (Y)
-----------------------------------------------------------------------------------------
Additions:
Net investment income (loss) $ (99) $ 253 $ 334,900 $1,121,059 $ 162,624 $ 174,302
Net realized and unrealized
appreciation (depreciation)
in fair value of
investments (NOTE 3) 275,777 3,553,148 33,809 96,844 (21,129) 152,389
-----------------------------------------------------------------------------------------
275,678 3,553,401 368,709 1,217,903 141,495 326,691
Contributions:
Participants 328,086 1,235,106 326,588 668,258 283,224 265,469
Employers - - - - - -
-----------------------------------------------------------------------------------------
328,086 1,235,106 326,588 668,258 283,224 265,469
-----------------------------------------------------------------------------------------
Total additions 603,764 4,788,507 695,297 1,886,161 424,719 592,160
Deductions:
Cash transfers and rollovers (411,463) (747,071) 224,292 165,194 (956,575) (976,207)
Benefits, withdrawals and taxes 344,644 1,050,130 158,666 303,351 55,240 32,952
-----------------------------------------------------------------------------------------
Total deductions (66,819) 303,059 382,958 468,545 (901,335) (943,255)
-----------------------------------------------------------------------------------------
Increase in assets available for
benefits 670,583 4,485,448 312,339 1,417,616 1,326,054 1,535,415
Assets available for benefits
at beginning of year 4,381,392 10,678,056 3,832,696 6,440,790 975,089 811,219
-----------------------------------------------------------------------------------------
Assets available for benefits
at end of year $5,051,975 $15,163,504 $4,145,035 $7,858,406 $2,301,143 $2,346,634
=========================================================================================
Templeton
Foreign AMSG
Fund Common Loan
Class I Stock Fund Total
----------------------------------------------------------
Additions:
Net investment income (loss) $ 147,830 $ 93,472 $ 106,017 $ 2,140,358
Net realized and unrealized
appreciation (depreciation)
in fair value
of investments (NOTE 3) (141,188) (105,408) - 3,844,242
----------------------------------------------------------
6,642 (11,936) 106,017 5,984,600
Contributions:
Participants 144,528 208,590 - 3,459,849
Employers 1,104,798 - 1,104,798
----------------------------------------------------------
144,528 1,313,388 - 4,564,647
----------------------------------------------------------
Total additions 151,170 1,301,452 106,017 10,549,247
Deductions:
Cash transfers and rollovers (791,478) 122,631 (38,862) (3,409,539)
Benefits, withdrawals and
taxes 20,560 279,939 (14,801) 2,230,681
----------------------------------------------------------
Total deductions (770,918) 402,570 (53,663) (1,178,858)
----------------------------------------------------------
Increase in assets available for
benefits 922,088 898,882 159,680 11,728,105
Assets available for benefits
at beginning of year 465,050 4,780,609 1,131,350 33,496,251
----------------------------------------------------------
Assets available for benefits
at end of year $1,387,138 $5,679,491 $1,291,030 $45,224,356
==========================================================
SEE ACCOMPANYING NOTES.
4
UWSI/BCBSUW 401(k) Plan
Notes to Financial Statements (continued)
1. DESCRIPTION OF THE PLAN AND EMPLOYER SECURITIES
The UWSI/BCBSUW 401(k) Plan (the Plan) is a defined contribution plan which
covers eligible salaried and hourly employees not subject to collective
bargaining agreements of Blue Cross & Blue Shield United of Wisconsin (BCBSUW),
United Wisconsin Services, Inc. (UWSI), and any of their subsidiaries to which
participation has been extended (Employers). The Plan allows participants to
direct their contributions (not the Employers' match, however) into one or a
combination of several investment options offered by the Plan. Participants can
make qualifying contributions of 2% to 5% of their basic compensation, which the
Employers match on a 50% basis. Additional participant contributions of up to
11% of their basic compensation are also permitted, subject to statutory
limitations. Employers' matching contributions are invested in United Wisconsin
Services, Inc. Common Stock in the UWSI Common Stock Fund. The UWSI Common Stock
Fund included $4,177,670 of plan assets that were not participant directed at
December 31, 1998. The American Medical Security Group Common Stock Fund
included $4,146,996 of plan assets that were not participant directed at
December 31, 1997. See Note 2 for more information regarding the creation of
these stock funds.
Earnings of the Plan are allocated daily to individual participant accounts, as
defined in the Plan.
The participants' contributions and earnings thereon are 100% vested at all
times. Participants' contributions may be withdrawn, subject to certain
limitations, prior to termination of participation in the Plan. Earnings thereon
may be withdrawn only upon termination of employment. Employers' contributions
and earnings thereon become vested based on years of service and may be
withdrawn only upon termination of employment. Employees may enter the Plan
following the completion of one year of service with no minimum age requirement.
Forfeited Employers' contributions are used to offset subsequent Employer
contributions.
Although they have not expressed any intent to do so, the Employers have the
right under the Plan to discontinue their contributions at any time and to
terminate the Plan subject to the provisions of the Employee Retirement Income
Security Act of 1974 (ERISA). In the event of Plan termination, participants'
Employers' contribution accounts will become 100% vested.
A description of the Plan is summarized in the SUMMARY PLAN DESCRIPTION, which
can be obtained from the Plan administrator.
5
2. DESCRIPTION OF THE SPIN-OFF TRANSACTION
On May 27, 1998, the Board of Directors of American Medical Security Group, Inc.
(AMSG) (formerly United Wisconsin Services, Inc.) approved a formal plan to spin
off its managed care companies and specialty business to its shareholders. The
spin-off involved the creation of a new corporation originally named Newco/UWS,
Inc., subsequently renamed United Wisconsin Services, Inc. The spin-off resulted
in the distribution of one share of common stock of UWSI on September 25, 1998
(Spin-off date) for each share of AMSG common stock held as of September 11,
1998. AMSG received a private letter ruling from the Internal Revenue Service
that the spin-off is tax free to AMSG, UWSI and their shareholders.
3. SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT VALUATION
Certain assets of the Plan are held by American Express Trust Company under a
master trust agreement dated July 1, 1996, under which the assets of the Plan
are segregated and invested separately from the remainder of the trust's funds.
Investments are valued at fair value based on quoted market prices, except for
participant loans, which are valued at their current outstanding balances, which
approximate fair value.
CONTRIBUTIONS
Contributions from participants are recorded in the period the Employers make
corresponding payroll deductions. Contributions from the Employers are recorded
based upon amounts required to be contributed as determined by the Plan.
ADMINISTRATIVE EXPENSES
With the exception of fees on personal loans, all administrative expenses in
1998 and 1997 were paid by the Employers. Forfeited Employers' contributions are
used to offset subsequent Employer contributions.
6
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect amounts reported in the financial statements and accompanying notes. Such
estimates and assumptions could change in the future as more information becomes
known, which could impact the amounts reported and disclosed herein.
4. INVESTMENTS
Investments that represent 5% or more of the Plan's assets at either December
31, 1998 or 1997 are as follows:
1998 1997
----------------------------------
United Wisconsin Services, Inc. Common Stock $ 2,565,089 $ -
IDS Mutual Fund (Y) 8,249,470 7,833,142
IDS New Dimensions Fund (Y) 3,430,059 2,333,885
PIMCO Total Return Fund 4,601,983 4,009,283
American Express Trust Income Fund II 5,586,069 5,038,571
American Express Trust Equity Index Fund II 19,542,595 15,116,162
AIM Constellation Fund 2,981,834 2,288,686
American Medical Security Group, Inc. Common Stock 3,508,587 5,632,449
5. INCOME TAX STATUS
The Plan has received a determination letter from the Internal Revenue Service
dated May 1, 1995, stating that the Plan is qualified under Section 401(a) of
the Internal Revenue Code of 1986, as amended (IRC) and, therefore, the related
trust is exempt from taxation. Once qualified, the Plan is required to operate
in conformity with the IRC to maintain its qualification. The Plan Administrator
believes the Plan is being operated in compliance with the applicable
requirements of the IRC and, therefore, believes that the Plan is qualified and
the related trust is tax exempt.
6. YEAR 2000 (UNAUDITED)
The Plan sponsor has determined that it will be necessary to take certain steps
in order to ensure that the Plan's information systems are prepared to handle
Year 2000 dates. The Plan sponsor is taking a two-phase approach. The first
phase addresses internal systems that must be modified or replaced to function
properly. Both internal and external
7
6. YEAR 2000 (UNAUDITED) (CONTINUED)
resources are being utilized to replace or modify existing software
applications, and test the software and equipment for the Year 2000
modifications. The Plan sponsor anticipates substantially completing this
phase of the project by mid-1999. Costs associated with modifying software
and equipment are not estimated to be significant and will be paid by the
Plan sponsor.
For the second phase of the project, Plan management established formal
communications with its third-party service providers to determine that they
have developed plans to address their own Year 2000 problems as they relate to
the Plan's operations. Plan management is not aware of any third-party service
providers with a Year 2000 issue. If modification of data processing systems of
either the Plan, the Plan sponsor, or its service providers is not completed
timely, the Year 2000 problem could have a material impact on the operations of
the Plan. Plan management has not developed a contingency plan, because they are
confident that all systems will be Year 2000 ready.
8
Supplemental Schedules
UWSI/BCBSUW 401(k) Plan
Employer Identification Number 39-0138065
Plan Number 336
Line 27(a) - Schedule of Assets Held for Investment Purposes
December 31, 1998
DESCRIPTION OF INVESTMENT,
INCLUDING MATURITY DATE,
RATE OF INTEREST,
IDENTITY OF ISSUE, BORROWER, COLLATERAL, UNITS, PAR OR CURRENT
LESSOR OR SIMILAR PARTY MATURITY VALUE COST VALUE
- ----------------------------------------------------------------------------------------------------------------------
American Express Trust Income Fund II 302,899 $ 5,065,654 $ 5,586,069
American Express Trust Equity Index Fund II 588,526 11,641,543 19,542,595
PIMCO Total Return Fund 436,621 4,540,954 4,601,983
IDS Mutual Fund (Y) 633,405 8,599,191 8,249,470
AIM Constellation Fund 97,701 2,647,618 2,981,834
IDS New Dimensions Fund (Y) 118,913 2,887,317 3,430,059
Templeton Foreign Fund Class I 132,253 1,365,530 1,109,605
UWSI Common Stock Fund 387,114 3,676,174 2,565,089
AMSG Common Stock Fund 313,231 3,814,290 3,508,587
Participant loans Interest rates are 1%
over the prime rate at the
time of loan application;
maturity dates vary with
terms of 5 years or less - 1,321,760
-----------------------------------
$44,238,271 $52,897,051
===================================
9
UWSI/BCBSUW 401(k) Plan
Employer Identification Number 39-0138065
Plan Number 336
Line 27(d) - Schedule of Reportable Transactions
Year ended December 31, 1998
CURRENT
VALUE OF
ASSET ON NET
PURCHASE SELLING COST OF TRANSACTION GAIN
DESCRIPTION OF ASSETS PRICE PRICE ASSET DATE (LOSS)
- ------------------------------------------------------------------------------------------------------------
CATEGORY (III)--SERIES OF TRANSACTIONS
IN EXCESS OF 5% OF ASSETS
American Express Trust Equity $2,012,580 $ - $2,012,580 $2,012,580 $ -
Index Fund II - 1,877,712 1,203,817 1,877,712 673,895
American Express Trust Income 1,498,207 - 1,498,207 1,498,207 -
Fund II - 1,257,548 1,145,138 1,257,548 112,410
IDS Mutual Fund (Y) 2,032,966 - 2,032,966 2,032,966 -
- 1,240,463 1,189,548 1,240,463 50,915
There were no category (i), (ii) or (iv) transactions during 1998.
Lease Rental and "Expense Incurred with Transaction" are not applicable.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the undersigned member of the Blue Cross & Blue Shield United of Wisconsin
Employee Benefits Committee has duly caused this annual report to be signed as
of the date set forth below.
UWSI/BCBSUW 401(k) PLAN
June 29, 1999 By: /s/ Gail L. Hanson
--------------------------------------
Gail L. Hanson, a member of the
Blue Cross & Blue Shield United of
Wisconsin Employee Benefits Committee