The future transforms itself in us long before it happens. All of us have an opportunity to shape what is to be. In ordinary times that's an extraordinary opportunity; in extraordinary times we can bring about epoch-making change. These are extraordinary times. In a few brief decades we have seen the managed care industry rise from a few scattered health plans to become a modern institution. United HealthCare is proud to be among the leaders of the managed care industry. We are even prouder that we have built our business by staying focused on one all-important idea: a passionate concern for the health needs of people. We have proved through our performance - and consumers agree - that good health care is good business. After years of rapid growth, innovation and prosperity, the managed care industry has begun another profound period of change. It is not an evolutionary shift; it is revolutionary change. The Coming Age of Consumer Health and Well-Being To understand, we must only look to the people we serve. We are exiting an era in which the majority of Americans relied on institutions to provide for their security for either the short or long term. Epoch-making events, such as the decline of heavy industry, the rise of the information age, the end of the Cold War, and the rapid advancement of a global economy, have caused massive employment and economic shifts. From these trends comes a clear message: Each of us is responsible for our own future. Then, too, the largest single block of Americans, the post-war baby boom generation, is the best educated and most prosperous in our history. They are exceedingly well-informed. That blend of education and information has made them knowledgeable and questioning. These customers are taking charge by drilling deep in search of facts upon which to base their decisions. The vast majority of Americans feel it is vital to be self-sufficient. Today's consumers want more control. They seek companies that provide information and tools that will empower them and help simplify their choices. Today and into the future, the focus will be turned toward the ultimate user of our health and well-being products and services - the consumer. If we are not in sync with consumers, we run the risk of missing the future and the extraordinary growth it represents. That thought is the epicenter of the revolution that will transform our industry. And by recognizing its implications and acting upon them in a sure and positive manner, United HealthCare will continue to lead. We recognize the revolution for what it is: a sea change that will require us to become consumer driven. By embracing that inevitability and understanding the precise nature of the new order, United HealthCare will be a change agent, helping define a new health and well-being industry, its distribution channels and the products and services that will satisfy the wants and needs of the new consumer. Focused on Growth Markets We understand that our consumers are not homogeneous. They reflect the full diversity of the most diverse nation on earth. They are young singles and new families, middle-aged members of the baby boom and retired seniors. Many have simple health care wants; some have profoundly urgent and complex health care needs. Companies that treat the market as a seamless whole will be unable to focus on the distinctive needs of massive market segments. We are realigning United HealthCare, in large part, to allow our businesses to focus on the needs of a number of clearly defined, high profile market segments. Our products and services will increasingly meet the needs of individuals through all stages of life. For example, our Specialized Care Services segment currently includes three key business platforms: United Behavioral Health with projected 1998 revenues of over $400 million; Optum®, which is expected to generate revenues of $100 million or more in 1998; and United Resource Networks with 1998 fee revenues projected at $20 million. Each provides a set of highly specialized services to either a precisely defined health care market or end user. To illustrate, Optum offers health information and personal care management services through its 24-hour NurseLine and assistance programs, publications, audio library, and Health Forums, an interactive, personalized health information service accessible via the Internet. These businesses have been among the fastest growing within United HealthCare. We see tremendous opportunity to add new business platforms built around disease management, alternative care services and specialized networks. We project revenue growth of Specialized Care Services at more than 20 percent for many years to come. New Market Frontiers Now consider demographics. While seniors and retirees today represent the smallest generation cohort, their health and well-being needs are very different from those of their children and grandchildren. Consider this: A vast generation is moving inexorably toward retirement and a vital new stage of life. The magnitude and importance of that fact cannot be overstated. Some 450 baby boomers will turn 50 every hour of every day for the next two decades. This massive generation has applied its own unique stamp to virtually everything it has done. We expect nothing less of them as they move from their active careers into their next equally active and vital stage of life. That is precisely why we established our new Retiree and Senior Services segment. With the addition of the American Association of Retired Persons Medicare supplement business, which occurred on January 1, 1998, Retiree and Senior Services will be a business with more than $3.5 billion in revenues in 1998. But this is simply the doorway to this enormous, underserved lifestyle market. This business will become a truly significant factor in the health and well-being market by focusing on meeting the unique needs of the senior and retiree community. An Enduring Commitment to Health and Well-Being We will continue providing best-of-class health care services through our Health Plans and Insurance Services segments. At the close of this past fiscal year, United HealthCare operated health plans in more than 40 markets. Currently, there are more than 200,000 individuals enrolled in each of our plans in nine of those markets, 18 of our markets generate more than $250 million in revenues each, five generate in excess of $500 million and three account for more than $1 billion each. Impressive numbers, but we believe they are just the beginning. As our health plans continue to grow, our Insurance Services segment remains dedicated to strengthening and expanding our managed indemnity products, preferred provider organizations and networks. We are striving to bring quality, affordable health care coverage to virtually any community, nationwide. By year-end, we expect to see enrollment in our health plans grow by 10 percent to 15 percent or more, with Medicare enrollment growth alone exceeding 35 percent. The United HealthCare Strategic Business Services business segment has grown parallel with our health plan segment, providing a wide range of sales, administrative and customer services. Under our realignment, that tradition will continue with this organization realizing growing demand for its administrative and support services directly from large, multi-site customers. It currently serves more than 200 employers with 5.5 million employees. Strategic Business Services will focus on expanding its existing relationships and attracting new customers by broadening its offerings through development and acquisition. Harnessing the Power of Knowledge Finally, consider United HealthCare's Knowledge and Information Services. We have long understood the value of knowledge and information. In the hands of purchasers, information can lead to more effective use of resources. In the hands of physicians, care providers and drug researchers, it can help improve the quality of medical care. And, in the hands of consumers, information can influence lifestyle choices and promote better health. As stated in the 1996 United HealthCare letter to shareholders, "Among our greatest assets is our ability to gather and interpret health care data." We are experts at combining our massive databases with our experience, research expertise and industry-leading reporting capabilities to influence the quality and efficiency of health care. In 1997, we broadened our knowledge and information capabilities through acquisition, and we anticipate making more. Importantly, we expect Knowledge and Information Services to provide the United HealthCare companies with dual benefits in the future. First, this business will help support the crucial decisions of its sibling businesses with increasingly rich data and knowledge. Second, by using that knowledge resource for United HealthCare customers and other interested entities, Knowledge and Information Services will emerge as a powerful growth and value-building vehicle for the future. We Will Lead United HealthCare recognizes that a revolution is in play. Rather than allow the future to happen to us, we have taken the lead. Highly skilled, broadly experienced management teams are solidly in place in each of our businesses and each has specific, assigned accountability. For the immediate future, their focus will be on vertical growth within each of their markets. But each has broad peripheral vision and the ability to act upon the opportunities they see. To that end, merger and acquisition resources have been dedicated to allow each business to reach out laterally into new markets and new growth platforms. Our Capital Fund provides another important avenue for United HealthCare to explore opportunities. Through this $100 million fund, we can nurture fresh ideas and help develop small but promising ventures into successful new businesses. We seek a future with no limits to the growth and performance of United HealthCare.