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Secretary of Labor Thomas E. Perez

EBSA (Formerly PWBA) Federal Register Notice

Proposed Exemptions; Principal Mutual Holding Company (PMHC) et al. [08/03/2001]

[PDF Version]

Volume 66, Number 150, Page 40736-40748


[[Page 40736]]

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-10940, et al.]

 
Proposed Exemptions; Principal Mutual Holding Company (PMHC) et 
al.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed exemptions.

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SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions from 
certain of the prohibited transaction restrictions of the Employee 
Retirement Income Security Act of 1974 (the Act) and/or the Internal 
Revenue Code of 1986 (the Code).
    Written Comments and Hearing Requests: All interested persons are 
invited to submit written comments or request for a hearing on the 
pending exemptions, unless otherwise stated in the Notice of Proposed 
Exemption, within 45 days from the date of publication of this Federal 
Register Notice. Comments and requests for a hearing should state: (1) 
The name, address, and telephone number of the person making the 
comment or request, and (2) the nature of the person's interest in the 
exemption and the manner in which the person would be adversely 
affected by the exemption. A request for a hearing must also state the 
issues to be addressed and include a general description of the 
evidence to be presented at the hearing.

ADDRESSES: All written comments and request for a hearing (at least 
three copies) should be sent to the Pension and Welfare Benefits 
Administration, Office of Exemption Determinations, Room N-5649, U.S. 
Department of Labor, 200 Constitution Avenue, NW., Washington, DC 
20210. Attention: Application No. __, stated in each Notice of Proposed 
Exemption. The applications for exemption and the comments received 
will be available for public inspection in the Public Documents Room of 
the Pension and Welfare Benefits Administration, U.S. Department of 
Labor, Room N-5638, 200 Constitution Avenue, NW., Washington, DC 20210.

Notice to Interested Persons

    Notice of the proposed exemptions will be provided to all 
interested persons in the manner agreed upon by the applicant and the 
Department within 15 days of the date of publication in the Federal 
Register. Such notice shall include a copy of the notice of proposed 
exemption as published in the Federal Register and shall inform 
interested persons of their right to comment and to request a hearing 
(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in 
applications filed pursuant to section 408(a) of the Act and/or section 
4975(c)(2) of the Code, and in accordance with procedures set forth in 
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990). 
Effective December 31, 1978, section 102 of Reorganization Plan No. 4 
of 1978, 5 U.S.C. App. 1 (1996), transferred the authority of the 
Secretary of the Treasury to issue exemptions of the type requested to 
the Secretary of Labor. Therefore, these notices of proposed exemption 
are issued solely by the Department.
    The applications contain representations with regard to the 
proposed exemptions which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and representations.

Principal Mutual Holding Company (PMHC), Located in Des Moines, IA

[Application No. D-10940]

Proposed Exemption

    Based on the facts and representations set forth in the 
application, the Department is considering granting an exemption under 
the authority of section 408(a) of the Act (or ERISA) and section 
4975(c)(2) of the Code and in accordance with the procedures set forth 
in 29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 
1990).\1\
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    \1\ For purposes of this proposed exemption, references to 
provisions of Title I of the Act, unless otherwise specified, refer 
also to corresponding provisions of the Code.
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Section I. Covered Transactions

    If the exemption is granted, the restrictions of section 406(a) of 
the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1)(A) through (D) of the 
Code, shall not apply to (1) the receipt of shares of common stock 
(Common Stock) issued by Principal Financial Group, Inc. (PFG), the 
successor entity to PMHC,\2\ or (2) the receipt of cash (Cash) or 
policy credits (Policy Credits) by any eligible policyholder (the 
Eligible Policyholder) of Principal Life Insurance Company (Principal), 
a subsidiary of PMHC, which is an employee benefit plan (the Plan), 
including a Plan sponsored by Principal and its affiliates (the 
Principal Plan), in exchange for such Eligible Policyholder's mutual 
membership interest in PMHC, pursuant to a plan of conversion (the Plan 
of Conversion) adopted by PMHC and implemented in accordance with Iowa 
Insurance Law.
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    \2\ For purposes of this proposed exemption, references to PMHC 
will generally include references to PFG unless noted, or unless the 
context requires otherwise.
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    In addition, the restrictions of section 406(a)(1)(E) and (a)(2) 
and section 407(a)(2) of the Act shall not apply to the receipt and 
holding, by a Principal Plan, of Common Stock, whose fair market value 
exceeds 10 percent of the value of the total assets held by such Plan.
    The proposed exemption is subject to the general conditions set 
forth below in Section II.

Section II. General Conditions

    (a) The Plan of Conversion is implemented in accordance with 
procedural and substantive safeguards that are imposed under Iowa 
Insurance Law and is subject to review and approval by the Iowa 
Commissioner of Insurance (the Commissioner).
    (b) The Commissioner reviews the terms of the options that are 
provided to Eligible Policyholders of PMHC as part of such 
Commissioner's review of the Plan of Conversion, and only approves the 
Plan following a determination that such Plan is fair and equitable to 
all Eligible Policyholders. The New York Superintendent of Insurance 
(the Superintendent) may object to the Plan of Conversion if he or she 
finds that such Plan of Conversion is not fair and equitable to all 
Eligible Policyholders.
    (c) As part of their separate determinations, both the Commissioner 
and the Superintendent concur on the terms of the Plan of Conversion.
    (d) Each Eligible Policyholder has an opportunity to vote at a 
special meeting to approve the Plan of Conversion after receiving full 
written disclosure from PMHC and/or Principal.
    (e) One or more independent fiduciaries of a Plan that is an 
Eligible Policyholder elects to receive Common Stock, Cash or Policy 
Credits pursuant to the terms of the Plan of Conversion and neither 
PMHC nor any of its affiliates exercises any discretion or provides 
``investment advice,'' within the meaning of 29 CFR 2510.3-21(c) with 
respect to such acquisition.
    (f) If Policy Credits are elected by a Plan policyholder holding a 
group annuity contract, the policyholder may elect to have the policy 
value increased by the amount of compensation allocated or to have the 
policy enhanced with an interest in a separate account

[[Page 40737]]

(the Separate Account), which is maintained by Principal.
    (1) If no election is made by a Plan policyholder, the ``default'' 
consideration for the policyholder is Policy Credits (in the form of an 
interest in the Separate Account), unless the contract or regulatory 
concerns preclude this form of compensation.
    (2) Principal allocates the Policy Credit compensation received, on 
a pro rata basis, among the participants of the Plan that is invested 
in the Separate Account, in accordance with their account balances, 
unless the policyholder directs otherwise, and neither PMHC nor its 
affiliates provides investment advice or recommendations to the 
policyholder on which option to choose or with respect to the default 
consideration, in the event no choice is made.
    (3) No purchases or sales of assets are made between Principal or 
its affiliates and the Separate Account.
    (4) Upon receiving a notice of withdrawal from a Plan policyholder, 
Northern Trust Company (NTC), the custodian for shares of Common Stock 
that are held in the Separate Account, sells such shares of Common 
Stock on the open market at fair market value.
    (5) Northern Trust Investments, Inc. (NTI), the independent trustee 
for the Separate Account, (i) votes at the direction of the Plan 
policyholders on routine matters (e.g., the appointment of 
accountants); (ii) in the absence of receiving Plan policyholder 
direction, causes the affected shares in the Separate Account to be 
voted in the same proportion as shares for which specific instructions 
have been received from other Plans holding interests in the Separate 
Account; and (iii) exercises discretion on major issues (e.g., proxy 
contests) involving the Separate Account.
    (g) In the case of a Principal Plan, U.S. Trust, N.A. (U.S. Trust), 
the independent fiduciary appointed to represent the Principal Plans--
    (1) Votes on whether to approve or not to approve the proposed 
demutualization;
    (2) Elects between consideration in the form of Common Stock, Cash 
or Policy Credits on behalf of such Plans;
    (3) Determines how to apply the Common Stock, Cash or Policy 
Credits received for the benefit of the participants and beneficiaries 
of the Principal Plans;
    (4) Votes on shares of Common Stock that are held by the Principal 
Plans and disposes of such stock held by a Plan exceeding the 
limitation of section 407(a)(2) of the Act as soon as it is reasonably 
practicable, but in no event later than six months after the Effective 
Date of the Plan of Conversion;
    (5) Provides the Department with a complete and detailed final 
report as it relates to the Principal Plans prior to the Effective Date 
of the demutualization; and
    (6) Takes all actions that are necessary and appropriate to 
safeguard the interests of the Principal Plans and their participants 
and beneficiaries.
    (h) Each Eligible Policyholder entitled to receive Common Stock is 
allocated at least 100 shares and additional consideration is allocated 
to Eligible Policyholders who own participating policies based on 
actuarial formulas that take into account each participating policy's 
contribution to the surplus of Principal, which formulas have been 
reviewed by the Commissioner.
    (i) All Eligible Policyholders that are Plans participate in the 
demutualization on the same basis and within their class groupings as 
other Eligible Policyholders that are not Plans.
    (j) No Eligible Policyholder pays any brokerage commissions or fees 
in connection with the receipt of the demutualization consideration.
    (k) All of Principal's policyholder obligations remain in force and 
are not affected by the Plan of Conversion.
    (l) The terms of the transactions are at least as favorable to the 
Plans as an arm's length transaction with an unrelated party.

Section III. Definitions

    For purposes of this proposed exemption:
    (a) The term ``PMHC'' means Principal Mutual Holding Company, its 
successor in interest, Principal Financial Group, Inc. and any of their 
affiliates as defined in paragraph (b) of this Section III, unless 
noted, or unless the context requires otherwise.
    (b) An ``affiliate'' of PMHC includes--
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with PMHC (For purposes of this paragraph, the term ``control'' means 
the power to exercise a controlling influence over the management or 
policies of a person other than an individual.); and
    (2) Any officer, director or partner in such person.
    (c) The ``Effective Date'' refers to the date on which the closing 
of the initial public offering (the IPO) occurs, which will be a date 
occurring after the approval of the Plan of Conversion by voting 
policyholders and the Commissioner, provided that in no event will the 
Effective Date be more than 12 months after the date on which the 
Commissioner has approved or has conditionally approved the Plan of 
Conversion, unless such period is extended by the Commissioner. The 
Plan of Conversion will be deemed to become effective at 12:01 a.m., 
Central Time, on the Effective Date.
    (d) The term ``Record Date'' means the date that is one year prior 
to the Adoption Date.
    (e) The ``Adoption Date'' refers to the date that PMHC's Board of 
Directors adopted the Plan of Conversion. This date was March 31, 2001.
    (f) The term ``Eligible Policyholder'' means a person who, on the 
Record Date, is the owner of one or more policies and who, as reflected 
in PMHC's or Principal Life's records, has a continuous membership 
interest in PMHC through ownership of one or more policies from the 
Record Date until and on the Effective Date. Members of PMHC who were 
issued policies before April 8, 1980 and transferred ownership rights 
of such policies on or before April 8, 1980 are Eligible Policyholders 
so long as such policies remain in force on the Record Date.
    (g) The term ``Policy Credit'' means consideration to be paid in 
the form of an increase in cash value, account value, dividend 
accumulations, face amount, extended term period or benefit payment, as 
appropriate, depending upon the policy. If the policy is owned by a 
qualified plan customer (the Qualified Plan Customer) [i.e., an owner 
of a group annuity contract issued by Principal, which contract is 
designed to fund benefits under a retirement plan which is qualified 
under section 401(a) and section 403(a) of the Code (including a plan 
covering employees described in section 401(c) of the Code, provided 
such plan meets the requirements of Rule 180 promulgated under the 
Securities Exchange Act of 1933, as amended) or which is a governmental 
plan described in section 414(d) of the Code, excluding (1) group 
annuity contracts that fund only guaranteed deferred annuities or 
annuities in the course of payments and (2) group annuity contracts for 
which Principal does not perform retirement plan recordkeeping services 
and whose group annuity contracts do not provide for investments in 
Principal's pooled unregistered separate accounts], the Policy Credit 
may take the form of a Separate Account Policy Credit or an Account 
Value Policy Credit. If the policy is owned by a Non-Rule 180 Qualified 
Plan Customer, the Policy Credit will take the form of an Account Value 
Policy Credit.

[[Page 40738]]

Summary of Facts and Representations

The Parties

    1. PMHC, a mutual insurance holding company organized under Iowa 
law, maintains its principal place of business at 711 High Street, Des 
Moines, Iowa. Its indirect subsidiary, Principal, is authorized to sell 
life and health insurance policies throughout the United States. 
Specifically, Principal provides group annuities and group life and 
health insurance to employers and life insurance and annuities to 
individuals.\3\ As of December 31, 1999, Principal had total assets of 
approximately $82 billion (on a statutory accounting basis) and had 
more than $163 billion of life insurance in force. In addition, 
Principal has received the following financial strength ratings from 
firms which specialize in assessing insurance companies' performance: 
an ``A+'' (or Superior) rating from the A.M. Best Company, as of 
November 1999; an ``AA+'' (or Very High) rating from Fitch, as of June 
2000; an ``Aa2'' (or Excellent) rating from Moody's Investors Service, 
as of June 2000; and an ``AA'' (or Very Strong) rating from Standard & 
Poor's, as of July 2000.
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    \3\ Principal was originally organized in 1879 as Bankers Life 
Association (Bankers Life). On October 26, 1911, Bankers Life was 
converted to a mutual company called ``Bankers Life Company.'' In 
1986, Bankers Life changed its name to ``Principal Mutual Life 
Insurance Company.'' In 1998, Principal was converted to a stock 
company called ``Principal Life Insurance Company.'' All of the 
stock of Principal is owned indirectly by PMHC.
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    2. As a mutual holding company, PMHC does not have capital stock. 
Instead, it has members who are owners of policies and contracts issued 
by Principal. PMHC was organized in 1998 as a part of the conversion of 
Principal Mutual Life Insurance Company, then an Iowa mutual life 
insurance company, to a stock life insurance company subsidiary 
indirectly owned by a mutual insurance holding company under a plan of 
reorganization approved by the Commissioner and by the members of 
Principal Mutual Life Insurance Company.\4\ As required under Section 
521A.14 of the Iowa Code, and as provided in such plan of 
reorganization, Principal policyholders ceased to have membership 
interests in Principal and became members of PMHC instead.
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    \4\ At the time of the 1998 conversion, no demutualization 
consideration was issued to policyholders who were previously mutual 
members of Principal Mutual Life Insurance Company.
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    A policyholder's membership interest in PMHC includes the right to 
vote, and to participate in the distribution of PMHC's surplus in the 
event of PMHC's voluntary dissolution or liquidation. Each member has 
one vote.
    3. Pursuant to Section 521A.14(5) of the Iowa Code, PMHC is treated 
as a mutual entity and may be converted to a stock company (i.e., 
demutualized) under Chapter 508B of the Iowa Code, the same statutory 
provisions that govern the demutualization of mutual life insurance 
companies. In the event of such a demutualization, Eligible 
Policyholders may receive consideration in the form of stock, cash, or 
such other consideration permitted under Section 508B.3 of the Iowa 
Code and approved by the Commissioner. A demutualization will not 
affect the rights of Principal policyholders under their insurance and 
annuity contracts.
    4. Principal provides a variety of insurance products to ERISA-
covered employee benefit plans and to other plans described in section 
4975(e)(1) of the Code. Principal has actively marketed its products to 
Plans, and had, as of December 31, 1999, approximately 44,000 in force 
policies and contracts held on behalf of employee pension and profit 
sharing (including section 401(k) plans) and over 92,000 contracts 
providing welfare benefit plan coverage such as group life, short-and 
long-term disability, accidental death and dismemberment, and group 
health coverage.
    In addition, Principal provides certain administrative services and 
recordkeeping services to many of the pension and profit sharing plans. 
These services include the preparation of required tax forms, tracking 
of contributions made to the various plans, provision of prototype plan 
documents, and providing testing services to ensure plan compliance 
with Code requirements. Although Principal is not a party in interest 
with respect to any of its Plan policyholders merely because it has 
issued an insurance policy to such Plans, its provision of the 
foregoing services to the Plans may cause it to be considered a party 
in interest under section 3(14)(A) and (B) of the Act.
    5. Besides issuing insurance policies and providing services to 
certain client Plans, Principal and its subsidiaries sponsor several 
pension and welfare benefit plans which are expected to receive 
consideration in connection with the Plan of Conversion described 
herein. A description of each of the affected Principal Plans is 
summarized in the following table:

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                                         Approximate
                                          number of      Total assets  (as
        Name of plan and type         participants  (as     of 12/31/00)                  Coverage
                                         of 10/10/00)
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The Principal Welfare Benefit Plan               13,468        $95,101,000  Employees of Principal and its
 for Employees (Welfare).                                                    affiliates*.
The Principal Long Term Disability               11,276          6,707,000  Employees of Principal and its
 Plan for Employees (Welfare).                                               affiliates*.
The Principal Welfare Benefit Plan                1,239         51,551,000  Agents, Managers, Brokerage General
 for Individual Field (Welfare).                                             Agents and Managing Directors.
The Principal Long Term Disability                1,042          2,483,000  Agents, Field Managers, Brokerage
 Plan for Individual Field (Welfare).                                        General Agents and Managing
                                                                             Directors.
The Principal Welfare Benefit Plan                  605                  0  Employees of Two Principal
 for Select Subsidiaries Field                                               Affiliates.
 (Welfare).
The Principal Pension Plan (Defined              18,932        989,797,000  Employees of Principals and Its
 Benefit).                                                                   Affiliates*.
The Principal Select Savings Plan                17,398        524,017,000  Employees of Principal and Its
 for Employees (Defined                                                      Affiliates*.
 Contribution).
The Principal Select Savings Plan                 1,921        114,358,000  Agents, Field Managers and Their
 for Agents, General Managers and                                            Assistants
 Management Assistants (Defined
 Contribution).
Principal Health Care, Inc. Select                    0                  0  Employees of Principal Health Care,
 Savings Plan (Defined                                                       Inc.
 Contribution)*.
                                            989,797,000
                                            524,017,000

[[Page 40739]]


Principal Health Care, Inc. Pension                   0                  0  Employees of Principal Health Care,
 Plan (Defined Benefit)*.                                                    Inc.
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* These Plans were terminated by Principal in 1998, so that as of December 31, 2000, each Plan had no assets or
  participants. Single premium annuity contracts were purchased to fund benefits for participants at the time of
  each Plan's termination. The single premium contracts may receive demutualization consideration.

    Each of the Principal Plans has three trustees, all of whom are 
officers of Principal. Investment decisions for each Principal Plan are 
made by the Pension Plan Investment Committee, whose members also 
consist of officers of Principal and its affiliates.

The PMHC Restructuring

    6. On August 21, 2000, PMHC's Board of Directors authorized PMHC's 
management to develop a plan of demutualization (i.e., the Plan of 
Conversion) pursuant to which PMHC will be converted from a mutual 
holding company to a stock holding company. Currently, PMHC owns 
Principal Financial Group, Inc. (PFG), which owns all of the stock of 
Principal Financial Services Inc. (PFS). These two subsidiaries will be 
merged and the surviving company will be PFS. After PMHC is converted 
into a stock company, it will be merged with and into PFS, which, in 
turn, will merge into PFG, a publicly-traded holding company whose 
common stock will be distributed to Eligible Policyholders and listed 
on the New York Stock Exchange. Principal will then be a wholly owned 
subsidiary of PFG.
    As part of the demutualization process, Eligible Policyholders of 
Principal will receive Common Stock of PFG, or, in certain cases, Cash 
or Policy Credits. In return for such consideration, the membership 
interests and rights in surplus of the Principal policyholders will be 
extinguished.
    7. An IPO, in which shares of Common Stock will be sold for cash, 
is expected to occur on the Effective Date of the demutualization. 
Under such circumstances, PFG will contribute a portion of the proceeds 
from the IPO to Principal, within a reasonable period of time after 
receipt, in an amount at least equal to the amount needed by Principal 
to fund the payment and crediting (by Principal) of mandatory Cash 
payments and Policy Credits to Eligible Policyholders, including the 
expenses of the restructuring that will be borne by Principal and 
allocated to PFG.
    8. PMHC represents that the environment in which Principal operates 
has changed in a number of ways since the mutual insurance holding 
company structure was adopted in 1998. For example, the passage of the 
Gramm-Leach-Bliley Act in 1999 has increased the number, size and 
financial strength of Principal's potential competitors. Moreover, PMHC 
points out that because other life insurance companies of Principal's 
size have not adopted the mutual insurance holding company structure, 
there is uncertainty about the receptivity and valuation of the stock 
offered to the public by a company with this structure. While Principal 
is presently financially stronger than it has been in the past, PMHC 
states that this strength has led the PMHC's Board of Directors and 
PMHC's management to conclude that achievement of the organization's 
strategy will be enhanced through a demutualization.
    PMHC represents that the flexibility to raise additional capital 
and diversify into global financial services is maximized in a 
demutualization. In this regard, a demutualization will benefit 
Principal's policyholders by increasing the company's financial 
resources and its ability to invest in new technology, products and 
markets and improved customer service. In addition, PMHC states that 
the conversion will provide Eligible Policyholders with an opportunity 
to receive shares of Common Stock, Cash or Policy Credits in exchange 
for their illiquid membership interests, which will be extinguished in 
the conversion. Further, PMHC explains that Eligible Policyholders will 
realize economic value from their membership interests that is not 
currently available to them so long as the company remains a mutual 
insurance company. Finally, PMHC states that all of Principal's 
policyholder obligations will remain in force and will not be affected 
by the Plan of Conversion.
    9. Accordingly, PMHC requests an administrative exemption from the 
Department which, if granted, will permit the receipt of Common Stock, 
Cash, or Policy Credits, by an Eligible Policyholder that is a Plan, 
including a Principal Plan,\5\ in exchange for Eligible Policyholder's 
membership interest in PMHC, in accordance with the terms of the Plan 
of Conversion adopted by PMHC and implemented pursuant to Section 
521A.14(5)(b) and Chapter 508B of Title XIII of the Code of Iowa 
(1999).
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    \5\ PMHC represents that is aware that the Common Stock would 
constitute ``qualifying employer securities'' within the meaning of 
section the meaning of section 407(d)(5) of the Act, and that 
section 408(e) of the Act would apply to such distributions. 
Nevertheless, PMHC has specifically requested that the exemption 
apply to the receipt of Common Stock by an of the Principal Plans, 
if applicable, regardless of the ability by such Plan to utilize 
section 408(e) of the Act. (The Department, however, expresses no 
opinion herein on whether the Common Stock would constitute a 
``qualifying employer security'' within the meaning of section 
407(d)(5) of the Act and whether section 408(e) of the Act would 
apply to such distributions.) PMHC believes that this expanded type 
of exemptive relief will provide the greatest flexibility for U.S. 
Trust, the independent fiduciary for the Principal Plans, to select 
suitable types of consideration.
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    PMHC represents that the receipt of the demutualization 
consideration pursuant to the Plan of Conversion by an Eligible 
Policyholder which is a Plan may be viewed as a prohibited sale or 
exchange of property between the Plan and Principal or PMHC in 
violation of section 406(a)(1)(A) of the Act. Moreover, PMHC states 
that the transaction may also be construed as a transfer of plan assets 
to, or a use of plan assets by or for the benefit of, a party in 
interest in violation of section 406(a)(1)(D) of the Act.
    In addition to the above, PMHC is requesting that the exemption 
apply, for a period of up to 6 months following the Effective Date, to 
the holding, by a Principal Plan, of Common Stock whose fair market 
value exceeds 10 percent of the Principal Plan's assets, in violation 
of sections 406(a)(1)(E) and (a)(2) and 407(a)(2) of the Act.\6\
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    \6\ Section 406(a)(1)(E) of the Act prohibits the acquisition by 
a plan of any employer security which would be in violation section 
407(a) of the Act. Section 406(a)(2) of the Act states that no 
fiduciary who has authority or discretion to control the assets of a 
plan shall permit the plan to hold any employer security if he [or 
she] knows that holding such security would violate section 407(a) 
of the Act. Section 407(a)(1) of the Act prohibits the acquisition 
by a plan of any employer security which is not a qualifying 
employer security. Section 407(a)(2) of the Act provides that a plan 
may not acquire any qualifying employer security, if immediately 
after such acquisition, the aggregate fair market value of such 
securities exceeds 10 percent of the fair market value of the plan's 
assets.
    In addition to the above, section 407(f) of the Act, which is 
applicable to the holding of a qualifying employer security by a 
plan other than an eligible individual account plan, requires that 
(a) immediately following its acquisition by a plan, no more than 25 
percent of the aggregate amount of stock of the same class issued 
and outstanding at the time of acquisition is held by the plan; and 
(b) at least 50 percent of the stock be held by persons who are 
independent of the issuer. PMHC has confirmed to the best of its 
knowledge that none of the shares of Common Stock which are issued 
to the Principal Plans will violate the provisions of section 407(f) 
of the Act.

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[[Page 40740]]

    The proposed exemption is conditioned upon a number of substantive 
safeguards. Among the safeguards is the requirement that distributions 
to Plans pursuant to the exemption must be on terms no less favorable 
to the Plans than Eligible Policyholders that are not Plans. In this 
regard, Plans that are Eligible Policyholders must participate in the 
demutualization transaction on the same basis and within their class 
groupings as Eligible Policyholders that are not Plans.
    In addition, to represent the interests of the Principal Plans with 
respect to such activities as voting, the election of demutualization 
consideration, or the disposition of Common Stock, PMHC has retained 
U.S. Trust, to act as the independent fiduciary.

Procedural Requirements Under Iowa Law for Restructuring

    10. Pursuant to Section 521A.14(5)(b) of the Iowa Code, PMHC, as a 
mutual insurance holding company, is treated, under Iowa Insurance Law, 
as a mutual life insurance company for purposes of demutualization and 
is, thus, subject to the demutualization provisions of Chapter 508B of 
the Iowa Code. Chapter 508B, which applies to the Plan of Conversion, 
sets forth procedural and substantive requirements to ensure that the 
restructuring will be fair and equitable to all Principal 
policyholders. In this regard, Section 508B.2 of the Iowa Code 
generally provides that a mutual life insurance company may become a 
stock life insurance company under a plan of conversion established and 
approved in the manner provided by Chapter 508B. Section 508B.2 and 
Section 508B.3 also provide that, in lieu of selecting a plan of 
conversion provided for in Chapter 508B, a mutual company may convert 
to a stock company pursuant to a plan approved by the Commissioner. The 
restructuring of PMHC will be conducted pursuant to these latter 
provisions.
    Under Section 508B.3 of the Iowa Code, the Commissioner must 
determine the fairness and equity of a plan of conversion with respect 
to policyholders of a company undergoing demutualization. More 
specifically, Section 508B.7 of the Iowa Code requires that the 
Commissioner review the plan of conversion to determine whether it 
complies with all provisions of law and is fair and equitable to the 
mutual company and its policyholders and whether the reorganized 
company will have the amount of capital and surplus deemed by the 
Commissioner to be reasonably necessary for its future solvency. 
Additionally, this provision permits the Commissioner to order a 
hearing on the fairness and equity of the terms of the plan of 
conversion after giving written notice of the hearing to the mutual 
company, its policyholders, and other interested persons, all of whom 
have a right to appear at the hearing.
    Section 508B.6 of the Iowa Code requires that a plan of conversion 
be approved by two-thirds of the policyholders of the mutual company 
who vote on it.\7\ The statute requires notice to be given to the 
policyholders and permits voting by ballot, in person, or by proxy. The 
notice of meeting and election must contain a copy of the plan of 
conversion or a summary of the plan of conversion.
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    \7\ In this regard, Section 508B.4 of the Iowa Code defines the 
class of policyholders entitled to receive notice and to vote on the 
plan of conversion as generally including policyholders whose 
policies or contracts are in force on the date of adoption of the 
plan of conversion.
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    Finally, Section 508B.9 of the Iowa Code provides that, after the 
plan of conversion has been approved by the Commissioner and the 
policyholders, the reorganized company will be a continuation of the 
mutual company and that the conversion will not annul or modify any of 
the mutual company's existing suits, contracts, or liabilities except 
as provided in the plan of conversion. Furthermore, all rights, 
franchises, and interests of the mutual company in and to property, 
assets, and other interest will be transferred to and vest in the 
reorganized company, and the reorganized company will assume all 
obligations and liabilities of the mutual company.
    11. Consistent with the requirements of Chapter 508B, the Plan of 
Conversion adopted by PMHC provides for PMHC to file an application 
with the Commissioner under Section 508B.2 of the Iowa Code to 
reorganize as a stock holding company. The Commissioner will hold a 
public hearing on the fairness and equity of the terms of the Plan of 
Conversion and on whether PMHC will have the amount of capital and 
surplus necessary for its future solvency. The Plan of Conversion also 
provides for PMHC members to be able to comment on the Plan of 
Conversion at the hearing, for the voting policyholders to vote on the 
Plan of Conversion at a members' meeting and for PMHC to provide notice 
to its voting policyholders of both the public hearing and the members' 
meeting.
    It is anticipated that the Commissioner will engage the services of 
experts (e.g., actuaries, investment bankers and outside counsel) to 
assist in determining whether the Plan of Conversion meets the 
requirements of the law. In this regard, the Commissioner has retained 
the law firm of Baker & Daniels as legal counsel, Arthur Andersen as 
actuarial advisors and The Blackstone Group as financial advisors.
    A final order by the Commissioner to approve an application 
pursuant to the Iowa demutualization statute is subject to judicial 
review in the Iowa courts in accordance with the Iowa Administrative 
Procedure Act, Chapter 17A, Iowa Code.
    In addition to the Iowa regulatory requirements, PMHC has agreed to 
file a copy of the Plan of Conversion with the New York Superintendent 
of Insurance.\8\ The Superintendent may object to the Plan of 
Conversion if he finds that it is not fair and equitable to New York 
Eligible Policyholders. If the Superintendent opines unfavorably on the 
Plan of Conversion, PMHC, as a practical matter, would either amend the 
Plan of Conversion or work out a satisfactory solution with the 
Superintendent. If the Superintendent were to require changes 
unacceptable to the Commissioner, PMHC would, have to work with both 
regulators to arrive at a satisfactory solution.
---------------------------------------------------------------------------

    \8\ Specifically, section 1106(i) of the New York Insurance Law 
[Section 1106(i)] authorizes the Superintendent to review the 
demutualization plan of a foreign life insurer licensed in New York 
and to specify the conditions, if any, that the Superintendent would 
impose in order for the foreign insurer to retain its New York 
license following its demutualization. In this regard, Section 
1106(i) requires that a foreign life insurer licensed in New York 
file with the Superintendent a copy of the demutualization plan at 
least 90 days prior to the earlier of (a) the date of any public 
hearing required to be held on the plan of reorganization by the 
insurer's state of domicile and (b) the proposed effective date of 
the demutualization.
    If, after examining the plan of reorganization, the 
Superintendent finds that the plan is not fair or equitable to the 
New York policyholders of the insurer, the Superintendent must set 
forth the reasons for his findings. In addition, the Superintendent 
must notify the insurer and its domestic state insurance regulator 
of his findings and his reasons for such findings and advise of any 
requirements he considers necessary for the protection of current 
New York policyholders in order to permit the insurer to continue to 
conduct business in New York as a stock life insurer after the 
demutualization.
---------------------------------------------------------------------------

    PMHC's Plan of Conversion was adopted by its Board of Directors on

[[Page 40741]]

March 31, 2001. PMHC expects the special meeting of members will occur 
in July 2001, with notice having been mailed during May 2001 to 
approximately 130,000 Plan policyholders which are Eligible 
Policyholders. (Approximately 940,000 policyholders will be eligible to 
vote on the Plan of Conversion and each policyholder will be entitled 
to only one vote, regardless of the number or size of the policies 
owned.) Further, PMHC's hearing on the Plan of Conversion is expected 
to be held during July 2001 in Des Moines, Iowa.
    As for the IPO and the actual conversion, PMHC expects these events 
will transpire during the fourth quarter of 2001. However, PMHC notes 
the timing of these events may be delayed due to prevailing market 
conditions, but they should occur within 12 months of approval of the 
Plan of Conversion by the Commissioner, unless this period is extended 
by PMHC, with the approval of the Commissioner.

Distributions to Eligible Policyholders

    12. The Plan of Conversion provides for Eligible Policyholders, 
whose membership interests in the holding company will be extinguished 
in the demutualization, to receive Common Stock of PFG, Cash, or Policy 
Credits. For this purpose, an Eligible Policyholder generally is the 
owner of one or more policies in force on the Record Date (which is the 
date one year prior to the date that PMHC's Board of Directors adopts 
the Plan), and who maintains a membership interest in PMHC until and on 
the Effective Date. Elections as to the form of consideration received 
or as to any other matter in connection with the Plan of Conversion 
will be made by one or more plan fiduciaries independent of Principal. 
In this regard, neither PMHC nor its affiliates will exercise any 
investment discretion or provide ``investment advice,'' as that term is 
defined in 29 CFR 2510.3-2(c), with respect to any election made by any 
Eligible Policyholder that is a Plan.\9\
---------------------------------------------------------------------------

    \9\ The proceeds of the demutualization will belong to the Plan 
if they would be deemed to be owned by the Plan under ordinary 
notions of property rights. See ERISA Advisory Opinion 92-02A, 
January 17, 1992 (assets of plan generally are to be identified on 
the basis of ordinary notions of property rights under non-ERISA 
law). It is the view of the Department that, in the case of an 
employee welfare benefit plan with respect to which participants pay 
a portion of the premiums, the appropriate plan fiduciary must treat 
as plan assets the portion of the demutualization proceeds 
attributable to participant contributions. In determining what 
portion of the proceeds are attributable to participant 
contributions, the plan fiduciary should give appropriate 
consideration to those facts and circumstances that the fiduciary 
knows or should know are relevant to the determination, including 
the documents and instruments governing the plan and the proportion 
of total participant contributions to the total premiums paid over 
an appropriate time period. In the case of an employee pension 
benefit plan, or where any type of plan or trust is the 
policyholder, or where the policy is paid for out of trust assets, 
it is the view of the Department that all of the proceeds received 
by the policyholder in connection with a demutualization would 
constitute plan assets.'' See ERISA Advisory Opinion 2001-02A, 
February 15, 2001.
---------------------------------------------------------------------------

    In order to determine the amount of consideration to which each 
Eligible Policyholder is entitled (combinations of different forms of 
consideration will not be permitted), each Eligible Policyholder will 
be allocated (but not issued) a number of shares of Common Stock equal 
to the sum of (a) a fixed minimum number of shares \10\ and (b) an 
additional number of shares based on actuarial formulas that take into 
account each policy's past and expected future contributions to the 
surplus of Principal.
---------------------------------------------------------------------------

    \10\ PMHC expects 100 shares of Common Stock will be allocated 
to the fixed component. However, the final number of shares thus 
allocated will be subject to regulatory approval.
---------------------------------------------------------------------------

    13. In general, certain Eligible Policyholders will receive shares 
of Common Stock which will be distributed to such Eligible 
Policyholders without the payment of any brokerage fees or commissions. 
Certain other Eligible Policyholders will receive consideration in the 
form of Cash or Policy Credits, in lieu of Common Stock. The amount of 
Cash or Policy Credits will be determined by reference to the price per 
share at which the Common Stock of PFG is offered to the public in the 
IPO.
    An Eligible Policyholder whose mailing address is outside the 
United States, or to whom mail is undeliverable at the address in 
Principal's records, or whose policy is known by Principal to be 
subject to a creditor lien will receive Cash in lieu of Common Stock, 
in an amount equal to the value of the Common Stock such policyholder 
would otherwise have received, based on the price of Common Stock in 
the IPO contemplated by the Plan of Conversion.
    Certain other Eligible Policyholders, namely owners of individual 
retirement annuities, tax-sheltered annuities, individual life or 
annuity policies issued directly to plan participants in qualified 
pension or profit sharing plans, and certain group annuity policies 
issued to fund qualified pension or profit sharing plans will receive 
Policy Credits equal in value to the Common Stock allocated to such 
Eligible Policyholders.
    In the case of a group annuity contract issued to fund a qualified 
plan (i.e., a Qualified Plan Customer), it is contemplated that the 
policyholder will be able to elect to receive Policy Credits instead of 
Common Stock or Cash. If Policy Credits are elected, the policyholder 
will be given a further election--to have the policy value increased by 
the amount of compensation involved or to have the policy enhanced with 
an interest in the Separate Account that will be maintained by 
Principal.\11\ The assets of the Separate Account will be invested 
primarily in PFG Common Stock. Thus, in the absence of a policyholder 
election, PMHC states that the ``default'' consideration for the 
policyholder will be Policy Credits (in the form of an interest in the 
Separate Account), unless the contract or regulatory concerns preclude 
this form of compensation. As recordkeeper, Principal will allocate the 
Policy Credit compensation received, on a pro rata basis, among the 
participants of the Plan that is invested in the Separate Account, in 
accordance with their account balances and not on a per capita basis, 
unless the policyholder directs otherwise. In describing the default 
allocation alternative to Plan policyholders in policyholder materials, 
PMHC states that neither it nor its affiliates will be providing 
investment advice or recommendations to the policyholder on which 
option to choose.
---------------------------------------------------------------------------

    \11\ If the Qualified Plan Customer elects the have the policy 
value increased by the amount of compensation involved, the Policy 
Credits will be referred to as ``Account Value Policy Credits.'' If 
the Qualified Plan Customer elects to have the policy enhanced with 
an interest in the Separate Account, or in the absence of 
policyholder election, the Policy Credits will be referred to as 
``Separate Account Policy Credits.''
---------------------------------------------------------------------------

    PMHC represents that no purchases or sales of assets will be made 
between Principal or its affiliates and the Separate Account. 
Withdrawals will be permitted at any time, subject to ordinary 
liquidity restraints. Upon receiving a notice of withdrawal from a Plan 
policyholder, NTC, the custodian for shares of Common Stock that are 
held in the Separate Account, will sell such shares of Common Stock on 
the open market at their fair market value. NTI, the independent 
trustee of the Separate Account and an affiliate of NTC, will vote, at 
the direction of the Plan policyholders. Where no direction is received 
from a Plan policyholder, NTI will use ``mirror'' voting for routine 
issues (e.g., the appointment of accountants). In effect, NTI will 
cause those shares in the Separate Account for which no instructions 
have been received from a particular Plan to be

[[Page 40742]]

voted in the same proportion as shares for which specific instructions 
have been received from other Plan policyholders holding interests in 
the Separate Account. In addition, NTI will be authorized to exercise 
its own discretion on major issues, such as proxy contests.\12\
---------------------------------------------------------------------------

    \12\ The Department would expect that NTI, in implementing the 
``mirror voting'' procedure under the Separate Account, to act 
``prudently, solely in the interests of Plan participants, and for 
the exclusive purpose of providing benefit to participants and 
beneficiaries,'' within the meaning of section 404(a)(1) of the Act.
---------------------------------------------------------------------------

Commission-Free Program

    14. The Plan of Conversion provides that PFG may establish a 
commission-free program that is to begin no earlier than the sixth 
month anniversary following the Effective Date of the demutualization 
and before the 12 month anniversary of such Effective Date at a time 
determined by the PFG's Board of Directors to be appropriate and in the 
best interests of the Holding Company and the Eligible Policyholders. 
The program, which will continue at least for three months, will be 
available to any Eligible Policyholder who receives fewer shares than 
100 shares of Common Stock. Under the program, an Eligible Policyholder 
will be entitled to sell, at prevailing market prices, all the shares 
of Common Stock received by the Eligible Policyholder in the 
demutualization. No brokerage commissions, mailing charges, 
registration fees or other administrative or similar expenses will be 
charged.
    In addition, the commission-free program will afford an Eligible 
Policyholder the opportunity to purchase additional shares of Common 
Stock in order that the Eligible Policyholder may round-up his or her 
holdings to 100 shares, again without the payment of any fees, charges 
or commissions.

Independent Fiduciary

    15. As noted above, U.S. Trust will serve as independent fiduciary 
for all of the Principal Plans in connection with the implementation of 
PMHC's Plan of Conversion. Generally, such transactions over which U.S. 
Trust will exercise investment discretion may result in the 
acquisition, holding or disposition of Common Stock by the Principal 
Plans. U.S. Trust states that it is familiar with the Department's 
independent fiduciary requirements and has acknowledged and accepted 
such duties, responsibilities and liabilities to act on behalf of the 
Principal Plans. In return for services rendered, U.S. Trust will be 
compensated by either PMHC, a successor, or an affiliate.
    U.S. Trust is the principal subsidiary of U.S. Trust Corporation, a 
member of the Federal Reserve System and the Federal Deposit Insurance 
Corporation, and an entity having approximately $5 billion in assets. 
The parent corporation, U.S. Trust Corporation, was founded in 1853 in 
New York and is subject to regulation as a trust company in the State 
of New York. As of December 31, 1999, U.S. Trust Corporation had 
approximately $5 billion in assets and over $75 billion in assets under 
management, a significant portion of which consisted of the assets of 
ERISA-covered Plans. In addition, U.S. Trust Corporation is a wholly 
owned subsidiary of the Charles Schwab Corporation. U.S. Trust has 
served as an independent fiduciary for a number of Plans that have 
acquired or held employer securities and it has managed over $20 
billion in employer securities held by such Plans. In managing such 
investments, U.S. Trust has exercised discretionary authority over many 
transactions involving the acquisition, retention and disposition of 
employer securities.
    U.S. Trust represents that it is independent of PMHC and its 
affiliates. In this regard, U.S. Trust asserts that it has no business, 
ownership or control relationship, nor is it otherwise affiliated with 
PMHC and its affiliates. Further, U.S. Trust represents that it derives 
less than one percent of its annual income from PMHC and its 
affiliates.
    As the independent fiduciary for the Principal Plans, U.S. Trust 
will be required to (a) vote on whether to approve or not to approve 
the proposed demutualization; (b) elect between consideration in the 
form of Common Stock, Cash or Policy Credits on behalf of such Plans; 
(c) determine how to apply the Common Stock, Cash or Policy Credits 
received for the benefit of the participants and beneficiaries of the 
Principal Plans; (d) vote on shares of Common Stock that are held by 
the Principal Plans and dispose of such stock held by a Plan exceeding 
the limitation of section 407(a)(2) of the Act as soon as it is 
reasonably practicable, but in no event later than six months after the 
effective date of the Plan of Conversion; and (e) take all actions that 
are necessary and appropriate to safeguard the interests of the 
Principal Plans and their participants and beneficiaries. In addition, 
U.S. Trust will provide the Department with a complete and detailed 
final report as it relates to the Principal Plans prior to the 
Effective Date of the demutualization. Finally, U.S. Trust states that 
it has conducted a preliminary review of PMHC's Plan of Conversion and 
it sees nothing in the Plan that would preclude the Department from 
proposing the requested exemption.
    16. In summary, it is represented that the proposed transactions 
will satisfy the statutory criteria for an exemption under section 
408(a) of the Act because:
    (a) The Plan of Conversion will be implemented in accordance with 
stringent procedural and substantive safeguards that are imposed under 
Iowa law and will be subject to review and supervision of the 
Commissioner and the Superintendent.
    (b) The Commissioner will review the terms and options that are 
provided to Eligible Policyholders as part of such Commissioner's 
review of the Plan of Conversion and the Commissioner will approve the 
Plan of Conversion following a determination that such Plan is fair and 
equitable to Eligible Policyholders (including Plans).
    (c) The Superintendent will object to the Plan of Conversion if he 
or she finds that such Plan is not fair and equitable to all New York 
Eligible Policyholders.
    (d) As part of their separate determinations, both the Commissioner 
and the Superintendent must concur on the terms of the Plan of 
Conversion.
    (e) One or more independent Plan fiduciaries will have an 
opportunity to vote to approve the terms of the Plan of Conversion (or 
to comment on such Plan), and will be solely responsible for all such 
decisions after receiving full and complete disclosure from PMHC and/or 
Principal.
    (f) The Plan of Conversion will provide Principal and PMHC with 
access to new sources of capital that should help sustain Principal's 
financial strength, increase its ability to conduct its business 
efficiently and improve Principal's competitive position in the 
insurance industry.
    (g) The proposed exemption will allow Eligible Policyholders that 
are Plans to receive shares of Common Stock, Cash or Policy Credits, in 
exchange for their membership interests in PMHC and neither PMHC nor 
any of its affiliates will exercise investment discretion or provide 
``investment advice,'' within the meaning of 29 CFR 2510.3-21(c), with 
respect to such decisions, options given, or the default consideration, 
in the event no Plan policyholder choice is made.
    (h) Each Eligible Policyholder will have an opportunity to 
determine whether to vote to approve the terms of the Plan of 
Conversion and will also be solely responsible for any decisions that 
may be permitted under the Plan of

[[Page 40743]]

Conversion regarding the form of consideration to be received in the 
demutualization.
    (i) All Plans that are Eligible Policyholders will participate in 
the transactions and on the same basis as Eligible Policyholders that 
are not Plans.
    (j) No Eligible Policyholder will pay any brokerage commissions or 
fees in connection with the receipt of Common Stock or Policy Credits 
or in connection with the implementation of the commission-free 
program.
    (k) The demutualization will not, in any way, change premiums or 
reduce policy benefits, values, guarantees or other policy obligations 
of Principal to its policyholders and contractholders.

FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

Anthem Insurance Companies, Inc. (Anthem), Located in Indianapolis, 
IN

[Application No. D-10979]

Proposed Exemption

    Based on the facts and representations set forth in the 
application, the Department is considering granting an exemption under 
the authority of section 408(a) of the Act (or ERISA) and section 4975 
(c)(2) of the Code and in accordance with the procedures set forth in 
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990).\13\
---------------------------------------------------------------------------

    \13\ For purposes of this proposed exemption, references to 
provisions of Title I of the Act, unless otherwise specified, refer 
also to corresponding provisions of the Code.
---------------------------------------------------------------------------

Section I. Covered Transactions

    If the exemption is granted, the restrictions of section 406(a) of 
the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1)(A) through (D) of the 
Code, shall not apply to the receipt, by an employee benefit plan (the 
Plan) or by a Plan participant (the Plan Participant) that is a member 
of Anthem (together, the Eligible Members) by reason of the ownership 
of an insurance policy or contract issued by Anthem, of common stock 
(Common Stock) issued by Anthem, Inc. (the Parent Company), a newly-
formed holding company or cash (Cash), in exchange for such Plan's or 
Plan Participant's mutual membership interest in Anthem, in accordance 
with a plan of conversion (the Plan of Conversion) adopted by Anthem 
and implemented under Indiana law.
    This proposed exemption is subject to the following conditions set 
forth below in Section II.

Section II. General Conditions

    (a) The Plan of Conversion is subject to approval, review and 
supervision by the Commissioner of Insurance of the Indiana Department 
of Insurance (the Commissioner) and is implemented in accordance with 
procedural and substantive safeguards imposed under Indiana law.
    (b) The Commissioner reviews the terms and options that are 
provided to Eligible Members as part of such Commissioner's review of 
the Plan of Conversion, and the Commissioner approves the Plan of 
Conversion following a determination that such Plan is fair, reasonable 
and equitable to Eligible Members.
    (c) Each Eligible Member has an opportunity to vote to approve the 
Plan of Conversion after full written disclosure is given to the 
Eligible Member by Anthem.
    (d) Any determination to receive Common Stock or Cash by an 
Eligible Member which is a Plan, pursuant to the terms of the Plan of 
Conversion, is made by one or more Plan fiduciaries which are 
independent of Anthem and its affiliates and neither Anthem nor any of 
its affiliates exercises any discretion or provides ``investment 
advice'' within the meaning of 29 CFR 2510.3-21(c), with respect to 
such decisions.
    (e) Any determination to receive Common Stock or Cash by an 
Eligible Member which is a Plan Participant, pursuant to the terms of 
the Plan of Conversion, is made by such participant and neither Anthem 
nor any of its affiliates exercises any discretion or provides 
``investment advice'' within the meaning of 29 CFR 2510.3-21(c), with 
respect to such decisions.
    (f) After each Eligible Member entitled to receive shares of Common 
Stock is allocated at least 21 shares, additional consideration is 
allocated to Eligible Members who own participating policies based on 
actuarial formulas that take into account each participating policy's 
contribution to Anthem's statutory surplus, which formulas are subject 
to review and approval by the Commissioner.
    (g) All Eligible Members that are Plans or Plan Participants 
participate in the transactions on the same basis and within their 
class groupings as all Eligible Members that are not Plans or Plan 
Participants.
    (h) No Eligible Member pays any brokerage commissions or fees in 
connection with their receipt of Common Stock or in connection with the 
implementation of the commission-free purchase and sale program.
    (i) All of Anthem's policyholder obligations remain in force and 
are not affected by the Plan of Conversion.

Section III. Definitions

    For purposes of this proposed exemption,
    (a) The term ``Anthem'' means Anthem Insurance Companies, Inc. and 
any affiliate of Anthem, as defined in paragraph (b) of this Section 
III.
    (b) An ``affiliate'' of Anthem includes--
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with Anthem; (For purposes of this paragraph, the term ``control'' 
means the power to exercise a controlling influence over the management 
or policies of a person other than an individual.) and
    (2) Any officer, director or partner in such person.
    (c) A ``policy'' is defined as (1) any individual insurance policy 
or health care benefits contract that has been issued by Anthem and 
under which the holder thereof has membership interests in Anthem; (2) 
any certificate issued by Anthem under a group insurance policy or 
health care benefits contract under which certificate the holder 
thereof has membership interests in Anthem; or (3) certificates of 
membership issued by Anthem in or under guaranty policies under which 
certificate the holder thereof is a member of Anthem with membership 
interests.
    (d) The term ``membership interests'' means (1) voting rights of 
Anthem's members as provided by law and Anthem's Articles of 
Incorporation and Bylaws, and (2) the rights of members to receive 
cash, stock, or other consideration in the event of conversion to a 
stock insurance company under Indiana Demutualization Law or a 
dissolution of Anthem as provided by Indiana insurance law and Anthem's 
Articles of Incorporation and Bylaws.
    (e) The term ``Eligible Member'' means a person or entity (1) whose 
name appears on Anthem's records as the holder of one or more in force 
policies issued by Anthem as of both the date the Board of Directors 
adopts the Plan of Conversion and the effective date of the Plan of 
Conversion, and (2) who has had continuous health care benefits 
coverage with the same insuring company during the period between those 
two dates under any policy without a break of more than one day.
    (f) The term ``Parent Company'' refers to a corporation organized 
and existing under the Indiana Business Corporation Law. Prior to the 
conversion, the Parent

[[Page 40744]]

Company will be a wholly owned subsidiary of Anthem. Upon the 
conversion of Anthem to a stock company, the Parent Company will serve 
as the ``Indiana parent corporation'' of Anthem for purposes of Indiana 
law. Upon the effective date of the Plan of Conversion, the Parent 
Company will complete an initial public offering (the IPO) of shares of 
Parent Company Common Stock for cash.

Summary of Facts and Representations

Description of the Parties

    1. Anthem, which maintains its principal place of business in 
Indianapolis, Indiana, is organized as a mutual insurance company under 
the laws of the State of Indiana. Together with its subsidiaries 
(collectively, the Company), Anthem is one of the nation's largest 
health benefits companies. As an independent licensee of the Blue Cross 
Blue Shield Association (BCBSA), the Company offers BCBSA-branded 
products throughout Indiana, Ohio, Kentucky, Connecticut, Colorado, 
Nevada, New Hampshire and Maine. The Company provides health care 
coverage or services to over 7 million people in these states. As of 
December 31, 2000, Anthem had approximately $5.7 billion in assets, 
$3.8 billion in liabilities and surplus of $1.9 billion. Anthem's 
current financial strength ratings are as follows: A.M. Best Company, 
Inc., A-; Standard & Poor's Rating Service, A; Moody's Investors 
Service, Inc., A3; and Fitch, Inc., A+.
    2. The Company offers a diversified mix of managed care products, 
including health maintenance organizations, preferred provider 
organizations, and point of service plans, as well as traditional 
indemnity products. In addition, the Company offers a full range of 
managed care services and partially-insured products for self-funded 
employer Plans, such as underwriting services, stop loss insurance, 
actuarial services, network access, medial cost management, claims 
processing, and administrative services. In nearly all cases, the 
Company provides administrative, recordkeeping and other support 
services to Plans that are funded by Anthem insurance policies. These 
services include claims processing, premium collection, billing, 
reporting, and managed care services (including medical case management 
and utilization review services). Moreover, the Company provides 
specialty products, including group life, disability, prescription 
management, workers compensation, administrative and claims management 
services, dental and vision care services, and allows customers to 
choose from an array of funding alternatives.
    3. As a mutual insurance company, Anthem does not have any 
stockholders. Instead, Anthem has members who are deemed holders of 
certain insurance policies and contracts which it has issued. As 
members, the policyholders have the right to vote in the election of 
Anthem's Board of Directors and to vote on any proposition that the 
Board submits to a vote of the members in accordance with Indiana law, 
including the right to vote on the conversion of Anthem from a mutual 
insurance company to a stock company. The voting rights of Anthem 
members are equal, with each member having only one vote regardless of 
the size, type, or number of policies owned by such member. As 
discussed herein, Anthem's members also have the right to vote and to 
receive consideration in the event of the Anthem's demutualization.
    Unlike most insurance companies, Anthem generally treats individual 
certificate holders under its group contracts as members instead of as 
group contract holders. Thus, in most cases, employers that fund their 
Plans with Anthem group contracts are not members of Anthem. Instead, 
the participants in these Plans are the members. Currently, Anthem has 
approximately 1 million members who hold certificates under either 
group plans or individual policies. Of these members, approximately 
650,000 have received their membership interests through participation 
in Plans.
    However, in a small number of cases, Plan group contract holders, 
which are generally employers rather than certificate holders, are 
considered members of Anthem. The subject cases have arisen out of 
mergers into Anthem of three Blue Cross Blue Shield (BCBS) licensees, 
which were organized as mutual insurance companies prior to the 
mergers.\14\ Currently, Anthem has approximately 7,000 members that are 
Plan group policyholders. (These are generally employers that hold the 
policies to provide benefits to their employees.)
---------------------------------------------------------------------------

    \14\ Specifically, the Kentucky BCBS licensee (Southeastern 
Mutual Insurance Company) merged into Anthem in 1993. Community 
Mutual Insurance Company, an Ohio Blue Cross Blue Shield licensee, 
merged into Anthem in 1995. The Connecticut BCBS licensee (Blue 
Cross & Blue Shield of Connecticut, Inc.) merged into Anthem in 
1997. These ``grandfathered'' members are group policyholders that 
(a) held contacts issued by the Kentucky, Ohio and Connecticut 
companies before those companies merged into Anthem and (b) have 
continuous coverage that meets specific requirements through the 
Company since the merger. These group contract holders were 
``grandfathered'' as members to preserve their membership interests 
in the merging mutual companies. For any new group contracts issued 
with respect to Plans by one of those companies since its merger 
with Anthem, however, the group contract holders, are members of 
Anthem.
---------------------------------------------------------------------------

    4. Anthem Holdings or the ``Parent Company'' will be a corporation 
organized and existing under the Indiana Business Corporation Law. 
Prior to the conversion, the Parent Company will be a wholly owned 
subsidiary of Anthem. Upon the conversion of Anthem to a stock company, 
the Parent Company will serve as the ``Indiana parent corporation'' of 
Anthem for purposes of Indiana law. Upon the effective date of the Plan 
of Conversion, the Parent Company will complete an IPO of shares of 
Parent Company Common Stock for cash.\15\ It is anticipated that the 
Common Stock will be traded on the New York Stock Exchange.
---------------------------------------------------------------------------

    \15\ At the present time, Anthem does not know the number of 
shares of Parent Company Common Stock that will be issued at the 
IPO. Anthem states that the exact number will not be known for some 
time because the number of shares will depend, among other factors, 
on market conditions at the time of the IPO (which is not expected 
to occur until late October or early November 2001).
---------------------------------------------------------------------------

The Anthem Conversion

    5. On February 1, 2001, Anthem's Board of Directors announced the 
appointment of a special committee to work with Anthem's management to 
develop a Plan of Conversion, which with Amended and Restated Articles 
of Incorporation, is expected to be approved by the Board of Directors 
during June 2001. The principal purpose of the conversion is to benefit 
Anthem's members and other customers by enhancing Anthem's financial 
strength and flexibility and by distributing value to its Eligible 
Members in the form of marketable common stock issued by Anthem 
Holdings (i.e., the Parent Company) or Cash, in exchange for such 
member's otherwise illiquid policyholders' membership interests. Thus, 
Eligible Members will realize economic value from their membership 
interests that is not currently available to them as long as Anthem 
remains a mutual company. However, Anthem's conversion will not in any 
way change premiums or reduce or change insurance or other health care 
benefits or contractual obligations of Anthem to its members and 
policyholders. Further, the conversion will provide Anthem with access 
to additional capital that is not available under the mutual form of 
corporate organization.
    The Plan of Conversion is subject to the approval of the 
Commissioner, the members of Anthem who are entitled to

[[Page 40745]]

vote on the Plan of Conversion,\16\ the other conditions set out in the 
Plan of Conversion, and other applicable state and federal regulatory 
approvals. Market conditions, regulatory requirements, and business 
considerations may also influence the final sequence of events.
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    \16\ The members eligible to vote will be the members of Anthem 
as of the date Anthem's Board of Directors approves the Plan of 
Conversion. That date will be the record date for the special 
meeting of the members that will be held for purposes of voting on 
the Plan of Conversion.
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    6. Accordingly, Anthem requests, on behalf of itself, its 
affiliates, and its future Parent Company, an administrative exemption 
from the Department that will permit Eligible Members which are Plans 
and Plan Participants to receive Common Stock issued by the Parent 
Company or Cash in exchange for their existing membership interests in 
Anthem. Anthem represents that although it and its affiliates generally 
provide administrative, record-keeping, or other support services to 
Plans in connection with the insurance policies and contracts sold to 
such Plans, the sales of the insurance products do not, in and of 
themselves, cause the insurer to be considered a party in interest. 
However, Anthem understands that, because of the services it or its 
affiliates provide to Plans that are funded through its insurance 
products, it or its affiliates may be considered parties in interest or 
even fiduciaries.
    Therefore, Anthem represents that the receipt of Parent Company 
Common Stock or Cash by a Plan or a Plan Participant can be viewed as a 
prohibited sale or exchange of property between the insurer (or the 
Parent Company) and the Plan or the Plan Participant, or it can be 
construed as a transfer or use of plan assets by or for the benefit of 
a party in interest in violation of section 406(a)(1)(A) and (D) of the 
Act. Therefore, Anthem has requested administrative exemptive relief 
from the Department in order to avoid any prohibited transactions that 
may occur inadvertently in the course of the conversion.
    The requested exemption is based upon a number of procedural and 
substantive protections that Indiana insurance law provides to all 
policyholders of a mutual insurance company that is undergoing 
conversion to a stock company. In this regard, all Eligible Members 
that are Plans (and Plan Participants) with respect to which Anthem or 
any of its affiliates is a party in interest will participate on the 
same basis and within their class groupings as all Eligible Members 
that are not Plans or Plan Participants.
    Anthem represents that neither it, the Parent Company, their 
subsidiaries, nor any of the employees, officers, and directors of 
Anthem, the Parent Company, or their subsidiaries are or will be 
Eligible Members under any Plan established or maintained by Anthem, 
the Parent Company, or their subsidiaries for the benefit of their 
employees, officers or directors. Therefore, Anthem does not request 
that the exemption apply to such Plans.

Indiana Insurance Law

    7. Anthem anticipates that the following steps of the conversion 
will occur pursuant to the Plan of Conversion:
     Anthem will convert from a mutual company to a stock 
company under Indiana law and will issue to the Parent Company all of 
its outstanding Anthem capital stock.
     All membership interests in Anthem will be extinguished, 
and, in exchange, Eligible Members will receive shares of Parent 
Company Common Stock or Cash.
     The capital stock of the Parent Company owned by Anthem 
will be canceled and cease to exist.
     The effective date of the Plan of Conversion will be the 
closing date of the Parent Company's IPO.
     Eligible Members may elect to receive Parent Company 
Common Stock or Cash. The Parent Company will issue shares of Parent 
Company Common Stock to Eligible Members who affirmatively elect to 
receive shares of Common Stock. The Parent Company will pay Cash to 
Eligible Members who are deemed to elect Cash because they fail to make 
a stock election or who are required to receive Cash because their 
mailing address, as shown on Anthem's records, is outside of the United 
States or because their receipt of stock would, in Anthem's judgment, 
fail to comply with the securities registration requirements (or 
applicable exemptions) of the Eligible Member's state of domicile. To 
the extent that sufficient Cash is not available to pay Cash to all of 
these Eligible Members, the Parent Company will pay Cash first to those 
Eligible Members who are required to receive Cash because of their 
domicile and then to those Eligible Members with the smallest share 
allocations. Once the amount of Cash available is exhausted, the 
remaining Eligible Members will be issued shares of Parent Company 
Common Stock.

Procedural Requirements Under Indiana Demutualization Law

    8. Indiana Demutualization Law (i.e., Indiana Code 27-15 et seq.), 
establishes an approval process for the demutualization of domestic 
mutual insurance companies. In this regard, the conversion of a mutual 
insurance company to a stock company must be initiated by the board of 
directors of the mutual insurance company. The board of directors may 
approve a plan of conversion only upon a finding that the proposed 
conversion is in the best interests of the converting mutual insurance 
company, the Eligible Members, and the other policyholders of the 
company.
    Once the plan of conversion is approved by the company's board of 
directors, the company must submit an application for the approval of 
the plan of conversion to the Commissioner. The application must 
contain the following information:
     The plan of conversion and a certificate of the secretary 
of the converting mutual insurance company certifying the approval of 
the plan by the company's board of directors.
     A statement of the reasons for the proposed conversion and 
why the conversion is in the best interests of the converting mutual 
insurance company, the Eligible Members, and the other policyholders. 
The statement must include an analysis of the risks and benefits to the 
converting mutual insurance company and its members of the proposed 
conversion and a comparison of the risks and benefits of the conversion 
with the risks and benefits of reasonable alternatives to a conversion.
     A five year business plan and at least two years of 
financial projections of the former mutual insurance company and any 
parent company.
     Any plans that the former mutual insurance company or any 
parent company may have to:
     Raise additional capital through the issuance of stock or 
otherwise;
     Sell or issue stock to any person, including any 
compensation or benefit plan for directors, officers, or employees 
under which stock may be issued;
     Liquidate or dissolve any company or sell any material 
assets;
     Merge or consolidate or pursue any other form of 
reorganization with any person; or
     Make any other material change in investment policy, 
business, corporate structure, or management.
     Any plans for delayed distribution of consideration.
     A plan of operation for a closed block,\17\ if a closed 
block is used for the

[[Page 40746]]

preservation of the reasonable dividend expectations of Eligible 
Members and other policyholders with policies that provide for the 
distribution of policy dividends. (Anthem represents that it does not 
have any policies for which there is a reasonable expectation of 
dividends and, accordingly, a closed block will not be established.)
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    \17\ Indiana Demutualization Law defines the term ``closed 
block'' to mean an allocation of assets for a defined group of in 
force policies which, together with the premiums of those policies 
and related investment earnings, are expected to be sufficient to 
maintain the payments of guaranteed benefits, certain expenses, and 
continuation of the current dividend scale on the closed block, if 
experience does not change.
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     Copies of the amendment to the articles of incorporation 
proposed by the board of directors and the proposed bylaws of the 
former mutual insurance company and copies of the existing and any 
proposed articles of incorporation and bylaws of any parent company.
     A list of all individuals who are or have been selected to 
become directors or officers of the former mutual insurance company and 
any parent company, or the individuals who perform or will perform 
duties customarily performed by a director or officer, as well as 
specific biographical information about those individuals.
     A fairness opinion addressed to the board of directors of 
the converting mutual, from a qualified, independent financial advisor, 
asserting (a) that the provision of stock, cash, policy benefits, or 
other forms of consideration upon the extinguishing of the converting 
mutual's membership interests under the plan of conversion and the 
amendment to the articles of incorporation is fair to the Eligible 
Members, as a group, from a financial point of view; and (b) whether 
the total consideration under clause (a) is equal to or greater than 
the surplus of the converting mutual.
     An actuarial opinion as to the following:
     The reasonableness and appropriateness of the methodology 
or formulas used to allocate consideration among Eligible Members, 
consistent with the statute.
     The reasonableness of the plan of operation and the 
sufficiency of the assets allocated to the closed block, if a closed 
block is used for the preservation of the reasonable dividend 
expectations of Eligible Members and other policyholders with policies 
that provide for the distribution of policy dividends. (Anthem 
represents that it does not have any policies for which there is a 
reasonable expectation of dividends and again emphasizes that, a closed 
block will not be established.)
     Any additional information, documents, or materials that 
the converting mutual insurance company determines to be necessary.
     Any other additional information, documents, or materials 
that the Commissioner requests in writing.
    9. Upon determining that the application is complete, the 
Commissioner must conduct a public hearing on the plan of conversion. 
The purpose of the hearing is to receive comments and information to 
aid the Commissioner in considering and approving or disapproving the 
application for approval of the plan of conversion. Persons wishing to 
make comments and submit information may submit written statements 
before or at the public hearing and may also appear and be heard at the 
public hearing. The converting mutual insurance company must provide at 
least thirty days prior written notice of the hearing to its members 
and policyholders. The converting mutual insurance company must also 
cause notice of the public hearing to be published in a newspaper of 
general circulation in the city where the principal office of the 
converting mutual insurance company is located, in Indianapolis and in 
any other city specified by the Commissioner. Both the written notice 
and the form and content of the published notice must be pre-approved 
by the Commissioner.
    The Commissioner must fully consider any comments received at the 
public hearing consistent with Indiana's Administrative Rules and 
Procedures Act before making a determination on the Plan of Conversion. 
After the public hearing, the Commissioner must approve the application 
and permit the conversion under the plan of conversion if the 
Commissioner finds the following:
     That the amount and form of consideration is fair in the 
aggregate and to each member class;
     That the Plan of Conversion and the amendment to the 
articles of incorporation:
     Comply with the Indiana Demutualization Law and other 
applicable laws;
     Are fair, reasonable, and equitable to the Eligible 
Members; and
     Will not prejudice the interests of the other 
policyholders of the converting mutual insurance company; and
     That the total consideration provided to Eligible Members 
upon the extinguishing of the converting mutual's membership interests 
is equal to or greater than the surplus of the converting mutual. A 
person who is aggrieved by an agency action of the Commissioner under 
the Indiana Demutualization Law may petition for judicial review of the 
action.
    Indiana Demutualization Law also permits the Commissioner to employ 
accountants, actuaries, attorneys, financial advisors, investment 
bankers and other experts that are necessary to assist the Commissioner 
in reviewing all matters under the Indiana Demutualization Law.
    In addition to receiving Commissioner approval, the plan of 
conversion must be approved by the converting mutual insurance 
company's policyholders. The policyholders must be provided with notice 
of the meeting called for the purpose of voting on the Plan of 
Conversion. The converting mutual insurance company must also provide 
explanatory information about the conversion to policyholders. The form 
of the meeting notice, explanatory information, and any proxy 
solicitation materials must be approved in advance by the Commissioner. 
The Plan of Conversion must be approved by at least two-thirds of the 
policyholders voting at the meeting.\18\
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    \18\ It should be noted that Indiana law imposes stringent time 
constraints on the distribution of demutualization consideration to 
policyholders. Specifically, unless a very narrow exception applies, 
which is authorized by the Commissioner, all demutualization 
consideration must be distributed within six months after the 
insurer's conversion to a stock company. The exception, which Anthem 
states will not apply to the subject exemption request, would 
require that a claim be filed by, or on behalf of, one or more 
Anthem policyholders. The claim must assert, to the satisfaction of 
the Commissioner, that (a) irreparable harm will result if 
distribution occurs before the Department issues the requested 
exemption, and (b) a trust should be established by the insurer to 
hold the demutualization consideration until the exemption is 
granted. (For a discussion of the trust requirement imposed under 
Indiana Demutualization Law, see Representation 16 in the notice of 
proposed exemption for Indianapolis Life Insurance Company, 66 FR 
7802, January 25, 2001, at 7807.)
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    10. As noted in Representation 5, Anthem's Board of Directors 
approved Anthem's Plan of Conversion on June 18, 2001. As for the 
policyholder meeting, Anthem indicates that the notice is tentatively 
scheduled to be mailed beginning in mid- to late August 2001. When the 
meeting is held, approximately 1 million Eligible Members (including 
Plans and Plan Participants), will be able to vote on the Plan of 
Conversion. However, each Eligible Member will be entitled to only one 
vote. Anthem expects that the Commissioner will approve the Plan of 
Conversion (after a public hearing in September 2001 by late October 
2001, and that the demutualization will become effective in late 
October (following Commissioner and member approvals) or during 
November 2001, although delays in the regulatory process could further 
affect these dates.

[[Page 40747]]

Distributions to Anthem's Members

    11. As noted above, Anthem's Plan of Conversion provides for 
Eligible Members to receive Common Stock of the Parent Company or Cash 
as consideration for giving up their membership interest in the mutual 
insurance company, which interests will be extinguished as a result of 
the demutualization.\19\ Eligible Members may elect to receive Parent 
Company Common Stock or Cash.\20\ The Parent Company will issue shares 
of Parent Company Common Stock to Eligible Members who affirmatively 
elect to receive such stock. The Parent Company will pay Cash to 
Eligible Members who are deemed to elect Cash because their mailing 
address, as shown on Anthem's records, is outside of the United States 
or the receipt of stock, would, in Anthem's judgment, fail to comply 
with the securities registration requirements (or applicable 
exemptions) of the Eligible Member's state of domicile, or they fail to 
make a stock election. To the extent that sufficient Cash is not 
available to pay Cash to all of these Eligible Members, the Parent 
Company will pay Cash first to those Eligible Members who are required 
to receive Cash because of their domicile and then to those Eligible 
Members with the smallest share allocations. Once the amount of Cash 
available is exhausted, the remaining Eligible Members will be issued 
shares of Parent Company Common Stock. The amount of Cash will be 
determined by multiplying the number of shares of Common Stock 
allocated to the Eligible Member by the price at which such Common 
Stock is being offered to the public in the IPO.
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    \19\ Because Anthem does not issue any policies to or in 
connection with individual retirement accounts, tax-deferred 
annuities, or tax-qualified plans, no consideration will be paid in 
the form of ``policy credits.''
    \20\ ``The proceeds of the demutualization will belong to the 
Plan if they would be deemed to be owned by the Plan under ordinary 
notions of property rights. See ERISA Advisory Opinion 92-02A, 
January 17, 1992 (assets of plan generally are to be identified on 
the basis of ordinary notions of property rights under non-ERISA 
law). It is the view of the Department that, in the case of an 
employee welfare benefit plan with respect to which participants pay 
a portion of the premiums, the appropriate plan fiduciary must treat 
as plan assets the portion of the demutualization proceeds 
attributable to participant contributions. In determining what 
portion of the proceeds are attributable to participant 
contributions, the plan fiduciary should give appropriate 
consideration to those facts and circumstances that the fiduciary 
knows or should know are relevant to the determination, including 
the documents and instruments governing the plan and the proportion 
of total participant contributions to the total premiums paid over 
an appropriate time period. In the case of an employee pension 
benefit plan, or where any type of plan or trust is the 
policyholder, or where the policy is paid for out of trust assets, 
it is the view of the Department that all of the proceeds received 
by the policyholder in connection with a demutualization would 
constitute plan assets.'' See ERISA Advisory Opinion 2001-02A, 
February 15, 2001.
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    The total consideration to be distributed to Eligible Members will 
be equal in value to a specified number of shares of Common Stock as 
determined by the Board of Directors. As required by Indiana law, this 
value is expected to be at least equal to the amount of Anthem's 
statutory surplus. Each Eligible Member will be allocated a fixed 
component of consideration, consisting of 21 shares of Parent Company 
Common Stock. The remaining shares of Common Stock will then be 
allocated to the Eligible Members based on the actuarial contribution 
that each Eligible Member has made to Anthem's statutory surplus.
    After shares of Common Stock have been allocated, actual 
consideration will be paid as soon as practicable after the conversion 
date to Eligible Members. The decision as to the form of consideration 
to be received in exchange for membership interests in Anthem will be 
made by one or more independent Plan fiduciaries in the case of a Plan, 
or if applicable, by a Plan Participant. Under either circumstance, 
neither Anthem nor its affiliates will provide the Plan fiduciary or 
the Plan Participant with ``investment advice'' within the meaning of 
29 CFR 2510.3-21(c) of the Act or exercise investment discretion with 
respect to such decision.

Lock-Up Period and Commission-Free Sales and Purchase Program

    12. To allow Anthem to create and maintain an orderly market for, 
and improve the marketability of Parent Company Common Stock after the 
IPO, Anthem will institute a 6 month ``lock-up'' period. The lock-up 
period will also assure new investors who buy shares in the IPO that 
the Eligible Members who are given shares in the demutualization will 
not sell a large block of Parent Company Common Stock after the IPO. 
During the lock-up period, Parent Company Common Stock issued to an 
Eligible Member will be uncertified. The Eligible Member will have the 
right to vote and to receive dividends and any other distributions 
related to the stock. However, Eligible Members will not be able to 
liquidate their stock holdings until the lock-up period is over. The 
lock-up period will continue for 6 months after the effective date of 
the Plan of Conversion. As soon as practicable after the expiration of 
the lock-up period, Eligible Members will be entitled to receive a 
certificate for the Parent Company Common Stock that is registered in 
their name on the company books. Upon the expiration of the lock-up 
period, the Parent Company Common Stock will be freely-tradeable and 
may be disposed of on a stock exchange or in any other manner the 
Eligible Member chooses, in compliance with securities laws.
    13. Following the lock-up period, Anthem will establish a 
commission-free sales and purchase program, although the exact contours 
of such program have not yet been clearly-defined. Anthem, does, 
however, expect that the program will commence no sooner than the first 
business day after the 6 month anniversary, and no later than the last 
business day before the 30 month anniversary, of the effective date of 
the demutualization. Under the program, each shareholder owning 99 or 
fewer shares of Parent Company Common Stock on the record date of the 
program will have the opportunity, at any time during the term of the 
program, to sell all, but not less than all, of those shares in one 
transaction at prevailing market prices without paying brokerage or 
other similar expenses. Simultaneously and in conjunction with the 
commission-free sales program, Anthem will also offer each shareholder 
eligible to participant in such program, the opportunity to purchase 
additional shares of Parent Company Common Stock, as necessary, in 
order that the shareholder may increase such share holdings to 100 
share round lots without paying brokerage commissions or other similar 
expenses.
    14. In summary, it is represented that the proposed transaction 
will satisfy the statutory criteria for an exemption under section 
408(a) of the Act because:
    (a) The Plan of Conversion will be implemented pursuant to 
stringent procedural and substantive safeguards imposed under Indiana 
law and supervised by the Commissioner.
    (b) The Commissioner will only approve the Plan of Conversion 
following a determination that, among other things, such Plan is fair, 
reasonable, and equitable to all of Anthem's Eligible Members 
(including Plans and Plan Participants).
    (c) One or more independent fiduciaries of each Plan that is an 
Eligible Member on the date the Plan of Conversion is adopted, and each 
Plan Participant/certificate holder who is an Eligible Member on the 
date the Plan of Conversion is adopted, will have an opportunity to 
vote whether to approve the terms of the Plan of Conversion and will 
also be solely responsible for any decisions that may be permitted 
under the Plan of Conversion regarding the form of consideration to be 
received in

[[Page 40748]]

return for their respective membership interests.
    (d) Because of all of the protections afforded to Plans and Plan 
Participants under Indiana law, no ongoing involvement by the 
Department will be required in order to safeguard the interests of 
Eligible Members that are Plans or Plan Participants.
    (e) The Plan of Conversion will enable Plans or Plan Participants 
to convert their illiquid membership interests in Anthem into Parent 
Company Common Stock or Cash.
    (f) Anthem's insurance contracts will remain in force and will not 
be affected by the Plan of Conversion, and there will be no changing of 
premiums or compromising any of the benefits, values, guarantees, or 
other policy obligations of Anthem to its policyholders and 
contractholders.
    (g) Each Eligible Member that is a Plan or a Plan Participant will 
have an opportunity to comment on the Plan of Conversion and, if such 
Plan or Plan Participant is a voting member, to vote for or against the 
Plan of Conversion after full disclosure by Anthem of the terms of the 
Plan of Conversion.

Notice to Interested Persons

    Pursuant to the requirements of Indiana Demutualization Law, during 
August, 2001, Anthem will provide its members, including Plans and Plan 
Participants, with an advance disclosure document relating to its 
conversion to a stock company. The document, known as ``The Member 
Information Statement'' (or MIS) will include, among other things, (a) 
a notice of the date, time, and place for voting on the Plan of 
Conversion; (b) a notice of the time, place, and purpose of a public 
hearing on the Plan of Conversion, at which members can express their 
views on the Plan of Conversion; (c) detailed information regarding 
Anthem's Plan of Conversion; and (d) business and financial information 
about Anthem and the Parent Company. The MIS will be provided in a form 
and manner approved by the Commissioner and will be sent to over 1 
million Anthem members, including Plans and Plan Participants who hold 
certificates issued pursuant to their respective Plans. Anthem has 
deemed such Plans and Plan Participants to be ``interested persons'' 
for purposes of this exemption.
    In connection with the exemption request, Anthem wishes to provide 
notice of the proposed exemption in a manner that takes into account 
(a) the costs and administrative burdens of providing a separate notice 
of the proposed exemption to all affected members; (b) the notices 
required, and member protections accorded, under state law; and (c) the 
limited scope of exemptive relief that it has requested. In this 
regard, Anthem has incorporated the Department's required supplemental 
statement describing the exemption proceeding (see 29 CFR 2570.43) in a 
slightly modified form in the MIS under the special heading ``Notice of 
Application for Prohibited Transaction Exemption'' (hereinafter, the 
MIS Notice). The MIS Notice is intended to inform affected members of 
the anticipated publication of the proposed exemption in the Federal 
Register and their right to comment on the proposal. The MIS Notice 
states that an affected member may call a toll-free number maintained 
by Anthem (1-866-299-9628) or write to Anthem if the member wishes to 
be provided with a copy of the proposed exemption when it is published 
in the Federal Register. In addition, the MIS Notice indicates that the 
proposed exemption will be posted on Anthem's website (www.anthem.com) 
after publication.
    Any Plan or Plan Participant requesting that Anthem provide a copy 
of the proposed exemption will be sent a copy of such document within 
15 days of its publication in the Federal Register. The copy of the 
proposed exemption will be accompanied by another version of the 
supplemental statement, as required under the Department's regulations. 
In addition, the proposed exemption, together with a copy of the 
supplemental statement, will be posted on Anthem's website within 15 
days of publication. Anthem will give Plan members 45 days to file 
comments with the Department. The comment period will commence on the 
date the proposed exemption is published in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions of the Act and/or the Code, 
including any prohibited transaction provisions to which the exemption 
does not apply and the general fiduciary responsibility provisions of 
section 404 of the Act, which, among other things, require a fiduciary 
to discharge his duties respecting the plan solely in the interest of 
the participants and beneficiaries of the plan and in a prudent fashion 
in accordance with section 404(a)(1)(b) of the Act; nor does it affect 
the requirement of section 401(a) of the Code that the plan must 
operate for the exclusive benefit of the employees of the employer 
maintaining the plan and their beneficiaries;
    (2) Before an exemption may be granted under section 408(a) of the 
Act and/or section 4975(c)(2) of the Code, the Department must find 
that the exemption is administratively feasible, in the interests of 
the plan and of its participants and beneficiaries, and protective of 
the rights of participants and beneficiaries of the plan;
    (3) The proposed exemptions, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or the 
Code, including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction; and
    (4) The proposed exemptions, if granted, will be subject to the 
express condition that the material facts and representations contained 
in each application are true and complete, and that each application 
accurately describes all material terms of the transaction which is the 
subject of the exemption.

    Signed at Washington, DC, this 31st day of July, 2001.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 01-19489 Filed 8-2-01; 8:45 am]
BILLING CODE 4510-29-P