10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the Quarterly Period ended March 31, 2003
	OR
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from                         to
Commission file number 001-16751

ANTHEM, INC.

(Exact name of registrant as specified in its charter)

Indiana	35-2145715
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
120 Monument Circle Indianapolis, Indiana	46204-4903
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (317) 488-6000

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  x    No  ¨

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes  x    No  ¨

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Title of each class	Outstanding at April 21, 2003
Common Stock, $0.01 par value	138,263,372 shares

ANTHEM, INC.

Quarterly Report on Form 10-Q

For the Period Ended March 31, 2003

TABLE OF CONTENTS

	Page
PART I.    FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS	1
Consolidated Balance Sheets as of March 31, 2003 (Unaudited) and December 31, 2002	1
Consolidated Statements of Income for the Three Months Ended March 31, 2003 and 2002 (Unaudited)	2
Consolidated Statements of Shareholders’ Equity for the Three Months Ended March 31, 2003 and 2002 (Unaudited)	3
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003 and 2002 (Unaudited)	4
Notes to Consolidated Financial Statements (Unaudited)	5
ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	13
ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	32
ITEM 4.    CONTROLS AND PROCEDURES	32
PART II.    OTHER INFORMATION
ITEM 1.    LEGAL PROCEEDINGS	33
ITEM 2.    CHANGES IN SECURITIES AND USE OF PROCEEDS	33
ITEM 3.    DEFAULTS UPON SENIOR SECURITIES	33
ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	33
ITEM 5.    OTHER INFORMATION	33
ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K	33
SIGNATURES	35
CERTIFICATIONS	36
INDEX TO EXHIBITS	38

References in this Quarterly Report on Form 10-Q to the term “Anthem” or the “Company” refer to Anthem, Inc., an Indiana holding company, and its direct and indirect subsidiaries, including Anthem Insurance Companies, Inc., or “Anthem Insurance”, an Indiana insurance company. References to the terms “we,” “our,” or “us,” refer to Anthem, before and after the demutualization of Anthem Insurance which was consummated on November 2, 2001, as the context requires.

1

PART I.    FINANCIAL INFORMATION

ITEM 1.    Financial Statements

ANTHEM, INC.

CONSOLIDATED BALANCE SHEETS

(In Millions, Except Share Data)	March 31, 2003			December 31, 2002
	(Unaudited)
Assets
Current assets:
Investments available-for-sale, at fair value:
Fixed maturity securities	$	6,248.6		$	5,797.4
Equity securities		145.5			150.7
		6,394.1			5,948.1
Cash and cash equivalents		463.9			694.9
Premium and self-funded receivables		903.8			892.7
Reinsurance receivables		75.3			76.5
Other receivables		217.2			192.3
Income tax receivables		7.4			11.7
Other current assets		61.4			60.3
Total current assets		8,123.1			7,876.5
Restricted cash and investments		47.5			49.1
Property and equipment		519.9			537.4
Goodwill		2,483.9			2,484.9
Other intangible assets		1,262.8			1,274.6
Other noncurrent assets		69.7			70.6
Total assets	$	12,506.9		$	12,293.1
Liabilities and shareholders’ equity
Liabilities
Current liabilities:
Policy liabilities:
Unpaid life, accident and health claims	$	1,947.1		$	1,826.0
Future policy benefits		349.5			344.7
Other policyholder liabilities		419.3			497.3
Total policy liabilities		2,715.9			2,668.0
Unearned income		328.5			326.6
Accounts payable and accrued expenses		356.5			471.8
Bank overdrafts		383.9			357.9
Income taxes payable		110.9			109.8
Other current liabilities		716.0			514.8
Total current liabilities		4,611.7			4,448.9
Long term debt, less current portion		1,660.3			1,659.4
Retirement benefits		51.4			50.6
Deferred income taxes		433.9			389.9
Other noncurrent liabilities		273.6			382.0
Total liabilities		7,030.9			6,930.8
Shareholders’ equity
Preferred stock, without par value, shares authorized—100,000,000; shares issued and outstanding—none		—			—
Common stock, par value $0.01, shares authorized—900,000,000; shares issued and outstanding: 2003, 138,185,231; 2002, 139,332,132		1.4			1.4
Additional paid in capital		4,721.8			4,762.2
Retained earnings		636.1			481.3
Unearned restricted stock compensation		(4.8	)		(5.3	)
Accumulated other comprehensive income		121.5			122.7
Total shareholders’ equity		5,476.0			5,362.3
Total liabilities and shareholders’ equity	$	12,506.9		$	12,293.1

See accompanying notes.

ANTHEM, INC.

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In Millions, Except Per Share Data)	Three Months Ended March 31
	2003		2002
Revenues
Premiums	$	3,695.7	$	2,529.5
Administrative fees		292.1		201.0
Other revenue		28.1		18.1
Total operating revenue		4,015.9		2,748.6
Net investment income		71.5		60.5
Net realized gains on investments		12.9		3.3
		4,100.3		2,812.4
Expenses
Benefit expense		3,036.6		2,136.4
Administrative expense		716.4		505.6
Interest expense		32.9		17.6
Amortization of other intangible assets		11.9		3.3
		3,797.8		2,662.9
Income before income taxes and minority interest		302.5		149.5
Income taxes		109.8		49.2
Minority interest		1.0		0.5
Net income	$	191.7	$	99.8
Net income per share
Basic	$	1.38	$	0.97
Diluted	$	1.36	$	0.95

See accompanying notes.

2

ANTHEM, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

	Common Stock				Additional Paid in Capital			Retained Earnings			Unearned Restricted Stock Compensation			Accumulated Other Comprehensive Income			Total Shareholders’ Equity
(In Millions, Except Share Data)	Number of Shares		Par Value
Balance at December 31, 2002	139,332,132		$	1.4	$	4,762.2		$	481.3		$	(5.3	)	$	122.7		$	5,362.3
Net income	—			—		—			191.7			—			—			191.7
Change in net unrealized losses on investments	—			—		—			—			—			(1.2	)		(1.2	)
Comprehensive income																		190.5
Repurchase and retirement of common stock	(1,584,400	)		—		(54.1	)		(36.9	)		—			—			(91.0	)
Issuance of common stock for stock incentive plan and employee stock purchase plan, net of amortization	437,499			—		13.7			—			0.5			—			14.2
Balance at March 31, 2003	138,185,231		$	1.4	$	4,721.8		$	636.1		$	(4.8	)	$	121.5		$	5,476.0
Balance at December 31, 2001	103,295,675		$	1.1	$	1,960.8		$	55.7		$	—		$	42.4		$	2,060.0
Net income	—			—		—			99.8			—			—			99.8
Change in net unrealized losses on investments	—			—		—			—			—			(33.9	)		(33.9	)
Comprehensive income																		65.9
Adjustments related to the demutualization	27,624			—		0.1			—			—			—			0.1
Balance at March 31, 2002	103,323,299		$	1.1	$	1,960.9		$	155.5		$	—		$	8.5		$	2,126.0

See accompanying notes.

3

ANTHEM, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended March 31
(In Millions)	2003			2002
Operating activities
Net income	$	191.7		$	99.8
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized gains on investments		(12.9	)		(3.3	)
Depreciation, amortization and accretion		56.4			28.5
Deferred income taxes		62.0			13.6
Changes in operating assets and liabilities, net of effect of purchases and divestitures:
Restricted cash and investments		1.6			—
Receivables		(21.4	)		(72.6	)
Other assets		3.1			(6.2	)
Policy liabilities		52.2			118.8
Unearned income		1.9			8.2
Accounts payable and accrued expenses		(114.3	)		(85.2	)
Other liabilities		23.4			79.6
Income taxes		5.3			2.1
Cash provided by operating activities		249.0			183.3
Investing activities
Purchases of investments		(1,351.5	)		(826.2	)
Sales or maturities of investments		964.8			730.3
Purchases of subsidiaries, net of cash acquired		(1.1	)		(10.6	)
Proceeds from sale of property and equipment		2.9			0.9
Purchases of property and equipment		(16.7	)		(27.9	)
Cash used in investing activities		(401.6	)		(133.5	)
Financing activities
Repurchase and retirement of common stock		(91.0	)		—
Proceeds from exercise of stock options and employee stock purchase plan		12.6			—
Adjustment to payments to eligible statutory members in the demutualization		—			0.1
Cash (used in) provided by financing activities		(78.4	)		0.1
Change in cash and cash equivalents		(231.0	)		49.9
Cash and cash equivalents at beginning of period		694.9			406.4
Cash and cash equivalents at end of period	$	463.9		$	456.3

See accompanying notes.

4

ANTHEM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

March 31, 2003

(Dollars in Millions, Except Share Data)

1.    Basis of Presentation

The accompanying unaudited consolidated financial statements of Anthem, Inc. and its subsidiaries (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, including normal recurring adjustments, necessary for a fair presentation of the consolidated financial statements as of and for the three month periods ended March 31, 2003 and 2002 have been recorded. The results of operations for the three month period ended March 31, 2003 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2003. These unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2002 included in Anthem’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission.

2.    Acquisitions

Acquisition of Trigon Healthcare, Inc.

On July 31, 2002, Anthem completed its purchase of 100% of the outstanding stock of Trigon Healthcare, Inc. (“Trigon”) for a purchase price of $4,038.1. Trigon was Virginia’s largest health care company and was the Blue Cross and Blue Shield licensee in Virginia, excluding the immediate suburbs of Washington, D.C. The merger provided the Company with a new segment (Southeast) with approximately 2.5 million members and a nearly forty percent share of the Virginia market. The results of operations for Trigon are included in Anthem’s consolidated income statement after the completion of the acquisition.

Pending Acquisition

On May 31, 2001, Anthem Insurance and Blue Cross and Blue Shield of Kansas (“BCBS-KS”) announced they had signed a definitive agreement pursuant to which BCBS-KS would become a wholly-owned subsidiary of Anthem Insurance. Under the proposed transaction, BCBS-KS would demutualize and convert to a stock insurance company. The agreement calls for Anthem Insurance to pay $190.0 in exchange for all of the shares of BCBS-KS. On February 11, 2002, the Kansas Insurance Commissioner disapproved the proposed transaction, which had been previously approved by the BCBS-KS policyholders in January 2002. On February 19, 2002, the Board of Directors of BCBS-KS voted unanimously to appeal the Kansas Insurance Commissioner’s decision and BCBS-KS sought to have the decision overturned in Shawnee County District Court. The Company joined BCBS-KS in the appeal, which was filed on March 7, 2002. On June 7, 2002, the Shawnee County District Court ruled on the BCBS-KS appeal. The Court ruled in favor of Anthem and BCBS-KS, vacating the Commissioner’s decision and remanding the matter to the Commissioner for further proceedings not inconsistent with the Court’s order. On June 10, 2002, the Kansas Insurance Commissioner appealed the Court’s ruling to the Kansas Supreme Court. In March 2003, the Kansas Supreme Court heard oral arguments of the parties to this case. A ruling from the Kansas Supreme Court has not been issued.

3.    Capital Stock

Stock Repurchase Program

On January 27, 2003, the Board of Directors authorized the repurchase of up to $500.0 of stock under a new program that will expire in February 2005. Under the new program, repurchases may be made from time to time

5

ANTHEM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

3.    Capital Stock (continued)

at prevailing prices, subject to certain restrictions on volume, pricing and timing. During the three months ended March 31, 2003, the Company repurchased and retired 1,584,400 shares, at an average per share price of $57.44, for an aggregate cost of $91.0. The excess of cost of the repurchased shares over par value is charged on a pro rata basis to additional paid in capital and retained earnings.

Stock Incentive Plan

The Company’s 2001 Stock Incentive Plan (“Stock Plan”) provides for the granting of stock options, restricted stock awards, performance stock awards, performance awards and stock appreciation rights to eligible employees and non-employee directors. The Stock Plan permits the Compensation Committee of the Board of Directors to make grants in such amounts and at such times as it may determine.

During the three months ended March 31, 2003, the Company granted stock options to purchase 17,000 shares to certain eligible employees. The weighted average exercise price of these options was $61.99 per share, the fair value of the stock on the grant date. These options will vest and expire over terms set by the Compensation Committee of the Board of Directors. For the three months ended March 31, 2003, 278,549 options were exercised pursuant to both the 2001 Stock Incentive Plan and the former Trigon Stock Plans, for an aggregate total of $5.8.

During the three months ended March 31, 2003, the Company granted 18,217 shares of restricted stock, including 16,849 shares to Anthem Southeast employees under long-term incentive agreements, to certain eligible employees and non-employee directors at the fair value of the stock on the grant date. For grants of restricted stock, other than those awarded under long-term incentive agreements, unearned compensation equivalent to the fair market value of the shares at the date of grant is recorded as a separate component of shareholders’ equity and subsequently amortized to compensation expense over the vesting period. Expense of $0.6 has been recorded for the three months ended March 31, 2003.

Stock options and restricted stock awards are not considered outstanding in computing the weighted-average number of shares outstanding for basic earnings per share, but are included, from the grant date, in determining diluted earnings per share using the treasury stock method. The stock options are dilutive in periods when the average market price exceeds the grant price. The restricted stock awards are dilutive when the aggregate fair value exceeds the amount of unearned compensation remaining to be amortized.

On January 27, 2003, the Board of Directors approved, subject to shareholder approval at their meeting on May 12, 2003, amendments to the original Stock Plan including the following: (i) increase the number of shares of common stock available for distribution under the plan from 7,000,000 to 20,000,000, (ii) authorize the grant of shares of restricted and unrestricted common stock in lieu of the Company’s obligations to pay cash under other plans and compensatory arrangements, including the Company’s Annual Incentive Plan and Long Term Incentive Plan; and (iii) certain other changes necessary in order for the Stock Plan to comply with the requirements of Section 162(m) of the Internal Revenue Code. In the event shareholders do not approve the amended and restated Stock Plan, the original Stock Plan will remain in full force and effect.

Employee Stock Purchase Plan

Employee purchases under the Employee Stock Purchase Plan were 140,352 shares, with a total purchase amount of $6.8 during the three months ended February 28, 2003. As of March 31, 2003, payroll deductions of $1.2 were accumulated toward purchases for the three months ending May 31, 2003.

6

ANTHEM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

3.    Capital Stock (continued)

Pro Forma Disclosure

FAS 148, Accounting for Stock-Based Compensation-Transition and Disclosure, was issued in December 2002. This statement amends FAS 123, Accounting for Stock-Based Compensation, and Accounting Principles Board Opinion No. 28, Interim Financial Reporting, to require more prominent disclosure and specifies the form, content and location of those disclosures in both annual and interim financial statements. Adoption of FAS 148 will not impact the Company’s financial position or results of operations. The Company will continue to account for its stock-based compensation using the intrinsic method under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and accordingly, will not recognize compensation expense related to stock options and employee stock purchases. The Company has adopted the disclosure requirements of FAS 123, as amended by FAS 148, which are presented below.

The pro forma information, regarding net income and earnings per share, have been determined as if the Company accounted for its stock-based compensation using the fair value method. For purposes of pro forma disclosures, compensation expense is increased for the estimated fair value of the options amortized over the options’ vesting periods and for the difference between the market price of the stock and discounted purchase price of the shares on the purchase date for the employee stock purchases. The stock-based employee compensation expense included in reported net income represents compensation expense from restricted stock awards being amortized over the awards vesting period. The Company’s pro forma information is as follows:

	Three Months Ended March 31
	2003			2002
Reported net income	$	191.7		$	99.8
Add: Stock-based employee compensation expense for restricted stock awards included in reported net income (net of tax)		0.4			—
Less: Total stock-based employee compensation expense determined under fair value based method for all awards (net of tax)		(4.1	)		(1.6	)
Pro forma net income	$	188.0		$	98.2
Earnings per share:
Basic—as reported	$	1.38		$	0.97
Basic—pro forma		1.36			0.95
Diluted—as reported		1.36			0.95
Diluted—pro forma		1.33			0.94

4.    Earnings Per Share

The denominator for basic and diluted earnings per share for the three months ended March 31, 2003 and 2002 is as follows:

	Three Months Ended March 31
	2003	2002
Denominator for basic earnings per share—weighted average shares	138,702,725	103,323,299
Effect of dilutive securities—employee and director stock options and non vested restricted stock awards	1,243,478	485,314
Effect of dilutive securities—incremental shares from conversion of Equity Security Unit purchase contracts	1,399,624	1,011,959
Denominator for diluted earnings per share	141,345,827	104,820,572

7

ANTHEM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4.    Earnings Per Share (continued)

Weighted average shares used for basic earnings per share assumes adjustments, if any, to common stock distributed in the demutualization occurred at the beginning of the quarter in which changes were identified.

5.    Segment Information

Financial data by reportable segment for the three months ended March 31, 2003 and 2002 is as follows:

	Midwest		East			West		Southeast		Specialty		Other and Eliminations			Total
Three Months Ended March 31, 2003
Operating revenue from external customers	$	1,619.7	$	1,121.6		$	252.0	$	912.8	$	56.3	$	53.5		$	4,015.9
Intersegment revenues		2.4		(12.1	)		1.0		0.7		103.3		(95.3	)		—
Operating gain (loss)		110.6		62.9			25.9		70.3		12.9		(19.7	)		262.9
Three Months Ended March 31, 2002
Operating revenue from external customers		1,451.8		985.3			221.2		—		53.9		36.4			2,748.6
Intersegment revenues		—		—			—		—		66.2		(66.2	)		—
Operating gain (loss)		54.1		42.2			7.5		—		12.4		(9.6	)		106.6

A reconciliation of reportable segments operating revenues to the amounts of total revenues included in the consolidated statements of income for the three months ended March 31, 2003 and 2002 is as follows:

	Three Months Ended March 31
	2003		2002
Reportable segments operating revenues	$	4,015.9	$	2,748.6
Net investment income		71.5		60.5
Net realized gains on investments		12.9		3.3
Total revenues	$	4,100.3	$	2,812.4

A reconciliation of reportable segments operating gain to income before income taxes and minority interest included in the consolidated statements of income for the three months ended March 31, 2003 and 2002 is as follows:

	Three Months Ended March 31
	2003			2002
Reportable segments operating gain	$	262.9		$	106.6
Net investment income		71.5			60.5
Net realized gains on investments		12.9			3.3
Interest expense		(32.9	)		(17.6	)
Amortization of goodwill and other intangible assets		(11.9	)		(3.3	)
Income before income taxes and minority interest	$	302.5		$	149.5

6.    Debt and Commitments

On January 27, 2003, the Board of Directors authorized management to establish a $1,000.0 commercial paper program. Proceeds from any future issuance of commercial paper may be used for general corporate purposes, including the repurchase of debt and common stock of the Company. There were no borrowings under this commercial paper program during the three months ended March 31, 2003.

8

ANTHEM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

7.    Contingencies

Litigation

A number of managed care organizations have been sued in class action lawsuits asserting various causes of action under federal and state law. These lawsuits typically allege that the defendant managed care organizations employ policies and procedures for providing health care benefits that are inconsistent with the terms of the coverage documents and other information provided to their members, and because of these misrepresentations and practices, a class of members has been injured in that they received benefits of lesser value than the benefits represented to and paid for by such members. Two such proceedings, which allege various violations of the Employee Retirement Income Security Act of 1974 (“ERISA”), have been filed in Connecticut against the Company or its Connecticut subsidiary. One proceeding was brought by the Connecticut Attorney General on behalf of a purported class of HMO and Point of Service members in Connecticut. No monetary damages are sought, although the suit does seek injunctive relief from the court to preclude the Company from allegedly utilizing arbitrary coverage guidelines, making late payments to providers or members, denying coverage for medically necessary prescription drugs and misrepresenting or failing to disclose essential information to enrollees. The complaint contends that these alleged policies and practices are a violation of ERISA. A second proceeding, brought on behalf of a purported class of HMO and Point of Service members in Connecticut and elsewhere, seeks injunctive relief to preclude the Company from allegedly making coverage decisions relating to medical necessity without complying with the express terms of the policy documents, and unspecified monetary damages (both compensatory and punitive).

In addition, the Company’s Connecticut subsidiary is a defendant in three class action lawsuits brought on behalf of professional providers in Connecticut. The suits allege that the Connecticut subsidiary has breached its contracts by, among other things, failing to pay for services in accordance with the terms of the contracts. The suits also allege violations of the Connecticut Unfair Trade Practices Act, breach of the implied duty of good faith and fair dealing, negligent misrepresentation and unjust enrichment. Two of the suits seek injunctive relief and monetary damages (both compensatory and punitive). The third suit, brought by the Connecticut State Medical Society, seeks injunctive relief only. On July 19, 2001, one of the suits was certified as a class suit as to three of the plaintiff’s fifteen allegations. The class is defined as those physicians who practice in Connecticut or group practices which are located in Connecticut that were parties to either a Participating Physician Agreement or a Participating Physicians Group Agreement with the Company and/or its Connecticut subsidiary during the period from 1993 to the present, excluding risk-sharing arrangements and certain other contracts. The claims which were certified as class claims are: the Company’s alleged failure to provide plaintiffs and other similarly situated physicians with consistent medical utilization/quality management and administration of covered services by paying financial incentive and performance bonuses to providers and the Company’s staff members involved in making utilization management decisions; an alleged failure to maintain accurate books and records whereby improper payments to the plaintiffs were made based on claim codes submitted; and an alleged failure to provide senior personnel to work with plaintiffs and other similarly situated physicians. The Company has appealed the class certification decision.

On September 26, 2002, Anthem, Inc. was added as a defendant to a Multi District Litigation (“MDL”) class action lawsuit pending in Miami, Florida brought on behalf of individual doctors and several medical societies. Other defendants include Humana, Aetna, Cigna, Coventry, Health Net, PacifiCare, Prudential, United and WellPoint. The managed care litigation around the country has been consolidated to the U.S. District Court in Miami, Florida, under MDL rules. The Court has split the case into two groups, a “provider track” involving claims by doctors, osteopaths, and other professional providers, and a “subscriber track” involving claims by subscribers or members of the various health plan defendants. The complaint against Anthem and the other defendants alleges that the defendants do not properly pay claims, but instead “down-code” claims, improperly

9

ANTHEM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

7.    Contingencies (continued)

“bundle” claims, use erroneous or improper cost criteria to evaluate claims and delay paying proper claims. The suit also alleges that the defendants operate a common scheme and conspiracy in violation of the Racketeer Influenced Corrupt Organizations Act (“RICO”). The suit seeks declaratory and injunctive relief, unspecified monetary damages, treble damages under RICO and punitive damages. The court certified a class in the provider track cases on September 26, 2002, but denied class certification in the subscriber track cases. Defendants in the provider track cases sought, and on November 20, 2002 were granted, an interlocutory appeal of the class certification in the Eleventh Circuit. Briefing is beginning in the Eleventh Circuit. Due to Anthem’s late addition to the case, it was not included in the September 26, 2002 class certification order, and is therefore not part of the appeal; however, the Company may be affected by the outcome of the appeal.

On October 10, 2001, the Connecticut State Dental Association and five dental providers filed suit against the Company’s Connecticut subsidiary. The suit alleged breach of contract and violation of the Connecticut Unfair Trade Practices Act. The suit was voluntarily withdrawn on November 9, 2001. The claims were refiled on April 15, 2002, as two separate suits; one by the Connecticut State Dental Association and the second by two dental providers, purportedly on behalf of a class of dental providers. Both suits seek injunctive relief, and unspecified monetary damages (both compensatory and punitive).

The Company intends to vigorously defend all these proceedings; however, their ultimate outcomes cannot presently be determined.

On March 11, 1998, Anthem Insurance and its Ohio subsidiary, Community Insurance Company (“CIC”) were named as defendants in a lawsuit, Robert Lee Dardinger, Executor of the Estate of Esther Louise Dardinger v. Anthem Blue Cross and Blue Shield, et al., filed in the Licking County Court of Common Pleas in Newark, Ohio. The plaintiff sought compensatory damages and unspecified punitive damages in connection with claims alleging wrongful death, bad faith and negligence arising out of CIC’s denial of certain claims for medical treatment for Ms. Dardinger. On September 24, 1999, the jury returned a verdict for the plaintiff, awarding $1,350 (actual dollars) for compensatory damages, $2.5 for bad faith in claims handling and appeals processing, $49.0 for punitive damages and unspecified attorneys’ fees in an amount to be determined by the court. The court later granted attorneys’ fees of $0.8. An appeal of the verdict was filed by the defendants on November 19, 1999. On May 22, 2001, the Ohio Court of Appeals (Fifth District) affirmed the jury award of $1,350 (actual dollars) for breach of contract against CIC, affirmed the award of $2.5 compensatory damages for bad faith in claims handling and appeals processing against CIC, but dismissed the claims and judgments against Anthem Insurance. The court also reversed the award of $49.0 in punitive damages against both Anthem Insurance and CIC, and remanded the question of punitive damages against CIC to the trial court for a new trial. Anthem Insurance and CIC, as well as the plaintiff, appealed certain aspects of the decision of the Ohio Court of Appeals. On October 10, 2001, the Supreme Court of Ohio agreed to hear the plaintiff’s appeal, including the question of punitive damages, and denied the cross-appeals of Anthem Insurance and CIC. In December 2001, CIC paid the award of $2.5 compensatory damages for bad faith and $1,350 (actual dollars) for breach of contract, plus accrued interest. On April 24, 2002 the Supreme Court of Ohio held oral arguments. On December 20, 2002, the Ohio Supreme Court ruled, reinstating the judgment against both Anthem Insurance and CIC, but remitted the punitive damages from $49.0 to $30.0, plus interest. The Court also ruled that the plaintiff would receive $10.0 of the judgment, the plaintiff’s attorneys would receive their contingency fee on the $30.0 plus interest, and that the remainder of the award would be given to The Ohio State University Hospital for a charitable fund named after Esther Dardinger. Anthem Insurance and CIC paid the remitted judgment in full on March 28, 2003 and a Satisfaction of Judgment was filed with the Licking County Court of Common Pleas on April 7, 2003. Following the payment and Satisfaction of Judgment, this matter has been terminated and the Company released pretax reserves of $24.5 to income, which resulted in an after tax benefit of $0.11 per diluted share for the three months ended March 31, 2003.

Anthem’s primary Ohio subsidiary and primary Kentucky subsidiary were sued on June 27, 2002, in their respective state courts. The suits were brought by the Academy of Medicine of Cincinnati, as well as individual

10

ANTHEM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

7.    Contingencies (continued)

physicians, and purport to be class action suits brought on behalf of all physicians practicing in the greater Cincinnati area and in the Northern Kentucky area, respectively. In addition to the Anthem subsidiaries, both suits name Aetna, United Healthcare and Humana as defendants. The first suit, captioned Academy of Medicine of Cincinnati and Luis Pagani, M.D. v. Aetna Health, Inc., Humana Health Plan of Ohio, Inc., Anthem Blue Cross and Blue Shield, and United Health Care of Ohio, Inc., No. A02004947 was filed on June 27, 2002 in the Court of Common Pleas, Hamilton County, Ohio. The second suit, captioned Academy of Medicine of Cincinnati and A. Lee Greiner, M.D., Victor Schmelzer, M.D., and Karl S. Ulicny, Jr., M.D. v. Aetna Health, Inc., Humana, Inc., Anthem Blue Cross and Blue Shield, and United Health Care, Inc., No. 02-CI-903 was filed on June 27, 2002 in the Boone County, Kentucky Circuit Court.

Both suits allege that the four companies acted in combination and collusion with one another to reduce the reimbursement rates paid to physicians in the area. The suits allege that as a direct result of the defendants’ alleged anti-competitive actions, health care in the area has suffered, namely that: there are fewer hospitals; physicians are rapidly leaving the area; medical practices are unable to hire new physicians; and, from the perspective of the public, the availability of health care has been significantly reduced. Each suit alleges that these actions violate the respective state’s antitrust and unfair competition laws, and each suit seeks class certification, compensatory damages, attorneys’ fees, and injunctive relief to prevent the alleged anti-competitive behavior against the class in the future. Motions to dismiss or to send the cases to binding arbitration, per the provider contracts, were filed in both courts. The Ohio court overruled the motions on January 21, 2003 and the Kentucky court overruled the motions on February 19, 2003. Defendants will appeal both rulings. These suits are in the preliminary stages. The Company intends to vigorously defend the suits and believes that any liability from these suits will not have a material adverse effect on its consolidated financial position or results of operations.

On October 25, 1995, Anthem Insurance and two Indiana affiliates were named as defendants in a lawsuit titled Dr. William Lewis, et al. v. Associated Medical Networks, Ltd., et al., that was filed in the Superior Court of Lake County, Indiana. The plaintiffs are three related health care providers. The health care providers assert that the Company failed to honor contractual assignments of health insurance benefits and violated equitable liens held by the health care providers by not paying directly to them the health insurance benefits for medical treatment rendered to patients who had insurance with the Company. The Company paid its customers’ claims for the health care providers’ services by sending payments to its customers as called for by their insurance policies, and the health care providers assert that the patients failed to use the insurance benefits to pay for the health care providers’ services. The plaintiffs filed the case as a class action on behalf of similarly situated health care providers and seek compensatory damages in unspecified amounts for the insurance benefits not paid to the class members, plus prejudgment interest. The case was transferred to the Superior Court of Marion County, Indiana, where it is now pending. On December 3, 2001, the Court entered summary judgment for the Company on the health care providers’ equitable lien claims. The Court also entered summary judgment for the Company on the health care providers’ contractual assignments claims to the extent that the health care providers do not hold effective assignments of insurance benefits from patients. On the same date, the Court certified the case as a class action. As limited by the summary judgment order, the class consists of health care providers in Indiana who (1) were not in one of the Company’s networks, (2) did not receive direct payment from the Company for services rendered to a patient covered by one of the Company’s insurance policies that is not subject to ERISA, (3) were not paid by the patient (or were otherwise damaged by the Company’s payment to its customer instead of to the health care provider), and (4) had an effective assignment of insurance benefits from the patient. The Company filed a motion seeking an interlocutory appeal of the class certification order in the Indiana Court of Appeals. On May 20, 2002 the Indiana Court of Appeals granted the Company’s motion seeking an interlocutory appeal of the class certification order. In February 2003, the Indiana Court of Appeals affirmed the trial court’s class certification. The Company filed a petition for the transfer to the Indiana Supreme Court in March 2003. A ruling from the Indiana Supreme Court has not been issued. In any event, the Company intends to continue to

11

ANTHEM, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

7.    Contingencies (continued)

vigorously defend the case and believes that any liability that may result from the case will not have a material adverse effect on its consolidated financial position or results of operations.

In addition to the lawsuits described above, the Company is also involved in other pending and threatened litigation of the character incidental to the business transacted, arising out of its insurance and investment operations, and is from time to time involved as a party in various governmental and administrative proceedings. The Company believes that any liability that may result from any one of these actions is unlikely to have a material adverse effect on its consolidated results of operations or financial position.

Other Contingencies

The Company, like a number of other Blue Cross and Blue Shield companies, serves as a fiscal intermediary for Medicare Parts A and B. The fiscal intermediaries for these programs receive reimbursement for certain costs and expenditures, which is subject to adjustment upon audit by the Federal Centers for Medicare and Medicaid Services, formerly the Health Care Financing Administration. The laws and regulations governing fiscal intermediaries for the Medicare program are complex, subject to interpretation and can expose an intermediary to penalties for non-compliance. Fiscal intermediaries may be subject to criminal fines, civil penalties or other sanctions as a result of such audits or reviews. In recent years, at least eight Medicare fiscal intermediaries have made payments to settle issues raised by such audits and reviews. These payments have ranged from $0.7 to $51.6, plus a payment by one company of $144.0. While the Company believes it is currently in compliance in all material respects with the regulations governing fiscal intermediaries, there are ongoing reviews by the federal government of the Company’s activities under certain of its Medicare fiscal intermediary contracts.

AdminaStar Federal, Inc. (“AdminaStar”), a subsidiary of Anthem Insurance, has received several subpoenas prior to May 2000 from the Office of Inspector General (“OIG”) and the U.S. Department of Justice, one seeking documents and information concerning its responsibilities as a Medicare Part B contractor in its Kentucky office, and the others requesting certain financial records and information of AdminaStar and Anthem Insurance related to the Company’s Medicare fiscal intermediary (Part A) and carrier (Part B) operations. The Company has made certain disclosures to the government relating to its Medicare Part B operations in Kentucky. The Company was advised by the government that, in conjunction with its ongoing review of these matters, the government has also been reviewing separate allegations made by individuals against AdminaStar, which are included within the same timeframe and involve issues arising from the same nucleus of operative facts as the government’s ongoing review. The Company is not in a position to predict either the ultimate outcome of these reviews or the extent of any potential exposure should claims be made against the Company. However, the Company believes any fines or penalties that may arise from these reviews would not have a material adverse effect on the consolidated financial position or results of operations.

As a Blue Cross Blue Shield Association licensee, the Company participates in the Federal Employee Program (“FEP”), a nationwide contract with the Federal Office of Personnel Management to provide coverage to federal employees and their dependents. On July 11, 2001, the Company received a subpoena from the OIG, Office of Personnel Management, seeking certain financial documents and information, including information concerning intercompany transactions, related to operations in Ohio, Indiana and Kentucky under the FEP contract. The government has advised the Company that, in conjunction with its ongoing review, the government is also reviewing a separate allegation made by an individual against the Company’s FEP operations, which is included within the same timeframe and involves issues arising from the same nucleus of operative facts as the government’s ongoing review. The Company is currently cooperating with the OIG and the U.S. Department of Justice on these matters. The ultimate outcome of these reviews cannot be determined at this time.

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ITEM 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

We are one of the nation’s largest health benefits companies and we operate as an independent licensee of the Blue Cross Blue Shield Association, or BCBSA. We offer Blue Cross Blue Shield branded products to customers throughout Indiana, Kentucky, Ohio, Connecticut, New Hampshire, Maine, Colorado, Nevada and Virginia (excluding the immediate suburbs of Washington, D.C.). As of March 31, 2003, we provided health benefit services to more than 11.5 million members of our health plans.

Our health business segments are strategic business units delineated by geographic areas within which we offer similar products and services. We manage our health business segments with a local focus to address each market’s unique competitive, regulatory and healthcare delivery characteristics. Our health business segments are: Midwest, which includes Indiana, Kentucky and Ohio; East, which includes Connecticut, New Hampshire and Maine; West, which includes Colorado and Nevada; and Southeast, which is Virginia, excluding the immediate suburbs of Washington D.C.

In addition to our four health business segments, our reportable segments include a Specialty segment that is comprised of business units providing group life and disability insurance benefits, pharmacy benefit management, dental and vision administration services and behavioral health benefits services.

Our Other segment is comprised of AdminaStar Federal, a subsidiary that administers Medicare programs in Indiana, Illinois, Kentucky, Ohio, Maine and New Hampshire; intersegment revenue and expense eliminations; and corporate expenses not allocated to our health or Specialty segments.

We offer a diversified mix of managed care products such as preferred provider organizations or PPOs, health maintenance organizations or HMOs, point of service or POS plans and traditional indemnity benefits to members of our fully-insured products. We also provide a broad array of managed care services to self-funded customers, including claims processing, underwriting, stop loss insurance, actuarial services, provider network access, medical cost management and other administrative services.

Our operating revenue consists of premiums, administrative fees and other revenue. The premiums come from fully-insured contracts where we indemnify our policyholders against costs for health benefits. Our administrative fees come from contracts where our customers are self-insured, from the administration of Medicare programs and from other health related businesses including disease management programs. Other revenue is principally generated from member co-pays and deductibles associated with the mail-order sale of drugs by our pharmacy benefit management company.

Our benefit expense consists of costs of care for health services consumed by our members for outpatient care, inpatient care, professional services (primarily physician care) and pharmacy benefit costs. All four components are affected both by unit costs and utilization rates. Unit costs include the cost of outpatient medical procedures, inpatient hospital stays, physician fees for office visits and prescription drug prices. Utilization rates represent the volume of consumption of health services and vary with the age and health of our members and their social and lifestyle choices, along with clinical protocols and customs in each of our markets. A portion of benefit expense for each reporting period consists of actuarial estimates of claims incurred but not yet reported to us for reimbursement.

Our results of operations depend in large part on our ability to accurately predict and effectively manage health care costs through effective contracting with providers of care to our members. Several economic factors related to health care costs such as regulatory mandates for coverage and direct-to-consumer advertising by providers and pharmaceutical companies have a direct impact on the volume of care consumed by our members. The potential effect of escalating health care costs as well as any changes in our ability to negotiate competitive rates with our providers may impose further risks to our ability to profitably underwrite our business.

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This management’s discussion and analysis should be read in conjunction with our audited consolidated financial statements for the years ended December 31, 2002, 2001 and 2000 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission and in conjunction with our unaudited consolidated financial statements and accompanying notes for the three months ended March 31, 2003 and 2002 included in this Form 10-Q. Results of operations, cost of care trends, investment yields and other measures for the three months period ended March 31, 2003 are not necessarily indicative of the results and trends that may be expected for the full year ending December 31, 2003.

Significant Transactions

On July 31, 2002, we completed the purchase of 100% of the outstanding stock of Trigon Healthcare, Inc., or Trigon. Trigon was Virginia’s largest health benefits company and was the exclusive Blue Cross and Blue Shield licensee in Virginia, excluding the immediate suburbs of Washington, D.C. The merger provided us with a new segment, our Southeast segment, with approximately 2.5 million members and a nearly forty percent share of the Virginia market. The Trigon merger allowed us to further expand our licensed territory as a Blue Cross Blue Shield licensee.

On May 31, 2001, we and Blue Cross and Blue Shield of Kansas, or BCBS-KS, announced that we had signed a definitive agreement pursuant to which BCBS-KS would become our wholly owned subsidiary. Under the proposed transaction, BCBS-KS would demutualize and convert to a stock insurance company. The agreement calls for us to pay $190.0 million in exchange for all of the shares of BCBS-KS. On February 11, 2002, the Kansas Insurance Commissioner disapproved the proposed transaction, which had been previously approved by the BCBS-KS policyholders in January 2002. On February 19, 2002, the Board of Directors of BCBS-KS voted unanimously to appeal the Kansas Insurance Commissioner’s decision and BCBS-KS sought to have the Commissioner’s decision overturned in Shawnee County District Court. We joined BCBS-KS in the appeal, which was filed on March 7, 2002. On June 7, 2002, the Shawnee County District Court ruled on the BCBS-KS appeal in favor of us and BCBS-KS. The Shawnee County District Court directed the Commissioner to re-evaluate her decision in accordance with the Court’s very specific interpretation of the Kansas law. On June 10, 2002, the Kansas Insurance Commissioner appealed the District Court’s ruling to the Kansas Supreme Court. In March 2003, the Kansas Supreme Court heard oral arguments of the parties to this case. A ruling from the Kansas Supreme Court has not been issued.

Membership—March 31, 2003 Compared to March 31, 2002

Our membership includes seven different customer types: Local Large Group, Small Group, Individual, National Accounts, Medicare + Choice, Federal Employee Program and Medicaid.

• Local Large Group consists of those customers with 51 or more employees eligible to participate as a member in one of our health plans.

• Small Group consists of those customers with one to 50 eligible employees.

• Individual members include those who are under age 65 as well as members who are age 65 and over and have purchased Medicare Supplement benefit coverage.

• National Accounts customers are employer groups which have multi-state locations and require our partnering with other Blue Cross and Blue Shield plans for administration and/or access to non-Anthem provider networks. Included within the National Accounts business are our BlueCard customers who represent enrollees of health plans marketed by other Blue Cross and Blue Shield Plans, or the home plans, who receive health care services in our Blue Cross and Blue Shield licensed markets with us serving as the host plan.

• Medicare + Choice members (age 65 and over) have enrolled in coverages that are managed care alternatives for the Medicare program.

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• The Federal Employee Program, or FEP, provides health insurance coverage to United States government employees and their dependents within our geographic markets through our participation in the national contract between the BCBSA and the U.S. Office of Personnel Management, or OPM.

• Medicaid membership represents eligible members with state sponsored managed care alternatives in the Medicaid programs which we manage for the states of Connecticut, New Hampshire and Virginia.

BlueCard membership, included with National Accounts membership, is calculated based on the amount of BlueCard administrative fees we receive from the BlueCard members’ home plans. We perform certain administrative functions for BlueCard members, while other administrative functions, including maintenance of enrollment information, is performed by the home plan. The administrative fees we receive are based on the number and type of claims we process, both institutional and professional, and a portion of the network discount on those claims from providers in our network who have provided service to BlueCard members. To calculate membership, administrative fees are divided by an average per member per month, or PMPM, factor. The average PMPM factor is determined using a historical average administrative fee per claim and an average number of claims per member per year based on our experience and BCBSA guidelines.

In addition to reporting our membership by customer type, we report membership by funding arrangement according to the level of risk we assume in the product contract. Our two funding arrangement categories are fully-insured and self-funded. Self-funded products are offered to customers, generally larger employers, who elect to retain some or all of the financial risk associated with their employees’ health care costs. Some employers choose to purchase stop-loss coverage to limit their retained risk.

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The following table presents our health membership count by segment, customer type and funding arrangement as of March 31, 2003 and 2002, comparing total and same-store membership respectively. We define same-store membership as our membership at a given period end in a segment or for a particular customer or funding type, after excluding the impact of members obtained through acquisitions or lost through dispositions during such period. We believe that same-store membership counts best capture the rate of organic growth of our operations. The membership data presented is unaudited and in certain instances includes estimates of the number of members represented by each contract at the end of the period, rounded to the nearest thousand.

	March 31, 2003	Southeast March 31, 2003	Same- Store March 31, 2003	March 31, 2002	Change		%		Same- Store Change		Same- Store %
	(In Thousands)
Segment
Midwest	5,498	—	5,498	5,070	428		8	%	428		8	%
East	2,582	—	2,582	2,292	290		13		290		13
West	889	—	889	809	80		10		80		10
Same-Store	8,969	—	8,969	8,171	798		10		798		10
Southeast	2,567	2,567	—	—	2,567		NM1		—		—
Total	11,536	2,567	8,969	8,171	3,365		41	%	798		10	%
Customer Type
Local Large Group	3,836	933	2,903	2,792	1,044		37	%	111		4	%
Small Group	1,180	339	841	811	369		45		30		4
Individual	1,120	293	827	730	390		53		97		13
National Accounts 2	4,388	699	3,689	3,163	1,225		39		526		17
Medicare + Choice	99	—	99	101	(2	)	(2	)	(2	)	(2	)
Federal Employee Program	702	234	468	449	253		56		19		4
Medicaid	211	69	142	125	86		69		17		14
Total	11,536	2,567	8,969	8,171	3,365		41	%	798		10	%
Funding Arrangement
Self-funded	6,142	1,196	4,946	4,294	1,848		43	%	652		15	%
Fully-insured	5,394	1,371	4,023	3,877	1,517		39		146		4
Total	11,536	2,567	8,969	8,171	3,365		41	%	798		10	%

¹ NM = Not meaningful.

² Includes BlueCard members of 2,683 as of March 31, 2003 (including 339 from our Southeast segment) and 1,933 as of March 31, 2002.

During the twelve months ended March 31, 2003, total membership increased approximately 3.4 million, or 41%, primarily due to our acquisition of Trigon, which became our Southeast segment. On a same-store basis, total membership increased 798,000, or 10%, primarily in National Accounts, Local Large Group and Individual businesses. The following discussion of membership changes between periods excludes our Southeast members, which are identified separately in the table above.

National Accounts membership increased 526,000, or 17%, primarily due to a significant increase in BlueCard activity.

Local Large Group membership increased 111,000, or 4%, primarily from new sales in our East and Midwest segments. This growth was partially offset by decreases in our West segment due to disciplined pricing.

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Individual membership increased 97,000, or 13%, with the majority of this growth resulting from higher sales in our under age 65 business in all segments due to the introduction of new, more affordable product designs and an overall increase in consumer awareness of our product offerings.

Small Group membership increased 30,000, or 4%, primarily due to new sales in our Midwest and East segments as we offer a wide variety of quality products and services at competitive prices.

Federal Employee Program membership increased 19,000, or 4%, primarily in our Midwest and West segments due to our concentrated effort to provide distinctive, superior service, fewer competitors in the market and new cost-effective product designs.

Medicaid membership increased 17,000, or 14%, primarily due to the State of Connecticut’s broadening of eligibility standards and increased promotion of its Medicaid product.

Medicare + Choice membership decreased 2,000, or 2%, primarily due to existing member terminations outpacing new sales in our Midwest segment. In addition, benefit plan changes designed to improve profitability resulted in fewer enrollments.

Self-funded membership increased 652,000, or 15%, primarily due to an increase in National Accounts BlueCard activity. Fully-insured membership grew by 146,000 members, or 4%, primarily in our Individual Under 65 business, as explained above. In addition, we experienced a change in our mix of business by funding arrangement as certain Local Large Group and National Accounts customers shifted from fully-insured to self-funded. Due to current economic conditions, certain large accounts are assuming the healthcare risk associated with insuring their employees. This shift in funding arrangements did not have a material impact on our operating gain for the quarter ended March 31, 2003.

Cost of Care

The following discussion summarizes our aggregate cost of care trends for the 12-month period ended March 31, 2003, for our Local Large Group and Small Group fully-insured businesses only. We have included the impact of our Trigon acquisition for the entire rolling 12-month periods, including periods prior to July 31, 2002, in all of our cost of care trends presented below. Our cost of care trends are calculated by comparing the year over year change in average per member per month claim costs for which we are responsible, which excludes member co-payments and deductibles. Our aggregate cost of care trend was approximately 11%, driven primarily by professional services costs and outpatient services costs, weighted as a percentage of cost of care expense.

We believe that our cost of care trends will range from 11-12% through the remainder of 2003, although given the many factors that can impact cost of care trends, there are no assurances that these trends will occur. As part of our strategy to contain claim costs, we have implemented and continue to expand our disease management programs, which are programs that address specific diseases such as diabetes and asthma, and our advanced care management programs, which are programs designed to focus on our members with needs for care in response to complex and acute health challenges.

Cost increases for professional services, which represent 35% of our claim costs, were approximately 11%. Our overall professional services trend increased due to both higher utilization and higher unit costs. Utilization increases were driven primarily by increases in physician office visits, radiology procedures such as Magnetic Resonance Imaging, or MRI’s, Positron Emission Tomography procedures, or PET scans, and laboratory procedures. Unit cost increases were driven primarily by increases in physician reimbursement schedules. In response to increasing professional services costs, we continue to work with our physicians through education and contracting to ensure that our members receive the most appropriate care at the proper time.

Outpatient services represent 24% of our claim costs and experienced increases of approximately 13%, driven almost equally by utilization and unit cost increases. Increased utilization is primarily due to a continuing

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shift of certain procedures previously performed in an inpatient setting to an outpatient setting, such as selected cardiac care procedures and increases for outpatient surgery and radiology services. Additionally, unit costs increased as more emergency room procedures are being performed during each visit. Efforts to mitigate unit cost trends for outpatient services include contracting strategies using fixed rate fee schedules and selective contracting with freestanding specialty facilities, where appropriate.

Pharmacy benefit costs, which represent 19% of our claim costs, increased by approximately 14%. Our overall pharmacy trend increased primarily due to the introduction of new, higher cost drugs and unit price increases on existing drugs. Growth in utilization has slowed due to plan design changes as well as the impact of Claritin, an antihistamine drug, becoming available over-the-counter in late 2002. There is no assurance that the lower utilization trend will continue. The introduction of new drugs supported by direct-to-consumer advertising by pharmaceutical companies and expanded physician prescriptions of drugs that manage chronic conditions such as high cholesterol continues. In response to increasing pharmacy costs, we are implementing modified plan designs, we have recontracted with retail pharmacies and we began a contract with a new drug wholesaler. In addition, we continually evaluate our drug formulary. We have about two-thirds of our membership in three-tier drug programs and do not expect significant change from that level.

Inpatient services costs, which represent 22% of our claim costs, increased approximately 7%. About 80% of this trend resulted from unit cost increases and about 20% of this trend resulted from utilization increases. The unit cost increases were primarily due to a health care industry shift of lower-cost procedures to outpatient settings; more complex and expensive procedures were performed in inpatient settings. In addition, growth in inpatient cost trend was due to implementation of new provider contracts. Utilization increases resulted primarily from increases in cardiovascular and orthopedic admissions. We are implementing disease management and advanced care management programs to reduce deterioration in health and resultant hospitalization. In addition, we have implemented performance-based contracts that reward improved clinical outcomes and quality. We anticipate these contract changes will result in cost savings through reduction in hospital acquired infections and medication errors.

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Results of Operations—Three Months Ended March 31, 2003 Compared to the Three Months Ended March 31, 2002

Our consolidated results of operations for the three months ended March 31, 2003 and 2002 are as follows:

	Three Months Ended March 31						Change
	2003			2002			$		%
	($ in Millions, Except Per Share Data)
Operating revenue and premium equivalents 1,6	$	5,674.0		$	3,793.2		$	1,880.8	50	%
Premiums	$	3,695.7		$	2,529.5		$	1,166.2	46	%
Administrative fees		292.1			201.0			91.1	45
Other revenue		28.1			18.1			10.0	55
Total operating revenue		4,015.9			2,748.6			1,267.3	46
Benefit expense		3,036.6			2,136.4			900.2	42
Administrative expense		716.4			505.6			210.8	42
Total operating expense		3,753.0			2,642.0			1,111.0	42
Operating gain 2		262.9			106.6			156.3	NM3
Net investment income		71.5			60.5			11.0	18
Net realized gains on investments		12.9			3.3			9.6	NM3
Interest expense		32.9			17.6			15.3	87
Amortization of other intangible assets		11.9			3.3			8.6	NM3
Income before taxes and minority interest		302.5			149.5			153.0	102
Income taxes		109.8			49.2			60.6	NM3
Minority interest		1.0			0.5			0.5	NM3
Net income	$	191.7		$	99.8		$	91.9	92	%
Average basic shares outstanding (in millions)		138.7			103.3			35.4	34	%
Average diluted shares outstanding (in millions)		141.3			104.8			36.5	35
Basic net income per share	$	1.38		$	0.97		$	0.41	42
Diluted net income per share	$	1.36		$	0.95		$	0.41	43	%
Benefit expense ratio 4		82.2	%		84.5	%			(230	) bp 5
Administrative expense ratio: 6
Calculated using total operating revenue 7		17.8	%		18.4	%			(60	) bp 5
Calculated using operating revenue and premium equivalents 8		12.6	%		13.3	%			(70	) bp 5
Operating margin 9		6.5	%		3.9	%			260	bp 5

Certain of the following definitions are also applicable to all other results of operations tables in this discussion:

¹ Operating revenue and premium equivalents is a measure used in the health benefits industry to allow for a comparison of business volume among companies with differing levels of risk and non-risk revenues. It is obtained by adding to premiums, administrative fees and other revenue, the amount of claims attributable to non-Medicare, self-funded health business where we provide a complete array of customer service, claims administration and billing and enrollment services, but the customer retains the risk of funding payments for health benefits provided to members. A reconciliation of this measure to total operating revenue, the most directly comparable measure presented in the consolidated statements of income, is as follows:

	Three Months Ended March 31						Change
	2003			2002			$			%
	($ in Millions)
Operating revenue and premium equivalents	$	5,674.0		$	3,793.2		$	1,880.8		50	%
Premium equivalents		(1,658.1	)		(1,044.6	)		(613.5	)	(59	)
Total operating revenue	$	4,015.9		$	2,748.6		$	1,267.3		46	%

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We believe operating revenue and premium equivalents is a useful analytical measure because it eliminates fluctuations in operating revenue caused by changes in the mix of fully-insured and self-funded business.

² We use operating gain to evaluate the performance of our reportable segments, as defined by FAS 131, Disclosure about Segments of an Enterprise and Related Information. Operating gain is calculated as total operating revenue less benefit and administrative expenses. It does not include net investment income, net realized gains or losses on investments, interest expense, amortization of other intangible assets, income taxes and minority interest, as these items are managed in a corporate shared service environment and are not the responsibility of segment operating management. For additional information, see Note 5 to our unaudited consolidated financial statements for the three months ended March 31, 2003 and 2002 included in this Form 10-Q. Our definition of operating gain may not be comparable to similarly titled measures reported by other companies.

³ NM = Not meaningful.

⁴ Benefit expense ratio = Benefit expense ÷ Premiums.

⁵ bp = basis point; one hundred basis points = 1%.

⁶ While we include two calculations of administrative expense ratio, we believe that administrative expense ratio including premium equivalents is a better measure of efficiency as it eliminates changes in the ratio caused by changes in our mix of fully-insured and self-funded business. All discussions and explanations throughout this discussion related to administrative expense ratio will be related to administrative expense ratio including premium equivalents. See our reconciliation of operating revenue and premium equivalents to operating revenue in note 1 above.

⁷ Administrative expense ratio calculated using total operating revenue = Administrative expense ÷ Total operating revenue.

⁸ Administrative expense ratio calculated using operating revenue and premium equivalents = Administrative expense ÷ Operating revenue and premium equivalents. See our reconciliation of operating revenue and premium equivalents to operating revenue in note 1 above.

⁹ Operating margin = Operating gain ÷ Total operating revenue.

Throughout the following discussion of our results of operations, “same-store” excludes the operating results of our Trigon acquisition for the three months ended March 31, 2003.

Premiums increased $1,166.2 million, or 46%, to $3,695.7 million in 2003. On a same-store basis, premiums increased $326.7 million, or 13%, due to premium rate increases primarily in our Local Large Group and Small Group businesses. Our premium yields, net of benefit buy-downs for our fully-insured Local Large Group and Small Group businesses, increased approximately 13% on a rolling 12-month basis as of March 31, 2003, both on a same-store basis and after including Southeast premiums for the entire rolling 12-month periods, including periods prior to the July 31, 2002 acquisition date. Also contributing to premium growth was higher fully-insured membership, primarily in our Individual business.

Administrative fees increased $91.1 million, or 45%, to $292.1 million in 2003. On a same-store basis, administrative fees increased $20.1 million, or 10%, primarily due to increased BlueCard activity and increased administrative fees from AdminaStar Federal’s 1-800 Medicare Help Line contract with the Centers for Medicare and Medicaid Services, or CMS. During the fourth quarter of 2002, CMS awarded a new contract for this service to a competitor. We began transitioning this contract to the new contractor in April 2003, and we expect the transition to be essentially complete in July 2003.

Other revenue, which is comprised principally of co-pays and deductibles associated with Anthem Prescription Management’s, or APM’s, sale of mail-order drugs, increased $10.0 million, or 55%, to $28.1 million in 2003. APM is our pharmacy benefit manager and provides its services principally to other Anthem affiliates.

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On a same-store basis, other revenue increased $7.1 million, or 39%, primarily due to additional mail-order prescription volume. This increased volume was partially the result of an increase in the number and frequency of campaigns to inform members of the benefits and convenience of using APM’s mail-order pharmacy option for maintenance drugs executed during the later quarters of 2002 .

Benefit expense increased $900.2 million, or 42%, to $3,036.6 million in 2003. On a same-store basis, benefit expense increased $219.0 million, or 10%, to $2,355.4 million in 2003. Excluding the recognition of a $24.5 million favorable adjustment for resolution of litigation in 2003, benefit expense increased $243.5 million, or 11%, primarily due to increased cost of care trends and higher average membership. Higher costs of care were driven primarily by higher costs in professional services and outpatient services. Our benefit expense ratio decreased 230 basis points from 84.5% in 2002 to 82.2% in 2003 due in part to the impact of our Trigon acquisition in 2002. On a same-store basis, our benefit expense ratio decreased 200 basis points to 82.5% in 2003, primarily due to the favorable resolution of litigation, disciplined pricing, lower than anticipated medical costs and mix of business shifts from fully-insured to self-funded membership.

Administrative expense increased $210.8 million, or 42%, to $716.4 million in 2003. On a same-store basis, administrative expense increased $48.9 million, or 10%, primarily due to increases in volume sensitive costs such as higher commissions, premium taxes and expenses associated with our National Accounts business. Also contributing to the increase was higher salary cost resulting from normal merit increases and certain cost-reimbursed expenses related to our Medicare processing business. On a same-store basis, our administrative expense ratio, calculated using operating revenue and premium equivalents, decreased 50 basis points to 12.8% in 2003, primarily due to our growth in operating revenue and premium equivalents. See footnotes 1, 6 and 8 to our Results of Operations—Three Months Ended March 31, 2003 Compared to the Three Months Ended March 31, 2002 table.

Net investment income increased $11.0 million, or 18%, to $71.5 million in 2003. This increase in investment income primarily resulted from the investment of additional assets in 2003 from our Trigon acquisition and reinvestment of cash generated from operations, which were partially offset by decreased average yield from investment securities.

Net realized gains on investments increased $9.6 million to $12.9 million in 2003. A summary is as follows:

	Three Months Ended March 31
	2003		2002		$ Change			% Change
	($ in Millions)
Net realized gains from the sale of fixed maturity securities	$	12.9	$	3.0	$	9.9		330	%
Net realized gains from the sale of equity securities		—		0.3		(0.3	)	(100	)
Other than temporary impairments		—		—		—		—
Net realized gains on investments	$	12.9	$	3.3	$	9.6		291	%

The increase in net realized gains on investments resulted primarily from higher net realized gains from the sale of fixed maturity securities in 2003 with the intent of shortening the overall duration of our portfolio by selling long-term maturity bonds and purchasing shorter-term maturity bonds. Net realized gains or losses on investments are influenced by market conditions at the time a security is sold or deemed to be impaired, and will vary from period to period.

Interest expense increased $15.3 million, or 87%, to $32.9 million in 2003, primarily resulting from additional interest expense incurred on the debt issued in conjunction with our Trigon acquisition.

Amortization of other intangible assets increased $8.6 million to $11.9 million in 2003, primarily due to additional amortization expense on intangible assets resulting from our Trigon acquisition.

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Income tax expense increased $60.6 million to $109.8 million in 2003, primarily due to increased income before taxes. Our effective income tax rate increased to 36.3% in 2003 from 32.9% in 2002. This 340 basis point increase in the effective income tax rate is primarily due to the release of a net deferred tax valuation allowance in 2002. The 36.3% effective tax rate is more consistent with our expected rate on future earnings.

Net income increased $91.9 million, or 92%, to $191.7 million in 2003, primarily due to our Trigon acquisition, the improvement in our operating results in each health business segment as described below, higher net investment income, higher net realized gains on investments and is partially offset by our increased income tax expense.

Both basic and fully diluted net income per share increased as a result of increased net income as described above. These increases were partially offset by an increase in the number of average shares outstanding due to the stock issued in conjunction with our Trigon acquisition on July 31, 2002, and an increase in the effect of dilutive securities. Also impacting shares outstanding was our repurchase of almost 1.6 million shares of our common stock for $91.0 million, at an average price of $57.44 per share. The share repurchases had a neutral impact to net income per share due to the fact that a majority of the buybacks occurred in the mid-to-late part of the first quarter of 2003.

Midwest

Our Midwest segment is comprised of health benefit and related business for members in Indiana, Kentucky and Ohio. Our Midwest segment’s summarized results of operations for the three months ended March 31, 2003 and 2002 are as follows:

	Three Months Ended March 31
	2003			2002			$ Change		% Change
	($ in Millions)
Operating Revenue	$	1,622.1		$	1,451.8		$	170.3	12	%
Operating Gain	$	110.6		$	54.1		$	56.5	104	%
Operating Margin		6.8	%		3.7	%			310	bp
Membership (in 000s)		5,498			5,070			428	8	%

Operating revenue increased $170.3 million, or 12%, primarily due to premium rate increases in our Local Large Group, Small Group and Federal Employee Program businesses and membership increases in our Individual business.

Operating gain increased $56.5 million, or 104%, primarily due to the recognition of a $24.5 million favorable adjustment for resolution of a litigation matter and improved underwriting results in our Local Large Group fully-insured and Small Group businesses.

Membership increased 428,000, or 8%, primarily due to additional BlueCard activity and enrollment gains in our Local Large Group self-funded and Individual businesses. Our Midwest segment experienced a shift in membership from our Local Large Group fully-insured business to our Local Large Group self-funded business, primarily due to group employers’ desires to self-fund their insurance benefits in a weakening economy. Individual sales benefited from the introduction of new products.

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East

Our East segment is comprised of health benefit and related business for members in Connecticut, New Hampshire and Maine. Our East segment’s summarized results of operations for the three months ended March 31, 2003 and 2002 are as follows:

	Three Months Ended March 31
	2003			2002			$ Change		% Change
	($ in Millions)
Operating Revenue	$	1,109.5		$	985.3		$	124.2	13	%
Operating Gain	$	62.9		$	42.2		$	20.7	49	%
Operating Margin		5.7	%		4.3	%			140	bp
Membership (in 000s)		2,582			2,292			290	13	%

Operating revenue increased $124.2 million, or 13%, primarily due to premium rate increases in our Local Large Group and Small Group businesses and membership increases primarily in our Local Large Group, Small Group, Medicaid and Individual businesses.

Operating gain increased $20.7 million, or 49%, primarily due to improved underwriting results in our Local Large Group business, with year over year improvement in all lines of business.

Membership increased 290,000, or 13%, primarily due to enrollment gains in our National Accounts business, increased BlueCard activity and enrollment gains in our Local Large Group business.

West

Our West segment is comprised of health benefit and related business for members in Colorado and Nevada. Our West segment’s summarized results of operations for the three months ended March 31, 2003 and 2002 are as follows:

	Three Months Ended March 31
	2003			2002			$ Change		% Change
	($ in Millions)
Operating Revenue	$	253.0		$	221.2		$	31.8	14	%
Operating Gain	$	25.9		$	7.5		$	18.4	245	%
Operating Margin		10.2	%		3.4	%			680	bp
Membership (in 000s)		889			809			80	10	%

Operating revenue increased $31.8 million, or 14%, primarily due to higher premium rates particularly in our Local Large Group and Small Group businesses, and higher membership in our Individual and Federal Employee Program businesses.

Operating gain increased $18.4 million to $25.9 million in 2003, primarily due to improved underwriting results in our Small Group and Local Large Group fully-insured businesses. Also contributing to the improvement was a $6.3 million reduction of a liability for a large case-specific claim which was settled in April 2003.

Membership increased 80,000, or 10%, primarily due to increased National Accounts BlueCard activity.

Southeast

Our Southeast segment is comprised of health benefit and related business for members in Virginia, excluding the immediate suburbs of Washington D.C. Our Southeast segment was established with the

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acquisition of Trigon on July 31, 2002. Results of operations for this segment have been included in our consolidated financial statements from August 1, 2002 forward. Our Southeast segment’s summarized results of operations for the three months ended March 31, 2003 are as follows:

	Three Months Ended March 31, 2003
	($ in Millions)
Operating Revenue	$	913.4
Operating Gain	$	70.3
Operating Margin		7.7	%
Membership (in 000s)		2,567

Our integration activities remain on schedule, and we expect to achieve $40.0 million to $50.0 million of synergies in 2003 and at least $75.0 million by 2004. We captured approximately $10.0 million of synergies in the first quarter of 2003, primarily related to corporate overhead and information technology cost savings.

Specialty

Our Specialty segment includes our group life and disability insurance benefits, pharmacy benefit management, dental and vision administration services and behavioral health benefits services. On June 1, 2002, we acquired certain assets of PRO Behavioral Health, a Denver, Colorado-based behavioral health company in order to broaden our specialty product offerings. Results from this acquisition are included from that date forward.

Our Specialty segment’s summarized results of operations for the three months ended March 31, 2003 and 2002 are as follows:

	Three Months Ended March 31
	2003			2002			$ Change		% Change
	($ in Millions)
Operating Revenue	$	159.6		$	120.1		$	39.5	33	%
Operating Gain	$	12.9		$	12.4		$	0.5	4	%
Operating Margin		8.1	%		10.3	%			(220	) bp

Operating revenue increased $39.5 million, or 33%, primarily due to increased mail-order prescription volume at APM and the results of PRO Behavioral Health, which was acquired on June 1, 2002. This increased mail-order prescription volume was partially the result of an increase in the number and frequency of campaigns to inform members of the benefits and convenience of using APM’s mail-order pharmacy option for maintenance drugs executed during the later quarters of 2002. In the first quarter of 2003, mail-order prescription volume increased 21% and retail prescription volume increased 8% from the three months ended March 31, 2002. Our acquisition of PRO Behavioral Health increased our operating revenue in 2003 as it was not included in our results in 2002.

Operating gain increased $0.5 million, or 4%, primarily due to increased mail-order prescription volume and additional margin resulting from further penetration of generic drug prescriptions at APM. Improved results in our life business also contributed to the growth in operating gain. These improvements in operating gain were modestly offset by start-up and integration expenses associated with our behavioral health, dental and vision operations. Margin expansion is expected to resume after the second quarter of 2003.

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Other

Our Other segment includes AdminaStar Federal, a subsidiary that administers Medicare programs in Indiana, Illinois, Kentucky, Ohio, Maine and New Hampshire; elimination of intersegment revenue and expenses; and corporate expenses not allocated to operating segments. Our summarized results of operations for our Other segment for the three months ended March 31, 2003 and 2002 are as follows:

	Three Months Ended March 31
	2003			2002			$ Change			% Change
	($ in Millions)
Operating Revenue	$	(41.7	)	$	(29.8	)	$	(11.9	)	40	%
Operating Loss	$	(19.7	)	$	(9.6	)	$	(10.1	)	105	%

Operating revenue decreased $11.9 million, or 40%, to $(41.7) million in 2003. Excluding intersegment operating revenue eliminations of $95.3 million in 2003 and $66.2 million in 2002, operating revenue increased $17.2 million, or 47%, primarily due to additional revenue from our AdminaStar Federal’s 1-800 Medicare Help Line contract. This contract is with CMS for our operation of the 1-800 Medicare Help Line. During the fourth quarter of 2002, CMS awarded a new contract for this service to a competitor. We began transitioning this contract to the new contractor in April 2003, and we expect the transition to be essentially complete in July 2003.

Operating loss increased $10.1 million to $(19.7) million in 2003, primarily due to timing differences related to the allocation of technology expenses.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States. Application of these accounting principles requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes and within this management’s discussion and analysis. We consider some of our most important accounting policies that require estimates and management judgment to be those policies with respect to liabilities for unpaid life, accident and health claims, income taxes, goodwill and other intangible assets, our investment portfolio and retirement benefits, which are discussed below. Our significant accounting policies are also summarized in Note 1 to our audited consolidated financial statements for the years ended December 31, 2002, 2001 and 2000 included in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission.

Liability for Unpaid Life, Accident and Health Claims

The most significant accounting estimate in our consolidated financial statements is our liability for unpaid life, accident and health claims. At March 31, 2003, this liability was $1,947.1 million and represented 28% of our total consolidated liabilities. We record this liability and the corresponding benefit expense for pending claims and claims that are incurred but not reported. Pending claims are those received by us, but not yet processed through our systems. We determine the amount of this liability for each of our business segments by following a detailed process that entails using both historical claim payment patterns as well as emerging medical cost trends to project our best estimate of claim liabilities. We also look back to assess how our prior periods’ estimates developed. To the extent appropriate, changes in such development are recorded as a change to current period benefit expense. Since the average life of most claims is just a few months, current medical cost trends and utilization patterns are very important in our estimate of claims liabilities. For information regarding our cost trends, refer to the cost of care discussion included within this management’s discussion and analysis.

In addition to the pending claims and incurred but not reported claims, the liability for unpaid life, accident and health claims includes reserves for premium deficiency losses. The premium deficiency losses are recognized when it is probable that expected claims and loss adjustment expenses will exceed future premiums

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on existing health and other insurance contracts without consideration of investment income. For purposes of premium deficiency losses, contracts are grouped in a manner consistent with our method of acquiring, servicing and measuring the profitability of such contracts.

Management constantly reviews its assumptions regarding our claims liabilities, and makes adjustments to benefit expense recorded, if necessary, in the period it deems appropriate. If it is determined that management’s assumptions regarding cost trends and utilization are significantly different than actual results, our income statement and financial position could be impacted in future periods. Adjustments of prior year estimates may result in additional benefit expense or a reduction of benefit expense in the period an adjustment is made. Further, due to the considerable variability of health care costs, adjustments to claims liabilities occur each quarter and are sometimes significant as compared to the total benefit expense recorded in that quarter. Assuming a hypothetical 1% difference between our March 31, 2003 estimated claims liability and the actual claims paid, net income for the three months ending March 31, 2003 would increase or decrease by $12.4 million, while basic and diluted net income per share would increase or decrease by $0.09 per share.

Note 8 to our audited consolidated financial statements for the years ended December 31, 2002, 2001 and 2000 included in our Annual Report on Form 10-K provides historical information regarding the accrual and payment of our unpaid claims liability. Components of the total incurred claims for each year include amounts accrued for current year estimated claims expense as well as adjustments to prior year estimated accruals. In Note 8, the line labeled “incurred related to prior years” accounts for those adjustments made to prior year estimates. The impact of any reduction of “incurred related to prior years” claims may be offset as we re-establish the “incurred related to current year”. Our reserving practice is to consistently recognize the actuarial best estimate of our ultimate liability for our claims within a level of confidence required for actuarial standards. Thus, only when the release of a prior year reserve is not offset with the same level of conservatism in estimating the current year reserve will the redundancy reduce benefit expense. When we recognize a release of the redundancy, we disclose the amount that is not in the ordinary course of business.

We believe we have consistently applied this methodology in determining our best estimate for unpaid claims liability each year. This is demonstrated by comparing prior year redundancies to total incurred claims recorded in each past year. This metric was 1.3% for 2000, 1.5% for 2001 and 1.9% for 2002. The trend of this metric indicates the consistency of our reserving procedures and policies.

Additional review of Note 8 indicates that we are paying claims faster. The percentage of claims paid in the same year as they were incurred increased to 84.3% in 2002 compared with 83.1% in 2001 and 81.3% in 2000. This is primarily attributable to our implementation of new systems and improved electronic connectivity with our provider networks. As a result of our improved connectivity we are able to process and pay claims faster.

Income Taxes

We account for income taxes in accordance with Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. This standard requires, among other things, the separate recognition of deferred tax assets and deferred tax liabilities. Such deferred tax assets and deferred tax liabilities represent the tax effect of temporary differences between financial reporting and tax reporting measured at tax rates enacted at the time the deferred tax asset or liability is recorded. A valuation allowance must be established for deferred tax assets if it is “more likely than not” that all or a portion may be unrealized.

At each quarterly financial reporting date, we assess the adequacy of the valuation allowance by evaluating each of our deferred tax assets based on the key elements that follow:

• the types of temporary differences that created the deferred tax asset;

• the amount of taxes paid in prior periods and available for a carry-back claim;

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• the forecasted future taxable income and therefore likely future deduction of the deferred tax item; and

• any significant other issues impacting the likely realization of the benefit of the temporary differences.

To the extent we prevail in matters we have accrued for or are required to pay more than reserved, our future effective tax rate and net income in any given period could be materially impacted. In addition, the Internal Revenue Service continues its examination of two prior years. Three other prior years have not been subject to completed Internal Revenue Service examinations and are considered “open”.

Goodwill and Other Intangible Assets

We account for goodwill and other intangible assets using Statement of Financial Accounting Standards (FAS) No. 141, Business Combinations, and Statement of Accounting Standards (FAS) No. 142, Goodwill and Other Intangible Assets. FAS 141 requires business combinations completed after June 30, 2001 to be accounted for using the purchase method of accounting. It also specifies the types of acquired intangible assets required to be recognized and reported separately from goodwill. Under FAS 142, goodwill and other intangible assets (with indefinite lives) will not be amortized but will be tested for impairment at least annually. We completed our annual impairment test of goodwill and other intangible assets (with indefinite lives) during the fourth quarter of 2002. Based upon these tests we have not incurred any impairment losses related to any intangible assets.

Our consolidated goodwill at March 31, 2003 was $2,483.9 million and other intangible assets were $1,262.8 million. The sum of goodwill and other intangible assets represented 30% of our total consolidated assets at March 31, 2003.

While we believe we have appropriately allocated the purchase price of our acquisitions, this allocation requires many assumptions to be made regarding the fair value of assets and liabilities acquired. In addition, the annual impairment testing required under FAS 142 requires us to make assumptions and judgments regarding the estimated fair value of our goodwill and intangibles. Such assumptions include the present value discount factor used to determine the fair value of a reporting unit, which is ultimately used to identify potential goodwill impairment. Such estimated fair values might produce significantly different results if other reasonable assumptions and estimates were to be used. Because of the amounts of goodwill and other intangible assets included in our consolidated balance sheet, the impairment analysis is significant. If we are unable to support a fair value estimate in future annual impairment tests, we may be required to record impairment losses against income in future periods.

Investments

Total investment securities were $6,394.1 million and represented 51% of our total consolidated assets at March 31, 2003. Our fixed maturity and equity securities are classified as “available-for-sale” securities and are reported at fair value. Unrealized gains or losses on these securities are included in accumulated comprehensive income as a separate component of shareholders’ equity. We have determined that all investments in our portfolio are available to support current operations, and accordingly, have classified such securities as current assets. Investment income is recorded when earned, and realized gains or losses, determined by specific identification of investments sold, are included in income when sold.

We evaluate our investment securities on a quarterly basis, using both quantitative and qualitative factors, to determine whether a decline in value is other than temporary. Such factors considered include the length of time and the extent to which a security’s market value has been less than its cost, financial condition and near term prospects of the issuer, recommendations of investment advisors, and forecasts of economic, market or industry trends. If any declines are determined to be other than temporary, we charge the losses to income when that determination is made. The current economic environment and recent volatility of securities markets increase the difficulty of determining fair value and assessing investment impairment. The same influences tend to increase

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the risk of potentially impaired assets. Management believes it has adequately reviewed for impairment and that its investment securities are carried at fair value. However, over time, the economic and market environment may provide additional insight regarding the fair value of certain securities, which could change management’s judgment regarding impairment. This could result in realized losses relating to other than temporary declines being charged against future income.

Through our investing activities, we are exposed to financial market risks, including those resulting from changes in interest rates and changes in equity market valuations. Our primary objective is the preservation of the asset base and maximization of portfolio income given an acceptable level of risk. We manage the market risks through our investment policy, which establishes credit quality limits and percentage amount limits of investments in individual issuers. If we are unable to effectively manage these risks, it could have an impact on our future earnings and financial position.

At March 31, 2003, we had gross unrealized gains of $254.9 million and gross unrealized losses of $4.2 million on our fixed maturity securities, which were substantially related to interest rate changes. We expect the scheduled principal and interest payments will be realized. Our equity securities are comprised of indexed mutual funds and the unrealized losses of $44.3 million at March 31, 2003 were a result of the current market fluctuations and are deemed to be temporary.

Retirement Benefits

Pension Benefits

We sponsor defined benefit pension plans for our employees, and account for these plans in accordance with Financial Accounting Standards (FAS) No. 87, Employers’ Accounting for Pensions, which requires that amounts recognized in financial statements be determined on an actuarial basis. As permitted by FAS 87, we use a calculated value of plan assets (described below). Further, the effects on our computation of pension expense of the performance of the pension plans’ assets and changes in pension liabilities are amortized over future periods.

The most important factor in determining our pension expense is the assumption for expected return on plan assets. During 2002, we lowered our expected rate of return on plan assets to 8.50% (from 9.00% for 2002 expense recognition). We believe our assumption of future returns of 8.50% is reasonable. This assumed long-term rate of return on assets is applied to a calculated value of plan assets, which recognizes changes in the fair value of plan assets in a systematic manner over three years. This produces the expected return on plan assets that is included in pension expense. The difference between this expected return and the actual return on plan assets is deferred and amortized as a component of pension expense. The net deferral of past asset gains or losses affects the calculated value of plan assets and, ultimately, future pension expense. The plan assets have earned a rate of return substantially less than 8.50% over the last two years and it is possible that we will further lower our assumption for expected return on plan assets if this trend continues. If we lower our expected return on plan assets, future contributions to the pension plan or pension expense would likely increase.

At the end of each year, we determine the discount rate to be used to discount plan liabilities. The discount rate reflects the current rate at which the pension liabilities could be effectively settled at the end of the year. Our discount rate is developed using a benchmark rate of the Moody’s Aa Corporate Bonds index at our measurement date (September 30, 2002). At our measurement date, we selected a discount rate of 6.75%. Changes in the discount rates over the past three years have not materially affected pension expense, and the net effect of changes in the discount rate, as well as the net effect of other changes in actuarial assumptions and experience, have been deferred and amortized in accordance with FAS 87.

At March 31, 2003, our consolidated prepaid pension asset was $143.4 million. For the three months ended March 31, 2003, we recognized consolidated pretax pension expenses of $5.2 million.

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Other Postretirement Benefits

We provide most employees certain life, medical, vision and dental benefits upon retirement. We use various actuarial assumptions including the discount rate and the expected trend in health care costs to estimate the costs and benefit obligations for our retiree health plan.

Our discount rate is developed using a benchmark rate of the Moody’s Aa Corporate Bonds index at our measurement date (September 30, 2002). At our measurement date, we selected a discount rate of 6.75%.

The health care cost trend rate used in measuring the other benefit obligations is generally 10% in 2002, decreasing 1% per year to 5% in 2007.

New Accounting Pronouncements

On January 1, 2003, we adopted Statement of Financial Accounting Standards (FAS) No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure. This statement requires more prominent disclosure and specifies the form, content and location of these disclosures in both our annual and interim financial statements. Adoption of this statement will not impact our financial position or results of operations, as we will continue to account for stock-based compensation using the intrinsic method under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. See Note 3 to our unaudited financial statements included in this Form 10-Q for the disclosures required by FAS 148.

There were no other new accounting pronouncements adopted during the three months ending March 31, 2003 that had a material impact on our financial position or operating results.

LIQUIDITY AND CAPITAL RESOURCES

Introduction

Our cash receipts consist primarily of premiums, administrative fees, investment income, other revenue and proceeds from the sale or maturity of our investment securities. Cash disbursements result mainly from benefit expenses, administrative expenses, taxes, purchase of investment securities, interest expense and share repurchases. Cash outflows fluctuate with the amount and timing of settlement of these expenses. As such, any future decline in our profitability would likely have some negative impact on our liquidity.

We manage our cash, investments and capital structure so we are able to meet the short- and long-term obligations of our business while maintaining financial flexibility and liquidity. We forecast, analyze and monitor our cash flows to enable investment and financing within the overall constraints of our financial strategy.

A substantial portion of the assets held by our regulated subsidiaries is in the form of cash and cash equivalents and investments. After considering expected cash flows from current operating activities, we generally invest cash that exceeds our near term obligations in longer term marketable fixed maturity securities, to improve our overall investment income returns. Our investment strategy is to make investments consistent with insurance statutes and other regulatory requirements, while preserving our asset base. Our investments are available for sale to meet liquidity and other needs. Excess capital is paid in the form of annual dividends by subsidiaries to their respective parent companies for general corporate use, as permitted by applicable regulations.

The availability of financing in the form of debt or equity is influenced by many factors including our profitability, operating cash flows, debt levels, debt ratings, contractual restrictions, regulatory requirements and market conditions. We have access to a $1.0 billion commercial paper program supported by a like amount of revolving credit facilities, which allow us to maintain further operating and financial flexibility.

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Liquidity—Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002

During 2003, net cash flow provided by operating activities was $249.0 million, as compared to $183.3 million in 2002, an increase of $65.7 million. The increase resulted from improved net income, offset by a decline in operating cash flow from our operating assets and liabilities. The decline in cash from operating assets and liabilities primarily resulted from payment for resolution of a litigation matter, and higher incentive and accrual payments during the first three months of 2003 as compared to 2002.

Net cash flow used in investing activities was $401.6 million in 2003, compared to $133.5 million in 2002, an increase of $268.1 million. The table below outlines the changes in investing cash flow between the two years:

Increase in net purchases of investments	$	290.8
Decrease in purchases of subsidiaries		(9.5	)
Decrease in net purchases and proceeds from sale of property and equipment		(13.2	)
Total increase in cash used in investing activities	$	268.1

The purchase of investment securities increased as operating cash was moved into our investment portfolio and cash balances held by our investment managers was reduced. The decrease in subsidiary purchases resulted primarily from minimal activity in 2003 versus the $10.6 million purchase of the remaining 50% interest of Maine Partners Health Plan in 2002. The decreased property and equipment net purchases primarily resulted from fewer computer equipment and software purchases in 2003 as compared to 2002.

Net cash flow used in financing activities was $78.4 million in 2003 compared to cash provided of $0.1 million in 2002. During 2003, $91.0 million was used to repurchase our common stock. The company  received $12.6 million of proceeds resulting from the issuance of common stock related to the exercise of stock options and through our employee stock purchase program. The employee stock purchase program was initiated in June 2002, and therefore no purchases were made during the three months ended March 31, 2002. Also,  during the three months ended March 31, 2002, there were very few stock options that were vested and eligible for exercise, as compared to the three months ended March 31, 2003. The majority of stock options  exercised during the first three months of 2003 were Trigon options that vested and converted to Anthem options upon the merger with us in July 2002.

Financial Condition

We maintained a strong financial condition and liquidity position, with consolidated cash and cash equivalents and investments of $6.9 billion at March 31, 2003. Total cash and cash equivalents and investments increased by $215.0 million from December 31, 2002, primarily resulting from our strong cash flows generated from operating activities, partially offset by cash used for stock repurchases.

Many of our subsidiaries are subject to various government regulations that restrict the timing and amount of dividends and other distributions that may be paid to their respective parent companies. From January 1, 2003 to March 31, 2003, Anthem has received $50.0 million of dividends from its subsidiaries. During April 2003, Anthem received $347.0 million of dividends from its subsidiaries. At March 31, 2003, Anthem held approximately $275.0 million of our consolidated $6.9 billion of cash and cash equivalents and investments, which are available for general corporate use, including investment in our businesses, acquisitions, share and debt repurchases and interest payments.

Our consolidated debt-to-total-capital ratio (calculated as the sum of debt divided by the sum of debt plus shareholders’ equity) was 24.3% as of March 31, 2003 and 24.7% as of December 31, 2002.

Our senior debt is rated “BBB+” by Standard & Poor’s, “A-” by Fitch, Inc., “Baa2 “ by Moody’s Investor Service, Inc. and “a-” by AM Best Company, Inc. We intend to maintain our senior debt investment grade ratings. A significant downgrade in our debt could adversely affect our borrowing capacity and costs.

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Future Sources and Uses of Liquidity

Anthem maintains $1.0 billion of revolving lines of credit with its lender group. Under one facility, which expires November 5, 2006, Anthem may borrow up to $400.0 million. Under the other facility, which expires July 1, 2003, Anthem may borrow up to $600.0 million. Any amounts outstanding under this facility at July 1, 2003 (except amounts which bear interest rates determined by a competitive bidding process) convert to a one-year term loan at Anthem’s option. Anthem’s ability to borrow under these credit facilities is subject to compliance with certain covenants. We were in compliance with these covenants as of March 31, 2003. There were no borrowings under these facilities for the three months ending March 31, 2003.

On January 27, 2003, the Board of Directors authorized management to establish a $1.0 billion commercial paper program. Proceeds from any issuance of commercial paper may be used for general corporate purposes, including the repurchase of debt and common stock of Anthem. Commercial paper notes are short-term senior unsecured notes, with a maturity not to exceed 270 days from date of issuance. When issued, the notes bear interest at current market rates. There were no borrowings under this commercial paper program during the three months ending March 31, 2003.

On December 18, 2002, Anthem filed a shelf registration with the SEC to register any combination of debt or equity securities in one or more offerings up to an aggregate amount of $1.0 billion. Specific information regarding terms of a potential offering and the securities being offered will be provided at the time of such offering. Proceeds from any offering will be used for general corporate purposes, including the repayment of debt, investments in our subsidiaries or the financing of possible acquisitions or business expansion.

As discussed in “Financial Condition” above, many of our subsidiaries are subject to various government regulations that restrict the timing and amount of dividends and other distributions that may be paid. Based  upon these requirements, we are expecting approximately $425.0 million of dividends to be paid to Anthem during the full year 2003, including the $397.0 million, which was paid in the period from January 1, 2003 to April 30, 2003.

In 2003, the Board of Directors authorized us to repurchase up to $500.0 million of stock under a new program that will expire in February 2005. Under this program, repurchases may be made from time to time at prevailing prices, subject to certain restrictions on volume, pricing and timing. We purchased nearly 1.6 million shares of our common stock during the three months ended March 31, 2003 at a cost of $91.0 million. We currently have $409.0 million of authorization remaining under this program.

In 2001, Anthem Southeast started an estimated four-year, $84.0 million building construction project to expand its regional offices in Richmond, Virginia. The expansion plan includes construction of a four-story, 308,000-square-foot building to house the operations center and major renovation to Trigon’s existing headquarter building. Construction for the new building began in 2001, with completion scheduled for mid-2003. Renovations of the current facility will begin once the new building is completed with a scheduled completion date in 2005. The project will be funded using internal cash and investments. Through March 31, 2003, we have capitalized $43.5 million related to the ongoing construction. There are currently no other commitments for major capital expenditures to support existing business.

We currently have an acquisition pending with BCBS-KS for a purchase price of $190.0 million. See the “Significant Transactions” section of this management’s discussion and analysis for additional details.

Anthem Insurance has $100.0 million of senior guaranteed notes maturing in July 2003 that will be repaid from operating cash flows of Anthem Insurance. Anthem and its subsidiaries lease office space and certain computer equipment using non-cancelable operating leases. Estimated 2003 lease payments for these leases with initial or remaining non-cancelable terms of one year or more are $43.5 million.

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For additional information on our future debt maturities and lease commitments, see Notes 5 and 14 to our audited consolidated financial statements for the years ended December 31, 2002, 2001 and 2000 included in our Annual Report on Form 10-K.

Risk-Based Capital

Our regulated subsidiaries’ states of domicile have statutory risk-based capital, or RBC, requirements for health and other insurance companies largely based on the NAIC’s RBC Model Act. These RBC requirements are intended to measure capital adequacy, taking into account the risk characteristics of an insurer’s investments and managed care products. The NAIC sets forth the formula for calculating the RBC requirements, which are designed to take into account asset risks, insurance risks, interest rate risks and other relevant risks with respect to an individual insurance company’s business. In general, under this Act, an insurance company must submit a report of its RBC level to the state insurance department or insurance commissioner, as appropriate, at the end of each calendar year. Our risk-based capital as of December 31, 2002, which was the most recent date for which reporting was required, was in excess of all mandatory RBC thresholds. In addition to exceeding the RBC requirements, we are in compliance with the liquidity and capital requirements of a licensee of the Blue Cross Blue Shield Association.

This management’s discussion and analysis contains certain forward-looking information. Words such as “expect(s)”, “feel(s)”, “believe(s)”, “will”, “may”, “anticipate(s)”, “estimate(s)”, “should”, “intend(s)” and similar expressions are intended to identify forward-looking statements. Such statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties may include: trends in healthcare costs and utilization rates; our ability to secure sufficient premium rate increases; competitor pricing below market trends of increasing costs; increased government regulation of health benefits and managed care; significant acquisitions or divestitures by major competitors; introduction and utilization of new prescription drugs and technology; a downgrade in our financial strength ratings; an increased level of debt; litigation targeted at health benefits companies; our ability to contract with providers consistent with past practice; our ability to achieve expected synergies and operating efficiencies from the Trigon acquisition and to successfully integrate our operations; and general economic downturns. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof. We undertake no obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

ITEM 3.    Quantitative and Qualitative Disclosures About Market Risk

The primary objective of our investment strategy is the preservation of our asset base and the maximization of portfolio income given an acceptable level of risk. Our portfolio is exposed to three primary sources of risk: interest rate risk, credit risk and market valuation risk. No material changes to any of these risks have occurred since December 31, 2002. For a more detailed discussion of market risk, refer to our 2002 Annual Report on Form 10-K as filed with the Securities and Exchange Commission.

ITEM 4.    Controls and Procedures

Within the 90 days prior to the filing date of this Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial and Accounting Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Rule 13a-14 of the Securities Exchange Act of 1934. Based upon that evaluation, the Chief Executive Officer and Chief Financial and Accounting Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in this Quarterly Report on Form 10-Q. There have been no significant changes in the Company’s internal controls or in other factors which could significantly affect internal controls subsequent to the date the Company carried out its evaluation.

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PART II. OTHER INFORMATION

ITEM 1.    Legal Proceedings

On March 11, 1998, Anthem Insurance and its Ohio subsidiary, Community Insurance Company (“CIC”) were named as defendants in a lawsuit, Robert Lee Dardinger, Executor of the Estate of Esther Louise Dardinger v. Anthem Blue Cross and Blue Shield, et al., filed in the Licking County Court of Common Pleas in Newark, Ohio. The plaintiff sought compensatory damages and unspecified punitive damages in connection with claims alleging wrongful death, bad faith and negligence arising out of CIC’s denial of certain claims for medical treatment for Ms. Dardinger. On September 24, 1999, the jury returned a verdict for the plaintiff, awarding $1,350 (actual dollars) for compensatory damages, $2.5 million for bad faith in claims handling and appeals processing, $49.0 million for punitive damages and unspecified attorneys’ fees in an amount to be determined by the court. The court later granted attorneys’ fees of $0.8 million. Both companies filed an appeal of the verdict on November 19, 1999. On May 22, 2001, the Ohio Court of Appeals (Fifth District) affirmed the jury award of $1,350 for breach of contract against CIC, affirmed the award of $2.5 million compensatory damages for bad faith in claims handling and appeals processing against CIC, but dismissed the claims and judgments against Anthem Insurance. The court also reversed the award of $49.0 million in punitive damages against both Anthem Insurance and CIC, and remanded the question of punitive damages against CIC to the trial court for a new trial. Anthem Insurance and CIC, as well as the plaintiff, appealed certain aspects of the decision of the Ohio Court of Appeals. On October 10, 2001, the Supreme Court of Ohio agreed to hear the plaintiff’s appeal, including the question of punitive damages, and denied the cross-appeals of Anthem and CIC. In December 2001, CIC paid the award of $2.5 million compensatory damages for bad faith and the award of $1,350 for breach of contract, plus accrued interest. On April 24, 2002 the Supreme Court of Ohio held oral arguments. On December 20, 2002, the Ohio Supreme Court ruled, reinstating the judgment against both Anthem Insurance and CIC, but remitted the punitive damages from $49.0 million to $30.0 million plus interest. The Court also ruled that the plaintiff would receive $10.0 million of the judgment, the plaintiff’s attorneys would receive their contingency fee on the $30.0 million plus interest and that the remainder of the award should be given to The Ohio State University Hospital for a charitable fund named after Esther Dardinger. Anthem Insurance and CIC paid the remitted judgment in full on March 28, 2003 and a Satisfaction of Judgment was filed with the Licking County Court of Common Pleas on April 7, 2003. This matter has been terminated.

ITEM 2.    Changes in Securities and Use of Proceeds

None.

ITEM 3.    Defaults Upon Senior Securities

None.

ITEM 4.    Submission of Matters to a Vote of Security Holders

None.

ITEM 5.    Other Information

None.

ITEM 6.    Exhibits and Reports on Form 8-K

a) Exhibits: A list of exhibits required to be filed as part of this report is set forth in the Index to Exhibits, which immediately precedes such exhibits, and is incorporated herein by reference.

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b) Current Reports on Form 8-K filed or furnished during the quarter covered by this Form 10-Q are as follows:

1. Form 8-K furnished, not filed, on February 4, 2003 attaching a press release reporting financial results for the fourth quarter and full year 2002.

2. Form 8-K furnished, not filed, on March 3, 2003 reporting meetings at which it was expected that the Company’s ability to meet the earnings expectations previously reported would be confirmed.

3. Form 8-K furnished, not filed, on March 17, 2003 reporting meetings at which it was expected that the Company’s ability to meet the earnings expectations previously reported would be confirmed.

4. Form 8-K furnished, not filed, on March 24, 2003 reporting meetings at which it was expected that the Company’s ability to meet the earnings expectations previously reported would be confirmed, excluding a non-recurring benefit of approximately $0.11 per diluted share attributable to the release of certain reserves resulting from the resolution of Robert Lee Dardinger, Executor of the Estate of Esther Louise Dardinger v. Anthem Blue Cross and Blue Shield, et al.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ANTHEM, INC. Registrant
By:	/S/    MICHAEL L. SMITH
	Michael L. Smith Executive Vice President and Chief Financial and Accounting Officer (Principal Financial Officer, Chief Accounting Officer and Duly Authorized Officer)

Date: April 30, 2003

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CERTIFICATIONS

I, Larry C. Glasscock, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Anthem, Inc.;

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

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

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

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

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

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

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

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

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

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

/S/    LARRY C. GLASSCOCK        

Larry C. Glasscock

Chief Executive Officer

Date: April 30, 2003

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I, Michael L. Smith, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Anthem, Inc.;

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

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

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

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

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

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

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

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

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

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

/S/    MICHAEL L. SMITH        

Michael L. Smith

Chief Financial and Accounting Officer

Date: April 30, 2003

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INDEX TO EXHIBITS

Exhibit Number		Document
4.18		Commercial Paper Dealer Agreement dated March 11, 2003, among Anthem, Inc., as Issuer and J.P. Morgan Securities, Inc., Banc of America Securities LLC and Salomon Smith Barney, Inc., each as Dealer.
4.19		Issuing and Paying Agency Agreement dated March 11, 2003 by and between Anthem, Inc. and J.P. Morgan Chase Bank.
10.25	(i)	Second Amemdment to Anthem’s 401(k) Long-Term Savings Investment Plan, dated to be effective October 31, 2002.
	(ii)	Third amendment to Anthem’s 401(k) Long-Term Savings Investment Plan, dated to be effective January 1, 2002.
99.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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EX-4.18

EXHIBIT 4.18

Execution Copy

COMMERCIAL PAPER DEALER AGREEMENT

4(2) PROGRAM

between

ANTHEM, INC., as Issuer

and

J.P. MORGAN SECURITIES INC.,

BANC OF AMERICA SECURITIES LLC

AND

SALOMON SMITH BARNEY INC.,

each as Dealer

Concerning Notes to be issued pursuant to an Issuing and Paying

Agency Agreement dated as of March 11, 2003 between the

Issuer and JPMorgan Chase Bank, as Issuing and Paying Agent

Dated as of

March 11, 2003

4(2) COMMERCIAL PAPER DEALER AGREEMENT

This agreement (“Agreement”) sets forth the understandings between the Issuer and the Dealers, each named on the cover page hereof, in connection with the issuance and sale by the Issuer of its short-term promissory notes (the “Notes”) through the Dealers.

Certain terms used in this Agreement are defined in Section 6 hereof.

The Addendum to this Agreement, and any Annexes or Exhibits described in this Agreement or such Addendum, are hereby incorporated into this Agreement and made fully a part hereof.

Section 1.    Offers, Sales and Resales of Notes.

1.1    While (i) the Issuer has and shall have no obligation to sell the Notes to any Dealer or to permit a Dealer to arrange any sale of the Notes for the account of the Issuer, and (ii) each Dealer has and shall have no obligation to purchase the Notes from the Issuer or to arrange any sale of the Notes for the account of the Issuer, the parties hereto agree that in any case where a Dealer purchases Notes from the Issuer, or arranges for the sale of Notes by the Issuer, such Notes will be purchased or sold by the Dealers in reliance on the representations, warranties, covenants and agreements of the Issuer contained herein or made pursuant hereto and on the terms and conditions and in the manner provided herein.

1.2    So long as this Agreement shall remain in effect, and in addition to the limitations contained in Section 1.7 hereof, the Issuer shall not, without the consent of the Dealers, offer, solicit or accept offers to purchase, or sell, any Notes except (a) in transactions with one or more dealers which may from time to time after the date hereof become dealers with respect to the Notes by executing with the Issuer one or more agreements which contain provisions substantially identical to those contained in Section 1 of this Agreement, of which the Issuer hereby undertakes to provide the Dealers prompt notice, or (b) in transactions with the other dealers listed on the Addendum hereto, which are executing agreements with the Issuer which contain provisions substantially identical to Section 1 of this Agreement contemporaneously herewith. In no event shall the Issuer offer, solicit or accept offers to purchase, or sell, any Notes directly on its own behalf in transactions with persons other than broker-dealers as specifically permitted in this Section 1.2.

1.3    The Notes shall be in a minimum denomination of $150,000 or integral multiples of $1,000 in excess thereof, will bear such interest rates, if interest bearing, or will be sold at such discount from their face amounts, as shall be agreed upon by a Dealer and the Issuer, shall have a maturity not exceeding 270 days from the date of issuance (exclusive of days of grace) and shall not contain any provision for extension, renewal or automatic “rollover.”

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1.4    The authentication and issuance of, and payment for, the Notes shall be effected in accordance with the Issuing and Paying Agency Agreement, and the Notes shall be book-entry notes evidenced by a Master Note registered in the name of DTC or its nominee, in the form or forms annexed to the Issuing and Paying Agency Agreement.

1.5    If the Issuer and a Dealer shall agree on the terms of the purchase of any Note by such Dealer or the sale of any Note arranged by a Dealer (including, but not limited to, agreement with respect to the date of issue, purchase price, principal amount, maturity and interest rate (in the case of interest-bearing Notes) or discount thereof (in the case of Notes issued on a discount basis), and appropriate compensation for such Dealer’s services hereunder) pursuant to this Agreement, the Issuer shall cause such Note to be issued and delivered in accordance with the terms of the Issuing and Paying Agency Agreement and payment for such Note shall be made by the purchaser thereof, either directly or through such Dealer, to the Issuing and Paying Agent, for the account of the Issuer. Except as otherwise agreed, in the event that a Dealer is acting as an agent and a purchaser shall either fail to accept delivery of or make payment for a Note on the date fixed for settlement, such Dealer shall promptly notify the Issuer, and if such Dealer has theretofore paid the Issuer for the Note, the Issuer will promptly return such funds to the Dealer upon notice of such failure. If such failure occurred for any reason other than default by the Dealer, the Issuer shall reimburse such Dealer on an equitable basis for the Dealer’s loss of the use of such funds for the period such funds were credited to the Issuer’s account.

1.6    The Dealers and the Issuer hereby establish and agree to observe the following procedures in connection with offers, sales and subsequent resales or other transfers of the Notes:

(a)    Offers and sales of the Notes by or through the Dealers shall be made only to: (i) investors reasonably believed by the Dealers to be Qualified Institutional Buyers (“QIB’s”) or Institutional Accredited Investors, and (ii) non-bank fiduciaries or agents that will be purchasing Notes for one or more accounts, each of which is reasonably believed by the Dealers to be an Institutional Accredited Investor.

(b)    Resales and other transfers of the Notes by the holders thereof shall be made only in accordance with the restrictions in the legend described in clause (e) below.

(c)    No general solicitation or general advertising shall be used in connection with the offering of the Notes. Without limiting the generality of the foregoing, without the prior written approval of the Dealers, the Issuer shall not issue any press release or place or publish any “tombstone” or other advertisement relating to the Notes.

(d)    No sale of Notes to any one purchaser shall be for less than $150,000 principal or face amount, and no Note shall be issued in a smaller principal or face amount. If the purchaser is a non-bank fiduciary acting on behalf of others, each person for whom such purchaser is acting must purchase at least $150,000 principal or face amount of Notes.

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(e)    Offers and sales of the Notes by the Issuer through the Dealers acting as agents for the Issuer shall be made in accordance with Rule 506 under the Securities Act, and shall be subject to the restrictions described in the legend appearing on Exhibit A hereto. A legend substantially to the effect of such Exhibit A shall appear as part of the Private Placement Memorandum used in connection with offers and sales of Notes hereunder, as well as on each individual certificate representing a Note and each Master Note representing book-entry Notes offered and sold pursuant to this Agreement.

(f)    A Dealer shall furnish or shall have furnished to each purchaser of Notes for which it has acted as the dealer a copy of the then-current Private Placement Memorandum unless such purchaser has previously received a copy of the Private Placement Memorandum as then in effect. The Private Placement Memorandum shall expressly state that any person to whom Notes are offered shall have an opportunity to ask questions of, and receive information from, the Issuer and the Dealer and shall provide the names, addresses and telephone numbers of the persons from whom information regarding the Issuer may be obtained.

(g)    The Issuer agrees, for the benefit of the Dealers and each of the holders and prospective purchasers from time to time of the Notes that, if at any time the Issuer shall not be subject to Section 13 or 15(d) of the Exchange Act, the Issuer will furnish, upon request and at its expense, to the Dealers and to holders and prospective purchasers of Notes information required by Rule 144A(d)(4)(i) in compliance with Rule 144A(d).

(h)    In the event that any Note offered or to be offered by the Dealers would be ineligible for resale under Rule 144A, the Issuer shall immediately notify the Dealers (by telephone, confirmed in writing) of such fact and shall promptly prepare and deliver to the Dealers an amendment or supplement to the Private Placement Memorandum describing the Notes that are ineligible, the reason for such ineligibility and any other relevant information relating thereto.

(i)    The Issuer represents that it is not currently issuing commercial paper in the United States market in reliance upon the exemption provided by Section 3(a)(3) of the Securities Act. The Issuer agrees that, if at any time during the term of this Agreement it issues commercial paper in the United States market in reliance upon such exemption, (a) the proceeds from the sale of the Notes will be segregated from the proceeds of the sale of any such commercial paper by being placed in a separate account; (b) the Issuer will institute appropriate corporate procedures to ensure that the offers and sales of notes issued by the Issuer pursuant to the Section 3(a)(3) exemption are not integrated with offerings and sales of Notes hereunder; and (c) the Issuer will comply with each of the requirements of Section 3(a)(3) of the Act in selling commercial paper or other short-term debt securities other than the Notes in the United States.

1.7    (a) The Issuer hereby confirms to the Dealers that (except as permitted by Section 1.6(i)) within the preceding six months neither the Issuer nor any person other than the Dealers or the other dealers referred to in Section 1.2 hereof acting on behalf of the Issuer has offered or

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sold any Notes, or any substantially similar security of the Issuer (including, without limitation, medium-term notes issued by the Issuer), to, or solicited offers to buy any such security from, any person other than the Dealers or the other dealers referred to in Section 1.2 hereof. The Issuer also agrees that (except as permitted by Section 1.6(i)), as long as the Notes are being offered for sale by the Dealers and the other dealers referred to in Section 1.2 hereof as contemplated hereby and until at least six months after the offer of Notes hereunder has been terminated, neither the Issuer nor any person other than the Dealers or the other dealers referred to in Section 1.2 hereof (except as contemplated by Section 1.2 hereof) will offer the Notes or any substantially similar security of the Issuer for sale to, or solicit offers to buy any such security from, any person other than the Dealers or the other dealers referred to in Section 1.2 hereof, it being understood that such agreement is made with a view to bringing the offer and sale of the Notes within the exemption provided by Section 4(2) of the Securities Act and Rule 506 thereunder and shall survive any termination of this Agreement. The Issuer hereby represents and warrants that it has not taken or omitted to take, and will not take or omit to take, any action that would cause the offering and sale of Notes hereunder to be integrated with any other offering of securities, whether such offering is made by the Issuer or some other party or parties.

       (b) The Issuer represents and agrees that the proceeds of the sale of the Notes are not currently contemplated to be used for the purpose of buying, carrying or trading securities within the meaning of Regulation T and the interpretations thereunder by the Board of Governors of the Federal Reserve System. In the event that the Issuer determines to use such proceeds for the purpose of buying, carrying or trading securities, whether in connection with an acquisition of another company or otherwise, the Issuer shall give the Dealers at least five business days’ prior written notice to that effect. The Issuer shall also give the Dealers prompt notice of the actual date that it commences to purchase securities with the proceeds of the Notes. Thereafter, in the event that a Dealer purchases Notes as principal and does not resell such Notes on the day of such purchase, to the extent necessary to comply with Regulation T and the interpretations thereunder, such Dealer will sell such Notes either (i) only to offerees it reasonably believes to be QIBs or to QIBs it reasonably believes are acting for other QIBs, in each case in accordance with Rule 144A or (ii) in a manner which would not cause a violation of Regulation T and the interpretations thereunder.

Section 2.    Representations and Warranties of Issuer.

The Issuer represents and warrants that:

2.1    The Issuer is a corporation duly organized and validly existing under the laws of Indiana and has all the requisite power and authority to execute, deliver and perform its obligations under the Notes, this Agreement and the Issuing and Paying Agency Agreement.

2.2    This Agreement and the Issuing and Paying Agency Agreement have been duly authorized, executed and delivered by the Issuer and constitute legal, valid and binding obligations of the Issuer enforceable against the Issuer in accordance with their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, and

5

subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).

2.3    The Notes have been duly authorized, and when issued as provided in the Issuing and Paying Agency Agreement, will be duly and validly issued and will constitute legal, valid and binding obligations of the Issuer enforceable against the Issuer in accordance with their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).

2.4    The offer and sale of Notes in the manner contemplated hereby do not require registration of the Notes under the Securities Act, pursuant to the exemption from registration contained in Section 4(2) thereof, and no indenture in respect of the Notes is required to be qualified under the Trust Indenture Act of 1939, as amended.

2.5    The Notes will rank at least pari passu with all other unsecured and unsubordinated indebtedness of the Issuer.

2.6    No consent or action of, or filing or registration with, any governmental or public regulatory body or authority, including the SEC, is required to authorize, or is otherwise required in connection with the execution, delivery or performance of, this Agreement, the Notes or the Issuing and Paying Agency Agreement, except as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Notes.

2.7    Neither the execution and delivery of this Agreement and the Issuing and Paying Agency Agreement, nor the issuance of the Notes in accordance with the Issuing and Paying Agency Agreement, nor the fulfillment of or compliance with the terms and provisions hereof or thereof by the Issuer, will (i) result in the creation or imposition of any mortgage, lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Issuer, or (ii) violate or result in a breach or a default under any of the terms of the Issuer’s charter documents or by-laws, any contract or instrument to which the Issuer is a party or by which it or its property is bound, or any law or regulation, or any order, writ, injunction or decree of any court or government instrumentality, to which the Issuer is subject or by which it or its property is bound, which breach or default could reasonably be expected to have a material adverse effect on the condition (financial or otherwise), operations or business of the Issuer, the validity of the Notes, or the ability of the Issuer to perform its obligations under this Agreement, the Notes or the Issuing and Paying Agency Agreement.

2.8    There is no litigation or governmental proceeding pending, or to the knowledge of the Issuer threatened, against or affecting the Issuer or any of its subsidiaries which could reasonably be expected to result in a material adverse change in the condition (financial or otherwise), operations or business of the Issuer or the ability of the Issuer to perform its obligations under this Agreement, the Notes or the Issuing and Paying Agency Agreement, except as may be disclosed in the Private Placement Memorandum from time to time or as may be

6

disclosed in the Company Information, from time to time, of which the Dealer has been specifically apprised.

2.9    The Issuer is not an “investment company” or an entity “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

2.10    Neither the Private Placement Memorandum nor the Company Information contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

2.11    Each (a) issuance of Notes by the Issuer hereunder and (b) amendment or supplement of the Private Placement Memorandum shall be deemed a representation and warranty by the Issuer to the Dealers, as of the date thereof, that, both before and after giving effect to such issuance and after giving effect to such amendment or supplement, (i) the representations and warranties given by the Issuer set forth above in this Section 2 remain true and correct on and as of such date as if made on and as of such date, (ii) in the case of an issuance of Notes, the Notes being issued on such date have been duly and validly issued and constitute legal, valid and binding obligations of the Issuer, enforceable against the Issuer in accordance with their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law) and (iii) in the case of an issuance of Notes, since the date of the most recent Private Placement Memorandum, there has been no material adverse change in the condition (financial or otherwise), operations or business of the Issuer which has not been disclosed to the Dealers in writing.

Section 3.    Covenants and Agreements of Issuer.

The Issuer covenants and agrees that:

3.1    The Issuer will give the Dealers prompt notice (but in any event prior to any subsequent issuance of Notes hereunder) of any amendment to, modification of or waiver with respect to, the Notes or the Issuing and Paying Agency Agreement, including a complete copy of any such amendment, modification or waiver.

3.2    The Issuer shall, whenever there shall occur any change in the Issuer’s condition (financial or otherwise), operations or business or any development or occurrence in relation to the Issuer that would be material to holders of the Notes or potential holders of the Notes (including any downgrading or receipt of any notice of intended or potential downgrading or any review for potential change in the rating accorded any of the Issuer’s securities by any nationally recognized statistical rating organization which has published a rating of the Notes), promptly, and in any event prior to any subsequent issuance of Notes hereunder, notify the Dealers (by telephone, confirmed in writing) of such change, development or occurrence.

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3.3    The Issuer shall from time to time furnish to the Dealers such information as the Dealers may reasonably request, including, without limitation, any press releases or material provided by the Issuer to any national securities exchange or rating agency, regarding (i) the Issuer’s operations and financial condition, (ii) the due authorization and execution of the Notes and (iii) the Issuer’s ability to pay the Notes as they mature.

3.4    The Issuer will take all such action as the Dealers may reasonably request to ensure that each offer and each sale of the Notes will comply with any applicable state Blue Sky laws; provided, however, that the Issuer shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation in any jurisdiction in which it is not so qualified or subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject.

3.5    The Issuer will not be in default of any of its obligations hereunder, under the Notes or under the Issuing and Paying Agency Agreement, at any time that any of the Notes are outstanding.

3.6    The Issuer shall not issue Notes hereunder until the Dealers shall have received (a) an opinion of counsel to the Issuer, addressed to the Dealers, satisfactory in form and substance to the Dealers, (b) a copy of the executed Issuing and Paying Agency Agreement as then in effect, (c) a copy of resolutions adopted by the Board of Directors of the Issuer, satisfactory in form and substance to the Dealers and certified by the Secretary or similar officer of the Issuer, authorizing execution and delivery by the Issuer of this Agreement, the Issuing and Paying Agency Agreement and the Notes and consummation by the Issuer of the transactions contemplated hereby and thereby, (d) prior to the issuance of any Notes represented by a book-entry note registered in the name of DTC or its nominee, a copy of the executed Letter of Representations among the Issuer, the Issuing and Paying Agent and DTC and (e) such other certificates, opinions, letters (including rating letters) and documents as the Dealers shall have reasonably requested.

3.7    The Issuer shall reimburse the Dealers for all of the Dealers’ out-of-pocket expenses related to this Agreement, including expenses incurred in connection with its preparation and negotiation, and the transactions contemplated hereby (including, but not limited to, the printing and distribution of the Private Placement Memorandum), and, if applicable, for the reasonable fees and out-of-pocket expenses of the Dealers’ counsel.

Section 4.    Disclosure.

4.1    The Private Placement Memorandum and its contents (other than the Dealer Information) shall be the sole responsibility of the Issuer. The Private Placement Memorandum shall contain a statement expressly offering an opportunity for each prospective purchaser to ask questions of, and receive answers from, the Issuer concerning the offering of Notes and to obtain

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relevant additional information, which the Issuer possesses or can acquire without unreasonable effort or expense.

4.2    The Issuer agrees to promptly furnish a Dealer the Company Information as it becomes available, upon request by such Dealer from time to time.

4.3    (a) The Issuer further agrees to notify the Dealers promptly upon the occurrence of any event relating to or affecting the Issuer that would cause the Company Information then in existence to include an untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements contained therein, in light of the circumstances under which they are made, not misleading.

         (b) In the event that the Issuer gives the Dealers notice pursuant to Section 4.3(a) and a Dealer notifies the Issuer that it is then holding Notes in inventory, the Issuer agrees promptly to supplement or amend the Private Placement Memorandum so that the Private Placement Memorandum, as amended or supplemented, shall not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and the Issuer shall make such supplement or amendment available to the Dealers.

         (c) In the event that (i) the Issuer gives the Dealers notice pursuant to Section 4.3(a), (ii) none of the Dealers notifies the Issuer that it is then holding Notes in inventory and (iii) the Issuer chooses not to promptly amend or supplement the Private Placement Memorandum in the manner described in clause (b) above, then all solicitations and sales of Notes shall be suspended until such time as the Issuer has so amended or supplemented the Private Placement Memorandum, and made such amendment or supplement available to the Dealers.

Section 5.    Indemnification and Contribution.

5.1    The Issuer will indemnify and hold harmless each Dealer, each individual, corporation, partnership, trust, association or other entity controlling each Dealer, any affiliate of each Dealer or any such controlling entity and their respective directors, officers, employees, partners, incorporators, shareholders, servants, trustees and agents (hereinafter the “Indemnitees”) against any and all liabilities, penalties, suits, causes of action, losses, damages, claims, costs and expenses (including, without limitation, fees and disbursements of counsel) or judgments of whatever kind or nature (each a “Claim”), imposed upon, incurred by or asserted against the Indemnitees arising out of or based upon (i) any allegation that the Private Placement Memorandum, the Company Information or any information provided by the Issuer to the Dealers included (as of any relevant time) or includes an untrue statement of a material fact or omitted (as of any relevant time) or omits to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading or (ii) the breach by the Issuer of any agreement, covenant or representation made in or pursuant to

9

this Agreement. This indemnification shall not apply to the extent that the Claim arises out of or is based upon Dealer Information.

5.2    Provisions relating to claims made for indemnification under this Section 5 are set forth on Exhibit B to this Agreement.

5.3    In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in this Section 5 is held to be unavailable or insufficient to hold harmless the Indemnitees, although applicable in accordance with the terms of this Section 5, the Issuer shall contribute to the aggregate costs incurred by the Dealers in connection with any Claim in the proportion of the respective economic interests of the Issuer and the Dealers; provided, however, that such contribution by the Issuer shall be in an amount such that the aggregate costs incurred by the Dealers do not exceed the aggregate of the commissions and fees earned by the Dealers hereunder with respect to the issue or issues of Notes to which such Claim relates. The respective economic interests shall be calculated by reference to the aggregate proceeds to the Issuer of the Notes issued hereunder and the aggregate commissions and fees earned by the Dealers hereunder.

Section 6.    Definitions.

6.1    “Claim” shall have the meaning set forth in Section 5.1.

6.2    “Company Information” at any given time shall mean the Private Placement Memorandum together with, to the extent applicable, (i) the Issuer’s most recent report on Form 10-K filed with the SEC and each report on Form 10-Q or 8-K filed by the Issuer with the SEC since the most recent Form 10-K, (ii) the Issuer’s most recent annual audited financial statements and each interim financial statement or report prepared subsequent thereto, if not included in item (i) above, (iii) the Issuer’s other publicly available recent reports, (iv) any other information or disclosure prepared pursuant to Section 4.3 hereof and (v) any information prepared or approved by the Issuer for dissemination to investors or potential investors in the Notes.

6.3    “Dealer Information” shall mean material concerning the Dealers provided by the Dealers in writing expressly for inclusion in the Private Placement Memorandum.

6.4    “DTC” shall mean The Depository Trust Company.

6.5    “Exchange Act” shall mean the U.S. Securities Exchange Act of 1934, as amended.

6.6    “Indemnitee” shall have the meaning set forth in Section 5.1.

6.7    “Institutional Accredited Investor” shall mean an institutional investor that is an accredited investor within the meaning of Rule 501 under the Securities Act and that has such knowledge and experience in financial and business matters that it is capable of evaluating and

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bearing the economic risk of an investment in the Notes, including, but not limited to, a bank, as defined in Section 3(a)(2) of the Securities Act, or a savings and loan association or other institution, as defined in Section 3(a)(5)(A) of the Securities Act, whether acting in its individual or fiduciary capacity.

6.8    “Issuing and Paying Agency Agreement” shall mean the issuing and paying agency agreement described on the cover page of this Agreement, as such agreement may be amended or supplemented from time to time.

6.9    “Issuing and Paying Agent” shall mean the party designated as such on the cover page of this Agreement, as issuing and paying agent under the Issuing and Paying Agency Agreement, or any successor thereto in accordance with the Issuing and Paying Agency Agreement.

6.10    “Non-bank fiduciary or agent” shall mean a fiduciary or agent other than (a) a bank, as defined in Section 3(a)(2) of the Securities Act, or (b) a savings and loan association, as defined in Section 3(a)(5)(A) of the Securities Act.

6.11    “Private Placement Memorandum” shall mean offering materials prepared in accordance with Section 4 (including materials referred to therein or incorporated by reference therein) provided to purchasers and prospective purchasers of the Notes, and shall include amendments and supplements thereto which may be prepared from time to time in accordance with this Agreement (other than any amendment or supplement that has been completely superseded by a later amendment or supplement).

6.12    “Qualified Institutional Buyer” shall have the meaning assigned to that term in Rule 144A under the Securities Act.

6.13    “Rule 144A” shall mean Rule 144A under the Securities Act.

6.14    “SEC” shall mean the U.S. Securities and Exchange Commission.

6.15    “Securities Act” shall mean the U.S. Securities Act of 1933, as amended.

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Section 7.    General

7.1    Unless otherwise expressly provided herein, all notices under this Agreement to parties hereto shall be in writing and shall be effective when received at the address of the respective party set forth in the Addendum to this Agreement.

7.2    This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to its conflict of laws provisions.

7.3    The Issuer agrees that any suit, action or proceeding brought by the Issuer against the Dealers in connection with or arising out of this Agreement or the Notes or the offer and sale of the Notes shall be brought solely in the United States federal courts located in the Borough of Manhattan or the courts of the State of New York located in the Borough of Manhattan. Each of the Dealers and the Issuer waives its right to trial by jury in any suit, action or proceeding with respect to this Agreement or the transactions contemplated hereby.

7.4    With respect to each Dealer, this Agreement may be terminated, at any time, by the Issuer, upon one business day’s prior notice to such effect to the Dealers, or by the Dealer upon one business day’s prior notice to such effect to the Issuer. Any such termination, however, shall not affect the obligations of the Issuer under Sections 3.7, 5 and 7.3 hereof or the respective representations, warranties, agreements, covenants, rights or responsibilities of the parties made or arising prior to the termination of this Agreement.

7.5    This Agreement is not assignable by either party hereto without the written consent of the other party; provided, however, that a Dealer may assign its rights and obligations under this Agreement to any affiliate of such Dealer.

7.6    This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

(signatures on following page)

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7.7    This Agreement is for the exclusive benefit of the parties hereto, and their respective permitted successors and assigns hereunder, and shall not be deemed to give any legal or equitable right, remedy or claim to any other person whatsoever.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date and year first above written.

ANTHEM, INC., as Issuer

By:

Name:

Title:

J.P. MORGAN SECURITIES INC., as Dealer

By:

Name:

Title:

BANC OF AMERICA SECURITIES LLC, as Dealer

By:

Name:

Title:

SALOMON SMITH BARNEY INC., as Dealer

By:

Name:

Title:

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ADDENDUM

The following additional clause shall apply to the Agreement and be deemed a part thereof:

The addresses of the respective parties for purposes of notices under Section 7.1 are as follows:

For the Issuer:
	Address:	Anthem, Inc.
		120 Monument Circle
		Indianapolis, IN 46204-4903
	Attention:	Treasurer
	Telephone number:		(317) 488-6154
	Fax number:		(317) 488-6160
For J.P. Morgan Securities Inc.:
	Address:	J.P. Morgan Securities Inc.
		270 Park Avenue – 9th Floor
		New York, NY 10017
	Attention:	Money Market Division
	Telephone number:		(212) 834-5070
	Fax number:		(212) 834-6560
For Banc of America Securities LLC:
	Address:	Banc of America Securities LLC
		600 Montgomery Street
		CA5-801-12-47
		San Francisco, CA 94111
	Attention:	Money Market Origination
	Telephone number:		(415) 913-6216
	Fax number:		(415) 913-6288
For Salomon Smith Barney Inc.:
	Address:	Salomon Smith Barney Inc.
		390 Greenwich Street, 4th Floor
		New York, NY 10013
	Attention:	Money Markets Origination
	Telephone number:		(212) 723-6378
	Fax number:		(212) 723-8624

EXHIBIT A

FORM OF LEGEND FOR

PRIVATE PLACEMENT MEMORANDUM AND NOTES

THE NOTES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY OTHER APPLICABLE SECURITIES LAW, AND OFFERS AND SALES THEREOF MAY BE MADE ONLY IN COMPLIANCE WITH AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. BY ITS ACCEPTANCE OF A NOTE, THE PURCHASER WILL BE DEEMED TO REPRESENT THAT IT HAS BEEN AFFORDED AN OPPORTUNITY TO INVESTIGATE MATTERS RELATING TO THE ISSUER AND THE NOTES, THAT IT IS NOT ACQUIRING SUCH NOTE WITH A VIEW TO ANY DISTRIBUTION THEREOF AND THAT IT IS EITHER (A) AN INSTITUTIONAL INVESTOR THAT IS AN ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501(a) UNDER THE ACT (AN “INSTITUTIONAL ACCREDITED INVESTOR”) AND THAT EITHER IS PURCHASING NOTES FOR ITS OWN ACCOUNT, IS A U.S. BANK (AS DEFINED IN SECTION 3(a)(2) OF THE ACT) OR A SAVINGS AND LOAN ASSOCIATION OR OTHER INSTITUTION (AS DEFINED IN SECTION 3(a)(5)(A) OF THE ACT) ACTING IN ITS INDIVIDUAL OR FIDUCIARY CAPACITY OR IS A FIDUCIARY OR AGENT (OTHER THAN A U.S. BANK OR SAVINGS AND LOAN) PURCHASING NOTES FOR ONE OR MORE ACCOUNTS EACH OF WHICH IS SUCH AN INSTITUTIONAL ACCREDITED INVESTOR AND WITH RESPECT TO WHICH THE PURCHASER HAS SOLE INVESTMENT DISCRETION; OR (B) A QUALIFIED INSTITUTIONAL BUYER (“QIB”) WITHIN THE MEANING OF RULE 144A UNDER THE ACT WHICH IS ACQUIRING NOTES FOR ITS OWN ACCOUNT OR FOR ONE OR MORE ACCOUNTS, EACH OF WHICH IS A QIB AND WITH RESPECT TO EACH OF WHICH THE PURCHASER HAS SOLE INVESTMENT DISCRETION; AND THE PURCHASER ACKNOWLEDGES THAT IT IS AWARE THAT THE SELLER MAY RELY UPON THE EXEMPTION FROM THE REGISTRATION PROVISIONS OF SECTION 5 OF THE ACT PROVIDED BY RULE 144A. BY ITS ACCEPTANCE OF A NOTE, THE PURCHASER THEREOF SHALL ALSO BE DEEMED TO AGREE THAT ANY RESALE OR OTHER TRANSFER THEREOF WILL BE MADE ONLY (A) IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE ACT, EITHER (1) TO THE ISSUER OR TO J.P. MORGAN SECURITIES INC. OR ANOTHER PERSON DESIGNATED BY THE ISSUER AS A DEALER FOR THE NOTES (COLLECTIVELY, THE “DEALER”), NONE OF WHICH SHALL HAVE ANY OBLIGATION TO ACQUIRE SUCH NOTE, (2) THROUGH A DEALER TO AN INSTITUTIONAL ACCREDITED INVESTOR OR A QIB, OR (3) TO A QIB IN A TRANSACTION THAT MEETS THE REQUIREMENTS OF RULE 144A AND (B) IN MINIMUM AMOUNTS OF $150,000.

EXHIBIT B

FURTHER PROVISIONS RELATING

TO INDEMNIFICATION

(a)    The Issuer agrees to reimburse each Indemnitee for all expenses (including reasonable fees and disbursements of internal and external counsel) as they are incurred by it in connection with investigating or defending any loss, claim, damage, liability or action in respect of which indemnification may be sought under Section 5 of the Agreement (whether or not it is a party to any such proceedings).

(b)    Promptly after receipt by an Indemnitee of notice of the existence of a Claim, such Indemnitee will, if a claim in respect thereof is to be made against the Issuer, notify the Issuer in writing of the existence thereof; provided that (i) the omission so to notify the Issuer will not relieve the Issuer from any liability which it may have hereunder unless and except to the extent it did not otherwise learn of such Claim and such failure results in the forfeiture by the Issuer of substantial rights and defenses, and (ii) the omission so to notify the Issuer will not relieve it from any liability which it may have to an Indemnitee otherwise than on account of this indemnity agreement. In case any such Claim is made against any Indemnitee and it notifies the Issuer of the existence thereof, the Issuer will be entitled to participate therein, and to the extent that it may elect by written notice delivered to the Indemnitee, to assume the defense thereof, with counsel reasonably satisfactory to such Indemnitee; provided that if the defendants in any such Claim include both the Indemnitee and the Issuer, and the Indemnitee shall have concluded that there may be legal defenses available to it which are different from or additional to those available to the Issuer, the Issuer shall not have the right to direct the defense of such Claim on behalf of such Indemnitee, and the Indemnitee shall have the right to select separate counsel to assert such legal defenses on behalf of such Indemnitee. Upon receipt of notice from the Issuer to such Indemnitee of the Issuer’s election so to assume the defense of such Claim and approval by the Indemnitee of counsel, the Issuer will not be liable to such Indemnitee for expenses incurred thereafter by the Indemnitee in connection with the defense thereof (other than reasonable costs of investigation) unless (i) the Indemnitee shall have employed separate counsel in connection with the assertion of legal defenses in accordance with the proviso to the next preceding sentence (it being understood, however, that the Issuer shall not be liable for the expenses of more than one separate counsel (in addition to any local counsel in the jurisdiction in which any Claim is brought), approved by the Dealer, representing the Indemnitee who is party to such Claim), (ii) the Issuer shall not have employed counsel reasonably satisfactory to the Indemnitee to represent the Indemnitee within a reasonable time after notice of existence of the Claim or (iii) the Issuer has authorized in writing the employment of counsel for the Indemnitee. The indemnity, reimbursement and contribution obligations of the Issuer hereunder shall be in addition to any other liability the Issuer may otherwise have to an Indemnitee and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Issuer and any Indemnitee. The Issuer agrees that without the Dealers’ prior written consent, it will not settle, compromise or consent to the entry of any judgment in any Claim in respect of which indemnification may be sought under the indemnification provision of the Agreement (whether or not the Dealers or any other Indemnitee is an actual or potential party to such Claim).

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EX-4.19

EXHIBIT 4.19

ISSUING AND PAYING AGENCY AGREEMENT

This Agreement, dated as of March 11, 2003 is by and between Anthem, Inc. (the “Issuer”) and JPMorgan Chase Bank (“JPMorgan”).

1.    APPOINTMENT AND ACCEPTANCE

The Issuer hereby appoints JPMorgan as its issuing and paying agent in connection with the issuance and payment of certain short-term promissory notes of the Issuer (the “Notes”), as further described herein, and JPMorgan agrees to act as such agent upon the terms and conditions contained in this Agreement.

2.    COMMERCIAL PAPER PROGRAMS

The Issuer may establish one or more commercial paper programs under this Agreement by delivering to JPMorgan a completed program schedule (the “Program Schedule”), with respect to each such program. JPMorgan has given the Issuer a copy of the current form of Program Schedule and the Issuer shall complete and return its first Program Schedule to JPMorgan prior to or simultaneously with the execution of this Agreement. In the event that any of the information provided in, or attached to, a Program Schedule shall change, the Issuer shall promptly inform JPMorgan of such change in writing.

3.    NOTES

All Notes issued by the Issuer under this Agreement shall be short-term promissory notes, exempt from the registration requirements of the Securities Act of 1933, as amended, as indicated on the Program Schedules, and from applicable state securities laws. The Notes may be placed by dealers (the “Dealers”) pursuant to Section 4 hereof. Notes shall be issued in either certificated or book-entry form.

4.    AUTHORIZED REPRESENTATIVES

The Issuer shall deliver to JPMorgan a certified copy of a duly adopted corporate resolution from the Issuer’s Board of Directors (or other governing body) authorizing the issuance of Notes under each program established pursuant to this Agreement and a certificate of incumbency, with specimen signatures attached, of those officers, employees and agents of the Issuer authorized to take certain actions with respect to the Notes as provided in this Agreement (each such person is hereinafter referred to as an “Authorized Representative”). Until JPMorgan receives any subsequent incumbency certificates of the Issuer, JPMorgan shall be entitled to rely on the last incumbency certificate delivered to it for the purpose of determining the Authorized Representatives. The Issuer represents and warrants that each Authorized Representative may appoint other officers, employees and agents of the Issuer (the “Delegates”), including without limitation any Dealers, to issue instructions to JPMorgan under this Agreement, and take other actions on the Issuer’s behalf hereunder, provided that notice of the appointment of each Delegate is delivered to JPMorgan in writing. Each such appointment shall remain in effect unless and until revoked by the Issuer in a written notice to JPMorgan.

5.    CERTIFICATED NOTES

If and when the Issuer intends to issue certificated notes (“Certificated Notes”), the Issuer and JPMorgan shall agree upon the form of such Notes. Thereafter, the Issuer shall from time to time deliver to JPMorgan adequate supplies of Certificated Notes which will be in bearer form, serially numbered, and shall be executed by the manual or facsimile signature of an Authorized Representative. JPMorgan will acknowledge receipt of any supply of Certificated Notes received

1

from the Issuer, noting any exceptions to the shipping manifest or transmittal letter (if any), and will hold the Certificated Notes in safekeeping for the Issuer in accordance with JPMorgan’s customary practices. JPMorgan shall not have any liability to the Issuer to determine by whom or by what means a facsimile signature may have been affixed on Certificated Notes, or to determine whether any facsimile or manual signature is genuine, if such facsimile or manual signature resembles the specimen signature attached to the Issuer’s certificate of incumbency with respect to such Authorized Representative. Any Certificated Note bearing the manual or facsimile signature of a person who is an Authorized Representative on the date such signature was affixed shall bind the Issuer after completion thereof by JPMorgan, notwithstanding that such person shall have ceased to hold his or her office on the date such Note is countersigned or delivered by JPMorgan.

6.    BOOK-ENTRY NOTES

The Issuer’s book-entry notes (“Book-Entry Notes”) shall not be issued in physical form, but their aggregate face amount shall be represented by a master note (the “Master Note”) in the form of Exhibit A executed by the Issuer pursuant to the book-entry commercial paper program of The Depository Trust Company (“DTC”). JPMorgan shall maintain the Master Note in safekeeping, in accordance with its customary practices, on behalf of Cede & Co., the registered owner thereof and nominee of DTC. As long as Cede & Co. is the registered owner of the Master Note, the beneficial ownership interest therein shall be shown on, and the transfer of ownership thereof shall be effected through, entries on the books maintained by DTC and the books of its direct and indirect participants. The Master Note and the Book-Entry Notes shall be subject to DTC’s rules and procedures, as amended from time to time. JPMorgan shall not be liable or responsible for sending transaction statements of any kind to DTC’s participants or the beneficial owners of the Book-Entry Notes, or for maintaining, supervising or reviewing the records of DTC or its participants with respect to such Notes. In connection with DTC’s program, the Issuer understands that as one of the conditions of its participation therein, it shall be necessary for the Issuer and JPMorgan to enter into a Letter of Representations, in the form of Exhibit B hereto, and for DTC to receive and accept such Letter of Representations. In accordance with DTC’s program, JPMorgan shall obtain from the CUSIP Service Bureau a written list of CUSIP numbers for Issuer’s Book-Entry Notes, and JPMorgan shall deliver such list to DTC. The CUSIP Service Bureau shall bill the Issuer directly for the fee or fees payable for the list of CUSIP numbers for the Issuer’s Book-Entry Notes.

7.    ISSUANCE INSTRUCTIONS TO JPMORGAN; PURCHASE PAYMENTS

The Issuer understands that all instructions under this Agreement are to be directed to JPMorgan’s Commercial Paper Operations Department. JPMorgan shall provide the Issuer, or, if applicable, the Issuer’s Dealers, with access to JPMorgan’s Money Market Issuance System or other electronic means (collectively, the “System”) in order that JPMorgan may receive electronic instructions for the issuance of Notes. Electronic instructions must be transmitted in accordance with the procedures furnished by JPMorgan to the Issuer or its Dealers in connection with the System. These transmissions shall be the equivalent to the giving of a duly authorized written and signed instruction which JPMorgan may act upon without liability. In the event that the System is inoperable at any time, an Authorized Representative or a Delegate may deliver written, telephone or facsimile instructions to JPMorgan, which instructions shall be verified in accordance with any security procedures agreed upon by the parties. JPMorgan shall incur no liability to the Issuer in acting upon instructions believed by JPMorgan in good faith to have been given by an Authorized Representative or a Delegate. In the event that a discrepancy exists between a telephonic instruction and a written confirmation, the telephonic instruction will be deemed the controlling and proper instruction. JPMorgan may electronically record any conversations made pursuant to this Agreement, and the Issuer hereby consents to such recordings. All issuance instructions regarding the Notes must be received by 1:00 P.M. New York time in order for the Notes to be issued or delivered on the same day.

(a)    Issuance and Purchase of Book-Entry Notes.    Upon receipt of issuance instructions from the Issuer or its Dealers with respect to Book-Entry

2

Notes, JPMorgan shall transmit such instructions to DTC and direct DTC to cause appropriate entries of the Book-Entry Notes to be made in accordance with DTC’s applicable rules, regulations and procedures for book-entry commercial paper programs. JPMorgan shall assign CUSIP numbers to the Issuer’s Book-Entry Notes to identify the Issuer’s aggregate principal amount of outstanding Book-Entry Notes in DTC’s system, together with the aggregate unpaid interest (if any) on such Notes. Promptly following DTC’s established settlement time on each issuance date, JPMorgan shall access DTC’s system to verify whether settlement has occurred with respect to the Issuer’s Book-Entry Notes. Prior to the close of business on such business day, JPMorgan shall deposit immediately available funds in the amount of the proceeds due the Issuer (if any) to the Issuer’s account at JPMorgan and designated in the applicable Program Schedule (the “Account”), provided that JPMorgan has received DTC’s confirmation that the Book-Entry Notes have settled in accordance with DTC’s applicable rules, regulations and procedures. JPMorgan shall have no liability to the Issuer whatsoever if any DTC participant purchasing a Book-Entry Note fails to settle or delays in settling its balance with DTC or if DTC fails to perform in any respect.

(b)    Issuance and Purchase of Certificated Notes.    Upon receipt of issuance instructions with respect to Certificated Notes, JPMorgan shall: (a) complete each Certificated Note as to principal amount, date of issue, maturity date, place of payment, and rate or amount of interest (if such Note is interest bearing) in accordance with such instructions; (b) countersign each Certificated Note; and (c) deliver each Certificated Note in accordance with the Issuer’s instructions, except as otherwise set forth below. Whenever JPMorgan is instructed to deliver any Certificated Note by mail, JPMorgan shall strike from the Certificated Note the word “Bearer,” insert as payee the name of the person so designated by the Issuer and effect delivery by mail to such payee or to such other person as is specified in such instructions to receive the Certificated Note. The Issuer understands that, in accordance with the custom prevailing in the commercial paper market, delivery of Certificated Notes shall be made before the actual receipt of payment for such Notes in immediately available funds, even if the Issuer instructs JPMorgan to deliver a Certificated Note against payment. Therefore, once JPMorgan has delivered a Certificated Note to the designated recipient, the Issuer shall bear the risk that such recipient may fail to remit payment of such Note or return such Note to JPMorgan. Delivery of Certificated Notes shall be subject to the rules of the New York Clearing House in effect at the time of such delivery. Funds received in payment of Certificated Notes shall be credited to the Account.

8.    USE OF SALES PROCEEDS IN ADVANCE OF PAYMENT

JPMorgan shall not be obligated to credit the Issuer’s Account unless and until payment of the purchase price of each Note is received by JPMorgan. From time to time, JPMorgan, in its sole discretion, may permit the Issuer to have use of funds payable with respect to a Note prior to JPMorgan’s receipt of the sales proceeds of such Note. If JPMorgan makes a deposit, payment or transfer of funds on behalf of the Issuer before JPMorgan receives payment for any Note, such deposit, payment or transfer of funds shall represent an advance by JPMorgan to the Issuer to be repaid promptly, and in any event on the same day as it is made, from the proceeds of the sale of such Note, or by the Issuer if such proceeds are not received by JPMorgan.

9.    PAYMENT OF MATURED NOTES

Notice that the Issuer will not redeem any Note on the relative Initial Redemption Date (as defined in the applicable Extendible Commercial Note Announcement) must be received in writing

3

by JPMorgan by 11:00 A.M. on such Initial Redemption Date. On any other day when a Note matures or is prepaid, the Issuer shall transmit, or cause to be transmitted, to the Account, prior to 2:00 P.M. New York time on the same day, an amount of immediately available funds sufficient to pay the aggregate principal amount of such Note and any applicable interest due. JPMorgan shall pay the interest (if any) and principal on a Book-Entry Note to DTC in immediately available funds, which payment shall be by net settlement of JPMorgan’s account at DTC. JPMorgan shall pay Certificated Notes upon presentment. JPMorgan shall have no obligation under the Agreement to make any payment for which there is not sufficient, available and collected funds in the Account, and JPMorgan may, without liability to the Issuer, refuse to pay any Note that would result in an overdraft to the Account.

10.    OVERDRAFTS

(a)    Intraday overdrafts with respect to each Account shall be subject to JPMorgan’s policies as in effect from time to time.

(b)    An overdraft will exist in an Account if JPMorgan, in its sole discretion, (i) permits an advance to be made pursuant to Section 8 and, notwithstanding the provisions of Section 8, such advance is not repaid in full on the same day as it is made, or (ii) pays a Note pursuant to Section 9 in excess of the available collected balance in such Account. Overdrafts shall be subject to JPMorgan’s established banking practices, including, without limitation, the imposition of interest, funds usage charges and administrative fees. The Issuer shall repay any such overdraft, fees and charges no later than the next business day, together with interest on the overdraft at the rate established by JPMorgan for the Account, computed from and including the date of the overdraft to the date of repayment.

11.    NO PRIOR COURSE OF DEALING

No prior action or course of dealing on the part of JPMorgan with respect to advances of the purchase price or payments of matured Notes shall give rise to any claim or cause of action by the Issuer against JPMorgan in the event that JPMorgan refuses to pay or settle any Notes for which the Issuer has not timely provided funds as required by this Agreement.

12.    RETURN OF CERTIFICATED NOTES

JPMorgan will in due course cancel any Certificated Note presented for payment and return such Note to the Issuer. JPMorgan shall also cancel and return to the Issuer any spoiled or voided Certificated Notes. Promptly upon written request of the Issuer or at the termination of this Agreement, JPMorgan shall destroy all blank, unissued Certificated Notes in its possession and furnish a certificate to the Issuer certifying such actions.

13.    INFORMATION FURNISHED BY JPMORGAN

Upon the reasonable request of the Issuer, JPMorgan shall promptly provide the Issuer with information with respect to any Note issued and paid hereunder, provided, that the Issuer delivers such request in writing and, to the extent applicable, includes the serial number or note number, principal amount, payee, date of issue, maturity date, amount of interest (if any) and place of payment of such Note.

14.    REPRESENTATIONS AND WARRANTIES

The Issuer represents and warrants that: (i) it has the right, capacity and authority to enter into this Agreement; and (ii) it will comply with all of its obligations and duties under this Agreement. The Issuer further represents and agrees that each Note issued and distributed upon its instruction

4

pursuant to this Agreement shall constitute the Issuer’s representation and warranty to JPMorgan that such Note is a legal, valid and binding obligation of the Issuer, and that such Note is being issued in a transaction which is exempt from registration under the Securities Act of 1933, as amended, and any applicable state securities law.

15.    DISCLAIMERS

Neither JPMorgan nor its directors, officers, employees or agents shall be liable for any act or omission under this Agreement except in the case of gross negligence or willful misconduct. IN NO EVENT SHALL JPMORGAN BE LIABLE FOR SPECIAL, INDIRECT OR CONSEQUENTIAL LOSS OR DAMAGE OF ANY KIND WHATSOEVER (INCLUDING BUT NOT LIMITED TO LOST PROFITS), EVEN IF JPMORGAN HAS BEEN ADVISED OF THE LIKELIHOOD OF SUCH LOSS OR DAMAGE AND REGARDLESS OF THE FORM OF ACTION. In no event shall JPMorgan be considered negligent in consequence of complying with DTC’s rules, regulations and procedures. The duties and obligations of JPMorgan, its directors, officers, employees or agents shall be determined by the express provisions of this Agreement and they shall not be liable except for the performance of such duties and obligations as are specifically set forth herein and no implied covenants shall be read into this Agreement against them. Neither JPMorgan nor its directors, officers, employees or agents shall be required to ascertain whether any issuance or sale of any Notes (or any amendment or termination of this Agreement) has been duly authorized or is in compliance with any other agreement to which the Issuer is a party (whether or not JPMorgan is also a party to such agreement).

16.    INDEMNIFICATION

The Issuer agrees to indemnify and hold harmless JPMorgan, its directors, officers, employees and agents from and against any and all liabilities, claims, losses, damages, penalties, costs and expenses (including reasonable attorneys’ fees and disbursements) suffered or incurred by or asserted or assessed against JPMorgan or any of them arising out of JPMorgan or any of them acting as the Issuer’s agent under this Agreement, except for such liability, claim, loss, damage, penalty, cost or expense resulting from the negligence or willful misconduct of JPMorgan, its directors, officers, employees or agents. This indemnity will survive the termination of this Agreement.

17.    OPINION OF COUNSEL

The Issuer shall deliver to JPMorgan all documents it may reasonably request relating to the existence of the Issuer and authority of the Issuer for this Agreement, including, without limitation, an opinion of counsel, substantially in the form of Exhibit C hereto.

18.    NOTICES

All notices, confirmations and other communications hereunder shall (except to the extent otherwise expressly provided) be in writing and shall be sent by first-class mail, postage prepaid, by telecopier or by hand, addressed as follows, or to such other address as the party receiving such notice shall have previously specified to the party sending such notice:

If to the Issuer: Anthem, Inc.

120 Monument Circle

Indianapolis, IN 46204

Attention:       Treasurer

Telephone:     317-488-6154

Facsimile:      371-488-6160

5

If to JPMorgan concerning the daily issuance and redemption of Notes:

Attention: Commercial Paper Operations

4 New York Plaza 13^th Floor

New York NY 10004-2413

Telephone:     (212) 623-8222

Facsimile:      (212) 623-8431

All other: Attention: Commercial Paper Administration

4 New York Plaza 13^th Floor

New York NY 10004-2413

Telephone:     (212) 623-8220

Facsimile:      (212) 623-8421

19.    COMPENSATION

The Issuer shall pay compensation for services pursuant to this Agreement in accordance with the pricing schedules furnished by JPMorgan to the Issuer from time to time and upon such payment terms as the parties shall determine. The Issuer shall also reimburse JPMorgan for any fees and charges imposed by DTC with respect to services provided in connection with the Book-Entry Notes.

20.    BENEFIT OF AGREEMENT

This Agreement is solely for the benefit of the parties hereto and no other person shall acquire or have any right under or by virtue hereof.

21.    TERMINATION

This Agreement may be terminated at any time by either party by written notice to the other, but such termination shall not affect the respective liabilities of the parties hereunder arising prior to such termination.

22.    FORCE MAJEURE

In no event shall JPMorgan be liable for any failure or delay in the performance of its obligations hereunder because of circumstances beyond JPMorgan’s control, including, but not limited to, acts of God, flood, war (whether declared or undeclared), terrorism, fire, riot, strikes or work stoppages for any reason, embargo, government action, including any laws, ordinances, regulations or the like which restrict or prohibit the providing of the services contemplated by this Agreement, inability to obtain material, equipment, or communications or computer facilities, or the failure of equipment or interruption of communications or computer facilities, and other causes beyond JPMorgan’s control whether or not of the same class or kind as specifically named above.

23.    ENTIRE AGREEMENT

This Agreement, together with the exhibits attached hereto, constitutes the entire agreement between JPMorgan and the Issuer with respect to the subject matter hereof and supersedes in all respects all prior proposals, negotiations, communications, discussions and agreements between the parties concerning the subject matter of this Agreement.

24.    WAIVERS AND AMENDMENTS

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No failure or delay on the part of any party in exercising any power or right under this Agreement shall operate as a waiver, nor does any single or partial exercise of any power or right preclude any other or further exercise, or the exercise of any other power or right. Any such waiver shall be effective only in the specific instance and for the purpose for which it is given. No amendment, modification or waiver of any provision of this Agreement shall be effective unless the same shall be in writing and signed by the Issuer and JPMorgan.

25.    BUSINESS DAY

Whenever any payment to be made hereunder shall be due on a day which is not a business day for JPMorgan, then such payment shall be made on JPMorgan’s next succeeding business day.

26.    COUNTERPARTS

This Agreement may be executed in counterparts, each of which shall be deemed an original and such counterparts together shall constitute but one instrument.

27.    HEADINGS

The headings in this Agreement are for purposes of reference only and shall not in any way limit or otherwise affect the meaning or interpretation of any of the terms of this Agreement.

28.    GOVERNING LAW

This Agreement and the Notes shall be governed by and construed in accordance with the internal laws of the State of New York, without regard to the conflict of laws provisions thereof.

29.    JURISDICTION AND VENUE

Each party hereby irrevocably and unconditionally submits to the jurisdiction of the United States District Court for the Southern District of New York and any New York State court located in the Borough of Manhattan in New York City and of any appellate court from any thereof for the purposes of any legal suit, action or proceeding arising out of or relating to this Agreement (a “Proceeding”). Each party hereby irrevocably agrees that all claims in respect of any Proceeding may be heard and determined in such Federal or New York State court and irrevocably waives, to the fullest extent it may effectively do so, any objection it may now or hereafter have to the laying of venue of any Proceeding in any of the aforementioned courts and the defense of an inconvenient forum to the maintenance of any Proceeding.

30.    WAIVER OF TRIAL BY JURY

EACH PARTY HEREBY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING ARISING OUT OF OR RELATING TO ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

31.    ACCOUNT CONDITIONS

Each Account shall be subject to JPMorgan’s account conditions, as in effect from time to time.

7

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on their behalf by duly authorized officers as of the day and year first-above written.

JPMORGAN CHASE BANK	ANTHEM, INC.
By:	By:
Name:	Name:
Title:	Title:
Date:	Date:

8

EXHIBIT A

[LOGO for Anthem]

CORPORATE COMMERCIAL PAPER — MASTER NOTE

CP-101(42)

    MARCH 11, 2003

(Date of Issuance)  

                         Anthem Inc.                              (“Issuer”), for value received, hereby promises to pay to Cede & Co., as nominee of The Depository Trust Company, or to registered assigns: (i) the principal amount, together with unpaid accrued interest thereon, if any, on the maturity date of each obligation identified on the records of Issuer (the “Underlying Records”) as being evidenced by this Master Note, which Underlying Records are maintained by              JPMorgan Chase Bank                              (“Paying Agent”);  (ii) interest on the principal amount of each such obligation that is payable in installments, if any, on the due date of each installment, as specified on the Underlying Records; and (iii) the principal amount of each such obligation that is payable in installments, if any, on the due date of each installment, as specified on the Underlying Records. Interest shall be calculated at the rate and according to the calculation convention specified on the Underlying Records. Payments shall be made by wire transfer to the registered owner from Paying Agent without the necessity of presentation and surrender of this Master Note.

REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS MASTER NOTE SET FORTH ON THE REVERSE HEREOF.

This Master Note is a valid and binding obligation of Issuer.

Not Valid Unless Countersigned for Authentication by Paying Agent.

JPMorgan Chase Bank	Anthem Inc.
(Paying Agent)	(Issuer)

By:		By:
	(Authorized Countersignature)		(Authorized Signature)

9

At the request of the registered owner, Issuer shall promptly issue and deliver one or more separate note certificates evidencing each obligation evidenced by this Master Note. As of the date any such note certificate or certificates are issued, the obligations which are evidenced thereby shall no longer be evidenced by this Master Note.

FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers unto

(Name, Address, and Taxpayer Identification Number of Assignee)

the Master Note and all rights thereunder, hereby irrevocably constituting and appointing                                                   attorney to transfer said Master Note on the books of Issuer with full power of substitution in the premises.

Dated:
	(Signature)
Signature(s) Guranteed:
	Notice: The signature on this assignment must correspond with the name as written upon the face of this Master Note, in every particular, without alteration or enlargement or any change whatsoever.

Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation (“DTC”), to Issuer or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.

10

EXHIBIT B

[LOGO FOR ANTHEM]

Book-Entry-Only Corporate Commercial Paper

(Master Note) Program

Letter of Representations

[To be Completed by Issuer, Issuing Agent, and Paying Agent]

Anthem, Inc.

[Name of Issuer]

JPMorgan Chase Bank 1506

[Name and DTC Participant Number of Iss uing Agent]

JPMorgan Chase Bank 1506

[Name and DTC Participant Number of Paying Agent]

March 11, 2003

[Date]

Attention: Underwriting Department

The Depository Trust Company

55 Water Street 19th Floor

New York, NY 10041-0099

Re:	Anthem, Inc.
	4(2) Corporate Commercial Paper Program
	Description of Program, including reference to the provision of the Securities Act of 1933, as amended, pursuant to which Program is exempt from registration.]

Ladies and Gentlemen:

This letter sets forth our understanding with respect to certain matters relating to the issuance by Issuer from time to time of  notes under its Commercial Paper program described above (the “Securities”). Issuing Agent shall act as issuing agent with respect to the Securities. Paying Agent shall act as paying agent or other such agent of Issuer with respect to the Securities. The Securities have been issued pursuant to a prospectus supplement, offering circular, or other such document

11

authorizing the issuance of the Securities dated as of                  March 2003                .

Paying Agent has entered into a Money Market Instrument or Commercial Paper Certificate Agreement with The Depository Trust Company (“DTC”) dated as of         November 13, 2001        , pursuant to which Paying Agent shall act as custodian of a Master Note Certificate evidencing the Securities, when issued. Paying Agent shall amend Exhibit A to such Certificate Agreement to include the program described above, prior to issuance of the Securities.

To induce DTC to accept the Securities as eligible for deposit at DTC and to act in accordance with its Rules with respect to the Securities, Issuer, Issuing Agent, and Paying Agent make the following representations to DTC:

1. The Securities shall be evidenced by a Master Note Certificate in registered form registered in the name of DTC’s nominee, Cede & Co., and such Master Note Certificate shall represent 100% of the principal amount of the Securities. The Master Note Certificate shall include the substance of all material provisions set forth in the DTC model Commercial Paper Master Note, a copy of which previously has been furnished to Issuing Agent and Paying Agent, and may include additional provisions as long as they do not conflict with the material provisions set forth in the DTC model.

2. Issuer: (a) understands that DTC has no obligation to, and will not, communicate to its participants (“Participants”) or to any person having an interest in the Securities any information contained in the Master Note Certificate; and (b) acknowledges that neither DTC’s Participants nor any person having an interest in the Securities shall be deemed to have notice of the provisions of the Master Note Certificate by virtue of submission of such Certificate to DTC.

3. For Securities to be issued at a discount from the face value to be paid at maturity (“Discount Securities”), Issuer or Issuing Agent has obtained from the CUSIP Service Bureau a written list of two basic six-character CUSIP numbers (each of which uniquely identifies Issuer and two years of maturity dates for the Discount Securities to be issued under its Commercial Paper program described above). The CUSIP numbers on such list have been reserved for future assignment to issues of the Discount Securities based on the maturity year of the Discount Securities and will be perpetually reassignable in accordance with DTC’s Procedures, including DTC’s Final Plan for DTC Money Market Programs and DTC’s Issuing/Paying Agent General Operating Procedures for Corporate Commercial Paper (the “Procedures”), a copy of which previously has been furnished to Issuing Agent and Paying Agent.

12

For Securities to be issued at face value with interest to be paid at maturity only or periodically (“Interest Bearing Securities”), Issuer or Issuing Agent has obtained from the CUSIP Service Bureau a written list of approximately 900 nine-character numbers (the basic first six characters of which are the same and uniquely identify Issuer and the Interest Bearing Securities to be issued under its Commercial Paper program described above). The CUSIP numbers on such list have been reserved for future assignment to issues of the Interest Bearing Securities. At any time when fewer than 100 of the CUSIP numbers on such list remain unassigned, Issuer or Issuing Agent shall promptly obtain from the CUSIP Service Bureau an additional written list of approximately 900 such numbers.

4.  When Securities are to be issued through DTC, Issuing Agent shall notify Paying Agent and shall give issuance instructions to DTC in accordance with the Procedures. The giving of such issuance instructions, which include delivery instructions, to DTC shall constitute: (a) a representation that the Securities are issued in accordance with applicable law; and (b) a confirmation that the Master Note Certificate evidencing such Securities, in the form described in Paragraph 1, has been issued and authenticated.

5.  Issuer recognizes that DTC does not in any way undertake to, and shall not have any responsibility to, monitor or ascertain the compliance of any transactions in the Securities with the following, as amended from time to time: (a) any exemptions from registration under the Securities Act of 1933; (b) the Investment Company Act of 1940; (c) the Employee Retirement Income Security Act of 1974; (d) the Internal Revenue Code of 1986; (e) any rules of any self-regulatory organizations (as defined under the Securities Exchange Act of 1934); or (f) any other local, state, or federal laws or regulations thereunder.

6.  Notwithstanding anything set forth in any document relating to a letter of credit facility, neither DTC nor Cede & Co. shall have any obligations or responsibilities relating to the letter of credit facility, if any, unless such obligations or responsibilities are expressly set forth herein.

7.  If issuance of Securities through DTC is scheduled to take place one or more days after Issuing Agent has given issuance instructions to DTC, Issuing Agent may cancel such issuance by giving a cancellation instruction to DTC in accordance with the Procedures.

8.  At any time that Paying Agent has Securities in its DTC accounts, it may request withdrawal of such Securities from DTC by giving a withdrawal instruction to DTC in accordance with the Procedures. Upon DTC’s acceptance of such withdrawal instruction, Paying Agent shall reduce the principal amount of the Securities evidenced by the Master Note Certificate accordingly.

9.  In the event of any solicitation of consents from or voting by holders of the Securities, Issuer, Issuing Agent, or Paying Agent shall establish a record date for such purposes (with no provision for revocation of consents or votes by subsequent holders) and shall send notice of such record date to DTC’s Reorganization Department, Proxy Unit no fewer than 15 calendar days in advance of such record date. If sent by telecopy, such notice shall be directed to (212) 855-5181 or (212) 855-5182. If the party sending the notice does not receive a telecopy receipt from DTC, such

13

party shall telephone (212) 855-5187 to confirm receipt. Notice to DTC pursuant to this Paragraph, by mail or by any other means, shall be sent to:

Supervisor, Proxy Unit  

Reorganization Department

The Depository Trust Company

55 Water Street 50th Floor

New York, NY 10041-0099

10.  Paying Agent may override DTC’s determination of interest and principal payment dates, in accordance with the Procedures.

11.  Notice regarding the amount of variable interest and principal payments on the Securities shall be given to DTC by Paying Agent in accordance with the Procedures.

12.  All notices sent to DTC shall contain the CUSIP number of the Securities.

13.  Paying Agent shall confirm with DTC daily, by CUSIP number, the face value of the Securities outstanding, and Paying Agent’s corresponding interest and principal payment obligation, in accordance with the Procedures.

14.  DTC may direct Issuer, Issuing Agent, or Paying Agent to use any other number or address as the number or address to which notices or payments may be sent.

15.  Payments on the Securities, including payments in currencies other than the U.S. Dollar, shall be made by Paying Agent in accordance with the Procedures.

16.  In the event that Issuer determines that beneficial owners of the Securities shall be able to obtain certificated Securities, Issuer, Issuing Agent, or Paying Agent shall notify DTC of the availability of certificates. In such event, Issuer, Issuing Agent, or Paying Agent shall issue, transfer, and exchange certificates in appropriate amounts, as required by DTC and others.

17.  Issuer authorizes DTC to provide to Issuing Agent or Paying Agent listings of DTC Participants’ holdings, known as Security Position Listings (“SPLs”) with respect to the Securities from time to time at the request of Issuing Agent or Paying Agent. Issuer authorizes Issuing Agent and Paying Agent to provide DTC with such signatures, exemplars of signatures, and authorizations to act as may be deemed necessary by DTC to permit DTC to discharge its obligations to Participants and appropriate regulatory authorities. DTC charges a fee for such SPLs. This authorization, unless revoked by Issuer, shall continue with respect to the Securities while any Securities are on deposit at DTC, until and unless Issuing Agent and/or Paying Agent shall no longer be acting. In such event, Issuer shall provide DTC with similar evidence, satisfactory to DTC, of the authorization of any successor thereto so to act. Requests for SPLs, if by telecopy, shall be directed to DTC’s Reorganization Department, Proxy Unit at (212) 855-5181 or (212) 855-5182. Receipt of such requests shall be confirmed by telephoning (212) 855-5202. Such SPL requests, by mail or by any other means, shall be directed to the address indicated in Paragraph 9.

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18. DTC may discontinue providing its services as securities depository with respect to the Securities at any time by giving reasonable notice to Issuer, Issuing Agent, or Paying Agent (at which time DTC will confirm with Issuer, Issuing Agent, or Paying Agent the aggregate amount of Securities outstanding by CUSIP number). Under such circumstances, at DTC’s request Issuer, Issuing Agent, and Paying Agent shall cooperate fully with DTC by taking appropriate action to make available one or more separate certificates evidencing Securities to any Participant having Securities credited to its DTC accounts.

19.  Nothing herein shall be deemed to require Issuing Agent or Paying Agent to advance funds on behalf of Issuer.

20.  This Letter of Representations may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original, but all such counterparts together shall constitute but one and the same instrument.

21.  This Letter of Representations shall be governed by, and construed in accordance with, the laws of the State of New York, without giving effect to principles of conflicts of law.

22.  The sender of each notice delivered to DTC pursuant to this Letter of Representations is responsible for confirming that such notice was properly received by DTC.

23.  Issuer and Agents shall comply with the applicable requirements stated in DTC’s Operational Arrangements, as they may be amended from time to time. DTC’s Operational Arrangements are posted on DTC’s website at “www.DTC.org.”

24.  The following riders, attached hereto, are hereby incorporated into this Letter of Representations:

NONE

15

Note:

Schedule A contains statements that DTC believes  

accurately describe DTC, the method of effecting  

book-entry transfer of securities distributed through  

DTC, and certain related matters.

Very truly yours,
	ANTHEM, INC.
	[Issuer]
By:
	[Authorized Officer’s Signature]
	JPMORGAN CHASE BANK
	[Issuing Agent]
By:
	[Authorized Officer’s Signature]
	JPMORGAN CHASE BANK
	[Paying Agent]
By:
	[Authorized Officer’s Signature]

Received and Accepted:

THE DEPOSITORY TRUST COMPANY

cc:    Underwriter

         Underwriter’s Counsel

16

SCHEDULE A

SAMPLE OFFERING DOCUMENT LANGUAGE

DESCRIBING BOOK-ENTRY-ONLY ISSUANCE

(Prepared by DTC—bracketed material may be applicable only to certain issues)

1.  The Depository Trust Company (“DTC”), New York, NY, will act as securities depository for the securities (the “Securities”). The Securities will be issued as fully-registered securities registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Security certificate will be issued for [each issue of] the Securities, [each] in the aggregate principal amount of such issue, and will be deposited with DTC. [If, however, the aggregate principal amount of [any] issue exceeds $400 million, one certificate will be issued with respect to each $400 million of principal amount and an additional certificate will be issued with respect to any remaining principal amount of such issue.]

2.  DTC is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds securities that its participants (“Direct Participants”) deposit with DTC. DTC also facilitates the settlement among Direct Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Direct Participants’ accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks, and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). The Rules applicable to DTC and its Direct and Indirect Participants are on file with the Securities and Exchange Commission.

3.  Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC’s records. The ownership interest of each actual purchaser of each Security (“Beneficial Owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, except in the event that use of the book-entry system for the Securities is discontinued.

17

4.  To facilitate subsequent transfers, all Securities deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of Securities with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Securities; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

5.  Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. [Beneficial Owners of Securities may wish to take certain steps to augment transmission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to the security documents. Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and transmit notices to Beneficial Owners, or in the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of the notices be provided directly to them.]

[6.  Redemption notices shall be sent to DTC. If less than all of the Securities within an issue are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.]

7.  Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Securities. Under its usual procedures, DTC mails an Omnibus Proxy to Issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy).

8.  Redemption proceeds, distributions, and dividend payments on the Securities will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts, upon DTC’s receipt of funds and corresponding detail information from Issuer or Agent on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, Agent, or Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividends to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of Issuer or Agent, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants.

18

[9.  A Beneficial Owner shall give notice to elect to have its Securities purchased or tendered, through its Participant, to [Tender/Remarketing] Agent, and shall effect delivery of such Securities by causing the Direct Participant to transfer the Participant’s interest in the Securities, on DTC’s records, to [Tender/Remarketing] Agent. The requirement for physical delivery of Securities in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Securities are transferred by Direct Participants on DTC’s records and followed by a book-entry credit of tendered Securities to [Tender/Remarketing] Agent’s DTC account.]

10.  DTC may discontinue providing its services as securities depository with respect to the Securities at any time by giving reasonable notice to Issuer or Agent. Under such circumstances, in the event that a successor securities depository is not obtained, Security certificates are required to be printed and delivered.

11.Issuer may decide to discontinue use of the system of book-entry transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered.

12.  The information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that Issuer believes to be reliable, but Issuer takes no responsibility for the accuracy thereof.

19

EXHIBIT C

FORM OF OPINION

Date:                                                             

[Name and Address of Dealer]

Ladies and Gentlemen:

We have acted as counsel to                                                                          , a                                          corporation (the “Company”), in connection with the proposed offering and sale by the Company of commercial paper in the form of short-term promissory notes (the “Notes”).

In our capacity as such counsel, we have examined a specimen form of Note, an executed copy of the Commercial Paper Dealer Agreement dated                                         , 199     (the “Agreement”) between the Company and [Name of Dealer] (the “Dealer”) and the Issuing and Paying Agency Agreement dated                                         , 199     (the “Issuing and Paying Agency Agreement”) between the Company and JPMorgan Chase Bank (“JPMorgan”) as well as originals, or copies certified or otherwise identified to our satisfaction, of such other records and documents as we have deemed necessary as a basis for the opinions expressed below. In such examination, we have assumed the genuineness of all documents submitted to us as originals, and the conformity to the originals of all documents submitted to us as copies.

We have advised the Company with respect to the uses of the proceeds from the sale of the Notes that would constitute “current transactions” within the meaning of Section          of the Securities Act of 1933 as amended (the “Securities Act”). We have received and relied upon a statement of an [executive] officer of the Company setting forth the proposed use of the proceeds.¹

Capitalized terms used herein without definition are used as defined in the Agreement.

Based upon the foregoing, it is our opinion that:

1. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of                                  and has all the requisite power and authority to execute, deliver and perform its obligations under the Notes, the Agreement and the Issuing and Paying Agency Agreement.

2. Each of the Agreement and the Issuing and Paying Agency Agreement has been duly authorized, executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law), and except as rights to indemnity and contribution may be limited by federal or state law.

3. The Notes have been duly authorized, and when issued and delivered as provided in the Issuing and Paying Agency Agreement, will be duly and validly issued and delivered and will constitute legal, valid and binding obligations of the Company enforceable against the Company in accordance with their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, and subject, as to enforceability, to general

¹ For 3(a)(3) Programs only

20

principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).

4. The issuance and sale of Notes under the circumstances contemplated by the Agreement do not require registration of the Notes under the Securities Act, pursuant to the exemption from registration contained in Section                                  thereof, and do not require compliance with any provision of the Trust Indenture Act of 1939 as amended; and the Notes will rank at least pari passu with all other unsecured and unsubordinated indebtedness of the Company.

5. No consent or action of, or filing or registration with, any governmental or public regulatory body or authority, including the Securities and Exchange Commission, is required to authorize, or is otherwise required in connection with the execution, delivery or performance of the Agreement, the Issuing and Paying Agency Agreement or the Notes, except as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Notes.

6. Neither the execution and delivery of the Agreement and the Issuing and Paying Agency Agreement, nor the issuance and delivery of the Notes in accordance with the Issuing and Paying Agency Agreement, nor the fulfillment of or compliance with the terms and provisions of either thereof by the Company will (i) result in the creation or imposition of any mortgage, lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Company, or (ii) violate or result in an event of default under any of the terms of the Company’s charter documents or by-laws, any contract or instrument to which the Company is a party or by which it or its property is bound, or any law or regulation, or any order, writ, injunction or decree of any court or government instrumentality to which the Company is subject or by which it or its property is bound.

7. There is no litigation or governmental proceeding pending, or to the knowledge of the Company threatened, against or affecting the Company or any of its subsidiaries which might result in a material adverse change in the conditions (financial or otherwise), operations or business prospects of the Company or the ability of the Company to perform its obligations under the Agreement, the Issuing and Paying Agency Agreement or the Notes.

8. The Company is not an “investment company” or an entity “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

This opinion may be delivered to the Issuing and Paying Agent and any nationally recognized rating agency (in connection with the rating of the Notes), each of which may rely on this opinion to the same extent as if such opinion were addressed to it.

Very truly yours,

21

EX-10.25(I)

EXHIBIT 10.25 (i)

SECOND AMENDMENT OF THE

ANTHEM 401(K) LONG TERM SAVINGS INVESTMENT PLAN

(SECOND RESTATEMENT EFFECTIVE JANUARY 1, 1997)

Pursuant to rights reserved under Article X of the Anthem 401(k) Long Term Savings Investment Plan (the “Plan”), Anthem Insurance Companies, Inc. (the “Company”) hereby amends the Plan, effective (except as otherwise expressly provided herein) as of the close of business on October 31, 2002, as follows:

1. Section 6.12 of the Plan is hereby amended to provide, in its entirety, as follows:

6.12 Elimination of Annuity Option.    Notwithstanding anything set forth in any Merged Plan Exhibit to the contrary and effective on and after November 1, 2001, the distribution options described in Section 6.7 shall be the only options available under this Plan for a Participant, including a Participant who previously participated in a Merged Plan; provided, however, that under no circumstances shall this Section be applicable to a Participant with respect to any distribution with a benefit commencement date earlier than the ninetieth (90^th) calendar day after the date the affected Participant has been provided notice that the distribution options described in Section 6.7 are the only distribution options permissible under this Plan; provided, further, that this Section shall also not apply to any Merged Plan which before its merger into this Plan was subject to the requirements of Section 412 of the Code and was not an employee stock ownership plan.

2. Section 2.47 of the Plan is hereby amended to provide, in its entirety, as follows:

2.47 Merged Plan means any of the plans defined in Sections 2.48 - 2.62b and any other plan that is merged into the Plan after December 31, 2000.

3. A new Section 2.62b is added to the Plan to provide, in its entirety, as follows:

2.62b Merged Plan XVII means The McElroy-Minister Company 401(k)

1

  Retirement Savings Plan, which was in effect prior to its merger into the Plan on October 31, 2002.

4. The McElroy-Minister Company 401(k) Retirement Savings Plan is merged into the Plan effective as of the close of business on October 31, 2002 and a new Exhibit M is added to the Plan, a copy of which is attached hereto.

IN WITNESS WHEREOF, this Second Amendment has been adopted this 31st day of October, 2002.

ANTHEM INSURANCE COMPANIES, INC.
By:
	Chairman of the Anthem Pension Committee

2

EXHIBIT M

ANTHEM 401(k) LONG TERM SAVINGS INVESTMENT PLAN

Merged Plan	The McElroy-Minister Company 401(k) Retirement Savings Plan (“McElroy Plan”).
Merger Date:	October 31, 2002
Accounts:	A Participant’s accounts maintained under the McElroy Plan shall be held in similar Accounts under the Plan and shall be subject to the provisions of the Plan, except as provided in this Exhibit M; provided, however, amounts attributable to before tax contributions, matching contributions and rollover contributions to the McElroy Plan which are qualified cash or deferred arrangements under Section 401(k) of the Code shall be held in a separate subaccount (the “McElroy Plan Subaccount”).
Distribution:	That portion of a Participant’s accounts attributable to amounts contributed when the Participant was a participant in the McElroy Plan will be subject to the distribution provisions applicable under the Plan; until the ninetieth (90th) calendar day following the later of (i) the Merger Date or (ii) the date the affected Participant has been provided notice that the amounts contributed by the Participant will be subject to the distribution provisions applicable under the Plan.
	As soon as administratively feasible following the Merger Date, each Participant of the McElroy Plan shall have the opportunity to elect a distribution of some or all of the amounts which had been held on his or her behalf under the McElroy Plan immediately prior to the Merger Date; provided, however, no distribution of a Participant’s McElroy Plan Subaccount may be effected before the earlier of the Participant’s termiantion of employment from Employer or the Participant’s attainment of age 59 1/2.
Investment:	The monies which had been held in the McElroy Plan immediately before the Merger Date shall, after the Merger Date, be initially invested in Investment Funds determined by the Pension Committee and communicated to the Participants. As soon is administratively feasible following the Merger Date, Participants of the McElroy Plan shall have the opportunity to elect Investment Funds with respect to their Accounts held under the Plan, including those Accounts attributable to Merged Plan XVII, in accordance with Section 7.2 of the Plan.

M-1

EX-10.25(II)

EXHIBIT 10.25 (ii)

THIRD AMENDMENT OF THE

ANTHEM 401(K) LONG TERM SAVINGS INVESTMENT PLAN

(SECOND RESTATEMENT EFFECTIVE JANUARY 1, 1997)

Pursuant to rights reserved under Article X of the Anthem 401(k) Long Term Savings Investment Plan (the “Plan”), Anthem Insurance Companies, Inc. (the “Company”) hereby amends the Plan, effective (except as otherwise expressly provided herein) as of January 1, 2002, as follows:

1. Limitations on Contributions.    Section 5.4 of the Plan is hereby amended to provide, in its entirety, as follows:

5.4 Maximum Annual Additions.    Except for catch-up contributions permitted under Section 4.1(a)(v) of the Plan, the maximum Annual Additions that may be contributed or allocated to a Participant’s Accounts under the Plan for any Limitation Year shall not exceed the lesser of:

(i) $40,000, as adjusted for increases in the cost of living under Section 415(d) of the Code, or

(ii) 100 percent of the Participant’s compensation, as defined below, within the meaning of Section 415(c)(3) of the Code, for the Limitation Year.

2. Modification of Top-Heavy Rules.    Article XIII of the Plan is hereby amended as follows:

Section 13.5(d) is hereby amended to provide, in its entirety, as follows:

13.5(d) “Key Eligible Employee” means any Employee or former Employee (including any deceased Employee) who at any time during the Plan Year that includes the determination date was an officer of the employer having annual compensation greater than $130,000 (as adjusted under Section 416(i)(1) of the Code for Plan Years beginning after December 31, 2002), a 5-percent owner of the employer, or a 1-percent owner of the employer having annual compensation of more than $150,000. For this purpose, annual compensation means compensation within the meaning of Section 415(c)(3)

1

of the Code. The determination of who is a Key Eligible Employee will be made in accordance with Section 416(i)(1) of the Code and the applicable regulations and other guidance of general applicability issued thereunder.

A new final paragraph is hereby added to Section 13.8 of the Plan to provide, in its entirety, as follows:

Employer matching contributions shall be taken into account for purposes of satisfying the minimum contribution requirements of Section 416(c)(2) of the Code and the Plan. The preceding sentence shall apply with respect to matching contributions under the Plan or, if the Plan provides that the minimum contribution requirement shall be met in another plan, such other plan. Employer matching contributions that are used to satisfy the minimum contribution requirements shall be treated as matching contributions for purposes of the actual contribution percentage test and other requirements of Section 401(m) of the Code.

A new Section 13.10 is hereby added to the Plan to provide, in its entirety, as follows:

13.10 Determination of Present Values and Amounts.    This Section 13.10 shall apply for purposes of determining the present values of Cumulative Accrued Benefits and Cumulative Account Balances of Eligible Employees as of the determination date.

(a) Distributions during Year Ending on the Determination Date. The present values of Cumulative Accrued Benefits and the amounts of Cumulative Account Balances of an Eligible Employee as of the Determination Date shall be increased by the distributions made with respect to the Eligible Employee under the Plan and any plan aggregated with the Plan under Section 416(g)(2) of the Code during the 1-year period ending on the Determination Date. The preceding sentence shall also apply to distributions under a terminated plan which, had it not been terminated, would have been aggregated with the Plan under Section 416(g)(2)(A)(i) of the Code. In the case of a distribution made for a reason other than separation from service, death, or Disability, this provision shall be applied by substituting 5-year period for 1-year period.

(b) Eligible Employees Not Performing Services during Year Ending on the Determination Date. The Cumulative Accrued Benefits and Cumulative Account Balance of any individual who has not performed services for the Employer during the 1-year period ending on the determination date shall not be taken into account.

3. Repeal of Multiple Use Test.    Section 4.8 of the Plan is hereby amended by the addition of a new final paragraph which provides, in its entirety, as follows:

2

The Multiple Use Test described in Treasury Regulation Section 1.401(m)-2 and the Plan shall not apply for Plan Years beginning after December 31, 2001.

4. Increase in Compensation Limit.    The first paragraph of Section 2.15 of the Plan is hereby amended by the addition of a new last sentence which provides, in its entirety, as follows:

The Compensation of each Participant taken into account in determining allocations for any Plan Year beginning after December 31, 2001, shall not exceed $200,000, as adjusted for cost of living increases in accordance with Section 401(a)(17)(B) of the Code. The cost of living adjustment in effect for a calendar year applies to Compensation for the determination period that begins with or within such calendar year.

5. Contribution Limitation for Elective Deferrals.    Section 2.15 of the Plan is hereby amended by the addition of a new final paragraph which provides, in its entirety, as follows:

No Participant shall be permitted to have elective deferrals made under this Plan, or any other qualified plan maintained by the Employer during any taxable year, in excess of the dollar limitation contained in Section 402(g) of the Code in effect for such taxable year, except to the extent permitted under Section 4.1(a)(v) of the Plan and Section 414(v) of the Code, if applicable.

IN WITNESS WHEREOF, this Third Amendment has been adopted this 31st day of December, 2002.

ANTHEM INSURANCE COMPANIES, INC.
By:
	Chairman of the Anthem Pension Committee

3

EX-99.1

Exhibit 99.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Anthem, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Larry C. Glasscock, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

/s/    Larry C. Glasscock   

Larry C. Glasscock

Chief Executive Officer

April 30, 2003

[A signed original of this written statement required by Section 906 has been provided to Anthem, Inc. and will be retained by Anthem, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.]

EX-99.2

Exhibit 99.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Anthem, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”),  I, Michael L. Smith, Chief Financial and Accounting Officer of the Company, certify, pursuant to 18 U.S.C.  § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

/S/    Michael L. Smith

Michael L. Smith

Chief Financial and Accounting Officer

April 30, 2003

[A signed original of this written statement required by Section 906 has been provided to Anthem, Inc. and will be retained by Anthem, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.]