Exhibit 10(f)
Description of American General Life Insurance Company's Issuance, Transfer
and Redemption Procedures for the Variable Universal Life Insurance Policies
Pursuant to Rule 6e-3(T)(b)( 1 2)(iii)
under the Investment Company Act of 1940
Effective Date: May 14, 2002
Set forth below is the information called for under Rule 6e-
3(T)(b)(12)(iii) under the Investment Company Act of 1940 ("1940 Act"). That
rule provides an exemption for separate accounts, their investment advisers,
principal underwriters and sponsoring insurance companies from Sections 22(c),
22(d), 22(e), and 27(c)( 1) of the 1940 Act, and Rule 22(c)-1 promulgated
thereunder, for issuance, transfer and redemption procedures under flexible
premium variable life insurance policies to the extent necessary to comply with
Rule 6e-3(T), state administrative law or established administrative procedures
of the life insurance company. In order to qualify for the exemption, procedures
must be reasonable, fair and not discriminatory and they must be disclosed in
the registration statement filed by the separate account.
Net premiums received by American General Life Insurance Company ("AGL")
under its flexible premium variable universal life insurance policies (the
"Policies") are invested in Separate Account VL-R (the "Account") of AGL. The
Account is registered under the 1940 Act. Within the Account are investment
divisions. New investment divisions may be added. Procedures apply equally to
each investment division and for purposes of this description are defined in
terms of the Account, except where a discussion of both the Account and its
investment divisions is necessary. Each current investment division invests in
shares of a corresponding portfolio from among 65 funds. (individually, a
"Fund," and collectively, the "Funds"), each a "series" type of mutual fund
registered under the 1940 Act. The investment experience of the current
investment divisions of the Account depends upon the market performance of the
corresponding Fund portfolios. Although the Policies may also provide for fixed
benefits supported by AGL's General Account, except as otherwise explicitly
stated herein, this description assumes that net premiums are allocated
exclusively to the Account and that all transactions involve only the investment
divisions of the Account.
AGL believes its procedures meet the requirements of Rule 6e-
3(T)(b)(12)(iii) and states the following:
1. Because of the insurance nature of the Policies and due to the
requirements of state insurance laws, the procedures necessarily differ in
significant respects from procedures for mutual funds and contractual plans for
which the 1940 Act was designed.
2. In structuring its procedures to comply with Rule 6e-3(T) and state
insurance laws, AGL has attempted to comply with the intent of the 1940 Act to
the extent deemed feasible.
3. In general, state insurance laws require that AGL's procedures be
reasonable, fair and not discriminatory.
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4. Because of the nature of the insurance product, it is often difficult
to determine precisely when AGL's procedures deviate from those required under
Sections 22(c), 22(d), 22(e) or 27(c)(1) of the 1940 Act or Rule 22c-1
thereunder. Accordingly, set out below is a summary of the principal policy
provisions and procedures which may be deemed to constitute, either directly or
indirectly, such a deviation. The summary, while extensive, does not attempt to
treat each and every procedure or variation which might occur and does include
certain procedural steps which do not constitute deviations from the above-cited
sections or rule.
I. "PUBLIC OFFERING PRICE": PURCHASE AND RELATED TRANSACTIONS -- SECTION 22(d)
AND RULE 22c-1
This section outlines those principal Policy provisions and administrative
procedures which might be deemed to constitute, either directly or indirectly, a
"purchase" transaction. Because of the insurance nature of the Policies, the
procedures involved necessarily differ in certain significant respects from the
purchase procedures for mutual funds and contractual plans. The chief
differences revolve around the structure of the cost of insurance charges and
the insurance underwriting (i.e., evaluation of risk) process. There are also
certain Policy provisions--such as reinstatement and loan repayment -- which do
not result in the issuance of a Policy but which require certain payments by the
Policy owner and involve a transfer of assets supporting the Policy reserve into
the Account.
a. INSURANCE CHARGES AND UNDERWRITING STANDARDS
Cost of insurance charges for AGL's Policies will not be the same for all
Policy owners. The chief reason is that the principle of pooling and
distribution of mortality risks is based upon the assumption that each Policy
owner pays a cost of insurance charge commensurate with the insured's mortality
risk which is actuarially determined based upon factors such as age, sex and
risk class of the insured and the face amount size band of the Policy. In the
context of life insurance, a uniform mortality charge (the "cost of insurance
charge") for all insureds would discriminate unfairly in favor of those insureds
representing greater mortality risks to the disadvantage of those representing
lesser risks. Accordingly, although there will be a uniform "public offering
price" for all Policy owners, because premiums are flexible and amounts
allocated to the Account will be subject to the same charges as described
above), there will be a different "price" for each actuarial category of Policy
owners because different cost of insurance rates will apply. The "price" will
also vary based on net amount at risk. The Policies will be offered and sold
pursuant to this cost of insurance schedule and AGL's underwriting standards and
in accordance with state insurance laws. Such laws prohibit unfair
discrimination among insureds, but recognize that premiums must be based upon
factors such as age, sex, health and occupation. A table showing the maximum
cost of insurance charges will be delivered as part of the Policy.
b. APPLICATION AND INITIAL PREMIUM PROCESSING
Upon receipt of a completed application from a prospective Policy owner,
AGL will follow certain insurance underwriting (i.e., evaluation of risks)
procedures designed to determine
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whether the proposed insured is insurable. This process may involve such
verification procedures as medical examinations and may require that further
information be provided by the proposed Policy owner before a determination can
be made. A Policy cannot be issued, i.e., physically issued through AGL's
computerized issue system, until this underwriting procedure has been completed.
The date as of which the insurance coverage of the proposed insured is
determined is referred to as the "effective date". The effective date is the
earlier of the date a Policy is actually issued ("issue date") and the day AGL
receives the full initial premium. At times AGL may receive the initial premium
with the application in which case the effective date and the issue date will be
the same. The effective date represents the first day of the Policy year and
therefore determines the Policy anniversary. It marks the commencement of the
variability of benefits, except as noted below. The initial net premium is
allocated to the Account as of the later of the effective date and the date AGL
receives the premium payment. There may be times when AGL has received the full
initial premium and the effective date has been set, but one or more documents
is outstanding, and must be received before the issue date is established. The
initial net premium is allocated to the Money Market division until the first
business day 15 days after the issue date, regardless of the Policy owner's
premium allocation instructions. The issue date represents the commencement of
the suicide and contestability periods for purposes of the Policies. The issue
date is the date when cost of insurance charges and other charges start being
deducted.
AGL will require that the Policy is delivered within a specific delivery
period to protect itself against anti-selection by the prospective Policy owner
resulting from a determination of the health of the proposed insured. Generally,
the period will not exceed the shorter of 30 days from the date the Policy is
issued and 75 days from the date of Part 2 of the Application. Cost of insurance
charges and other expenses are charged from the effective date, although they
are not actually deducted until the issue date.
c. ANNIVERSARY AND PREMIUM PROCESSING
At each monthly anniversary, AGL will credit the unloaned portion of the
declared fixed interest account with any interest accrued on loan amounts during
the previous Policy month. Charges against the cash value for administrative
expenses, additional benefits and cost of insurance charges will also be made.
These deductions cover the cost of the Policy for the next month.
Net premiums are credited to the cash value as of the date the premium
payments are received by AGL. The initial net premium is allocated to the Money
Market division until 15 days after the issue date, regardless of the Policy
owner's premium allocation instructions. Net premiums are equal to the gross
premiums minus deductions for applicable state and local taxes and sales
expenses.
Premium payments may be made at any time and for any amount, within certain
limits. Premium payments must generally be at least $50 (some states may have
lower limits) and may not be more than those allowed under the Internal Revenue
Code for the Policy to continue to
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qualify as life insurance. AGL makes deductions from each premium for sales
expenses (a percent of each premium paid during any Policy year until total
premiums for that Policy year equal the target premium for the particular
Policy) and for any applicable premium tax, the amount of which varies from
jurisdiction to jurisdiction.
AGL will apply as much of each premium it receives as possible to the
Policy without allowing a violation of the "seven-pay test." AGL will refund the
remainder of the premium to the Policy owner within 15 days, unless the owner
contacts the Home Office during that time period to notify AGL that it is the
owner's intent to have the Policy classified as a modified endowment contract.
AGL will then apply the remainder of the premium to the Policy effective on the
date that the Home Office receives such notification.
d. REINSTATEMENT
If the Policy has lapsed, it may be reinstated while the insured person is
alive if the Policy owner 1) requests reinstatement within 5 years from the end
of the grace period, 2) provides satisfactory evidence of insurability and 3)
makes a premium payment sufficient to keep the Policy in force for at least 2
months after reinstatement. The effective date of the reinstated Policy will be
the beginning of the Policy month which coincides with or next follows the date
AGL approves the reinstatement application. Upon reinstatement, the maximum
surrender charge for the Policy will be reduced by the amount of all surrender
charges previously imposed on the Policy, and for purposes of determining any
future surrender charges on the Policy, the Policy will be deemed to have been
in effect since the original effective date. The Policy owner has the option to
reinstate any Policy indebtedness.
e. REPAYMENT OF LOAN
A loan made under the Policy may be repaid with an amount equal to the
original loan plus loan interest.
f. CORRECTION OF MISSTATEMENT OF AGE OR SEX
If AGL discovers that the age or sex of the insured has been misstated, the
death benefit and any rider benefits will be those which would be purchased by
the most recent deduction for the cost of insurance and the cost of rider
benefits at the correct age and sex.
g. CONTESTABILITY
The Policy is contestable for two years, measured from the issue date,
during the lifetime of the insured for material misstatements made in the
initial application for the Policy. Policy changes (including Policy increases)
may be contested for two years after the effective date of the change, and a
reinstatement for two years after the effective date of the reinstatement. No
statement will be used to contest a Policy unless it is contained in an
application. AGL may not be restricted by the foregoing time limitations in the
event of fraud.
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h. REDUCTION IN COST OF INSURANCE RATE CLASSIFICATION
By administrative practice, AGL will reduce the cost of insurance rate
classification for an outstanding Policy if new evidence of insurability
demonstrates that the Policy owner qualifies for a lower classification. After
the reduced rating is determined, the Policy owner will pay a lower monthly cost
of insurance charge each month.
II. "REDEMPTION PROCEDURES": SURRENDER AND RELATED TRANSACTIONS
This section will outline those procedures which differ in certain
significant respects from redemption procedures for mutual funds and contractual
plans. AGL's Policies provide for the payment of monies to a Policy owner or
beneficiary upon presentation of a Policy. Generally, except for the payment of
death benefits, the imposition of cost of insurance, administrative and
transaction charges and the effects of the surrender charge, the payee will
receive a pro rata or proportionate share of the Account's assets within the
meaning of the 1940 Act in any transaction involving "redemption procedures."
The amount received by the payee will depend upon the particular benefit for
which the Policy is presented, including, for example, the cash surrender value
or death benefit. There are also certain Policy provisions -- such as partial
withdrawals and the loan privilege -- under which the Policy will not be
presented to AGL but which will affect the Policy owner's benefits and may
involve a transfer of the assets supporting the Policy reserve out of the
Account. Any combined transactions on the same day which counteract the effect
of each other will be allowed. AGL will assume the Policy owner is aware of the
conflicting nature of these transactions and desires their combined result. In
addition, if a transaction is requested which AGL will not allow (for example, a
request for a decrease in face amount which lowers the face amount below AGL's
minimum) AGL will reject the whole request and not just the portion which causes
the disallowance. Policy owners will be informed of the rejection and will have
an opportunity to give new instructions. Finally, state insurance laws may
require that certain requirements be met before AGL is permitted to make
payments to the payee.
a. SURRENDER FOR CASH VALUES
AGL will pay the net cash surrender value within seven days after receipt,
at its Administrative Office, of the Policy and a signed request for surrender
in form satisfactory to AGL. Computations with respect to the investment
experience of each investment division will be made at the close of trading on
the composite tape on each business day. This will enable AGL to pay a net cash
value on surrender as of the date a request for surrender and the Policy are
received based on the next computed value after a request is received. The
surrender is effective on the date AGL receives the request at its
Administrative Center and insurance coverage ends on that day.
The cash value (which is equal to the cash surrender value plus any
applicable surrender charge) may increase or decrease from day to day depending
on the investment experience of the Account. Calculation of the cash value for
any given day will reflect the actual premiums paid, expenses charged and
deductions taken.
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If a Policy is totally surrendered AGL will pay the Policy owner an amount
equal to the net cash surrender value of the Policy. The net cash surrender
value of a Policy is equal to the cash surrender value of the Policy less the
amount of any outstanding Policy loan and accrued interest. The cash surrender
value of a Policy will equal the amount of the cash value less the surrender
charge. AGL will make the payment of net cash surrender value out of its
General Account and, at the same time, transfer assets from the Account to the
General Account in an amount equal to the Policy reserves in the Account for the
surrendered Policy, or the portion of the face amount that was reduced.
In lieu of payment of the net cash surrender value in a single sum upon
surrender of a Policy, an election may be made to apply all or a portion of the
proceeds under one of the fixed benefit payment options described in the
Policies. The election may be made by the Policy owner during the insured
person's lifetime, or, if no election is in effect at the insured person's
death, by the beneficiary. An option in effect at death may not be changed to
another form of benefit after death. The settlement options are subject to the
restrictions and limitations set forth in the Policies.
The Policy contains a partial withdrawal feature after the first Policy
year, subject to a minimum withdrawal amount and other conditions. Any request
for a partial withdrawal must be in writing to AGL's Administrative Center, and
will take effect as of the day it is received. A partial withdrawal will reduce
the death benefit, cash value and cash surrender value associated with the
Policy by the amount of the withdrawal plus a charge for administrative expenses
associated with it. The Policy after such a withdrawal must meet minimum face
amount requirements and must continue to qualify as life insurance under
applicable tax law.
b. DEATH CLAIMS
AGL will pay a death benefit to the beneficiary within seven days after
receipt, at its Administrative Center, of the Policy, due proof of death of the
insured, and all other requirements necessary to make payment./1/
The death benefit payable will depend on the option in effect at the time
of death. Under Option 1, the death benefit is the greater of the face amount
of insurance and a percentage multiple of the accumulation value. Under Option
2, the death benefit is the greater of the face amount of insurance plus the
accumulation value and a percentage multiple of the accumulation value. The
percentage referred to is the applicable percentage from the following table for
the insured person's age (as of his or her nearest birthday) at the beginning of
the Policy year of determination.
The proceeds payable to the beneficiary will be adjusted to reflect any
outstanding indebtedness and any overdue monthly charges if death occurs during
the grace period described
__________________________
/1/ State insurance laws impose various requirements, such as receipt of a
tax waiver, before payment of the death benefit may be made. In addition,
payment of the death benefit is subject to the provisions of the Policies
regarding suicide and incontestability.
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below under "Default and Options on Lapse." The proceeds payable on death also
reflect interest from the date of death to the date of payment.
AGL will make payment of the death benefit out of its General Account, and
will transfer assets from the Account to the General Account in an amount equal
to the reserve for that Policy in the Account. The excess, if any, of the death
benefit over the amount transferred will be paid out of the General Account
reserve maintained for that purpose.
In lieu of payment of the death benefit in a single sum, a settlement
option may be selected as described immediately above with respect to cash
surrender values.
c. DEFAULT AND OPTIONS ON LAPSE
The duration of insurance coverage depends upon the net cash surrender
value of a Policy being sufficient to cover the monthly charges. If the net cash
surrender value at the beginning of a month is less than the charges for that
month, a grace period of 6l days will begin. Written notice will be sent to the
Policy owner and any assignee on AGL's records stating that such a grace period
has begun and giving the approximate amount of premium payments necessary to
keep the Policy in force for a reasonable period of time. If this amount is not
received during the grace period, any amount of cash value will be withdrawn and
applied to applicable charges and the Policy will end without value. If the
insured should die during the grace period, an amount sufficient to cover the
overdue monthly charges and other charges will be deducted from the death
benefit.
d. POLICY LOAN
AGL's Policies provide that a Policy owner may take a loan of up to 100% of
the cash surrender value less AGL's estimate of three month's charges and less
the interest payable on the Policy loan that is payable through the next Policy
anniversary, upon assignment to AGL of the Policy as sole security. The cash
surrender value for this purpose will be that next computed after receipt, at
AGL's Administrative Center, of a signed loan request. Payment of the loan out
of AGL's General Account will be made to the Policy owner within seven days
after such receipt.
Interest on a loan accrues daily at an effective annual interest rate which
is adjusted annually. A rate will be determined as of the beginning of each
Policy year and will apply to a new or outstanding loan during that Policy year.
The maximum annual loan interest rate for a Policy year will generally be no
greater than 4.75%.
Loan interest is due on each Policy anniversary. If not paid when due, it
is added to the existing indebtedness and bears interest at the loan rate.
Failure to repay a loan will not necessarily terminate the Policy. If the net
cash surrender value of the Policy is not sufficient to cover the monthly
charges for the cost of insurance and administrative expenses, the Policy will
go into a 61-day grace period, as described above.
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e. TRANSFERS AMONG DIVISIONS
Amounts may be transferred, upon request, at any time from any investment
division of the Account to one or more other divisions of the Account. The
minimum amount allowed for a transfer is the lesser of the minimum amount shown
in a Policy (usually S500) and the total value in the investment division. The
first 12 transfers in any Policy year are free of charge; however, AGL may make
a charge for additional transfers in a Policy year of up to $25.
Transfer charges, if any, will be subtracted equally among the divisions
from which transfers are made.
Transfers from an investment division of the Account will take effect as of
the receipt of a request at AGL's Administrative Center.
f. RIGHT OF WITHDRAWAL PROCEDURES
The Policy provides that the Policy owner may cancel it by returning the
Policy along with a written request for cancellation to AGL's Administrative
Office by 10 days after the Policy owner receives the Policy. The Policy owner
will receive the a refund equal to the premium payments made under the Policy,
or the premium plus (or minus) investment earnings.
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