GROWTH PORTFOLIO
of the
TRANSAMERICA VARIABLE INSURANCE FUND, INC.
1150 South Olive Street, Los Angeles, California 90015, (213) 742-2111
PROSPECTUS October 9, 1996
The Growth Portfolio (the "Growth Portfolio" or the "Portfolio") of the
Transamerica Variable Insurance Fund, Inc. (the "Fund") is an open-end,
management investment company. The Growth Portfolio seeks long-term capital
growth. Common stock (listed and unlisted) is the basic form of investment. The
Portfolio may also invest in debt securities and preferred stock having a call
on common stocks.
Shares of the Fund are offered only to separate accounts of insurance
companies to fund the benefits of variable annuity contracts and variable life
insurance policies (collectively "variable insurance contracts") and certain
qualified retirement plans. Each variable insurance contract involves fees and
expenses not described in this Prospectus. See the accompanying variable
insurance contract prospectus for information regarding contract fees and
expenses and any restrictions on purchases or allocations.
This Prospectus contains information about the Fund and the Portfolio
that a prospective purchaser of a variable insurance contract should know before
allocating purchase payments or premiums to the Portfolio. It should be read in
conjunction with the Prospectus for the variable insurance contract and should
be retained for future reference. A Statement of Additional Information
containing more detailed information about the Fund is available free by writing
to the Fund at the Transamerica Annuity Service Center, 101 North Tryon Street,
Suite 1720, Charlotte, North Carolina 28246, or by calling (800) 258-4260, ext.
5560. The Statement of Additional Information, which has the same date as this
Prospectus, as it may be supplemented from time to time, has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. The
Table of Contents of the Statement of Additional Information is included at the
end of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION
NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
This Prospectus should be read in
conjunction with the prospectus for the
variable insurance contract.
Mutual fund shares are not deposits or obligations of, or guaranteed or
endorsed by, any bank, nor are fund shares federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency. Investing in fund shares involves certain investment risks,
including possible loss of principal.
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TABLE OF CONTENTS
INTRODUCTION.........................................................
CONDENSED FINANCIAL INFORMATION......................................
INVESTMENT OBJECTIVE AND POLICIES....................................
INVESTMENT METHODS AND RISKS.........................................
Small Capitalization Companies..............................
High-Yield ("Junk") Bonds...................................
Repurchase Agreements.......................................
State Insurance Regulation..................................
PORTFOLIO TURNOVER...................................................
MANAGEMENT...........................................................
Directors and Officers......................................
Investment Adviser..........................................
Investment Sub-Adviser......................................
PERFORMANCE INFORMATION..............................................
DETERMINATION OF NET ASSET VALUE.....................................
OFFERING, PURCHASE AND REDEMPTION OF SHARES..........................
INCOME, DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS....................
TAXES ............................................................
OTHER INFORMATION....................................................
Reports.....................................................
Voting and Other Rights.....................................
Custody of Assets...........................................
Accounting and Administrative Services......................
Summary of Bond Ratings.....................................
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
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TRANSAMERICA VARIABLE INSURANCE FUND, INC.
Transamerica Variable Insurance Fund, Inc. (the "Fund") is an open-end,
diversified management investment company established as a Maryland Corporation
on June 23, 1995, as the successor to Transamerica Occidental's Separate Account
Fund C. The Fund currently consists of one investment portfolio, the Growth
Portfolio. (Additional Portfolios may be created from time to time.) By
investing in the Fund, an investor becomes entitled to a pro rata share of all
dividends and distributions arising from the net income and capital gains on the
investments of the Growth Portfolio. Likewise, an investor shares pro-rata in
any losses of the Growth Portfolio.
Pursuant to an investment advisory agreement and subject to the
authority of the Fund's Board of Directors, Transamerica Occidental Life
Insurance Company ("Transamerica" or the "Investment Adviser") serves as the
Fund's investment adviser and conducts the business and affairs of the Fund.
Transamerica has engaged Transamerica Investment Services, Inc. ("Investment
Services") to act as the Fund's sub-advisor to provide the day-to-day portfolio
management for the Portfolio.
The Fund currently offers its shares solely to Separate Account C of
Transamerica Occidental Life Insurance Company as a funding vehicle for the
variable annuity contracts supported by Separate Account C. The Fund does not
offer its shares directly to the general public. A separate prospectus, which
accompanies this Prospectus, describes Separate Account C and the variable
annuity contracts it supports. The Fund may, in the future, offer its shares to
other insurance company separate accounts supporting other variable annuity or
variable life insurance contracts and to qualified pension and retirement plans.
CONDENSED FINANCIAL INFORMATION
As of the date of this prospectus, the Fund had not yet commenced
operations, had no assets or
liabilities, had incurred no expenses and had received no income. Accordingly,
no Condensed Financial
Information is included for the Fund in this prospectus.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective and policies of the Growth Portfolio are
described below. There can be no assurance that the Growth Portfolio will
achieve its investment objective. Investors should not consider any one
Portfolio alone to be a complete investment program. As with any security, a
risk of loss, including possible loss of principal, is inherent in an investment
in the shares of the Portfolio.
The different types of securities, investments, and investment
techniques used by the Portfolio involve risks of varying degrees. These risks
are described in greater detail, under "Investment Methods and Risks" and in the
Statement of Additional Information. The Portfolio is subject to certain
investment restrictions that are described under the caption "Investment
Restrictions" in the Statement of Additional Information.
The investment objective of the Portfolio as well as the investment
policies that are not fundamental may be changed by the Fund's Board of
Directors without shareholder approval. Certain of the investment restrictions
of the Portfolio are fundamental, however, and may not be changed without the
approval of a majority of the votes attributable to the outstanding shares of
the Portfolio. See "Investment Restrictions" in the Statement of Additional
Information.
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The Growth Portfolio's investment objective is long-term capital
growth. Common stock, listed and unlisted, is the basic form of investment.
Although the Portfolio invests the majority of its assets in common stocks, the
Portfolio may also invest in debt securities and preferred stocks (both having a
call on common stocks by means of a conversion privilege or attached warrants)
and warrants or other rights to purchase common stocks. Unless market conditions
would indicate otherwise, the Growth Portfolio will be invested primarily in
such equity-type securities. When in the judgment of Investment Services market
conditions warrant, the Growth Portfolio may, for temporary defensive purposes,
hold part or all of its assets in cash, debt or money market instruments.
The Portfolio may invest up to 10% of the Portfolio's assets in debt
securities having a call on common stocks that are rated below investment grade.
Those securities are rated Ba1 or lower by Moody's Investors Service, Inc.
("Moody's") or BB+ or lower by Standard & Poor's Corporation ("S&P"), or, if
unrated, deemed to be of comparable quality by Investment Services.
If a security that was originally rated "investment grade" is
downgraded by a ratings service, it may or may not be sold. This depends on
Investment Services' assessment of the issuer's prospects. However, Investment
Services will not purchase below-investment-grade securities if that purchase
would increase their representation in the Portfolio to more than 10%.
The Portfolio may invest up to 10% of its net assets in the securities
of foreign issuers that are in the form of American Depository Receipts
("ADRs"). ADRs are registered stocks of foreign companies that are typically
issued by an American bank or trust company evidencing ownership of the
underlying securities.
ADRs are designed for use on the U.S. stock exchanges.
With respect to 75% of total assets, the Portfolio may not purchase
more than 10% of the voting securities of any one issuer . The Portfolio may not
invest in companies for the purposes of exercising control or management.
Purchases or acquisitions may be made of securities which are not
readily marketable by reason of the fact that they are subject to the
registration requirements of the Securities Act of 1933 or the salability of
which is otherwise conditioned, including real estate and certain repurchase
agreements or time deposits maturing in more than seven days ("restricted
securities"), as long as any such purchase or acquisition will not immediately
result in the value of all such restricted securities exceeding 15% of the value
of the Portfolio's net assets.
INVESTMENT METHODS AND RISKS
The Growth Portfolio is subject to the risk of changing economic
conditions, as well as the risk inherent in the ability of Investment Services
to make changes in the portfolio composition of the Portfolio in anticipation of
changes in economic, business, and financial conditions.
In addition, the different types of securities, investments, and
investment techniques used by the Portfolio involve risks of varying degrees.
For example, with respect to equity securities, there can be no assurance of
capital appreciation and there is a substantial risk of decline in value. With
respect to debt securities, there exists the risk that the issuer of a security
may not be able to meet its obligations on interest or principal payments at the
time required by the investment. Certain risks associated with the types of
investments in which the Portfolio may invest are discussed below. For more
information on investment methods and risks, see "Special Investment Methods and
Risks" in the Statement of Additional Information.
Small Capitalization Companies
The Growth Portfolio may invest in securities of smaller, lesser-known
companies. Such investments involve greater risks than the investments of
larger, more mature, better known issuers, including an increased
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possibility of portfolio price volatility. Historically, small capitalization
stocks and stocks of recently organized companies have been more volatile in
price than the larger capitalization stocks included in the S&P 500. Among the
reasons for the greater price volatility of these small company stocks are the
less certain growth prospects of smaller firms, the lower degree of liquidity in
the markets for such stocks and the greater sensitivity of small companies to
changing economic conditions. For example, these companies are associated with
higher investment risk than that normally associated with larger, more mature,
better known firms due to the greater business risks of small size and limited
product lines, markets, distribution channels and financial and managerial
resources.
The values of small company stocks may fluctuate independently of
larger company stock prices. Small company stocks may decline in price as large
company stock prices rise, or rise in price as large company stock prices
decline. Investors should therefore expect that to the extent the Portfolio
invests in stock of small capitalization companies, the net asset value of the
Portfolio's shares may be more volatile than, and may fluctuate independently
of, broad stock market indices such as the S&P 500. Furthermore, the securities
of companies with small stock market capitalizations may trade less frequently
and in limited volume.
High-Yield ("Junk") Bonds
High-yield bonds (commonly called "junk" bonds) are lower-rated bonds
that involve higher current income but are predominantly speculative because
they present a higher degree of credit risk than higher-rated bonds. Credit risk
is the risk that the issuer of the bonds will not be able to make interest or
principal payments on time. The prices of junk bonds tend to be more reflective
of prevailing economic and industry conditions, the issuer's unique financial
situation, and the bond's coupon than to small changes in the market level of
interest rates. During an economic downturn or a period of rising interest
rates, highly leveraged companies may experience difficulties in making
principal and interest payments, meeting projected business goals, and obtaining
additional financing. See "Summary of Bond Ratings" on page ___ and the
Statement of Additional Information for a description of bond rating categories.
Repurchase Agreements
The Growth Portfolio may enter into repurchase agreements with Federal
Reserve System member banks or U.S. securities dealers. A repurchase agreement
occurs when the Portfolio purchases an interest-bearing debt obligation and the
seller agrees to repurchase the debt obligation on a specified date in the
future at an agreed-upon price. The repurchase price reflects an agreed-upon
interest rate during the time the Portfolio's money is invested in the security.
Since the security constitutes collateral for the repurchase obligation, a
repurchase agreement can be considered a collateralized loan. The Portfolio's
risk is the ability of the seller to pay the agreed-upon price on the delivery
date. If the seller is unable to make a timely repurchase, the Portfolio's
expected proceeds could be delayed, or the Portfolio could suffer a loss in
principal or current interest, or incur costs in liquidating the collateral. In
evaluating whether to enter into a repurchase agreement, Investment Services
will carefully consider the creditworthiness of the seller pursuant to
procedures established by the Fund's Board of Directors.
The Growth Portfolio will not invest in repurchase agreements maturing
in more than seven days if that would constitute more than 10% of the
Portfolio's net assets when taking into account the remaining days to maturity
of the Portfolio's existing repurchase agreements.
State Insurance Regulation
The Portfolio is intended to be a funding vehicle for variable annuity
contracts and variable life policies to be offered by insurance companies and
will seek to be offered in as many jurisdictions as possible. Certain states
have regulations or guidelines concerning concentration of investments and other
investment techniques. If such regulations and guidelines are applied to the
Portfolio, the Portfolio may be limited in its ability to engage
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in certain techniques and to manage its portfolio with the flexibility provided
herein. It is the Portfolio's intention that it operate in material compliance
with current insurance laws and regulations, as applied, in each jurisdiction in
which the Portfolio is offered.
PORTFOLIO TURNOVER
The Growth Portfolio will not consider portfolio turnover to be a
limiting factor in making investment decisions. Changes will be made in the
Portfolio if such changes are considered advisable to better achieve the
Portfolio's investment objective. The portfolio turnover rate is calculated by
dividing the lesser of the dollar amount of sales or purchases of portfolio
securities by the average monthly value of the portfolio securities, excluding
debt securities having a maturity at the date of purchase of one year or less.
Investment Services anticipates that the annual turnover rate for the Growth
Portfolio will generally not exceed 75%.
High rates of portfolio turnover involve correspondingly greater
expenses which must be borne by the Portfolio and its shareholders, including
higher brokerage commissions, dealer mark-ups and other transaction costs on the
sale of securities and reinvestment of other securities. High rate of turnover
may result in the acceleration of taxable gains and may under certain
circumstances make it more difficult for a Portfolio to qualify as a regulated
investment company under the Internal Revenue Code. See "Federal Tax Matters" in
the Statement of Additional Information.
MANAGEMENT
Directors and Officers
The Fund's Board of Directors is responsible for deciding matters of
general policy and reviewing the actions of the Adviser and Investment Services,
the custodian, the accounting and administrative services providers and other
providers of services to the Portfolio. The officers of the Fund supervise its
daily business operations. The Statement of Additional Information contains
information as to the identity of, and other information about, the directors
and officers of the Fund.
Investment Adviser
Transamerica Occidental Life Insurance Company ("Transamerica"), 1150
South Olive Street, Los Angeles, California 90015, is the investment adviser of
the Portfolio. Transamerica is a stock life insurance company incorporated in
the state of California on June 30, 1906. It has been a wholly-owned direct or
indirect subsidiary of Transamerica Corporation, 600 Montgomery Street, San
Francisco, California 94111, since March 14, 1930. Transamerica acted as
investment adviser to Transamerica Occidental's Separate Account Fund C
("Separate Account Fund C"), the Fund's predecessor, and currently acts as
investment adviser to Transamerica Occidental's Separate Account Fund B.
The Fund has entered into an Investment Advisory Agreement with
Transamerica under which the Transamerica assumes overall responsibility,
subject to the supervision of the Fund's Board of Directors, for administering
all operations of the Fund and for monitoring and evaluating the management of
the assets of the Portfolio by Investment Services on an ongoing basis.
Transamerica provides or arranges for the provision of the overall business
management and administrative services necessary for the Fund's operations and
furnishes or procures any other services and information necessary for the
proper conduct of the Fund's business. Transamerica also acts as liaison among,
and supervisor of, the various service providers to the Fund.
For its services to the Portfolio, Transamerica receives an annual
advisory fee of 0.75% of the average daily net assets of the Growth Portfolio.
The fee is deducted daily from the assets of the Portfolio. This fee may be
higher than the average advisory fee paid to the investment advisers of other
growth portfolios. Transamerica may waive some or all of its fee from time to
time at its discretion.
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Investment Sub-Adviser
Transamerica has contracted with Transamerica Investment Services, Inc.
("Investment Services"), a wholly-owned subsidiary of Transamerica Corporation,
to render investment services to the Portfolio. Investment Services has been in
existence since 1967 and has provided investment services to investment
companies and the Transamerica Life Companies since 1980. Investment Services is
located at 1150 South Olive Street, Los Angeles, California 90015-2211.
Transamerica has agreed to pay Investment Services a monthly fee at the annual
rate of 0.30% of the first $50 million of the Portfolio's average daily net
assets, 0.25% of the next $150 million, and 0.20% of assets in excess of $200
million. Investment Services will provide recommendations on the management of
Portfolio assets, provide investment research reports and information, supervise
and manage the investments of the Portfolio, and direct the purchase and sale of
Portfolio investments.
Investment Services is also responsible for the selection of brokers
and dealers to execute transactions for the Fund. Some of these brokers or
dealers may be affiliated persons of Transamerica and Investment Services.
Although it is the policy of Investment Services to seek the best price and
execution for each transaction, Investment Services may give consideration to
brokers and dealers who provide Investment Services with statistical information
and other services in addition to transaction services. Additional information
about the selection of brokers and dealers is provided in the Statement of
Additional Information.
The transactions and performance of the Growth Portfolio are reviewed
continuously by the senior officers of Investment Services. The portfolio
manager for the Growth Portfolio is Jeffrey S. Van Harte, C.F.A.,
Vice President and Senior Fund Manager at Investment Services. Mr. Van Harte
is a member of the San Francisco Society of Financial Analysts and received a
B.A. from California State University at Fullerton from
1980. Mr. Van Harte has been managing the portfolio of the Fund's predecessor,
Separate Account Fund C, since 1984.
PERFORMANCE INFORMATION
From time to time the Fund may disseminate average annual total return
figures for the Portfolio in advertisements and communications to shareholders
or sales literature.
Average annual total return is determined by computing the annual
percentage change in value of $1,000 invested for specified periods ending with
the most recent calendar quarter, assuming reinvestment of all dividends and
distributions at net asset value. The average annual total return calculation
assumes a complete redemption of the investment at the end of the relevant
period.
The Fund also may from time to time disseminate year-by-year total
return, cumulative total return and yield information for the Portfolio in
advertisements, communications to shareholders or sales literature. These may be
provided for various specified periods by means of quotations, charts, graphs or
schedules. Year-by-year total return and cumulative total return for a specified
period are each derived by calculating the percentage rate required to make a
$1,000 investment in the Portfolio (assuming all distributions are reinvested)
at the beginning of such period equal to the actual total value of such
investment at the end of such period.
In addition, the Fund may from time to time publish performance of the
Portfolio relative to certain performance rankings and indices.
The Fund is the intended successor to Transamerica Occidental's
Separate Account Fund C ("Separate Account Fund C"). The reorganization of
Separate Account Fund C from a management investment company into a unit
investment trust is being submitted for Contract owner approval at a meeting of
Contract owners scheduled for October 30, 1996. If the reorganization is
approved, the assets of Separate Account Fund C will be transferred intact to
the Growth Portfolio in exchange for shares of the Growth Portfolio. As the
successor to Separate Account Fund C, the Growth Portfolio will treat the
historical performance data of Separate Account
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Fund C as its own for periods prior to the reorganization. The performance data
for the Growth Portfolio prior to the reorganization will assume that the
charges currently imposed by the Fund were in effect during that period. In
addition, such performance data will not reflect any sales or insurance charges
that were imposed under the annuity contracts issued through Separate Account
Fund C.
Since the Fund is not available directly to the public, its performance
data will not be advertised unless
accompanied by comparable data for the applicable variable annuity or variable
life insurance policy. The Fund's
performance data does not reflect separate account or contract level charges.
The investment results of the Portfolio will fluctuate over time and
any presentation of investment results for any prior period should not be
considered a representation of what an investment may earn or what the
Portfolio's performance may be in any future period. In addition to information
provided in shareholder reports, the Fund may, in its discretion, from time to
time make a list of the Portfolio's holdings available to investors upon
request.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Portfolio is normally determined
once daily as of the close of regular trading on the New York Stock Exchange,
currently 4:00 p.m. New York time, on each day when the New York Stock Exchange
is open, except as noted below. The New York Stock Exchange is scheduled to be
open Monday through Friday throughout the year, except for certain holidays. The
net asset value of the Portfolio's shares will not be calculated on the Friday
following Thanksgiving, the Friday following Christmas if Christmas falls on a
Thursday and the Monday before Christmas if Christmas falls on a Tuesday. The
net asset value of the Portfolio is determined by dividing the value of the
Portfolio's securities, cash, and other assets (including accrued but
uncollected interest and dividends), less all liabilities (including accrued
expenses but excluding capital and surplus) by the number of shares of the
Portfolio outstanding.
The value of the Growth Portfolio's securities and assets generally is
determined on the basis of their market values. The short-term debt securities
having remaining maturities of sixty days or less held by the Growth Portfolio
(if any) are valued by the amortized cost method, which approximates market
value. Investments for which market quotations are not readily available are
valued at their fair value as determined in good faith by, or under authority
delegated by, the Fund's Board of Directors. See "Determination of Net Asset
Value" in the Statement of Additional Information.
OFFERING, PURCHASE AND REDEMPTION OF SHARES
Pursuant to its participation agreement with the Fund and Transamerica,
Transamerica Securities Sales Corporation ("TSSC") will act without remuneration
as the Fund's distributor in the distribution of the shares of each Portfolio.
TSSC is a wholly-owned subsidiary of Transamerica Insurance Corporation of
California, which is a wholly-owned subsidiary of the Transamerica Corporation.
TSSC has no obligation to sell any stated number of shares. TSSC is located at
1150 South Olive Street, Los Angeles, California 90015.
Shares of the Portfolio are sold in a continuous offering and will be
authorized to be offered to Separate Account C to support its variable annuity
contracts (the "Contracts"). Net purchase payments under the Contracts will be
placed in Separate Account C and the assets of the Separate Account C will be
invested in the shares of the Growth Portfolio. Separate Account C will purchase
and redeem shares of the Portfolio at net asset value without sales or
redemption charges.
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For each day on which the Portfolio's net asset value is calculated,
Separate Account C will transmit to the Fund any orders to purchase or redeem
shares of the Portfolio based on the purchase payments, redemption (surrender)
requests, and transfer requests from Contract owners, annuitants and
beneficiaries that have been processed on that day. Shares of the Portfolio will
be purchased and redeemed at the Portfolio's net asset value per share
calculated as of that same day although such purchases and redemptions may be
executed the next morning.
In the future, the Fund may offer shares of the Portfolio (including
new Portfolios that might be added to the Fund) to other separate accounts of
various insurance companies, whether or not affiliated with Transamerica, to
support variable annuity contracts or variable life insurance contracts.
Likewise, the Fund may also, in the future, offer shares of the Portfolio
directly to qualified pension and retirement plans.
In the event that shares of the Portfolio are offered to a separate
account supporting variable life insurance or to qualified pension and
retirement plans, a potential for certain conflicts may exist between the
interests of variable annuity contract owners, variable life insurance contract
owners and plan participants. The Fund currently does not foresee any
disadvantage to owners of the Contracts arising from the fact that shares of the
Portfolio might be held by such entities. However, in such an event, the Fund's
Board of Directors will monitor the Portfolio in order to identify any material
irreconcilable conflicts of interest which may possibly arise, and to determine
what action, if any, should be taken in response to such conflicts.
INCOME, DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Growth Portfolio will distribute substantially all of its net
investment income in the form of dividends to its shareholders. The Growth
Portfolio will declare its dividends and capital gain distributions at least
annually. It is anticipated that all dividends and distributions will be
reinvested in additional Portfolio shares at net asset value.
TAXES
The Fund believes that the Portfolio will qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), and the Portfolio intends to distribute substantially all
of its net income and net capital gains to its shareholders. As a result, under
the provisions of subchapter M, there should be little or no income or gains
taxable to the Portfolio. In addition, the Portfolio intends to comply with
certain other distribution rules specified in the Code so that it will not incur
a 4% nondeductible federal excise tax that otherwise would apply. See "Federal
Tax Matters" in the Statement of Additional Information.
The shareholders of the Portfolio will currently be limited to Separate
Account C and the Fund. For more information regarding the tax implications for
the purchaser of a Contract who allocates investments to the Portfolio, please
refer to the prospectus for Separate Account C.
OTHER INFORMATION
Reports
Annual Reports containing audited financial statements of the Fund and
Semi-Annual Reports containing unaudited financial statements, as well as proxy
materials, are sent to Contract owners, annuitants or beneficiaries, as
appropriate. Inquiries may be directed to the Fund at the telephone number or
address set forth on the cover page of this Prospectus.
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Voting and Other Rights
Each share outstanding is entitled to one vote on all matters submitted
to a vote of shareholders (of the Portfolio or the Fund) and is entitled to a
pro-rata share of any distributions made by the Portfolio and, in the event of
liquidation, of its net assets remaining after satisfaction of outstanding
liabilities. Each share (of the Portfolio), when issued, is nonassessable and
has no preemptive or conversion rights. The shares have noncumulative voting
rights.
As a Maryland corporation, the Fund is not required to hold regular
annual shareholder meetings. The Fund is, however, required to hold shareholder
meetings for the following purposes: (i) approving certain agreements as
required by the 1940 Act; (ii) changing fundamental investment objectives,
policies and restrictions of the Portfolio; and (iii) filling vacancies on the
Board of Directors in the event that less than a majority of the members of the
Board of Directors were elected by shareholders. Directors may also be removed
by shareholders by a vote of two-thirds of the outstanding votes attributable to
shares at a meeting called at the request of holders of 10% or more of such
votes. The Fund has the obligation to assist in shareholder communications.
After the reorganization, Transamerica will own more than 25% of the
outstanding shares of the Portfolio which may result in it being deemed a
controlling person of the Portfolio, as that term is defined in the 1940 Act.
Custody of Assets and Administrative Services
Pursuant to a custody agreement with the Fund, State Street Bank and
Trust Company ("State Street"), 225 Franklin Street, Boston, Massachusetts
02110, will hold all securities and cash assets of the Fund, provide
recordkeeping and certain accounting services and serve as the custodian of the
Fund's assets. The custodian will be authorized to deposit securities in
securities depositories and to use the services of sub-custodians.
Summary of Bond Ratings
Following is a summary of the grade indicators used by two of the most
prominent, independent rating agencies (Moody's Investors Service, Inc. and
Standard & Poor's Corporation) to rate the quality of bonds. The first four
categories are generally considered investment quality bonds. Those below that
level are of lower quality, commonly referred to as "junk bonds."
Investment Grade Moody's Standard & Poor's
Highest quality Aaa AAA
High quality Aa AA
Upper medium A A
Medium, speculative features Baa BBB
Lower Quality
Moderately speculative Ba BB
Speculative B B
Very speculative Caa CCC
Very high risk Ca CC
Highest risk, may not be
paying interest C C
In arrears or default D D
For more information on bond ratings, including gradations within each
category of quality, see the Statement of Additional Information.
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STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information is available which contains more
details concerning the subjects discussed in this Prospectus. The following is
the Table of Contents for that Statement:
TABLE OF CONTENTS
Page
INTRODUCTION....................................................... 1
ADDITIONAL INVESTMENT POLICY INFORMATION........................... 2
SPECIAL INVESTMENT METHODS AND RISKS............................... 2
Convertible Securities.................................... 2
Restricted and Illiquid Securities........................ 3
Borrowing................................................. 3
Other Investment Companies................................ 4
Options on Securities and Securities Indices.............. 4
Warrants and Rights....................................... 6
Repurchase Agreements..................................... 6
High-Yield ("Junk") Bond.................................. 7
Foreign Securities........................................ 7
INVESTMENT RESTRICTIONS............................................ 8
Fundamental Restrictions.................................. 8
Non-Fundamental Restrictions.............................. 9
Interpretive Rules........................................ 10
INVESTMENT ADVISER................................................. 11
Investment Advisory Agreement............................. 11
Investment Sub-Advisory Agreement......................... 12
PORTFOLIO TRANSACTIONS, PORTFOLIO TURNOVER AND BROKERAGE........... 13
DETERMINATION OF NET ASSET VALUE................................... 14
PERFORMANCE INFORMATION............................................ 15
FEDERAL TAX MATTERS................................................ 18
SHARES OF STOCK.................................................... 20
CUSTODY OF ASSETS.................................................. 21
DIRECTORS AND OFFICERS............................................. 21
Compensation.............................................. 23
LEGAL PROCEEDINGS.................................................. 23
OTHER INFORMATION.................................................. 23
Legal Counsel............................................. 23
Other Information......................................... 24
Financial Statements...................................... 24
APPENDIX A......................................................... 25
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STATEMENT OF ADDITIONAL INFORMATION
-----------------------------------
GROWTH PORTFOLIO
of the
TRANSAMERICA VARIABLE INSURANCE FUND, INC.
October 9, 1996
This Statement of Additional Information is not a prospectus. Much of
the information contained in this Statement expands upon information discussed
in the Prospectus for the Growth Portfolio of the Transamerica Variable
Insurance Fund, Inc. (the "Fund") and should, therefore, be read in conjunction
with the Prospectus for the Fund. To obtain a copy of the Prospectus with the
same date as this Statement of Additional Information write to the Fund at the
Transamerica Annuity Service Center, 101 North Tryon Street, Suite 1720,
Charlotte, North Carolina 28246, or by calling (800) 258-4260, ext. 5560.
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TABLE OF CONTENTS
Page
INTRODUCTION....................................................... 1
ADDITIONAL INVESTMENT POLICY INFORMATION........................... 2
SPECIAL INVESTMENT METHODS AND RISKS............................... 2
Convertible Securities.................................... 2
Restricted and Illiquid Securities........................ 3
Borrowing................................................. 3
Other Investment Companies................................ 4
Options on Securities and Securities Indices.............. 4
Warrants and Rights....................................... 6
Repurchase Agreements..................................... 6
High-Yield ("Junk") Bond.................................. 7
Foreign Securities........................................ 7
INVESTMENT RESTRICTIONS............................................ 8
Fundamental Restrictions.................................. 8
Non-Fundamental Restrictions.............................. 9
Interpretive Rules........................................ 10
INVESTMENT ADVISER................................................. 11
Investment Advisory Agreement............................. 11
Investment Sub-Advisory Agreement......................... 12
PORTFOLIO TRANSACTIONS, PORTFOLIO TURNOVER AND BROKERAGE........... 13
DETERMINATION OF NET ASSET VALUE................................... 14
PERFORMANCE INFORMATION............................................ 15
FEDERAL TAX MATTERS................................................ 18
SHARES OF STOCK.................................................... 20
CUSTODY OF ASSETS.................................................. 21
DIRECTORS AND OFFICERS............................................. 21
Compensation.............................................. 23
LEGAL PROCEEDINGS.................................................. 23
OTHER INFORMATION.................................................. 23
Legal Counsel............................................. 23
Other Information......................................... 24
Financial Statements...................................... 24
APPENDIX A......................................................... 25
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INTRODUCTION
Transamerica Variable Insurance Fund, Inc. (the "Fund") is an open-end
management investment company established as a Maryland corporation on June 23,
1995. The Fund is the intended successor to Transamerica Occidental's Separate
Account Fund C ("Separate Account Fund C"). The reorganization of Separate
Account Fund C from a management investment company into a unit investment
trust, Separate Account C, is being submitted for the approval of the Contract
Owners of Separate Account Fund C at a Contract Owners meeting scheduled for
October 30, 1996. Once the reorganization is approved, the assets of Separate
Account Fund C will be transferred intact to the Growth Portfolio of the Fund in
exchange for shares in the Growth Portfolio which will be held by Separate
Account C.
The Fund currently consists of one investment portfolio, the Growth
Portfolio (the "Portfolio" or "Growth Portfolio"). By investing in the
Portfolio, an investor becomes entitled to a pro-rata share of all dividends and
distributions arising from the net income and capital gains on the investments
of the Portfolio.
Likewise, an investor shares pro-rata in any losses of that Portfolio.
Pursuant to an investment advisory agreement and subject to the
authority of the Fund's board of directors (the "Board of Directors"),
Transamerica Occidental Life Insurance Company ("Transamerica") serves as the
Fund's investment adviser and conducts the business and affairs of the Fund.
Transamerica has engaged Transamerica Investment Services, Inc. ("Investment
Services") to act as the Fund's sub-adviser to provide the day-to-day portfolio
management for the Portfolio.
The Fund currently offers shares of the Growth Portfolio to Separate
Account C of Transamerica Occidental Life Insurance Company ("Separate Account
C") as the underlying funding vehicle for the variable annuity contracts (the
"Contracts") supported by Separate Account C. The Fund does not offer its stock
directly to the general public. Separate Account C, like the Fund, is registered
as an investment company with the Securities and Exchange Commission ("SEC"),
and a separate prospectus, which accompanies the prospectus for the Fund (the
"Prospectus"), describes that separate account and the Contracts it supports.
The prospectus for Separate Account C and the Contracts also has a statement of
additional information.
The Fund may, in the future, offer its stock to other separate accounts
of other insurance companies supporting other variable annuity contracts or
variable life insurance polices and to qualified pension and retirement plans.
Terms appearing in this Statement of Additional Information that are
defined in the Prospectus have the same meaning as in the Prospectus.
ADDITIONAL INVESTMENT POLICY INFORMATION
The Growth Portfolio seeks long-term capital growth. Common stock,
listed and unlisted, is the basic form of investment. Although the Portfolio
invests the majority of its assets in common stocks, the Portfolio may also
invest in: (i) debt securities and preferred stocks, having a call on common
stocks by means of a conversion privilege or attached warrants; and (ii)
warrants or other rights to purchase common stocks. Unless market conditions
would indicate otherwise, the Growth Portfolio will be invested primarily in
such equity-type securities. When in the judgment of Investment Services market
conditions warrant, the Growth Portfolio may, for temporary defensive purposes,
hold part or all of its assets in cash, debt or money market instruments.
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SPECIAL INVESTMENT METHODS AND RISKS
Convertible Securities
The Growth Portfolio may invest in convertible securities. The
Portfolio currently does not intend to invest more than 5% of its net assets in
convertible securities. Convertible securities may include corporate notes or
preferred stock but are ordinarily a long-term debt obligation of the issuer
convertible at a stated exchange rate into common stock of the issuer.
Convertible securities have general characteristics similar to both fixed-income
and equity securities. As with all debt securities, the market value of
convertible securities tends to decline as interest rates increase and,
conversely, to increase as interest rates decline. In addition, because of the
conversion feature, the market value of convertible securities tends to vary
with fluctuations in the market value of the underlying common stock, and
therefore, will react to variations in the general market for equity securities.
As the market price of the underlying common stock declines, the convertible
security tends to trade increasingly on a yield basis, and thus may not
depreciate to the same extent as the underlying common stock.
As fixed-income securities, convertible securities are investments that
provide for a stable stream of income with generally higher yields than common
stocks. Like all fixed-income securities, there is no assurance of current
income as the issuer might default in its obligations. Convertible securities
generally offer lower interest or dividend yields than non-convertible
securities of similar quality. Convertible securities generally are subordinated
to other similar but non-convertible securities of the same issuer, although
convertible bonds, as corporate debt obligations, rank senior to common stocks
in an issuer's capital structure and are consequently of higher quality and
entail less risk of declines in market value than the issuer's common stock.
However, the extent to which such risk is reduced depends in large measure upon
the degree to which the convertible security sells above its value as a
fixed-income security.
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Restricted and Illiquid Securities
The Growth Portfolio may invest no more than 10% of its net assets in
restricted securities (securities that are not registered or are offered in an
exempt non-public offering under the Securities Act of 1933 (the "1933 Act")).
However, such restriction shall not apply to restricted securities offered and
sold to "qualified institutional buyers" under Rule 144A under the 1933 Act.
In addition, the Growth Portfolio will invest no more than 15% of its
net assets in illiquid investments, which includes most repurchase agreements
maturing in more than seven days, time deposits with a notice or demand period
of more than seven days, certain over-the-counter option contracts, real estate,
securities that are not readily marketable and restricted securities (unless
Investment Services determines, based upon a continuing review of the trading
markets for the specific restricted security, that such restricted securities
are eligible under Rule 144A and are liquid.)
The Board of Directors of the Fund has adopted guidelines and delegated
to Investment Services the daily function of determining and monitoring the
liquidity of restricted securities. The board, however, will retain sufficient
oversight and be ultimately responsible for the determinations. Since it is not
possible to predict with assurance exactly how the market for restricted
securities sold and offered under Rule 144A will develop, the board will
carefully monitor the Portfolio's investments in these securities, focusing on
such important factors, among others, as valuation, liquidity and availability
of information. To the extent that qualified institutional buyers become for a
time uninterested in purchasing these restricted securities, this investment
practice could have the effect of decreasing the level of liquidity in the
Portfolio.
The purchase price and subsequent valuation of restricted securities
normally reflect a discount from the price at which such securities would trade
if they were not restricted, since the restriction makes them less liquid. The
amount of the discount from the prevailing market prices is expected to vary
depending upon the type of security, the character of the issuer, the party who
will bear the expenses of registering the restricted securities and prevailing
supply and demand conditions.
Borrowing
The Portfolio may borrow money but only from banks and only for
temporary or short-term purposes. Such borrowings will not exceed 5% of the
value of the Portfolio's total assets. Temporary or short-term purposes may
include: (i) short-term ( i.e., no longer than five business days) credits for
clearance of portfolio transactions; (ii) borrowing in order to meet redemption
requests or to finance settlements of portfolio trades without immediately
liquidating portfolio securities or other assets; and (iii) borrowing in order
to fulfill commitments or plans to purchase additional securities pending the
anticipated sale of other portfolio securities or assets in the near future. The
Portfolio will not borrow for leveraging
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purposes. The Portfolio will maintain continuous asset coverage of at least 300%
(as defined in the 1940 Act) with respect to all of its borrowings. Should the
value of the Portfolio's assets decline to below 300% of borrowings, the
Portfolio may be required to sell portfolio securities within three days to
reduce the Portfolio's debt and restore 300% asset coverage.
Borrowing involves interest costs.
Other Investment Companies
The Growth Portfolio reserves the right to invest up to 10% of its
total assets, calculated at the time of purchase, in the securities of other
investment companies including business development companies and small business
investment companies. The Growth Portfolio may not invest more than 5% of its
total assets in the securities of any one investment company or in more than 3%
of the voting securities of any other investment company. The Portfolio will
indirectly bear its proportionate share of any advisory fees paid by investment
companies in which it invests in addition to the management fee paid by the
Portfolio. Together with other investment companies advised by Transamerica, the
Portfolio will own no more than 10% of the outstanding voting stock of a
closed-end investment company.
Options on Securities and Securities Indices
The Growth Portfolio may purchase put and call options on any
securities in which it may invest or options on any securities index based on
securities in which it may invest. The Growth Portfolio currently does not
intend to invest more than 5% of its net assets in options on securities and
securities indices. The Growth Portfolio would also be able to enter into
closing sale transactions in order to realize gains or minimize losses on
options it had purchased.
The Growth Portfolio would normally purchase call options in
anticipation of an increase in the market value of securities of the type in
which it may invest. The purchase of a call option would entitle the Portfolio,
in turn for the premium paid, to purchase specified securities at a specified
price during the option period. The Portfolio would ordinarily realize a gain
if, during the option period, the value of such securities exceeded the sum of
the exercise price, the premium paid and transaction costs; otherwise the Growth
Portfolio would realize a loss on the purchase of the call option.
The Growth Portfolio would normally purchase put options in
anticipation of a decline in the market value of securities in its portfolio
("protective puts") or in securities in which it may invest. The purchase of a
put option would entitle the Portfolio, in exchange for the premium paid, to
sell specified securities at a specified price during the option period. The
purchase of protective puts is designed to offset or hedge against a decline in
the market value of the Portfolio's securities. Put options may also be
purchased by the Portfolio for the purpose of affirmatively benefiting from a
decline in the price of securities which it does not own. The Growth Portfolio
would ordinarily realize a gain if, during the option period, the
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value of the underlying securities decreased below the exercise price
sufficiently to cover the premium and transaction costs; otherwise the Portfolio
would realize a loss on the purchase of the put option. Gains and losses on the
purchase of protective put options would tend to be offset by countervailing
changes in the value of the underlying portfolio securities.
The Growth Portfolio would purchase put and call options on securities
indices for the same purposes as it would purchase options on individual
securities.
Risks Associated with Options Transactions. There is no assurance that
a liquid secondary market on an options exchange will exist for any particular
exchange-traded option or at any particular time. If the Portfolio is unable to
effect a closing sale transaction with respect to options it has purchased, it
would have to exercise the options in order to realize any profit and will incur
transaction costs upon the purchase or sale of underlying securities.
Possible reasons for the absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading interest
in certain options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist, although outstanding options on that exchange that had been issued by the
Options Clearing Corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
The Growth Portfolio may purchase both options that are traded on
United States and foreign exchanges and options traded over-the-counter with
broker-dealers who make markets in these options. The ability to terminate
over-the-counter options is more limited than with exchange-traded options and
may involve the risk that broker-dealers participating in such transactions will
not fulfill their obligations. Until such time as the staff of the SEC changes
its position, the Growth Portfolio will treat purchased over-the-counter options
and all assets used to cover written over-the-counter options as illiquid
securities, except that with respect to options written with primary dealers in
U.S. Government securities pursuant to an agreement requiring a closing purchase
transaction at a formula price, the amount of illiquid securities may be
calculated with reference to the formula.
Transactions by the Growth Portfolio in options on securities and stock
indices will be subject to limitations established by each of the exchanges,
boards of trade or other trading facilities governing the maximum number of
options in each class which may be purchased by a single investor or group of
investors acting in concert. Thus, the number of options which the Portfolio may
purchase may be affected by options written or purchased by other
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investment advisory clients of Investment Services. An exchange, board of trade
or other trading facility may order the liquidations of positions found to be in
excess of these limits, and it may impose certain other sanctions.
The purchase of options is a highly specialized activity which involves
investment techniques and risks different from those associated with ordinary
portfolio securities transactions. The successful use of protective puts for
hedging purposes depends in part on Investment Services's ability to predict
future price fluctuations and the degree of correlation between the options and
securities markets.
Warrants and Rights
The Growth Portfolio may invest in warrants which entitle the holder to
buy equity securities at a specific price for a specific period of time but will
do so only if such equity securities are deemed appropriate by Investment
Services for investment by the Portfolio. Warrants have no voting rights,
receive no dividends and have no rights with respect to the assets of the
issuer.
Repurchase Agreements
Repurchase agreement have the characteristics of loans by the Portfolio
and will be fully collateralized (either with physical securities or evidence of
book entry transfer to the account of the custodian bank) at all times. During
the term of the repurchase agreement the Portfolio retains the security subject
to the repurchase agreement as collateral securing the seller's repurchase
obligation, continually monitors the market value of the security subject to the
agreement, and requires the seller to deposit with the Portfolio additional
collateral equal to any amount by which the market value of the security subject
to the repurchase agreement falls below the resale amount provided under the
repurchase agreement. The Portfolio will enter into repurchase agreements only
with member banks of the Federal Reserve System and with primary dealers in
United States Government securities or their wholly-owned subsidiaries whose
creditworthiness has been reviewed and found satisfactory by Investment Services
under procedures established by the Board of Directors and who have, therefore,
been determined to present minimal credit risk.
Securities underlying repurchase agreements will be limited to
certificates of deposit, commercial paper, bankers' acceptances, or obligations
issued or guaranteed by the United States government or its agencies or
instrumentalities, in which the Portfolio may otherwise invest.
If the seller of a repurchase agreement defaults and does not
repurchase the security subject to the agreement, the Portfolio would look to
the collateral security underlying the seller's agreement, including the
securities subject to the repurchase agreement, for satisfaction of the seller's
obligations to the Portfolio. In such event, the Portfolio might incur
disposition costs in liquidating the collateral and might suffer a loss if the
value of the
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collateral declines. In addition, if bankruptcy proceedings are instituted
against a seller of a repurchase agreement, realization upon the collateral may
be delayed or limited.
High-Yield ("Junk") Bonds
The total return and yield of lower quality, high yield bonds, commonly
referred to as "junk bonds," can be expected to fluctuate more than the total
return and yield of higher quality bonds but not as much as common stocks. Junk
bonds are regarded as predominately speculative with respect to the issuer's
continuing ability to meet principal and interest payments. Successful
investment in low and lower-medium quality bonds involves greater investment
risk and is highly dependent on Investment Services' credit analysis. A real or
perceived economic downturn or higher interest rates could cause a decline in
high yield bond prices, because such events could lessen the ability of issuers
to make principal and interest payments. These bonds are often thinly-traded and
can be more difficult to sell and value accurately than high-quality bonds.
Because objective pricing data may be less available, judgement may plan a
greater role in the valuation process. In addition, the entire junk bond market
can experience sudden and sharp price swings due to a variety of factors,
including changes in economic forecasts, stock market activity, large or
sustained sales by major investors, a high-profile default, or just a change in
the market's psychology. This type of volatility is usually associated more with
stocks than bonds, but junk bond investors should be prepared for it.
The Portfolio will not purchase a non-investment grade debt security
(or "junk bond") if immediately after such purchase the Portfolio would have
more than 10% of its total assets invested in such securities.
Foreign Securities
The Growth Portfolio may invest in the securities of foreign issuers
through the purchase of American Depository Receipts ("ADRs"). ADR's are
dollar-denominated securities that are issued by domestic banks or securities
firms and are traded on the U.S.
securities markets.
ADRs represent the right to receive securities of foreign issuers
deposited in a domestic bank or a foreign correspondent bank. Prices of ADRs are
quoted in U.S. dollars, and ADRs are traded in the United States on exchanges or
over-the-counter and are sponsored and issued by domestic banks. ADRs do not
eliminate all the risk inherent in investing in the securities of foreign
issuers. To the extent that the Portfolio acquires ADRs through banks which do
not have a contractual relationship with the foreign issuer of the security
underlying the ADR to issue and service such ADRs, there may be an increased
possibility that the Portfolio would not become aware of and be able to respond
to corporate actions such as stock splits or rights offerings involving the
foreign issuer in a timely manner. In addition, the lack of information may
result in inefficiencies in the valuation of such instruments. However, by
investing in ADRs rather than directly in the stock of foreign issuers, the
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Portfolio will avoid currency risks during the settlement period for either
purchases or sales. In general, there is a large, liquid market in the United
States for ADRs quoted on a national securities exchange or the NASD's national
market system. The information available for ADRs is subject to the accounting,
auditing and financial reporting standards of the domestic market or exchange on
which they are traded, which standards are more uniform and more exacting than
those to which many foreign issuers may be subject.
INVESTMENT RESTRICTIONS
Fundamental Policies and Restrictions
Certain investment restrictions and policies have been adopted by the
Fund as fundamental policies for the Portfolio. It is fundamental that the
Portfolio operate as a "diversified company" within the meaning of the
Investment Company Act of 1940. The investment objective of the Portfolio is
also a fundamental policy. See "Investment Objective and Policies" in the
Portfolio's Prospectus.
A fundamental policy is one that cannot be changed without the
affirmative vote of the holders of a majority (as defined in the 1940 Act) of
the outstanding votes attributable to the shares of the Portfolio. For purposes
of the 1940 Act, "majority" of share means the lesser of: (a) 67% or more of the
votes attributable to shares of the Portfolio present at a meeting, if the
holders of more than 50% of such votes are present or represented by proxy; or
(b) more than 50% of the votes attributable to shares of the Portfolio.
The Portfolio's fundamental policies and restrictions are:
1. 5% Fund Rule With respect to 75% of total assets, the Portfolio may
not purchase securities of any issuer if, as a result of the purchase, more than
5% of the Portfolio's total assets would be invested in the securities of the
issuer. This limitation does not apply to securities issued or guaranteed by the
United States government, its agencies or instrumentalities ("Government
Securities").
2. 10% Issuer Rule With respect to 75% of total assets, the
Portfolio may not purchase more than 10% of the voting securities of any one
issuer.
3. 25% Industry Rule The Portfolio may not invest more than 25%
of the value of its total assets in securities issued by companies engaged in
any one industry. This limitation does not apply to investments in Government
Securities.
4. Borrowing The Portfolio may borrow from banks for temporary or
emergency (not leveraging) purposes, including the meeting of redemption
requests and cash payments of dividends and distributions, provided such
borrowings do not exceed 5% of the value of the Portfolio's total assets.
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5. Lending The Portfolio may not lend its assets or money to other
persons, except through: (a) the acquisition of all or a portion of an issue of
bonds, debentures or other evidence of indebtedness of a type customarily
purchased for investment by institutional investors, whether publicly or
privately distributed. (The Portfolio does not presently intend to invest more
than 10% of the value of the Portfolio in privately distributed loans. It is
possible that the acquisition of an entire issue may cause the Portfolio to be
deemed an "underwriter" for purposes of the Securities Act of 1933); (b) lending
securities, provided that any such loan is collateralized with cash equal to or
in excess of the market value of such securities. (The Portfolio does not
presently intend to engage in the lending of securities); and (c) entering into
repurchase agreements.
6. Underwriting The Portfolio may not underwrite any issue of
securities, except to the extent that the sale of securities in accordance with
the Portfolio's investment objective, policies and limitations may be deemed to
be an underwriting, and except that the Portfolio may acquire securities under
circumstances in which, if the securities were sold, the Portfolio might be
deemed to be an underwriter for purposes of the Securities Act of 1933, as
amended.
7. Real Estate The Portfolio reserves the right to invest up to 10% of
the value of its assets in real properties, including property acquired in
satisfaction of obligations previously held or received in part payment on the
sale of other real property owned. The purchase and sale of real estate or
interests in real estate is not intended to be a principal activity of the
Portfolio. The Portfolio currently does not intend to invest more than 5% of its
net assets in real estate.
8.Commodities The Portfolio may not purchase or sell commodities or
commodities contracts.
9. Senior Securities The Portfolio may not issue senior securities.
All other investment policies and restrictions of the Portfolio are
considered by the Fund not to be fundamental and accordingly may be changed by
the Board of Directors without shareholder approval.
Non-Fundamental Restrictions
Non-fundamental restrictions represent the current intentions of the
Board of Directors, and they differ from fundamental investment restrictions in
that they may be changed or amended by the Board of Directors without prior
notice to or approval of shareholders.
The Portfolio's non-fundamental restrictions are:
1. Restricted and Illiquid Securities Purchases or
acquisitions may be made of securities which are not readily marketable by
reason of the fact that they are subject to the
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registration requirements of the Securities Act of 1933 or the salability of
which is otherwise conditioned, including real estate and certain repurchase
agreements or time deposits maturing in more than seven days ("restricted
securities"), as long as any such purchase or acquisition will not immediately
result in the value of all such restricted securities exceeding 15% of the value
of the Portfolio's total assets.
2. Securities of Other Investment Companies The Growth Portfolio does
not currently intend to make investments in the securities of other investment
companies. The Growth Portfolio does reserve the right to purchase such
securities, provided the purchase of such securities does not cause: (1) more
than 10% of the value of the total assets of the Portfolio to be invested in
securities of registered investment companies; or (2) the Portfolio to own more
than 3% of the total outstanding voting stock of any one investment company; or
(3) the Portfolio to own securities of any one investment company that have a
total value greater than 5% of the value of the total assets of the Portfolio;
or (4) together with other investment companies advised by Transamerica, the
Growth Portfolio to own more than 10% of the outstanding voting stock of a
closed-end investment company.
3. Short Sales The Portfolio may not make short sales of securities or
maintain a short position, unless at all times when the short position is open,
the Portfolio owns an equal amount of such securities or securities currently
exchangeable, without payment of any further consideration, for securities of
the same issue as, and at least equal in amount to, the securities sold short
(generally called a "short sale against the box") and unless not more than 10%
of the value of the Portfolio's net assets is deposited or pledged as collateral
for such sales at any one time.
4. Margin Purchases The Portfolio may not purchase securities on
margin, except that the Portfolio may obtain amy short-term credits necessary
for the clearance of purchases and sales of securities. For purposes of this
restriction, the deposit or payment of initial or variation margin in connection
with options on securities will not be deemed to be a purchase of securities on
margin by the Portfolio.
5.Invest for Control The Portfolio may not invest in companies for
the purpose of exercising management or control in that company.
6. Put and Call Options The Portfolio may not write put and
call options.
Interpretive Rules
For purposes of the foregoing restrictions, any limitation which
involves a maximum percentage will not be violated unless an excess over the
percentage occurs immediately after, and is caused by, an acquisition or
encumbrance of securities or assets of, or borrowings by, the Portfolio. In
addition, with regard to exceptions recited in a restriction, the Portfolio may
only rely on an exception if its investment objective(s) or policies (as
disclosed in the Prospectus) otherwise permit it to rely on the exception.
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INVESTMENT ADVISER
Transamerica Occidental Life Insurance Company ("Transamerica") is the
investment adviser of the Fund and its Portfolio. It will oversee the management
of the assets of the Portfolio by Investment Services. In turn, Investment
Services is responsible for the day-to-day management of Portfolio.
Investment Advisory Agreement
The investment adviser, Transamerica, has entered into an Investment
Advisory Agreement with the Fund under which Transamerica assumes overall
responsibility, subject to the supervision of the Board of Directors, for
administering all operations of the Fund and for monitoring and evaluating the
management of the assets of the Portfolio by Investment Services on an ongoing
basis. Transamerica provides or arranges for the provision of the overall
business management and administrative services necessary for the Fund's
operations and furnishes or procures any other services and information
necessary for the proper conduct of the Fund's business. Transamerica also acts
as liaison among, and supervisor of, the various service providers to the Fund.
Transamerica is also responsible for overseeing the Fund's compliance with the
requirements of applicable law and in conformity with the Portfolio's investment
objective(s), policies and restrictions, including oversight of Investment
Services.
For its services to the Fund, Transamerica receives an advisory fee of
0.75% of the average daily net assets of the Portfolio. The fee is deducted
daily from the assets of each of the Portfolio and paid to Transamerica
periodically. Transamerica pays the salaries and fees, if any, of all officers
and directors of the Fund who are "interested persons" (as defined in the 1940
Act) of Transamerica and of all personnel of Transamerica performing services
relating to research, statistical and investment activities; the expenses of
printing and distributing any prospectuses, reports or sales literatures
prepared for its use or the use of the Fund in connection with the sale of Fund
shares; the cost of any advertising; and the fees of the Sub-Adviser.
The Fund pays all of its expenses not assumed by Transamerica,
including custodian fees, legal and auditing fees, printing costs of reports to
shareholders, registration fees and expenses, and fees and expenses of directors
unaffiliated with Transamerica.
The Investment Advisory Agreement does not place limits on the
operating expenses of the Fund or of any Portfolio. However, Transamerica has
voluntarily undertaken to pay any such expenses (but not including brokerage or
other portfolio transaction expenses or expenses of litigation, indemnification,
taxes or other extraordinary expenses) to the extent that such expenses, as
accrued for the Portfolio, exceed .10% of the Portfolio's estimated average
daily net assets on an annualized basis.
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The Investment Advisory Agreement provides that Transamerica may render
similar services to others so long as the services that it provides to the Fund
are not impaired thereby. The investment advisory agreement also provides that
Transamerica shall not be liable for any error of judgment or mistake of law or
for any loss arising out of any investment or for any act or omission in the
management of the Fund, except for: (i) willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of reckless disregard
of its duties or obligations under the investment advisory agreement; and (ii)
to the extent specified in Section 36(b) of the 1940 Act concerning loss
resulting from a breach of fiduciary duty with respect to the receipt of
compensation.
The Investment Advisory Agreement was approved for the Portfolio by the
Board of Directors, including a majority of the Directors who are not parties to
the investment advisory agreement or "interested persons" (as such term is
defined in the 1940 Act) of any party thereto (the "non-interested Directors"),
on July 24, 1996, and will be submitted for the approval of the Contract Owners
of Separate Account Fund C at a Contract Owners meeting scheduled for October
30, 1996. The investment advisory agreement will remain in effect from year to
year provided such continuance is specifically approved as to the Portfolio at
least annually by: (a) the Board of Directors or the vote of a majority of the
votes attributable to shares of the Portfolio; and (b) the vote of a majority of
the non-interested Directors, cast in person at a meeting called for the purpose
of voting on such approval. The investment advisory agreement will terminate
automatically if assigned (as defined in the 1940 Act). The investment advisory
agreement is also terminable as to any Portfolio at any time by the Board of
Directors or by vote of a majority of the votes attributable to outstanding
voting securities of the applicable Portfolio (a) without penalty and (b) on 60
days' written notice to Transamerica. The agreement is also terminable by
Transamerica on 90 days' written notice to the Fund.
Investment Sub-Advisory Agreement
Transamerica has contracted with Transamerica Investment Services, Inc.
("Investment Services"), a wholly-owned subsidiary of Transamerica Corporation,
to render investment services to the Fund. Investment Services has been in
existence since 1967 and has provided investment services to investment
companies and the Transamerica Life Companies since 1980. Investment Services is
located at 1150 South Olive Street, Los Angeles, California 90015-2211.
Transamerica has agreed to pay Investment Services a monthly fee at the annual
rate of 0.30% of the first $50 million of the Portfolio's average daily net
assets, 0.25% of the next $150 million, and 0.20% of assets in excess of $200
million. Investment Services will provide recommendations on the management of
Fund assets, provide investment research reports and information, supervise and
manage the investments of the Portfolio, and direct the purchase and sale of
Portfolio investments. Investment decisions regarding the composition of the
Portfolio and the nature and timing of changes in the Portfolio are subject to
the control of the Board of Directors of the Fund.
- 12 -
12
<PAGE>
The investment sub-advisory agreement was approved for the Portfolio by
the Board of Directors, including a majority of the Directors who are not
parties to the investment sub-advisory agreement or "interested persons" (as
such term is defined in the 1940 Act) of any party thereto (the "non-interested
Directors"), on July 24, 1996, and will be submitted for the approval of the
Contract Owners of Separate Account Fund C at a Contract Owners meeting
scheduled for October 30, 1996. The investment sub-advisory agreement will
remain in effect from year to year provided such continuance is specifically
approved as to the Portfolio at least annually by: (a) the Board of Directors or
the vote of a majority of the votes attributable to shares of the Portfolio; and
(b) the vote of a majority of the non-interested Directors, cast in person at a
meeting called for the purpose of voting on such approval. The investment
sub-advisory agreement will terminate automatically if assigned (as defined in
the 1940 Act). The investment sub-advisory agreement is also terminable at any
time by the Board of Directors or by vote of a majority of the votes
attributable to outstanding voting securities of the Portfolio (a) without
penalty and (b) on 60 days' written notice to Investment Services. The agreement
is also terminable by Transamerica or Investment Services on 90 days' written
notice to the Fund.
PORTFOLIO TRANSACTIONS, PORTFOLIO TURNOVER AND BROKERAGE
Investment Services is responsible for decisions to buy and sell
securities for the Portfolio, the selection of brokers and dealers to effect the
transactions and the negotiation of brokerage commissions, if any. Purchases and
sales of securities on a securities exchange are effected through brokers who
charge a negotiated commission for their services. Orders may be directed to any
broker including, to the extent and in the manner permitted by applicable law,
affiliates of Transamerica or Investment Services.
In placing orders for portfolio securities of the Portfolio, Investment
Services is required to give primary consideration to obtaining the most
favorable price and efficient execution. This means that Investment Services
will seek to execute each transaction at a price and commission, if any, which
provide the most favorable total cost or proceeds reasonably attainable in the
circumstances. While Investment Services generally seeks reasonably competitive
spreads or commissions, the Portfolio will not necessarily be paying the lowest
spread or commission available. Within the framework of this policy, Investment
Services will consider research and investment services provided by brokers or
dealers who effect or are parties to portfolio transactions of the Portfolio,
Investment Services and its affiliates, or other clients of Investment Services
or its affiliates. Such research and investment services include statistical and
economic data and research reports on particular companies and industries. Such
services are used by Investment Services in connection with all of its
investment activities, and some of such services obtained in connection with the
execution of transactions for the Portfolio may be used in managing other
investment accounts. Conversely, brokers furnishing such services may be
selected for the execution of transactions of such other accounts, whose
aggregate assets are far larger than those of the Portfolio, and the services
furnished by such brokers may be used by Investment Services in providing
investment sub-advisory services for the Portfolio. In 1993, 1994, and 1995
- 13 -
13
<PAGE>
respectively, the brokerage commissions paid by Investment Services as
sub-adviser to Separate Account Fund C (the Fund's predecessor) were .07% ,
.02%, and .01% of the average assets, and the aggregate dollar amounts were
$10,058, $3,500, and $1,960, respectively.
On occasions when Investment Services deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as its other
advisory clients (including any other fund or other investment company or
advisory account for which Investment Services or an affiliate acts as
investment adviser), Investment Services, to the extent permitted by applicable
laws and regulations, may aggregate the securities to be sold or purchased for
the Portfolio with those to be sold or purchased for such other customers in
order to obtain the best net price and most favorable execution. In such event,
allocation of the securities so purchased or sold, as well as the expenses
incurred in the transaction, will be made by Investment Services in the manner
it considers to be most equitable as to each customer and consistent with its
fiduciary obligations to the Portfolio and such other customers. In some
instances, this procedure may adversely affect the price and size of the
position obtainable for the Portfolio.
Commission rates are established pursuant to negotiations with the
broker based on the quality and quantity of execution services provided by the
booker in the light of generally prevailing rates. The allocation of orders
among brokers and the commission rates paid are reviewed periodically by the
Board of Directors.
Changes will be made in the assets of the Portfolio if such changes are
considered advisable to better achieve the Portfolio's investment objectives. It
is anticipated that the annual portfolio turnover should not exceed 75%. The
portfolio turnover rates for Separate Account Fund C (the Fund's predecessor)
for 1994 and 1995 were 30.84% and 18.11%, respectively.
DETERMINATION OF NET ASSET VALUE
Under the 1940 Act, the Board of Directors is responsible for
determining in good faith the fair value of securities of the Portfolio. In
accordance with procedures adopted by the Board of Directors, the net asset
value per share is calculated by determining the net worth of the Portfolio
(assets, including securities at market value or amortized cost value, minus
liabilities) divided by the number of the Portfolio's outstanding shares. All
securities are valued as of the close of regular trading on the New York Stock
Exchange. The Portfolio will compute its net asset value once daily at the close
of such trading (normally 4:00 p.m. New York time), on each day (as described in
the Prospectus) that the Fund is open for business.
In the event that the New York Stock Exchange or the national
securities exchange on which stock options are traded adopt different trading
hours on either a permanent or temporary basis, the Board of Directors will
reconsider the time at which net asset value is
- 14 -
14
<PAGE>
computed. In addition, the Portfolio may compute their net asset value as of any
time permitted pursuant to any exemption, order or statement of the SEC or its
staff.
Portfolio assets of the Growth Portfolio are valued as follows:
(a) equity securities and other similar investments ("Equities")
listed on any U.S. or the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") are valued at
the last sale price on that exchange or NASDAQ on the
valuation day; if no sale occurs, Equities traded on a U.S.
exchange or NASDAQ are valued at the mean between the closing
bid and closing asked prices;
(b) over-the-counter securities not quoted on NASDAQ are valued at
the last sale price on the valuation day or, if no sale
occurs, at the mean between the last bid and asked prices;
(c) debt securities with a remaining maturity of 61 days or more
are valued on the basis of dealer-supplied quotations or by a
pricing service selected by Investment Services and approved
by the Board of Directors;
(d) options and futures contracts are valued at the last sale
price on the market where any such option contracts is
principally traded;
(e) over-the-counter options are valued based upon prices provided
by market
makers in such securities or dealers in such currencies;
(f) all other securities and other assets, including those for
which a pricing service supplies no quotations or quotations
are not deemed by Investment Services to be representative of
market values, but excluding debt securities with remaining
maturities of 60 days or less, are valued at fair value as
determined in good faith pursuant to procedures established by
the Board of Directors; and
(g) debt securities with a remaining maturity of 60 days or less
will be valued at their amortized cost which approximates
market value.
Equities traded on more than one U.S. national securities exchange are
valued at the last sale price on each business day at the close of the exchange
representing the principal market for such securities. If such quotations are
not available, the rate of exchange will be determined in good faith by or under
procedures established by the Board of Directors.
PERFORMANCE INFORMATION
The Fund may from time to time quote or otherwise use average annual
total return information for the Portfolio in advertisements, shareholder
reports or sales literature. Average annual total return quotations are computed
by finding the average annual compounded rates of return over one, five and ten
year periods that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
- 15 -
15
<PAGE>
P(1+T)n = ERV
Where:
P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000
investment made at the beginning of the one, five or
ten-year period at the end of the one, five, or
ten-year period (or fractional portion thereof).
Any performance data quoted for the Portfolio will represent historical
performance and the investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost.
The Fund is the successor to Transamerica Occidental's Separate Account
Fund C ("Separate Account Fund C"). Separate Account Fund C has been a separate
account of Transamerica registered under the 1940 Act on Form N-3 as an
open-end, diversified, management investment company. The reorganization of
Separate Account Fund C from a management investment company into a unit
investment trust called Separate Account C, is being submitted for the approval
of Contract Owners of Separate Account Fund C at a Contract Owners meeting
scheduled for October 30, 1996. Once the reorganization is approved, the assets
of Separate Account Fund C will be transferred intact to the Growth Portfolio of
the Fund in exchange for shares in the Growth Portfolio which will be held by
Separate Account C. As the successor to Separate Account Fund C, the Growth
Portfolio will treat the historical performance data of Separate Account Fund C
as its own for periods prior to the reorganization.
In computing its standardized total returns for periods prior to the
reorganization, the Fund will assume that the charges currently imposed by the
Fund were in effect through each of the periods for which the standardized
returns are presented. The Growth Portfolio's performance data will not reflect
any sales or insurance charges that were imposed under the annuity contracts
issued through Separate Account Fund C.
Any performance data quoted for the Portfolio will represent historical
performance, and the investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or less
than original cost. Performance data for the Portfolio will not reflect charges
deducted under the variable annuity contracts. If contract charges are taken
into account, such performance data would reflect lower returns. Accordingly,
any advertisement that includes performance data for the Portfolio will also
include performance data for the variable annuity contracts.
- 16 -
16
<PAGE>
From time to time the Fund may disclose cumulative total returns in
conjunction with the standard format described above. The cumulative total
returns will be calculated using the following formula:
CTR = (ERV/P) - 1
Where:
CTR = The cumulative total return net of
Portfolio recurring charges for the
period.
ERV = The ending redeemable value of the
hypothetical investment at the
end of the period.
P = A hypothetical single payment of $1,000.
From time to time the Fund may publish an indication of the Portfolio'
past performance as measured by independent sources such as (but not limited to)
Lipper Analytical Services, Weisenberger Investment Companies Service,
Donoghue's Money Portfolio Report, Barron's, Business Week, Changing Times,
Financial World, Forbes, Fortune, Money, Personal Investor, Sylvia Porter's
Personal Finance and The Wall Street Journal. The Fund may also advertise
information which has been provided to the NASD for publication in regional and
local newspapers. In addition, the Fund may from time to time advertise its
performance relative to certain indices and benchmark investments, including
(but not limited to): (a) the Lipper Analytical Services, Inc. Mutual Portfolio
Performance Analysis, Fixed-Income Analysis and Mutual Portfolio Indices (which
measure total return and average current yield for the mutual fund industry and
rank mutual fund performance); (b) the CDA Mutual Portfolio Report published by
CDA Investment Technologies, Inc. (which analyzes price, risk and various
measures of return for the mutual fund industry); (c) the Consumer Price Index
published by the U.S. Bureau of Labor Statistics (which measures changes in the
price of goods and services); (d) Stocks, Bonds, Bills and Inflation published
by Ibbotson Associates (which provides historical performance figures for
stocks, government securities and inflation); (e) the Hambrecht & Quist Growth
Stock Index; (f) the NASDAQ OTC Composite Prime Return; (g) the Russell Midcap
Index; (h) the Russell 2000 Index - Total Return; (i) the ValueLine
Composite-Price Return; (j) the Wilshire 4500 Index; (k) the Salomon Brothers'
World Bond Index (which measures the total return in U.S. dollar terms of
government bonds, Eurobonds and foreign bonds of ten countries, with all such
bonds having a minimum maturity of five years); (l) the Shearson Lehman Brothers
Aggregate Bond Index or its component indices (the Aggregate Bond Index measures
the performance of Treasury, U.S. Government agencies, mortgage and Yankee
bonds); (m) the S&P Bond indices (which measure yield and price of corporate,
municipal and U.S. Government bonds); (n) the J.P. Morgan Global Government Bond
Index; (o) Donoghue's Money Market Portfolio Report (which provides industry
averages of 7-day annualized and compounded yields of taxable, tax-free and U.S.
Government money market funds); (p) other taxable investments including
- 17 -
17
<PAGE>
certificates of deposit, money market deposit accounts, checking accounts,
savings accounts, money market mutual funds and repurchase agreements; (q)
historical investment data supplied by the research departments of Goldman
Sachs, Lehman Brothers, First Boston Corporation, Morgan Stanley (including
EAFE), Salomon Brothers, Merrill Lynch, Donaldson Lufkin and Jenrette or other
providers of such data; (r) the FT-Actuaries Europe and Pacific Index; (s)
mutual fund performance indices published by Variable Annuity Research & Data
Service; (t) S&P 500 Index; and (u) mutual fund performance indices published by
Morningstar, Inc. The composition of the investments in such indices and the
characteristics of such benchmark investments are not identical to, and in some
cases are very different from, those of the Portfolio's investments. These
indices and averages are generally unmanaged and the items included in the
calculations of such indices and averages may be different from those of the
equations used by the Fund to calculate the Portfolio's performance figures.
The Fund may from time to time summarize the substance of discussions
contained in shareholder reports in advertisements and publish Investment
Services' views as to markets, the rationale for the Portfolio's investments and
discussions of the Portfolio's current asset allocation.
From time to time, advertisements or information may include a discussion
of certain attributes or benefits to be derived by an investment in a particular
Portfolio. Such advertisements or information may include symbols, headlines or
other material which highlight or summarize the information discussed in more
detail in the communication.
Such performance data will be based on historical results and will not be
intended to indicate future performance. The total return of the Portfolio will
vary based on market conditions, portfolio expenses, portfolio investments and
other factors. The value of the Portfolio's shares will fluctuate and an
investor's shares may be worth more or less than their original cost upon
redemption. The Fund may also, at its discretion, from time to time make a list
of the Portfolio's holdings available to investors upon request.
FEDERAL TAX MATTERS
The Portfolio intends to qualify and to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). In order to qualify for that treatment, the Portfolio must
distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income, consisting of net investment income , net
short-term capital gain and net gains from certain foreign currency
transactions.
Sources of Gross Income. To qualify for treatment as a regulated
investment company, the Portfolio must also, among other things, derive its
income from certain sources. Specifically, in each taxable year, the Portfolio
must generally derive at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, gains from the sale
- 18 -
18
<PAGE>
or other disposition of securities or foreign currencies, or other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in securities, or
these currencies. The Portfolio must also generally derive less than 30% of its
gross income each taxable year from the sale or other disposition of any of the
following which was held for less than three months: (1) stock or securities,
(2) options, futures, or forward contracts (other than options, futures, or
forward contracts on foreign currencies), or (3) foreign currencies (or options,
futures, or forward contracts on foreign currencies) that are not directly
related to the Portfolio's principal business of investing in stock or
securities (or options and futures with respect to stock or securities). For
purposes of these tests, gross income generally is determined without regard to
losses from the sale or other disposition of stock or securities or other
Portfolio assets.
Diversification of Assets. To qualify for treatment as a regulated
investment company, the Portfolio must also satisfy certain requirements with
respect to the diversification of its assets. The Portfolio must have, at the
close of each quarter of the Portfolio's taxable year, at least 50% of the value
of its total assets represented by cash, cash items, United States Government
securities, securities of other regulated investment companies, and other
securities which, in respect of any one issuer, do not exceed 5% of the value of
the Portfolio's total assets and that do not represent more than 10% of the
outstanding voting securities of the issuer. In addition, not more than 25% of
the value of the Portfolio's total assets may be invested in securities (other
than United States Government securities or the securities of other regulated
investment companies) of any one issuer, or of two or more issuers which the
Portfolio controls and which are engaged in the same or similar trades or
businesses or related trades or businesses. For purposes of the Portfolio's
requirements to maintain diversification for tax purposes, the issuer of a loan
participation will be the underlying borrower. In cases where the Portfolio does
not have recourse directly against the borrower, both the borrower and each
agent bank and co-lender interposed between the Portfolio and the borrower will
be deemed issuers of the loan participation for tax diversification purposes.
The Portfolio's investments in U.S. Government Securities are not subject to
these limitations. The foregoing diversification requirements are in addition to
those imposed by the Investment Company Act of 1940 (the "1940 Act").
Because the Fund is established as an investment medium for variable
annuity contracts, Section 817(h) of the Code imposes additional diversification
requirements on the Portfolio. These requirements which are in addition to the
diversification requirements mentioned above, place certain limitations on the
proportion of the Portfolio's assets that may be represented by any single
investment. In general, no more than 55% of the value of the assets of the
Portfolio may be represented by any one investment; no more than 70% by any two
investments; no more than 80% by any three investments; and no more than 90% by
any four investments. For these purposes, all securities of the same issuer are
treated as a single investment and each United States government agency or
instrumentality is treated as a separate issuer.
- 19 -
19
<PAGE>
Additional Tax Considerations. The Portfolio will not be subject to the 4%
Federal excise tax imposed on amounts not distributed to shareholders on a
timely basis because the Portfolio intends to make sufficient distributions to
avoid such excise tax. If the Portfolio failed to qualify as a regulated
investment company, owners of Contracts based on the Portfolio: (1) might be
taxed currently on the investment earnings under their Contracts and thereby
lose the benefit of tax deferral; and (2) the Portfolio might incur additional
taxes. In addition, if the Portfolio failed to qualify as a regulated investment
company, or if the Portfolio failed to comply with the diversification
requirements of Section 817(h) of the Code, owners of Contracts based on the
Portfolio would be taxed on the investment earnings under their Contracts and
thereby lose the benefit of tax deferral. Accordingly, compliance with the above
rules is carefully monitored by Investment Services and it is intended that the
Portfolio will comply with these rules as they exist or as they may be modified
from time to time. Compliance with the tax requirements described above may
result in a reduction in the return under the Portfolio, since, to comply with
the above rules, the investments utilized (and the time at which such
investments are entered into and closed out) may be different from that
Investment Services might otherwise believe to be desirable.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury Regulations currently in effect. It is not
intended to be a complete explanation or a substitute for consultation with
individual tax advisers. For the complete provisions, reference should be made
to the pertinent Code sections and the Treasury Regulations promulgated
thereunder. The Code and Regulations are subject to change.
SHARES OF STOCK
Each issued and outstanding share of the Portfolio is entitled to
participate equally in dividends and distributions declared for the Portfolio's
stock and, upon liquidation or dissolution, in the Portfolio's net assets
remaining after satisfaction of outstanding liabilities. The shares of the
Portfolio, when issued, will be fully paid and non-assessable and have no
preemptive or conversion rights.
As the designated successor to Separate Account Fund C, the Fund will
receive the assets of Separate Account Fund C. In exchange, the Fund will
provide Separate Account C with shares in the Growth Portfolio.
Under normal circumstances, subject to the reservation of rights explained
below, the Fund will redeem shares of the Portfolio in cash within 7 days.
However, the right of a shareholder to redeem shares and the date of payment by
the Fund may be suspended for more than seven days for any period during which
the New York Stock Exchange is closed, other than the customary weekends or
holidays, or when trading on such Exchange is restricted as determined by the
SEC; or during any emergency, as determined by the SEC, as a result of which it
is not reasonably practicable for the Portfolio to dispose of securities owned
by it or fairly to determine the value of its net assets; or for such other
period as the SEC may by order permit for the protection of shareholders.
- 20 -
20
<PAGE>
Under Maryland law, the Fund is not required to hold annual shareholder
meetings and does not intend to do so.
CUSTODY OF ASSETS
Pursuant to a custody agreement with the Fund, State Street Bank and Trust
Company ("State Street") will hold the cash and portfolio securities of the Fund
as custodian.
State Street is responsible for holding all securities and cash of the
Portfolio, receiving and paying for securities purchased, delivering against
payment securities sold, and receiving and collecting income from investments,
making all payments covering expenses of the Fund, all as directed by persons
authorized by the Fund. State Street does not exercise any supervisory function
in such matters as the purchase and sale of portfolio securities, payment of
dividends, or payment of expenses of the Portfolio or the Fund. Portfolio
securities of the Portfolio purchased domestically are maintained in the custody
of State Street and may be entered into the Federal Reserve, Depository Trust
Fund, or Participant's Trust Fund book entry systems.
<TABLE>
<CAPTION>
DIRECTORS AND OFFICERS
The Directors and officers of the Fund are listed below together with
their respective positions with the Fund and a brief statement of their
principal occupations during the past five years.
Positions and Offices
Name, Age and Address** with the Fund Principal Occupation During the Past Five Years
- ----------------------- ------------- -----------------------------------------------
<S> <C> <C>
Donald E. Cantlay (74) Board of Directors Director, Managing General Partner of Cee 'n' Tee
Company; Director of California Trucking Association
and Western Highway Institute; Director of FPA
Capital Fund and FPA New Income Fund.
Richard N. Latzer (59)* Board of Directors President, Chief Executive Officer and Director of
Transamerica Investment Services, Inc.; Director,
Senior Vice President and Chief Investment Officer of
Transamerica Corporation.
DeWayne W. Moore (82) Board of Directors Retired Senior Vice President, Chief Financial Officer
and Director of Guy F. Atkinson Company of
California; Director of FPA Capital Fund and FPA
New Income Fund.
Gary U. Rolle (54)* Chairman, Board of Director, Transamerica Investors, Inc.; Director,
Directors Executive Vice President and Chief Investment
Officer of
Transamerica
Investment
Services, Inc.;
Director and Chief
Investment Officer
of Transamerica
Occidental Life
Insurance Company.
- 21 -
21
<PAGE>
Peter J. Sodini (55) Board of Directors Associate, Freeman Spogli & Co. (a private Investor);
President and Chief Executive Officer, Purity
Supreme, Inc. (a supermarket). President and Chief
Executive Officer, Quality Foods International
(supermarkets); Director Pamida Holdings Corp. (a
retail merchandiser) and Buttrey Food and Drug Co.
(a supermarket).
Barbara A. Kelley (42) President President, Chief Operating Officer and Director of
Transamerica Financial Resources, Inc. and President
and Director of Transamerica Securities Sales
Corporation, Transamerica Advisors, Inc.,
Transamerica Product, Inc., Transamerica Product,
Inc. I, Transamerica Product, Inc. II, Transamerica
Product, Inc. IV, and Transamerica Leasing Ventures,
Inc.
***Matt Coben (35) Vice President Broker/Dealer Channel of Transamerica Life
Insurance and Annuity Company and prior to 1994
Vice President and National Sales Manager of the
Dreyfus Service Organization
Sally S. Yamada (45) Treasurer and Vice President and Treasurer of Transamerica
Assistant Secretary Occidental Life Insurance Company and Treasurer of
Transamerica Life Insurance and Annuity Company.
Thomas M. Adams (60) Secretary Partner in the law firm of Lanning & Adams.
</TABLE>
* These members of the Board are or may be interested persons as
defined by Section 2(a) (19) of
the 1940 Act.
** The mailing address of each Board member and officers is 1150
South Olive, Los Angeles, California 90015.
*** The mailing address of this Baord member is 101 North Tryon
Street, Suite 1070, Charlotte North Carolina 28246.
The principal occupations listed above apply for the last five years.
In some instances, occupation listed above is the current position. Prior
positions with the same company or affiliate are not indicated.
Each of the officers and members of the Board of the Fund holds the
same position with Transamerica Occidental's Separate Account Fund B. The
members of the Board of Directors are also members of the Board of Directors of
Transamerica Income Shares , Inc., a closed-end management company advised by
Transamerica Investment Services, Inc. Mr.
Rolle is a director of Transamerica Investors, Inc.
- 22 -
22
<PAGE>
Compensation
The following table shows the compensation expected to be paid during
the current fiscal year to all directors of the Fund by Transamerica pursuant to
its investment advisory agreement with the Fund.
<TABLE>
<CAPTION>
Name of Person Aggregate Total Pension or Compensation
Compensation Retirement Benefits From
From Fund Accrued As Part of Registrant
Fund Expenses and Fund
Complex Paid
to Directors
<S> <C> <C> <C>
Donald E. Cantlay $1,000 -0- $6,000
Richard N. Latzer -0- -0- -0-
DeWayne W. $1,000 -0- $6,250
Moore
Gary U. Rolle -0- -0- -0-
Peter J. Sodini $1,000 -0- $6,250
- --------------------------------
</TABLE>
* None of the members of the Board of Directors currently receives any pension
or retirement benefits from Transamerica due to services rendered to the Fund
and thus will not receive any benefits upon retirement from the Fund.
LEGAL PROCEEDINGS
There is no pending material legal proceeding affecting the Fund.
Transamerica is involved in various kinds of routine litigation which, in
management's judgment, are not of material importance to Transamerica's assets.
OTHER INFORMATION
Legal Counsel
Sutherland, Asbill & Brennan, 1275 Pennsylvania Avenue, N.W.,
Washington, D.C. 20004-2404, has provided advice to the Fund with respect to
certain matters relating to federal securities laws.
- 23 -
23
<PAGE>
Other Information
The Prospectus and this Statement do not contain all the information
included in the registration statement filed with the SEC under the 1933 Act
with respect to the securities offered by the Prospectus. Certain portions of
the registration statement have been omitted from the Prospectus and this
Statement pursuant to the rules and regulations of the SEC. The registration
statement including the exhibits filed therewith may be examined at the office
of the SEC in Washington, D.C.
Statements contained in the Prospectus or in this Statement as to the
contents of any contract or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or other document filed as an exhibit to the registration statement of which the
Prospectus and this Statement form parts, each such statement being qualified in
all respects by such reference.
Financial Statements
This Statement of Additional Information does not contain audited or
unaudited financial statements for the Portfolio because as of the date of this
Statement the Portfolio has not yet commenced operations, has no assets or
liabilities, has incurred no expenses and has received no income. It is
anticipated that Ernst & Young LLP, 515 South Flower Street, Los Angeles,
California 90071, will act as the Portfolio's independent certified public
accountants.
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APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS1
A. Moody's Investors Service, Inc.
Aaa: Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered a medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or maybe characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements
and their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safe-guarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
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1The rating systems described herein are believed to be the most recent ratings
systems available from Moody's Investors Service, Inc. ("Moody's") and Standard
& Poor's Corporation ("S&P") at the date of this Statement for the securities
listed. Ratings are generally given to securities at the time of issuance. While
the rating agencies may from time to time revise such ratings, they undertake no
obligations to do so, and the ratings indicated do not necessarily represent
ratings which will be given to these securities on the date of the Fund's fiscal
year end.
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B: Bonds which are rated B generally lack characteristics of a
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa: Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest principal or interest.
Ca: Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
Unrated: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that are
not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in
Moody's publications.
Suspension or withdrawal may occur if new and material circumstances
arise, the effects of which preclude satisfactory analysis; if there is no
longer available reasonable up-to-date data to permit a judgment to be formed;
if a bond is called for redemption; or for other reasons.
Note: Those bonds in the Aa, A and Baa groups which Moody's believe possess
the strongest investment attributes are designated by the symbols Aa1,
A1 and Baa1.
B. Standard & Poor's Corporation's
AAA: Bonds rated AAA have the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
AA: Bonds rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in small degree.
A: Bonds rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
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BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
bonds in this category than in higher rated categories.
BB--B--CCC--CC--C: Bonds rated BB, B, CCC, CC and C are regarded as
having predominantly speculative characteristics with respect to the issuer's
capacity to pay interest and repay principal. BB indicates the least degree of
speculation and C the highest. While such bonds will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified
by the addition of a plus or minus sign to show relative standing within the
major rating categories.
Unrated: Indicates that no public rating has been requested, that there
is insufficient information on which to base a rating, or that S&P does not rate
a particular type of obligation as a matter of policy.
Notes: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the
risks of lower-rated speculative obligations. The Portfolio is
dependent on Investment Services' judgment, analysis and experience in
the evaluation of such bonds.
