1
GROWTH PORTFOLIO
of the
TRANSAMERICA VARIABLE INSURANCE FUND, INC.
1150 South Olive Street, Los Angeles, California 90015,
(213) 742-2111
PROSPECTUS
May 1, 1998
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 currently 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").
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, 401 North Tryon Street,
Suite 700, Charlotte, North Carolina 28202, or by calling 800-258-4260. The
Statement of Additional Information, which has the same date as this Prospectus,
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.
<PAGE>
TABLE OF CONTENTS
9
Page
CONDENSED FINANCIAL INFORMATION....................................1
TRANSAMERICA VARIABLE INSURANCE FUND, INC..........................3
GROWTH PORTFOLIO...................................................3
INVESTMENT OBJECTIVE AND POLICIES..................................3
INVESTMENT METHODS AND RISKS.......................................4
Small Capitalization Companies............................4
Convertible Securities....................................5
High-Yield ("Junk") Bonds.................................5
Repurchase Agreements.....................................5
State Insurance Regulation................................6
PORTFOLIO TURNOVER.................................................6
MANAGEMENT.........................................................6
Directors and Officers....................................6
Investment Adviser........................................6
Investment Sub-Adviser....................................7
PERFORMANCE INFORMATION............................................7
DETERMINATION OF NET ASSET VALUE...................................8
OFFERING, PURCHASE AND REDEMPTION OF SHARES........................8
INCOME, DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS....................9
TAXES ............................................................9
OTHER INFORMATION....................................................9
Preparing for Year 2000......................................
Reports ............................................................9
Voting and Other Rights.....................................9
Custody of Assets and Administrative Services..............10
Summary of Bond Ratings....................................10
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION.................................11
<PAGE>
CONDENSED FINANCIAL INFORMATION
Financial Highlights
The following table gives information regarding income, expenses and
capital changes for the Growth Portfolio of the Transamerica Variable Insurance
Fund, Inc. (formerly Transamerica Occidental's Separate Account Fund C)
attributable to a Portfolio share outstanding throughout the periods indicated.
The information is presented as if the reorganization of Separate Account Fund
C, described below, in which the assets and liabilities of the Separate Account
were transferred intact to the Growth Portfolio, had always been in effect. The
activity prior to the November 1, 1996, reorganization of Separate Account Fund
C, represents accumulation unit values of Separate Account Fund C which have
been converted into share values for presentation purposes.
The per share data in the table for the period January 1, 1993, through
December 31, 1997, has been audited by Ernst & Young LLP, independent auditors
of the Fund, in connection with the annual audits of the Portfolio's financial
statements. The per share data in the table for the period January 1, 1988,
through December 31, 1991, is based upon data from the audited financial
statements of Separate Account Fund C, but Ernst & Young, LLP has not audited
the conversion of that data to Growth Portfolio share values. Prior to November
1, 1996, activity represents accumulated unit values of Separate Account Fund C
which have been converted to share values for presentation purposes. The
financial statements which appear in the Statement of Additional Information are
dated as of December 31, 1997.
<TABLE>
<CAPTION>
GROWTH PORTFOLIO
- -------------------------------------------------------- ------------- ---------- --------- ------------ ----------
1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $10.93 $8.582 $5.615 $5.239 $4.287
- -------------------------------------------------------- ------------- ---------- --------- ------------ ----------
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Investment Operations
Net investment income (loss) (0.05) (0.065) (0.069) (0.042) (0.030)
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Net realized and unrealized gain 5.13 2.413 3.036 0.418 0.982
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Total from investment operations 5.08 2.348 2.967 0.376 0.952
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Distribution from realized gains (1.26) - - - -
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Net asset value, end of year $14.75 $10.930 $8.582 $5.615 $5.239
====== ======= ====== ====== ======
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Total Return 46.50% 27.36% 52.84% 7.19% 22.20%
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Ratios and Supplemental Data
- -------------------------------------------------------- ------------- ---------- --------- ------------ ----------
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Net assets, end of year (in thousands) $46,378 $32,238 $25,738 $17,267 $16,584
- -------------------------------------------------------- ------------- ---------- --------- ------------ ----------
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Expenses to average net assets (1) 0.85% 1.27% 1.41% 1.43% 1.43%
- -------------------------------------------------------- ------------- ---------- --------- ------------ ----------
- -------------------------------------------------------- ------------- ---------- --------- ------------ ----------
Net investment income (loss) to average net assets (2) (0.39%) (0.68%) (0.94%) (0.80%) (0.65%)
- -------------------------------------------------------- ------------- ---------- --------- ------------ ----------
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Portfolio turnover rate 20.54% 34.58% 18.11% 30.84% 42.04%
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Average commission rate (3) $0.0575 $0.07 - - -
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1992 1991 1990 1989 1988
- -------------------------------------------------------- ------------- ---------- ----------- ---------- ----------
- -------------------------------------------------------- ------------- ---------- ----------- ---------- ----------
Net asset value, beginning of year $3.783 $2.689 $3.026 $2.266 $1.694
- -------------------------------------------------------- ------------- ---------- ----------- ---------- ----------
- -------------------------------------------------------- ------------- ---------- ----------- ---------- ----------
Investment Operations
Net investment income (loss) (0.012) (0.009) (0.022) (0.010) (0.054)
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Net realized and unrealized gain 0.492 1.085 (0.360) 0.750 0.517
- -------------------------------------------------------- ------------- ---------- ----------- ---------- ----------
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Total from investment operations 0.504 1.095 (0.337) 0.760 0.572
- -------------------------------------------------------- ------------- ---------- ----------- ---------- ----------
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Net asset value, end of year $4.287 $3.783 $2.689 $3.026 $2.266
====== ====== ====== ====== ======
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Total Return 13.32% 40.71% (11.14%) 33.56 33.74%
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Ratios and Supplemental Data
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Net assets, end of year (in thousands) $13,966 $12,516 $9,281 $10,861 $8,453
- -------------------------------------------------------- ------------- ---------- ----------- ---------- ----------
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Expenses to average net assets (1) 1.43% 1.43% 1.43% 1.44% 1.43%
- -------------------------------------------------------- ------------- ---------- ----------- ---------- ----------
- -------------------------------------------------------- ------------- ---------- ----------- ---------- ----------
Net investment income (loss) to average net assets (2) (0.31%) 0.28% 0.81% 0.37% 2.66%
- -------------------------------------------------------- ------------- ---------- ----------- ---------- ----------
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Portfolio turnover rate 43.07% 32.90% 49.87% 22.39% 52.18%
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Average commission rate (3) - - - - -
- -------------------------------------------------------- ------------- ---------- ----------- ---------- ----------
</TABLE>
(1) If the Investment Adviser had not reimbursed expenses, the ratio of
operating expenses to average net assets would have been 0.98% and 1.34%
for the years ended December 31, 1997 and 1996, respectively.
(2) If the Investment Adviser had not reimbursed expenses the ratio of net
investment loss to average net assets would have been (0.52%) and (0.75%)
for the years ended December 31, 1997 and 1996, respectively.
(3) This disclosure is required for fiscal periods beginning on or after
September 1, 1995, and represents
the average commission rate paid on equity security transactions on which
commissions are charged.
<PAGE>
TRANSAMERICA VARIABLE INSURANCE FUND, INC.GROWTH PORTFOLIO
Transamerica Variable Insurance Fund, Inc. (the "Fund") is an open-end,
diversified management investment company established as a Maryland Corporation
on June 23, 1995. The Fund currently consists of two investment portfolios, the
Growth Portfolio and the Money Market Portfolio. This prospectus sets forth
information about the Growth Portfolio only. Additional Portfolios may be
created from time to time. By investing in the Growth Portfolio, an investor
becomes entitled to a pro rata share of all dividends and distributions arising
from the net income and capital gains, if any, on the investments of the Growth
Portfolio. Likewise, an investor shares pro-rata in any losses of the
Portfolio.
The Growth Portfolio is the 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 was approved at a meeting of the Contract owners held on
October 30, 1996. The asset and liabilities of Separate Account Fund C as of the
close of business October 31, 1996, were transferred intact to the Growth
Portfolio in exchange for shares 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" or "Sub-Adviser" or "Manager") to act as the Fund's sub-advisor to
provide the day-to-day portfolio management for the Portfolio.
The Portfolios are designed primarily to serve as investment vehicles for
variable annuity and variable life insurance contracts offered by separate
accounts of various insurance companies. The Fund may sell its shares to
qualified pension and retirement plans, but currently does not do so. The Fund
does not offer its stock directly to the general public.
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.
The Growth Portfolio's investment objective is long-term capital
growth. Common stock, listed and unlisted, is the basic form of investment. The
Growth Portfolio invests primarily in common stocks of growth companies that are
considered by the manager to be premier companies. In the manager's view,
characteristics of premier companies include one or more of the following:
dominant market share; leading brand recognition; proprietary products or
technology; low-cost production capability; and excellent management with
shareholder orientation. The manager of the Portfolio believes in long-term
investing and places great emphasis on the sustainability of the above
competitive advantages. Unless market conditions indicate otherwise, the manager
also tries to keep the Portfolio fully invested in equity-type securities and
does not try to time stock market movements.
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. 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 and fluctuations in the price of securities owned by the Portfolio.
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 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.
Convertible Securities
The Growth Portfolio may invest 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.
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 10 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 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 Investment Adviser and
Investment Sub-Adviser, 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.
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.
Sub-Adviser
Transamerica has contracted with Transamerica Investment Services, Inc.
("Investment Services" or "Sub-Adviser" or "Manager"), 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 since 1968 and to the Transamerica Life
Companies since 1981. 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 presently none are. 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 in 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.
As the successor to Separate Account Fund C, the Growth Portfolio
treats the historical performance data of Separate Account Fund C as its own for
periods prior to the reorganization. The performance data for the Growth
Portfolio prior to the reorganization does not reflect any sales or insurance
charges, or any other separate account or contract level 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 is not advertised unless accompanied by comparable data for the applicable
variable annuity or variable life insurance policy. The Portfolio'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 a participation agreement between the Fund and
Transamerica, shares of the Portfolio are sold in a continuous offering and are
authorized to be offered to Separate Account C to support its variable annuity
contracts (the "Contracts"). Net purchase payments under the Contracts are
placed in Separate Account C and the assets of the Separate Account C are
invested in the shares of the Growth Portfolio. Separate Account C purchases and
redeems shares of the Portfolio at net asset value without sales or redemption
charges.
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 are
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 distributes substantially all of its net
investment income in the form of dividends to its shareholders. The Growth
Portfolio declares its dividends and capital gain distributions at least
annually.
TAXES
The Fund believes that the Portfolio qualifies 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 are currently limited to Separate
Account C and Transamerica. 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
Preparing For Year 2000
Many computer software systems in use today cannot distinguish the year 2000
from the year 1900 because dates are encoded using the standard six-place format
that allows entry of only the last two digits of the year. This is commonly
known as the "Year 2000 Problem." This issue could adversely impact the Fund if
the computer systems used by the Fund's Investment Adviser, Sub-Adviser,
Custodian, transfer agent and other service providers do not accurately process
date information after January 1, 2000. The Investment Adviser and Sub-Adviser
are addressing this issue by testing the computer systems they use to ensure
that those systems will operate properly after January 1, 2000, and they are
also seeking assurances from the Custodian, transfer agent and other service
providers they use that their computer systems will be adapted to address the
Year 2000 Problem in time to prevent adverse consequences after January 1, 2000.
However, especially when taking into account interaction with other systems, it
is difficult to predict with precision that there will be no disruption of
services in connection with the year 2000.
<PAGE>
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.
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 and does not intend to do so. 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.
Transamerica currently owns 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" or "Custodian"), 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.
FOR MORE INFORMATION
The Statement of Additional Information ("SAI") contains more detailed
information on the Portfolios. The current SAI has been filed with the
Securities and Exchange Commission and is incorporated by reference into this
prospectus (is legally part of this prospectus).
To request a free copy of the SAI, please write or call the Fund at:
Transamerica Annuity Service Center
401 North Tryon Street, Suite 700
Charlotte, North Carolina 28202
800-258-4260
<PAGE>
22
STATEMENT OF ADDITIONAL INFORMATION
GROWTH PORTFOLIO
of the
TRANSAMERICA VARIABLE INSURANCE FUND, INC.
May 1, 1998
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 May 1, 1998,
Prospectus write to the Fund at the Transamerica Annuity Service Center, 401
North Tryon Street, Suite 700, Charlotte, North Carolina 28202, or by calling
800-258-4260.
<PAGE>
TABLE OF CONTENTS
Page
INTRODUCTION 1
ADDITIONAL INVESTMENT POLICY INFORMATION 1
SPECIAL INVESTMENT METHODS AND RISKS 2
Restricted and Illiquid Securities
2
Borrowing 2
Other Investment Companies 2
Options on Securities and Securities Indices
3
Warrants and Rights
4
Repurchase Agreements 4
High-Yield ("Junk") Bond 5
Foreign Securities 5
INVESTMENT RESTRICTIONS 5
Fundamental Restrictions
5
Non-Fundamental Restrictions
7
Interpretive Rules
7
INVESTMENT ADVISER 8
Investment Advisory Agreement
8
Investment Sub-Advisory Agreement 9
PORTFOLIO TRANSACTIONS, PORTFOLIO TURNOVER AND BROKERAGE 9
DETERMINATION OF NET ASSET VALUE 10
PERFORMANCE INFORMATION 11
FEDERAL TAX MATTERS 13
SHARES OF STOCK 14
CUSTODY OF ASSETS 15
DIRECTORS AND OFFICERS 15
Compensation 16
LEGAL PROCEEDINGS 17
OTHER INFORMATION 17
Legal Counsel
17
Other Information 17
Independent Auditors 18
Financial Statements
18
APPENDIX A
19
<PAGE>
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's Growth Portfolio is the 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, was approved at a meeting of the Contract
owners held on October 30, 1996. The assets of Separate Account Fund C, as of
close of business October 31, 1996, were transferred intact to the Growth
Portfolio of the Fund in exchange for shares in the Growth Portfolio which are
held by Separate Account C.
The Fund currently consists of two investment portfolios, the Growth
Portfolio (the "Portfolio" or "Growth Portfolio") and the Money Market
Portfolio. This Statement of Additional Information sets forth information about
the Growth Portfolio only. By investing in the Growth 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 insurance
companies as an underlying funding vehicle for variable annuity and variable
life insurance contracts (the "Contracts"). The Contracts are registered with
the Securities and Exchange Commission ("SEC"), and have separate prospectuses
and Statements of Additional Information.
The Fund may, in the future, offer its stock to qualified pension and
retirement plans. The Fund does not offer its stock directly to the general
public.
As of April 15, 1998, 95.763% of the outstanding shares of the Growth
Portfolio were owned by Transamerica on behalf of Separate Account C, and 4.237%
of the outstanding shares were owned by Transamerica Life Insurance and Annuity
Company on behalf of Separate Account VA-6.
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.
<PAGE>
SPECIAL INVESTMENT METHODS AND RISKS
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 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 a 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 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 a 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 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 and that 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 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 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, judgment 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
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" 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.
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 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 any 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.
INVESTMENT ADVISER
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 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 the Portfolio and paid to Transamerica periodically.
Transamerica or its affiliates 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 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, 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 0.10% of the Portfolio's estimated average
daily net assets on an annualized basis.
The total dollar amounts paid by the Portfolio, and/or its predecessor
Separate Account Fund C, to Transamerica under the applicable investment
advisory contract for the last three fiscal years are as follows: Separate
Account Fund C paid $67,198 in 1995; Separate Account Fund C and the Portfolio
together paid $66,831 in 1996; and the Portfolio paid $313,749 in 1997.
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 by the Contract Owners of Separate Account Fund C at a
Contract Owners meeting held on 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.
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 since 1968 and the Transamerica Life Companies since 1981. 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.
The 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
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 by the Contract Owners of Separate Account Fund C at a Contract Owners
meeting held on October 30, 1996. The 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 sub-advisory agreement
will terminate automatically if assigned (as defined in the 1940 Act). The
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 30 days written
notice to Investment Services.
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
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. The aggregate dollar amounts of the brokerage commissions
paid with respect to portfolio transactions of the Portfolio by Investment
Services as sub-adviser to Separate Account Fund C (the Portfolio's predecessor)
were $7,253 for fiscal year 1995, and $19,115 for the first ten months of 1996.
The aggregate dollar amount of brokerage commissions paid by the Portfolio after
the reorganization, during November and December 1996, was $5,550, so that the
total paid by Investment Services and the Portfolio during fiscal year 1996 was
$24,665. The total paid by the Portfolio during fiscal year 1997 was $16,312.
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 Portfolio's
predecessor) for 1995 was 30.84%. The portfolio turnover rate for 1996, when
combining the experience of Separate Account Fund C through October 31, 1996,
and the Portfolio's experience for November and December 1996 was 34.58%. The
Portfolio's portfolio turnover rate for 1997 was 20.54%.
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 computed. In addition, the
Portfolio may compute its 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. stock market 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 are 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 price 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:
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 Growth Portfolio is the successor to Transamerica Occidental's
Separate Account Fund C. Separate Account Fund C had 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, was approved at a meeting of the Contract owners held
on October 30, 1996. The assets of Separate Account Fund C, as of close of
business October 31, 1996, were 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 treats the historical performance data of Separate Account Fund C as
its own for periods prior to the reorganization.
Prior to the reorganization on November 1, 1996, Separate Account Fund C
paid a mortality and expense risk fee of 1.10% and an investment advisory fee of
0.30% per year, and it did not bear any operating expenses. After the
reorganization, the Growth Portfolio does not pay any mortality and expense risk
fees, and its total investment advisory fee and operating expenses during 1997
were 0.98% (before fee waivers and expense reimbursements) and 0.85% after fee
waivers and expense reimbursements. In accordance with conversations with the
SEC staff, its investment performance for periods prior to the reorganization
reflect total mutual fund fees and expenses of 0.98% per year.
In computing its standardized total returns for periods prior to the
reorganization, the Portfolio assumes that the charges currently imposed by the
Portfolio were in effect through each of the periods for which the standardized
returns are presented. The Growth Portfolio's performance data does not reflect
any sales or insurance charges, or any other separate account or contract level
charges, that were imposed under the annuity contracts issued through Separate
Account Fund C.
Any performance data quoted for the Portfolio represents 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 does 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.
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 5000 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
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 is based on historical results and is not intended
to indicate future performance. The total return of the Portfolio varies based
on market conditions, portfolio expenses, portfolio investments and other
factors. The value of the Portfolio's shares fluctuates 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 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 tax 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.
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, are fully paid and non-assessable and have no preemptive
or conversion rights.
As the designated successor to Separate Account Fund C, the Growth
Portfolio of the Fund received the assets of Separate Account Fund C. In
exchange, the Fund provided 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.
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 Custodian Agreement with the Fund, State Street Bank and
Trust Company ("State Street" or "Custodian") 225 Franklin Street, Boston,
Massachusetts 02110 holds 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
Company, or Participants Trust Company book entry systems.
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.
<TABLE>
<CAPTION>
Positions and Offices
Name, Age and Address** with the Fund Principal Occupation During the Past Five Years
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Donald E. Cantlay (76) 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 (61)* Board of Directors President, Chief Executive Officer and
Director of Transamerica Investment
Services, Inc.; Senior Vice President and
Chief Investment Officer of Transamerica
Corporation. Director and Chief
Investment Officer of Transamerica
Occidental Life Insurance Company.
Jon C. Strauss (58) Board of Directors President of Harvey Mudd College;
Previously Vice President and Chief
Financial Officer of Howard Hughes Medical
Institute; President of Worcester
Polytechnic Institute; Vice President and
Professor of Engineering at University of
Southern California; Vice President Budget
and Finance, Director of Computer
Activities and Professor of Computer and
Decision Sciences at University of
Pennsylvania.
Gary U. Rolle (57)* Chairman, Board of 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.
Peter J. Sodini (57) Board of Directors Associate, Freeman Spogli & Co. (a private
investor); President, Chief Executive
Officer and Director, The Pantry, Inc. (a
supermarket). Director Pamida Holdings
Corp. (a retail merchandiser) and Buttrey
Food and Drug Co. (a supermarket).
Barbara A. Kelley (45) 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 (37)*** Vice President Vice President, Broker/Dealer Channel of
the Institutional Marketing Services
Division 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 (47) Assistant Secretary Vice President and Treasurer of
Transamerica
Occidental Life Insurance Company
and Treasurer of Transamerica Life
Insurance and Annuity Company.
Regina M. Fink (42) Secretary Counsel for Transamerica Occidental Life
Insurance Company and prior to 1994
Counsel and Vice President for Colonial
Management Associates, Inc.
Thomas M. Adams (63) Assistant Secretary Partner in the law firm of Lanning , Adams
& Peterson.
Susan R. Hughes (42) Treasurer Vice President and Chief Financial
Officer, Transamerica Investment Services,
Inc., since 1997; Independent Financial
Consultant 1992-1997,
</TABLE>
* These members of the Board are interested persons as defined by
Section 2(a)(19) of the 1940
Act.
** Except as otherwise noted, the mailing address of each Board member and
officer is 1150 South Olive, Los Angeles, California 90015.
*** The mailing address of this officer is 401 North Tryon Street Suite
700, Charlotte, North Carolina 28202.
The principal occupations listed above apply for the last five years. In
some instances, the 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 or similar 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.
Compensation
The following table shows the compensation paid by the Fund and the
Fund Complex during the fiscal year ended December 31, 1997, to all Directors of
the Fund.
<PAGE>
<TABLE>
<CAPTION>
Total
Compensation
Total Pension or From Registrant
Aggregate Retirement Benefits and Fund Complex
Compensation Accrued As Part of Fund Paid to Directors3/
Name of Person From Fund1/ Expenses2/
<S> <C> <C> <C>
Donald E. Cantlay $1,500 -0- $6,000
Richard N. Latzer -0- -0- -0-
DeWayne W. Moore $1500 -0- $6,250
Gary U. Rolle -0- -0- -0-
Peter J. Sodini -$1500- -0- $4,750
Jon C. Strauss $500 -0- $500
---------------------
</TABLE>
1/ Each director of the Fund is compensated $250 for each meeting they attend.
(The Board of the Fund plans to hold four regularly scheduled board meetings
each year; other meetings may be scheduled.) This is the same compensation the
directors received while members of the Board of Managers of Separate Account
Fund C.
2/ None of the members of the Board of Directors currently receives any pension
or retirement benefits due to services rendered to the Fund and thus will not
receive any benefits upon retirement from the Fund.
3/ During fiscal year1997, each Board member was also a member of the Board of
Transamerica Occidental's Separate Account Fund B and 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. These
registered investment companies comprise the "Fund Complex."
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 LLP, 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.
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.
Independent Auditors
Ernst & Young LLP, 515 South Flower Street, Los Angeles, California
90071, acts as the Fund's independent auditors.
Financial Statements
This Statement of Additional Information contains the financial
statements for the Growth Portfolio of Transamerica Variable Insurance Fund,
Inc., for the fiscal year ended December 31, 1997.
<PAGE>
APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS1A. 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. 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 Corporations 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. 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. Investment Services'
uses its judgment, analysis and experience to evaluate such bonds.
- --------
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 of Additional
Information 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.
<PAGE>
6
PROFILE
of the
TRANSAMERICA CLASSICsm VARIABLE ANNUITY
Issued by
TRANSAMERICA LIFE INSURANCE AND ANNUITY COMPANY
May 1, 1998
This Profile is a summary of some of the more important points that you
should know and consider before purchasing the contract. The contract
is more fully described in the full prospectus that accompanies this
Profile. Please read the prospectus carefully.
1. The Contract. The Transamerica Classicsm Variable Annuity is a contract
between you and Transamerica Life Insurance and Annuity Company that allows you
to invest your purchase payments in your choice of 17 mutual funds portfolios
("portfolios") in the Variable Account and two general account options. The
portfolios are professionally managed and you can gain or lose money invested in
a portfolio, but you could also earn more than investing in the general account
options. Transamerica guarantees the safety of money invested in the general
account options. Certain portfolios and general account options may not be
available in all states.
The contract is a deferred annuity and it has two phases: the accumulation
phase, and the annuitization phase. During the accumulation phase, you can make
additional payments on your contract, transfer money among the investment
options, and withdraw some or all of your investment. During this phase, your
earnings accumulated on a tax-deferred basis for individuals, but some or all of
any money you withdraw may be taxable. Tax deferral is not available for
non-qualified contracts owned by corporations and some trusts.
During the annuity phase, Transamerica will make periodic payments to
you. The dollar amount of the payments may depend on the amount of money
invested and earned during the accumulation phase and on other factors, such as
the annuitants' age and sex.
2. Annuity Payments. You can generally decide when to end the accumulation phase
and begin receiving annuity payments from Transamerica. You may choose fixed
payments, where the dollar amount of each payment generally remains the same, or
variable payments, where the dollar amount of each payment may increase or
decreased based on the investment performance of the portfolios you select. You
can choose among payments for the lifetime of an individual, or payments for the
longer of one lifetime or a guaranteed period of 10, 15 or 20 years, or payments
for one lifetime and the lifetime of another individual.
3. Purchasing a Contract. Generally you must invest at least $5,000 ($2,000 for
IRAs) to purchase a contract. You can make additional payments of at least
$1,000 each ($100 each if made under an automatic payment plan deducted from
your bank account). You may cancel your contract during the free look period
(see item 10 below).
The Transamerica Classic Variable Annuity is designed for long-term
tax-deferred accumulation of assets, generally for retirement and other
long-term goals. Individuals in high tax brackets get the most benefit from the
tax deferral feature. You should not invest in the contract for short-term
purposes or if you cannot take the risk of losing some of your investment.
<PAGE>
4. Investment Options. VARIABLE ACCOUNT: You can invest in any of the
following 17 portfolios:
Alger American Income & Growth MFS VIT Research
Alliance VPF Growth & Income Morgan Stanley UF Fixed Income
Alliance VPF Premier Growth Morgan Stanley UF High Yield
Dreyfus VIF Capital Appreciation Morgan Stanley UF International Magnum
Dreyfus VIF Small Cap OCC Accumulation Trust Managed
Janus Aspen Balanced OCC Accumulation Trust Small Cap
Janus Aspen Worldwide Growth Transamerica VIF Growth Portfolio
MFS VIT Emerging Growth Transamerica VIF Money Market
MFS VIT Growth with Income
You can earn or lose money in any of these portfolios. These portfolios
are described in their own prospectuses. All portfolios may not be available in
all states.
GENERAL ACCOUNT: You can also allocate payments to the general account
options, where Transamerica guarantees the principal invested plus an annual
interest rate of at least 3%. The general account options include a fixed
account and guarantee period options.
5. Expenses. Transamerica makes certain charges and deductions in order to
provide the benefits and features available under the contract:
If you withdraw your money within seven years of investing it, there
may be a withdrawal charge of up to 6% of the amount invested.
Transamerica deducts an annual account fee of no more than $30
(the fee is waived for account values
over $50,000).
Transamerica deducts insurance and administrative charges of 1.35% per
year from your average daily value in the variable account.
If you elect the Living Benefits Rider (or Waiver of CDSL Rider),
Transamerica will deduct a monthly fee equal to 1/12 of 0.05% of the
account value.
The first 18 transfers each year are free (then Transamerica will
deduct a $10 fee for each additional
transfer).
Advisory fees are also deducted by the portfolios' manager, and the
portfolios pay other expenses which, in total, range from 0.60% to
1.15% of the amounts in the portfolios.
There might be premium tax charges ranging from 0 to 5% of your
investment and/or amounts you use to purchase annuity benefits
(depending on your state's law).
The following chart shows these charges (not including the optional
Living Benefits Rider fee, any transfer fees or premium taxes). The $30 annual
account fee is included in the first column as a charge of 0.075%. The third
column is the sum of the first two columns. The examples in the last two columns
show the total amounts you would be charged if you invested $1,000, the
investment grew 5% each year, and you withdrew your entire investment after one
year or 10 years. Year one includes the withdrawal charge and year 10 does not.
<TABLE>
<CAPTION>
---------------------------------------------------------------------
Total Total
Annual Annual Total Expenses Expenses
Insurance Portfolio Annual at End of at End of
Sub-Accounts Charges Charges Charges 1 Year 10 Years
---------------------------------------------------------------------
- -----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alger American Income & Growth 1.425% 0.74% 2.165 $72.96 $249.81
Alliance VPF Growth & Income 1.425% 0.72% 2.145 $72.76 $247.75
Alliance VPF Premier Growth 1.425% 0.95% 2.375 $75.06 $271.12
Dreyfus VIF Capital Appreciation Growth 1.425% 0.80% 2.225 $73.56 $255.95
Dreyfus VIF Small Cap 1.425% 0.78% 2.205 $73.36 $253.90
Janus Aspen Balanced 1.425% 0.83% 2.255 $73.86 $259.00
Janus Aspen Worldwide Growth 1.425% 0.74% 2.165 $72.96 $249.81
MFS Emerging Growth 1.425% 0.87% 2.295 $74.26 $263.06
MFS Growth & Income 1.425% 1.00% 2.425 $75.56 $276.13
MFS Research 1.425% 0.88 % 2.305 $74.36 $264.07
Morgan Stanley UF Fixed Income 1.425% 0.70% 2.125 $72.56 $245.69
Morgan Stanley UF High Yield 1.425% 0.80% 2.225 $73.56 $255.95
Morgan Stanley UF International Magnum 1.425% 1.15% 2.575 $77.06 $290.98
OCC Accumulation Trust Managed 1.425% 0.87% 2.295 $74.23 $259.34
OCC Accumulation Trust Small Cap 1.425% 0.97% 2.395 $75.24 $270.64
Transamerica VIF Growth 1.425% 0.85% 2.275 $74.06 $261.03
Transamerica VIF Money Market 1.425% 0.60% 2.025 $71.55 $235.33
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Annual Portfolio Charges above are for the year ended December 31,
1997 (except for Transamerica VIF Money Market Portfolios) and do not reflect
expense reimbursements or fee waivers. The figures for Transamerica VIF Money
Market Portfolios are estimates for the year 1998, its first year of operation.
Expenses may be higher or lower in the future. See the "Variable Account Fee
Table" in the Transamerica Classic Variable Annuity prospectus for more detailed
information.
6. Federal Income Taxes. Individuals generally are not taxed on increases in the
contract value until a distribution occurs (e.g., a withdrawal or annuity
payment) or is deemed to occur (e.g., a pledge, loan, or assignment of the
contract). If you withdraw money, earnings come out first and are taxed.
Generally, some portions (sometimes all) of any distribution or deemed
distribution is taxable as ordinary income. In some cases, income taxes will be
withheld from distributions. If you are under age 59 1/2 when you withdraw
money, an additional 10% federal tax penalty may apply on the withdrawn
earnings. Certain owners of non-qualified contracts that are not individuals may
be currently taxed on increase in the contract value, whether distributed or
not. Qualified contracts are subject to special income tax rules depending on
the plan or arrangement.
7. Access to Your Money. You can generally take money our at any time during the
accumulation phase. Transamerica may assess a withdrawal charge of up to 6% of a
purchase payment, but no withdrawal charge will be assessed on money that has
been in the contract for seven years. In certain cases, if you elect the Living
Benefits Rider when you purchase the contract, the withdrawal change may be
waived if you are in a hospital or nursing home for a long period or, in some
states, if you are diagnosed with a terminal illness, or if you are receiving
medically required in-home care. Subject to certain conditions, each contract
year you may withdraw up to 15% of purchase payments received less than seven
years ago, without incurring a withdrawal charge. Withdrawals from qualified
contracts may be subject to severe restrictions and, in certain circumstances,
prohibited.
You may have to pay income taxes on amounts you withdraw and there may
also be a 10% tax penalty if you make withdrawals before you are 59 1/2 years
old.
If you withdraw money from a guarantee period prematurely, you may
forfeit some of the interest that you earned, but you will always receive the
principal you invested plus 3% interest.
8. Past Investment Performance. The value of the money you allocated to the
portfolios will go up or down, depending on the investment performance of the
portfolios you select. The following chart shows the adjusted past investment
performance on a year-by-year basis for each portfolio. These figures have
already been reduced by the insurance charges, the account fee, the advisory fee
and all the expenses of the portfolios. These figures do not include the
withdrawal charge, the fee for the optional Living Benefits Rider, any transfer
fees or premium taxes, which would reduce performance if applied. Past
performance is no guarantee of future performance or earnings.
<TABLE>
<CAPTION>
CALENDAR YEAR
------------------------------------------------------------------------
SUB-ACCOUNT 1997 1996 1995 1994 1993
------------------------------------------------------------------------
- ---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Alger American Income & Growth 36.16% 18.40% 35.18% -8.55% 9.43%
Alliance VPF Growth & Income 28.25% 21.65% 35.31% -1.09% 10.24%
Alliance VPF Premier Growth 33.43% 19.63% 43.41% -3.41% 11.16%
Dreyfus VIF Capital Appreciation Growth 26.84% 22.76% 31.76% 1.52% N/A
Dreyfus VIF Small Cap 17.21% 15.11% 29.06% 7.78% 67.23%
Janus Aspen Balanced 21.21% 14.55% 22.93% -0.66% N/A
Janus Aspen Worldwide Growth 21.63% 26.40% 25.28% -0.22% N/A
MFS Emerging Growth 21.48% 15.49% N/A N/A N/A
MFS Growth & Income 29.06% 21.67% N/A N/A N/A
MFS Research 19.76% 20.50% N/A N/A N/A
Morgan Stanley UF Fixed Income 8.40% N/A N/A N/A N/A
Morgan Stanley UF High Yield 11.94% N/A N/A N/A N/A
Morgan Stanley UF International Magnum 2.35% N/A N/A N/A N/A
OCC Accumulation Trust Managed 21.18% 20.45% 43.39% 1.71% 9.29%
OCC Accumulation Trust Small Cap 21.50% 16.88% 15.08% -1.43% 18.20%
Transamerica VIF Growth 50.31% 26.60% 52.98% 7.68% 21.70%
Transamerica VIF Money Market N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------
SUB-ACCOUNT 1992 1991 1990 1989 1988
------------------------------------------------------------------------
- ---------------------------------------------------
Alger American Income & Growth 7.12% 22.70% -1.39% 5.91% N/A
Alliance VPF Growth & Income 6.42% N/A N/A N/A N/A
Alliance VPF Premier Growth N/A N/A N/A N/A N/A
Dreyfus VIF Capital Appreciation Growth N/A N/A N/A N/A N/A
Dreyfus VIF Small Cap 70.60% 156.10% N/A N/A N/A
Janus Aspen Balanced N/A N/A N/A N/A N/A
Janus Aspen Worldwide Growth N/A N/A N/A N/A N/A
MFS Emerging Growth N/A N/A N/A N/A N/A
MFS Growth & Income N/A N/A N/A N/A N/A
MFS Research N/A N/A N/A N/A N/A
Morgan Stanley UF Fixed Income N/A N/A N/A N/A N/A
Morgan Stanley UF High Yield N/A N/A N/A N/A N/A
Morgan Stanley UF International Magnum N/A N/A N/A N/A N/A
OCC Accumulation Trust Managed 17.38% 43.71% -5.87% 31.08% N/A
OCC Accumulation Trust Small Cap 18.84% 46.61% -11.17% 16.36% N/A
Transamerica VIF Growth 13.55% 41.44% -12.60% 32.90% 29.23%
Transamerica VIF Money Market N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
9. Death Benefit. If you die during the accumulation phase, a death benefit will
be paid to your beneficiary.
If you die before you turn 85, the death benefit will be the greatest
of three things: (1) the account value; (2) the sum of all purchase payments
less withdrawals and applicable premium taxes; or (3) the highest account value
on any contract anniversary prior to the earlier of the owner's (or joint
owner's) 85th birthday, plus purchase payment made less withdrawals and
applicable premium tax charges since that contract anniversary. If death occurs
after your or your joint owner's 85th birthday, the death benefit is equal to
the account value.
10. Other Information. The Transamerica Classic Variable Annuity offers other
features you might be interest in. Some of these features are as follows:
Free Look. After you get your contract, you have ten days to look it
over and decide if it is really right for you (this period may be longer in
certain states). If you decide not to keep the contract, you can cancel it
during this period by delivering a written notice of cancellation and returning
the contract to the Service Center at the address listed in item 11 below.
Unless otherwise required by law, Transamerica will refund the purchase payments
allocated to any general account option (less any withdrawals) plus the value in
the Variable Account as of the date the written notice and the contract are
received by the Service Center.
Telephone Transfers. You can generally arrange to transfer
money between the investments in your
contract by telephone.
Dollar Cost Averaging. You can instruct Transamerica to automatically
transfer money from either the money market sub-account or the fixed account to
any of the other variable sub-accounts each month. This is intended to give you
a lower average cost per share or unit than a single one time investment.
Automatic Rebalancing Option. The performance of each sub-account may
cause the allocation of value among the sub-accounts to change. You may instruct
Transamerica to periodically automatically rebalance the amounts in the
sub-accounts by reallocating amounts among them.
Systematic Withdrawal Option. You can arrange to have Transamerica send
you money automatically each month out of your contract during the accumulation
phase. There are limits on the amounts, and the payments may be taxable, and,
prior to age 59 1/2, subject to the penalty tax. If the total withdrawals
(including systematic withdrawals) made in a contract year exceed the allowed
amount to be withdrawn without a charge for that year, any applicable withdrawal
charge will then apply.
Automatic Payout Option. For qualified contracts, certain pension and
retirement plans require that certain amounts be distributed from the plan at
certain ages. You can arrange to have such amounts distributed automatically
during the accumulation phase.
These features may not be available in all state and may not be
suitable for your particular situation.
11. Inquiries. If you need further information or have any questions about the
contract, please write or call:
Transamerica Annuity Service Center
401 North Tryon Street, Suite 700
Charlotte, North Carolina 28202
800-420-7749
