<PAGE> 1
John Hancock Global Resources Fund, March 1, 1995
John Hancock High Yield Bond Fund, March 1, 1995
John Hancock High Yield Tax-Free Fund, March 1, 1995
John Hancock Government Income Fund, March 1, 1995
John Hancock Emerging Growth Fund, March 1, 1995
John Hancock Growth and Income Fund, January 1, 1995
John Hancock Government Securities Trust, September 30, 1994
John Hancock Investment Quality Bond Fund, September 30, 1994
John Hancock U.S. Government Trust, September 30, 1994
John Hancock Intermediate Government Trust, September 30, 1994
John Hancock Adjustable U.S. Government Trust, September 30, 1994
John Hancock Capital Growth, April 29, 1994
John Hancock California Tax Free Income Fund, April 29, 1994
John Hancock Tax Free Bond Fund, April 15, 1994
Supplement to Class A and Class B Prospectus
The "Waiver of Initial Sales Charge" section under PURCHASE OF SHARES is
supplemented as follows:
Effective March 15, 1995, participant directed defined contribution
plans with at least 100 eligible employees at the inception of the Fund
account may purchase Class A shares of the Fund without an initial sales
charge but if the shares are redeemed within 12 months after the end of the
calendar year in which the purchase was made, a contingent deferred sales
charge will be imposed at the rate for Class A shares described in the
prospectus.
March 15, 1995
<PAGE> 2
TRANSAMERICA
CAPITAL GROWTH FUND
(Formerly, Transamerica Capital Appreciation Fund)
1000 Louisiana Houston, Texas 77002-5098 (713) 751-2400
- --------------------------------------------------------------------------------
Transamerica Capital Growth Fund (the "Fund"), formerly Transamerica Capital
Appreciation Fund, is a mutual fund that has as its investment objective capital
appreciation. Current income is incidental and is not an important factor in the
selection of portfolio securities. The Fund seeks to achieve its investment
objective through the investment of its assets primarily in equity securities of
domestic and foreign companies. The Fund may also, from time to time, in pursuit
of its investment objective, engage in leveraging and in a variety of special
investment techniques in seeking to hedge against changes in the prices of
securities held in its portfolio of which it intends to purchase. These
techniques include the purchase and sale of standardized options, as well as
options on stock indexes, stock index futures and options on such futures. The
investment policies and techniques employed by the Fund may involve a greater
degree of risk than those inherent in more conservative approaches. Shares of
the Fund are not available for purchase by residents of the Commonwealth of
Puerto Rico.
ALTERNATIVE PURCHASE PLAN. The Fund offers two classes of shares with
alternative purchase and distribution fee arrangements. These differences permit
an investor to choose the method of purchasing shares that is most beneficial
given the amount of the purchase, the length of time the investor expects to
hold the shares and other circumstances. Shares of the Fund may be purchased at
the next determined net asset value per share, plus a sales charge which, at the
election of the investor, may be imposed either (i) at the time of purchase in
the case of Class A Shares (the initial sales charge alternative) or (ii) on a
contingent deferred basis in the case of Class B Shares (the deferred sales
charge alternative.)
(continued on next page)
------------------------
This Prospectus provides the basic information you should know before investing
in the Fund. INVESTORS SHOULD READ IT AND KEEP IT FOR FUTURE REFERENCE. A
Statement of Additional Information, dated April 29, 1994, containing further
information about the Fund has been filed with the Securities and Exchange
Commission and is incorporated by reference into this Prospectus. Copies may be
obtained without charge by contacting the Fund at the address or telephone
number listed above.
The Fund's investment adviser is Transamerica Fund Management Company (the
"Investment Adviser"). Transamerica Fund Distributors, Inc. (the "Distributor"),
acts as principal distributor of shares of the Fund.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR FINANCIAL INSTITUTION, NOR ARE SHARES OF THE
FUND FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
------------------------
PROSPECTUS DATED APRIL 29, 1994
<PAGE> 3
(Continued from previous page)
CLASS A SHARES. An investor who elects the initial sales charge alternative
acquires Class A Shares. Class A Shares are subject to an initial sales charge
of up to 5.75% at the time of purchase and bear the expense of an ongoing Rule
12b-1 distribution services fee at an annual rate of up to .25% of the average
daily net assets of the Fund allocable to the Class A Shares. Certain purchases
of Class A Shares qualify for reduced initial sales charges. See "Purchase of
Shares."
CLASS B SHARES. An investor who elects the deferred sales charge alternative
acquires Class B Shares. Class B Shares are not subject to an initial sales
charge when they are purchased but are generally subject to a sales charge if
they are redeemed within six years of purchase (a "contingent deferred sales
charge" or "CDSC") and bear the expense of a distribution fee computed at an
annual rate of up to 1.00% of the Fund's average daily net assets allocable to
the Class B Shares. The contingent deferred sales charges for Class B Shares
decline from 5% during the first year of investment to zero after the sixth
year. Of the 1.00% distribution fee applicable to Class B Shares, up to .75%
represents payments for certain distribution charges in recognition of sales
compensation by the Distributor and up to .25% represents ongoing service fees.
The deferred sales charge alternative permits all of the investor's dollars to
work from the time the investment is made.
Dividends paid by the Fund with respect to Class A and Class B Shares, to the
extent any dividends are paid, will be calculated in the same manner at the same
time on the same day and will be in the same amount except that each class will
bear its own distribution expenses and transfer agency expenses. Accordingly,
the higher distribution fee payable by the Class B Shares, and the higher
resulting expense ratio of Class B Shares, will cause such shares to be paid
lower per share dividends than those paid on Class A Shares. However, a Class B
shareholder will receive more shares at the time of purchase than a Class A
shareholder investing the same dollar amount because no sales charge is deducted
from the amount invested. Consequently, while the dividend (per share) will be
lower for Class B Shares than Class A Shares, the difference in total dividends
generated by each investment and received by such shareholders will be less than
the per share difference because the investor in Class B Shares will be
purchasing more shares for a given investment amount.
Class A and Class B shareholders of the Fund respectively have a separate
exchange privilege for shares sold with an initial sales charge and shares sold
with a CDSC offered by other mutual funds managed by the Investment Adviser. See
"Shareholder Services -- Exchange Privilege." Except for those differences (and
related voting rights) each share of the Fund, whether Class A or Class B
represents a proportional interest in the investment portfolio of the Fund.
The Trustees of the Fund have determined that currently no conflict of interest
exists between the Class A and Class B Shares. On an ongoing basis, the Trustees
will seek to assure that no such conflict arises.
In determining which class of shares to purchase, investors should consider
whether, during the anticipated life of their investment in the Fund, the
accumulated distribution expenses and deferred sales charges on Class B Shares
would be less than the initial sales charge and accumulated distribution
expenses on Class A Shares purchased at the same time. In this regard, investors
who qualify for significantly reduced sales charges, or expect to maintain their
investment for an extended period of time, might elect the initial sales charge
alternative. However, because an initial sales charge is deducted at the time of
purchase, investors should consider the extent to which any return would
otherwise be realized on the additional funds initially invested under the
deferred alternative and weigh such consideration against the higher per share
return of the Class A Shares afforded by the lower distribution expenses of such
shares. Certain other investors might determine it to be more advantageous to
have all their funds invested initially, although remaining subject to
distribution charges of up to 1.00% of the average daily net assets allocable to
Class B Shares and, for a six-year period, a
2
<PAGE> 4
contingent deferred sales charge. In this regard, investors should understand
that over a long period of time, the accumulated ongoing distribution charges of
Class B Shares may exceed the maximum initial sales charge and ongoing
distribution service fee of Class A Shares. See "Information About Shares of the
Fund -- Purchase of Shares".
The distribution expenses incurred under separate distribution plans for both
classes of shares in connection with the sale of their respective shares will be
paid, in the case of Class A Shares, from the proceeds of the initial sales
charge and the ongoing Rule 12b-1 distribution services fee (" 12b-1 fees") and,
in the case of Class B Shares, from the proceeds of the 12b-1 fees and the
contingent deferred sales charge incurred upon redemption of shares within six
years of purchase. Dealers distributing the Fund's shares may receive different
compensation for selling Class A or Class B Shares.
SUMMARY
- --------------------------------------------------------------------------------
THE FUND. The Fund is organized as a Trust, commonly known as a Massachusetts
business trust, and is an open-end, diversified management investment company.
INVESTMENT OBJECTIVE. The investment objective of the Fund is capital
appreciation. The Fund seeks to achieve this objective through the investment of
its assets primarily in equity securities of domestic and foreign companies.
SPECIAL INVESTMENT TECHNIQUES. The Fund may from time to time, in pursuit of its
investment objective, borrow money from banks for the purpose of investing in
securities and engage in a variety of special investment techniques in seeking
to hedge against changes in the price of securities held in its portfolio or
which it intends to purchase. These techniques include the purchase and sale of
standardized options, as well as the purchase and sale of options on stock
indexes, stock index futures and options on such futures. (See "Investment
Practices and Restrictions" and "Special Investment Techniques.")
DISTRIBUTION ARRANGEMENTS. The Fund offers two classes of shares, "Class A
Shares" and "Class B Shares", through the Fund's distributor, Transamerica Fund
Distributors, Inc. (see "Alternative Purchase Plan" on page 15.) Shares of
either class may be purchased through selected financial services firms having
dealer agreements with the Distributor. The minimum initial purchase amount for
either class of shares is $1,000 with subsequent investments of $50 or more.
(See "Purchase of Shares.")
INVESTMENT ADVISER. Transamerica Fund Management Company (the "Investment
Adviser") serves as investment adviser and receives a monthly fee from the Fund
at an annual rate of .625% of the Fund's average daily net assets. The
Investment Adviser presently manages a broad range of mutual funds and multiple
investment portfolios representing approximately $3 billion under management.
(See "Purchase of Shares.")
RISKS. The net asset value of the Fund's shares will fluctuate with changes in
the market value of its portfolio securities. Investors are referenced to the
discussions of the risk factors affecting certain equity investments and the
risks of foreign investments. See "Investment Objective and Policies" "Risk
Factors." In addition, investors are directed to the discussions of leverage,
stock options, stock index futures, and options on stock indexes. (See
"Investment Practices and Restrictions.")
The above is qualified in its entirety by the detailed information appearing
elsewhere in this prospectus and the Statement of Additional Information.
3
<PAGE> 5
<TABLE>
FUND EXPENSES
- --------------------------------------------------------------------------------
The following table illustrates the various expenses and fees a shareholder of
the Fund would bear directly or indirectly. Except as otherwise noted, the
expenses and fees set forth in the table are for the fiscal year ended December
31, 1993.
<CAPTION>
CLASS A SHARES CLASS B SHARES
-------------- ---------------
(INITIAL SALES (DEFERRED SALES
CHARGE CHARGE
ALTERNATIVE) ALTERNATIVE)
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Charge Imposed on Purchase
(as a percentage of offering price)........... 5.75% None
Sales Charge Imposed on Reinvested Dividends..... None None
Maximum Contingent Deferred Sales Charge
(as a percentage of offering price)........... None 5.00%
Redemption Fee................................... None
Exchange Fee..................................... None None
</TABLE>
<TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<CAPTION>
CLASS A CLASS B
------- -------
<S> <C> <C>
Management Fees(2)................................ 0.63% 0.63%
12b-1 Fees(3)..................................... 0.25% 1.00%
Other Expenses.................................... 0.67% 0.67%
---- ----
Total Fund Operating Expenses..................... 1.55% 2.30%
==== ====
</TABLE>
<TABLE>
EXAMPLE A:(4) You would pay the following expenses on a $1,000 investment,
assuming a 5% annual return and redemption at the end of each time period:
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A............................... $72 $104 $137 $231
Class B............................... $73 $102 $143 $264
</TABLE>
<TABLE>
EXAMPLE B:(4) You would pay the following expenses on the same investment
assuming no redemptions:
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A............................... $72 $104 $137 $231
Class B............................... $23 $ 72 $123 $264
<FN>
- ---------------
(1) Class A Shares have reduced initial sales charges for purchases in excess of
$50,000. Purchases of $1 million or more are not subject to a sales charge;
however, a contingent deferred sales charge of 1% will be applied to
redemptions within 12 months of such purchase (as described under "Initial
Sales Charge Alternative--Class A Shares"). Deferred sales charge on Class B
Shares decline from 5% during the first year to 0% in the seventh year after
date of purchase. See "Information About Shares of the Funds."
(2) See "The Fund and Its Management--Investment Adviser."
(3) 12b-1 fees are based on maximum allowed fees (if collected). The annualized
actual fees for the fiscal year ended December 31, 1993 were 0.16% and 1.00%
for the Class A and Class B Shares, respectively. See "The Fund and its
Management"--"Distributor and Distribution Plans."
(4) Expenses in Examples A & B above should not be considered a representation
of past or future expenses. Actual expenses may be greater or less than
those shown above. Use of assumed annual return (5%) is mandated by
Securities and Exchange Commission. Actual expenses may be greater or less
than those shown above. Long-term Shareholders of Class B Shares may pay the
equivalent of more than the maximum front-end sales charge permitted by
applicable regulatory authorities.
</TABLE>
4
<PAGE> 6
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The following financial highlights for each of the eight years in the period
ended December 31, 1993 and the period from September 26, 1985 through December
31, 1985 in the case of Class A Shares and for the period June 30, 1993 to
December 31, 1993 in the case of Class B Shares have been audited by Ernst &
Young, independent auditors, whose unqualified report thereon and other
financial statements of the Fund appear in the Statement of Additional
Information.
<TABLE>
<CAPTION>
CLASS B
CLASS A SHARES SHARES
------------------------------------------------------------------------------------------------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PERIOD FROM
PERIOD JUNE 30,
YEAR ENDED DECEMBER 31, ENDED 1993 TO
----------------------------------------------------------------------------------------- DECEMBER 31, DECEMBER 31,
1993(2) 1992(2) 1991(2) 1990(2)(3) 1989(2)(3) 1988(2)(3) 1987(2)(3) 1986(3) 1985(1)(3) 1993(2)(5)
------- ------- ------- ---------- ---------- ---------- ---------- ------- ----------- -----------
Per share
income and
capital
changes for
a share
outstanding
during each
period:
Net asset
value,
beginning of
period...... $ 11.90 $ 11.47 $ 9.82 $ 10.65 $ 9.00 $ 7.52 $ 6.87 $ 6.56 $ 5.45 $ 11.28
INCOME FROM
INVESTMENT
OPERATIONS
Net
investment
income
(loss)...... (0.11) (0.14) (0.13) (0.09) 0.05 0.09 (0.08) (0.06) (0.03) (0.07)
Net realized
and
unrealized
gain (loss)
on
investments.. 0.87 0.76 3.73 (0.60) 1.82 1.45 1.69 1.83 1.14 1.38
------- ------- ------- ------- ------- ------- ------- ------ ------ -------
Total from
Investment
Operations... 0.76 0.62 3.60 (0.69) 1.87 1.54 1.61 1.77 1.11 1.31
LESS
DISTRIBUTIONS
Dividends
from net
investment
income...... -- -- -- (0.01) (0.07) (0.06) -- -- -- --
Distributions
from
realized
gains....... -- (0.19) (1.95) (0.13) (0.15) -- (0.96) (1.46) -- --
------- ------- ------- ------- ------- ------- ------- ------ ------ -----
Total
Distributions -- (0.19) (1.95) (0.14) (0.22) (0.06) (0.96) (1.46) -- --
------- ------- ------- ------- ------- ------- ------- ------ ------ -----
Net asset
value, end
of period... $ 12.66 $ 11.90 $ 11.47 $ 9.82 $ 10.65 $ 9.00 $ 7.52 $ 6.87 $ 6.56 $ 12.59
======= ======= ======= ======= ======= ======= ======= ====== ====== =======
TOTAL
RETURN(4)... 6.39% 5.48% 38.00% (6.37)% 20.71% 20.42% 22.43% 27.10% 20.50% 11.61%
======= ======= ======= ======= ======= ======= ======= ====== ====== =======
RATIOS AND
SUPPLEMENTAL
DATA
Ratio of
expenses to
average net
assets...... 1.46% 1.41% 1.68% 1.54% 1.83% 3.87% 5.57% 20.94% 4.43% 1.06%
Ratio of
expense
reimbursement
to average
net
assets...... -- -- -- -- -- (1.37)% (3.07)% (19.45)% (3.84)% --
------- ------- ------- ------- ------- ------- ------- ------ ------ -------
Ratio of net
expenses to
average net
assets...... 1.46% 1.41% 1.68% 1.54% 1.83% 2.50% 2.50% 1.49% 0.59% 1.06%
======= ======= ======= ======= ======= ======= ======= ====== ====== =======
Ratio of net
investment
income
(loss) to
average net
assets...... (0.92)% (1.20)% (1.04)% (0.82)% 0.46% 1.01% (0.88)% (1.11)% (0.52)% (0.54)%
Portfolio
turnover.... 159% 70% 139% 152% 108% 220% 272% 267% 36% 159%
Net Assets,
end of
period
(in
thousands)... $85,553 $94,861 $89,008 $56,794 $59,357 $ 5,851 $ 3,910 $ 208 $ 164 $ 440
</TABLE>
(See footnotes on following page)
5
<PAGE> 7
- ---------------
(1) Financial highlights, including total return, are for the period September
26, 1985 (date that the Fund's initial registration statement under the
Securities Act of 1933 became effective) to December 31, 1985 and have not
been annualized.
(2) Per share information has been calculated using the average number of shares
outstanding.
(3) Per share information has been adjusted retroactively for the 2 for 1 stock
split to shareholders of record on September 10, 1990.
(4) Total return does not include the effect of the initial sales charge for
Class A Shares nor the contingent deferred sales charge for Class B Shares.
(5) Financial highlights, including total return, have not been annualized.
Portfolio turnover is for the year ended December 31, 1993.
6
<PAGE> 8
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's primary objective is capital appreciation. Current income may be
incidental and is not an important factor in the selection of portfolio
securities. In normal circumstances, at least 65% of the Fund's total assets
will be invested in domestic or foreign equity securities (i.e., both dividend
and non-dividend paying common stocks or securities which are convertible or
exchangeable for such stocks including warrants). The Fund's primary investment
objective and foregoing investment policy are both non-fundamental which means
they may be changed by the Board of Trustees without requiring the vote of
shareholders; although they will not be changed without prior written notice to
shareholders mailed 60 days in advance. While investment in equity securities
for long-term capital appreciation will be emphasized, investments for
short-term capital appreciation may be made from time to time when such action
is believed by the Investment Adviser to be desirable and consistent with sound
investment practice. The Fund maintains a flexible investment approach toward
types of companies as well as types of industries and market sectors depending
upon such factors as the economic and industry environment, market conditions
and the relative attractiveness of various market sectors and industries.
It is anticipated that under favorable economic and market conditions, as
determined by the Investment Adviser, the Fund will pursue its investment
objective aggressively. For example, a substantial portion of the Fund's
portfolio may at times be fully invested in equity securities that the
Investment Adviser believes to have the greatest potential for capital
appreciation and which, therefore, may be more volatile over the short and
medium terms than other types of investments. Under less favorable economic,
industry and market conditions, the Fund would employ a less aggressive
investment management strategy.
The Fund's investments, at any given time, may include or emphasize securities
of smaller, less well established companies as well as those of larger or better
established companies and may include securities traded over-the-counter as well
as those traded on a primary exchange. See "Risk Factors" for a description of
risks applicable to these types of investments. The Fund will ordinarily
diversify its investments among various industries; however, the Fund has as an
investment restriction that, even at times when it emphasizes its investments in
a limited number of industries, no more than 25% of its assets will be invested
in any one industry. To the extent the Fund invests in a group of industries
which has common characteristics, the Fund will be subject to the similar risks
affecting that group (see discussion below.) Groups of industries include, but
are not limited to, construction, energy, health care, financial services,
consumer products/services, technology and transportation.
RISK FACTORS. The achievement of the Fund's investment objective will depend
upon the ability of the Investment Adviser to assess correctly the effects of
economic and business trends on different industries and sectors and develop the
information it receives into a successful investment program.
Depending upon anticipated economic and market conditions, the Fund's portfolio
may emphasize the equity securities of smaller, faster growing companies over
those of larger, well-established companies. Because these smaller, rapidly
growing companies may still be in an early developmental stage, they are subject
to additional risks, and their securities will typically have more market
volatility than the equity securities of larger, well-established companies.
Developing companies often have limited product lines, markets or financial
resources or they may be dependent upon a limited management group.
7
<PAGE> 9
Further, the Fund may invest in newly issued securities of startup companies or
companies whose securities have not previously been publicly traded, provided
that no more than 10% of the Fund's total assets will be invested in securities
of companies having a record, together with predecessors, of less than three
years continuous operation. Such unseasoned issuers share similar risks to
developing companies described above.
Since the Fund may pursue its goal of capital appreciation aggressively, the
Fund may emphasize those industries which have not reached maturity of product
development or growth in demand or market segmentation. In addition, the Fund's
diversification policy permits more than 25% of the Fund's assets to be held in
a group of similar industries (i.e., certain industries overlap in particular
respects, creating a "sector.") For example, the biotechnology, electronics,
computer and telecommunications industries include companies whose products,
processes or services are derived from or applied to commercial utilization of
technological or scientific advancements. Although the Fund will be required to
invest in at least four industries, when the Fund should emphasize investment in
a sector characterized by the common elements held by a group of industries, the
Fund will be especially subject to the particular common risks affecting that
group. Companies in the technology sector, for example, face the lack of
commercial acceptance of a new product or process from technological change or
obsolescence.
OTHER INVESTMENTS. Under normal circumstances, up to 35% of the Fund's assets
may be invested in investment grade debt securities and preferred stocks which
are believed to offer opportunities for long-term capital appreciation (e.g.,
where interest rates are expected to decline or the credit rating of the issuer
is expected to improve), and, to the extent set forth below, it may enter into
contracts to purchase or sell foreign currency, stock options, options on stock
indexes, stock index futures and options on such futures and into reverse
repurchase agreements. For defensive purposes of preserving capital, the Fund
may temporarily invest without limit in investment grade debt securities,
repurchase agreements or preferred stocks or hold its assets in cash. During
such times, the Fund would not be pursuing its investment objective. Bonds rated
BBB or lower by Standard & Poor's or Baa by Moody's, although of investment
quality, may have speculative characteristics as well.
The Fund may, from time to time, engage in leverage, a practice which involves
borrowing money from banks for investment in securities. The use of leverage, as
well as entering into reverse repurchase agreements, are considered to be
speculative practices. In pursuing its investment objective, the Fund may also
engage in a variety of special investment techniques in an attempt to protect
against changes in the prices of securities held in its portfolio or which it
intends to purchase. These techniques include the purchase and sale of stock
options, as well as the purchase and sale of options on stock indexes, stock
index futures and options on such futures. (See "Stock Options" and "Special
Investment Techniques.") In addition, the Fund may lend its portfolio securities
in order to provide income to cushion the Fund against declines in prices of the
Fund's portfolio securities. These investment techniques and various other
policies the Fund may employ in seeking to achieve its investment objective,
such as investing in restricted securities and entering into repurchase
agreements, may involve a greater degree of risk than those inherent in more
conservative investment approaches. (See "Investment Practices and Restrictions"
and "Special Investment Techniques" for a discussion of these techniques and
their risks.)
RISKS OF FOREIGN INVESTMENTS. The Fund may invest without limitation in
securities issued by foreign companies and principally traded in securities
markets outside the United States; however the Fund does not intend to invest
more than 25% of its assets in securities issued by companies located in any one
country outside of the United States. There
8
<PAGE> 10
are certain risks associated with investments in foreign securities. Foreign
investments may be affected favorably or unfavorably by changes in currency
rates and exchange control regulations and costs will be incurred in connection
with conversions between various currencies. There may be less publicly
available information about a foreign company than about a U.S. company, and
foreign companies may not be subject to uniform accounting, auditing and
financial reporting standards and requirements comparable to those applicable to
U.S. companies. Securities of sonic foreign companies may be less liquid or more
volatile than securities of U.S. companies, and foreign brokerage commissions
and custodian fees are generally higher than in the U.S. In addition, there is
generally less government regulation of stock exchanges, brokers and listed
companies abroad than in the U.S. Investments in foreign securities may also be
subject to other risks different from those affecting U.S. investments,
including local political or economic developments, expropriation or
nationalization of assets, the possible difficulty in obtaining and enforcing
judgments against a foreign issuer, and imposition of withholding taxes on
dividend or interest payments. Foreign securities, like other assets of tile
Fund, will be held by the Fund's custodian or by any sub-custodian which may
hereafter be appointed in accordance with applicable requirements of the
Investment Company Act of 1940 and the rules thereunder.
Generally, the Fund's foreign currency exchange transactions will be conducted
on a spot basis (i.e., cash basis) at the spot rate for purchasing or selling
currency prevailing in the foreign currency exchange market. However, in order
to hedge against possible variations in foreign exchange rates pending the
settlement of transactions in foreign securities or during the time the Fund
holds the foreign security, the Fund may enter into forward foreign currency
contracts. This is accomplished through agreements to purchase or sell a
specified currency at a specified date and price in amounts corresponding to
specific payables or receivables arising out of the purchase or sale of foreign
securities. However, such hedging transactions may not eliminate fluctuations in
the prices of portfolio securities due to factors other than currency
fluctuations or prevent losses if the prices of securities decline. In addition,
such hedging transactions preclude the opportunity for gam if the value of the
hedged security should rise due to changes in currency values. The Fund will not
speculate in forward foreign exchange transactions and will not effect a
position hedging transaction (i.e., the sale of forward foreign currency with
respect to a portfolio security denominated in such foreign currency) if as a
result more than 15% of the value of the Fund's total assets (exclusive of the
proceeds of any borrowings) would be committed to the consummation of such
contracts.
GENERAL RISKS. As described above, the Fund may invest a portion of its assets
in fixed-income securities which are believed to present opportunities for
capital appreciation. The prices of fixed-income securities in which the Fund
may invest will generally increase as market rates of interest fall and will
decrease as market rates of interest rise. The amount of the increase or
decrease in the price of a fixed-income security in response to a given change
in interest rates is typically dependent upon the maturity of the security, with
longer term securities being more volatile than shorter term securities such as
money market instruments.
It is anticipated that active management of the Fund's portfolio, consistent
with its investment objective, will result in the annual portfolio turnover rate
exceeding 100%. A high rate of portfolio turnover (i.e., change in securities
held by the Fund) involves greater expenses to the Fund that would not normally
be incurred by other investment companies with lower portfolio turnover (see
"Portfolio Transactions and Brokerage" in the Statement of Additional
Information).
Because prices of securities in which the Fund invests fluctuate from day to
day, the value of an investment in the Fund will vary based upon the
9
<PAGE> 11
Fund's investment performance, and there is no assurance that the Fund's
investment objective will be attained. In addition, investors should recognize
that while the Fund will diversify its investments among several different
industries and will not invest more than 25% of its total assets in any one
industry, the Fund's policies represent a highly specialized investment program.
An investor therefore should not consider an investment in the Fund to
constitute a complete or balanced investment program. For additional information
regarding the Fund's investments, see "Investment Practices and Restrictions"
and "Special Investment Techniques."
THE FUND AND ITS MANAGEMENT
- --------------------------------------------------------------------------------
GENERAL. The Fund, a Massachusetts business trust, is registered with the
Securities and Exchange Commission as an open-end, diversified management
investment company, commonly called a mutual fund. Through the purchase of
shares of the Fund, investors with goals similar to the investment objective of
the Fund can participate in the investment performance of the portfolio of
investments held by the Fund. The management and affairs of the Fund are
supervised by the Fund's Board of Trustees.
INVESTMENT ADVISER. Transamerica Fund Management Company, the Investment
Adviser, is a wholly owned subsidiary of Transamerica Asset Management Group,
Inc., a financial holding company which is a wholly owned subsidiary of
Transamerica Corporation, one of the nation's largest and most respected
financial services organizations with approximately $36 billion in assets.
Transamerica Corporation engages through its subsidiaries in two primary
businesses, finance and insurance. The Investment Adviser manages the investment
of the Fund's assets, provides administrative services and supervises the Fund's
daily business affairs. Investment decisions are made by a committee with no one
person being solely responsible for making recommendations to the committee.
These services are subject to general review by the Fund's Board of Trustees.
The Investment Adviser, including its predecessors, has been engaged in the
investment advisory business since 1949 and currently serves as investment
adviser to a broad range of mutual funds and multiple investment portfolios.
Total assets under management of the Investment Adviser and its Houston-based
affiliate, are approximately $13.7 billion representing, in addition to advisory
services to the mutual funds, services to thousands of accounts and some of the
nation's largest institutions, including corporate and public pension funds,
major foundations and endowments.
ADVISORY FEE. For the advisory and certain administrative services the
Investment Adviser provides to the Fund, the Fund pays a monthly fee computed at
an annual rate of .625% of the Fund's average daily net assets. For the fiscal
year ended December 31, 1993, investment advisory fees paid by the Fund amounted
to .625% of its average daily net assets.
ADMINISTRATIVE SERVICES AGREEMENT. The Fund reimburses each of the Investment
Adviser and Transamerica Fund Distributors, Inc. for actual expenses incurred in
providing the Fund certain administrative services such as accounting and
bookkeeping services, communications in response to shareholder inquiries and
certain printing expenses of various Fund reports. In addition, the Fund may
directly bear the costs of certain data processing and pricing information
services used in providing accounting and bookkeeping services. For the fiscal
year ended December 31, 1993, administrative services fees paid by the Fund
amounted to .13% of its average daily net assets.
DISTRIBUTOR AND DISTRIBUTION PLANS. Transamerica Fund Distributors, Inc. (the
"Distributor"), a wholly owned subsidiary of the Investment Adviser, is the
principal underwriter of shares of the Fund.
10
<PAGE> 12
Under the terms of the Distribution Plans (the "Class A Plan" and the "Class B
Plan" and collectively, the "Plans") adopted pursuant to Rule 12b-1 under the
Investment Company Act (the "Act"), the Fund is authorized to finance certain
activities associated with the sale and distribution of its shares to investors.
The Class A Plan authorizes monthly payments to be made by the Fund to the
Investment Adviser at an annual rate of up to .25% of the Fund's average daily
net assets attributable to Class A Shares to reimburse expenses incurred in
connection with the distribution of Class A Shares. The Class B Plan authorizes
payments to be made by the Fund at an annual rate of up to 1.00% of the Fund's
average daily net assets attributable to Class B Shares. Amounts paid by the
Fund under the Class A Plan are allocated to Class A Shares, and amounts paid
under the Class B Plan are allocated to Class B Shares. As a result,
shareholders bear only the distribution expenses associated with the class of
shares they hold, and the distribution payments made by one class are not used
to pay distribution expenses of the other class. The Plans have each been
approved by the Board of Trustees of the Trust, including a majority of the
trustees who are not "interested persons" of the Trust (as defined by the Act)
and who have no direct or indirect financial interest in the operation of the
Plans or any agreement relating thereto (the "Independent Trustees"), and have
also been approved in the case of Class A Shares by the Class A shareholders
and, in the case of Class B Shares by the Investment Adviser as sole Class B
Shareholder.
Under the Class A Plan, payments by the Fund are made to reimburse specified
distribution expenses primarily including: (i) the payment of compensation
(including incentive compensation) to securities dealers and other financial
institutions and organizations including banks and other depository institutions
that distribute shares of the Fund ("Dealers") to obtain various distribution
and/or administrative services relating to Class A Shares in an amount not
exceeding .25% annually of the average net asset value of shares held by
customers of any Dealer (such payments may also include "Service Fees" as such
term is used in current NASD regulations; (ii) the costs of prospectuses used
for selling Class A Shares; and (iii) the costs of preparing and printing sales
literature and advertising. The Fund is not obligated under the Class A Plan to
reimburse any distribution expenses in excess of applicable limitations, and
distribution expenses accrued by the Investment Adviser in one fiscal year may
not be reimbursed by the Fund in subsequent fiscal years.
Under the Class B Plan, the Fund makes monthly payments to the Distributor to
compensate it for services provided in connection with the distribution of Class
B Shares and the payment of sales commissions (dealer concessions) to Dealers
that sell such shares ("Distribution Fees") and also makes payments to reimburse
the Distributor for certain fees it pays to Dealers for on-going services
("Service Fees"). The Class B Plan is designed to enable the Distributor to
offer Class B Shares to investors on a basis that does not involve imposition of
a front-end sales charge. Sales commissions payable to Dealers that sell Class B
Shares are advanced by the Distributor (currently, up to 4.00% of the value of
Class B Shares sold by them) and are recovered by the Distributor over time
through a combination of its receipt of contingent deferred sales charges on
redemptions of Class B Shares by investors (see "Redemption of Shares-Class B
Shares") and Distribution Fees.
Distribution Fees under the Class B Plan (including carrying charges which are
discussed below) may not exceed payments computed at an annual rate of .75% of
the Fund's average daily net assets attributable to Class B Shares and are
determined in accordance with procedures adopted by the Board of Trustees,
including a majority of the Independent Trustees. These fees are based upon a
commission payment charge of 5% of the value of Class B Shares sold (excluding
shares acquired through reinvestment of dividends and other distributions or
11
<PAGE> 13
through an exchange of shares, excluding shares as to which no contingent
deferred sales charge is applicable), reduced by the amount of contingent
deferred sales charges that have been received by the Distributor on redemptions
of Class B Shares. Distribution Fees also include a charge for interest (a
"carrying charge") to the Distributor to the extent cumulative commission
payment charges, less contingent deferred sales charges received by the
Distributor, have not been paid in full by the Fund. The carrying charge is
computed at the annual rate of 1% over the prevailing prime rate of interest. At
times when all outstanding commission payment charges and related carrying
charges have been paid to the Distributor, no Distribution Fees are payable by
the Fund, and the Fund (rather than the Distributor) would be entitled to
receive contingent deferred sales charges imposed on redemptions of Class B
Shares. The current NASD regulations relating to maximum sales charges assessed
by mutual funds, such as the Fund in respect of its Class B Shares, also limit
the aggregate amount of asset based sales charges the Fund may pay to 6.25% of
new sales plus interest. Commission payment charges and carrying charges may be
adjusted on exchanges involving Class B Shares in accordance with procedures
adopted by the Board of Trustees, including a majority of the Independent
Trustees, so that such charges will be increased (in the case of shares issued
upon an exchange) and decreased (in the case of shares redeemed upon an
exchange), by the amount of the commission payment charges and carrying charges
(or a portion of such charges) attributable to the shares being exchanged.
Because Distribution Fees payable with respect to Class B Shares are subject to
the .75% annual limitation described above, commissions payment charges and
carrying charges relating to sales of Class B Shares in any given year may be
paid by the Fund from Distribution Fees in future years. However, if the Class B
Plan were terminated (or not continued), no amounts (other than current amounts
accrued through the date of termination but not yet paid) would be owed by the
Fund to the Distributor, absent a determination by the Board of Trustees,
including a majority of the Independent Trustees, to continue payment of
Distribution Fees solely to pay outstanding commission payment charges and a
carrying charge on shares sold prior to termination. Applicable Distribution
Fees, in an amount not exceeding the .75% annual limitation, are accrued each
day as an expense of the Class B Shares and reduce the net assets of the Fund
attributable to the Class B Shares. However, in accordance with generally
accepted accounting principles, the Fund does not treat the amount of
Distribution Fees exceeding the .75% limitation as a liability of the Fund and
does not reduce the current net assets of the Fund attributable to the Class B
Shares by such amount, although it may become payable in the future, because the
standards for accrual of a liability under these accounting principles have not
been satisfied due to contingencies as to payment of such amount. As of December
31, 1993, unpaid commission charges (net of contingent deferred sales charges
received by the Distributor) and carrying charges were $4,785 (1.09% of the
Fund's net assets at December 31, 1993, attributable to Class B Shares.)
In addition to Distribution Fees, under the Class B Plan the Fund reimburses the
Distributor for Service Fees, i.e., on-going fees it pays to Dealers that sell
Class B Shares to their customers. Such reimbursements are payable monthly in
amounts which may not exceed .25% annually of the average daily net assets of
the Fund attributable to Class B Shares, and may be used only to reimburse the
Distributor for fees it pays to Dealers for personal services they render to
customers who are shareholders of the Fund or for services relating to the
maintenance of shareholder accounts of such customers, in amounts which may not
exceed (as to any dealer) .25% of the average annual net asset value of Class B
Shares held by such Dealer's customers. The foregoing limitations applicable to
12
<PAGE> 14
Service Fees do not prohibit the Distributor from making payments to Dealers
from its own resources in excess of these limitations or for other services.
Payments made by the Fund under the Class A and Class B Plans may be used to pay
fees to, or as reimbursement for certain services provided by, banks and other
depository institutions. Although the Glass-Steagall Act limits the ability of
banks and other depository institutions to act as underwriters or distributors
of securities, the Fund does not believe these limitations would prohibit such
depository institutions from providing such services or entering into
compensation arrangements with the Distributor as described under "Purchase of
Shares". In addition, state securities laws may differ from the interpretation
of federal law, and depository institutions selling shares of the Fund may be
required to register as dealers under state laws.
In approving the Plans, the Board of Trustees, including a majority of the
Independent Trustees, received and considered all pertinent information and
determined that there was a reasonable likelihood that each Plan would benefit
the Fund and its shareholders by enabling the Fund to achieve economics of
operations and management through growth of the Fund's assets. The Plans may be
continued from year to year, provided that such continuances are approved at
least annually by the Board of Trustees, including a majority of the Independent
Trustees, and each may be terminated at any time by the Independent Trustees or
by vote of shareholders.
In order to limit the higher on-going costs associated with an investment in
Class B Shares, the Fund is currently seeking relief from applicable regulatory
authorities which, if granted, would permit the implementation of arrangements
under which Class B Shares would automatically convert into Class A Shares (or
another class of shares of the Fund that does not pay Distribution Fees) after a
specified period of years following the initial purchase.
For the fiscal year ended December 31, 1993, payments made by the Fund under the
Class A Plan amounted to .16% of the average daily net assets attributable to
Class A Shares. For the period June 30, 1993 to December 31, 1993, payments made
under the Class B Plan amounted to .50% of the average daily net assets
attributable to Class B Shares.
EXPENSES. The Fund's expenses which are accrued daily are deducted from total
income before dividends are paid. These expenses include, but are not limited
to: fees paid to the Investment Adviser; trustees' fees; taxes; legal
distribution and brokerage fees; custodian and auditing fees; fees payable
pursuant to the Administrative Services Agreement; and other expenses which are
not expressly assumed by the Investment Adviser under its investment advisory
agreement with the Fund. Total expenses of the Fund for the fiscal year ended
December 31, 1993 for Class A Shares and for the period June 30, 1993 to
December 31, 1993 for Class B Shares, including investment advisory fees,
amounted to 1.46% of the Fund's Class A average daily net assets and 1.06% of
the Fund's Class B average daily net assets.
INFORMATION ABOUT SHARES OF THE FUND
- --------------------------------------------------------------------------------
NET ASSET VALUE
The net asset value of the Fund is computed once daily as of the close of
trading (presently 4:00 p.m. New York Time) on each day that the New York Stock
Exchange is open for business. The Fund will also compute its net asset value on
other days if a purchase or redemption request is received on that day and there
is a sufficient degree of trading in securities held by the Fund. Net asset
value per share is calculated by dividing the market or fair value of all of the
Fund's portfolio securities plus the
13
<PAGE> 15
value of its other assets (including dividends and interest received or
accrued), less all liabilities (including accrued expenses but excluding
capital) by the number of shares of the Fund outstanding. The Board of Trustees
has established procedures for the valuation of the Fund's securities, based in
general on market or estimated value (see "Net Asset Value" in the Statement of
Additional Information).
Although the legal rights of Class A and Class B Shares are identical, the
different expenses borne by each class will result in different net asset values
and dividends. The net asset value of Class B Shares will generally be lower
than the net asset value of Class A Shares as a result of the larger
distribution fee accrual with respect to Class B Shares. (However, Class B
shareholders will generally receive more shares at the time of purchase.) It is
expected, however, that the net asset value per share of the two classes will
tend to converge immediately after the recording of dividends which will differ
by approximately the amount of the distribution expense accrual differential
between the classes.
PURCHASE OF SHARES
GENERAL. Shares of the Fund are offered at a price equal to their net asset
value (next determined following receipt of an order by the Shareholder Services
Group (the Fund's Transfer Agent) or the investor's dealer) plus a sales charge
which, at the option of the purchaser, may be imposed either at the time of
purchase (the "initial sales charge alternative") or on a contingent deferred
basis (the "deferred sales charge alternative"), as described below. Shares of
the Fund are continuously offered for sale by the Distributor and are available
for purchase through eligible financial service firms such as securities
broker/dealer firms and banks which have entered into selected dealer agreements
with the Distributor. Dealers are responsible for transmitting orders promptly
(orders transmitted to and received by the Transfer Agent prior to 4:00 p.m. New
York time will receive that day's purchase price.)
Shares may be purchased by mailing a check, made payable to the Fund (noting
shareholder account number), and if opening a new account a completed
application form, to Transamerica Funds Shareholder Services either at the
address shown on the back page of the Prospectus or, if delivered by express
mail, the street address: Transamerica Funds Shareholder Services, One American
Express Plaza, Providence, RI 02903.
The initial purchase must be at least $1,000 with subsequent investments of no
less than $50. The minimum investment amounts are waived for tax-deferred
retirement programs involving the submission of additional investments by means
of group remittal statements ($250 and $25, respectively, for tax-deferred
retirement programs.) However, such programs which are investing through plans
providing for regular periodic investments, including a payroll deduction plan
or investment by bank draft, are subject to a $25 minimum amount. Purchases
through an eligible securities dealer must be at least $100. Certificates for
shares will not be issued unless requested in writing by the shareholder and
then only for full shares.
The Distributor at its expense, may provide additional promotional incentives or
payments to dealers that sell shares of the Fund. In some instances, these
incentives or payments may be offered only to certain dealers who have sold or
may sell significant amounts of shares of the Fund or other Transamerica mutual
funds.
The Fund issues two classes of shares: Class A Shares are sold to investors
choosing the initial sales charge alternative and Class B Shares are sold to
investors choosing the deferred sales charge alternative. The two classes of
shares represent an interest in the same portfolio of investments of the Fund
and have the same rights, except that each class bears the separate expenses of
its Rule 12b-1 distribution plan and has exclusive voting rights with respect to
14
<PAGE> 16
such plan. The two classes also have separate exchange privileges (see
"Shareholder Services--Exchange Privilege"). The net income attributable to each
class and the dividends payable on the shares of each class will be reduced by
the amount of distribution fees of each class (see "Distributor and Distribution
Plans"). Class B Shares bear the expenses of a higher distribution fee which
will cause the Class B Shares to have a higher expense ratio and to pay lower
dividends than the Class A Shares. Financial representatives will receive
different compensation for selling Class A and Class B Shares.
FEDWIRE PURCHASES. Investors may make payment for initial and subsequent
investments by federal funds wire. Investors should first notify Investor
Services (1-800-343-6840) of the new account request (if applicable) and the
intended wire purchase. To assure proper credit, banks wiring federal funds
should be instructed to include:
(1) name of the Fund,
(2) name of the shareholder (as registered exactly in the account), and
shareholder's account number, or;
(3) if opening an account, the name and address in which the account is being
registered and the taxpayer identification number of the investor (a
completed application must be mailed to the Transfer Agent after completing
the wire arrangements).
Federal funds may be wired to *:
Boston Safe Deposit and Trust Company
ABA Routing Number: 011001234
Account Number: 159565
- - Except during such times or holidays when Boston Safe Deposit & Trust Company
is not open for business.
ALTERNATIVE PURCHASE PLAN. The alternative purchase plan of the Fund permits
investors to choose the method of purchasing shares that is most beneficial,
given the amount of the purchase, the length of time the investor expects to
hold the shares and other relevant circumstances. Investors should determine
which method of purchase best suits their individual circumstances, i.e.,
whether it is more advantageous to incur an initial sales charge or to have the
entire purchase price invested in the Fund with the investment thereafter being
subject to a contingent deferred sales charge.
As an illustration, investors who qualify for a reduced sales charge might elect
the initial sales charge alternative because a similar sales charge reduction is
not available for purchases under the deferred sales charge alternative.
However, because the initial sales charge is deducted at the time of purchase,
such investors would not have all of their funds invested initially.
Investors not qualifying for a reduced initial sales charge who expect to
maintain their investment in the Fund for a long period of time might also elect
the initial sales charge alternative because over time the accumulated
continuing distribution charges of Class B Shares will exceed the initial sales
charge plus distribution fees of Class A. Again, however, such investors must
weigh this consideration against the fact that not all of their funds will be
invested initially. Furthermore, the ongoing distribution charges under the
deferred sales charge alternative will be offset to the extent any return is
realized on the additional funds. However, there can be no assurance that any
return will be realized on the additional funds.
Other investors might determine that it is more advantageous to have all of
their funds invested initially, although they are subject to a distribution fee
of 1.00% and, for a six-year period, a contingent deferred sales charge. For
example, based on current fees and expenses, an investor subject to the 5.75%
initial sales charge will have to hold his/her investment at least 7 years for
the 1.00% Class B distribution fee to exceed the initial sales charge plus
distribution service fee of Class A Shares. In
15
<PAGE> 17
this example, if the investor intends to maintain his/her investment in the Fund
for more than 6 years, the investor should consider purchasing Class A Shares.
This example does not take into account the time value of money which further
reduces the impact of the 1.00% distribution fee on the investment, fluctuations
in net asset value or the effect of the return on the investment over this
period of time.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES. The public offering price of
Class A shares of the Fund is the current net asset value per share (next
computed after receipt of an order by the Fund's Transfer Agent), plus a sales
charge (a percentage of the offering price as set forth in the table below).
<TABLE>
<CAPTION>
SALES CHARGE
AS A PERCENTAGE OF
-------------------
<S> <C> <C> <C>
AMOUNT OF NET OFFERING DEALER
PURCHASE INVESTED PRICE DISCOUNT
- ------- -------- -------- --------
Less than $50,000........... 6.10% 5.75% 5.25%
$500,000 but less than
$100,000.................. 4.99% 4.75% 4.25%
$100,000 but less than
$250,000.................. 3.90% 3.75% 3.25%
$250,000 but less than
$500,000.................. 2.83% 2.75% 2.35%
$500,000 but less than
$1,000,000................ 2.04% 2.00% 1.75%
$1,000,000 or more.......... * * See Below
</TABLE>
* Purchases of $1 Million or More
On purchases by a single purchaser aggregating $1 million or more, the
Distributor will pay securities dealers an amount on a cumulative basis equal to
1% of the first $3 million, plus .5 of 1% of the next $2 million, plus .25 of 1%
on amounts over $5 million. With respect to shares purchased at the $1 million
plus breakpoint, a contingent deferred sales charge ("CDSC") will be imposed on
the proceeds of the redemption of certain shares so purchased if they are
redeemed within 12 months of the end of the calendar month of their purchase, in
an amount equal to 1% of the lesser of (a) the net asset value of the shares at
the time of purchase or (b) the net asset value of the shares at the time of
redemption ("CDSC Shares"). The CDSC would be deducted from the redemption
proceeds otherwise payable to the shareholder and would be retained by the
Distributor. In addition, no CDSC will be imposed when a shareholder redeems (a)
CDSC shares acquired through reinvestment of income dividends or capital gains
distributions; and (b) shares acquired by exchange from any mutual fund sold
with an initial sales charge and distributed by the Distributor. The CDSC does
not apply to purchases at net asset value described under "Waiver of Initial
Sales Charge" and will be waived in the case of redemptions of shares in
connection with (i) certain distributions to participants of certain qualified
retirement plans, and returns of excess contributions made to these plans, and
(ii) involuntary redemption of shares if the aggregate net asset value of shares
held in the account is less than the required minimum. In determining whether a
CDSC is payable on any redemption, the Fund will first redeem shares not subject
to any charge. Although any CDSC shares being exchanged are not subject to any
sales charge, they will be subject to the applicable CDSC when such acquired
shares are eventually redeemed. For purposes of calculating the CDSC on such
redemptions, the original purchase date of the initial Fund investment will be
used in lieu of the date of the redeemed shares were acquired by exchange.
To the extent that the dealer discount may be deemed to constitute substantially
the entire sales charge, selling dealers may be deemed to be underwriters as
that term is defined in the Securities Act of 1933.
Reduced Initial Sales Charges. Investors choosing the initial sales charge
alternative are entitled to pay reduced sales charges shown in the above table
through several available purchase plans: Concurrent Purchases, Rights of
Accumulation, Statement of Intention and Group Purchases. An investor and his
immediate family may combine Concurrent Purchases of Class A Shares of the Fund
and Class A Shares (and shares subject to front-end sales charges) of other
mutual funds which are
16
<PAGE> 18
managed by the Investment Adviser for purposes of qualifying for, and
determining, a reduced sales charge provided that the purchases are made through
a single dealer and any purchase amounts satisfy the minimum investment amount
of the respective Fund. Further information about these purchase plans is set
forth under "Purchase of Shares" in the Statement of Additional Information (see
also Statement of Intention and Rights of Accumulation in the Account
Application and its Term and Conditions in the back of the Prospectus).
Waiver of Initial Sales Charge. No sales charge is applicable to any sale of the
Fund's Class A Shares to (1) trustees/directors, and employees (and their
families) of the Fund or Transamerica Investment Services or Transamerica
Corporation, (2) Transamerica Fund Management Company, its Houston-based parent
or affiliates or to their respective employees (and employees' families) or to
their clients (including (a) securities dealers having sales agreements with the
Distributor and (b) institutional clients of certain consulting firms), (3)
participants in certain (employee) retirement plans sponsored by Transamerica
Corporation or its Subsidiaries, (4) employees of financial institutions which
are engaged either directly by means of sales agreements with the Distributor or
indirectly by separate arrangements with a broker/dealer in the sale of Fund
shares and (5) investors purchasing shares with proceeds of redemptions of
shares (at net asset value) of non-Transamerica mutual funds which impose (a)
front-end sales charges or (b) contingent deferred sales charges provided,
however, that such proceeds represent the redemption of shares no longer subject
to a deferred sales charge at the time of redemption. In addition, sales charges
do not apply to shares of the Fund purchased in accounts as to which a
broker/dealer or investment adviser charges an account management fee, provided
the broker/dealer or investment adviser has a Fee Based Program Agreement with
the Distributor. See the Statement of Additional Information, "Purchase of
Shares-Purchase at Net Asset Value" for a more complete description of investors
eligible to purchase shares at net asset value. To be eligible to purchase
shares of the Fund without the imposition of sales charge as described above,
the investor or the investor's broker must establish such eligibility at the
time shares are purchased by advising the Distributor.
DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES. The offering price of Class B
Shares for investors choosing the deferred sales charge alternative is the net
asset value per share next determined following receipt of an order by the
Transfer Agent. There is no sales charge imposed at the time of purchase, so
that the Fund will receive for investment the full amount of the investor's
purchase payment. See "Redemption and Repurchase of Shares--Class B Shares:
Contingent Deferred Sales Charge" below.
Proceeds from the contingent deferred sales charge are paid to the Distributor
and are used in whole or in part by the Distributor related to providing
distribution-related services to the Fund in connection with the sale of Class B
Shares, such as the payment of compensation to securities dealers for selling
Class B Shares. The combination of the contingent deferred sales charge and the
distribution fee and service fee facilitates the ability of the Fund to sell
Class B Shares without a sales charge being deducted at the time of purchase
(see "Distributor and Distribution Plans.")
SHAREHOLDER SERVICES
- --------------------------------------------------------------------------------
The Fund offers shareholders the following services and privileges:
(1) Reinvestment of Dividends and Distributions at net asset value;
(2) Tax-Sheltered Retirement Plans; (3) Automatic Investment Plan;
(4) Systematic Withdrawal Plan; (5) Exchange Privilege; and (6) Automated
Dollar Cost Averaging Program. Further information regarding the
17
<PAGE> 19
above services and privileges is set forth in the Statement of Additional
Information and may be obtained by contacting the Fund at the address and
telephone number listed on the cover page of the Prospectus.
AUTOMATIC INVESTMENT PLAN permits shareholders to purchase additional shares on
a monthly basis with funds transferred from their bank account. For further
details, see the Automatic Investment Plan form in the back of the Prospectus.
EXCHANGE PRIVILEGE permits Class A and Class B shareholders of the Fund to
exchange their shares for certain shares of other Transamerica funds on the
basis of the relative net asset value per share subject to the minimum
investment requirements of such funds. Class A Shares may be exchanged for other
Transamerica funds Class A Shares or shares sold with an initial sales charge
("ISC Funds"). Shares of such other ISC Funds may also be exchanged for Class A
shares of the Fund provided that any sales charge differential (not previously
paid) is paid by the Shareholder. Class B Shares may be exchanged (without
imposition of the Fund's CDSC) for Class B Shares or shares of other funds which
are subject to a CDSC ("CDSC Funds"). Exchanges between Funds having different
CDSC Schedules will retain their respective original CDSC Schedules. Any
applicable contingent deferred sales charge payable upon the redemption of Class
B Shares exchanged will be calculated from the date of the initial purchase.
Class B Shares may not be exchanged into money market funds other than
Transamerica Special Money Market Fund. See Account Application or the "Exchange
Privilege" in the Statement of Additional Information.
Exchanges may be accomplished by telephone request (see below) or by a written
request from the account owner(s). Forms for both written and telephone
exchanges are available from the Fund upon request. Share certificates, if
issued, must be returned to the Fund prior to any exchange of such shares. There
is currently no service fee for an exchange; however, dealers or other firms may
charge for their services in expediting exchange transactions. Exchanges are, in
effect, a redemption and purchase of shares in the respective funds. As such,
the limitations and restrictions applicable generally to purchases and
redemptions apply, and any exchange constitutes a sale upon which a gain or loss
will be realized for federal income tax purposes. In addition, the Fund reserves
the right to impose a service fee.
THIS EXCHANGE PRIVILEGE IS NOT AVAILABLE IN ANY JURISDICTION WHERE SHARES OF THE
OTHER TRANSAMERICA FUND BEING ACQUIRED ARE NOT QUALIFIED FOR SALE. EACH
TRANSAMERICA MUTUAL FUND RESERVES THE RIGHT TO MODIFY, RESTRICT OR TERMINATE THE
EXCHANGE PRIVILEGE, AT ANY TIME AFTER 60 DAYS' NOTICE TO SHAREHOLDERS. Because
other Transamerica funds have investment objectives and policies which may
differ from those of the Fund, shareholders should carefully review the
prospectus of the other Transamerica fund before effecting an exchange.
Shares of the Fund for which no share certificates have been issued may be
exchanged by telephone request provided the shareholder has selected this option
in the Account Application or has a telephone authorization form on file.
Neither the Fund, Transfer Agent nor the Investment Adviser will be responsible
for the authenticity of telephone instructions. Shareholders should be aware
that transactions authorized by telephone instructions believed to be authentic
by the Fund can subject the shareholder to the risk of loss if such telephone
instructions are subsequently found to be unauthentic. The Fund has been advised
by the staff of the Securities and Exchange Commission that it is presently
considering, but has not publicly commented upon, the propriety of subjecting a
shareholder to liability in such circumstances. Telephone requests may be made
by contacting the Fund at 1-800-343-6840.
AUTOMATED DOLLAR COST AVERAGING PROGRAM. The Fund offers its Class A
shareholders the option of
18
<PAGE> 20
participating in the Automated Dollar Cost Averaging Program (the "Program")
which provides for automatic monthly "exchanges" from the shareholder's account
in Transamerica U.S. Government Cash Reserve or Transamerica Cash Reserve, Inc.
into the Fund and any other mutual funds which are advised by Transamerica Fund
Management Company and impose initial sales charges. Class B Shareholders may
participate in the program through monthly exchanges from their money market
account in Transamerica Special Money Market Fund. To be eligible for
participation, at least $5,000 must be initially present in the shareholder's
originating money market account ($20,000 in Transamerica U.S. Government Cash
Reserve).
Further information, including other terms and conditions, is found in the
Statement of Additional Information which is available, along with the
application form for the Program, from the Fund by calling Investor Services at
1-800-343-6840. Note that automated dollar cost averaging methods do not assure
a profit and do not protect against loss in declining markets. You should
consult your broker or financial adviser to determine whether this Program is
suitable for your investment needs. There is no service fee for participating in
the Program. However, the Fund or the Distributor reserves the right to impose
such a fee.
TELEPHONE PRIVILEGES
- --------------------------------------------------------------------------------
As described in the Fund's prospectus, Telephone Exchange Privileges, Telephone
Redemption Privilege and FedWire Redemption Privileges may be selected in the
Fund's account application. In the absence of a designation for Telephone
Exchanges, the Telephone Exchange Privilege will automatically be accorded to
the shareholder's account. The Telephone Redemption Privilege and FedWire
Redemption Privileges will not be established unless specifically instructed. If
establishing a new account through a confirmed trade, the shareholder's
securities dealer should provide a completed new account application or submit
specific written instructions requesting specific account privileges at the time
of trade settlement. The Fund will employ reasonable procedures to confirm that
the instructions as to either exchange, redemption or FedWire redemptions
communicated by telephone are genuine, and that absent such procedures, the Fund
or its agents may be liable for any losses due to unauthorized or fraudulent
instructions. Such procedures include:
1. Recording all calls for telephone transactions (each transaction is thereby
indexed by the time of the call placed);
2. Requesting the caller's name and phone number as verification of the origin
of the telephone call;
3. Requesting the name of the Fund and the shareholder's account number, the
name(s) in which the account is registered and the tax identification number
listed on the account;
4. Mailing written confirmation (statements) of each transaction on the
following business day to the registration address and the broker/dealer of
record.
REDEMPTION AND REPURCHASE OF SHARES
- --------------------------------------------------------------------------------
GENERAL. Shares of the Fund in any amount may be redeemed at any time at the net
asset value per share next determined after the redemption request is received
in proper form by the Transfer Agent. See "Net Asset Value." In certain cases,
however, redemption proceeds from the Class B Shares will be reduced by the
amount of any applicable contingent deferred sales charge (see "Class B
Shares -- Contingent Deferred Sale Charge").
If a shareholder holds both Class A and Class B Shares of the Fund, any request
for redemption must specify whether Class A or Class B Shares are
19
<PAGE> 21
to be redeemed. Failure to specify which class or insufficient shares of the
class specified will result in the redemption request being denied until the
Transfer Agent receives further written instructions from the shareholder.
Payment proceeds will be mailed within seven (7) days following receipt of all
required documents. However, in the case of redemptions of shares which were
recently purchased by check, the payment of proceeds of such redemption may be
delayed for a period of up to 15 days or more only until the check used to
purchase the shares has been cleared for payment by the shareholder's bank. The
Fund will not forward proceeds by FedWire Redemption (described below), and such
redemption will not be effective, for a period of 15 days after receipt of the
purchase check. This delay in payment of redemption proceeds can be avoided if
shares are purchased by means of a certified check or federal funds wire. Under
unusual circumstances, the Fund may suspend redemptions or postpone payment for
up to seven days or more, as permitted by securities laws.
REDEMPTION BY WRITTEN REQUEST. To redeem shares, send a written request or
"Letter of instruction" specifying the name of the Fund, the dollar amount or
number of shares to be redeemed, and shareholder's name and account number to:
Transamerica Funds Shareholder Services, P.O. Box 9656, Providence, Rhode Island
02940-9656. A request for redemption will be processed after receipt by the
Transfer Agent of all required documents in proper order including any issued
share certificates and the letter of instruction signed by each account owner
exactly as the account is registered. If a redemption of $50,000 or more is to
be made (or if the shareholder's address or bank account to which proceeds are
to be mailed has changed in the prior 30 days) signatures must be guaranteed
without restriction, condition or qualification by an authorized signatory of a
commercial bank, trust company, savings bank, savings and loan association,
federal credit union, a member firm of the National Association of Securities
Dealers, Inc. a domestic stock exchange, or any other "eligible guarantor
institution," as defined under the Rule 17Ad-15 of the Securities Exchange Act
of 1934. If shares are held in the name of a corporation, trust, estate,
custodianship, guardianship, partnership or pension and profit sharing plan,
additional documentation may be necessary.
TELEPHONE REDEMPTION. Shares of the Fund for which no share certificates have
been issued may be redeemed in amounts of $50,000 or less by telephone request
provided that selection has been made in the Account Application or a telephone
authorization form is on file with the Transfer Agent. Proceeds from such
telephone redemptions will be mailed to the shareholder's address of record. The
Fund and/or the Transfer Agent reserve the right to refuse telephone redemption
requests at any time. See "Exchange Privilege" for further information regarding
authenticity of instructions received by telephone. Telephone authorization
forms are available from the Fund upon request. Information concerning
redemption can be obtained by contacting the Fund at 1-800-343-6840.
FEDWIRE REDEMPTION. Shareholders may redeem shares for which no certificates
have been issued and have redemption proceeds of at least $50,000 wired by
federal funds transfer. Requests for FedWire redemption may be made by wire
communication, telephone or letter provided that the shareholder has selected
this option in the Account Application. Proceeds of shares redeemed at the net
asset value next determined after receipt of request are transmitted the
following business day by wire to the shareholder's bank account designated in
the Account Application form (bank must be a member of the Federal Reserve
System). Delivery of the proceeds of a wire redemption request of $250,000 or
more may be delayed by the Fund for up to seven days if the Investment Adviser
deems it appropriate under the then current market conditions. The Fund cannot
be responsible for the efficiency of the federal wire system or the
20
<PAGE> 22
shareholder's dealer or bank. Redemption of shares purchased by check are
subject to certain limitations and restrictions described below. The Fund may
modify this Privilege at any time or charge a service fee upon notice to
shareholders; no such fee currently is contemplated.
REPURCHASE. The Distributor is authorized to repurchase any shares presented by
telephone or telegraph to the Distributor by certain securities dealers selected
by the Distributor in its sole discretion. The offer to repurchase may be
suspended by the Distributor at any time. Repurchase orders received by dealers
prior to the closing of the NYSE (4:00 p.m. New York time) on any business day
will be priced at the net asset value per share that is based on that day's
close provided that they are time-stamped by the dealer no later than 4:00 p.m.
New York time on such day. Dealers may charge for their services in connection
with repurchases, but neither the Fund nor the Distributor makes any charge.
INVOLUNTARY REDEMPTION. The Fund reserves the right to redeem a shareholder's
account at any time the total net asset value of the account falls below $100 as
a result of a redemption. Shareholders will be notified in writing that the
value of their account is less than $100 as a result of a redemption and will be
allowed 60 days to make additional investments before the redemption is
processed. No contingent deferred sales charge will be imposed on an involuntary
redemption of Class B Shares.
REDEMPTION IN KIND. Although it is the Fund's present policy to make payment of
redemption proceeds in cash, if the Fund's Board of Trustees determines that a
material adverse effect would otherwise be experienced by remaining investors,
redemption proceeds may be paid in whole or in part by a distribution in kind of
securities from the portfolio of the Fund subject to the limitation that
pursuant to an election under Rule 18f-l under the Investment Company Act of
1940, the Fund is obligated to redeem shares solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Fund during any 90-day period for
such one account. In such circumstances, a shareholder might be required to bear
transaction costs to dispose of such securities distributed in kind.
CLASS B SHARES--CONTINGENT DEFERRED SALES CHARGE. A contingent deferred sales
charge is imposed on all redemptions of Class B Shares after the following
exempt dollar amounts have been subtracted:
(1) the value at the time of purchase of all shares in the account purchased
more than six years (from date of purchase) prior to the redemption;
(2) the value at the time of reinvestment of all shares in the account acquired
through reinvestment of dividends or capital gains distributions; and
(3) the net increase, if any, of the value of all shares in the account over the
purchase price of such shares.
Redemptions are processed in such a way as to minimize the amount of redemption
that will be subject to a contingent deferred sales charge. For example, it is
assumed that each redemption has been made:
(1) first from the exempt amounts referred to in clauses (1), (2) and (3) above
and
(2) second through liquidation of those shares in the account within six years
preceding the redemption on a first-in-first-out basis.
Any contingent deferred sales charge required to be imposed on share redemptions
will be assessed on
21
<PAGE> 23
the purchase price of the shares redeemed according to the following schedule:
<TABLE>
<CAPTION>
YEAR OF CONTINGENT
REDEMPTION DEFERRED
AFTER PURCHASE SALES CHARGE
-------------- ------------
<S> <C>
First............................. 5%
Second............................ 4%
Third............................. 3%
Fourth............................ 3%
Fifth............................. 2%
Sixth............................. 1%
Seventh and following............. 0%
</TABLE>
When a contingent deferred sales charge is imposed on a repurchase or a
redemption, the following occurs:
(1) the total amount of repurchase or redemption proceeds will be remitted to
the repurchasing or redeeming shareholder; and
(2) the contingent deferred sales charge, if any, will be deducted from the
remaining share balance in the share account, unless a repurchase or
redemption, (a) liquidates the account completely or (b) reduces the account
to such an extent that liquidation of the remaining shares in the account
would not equal the amount of the contingent deferred sales charge due (in
which case, the contingent deferred sales charge will be deducted from the
redemption proceeds).
If a partial redemption (or exchange) by a shareholder results in a remaining
account balance of less than the amount of the contingent deferred sales charge
owed by the shareholder at the time of the redemption (or exchange) on the
shares remaining in the account, the Fund reserves the right to require the
shareholder to redeem (or exchange) all of the shares in the account. The Fund
does not believe that this constitutes an involuntary redemption.
The contingent deferred sales charge will be paid to the Distributor or to the
Fund. (See "Distribution Plan.")
Waiver of CDSC. No contingent deferred sales charge will be imposed on the
redemption of Class B Shares of the Fund which have been sold to (a) the
Investment Adviser, its Houston based affiliates or to their respective
employees or clients, (b) employees of financial institutions which are engaged
either directly by means of sales agreements with the Distributor or indirectly
by separate arrangements with a broker/dealer in the sale of Fund shares and (c)
a director, officer or employee of Transamerica Investment Services Inc. (which
serves as sub-adviser to certain investment companies managed by the Investment
Adviser) or its parent, Transamerica Corporation. The contingent deferred sales
charge will also be waived (a) in the event of the death or total disability (as
evidenced by a determination by the Federal Social Security Administration) of
the shareholder (including a registered joint owner) and (b) for certain
redemptions of shares held in qualified retirement plans. In addition, no
contingent deferred sales charge will be imposed where shares are redeemed in
connection with a merger or reorganization of the Fund into another investment
company which imposes a contingent deferred sales charge and the investor
receives shares of the other investment company in the transaction. In such
cases any applicable contingent deferred sales charge will be imposed when an
investor redeems shares acquired in such a transaction. In addition, the CDSC is
waived on redemptions made (1) by shareholders (including retirement plan
account holders) having accounts as Systematic Withdrawal Plans (SWP) with
payments of an annual amount less than or equal to 12% of the value of the
account determined at the time of SWP authorization (subject to subsequent
calendar year end adjustments) and available on a monthly, quarterly,
semi-annual or yearly basis; and (2) as distributions from employer sponsored
retirement plans in connection with the participant's separation of service at
age 55 or over from his or her employer. To be eligible for the waiver, the
account holder or the dealer must notify the Distributor of eligibility at the
time of redemption request.
22
<PAGE> 24
(See the Statement of Additional Information, "Redemption and Repurchase of
Shares" for a more complete description of the Fund's shareholders on whose
shares a contingent deferred sales charge will not be imposed.)
CLASS A SHARES--REINSTATEMENT PRIVILEGE. A shareholder who has redeemed Class A
Shares of the Fund, or has had Class A Shares repurchased by the Fund, may,
within 60 days after the date such shares were redeemed or repurchased, reinvest
(reinstate) all or a portion of the proceeds of such redemption or repurchase in
Class A Shares of the Fund or reinvest proceeds in Class A Shares of other
Transamerica funds or in shares of other Transamerica funds which impose initial
sales charges (collectively "other front-load shares"). Proceeds would be
reinvested at the next determined net asset value of the Class A Shares of the
Fund or the applicable other front-load shares after a written request for
reinstatement and payment are received by the Transfer Agent. If a loss was
realized on the redemption or repurchase of Fund Class B Shares and
reinstatement occurs within 30 days, the transaction may be deemed a "wash
sale", resulting in non-recognition of such loss for federal income tax
purposes. This privilege may be exercised only once as to any particular shares
of the Fund or other front-load shares. Exercise of the Reinstatement Privilege
does not alter the federal income tax treatment of any capital gains realized on
the redemption of shares of the Fund. The reinstatement privilege may be
terminated or modified at any time.
CLASS B SHARES--REINSTATEMENT PRIVILEGE. A shareholder who has redeemed Class B
Shares of the Fund or has had Class B Shares repurchased by the Fund, may,
within 60 days after the date such Class B Shares were redeemed or repurchased,
reinstate any or all of the proceeds in Class B Shares of the Fund or, in Class
B Shares of other Transamerica funds or in shares of other Transamerica funds
which are subject to contingent deferred sales charges (collectively other "CDSC
Shares"). Proceeds would be reinstated at the next determined net asset value of
the Class B Shares of the Fund or the applicable other CDSC Shares after a
reinstatement request and payment are received at the office of the Transfer
Agent. The contingent deferred sales charge will not be applicable to Class B
Shares acquired in a reinstatement, although it will be assessed in connection
with the initial redemption or repurchase. If a loss was realized on the
redemption or repurchase of Fund Class B Shares and reinstatement occurs within
30 days, the transaction may be deemed a "wash sale", resulting in
non-recognition of such loss for federal income tax purposes. Investors are
advised to consult their tax advisers as to all possible tax consequences
related to the exercise of the reinstatement privilege. This privilege may be
exercised only once as to any particular Class B Shares of the Fund or other
CDSC Shares. This privilege may be modified or terminated at any time.
DIVIDENDS, DISTRIBUTIONS AND TAX STATUS
- --------------------------------------------------------------------------------
DIVIDENDS. It is the Fund's policy to distribute substantially all of its net
investment income, if any, to shareholders in the form of annual dividends.
CAPITAL GAINS. The excess of net long-term capital gains over net short-term
capital losses, including losses carried forward from prior years, represents
net realized capital gains. The Fund distributes net realized capital gains, if
any, to shareholders at least annually.
When a dividend or capital gains distribution is paid, the net asset value per
share is reduced by the amount of payment. The capital gains distribution will
be equal for both Class A and Class B Shares. The per share dividends on Class B
Shares will be
23
<PAGE> 25
lower than the per share dividends on Class A Shares as a result of the higher
distribution services and incremental transfer agency ices applicable to the
Class B Shares.
All dividends and any capital gains are reinvested in additional Fund shares at
the net asset value on the payment date unless a shareholder requests otherwise
(e.g., payment in cash) by specifying instructions in the account application or
by writing to the Fund's Transfer Agent.
TAXES. It is the Fund's policy to distribute all of its net investment income
and net realized capital gains, if any, to shareholders each fiscal year. By
distributing its taxable net investment income and taxable net realized gains,
if any, it is not expected that the Fund will be required to pay any federal
income tax on such items. However, dividends and interest received by the Fund
may be reduced by withholding and other taxes imposed by foreign countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes. Shareholders normally will have to pay federal income
taxes and any state income taxes on the dividends and distributions they receive
from the Fund. Unless securities of foreign companies exceed 50% of the value of
the Fund's total assets at the end of the Fund's fiscal year, shareholders
should not expect to be able to claim a foreign tax credit or deduction on their
federal income tax returns. After the end of the calendar year, shareholders are
provided full information on dividends and capital gains distributions for
federal income tax purposes, including information as to the portion taxable as
ordinary income, the portion taxable as long-term capital gains and the amount
of dividends eligible for the 70% dividends-received deduction available for
corporations and the amount of taxes withheld by foreign governments if such
amount is available to be used by shareholders on their own tax returns.
To avoid being subject to a 31% federal backup withholding tax on dividend and
capital gain distributions and on the proceeds of redemptions, you must furnish
tile Fund with your correct taxpayer identification number (e.g., a social
security number in the case of individual taxpayers) and must certify that such
number is correct and that you have not been notified by the Internal Revenue
Service that you are subject to backup withholding. Shareholders who are
non-resident aliens or foreign corporations, partnerships or trusts may be
subject to withholding of U.S. federal income tax on dividend distribution
including dividends attributed to interest income and short-term capital gains
realized by the Fund.
Gains and losses on the sale, lapse or other termination of stock options and
options on narrow based stock indexes generally will be treated as gains or
losses from the sale of securities. Stock index futures, options on stock index
futures and options on broad based stock indexes, (e.g., options on the Standard
& Poor's 500 Index) held by the Fund at the end of each fiscal year, may be
required to be "marked to market" for federal income tax purposes (i.e., treated
as having been sold at market value). Of any gain or loss recognized on these
deemed sales of options or futures and of realized gain or loss, generally, 60%
will be treated as long-term capital gain or loss, and the remainder will be
treated as short-term capital gain or loss. The foregoing is an abbreviated
summary of the consequences of the Fund's portfolio transactions.
Dividends and distributions declared by the Fund in December, but paid in
January will be taxed to shareholders as if paid in December.
EACH SHAREHOLDER IS ADVISED TO CONSULT HIS/HER TAX ADVISER CONCERNING THE TAX
CONSEQUENCES OF AN INVESTMENT IN THE FUND.
24
<PAGE> 26
INVESTMENT PRACTICES AND RESTRICTIONS
- --------------------------------------------------------------------------------
With the exceptions of the Fund's policies on Leverage and Lending of Portfolio
Securities, each of the policies described below is not deemed to be a
fundamental policy and may be changed by the Board of Trustees without approval
of the holders of a majority of the Fund's outstanding voting securities.
LEVERAGE. In seeking to enhance investment performance, the Fund may, from time
to time, borrow money from banks for investment in portfolio securities. The
Fund may borrow only from banks and only if the value of the Fund's assets
(including the loan proceeds) less other liabilities of the Fund are at least
three (3) times the amount of the bank borrowing. This speculative practice may
help the Fund increase the net asset value of its shares in an amount greater
than would otherwise be the case when the market values of the securities
purchased through borrowing increase. However, if the return on the investment
of borrowed monies does not fully recover the costs of such borrowings to the
Fund, the net asset value of the Fund would fall in an amount greater than would
otherwise be the case. The time and extent to which the Fund may employ leverage
will be determined by the Investment Adviser in light of changing facts and
circumstances, including general economic and market conditions. Under the
Investment Company Act of 1940, the value of the Fund's assets, including the
proceeds of the loan, less other liabilities of the Fund, must be at least three
times the proposed bank borrowing. If, due to market conditions or other
reasons, the value of the Fund's assets falls below such requirement, the Fund
must within three business days, reduce such borrowings to satisfy such
requirement. To do this, the Fund may have to sell a portion of its investments
at a time when it may be disadvantageous to do so.
RESTRICTED SECURITIES. The Fund may invest up to 10% of the value of its net
assets, determined as of the date of purchase, in securities subject to
restrictions on disposition under the Securities Act of 1933 ("restricted
securities") and in other securities not having readily available market
quotations. In some cases, restricted securities may not be sold without some
time delay. Restricted securities will be carried at fair value as determined by
the Investment Adviser using procedures established and reviewed by the Board of
Trustees.
LENDING OF PORTFOLIO SECURITIES. In order to earn additional income on its
portfolio securities the Fund may lend up to 33% of the value of its portfolio
securities to brokers, dealers and other financial institutions, provided that
such loans are callable at any time by the Fund, and are at all times secured by
collateral consisting of cash or securities issued or guaranteed by the United
States government or its agencies, or any combination thereof, equal to not less
than 100% of the market value, determined daily, of the securities loaned.
Because the income generated by securities lending will cushion the Fund against
any declines in value of portfolio securities it is anticipated that such
practice will facilitate the Fund's ability to hold securities for the long
term. Although the limitation on the amount of securities the Fund may lend is a
fundamental policy, the particular practices followed in connection with such
loans are not deemed fundamental and may be changed by the Board of Trustees
without the vote of the Fund's shareholders. Lending portfolio securities
involves certain risks the most significant of which is the risk that a borrower
may fail to return a portfolio security. The Board of Trustees has adopted
policies designed to minimize such risks.
REPURCHASE AGREEMENTS. In order to enhance liquidity or preserve capital, the
Fund may invest temporarily in repurchase agreements. This involves the purchase
by the Fund of U.S. government securities or other debt obligations with the
condition that after a stated period of time the original
25
<PAGE> 27
seller will buy back the same securities at a predetermined price or yield.
Repurchase agreements involve certain risks not associated with direct
investment in government securities. In the event the original seller defaults
on its obligation to repurchase, as a result of its bankruptcy or otherwise, the
Fund will seek to sell the securities which action could involve costs or
delays. In such case the Fund's ability to dispose of the securities to recover
its investment may be restricted or delayed. To minimize this risk, securities
underlying the repurchase agreement will be maintained with the Fund's custodian
in an amount at least equal to the repurchase price under the agreement
(including accrued interest thereunder). However, in the event the other party
to the repurchase agreement fails to repurchase the securities subject to such
agreement, the Fund could suffer a loss to the extent proceeds from the sale of
the securities were less than the repurchase price. The Fund will not invest in
a repurchase agreement maturing in more than seven (7) days, if such investment,
together with other illiquid securities held by the Fund (including restricted
securities) would exceed 10% of the total Fund assets. The Fund will enter into
repurchase agreements only with member banks of the Federal Reserve System or
selected registered securities dealers (including, with respect to U.S.
Government Securities, dealers which have been designated as primary dealers in
U.S. government securities' dealers which have been designated as primary
dealers in U.S. government securities) which meet creditworthiness standards
approved by the Fund's Trustees.
REVERSE REPURCHASE AGREEMENTS. The Fund may also enter into reverse repurchase
agreements which involve the sale of securities held in its portfolio to a bank
or securities firm with an agreement that the Fund will buy back the securities
at a fixed future date at a fixed price plus an agreed amount of "interest"
which may be reflected in the repurchase price. Reverse repurchase agreements
are considered to be borrowings by the Fund. The Fund will use proceeds obtained
from the sale of securities pursuant to reverse repurchase agreements to
purchase other investments. The use of borrowed funds to make investments is a
practice known as "leverage," which is considered speculative. Use of reverse
repurchase agreements is an investment technique that is intended to increase
income. Thus, the Fund will enter into a reverse repurchase agreement only when
the Investment Adviser determines that the interest income to be earned from the
investment of the proceeds is greater than the interest expense of the
transaction. However, there is a risk that interest expense will nevertheless
exceed the income earned. Reverse repurchase agreements involve the risk that
the market value of securities purchased by the Fund with proceeds of the
transaction may decline below the repurchase price of the securities sold by the
Fund which it is obligated to repurchase. The Fund would also continue to be
subject to the risk of a decline in the market value of the securities sold
under the agreements because it will reacquire those securities upon effecting
their repurchase. To minimize various risks associated with reverse repurchase
agreements, the Fund would establish and maintain with the Fund's custodian a
separate account consisting of highly liquid, marketable securities in an amount
at least equal to the repurchase prices of the securities (plus any accrued
interest thereon) under such agreements. In addition, the Fund would not enter
into reverse repurchase agreements exceeding in the aggregate more than 33 1/3%
of the value of its total net assets (including for this purpose other
borrowings of the Fund). The Fund will enter into reverse repurchase agreements
only with selected registered broker/dealers or with federally insured banks or
savings and loan associations which are approved in advance as being
creditworthy by the Board of Trustees. Under procedures established by the Board
of Trustees, the Investment Adviser will monitor the creditworthiness of the
firms involved.
STOCK OPTIONS. In order to protect the Fund against declines in the prices of
securities held by it
26
<PAGE> 28
or against increases in the prices of securities it intends to purchase the Fund
may purchase and write standardized put and call options which are traded on
national securities exchanges or through the quotation system operated by the
National Association of Securities Dealers, to the extent set forth below,
subject to obtaining all necessary approvals from state regulatory authorities.
(See "Stock Options" in the Statement of Additional Information.)
Uses of Options. The Fund may purchase call options in order to lock in the
price of securities it intends to purchase in the future and thus protect the
Fund against substantial increases in the prices of such securities. Conversely
the Fund may purchase put options in order to protect against declines in the
market value of securities held in its portfolio. The Fund may write covered
call options to protect its own return on portfolio securities. To the extent of
the options premium a call option serves as a hedge against the decline in price
of the underlying security. Finally, the Fund may write covered put options to,
in effect, lock in a price at which the Fund may purchase a security. Under such
circumstances, the Fund would write a covered put option at an exercise price
which, reduced by the premium received on the option (and the applicable
transactions costs), reflected the amount the Fund was willing to pay for the
security. The Fund will not purchase a call or put option if, as a result, the
premium paid for the option together with premiums paid for all other stock
options and options on stock indexes (see "Special Investment
Techniques -- Options on Stock Indexes") then held by the Fund, exceed 10% of
the Fund's total net assets. In addition, the Fund may not write options on
stock or stock indexes with aggregate exercise prices in excess of 30% of the
Fund's total net assets measured at the Fund's net asset value at the time the
option is written. The Fund may not write uncovered options.
The Fund may enter into transactions in over-the-counter options ("OTC Options")
under the same circumstances in which it may effect transactions in exchange
traded options. OTC Options are purchased from, or sold (written) to, dealers or
financial institutions which have entered into direct agreements with the Fund.
With OTC Options, such variables as expiration date, exercise price and premium
will be agreed upon between the Fund and the transacting dealer, without the
intermediation of a third party such as the Options Clearing Corporation. There
is no secondary for OTC Options; such options may be closed out only with the
transacting dealer. If the transacting dealer fails to make or take delivery of
the securities underlying an option it has written, or in the case of an index
option to settle the option in cash, in accordance with the terms of that
option, the Fund would lose the premium paid for the option as well as any
anticipated benefit of the transaction.
Risks of Options. The purchase and writing of stock options involve certain
risks. The purchase of put and call stock options can afford the Fund the
opportunity to profit from favorable movements in the price of an underlying
stock to a greater extent than if transactions were effected in the stock
directly. However, if the stock does not move in the anticipated direction
during the term of the option in an amount greater than the premium paid for the
option, the Fund may lose a greater percentage of its investment than if the
transaction were effected in the stock. In addition, there can be no assurance
that either a closing purchase or a closing sale transaction can be effected.
By writing a covered call option, the Fund will have, in return for the premium
received, given up the opportunity to profit from a price increase in the
underlying stock above the exercised price as long as its obligation as a writer
continues but will have retained the risk of loss should the price of the stock
decline. As a put writer, the Fund will assume the risk that the underlying
stock may fall below the exercise price, in which case the Fund may be required
to purchase the stock at a higher price than the market price of the security.
27
<PAGE> 29
The Fund's policies regarding stock options are not deemed to be fundamental and
may be changed without the vote of the Fund's shareholders.
WHEN ISSUED SECURITIES. The Fund may from time to time purchase securities on a
delayed delivery or when-issued basis (i.e., securities may be purchased or sold
by Fund with settlement taking place in the future, often a month or more). The
payment to be made and interest rate received on such securities are fixed at
the time the Fund enters into the commitment. Whenever the Fund purchases
securities on a when-issued basis it will maintain, until the settlement date,
cash or high grade short-term debt obligations in a segregated account in an
amount sufficient to meet the purchase price. Although the Fund will generally
purchase such securities with the intention of acquiring securities for its
portfolio, the Fund may dispose of a when-issued security prior to settlement,
if the Investment Adviser deems it appropriate to do so. Prior to delivery of a
security purchased on a when-issued basis, no interest accrues to the Fund and
the value of the security may fluctuate. While there are no limitations on the
portion of the Fund's assets which may be invested in when-issued securities it
is not expected that at any time more than 5% of the Fund's net assets will be
so invested.
INVESTMENT RESTRICTIONS. The Fund is subject to certain restrictions upon its
investments, which may not be altered without approval of the holders of a
majority of the Fund's outstanding voting securities. A majority for this
purpose means: (a) more than 50% of the outstanding voting securities, or (b)
67% or more of the voting securities represented at a meeting where more than
50% of the outstanding securities are represented, whichever is less. Those
restrictions provide that, among other things, the Fund will not:
(1) Invest more than 5% of its assets (taken at market value at the time of each
investment) in the securities of any one issuer or purchase more than 10% of
the outstanding voting securities of any one company or more than 10% of any
class of a company's outstanding securities, except that these restrictions
shall not apply to U.S. government securities.
(2) Invest more than 10% of its total assets (taken at market value at the time
of each investment) in securities of companies having a record, together
with predecessors, of less than three years of continuous operations, except
that this restriction shall not apply to U.S. government securities.
Shareholders may refer to the Statement of Additional Information for additional
investment restrictions.
PORTFOLIO TRANSACTIONS. Consistent with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., the Investment Adviser may
consider a broker/dealer's sales of shares of the Fund as a factor in selecting
from among those broker/dealers qualified to provide comparable prices and
execution on the Fund's portfolio transactions. (For a further discussion of
portfolio transactions, see the Statement of Additional Information, "Investment
Practices and Restrictions--Portfolio Transactions and Brokerage").
SPECIAL INVESTMENT TECHNIQUES
- --------------------------------------------------------------------------------
OPTIONS ON STOCK INDEXES. The Fund may purchase standardized put and call
options on stock indexes. Such transactions will be effected for purposes of
hedging against adverse price movements in the stock market generally or in the
technology segment of the market (see "Stock Index Futures and Related
Options"). In addition, the Fund may write options on stock indexes in order to
protect against a decline in the stock market generally or in the technology
segment of the market.
28
<PAGE> 30
Generally, transactions in stock index options pose the same type of risks as do
transactions in stock options. Also, because exercise of stock index options is
settled in cash and not by the delivery of securities comprising an index, call
writers cannot provide in advance for their potential settlement obligations. In
addition, because trading in index options commenced only recently, the Fund's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid secondary market for such options.
The Fund's policies regarding options on stock indexes are not deemed to be
fundamental and may be changed without the vote of the Fund's shareholders.
STOCK INDEX FUTURES AND RELATED OPTIONS. The Fund may for hedging purposes
purchase and sell stock index futures contracts and purchase options on such
futures. A stock index futures contract is a bilateral agreement pursuant to
which two parties agree to take or make delivery of an amount of cash equal to a
specified dollar amount times the difference between the stock index value at
the close of the last trading day of the contract and the futures contract
price. No physical delivery of the underlying stocks in the index is made.
Options on stock index futures are similar to options on stocks except that an
option on a stock index future gives the purchaser the right in return for the
premium paid to assume a position in a stock index futures contract (a long
position if the option is a call and a short position if the option is a put).
The Fund will not engage in transactions in stock index futures contracts or
options on such futures for speculation but only as a hedge against changes in
the value of securities held in the Fund's portfolio or which it intends to
purchase and where the transactions are economically appropriate to the
reduction of risks inherent in the ongoing management of the Fund. Generally,
the Fund may hedge its securities portfolio against a period of market decline
by selling stock index futures contracts or by purchasing puts on stock index
futures contracts for the purpose of protecting its portfolio against such
decline. Conversely, the Fund may purchase stock index futures or call options
thereon as a means of protecting against an increase in the prices of securities
which the Fund intends to purchase. The Fund will not write options on stock
index futures contracts.
Covered call options on stock are options written against stock owned by the
Fund. Put options written on stock or indexes al-c covered if the Fund maintains
cash, U.S. Treasury bills or other high grade, short-term debt obligations with
a value equal to the exercise price in a segregated account with its custodian,
or if it has bought and holds, on a share for share basis, a put on the same
security where the exercise price of the put held by the Fund is equal to or
greater than the exercise price of the put written by the Fund. When the Fund
writes a call option on a stock index, it will segregate in a separate account
either cash, U.S. Treasury bills or other high grade short-term obligations with
a value at least equal to its obligation under the option, should the option be
exercised, or securities qualified to serve as "cover" under applicable rules of
the national securities exchanges with a value at least equal to the value of
the index times the multiplier.
The correlation between the movement in the price of a stock index future and
movements in the price of the securities which are the subject of the hedge may
be imperfect. As a result, the price of a stock index futures contract may move
more or less than the price of the securities being hedged. In addition, the
price of stock index futures may not correlate perfectly with movement in the
stock index due to certain temporary market distortions. Such temporary
distortions may reduce the value of a stock index futures contract as a hedging
device over a very short time frame. Options on stock index futures are
generally subject to the same risks applicable to all options transactions. In
addition, because options on stock index futures contracts are a recent
development, the Fund's ability to use this
29
<PAGE> 31
technique will depend in part on the development of a secondary market for such
options.
The Fund may hedge up to the full value of its portfolio through the use of
options and futures provided, however, that the Fund may not purchase or sell
stock index futures or purchase options on such futures if immediately
thereafter the sum of the amount of initial margin deposits on the Fund's
existing futures positions and premiums paid for options on such futures which
are still outstanding would exceed 5% of the market value of the Fund's total
assets (not including the amount of any borrowing of the Fund). The foregoing
numerical limitations are not deemed to be fundamental and may be changed by the
Board of Trustees without the vote of the Fund's shareholders.
For a further discussion of the risks associated with transactions on stock
index futures and related options thereon see "Stock Index Futures
Characteristics" in the Fund's Statement of Additional Information.
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
ORGANIZATION OF THE FUND. On February 15, 1994, the Board of Trustees approved a
change in the Fund's name from Transamerica Capital Appreciation Fund to
Transamerica Capital Growth Fund. The Fund was organized as a Massachusetts
business trust under the laws of the Commonwealth of Massachusetts on December
19, 1984. The Fund's Board of Trustees is authorized to create additional series
of shares and additional classes within any series at any time without approval
by shareholders. The Fund has received an order from the SEC permitting the
issuance and sale of multiple classes of shares representing interest in the
Fund's existing portfolio. All shares of beneficial interest $0.01 par value per
share of the Fund have equal voting rights and have no preemptive or conversion
rights. Both Class A and Class B shares represent an interest in the same assets
of the Fund and are identical in all respects except that each class bears
different distribution expenses has exclusive voting rights with respect to its
respective distribution plan and has different exchange privileges. Shares
issued are fully paid, non-assessable, fully transferable and redeemable at the
option of the holder. The Fund is generally not required to hold annual meetings
of shareholders; however, the Board of Trustees may call special meetings of
shareholders for action by shareholder vote if so requested in writing by the
holders of 10% or more of the outstanding shares of the Fund or as otherwise as
may be required by applicable laws or the Declaration of Trust.
Under Massachusetts law, shareholders of such a trust may in certain
circumstances be held personally liable as partners for the obligations of the
Fund. However, the Declaration of Trust pursuant to which the Fund was
reorganized contains an express disclaimer of shareholder liability for acts of
obligations of the Fund and requires that notice of such disclaimer be given in
each instrument entered into or executed by the Fund. The Declaration of Trust
also provides for indemnification out of the Fund's property for any shareholder
held personally liable for any Fund obligation. Thus, the risk of a shareholder
being personally liable as a partner for obligations of the Fund is limited to
the unlikely circumstances in which the Fund itself would be unable to meet its
obligations.
SHAREHOLDER INQUIRIES. All inquiries regarding the Fund including questions
concerning share ownership, dividends, transfer of ownership or share
redemption, should be directed to the Fund at the telephone number on the cover
page of this Prospectus. Each month the Fund prepares an unaudited list of its
portfolio securities holdings; such information is available without charge upon
written request to the Fund or telephoning the Fund directly.
TRANSFER AGENT. Transfer agent and dividend disbursing functions are performed
by The Share-
30
<PAGE> 32
holder Services Group, Inc., One American Express Plaza, Providence, Rhode
Island 02903-1135.
INDEPENDENT AUDITORS. Ernst & Young, One Houston Center, 1221 McKinney, Suite
2400, Houston, Texas 77010, has been selected as the independent auditors of the
Fund.
CUSTODIAN. Texas Commerce Bank National Association, P.O. Box 2558, Houston,
Texas 77252 is the Custodian for the Fund. Cash balances with the custodian in
excess of $100,000 are unprotected by Federal Deposit Insurance Corporation.
Such uninsured balances may at times be substantial.
PERFORMANCE INFORMATION. From time to time, the Fund may quote its "total
return" which is computed separately for Class A and Class B Shares and may use
comparative performance information available from certain industry research and
publications, including its performance ranking in the Capital Appreciation
category by Lipper Analytical Services, Inc., for the purpose of promoting the
sale of its shares in advertisements, sales literature and other communications
to shareholders and investors. These materials will include performance data for
both Class A or Class B Shares and may include comparisons to recognized market
indexes. In addition, the Fund may use ratings of Morning Star Inc. in the
Fund's advertisements.
The total return for the Fund is calculated by determining the net asset value
of all shares held at the end of the period for each share held from the
beginning of the period (assuming reinvestment of all dividends and
distributions at net asset value during the period), subtracting the maximum
offering price per share at the beginning of such period and, then, dividing the
result by the maximum offering price per share at the beginning of the same
period. The average annual compounded rate of return is the yearly rate that
when applied evenly each year in a given period and compounded would produce the
total return for the period. Total return calculations implicitly reflect the
compounding of dividends and distributions by assuming their reinvestment at net
asset value when paid. The average annual compounded rates of return will always
be quoted for periods of one, five and ten years or, since inception, if the
Fund has not been in existence for any of those periods. The Fund may from time
to time present total returns for any specified period. These may include but
are not limited to total return since the Fund's inception, annual total
returns, quarterly, monthly, or for a particular market cycle.
Dividends paid by the Fund change in response to fluctuations in the income
earned on its portfolio securities and in the expenses of the Fund.
Consequently, any given quotation of total return should not be considered as
representative of what the Fund's total return may be for any specified period
in the future.
31
<PAGE> 33
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
----
<S> <C>
Summary...................................... 3
Fund Expenses................................ 4
Financial Highlights......................... 5
Investment Objective and Policies............ 7
The Fund and Its Management.................. 10
Information About Shares of the Fund......... 13
Net Asset Value............................ 13
Purchase of Shares......................... 14
Shareholder Services......................... 17
Telephone Privileges......................... 19
Redemption and Repurchase of Shares.......... 19
Dividends, Distributions and Tax Status...... 23
Investment Practices and Restrictions........ 25
Special Investment Techniques................ 28
Additional Information....................... 30
</TABLE>
INVESTMENT ADVISER
- ------------------------
Transamerica Fund Management Company
1000 Louisiana
Houston, Texas 77002-5098
(713) 751-2400
DISTRIBUTOR
- ---------------
Transamerica Fund Distributors, Inc.
1000 Louisiana
Houston, Texas 77002-5098
(713) 751-2400
SHAREHOLDER INQUIRIES
- ---------------------------
Transamerica Funds Shareholder Services
P.O. Box 9656
Providence, RI 02940-9656
Or call 1-800-343-6840
No dealer, salesman or other person has been authorized to give any
information or to make any representation other than those contained in
this Prospectus or in official sales literature distributed by the
Fund's Distributor in connection with the offer of the Fund's shares,
and if given or made, such other information or representations must not
be relied upon as having been authorized by the Fund or its Distributor.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE FUND IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
1401
TRANSAMERICA CAPITAL GROWTH
FUND
PROSPECTUS
April 29, 1994
