HANCOCK JOHN CALIFORNIA TAX FREE INCOME FUND, 497, 1995-03-01

HANCOCK JOHN CALIFORNIA TAX FREE INCOME FUND
497, 1995-03-01

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<PAGE> 1

REGISTRATION: 1933 - 33 - 31675
1940 - 811 - 5979

JOHN HANCOCK CALIFORNIA TAX-FREE INCOME FUND
JOHN HANCOCK TAX-FREE BOND FUND

PROSPECTUS SUPPLEMENT DATED MARCH 1, 1995

Effective on or about April 17, 1995, the Sub-Advisory arrangements with the
Sub-Adviser will be terminated in respect of each Fund. At that time, John
Hancock Advisers, Inc., the Investment Adviser, will assume all management
responsibilities previously held by the Sub-Adviser. In addition, at that time,
investment decisions, in the case of each Fund, will be made by a committee with
no one person being solely responsible for making recommendations to the
committee.
<PAGE> 2

- --------------------------------------------------------------------------------
TRANSAMERICA
CALIFORNIA TAX-FREE INCOME FUND
1000 Louisiana Houston, Texas 77002-5098 (713) 751-2400
- --------------------------------------------------------------------------------

Transamerica California Tax-Free Income Fund (the "Fund") is a mutual fund whose
investment objective is to provide as high a level of current income exempt from
both federal income taxes and California personal income taxes as is consistent
with preservation of capital. The Fund seeks to achieve its objective by
investing primarily in debt obligations issued by or on behalf of the state of
California and its political subdivisions, agencies and instrumentalities, and
other obligations exempt from federal and California personal income taxes
("California Tax Exempt Securities") which are rated within the four highest
ratings assigned by a recognized rating service or, if unrated, are determined
to be of comparable quality by the Investment Adviser or Sub-Adviser of the
Fund.

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 the Class A Shares (the initial sales charge alternative) or (ii) on
a contingent deferred basis in the case of the Class B Shares (the deferred
sales charge alternative.)

(Continued on next page)

This Prospectus provides investors with the basic information they should know
before investing in the Fund. INVESTORS SHOULD READ IT AND KEEP IT FOR FUTURE
REFERENCE. A Statement of Additional Information containing further information
about the Fund has been filed with the Securities and Exchange Commission.
Copies may be obtained without charge by calling or writing the Fund at the
address or telephone number listed above.

The Fund's investment adviser is Transamerica Fund Management Company (the
"Investment Adviser"). Transamerica Investment Services, Inc. acts as the Fund's
Sub-Adviser. Transamerica Fund Distributors, Inc. (the "Distributor") acts as
principal distributor of shares of the Fund.
- --------------------------------------------------------------------------------

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.

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.
---------------------
THE FUND'S STATEMENT OF ADDITIONAL INFORMATION DATED APRIL 29, 1994, IS HEREBY
INCORPORATED BY REFERENCE INTO THIS PROSPECTUS.
---------------------
PROSPECTUS DATED APRIL 29, 1994
<PAGE> 3

ALTERNATIVE PURCHASE PLAN
(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 4.75% at the time of purchase and are subject to an ongoing Rule 12b-1
distribution services fee at an annual rate of up to .15% of the average daily
net assets 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 do not incur a sales charge when they
are purchased but (1) are generally subject to a sales charge if they are
redeemed within seven years of purchase (a contingent deferred sales charge or
"CDSC") and (2) are subject to an aggregate distribution fee of up to .90% of
the Fund's average daily net assets allocable to the Class B Shares annually.
The contingent deferred sales charges for Class B Shares declines from 5.00%
during the first year of investment to zero after the sixth year in the
following manner: 5%, 4%, 3%, 3%, 2% and 1%. Of the .90% 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 .15% represents ongoing distribution service fees. The deferred sales
charge alterative 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 therefore its
higher expense ratio, will cause such shares to pay lower dividends than those
in respect of Class A Shares. However, Class B shareholders will receive more
shares at the time of purchase than Class A shareholders since no sales charge
is deducted from the amount of purchase. Consequently, while the dividend (per
share) will be normally lower for Class B than Class A Shares, the difference in
total dividends generated by the investment and received by such shareholders
will be less than the per share difference. 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, respectively, 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 conflict arises.

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. 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 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 .90% of the average daily net assets
allocable to

2
<PAGE> 4

Class B Shares and, for a six-year period, a 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 charges and ongoing distribution service fee of Class A
Shares. See "Information Concerning 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 services fee and, in the case of Class B Shares, from the
proceeds of the distribution fee and the contingent deferred sales charge
incurred upon redemption within five years of purchase. Financial
representatives of broker/dealers distributing the Fund's shares may receive
different compensation for selling Class A or Class B Shares.

Summary
- --------------------------------------------------------------------------------

THE FUND. The Fund, a Massachusetts business trust, is registered under the
Investment Company Act of 1940 as an open-end, diversified management investment
company (see "The Fund and its Management").

INVESTMENT OBJECTIVE. The investment objective of the Fund is to provide as high
a level of income exempt from both federal income taxes and California personal
income taxes as is consistent with preservation of capital. The Fund invests
primarily in California Tax Exempt Securities which are rated at the time of
purchase within the four highest ratings by Moody's Investors Service, Inc.
("Moody's"), Standard & Poors Corporation ("S&P") or Fitch Investors Service,
Inc. ("Fitch") or, if unrated, are determined to be of comparable quality by the
Investment Adviser or Sub-Adviser (see "Investment Objectives and Policies".)
Securities in which the Fund may invest may not earn as high a level of current
income as lower quality securities which have greater market risk and more
fluctuation in market value.

SPECIAL INVESTMENT TECHNIQUES. The Fund is permitted to engage in certain
investment techniques, to seek to hedge against changes in the general level of
interest rates, which may include the purchase and sale of interest rate and
municipal bond index futures contracts, and the purchase and writing of put and
call options on debt securities, futures contracts, municipal bond indexes and
index futures. The utilization of such techniques will be determined by market
conditions.

INVESTMENT ADVISER AND SUB-ADVISER. Transamerica Fund Management Company (the
"Investment Adviser") will be responsible for the investments and operations of
the Fund and receives a monthly fee from the Fund computed at an annual rate of
.55% of the average daily net assets of the Fund. Currently, a portion of this
fee may be waived as part of a voluntary expense absorption policy by the
Investment Adviser as set forth in "Fund Expenses" below. The Investment Adviser
presently manages a broad range of mutual funds having multiple investment
portfolios. Transamerica Investment Services, Inc. (the "Sub-Adviser") has been
delegated primary responsibility for providing advisory services to the Fund.
(See "The Fund and Its Management".)

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".) The Fund's distribution
arrangements currently operate under certain provisions previously approved by
appropriate regulatory authorities. The Fund is considering the amendment of
certain of these provisions,

3
<PAGE> 5

subject to Board of Trustees and regulatory approval, whereby investors in Class
B Shares would automatically convert to a form of Class A ownership (or
ownership in another class of shares of the Fund having no ongoing distribution
expenses) after their investment has been in the Fund for a specific number of
years. 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.")

SPECIAL CONSIDERATIONS. Since the Fund will ordinarily invest a substantial
portion of its assets in California Tax Exempt Securities, the Fund will be more
susceptible to factors adversely affecting issuers of California Tax Exempt
Securities, such as political, economic or regulatory developments affecting the
ability of California issuers to pay interest or repay principal, than would be
a comparable tax-exempt mutual fund that does not invest primarily in securities
of issuers located in one state. (See "Investment Objective and Policies -- Risk
Factors"). Certain investment techniques and various other policies the Fund may
employ such as lending portfolio securities, investing in participation
interests and purchasing securities on a when-issued basis or subject to
repurchase agreements, may involve certain risks. (See "Investment Objective and
Policies" and "Investment Practices, Techniques and Restrictions" for a
discussion of these techniques and policies and their risks.)

ADDITIONAL INFORMATION. The above summary is qualified in its entirety by the
detailed information appearing elsewhere in this Prospectus and the Statement of
Additional Information. In addition, for a discussion of the type of performance
information that may be used in sales materials and other communications,
including the comparison of tax-exempt yields to taxable yields, see "Additional
Information -- Performance Information" and "Appendix B -- Tax Exempt Versus
Taxable Yields."

FUND EXPENSES
- --------------------------------------------------------------------------------

The following table illustrates the various expenses and fees a shareholder of
the Fund would bear directly or indirectly in connection with an investment in
the Fund. The expenses and fees set forth in the table are for the fiscal year
ended December 31, 1993, except as otherwise noted.

<TABLE>
<CAPTION>
CLASS CLASS
A B
SHARES SHARES
(INITIAL (DEFERRED
SALES SALES
CHARGE CHARGE
ALTERNATIVE) ALTERNATIVE)
------------ ------------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Charge Imposed on Purchases...................... 4.75% None
Sales Charge Imposed on Reinvested Dividends................... None None
Deferred Sales Charge (as a percentage of original purchase
price)........................................................ None 5.00%
Redemption Fee................................................. None None
Exchange Fee................................................... None None
</TABLE>

4
<PAGE> 6

<TABLE>
<CAPTION>
CLASS CLASS
A B
------ ------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees(2)............................................. .55 % .55 %
12b-1 Fees(3).................................................. .15 % .90 %
Other Expenses................................................. .18 % .18 %
Less: Expense Reimbursement(4)................................. (.13)% (.13)%
------ ------
Total Operating Expenses....................................... .75 % 1.50 %
====== ======
Such Total Without Reimbursement(4)............................ .88 % 1.63 %
====== ======
</TABLE>

EXAMPLE A:(5) 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 (i)
with expense reimbursement and (ii) without expense reimbursement:

<TABLE>
<CAPTION>
(I) WITH EXPENSE NUMBER OF YEARS
REIMBURSEMENT --------------------------
------------- 1 3 5 10
--- --- ---- ----
<S> <C> <C> <C> <C>
Class A........ $55 $70 $ 87 $136
Class B........ $65 $77 $102 $179
</TABLE>

<TABLE>
<CAPTION>
(II) WITHOUT EXPENSE NUMBER OF YEARS
REIMBURSEMENT --------------------------
------------- 1 3 5 10
--- --- ---- ----
<S> <C> <C> <C> <C>
Class A........ $56 $74 $ 94 $151
Class B........ $67 $81 $109 $193
</TABLE>

EXAMPLE B:(5) You would pay the following expenses on the same investment in
Example A, assuming no redemption:

- ---------------

(1) Class A Shares have reduced initial sales charges for purchases in excess of
$100,000. 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 declines from 5% during the first year to 0% in the seventh year
after the date of purchase in the following manner; 5%, 4%, 3%, 3%, 2%, 1%
and 0%. See "Information About Shares of the Fund."

(2) See "The Fund and Its Management -- Investment Adviser".

(3) 12b-1 fees are based on maximum allowed fees. For the fiscal year ended
December 31, 1993, actual 12b-1 fees for the Class B Shares were 14% and 89%
for Class A and Class B Shares, respectively (under prior fee arrangement).
See "The Fund and Its Management -- Distributor and Distribution Plans."

(4) The Investment Adviser has voluntarily agreed to waive fees and assume all
normal operating expenses (except 12b-1 distribution expenses) in excess of
.60% of the Fund's average net assets until December 31, 1994. See "The Fund
and Its Management -- Expenses."

(5) Expenses in Examples above have been restated to reflect current fees and
should not be considered a representation of past or future expenses. Use of
assumed (5%) return is mandated by the 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 ECONOMIC EQUIVALENT OR MORE THAN
THE MAXIMUM FRONT-END SALES CHARGE PERMITTED BY APPLICABLE REGULATORY
AUTHORITIES.

5
<PAGE> 7

Financial Highlights
- --------------------------------------------------------------------------------

The following financial highlights of Transamerica California Tax-Free Income
Fund for the four years in the period ended December 31, 1993, in the case of
Class A Shares and for the two years ended December 31, 1993, in the case of
Class B Shares have been audited by Ernst & Young, independent auditors for the
Fund, whose unqualified report thereon and other financial statements of the
Fund appear in the Statement of Additional Information.

<TABLE>
<CAPTION>
CLASS B SHARES
CLASS A SHARES -------------------
-------------------------------------------
YEAR ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31,
------------------------------------------- -------------------
1993 1992(1) 1991 1990 1993 1992(1)
-------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Per share income and capital changes for a
share outstanding during each year:
Net asset value, beginning of year........ $ 10.41 $ 10.32 $ 9.91 $ 10.00 $ 10.41 $ 10.32
INCOME FROM INVESTMENT OPERATIONS
Net investment income..................... 0.62 0.66 0.69 0.74 0.54 0.58
Net realized and unrealized gain (loss) on
investments............................. 0.76 0.25 0.47 (0.16) 0.76 0.25
-------- -------- -------- ------- ------- -------
Total from Investment Operations...... 1.38 0.91 1.16 0.58 1.30 0.83
LESS DISTRIBUTIONS
Dividends from net investment income...... (0.62) (0.67) (0.70) (0.67) (0.54) (0.59)
Distributions from realized gains......... (0.32) (0.15) (0.05) -- (0.32) (0.15)
-------- -------- -------- ------- ------- -------
Total Distributions................... (0.94) (0.82) (0.75) (0.67) (0.86) (0.74)
-------- -------- -------- ------- ------- -------
Net asset value, end of year.............. $ 10.85 $ 10.41 $ 10.32 $ 9.91 $ 10.85 $ 10.41
========= ========= ========= ======== ======== ========
TOTAL RETURN(2)........................... 13.60% 9.15% 12.26% 6.13% 12.76% 8.35%
========= ========= ========= ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Ratio of expenses to average net assets... 0.87% 0.83% 0.80% 0.84% 1.62% 1.60%
Ratio of expense reimbursement to average
net assets.............................. (0.18)% (0.25)% (0.40)% (0.84)% (0.18)% (0.25)%
-------- -------- -------- ------- ------- -------
Ratio of net expenses to average net
assets.................................. 0.69% 0.58% 0.40% 0.00% 1.44% 1.35%
========= ========= ========= ======== ======== ========
Ratio of net investment income to average
net assets.............................. 5.69% 6.36% 6.75% 7.11% 4.82% 5.43%
Portfolio turnover........................ 51% 34% 45% 62% 51% 34%
Net Assets, end of year (in thousands).... $279,692 $217,014 $163,693 $80,200 $65,437 $26,595
</TABLE>

- ---------------

(1) Per share information has been calculated using the average number of shares
outstanding.

(2) Total return does not include the effect of the initial sales charge for
Class A Shares or the contingent deferred sales charge for Class B Shares.

6
<PAGE> 8

Investment Objectives
and Policies
- ------------------------------------------------------

The Fund's investment objective is to provide as high a level of current income
exempt from both federal income taxes and California personal income taxes as is
consistent with preservation of capital. This objective may not be changed
without a vote of shareholders. The Fund pursues its objective by normally
investing substantially all of its assets in the following debt obligations
issued by or on behalf of the state of California, its political subdivisions,
municipalities, agencies, instrumentalities or public authorities and
obligations issued by other governmental entities (for example, U.S.
Territories) which are exempt from federal and California personal income taxes
(collectively referred to as "California Tax Exempt Securities") subject to the
following quality standards:

(1) Bonds which at the time of purchase are rated within one of the four highest
ratings by S&P (AAA, AA, A or BBB), Moody's (Aaa, Aa, A or Baa), or
Fitch-Municipal Division (AAA, AA, A, BBB).

(2) Notes which at the time of purchase are rated within one of the two highest
ratings by S&P (SP-1 and SP-2), Moody's (MIG-1 and MIG-2) or Fitch (FIN-1
and FIN-2).

(3) Commercial paper which at the time of purchase is rated A-2 or higher by
S&P, P-2 or higher by Moody's, or F-2 or higher by Fitch.

(4) Participation interests, which are, at the time of purchase, rated A or
better by S&P, Moody's or Fitch or which are issued by an issuer whose
outstanding bonds are rated A or better.

(5) Unrated bonds, notes and commercial paper that in the opinion of the
Investment Adviser or Sub-Adviser are at the time of purchase comparable in
quality to the rated obligations of the same types described above, except
that bonds must be comparable in quality to those rated A or better provided
that the Fund may not purchase an unrated obligation which would cause more
than 25% of its total assets to be invested in unrated debt obligations.

(6) Other types of California Tax Exempt Securities, including variable and
floating rate obligations, which at the time of purchase, are rated within
the categories set forth above for bonds, notes or commercial paper or, if
unrated, are of the quality described in paragraph (5) above.

For a description of the tax exempt ratings described above, see Appendix A in
the back of the Prospectus. Bonds rated BBB by S&P or Fitch, or Baa by Moody's
are considered to have some speculative characteristics and, to varying degrees,
can pose special risks generally involving the ability of the issuer to make
payment of principal and interest to a greater extent than higher rated
securities. In addition, because the ratings and quality limitations on the
Fund's investments apply at the time of purchase, a subsequent change in the
rating or quality of a security held by the Fund would not require the Fund to
sell the security. The Investment Adviser or Sub-Adviser will purchase bonds
rated BBB or Baa where, based upon price, yield and its assessment of quality,
investment in such bonds is determined to be consistent with the Fund's
objective of preservation of capital. They will evaluate and monitor the quality
of all investments, including bonds rated BBB or Baa, and will dispose of such
bonds as determined to be necessary to assure that the Fund's overall portfolio
is constituted in a manner consistent with the goal of preservation of capital.
To the extent that the Fund's investments in bonds rated BBB or Baa will
emphasize obligations believed to be consistent with the goal of preserving
capital, such obligations may not provide yields as high as those of other
obligations having such ratings and the differential in yields between such
bonds and obligations with higher

7
<PAGE> 9

quality ratings may not be as significant as might otherwise be generally
available. Many issuers of securities choose not to have their obligations
rated. Although unrated securities eligible for purchase by the Fund must be
determined to be comparable in quality to securities having certain specified
ratings, the market for unrated securities may not be as broad as for rated
securities since many investors rely on rating organizations for credit
appraisal.

While as a fundamental investment policy, the Fund invests at least 80% of its
total assets in California Tax Exempt Securities (except during adverse market
conditions), the balance of its assets may be invested in the following
short-term investments: (1) obligations issued by or on behalf of states (other
than California), territories and possessions of the U.S., or the District of
Columbia and their political subdivisions, agencies or instrumentalities which
meet the quality standards described above but the interest on which is subject
to California personal income tax ("Other Tax Exempt Obligations"); (2)
obligations issued or guaranteed by the U.S. government, or one of its agencies
or instrumentalities, the interest on which is not exempt from federal income
tax ("U.S. Government Securities"); (3) corporate commercial paper meeting the
quality standards noted above; (4) certificates of deposit and bankers
acceptances of domestic banks with assets of $1 billion or more; and (5)
repurchase agreements with respect to securities of the type and quality in
which the Fund may invest. The income from the foregoing short-term investments
may be subject to California and/or federal income taxes. As a result,
distributions of the Fund which are attributable to income from investments in
Other Tax Exempt Obligations will be subject to California personal income tax;
distributions attributable to U.S. Government Securities will be subject to
federal income tax; and distributions attributable to income from repurchase
agreements, corporate commercial paper, and certificate of deposits will be
subject to federal and California income taxes. The circumstances in which the
Fund will normally invest in these short-term investments are (1) pending the
investment of California Tax Exempt Securities or reinvestment of the proceeds
of sales of such securities or (2) to maintain liquidity and avoid the necessity
of liquidating portfolio investments at a disadvantageous time in order to meet
redemption requests.

The Fund may invest in any combination of California Tax Exempt Securities;
however, it is expected that during normal investment conditions, a substantial
portion of the Fund's assets will be invested in municipal bonds (without regard
to maturities) and other longer-term obligations. When determined to be
appropriate, based upon market conditions, a substantial portion of the Fund's
holdings of California Tax Exempt Securities will consist of notes and
commercial paper and other shorter-term obligations. The Fund may invest up to
20% of its total assets in "private activity bonds" (meeting the quality
standards noted above), the interest on which may constitute a preference item
for purposes of determining the alternative minimum tax.

As a defensive measure during times of adverse market conditions including when
sufficient California Tax Exempt Securities appropriate for investment by the
Fund are not available, the Fund may temporarily invest more than 20% of its
total assets in short term investments (previously described as Other Tax Exempt
Obligations, U.S. Government Securities, certificates of deposit and corporate
commercial paper) including investment grade corporate debt securities (which
meet the previously described quality standards), so long as at the end of any
fiscal quarter, such investments do not exceed 50% of the Fund's total assets.
The Fund will not be pursuing its objective of obtaining tax-exempt income to
the extent it invests in taxable securities.

There can be no assurance that the Fund will achieve its investment objective.

DESCRIPTION OF TAX EXEMPT SECURITIES. "Tax Exempt Securities" are debt
obligations generally issued by or on behalf of states, territories and

8
<PAGE> 10

possessions of the United States, the District of Columbia and their political
subdivisions, agencies or instrumentalities the interest on which, in the
opinion of the bond issuer's counsel (not the Fund's counsel), is exempt from
federal income tax and (in the case of California Tax Exempt Securities)
California personal income taxes. (See Discussion on Taxes.) These securities
consist of municipal bonds, municipal notes and municipal commercial paper (see
"Investment Objective and Policies" in the Statement of Additional Information)
as well as variable or floating rate obligations and participation interests.

VARIABLE OR FLOATING RATE OBLIGATIONS. Certain of the obligations in which the
Fund may invest may be variable or floating rate obligations on which the
interest rate is adjusted at predesignated periodic intervals (variable rate) or
when there is a change in the market rate of interest on which the interest rate
payable on the obligation is based (floating rate). Variable or floating rate
obligations may include a demand feature which entitles the purchaser to demand
prepayment of the principal amount prior to stated maturity. Also, the issuer
may have a corresponding right to prepay the principal amount prior to maturity.
The Fund may also invest in more recently developed floating rate instruments
which are created by dividing a municipal security's interest rate into two or
more different components. Typically, one component, ("floating rate component"
or "FRC"), pays an interest rate that is reset periodically through an auction
process or by reference to an interest rate index. A second component ("inverse
floating rate component" or "IFRC"), pays in interest rate that varies inversely
with changes to market rates of interest, in that the interest paid to the IFRC
holders is generally determined by subtracting a variable or floating rate from
a predetermined amount (i.e., the difference between the total interest paid by
the municipal security and that paid by the FRC). The Fund may purchase FRC's
without limitation. IFRC's may be purchased (up to 10% of the Fund's total
assets) in an attempt to protect against a reduction in the income earned on the
Fund's other investments due to a decline in interest rates. The extent of
increases and decreases in the value of an IFRC generally will be greater than
comparable changes in the value of an equal principal amount of a fixed-rate
municipal security having similar credit quality, redemption provisions and
maturity. To the extent that such instruments are not, in view of the Investment
Adviser and subject to guidelines adopted by the Board of Trustees, readily
marketable, they will be considered as such for purposes of the Fund's 10%
investment restriction on investment in non readily marketable securities.

PARTICIPATION INTERESTS. The Fund may purchase from financial institutions tax
exempt participation interests in Tax Exempt Securities. A participation
interest gives the Fund an undivided interest in the Tax Exempt Security in the
proportion that the Fund's participation interest bears to the total amount of
the Tax Exempt Security. For certain participation interests, the Fund will have
the right to demand payment, on a specified number of days' notice, for all or
any part of the Fund's participation interest in the Tax Exempt Security, plus
accrued interest. Participation interests, which are determined to be not
readily marketable, will be considered as such for purposes of the Fund's 10%
investment restriction on investment in non-readily marketable securities. In
addition, the Fund is authorized to invest in Certificates of Participation
("COPs".) These instruments constitute participations in lease obligations or
installment purchase contract obligations ("lease obligations") of municipal
authorities or entities. Although lease obligations do not constitute general
obligations of the municipality for which the municipality's taxing power is
pledged, a lease obligation is ordinarily backed by the municipality's covenant
to budget for, appropriate and make the payments due under the lease obligation.
In certain states, such as California, COPs constitute a majority of new
municipal financing issues.

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<PAGE> 11

The Fund's Board of Trustees has established guidelines for determining the
liquidity of the COPs in the Fund's portfolio and, subject to review by the
Fund's Board of Trustees, has delegated that responsibility to the Investment
Adviser and the Sub-Adviser. Those guidelines require that a determination of
liquidity be based upon the consideration of (1) the frequency of trades and
quotes for the security, (2) the number of dealers willing to purchase or sell
the security and the number of other potential buyers, (3) the willingness of
dealers to undertake to make a market in the security, (4) the nature of the
marketplace, namely, the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer, (5) the coverage of the
obligation by new issue insurance, the likelihood that the marketability of the
obligation will be maintained through the time the security is held by the Fund,
and (7) for unrated COPs, the COPs' credit status analyzed according to the
factors reviewed by rating agencies.

GENERAL INFORMATION. The two principal classifications of municipal obligations
are general obligations and revenue obligations. General obligations are secured
by the issuer's pledge of its full faith, credit and taxing power for the
payment of principal and interest. Revenue obligations are payable only from the
revenues derived from a particular facility or class of facilities or in some
cases from the proceeds of a special excise or other tax. For example,
industrial development and pollution control bonds are in most cases revenue
obligations since payment of principal and interest is dependent solely on the
ability of the user of the facilities financed or the guarantor to meet its
financial obligations, and in certain cases, the pledge of real and personal
property as security for payment. The payment of principal and interest by
issuers of certain obligations purchased by the Fund may be guaranteed by a
letter of credit, note repurchase agreement, insurance or other credit facility
agreement offered by a bank or other financial institution. Such guarantees and
the creditworthiness of guarantors will be considered by the Investment Adviser
and Sub-Adviser in determining whether a municipal obligation meets the Fund's
investment quality requirements. No assurance can be given that a municipality
or guarantor will be able to satisfy the payment of principal or interest on a
municipal obligation.

The interest on bonds issued to finance essential state and local government
operations is fully tax-exempt under the Internal Revenue Code of 1986, as
amended (the "Code"). Interest on certain non-essential or private activity
bonds (including those for housing and student loans) issued after August 7,
1986, while still tax-exempt, constitutes a preference item for taxpayers in
determining their alternative minimum tax. The Code also imposes certain
limitations and restrictions on the use of tax-exempt bond financing for
non-governmental business activities, such as industrial development bonds.

FUND CHARACTERISTICS. Because the Fund will ordinarily invest at least 80% of
its assets in California Tax Exempt Securities, its portfolio is more
susceptible to factors affecting such securities than is a tax-exempt mutual
fund not investing primarily in the obligations of a single state. (See "Risk
Factors" below.)

The Fund is a "diversified" investment company under the Investment Company Act
of 1940 (the "Act"). This means that with respect to 75% of its total assets:
(1) the Fund may not invest more than 5% of its total assets in the securities
of any one issuer other than U.S. Government securities and securities of other
investment companies and (2) the Fund may not own more than 10% of the
outstanding voting securities of any one issuer. In applying these limitations,
a guarantee of a security will not be considered a security of the guarantor,
provided that the value of all securities issued or guaranteed by that guarantor
and owned by the Fund, does not exceed 10% of Fund's total assets. Since
California Tax Exempt Securities and other

10
<PAGE> 12

types of debt obligations ordinarily purchased by the Fund are not voting
securities (notwithstanding the 75% percentage limitation described above),
there is generally no limit on the percentage of a single issuer's obligations
which the Fund may own so long as it does not invest more than 5% of its total
assets in the securities of that issuer. Consequently, the Fund may invest in a
greater percentage of the outstanding securities of a single issuer than would
an investment company which invests in voting securities. In determining the
issuer of a tax-exempt security, each state and each political subdivision
agency, and instrumentality of each state and each multi-state agency of which
such state is a member is a separate issuer. Where securities are backed only by
assets and revenues of a particular instrumentality, facility or subdivision,
such entity is considered the issuer.

As for the 25% of the Fund's total assets not subject to the 75% diversification
requirement, there is no percentage limitation on the portion of such assets
that may be invested in the securities of any one issuer. For this reason and
because of the limited number of California issuers of tax-exempt securities,
the Fund is more likely in certain cases to invest higher percentages of its
assets in the securities of single issuers than would an investment company
which is diversified with respect to 100% of its assets and invests in a broad
range of tax-exempt securities. This practice involves an increased risk of loss
to the Fund if the issuer is unable to make interest or principal payments or if
the market value of such securities declines. The Fund may also invest its
assets in a relatively high percentage of securities issued by entities having
similar characteristics. The issuers may be located in the same city or county
or may pay their interest obligations from revenues of similar projects. This
makes the Fund more susceptible to certain economic, political or regulatory
occurrences since most or all such issuers would likely be located in
California. These similarities therefore increase the potential for fluctuation
of the net asset value of the Fund's shares. The Fund will only invest in
securities of issuers which it believes will make timely payments of interest
and principal.

It is the policy of the Fund not to concentrate in any one industry
(governmental issuers are not considered to be part of any "industry"). While
the Fund may invest more than 25% of total assets in industrial development or
pollution control bonds, it may not invest more than 25% of its assets in
industrial development or pollution control bonds which are dependent, directly
or indirectly, on the revenues or credit of private entities in any one
industry.

INVESTMENT CHARACTERISTICS AND PORTFOLIO MANAGEMENT. The return on an investment
in the Fund will depend primarily upon the interest earned by the Fund on its
securities holdings after deduction of the Fund's expenses and is paid to
shareholders in the form of dividends. The value of the securities held by the
Fund, and therefore the Fund's net asset value per share, may fluctuate due to
various factors, principally interest rate changes and the ability of the
issuers to pay interest and principal on those obligations. In seeking
preservation of capital, the Fund strives to maintain low volatility in the
value of its portfolio assets by constant supervision, careful selection and
broad diversification of its investments within the credit limitations of the
investment policies previously described.

Because there is no restriction on the maturities of most of the tax exempt
securities that may be purchased by the Fund, average portfolio maturity is not
subject to any limit. As a general matter, the longer the average portfolio
maturity, the greater will be the impact of fluctuations in interest rates on
the values of the Fund's assets and on its net asset value per share. The Fund
does not intend to actively trade investments for quick profits. However, the
Fund may dispose of its investments regardless of the holding period if, based
on a revised credit rating of the issuer or other circumstances, it considers
such disposition advisable. While this policy, if used, could result in an
increased portfolio turn-

11
<PAGE> 13

over rate, it should not adversely affect the Fund, since the Fund will normally
purchase investments directly from the issuer or a dealer in a principal
transaction for which no brokerage commissions are paid (although purchases from
dealers usually involve a spread between bid and asked prices). Portfolio
turnover rates of the Fund are shown in the section "Selected Per Share Data and
Ratios".

RISK FACTORS. The following information as to certain California risk factors is
given to investors in view of the Fund's policy of investing substantially in
California state and municipal issuers. SUCH INFORMATION CONSTITUTES ONLY A
BRIEF DISCUSSION. FOR A MORE COMPLETE DESCRIPTION, INVESTORS SHOULD REFER TO THE
STATEMENT OF ADDITIONAL INFORMATION.

Certain amendments to the California constitution and state statutes which limit
the taxing and spending authority of California governmental entities may impair
the ability of the issuers of some California municipal securities to obtain
sufficient revenues to pay their debt obligations. In 1978 California voters
approved "Proposition 13", an amendment to the California constitution and State
statutes which limits the valuation of real property for property tax purposes
and the power of local governments to increase property tax and other revenues.
In 1979, voters again amended the State constitution, this time imposing an
"appropriations limit" on the spending authority of both the State and local
governments (the limit does not apply to debt service, however). In 1988,
California passed Proposition 98 guaranteeing public schools a minimum share of
State revenues.

The State closed a $14.3 billion gap between budgeted expenditures and
anticipated revenues for 1991-92 through a combination of tax increases and
reductions in expenditures for State programs (however, due to the shortfall of
current revenues, a budget gap which is estimated currently between $8 and $9
billion will have to be addressed for fiscal year 1992-93). The State's tax
increases and program cuts are likely to result in increased fiscal pressure on
local issuers. If either California or any of its local governmental entities
are unable to meet their financial obligations, the income derived by the Fund,
the Fund's net asset value, the ability to preserve or realize appreciation of
the Fund's capital or the Fund's liquidity could be adversely affected.

Investment Practices,
Techniques and
Restrictions
- ------------------------------------------------------

The Fund's investments are subject to the following practices, techniques and
restrictions and may involve certain risks. The Statement of Additional
Information contains more detailed information about these practices, including
limitations designed to reduce these risks. Repurchase Agreements and Restricted
Securities. When participating in repurchase agreements, the Fund buys
securities from a seller (usually a bank or brokerage firm) with the agreement
that the seller will repurchase the securities at a higher price at a later
date. Transactions involving repurchase agreements must be fully collateralized
at all times, however the Fund may be subject to various delays and risks of
loss if the seller is unable to meet its obligation to repurchase. Distributions
of the Fund attributable to income from repurchase agreements are not tax
exempt. The Fund may also invest in securities which are restricted as to
resale. The registration of such "restricted securities" under the Securities
Act of 1933 (the "Securities Act") may be required prior to sale with attendant
time delays, and the Fund may have to bear all or a part of the expense of such
registration. No more than 10% of the Fund's net assets may be invested in
restricted securities (including other securities not readily marketable) and in
repurchase agreements that mature in more than seven days (collectively,
"illiquid securities.") Although the Fund may purchase restricted securities

12
<PAGE> 14

which can be offered and sold to "qualified institutional buyers" under Rule
144A of the Securities Act, its present investment policy limits such
investments to the foregoing 10% limitation.

LENDING OF PORTFOLIO SECURITIES. In order to earn additional income, the Fund
may lend its portfolio securities amounting to not more than 33 1/3% of the
value of its portfolio securities to approved borrowers (principally
broker/dealers) provided such loans are callable at any time and are
continuously secured by collateral (cash or government securities) equal to no
less than the market value, determined daily, of the securities loaned. During
the period of the loan, the Fund receives income on both the loaned securities
and the collateral. Although these transactions must be fully collateralized at
all times, they are subject to specific risks, the most significant of which is
that should a borrower default on its obligations, the Fund may be delayed in or
prevented from, recovering its collateral. Additional income earned by portfolio
lending is not tax exempt.

WHEN-ISSUED SECURITIES. The Fund may purchase securities on a delayed delivery
or when-issued basis (i.e., securities may be purchased or sold by the Fund with
settlement taking place in the future, often a month or more). The payment and
interest rate received on such obligations are fixed at the time the buyer
enters into the commitment. Although the Fund will only make commitments to
purchase such obligations with the intention of actually acquiring the
securities, the Fund may sell these securities before the settlement date. If
the Fund sells the when-issued security before the settlement date, any gain or
loss would not be exempt from federal income tax. In addition, prior to
delivery, no interest accrues to the Fund and the value of such securities may
fluctuate. Obligations purchased on a when-issued basis can involve a risk that
the yields available in the market when delivery takes place may be higher than
those obtained in the transaction itself.

TRANSACTIONS IN OPTIONS AND FUTURES

OPTIONS ON SECURITIES. The Fund may write (sell) covered call and cash secured
put options and purchase call and put options on debt securities. The Fund will
write options on its portfolios securities for the purpose of protecting the
value of its portfolio. If the price of the underlying security moves adversely
to the Fund's position, the option may be exercised and the Fund will be
required to purchase or sell the underlying security at a disadvantageous price,
which may only be partially offset by the amount of the premium if at all. The
Fund may also write straddles, which are combinations of put and call options on
the same security. These transactions can generate additional premium income but
also present an increased risk. The Fund may also purchase put or call options
in anticipation of changes in interest rates which may adversely affect the
value of its portfolio securities or the prices of securities the Fund wants to
purchase at a later date. The premium paid for a put or call option plus any
transaction costs will reduce the benefit, if any, realized by the Fund upon
exercise or liquidation of the option, and unless the price of the underlying
security changes sufficiently, the option may expire without value to the Fund.

OPTIONS ON MUNICIPAL BOND INDEXES. The Fund may write (sell) covered call and
put options and purchase call and put options on municipal bond indexes
(securities index). The Fund may write options on securities indexes in an
attempt to protect its portfolio against declines in the value of securities it
owns, or increases in the value of securities to be acquired.

When the Fund writes an option on a securities index and the value of the index
moves adversely to the Fund's position, the option will not be exercised. The
Fund will either close out the option at a profit or allow it to expire
unexercised. The Fund will thereby retain the amount of the premium, less
related transaction costs, which will increase its

13
<PAGE> 15

gross income and offset part of the reduced value of the portfolio securities or
the increased cost of securities to be acquired. Such transactions, however,
will constitute only partial hedges against adverse price fluctuations. This is
because any of these fluctuations will be offset only to the extent of the
premium received by the Fund for the writing of the option. In addition, if the
value of an underlying index moves adversely to the Fund's option position, the
option may be exercised and the Fund will experience a loss that may only be
partially offset, if at all, by the amount of the premium received.

The Fund may also purchase put or call options on securities indexes in order to
hedge its investments against a decline in value or to attempt to reduce the
risk of missing a market or industry segment advance. The Fund's possible loss
in either case will be limited to the premium paid for the option, plus related
transaction costs.

FUTURES CONTRACTS. The Fund may enter into interest rate futures contracts and
municipal bond index futures contracts for hedging purposes ("Futures
Contracts"). Purchases or sales of municipal bond index futures contract are
used to attempt to protect the Fund's current or intended municipal bond index
investments from broad fluctuations in securities prices. Interest rate futures
contracts are purchased or sold to attempt to hedge against the effects of
interest or exchange rate changes on the Fund's current or intended investments
in fixed income securities. The adverse effects of an anticipated decrease in
the value of portfolio securities may be offset, in whole or in part, by gains
on the sale of Futures Contracts. This applies when the decrease occurs as a
result of a general municipal bond market decline or a general increase in
interest rates. Conversely, the increased cost of portfolio securities to be
acquired may be offset, in whole or in part, by gains on Futures Contracts
purchased by the Fund. This applies when the increase is caused by a general
rise in the municipal bond market or a general decline in interest rates. The
Fund will incur transaction costs when it purchases and sells Futures Contracts.
It will also be required to maintain margin deposits (see "Risks of Transactions
in Options and Futures").

OPTIONS ON FUTURES CONTRACTS. The Fund may purchase and write options on
interest rate futures contracts and municipal bond index futures contracts
("Options on Futures Contracts.") Such investment strategies will be used as a
hedge and not for speculation. Put and call options on Futures Contracts may be
traded by the Fund in order to protect against declines in the values of
portfolio securities or against increases in the cost of securities to be
acquired. Purchases of options on Futures Contracts may present less risk in
hedging the Fund's portfolio than the purchase and sale of the underlying
Futures Contracts since the potential loss is limited to the amount of the
premium plus related transaction costs. The writing of such options, however,
does not present less risk than the trading of Futures Contracts. It will
constitute only a partial hedge, up to the amount of the premium received and if
an option is exercised, the Fund may suffer a loss on the transaction.

RISKS OF TRANSACTIONS IN OPTIONS AND FUTURES. Although the Fund will enter into
transactions in Futures Contracts, Options on Futures Contracts and certain
options solely for hedging purposes, their use does involve certain risks. For
example, a lack of correlation between the value of an instrument underlying an
option or Futures Contract and the assets being hedged or unexpected adverse
price movements, could render the Fund's hedging strategy unsuccessful, thus
resulting in losses.

The Fund also may enter into transactions in options on debt securities for
other than hedging purposes. This involves greater risk. In addition, there can
be no assurance that a liquid secondary market will exist for a contract
purchased or sold. Therefore, the Fund may be required to maintain a position
until exercise or expiration, which could result in losses. Transactions in
Futures Contracts,

14
<PAGE> 16

Options on Futures Contracts and options are subject to other risks as well.

The Fund will not engage in transactions in futures contracts and options on
futures for speculation, but only for hedging or other permissible risk
management purposes. All of the Fund's futures contracts and options thereon
will be traded on a U.S. commodity exchange or board of trade. The Fund will not
engage in a futures or option transaction if, immediately thereafter, the sum of
initial margin deposits on existing positions and premiums paid for options on
futures would exceed 5% of the Fund's total assets.

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 options, options on
municipal indexes, interest rate futures, municipal bond index futures and
options thereon then held by the Fund, exceed 10% of the Fund's total net
assets.

When the Fund purchases a futures contract or a call option on a futures
contact, an amount of cash or U.S. Government securities equal to the market
value of the futures contract will be deposited in a segregated account with the
Fund's custodian to collateralize the position.

The Fund's risks in entering into transactions in options and futures contracts
are set forth in greater detail in the Statement of Additional Information which
should be reviewed in conjunction with the foregoing discussion.

INVESTMENT RESTRICTIONS. The Fund has adopted certain fundamental investment
restrictions which are described in detail in the Statement of Additional
Information and may not be changed without shareholder approval.

Among the restrictions is the provision that the Fund may not borrow money in an
amount in excess of 15% of its total assets so long as additional investments
will not be made when borrowings are in excess of 5% of the Fund's total assets.

If a percentage restriction, except a restriction regarding borrowing, on
investments or utilization of assets is adhered to at the time an investment is
made or assets are utilized, a later change in percentage resulting from changes
in the value of the Fund's portfolio securities will not be considered a
violation of policy.

PORTFOLIO TRANSACTIONS. Consistent with the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., the Investment Adviser and
Sub-Adviser may consider a broker/dealer's sales of shares of the Fund as a
factor in selecting from those broker/dealers qualified to provide comparable
prices and executions in the Fund's securities transactions.

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. The management and affairs of
the Fund are supervised by its Board of Trustees. Investment decisions are made
by a committee with no one person being solely responsible for making
recommendations to the committee. The officers of the Fund are responsible for
the Fund's daily business operations under the direction of the Trustees.
Information about each of the Trustees and officers is set forth in the
Statement of Additional Information.

INVESTMENT ADVISER. Transamerica Fund Management Company is the Investment
Adviser of the Fund and is compensated for its services at an annual rate of
.55% of the Fund's average daily net assets. The Investment Adviser is a
wholly-owned subsidiary of Transamerica Asset Management Group, Inc. which is a
wholly-owned subsidiary of

15
<PAGE> 17

Transamerica Corporation ("Transamerica"), one of the nation's largest financial
services organizations with approximately $35 billion in assets. Transamerica
engages through its other subsidiaries in two primary businesses: finance and
insurance. The Investment Adviser (including its predecessors) has been engaged
in the investment advisory business since 1949 and currently serves as
investment adviser to several mutual funds and multiple investment portfolios.
The Investment Adviser is responsible for the investment of the Fund's assets,
provides administrative services and supervises the Fund's daily business
affairs. These services are subject to general review by the Fund's Board of
Trustees.

For the fiscal year ended December 31, 1993 total advisory fees paid by the Fund
amounted to .55% of the Fund's average daily net assets; however, such fees were
reduced pursuant to a voluntary expense absorption by the Investment Adviser
which limited all fees and expenses (except 12b-1 distribution expenses) to .50%
of average net assets.

In addition, the Fund reimburses each of the Investment Adviser and Transamerica
Fund Distributors, Inc. pursuant to a separate Administrative Services Agreement
for actual expenses incurred in providing certain administrative services such
as accounting and bookkeeping services, communications in response to
shareholders inquiries and certain printing services for reports of the Fund.
The Fund may directly bear the costs of certain data processing and pricing
information services used in providing accounting and bookkeeping services. For
fiscal year ended December 31, 1993, administrative service fees amounted to
.04% of the average net assets of the Fund.

SUB ADVISER. Pursuant to a Sub-Advisory agreement with the Investment Adviser,
Transamerica Investment Services, Inc. ("TIS" or the "Sub-Adviser") provides
certain of the advisory services used in managing the Fund. These services
include managing the investment operations of the Fund and the composition of
the Fund's portfolio in accordance with the Fund's investment objective,
policies and restrictions. Investment decisions are made by a committee with no
one person being solely responsible for making recommendations to the committee.
TIS, a wholly-owned subsidiary of Transamerica, is a registered investment
adviser and has provided investment management services for more than 20 years.
Additionally, TIS manages approximately $28 billion representing assets of
affiliated insurance companies. With more than $2.4 billion of total assets
(including assets managed on behalf of registered investment companies) under
TIS management being invested in municipal obligations, TIS is considered to be
one of the largest municipal bond managers in California.

DISTRIBUTOR AND DISTRIBUTION PLAN. Transamerica Fund Distributors, Inc., (the
"Distributor"), a wholly owned subsidiary of the Investment Adviser, is the
principal underwriter of shares of the Fund.

Under the terms of the Distribution 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 Class A
Shares (the "Class A Plan") and Class B Shares to investors. On February 15,
1994 the Board of Directors amended the plan of distribution relating to the
Fund's Class B Shares (the "Former Class B Plan") so as to permit the Fund to
operate the plan as amended (the "Amended Class B Plan") in accordance with the
regulations of the National Association of Securities Dealers, Inc. ("NASD").
The "Class A Plan" and the "Amended Class B Plan" may be referred to
collectively as the "Plans". The Class A Plan authorizes monthly payments to be
made by the Fund to the Investment Adviser at an annual rate of up to .15% 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
Amended Class B Plan authorizes payments to be made by the Fund at an annual
rate of up to .90% of the Fund's average daily net

16
<PAGE> 18

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 Amended 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 Fund, including a majority of the Trustees who are not
"interested persons" of the Fund (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 "Rule 12b-1 Trustees").

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 .15% 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 Amended 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"). The Amended
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 Amended 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 Rule 12b-1 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
through an exchange of shares, and excluding shares sold on a basis which does
not involve the possible imposition of a contingent deferred sales charge),
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 an 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

17
<PAGE> 19

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 the procedures adopted by the Board of Trustees,
including a majority of the Rule 12b-1 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. The minimum initial and subsequent investment for
tax deferred retirement programs are $250 and $25, respectively. 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 purchase.

Because Distribution Fees payable with respect to Class B Shares are subject to
the.75% annual limitation described above, commission 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 Rule 12b-1 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. Under the
Former Class B Plan, unpaid commission charges (net of contingent deferred sales
charges received by the Distributor) and carrying charges were $2,458,025 as of
December 31, 1993, (3.76% of the Fund's Class B net assets at that date).

In addition to Distribution Fees, under the Amended Class B Plan, the Fund
reimburses the Distributor for certain Service Fees, i.e., ongoing fees it pays
to Dealers that sell Class B Shares to their customers. Such reimbursements are
payable monthly in amounts which may not exceed .15% 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) .15% of the average annual
net asset value of Class B Shares held by such Dealer's customers. (See
discussion in the Statement of Additional Information.)

The foregoing limitations applicable to Service Fees under the Plans do not
prohibit the Distributor or the Investment Adviser from making payments to
Dealers from its own resources in excess of these limitations or for other
services. (Currently, such excess payments are being made at the rate of .10% of
the net assets of each Class.)

Payments made by the Fund under the Class A and Amended Class B Plans may be
used to pay fees to, or as reimbursement for certain services provided

18
<PAGE> 20

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, the Investment Adviser does not believe, however,
that 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 depositor
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 Rule
12b-1 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 economies 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 Rule 12b-1 Trustees, and
each may be terminated at any time by the Rule 12b-1 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, total payments made pursuant to the
Class A Plan amounted to .14% of the average daily net assets of Class A Shares.

For the fiscal year ended December 31, 1993, total payments made by the Fund
under the Class B Plan amounted to .89% of its Class B average daily net assets.
Of this amount, .75% represents the annual percentage amount paid as
distribution charges and .14% represents the annual percentage amount paid as
distribution assistance payments. In addition, for the fiscal year ended
December 31, 1993, the Distributor received contingent deferred sales charges
from redemptions of Class B Shares of the Fund in an amount equal to .14% of the
Fund's Class B average daily net assets.

For the period January 10, 1994 through February 15, 1994, the Distributor
conducted a "Special Offering Opportunity". In addition to the 4.00% commission
paid in respect of sales of Class B Shares, the Distributor made payments, from
its own resources, to participating securities dealers at the rate of 1% of the
purchase price of all sales.

EXPENSES OF THE FUND. The Fund's expenses, which are accrued daily, are deducted
from its total income before dividends are paid. These expenses are: fees paid
to the Investment Adviser; trustees' fees; taxes; legal, distribution and
brokerage fees; custodian and auditing fees; expenses payable pursuant to the
administrative services agreement; and other expenses relating to the operations
of the Fund which are not expressly assumed by the Investment Adviser under its
agreements with the Fund. For the fiscal year ended December 31, 1993, total
expenses of the Fund allocable to (a) Class A Shares amounted to .88% (before
expense assumption) and .75% (after expense assumption) of Class A average daily
net assets and (b) Class B Shares amounted to 1.63% (before expense assumption)
and 1.50% (after expense assumption) of Class B average daily net assets.

Initially effective January 1, 1992 and as currently revised, the Investment
Adviser has voluntarily agreed to waive fees and assume expenses of the Fund in
order to limit all normal operating expenses (except 12b-1 expenses as described
below) to .60% of the Fund's average daily net assets until December 31, 1994.
Expenses exclude 12b-1 distribution

19
<PAGE> 21

expenses for each class of shares, interest, taxes, expenses of withholding
taxes, brokerage commissions and extraordinary expenses. The Investment Adviser
reserves the right to terminate or revise this policy by giving prior notice to
shareholders. In the event of the policy expiring (without a continuance) or
terminating and to the extent the Fund's expense ratio is increased, such a
change would have the effect of lowering the yield to investors.

Information About
Shares of the Fund
- ------------------------------------------------------

NET ASSET VALUE

The net asset value of the Fund is computed once daily on each day that the New
York Stock Exchange is open for business as of the close of trading (presently
4:00 p.m. New York time). 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 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 will be 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 will be 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) for shares purchased directly, or by the
investor's dealer, for shares purchased through the 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.) The Distributor reserves the
right to reject any order for purchase of shares when such rejection is
determined by the Fund to be in the Fund's best interest.

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: One American Express Plaza, Providence, Rhode Island
02903.

The initial purchase must be at least $1,000 with subsequent investments of no
less than $50.

20
<PAGE> 22

Purchases through an eligible securities dealer must be at least $100.
Certificates for shares will not be issued unless requested by the shareholder
in writing and then only for full shares. The minimum initial and subsequent
investment for tax deferred retirement programs are $250 and $25, respectively.
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 purchase.

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-l distribution plan and has exclusive voting rights with respect to
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 the distribution fee 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.

The Fund's Board of Trustees reserves the right to change or waive the minimum
investment requirements.

FEDWIRE PURCHASES. Investors may make payment for initial and subsequent
investments by federal funds wire. Investors should first notify Account
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 Co.("BSDT")
ABA Routing Number: 011001234
Account Number: 159565

* Except during such times or holidays when BSDT 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

21
<PAGE> 23

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 an aggregate
distribution expense of .90% and, for a five year period, a contingent deferred
sales charge. For example, based on current fees and expenses, an investor
subject to the 4.75% initial sales charge will have to hold his or her
investment for more than five years for the .90% Class B distribution fee to
exceed the initial sales charge plus distribution service fee of Class A Shares.
In this example, if the investor intends to maintain his or her investment in
the Fund for more than five years, the investor should consider purchasing Class
A Shares. This example assumes a 5% total return and includes the effect of the
contingent deferred sales charges. The total return assumption is used only for
comparison purposes and is not an indication of future performance.

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, for shares
purchased directly, or by the investor's dealer, for shares purchased through
the dealer), 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>
NET
AMOUNT OFFERING DEALER
AMOUNT OF PURCHASE INVESTED PRICE DISCOUNT
----------------- -------- -------- --------
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) distributions to participants or beneficiaries

22
<PAGE> 24

of certain qualified retirement plans, and returns of excess contributions made
to these plans, and (ii) involuntary redemption of shares of the aggregate net
asset value of shares held in the account if it 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 the redeemed shares
were acquired by exchange.

For the period January 10, 1994 through February 15, 1994, the Distributor made
additional payments of 1% of the purchase price in addition to the commission
shown under "Offering Price" in the sales charge table above to dealers having
selected dealer agreements with the Distributor. 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 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 Terms 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) trustee/directors, employees (and their families)
of the Fund or Transamerica Investment Services or Transamerica Corporation or
Transamerica Shareholder's Services, (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) 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's
Class A Shares, (4) investors purchasing shares with proceeds of redemptions
from any U.S. mutual fund not distributed by Transamerica Fund Distributors,
Inc. which impose front-end sales charges or deferred sales charges, provided
that such proceeds from the redemption of shares subject to deferred sales
charges are no longer subject to any deferred sales charge at the time of
redemption and (5) to accounts where 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 alterna-

23
<PAGE> 25

tive is the net asset value per share next determined following receipt of an
order by the Transfer Agent, for shares purchased directly (or by the investor's
dealer, for shares purchased through the dealer). 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.")

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 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 (or a stock power) 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, subject to the provisions under Rule 17Ad-15 of the
Securities Exchange Act of 1934 ("SEA Rule"), without restriction, condition or
qualification by an authorized signatory of a commercial bank, trust company,
savings bank, savings and loan association, federal credit union or a member
firm of the National Association of Securities Dealers, Inc. or a domestic stock
exchange, or any other "eligible guarantor institution" (as de-

24
<PAGE> 26

fined under the SEA Rule). 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. Telephone authorization forms are available from the Fund
upon request. See "Shareholder Services -- Telephone Privileges" for further
information concerning authenticity of instructions received by telephone.
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 expedited 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
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-1 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

25
<PAGE> 27

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 five 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 a way that maximizes the amount of redemption that
will not 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 the purchase price of the shares redeemed according to the
following schedule:

<TABLE>
<CAPTION>
CONTINGENT
YEAR OF DEFERRED
REDEMPTION SALES
AFTER PURCHASE CHARGE
----------- -----
<S> <C>
First............................ 5.00%
Second........................... 4.00%
Third............................ 3.00%
Fourth........................... 3.00%
Fifth............................ 2.00%
Sixth............................ 1.00%
Seventh and following............ 0.00%
</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 and (b) 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, (c) by shareholders (including retirement plan account holders)
having

26
<PAGE> 28

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 (d) as
distributions from employer sponsored retirement plans in connection with the
participant's separation of service at age 55 or over from his/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. The above waivers
of CDSC are subject to change upon 60 days written notice to shareholders. 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 Class B 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. (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. 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. If a loss is realized on the redemption and reinvestment is
made in shares of the Fund within 30 days, it would not be recognized as a loss
for income tax purposes (investors should consult their tax adviser). 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

27
<PAGE> 29

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.

Shareholder Services
- ------------------------------------------------------

The Fund offers shareholders of the Fund the following services and privileges:
(1) Reinvestment of Dividends and Distributions at net asset value; (2)
Automatic Investment Plan; (3) Exchange Privilege; (4) Systematic Withdrawal
Plan and (5) Automated Dollar Cost Averaging Program. Further information
regarding the above services and privileges is set forth in the Fund's Statement
of Additional Information, which may be obtained without charge by calling or
writing the Fund at the address and telephone number set forth on the cover page
of this 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 Class
A Shares or shares of other funds sold with an initial sales charge (ISC Funds)
provided that any sales charge differential (not previously paid) is paid by the
shareholder. Shares of such other ISC funds may also be exchanged for Class A
Shares of the Fund on the same basis. Class B Shares may be exchanged for Class
B Shares or shares of other funds that impose contingent deferred sales charges
(CDSC Funds) without imposition of the Fund's CDSC. Initial and subsequent
exchanges between CDSC funds having different CDSC schedules will retain their
respective original CDSC schedules. Thus, in the case of the Fund's Class B
shares being exchanged initially for shares of other CDSC funds that impose a
lower or higher CDSC than the Fund, such shares acquired in the exchange will
remain subject to the CDSC schedule of the Fund's Class B Shares. Shares of the
Fund acquired in an exchange for shares of other Transamerica funds imposing a
lower or higher CDSC than the Fund will remain subject to the respective (lower
or higher) CDSC schedule of the Transamerica fund in which the shareholder made
the original investment. For purposes of determining the CDSC upon redemption of
shares acquired in an exchange, the purchase of shares acquired in one or more
exchanges is deemed to have occurred at the time of the original purchase of
shares of the fund from which the initial exchange was made. 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. In addition, the
Fund reserves the right to impose a service fee. Exchanges are, in effect, a
redemption and purchase of shares in the respective funds and are treated as
such for tax purposes. 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.

THIS EXCHANGE PRIVILEGE IS NOT AVAILABLE IN ANY JURISDICTION WHERE SHARES OF THE
OTHER TRANSAMER-

28
<PAGE> 30

ICA 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 (e.g., higher CDSC funds have higher annual distribution fees),
shareholders should carefully review the prospectus of the other Transamerica
fund before effecting an exchange.

Shares of the Fund in any amount 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 (including Telephone Redemptions) 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. See "Telephone Privileges" for more information
regarding authenticity of instructions received by telephone. Telephone requests
may be made by contacting the Fund at 1-800-343-6840.

Telephone Privileges
- ------------------------------------------------------

Telephone Exchange Privilege, Telephone Redemption Privilege and FedWire
Redemption Privilege may be selected in the Fund's account application. 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. In the
absence of a designation for Telephone Exchanges in the account application or
in a confirmed trade, the Telephone Exchange Privilege will automatically be
accorded to the shareholder's account. 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.

AUTOMATED DOLLAR COST AVERAGING PROGRAM (the "Program") permits shareholders to
"transfer" (through the Exchange Privilege) each month $100 or more from their
money market account in Transamerica Cash Reserve, Inc. and/or Transamerica U.S.
Government Cash Reserve (for Class A Shares) or Transamerica Special Money
Market Fund (for Class B Shares) to their account(s) in the Fund and other
Transamerica Funds. To be eligible for participation, at least $5,000 ($20,000
in the case of Transamerica U.S. Government Cash Reserve) must be initially
present in the shareholders' money market account. 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 Account Services at 1-800-343-6840. Note that automated
dollar cost averaging methods do not assure a profit and

29
<PAGE> 31

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.

Dividends,
Distributions and
Tax Status
- ------------------------------------------------------

DIVIDENDS AND CAPITAL GAINS. The Fund declares daily and pays monthly dividends
substantially equal to all of its net investment income (i.e., non-capital gain
income from its investments less expenses). In addition, the Fund may distribute
any net short-term or long-term capital gains realized from the sale of its
portfolio securities and transactions involving options and futures during the
fiscal year. Short-term capital gains, if any, will normally be distributed
monthly and net realized capital gains, if any, will be distributed at least
annually. 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. In addition, the Fund may make "supplemental dividends or
distributions" to comply with applicable income and excise tax laws.

When a dividend or capital gains distribution is paid, the net asset value per
share is reduced by the amount of the 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 lower than the per share dividend or Class A Shares as a
result of the higher distribution services and incremental transfer agency fees
applicable to the Class B Shares. All dividends and any capital gains
distribution are reinvested automatically in additional shares on the
reinvestment 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. Because the Fund intends to distribute all of its net investment income
and net capital gains, if any, to shareholders, it is not expected that the Fund
will be required to pay any federal income taxes. In order for the Fund to be
entitled to pay tax-exempt interest income dividends to shareholders, at the
close of each quarter of its taxable year, at least 50% of the value of its
total assets must consist of obligations whose interest is exempt from federal
income tax. Distribution of net tax-exempt interest income may be treated by
shareholders for federal income tax purposes as interest excludable from their
gross income. The exempt interest portion of dividends payable monthly to
shareholders is based upon the ratio of the Fund's net tax-exempt income to
taxable income for the entire year. Thus, the tax-exempt portion of any
particular dividend is based upon the tax-exempt portion of all distributions
for the year rather than upon the tax-exempt portion of that particular
dividend.

Income equalization is an accounting practice used by the Fund to ensure that
the interests of existing shareholders in income available for dividends is not
diluted by new share purchases. A portion of each purchase, equal on a per share
basis to the undistributed net income, is set aside as a partial source of the
next dividend payment. As a result, future distributions may include a return of
capital to shareholders.

The Fund anticipates that a portion of its investments may be made in such
"private activity bonds" with the result that a portion of the exempt interest
dividends paid by the Fund would be an item of tax preference to shareholders
subject to the alternative minimum tax. The Fund anticipates that under normal
circumstances no more than 20% of its investments will be made in such private
activity bonds. It should also be noted that certain corporations which are
subject to the alternative minimum

30
<PAGE> 32

tax may also have to include exempt-interest dividends in calculating their
alternative minimum taxable income. Interest on indebtedness incurred or
continued by a shareholder to purchase or carry shares of the Fund is not
deductible. Any distributions of long-term capital gains are taxable as such to
the shareholder. Any distributions of short-term capital gains are taxable as
ordinary income; however, it is expected that such amounts, if any, would not be
substantial in relation to the tax-exempt interest generated by the Fund.

Under California law, a fund which qualifies as a regulated investment company
must have at least 50% of its total assets invested in California state and
local issues (or in obligations of the United States which pay interest
excludable from income) at the end of each quarter of its taxable year in order
to be eligible to pay dividends which will be exempt from California personal
income tax. Shareholders who are California residents will not incur any federal
or California income tax on the amount of exempt-interest dividends received by
them from the Fund and derived from California state and local issues or certain
United States issuers, whether taken in cash or reinvested in additional shares.
After the end of each calendar year, the Fund will mail to shareholders a
statement indicating the percentage of the dividend distributions for such
calendar year which constitutes exempt-interest dividends and the percentage, if
any, that is taxable, and the percentage, if any, of the exempt-interest
dividends which constitutes an item of tax preference. Unlike federal law,
California law provides that no portion of the exempt-interest dividends will
constitute an item of tax preference for California personal income tax
purposes.

Shareholders will normally be subject to federal and California personal income
tax on dividends paid from interest income derived from taxable securities and
on distributions of net capital gains. For both federal and California income
tax purposes, distributions of long-term capital gains, if any, are taxable to
shareholders as long-term capital gains, regardless of how long a shareholder
has held the Fund's shares and regardless of whether the distribution is
received in additional shares or in cash. Under current law, capital gains
distributed to individual shareholders are subject to federal income tax at a
maximum rate of 28%. For California personal income tax purposes, distributions
paid from capital gains are taxable as ordinary income; in addition, unlike
federal law, the shareholders of the Fund will not be subject to tax, or receive
a credit for tax paid by the Fund, on undistributed capital gains, if any. To
avoid being potentially subject to 31% federal back-up withholding on dividends
and capital gains distributions and on the proceeds of redemptions, you must
furnish the 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 back-up withholding.

The foregoing relates to federal income taxation and to California personal
income taxation as in effect as of the date of this Prospectus. Distributions
from investment income and capital gains, including exempt-interest dividends,
may be subject to California franchise taxes if received by a corporation doing
business in California, to state taxes in states other than California and to
local taxes.

EACH SHAREHOLDER IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISER CONCERNING THE
EFFECT OF OWNERSHIP OF SHARES OF THE FUND.

31
<PAGE> 33

Additional
Information
- ------------------------------------------------------

ORGANIZATION. The Fund is organized as a Massachusetts business trust under the
laws of the Commonwealth of Massachusetts pursuant to a Declaration of Trust
dated October 17, 1989. 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 and their transfer agency fees has exclusive
voting rights with respect to its respective distribution plan and has different
exchange privileges. 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. Shares issued are fully paid, non-assessable, fully
transferable and redeemable at the option of the holder. The Fund's Board of
Trustees is authorized to create additional series of shares or additional
classes of shares within any series at any time without approval by
shareholders. 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. The Fund will
assist shareholders with any communications regarding such meetings including
shareholder proposals. 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 organized contains an express disclaimer of shareholder liability for
acts or 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.

TRANSFER AGENT. Transfer and dividend disbursing agent functions are performed
by The Shareholder Services Group ("TSSG"), One American Express Plaza,
Providence, Rhode Island 02903-1135.

INDEPENDENT AUDITORS. Ernst & Young, 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.

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 or address on the cover
page of this Prospectus. Each month the Fund prepares an unaudited list of its
Fund securities holdings which is available without charge by contacting the
Fund.

PERFORMANCE INFORMATION. From time to time the Fund may advertise its yield and
total return which are computed separately for Class A and Class B Shares and in
accordance with applicable regulatory requirements. Yield is computed by
annualizing the result of dividing the net investment income per share over a
30-day period by the maximum offering price per share on the last day of the
period. The Fund may also advertise in supplemental sales literature a
distribution rate which is computed in the same manner as yield except that
actual income dividends declared per share during the applicable period are
substituted for net investment income per share. Components of the distribution
rate: (1) may

32
<PAGE> 34

include short-term gains (which may be non-recurring) and equalization or other
non-income related distributions which may include a non-taxable return of
capital dividends and (2) reflect amortization policies for debt discount and
dividend income recognition which may vary from those used in the yield
calculation. The Fund may also quote a tax equivalent yield or distribution rate
which is the yield or distribution rate a fully taxable investment would have to
return to an investor subject to the highest marginal federal and California tax
rate to provide a comparable return. Yield and distribution rate quotations, as
well as total return performance described below, will reflect the current
voluntary fee waiver/expense absorption policy by the Investment Adviser as
described under "The Fund and Its Management -- Expenses". The distribution rate
is computed separately for Class A and Class B Shares. Yield and distribution
rate quotations for Class B Shares do not reflect any contingent deferred sales
charge which, if included, would be reflected in a lower rate quotation.

The cumulative total return shows the dollar or percentage change in value over
a specified period of time (i.e., 1, 5 or 10 years or since the Fund's
inception), assuming reinvestment of all dividends and distributions on the
reinvestment dates and payment of the maximum sales charges applicable to
purchases and redemptions. Average annual total return shows the Fund's
cumulative return dividend over the number of years included in the given period
("standardized performance"). Total returns may, in conjunction with
standardized performance, be calculated for other specified periods and/or
excluding the effect of sales charges (which if included, would reduce the
performance quoted). Both the yield and total return are based on historical
earnings and are not indicative of future performance. The Fund will include
performance data for both Class A and Class B Shares in any advertisement or
information including performance data of the Fund. The Statement of Additional
Information contains more detailed information about the calculation of
performance. The Fund also may advertise its performance relative to certain
performance rankings, ratings and indexes compiled by independent organizations
(such as Lipper Analytical Services, Value Line and Morningstar, Inc.). In
addition, the Fund may use comparative performance information from certain
industry research materials or published various periodicals. The Statement of
Additional Information sets forth under "Performance Information" a list of
periodicals, indexes, etc. which the Fund may cite in its advertisements.

33
<PAGE> 35

APPENDIX A

CORPORATE AND TAX-EXEMPT BOND RATINGS

STANDARD & POOR'S CORPORATION ("S&P")

AAA, AA, A AND BBB -- Bonds rated AAA bear the highest rating assigned to debt
obligations and indicates an extremely strong capacity to pay principal and
interest. Bonds rated AA are considered "high grade," are only slightly less
marked than those of AAA ratings and have the second strongest capacity for
payment of debt service. Bonds rated A have a strong capacity to pay principal
and interest, although they are somewhat susceptible to the adverse effects or
changes in circumstances and economic conditions. The foregoing ratings are
sometimes followed by a "p" indicating that the rating is provisional. A
provisional rating assumes the successful completion of the project financed by
the bonds being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful and timely completion of the
project. Although a provisional rating addresses credit quality subsequent of
completion of the project, it makes no comment on the likelihood of, or the risk
of default upon failure of, such completion. Bonds rated BBB are regarded as
having an adequate capacity to repay principal and pay interest. Whereas they
normally exhibit protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to repay principal
and pay interest for bonds in this category than for bonds in the A category.

MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")

AAA, AA, A AND BAA -- Tax-exempt bonds rated Aaa are judged to be of the "best
quality." The rating of Aa is assigned to bonds that are of "high quality by all
standards," but long-term risks appear somewhat larger than Aaa rated bonds. The
Aaa and Aa rated bonds are generally known as "high grade bonds." The foregoing
ratings for tax-exempt bonds are sometimes presented in parentheses preceded
with a "con" indicating that the bonds are rated conditionally. Bonds for which
the security depends upon the completion of some act or upon the fulfillment of
some condition are rated conditionally. These are bonds secured by (a) earnings
of projects under construction, (b) earnings of projects unseasoned in operation
experience, (c) rentals that begin when facilities are completed, or (d)
payments to which some other limiting condition attaches. Such parenthetical
ratings denotes the probable credit stature upon completion of construction or
elimination of the basis of the condition. Bonds rated A are considered as upper
medium grade obligations. Principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment sometime in
the future. Bonds rated Baa are considered as medium grade obligations; i.e.,
they are neither highly protected or poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact, have speculative characteristics as well.

FITCH INVESTORS SERVICE ("FITCH")

AAA, AA, A, BBB -- Bonds rated AAA are considered to be investment grade and of
the highest quality. The obligor has an extraordinary ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events. Bonds rated AA are considered to be investment grade and of high
quality. The obligor's ability to pay interest and repay principal, while very
strong, is somewhat less than for AAA rated

34
<PAGE> 36

securities or more subject to possible change over the term of the issue. Bonds
rated A are considered to be investment grade and of good quality. The obligor's
ability to pay interest and repay principal is considered to be strong, but may
be more vulnerable to adverse changes in economic conditions and circumstances
than bonds with higher ratings. Bonds rated BBB are considered to be investment
grade and of satisfactory quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to weaken this ability
than bonds with higher ratings.

TAX-EXEMPT NOTE RATINGS

S&P -- SP-1 AND SP-2. SP-1 denotes a very strong or strong capacity to pay
principal and interest. Issues determined to possess overwhelming safety
characteristics are given a plus (+) designation (SP-1+). SP-2 denotes a
satisfactory capacity to pay principal interest.

MOODY'S -- M1G-1 AND M1G-2. Notes rated M1G-1 are judged to be of the best
quality, enjoying strong protection from established cash flow of funds for
their services or from established and broad-based access to the market for
refinancing or both. Notes rated M1G-2 are judged to be of high quality with
ample margins of protection, through not as large as M1G-1.

FITCH -- FIN-1 AND FIN-2. Notes assigned FIN-1 are regarded as having the
strongest degree of assurance for timely payment. A plus symbol may be used to
indicate relative standing. Notes assigned FIN-2 reflect a degree of assurance
for timely payment only slightly less in degree than the highest category.

CORPORATE AND TAX-EXEMPT COMMERCIAL PAPER RATINGS

S&P -- Commercial Paper ratings are a current assessment of the likelihood of
timely payment of debts having an original maturity of no more than 365 days.
Issues rated A have the greatest capacity for a timely payment and the
designation 1, 2 and 3 indicates the relative degree of safety. Issues rated
"A-1+" are those with an "overwhelming degree of credit protection."

MOODY'S -- Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Prime-1, indicates highest quality repayment capacity of
rated issue and Prime-2 indicates higher quality.

FITCH -- Commercial Paper ratings reflect current appraisal of the degree of
assurance of timely payment. F-1 issues are regarded as having the strongest
degree of assurance for timely payment. (+) is used to designate the relative
position of an issuer within the rating category. F-2 issues reflect an
assurance of timely payment only slightly less in degree than the strongest
issues. The symbol (LOC) may follow either category and indicates that a letter
of credit issued by a commercial bank is attached to the commercial paper note.

OTHER CONSIDERATIONS -- The ratings of S&P, Moody's, and Fitch represent their
respective opinions of the quality of the municipal securities they undertake to
rate. It should be emphasized, however, that ratings are general and are not
absolute standards of quality. Consequently, municipal securities with the same
maturity, coupon and rating may have different yields and municipal securities
of the same maturity and coupon with different ratings may have the same yield.

35
<PAGE> 37

APPENDIX B
EQUIVALENT YIELDS:
TAX EXEMPT VERSUS TAXABLE INCOME FOR 1993

The table below shows the effect of the tax status of California Tax Exempt
Securities on the yield received by their holders under the regular federal
income tax and California personal income tax laws. It gives the approximate
yield a taxable security must earn at various income brackets to produce
after-tax yields equivalent to those of California Tax Exempt Securities
yielding from 4.0% to 7.0%.

MARGINAL
COMBINED
CALIFORNIA
AND
FEDERAL
SINGLE RETURN JOINT RETURN INCOME IN CALIFORNIA, A TAX-EXEMPT YIELD OF:
- ---------------- ---------------- TAX --------------------------------------------------------------------
(TAXABLE INCOME) BRACKET* 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0%
- ------------------------------------- -------- ----- ----- ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
IS EQUIVALENT TO A TAXABLE YIELD OF:
$ 0- 4,552 $ 0- 9,104 15.85% 4.75% 5.35% 5.94% 6.54% 7.13% 7.72% 8.32%
$ 4,553- 10,789 $ 9,105- 21,578 16.70% 4.80% 5.40% 6.00% 6.60% 7.20% 7.80% 8.40%
$ 10,790- 17,027 $ 21,579- 34,054 18.40% 4.90% 5.51% 6.13% 6.74% 7.35% 7.97% 8.58%
$ 17,028- 22,100 $ 34,055- 36,900 20.10% 5.01% 5.63% 6.26% 6.88% 7.51% 8.14% 8.76%
$ 22,101- 23,637 $ 36,901- 47,274 32.32% 5.91% 6.65% 7.39% 8.13% 8.87% 9.60% 10.34%
$ 23,638- 29,873 $ 47,275- 59,746 33.76% 6.04% 6.79% 7.55% 8.30% 9.06% 9.81% 10.57%
$ 29,874- 53,500 $ 59,747- 89,150 34.70% 6.13% 6.89% 7.66% 8.42% 9.19% 9.95% 10.72%
$ 53,501-103,600 $ 89,151-140,000 37.42% 6.39% 7.19% 7.99% 8.79% 9.59% 10.39% 11.19%
$103,601-115,000 $140,001-207,200 41.95% 6.89% 7.75% 8.61% 9.47% 10.34% 11.20% 12.06%
$115,001-207,200 $207,201-250,000 42.40% 6.94% 7.81% 8.68% 9.55% 10.42% 11.28% 12.15%
$207,201-250,000 $250,001-414,400 45.64% 7.36% 8.28% 9.20% 10.12% 11.04% 11.96% 12.88%
$250,001 and up $414,401 and up 46.24% 7.44% 8.37% 9.30% 10.23% 11.16% 12.09% 13.02%
</TABLE>

- ---------------

* The marginal combined bracket includes the effect of deducting state taxes on
your federal tax return.

The Chart is for illustrative purposes only and is not intended to project
performance of the fund.

While the Fund principally invests in obligations exempt from federal and
California state income taxes, a portion of the Fund's distributions may be
subject to these taxes or to the alternative minimum tax.

California state income tax rates and brackets have not yet been set for 1993.
This may result in higher or lower actual rates. The above chart is intended for
estimation only.

36
<PAGE> 38

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................... 3
Fund Expenses............................. 4
Financial Highlights........................ 6
Investment Objective and Policies........... 7
Investment Practices, Techniques and
Restrictions.............................. 12
The Fund and Its Management................. 15
Information About Shares of the Fund........ 20
Net Asset Value........................... 20
Purchase of Shares........................ 20
Redemption and Repurchase of Shares....... 24
Shareholder Services........................ 28
Dividends, Distributions and Tax Status..... 30
Additional Information...................... 32
Appendix A.................................. 34
Appendix B.................................. 36
</TABLE>

INVESTMENT ADVISER
----------------------

Transamerica Fund Management Company
1000 Louisiana
Houston, Texas 77002-5098
(713) 751-2400

SUB-ADVISER
---------------

Transamerica Investment Services, Inc.
1150 South Olive St.
Los Angeles, California 90015

DISTRIBUTOR
--------------

Transamerica Fund Distributors, Inc.
1000 Louisiana
Houston, Texas 77002-5098
(713) 751-2400

SHAREHOLDER INQUIRY
-----------------------

1-800-343-6840
Transamerica Funds Shareholder Services
P.O. Box 9656
Providence, Rhode Island 02940-9656

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.
2801

TRANSAMERICA CALIFORNIA TAX-FREE
INCOME FUND
PROSPECTUS
April 29, 1994
<PAGE> 39

TRANSAMERICA CALIFORNIA TAX-FREE INCOME FUND

NEW ACCOUNT
APPLICATION AND AUTHORIZATION FORM

Please complete the application by marking the appropriate boxes and
mail to Transamerica Funds Shareholder Services, P.O. Box 9656, Providence, RI
02940-9656 along with your check made payable to Transamerica California
Tax-Free Income Fund. Investors are advised to keep a copy of the Prospectus
which contains the terms and conditions incorporated by reference in this
application.

- --------------------------------------------------------------------------------
1. ACCOUNT REGISTRATION (PLEASE PRINT)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>

/ / Individual________________________________________________________________ ___________________/___________/______________
First Middle Initial Last Name Social Security Number

/ / Joint Tenant______________________________________________________________ _______________________________________________
First Middle Initial Last Name Date of Birth

If a joint account, please indicate which joint tenant's social security number and date of birth are being used._________________

/ / Gifts to Minors ______________________________________________ as Custodian for_______________________________________________
Name of Custodian (one only) Name of Minor (one only)

under the_______________________________________ Uniform Gifts to Minors Act.___________________/___________/______________
State Minor's Social Security Number

/ / Other___________________________________________________________________ ___________________/__________________________
Tax ID Number
____________________________________________________________________________________
Name of Corporation, Fiduciary or Other Organization. If a Trust, Give Date of Trust

/ / U.S. Citizen / / Non-Resident Alien: Country____________________________________________________________________________
You must include Form W-8 if you are a Non-Resident Alien.
/ / Resident Alien
</TABLE>

- --------------------------------------------------------------------------------
2. MAILING ADDRESS
- --------------------------------------------------------------------------------

Address ___________________________________ City _____________________________

___________________________________ State, Zip _______________________

- --------------------------------------------------------------------------------
3. SECURITIES DEALER IDENTIFICATION
- --------------------------------------------------------------------------------

Name of Firm ____________________ Investment Representative __________________
Branch Address _____________________________ Representative Number ___________
City, State, Zip ___________________________ Telephone Number ________________

We hereby authorize The Shareholder Services Group (TSSG) to act as our agent
in connection with transactions under this authorization form and agree to
notify the Distributor of any purchases made under a Statement of Intention
or Right of Accumulation.

Authorized Signature of Dealer ___________________________

- --------------------------------------------------------------------------------
4. PURCHASE OF SHARES
- --------------------------------------------------------------------------------

/ / Please open a new account. My check is enclosed for the purchase of
(choose one)

Class A Shares / / ($__________) or Class B Shares / / ($__________).

/ / Please establish the options I have indicated within this authorization
form on my existing account.

My existing account number in ___________________ is ________________________.
Fund Account Number
028/029

1 of 3

<PAGE> 40

- --------------------------------------------------------------------------------
5. DISTRIBUTION OPTION
- --------------------------------------------------------------------------------

DIVIDENDS: For Reinvest Elections: Complete this section only
/ / Cash / / Reinvest if you would like your distributions reinvested
CAPITAL GAINS into another fund.
/ / Cash / / Reinvest / / Reinvest Dividends into _______________________
Fund/Account
/ / Reinvest Capital Gains into: __________________
Fund/Account
Opening balance must meet the Fund's minimum
requirement

For Cash Elections:
/ / Send Proceeds via check to the address of record shown on this application
/ / Send Proceeds via check to the name and address shown below:

Name ____________________________________ City _______________________________
Address _________________________________ State, Zip _________________________

/ / Wire proceeds to my bank account listed below:

_____________________________________ ___________________________________
Name of Bank Bank Account Number
_____________________________________ ___________________________________
Address of Bank Investor(s) Name(s) on Bank Account
_____________________________________ ___________________________________
City, State, Zip Bank ABA Routing Number

If no specification is made, all distributions automatically reinvest in
your account.

- --------------------------------------------------------------------------------
6. TELEPHONE EXCHANGE (OPTIONAL)*
- --------------------------------------------------------------------------------

/ / I (we) authorize the Fund or its agent to honor telephone instructions
from ANY person to exchange shares of the same class into another eligible
Transamerica Fund subject to provisions in the Exchange Privilege.**

/ / YES / / NO

IF NEITHER BOX IS CHECKED, THE TELEPHONE EXCHANGE PRIVILEGE WILL BE ADDED
TO YOUR ACCOUNT.

- --------------------------------------------------------------------------------
7. TELEPHONE REDEMPTION (OPTIONAL)*
- --------------------------------------------------------------------------------

/ / I (we) authorize the Fund or its agent to accept and process telephoned
instructions from ANY person to redeem shares and have the proceeds mailed
to my address of record.**

/ / YES / / NO

- --------------------------------------------------------------------------------
8. FEDWIRE REDEMPTION (OPTIONAL)*
- --------------------------------------------------------------------------------

/ / I (we) authorize the Fund or its agent to honor telephone or other
requests from anyone to make FedWire redemption payments of $50,000 or
more. Proceeds are to be wire transferred to the bank account designated
below.

________________________________________ _____________________________________
Name of Bank Bank Account Number
(Not a Savings and Loan or Credit Union)
________________________________________ _____________________________________
Address of Bank Investor(s) Name(s) on Bank Account
________________________________________ _____________________________________
City, State, Zip Bank ABA Routing Number

- --------------------------------------------------------------------------------
9. RIGHT OF ACCUMULATION (OPTIONAL) CLASS A SHARES ONLY
- --------------------------------------------------------------------------------

/ / This purchase qualifies for Right of Accumulation based on the current net
asset value of all Transamerica Fund Shares which are subject to an
initial sales charge and are still owned by myself or members of my
immediate family. Please list below the Fund names and existing account
numbers to be included in the calculation.

Fund ___________________________________ Account Number ______________________
Fund ___________________________________ Account Number ______________________
Fund ___________________________________ Account Number ______________________

* SEE TERMS AND CONDITIONS IN THE BACK OF THIS PROSPECTUS.
** Neither the Fund, Transfer Agent nor the Adviser will be responsible for
the authenticity of instructions received by telephone or other means.
See "Investor Signatures" block.

2 of 3

<PAGE> 41

- --------------------------------------------------------------------------------
10. STATEMENT OF INTENTION (OPTIONAL) CLASS A SHARES ONLY*
- --------------------------------------------------------------------------------

/ / I agree to the Statement of Intention and Escrow Agreement as set forth
in the Prospectus and Statement of Additional Information. Although I am
not obligated to do so, it is my intention to invest over a thirteen
month period from the effective date an aggregate amount at least equal
to that which is checked below:
/ / $100,000; / / $250,000; / / $500,000; / / $1,000,000.
Existing accounts must be identified in advance. If the value of
currently owned shares is to be applied towards completion of this
Statement of Intention, please list them below:

SEE TERMS AND CONDITIONS IN THE BACK OF THIS PROSPECTUS.

- --------------------------------------------------------------------------------
11. SYSTEMATIC WITHDRAWAL PLAN (OPTIONAL) CLASS A OR CLASS B SHARES*
- --------------------------------------------------------------------------------

/ / I (we) authorize the Fund or its agent to mail a check on a / / monthly;
/ / quarterly, / / semi-annual, / / annual basis beginning ____________,
the amount of which is based on: month/year

/ / Fixed Dollar Amount $______ / / Fixed Share Amount _______
/ / Annual Percent ________ / / Check
If payee or payee's address is different from the account registration
please provide special address below:

Name _______________________________ City _____________________________
Address ____________________________ State, Zip _______________________

/ / Electronic Funds Transfer

_________________________________ ___________________________________
Name of Bank Bank Account Number
_________________________________ ___________________________________
Address of Bank Investor(s) Name(s) on Bank Account
_________________________________ ___________________________________
City, State, Zip Bank ABA Routing Number

*SEE TERMS AND CONDITIONS IN THE BACK OF THIS PROSPECTUS.

- --------------------------------------------------------------------------------
12. INVESTOR SIGNATURES
- --------------------------------------------------------------------------------

I (we) have read the Prospectus and agree to its terms and conditions. I
(we) certify that I (we) have the power and authority to establish this
account and select the privileges requested. The account owners release the
Fund, its agent and representatives from all liability and agree to
indemnify the same from any and all losses, damages, or costs for acting in
good faith in accordance with the privileges selected herein (including
those involving exchanges and redemptions made by telephonic instructions
believed to be authentic). I (we) acknowledge that the foregoing
indemnification applies where I (we) do not indicate a selection for
"Telephone Exchange" which, as a result, automatically accords the
telephone exchange privilege, with its attendant risks, to my (our)
account. I (we) further certify that the authorization(s) hereon shall
continue until the Fund receives written notice of a modification signed by
all appropriate parties. This account is subject to the terms on the
reverse side, terms of the Fund's Prospectus as amended from time to time,
and is subject to acceptance by the Fund. All terms shall be binding upon
the heirs, representatives and assigns of the account owner(s).
Under penalties of perjury I certify (1.) that the Social Security or
Employer ID Number shown in Block 1 of this form is the correct taxpayer
identification number and (2.) that I am not subject to back-up withholding
because: (a) I have not been notified that I am subject to back-up
withholding as a result of failure to report all interest or dividends, or
(b) the IRS has notified me that I am no longer subject to back-up
withholding. IF YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE CURRENTLY
SUBJECT TO BACK-UP WITHHOLDING, STRIKE OUT CLAUSE (2.).
Please refer to "Backup Withholding Information" on the reverse side.

- --------------------------------------------------------------------------------

SIGN BELOW EXACTLY AS NAMES ARE SIGNATURE GUARANTEE: Required only if
SHOWN IN BLOCK 1 establishing privileges in Blocks 5
_____________________________ (Special Mail Address), 7, 8, or 11 on an
OWNER OR CUSTODIAN existing account. Not required when
_____________________________ establishing new accounts. Signature
JOINT OWNER(S) Guarantee may be provided by a commercial
_____________________________ bank, trust company, savings bank, savings
JOINT OWNER(S) and loan association, federal credit
_____________________________ union, NASD member firm, or member firm of
DATE a domestic stock exchange.

AFFIX SIGNATURE GUARANTEE STAMP
___________________________________________
Signature Guaranteed by
___________________________________________
Authorized Signature

3 of 3

<PAGE> 42

BACKUP WITHHOLDING INFORMATION

Item 1. Please make sure that the social security number or taxpayer
identification number (TIN) which appears under "Account
Registration" in the application form complies with the following
guidelines:

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
ACCOUNT GIVE SOCIAL SECURITY ACCOUNT GIVE EMPLOYER I.D.
TYPE NUMBER OF: TYPE NUMBER OF:
- --------------------------- ------------------------ ------------------------ ---------------------------
<S> <C> <C> <C>
Individual Individual Trust, Estate, Trust, Estate Pension
Pension Plan Trust, Plan Trust and NOT
personal TIN of fiduciary
Joint Individual Owner who will be
paying tax
Unif. Gifts to Minors Minor Corporation, Corporation, Partnership,
Partnership, Other Organization
Other Organization
Legal Guardian Ward, Minor or
Incompetent
Sole Proprietor Owner of Business Broker/Nominee Broker/Nominee
- -----------------------------------------------------------------------------------------------------
</TABLE>

Item 2. IF YOU DO NOT HAVE A TIN or you do not know your TIN, you must obtain
Form SS-5 (Application for Social Security Number) or Form SS-4
(Application for Employer Identification Number) from your local
Social Security or IRS office and apply for one. Write "Applied For"
in the space for "Social Security Number" or "Tax ID Number" in the
application form.

Item 3. IF YOU ARE ONE OF THE ENTITIES LISTED BELOW, YOU ARE EXEMPT from
backup withholding.

- A corporation

- Financial institution

- 501(a) exempt organization (IRA, Corporate Retirement Plan, 403B,
Keogh)

- United States or any agency or instrumentality thereof

- A State, the District of Columbia, a possession of the United
States, or any subdivision or instrumentality thereof

- International organization or any agency or instrumentality thereof

- Registered dealer in securities or commodities registered in the
U.S. or a possession of the U.S.

- Real estate investment trust

- Common trust fund operated by a bank under section 584(a)

- An exempt charitable remainder trust, or a non-exempt trust
described in section 4947(a)(1)

If you are in doubt as to whether you are exempt, please contact the
Internal Revenue Service.

Item 4. IRS PENALTIES - If you do not supply us with your TIN, you will be
subject to an IRS $50 penalty unless your failure is due to
reasonable cause and not willful neglect. If you fail to report
interest, dividend or patronage dividend income on your federal
income tax return, you will be treated as negligent and subject to an
IRS 5% penalty tax on any resulting underpayment of tax unless there
is clear and convincing evidence to the contrary. If you falsify
information on this form or make any other false statement resulting
in no backup withholding on an account which should be subject to
backup withholding, you may be subject to an IRS $500 penalty and
certain criminal penalties including fines and imprisonment.

<PAGE> 43
TERMS AND CONDITIONS OF
NEW ACCOUNT APPLICATION AND AUTHORIZATION FORM

INVESTMENTS IN THE FUND

To open a Shareholder Account for either Class A or Class B shares a minimum
initial investment of $1000 is required, with subsequent minimum investments
of $50. These investments will be applied to the purchase of full and
fractional shares of the Fund at the public offering price. Initial purchases
into an account should accompany the application form. Purchases of Class B
shares of $1,000,000 or more will not be accepted. Additional purchases into
an existing account should accompany an investment transmittal stub
(detachable portion of any previously received Shareholder statement).

RIGHT OF ACCUMULATION (CLASS A SHARES ONLY)

Shares may be purchased at the public offering price applicable to the total
of (a) the dollar amount being purchased plus (b) an amount equal to the
then-current net asset value of the combined holdings of the purchaser, his or
her spouse, and their children under age 21, of Class A shares of any mutual
fund, and/or shares of any front load mutual fund, advised by Transamerica
Fund Management Company ("Transamerica Funds"). In order for this cumulative
quantity discount to be made available, your securities dealer must give
notification of your total holdings in all Transamerica Funds each time he
places an order for you. Similarly, you must provide The Shareholder Services
Group ("TSSG" or the "Transfer Agent") with the account numbers of all
Transamerica Fund Shareholder Accounts in which you hold shares so that you
may receive the cumulative quantity discount whenever you send an investment
by mail directly to the Transfer Agent. Please attach a schedule showing any
additional account number(s) and full registration of each account other than
the three accounts you have listed in block 9.

STATEMENT OF INTENTION (CLASS A SHARES ONLY)

A reduction of sales charges is also available to an investor who, pursuant to
a written Statement of Intention ("S.O.I.") which is set forth in the
application form in the Prospectus, establishes a total investment goal of
$100,000 or more, to be achieved through any number of investments over a
thirteen (13) month period. Each investment made during the period will be
subject to the reduced sales charge applicable to the goal amount, provided
the Transfer Agent is notified of the existing S.O.I. at the time of purchase.
The current net asset value of all Class A shares, and/or shares of any front
load mutual fund, owned by the purchaser and/or his immediate family prior to
the Transamerica Fund Distributor's (the "Distributor") date of receipt of the
S.O.I. may also be applied towards fulfillment of the stated goal amount,
provided the dealer or shareholder notifies the Distributor of such existing
share ownership.

The initial purchase must be at least 5% of the stated investment goal: shares
equal to 5% of the dollar amount specified in the S.O.I. will be retained in
escrow by the Transfer Agent by placing a restriction against transfer or
redemption of such shares, until the total purchases equal the aggregate
amount specified in the S.O.I. At that time, the escrow shares will be
released. At any time while a Statement of Intention is in effect, a
shareholder may, by written notice to the Distributor, increase the amount of
the stated goal. In such case, the revised goal will be treated as a new
S.O.I.; however, the initial thirteen (13) month investment period will remain
unchanged. Shares purchased during the previous 90-day period and still owned
by the shareholder will be eligible for a sales charge reduction in accordance
with the reduced sales charge applicable to the new Statement of Intention.
The price reduction is conditional upon receipt by the Distributor of any
sales commission differential and will be effected upon notification to the
Transfer Agent by the broker/dealer.

The Statement of Intention does not obligate the investor to purchase, nor the
Fund to sell the indicated amount of the investment goal. In the event the
investment goal is not achieved within the thirteen (13) month period, the
investor is required to pay the difference between the sales charge otherwise
applicable to the purchases made during this period and sales charges actually
paid. Such payment may be made directly to the Distributor or if not paid
within twenty (20) days of written request by the Fund, the Distributor is
authorized by the S.O.I. to liquidate a sufficient number of escrowed shares
to obtain such difference. Transamerica Fund Distributors is hereby and
irrevocably appointed attorney to give instructions to redeem any or all of
such escrow shares, with full power of substitution in the premises.

Purchases of shares by persons within the immediate family of the person
signing the statement can also qualify for reduced offering prices. The
Statement of Intention must be referred to by the purchaser or dealer when
making a purchase or placing an order. In addition, a request to close the
account will also be considered a request to close the S.O.I. and thus
liquidate the appropriate number of escrow shares. The escrow share
liquidation proceeds will be paid to the Distributor and the Dealer of Record
at the time of termination of the S.O.I. prior to its completion.

FEDWIRE REDEMPTION

Shareowners may have redemptions of $50,000 or more wire transferred to their
bank account in a financial institution which is a member of the Federal
Reserve System. Any changes to banking information provided within this
authorization form must be submitted in writing to Transamerica Funds
Shareholder Services with the shareowner(s) signature(s) guaranteed. Shares
held in certificate form may not be sold using the FedWire Redemption
privilege unless they are first presented to the Fund for deposit. Redemptions
will be made at the net asset value at the close of the business day in which
they are received, provided the telephone request is received by 3:00 p.m.
Central Time at 1-800-343-6840. Proceeds will be wired the following business
day. Wire transfers will be made only to the bank of

<PAGE> 44

record. Institutions wishing to utilize this privilege must also complete the
applicable resolution or agreement contained within this Application form.

TELEPHONE EXCHANGE AND TELEPHONE REDEMPTION

1. Telephone instructions must be received before 3:00 PM Central Time at
1-800-343-6840.

2. Newly purchased shares must be held a minimum of 15 days before being
eligible for redemption.

3. Shares held in certificate form must first be presented to the Fund for
deposit before an exchange or redemption can be effected.

4. The following rules apply only to exchanges:

A. Exchanges between the Group I and Group II funds listed below are not
permitted.

<TABLE>
<S> <C>
Group I Group II
------- --------
Transamerica Capital Growth Fund (Class A) Transamerica Special Money Market Fund
Transamerica Investment Quality Bond Fund Transamerica Special High Yield Tax Free Fund
(Class A) (Class B)
Transamerica Government Securities Trust Transamerica Special High Yield Bond Fund (Class B)
Transamerica Growth and Income Fund (Class A) Transamerica Special Blue Chip Fund
Transamerica U.S. Government Cash Reserve Transamerica Special Emerging Growth Fund
Transamerica Cash Reserve, Inc. (Class B)
Transamerica California Tax-Free Income Fund Transamerica Special Natural Resources Fund
(Class A) Transamerica Special Government Income Fund
Transamerica Tax-Free Bond Fund (Class A) Transamerica Growth and Income Fund (Class B)
Transamerica Special Emerging Growth Fund Transamerica Adjustable U.S. Government Trust
(Class A) (Class B)*
Transamerica Adjustable U.S. Government Trust Transamerica California Tax-Free Income Fund
(Class A) (Class B)
Transamerica Special High Yield Tax Free Fund Transamerica Tax-Free Bond Fund (Class B)
(Class A) Transamerica Capital Growth Fund (Class B)
Transamerica Special High Yield Bond Fund Transamerica Investment Quality Bond Fund (Class B)
(Class A)
</TABLE>

* Exchanges between this Fund and other Group II funds are permitted;
however, the shares exchanged will remain subject to the same aging and
commission structure applicable to the Fund in which they were originally
purchased.

B. Any new account established through the exchange privilege will have the
same registration, dividend option and telephone exchange and telephone
redemption privilege as in effect for the present account.

C. If the exchange involves the establishment of a new account, the dollar
amount being exchanged must at least equal the minimum investment
requirement of the fund being acquired as indicated in the prospectus of
such fund.

D. All exchanges will be processed at the respective net asset values of the
funds involved, however, shares originally purchased into any of the
Group I funds that do not impose sales charges will be exchanged to other
Group I funds only upon payment of the full sales charge imposed by that
fund. Exchanges to a fund imposing a higher sales load will be processed
upon payment of the sales charge differential.

E. For purposes of calculating the amount of any contingent deferred sales
charge ("CDSC") applicable to exchanged shares of funds in Group II, a
proportionate amount of each "category" of shares held by the investor in
the account from which the exchange is effected will be deemed to be the
amount of shares of each category exchanged to the other CDSC Fund. See
the Statement of Additional Information for further details.

F. For federal income tax purposes, an exchange constitutes a redemption and
a purchase of the designated share amount from which a gain or loss may
result.

G. The exchange privilege is available only in states where the shares of
the Fund may legally be sold.

5. Provisions for redemptions are as follows:

A. A maximum amount of $50,000 may be redeemed by telephone.

B. Redemptions will be made at the net asset value at the close of the
business day.

C. Redemption checks will be made payable to the shareowner(s) named in the
registration and mailed to the address of record. If an address change
has been processed in the past 30 days, the redemption request will not
be honored.

D. Tax withholding information must be provided on fiduciary accounts which
have BSDT as custodian.

E. If a redemption is requested from a Fund in Group II, a contingent
deferred sales charge may be applied.

6. As stated in the Prospectus, reasonable procedures will be employed by the
Fund or its agents to confirm that instructions received by telephone are
genuine and in the absence thereof, the Fund or its agents may be liable
for any losses due to unauthorized or fraudulent instructions. Such
procedures may include, but not necessarily be limited to, recording
telephone instructions, written confirmations of transactions and/or
obtaining verification of some private information of the account owner.

<PAGE> 45

SYSTEMATIC WITHDRAWAL PLAN

The systematic withdrawal plan may be established on shareholder accounts
following completion of the appropriate section within the application form.
This account privilege is subject to the following conditions:

1. Establishing a withdrawal plan on a fund account requires a minimum
investment of $5000.

2. Withdrawals must be in amounts of $25 or more and may be taken on a
monthly, quarterly, semiannual or annual basis.

3. Dividend and capital gain distributions must be reinvested in the account
as full and fractional shares.

4. Redemptions are made at net asset value as of the close of business on the
New York Stock Exchange on the fifth (5th) business day prior to the end of
the application time period.

5. The systematic withdrawal plan may be terminated by either the Fund or the
shareholder at any time, without penalty, by written notification to the
other party.

6. Shares in Group II funds may be subject to a contingent deferred sales
charge upon redemption.

7. Newly purchased shares must be held for a minimum of 15 calendar days
before being eligible for redemption through the Systematic Withdrawal Plan
option.

8. Certain redemptions processed through the Systematic Withdrawal Plan may be
eligible for waiver of deferred sales charges. In order for the waiver to
apply, the annual aggregate redemption amount cannot exceed 12% of the
account value. Systematic withdrawals established for a fixed dollar or
share amount will be reviewed and adjusted periodically to ensure that the
12% limit is not surpassed. Shareholders requesting an annual aggregate
amount greater than the 12% limit will receive two checks each time a
redemption is effected. One check will represent the amount withdrawn in
accordance with the waiver policy. The second check will represent the
difference amount and may be subject to a deferred sales charge. Please
contact Account Services at 800-343-6840 for more information.

9. Proceeds sent via Electronic Funds Transfer may not be credited to the
shareholder's bank for a period of up to 3 days.

NOTES

Each time there is a transaction in a Shareholder Account, the shareholder
will receive a confirmation statement from the transfer agent reflecting the
transaction.

Certificates can be issued for full shares only. These certificates will be
sent to the shareholder only upon specific written request.

The method of delivery of share certificates to the transfer agent is at the
option and risk of the shareholder. If sent by mail, registered and insured
mail is suggested.

All correspondence regarding Shareholder Accounts should be addressed to
Transamerica Funds Shareholder Services, P.O. Box 9656, Providence, RI
02940-9656.

<PAGE> 46

DETACH HERE

APPLICATION FOR AUTOMATIC
INVESTMENT PLAN

If you wish the convenience of making automatic investments as described under
Automatic Investment Plan, please complete both portions of this form and mail
to Transamerica Funds Shareholder Services, P.O. Box 9656, Providence, RI
02940-9656 ALONG WITH YOUR BLANK, UNSIGNED VOIDED CHECK (FOR CHECKING
ACCOUNTS) OR A SAVINGS ACCOUNT DEPOSIT SLIP FROM THE ACCOUNT IN WHICH FUNDS
WILL BE DRAWN.

THE SHAREHOLDER SERVICES GROUP

You are hereby authorized to draw checks on the / / 5th and/or / / 20th of each
month (minimum amount -- $25) on my bank account for investment as indicated
below:

1. Amount of each check: $___________________________________________________

2. To be invested in (name of Transamerica Fund)
__________________________________________________________________________

3. Account number ___________________________________________________________

4. To begin in the month of __________________ or as soon thereafter as
possible.

I agree that you are preparing these checks voluntarily at my request and that
you shall not be liable for any loss arising from any delay in preparing or
failure to prepare any such check. If I change banks or desire to terminate or
suspend this program I agree to notify you promptly in writing.

I further agree that if a check is not honored upon presentation, The
Shareholder Services Group is authorized to discontinue immediately the
Automatic Investment Plan and to liquidate sufficient shares held in my
account to offset the purchase made with the returned check.

__________ __________________________________________________________________
Date Signature of Depositor

(If joint account, both must sign)

*If a new account, please submit these forms with account application and
initial purchase payment.

DO NOT DETACH THIS PORTION AUTHORIZATION TO HONOR CHECKS DRAWN BY THE
SHAREHOLDER SERVICES GROUP, THE TRANSFER AGENT FOR TRANSAMERICA FUNDS

Bank Name ____________________________________________________________________
Bank Address _________________________________________________________________
City ________________________________ State _________ Zip ____________________

As a convenience to me, I hereby request and authorize you pay and charge to my
account checks drawn on my account by and payable to the order of any of the
Transamerica Funds. I agree that your rights in respect to each such check shall
be the same as if it were a check drawn on you and signed personally by me. This
authority is to remain in effect until revoked by me in writing, and, until you
actually receive such notice, I agree that you shall be fully protected in
honoring any such check. I further agree that if any such check be dishonored,
whether with or without cause and whether intentionally or inadvertently, you
shall be under no liability whatsoever.

Depositor's Name(s) __________________________________________________________
Bank Account Number __________________________________________________________
Date _________________________________________________________________________
Depositor's Signature ________________________________________________________
Depositor's Signature* _______________________________________________________

* (JOINT SIGNATURES ARE REQUIRED WHEN BANK ACCOUNT IS IN JOINT NAMES. PLEASE
SIGN EXACTLY AS APPEARS ON YOUR BANK'S RECORDS.)

INDEMNIFICATION AGREEMENT

In consideration of your participating in a plan which The Shareholder Services
Group (TSSG) has put into effect by which amounts payable to Transamerica Funds
for purchase of shares are collected by checks drawn by them, TSSG hereby
agrees:

1. To indemnify and hold you harmless from any loss you may suffer resulting
from or in connection with the execution and issuance of any check, whether or
not genuine, purporting to be drawn by or on behalf of, and payable to, the
Funds specified on the account of your depositor(s) executing the authorization
on the face hereof and received by you in the regular course of business through
normal banking channels for the purpose of payment, including any costs or
expenses reasonably incurred in connection with such loss, but excepting any
loss due to your payment of any check drawn against insufficient funds.

2. In the event that any such check shall be dishonored, whether with or without
cause, and whether intentionally or inadvertently, to indemnify you and hold you
harmless from any loss resulting from such dishonor, including your costs and
reasonable expenses.

THE SHAREHOLDER SERVICES GROUP

Authorized by a resolution adopted by the Board of
Directors of The Shareholder Services Group.