<PAGE> 1
REGISTRATION: 1933 - 33 - 32246
1940 - 811 - 5968
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.
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TRANSAMERICA
TAX-FREE BOND FUND
1000 Louisiana Houston, Texas 77002-5098 (713) 751-2400
- --------------------------------------------------------------------------------
Transamerica Tax-Free Bond Fund (the "Fund") is a mutual fund whose investment
objective is to obtain as high a level of interest income exempt from federal
income taxes as is consistent with preservation of capital. The Fund seeks to
achieve its objective by investing primarily in municipal bonds, municipal notes
and municipal commercial paper, subject to certain minimum quality ratings at
the time of purchase. (See "Investment Objectives and Policies.")
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)
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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, dated April 15, 1994,
containing further information about the Fund has been filed with the Securities
and Exchange Commission and is incorporated by reference into this Prospectus.
Copies may be obtained without charge by calling or writing the Fund at the
address or telephone number listed above. Shares of the Fund are not available
for purchase by residents of the Commonwealth of Puerto Rico.
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.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------------------
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY ANY BANK, NOR ARE SHARES OF THE FUND FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
---------------------
PROSPECTUS DATED APRIL 15, 1994
<PAGE> 3
ALTERNATIVE PURCHASE PLAN.
(Continued from previous page)
CLASS A SHARES. 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 are not subject to an initial sales
charge when they are purchased but (1) are generally subject to a sales charge
upon redemption within five years of purchase (a "contingent deferred sales
charge" or "CDSC") and (2) bear the expense of a distribution fee computed at an
annual rate of up to .90% of the Fund's average daily net assets allocable to
the Class B Shares. 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. 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
assistance payments. The deferred sales charge alternative permits all of the
investor's dollars to work from the time the investment is made.
Dividends paid by the Fund with respect to Class A and Class B shares, to the
extent any dividends are paid, will be calculated in the same manner at the same
time on the same day with each class bearing its own distribution expenses and
transfer agency expenses. Accordingly, the higher distribution fee payable by
the Class B Shares, and the higher resulting expense ratio, will cause such
shares to be paid lower per share dividends than those paid on Class A Shares.
However, a Class B shareholder will receive more shares at the time of purchase
than a Class A shareholder investing the same dollar amount because no sales
charge is deducted from the amount invested. Consequently, while the dividend
(per share) will be lower for Class B Shares than Class A Shares, the difference
in total dividends generated by each investment and received by such
shareholders will be less than the per share difference because the investor in
Class B Shares will be purchasing more shares for a given investment amount.
Class A and Class B shareholders of the Fund respectively have a separate
exchange privilege for shares sold with an initial sales charge and shares sold
with a CDSC offered by certain 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.
In determining which class of shares to purchase, investors should consider
whether, during the anticipated life of their investment in the Fund, the
accumulated distribution expenses and deferred sales charges on Class B Shares
would be less than the initial sales charge and accumulated distribution
expenses on Class A Shares purchased at the same time. In this regard, investors
who qualify for significantly reduced sales charges, or expect to maintain their
investment for an extended period of time, might elect the initial sales charge
alternative. However, because an initial sales charge is deducted at the time of
purchase, investors should consider the extent to which any return would
otherwise be realized on the additional funds initially invested under the
deferred alternative and weigh such consideration against the higher per share
return of the Class A Shares afforded by the lower distribution expenses of such
shares. Certain other investors might determine it to be more advantageous to
have all their funds invested initially, although remaining subject to
distribution charges of up to .90% of the average daily net assets allocable to
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 charge and ongoing distribution service fee of Class A
Shares. See "Information About Shares of the Fund Purchase of Shares".
The distribution expenses incurred under separate distribution plans for both
classes of shares in connection with the sale of their respective shares will be
paid, in the case of Class A Shares, from the proceeds of the initial sales
charge and the ongoing Rule 12b-1 distribution services fee and, in the case of
Class B Shares,
2
<PAGE> 4
from the proceeds of the 12b-1 distribution fees and the contingent deferred
sales charge incurred upon redemption of shares within five years of purchase.
Dealers distributing the Fund's shares may receive different compensation for
selling Class A or Class B Shares.
SUMMARY
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THE FUND. The Fund, a Massachusetts business trust, is registered with the
Securities and Exchange Commission 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 federal income taxes as is consistent with
preservation of capital. The Fund seeks to achieve its objective by investing
primarily in municipal bonds which are rated at the time of purchase within the
four highest ratings and municipal notes which are rated at the time of purchase
within the two highest ratings assigned by Moody's Investors Service, Inc.
("Moody's"), Standard & Poor's Corporation ("S&P") or Fitch Investors Service,
Inc. ("Fitch"); municipal bonds and notes which, if unrated, are determined to
be of comparable quality by the Investment Adviser or Sub-Adviser; and municipal
commercial paper rated within the two highest quality ratings (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.
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 investment techniques will be determined by
market conditions.
INVESTMENT ADVISER AND SUB-ADVISER. Transamerica Fund Management Company 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. The Investment Adviser presently manages a broad
range of mutual funds having multiple investment portfolios and representing
aggregate assets of $3 billion. 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" on page 17.) The Fund's
distribution arrangements currently operate under certain provisions previously
approved by appropriate regulatory authorities. The Fund is currently seeking
relief from regulatory authorities, which if granted would permit Class B Shares
to 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.")
RISK FACTORS. Certain investment techniques and various other policies the Fund
may employ such as lending portfolio securities 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 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 A-Tax Exempt Versus Taxable
Yields."
3
<PAGE> 5
FUND EXPENSES
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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 fiscal year ended
December 31, 1993, except as otherwise noted.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
(INITIAL SALES (DEFERRED
CHARGE SALES 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
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees(2)............................................ 0.55% 0.55%
12b-1 Fees(3)................................................. 0.15% 0.90%
Other Expenses................................................ 0.27% 0.27%
Less: Expense Reimbursement(4)................................ (0.12)% (0.12)%
----- -----
Total Operating Expenses(4)................................... 0.85% 1.60%
===== =====
Such Total Without Reimbursement(4)................................ 0.97% 1.72%
</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>
WITH EXPENSE
(I) REIMBURSEMENT NUMBER OF YEARS
--------------- --------------------------
<S> <C> <C> <C> <C>
1 3 5 10
--- --- ---- ----
Class A $56 $73 $ 92 $147
Class B $66 $80 $107 $190
</TABLE>
<TABLE>
<CAPTION>
WITH NO EXPENSE
(II) REIMBURSEMENT NUMBER OF YEARS
--------------- --------------------------
<S> <C> <C> <C> <C>
1 3 5 10
--- --- ---- ----
Class A $57 $77 $ 99 $161
Class B $67 $84 $113 $203
</TABLE>
EXAMPLE B(5): You would pay the following expenses on the same investment in
Example A assuming no redemption:
<TABLE>
<CAPTION>
WITH EXPENSE
(I) REIMBURSEMENT NUMBER OF YEARS
---------------- -------------------------
<S> <C> <C> <C> <C>
1 3 5 10
--- --- --- ----
Class A $56 $73 $92 $147
Class B $16 $50 $87 $190
</TABLE>
<TABLE>
<CAPTION>
WITH NO EXPENSE
(II) REIMBURSEMENT NUMBER OF YEARS
---------------- -------------------------
<S> <C> <C> <C> <C>
1 3 5 10
--- --- --- ----
Class A $57 $77 $99 $161
Class B $17 $54 $93 $203
</TABLE>
(See notes on following page)
4
<PAGE> 6
- ---------------
(1) Class A Shares have reduced initial sales charges for purchases in excess of
$100,000. Purchases of $1 million or more of Class A Shares 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 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) This amount represents the maximum allowable percentage. 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
.70% of the Fund's average net assets until December 31, 1994. See "The Fund
and Its Management -- Expenses."
(5) Expenses in Examples above are estimated 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 OF MORE THAN THE MAXIMUM FRONT-END
SALES CHARGE PERMITTED BY APPLICABLE REGULATORY AUTHORITIES.
5
<PAGE> 7
Financial Highlights
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The following financial highlights of Transamerica Tax-Free Bond Fund for the
three years in the period ended December 31, 1993 and the period January 5, 1990
through December 31, 1990 in the case of Class A Shares and for the two years in
the period 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 A SHARES CLASS B SHARES
------------------------------------------ -------------------
PERIOD YEAR ENDED
YEAR ENDED DECEMBER 31, ENDED DECEMBER 31,
------------------------------ DECEMBER 31, -------------------
1993 1992 1991 1990(1) 1993 1992(2)
------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Per share income and capital
changes for a share
outstanding during each period:
Net asset value, beginning of period....... $10.47 $10.24 $ 9.90 $10.00 $10.47 $10.24
INCOME FROM INVESTMENT OPERATIONS
Net investment income...................... 0.62 0.67 0.69 0.71 0.54 0.59
Net realized and unrealized gain
(loss) on investments.................... 0.93 0.42 0.72 (0.13) 0.93 0.42
------ ------ ------ ------ ------ ------
Total from Investment Operations....... 1.55 1.09 1.41 0.58 1.47 1.01
LESS DISTRIBUTIONS
Dividends from net investment income..... (0.62) (0.68) (0.68) (0.68) (0.54) (0.60)
Distributions from realized gains........ (0.44) (0.18) (0.39) -- (0.44) (0.18)
------ ------ ------ ------ ------ ------
Total Distributions.................... (1.06) (0.86) (1.07) (0.68) (0.98) (0.78)
------ ------ ------ ------ ------ ------
Net asset value, end of period............. $10.96 $10.47 $10.24 $ 9.90 $10.96 $10.47
====== ====== ====== ====== ====== ======
TOTAL RETURN(3)............................ 15.15% 10.97% 14.78% 6.04% 14.30% 10.15%
====== ====== ====== ====== ====== ======
RATIOS AND SUPPLEMENTAL DATA
Ratio of expenses to average net assets.... 0.95% 0.96% 0.98% 1.25% 1.70% 1.73%
Ratio of expense reimbursement to average
net assets............................... (0.17)% (0.30)% (0.38)% (0.85)% (0.17)% (0.30)%
------ ------ ------ ------ ------ ------
Ratio of net expenses to average net
assets................................... 0.78% 0.66% 0.60% 0.40% 1.53% 1.43%
====== ====== ====== ====== ====== ======
Ratio of net investment income to average
net assets............................... 5.57% 6.46% 6.86% 7.09% 4.66% 5.57%
Portfolio turnover......................... 116% 79% 123% 64% 116% 79%
Net Assets, end of period (in thousands)... $136,521 $99,523 $73,393 $45,437 $56,384 $18,272
</TABLE>
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(1) Financial highlights, including total return, are for the period from
January 5, 1990 (date of Fund's initial offering of shares to the public) to
December 31, 1990 and have not been annualized.
(2) Per share information has been calculated using the average number of shares
outstanding.
(3) 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 obtain as high a level of interest income
exempt from federal income taxes as is consistent with preservation of capital.
The Fund's investment objective is fundamental which means it may not be changed
without the approval of the Fund's shareholders. The Fund pursues this objective
by investing primarily in municipal bonds, municipal notes, and municipal
commercial paper the interest on which is exempt from federal income taxes
("Municipal Obligations").
At the time of purchase, municipal bonds must be rated within the four highest
quality ratings and municipal notes rated within the two highest ratings as
assigned by Moody's (Aaa, Aa, A, Baa, MIG-1 and MIG-2), by S&P (AAA, AA, A, BBB,
SP-1 and SP-2), or by Fitch (AAA, AA, A, BBB, FIN-1 and FIN-2),; or, if not
rated, must be of comparable quality as determined by the Investment Adviser or
Sub-Adviser of the Fund. Municipal commercial paper must be rated within the two
highest ratings by Moody's or S&P. As a fundamental policy, at least 80% of the
Fund's total assets will normally be invested in Municipal Obligations. As a
non-fundamental policy, at least 65% of the Fund's total assets will normally be
invested in municipal bonds.
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, and
in the following taxable money market securities: obligations issued or
guaranteed by the U.S. government, its agencies, instrumentalities or
authorities; highly rated corporate debt securities; prime commercial paper;
certificates of deposit of domestic banks with assets of $1 billion or more and
repurchase agreements secured by U.S. government securities. The circumstances
in which the Fund will invest in taxable instruments are (1) pending the
investment or reinvestment of the proceeds of sales of the Fund shares or sales
of its portfolio securities, or (2) to maintain liquidity and avoid the
necessity of liquidating portfolio investments at a disadvantageous time in
order to meet redemption requests. For defensive purposes, the Fund may
temporarily invest more than 20% of the value of its total assets in taxable
money market securities when in the opinion of the Investment Adviser, it is
advisable to do so in light of prevailing market conditions. The Fund will not
be pursuing its objective of obtaining tax-exempt income to the extent it
invests in taxable securities. (See "Investment Practices and Restrictions" for
a further discussion of the Fund's investment policies.)
The ratings given to securities by ratings agencies represent their respective
opinions of the qualities of the securities they undertake to rate and such
ratings are general and not absolute standards of quality. A description of the
ratings is contained in the Appendix B. 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 preser-
7
<PAGE> 9
vation 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 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.
There can be no assurance that the Fund will achieve its investment objective.
CHARACTERISTICS OF MUNICIPAL OBLIGATIONS. Municipal Obligations include debt
obligations issued by or on behalf of states, territories and possessions of the
United States, the District of Columbia and their political subdivisions,
agencies or instrumentalities as more fully described in the Statement of
Additional Information. These obligations consist of Municipal Bonds, Municipal
Notes, and Municipal Commercial Paper the interest on which, in the opinion of
the bond issuer's counsel (not the Fund's counsel), is exempt from federal
income tax.
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 met 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 consid-
8
<PAGE> 10
ered as such for purposes of the Fund's 10% investment restriction on investment
in non-readily marketable securities. The Fund may also invest in Certificates
of Participation (COP's) which provide participation interests in lease
revenues. Each Certificate represents a proportionate interest in or right to
the lease-purchase payment made under municipal lease obligations or installment
sales contracts. Typically, municipal lease obligations are issued by a state or
municipal financing authority to provide funds for the construction of
facilities (e.g., schools, dormitories, office buildings or prisons) or the
acquisition of equipment. The facilities are typically used by the state or
municipality pursuant to a lease with a financing authority. Certain municipal
lease obligations may trade infrequently. Accordingly, COPs will be purchased
and monitored pursuant to analysis by the Adviser and review procedures by the
Board which consider various factors in determining the liquidity risk,
including: frequency of trading; availability of quotations; the numbers of
dealers and their willingness to make markets; the nature of trading activity;
the assurance that liquidity will be maintained; the credit quality of COPs and
the creditworthiness of the issuing municipality; and the essentiality to the
muncipality of the property covered by the lease. COPs will not be considered
illiquid for purposes of the Funds' 10% limitation on illiquid securities
provided the Investment Adviser determines that there is a readily available
market for such securities. See "Investment Policies -- Participation Interests"
in the Statement of Additional Information.
GENERAL INFORMATION. The two principal classifications of Municipal Obligations
are "general obligation" and "revenue" bonds. General obligation bonds are
secured by the issuer's pledge of its faith, credit and taxing power for the
payment of principal and interest. Revenue bonds 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
bonds 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.
While 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 issued after August 7, 1986, while still tax-exempt, will
constitute a preference item for taxpayers in determining their alternative
minimum tax. 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
in normal circumstances no more than 20% of its investments will be made in such
private activity bonds. The Code also imposes certain limitations and
restrictions on the use of tax-exempt bond financing for non-government business
activities, such as industrial development bonds, and to the extent interest on
such bonds is not tax-exempt they will not be purchased by the Fund.
The values of outstanding Municipal Obligations will vary as a result of
changing evaluations of the
9
<PAGE> 11
ability of their issuers to meet the interest and principal payments. Such
values will also change in response to changes in the interest rates payable on
new issues of such obligations. Should such interest rates rise, the values of
outstanding obligations, including those held in the Fund's portfolio, will
decline and (if purchased at par value) they would sell at a discount. If such
interest rates fall, the values of outstanding obligations will increase and (if
purchased at par value) they would sell at a premium. Changes in the value of
Municipal Obligations held in the Fund's portfolio arising from these or other
factors will cause changes in the net asset value per share of the Fund.
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. 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 the municipal obligations
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 turnover 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 for recent years are shown in the section
"Financial Highlights."
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 Practices,
Techniques and
Restrictions
- ------------------------------------------------------
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
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<PAGE> 12
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 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% 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 AND FORWARD COMMITMENT SECURITIES. The Fund may purchase securities
on a "when-issued" basis and may purchase or sell securities on a "forward
commitment" basis in order to hedge against anticipated changes in interest
rates and prices. When such transactions are negotiated, the price, which is
generally expressed in yield terms, is fixed at the time the commitment is made,
but delivery and payment for the securities take place at a later date.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the Fund enters into when-issued and forward commitments
only with the intention of actually receiving or delivering the securities, as
the case may be. If the Fund, however, chooses to dispose of the right to
acquire a when-issued security prior to its acquisition or dispose of its right
to deliver or receive against a forward commitment, it can incur a gain or loss.
At the time the Fund enters into a transaction on a when-issued or forward
commitment basis, a segregated account consisting of cash or liquid debt
securities equal to the value of the when-issued or forward commitment will be
established at the Fund's Custodian and will be marked to the market daily.
Prior to delivery of a security purchased on a when-issued basis, no interest
accrues to the Fund and the value of the security may fluctuate.
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 portfolio 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
11
<PAGE> 13
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 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
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<PAGE> 14
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, 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 or high grade municipal
securities (or any combination thereof) 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 are provided 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 among 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. 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
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<PAGE> 15
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 which is a wholly owned
subsidiary of Transamerica Corporation ("Transamerica"), one of the nation's
largest and most respected financial services organization with approximately
$36 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 a broad range of 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. Total assets under management of
the Investment Adviser are approximately $3 billion.
For the fiscal year ended December 31, 1993, total advisory fees paid by the
Fund amounted to .55% of the average daily net assets of the Fund. However,
pursuant to a voluntary expense assumption and fee waiver by the Investment
Adviser, a portion of this fee was waived.
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
the fiscal year ended December 31, 1993, administrative service fees paid by the
Fund amounted to .06% of the average daily 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
single 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 which assets, including those managed
on behalf of registered investment companies, include approximately $2.5 billion
being invested in municipal obligations.
DISTRIBUTOR AND DISTRIBUTION PLANS. Transamerica Fund Distributors, Inc. (the
"Distributor"), a wholly owned subsidiary of the Investment Adviser, is the
principal underwriter of shares of the Fund.
Under the terms of the Distribution Plan 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 April 15, 1993,
the Board of Trustees 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
14
<PAGE> 16
collectively as the "Plans". The Class A Plan permits 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 permits payments to be made by the Fund at an annual rate
of up to .90% of the Fund's average daily net assets attributable to Class B
Shares. Amounts paid by the Fund under the Class A Plan are allocated to Class A
Shares, and amounts paid under the 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 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 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 the 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 Fund 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 Class B average daily net assets 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 the 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 Fund 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
15
<PAGE> 17
computed at the annual rate of 1% over the prevailing prime rate of interest. At
times when all outstanding commission payment charges and related carrying
charges have been paid to the Distributor, no Distribution Fees are payable by
the Fund and the Fund (rather than the Distributor) would be entitled to receive
contingent deferred sales charges imposed on redemptions of Class B Shares. The
current NASD regulations relating to maximum sales charges assessed by mutual
funds (such as the Fund in respect of its Class B Shares) also limit the
aggregate amount of asset based charges the Fund may pay to 6.25% of new sales
plus interest. Commission payment charges and carrying charges may be adjusted
on exchanges of Fund shares in accordance with procedures adopted by the Board
of Trustees, including a majority of the 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 exchange) by the amount of the commission
payment charges and carrying charges (or a portion of such charges) attributable
to the shares being exchanged.
Although no change in the maximum annual percentage of asset based sales charges
for the Amended Class B Plan resulted from the increase in the commission
payment charge as described above, such increase (as an expense accrued by the
Fund and allocable to Class B Shares beginning June 30, 1993) effectively
prolongs the period in which all outstanding distribution fees are paid by the
Fund in respect of Class B Shares.
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 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 attributable to the Class B Shares and reduce the Class B net
assets of the Fund. 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
Class B net assets of the Fund 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 and Amended Class B Plan, unpaid
commission charges (net of contingent deferred sales charges received by the
Distributor) and carrying charges as of December 31, 1993 were $2,061,067 (3.66%
of the Fund's Class B net assets at such 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, 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 the 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 Class A and
Amended Class B Plans do
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<PAGE> 18
not prohibit the Distributor or 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 net assets of each Class.)
Payments made by the Fund under the Class A Plan and Amended Class B Plans may
be used to pay fees to, or as reimbursement for certain services provided by,
banks and other depository institutions. Although the Glass-Steagall Act limits
the ability of banks and other depository institutions to act as underwriters or
distributors of securities, the Fund does not believe these limitations would
prohibit such depository institutions from providing such services or entering
into compensation arrangements with the Distributor as described under "Purchase
of Shares". In addition, state securities laws may differ from the
interpretation of federal law, and depository institutions selling shares of the
Fund may be required to register as dealers under state laws. In approving the
Plans, the Board of Trustees, including a majority of the Rule 12b-1 Trustees,
received and considered all pertinent information and determined that there was
a reasonable likelihood that the Amended 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 Amended Plan 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 may be terminated at any time by the Rule 12b-1 Trustees or by
vote of shareholders.
In order to limit the higher ongoing costs associated with an investment in
Class B Shares, the Fund is currently seeking relief from applicable regulatory
authorities which, if granted, would permit the implementation of arrangements
under which Class B Shares would automatically convert into Class A Shares (or
another class of shares of the Fund that does not pay Distribution Fees) after a
specified period of years following the initial purchase.
For the fiscal year ended December 31, 1993, payments made by the Fund under the
Former Class B Plan and Amended Class B Plan, amounted to 0.88% of its Class B
average daily net assets. In addition, for the fiscal year ended December 31,
1993 the Distributor received contingent deferred sales charges from redemption
of shares of the Fund in an equal amount (on an annual basis) equal to 0.15% of
the Fund's Class B average daily net assets. For the fiscal year ended December
31, 1993, payments made by the Fund under the Class A Plan amounted to 0.13% of
its Class A average daily net assets.
During the period January 10, 1994 through February 15, 1994, the Distributor
made, in addition to the 4.00% commission, payments, from its own resources, to
authorized securities dealers at the rate of 1% of the purchase price of all
sales of Class B Shares during such period.
EXPENSES. 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. Effective January 1, 1994 the Investment Adviser, in
order to enhance the yield of the Fund, voluntarily agreed to waive fees and
assume expenses of the Fund in order to limit all normal operating expenses of
the Fund (except 12b-1 expenses as described below) to .70% of the Fund's
average daily net assets on an annual basis until December 31, 1994. The
Investment Adviser reserves the right to terminate or revise this policy by
giving prior notice to shareholders. In the event the policy is terminated or
expires without a continuance and to the extent the Fund's expense ratio is
increased, such a change would have the effect of lowering yield to investors.
Expenses exclude 12b-1 distribution expenses for each class of
17
<PAGE> 19
shares, interest, taxes, expenses of withholding taxes, brokerage commissions
and extraordinary expenses. Total expenses paid by the Fund for fiscal year
ended December 31, 1993 amounted to .78% of the Fund's Class A average daily net
assets and 1.53% of the Fund's Class B average daily net assets. Without fee
waiver and expense assumption by the Investment Adviser, total expenses would
have been .95% of Class A average net assets and 1.70% of Class B average net
assets.
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 "Transfer Agent"), for shares purchased directly, or 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 if 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 post
office address shown on the back page of this Prospectus or, if delivered by
express mail, the street address:
Transamerica Funds Shareholder Services, One American Express Plaza, Providence,
Rhode Island 02903.
18
<PAGE> 20
The initial purchase must be at least $1,000 with subsequent investments of no
less than $50. Certificates for shares will not be issued unless requested by
the shareholder in writing and then only for full shares.
The Distributor, at its expense, may provide additional promotional incentives
or payments to dealers that sell shares of the Fund. In some instances, these
incentives or payments may be offered only to certain dealers who have sold or
may sell significant amounts of shares of the Fund or other Transamerica mutual
funds.
The Fund issues two classes of shares: Class A Shares are sold to investors
choosing the initial sales charge alternative and Class B Shares are sold to
investors choosing the deferred sales charge alternative. The two classes of
shares represent an interest in the same portfolio of investments of the Fund
and have the same rights, except that each class bears the separate expenses of
its Rule 12b-1 distribution plan and has exclusive voting rights with respect to
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.
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 Company
(BSDT)
ABA Routing Number: 011001234
Account Number: 159565
*Except during such times or holidays when BSDT is not open for business.
The Fund's Board of Trustees reserves the right to change or waive the minimum
investment requirements and to reject any order for purchase of shares
(including FedWire purchases) when in its judgement such rejection is in the
Fund's best interest.
ALTERNATIVE PURCHASE PLAN. The alternative purchase plan of the Fund permits
investors to choose the method of purchasing shares that is most beneficial,
given the amount of the purchase, the length of time the investor expects to
hold the shares and other relevant circumstances. Investors should determine
which method of purchase best suits their individual circumstances, i.e.,
whether it is more advantageous to incur an initial sales charge or to have the
entire purchase price invested in the Fund with the investment thereafter being
subject to a contingent deferred sales charge.
As an illustration, investors who qualify for a reduced sales charge might
elect the initial sales charge alternative because a similar sales charge
reduction is not available for purchases under the deferred sales charge
alternative. However, because the initial sales charge is deducted at the time
of
19
<PAGE> 21
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. The Distributor intends to
reject any order for a purchase of $1,000,000 or more of Class B Shares (as
noted below, a purchase of Class A Shares in an amount of $1 million or more is
not subject to a sales charge).
Other investors might determine that it is more advantageous to have all of
their funds invested initially, although they are subject to a distribution fee
of .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 seven
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
seven years, the investor should consider purchasing Class A Shares. This
example takes into account the time value of money, but does not take into
account fluctuations in net asset value or the effect of the return on the
investment over this period of time.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES. The public offering price of
Class A shares of the Fund is the current net asset value per share (next
computed after receipt of an order by the Fund's Transfer Agent, 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
---------------------
NET AMOUNT OFFERING DEALER
AMOUNT OF PURCHASE INVESTED PRICE DISCOUNT
----------------- ---------- -------- --------
<S> <C> <C> <C>
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...... 0.00% 0.00% 0.00%*
</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
20
<PAGE> 22
(i) distributions to participants or beneficiaries of certain qualified
retirement plans, and returns of excess contributions made to these plans, and
(ii) involuntary redemption of shares if the aggregate net asset value of shares
held in the account is less than the required minimum. In determining whether a
CDSC is payable on any redemption, the Fund will first redeem shares not subject
to any charge. Although any CDSC shares being exchanged are not subject to any
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
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 ("other Transamerica
funds"), 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, (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,
(b) employees of financial institutions which are engaged either directly by
means of sales agreements with the Distributor or indirectly by separate
arrangements with a broker/dealer in the sale of the Fund's Class A Shares, and
(c) institutional clients of certain consulting firms) and (3) 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 charges at the time of redemption. In addition, sales charges
do not apply to Class A Shares of the Fund purchased in accounts as to which a
broker/dealer or investment adviser charges an account management fee, provided
the broker/dealer or investment adviser has a Fee Based Program Agreement with
the Distributor. See the Statement of Additional Information, "Purchase of
Shares -- Purchase at Net Asset Value" for a more complete description of
investors eligible to purchase shares at net asset value. To be eligible to
purchase shares of the Fund without the imposition of sales charge as described
above, the investor or the investor's broker must establish such eligibility at
the time shares are purchased by advising the Distributor.
21
<PAGE> 23
DEFERRED SALES CHARGE ALTERNATIVE -- CLASS B SHARES. The offering price of Class
B Shares for investors choosing the deferred sales charge alternative is the net
asset value per share next determined following receipt of an order by the
Transfer Agent, 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 in 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 member firm
of NASD or by a member firm of a
22
<PAGE> 24
domestic stock exchange or any other "eligible guarantor institution" as defined
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 "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 FedWire redemption may be made by wire
communication, telephone or letter provided that the shareholder has selected
this option in the Account Application. Proceeds of shares redeemed at the net
asset value next determined after receipt of request are transmitted the
following business day by wire to the shareholder's bank account designated in
the Account Application form (bank must be a member of the Federal Reserve
System). Delivery of the proceeds of a wire redemption request of $250,000 or
more may be delayed by the Fund for up to seven days if the Investment Adviser
deems it appropriate under the then current market conditions. The Fund cannot
be responsible for the efficiency of the federal wire system or the
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 be required to bear
transaction costs to dispose of such securities distributed in kind.
23
<PAGE> 25
CLASS B SHARES -- CONTINGENT DEFERRED SALES CHARGE. A contingent deferred sales
charge is imposed on all redemptions of Class B Shares after the following
exempt dollar amounts have been subtracted.
(1) the value at the time of purchase of all shares in the account purchased
more than six years (from date of purchase) prior to the redemption;
(2) the value at the time of reinvestment of all shares in the account acquired
through reinvestment of dividends or capital gains distributions; and
(3) the net increase, if any, of the value of all shares in the account over the
purchase price of such shares.
Redemptions are processed in 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 REDEMPTION DEFERRED 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, Trans-
america Corporation. The contingent deferred sales charge will also be waived
(a) in the event of the
24
<PAGE> 26
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 certain deferred
compensation retirement plans. In addition, no contingent deferred sales charge
will be imposed where shares are redeemed in connection with a merger or
reorganization of the Fund into another investment company which imposes a
contingent deferred sales charge and the investor receives shares of the other
investment company in the transaction. In such cases any applicable contingent
deferred sales charge will be imposed when an investor redeems shares acquired
in such a transaction. In addition, the Fund will waive the CDSC on redemptions
made (1) by shareholders (including retirement plan account holders) having
accounts as Systematic Withdrawal Plans (SWP) with payments of an annual amount
less than or equal to 12% of the value of the account determined at the time of
SWP authorization (subject to subsequent calendar year end adjustments) and
available on a monthly, quarterly, semi-annual or yearly basis; and (2) as
distributions from employer sponsored retirement plans in connection with the
participant's separation of service at age 55 or over from his/her employer.
(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 Trans-
america funds which are subject contingent deferred sales charges (collectively
other "CDSC Shares"). Proceeds would be reinstated at the next determined net
asset value of the Class B Shares of the Fund or the applicable other CDSC
Shares after a reinstatement request and payment are received at the office of
the Transfer Agent. The contingent deferred sales charge will not be applicable
to Class B Shares acquired in a reinstatement, although it will be assessed in
connection with the initial redemption or repurchase. If a loss was realized on
the redemption or repurchase of Fund Class B Shares and reinstatement occurs
within 30 days, the transaction may be deemed a "wash sale", resulting in
non-recognition of such loss for federal income tax purposes. Investors are
advised to consult their tax advisers as to all possible tax consequences
related to the exercise of the reinstatement privilege. This privilege may be
exercised only once as to
25
<PAGE> 27
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 the following services and privileges: (1)
Reinvestment of Dividends and Distributions at net asset value; (2) Automatic
Investment Plan, (3) Systematic Withdrawal Plan (4) Exchange Privilege; 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
except Transamerica Government Income Trust and Transamerica Intermediate
Government Trust (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-
26
<PAGE> 28
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. See "Telephone Privileges" for important information about
transactions by telephone. Telephone requests may be made by contacting the Fund
at 1-800-343-6840.
AUTOMATED DOLLAR COST AVERAGING PROGRAM. The Fund offers its shareholders the
option of participating in the Automated Dollar Cost Averaging Program (the
"Program") which provides for automatic monthly "exchanges" from Transamerica
U.S. Government Cash Reserve and/or Transamerica Cash Reserve, Inc. (for Class A
Shares) and Transamerica Special Money Market Fund (for Class B Shares) into
their accounts in the Fund and/or any other mutual funds which are advised by
Transamerica Fund Management Company and whose shares are not subject to a 2
year 1% contingent deferred sales charge.
To be eligible for participation, at least $5,000 must be initially present in
the shareholder's money market account ($20,000 in the case of U.S. Government
Cash Reserve). Further information, including other terms and conditions, is
found in the Statement of Additional Information which is available, along with
the application form for the Program, from the Fund by calling Investor Services
at 1-800-343-6840. Note that automated dollar cost averaging methods do not
assure a profit and do not protect against loss in declining markets. You should
consult your broker or financial adviser to determine whether this Program is
suitable for your investment needs. There is no service fee for participating in
the Program. However, the Fund or the Distributor reserves the right to impose
such a fee.
Telephone Privileges
- ------------------------------------------------------
Neither the Fund, Transfer Agent or the Investment Adviser will be responsible
for the authenticity of telephone instructions. Shareholders should be aware
that transactions authorized by telephone instructions reasonably 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.
Telephone Exchange Privilege, Telephone Redemption Privilege and Fed Wire
Redemption Privilege may be selected in the Fund's account application. The
Telephone Redemption Privilege and Fed Wire Redemption Privilege 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);
27
<PAGE> 29
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; and
4. Mailing written confirmation (statements) of each transaction on the
following business day to the registration address and the broker/dealer of
record.
Dividends, Distributions
and Tax Status
- ------------------------------------------------------
DIVIDENDS AND CAPITAL GAINS. The Fund declares dividends daily and pays
dividends monthly which are 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 amount of a class's
distributions may vary from time to time depending upon market conditions, the
composition of the Fund's portfolio and expenses borne by the Fund, or borne
separately by that class. The per share dividends on Class B Shares will be
lower than the per share dividend on 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. 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.
Distribution of net tax-exempt interest income may be treated by shareholders
for federal income tax purposes as interest excludable from their gross income.
Any distributions of long-term capital gains are taxable as such to the
shareholder. Any distribution 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.
Interest on indebtedness incurred or continued by a shareholder to purchase or
carry shares of the Fund is not deductible. Shareholders will normally be
subject to federal income tax on dividends and distributions, if any, paid from
taxable securities.
28
<PAGE> 30
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 as in effect as of the date of
this Prospectus. Distributions from investment income and capital gains, may be
subject to other state and local tax laws. For example, distributions
attributable to capital gains derived from the disposition of obligations of a
given state or its political subdivision may be exempt from income taxes in that
state.
EACH SHAREHOLDER IS ADVISED TO CONSULT HIS/HER TAX ADVISER CONCERNING THE EFFECT
OF OWNERSHIP OF SHARES OF THE FUND.
Additional Information
- ------------------------------------------------------
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 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 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
29
<PAGE> 31
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 in various
periodicals. The Statement of Additional Information sets forth under
"Performance Information" a list of periodicals, indexes, averages etc. which
the Fund may use in its advertisements. Past performance, including rankings,
ratings etc., is no guarantee of future results.
ORGANIZATION OF THE FUND. The Fund was organized as a Massachusetts business
trust under the laws of the Commonwealth of Massachusetts on November 13, 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 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. Presently only one series of shares
representing interests in the Fund is authorized. 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, Inc., One American Express Plaza, Providence,
Rhode Island 02903.
INDEPENDENT AUDITORS. Ernst & Young, One Houston Center, 1221 McKinney, Suite
2400, Houston, Texas 77010, has been selected as the independent auditors of the
Fund.
CUSTODIAN. Texas Commerce Bank National Association, P.O. Box 2558, Houston,
Texas 77252 is the Custodian for the Fund. Cash balances with the Custodian in
excess of $100,000 are unprotected by Federal Deposit Insurance Corporation.
Such uninsured balances may at times be substantial.
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.
30
<PAGE> 32
APPENDIX A
TAX-EXEMPT VS. TAXABLE YIELDS
The table below shows the effect of the tax status of Municipal Obligations on
the yield received by their holders under the regular federal income tax laws
that apply to 1993. It gives the approximate yield a taxable security must earn
at various income brackets to produce after-tax yields.
TAX-FREE YIELDS 1993 TAX TABLE
TAXABLE INCOME
<TABLE>
<CAPTION>
SINGLE RETURN JOINT RETURN MARGINAL TAX-EXEMPT YIELD
- ----------------- ------------------ INCOME -----------------------------------------------------------------------
(TAXABLE INCOME) TAX RATE 4.50% 5.00% 5.50% 6.00% 6.50% 7.00%
- ---------------------------------------- -------- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0 - 22,100 $ 0 - 36,900 15.00% 5.29% 5.88% 6.47% 7.06% 7.65% 8.24%
$ 22,101 - 53,500 $ 36,901 - 89,150 28.00% 6.25% 6.94% 7.64% 8.33% 9.03% 9.72%
$ 53,501 - 115,000 $ 89,151 - 140,000 31.00% 6.52% 7.25% 7.97% 8.70% 9.42% 10.14%
$115,000 - 250,000 $140,001 - 250,000 36.00% 7.03% 7.81% 8.59% 9.38% 10.16% 10.94%
$250,001 - and up $250,001 - and up 39.60% 7.45% 8.28% 9.11% 9.93% 10.76% 11.59%
<CAPTION>
TAX-EXEMPT
SINGLE RETURN JOINT RETURN YIELD
- ----------------- ------------------ ------------------
(TAXABLE INCOME) 7.50% 8.00%
- ---------------------------------------- ------ -------
<S> <C> <C> <C>
$ 0 - 22,100 $ 0 - 36,900 8.82% 9.41%
$ 22,101 - 53,500 $ 36,901 - 89,150 10.42% 11.11%
$ 53,501 - 115,000 $ 89,151 - 140,000 10.87% 11.59%
$115,000 - 250,000 $140,001 - 250,000 11.72% 12.50%
$250,001 - and up $250,001 - and up 12.42% 13.25%
</TABLE>
This table is for illustrative purposes only and is not intended to imply or
guarantee any particular yield from the Transamerica Tax Free Bond Fund. While
it is expected that a substantial portion of the interest income distributed to
the Fund's shareholders will be exempt from federal income taxes, portions of
such distributions from time to time may be subject to federal income taxes.
A-1
<PAGE> 33
APPENDIX B
CORPORATE AND TAX-EXEMPT BOND RATINGS
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.
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 to
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.
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
B-1
<PAGE> 34
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
MOODY'S -- MIG-1 AND MIG-2. Notes rated MIG-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 MIG-2 are judged to be of high quality with
ample margins of protection, through not as large as MIG-1.
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.
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
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.
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."
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.
B-2
<PAGE> 35
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................... 3
Financial Highlights.................. 6
Investment Objective and Policies..... 7
Investment Practices, Techniques and
Restrictions........................ 10
The Fund and Its Management........... 13
Information About Shares of The
Fund................................ 18
Net Asset Value..................... 18
Purchase of Shares.................. 18
Redemption and Repurchase of
Shares........................... 22
Shareholder Services.................. 26
Telephone Privileges.................. 27
Dividends, Distributions and Tax
Status.............................. 28
Additional Information................ 29
Appendix A............................ A-1
Appendix B............................ B-1
</TABLE>
INVESTMENT MANAGER
------------------------
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
INVESTOR SERVICES
--------------------
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.
2401
TRANSAMERICA TAX-FREE
BOND FUND
PROSPECTUS
April 15, 1994
<PAGE> 36
TRANSAMERICA TAX-FREE BOND 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 Tax-Free Bond
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> 37
- --------------------------------------------------------------------------------
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> 38
- --------------------------------------------------------------------------------
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:
Fund ___________________________________ Account Number ______________________
Fund ___________________________________ Account Number ______________________
Fund ___________________________________ Account Number ______________________
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> 39
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> 40
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> 41
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> 42
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> 43
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
__________ __________________________________________________________________
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.
