General Tax Information

As with most financial products, mutual funds involve taxes. Taxable events may result from:

• dividend and/or capital gain distributions received while you own shares.
• selling (redeeming or exchanging) shares.

Further, intangibles tax may be imposed upon investors in certain states on the value of shares owned.

The information below is intended to offer a broad overview on how taxes are involved with mutual funds. Transamerica Funds does not provide tax advice. You should consult with and rely on a tax professional if you need tax advice.

There is also additional information on the Internal Revenue Service, IRS, website.

For specific information regarding year-end tax reporting and IRS forms Transamerica Funds may send to you, click here: Year-End Tax Reporting for Transamerica Funds Shareholders.

Dividend and Capital Gain Distributions

When a mutual fund earns income for shareholders, it may also create tax liabilities. The IRS requires funds to pay out all or virtually all net income and net capital gains, if any, to shareholders. Click on the Transamerica Funds Dividend & Capital Gain Distribution Schedule to see when Transamerica Funds pay out dividends and capital gains.

Click here for Transamerica Funds Year-end Distribution Rate Information.

Important information about distributions:

• Distributions made to regular or "taxable" accounts are generally taxable when distributed (either as cash or as reinvested shares. One exception is that certain distributions declared in one year and paid in January of the next year are taxed in the first year.
• For tax-deferred accounts such as IRAs, distributions are not taxable when credited, but are deferred. In other words, the distributions are taxable when withdrawn, as are most other withdrawals.
• Keep in mind that capital gain distributions made by tax-exempt funds are taxable. It's only the funds’ income dividends that generally are tax-free income.

Recently enacted tax legislation generally provides for a maximum tax rate for individual taxpayers of 15% on long-term capital gains from sales on or after May 6, 2003 and from certain qualifying dividends on corporate stock. These rate reductions do not apply to corporate taxpayers. The following are guidelines for how certain distributions by the Funds are generally taxed to individual taxpayers:

• Distributions of earnings from qualifying dividends and qualifying long-term capital gains will be taxed at a maximum rate of 15%.
• Note that distributions of earnings from dividends paid by certain "qualified foreign corporations" can also qualify for the lower tax rates on qualifying dividends.
• A shareholder will also have to satisfy a more than 60-day holding period with respect to any distributions of qualifying dividends in order to obtain the benefit of the lower tax rate.
• Distributions of earnings from non-qualifying dividends interest income, other types of ordinary income and short-term capital gains will be taxed at the ordinary income tax rate applicable to the taxpayer.
• Distributions of long-term gains from sales by the Funds before May 6, 2003 will be taxed at the maximum rate of 20%.

How fund earnings are distributed to shareholders

Ordinary income dividend distributions
Mutual funds that invest in interest-bearing bonds or certain types of dividend-paying stocks pass the resulting income to their shareholders after deducting fund expenses. For tax-exempt funds, generally speaking, most if not all income dividends are exempt from federal income tax. It is possible that a tax-exempt fund could earn taxable interest income, in which case it would be distributed to shareholders as "taxable" income dividends.

Capital gain distributions
When mutual funds sell securities for a profit (or loss), the fund realizes a capital gain (or loss). Securities sold that the fund owned for less than one year result in "short-term" gains or losses. Securities sold that the fund owned for one year or longer generally result in "long-term" gains or losses. Funds offset any gains with any losses during its tax year and if any net gains remain, they are distributed to shareholders.

Distributions of "Qualified Dividends"
Dividend distributions derived from certain qualifying dividends on corporate stock are subject to a maximum tax rate for individual taxpayers of 15%. This rate reduction does not apply to corporate taxpayers. Note that distributions of earnings from dividends paid by certain "qualified foreign corporations" can also qualify for the lower tax rates on qualifying dividends. A shareholder will also have to satisfy a more than 60-day holding period with respect to any distributions of qualifying dividends in order to obtain the benefit of the lower tax rate.

Fund vs. IRS Terminology on Mutual Fund Distributions (Taxable Accounts)

* As a result of funds selling investments at a profit and paying these profits to shareholders; these are taxable even if paid by 'tax-exempt' funds.
** This represents a return of your principal - not money from fund earnings. Such a distribution reduces your cost basis since part of your investment was returned to you. Funds rarely make such a distribution.

Income and Capital Gain Distributions Example
John Parker owns 1,000 shares of Transamerica Science & Technology Class A in a regular (taxable) account. John has all dividend and capital gains reinvested. During the year, the fund made the following distributions:

Income dividends derived from interest: $1.00 per share or $1,000 ($1.00 X 1,000 shares)
Income dividends derived from qualified dividends: $2.00 per share or $2,000
Short-term capital gains: $1.50 per share, or $1,500
Long-term capital gains: $3.00 per share, or $3,000

John will receive a Form 1099-DIV from Transamerica Funds showing "ordinary dividends" (comprised of any ordinary income dividends and short-term capital gains) of $2,500. These distribution amounts are grouped together because they are taxed at the same rate, as ordinary income, just as wages or other regular income. The $2,000 distribution will be reported as "qualified dividends" and will be subject to a maximum rate of 15% for individuals. The $3,000 will be reported as "capital gains" and will be taxed at reduced capital gain rates.

Record Date, Ex-Dividend Date, and Payable Date

There are three dates to keep in mind when it comes to distributions.

• The Record Date is the date (as of close of business) on which a shareholder must own shares in order to receive a declared dividend or capital gain distribution.
• The Ex-Dividend Date ("ex-date") is the date on which the Net Asset Value is reduced by the amount of a distribution, to account for being paid out to shareholders either as cash, or in the form of reinvested shares at the reduced ex-date price.
• The Payable Date is the date that distributions in the form of cash or additional shares are sent to shareholders. This date is often, but not always, several days after the ex-date.

Distributions Effect on Share Price and Account Balance
Distributions are usually a taxable event and they do not increase the value of your account. When distributions are paid, the total distribution per share reduces the fund's Net Asset Value (NAV) per share by the same amount. If you have distributions reinvested on your account, the fund adds shares to your account soon after ex-date. Since the NAV price is lower however (assume no market fluctuation effects on ex-date), your account balance is unchanged from the distribution. If you elected to receive distributions in cash, no shares are added to your account since the money is paid out to you, and your account value would decrease by the amount of cash paid.

To help you understand these points, let's look at two scenarios. In the first, John Parker had elected to receive his distribution in cash and in the second he had chosen to reinvest distributions.

Let's assume:

• John owns 1,000 shares on the record date
• The fund NAV the day before ex-date (Monday) is $22.50 per share
• The fund makes a $2.00 distribution on Tuesday (ex-date)
• There are no market fluctuations on Tuesday so the NAV is affected only by the distribution

Therefore:

• John's account value as of Monday is $22,500 (1,000 shares X $22.50 NAV)
• NAV on Tuesday (ex-date) drops to $20.50 (Assume no market fluctuations on ex-date)

Scenario 1: Receive the distribution in cash
1,000 shares owned x $2.00 per share = $2,000 cash paid to John
No shares are added to John's account
Account value on ex-date = $20,500 (1,000 shares x $20.50 per share)
Total investment value on ex-date = $22,500 ($20,500 account value + $2,000 cash paid)

Scenario 2: Reinvest the distribution, purchasing additional shares
1,000 shares x $2.00 per share = $2,000
$2,000 divided by ex-date price of $20.50 per share = 97.561 shares added to John's account
John now owns 1,097.561 shares
Total investment value on ex-date = $22,500 (1,097.561 shares x $20.50 per share)

Be Careful to Avoid "Buying a Distribution"

For regular (taxable) account investors, you should be aware of the potential of "buying a distribution" by investing near the "record date" of a distribution. The negative outcome is exaggerated if you are investing a large sum of money close to the record date of a fund that is making a relatively large capital gain distribution. Recall that distributions are made evenly across all shares owned on the record date, regardless of how long you've owned them. This is where the potential tax "trap" lies. This occurs when you invest just before or on the record date for a fund's distribution, whereby you end up receiving a portion of your investment back in the form of a taxable distribution without having received potential growth of those shares over time past. Certainly if your new investment is of a lesser amount, a distribution near the time of your purchase may have little impact on your taxes, and some funds may not have any distributions to make late in the year. Consult your investment professional or a tax-advisor regarding your personal circumstances.

Most mutual fund companies make preliminary distribution estimates available a month or so in advance of the distribution, which can be evaluated is to whether you wish to wait to invest after the record date.

Remember this potential "tax trap" applies only to regular or "taxable" accounts; it is not applicable to tax-deferred accounts such as IRAs.

Check our website starting in October each year for ESTIMATED year-end capital gains, if any, for Transamerica funds. We will post actual year-end distributions by the ex-dividend date.

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Redeeming or Exchanging Mutual Fund Shares

Generally, when you redeem (sell) mutual fund shares, you create taxable events. The consequences vary, depending on the type of account you own.

Regular (taxable) accounts
When you redeem (sell) mutual fund shares, you usually realize a taxable capital gain or capital loss. A capital gain results if you sold shares for more than your cost basis (generally what you paid for the shares, including any reinvested dividends). Likewise a capital loss results if you sold shares for less than your cost basis. If your proceeds equal your cost basis, you "break even"—no gain or loss. Generally, the cost basis of your shares is what you paid for your shares, either as a one time purchase or over time through an automatic investment plan.

If the shares you sold were owned for one year or less, the resulting gain or loss is considered "short-term." If the shares you sold were owned for longer than one year, the gain or loss is considered "long-term." Under current law, the maximum tax rate for individuals on long-term capital gain is 15%.

When you exchange out of a fund and into another, the IRS views this as a sale of one investment, and the purchase of another. If you had such a transaction during the year, Transamerica Funds will report this to you and the IRS on Form 1099-B. Redemptions and exchanges from money market accounts, however, are not reported on Form 1099-B, because your proceeds and cost basis are usually the same (no gain or loss).

If you receive an exempt-interest dividend on shares that you held for six months or less, any loss on the sale, redemption, or exchange of the shares will be disallowed to the extent of such exempt-interest dividend amount.

Qualified/retirement plan accounts
When you redeem shares and then withdraw the redemption proceeds from a qualified plan or tax deferred account such as a Traditional IRA, you generally create a taxable event. Typically, every dollar withdrawn from the account is taxable income to you.

Further, should you withdraw money before the "standard" retirement age of 59 1/2, you generally are subject to an additional 10% penalty tax on top of regular income tax owed. There are some IRS rule exceptions that allow premature withdrawals, but they are very specific and fairly restrictive. This is why you should try to avoid withdrawing money from qualified plan accounts until you're ready to retire and meet the age requirements. It's an "expensive" way of getting money. Consider short-term loans or other sources of money before tapping your retirement account early.

Distributions from qualified plans are reported to you and the IRS on Form 1099-R.

Withholding Taxes

As with all mutual funds, a fund may be required to withhold U.S. federal income tax at the fourth lowest tax rate applicable to unmarried individuals (currently 28%) of all taxable distributions payable to you if you fail to provide the fund with your correct taxpayer identification number or to make required certifications, or if you have been notified by the IRS that you are subject to backup withholding. Backup withholding is not an additional tax, but is a method in which the IRS ensures that it will collect taxes otherwise due. Any amounts withheld may be credited against your U.S. federal income tax liability.

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