AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 23, 2004
FILE NO. 2-10827
FILE NO. 811-568
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 89 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 89 [X]
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THE VALUE LINE FUND, INC.
(Exact Name of Registrant as Specified in Charter)
220 EAST 42ND STREET
NEW YORK, NEW YORK 10017-5891
(Address of Principal Executive Offices)(Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 907-1500
DAVID T. HENIGSON
VALUE LINE, INC.
220 EAST 42ND STREET
NEW YORK, NEW YORK 10017-5891
(Name and Address of Agent for Service)
COPY TO:
PETER D. LOWENSTEIN
TWO SOUND VIEW DRIVE, SUITE 100
GREENWICH, CT 06830
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE
BOX)
[ ] IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (b)
[X] ON MAY 1, 2004 PURSUANT TO PARAGRAPH (b)
[ ] 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)(1)
[ ] 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)(2)
[ ] ON (DATE) PURSUANT TO PARAGRAPH (a)(1)
[ ] ON (DATE) PURSUANT TO PARAGRAPH (a)(2) OF RULE 485
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The Value Line Fund, Inc.
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PROSPECTUS
MAY 1, 2004
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[VALUE LINE LOGO OMITTED]
#529910
The Securities and Exchange Commission has not approved or disapproved
these securities or passed upon the accuracy or adequacy of this prospectus,
and any representation to the contrary is a criminal offense.
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TABLE OF CONTENTS
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FUND SUMMARY
What are the Fund's goals? Page 2
What are the Fund's main investment strategies? Page 2
What are the main risks of investing in the Fund? Page 2
How has the Fund performed? Page 3
What are the Fund's fees and expenses? Page 5
HOW WE MANAGE THE FUND
Our principal investment strategies Page 6
The principal risks of investing in the Fund Page 7
WHO MANAGES THE FUND
Investment Adviser Page 8
Management fees Page 8
Portfolio management Page 8
ABOUT YOUR ACCOUNT
How to buy shares Page 9
How to sell shares Page 11
Special services Page 13
Dividends, distributions and taxes Page 14
FINANCIAL HIGHLIGHTS
Financial Highlights Page 16
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FUND SUMMARY
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WHAT ARE THE FUND'S GOALS?
The Fund primarily seeks long-term growth of capital. Current
income is a secondary objective. Although the Fund will
strive to achieve these goals, there is no assurance that it
will succeed.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
To achieve the Fund's goals, we invest substantially all of
the Fund's net assets in common stocks or securities
convertible into common stock. In selecting securities for
purchase or sale, we rely on the Value Line TimelinessTM
Ranking System, which compares the Adviser's estimate of the
probable market performance of each stock during the next six
to twelve months to that of all of the approximately 1,700
stocks under review and ranks stocks on a scale of 1
(highest) to 5 (lowest). The Fund usually invests in common
stocks of U.S. companies ranked 1 or 2 by the Ranking System
but it may also hold common stocks ranked 3. There are no set
limitations of investments according to a company's size.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Investing in any mutual fund involves risk, including the
risk that you may receive little or no return on your
investment, and that you may lose part or all of the money
you invest. Therefore, before you invest in this Fund you
should carefully evaluate the risks.
The chief risk that you assume when investing in the Fund is
market risk, the possibility that the securities in a certain
market will decline in value because of factors such as
economic conditions. Market risk may affect a single issuer,
industry, sector of the economy or the market as a whole.
The price of Fund shares will increase and decrease according
to changes in the value of the Fund's investments. The Fund
will be affected by changes in stock prices, which have
historically tended to fluctuate more than bond prices.
An investment in the Fund is not a complete investment
program and you should consider it just one part of your
total investment program. For a more complete discussion of
risk, please turn to page 7.
2
HOW HAS THE FUND PERFORMED?
This bar chart and table can help you evaluate the potential
risks of investing in the Fund. We show how returns for the
Fund's shares have varied over the past ten calendar years,
as well as the average annual total returns (before and after
taxes) of these shares for one, five, and ten years. These
returns are compared to the performance of the S&P 500
(Registered Trademark) , a widely quoted, unmanaged index of
stock performance. You should remember that unlike the Fund,
this index is unmanaged and does not include the costs of
buying, selling, and holding the securities. All returns
reflect reinvested dividends. The Fund's past performance
(before and after taxes) is not necessarily an indication of
how it will perform in the future.
TOTAL RETURNS (BEFORE TAXES) AS OF 12/31 EACH YEAR (%)
[GRAPHIC OMITTED]
-4.47 32.12 22.52 21.59 20.25 26.74 -15.35 -12.82 -25.35 16.28
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
BEST QUARTER: Q4 1998 +23.89%
WORST QUARTER: Q3 2001 (16.40%)
3
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31, 2003
1 YEAR 5 YEARS 10 YEARS
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VALUE LINE FUND
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Return before taxes 16.28% --4.08% 6.26%
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Return after taxes on distributions 14.48% --4.94% 4.20%
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Return after taxes on distributions and 12.95% --3.46% 4.60%
sale of Fund shares
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S&P 500 (REFLECTS NO DEDUCTION FOR 28.68% --0.57% 11.07%
FEES, EXPENSES OR TAXES)
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After-tax returns are intended to show the impact of assumed
federal income taxes on an investment in the Fund. The Fund's
"Return after taxes on distributions" shows the effect of
taxable distributions, but assumes that you still hold the
Fund shares at the end of the period and so do not have any
taxable gain or loss on your investment in shares of the
Fund. The Fund's "Return after taxes on distributions and
sale of Fund shares" shows the effect of both taxable
distributions and any taxable gain or loss that would be
realized if you purchased Fund shares at the beginning and
sold at the end of the specified period. "Return after taxes
on distributions and sale of Fund shares" may be greater than
"Return before taxes" because the investor is assumed to be
able to use the capital loss on the sale of Fund shares to
offset other taxable gains.
After-tax returns are calculated using the highest individual
federal income tax rate in effect at the time of each
distribution and assumed sale, but do not include the impact
of state and local taxes. In some cases the return after
taxes may exceed the return before taxes due to an assumed
tax benefit from any losses on a sale of Fund shares at the
end of the measurement period. After-tax returns reflect past
tax effects and are not predictive of future tax effects.
Your actual after-tax returns depend on your own tax
situation and may differ from those shown. After-tax returns
are not relevant to investors who hold their Fund shares in a
tax-deferred account (including a 401(k) or IRA account), or
to investors that are tax-exempt.
4
WHAT ARE THE FUND'S FEES AND EXPENSES?
These tables describe the fees and expenses you pay in
connection with an investment in the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
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MAXIMUM SALES CHARGES (LOAD) IMPOSED ON PURCHASES AS A PERCENTAGE
OF OFFERING PRICE NONE
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MAXIMUM DEFERRED SALES CHARGES (LOAD) AS A PERCENTAGE OF ORIGINAL NONE
PURCHASE PRICE OR REDEMPTION PRICE, WHICHEVER IS LOWER
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MAXIMUM SALES CHARGES (LOAD) IMPOSED ON REINVESTED DIVIDENDS NONE
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REDEMPTION FEE NONE
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EXCHANGE FEE NONE
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ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM THE FUND'S
ASSETS)
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MANAGEMENT FEES 0.67%
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DISTRIBUTION AND SERVICE (12b-1) FEES* 0.25%
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OTHER EXPENSES 0.21%
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TOTAL ANNUAL FUND OPERATING EXPENSES 1.13%
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* Because these fees are paid out of the Fund's assets on an
ongoing basis, over time these fees will increase the cost
of your investment and may cost you more than if you paid
other types of sales charges.
EXAMPLE
This example is intended to help you compare the cost of
investing in the Fund to the cost of investing in other
mutual funds. We show the cumulative amount of Fund expenses
on a hypothetical investment of $10,000 with an annual 5%
return over the time shown assuming that the Fund's operating
expenses remain the same. The expenses indicated for each
period would be the same whether you sold your shares at the
end of each period or continued to hold them. This is an
example only, and your actual costs may be greater or less
than those shown here. Based on these assumptions, your costs
would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
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VALUE LINE FUND $115 $359 $622 $1,375
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5
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HOW WE MANAGE THE FUND
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OUR PRINCIPAL INVESTMENT STRATEGIES
Because of the nature of the Fund, you should consider an
investment in it to be a long-term investment that will best
meet its objectives when held for a number of years. The
following is a description of how the Adviser pursues the
Fund's objectives.
We analyze economic and market conditions, seeking to
identify the market sectors or securities that we think make
the best investments.
In selecting securities for purchase or sale, the Adviser
relies on the Value Line Timeliness(TM) Ranking System, which
has evolved after many years of research and has been used in
substantially its present form since 1965. It is based upon
historical prices and reported earnings, recent earnings and
price momentum and the degree to which the last reported
earnings deviated from estimated earnings, among other
factors.
The Timeliness Rankings are published weekly in the Standard
Edition of The Value Line Investment Survey for approximately
1,700 of the most actively traded stocks in U.S. markets,
including stocks with large, mid and small market
capitalizations. There are only a few stocks of foreign
issuers that are included, and stocks that have traded for
less than two years are not ranked. On a scale of 1 (highest)
to 5 (lowest), the Timeliness Rankings compare an estimate of
the probable market performance of each stock during the
coming six to twelve months to that of all 1,700 stocks under
review. The Timeliness Rankings are updated weekly to reflect
the most recent information.
The Value Line Timeliness Ranking System does not eliminate
market risk, but the Adviser believes that it provides
objective standards for determining expected relative
performance over the next six to twelve months. The Fund
usually invests in U.S. common stocks ranked 1 or 2 but it
may also hold common stocks ranked 3. There are at present
100 stocks ranked 1 and 300 stocks ranked 2. Reliance upon
the Timeliness Ranking System, whenever feasible, is a
fundamental policy of the Fund which may not be changed
without shareholder approval. The utilization of the
Timeliness Ranking System is no assurance that the Fund will
perform similarly to or more favorably than the market in
general over any particular period.
6
TEMPORARY DEFENSIVE POSITION
From time to time in response to adverse market, economic,
political or other conditions, we may invest a portion of the
Fund's net assets in cash or cash equivalents, debt
securities, bonds, or preferred stocks for temporary
defensive purposes. This could help the Fund avoid losses,
but it may have the effect of reducing the Fund's capital
appreciation or income, or both. If this becomes necessary,
the Fund may not achieve its investment objectives.
PORTFOLIO TURNOVER
The Fund has engaged and may continue to engage in active and
frequent trading of portfolio securities in order to take
advantage of better investment opportunities to achieve its
investment objectives. This strategy has resulted in higher
brokerage commissions and other expenses and may negatively
affect the Fund's performance. Portfolio turnover may also
result in capital gain distributions that could increase your
income tax liability. See "Financial Highlights" for the
Fund's most current portfolio turnover rates.
THE PRINCIPAL RISKS OF INVESTING IN THE FUND
o Because the Fund invests substantially all of its assets in
common stocks, the value of the stocks in its portfolio and
the Fund's share price might decrease in response to the
activities of an individual company or in response to general
market or economic conditions.
o Certain securities may be difficult or impossible to sell at
the time and price that the Fund would like. The Fund may
have to lower the price, sell other securities instead or
forego an investment opportunity. This could have a negative
effect on the Fund's performance.
o The Fund's use of the Value Line Ranking System involves the
risk that the Ranking System may not have the predictive
qualities anticipated by the Adviser or that over certain
periods of time the price of securities not covered by the
Ranking Systems, or lower ranked securities, may appreciate
to a greater extent than those securities in the Fund's
portfolio.
o Please see the Statement of Additional Information for a
further discussion of risks. Information on the Fund's recent
portfolio holdings can be found in the Fund's current annual,
semi-annual or quarterly reports.
7
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WHO MANAGES THE FUND
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The business and affairs of the Fund are managed by the
Fund's officers under the direction of the Fund's Board of
Directors.
INVESTMENT ADVISER
Value Line, Inc., 220 East 42nd Street, New York, NY 10017,
serves as the Fund's investment adviser and manages the
Fund's business affairs. Value Line also acts as investment
adviser to the other Value Line mutual funds and furnishes
investment counseling services to private and institutional
clients, resulting in combined assets under management of
approximately $3 billion.
The Adviser was organized in 1982 and is the successor to
substantially all of the operations of Arnold Bernhard & Co.,
Inc., which with its predecessor has been in business since
1931. Value Line Securities, Inc., the Fund's distributor, is
a subsidiary of the Adviser. Another subsidiary of the
Adviser publishes The Value Line Investment Survey and other
publications.
MANAGEMENT FEES
For managing the Fund and its investments, the Adviser is
paid a yearly fee of 0.70% on the first $100 million of the
Fund's average daily net assets and 0.65% on such additional
assets.
PORTFOLIO MANAGEMENT
A committee of employees of the Adviser is jointly and
primarily responsible for the day-to-day management of the
Fund's portfolio.
8
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ABOUT YOUR ACCOUNT
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HOW TO BUY SHARES
o BY TELEPHONE
Once you have opened an account, you can buy additional
shares by calling 800-243-2729 between 9:00 a.m. and 4:00
p.m. New York time. You must pay for these shares within
three business days of placing your order.
o BY WIRE
If you are making an initial purchase by wire, you must call
us at 800-243-2729 so we can assign you an account number.
Request your U.S. bank with whom you have an account to wire
the amount you want to invest to State Street Bank and Trust
Company, ABA #011000028, attention DDA # 99049868. Include
your name, account number, tax identification number and the
name of the Fund in which you want to invest.
o THROUGH A BROKER-DEALER
You can open an account and buy shares through a
broker-dealer, who may charge a fee for this service.
o BY MAIL
Complete the account application and mail it with your check
payable to BFDS, Agent, to Value Line Funds, c/o Boston
Financial Data Services, Inc., P.O. Box 219729, Kansas City,
MO 64121-9729. If you are making an initial purchase by mail,
you must include a completed account application or an
appropriate retirement plan application if you are opening a
retirement account, with your check. Cash, money orders,
traveler's checks, cashier's checks, bank drafts or third
party checks will not be accepted for either the initial or
any subsequent purchase. All purchases must be made in U.S.
dollars and checks must be drawn on U.S. banks.
o MINIMUM/ADDITIONAL INVESTMENTS
Once you have completed an account application, you can open
an account with an initial investment of $1,000, and make
additional investments at any time for as little as $100. The
price you pay for shares will depend on when we receive your
purchase order. The Fund reserves the right to reject any
purchase order and to reduce or waive the minimum purchase
requirements at any time.
o TIME OF PURCHASE
Your price for Fund shares is the Fund's net asset value per
share (NAV) which is generally calculated as of the close of
regular trading on the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m., Eastern
9
time) every day the Exchange is open for business. The
Exchange is currently closed on New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas
Day and on the preceding Friday or subsequent Monday if any
of those days falls on a Saturday or Sunday, respectively.
Your order will be priced at the next NAV calculated after
your order is accepted by the Fund.
Fund shares may be purchased through various third-party
intermediaries including banks, brokers, financial advisers
and financial supermarkets. When the intermediary is
authorized by the Fund, orders will be priced at the NAV next
computed after receipt of the order by the intermediary.
o DISTRIBUTION PLAN
The Fund has adopted a plan of distribution under rule 12b-1
of the Investment Company Act of 1940. Under the plan, the
Fund is charged a fee at the annual rate of 0.25% of the
Fund's average daily net assets with the proceeds used to
finance the activities of Value Line Securities, Inc., the
Fund's distributor. The plan provides that the distributor
may make payments to securities dealers, banks, financial
institutions and other organizations which provide
distribution and administrative services with respect to the
distribution of the Fund's shares. Such services may include,
among other things, answering investor inquiries regarding
the Fund; processing new shareholder account applications and
redemption transactions; responding to shareholder inquiries;
and such other services as the Fund may request to the extent
permitted by applicable statute, rule or regulation. The plan
also provides that the Adviser may make such payments out of
its advisory fee, its past profits or any other source
available to it. The fees payable to the distributor under
the plan are payable without regard to actual expenses
incurred.
o NET ASSET VALUE
We determine the Fund's NAV as of the close of regular
trading on the Exchange each day the Exchange is open for
business. We calculate NAV by adding the market value of all
the securities and assets in the Fund's portfolio, deducting
all liabilities, and dividing the resulting number by the
number of shares outstanding. The result is the NAV per
share. We price securities for which market prices or
quotations are readily available at their market value. We
price securities for which market valuations are not readily
available at their fair market value as determined under the
direction of the Board of Directors. We price investments
which have a maturity of less than
10
60 days at amortized cost. The amortized cost method of
valuation involves valuing a security at its cost and
accruing any discount or premium over the period until
maturity, regardless of the impact of fluctuating interest
rates on the market value of the security.
o IMPORTANT INFORMATION ABOUT OPENING A NEW ACCOUNT WITH THE
VALUE LINE FUNDS
In furtherance of the national effort to stop the funding of
terrorism and to curtail money laundering, the USA Patriot
Act and other Federal regulations require financial
institutions, including mutual funds, to adopt certain
policies and programs to prevent money laundering activities,
including procedures to verify the identity of all investors
opening new accounts. Accordingly, when completing the Fund's
account application, you will be required to supply the Fund
with certain information for all persons owning or permitted
to act on an account. This information includes name, date of
birth, taxpayer identification number and street address.
Also, as required by law, the Fund employs various
procedures, such as comparing the information you provide
against fraud databases or requesting additional information
or documentation from you, to ensure that the information
supplied by you is correct. Until such verification is made,
the Fund may temporarily limit any share purchases. In
addition, the Fund may limit any share purchases or close
your account if it is unable to verify your identity.
HOW TO SELL SHARES
o BY MAIL
You can redeem your shares (sell them back to the Fund) at
NAV by mail by writing to: Value Line Funds, c/o Boston
Financial Data Services, Inc., P.O. Box 219729, Kansas City,
MO 64121-9729. The request must be signed by all owners of
the account, and you must include a signature guarantee using
the medallion imprint for each owner. Signature guarantees
are also required when redemption proceeds are going to
anyone other than the account holder(s) of record. If you
hold your shares in certificates, you must submit the
certificates properly endorsed with signature guaranteed with
your request to sell the shares. A signature guarantee can be
obtained from most banks or securities dealers, but not from
a notary public. A signature guarantee helps protect against
fraud.
11
We will pay you promptly, normally the next business day, but
no later than seven days after we receive your request to
sell your shares. If you purchased your shares by check, we
will wait until your check has cleared, which can take up to
15 days from the day of purchase, before we send the proceeds
to you.
If your account is held in the name of a corporation, as a
fiduciary or agent, or as surviving joint owner, you may be
required to provide additional documents with your redemption
request.
o THROUGH A BROKER-DEALER
Fund shares may be sold through various third party
intermediaries including banks, brokers, financial advisers
and financial supermarkets, who may charge a fee for this
service. The shares that you buy or sell through brokers or
anyone they have designated are priced at the next NAV that
is computed after the Fund accepts your order from the
intermediary.
Among the brokers that have been authorized by the Fund are
Charles Schwab & Co., Inc., National Investor Services Corp.,
Pershing and Fidelity Brokerage Services Corp. You should
consult with your broker to determine if it has been so
authorized.
o BY EXCHANGE
You can exchange all or part of your investment in the Fund
for shares in other Value Line funds. When you exchange
shares, you are purchasing shares in another fund so you
should be sure to get a copy of that fund's prospectus and
read it carefully before buying shares through an exchange.
To execute an exchange, call 800-243-2729. We reserve the
right to reject any exchange order.
When you send us a properly completed request to sell or
exchange shares, you will receive the NAV that is next
determined after we receive your request. For each account
involved you should provide the account name, number, name of
fund and exchange or redemption amount. Call 1-800-243-2729
for additional documentation that may be required. You may
have to pay taxes on the gain from your sale or exchange of
shares.
Exchanges among Value Line funds are a shareholder privilege
and not a right. The Fund may temporarily or permanently
terminate the exchange
12
privilege of any investor that, in the opinion of the Fund,
uses market timing strategies or who makes more than four
exchanges out of the Fund during a calendar year.
The exchange limitation does not apply to systematic
purchases and redemptions, including certain automated or
pre-established exchange, asset allocation or dollar cost
averaging programs. These exchange limits are subject to the
Fund's ability to monitor exchange activity. Shareholders
seeking to engage in excessive trading practices may deploy a
variety of strategies to avoid detection, and, despite the
best efforts of the Fund to prevent excessive trading, there
is no guarantee that the Fund or its agents will be able to
identify such shareholders or curtail their trading
practices. The Fund receives purchase and redemption orders
through financial intermediaries and cannot always know or
reasonably detect excessive trading which may be facilitated
by these intermediaries or by the use of omnibus account
arrangements offered by these intermediaries to investors.
ACCOUNT MINIMUM
If as a result of redemptions your account balance falls
below $500, the Fund may ask you to increase your balance
within 30 days. If your account is not at the minimum by the
required time, the Fund may redeem your account, after first
notifying you in writing.
REDEMPTION IN KIND
The Fund reserves the right to make a redemption in
kind--payment in portfolio securities rather than cash--if
the amount being redeemed is large enough to affect Fund
operations.
SPECIAL SERVICES
To help make investing with us as easy as possible, and to
help you build your investments, we offer the following
special services. You can get further information about these
programs by calling Shareholder Services at 800-243-2729.
o Valu-Matic (Registered Trademark) allows you to make regular
monthly investments of $25 or more automatically from your
checking account.
o Through our Systematic Cash Withdrawal Plan you can arrange a
regular monthly or quarterly payment from your account
payable to you or someone
13
you designate. If your account is $5,000 or more, you can
have monthly or quarterly withdrawals of $25 or more. Such
withdrawals will each constitute a redemption of a portion of
your Fund shares which may result in income, gain or loss to
you, for federal income tax purposes.
o You may buy shares in the Fund for your individual or group
retirement plan, including your Regular or Roth IRA. You may
establish your IRA account even if you already are a member
of an employer-sponsored retirement plan. Not all
contributions to an IRA account are tax deductible; consult
your tax advisor about the tax consequences of your
contribution.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to pay dividends from its net investment
income, if any, and to distribute any capital gains that it
has realized annually. The Fund may also pay dividends and
capital gain distributions at other times if necessary for
the Fund to avoid U.S. federal income or excise tax. We
automatically reinvest all dividends and any capital gains,
unless you instruct us otherwise in your application to
purchase shares. At December 31, 2003, the Fund had net
unrealized appreciation of $31,642,000 representing
approximately 14.6% of the Fund's net assets. In the event
the Fund disposes of securities in its portfolio and
recognizes sizeable gains the Fund will distribute such gains
to stockholders who may be taxed on such amounts.
Investors should consider the tax consequences of buying
shares of the Fund shortly before the record date of a
distribution because such distribution will generally be
taxable even though the net asset value of shares of the Fund
will be reduced by the distribution.
You will generally be taxed on dividends and distributions
you receive, regardless of whether you reinvest them or
receive them in cash. Dividends from short-term capital gains
will be taxable to you as ordinary income. Dividends from net
investment income will either be taxable as ordinary income
or, if so designated by the Fund and certain other conditions
are met by the Fund and the shareholder, including
holding-period requirements, as "qualified dividend income"
taxable to individual shareholders at a maximum 15% U.S.
federal income tax rate. Distributions designated by the Fund
as capital gain dividends will be taxable to you as long-term
capital gains, no matter how long you have owned your Fund
14
shares. In addition, you may be subject to state and local
taxes on dividends and distributions.
We will send you a statement by January 31 each year
detailing the amount and nature of all dividends and capital
gains that you received during the prior year.
If you hold your Fund shares in a tax-deferred retirement
account, such as an IRA, you generally will not have to pay
tax on distributions until they are distributed from the
account. These accounts are subject to complex tax rules, and
you should consult your tax adviser about investment through
a tax-deferred account.
You will generally have a capital gain or loss if you dispose
of your Fund shares by redemption, exchange or sale in an
amount equal to the difference between the net amount of the
redemption or sale proceeds (or in the case of an exchange,
the fair market value of the shares) that you receive and
your tax basis for the shares you redeem, sell or exchange.
Certain limitations may apply to limit your ability to
currently deduct capital losses.
As with all mutual funds, the Fund may be required to
withhold a 28% backup withholding tax on all taxable
distributions payable to you if you fail to provide the Fund
with your correct social security number or other 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; rather, it is a way in which the IRS ensures it will
collect taxes otherwise due. Any amounts withheld may be
credited against your U.S. federal income tax liability.
The above discussion is meant only as a summary; more
information is available in the Statement of Additional
Information. We urge you to consult your tax adviser about
your particular tax situation including federal, state, local
and foreign tax considerations and possible additional
withholding taxes for non-U.S. shareholders.
15
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FINANCIAL HIGHLIGHTS
--------------------------------------------------------------
The financial highlights table is intended to help you
understand the Fund's financial performance for the past five
years. Certain information reflects financial results for a
single Fund share. The total returns in the table represent
the rate that an investor would have earned or lost on an
investment in the Fund assuming reinvestment of all dividends
and distributions. This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with the
Fund's financial statements, is included in the Fund's annual
report, which is available upon request by calling
800-243-2729.
FINANCIAL HIGHLIGHTS
================================================================================================
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING
OF YEAR $13.67 $18.49 $21.37 $26.25 $22.65
------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income
(loss) (.03) (.05) (0.04) (.07) (.02)
Net gains or losses on
securities (both realized
and unrealized) 2.24 (4.64) (2.70) (3.95) 5.98
------------------------------------------------------------------------------------------------
Total income (loss)
from investment
operations 2.21 (4.69) (2.74) (4.02) 5.96
------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Distributions from net
realized gains (1.63) (.13) (.14) (.86) (2.36)
------------------------------------------------------------------------------------------------
Total distributions (1.63) (.13) (.14) (.86) (2.36)
================================================================================================
NET ASSET VALUE, END OF YEAR $14.25 $13.67 $18.49 $21.37 $26.25
================================================================================================
TOTAL RETURN 16.28% -25.35% -12.82% -15.35% 26.74%
================================================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
thousands) $216,047 $206,338 $303,034 $386,406 $495,465
Ratio of expenses to average
net assets (1) 1.13% 1.11% 1.04% .89% .76%
Ratio of net investment
income (loss) to average net
assets (0.19)% (.31)% (.18)% (.27)% (.09)%
Portfolio turnover rate 129% 33% 45% 17% 36%
------------------------------------------------------------------------------------------------
(1) Ratio reflects expenses grossed up for custody credit arrangement. The
ratio of expenses to average net assets net of custody credits would have
been 1.03% for the year ended December 31, 2001 and unchanged for the years
ended December 31, 2003, 2002, 2000 and 1999.
16
FOR MORE INFORMATION
Additional information about the Fund's investments is available in the
Fund's annual and semi-annual reports to shareholders. In the Fund's annual
report, you will find a discussion of the market conditions and investment
strategies that significantly affected the Fund's performance during its
last fiscal year. You can find more detailed information about the Fund in
the current Statement of Additional Information dated May 1, 2004, which we
have filed electronically with the Securities and Exchange Commission (SEC)
and which is legally a part of this prospectus. If you want a free copy of
the Statement of Additional Information, the annual or semi-annual report,
or if you have any questions about investing in this Fund, you can write to
us at 220 East 42nd Street, New York, NY 10017-5891 or call toll-free
800-243-2729. You may also obtain the prospectus from our Internet site at
http://www.vlfunds.com.
Reports and other information about the Fund are available on the EDGAR
Database on the SEC Internet site (http://www.sec.gov), or you can get
copies of this information, after payment of a duplicating fee, by
electronic request at the following E-mail address: publicinfo@sec.gov, or
by writing to the Public Reference Section of the SEC, Washington, D.C.
20549-0102. Information about the Fund, including its Statement of
Additional Information, can be reviewed and copied at the SEC's Public
Reference Room in Washington, D.C. You can get information on operation of
the public reference room by calling the SEC at 1-202-942-8090.
INVESTMENT ADVISER SERVICE AGENT
Value Line, Inc. State Street Bank and Trust Company
220 East 42nd Street c/o BFDS
New York, NY 10017-5891 P.O. Box 219729
Kansas City, MO 64121-9729
CUSTODIAN DISTRIBUTOR
State Street Bank and Trust Company Value Line Securities, Inc.
225 Franklin Street 220 East 42nd Street
Boston, MA 02110 New York, NY 10017-5891
Value Line Securities, Inc.
220 East 42nd Street, New York, NY 10017-5891 File no. 811-568
THE VALUE LINE FUND, INC.
220 East 42nd Street, New York, New York 10017-5891
1-800-243-2729
www.vlfunds.com
--------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2004
--------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus of The Value Line Fund, Inc. (the
"Fund") dated May 1, 2004, a copy of which may be obtained without charge by
writing or telephoning the Fund. The financial statements, accompanying notes
and report of independent auditors appearing in the Fund's 2003 Annual Report
to Shareholders are incorporated by reference in this Statement of Additional
Information. A copy of the Annual Report is available from the Fund upon
request and without charge by calling 1-800-243-2729.
------------
TABLE OF CONTENTS
PAGE
-----
Description of the Fund and Its Investments and Risks .......... B-2
Management of the Fund ......................................... B-8
Investment Advisory and Other Services ......................... B-12
Service and Distribution Plan .................................. B-14
Brokerage Allocation and Other Practices ....................... B-15
Capital Stock .................................................. B-16
Purchase, Redemption and Pricing of Shares ..................... B-16
Taxes .......................................................... B-17
Performance Data ............................................... B-21
Financial Statements ........................................... B-22
DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
HISTORY AND CLASSIFICATION. The Fund is an open-end, diversified,
management investment company incorporated in Delaware in 1949 and
reincorporated in Maryland in 1972. The Fund's investment adviser is Value
Line, Inc. (the "Adviser").
NON-PRINCIPAL INVESTMENT STRATEGIES AND ASSOCIATED RISKS.
o RESTRICTED SECURITIES. On occasion, the Fund may purchase securities
which would have to be registered under the Securities Act of 1933, as amended
(the "Securities Act") if they were to be publicly distributed. However, it
will not do so if the value of such securities (other than securities eligible
to be sold in a Rule 144A transaction) and other securities which are not
readily marketable (including repurchase agreements maturing in more than seven
days) would exceed 10% of the market value of its net assets. It is
management's policy to permit the occasional acquisition of such restricted
securities only if (except in the case of short-term non-convertible debt
securities) there is an agreement by the issuer to register such securities,
ordinarily at the issuer's expense, when requested to do so by the Fund. The
acquisition in limited amounts of restricted securities is believed to be
helpful toward the attainment of the Fund's investment objective without unduly
restricting its liquidity or freedom in the management of its portfolio.
However, because restricted securities may only be sold privately or in an
offering registered under the Securities Act, or pursuant to an exemption from
such registration, substantial time may be required to sell such securities,
and there is greater than usual risk of price decline prior to sale.
In addition, the Fund may purchase certain restricted securities ("Rule
144A securities") for which there is a secondary market of qualified
institutional buyers, as contemplated by Rule 144A under the Securities Act of
1933. Rule 144A provides an exemption from the registration requirements of the
Securities Act for the resale of certain restricted securities to qualified
institutional buyers.
The Adviser, under the supervision of the Board of Directors, will
consider whether securities purchased under Rule 144A are liquid or illiquid
for purposes of the Fund's limitation on investment in securities which are not
readily marketable or are illiquid. Among the factors to be considered are the
frequency of trades and quotes, the number of dealers and potential purchasers,
dealer undertakings to make a market and the nature of the security and the
time needed to dispose of it.
To the extent that the liquid Rule 144A securities that the Fund holds
become illiquid, due to lack of sufficient qualified institutional buyers or
market or other conditions, the percentage of the Fund's assets invested in
illiquid assets would increase. The Adviser, under the supervision of the Board
of Directors, will monitor the Fund's investments in Rule 144A securities and
will consider appropriate measures to enable the Fund to maintain sufficient
liquidity for operating purposes and to meet redemption requests.
o COVERED CALL OPTIONS. The Fund may write covered call options on
stocks held in its portfolio ("covered options") in an attempt to earn
additional income on its portfolio or to partially offset an expected decline
in the price of a security. When the Fund writes a covered call option, it
gives the purchaser of the option the right to buy the underlying security at
the price specified in the option (the "exercise price") at any time during the
option period. If the option expires unexercised, the Fund will realize income
to the extent of the amount received for the option (the "premium"). If the
option is exercised, a decision over which the Fund has no control, the Fund
must sell the underlying security to the option holder at the exercise price.
By writing a covered option, the Fund foregoes, in exchange for the premium
less the commission ("net premium"), the opportunity to profit during the
option period from an increase in the market value of the underlying security
above the exercise price. Because the call option must be covered, the Fund
also forgoes the opportunity to sell the underlying security during the
B-2
option period. The Fund will not write call options in an aggregate amount
greater than 25% of its net assets.
The Fund will purchase call options only to close out a position. When an
option is written on securities in the Fund's portfolio and it appears that the
purchaser of that option is likely to exercise the option and purchase the
underlying security, it may be considered appropriate to avoid liquidating the
Fund's position, or the Fund may wish to extinguish a call option sold by it so
as to be free to sell the underlying security. In such instances the Fund may
purchase a call option on the same security with the same exercise price and
expiration date which had been previously written. Such a purchase would have
the effect of closing out the option which the Fund has written. The Fund
realizes a gain if the amount paid to purchase the call option is less than the
net premium received for writing a similar option and a loss if the amount paid
to purchase a call option is greater than the premium received for writing a
similar option. Generally, the Fund realizes a short-term capital loss if the
amount paid to purchase the call option with respect to a stock is greater than
the net premium received for writing the option. If the underlying security has
substantially risen in value, it may be difficult or expensive to purchase the
call option for the closing transaction.
o STOCK INDEX FUTURES CONTRACTS AND OPTIONS THEREON. The Fund may trade
in stock index futures contracts and in options on such contracts. Such
contracts will be entered into on exchanges designated by the Commodity Futures
Trading Commission ("CFTC"). The Fund will only enter into futures contracts
and options on futures transactions in compliance with the applicable
regulations promulgated by the CFTC.
There can be no assurance of the Fund's successful use of stock index
futures as a hedging device. Hedging transactions involve certain risks. One
risk arises because of the imperfect correlation between movements in the price
of the stock index future and movements in the price of the securities which
are the subject of the hedge. The risk of imperfect correlation increases as
the composition of the Fund's securities portfolio diverges from the securities
included in the applicable stock index. In addition to the possibility that
there may be an imperfect correlation, or no correlation at all, between
movements in the stock index future and the portion of the portfolio being
hedged, the price of stock index futures may not correlate perfectly with the
movement in the stock index due to certain market distortions. Increased
participation by speculators in the futures market also may cause temporary
price distortions. Due to the possibility of price distortions in the futures
market and because of the imperfect correlation between movements in the stock
index and movements in the price of stock index futures, a correct forecast of
general market trends by the Adviser still may not result in a successful
hedging transaction.
For example, should the Fund anticipate a decrease in the value of its
portfolio securities, it could enter into futures contracts to sell stock
indexes thereby partially hedging its portfolio against the anticipated losses.
Losses in the portfolio, if realized, should be partially offset by gains on
the futures contracts. Conversely, if the Fund anticipated purchasing
additional portfolio securities in a rising market, it could enter into futures
contracts to purchase stock indexes thereby locking in a price. The
implementation of these strategies by the Fund should be less expensive and
more efficient than buying and selling the individual securities at inopportune
times.
A stock index future obligates the seller to deliver (and the purchaser to
take) an amount of cash equal to a specific dollar amount times the difference
between the value of a specific stock index at the close of the last trading
day of the contract and the price at which the contract is entered into. There
can be no assurance of the Fund's successful use of stock index futures as a
hedging device.
B-3
The contractual obligation is satisfied by either a cash settlement or by
entering into an opposite and offsetting transaction on the same exchange prior
to the delivery date. Entering into a futures contract to deliver the index
underlying the contract is referred to as entering into a short futures
contract. Entering into a futures contract to take delivery of the index is
referred to as entering into a long futures contract. An offsetting transaction
for a short futures contract is effected by the Fund entering into a long
futures contract for the same date, time and place. If the price of the short
contract exceeds the price in the offsetting long, the Fund is immediately paid
the difference and thus realizes a gain. If the price of the long transaction
exceeds the short price, the Fund pays the difference and realizes a loss.
Similarly, the closing out of a long futures contract is effected by the Fund
entering into a short futures contract. If the offsetting short price exceeds
the long price, the Fund realizes a gain, and if the offsetting short price is
less than the long price, the Fund realizes a loss.
No consideration will be paid or received by the Fund upon entering into a
futures contract. Initially, the Fund will be required to deposit with the
broker an amount of cash or cash equivalents equal to approximately 1% to 10%
of the contract amount. This amount is subject to change by the board of trade
on which the contract is traded and members of such board of trade may charge a
higher amount. This amount is known as "initial margin" and is in the nature of
a performance bond or good faith deposit on the contract which is returned to
the Fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied. Subsequent payments, known as "variation
margin," to and from the broker will be made daily as the price of the index
underlying the futures contract fluctuates, making the long and short positions
in the futures contract more or less valuable, a process known as
"marking-to-market."
The Fund may also purchase put and call options on stock index futures
contracts on commodity exchanges or write covered options on such contracts. A
call option gives the purchaser the right to buy, and the writer the obligation
to sell, while a put option gives the purchaser the right to sell and the
writer the obligation to buy. Unlike a stock index futures contract, which
requires the parties to buy and sell the stock index on a set date, an option
on a stock index futures contract entitles its holder to decide on or before a
future date whether to enter into such a futures contract. If the holder
decides not to enter into the contract, the premium paid for the option is
lost. Since the value of the option is fixed at the point of sale, the purchase
of an option does not require daily payments of cash in the nature of
"variation" or "maintenance" margin payments to reflect the change in the value
of the underlying contract. The value of the option purchased by the Fund does
change and is reflected in the net asset value of the Fund. The writer of an
option, however, must make margin payments on the underlying futures contract.
Exchanges provide trading mechanisms so that an option once purchased can later
be sold and an option once written can later be liquidated by an offsetting
purchase.
Successful use of stock index futures by the Fund also is subject to the
Adviser's ability to predict correctly movements in the direction of the
market. If the Adviser's judgment about the several directions of the market is
wrong, the Fund's overall performance may be worse than if no such contracts
had been entered into. For example, if the Fund has hedged against the
possibility of a decline in the market adversely affecting stocks held in its
portfolio and stock prices increase instead, the Fund will lose part or all of
the benefit of the increased value of its stock which it has hedged because it
will have offsetting losses in its futures positions. In addition, in such
situations, if the Fund has insufficient cash, it may have to sell securities
to meet daily variation margin requirements. Such sales of securities may be,
but will not necessarily be, at increased prices which reflect the rising
market. The Fund may have to sell securities at a time when it may be
disadvantageous to do so. When stock index futures are purchased
B-4
to hedge against a possible increase in the price of stocks before the Fund is
able to invest its cash (or cash equivalents) in stocks in an orderly fashion,
it is possible that the market may decline instead; if the Fund then concludes
not to invest in stocks at that time because of concern as to possible further
market decline or for other reasons, the Fund will realize a loss on the
futures contract that is not offset by a reduction in the price of securities
purchased.
Use of options on stock index futures entails the risk that trading in the
options may be interrupted if trading in certain securities included in the
index is interrupted. The Fund will not purchase these options unless its
investment adviser is satisfied with the development, depth and liquidity of
the market and the investment adviser believes the options can be closed out.
Options and futures contracts entered into by the Fund will be subject to
special tax rules. These rules may accelerate income to the Fund, defer Fund
losses, cause adjustments in the holding periods of Fund securities, convert
capital gain into ordinary income and convert short-term capital losses into
long-term capital losses. As a result, these rules could affect the amount,
timing and character of Fund distributions. However, the Fund anticipates that
these investment activities will not prevent the Fund from qualifying as a
regulated investment company.
o REPURCHASE AGREEMENTS. The Fund may invest temporary cash balances in
repurchase agreements. A repurchase agreement involves a sale of securities to
the Fund, with the concurrent agreement of the seller (a member bank of the
Federal Reserve System or a securities dealer which the Adviser believes to be
financially sound) to repurchase the securities at the same price plus an
amount equal to an agreed-upon interest rate, within a specified time, usually
less than one week, but, on occasion, at a later time. The Fund will make
payment for such securities only upon physical delivery or evidence of
book-entry transfer to the account of the custodian or a bank acting as agent
for the Fund. Repurchase agreements may also be viewed as loans made by the
Fund which are collateralized by the securities subject to repurchase. The
value of the underlying securities will be at least equal at all times to the
total amount of the repurchase obligation, including the interest factor. In
the event of a bankruptcy or other default of a seller of a repurchase
agreement to which the Fund is a party, the Fund could experience both delays
in liquidating the underlying securities and losses, including: (a) a possible
decline in the value of the underlying securities during the period while the
Fund seeks to enforce its rights thereto; (b) possible subnormal levels of
income and lack of access to income during this period; and (c) expenses of
enforcing its rights.
FUND POLICIES.
(i) The Fund may not issue senior securities except evidences of
indebtedness permitted under clause (ii) below.
(ii) The Fund may not borrow money in excess of 10% of the value of
its assets and then only as a temporary measure to meet unusually heavy
redemption requests or for other extraordinary or emergency purposes.
Securities will not be purchased while borrowings are outstanding. No
assets of the Fund may be pledged, mortgaged or otherwise encumbered,
transferred or assigned to secure a debt except in connection with the
Fund's entering into stock index futures.
(iii) The Fund may not engage in the underwriting of securities except
to the extent that the Fund may be deemed an underwriter as to restricted
securities under the Securities Act of 1933 in selling portfolio
securities.
B-5
(iv) The Fund may not invest 25% or more of its assets in securities
of issuers in any one industry.
(v) The Fund may not purchase securities of other investment companies
or invest in real estate, mortgages or illiquid securities of real estate
investment trusts although the Fund may purchase securities of issuers
which engage in real estate operations.
(vi) The Fund may not lend money except in connection with the
purchase of debt obligations or by investment in repurchase agreements,
provided that repurchase agreements maturing in more than seven days when
taken together with other illiquid investments do not exceed 10% of the
Fund's assets.
(vii) The Fund may not engage in arbitrage transactions, short sales,
purchases on margin or participate on a joint or joint and several basis in
any trading account in securities except that these prohibitions will not
apply to futures contracts or options on futures contracts entered into by
the Fund for permissible purposes or to margin payments made in connection
with such contracts.
(viii) The Fund may not purchase or sell any put or call options or
any combination thereof, except that the Fund may write and sell covered
call option contracts on securities owned by the Fund. The Fund may also
purchase call options for the purpose of terminating its outstanding
obligations with respect to securities upon which covered call option
contracts have been written (i.e., "closing purchase transactions"). The
Fund may also purchase and sell put and call options on stock index futures
contracts.
(ix) The Fund may not invest more than 5% of its total assets in the
securities of any one issuer or purchase more than 10% of the outstanding
voting securities, or any other class of securities, of any one issuer. For
purposes of this restriction, all outstanding debt securities of an issuer
are considered as one class, and all preferred stock of an issuer is
considered as one class. This restriction does not apply to obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
(x) The Fund may not invest more than 5% of its total assets in
securities of issuers having a record, together with their predecessors, of
less than three years of continuous operation. This restriction does not
apply to any obligation issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
(xi) The Fund may not purchase securities for the purpose of
exercising control over another company.
(xii) The Fund may not invest more than 2% of the value of its total
assets in warrants (valued at the lower of cost or market), except that
warrants attached to other securities are not subject to these limitations.
(xiii) The Fund may not invest in commodities or commodity contracts
except that the Fund may invest in stock index futures contracts and
options on stock index futures contracts.
(xiv) The Fund may not purchase the securities of any issuer if, to
the knowledge of the Fund, those officers and directors of the Fund and of
the Adviser, who each owns more than 0.5% of the outstanding securities of
such issuer, together own more than 5% of such securities.
(xv) The primary investment objective of the Fund is long-term growth
of capital. Current income is a secondary objective.
B-6
In addition, management of the Fund has adopted a policy that it will not
recommend that the Fund purchase interest in oil, gas or other mineral type
development programs or leases, although the Fund may invest in the securities
of companies which operate, invest in or sponsor such programs.
If a percentage restriction is adhered to at the time of investment, a
later change in percentage resulting from changes in values or assets will not
be considered a violation of the restriction. For purposes of industry
classifications, the Fund follows the industry classifications in The Value
Line Investment Survey.
The policies set forth above may not be changed without the affirmative
vote of the majority of the outstanding voting securities of the Fund which
means the lesser of (1) the holders of more than 50% of the outstanding shares
of capital stock of the Fund or (2) 67% of the shares present if more than 50%
of the shares are present at a meeting in person or by proxy.
B-7
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed by the Fund's officers
under the direction of the Board of Directors. The following table sets forth
information on each Director and officer of the Fund. Each Director serves as a
director or trustee of each of the 14 Value Line Funds and oversees a total of
15 portfolios. Each Director serves until his or her successor is elected and
qualified.
PRINCIPAL OTHER
LENGTH OCCUPATIONS DIRECTORSHIPS
OF TIME DURING HELD BY
NAME, ADDRESS AND AGE POSITION SERVED THE PAST 5 YEARS DIRECTOR
------------------------- --------------- ------------ ----------------------- ------------------
Interested Directors*
Jean Bernhard Buttner Chairman of Since 1983 Chairman, President Value Line, Inc.
Age 69 the Board of and Chief Executive
Directors Officer of Value Line,
and President Inc. (the "Adviser")
and Value Line
Publishing, Inc.
Chairman and President
of each of the 14
Value Line Funds
and Value Line
Securities, Inc. (the
"Distributor").
Marion N. Ruth Director Since 2000 Real Estate Value Line, Inc.
5 Outrider Road Executive; President,
Rolling Hills, CA 90274 Ruth Realty (real
Age 69 estate broker); Director
of the Adviser since
2000.
Non-Interested Directors
John W. Chandler Director Since 1991 Consultant, None
1611 Cold Spring Rd. Academic Search
Williamstown, MA 01267 Consultation Service,
Age 80 Inc. Trustee
Emeritus and Chairman
(1993-1994) of the
Board of Trustees of
Duke University;
President Emeritus,
Williams College.
Frances T. Newton Director Since 2000 Customer Support None
4921 Buckingham Drive Analyst, Duke Power
Charlotte, NC 28209 Company.
Age 62
Francis C. Oakley Director Since 2000 Professor of History, Berkshire Life
54 Scott Hill Road Williams College, Insurance Company
Williamstown, MA 01267 1961 to 2002, of America.
Age 72 President Emeritus
since 1994 and
President, 1985-1994;
Chairman (1993-1997)
and Interim
President (2002) of
the American Council
of Learned Societies.
B-8
PRINCIPAL OTHER
LENGTH OCCUPATIONS DIRECTORSHIPS
OF TIME DURING HELD BY
NAME, ADDRESS AND AGE POSITION SERVED THE PAST 5 YEARS DIRECTOR
----------------------------- ----------------- ------------ ----------------------- -------------------
David H. Porter Director Since 1997 Visiting Professor of None
5 Birch Run Drive Classics, Williams
Saratoga Springs, NY 12866 College, since 1999;
Age 68 President Emeritus,
Skidmore College
since 1999 and
President, 1987-1998.
Paul Craig Roberts Director Since 1983 Chairman, Institute A. Schulman Inc.
169 Pompano St. for Political (plastics)
Panama City Beach, FL 32413 Economy.
Age 65
Nancy-Beth Sheerr Director Since 1996 Senior Financial None
1409 Beaumont Drive Advisor, Veritable, L.P.
Gladwyne, PA 19035 (investment advisor)
Age 55 since April 1, 2004;
Senior Financial
Advisor, Hawthorne,
2001-2004.
Officers
Brett Mitstifer Vice President Since 2003 Portfolio Manager
Age 41 with the Adviser
since 2003;
Executive Vice President,
Hovey, Youngman
Associates
(investment management),
2000-2003; Portfolio
Manager, Bankers
Trust, 1997-2000.
Stephen E. Grant Vice President Since 2001 Portfolio Manager
Age 50 with the
Adviser.
David T. Henigson Vice President, Since 1994 Director, Vice
Age 46 Secretary and President and
Treasurer Compliance Officer of
the Adviser. Director
and Vice President of
the Distributor. Vice
President, Secretary
and Treasurer of
each of the 14 Value
Line Funds.
------------
* Mrs. Buttner is an "interested person" as defined in the Investment Company
Act of 1940 by virtue of her positions with the Adviser and her indirect
ownership of a controlling interest in the Adviser; Mrs. Ruth is an
interested person by virtue of being a director of the Adviser.
Unless otherwise indicated, the address for each of the above is 220 East
42nd Street, New York, NY 10017.
The non-interested Directors of the Fund serve as members of the Audit
Committee of the Board of Directors. The principal function of the Audit
Committee consists of overseeing the accounting and financial reporting
policies of the Fund and meeting with the Fund's independent auditors to review
the range of their activities and to discuss the Fund's system of internal
accounting controls. The Audit
B-9
Committee also meets with the independent auditors in executive session at each
meeting. There were two meetings of the Audit Committee during the last fiscal
year. There is a Valuation Committee consisting of Jean B. Buttner and John W.
Chandler (or one other non-interested Director if he is not available). The
Valuation Committee did not meet during the last fiscal year. The Valuation
Committee reviews any actions taken by the Pricing Committee which consists of
certain officers and employees of the Fund and the Adviser, in accordance with
the valuation procedures adopted by the Board of Directors. There is also a
Nominating Committee consisting of the non-interested Directors the purpose of
which is to review and nominate candidates to serve as non-interested
directors. The Committee generally will not consider nominees recommended by
shareholders. The Committee did not meet during the last fiscal year.
The following table sets forth information regarding compensation of
Directors by the Fund and the thirteen other Value Line Funds of which each of
the Directors was a director or trustee for the fiscal year ended December 31,
2003. Directors who are officers or employees of the Adviser do not receive any
compensation from the Fund or any of the Value Line Funds. The Fund has no
retirement or pension plan for its Directors.
TOTAL
COMPENSATION
FROM FUND
AGGREGATE AND FUND
COMPENSATION COMPLEX
NAMES OF PERSON FROM FUND (15 FUNDS)
------------------------- -------------- -------------
Jean B. Buttner $ -0- $ -0-
John W. Chandler 3,161 45,000
Frances T. Newton 3,161 45,000
Francis C. Oakley 3,161 45,000
David H. Porter 3,161 45,000
Paul Craig Roberts 3,161 45,000
Marion N. Ruth -0- -0-
Nancy-Beth Sheerr 3,000 45,000
The following table illustrates the dollar range of any equity securities
beneficially owned by each Director in the Fund in all of the Value Line Funds
as of December 31, 2003:
AGGREGATE DOLLAR
DOLLAR RANGE OF RANGE OF EQUITY
EQUITY SECURITIES SECURITIES IN ALL
NAME OF DIRECTOR IN THE FUND OF THE VALUE LINE FUNDS
------------------------- --------------------- ------------------------
Jean B. Buttner $10,001-$50,000 Over $100,000
John W. Chandler $1 -- $10,000 $10,001 -- $50,000
Frances T. Newton $1 -- $10,000 $10,001 -- $50,000
Francis C. Oakley $1 -- $10,000 $10,001 -- $50,000
David H. Porter $1 -- $10,000 $10,001 -- $50,000
Paul Craig Roberts $1 -- $10,000 Over $100,000
Marion N. Ruth $1 -- $10,000 Over $100,000
Nancy-Beth Sheerr $1 -- $10,000 $10,001 -- $50,000
B-10
As of March 31, 2004, no person owned of record or, to the knowledge of
the Fund, owned beneficially, 5% or more of the outstanding stock of the Fund.
Wachovia Bank, N.A., as Trustee of the Value Line, Inc. Profit Sharing and
Savings Plan, owned 386,940 shares of record or approximately 2.6% of the shares
outstanding. Officers and directors of the Fund as a group owned less than 1%
of the outstanding shares.
None of the non-interested Directors, and his or her immediate family
members, own any shares in the Adviser, the Distributor or a person (other than
a registered investment company) directly or indirectly controlling, controlled
by, or under common control with the Adviser or Distributor.
PROXY VOTING POLICIES
As a shareholder of the companies in which the Fund invests, the Fund
receives proxies to vote at those companies' annual or special meetings. The
Board of Directors has adopted Proxy Voting Policies and Procedures ("Proxy
Voting Policies") pursuant to which the Adviser votes shares owned by the Fund.
The Adviser endeavors to vote proxies relating to portfolio securities in
accordance with its best judgment as to the advancement of the Fund's
investment objectives. The general principles of the Proxy Voting Policies
reflect the Adviser's basic investment criterion that good company management
is shareholder focused and should generally be supported. The Fund generally
supports management on routine matters and supports management proposals that
are in the interests of shareholders. The Board of the Fund reviews the Proxy
Voting Policies annually.
Subject to the Board's oversight, the Adviser has final authority and
fiduciary responsibility for voting proxies received by the Fund; however, the
Adviser has delegated the implementation of the Fund's Proxy Voting Policies to
Investor Responsibility Research Center ("IRRC"), a proxy voting service that
is not affiliated with the Adviser or the Fund. In addition, IRRC will make a
recommendation to the Adviser consistent with the Proxy Voting Policies with
respect to each proxy that the Fund receives. The Adviser generally anticipates
that it will follow the recommendations of IRRC.
The following is a summary of the manner in which the Adviser would
normally expect to vote on certain matters that typically are included in the
proxies that the Fund receives each year; however, each proxy needs to be
considered separately and the Fund's vote may vary depending upon the actual
circumstances presented. Proxies for extraordinary matters, such as mergers,
reorganizations and other corporate transactions, are necessarily considered on
a case-by-case basis in light of the merits of the individual transactions.
ELECTION OF DIRECTORS, CORPORATE GOVERNANCE AND ROUTINE MATTERS
o Generally, the Fund supports the company's nominees to serve as directors.
o The Fund generally supports management on routine corporate matters and
matters relating to corporate governance. For example, the Adviser
generally expects to support management on the following matters:
o Increases in the number of authorized shares of or issuances of common
stock or other equity securities;
o Provisions of the corporate charter addressing indemnification of
directors and officers;
o Stock repurchase plans; and
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o The selection of independent accountants.
o The types of matters on corporate governance that the Adviser would expect
to vote against include:
o The issuance of preferred shares where the board of directors has
complete freedom as to the terms of the preferred;
o The adoption of a classified board;
o The adoption of poison pill plans or similar anti-takeover measures;
and
o The authorization of a class of shares not held by the Fund with
superior voting rights.
COMPENSATION ARRANGEMENTS AND STOCK OPTION PLANS
The Fund normally votes with management regarding compensation
arrangements and the establishment of stock option plans. The Adviser believes,
if its view of management is favorable enough that the Fund has invested in the
company, that arrangements that align the interests of management and
shareholders are beneficial to long-term performance. However, some
arrangements or plans have features that the Fund would oppose. For example,
the Fund would vote against an option plan that has the potential to
unreasonably dilute the interests of existing shareholders, permits equity
overhang that exceeds certain levels or that allows for the repricing of
outstanding options.
SOCIAL POLICY BASED PROPOSALS
Generally, the Adviser will vote in accordance with management
recommendations on proposals addressing social or political issues that the
Adviser believes do not affect the goal of maximizing the return on funds
under management.
If the Adviser believes that a conflict of interest exists with respect to
its exercise of any proxy received by the Fund, the Adviser will report the
potential conflict to a Proxy Voting Committee consisting of members of the
Adviser's staff. A conflict of interest may arise, for example, if the company
to which the proxy relates is a client of the Adviser or one of its affiliates
or if the Adviser or one of its affiliates has a material business relationship
with that company. The Adviser's Proxy Voting Committee is responsible for
ensuring that the Adviser complies with its fiduciary obligations in voting
proxies. If a proxy is referred to the Proxy Voting Committee, the Proxy Voting
Committee evaluates whether a potential conflict exists and, if there is such a
conflict, determines how the proxy should be voted in accordance with the best
interests of the Fund and its shareholders.
Every August, commencing in 2004, the Fund will file with the Securities
and Exchange Commission information regarding the voting of proxies by the Fund
for the 12-month period ending the preceding June 30th. Shareholders will be
able to view such filings on the Commission's website at http://www.sec.gov or
at the Fund's website at http://vlfunds.com.
Shareholders may also obtain a copy of the Proxy Voting Policies by
contacting the Fund at the address and/or phone number on the cover page of
this Statement of Additional Information.
INVESTMENT ADVISORY AND OTHER SERVICES
The Fund's Adviser is Value Line, Inc. Arnold Bernhard & Co., Inc., 220
East 42nd Street, New York, NY 10017, a holding company, owns approximately 86%
of the outstanding shares of the Adviser's
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common stock. Jean Bernhard Buttner, Chairman, President and Chief Executive
Officer of the Adviser and Chairman and President of the Fund, owns all of the
voting stock of Arnold Bernhard & Co., Inc.
The investment advisory agreement between the Fund and the Adviser, dated
September 26, 1991, provides for an advisory fee at an annual rate of 0.70% on
the first $100 million of the Fund's average daily net assets and 0.65% of such
net assets in excess thereof. During 2001, 2002 and 2003, the Fund paid or
accrued to the Adviser advisory fees of $2,205,000, $1,703,000 and $1,428,000,
respectively.
The investment advisory agreement provides that the Adviser shall render
investment advisory and other services to the Fund including, at its expense,
all administrative services, office space and the services of all officers and
employees of the Fund. The Fund pays all other expenses not assumed by the
Adviser including taxes, interest, brokerage commissions, insurance premiums,
fees and expenses of the custodian and shareholder servicing agents, legal and
accounting fees, fees and expenses in connection with qualification under
federal and state securities laws and costs of shareholder reports and proxy
materials. The Fund has agreed that it will use the words "Value Line" in its
name only so long as Value Line, Inc. serves as investment adviser to the Fund.
The agreement will terminate upon its assignment.
In approving the investment advisory agreement, the Board of Directors,
including the non-interested Directors, voting separately, considered the
nature, quality and scope of the services provided by the Adviser, the
performance of the Fund for the past 1, 3, 5 and 10 year periods, the
performance, fees and expenses of the Fund compared to funds of similar size
with similar investment objectives, the Adviser's expenses in providing the
services, the profitability of the Adviser and other factors. The
non-interested Directors considered the foregoing in the light of the law
applicable to the review of investment advisory agreements. Based upon its
review, the Board of Directors, including all of the non-interested Directors,
voting separately, determined, in the exercise of its business judgment, that
approval of the investment advisory agreement was in the best interests of the
Fund and its shareholders. In making such determination, the Board of Directors
relied upon assistance of their legal counsel.
The Adviser currently acts as investment adviser to 13 other investment
companies constituting The Value Line Family of Funds and furnishes investment
counseling services to private and institutional accounts resulting in combined
assets under management of approximately $3 billion.
Certain of the Adviser's clients may have investment objectives similar to
the Fund and certain investments may be appropriate for the Fund and for other
clients advised by the Adviser. From time to time, a particular security may be
bought or sold for only one client or in different amounts and at different
times for more than one but less than all such clients. In addition, a
particular security may be bought for one or more clients when one or more
other clients are selling such security, or purchases or sales of the same
security may be made for two or more clients at the same time. In such event,
such transactions, to the extent practicable, will be averaged as to price and
allocated as to amount in proportion to the amount of each order. In some
cases, this procedure could have a detrimental effect on the price or amount of
the securities purchased or sold by the Fund. In other cases, however, it is
believed that the ability of the Fund to participate, to the extent permitted
by law, in volume transactions will produce better results for the Fund.
The Adviser and/or its affiliates, officers, directors and employees may
from time to time own securities which are also held in the portfolio of the
Fund. The Fund, the Adviser and the Distributor have adopted a Code of Ethics
under Rule 17j-1 of the Investment Company Act which permits personnel
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subject to the Code of Ethics to invest in securities, including securities
that may be purchased or held by the Fund. The Code of Ethics requires that
such personnel submit reports of security transactions for their respective
accounts and restricts trading in various types of securities in order to avoid
possible conflicts of interest.
The Fund has entered into a distribution agreement with Value Line
Securities, Inc. (the "Distributor") whose address is 220 East 42nd Street, New
York, NY 10017, pursuant to which the Distributor acts as principal underwriter
and distributor of the Fund for the sale and distribution of its shares. The
Distributor is a wholly-owned subsidiary of the Adviser. For its services under
the agreement, the Distributor is not entitled to receive any compensation,
although it is entitled to receive fees under the Service and Distribution
Plan. The Distributor also serves as distributor to the other Value Line funds.
Jean Bernhard Buttner is Chairman and President of the Distributor.
State Street Bank and Trust Company ("State Street") has been retained to
provide certain bookkeeping and accounting services for the Fund. The Adviser
pays State Street $32,400 per annum for providing these services. State Street,
whose address is 225 Franklin Street, Boston, MA 02110, also acts as the Fund's
custodian, transfer agent and dividend-paying agent. As custodian, State Street
is responsible for safeguarding the Fund's cash and securities, handling the
receipt and delivery of securities and collecting interest and dividends on the
Fund's investments. As transfer agent and dividend-paying agent, State Street
effects transfers of Fund shares by the registered owners and transmits
payments for dividends and distributions declared by the Fund. Boston Financial
Data Services, Inc., a State Street affiliate, whose address is 330 W. 9th
Street, Kansas City, MO 64105, provides certain transfer agency functions to
the Fund as an agent for State Street. PricewaterhouseCoopers LLP, whose
address is 1177 Avenue of the Americas, New York, NY 10036, acts as the Fund's
independent auditors and also performs certain tax preparation services.
SERVICE AND DISTRIBUTION PLAN
The Service and Distribution Plan (12b-1 Plan) (the "Plan") is designed to
finance the activities of the Distributor in advertising, marketing and
distributing Fund shares and for servicing Fund shareholders at an annual rate
of .25% of the Fund's average daily net assets. During the fiscal year ended
December 31, 2003, the Fund paid fees of $530,000 to the Distributor under the
Plan. The Distributor paid $46,015 to other broker-dealers and incurred
$374,428 in advertising and other marketing expenses.
The principal services and expenses for which such compensation may be
used include: compensation to employees or account executives and reimbursement
of their expenses; overhead and telephone costs of such employees or account
executives; printing of prospectuses or reports for prospective shareholders;
advertising; preparation, printing and distribution of sales literature; and
allowances to other broker-dealers. A report of the amounts expended under the
Plan is submitted to and approved by the Directors, including the
non-interested Directors, each quarter. Because of the Plan, long-term
shareholders may pay more than the economic equivalent of the maximum sales
charge permitted by the National Association of Securities Dealers, Inc. (the
"NASD") regarding investment companies.
The Plan is a compensation plan, which means that the Distributor's fees
under the Plan are payable without regard to actual expenses incurred by the
Distributor. To the extent the revenue received by the Distributor pursuant to
the Plan exceeds the Distributor's distribution expenses, the Distributor may
earn a profit under the Plan.
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The Plan is subject to annual approval by the Directors, including the
non-interested Directors. The Plan is terminable at any time by vote of the
Directors or by vote of a majority of the shares of the Fund. Pursuant to the
Plan, a new Director who is not an interested person (as defined in the
Investment Company Act of 1940) must be nominated by existing Directors who are
not interested persons.
Because amounts paid pursuant to the Plan are paid to the Distributor, the
Distributor and its officers, directors and employees may be deemed to have a
financial interest in the operation of the Plan. None of the non-interested
Directors has a financial interest in the operation of the Plan.
The Plan was adopted because of its anticipated benefits to the Fund.
These anticipated benefits include: the ability to realize economies of scale
as a result of increased promotion and distribution of the Fund's shares, an
enhancement in the Fund's ability to maintain accounts and improve asset
retention, increased stability of net assets for the Fund, increased stability
in the Fund's positions, and greater flexibility in achieving investment
objectives. The costs of any joint distribution activities between the Fund and
other Value Line Funds will be allocated among the Funds in proportion to the
number of their shareholders.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Orders for the purchase and sale of portfolio securities are placed with
brokers and dealers who, in the judgment of the Adviser, will obtain the best
results for the Fund's portfolio taking into consideration such relevant
factors such as price, the ability of the broker to effect the transaction and
the broker's facilities, reliability and financial responsibility. Commission
rates, being a component of price, are considered together with such factors.
Debt securities are traded principally in the over-the-counter market on a net
basis through dealers acting for their own account and not as brokers. Pursuant
to the provisions of Section 28(e) of the Securities Exchange Act of 1934, the
Adviser is also authorized to place purchase or sale orders with brokers or
dealers who may charge a commission in excess of that charged by other brokers
or dealers if the amount of the commission charged is reasonable in relation to
the value of the brokerage and research services provided viewed either in
terms of that particular transaction or in relation to the Adviser's overall
responsibilities with respect to the account as to which the Adviser exercises
investment discretion. Such allocation will be in such amounts and in such
proportion as the Adviser may determine. The information and services furnished
to the Adviser include the furnishing of research reports and statistical
compilations and computations and the providing of current quotations for
securities. The services and information are furnished to the Adviser at no
cost to it; no such services or information were furnished directly to the
Fund, but certain of these services might have relieved the Fund of expenses
which it would otherwise have had to pay. Such information and services are
considered by the Adviser, and brokerage commissions are allocated in
accordance with its assessment of such information and services, but only in a
manner consistent with the placing of purchase and sale orders with brokers
and/or dealers, which, in the judgement of the Adviser, are able to execute
such orders as expeditiously as possible. Orders may also be placed with
brokers or dealers who sell shares of the Fund or other funds for which the
Adviser acts as investment adviser, but this fact, or the volume of such sales,
is not a consideration in their selection.
During 2001, 2002 and 2003, the Fund paid brokerage commissions of
$287,820, $260,016 and $638,891 respectively, of which $172,860 (60%), $25,449
(10%) and $296,684 (46%) respectively, was paid to the Distributor, a subsidiary
of the Adviser. The Distributor clears transactions for the Fund through
unaffiliated broker-dealers. During 2002, the Fund paid $67,156 to the
Distributor for reimbursement of trading services on behalf of the Fund.
B-15
The Board of Directors has adopted procedures incorporating the standards
of Rule 17e-1 under the 1940 Act which requires that the commissions paid to
the Distributor or any other "affiliated person" be "reasonable and fair"
compared to the commissions paid to other brokers in connection with comparable
transactions. The procedures require that the Adviser furnish reports to the
Directors with respect to the payment of commissions to affiliated brokers and
maintain records with respect thereto. The Board of Directors reviews and
approves all such portfolio transactions on a quarterly basis and the
compensation received by the affiliates in connection therewith. During 2003,
$546,416 (86%) of the Fund's brokerage commissions were paid to brokers or
dealers solely for their services in obtaining the best prices and executions;
the balance, or $92,475 (14%), went to brokers or dealers who provided
information or services to the Adviser and, therefore, indirectly to the Fund
and the other entities that it advises. The Fund is advised that the receipt of
such information and services has not reduced in any determinable amount the
overall expenses of the Adviser.
During 2003, the Fund acquired securities of Lehman Brothers Holdings
Inc., one of the Fund's regular brokers. At December 31, 2003, the Fund owned
shares in such issuer with a value of $5,792,000.
PORTFOLIO TURNOVER. The Fund's annual portfolio turnover exceeded 100% in
the year ended December 31, 2003. A rate of portfolio turnover of 100% would
occur if all of the Fund's portfolio were replaced in a period of one year. To
the extent that the Fund engages in short-term trading in attempting to achieve
its objectives, it may increase portfolio turnover and incur higher brokerage
commissions and other expenses than might otherwise be the case. The Fund's
portfolio turnover rate for recent fiscal years is shown under "Financial
Highlights" in the Fund's Prospectus.
CAPITAL STOCK
Each share of the Fund's common stock, $1 par value, has one vote with
fractional shares voting proportionately. Shares have no preemptive rights, are
freely transferable, are entitled to dividends as declared by the Directors
and, if the Fund were liquidated, would receive the net assets of the Fund.
PURCHASE, REDEMPTION AND PRICING OF SHARES
PURCHASES: Shares of the Fund are purchased at net asset value next calculated
after receipt of a purchase order. Minimum orders are $1,000 for an initial
purchase and $100 for each subsequent purchase. The Fund reserves the right to
reduce or waive the minimum purchase requirements.
AUTOMATIC PURCHASES: The Fund offers a free service to its shareholders,
Valu-Matic, through which monthly investments of $25 or more may be made
automatically into the shareholder's Fund account. The required form to enroll
in this program is available upon request from the Distributor.
RETIREMENT PLANS: Shares of the Fund may be purchased as the investment medium
for various tax-sheltered retirement plans. Upon request, the Distributor will
provide information regarding eligibility and permissible contributions.
Because a retirement plan is designed to provide benefits in future years, it
is important that the investment objectives of the Fund be consistent with the
participant's retirement objectives. Premature withdrawals from a retirement
plan may result in adverse tax consequences. For more complete information,
contact Shareholder Services at 1-800-243-2729.
REDEMPTION: The right of redemption may be suspended, or the date of payment
postponed beyond the normal seven-day period, by the Fund under the following
conditions authorized by the Investment
B-16
Company Act of 1940: (1) For any period (a) during which the New York Stock
Exchange is closed, other than customary weekend and holiday closing, or (b)
during which trading on the New York Stock Exchange is restricted; (2) For any
period during which an emergency exists as a result of which (a) disposal by
the Fund of securities owned by it is not reasonably practical, or (b) it is
not reasonably practical for the Fund to determine the fair value of its net
assets; (3) For such other periods as the Securities and Exchange Commission
may by order permit for the protection of the Fund's shareholders.
The value of shares of the Fund on redemption may be more or less than the
shareholder's cost, depending upon the market value of the Fund's assets at the
time. Shareholders should note that if a loss has been realized on the sale of
shares of the Fund, the loss may be disallowed for tax purposes if shares of
the same Fund are purchased within (before or after) 30 days of the sale.
It is possible that conditions may exist in the future which would, in the
opinion of the Board of Directors, make it undesirable for the Fund to pay for
redemptions in cash. In such cases the Board may authorize payment to be made
in portfolio securities or other property of the Fund. However, the Fund has
obligated itself under the Investment Company Act of 1940 to redeem for cash
all shares presented for redemption by any one shareholder up to $250,000 (or
1% of the Fund's net assets if that is less) in any 90-day period. Securities
delivered in payment of redemptions are valued at the same value assigned to
them in computing the net asset value per share. Shareholders receiving such
securities may incur brokerage costs on their sales.
CALCULATION OF NET ASSET VALUE: The net asset value of the Fund's shares for
purposes of both purchases and redemptions is determined once daily as of the
close of regular trading on the New York Stock Exchange (generally 4:00 p.m.,
New York time) on each day that the New York Stock Exchange is open for trading
except on days on which no orders to purchase, sell or redeem Fund shares have
been received. The New York Stock Exchange is currently closed on New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day and on the
preceding Friday or subsequent Monday if one of those days falls on a Saturday
or Sunday, respectively. The net asset value per share is determined by
dividing the total value of the investments and other assets of the Fund, less
any liabilities, by the total outstanding shares. Securities listed on a
securities exchange are valued at the closing sales price on the date as of
which the net asset value is being determined. The Fund generally values equity
securities traded on the NASDAQ Stock Market at the NASDAQ Official Closing
Price. In the absence of closing sales prices for such securities and for
securities traded in the over-the-counter market, the security is valued at the
midpoint between the latest available and representative asked and bid prices.
Securities for which market quotations are not readily available or which are
not readily marketable and all other assets of the Fund are valued at fair
value as the Board of Directors or persons acting at their direction may
determine in good faith. Short-term instruments with maturities of 60 days or
less at the date of purchase are valued at amortized cost, which approximates
market.
TAXES
The Fund has elected to be treated, has qualified and intends to continue
to qualify as a regulated investment company under the Internal Revenue Code of
1986, as amended (the "Code"). By so qualifying, and assuming the Fund meets
the distribution requirements stated below, the Fund is not subject to Federal
income tax on its net investment income or net realized capital gains which are
distributed to shareholders (whether or not reinvested in additional Fund
shares). In order to qualify as a regulated investment company under Subchapter
M of the Code, which qualification this discussion
B-17
assumes, the Fund must, among other things, derive at least 90% of its gross
income for each taxable year from dividends, interest, payments with respect to
securities loans, gains from the sale or other disposition of stock, securities
or foreign currencies, or other income (including gains from options, futures
and forward contracts) derived with respect to its business of investing in
such stock, securities or currencies (the "90% income test") and satisfy
certain quarterly asset diversification requirements.
If the Fund qualifies as a regulated investment company and, for each
taxable year, it distributes to its shareholders an amount equal to or
exceeding the sum of (i) 90% of its "investment company taxable income" as that
term is defined in the Code (which includes, among other things, dividends,
taxable interest, and the excess of any net short-term capital gains over net
long-term capital losses, as reduced by certain deductible expenses) without
regard to the deduction for dividends paid and (ii) 90% of the excess of its
gross tax-exempt interest, if any, over certain disallowed deductions, the Fund
generally will be relieved of U.S. federal income tax on any income of the
Fund, including "net capital gain" (the excess of net long-term capital gain
over net short-term capital loss), distributed to shareholders. However, if the
Fund meets such distribution requirements, but chooses to retain some portion
of investment company taxable income or net capital gain, it generally will be
subject to U.S. federal income tax at regular corporate rates on the amount
retained. The Fund intends to distribute at least annually all or substantially
all of its investment company taxable income, net tax-exempt interest, and net
capital gain. If for any taxable year the Fund did not qualify as a regulated
investment company or did not satisfy the distribution requirement described
above, it generally would be treated as a corporation subject to U.S. federal
income tax and when such income is distributed, it would be subject to a
further tax at the shareholder level.
The Code requires each regulated investment company to pay a nondeductible
4% excise tax to the extent the company does not distribute, during each
calendar year, 98% of its ordinary income, determined on a calendar year basis,
and 98% of its capital gains in excess of capital losses, determined, in
general, for a one-year period ending on October 31 of such year, plus certain
undistributed amounts from previous years. The Fund anticipates that it will
make sufficient timely distributions to avoid imposition of the excise tax.
Realized losses incurred after October 31, if so elected by the Fund, are
deemed to arise on the first day of the following fiscal year.
Unless a shareholder elects otherwise, distributions from the Fund will be
automatically invested in additional common shares of the Fund. For U.S.
federal income tax purposes, such distributions generally will be taxable
whether a shareholder takes them in cash or they are reinvested in additional
shares of the Fund. In general, assuming that the Fund has sufficient earnings
and profits, dividends from investment company taxable income are taxable
either as ordinary income or, if so designated by the Fund and certain other
conditions are met, as "qualified dividend income" taxable to individual
shareholders at a maximum 15% U.S. federal income tax rate. Dividend income
distributed to individual shareholders will qualify for such maximum 15% U.S.
federal income tax rate to the extent that such dividends are attributable to
"qualified dividend income" as that term is defined in Section 1(h)(11)(B) of
the Code from the Fund's investment in common and preferred stock of U.S.
companies and stock of certain foreign corporations, provided that certain
holding period and other requirements are met by both the Fund and the
shareholders.
A dividend that is attributable to qualified dividend income of the Fund
that is paid by the Fund to an individual shareholder will not be taxable as
qualified dividend income to such shareholder if (1) the
B-18
dividend is received with respect to any share of the Fund held for fewer than
61 days during the 121-day period beginning on the date which is 60 days before
the date on which such share became ex-dividend with respect to such dividend,
(2) to the extent that the shareholder is under an obligation (whether pursuant
to a short sale or otherwise) to make related payments with respect to
positions in substantially similar or related property, or (3) the shareholder
elects to have the dividend treated as investment income for purposes of the
limitation on deductibility of investment interest.
Dividends from net capital gain that are designated as capital gain
dividends, if any, are taxable as long-term capital gains for U.S. federal
income tax purposes without regard to the length of time the shareholder has
held shares of the Fund. Capital gain dividends distributed by the Fund to
individual shareholders generally will qualify for the maximum 15% federal tax
rate on long-term capital gains. A shareholder should also be aware that the
benefits of the favorable tax rate on long-term capital gains and qualified
dividend income may be impacted by the application of the alternative minimum
tax to individual shareholders. Under current law, the maximum 15% U.S. federal
income tax rate on qualified dividend income and long-term capital gains will
cease to apply to taxable years beginning after December 31, 2008.
Distributions by the Fund in excess of the Fund's current and accumulated
earnings and profits will be treated as a return of capital to the extent of
(and in reduction of) the shareholder's tax basis in its shares and any such
amount in excess of that basis will be treated as gain from the sale of shares,
as discussed below. The federal income tax status of all distributions will be
reported to shareholders annually.
At the time of an investor's purchase of Fund shares, a portion of the
purchase price may be attributable to realized or unrealized appreciation in
the Fund's portfolio or undistributed taxable income of the Fund. Consequently,
subsequent distributions by the Fund with respect to these shares from such
appreciation or income may be taxable to such investor even if the net asset
value of the investor's shares is, as a result of the distributions, reduced
below the investor's cost for such shares and the distributions economically
represent a return of a portion of the investment. In particular, investors
should be careful to consider the tax implications of buying shares just prior
to a distribution. The price of shares purchased at that time (at the net asset
value per share) may include the amount of the forthcoming distribution. Those
purchasing just prior to a distribution will then receive, in effect, a return
of capital upon the distribution which will nevertheless be taxable to them.
Furthermore, under the Code, dividends declared by the Fund in October,
November or December of any calendar year, and payable to shareholders of
record in such a month, shall be deemed to have been received by such
shareholder on December 31 of such calendar year if such dividend is actually
paid in January of the following calendar year.
If the Fund invests in certain pay-in-kind securities, zero coupon
securities or, in general, any other securities with original issue discount
(or with market discount if the Fund elects to include market discount in
income currently), the Fund generally must accrue income on such investments
for each taxable year, which generally will be prior to the receipt of the
corresponding cash payments. However, the Fund must distribute, at least
annually, all or substantially all of its investment company taxable income,
including such accrued income, to shareholders to qualify as a regulated
investment company under the Code and avoid U.S. federal income and excise
taxes. Therefore, the Fund may have to dispose of its portfolio securities
under disadvantageous circumstances to generate cash, or may have to borrow the
cash, to satisfy distribution requirements.
Dividends received by the Fund from U.S. corporations in respect of any
share of stock with a tax holding period of at least 46 days (91 days in the
case of certain preferred stock) extending before and
B-19
after each dividend held in an unleveraged position and distributed and
designated by the Fund (except for capital gain dividends received from a
regulated investment company) may be eligible for the 70% dividends-received
deduction generally available to corporations under the Code. Any corporate
shareholder should consult its adviser regarding the possibility that its tax
basis in its shares may be reduced for U.S. federal income tax purposes by
reason of "extraordinary dividends" received with respect to the shares and, to
the extent reduced below zero, current recognition of income may be required.
In order to qualify for the deduction, corporate shareholders must meet the
minimum holding period requirement stated above with respect to their Fund
shares, taking into account any holding period reductions from certain hedging
or other transactions or positions that diminish their risk of loss with
respect to their Fund shares, and, if they borrow to acquire or otherwise incur
debt attributable to Fund shares, they may be denied a portion of the
dividends-received deduction. The entire dividend, including the otherwise
deductible amount, will be included in determining the excess, if any, of a
corporation's adjusted current earnings over its alternative minimum taxable
income, which may increase a corporation's alternative minimum tax liability.
Upon request, the Fund will inform shareholders of the amounts of the
qualifying dividends.
Options written or purchased by the Fund and futures contracts purchased
on certain securities and indices may cause the Fund to recognize gains or
losses from marking-to-market even though such options may not have lapsed,
been closed out, or exercised or such futures contracts may not have been
performed or closed out. The tax rules applicable to these contracts may affect
the characterization of some capital gains and losses recognized by the Fund as
long-term or short-term. Additionally, the Fund may be required to recognize
gain if an option, futures contract, short sale, or other transaction that is
not subject to the mark-to-market rules is treated as a "constructive sale" of
an "appreciated financial position" held by the Fund under Section 1259 of the
Code. Any net mark-to-market gains and/or gains from constructive sales may
also have to be distributed to satisfy the distribution requirements referred
to above even though the Fund may receive no corresponding cash amounts,
possibly requiring the Fund to dispose of portfolio securities or to borrow to
obtain the necessary cash. Losses on certain options, futures and/or offsetting
positions (portfolio securities or other positions with respect to which the
Fund's risk of loss is substantially diminished by one or more options or
futures contracts) may also be deferred under the tax straddle rules of the
Code, which may also affect the characterization of capital gains or losses
from straddle positions and certain successor positions as long-term or
short-term. Certain tax elections may be available that would enable the Fund
to ameliorate some adverse effects of the tax rules described in this
paragraph. The tax rules applicable to options, futures contracts, short sales,
and straddles may affect the amount, timing and character of the Fund's income
and gains or losses and hence of its distributions to shareholders.
A shareholder may realize a capital gain or capital loss on the sale,
exchange or redemption of shares of the Fund. The tax consequences of a sale,
exchange or redemption depend upon several factors, including the shareholder's
adjusted tax basis in the shares sold, exchanged or redeemed and the length of
time the shares have been held. Initial basis in the shares will be the actual
cost of those shares (net asset value of Fund shares on purchase or
reinvestment date). Shareholders should consult their own tax advisers with
reference to their individual circumstances to determine whether any particular
transaction in the Fund's shares is properly treated as a sale for tax
purposes, as the following discussion assumes, and the tax treatment of any
gains or losses recognized in such transactions. In general, if Fund shares are
sold, redeemed or exchanged, the shareholder will recognize gain or loss equal
to the difference between the amount realized on the sale and the shareholder's
adjusted tax basis in the shares. Such gain or loss generally will be treated
as long-term capital gain or loss if the shares
B-20
were held for more than one year and otherwise generally will be treated as
short-term capital gain or loss. Any loss realized by shareholders upon the
sale, redemption or exchange of shares within six months of the date of their
purchase will generally be treated as a long-term capital loss to the extent of
any distributions of net long-term capital gains with respect to such shares.
Moreover, a loss on a sale, exchange or redemption of Fund shares will be
disallowed if shares of the Fund are purchased within 30 days before or after
the shares are sold, exchanged or redeemed. Individual shareholders may
generally deduct in any year only $3,000 of capital losses that are not offset
by capital gains and remaining losses may be carried over to future years.
Corporations may generally deduct capital losses only against capital gains
with certain carryovers for excess losses.
Under Treasury regulations, if a shareholder recognizes a loss with
respect to shares of $2 million or more for an individual shareholder, or $10
million or more for a corporate shareholder, in any single taxable year (or
greater amounts over a combination of years), the shareholder must file with
the Internal Revenue Service a disclosure statement on Form 8886. Shareholders
who own portfolio securities directly are in many cases excepted from this
reporting requirement but, under current guidance, shareholders of regulated
investment companies are not excepted. The fact that a loss is reportable under
these regulations does not affect the legal determination of whether or not the
taxpayer's treatment of the loss is proper. Shareholders should consult with
their tax advisers to determine the applicability of these regulations in light
of their individual circumstances.
For shareholders who fail to furnish to the Fund their social security or
taxpayer identification numbers and certain related information or who fail to
certify that they are not subject to back-up withholding, dividends,
distributions of capital gains and redemption proceeds paid by the Fund will be
subject to a Federal 28% "backup withholding" requirement. In addition, the
Fund may be required to backup withhold if it receives notice from the IRS or a
broker that the number provided is incorrect or backup withholding is
applicable as a result of previous underreporting of interest or dividend
income. If the withholding provisions are applicable, any such dividends or
capital-gain distributions to these shareholders, whether taken in cash or
reinvested in additional shares, and any redemption proceeds will be reduced by
the amounts required to be withheld.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to shareholders who are U.S. persons (i.e., U.S. citizens or
residents, domestic corporations and partnerships, and certain trusts and
estates) and is not intended to be a complete discussion of all Federal tax
consequences. This discussion does not address the special tax rules that may
be applicable to particular types of investors, such as financial institutions,
insurance companies, securities dealers or tax-exempt or tax-deferred plans,
accounts or entities. Shareholders who are not U.S. persons may be subject to a
non-resident alien U.S. withholding tax at the rate of 30% or at a lower treaty
rate on amounts treated as ordinary dividends from the Fund and, unless an
effective IRS Form W-8 BEN or other authorized certificate is on file, to
backup withholding at the rate of 28% on certain other payments from the Fund.
Shareholders are advised to consult with their tax advisers concerning the
application of Federal, state, local and foreign taxes to an investment in the
Fund.
PERFORMANCE DATA
From time to time, the Fund may state its total return in advertisements
and investor communications. Total return may be stated for any relevant period
as specified in the advertisement or communication. Any statements of total
return or other performance data on the Fund will be accompanied by information
on the Fund's average annual compounded rate of return for the periods of
B-21
one year, five years and ten years, all ended on the last day of a recent
calendar quarter. The Fund may also advertise aggregate total return
information for different periods of time.
For the one, five and ten year periods ending December 31, 2003, the
Fund's average annual total returns were 16.28%, -4.08% and 6.26%,
respectively; the Fund's average annual total returns (after taxes on
distributions) were 14.48%, -4.94% and 4.20%, respectively; the Fund's average
annual total returns (after taxes on distributions and sale of Fund shares)
were 12.95%, -3.46% and 4.60%, respectively.
The Fund's total return may be compared to relevant indices and data from
Lipper Analytical Services, Inc., Morningstar or Standard & Poor's Indices.
From time to time, evaluations of the Fund's performance by independent
sources may also be used in advertisements and in information furnished to
present or prospective investors in the Fund.
Investors should note that the investment results of the Fund will
fluctuate over time, and any presentation of the Fund's current yield, total
return or distribution rate for any period should not be considered as a
representation of what an investment may earn or what an investor's total
return, yield or distribution rate may be in any future period.
FINANCIAL STATEMENTS
The Fund's financial statements for the year ended December 31, 2003,
including the financial highlights for each of the five fiscal years in the
period ended December 31, 2003, appearing in the 2003 Annual Report to
Shareholders and the report thereon of PricewaterhouseCoopers LLP, independent
auditors, appearing therein, are incorporated by reference in this Statement of
Additional Information.
B-22
PART C: OTHER INFORMATION
ITEM 23. EXHIBITS.
(a) Articles of Incorporation, as amended.*
(b) By-laws.*
(c) Instruments Defining Rights of Security Holders. Reference is made
to Article Fifth of the Articles of Incorporation filed as Exhibit
(a) to Post-Effective Amendment No. 84, filed February 24, 1999.
(d) Investment Advisory Agreement.*
(e) Underwriting Contract.*
(f) Not applicable.
(g) Custodian Agreement.*
(h) Not applicable.
(i) Legal Opinion.*
(j) Consent of independent auditors.
(k) Not applicable.
(l) Not applicable.
(m) Service and Distribution Plan.***
(p) Code of Ethics.**
* Filed as an exhibit to Post-Effective Amendment No. 84, filed
February 24, 1999, and incorporated herein by reference.
** Filed as an exhibit to Post-Effective Amendment No. 85, filed April
26, 2000, and incorporated herein by reference.
*** Filed as an exhibit to Post-Effective Amendment No. 86, filed April
27, 2001, and incorporated herein by reference.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None
ITEM 25. INDEMNIFICATION.
Incorporated by reference to Article Seventh (7)(c) of the Articles of
Incorporation filed as Exhibit (a) to Post-Effective Amendment No. 84, filed
February 24, 1999.
ITEM 26. BUSINESS OR OTHER CONNECTIONS OF INVESTMENT ADVISER.
Value Line, Inc., Registrant's investment adviser, acts as investment
adviser for a number of individuals, trusts, corporations and institutions, in
addition to the registered investment companies in the Value Line Family of
Funds listed in Item 27.
C-1
POSITION WITH
NAME THE ADVISER OTHER EMPLOYMENT
----------------------- --------------------------- --------------------------------------------
Jean Bernhard Buttner Chairman of the Board, Chairman of the Board and Chief Executive
President and Chief Officer of Arnold Bernhard & Co., Inc. and
Executive Officer Chairman of the Value Line Funds and the
Distributor
Samuel Eisenstadt Senior Vice President and ---------------------------------
Director
David T. Henigson Vice President, Treasurer Vice President and a Director of Arnold
and Director Bernhard & Co., Inc. and the Distributor
Howard A. Brecher Vice President, Secretary Vice President, Secretary, Treasurer and a
and Director Director of Arnold Bernhard & Co., Inc.
Stephen Anastasio Chief Financial Officer ---------------------------------
Harold Bernard, Jr. Director Attorney-at-law; Retired Administrative Law
Judge
Herbert Pardes, MD Director President and CEO of New York-Presbyterian
Hospital
Marion N. Ruth Director Real Estate Executive. President, Ruth Realty
(real estate broker). Director or Trustee of
each of the Value Line Funds
Marianne B. Asher Director Private Investor
Edgar A. Buttner, MD Director Postdoctoral Fellow, Harvard University
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) Value Line Securities, Inc., acts as principal underwriter for the
following Value Line funds, including the Registrant: The Value Line
Fund, Inc.; Value Line Income and Growth Fund, Inc.; The Value Line
Special Situations Fund, Inc.; Value Line Leveraged Growth
Investors, Inc.; The Value Line Cash Fund, Inc.; Value Line U.S.
Government Securities Fund, Inc.; Value Line Centurion Fund, Inc.;
The Value Line Tax Exempt Fund, Inc.; Value Line Convertible Fund,
Inc.; Value Line Aggressive Income Trust; Value Line New York Tax
Exempt Trust; Value Line Strategic Asset Management Trust; Value
Line Emerging Opportunities Fund, Inc.; Value Line Asset Allocation
Fund, Inc.
(b)
(2)
POSITION AND (3)
(1) OFFICES POSITION AND
NAME AND PRINCIPAL WITH VALUE LINE OFFICES WITH
BUSINESS ADDRESS SECURITIES, INC. REGISTRANT
---------------- ---------------- ----------
Jean Bernhard Buttner Chairman of the Chairman of the
Board Board and
President
David T. Henigson Vice President, Vice President,
Secretary, Secretary and
Treasurer and Treasurer
Director
Stephen LaRosa Asst. Vice Asst. Treasurer
President
The business address of each of the officers and directors is 220 East
42nd Street, New York, NY 10017-5891.
C-2
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
Value Line, Inc.
220 East 42nd Street
New York, NY 10017
For records pursuant to:
Rule 31a-1(b)(4),(5),(6),(7),(10),(11)
Rule 31a-1(f)
State Street Bank and Trust Company
c/o BFDS
P.O. Box 219729
Kansas City, MO 64121
For records pursuant to Rule 31a-1(b)(2)(iv)
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
For all other records
ITEM 29. MANAGEMENT SERVICES.
None.
ITEM 30. UNDERTAKINGS.
None.
----------------
C-3
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in this Post-Effective
Amendment No. 89 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 19, 2004 relating to the financial
statements and financial highlights which appear in the December 31, 2003
Annual Report to Shareholders of The Value Line Fund, Inc., which are also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the headings "Financial Highlights", "Investment
Advisory and Other Services" and "Financial Statements" in such Registration
Statement.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
April 21, 2004
C-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment
to its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, and State of New York, on
the 20th day of April, 2004.
THE VALUE LINE FUND, INC.
By: /S/ DAVID T. HENIGSON
---------------------------------
DAVID T. HENIGSON, VICE PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed below by the following persons in the capacities and on the
dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
*JEAN B. BUTTNER Chairman and Director; April 20, 2004
(JEAN B. BUTTNER) President; Principal
Executive Officer
*JOHN W. CHANDLER Director April 20, 2004
(JOHN W. CHANDLER)
*FRANCES T. NEWTON Director April 20, 2004
(FRANCES T. NEWTON)
*FRANCIS C. OAKLEY Director April 20, 2004
(FRANCIS C. OAKLEY)
*DAVID H. PORTER Director April 20, 2004
(DAVID H. PORTER)
*PAUL CRAIG ROBERTS Director April 20, 2004
(PAUL CRAIG ROBERTS)
*MARION N. RUTH Director April 20, 2004
(MARION N. RUTH)
*NANCY-BETH SHEERR Director April 20, 2004
(NANCY-BETH SHEERR)
/S/ DAVID T. HENIGSON Treasurer; Principal Financial April 20, 2004
--------------------- and Accounting Officer
(DAVID T. HENIGSON)
*By /S/ DAVID T. HENIGSON
-------------------------------------
(DAVID T. HENIGSON, ATTORNEY-IN-FACT)
C-5