As filed with the Securities and Exchange Commission on April 27, 2007
File No. 2-10827
File No. 811-02265
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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. 93 [X]
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 93 [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
496 Valley Rd
Cos Cob, CT 06807
It is proposed that this filing will become effective (check appropriate box)
[_] immediately upon filing pursuant to paragraph (b)
[X] on May 1, 2007 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, 2007
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[GRAPHIC OMITTED]
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VALUE LINE
No-Load
Mutual
Funds
#539216
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 the Fund is Managed
Investment Objective Page 7
Principal investment strategies Page 7
The principal risks of investing in the Fund Page 8
Who Manages the Fund
Investment Adviser Page 9
Management fees Page 9
Portfolio management Page 9
About Your Account
How to buy shares Page 10
How to sell shares Page 13
Frequent purchases and redemptions of Fund shares Page 15
Special services Page 16
Dividends, distributions and taxes Page 17
Financial Highlights
Financial Highlights Page 19
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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. The Fund's investment adviser is Value Line, Inc.
(the "Adviser").
What are the Fund's main investment strategies?
To achieve the Fund's goals, the Adviser invests substantially
all of the Fund's net assets in common stocks. In selecting
securities for purchase or sale, the Adviser relies on a
quantitative strategy that is based on the Value Line
TimelinessTM Ranking System (the "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 and it
will usually purchase stocks that are ranked 1 by the Ranking
System. The Fund will usually sell a stock when its rank falls
below 1. 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.
Because the Fund is actively managed, its investment return
depends on the ability of the Adviser to manage its portfolio
successfully. There can be no guarantee that the Adviser's
investment strategies will produce the desired results.
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.
Because the Fund uses the Ranking System, there is the risk
that securities not covered by the Ranking System or lower
rated securities will appreciate to a greater extent than
those securities in the Fund's portfolio.
2
An investment in the Fund is not a complete investment program
and you should consider it just one part of your total
investment program. An investment in the Fund is not insured
or guaranteed by the Federal Deposit Insurance Corporation or
any other governmental agency. For a more complete discussion
of risk, please turn to page 8.
How has the Fund performed?
This bar chart and table can help you evaluate the potential
risks of investing in the Fund. The bar chart below shows how
returns for the Fund's shares have varied over the past ten
calendar years, and the table below shows 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(Reg. TM) Index, a widely quoted,
unmanaged index of stock performance. You should remember that
unlike the Fund, this index is unmanaged and does not include
expenses, which are deducted from Fund returns, or taxes. 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 (%)
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[BAR CHART OMITTED]
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
21.59 20.25 26.74 -15.35 -12.82 -25.35 16.28 12.09 10.4 4.00
Best Quarter: Q4 1998 +23.89%
Worst Quarter: Q3 2001 (16.40%)
3
Average annual total returns for periods ended December 31, 2006
1 year 5 years 10 years
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Value Line Fund
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Return before taxes 4.00% 2.24% 4.33%
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Return after taxes on distributions 2.01% 0.19% 2.49%
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Return after taxes on distributions and sale
of Fund shares 3.78% 1.22% 3.10%
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S&P 500 Index (reflects no deduction
for fees, expenses or taxes) 15.79% 6.19% 8.42%
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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. 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 None
of offering price
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Maximum Deferred Sales Charges (Load) as a percentage of original None
purchases 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 0.20%
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Total Annual Fund Operating Expenses 1.12%
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Less: 12b-1 fee waiver* -0.25%
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Net Expenses* 0.87%
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* Effective August 31, 2006, Value Line Securities, Inc. (the "Distributor")
voluntarily waived the Fund's 12b-1 fee in an amount equal to 0.25% of the
Fund's average daily net assets. Effective May 1, 2007 through April 30,
2008, the Distributor contractually agreed to waive the Fund's 12b-1 fee.
There can be no assurance that the Distributor will extend the contractual
12b-1 fee waiver beyond such date.
5
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. The example shows the cumulative amount of Fund
expenses on a hypothetical investment of $10,000 with an
annual 5% return over the time shown assuming that (a) the
Fund's total operating expenses remain the same and (b) the
Distributor's contractual Rule 12b-1 fee waiver is in effect
for year one. 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 $89 $331 $593 $1,341
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6
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HOW THE FUND IS MANAGED
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Investment Objective
The Fund primarily seeks long-term growth of capital. Current
income is a secondary objective.
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.
In selecting securities for purchase or sale, the Adviser
relies on a quantitative strategy that is based on the Ranking
System. The Ranking System 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 stocks, including those with large, mid and small market
capitalizations. There are a relatively small number 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 of the
approximately 1,700 stocks under review. The Timeliness
Rankings are updated weekly to reflect the most recent
information.
The 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 common stocks of
U.S. companies and it will usually purchase stocks that are
ranked 1 by the Ranking System. The Fund will usually sell a
stock when its rank falls below 1. There are at present 100
stocks ranked 1. Reliance upon the Ranking System, whenever
feasible, is a fundamental policy of the Fund which may not be
changed without shareholder approval. The utilization of the
Ranking System is no assurance that the Fund will perform
similarly to or more favorably than the market in general over
any particular period.
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
7
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 occurs, 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
- 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. If an issuer is liquidated or declares
bankruptcy, the claims of owners of bonds will take precedence
over the claims of owners of common stocks.
- 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.
- The Fund's use of the 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 System, or
lower ranked securities, may appreciate to a greater extent
than those securities in the Fund's portfolio. Because the Fund
is actively managed, its investment return depends on the
ability of the Adviser to manage its portfolio successfully.
- 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. A description of the Fund's
policies and procedures with respect to the disclosure of the
Fund's portfolio securities is also available in the Statement
of Additional Information.
8
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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 (the "Adviser") and
manages the Fund's business affairs. The Adviser 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 $4 billion as of March 31, 2007.
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. The Distributor, Value Line Securities, Inc., 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 fee at an annual rate of 0.70% on the first $100 million of
the Fund's average daily net assets and 0.65% on any
additional assets. For the fiscal year ended December 31,
2006, the Adviser received a management fee equal to 0.67% of
the Fund's average daily net assets.
A discussion regarding the basis for the Fund's Board of
Directors' approval of the investment advisory agreement is
available in the Fund's most recent semi-annual report to
shareholders for the six month period ended June 30.
Portfolio management
Bradley Brooks and Kathleen Bramlage are jointly and primarily
responsible for the day-to-day management of the Fund's
portfolio using a quantitative investment strategy which
relies on the Value Line Timeliness Ranking System. Mr. Brooks
has been a portfolio manager with the Adviser during the past
five years and has been the Fund's portfolio manager since
June 2005. Ms. Bramlage has been a portfolio manager with the
Adviser since 2005 and has been the Fund's portfolio manager
since April 2006. From 1999 to 2005, she was an analyst
(part-time) with Loop Capital Markets, LLC. There is
additional information in the Statement of Additional
Information about the portfolio managers' compensation, other
accounts they manage and their ownership of Fund shares.
9
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ABOUT YOUR ACCOUNT
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How to buy shares
- By telephone
Once you have opened an account, you can buy additional shares
by calling 800-243-2729 (the Fund's transfer agent) 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.
- By wire
If you are making an initial purchase by wire, you must call
the Fund's transfer agent at 800-243-2729 so you can be
assigned 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.
- Through a broker-dealer
You can open an account and buy shares through a
broker-dealer, who may charge a fee for this service.
- 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.
- 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 your purchase
order is received. The Fund reserves the right to reject any
purchase order and to reduce or waive the minimum purchase
requirements at any time.
10
- 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 time) every day the
Exchange is open for business. The Exchange is currently
closed on weekends, 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
received in correct form by BFDS as agent for the Fund. The
Fund reserves the right to reject any purchase order and to
waive the initial and subsequent investment minimums at any
time.
Fund shares may be purchased through various third-party
intermediaries authorized by the Fund 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.
- 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 the Distributor. The plan provides
that the Distributor may make payments to securities dealers,
banks, financial institutions and other organizations which
provide distribution, marketing 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, which means that the Distributor
may earn a profit under the plan. Effective August 31, 2006,
the Distributor voluntarily waived the Fund's Rule 12b-1 fee.
Effective May 1, 2007 through April 30, 2008, the Distributor
contractually agreed to waive the Fund's Rule 12b-1 fee. There
can be no assurance that the Distributor will extend the
contractual fee waiver beyond such date. Because Rule 12b-1
fees are paid out of the Fund's assets on an ongoing basis,
11
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.
- Additional dealer compensation
The Distributor may pay additional compensation, out of its
own assets, to certain brokerage firms and other intermediaries
or their affiliates, based on Fund assets held by that firm,
or such other criteria agreed to by the Distributor. The
Distributor determines the firms to which payments may be
made.
- Net asset value
The Fund's NAV is determined as of the close of regular
trading on the Exchange each day the Exchange is open for
business. NAV is calculated 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.
Securities for which market prices or quotations are readily
available are priced at their market value. Securities for
which market valuations are not readily available are priced
at their fair value by the Adviser pursuant to policies and
procedures adopted by the Board of Directors. The Fund will
use the fair value of a security when the closing market price
on the primary exchange where the security is traded no longer
accurately reflects the value of a security due to factors
affecting one or more relevant securities markets or the
specific issuer. The use of fair value pricing by the Fund may
cause the NAV to differ from the NAV that would be calculated
using closing market prices. There can be no assurance that
the Fund could obtain the fair value assigned to a security if
it sold the security at approximately the time at which the
Fund determined its NAV. Investments which have a maturity of
less than 60 days are priced at amortized cost, which
represents fair value. 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.
- 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
12
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 or close
your account if it is unable to verify your identity.
How to sell shares
- 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.
The Fund will pay you promptly, normally the next business
day, but no later than seven days after your request to sell
your shares is received. If you purchased your shares by
check, the Fund will wait until your check has cleared, which
can take up to 15 days from the day of purchase, before the
proceeds are sent 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.
- 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. When the intermediary is authorized by the Fund, the
shares that you buy or sell through the intermediary are
priced at the next NAV that is computed after the receipt of
your order by the intermediary.
13
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.
- 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. The Fund reserves the
right to reject any exchange order.
When you send the Fund's transfer agent a properly completed
request to sell or exchange shares, you will receive the NAV
that is next determined after your request is received by the
Fund. 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 information on 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 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.
14
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 liquid portfolio securities, wholly or in
part, rather than cash--if the amount being redeemed is large
enough to affect Fund operations. The redeeming shareholder
will pay transaction costs, including brokerage fees, to sell
these securities and will bear the market risk of holding the
securities.
Frequent purchases and redemptions of Fund shares
Frequent purchases and redemptions of the Fund's shares entail
risks, including the dilution in value of the Fund shares held
by long-term shareholders, interference with the efficient
management of the Fund's portfolio, and increased brokerage
and administrative costs. Because the Fund does not
accommodate frequent purchases and redemptions of Fund shares,
the Fund's Board of Directors has adopted policies and
procedures to prohibit investors from engaging in late trading
and to discourage excessive and short-term trading practices
that may disrupt portfolio management strategies and harm Fund
performance.
Although there is no generally applied standard in the
marketplace as to what level of trading activity is excessive,
the Fund considers trading in its shares to be excessive if an
investor:
- sells shares within 30 days after the shares were purchased;
- makes more than four exchanges out of the Fund during a
calendar year(other than systematic purchases and redemptions);
- enters into a series of transactions that is indicative of a
timing pattern strategy.
In order to seek to detect frequent purchases and redemptions
of Fund shares, the Adviser monitors selected trades. If the
Adviser determines that an investor or a client of a broker
has engaged in excessive short-term trading that may be
harmful to the Fund, the Adviser will ask the investor or
broker to cease such activity and may refuse to process
purchase orders (including purchases by
15
exchange) of such investor, broker or accounts that the Adviser
believes arem under their control. The Adviser applies these
restrictions uniformly in all cases.
While the Adviser uses its reasonable efforts to detect
excessive trading activity, there can be no assurance that its
efforts will be successful or that market timers will not
employ tactics designed to evade detection. Neither the
Adviser, the Fund nor any of its service providers may enter
into arrangements intended to facilitate frequent purchases and
redemptions of Fund shares. Frequently, shares are held through
omnibus accounts maintained by financial intermediaries such as
brokers and retirement plan administrators, where the holdings
of multiple shareholders, such as all the clients of a
particular broker, are aggregated. The Adviser's ability to
monitor trading practices by investors purchasing shares
through omnibus accounts is dependent upon the cooperation of
the financial intermediary in observing the Fund's policies.
Consequently, it may be more difficult for the Fund to detect
market timing activity through such accounts. However, the
Fund, through its agent, has entered into an information
sharing agreement with each financial intermediary, which
provides, among other things, that the financial intermediary
shall provide, promptly upon the Fund's request, certain
identifying and transaction information regarding its
underlying shareholders. Should the Fund detect market timing
activity, it may terminate the account or prohibit future
purchases or exchanges by an underlying shareholder. Because
omnibus accounts may apply their own market timing policies
with respect to their accounts, and because the Adviser retains
discretion in applying market timing policies, there is a risk
that different shareholders may be treated differently and some
level of market timing activity could occur.
Special services
To help make investing with the Fund as easy as possible, and
to help you manage your investments, the following special
services are available. You can get further information about
these programs by calling Shareholder Services at 800-243-2729.
- Valu-Matic(Reg. TM) allows you to make regular monthly
investments of $25 or more automatically from your checking
account.
- Through the Systematic Cash Withdrawal Plan you can arrange a
regular monthly or quarterly payment from your account payable
to you or someone 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
16
of a portion of your Fund shares which may result in income,
gain or loss to you , for federal income tax purposes.
- 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. Dividends and
any capital gains are automatically reinvested, unless you
indicate otherwise in your application to purchase shares.
At December 31, 2006, the Fund had net unrealized appreciation
of $20,993,126 representing approximately 11% 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 shareholders 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
dividend or capital gain distribution because such dividend or
distribution will generally be taxable even though the net
asset value of shares of the Fund will be reduced by the
dividend or distribution.
You will generally be taxed on dividends and distributions you
receive, regardless of whether you reinvest them or receive
them in cash. For federal income tax purposes, distributions
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 shares. In addition, you may
be subject to state and local taxes on dividends and
distributions.
17
The Fund 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 generally will 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. You should 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.
18
--------------------------------------------------------------------------------
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 derived from the
Fund's financial statements which were 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
================================================================================
Selected data for a share of capital stock outstanding throughout each year:
Years Ended December 31,
-----------------------------------------------------------------------------
2006 2005 2004 2003 2002
------------------------------------------------------------------------------------------------------------------
Net asset value, beginning
of year $ 13.14 $ 13.90 $ 14.25 $ 13.67 $ 18.49
------------------------------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment
income (loss) (0.05) (0.07) (0.08) (0.03) (0.05)
Net gains or losses on
securities (both realized
and unrealized) 0.58 1.53 1.80 2.24 (4.64)
------------------------------------------------------------------------------------------------------------------
Total from investment
operations 0.53 1.46 1.72 2.21 (4.69)
------------------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net
realized gains (1.19) (2.22) (2.07) (1.63) (0.13)
------------------------------------------------------------------------------------------------------------------
Net asset value, end of year $ 12.48 $ 13.14 $ 13.90 $ 14.25 $ 13.67
------------------------------------------------------------------------------------------------------------------
Total return 4.00% 10.40% 12.09% 16.28% (25.35)%
------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of year
(in thousands) $197,349 $213,715 $215,025 $216,047 $206,338
Ratio of expenses to average
net assets (1) 1.12%(2) 1.13% 1.13% 1.13% 1.11%
Ratio of net investment loss to
average net assets (0.37)% (0.52)% (0.58)% (0.19)% (.31)%
Portfolio turnover rate 224% 224% 297% 129% 33%
------------------------------------------------------------------------------------------------------------------
(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 unchanged for the years ended December 31, 2006, 2005, 2004, 2003 and
2002.
(2) Ratio reflects expenses grossed up for the voluntary waiver of the service
and distribution plan fee by the Distributor. The ratio of expenses to
average net assets net of the voluntary fee waiver, but exclusive of the
custody credit arrangement, would have been 1.04% for the year ended
December 31, 2006.
19
[This Page Intentionally Left Blank.]
[This Page Intentionally Left Blank.]
For more information
Additional information about the Fund's investments is
available in the Fund's annual and semi-annual reports to
shareholders and quarterly reports filed with the Securities
and Exchange Commission. 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, 2007, which has been 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 the Fund at 220
East 42nd Street, New York, NY 10017-5891 or call toll-free
800-243-2729. You may also obtain the prospectus, Statement of
Additional Information and annual and semi-annual reports,
free of charge, from the Fund's 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 202-551-8090.
--------------------------------------------------------------------------------
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, 2007
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, 2007, a copy of which may be obtained without charge by
writing or telephoning the Fund. The financial statements, accompanying notes
and report of independent registered public accounting firm appearing in the
Fund's 2006 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-7
Investment Advisory and Other Services ........................ B-11
Service and Distribution Plan ................................. B-13
Brokerage Allocation and Other Practices ...................... B-14
Capital Stock ................................................. B-15
Purchase, Redemption and Pricing of Shares .................... B-15
Taxes ......................................................... B-16
Performance Data .............................................. B-21
Financial Statements .......................................... B-22
B-1
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.
Restricted Securities. On occasion, the Fund may purchase illiquid
securities or 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 determined
by the Adviser to be liquid) 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 objectives 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.
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.
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 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
B-2
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.
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
indices 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 indices 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.
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
B-3
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 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
Adviser is satisfied with the development, depth and liquidity of the market
and the 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
B-4
character of Fund distributions. However, the Fund anticipates that these
investment activities will not prevent the Fund from qualifying as a regulated
investment company.
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 Fundamental 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.
(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
B-5
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.
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 used in this Statement of Additional
Information or the Prospectus 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 except for restriction (ii) and the
restriction on illiquid securities. 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-6
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. Each Director serves
until his or her successor is elected and qualified.
Other
Length of Principal Occupations Directorships
Name, Address, and Age Position Time Served During the Past 5 Years Held by Director
---------------------------- --------------------- ------------- ---------------------------------------------- -----------------
Interested Director* Chairman, President and Chief Executive Value Line, Inc.
Officer of Value Line, Inc. (the "Adviser") and
Jean Bernhard Buttner Chairman of the Since 1983 Value Line Publishing, Inc. Chairman and
Age 72 Board of Directors President of each of the 14 Value Line Funds
and President and Value Line Securities, Inc. (the
"Distributor").
Non-Interested Directors
John W. Chandler Director Since 1991 Consultant, Academic Search Consultation None
416 North Hemlock Ln Service, Inc., 1992-2004. Trustee Emeritus
Williamstown, MA 01267 and Chairman (1993-1994) of the Board of
Age 83 Trustees of Duke University; President
Emeritus, Williams College.
Frances T. Newton Director Since 2000 Retired; Customer Support Analyst, Duke None
4921 Buckingham Drive Power Company until April 2007.
Charlotte, NC 28209
Age 65
Francis C. Oakley Director Since 2000 Professor of History, Williams College, 1961 None
54 Scott Hill Road to 2002, Professor Emeritus since 2002,
Williamstown, MA 01267 President Emeritus since 1994 and President,
Age 75 1985-1994; Chairman (1993-1997) and
Interim President (2002-2003) of the
American Council of Learned Societies.
Trustee since 1997 and Chairman of the
Board since 2005, National Humanities
Center.
David H. Porter Director Since 1997 Visiting Professor of Classics, Williams None
5 Birch Run Drive College, since 1999; President Emeritus,
Saratoga Springs, NY 12866 Skidmore College since 1999 and President,
Age 71 1987-1998.
Paul Craig Roberts Director Since 1983 Chairman, Institute for Political Economy. None
169 Pompano St.
Panama City Beach, FL 32413
Age 68
Nancy-Beth Sheerr Director Since 1996 Senior Financial Advisor Veritable, L.P. None
1409 Beaumont Drive (investment advisor) 2004; Senior Financial
Gladwyne, PA 19035 Advisor, Hawthorn, 2001-2004.
Age 58
Officers
David T. Henigson Vice President, Since 1994 Director, Vice President and Compliance
Age 49 Secretary and Chief Officer of the Adviser. Director and Vice
Compliance Officer President of the Distributor. Vice President,
Secretary and Chief Compliance Officer of
each of the 14 Value Line Funds.
Stephen R. Anastasio Treasurer Since 2005 Controller of the Adviser until 2003; Chief
Age 48 Financial Officer of the Adviser, 2003-2005;
Treasurer of the Adviser since 2005;
Treasurer of each of the 14 Value Line
Funds.
------------
* Mrs. Buttner is an "interested person" as defined in the Investment
Company Act of 1940 ("1940 Act") by virtue of her positions with the
Adviser and her indirect ownership of a controlling interest in 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 registered public
accounting firm to review the range of their activities and to discuss the
Fund's system of internal accounting controls. The Audit Committee also meets
with the independent registered public
B-7
accounting firm in executive session at each meeting. There were four 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 combined
Nominating/Governance Committee consisting of the non-interested Directors the
purpose of which is to review and nominate candidates to serve as
non-interested directors and supervise fund governance matters. 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,
2006. 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.
Aggregate Compensation Total Compensation From Fund
Name of Person From Fund and Fund Complex (14 Funds)
----------------------------------------------------- ------------------------ -----------------------------
Interested Director
Jean B. Buttner .................................. $ -0- $ -0-
Non-Interested Directors
John W. Chandler ................................. 2,520 45,000
Frances T. Newton ................................ 2,520 45,000
Francis C. Oakley ................................ 2,520 45,000
David H. Porter .................................. 2,520 45,000
Paul Craig Roberts ............................... 2,520 45,000
Nancy-Beth Sheerr ................................ 2,520 45,000
The following table illustrates the dollar range of any equity securities
beneficially owned by each Director in the Fund and in all of the Value Line
Funds as of December 31, 2006:
Aggregate Dollar Range
Dollar Range of Equity of Equity Securities in
Name of Director Securities in the Fund All of the Value Line Funds
----------------------------------------------------- ------------------------ ----------------------------
Interested Director
Jean B. Buttner .................................. Over $100,000 Over $100,000
Non-Interested Directors
John W. Chandler ................................. $1 - $10,000 $50,001 - $100,000
Frances T. Newton ................................ $10,001 - $50,000 $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 ............................... None Over $100,000
Nancy-Beth Sheerr ................................ $1 - $10,000 $10,001 - $50,000
As of March 31, 2007, no person owned of record or, to the knowledge of
the Fund, owned beneficially, 5% or more of the outstanding stock of the Fund.
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, Value Line Securities, Inc., the Fund's
distributor (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.
B-8
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 periodically.
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
Institutional Shareholder Services ("ISS"), a proxy voting service that is not
affiliated with the Adviser or the Fund. In addition, ISS 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 ISS.
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, the Fund's vote may vary
depending upon the actual circumstances presented.
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
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 normally 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.
B-9
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, the Fund will file with the Securities and Exchange
Commission ("SEC") 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.
Disclosure of Portfolio Holdings
The Fund's policy is to provide portfolio holdings information to all
investors on an equal basis and in a manner that is not expected to interfere
with the Fund's investment strategies. To that end, the Fund provides general
portfolio holdings information to shareholders in its annual and semi-annual
reports, which reports are also filed with the Securities and Exchange
Commission ("SEC"). In addition, with respect to fiscal quarter ends for which
there is no shareholder report, the Fund files with the SEC a Form N-Q. Each of
these shareholder reports or filings provides full period end portfolio
holdings and is filed or mailed to shareholders within 60 days of the period
end.
In addition, the Fund's distributor produces for marketing purposes Fund
fact sheets, which include the Fund's top ten holdings and other information
regarding the Fund's portfolio. These fact sheets are prepared as soon as
possible after the end of the fiscal quarter but are not released until after
the Fund has filed with the SEC its annual, semi-annual or quarterly reports.
Ongoing Relationships. Officers of the Fund who are also officers of the
Adviser currently authorize the distribution of portfolio holdings information
other than that stated above to (i) the Fund's service providers and (ii)
investment company rating agencies, such as Morningstar, Standard and Poor's,
Lipper, Thomson Financial, Value Line Publishing and Bloomberg pursuant to
policies and procedures adopted by the Board of Directors. The Fund's service
providers are its accountants, custodian, counsel, pricing services
(Interactive Data Corporation) and proxy voting service, which may need to know
the Fund's portfolio holdings in order to provide their services to the Fund.
Information is provided to such firms without a time lag. Investment company
rating agencies require the portfolio holdings information more frequently than
the Fund otherwise discloses portfolio holdings in order to obtain their
ratings. This information is normally provided as soon as possible after the
period end, which may be month end or quarter end. The Adviser believes that
obtaining a rating from such rating agencies, and providing the portfolio
holdings information to them, is in the best interest of shareholders. While
the Fund does not have written confidentiality agreements from any rating
agency or service provider and may be subject to potential risks, the
information is provided with the understanding based on duties of
confidentiality arising under law or contract that it only may be used for the
purpose provided and should not be used to trade on such information or
communicated to others.
Non-Ongoing Relationships. Except for rating agencies and service
providers, non-public portfolio holdings disclosure may only be made if the
Fund's Chief Compliance Officer determines
B-10
that (i) there are legitimate business purposes for the Fund in making the
selective disclosure and (ii) adequate safeguards to protect the interest of
the Fund and its shareholders have been implemented. These safeguards include
requiring written undertakings regarding confidentiality, use of the
information for specific purposes and prohibition against trading on that
information. To the extent that an officer of the Fund determines that there is
a potential conflict of interest, with respect to the disclosure of information
that is not publicly available, between the interests of Fund shareholders, on
the one hand, and those of the Adviser, the Distributor or any affiliated
person of the Fund, the Adviser or the Distributor on the other hand, the
officer must inform the Fund's Chief Compliance Officer of such potential
conflict. The Chief Compliance Officer is responsible for determining whether
any such disclosure is reasonable under the circumstances and shall report any
potential conflict of interest and any selective disclosure of portfolio
holdings (other than to rating agencies and service providers) to the Fund's
Board of Directors. The Fund does not release portfolio holdings information to
any person for compensation.
The Board of Directors of the Fund has approved the Fund's portfolio
holdings disclosure policy and may require the Adviser to provide reports on
its implementation from time to time or require that the Fund's Chief
Compliance Officer monitor compliance with this policy.
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 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 equal to
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 2004, 2005 and 2006, the
Fund paid or accrued to the Adviser advisory fees of $1,377,000, $1,415,512 and
$1,418,348, 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.
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 $4 billion as of March 31, 2007.
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
B-11
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 1940 Act which permits personnel 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 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, accounting and administrative services for the
Fund. The Adviser pays State Street $76,400 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 300 Madison Avenue, New York, NY
10017, acts as the Fund's independent registered public accounting firm and
also performs certain tax preparation services.
Portfolio Managers
Bradley Brooks and Kathleen Bramlage are jointly and primarily responsible
for the day-to-day management of the Fund's portfolio using a quantitative
investment strategy which relies on the Value Line Timeliness Ranking System.
Compensation. Each portfolio manager employed by the Adviser receives a
fixed base salary and customary benefits that are offered generally to all
full-time and some part-time employees of the Adviser. In addition, a manager
may receive an annual bonus in the Adviser's discretion. Base salary is
normally reevaluated on an annual basis. Any bonus is completely discretionary
and may be in excess of a manager's base salary. The profitability of the
Adviser and the after tax investment performance of the accounts that the
portfolio manager is responsible for are factors in determining the manager's
overall compensation. The level of any bonus compensation may be influenced by
the relative performance of the accounts managed by the portfolio manager or
the financial performance of the Adviser. However, as noted, all bonus
compensation is discretionary and the Adviser does not employ formulas with
respect to either of these factors to compute a portfolio manager's bonus.
There are no differences in a portfolio manager's compensation structure for
managing mutual funds or private accounts.
Other Accounts Managed. Bradley Brooks is primarily or jointly responsible
for the day-to-day management of five Value Line mutual funds with combined
total assets at December 31, 2006 of approximately $1,176 million and six
private accounts with assets at December 31, 2006, of approximately $27
million. Kathleen Bramlage is primarily or jointly responsible for the
day-to-day management of six Value Line mutual funds with combined total assets
at December 31, 2006, of approximately $1,107,574.
B-12
Material Conflicts of Interest. The Adviser's portfolio managers typically
manage more than one account. Portfolio managers make investment decisions for
each account based on the investment objectives and policies of each such
account. If the portfolio manager identifies an investment opportunity that may
be suitable for multiple accounts, the Fund may not take full advantage of that
opportunity because the opportunity may need to be allocated among more than
one account. In addition, a portfolio manager may purchase or sell securities
for one account and not another account. The Adviser's private accounts, like
the Fund, pay an advisory fee based primarily upon the size of the accounts.
None of the accounts pay performance-related fees. Investments are allocated
among all of the Adviser's accounts in a manner which the Adviser deems to be
fair and equitable.
Ownership of Securities. Neither of the portfolio managers own any shares
of the Fund.
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 0.25% of the Fund's average daily net assets. During the fiscal year ended
December 31, 2006, the Fund paid fees of $526,288 before fee waivers to the
Distributor under the Plan. Effective August 31, 2006, the Distributor
voluntarily waived the Fund's Rule 12b-1 fee. The fees waived amounted to
$167,363 during the year ended December 31, 2006. The Distributor paid $56,991
to other broker-dealers and incurred $77,078 in advertising and other marketing
expenses. Effective May 1, 2007 through April 30, 2008, the Distributor
contractually agreed to waive the Fund's 12b-1 fee. There can be no assurance
that the Distributor will extend the contractual fee waiver beyond April 30,
2008.
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 marketing expenses, the Distributor may earn
a profit under the Plan.
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 1940
Act) 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 investment 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.
B-13
Additional Dealer Compensation
If you purchase shares of the Fund through a broker, fund trading platform
or other financial intermediary (collectively, "intermediaries"), your
intermediary may receive various forms of compensation from the Distributor.
Such payments may be based on a variety of factors, including sales of Fund
shares through that intermediary or the value of shares held by investors
through that intermediary. Compensation from the Distributor may vary among
intermediaries. The types of payments an intermediary may receive include:
o Payments under the Plan which are asset based charges paid from the
assets of the Fund;
o Payments by the Distributor out of its own assets. These payments are
in addition to payments made under the Plan.
You should ask your intermediary for information about any payments it
receives from the Distributor.
Prior to September 1, 2006, the maximum amount of compensation that may be
paid to any intermediary under the Plan is 0.25% of the Fund's average daily
net assets. Generally, the maximum amount of additional compensation that the
Distributor pays to any intermediary from its own assets is 0.15% of average
daily net assets. However, to the extent the Distributor waives any fees it
would have otherwise received under the Plan, the Distributor (and not the
Fund) would pay the intermediaries out of its own assets any such amounts
waived.
As of December 31, 2006, the Distributor may make payments out of its own
assets to the following financial intermediaries whose fees exceed the Fund's
payment, if any, pursuant to the Plan.
National City Bank
Pershing LLC
National Financial Services Corp.
E*TRADE
National Investors Services Corp.
Charles Schwab
USAA Investment Management Co.
The 401(k) Company
SunGard Transaction Network
MSCS Financial Services, LLC
Financial intermediaries may have been added or removed from the list
above since December 31, 2006.
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
B-14
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 2004, 2005 and 2006, the Fund paid brokerage commissions of
$1,710,414, $499,969 and $315,754, respectively, of which $574,755 (34%), $0
and $0, respectively, was paid to the Distributor, a subsidiary of the Adviser.
The Distributor cleared transactions for the Fund through unaffiliated
broker-dealers.
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 2006,
all of the Fund's brokerage commissions were paid to brokers or dealers solely
for their services in obtaining the best prices and executions.
Portfolio Turnover. The Fund's annual portfolio turnover exceeded 100% in
the years ended December 31, 2003, 2004, 2005 and 2006. 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.
B-15
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 1940 Act: (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 SEC 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 1940 Act 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 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 assumes, the Fund must,
among other things, (i) 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 and net income derived from an interest in a qualified
publicly traded partnership (as defined in Section 851(h) of the Code) (the
"90% income test") and (ii) diversify its holdings so that, at the end of each
quarter of each taxable year: (a) at least 50% of the value of the Fund's total
assets is represented by (1) cash and cash items, U.S. government securities,
securities of other regulated investment companies, and (2) other securities,
with such
B-16
other securities limited, in respect to any one issuer, to an amount not
greater than 5% of the value of the Fund's total assets and to not more than
10% of the outstanding voting securities of such issuer and (b) not more than
25% of the value of the Fund's total assets is invested in (1) the securities
(other than U.S. government securities and securities of other regulated
investment companies) of any one issuer, (2) the securities (other than
securities of other regulated investment companies) of two of more issuers that
the Fund controls and that are engaged in the same, similar, or related trades
or businesses, or (3) the securities of one or more qualified publicly traded
partnerships.
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 its 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 the Fund's 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.
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 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.
B-17
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, 2010.
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.
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. In addition, certain other distributions made after
the close of a taxable year of the Fund may be "spilled back" and treated as
paid by the Fund (except for purposes of the 4% excise tax) during such taxable
year. In such case, shareholders generally will be treated as having received
such dividends in the taxable year in which the distributions were actually
made.
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 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
B-18
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.
To the extent that the Fund invests in stock of foreign issuers, it may be
subject to withholding and other taxes imposed by foreign countries, including
taxes on interest, dividends and capital gains with respect to such
investments. Tax conventions between certain countries and the U.S. may reduce
or eliminate such taxes in some cases. The Fund does not expect to satisfy the
requirements for passing through to its shareholders their pro rata shares of
qualified foreign taxes paid by the Fund, with the result that shareholders
will not be entitled to a tax deduction or credit for such taxes on their own
tax returns.
If the Fund acquires any equity interest (under Treasury regulations that
may be promulgated in the future, generally including not only stock but also
an option to acquire stock such as is inherent in a convertible bond) in
certain foreign corporations that receive at least 75% of their annual gross
income from passive sources (such as interest, dividends, certain rents and
royalties, or capital gains) or that hold at least 50% of their assets in
investments producing such passive income ("passive foreign investment
companies"), the Fund could be subject to U.S. federal income tax and
additional interest charges on "excess distributions" received from such
companies or on gain from the sale of stock in such companies, even if all
income or gain actually received by the Fund is timely distributed to its
shareholders. The Fund would not be able to pass through to its shareholders
any credit or deduction for such a tax. Elections may generally be available
that would ameliorate these adverse tax consequences, but such elections could
require the Fund to recognize taxable income or gain (subject to tax
distribution requirements) without the concurrent receipt of cash. These
investments could also result in the treatment of capital gains from the sale
of stock of passive foreign investment companies as ordinary income. The Fund
may limit and/or manage its holdings in passive foreign investment companies to
limit its tax liability or maximize its return from these investments.
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.
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. In addition, for
U.S. federal income tax purposes, the Fund is
B-19
permitted to carry forward a net capital loss for any year to offset its
capital gains, if any, for up to eight years following the year of the loss. To
the extent subsequent capital gains are offset by such losses, they would not
result in U.S. federal income tax liability to the Fund and are not expected to
be distributed as such 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 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 Fund 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. A shareholder who fails to make the
required disclosure to the IRS may be subject to substantial penalties. 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.
Shareholders that are exempt from U.S. federal income tax, such as
retirement plans that are qualified under Section 401 of the Code, generally
are not subject to U.S. federal income tax on Fund dividends or distributions
or on sales or exchanges of Fund shares unless the acquisition of the Fund
shares was debt-financed. A plan participant whose retirement plan invests in
the Fund generally is not taxed on Fund dividends or distributions received by
the plan or on sales or exchanges of Fund shares by the plan for U.S. federal
income tax purposes. However, distributions to plan participants from a
retirement plan account generally are taxable as ordinary income and different
tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
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 backup withholding, dividends,
distributions of capital gains and redemption proceeds paid by the Fund will be
subject to U.S. 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
B-20
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 who hold their shares as capital assets and is not intended to be
a complete discussion of all federal tax consequences. Except as otherwise
provided, 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 (other than certain
dividends derived from short-term capital gains and qualified interest income
of the Fund for taxable years of the Fund commencing after December 31, 2004
and prior to January 1, 2008, provided that the Fund chooses to make a specific
designation relating to such dividends) 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. The Fund does not expect
to be a "U.S. real property holding corporation" as defined in section
897(c)(2) of the Code and, therefore, does not expect to be subject to
look-through rules for gains from the sale or exchange of U.S. real property
interests. If the Fund were a U.S. real property holding corporation, certain
distributions by the Fund to non-U.S. shareholders would be subject to U.S.
federal withholding tax at a rate of up to 35% and non-U.S. shareholders owning
5% or more of the Fund within one year of certain distributions would be
required to file a U.S. federal income tax return to report such gains.
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 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, 2006, the
Fund's average annual total returns were 4.00%, 2.24% and 4.33%, respectively;
the Fund's average annual total returns (after taxes on distributions) were
2.01%, 0.19% and 2.49%, respectively; the Fund's average annual total returns
(after taxes on distributions and sale of Fund shares) were 3.78%, 1.22% and
3.10%, 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.
B-21
FINANCIAL STATEMENTS
The Fund's financial statements for the year ended December 31, 2006,
including the financial highlights for each of the five fiscal years in the
period ended December 31, 2006, appearing in the 2006 Annual Report to
Shareholders and the report thereon of PricewaterhouseCoopers LLP, independent
registered public accounting firm, 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) (1) Administration Agreement with State Street Bank and Trust
Company.
(2) Fee Waiver Agreement.
(i) Legal Opinion.*
(j) Consent of independent registered public accounting firm
(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.
C-1
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.
Name Position With the Adviser Other Employment
-------------------------- --------------------------- -------------------------------------------
Jean Bernhard Buttner Chairman of the Chairman of the Board and Chief Executive
Board, President and Officer of Arnold Bernhard & Co., Inc. and
Chief Executive Officer Chairman of each of the Value Line Funds
and the Distributor
Samuel Eisenstadt Senior Vice President -------------------------------------------
David T. Henigson Vice President and Vice President and a Director of Arnold
Director Bernhard & Co., Inc. and the Distributor;
Vice President, Secretary and Chief
Compliance Officer of each of the Value
Line Funds
Howard A. Brecher Vice President, Vice President, Secretary, Treasurer and a
Secretary and Director Director of Arnold Bernhard & Co., Inc.
Mitchell Appel Chief Financial Officer -------------------------------------------
Stephen Anastasio Treasurer Treasurer of each of the Value Line Funds
Herbert Pardes, MD Director President and CEO of New
York-Presbyterian Hospital
Edward J. Shanahan Director President and Headmaster, Choate
Rosemary Hall (boarding school)
Marion Ruth Director Real Estate Executive; President, Ruth
Realty (real estate broker)
Edgar A. Buttner, MD Director Research Associate, 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.; Value Line Premier Growth
Fund, Inc.; Value Line Larger Companies Fund, 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.
C-2
(b)
(1) (2) (3)
Name and Principal Position and Offices with Position and Offices
Business Address Value Line Securities, Inc. with Registrant
----------------------------- ----------------------------- ------------------------------------
Jean Bernhard Buttner Chairman of the Board Chairman of the Board and President
David T. Henigson Vice President, Vice President, Secretary and Chief
Secretary, Chief Compliance Officer
Compliance Officer and
Director
Howard A. Brecher Vice President, Assistant Secretary and Assistant
Assistant Treasurer Treasurer
and Assistant
Secretary and Director
Raymond Stock Vice President ------------------------------------
Mitchell Appel Chief Financial Officer ------------------------------------
Stephen Anastasio Treasurer Treasurer
The business address of each of the officers and directors is 220 East
42nd Street, New York, NY 10017-5891.
(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 64121-9729
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
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 26th day of April, 2007.
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; President; April 26, 2007
(Jean B. Buttner) Principal Executive Officer
*JOHN W. CHANDLER Director April 26, 2007
(John W. Chandler)
*FRANCES T. NEWTON Director April 26, 2007
(Frances T. Newton)
*FRANCIS C. OAKLEY Director April 26, 2007
(Francis C. Oakley)
*DAVID H. PORTER Director April 26, 2007
(David H. Porter)
*PAUL CRAIG ROBERTS Director April 26, 2007
(Paul Craig Roberts)
*NANCY-BETH SHEERR Director April 26, 2007
(Nancy-Beth Sheerr)
/s/ Stephen Anastasio Treasurer; Principal Financial and April 26, 2007
-------------------------- Accounting Officer
(Stephen Anastasio)
*BY: /s/ David T. Henigson
------------------------------------
(David T. Henigson, Attorney-In-Fact)
C-4