AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 24, 2003
FILE NO. 2-10827
FILE NO. 811-568
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 88 [X]
AND/OR
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 88 [X]
---------------------
THE VALUE LINE FUND, INC.
(Exact Name of Registrant as Specified in Charter)
220 EAST 42ND STREET
NEW YORK, NEW YORK 10017-5891
(Address of Principal Executive Offices)(Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 907-1500
DAVID T. HENIGSON
VALUE LINE, INC.
220 EAST 42ND STREET
NEW YORK, NEW YORK 10017-5891
(Name and Address of Agent for Service)
COPY TO:
PETER D. LOWENSTEIN
TWO SOUND VIEW DRIVE, SUITE 100
GREENWICH, CT 06830
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE
BOX)
[ ] IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (B)
[X] ON MAY 1, 2003 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
================================================================================
The Value Line Fund, Inc.
--------------------------------------------------------
PROSPECTUS
MAY 1, 2003
--------------------------------------------------------
[VALUE LINE LOGO]
[GRAPHIC OMITTED]
#526123
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.
TABLE OF CONTENTS
Fund Summary
What are the Fund's goals? Page 2
What are the Fund's main investment strategies? Page 2
What are the main risks of investing in the Fund? Page 2
How has the Fund performed? Page 3
What are the Fund's fees and expenses? Page 5
How We Manage the Fund
Our principal investment strategies Page 6
The principal risks of investing in the Fund Page 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 12
Special services Page 14
Dividends, distributions and taxes Page 14
Financial Highlights
Financial Highlights Page 17
FUND SUMMARY
WHAT ARE THE FUND'S GOALS?
The Fund primarily seeks long-term growth of capital. Current
income is a secondary objective. Although the Fund will
strive to achieve these goals, there is no assurance that it
will succeed.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
To achieve the Fund's goals, we invest substantially all of
the Fund's net assets in common stocks or securities
convertible into common stock. In selecting securities for
purchase or sale, we rely on the Value Line Timeliness(TM)
Ranking System or the Value Line Performance(TM) Ranking
System. These Ranking Systems compare the Adviser's estimate
of the probable market performance of each stock during the
next twelve months relative to all of the stocks under
review. The Fund will usually invest in common stocks ranked
1 or 2 by either Ranking System but it may also invest in
common stocks ranked 3. Each Ranking System ranks stocks on a
scale of 1 (highest) to 5 (lowest). Although the Fund can
invest in companies of any size, it generally invests in U.S.
securities issued by larger, more established companies.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Investing in any mutual fund involves risk, including the
risk that you may receive little or no return on your
investment, and that you may lose part or all of the money
you invest. Therefore, before you invest in this Fund you
should carefully evaluate the risks.
The chief risk that you assume when investing in the Fund is
market risk, the possibility that the securities in a certain
market will decline in value because of factors such as
economic conditions. Market risk may affect a single issuer,
industry, sector of the economy or the market as a whole.
The price of Fund shares will increase and decrease according
to changes in the value of the Fund's investments. The Fund
will be affected by changes in stock prices which have
historically tended to fluctuate more than bond prices.
An investment in the Fund is not a complete investment
program and you should consider it just one part of your
total investment program. For a more complete discussion of
risk, please turn to page 8.
2
HOW HAS THE FUND PERFORMED?
This bar chart and table can help you evaluate the potential
risks of investing in the Fund. We show how returns for the
Fund's shares have varied over the past ten calendar years,
as well as the average annual total returns (before and after
taxes) of these shares for one, five, and ten years. These
returns are compared to the performance of the S&P 500
(Registered Trademark) , a widely quoted, unmanaged index of
stock performance. You should remember that unlike the Fund,
this index is unmanaged and does not include the costs of
buying, selling, and holding the securities. All returns
reflect reinvested dividends. The Fund's past performance
(before and after taxes) is not necessarily an indication of
how it will perform in the future.
TOTAL RETURNS (BEFORE TAXES) AS OF 12/31 EACH YEAR (%)
-----------------------------------------------------------------------------------------
[GRAPHIC OMITTED]
6.82 -4.47 32.12 22.52 21.59 20.25 26.74 -15.35 -12.82 -25.35
------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
BEST QUARTER: Q4 1998 +23.89%
WORST QUARTER: Q3 2001 (16.40%)
3
AVERAGE ANNUAL TOTAL RETURNS FOR PERIODS ENDED DECEMBER 31,
2002(%)
1 YEAR 5 YEARS 10 YEARS
----------------------------------------------------------------------------------------
VALUE LINE FUND
----------------------------------------------------------------------------------------
Return before taxes -25.35% -3.44% +5.36%
----------------------------------------------------------------------------------------
Return after taxes on distributions -25.50% -4.10% +3.25%
----------------------------------------------------------------------------------------
Return after taxes on distributions and -15.43% -2.46% +3.95%
sale of Fund shares
----------------------------------------------------------------------------------------
S&P 500 (REFLECTS NO DEDUCTION FOR -22.10% -0.59% +9.34%
FEES, EXPENSES OR TAXES)
----------------------------------------------------------------------------------------
After-tax returns are intended to show the impact of assumed
federal income taxes on an investment in the Fund. The Fund's
"Return after taxes on distributions" shows the effect of
taxable distributions, but assumes that you still hold the
Fund shares at the end of the period and so do not have any
taxable gain or loss on your investment in shares of the
Fund. The Fund's "Return after taxes on distributions and
sale of Fund shares" shows the effect of both taxable
distributions and any taxable gain or loss that would be
realized if you purchased Fund shares at the beginning and
sold at the end of the specified period. "Return after taxes
on distributions and sale of Fund shares" may be greater than
"Return before taxes" because the investor is assumed to be
able to use the capital loss on the sale of Fund shares to
offset other taxable gains.
After-tax returns are calculated using the highest individual
federal income tax rate in effect at the time of each
distribution and assumed sale, but do not include the impact
of state and local taxes. In some cases the return after
taxes may exceed the return before taxes due to an assumed
tax benefit from any losses on a sale of Fund shares at the
end of the measurement period. After-tax returns reflect past
tax effects and are not predictive of future tax effects.
Your actual after-tax returns depend on your own tax
situation and may differ from those shown. After-tax returns
are not relevant to investors who hold their Fund shares in a
tax-deferred account (including a 401(k) or IRA account), or
to investors that are tax-exempt.
4
WHAT ARE THE FUND'S FEES AND EXPENSES?
These tables describe the fees and expenses you pay in
connection with an investment in the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
--------------------------------------------------------------------------------------
MAXIMUM SALES CHARGES (LOAD) IMPOSED ON PURCHASES AS A PERCENTAGE OF NONE
OFFERING PRICE
--------------------------------------------------------------------------------------
MAXIMUM DEFERRED SALES CHARGES (LOAD) AS A PERCENTAGE OF ORIGINAL NONE
PURCHASE PRICE OR REDEMPTION PRICE, WHICHEVER IS LOWER
--------------------------------------------------------------------------------------
MAXIMUM SALES CHARGES (LOAD) IMPOSED ON REINVESTED DIVIDENDS NONE
--------------------------------------------------------------------------------------
REDEMPTION FEE NONE
--------------------------------------------------------------------------------------
EXCHANGE FEE NONE
--------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM THE FUND'S ASSETS)
----------------------------------------------------------------------------------
MANAGEMENT FEES 0.67%
----------------------------------------------------------------------------------
DISTRIBUTION AND SERVICE (12B-1) FEES* 0.25%
----------------------------------------------------------------------------------
OTHER EXPENSES 0.17%
----------------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES 1.09%
----------------------------------------------------------------------------------
* Because these fees are paid out of the Fund's assets on an
ongoing basis, over time these fees will increase the cost
of your investment and may cost you more than if you paid
other types of sales charges.
EXAMPLE
This example is intended to help you compare the cost of
investing in the Fund to the cost of investing in other
mutual funds. We show the cumulative amount of Fund expenses
on a hypothetical investment of $10,000 with an annual 5%
return over the time shown assuming that the Fund's operating
expenses remain the same. The expenses indicated for each
period would be the same whether you sold your shares at the
end of each period or continued to hold them. This is an
example only, and your actual costs may be greater or less
than those shown here. Based on these assumptions, your costs
would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------------------------------------------------------------------------------------------
VALUE LINE FUND $113 $353 $612 $1,352
------------------------------------------------------------------------------------------
5
HOW WE MANAGE THE FUND
OUR PRINCIPAL INVESTMENT STRATEGIES
Because of the nature of the Fund, you should consider an
investment in it to be a long-term investment that will best
meet its objectives when held for a number of years. The
following is a description of how the Adviser pursues the
Fund's objectives.
We analyze economic and market conditions, seeking to
identify the market sector or securities that we think make
the best investments.
In selecting securities for purchase or sale, the Adviser
relies on the Value Line Timeliness(TM) Ranking System or the
Value Line Performance(TM) Ranking System.
The Value Line Timeliness 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 of the most actively traded stocks in U.S. markets,
including stocks with large, mid and small market
capitalizations. There are only a few stocks of foreign
issuers that are included and stocks that have traded for
less than two years are not ranked. On a scale of 1 (highest)
to 5 (lowest), the rankings compare an estimate of the
probable market performance of each stock during the coming
six to twelve months relative to all 1,700 stocks under
review. The Rankings are updated weekly to reflect the most
recent information.
The Value Line Performance Ranking System for common stocks
was introduced in 1995. It is a variation of the Value Line
Small-Capitalization Ranking System, which has been employed
in managing private accounts since 1981, and in managing the
Value Line Emerging Opportunities Fund, Inc. since 1993. The
Performance Ranking System evaluates the approximately 1,800
stocks in the Small and Mid-Cap Edition of The Value Line
Investment Survey which consists of stocks with smaller
market capitalizations (under $1 billion) and mid-cap stocks
(between $1 billion and $5 billion in market capitalization).
This stock ranking system relies on
6
factors similar to those found in the Value Line Timeliness
Ranking System except that it does not utilize earnings
estimates. The Performance Ranking System uses a scale of 1
(highest) to 5 (lowest) to compare the Adviser's estimate of
the probable market performance of each stock during the
coming six to twelve months relative to all 1,800 stocks
under review.
Neither the Value Line Timeliness Ranking System nor the
Value Line Performance Ranking System eliminates market risk,
but the Adviser believes that they provide objective
standards for determining expected relative performance over
the next six to twelve months. The Fund will usually invest
in common stocks ranked 1 or 2 but it may also invest in
common stocks ranked 3. Although the Fund can invest in
companies of any size, it generally invests in U.S.
securities issued by larger, more established companies.
Reliance upon the Rankings, whenever feasible, is a
fundamental policy of the Fund which may not be changed
without shareholder approval. The utilization of these
Rankings 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 equivalents, debt
securities, bonds, or preferred stocks for temporary
defensive purposes. This could help the Fund avoid losses,
but it may have the effect of reducing the Fund's capital
appreciation or income, or both. If this becomes necessary,
the Fund may not achieve its investment objectives.
PORTFOLIO TURNOVER
The Fund may 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 would result 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.
7
THE PRINCIPAL RISKS OF INVESTING IN THE FUND
o Because the Fund may invest substantially all of its assets
in common stocks, the value of the stocks in its portfolio
and the Fund's share price might decrease in response to
the activities of an individual company or in response to
general market or economic conditions.
o Certain securities may be difficult or impossible to sell
at the time and price that the Fund would like. The Fund
may have to lower the price, sell other securities instead
or forego an investment opportunity. This could have a
negative effect on the Fund's performance.
o The Fund's use of the Value Line Ranking Systems involves
the risk that over certain periods of time the price of
securities not covered by the Ranking Systems, or lower
ranked securities, may appreciate to a greater extent than
those securities in the Fund's portfolio.
o Please see the Statement of Additional Information for a
further discussion of risks. Information on the Fund's
recent holdings can be found in the Fund's current annual
or semi-annual report.
8
WHO MANAGES THE FUND
The business and affairs of the Fund are managed by the
Fund's officers under the direction of the Fund's Board of
Directors.
INVESTMENT ADVISER
Value Line, Inc., 220 East 42nd Street, New York, NY 10017,
serves as the Fund's investment adviser and manages the
Fund's business affairs. Value Line also acts as investment
adviser to the other Value Line mutual funds and furnishes
investment counseling services to private and institutional
clients resulting in combined assets under management of
approximately $3 billion.
The Adviser was organized in 1982 and is the successor to
substantially all of the operations of Arnold Bernhard & Co.,
Inc. which with its predecessor has been in business since
1931. Value Line Securities, Inc., the Fund's distributor, is
a subsidiary of the Adviser. Another subsidiary of the
Adviser publishes The Value Line Investment Survey and other
publications.
MANAGEMENT FEES
For managing the Fund and its investments, the Adviser is
paid a yearly fee of 0.70% on the first $100 million of the
Fund's average daily net assets and 0.65% on such additional
assets.
PORTFOLIO MANAGEMENT
A committee of employees of the Adviser is jointly and
primarily responsible for the day-to-day management of the
Fund's portfolio.
9
ABOUT YOUR ACCOUNT
HOW TO BUY SHARES
o BY TELEPHONE
Once you have opened an account, you can buy additional
shares by calling 800-243-2729 between 9:00 a.m. and 4:00
p.m. New York time. You must pay for these shares within
three business days of placing your order.
o BY WIRE
If you are making an initial purchase by wire, you must
call us at 800-243-2729 so we can assign you an account
number. Request your U.S. bank with whom you have an
account to wire the amount you want to invest to State
Street Bank and Trust Company, ABA #011000028, attention
DDA # 99049868. Include your name, account number, tax
identification number and the name of the Fund in which you
want to invest.
o THROUGH A BROKER-DEALER
You can open an account and buy shares through a
broker-dealer, who may charge a fee for this service.
o BY MAIL
Complete the Account Application and mail it with your
check payable to NFDS, Agent, to Value Line Funds, c/o
National Financial Data Services, Inc., P.O. Box 219729,
Kansas City, MO 64121-9729. If you are making an initial
purchase by mail, you must include a completed Account
Application or an appropriate retirement plan application
if you are opening a retirement account, with your check.
Cash, money orders, traveler's checks, cashier's checks,
bank drafts or third party checks will not be accepted for
either the initial or any subsequent purchase. All
purchases must be made in U.S. dollars and checks must be
drawn on U.S. banks.
o MINIMUM/ADDITIONAL INVESTMENTS
Once you have completed an Account Application, you can
open an account with an initial investment of $1,000, and
make additional investments at any time for as little as
$100. The price you pay for shares will depend on when we
receive your purchase order. The Fund reserves the right to
reject any purchase order and to reduce or waive the
minimum purchase requirements at any time.
o TIME OF PURCHASE
Your price for Fund shares is the Fund's net asset value
per share (NAV), which is generally calculated as of the
close of regular trading on the New York Stock Exchange
(currently 4:00 p.m., Eastern time) every day the
10
Exchange is open for business. The Exchange is currently
closed on New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day and on
the preceding Friday or subsequent Monday if any of those
days falls on a Saturday or Sunday, respectively. Your
order will be priced at the next NAV calculated after your
order is accepted by the Fund.
Fund shares may be purchased through various third-party
intermediaries including banks, brokers, financial advisers
and financial supermarkets. When the intermediary is
authorized by the Fund, orders will be priced at the NAV
next computed after receipt of the order by the
intermediary.
o DISTRIBUTION PLAN
The Fund has adopted a plan of distribution under rule
12b-1 of the Investment Company Act of 1940. Under the
plan, the Fund is charged a fee at the annual rate of 0.25%
of the Fund's average daily net assets with the proceeds
used to finance the activities of Value Line Securities,
Inc., the Fund's distributor. The plan provides that the
distributor may make payments to securities dealers, banks,
financial institutions and other organizations which
provide distribution and administrative services with
respect to the distribution of the Fund's shares. Such
services may include, among other things, answering
investor inquiries regarding the Fund; processing new
shareholder account applications and redemption
transactions; responding to shareholder inquiries; and such
other services as the Fund may request to the extent
permitted by applicable statute, rule or regulation. The
plan also provides that the Adviser may make such payments
out of its advisory fee, its past profits or any other
source available to it. The fees payable to the distributor
under the plan are payable without regard to actual
expenses incurred.
o NET ASSET VALUE
We determine the Fund's net asset value (NAV) as of the
close of the New York Stock Exchange each day that exchange
is open for business. We calculate NAV by adding the market
value of all the securities and assets in the Fund's
portfolio, deducting all liabilities, and dividing the
resulting number by the number of shares outstanding. The
result is the net asset value per share. We price
securities for which market prices or quotations are
readily available at their market value. We price
securities for which market valuations are not readily
available at their fair market value as determined under
the direction of the Board of Directors. We price
investments which have a maturity of less than 60 days at
amortized cost.
11
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.
HOW TO SELL SHARES
o BY MAIL
You can redeem your shares (sell them back to the Fund) at
net asset value by mail by writing to: Value Line Funds,
c/o National 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 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.
We will pay you promptly, normally the next business day,
but no later than seven days after we receive your request
to sell your shares. If you purchased your shares by check,
we will wait until your check has cleared, which can take
up to 15 days from the day of purchase, before we send the
proceeds to you.
If your account is held in the name of a corporation, as a
fiduciary or agent, or as surviving joint owner, you may be
required to provide additional documents with your
redemption request.
o THROUGH A BROKER-DEALER
You may sell your shares through a broker-dealer, who may
charge a fee for this service.
The Fund has authorized certain brokers to accept purchase
and redemption orders on behalf of the Fund. The Fund has
also authorized these brokers to designate others to accept
purchase and redemption orders on behalf of the Fund.
We treat any order to buy or sell shares that you place
with one of these brokers, or anyone they have designated,
as if you had placed it directly with the Fund. The shares
that you buy or sell through brokers or anyone they
12
have designated are priced at the next net asset value that
is computed after they receive your order.
Among the brokers that have been authorized by the Fund are
Charles Schwab & Co., Inc., National Investor Services
Corp., Pershing and Fidelity Brokerage Services Corp. You
should consult with your broker to determine if it has been
so authorized.
o BY EXCHANGE
You can exchange all or part of your investment in the Fund
for shares in other Value Line funds. When you exchange
shares, you are purchasing shares in another fund so you
should be sure to get a copy of that fund's prospectus and
read it carefully before buying shares through an exchange.
To execute an exchange, call 800-243-2729. We reserve the
right to reject any exchange order.
When you send us a properly completed request to sell or
exchange shares, you will receive the net asset value that
is next determined after we receive your request. For each
account involved you should provide the account name,
number, name of fund and exchange or redemption amount.
Call 1-800-243-2729 for additional documentation that may
be required. You may have to pay taxes on the gain from
your sale or exchange of shares.
Exchanges among Value Line funds are a shareholder
privilege and not a right. The Fund may temporarily or
permanently terminate the exchange privilege of any
investor who makes more than four exchanges out of the Fund
during a calendar year.
ACCOUNT MINIMUM
If as a result of redemptions your account balance falls
below $500, the Fund may ask you to increase your balance
within 30 days. If your account is not at the minimum by
the required time, the Fund may redeem your account, after
first notifying you in writing.
REDEMPTION IN KIND
The Fund reserves the right to make a redemption in
kind--payment in portfolio securities rather than cash--if
the amount being redeemed is large enough to affect Fund
operations.
13
SPECIAL SERVICES
To help make investing with us as easy as possible, and to
help you build your investments, we offer the following
special services. You can get further information about
these programs by calling Shareholder Services at
800-243-2729.
o Valu-Matic (Registered Trademark) allows you to make
regular monthly investments of $25 or more automatically
from your checking account.
o Through our Systematic Cash Withdrawal Plan you can arrange
a regular monthly or quarterly payment from your account
payable to you or someone you designate. If your account is
$5,000 or more, you can have monthly or quarterly
withdrawals of $25 or more. Such withdrawals will each
constitute a redemption of a portion of your Fund shares
which may result in income, gain or loss to you, for
federal income tax purposes.
o You may buy shares in the Fund for your individual or group
retirement plan, including your Regular or Roth IRA. You
may establish your IRA account even if you already are a
member of an employer-sponsored retirement plan. Not all
contributions to an IRA account are tax deductible; consult
your tax advisor about the tax consequences of your
contribution.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to pay dividends from its net investment
income, if any, and to distribute any capital gains that it
has realized annually. The Fund may also pay dividends and
capital gain distributions at other times if necessary for
the Fund to avoid U.S. federal income or excise tax. We
automatically reinvest all dividends and any capital gains,
unless you instruct us otherwise in your application to
purchase shares. At December 31, 2002, the Fund had net
unrealized appreciation of $41,597,000 representing
approximately 20% of the Fund's net assets. In the event
the Fund disposes of securities in its portfolio and
recognizes sizeable gains the Fund will distribute such
gains to stockholders who may be taxed on such amounts.
Investors should consider the tax consequences of buying
shares of the Fund shortly before the record date of a
distribution because such distribution will generally be
taxable even though the net asset value of shares of the
Fund is reduced by the distribution.
You will generally be taxed on distributions you receive,
regardless of whether you reinvest them or receive them in
cash. Dividends from
14
short-term capital gains and net investment income will be
taxable to you as ordinary income. Dividends designated by
the Fund as long-term capital gains distributions 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 distributions.
On January 7, 2003, President Bush proposed an economic
growth plan which contains a provision that would exclude
from income dividends paid by corporations to the extent
paid out of previously taxed corporate income. There can be
no assurance as to whether such provisions will be enacted
into law or as to its scope if enacted and therefore its
effect upon shareholders is uncertain at this time.
We will send you a statement by January 31 each year
detailing the amount and nature of all dividends and
capital gains that you received during the prior year.
If you hold your Fund shares in a tax-deferred retirement
account, such as an IRA, you generally will not have to pay
tax on distributions until they are distributed from the
account. These accounts are subject to complex tax rules,
and you should consult your tax adviser about investment
through a tax-deferred account.
You will generally have a capital gain or loss if you
dispose of your Fund shares by redemption, exchange or sale
in an amount equal to the difference between the net amount
of the redemption or sale proceeds (or in the case of an
exchange, the fair market value of the shares) that you
receive and your tax basis for the shares you redeem, sell
or exchange. Your gain or loss will be long-term or
short-term, generally depending upon how long you owned
your shares. 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 30% backup withholding tax on all taxable
distributions payable to you if you fail to provide the
Fund with your correct social security number or 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
15
ensures it will collect taxes otherwise due. Any amounts
withheld may be credited against your U.S. federal income
tax liability.
The above discussion is meant only as a summary; more
information is available in the Statement of Additional
Information. We urge you to consult your tax adviser about
your particular tax situation including federal, state,
local and foreign tax considerations and possible
withholding tax for non-U.S. shareholders.
16
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you
understand the Fund's financial performance for the past
five years. Certain information reflects financial results
for a single Fund share. The total returns in the table
represent the rate that an investor would have earned or
lost on an investment in the Fund assuming reinvestment of
all dividends and distributions. This information has been
audited by PricewaterhouseCoopers LLP, whose report, along
with the Fund's financial statements, is included in the
Fund's annual report, which is available upon request by
calling 800-243-2729.
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
--------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING
OF YEAR $18.49 $21.37 $26.25 $22.65 $19.29
--------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM
INVESTMENT OPERATIONS:
Net investment income
(loss) (.05) (0.04) (.07) (.02) .03
Net gains or losses on
securities (both realized
and unrealized) (4.64) (2.70) (3.95) 5.98 3.85
--------------------------------------------------------------------------------------------------------------
Total income (loss)
from investment
operations (4.69) (2.74) (4.02) 5.96 3.88
--------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net
investment income - - - - (.03)
Distributions from net
realized gains (.13) (.14) (.86) (2.36) (.49)
--------------------------------------------------------------------------------------------------------------
Total distributions (.13) (.14) (.86) (2.36) (.52)
--------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $13.67 $18.49 $21.37 $26.25 $22.65
--------------------------------------------------------------------------------------------------------------
TOTAL RETURN -25.35% -12.82% -15.35% 26.74% 20.25%
--------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
thousands) $206,338 $303,034 $386,406 $495,465 $418,439
Ratio of expenses to average
net assets 1.11%(1) 1.04%(1) .89%(1) .76%(1) .77%
Ratio of net investment
income (loss) to average net
assets (.31)% (.18)% (.27)% (.09)% .16%
Portfolio turnover rate 33% 45% 17% 36% 98%
--------------------------------------------------------------------------------------------------------------
(1) Ratio reflects expenses grossed up for custody credit arrangement. The ratio of expenses to average net
assets net of custody credits would have been 1.03% for the year ended December 31, 2001 and unchanged
for the years ended December 31, 2002, 2000 and 1999.
17
FOR MORE INFORMATION
Additional information about the Fund's investments is
available in the Fund's annual and semi-annual reports to
shareholders. In the Fund's annual report, you will find a
discussion of the market conditions and investment
strategies that significantly affected the Fund's
performance during its last fiscal year. You can find more
detailed information about the Fund in the current
Statement of Additional Information dated May 1, 2003,
which we have filed electronically with the Securities and
Exchange Commission (SEC) and which is legally a part of
this prospectus. If you want a free copy of the Statement
of Additional Information, the annual or semi-annual
report, or if you have any questions about investing in
this Fund, you can write to us at 220 East 42nd Street, New
York, NY 10017-5891 or call toll-free 800-243-2729. You may
also obtain the prospectus from our Internet site at
http://www.valueline.com.
Reports and other information about the Fund are available
on the EDGAR Database on the SEC Internet site
(http://www.sec.gov), or you can get copies of this
information, after payment of a duplicating fee, by
electronic request at the following E-mail address:
publicinfo@sec.gov, or by writing to the Public Reference
Section of the SEC, Washington, D.C. 20549-0102.
Information about the Fund, including its Statement of
Additional Information, can be reviewed and copied at the
SEC's Public Reference Room in Washington, D.C. You can get
information on operation of the public reference room by
calling the SEC at 1-202-942-8090.
INVESTMENT ADVISER SERVICE AGENT
Value Line, Inc. State Street Bank and Trust Company
220 East 42nd Street c/o NFDS
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.valueline.com
--------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2003
--------------------------------------------------------------------------------
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, 2003, a copy of which may be obtained without charge by
writing or telephoning the Fund. The financial statements, accompanying notes
and report of independent accountants appearing in the Fund's 2002 Annual
Report to Shareholders are incorporated by reference in this Statement. A copy
of the Annual Report is available from the Fund upon request and without charge
by calling 1-800-243-2729.
------------
TABLE OF CONTENTS
PAGE
----
Description of the Fund and Its Investments and Risks .......... B-2
Management of the Fund ......................................... B-8
Investment Advisory and Other Services ......................... B-10
Service and Distribution Plan .................................. B-12
Brokerage Allocation and Other Practices ....................... B-12
Capital Stock .................................................. B-13
Purchase, Redemption and Pricing of Shares ..................... B-13
Taxes .......................................................... B-15
Performance Data ............................................... B-18
Financial Statements ........................................... B-20
DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
HISTORY AND CLASSIFICATION. The Fund is an open-end, diversified,
management investment company incorporated in Delaware in 1949 and
reincorporated in Maryland in 1972. The Fund's investment adviser is Value
Line, Inc. (the "Adviser").
NON-PRINCIPAL INVESTMENT STRATEGIES AND ASSOCIATED RISKS.
o RESTRICTED SECURITIES. On occasion, the Fund may purchase securities
which would have to be registered under the Securities Act of 1933 if they were
to be publicly distributed. However, it will not do so if the value of such
securities and other securities which are not readily marketable (including
repurchase agreements maturing in more than seven days) would exceed 10% of the
market value of its net assets. It is management's policy to permit the
occasional acquisition of such restricted securities only if (except in the case
of short-term non-convertible debt securities) there is an agreement by the
issuer to register such securities, ordinarily at the issuer's expense, when
requested to do so by the Fund. The acquisition in limited amounts of restricted
securities is believed to be helpful toward the attainment of the Fund's
investment objective without unduly restricting its liquidity or freedom in the
management of its portfolio. However, because restricted securities may only be
sold privately or in an offering registered under the Securities Act of 1933, or
pursuant to an exemption from such registration, substantial time may be
required to sell such securities, and there is greater than usual risk of price
decline prior to sale.
In addition, the Fund may purchase certain restricted securities ("Rule
144A securities") for which there is a secondary market of qualified
institutional buyers, as contemplated by Rule 144A under the Securities Act of
1933. Rule 144A provides an exemption from the registration requirements of the
Securities Act for the resale of certain restricted securities to qualified
institutional buyers.
The Adviser, under the supervision of the Board of Directors, will
consider whether securities purchased under Rule 144A are liquid or illiquid
for purposes of the Fund's limitation on investment in securities which are not
readily marketable or are illiquid. Among the factors to be considered are the
frequency of trades and quotes, the number of dealers and potential purchasers,
dealer undertakings to make a market and the nature of the security and the
time needed to dispose of it.
To the extent that the liquid Rule 144A securities that the Fund holds
become illiquid, due to lack of sufficient qualified institutional buyers or
market or other conditions, the percentage of the Fund's assets invested in
illiquid assets would increase. The Adviser, under the supervision of the Board
of Directors, will monitor the Fund's investments in Rule 144A securities and
will consider appropriate measures to enable the Fund to maintain sufficient
liquidity for operating purposes and to meet redemption requests.
o COVERED CALL OPTIONS. The Fund may write covered call options on stocks
held in its portfolio ("covered options") in an attempt to earn additional
income on its portfolio or to partially offset an expected decline in the price
of a security. When the Fund writes a covered call option, it gives the
purchaser of the option the right to buy the underlying security at the price
specified in the option (the "exercise price") at any time during the option
period. If the option expires unexercised, the Fund will realize income to the
extent of the amount received for the option (the "premium"). If the option is
exercised, a decision over which the Fund has no control, the Fund must sell the
underlying security to the option holder at the exercise price. By writing a
covered option, the Fund foregoes, in exchange for the premium less the
commission ("net premium"), the opportunity to profit during the option period
from an increase in the market value of the underlying security above the
exercise price. The Fund will not write call options in an aggregate amount
greater than 25% of its net assets.
B-2
The Fund will purchase call options only to close out a position. When an
option is written on securities in the Fund's portfolio and it appears that the
purchaser of that option is likely to exercise the option and purchase the
underlying security, it may be considered appropriate to avoid liquidating the
Fund's position, or the Fund may wish to extinguish a call option sold by it so
as to be free to sell the underlying security. In such instances the Fund may
purchase a call option on the same security with the same exercise price and
expiration date which had been previously written. Such a purchase would have
the effect of closing out the option which the Fund has written. The Fund
realizes a gain if the amount paid to purchase the call option is less than the
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 premium received for writing the option. If the underlying security has
substantially risen in value, it may be difficult or expensive to purchase the
call option for the closing transaction.
o STOCK INDEX FUTURES CONTRACTS AND OPTIONS THEREON. The Fund may trade in
stock index futures contracts and in options on such contracts. Such contracts
will be entered into on exchanges designated by the Commodity Futures Trading
Commission ("CFTC").
The Fund's futures and options on futures transactions must constitute
bona fide hedging or other risk management purposes pursuant to regulations
promulgated by the CFTC. In addition, the Fund may not engage in such
activities generally if the sum of the amount of initial margin deposits and
premiums paid for unexpired commodity options would exceed 5% of the fair
market value of the Fund's net assets, after taking into account unrealized
profits and unrealized losses on such contracts it has entered into; provided,
however, that in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%. In
instances involving entering into long stock index futures or options contracts
by the Fund, an amount equal to the market value of the futures contract will
be deposited in a segregated account with the Fund's custodian of cash and
liquid securities to collateralize the position and thereby insure that the use
of such futures contract is unleveraged. No more than 25% of the Fund's net
assets may be deposited in such segregated account.
There can be no assurance of the Fund's successful use of stock index
futures as a hedging device. Hedging transactions involve certain risks. One
risk arises because of the imperfect correlation between movements in the price
of the stock index future and movements in the price of the securities which
are the subject of the hedge. The risk of imperfect correlation increases as
the composition of the Fund's securities portfolio diverges from the securities
included in the applicable stock index. In addition to the possibility that
there may be an imperfect correlation, or no correlation at all, between
movements in the stock index future and the portion of the portfolio being
hedged, the price of stock index futures may not correlate perfectly with the
movement in the stock index due to certain market distortions. Increased
participation by speculators in the futures market also may cause temporary
price distortions. Due to the possibility of price distortions in the futures
market and because of the imperfect correlation between movements in the stock
index and movements in the price of stock index futures, a correct forecast of
general market trends by the Adviser still may not result in a successful
hedging transaction.
For example, should the Fund anticipate a decrease in the value of its
portfolio securities, it could enter into futures contracts to sell stock
indexes thereby partially hedging its portfolio against the anticipated losses.
Losses in the portfolio, if realized, should be partially offset by gains on
the futures contracts. Conversely, if the Fund anticipated purchasing
additional portfolio securities in a rising market, it could enter into futures
contracts to purchase stock indexes thereby locking in a price. The
B-3
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 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
B-4
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
investment adviser is satisfied with the development, depth and liquidity of
the market and the investment adviser believes the options can be closed out.
Options and futures contracts entered into by the Fund will be subject to
special tax rules. These rules may accelerate income to the Fund, defer Fund
losses, cause adjustments in the holding periods of Fund securities, convert
capital gain into ordinary income and convert short-term capital losses into
long-term capital losses. As a result, these rules could affect the amount,
timing and character of Fund distributions. However, the Fund anticipates that
these investment activities will not prevent the Fund from qualifying as a
regulated investment company.
o REPURCHASE AGREEMENTS. The Fund may invest temporary cash balances in
repurchase agreements. A repurchase agreement involves a sale of securities to
the Fund, with the concurrent agreement of the seller (a member bank of the
Federal Reserve System or a securities dealer which the Adviser believes to be
financially sound) to repurchase the securities at the same price plus an amount
equal to an agreed-upon interest rate, within a specified time, usually less
than one week, but, on occasion, at a later time. The Fund will make payment for
such securities only upon physical delivery or evidence of book-entry transfer
to the account of the custodian or a bank acting as agent for the Fund.
Repurchase agreements may also be viewed as loans made by the Fund which are
collateralized by the securities subject to repurchase. The value of the
underlying securities will be at least equal at all times to the total amount of
the repurchase obligation, including the interest factor. In the event of a
bankruptcy or other default of a seller of a repurchase agreement to which the
Fund is a party, the Fund could experience both delays in liquidating the
underlying securities and losses, including: (a) a possible decline in the value
of the underlying securities during the period while the Fund seeks to enforce
its rights thereto; (b) possible subnormal levels of income and lack of access
to income during this period; and (c) expenses of enforcing its rights.
FUND POLICIES.
(i) The Fund may not issue senior securities except evidences of
indebtedness permitted under clause (ii) below.
(ii) The Fund may not borrow money in excess of 10% of the value of
its assets and then only as a temporary measure to meet unusually heavy
redemption requests or for other extraordinary or
B-5
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 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 its 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.
B-6
(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 is adhered to at the time of investment, a
later change in percentage resulting from changes in values or assets will not
be considered a violation of the restriction. For purposes of industry
classifications, the Fund follows the industry classifications in The Value
Line Investment Survey.
The policies set forth above may not be changed without the affirmative
vote of the majority of the outstanding voting securities of the Fund which
means the lesser of (1) the holders of more than 50% of the outstanding shares
of capital stock of the Fund or (2) 67% of the shares present if more than 50%
of the shares are present at a meeting in person or by proxy.
B-7
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed by the Fund's officers
under the direction of the Board of Directors. The following table sets forth
information on each Director and officer of the Fund. Each Director serves as a
director or trustee of each of the 15 Value Line Funds and oversees a total of
16 portfolios. Each Director serves until his or her successor is elected and
qualified.
OTHER
LENGTH PRINCIPAL DIRECTORSHIPS
OF TIME OCCUPATIONS DURING HELD BY
NAME, ADDRESS AND AGE POSITION SERVED THE PAST 5 YEARS DIRECTOR
---------------------------- --------------- ------------ ----------------------------------- ---------------------
Interested Directors*
Jean Bernhard Buttner Chairman of Since 1983 Chairman, President and Chief Value Line, Inc.
Age 68 the Board of Executive Officer of Value Line,
Directors Inc. (the "Adviser") and Value
and President Line Publishing, Inc. Chairman
and President of each of the
15 Value Line Funds and Value
Line Securities, Inc. (the "Dis-
tributor").
Marion N. Ruth Director Since 2000 Real Estate Executive; Presi- Value Line, Inc.
5 Outrider Road dent, Ruth Realty (real estate
Rolling Hills, CA 90274 broker); Director of the Adviser
Age 68 since 2000.
Non-Interested Directors
John W. Chandler Director Since 1991 Consultant, Academic Search None
1611 Cold Spring Rd. Consultation Service, Inc.
Williamstown, MA 01267 Trustee Emeritus and Chair-
Age 79 man (1993-1994) of the Board
of Trustees of Duke University;
President Emeritus, Williams
College.
Frances T. Newton Director Since 2000 Customer Support Analyst, None
4921 Buckingham Drive Duke Power Company.
Charlotte, NC 28209
Age 61
Francis C. Oakley Director Since 2000 Professor of History, Williams Berkshire Life
54 Scott Hill Road College, 1961 to 2002, Presi- Insurance Company.
Williamstown, MA 01267 dent Emeritus since 1994 and
Age 71 President, 1985-1994; Chair-
man (1993-1997) and Interim
President (2002) of the Ameri-
can Council of Learned Societ-
ies.
David H. Porter Director Since 1997 Visiting Professor of Classics, None
5 Birch Run Drive Williams College, since 1999;
Saratoga Springs, NY 12866 President Emeritus, Skidmore
Age 67 College since 1999 and Presi-
dent, 1987-1998.
Paul Craig Roberts Director Since 1983 Chairman, Institute for Political A. Schulman Inc.
169 Pompano St. Economy. (plastics)
Panama City Beach, FL 32413
Age 64
Nancy-Beth Sheerr Director Since 1996 Senior Financial Advisor, Haw- None
1409 Beaumont Drive thorne, since 2001. Chairman,
Gladwyne, PA 19035 Radcliffe College Board of
Age 54 Trustees, 1990-1999.
B-8
OTHER
LENGTH PRINCIPAL DIRECTORSHIPS
OF TIME OCCUPATIONS DURING HELD BY
NAME, ADDRESS AND AGE POSITION SERVED THE PAST 5 YEARS DIRECTOR
----------------------- ----------------- ------------ --------------------------------- --------------
Officers
Nancy L. Bendig Vice President Since 2003 Portfolio Manager with the Ad- --
Age 47 viser since 2003 and from 1993
to 1999; Portfolio Manager-
First Vice President, Avatar As-
sociates (investment manage-
ment), 1999-2003.
Brett Mitsifer Vice President Since 2003 Portfolio Manager with the Ad- --
Age 40 viser since 2003; Executive
Vice President, Hovey, Young-
man Associates (investment
management), 2000-2003;
Portfolio Manager, Bankers
Trust, 1997-2000.
Stephen E. Grant Vice President Since 2001 Portfolio Manager with the --
Age 49 Adviser.
David T. Henigson Vice President, Since 1994 Director, Vice President and --
Age 45 Secretary and Compliance Officer of the Ad-
Treasurer viser. Director and Vice Presi-
dent of the Distributor. Vice
President, Secretary and Trea-
surer of each of the 15 Value
Line Funds.
------------
* Mrs. Buttner is an "interested person" as defined in the Investment
Company Act of 1940 by virtue of her positions with the Adviser and her
indirect ownership of a controlling interest in the Adviser; Mrs. Ruth is
an interested person by virtue of being a director of the Adviser.
Unless otherwise indicated, the address for each of the above is 220 East
42nd Street, New York, NY 10017.
The non-interested Directors of the Fund serve as members of the Audit
Committee of the Board of Directors. The principal function of the Audit
Committee consists of overseeing the accounting and financial reporting
policies of the Fund and meeting with the Fund's independent auditors to review
the range of their activities and to discuss the Fund's system of internal
accounting controls. The Audit Committee also meets with the independent
auditors in executive session at each meeting. There were two meetings of the
Audit Committee during the last fiscal year. There is a Valuation Committee
consisting of Jean B. Buttner and John W. Chandler (or one other non-interested
Director if he is not available). The Valuation Committee did not meet during
the last fiscal year. The Valuation Committee reviews any actions taken by the
Pricing Committee which consists of certain officers and employees of the Fund
and the Adviser, in accordance with the valuation procedures adopted by the
Board of Directors. There is also a Nominating Committee consisting of the
non-interested Directors the purpose of which is to review and nominate
candidates to serve as non-interested directors. The Committee generally will
not consider nominees recommended by shareholders. The Committee did not meet
during the last fiscal year.
The following table sets forth information regarding compensation of
Directors by the Fund and the fourteen other Value Line Funds of which each of
the Directors is a director or trustee for the fiscal year ended December 31,
2002. 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.
B-9
TOTAL
COMPENSATION
FROM FUND
AGGREGATE AND FUND
COMPENSATION COMPLEX
NAMES OF PERSON FROM FUND (15 FUNDS)
--------------- --------- ---------
Jean B. Buttner $ -0- $ -0-
John W. Chandler 3,000 45,000
Frances T. Newton 3,000 45,000
Francis C. Oakley 3,000 45,000
David H. Porter 3,000 45,000
Paul Craig Roberts 3,000 45,000
Marion N. Ruth 1,500 22,500
Nancy-Beth Sheerr 3,000 45,000
The following table illustrates the dollar range of any equity securities
beneficially owned by each Director in the Fund in all of the Value Line Funds
as of December 31, 2002:
AGGREGATE DOLLAR
DOLLAR RANGE OF RANGE OF EQUITY
EQUITY SECURITIES SECURITIES IN ALL
NAME OF DIRECTOR IN THE FUND OF THE VALUE LINE FUNDS
---------------- ----------- -----------------------
Jean B. Buttner Over $100,000 Over $100,000
John W. Chandler $1 - $10,000 $10,001 - $50,000
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 $1 - $10,000 Over $100,000
Marion N. Ruth $1 - $10,000 Over $100,000
Nancy-Beth Sheerr $1 - $10,000 $10,001 - $50,000
As of March 31, 2003, no person owned of record or, to the knowledge of
the Fund, owned beneficially, 5% or more of the outstanding stock of the Fund
except Charles Schwab & Co., Inc., 101 Montgomery Street, San Francisco, CA
94104, which owned 737,458 shares of record or approximately 5.0 of the shares
outstanding. In addition, Wachovia Bank, N.A., as Trustee of the Value Line,
Inc. Profit Sharing and Savings Plan owned 346,736 shares (2.3%). Officers and
directors of the Fund as a group owned less than 1% of the outstanding shares.
None of the non-interested Directors, and his or her immediate family
members, own any shares in the Adviser, the Distributor or a person (other than
a registered investment company) directly or indirectly controlling, controlled
by, or under common control with the Adviser or Distributor.
INVESTMENT ADVISORY AND OTHER SERVICES
The Fund's investment adviser is Value Line, Inc. (the "Adviser"). 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.
B-10
The investment advisory agreement between the Fund and the Adviser, dated
September 26, 1991, provides for an advisory fee at an annual rate of 0.70% on
the first $100 million of the Fund's average daily net assets during the year
and 0.65% of such net assets in excess thereof. During 2000, 2001 and 2002, the
Fund paid or accrued to the Adviser advisory fees of $3,057,000, $2,205,000 and
$1,703,000, respectively.
The investment advisory agreement provides that the Adviser shall render
investment advisory and other services to the Fund including, at its expense,
all administrative services, office space and the services of all officers and
employees of the Fund. The Fund pays all other expenses not assumed by the
Adviser including taxes, interest, brokerage commissions, insurance premiums,
fees and expenses of the custodian and shareholder servicing agents, legal and
accounting fees, fees and expenses in connection with qualification under
federal and state securities laws and costs of shareholder reports and proxy
materials. The Fund has agreed that it will use the words "Value Line" in its
name only so long as Value Line, Inc. serves as investment adviser to the Fund.
The agreement will terminate upon its assignment.
In approving the investment advisory agreement, the Board of Directors,
including the non-interested Directors, voting separately, considered the
nature, quality and scope of the services provided by the Adviser, the
performance of the Fund for the past 1, 3, 5 and 10 year periods, the
performance, fees and expenses of the Fund compared to funds with similar
investment objectives, the Adviser's expenses in providing the services, the
profitability of the Adviser and other factors. The non-interested Directors
considered the foregoing in the light of the law applicable to the review of
investment advisory agreements. Based upon its review, the Board of Directors,
including all of the non-interested Directors, voting separately, determined,
in the exercise of its business judgment, that approval of the investment
advisory agreement was in the best interests of the Fund and its shareholders.
In making such determination, the Board of Directors relied upon assistance of
their legal counsel.
The Adviser acts as investment adviser to 14 other investment companies
constituting The Value Line Family of Funds and furnishes investment counseling
services to private and institutional accounts resulting in combined assets
under management of approximately $3 billion.
Certain of the Adviser's clients may have investment objectives similar to
the Fund and certain investments may be appropriate for the Fund and for other
clients advised by the Adviser. From time to time, a particular security may be
bought or sold for only one client or in different amounts and at different
times for more than one but less than all such clients. In addition, a
particular security may be bought for one or more clients when one or more
other clients are selling such security, or purchases or sales of the same
security may be made for two or more clients at the same time. In such event,
such transactions, to the extent practicable, will be averaged as to price and
allocated as to amount in proportion to the amount of each order. In some
cases, this procedure could have a detrimental effect on the price or amount of
the securities purchased or sold by the Fund. In other cases, however, it is
believed that the ability of the Fund to participate, to the extent permitted
by law, in volume transactions will produce better results for the Fund.
The Adviser and/or its affiliates, officers, directors and employees may
from time to time own securities which are also held in the portfolio of the
Fund. The Fund, the Adviser and the Distributor have adopted a Code of Ethics
under Rule 17j-1 of the Investment Company Act which permits personnel subject
to the Code to invest in securities, including securities that may be purchased
or held by the
B-11
Fund. The Code requires that such personnel submit reports of security
transactions for their respective accounts and restricts trading in various
types of securities in order to avoid possible conflicts of interest.
The Fund has entered into a distribution agreement with Value Line
Securities, Inc. (the "Distributor") whose address is 220 East 42nd Street, New
York, NY 10017, pursuant to which the Distributor acts as principal underwriter
and distributor of the Fund for the sale and distribution of its shares. The
Distributor is a wholly-owned subsidiary of the Adviser. For its services under
the agreement, the Distributor is not entitled to receive any compensation,
although it is entitled to receive fees under the Service and Distribution
Plan. The Distributor also serves as distributor to the other Value Line funds.
Jean Bernhard Buttner is Chairman and President of the Distributor.
The Adviser has retained State Street Bank and Trust Company ("State
Street") to provide certain bookkeeping and accounting services for the Fund.
The Adviser pays State Street $32,400 per annum for each Value Line fund for
which State Street provides 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. National Financial Data Services, Inc., a
State Street affiliate, whose address is 330 W. 9th Street, Kansas City, MO
64105, provides certain transfer agency functions to the Fund as an agent for
State Street. PricewaterhouseCoopers LLP, whose address is 1177 Avenue of the
Americas, New York, NY 10036, acts as the Fund's independent accountants and
also performs certain tax preparation services.
SERVICE AND DISTRIBUTION PLAN
The Service and Distribution Plan (12b-1 Plan) is designed to finance the
activities of Value Line Securities, Inc. (the "Distributor") in advertising,
marketing and distributing Fund shares and for servicing Fund shareholders at
an annual rate of .25% of the Fund's average daily net assets. During the
fiscal year ended December 31, 2002, the Fund paid fees of $635,880 to the
Distributor under the Plan. The Distributor paid $50,821 to other
broker-dealers and incurred $665,584 in advertising and other marketing
expenses. The fees payable to the Distributor under the Plan are payable
without regard to actual expenses incurred.
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
B-12
proportion as the Adviser may determine. The information and services furnished
to the Adviser include the furnishing of research reports and statistical
compilations and computations and the providing of current quotations for
securities. The services and information are furnished to the Adviser at no
cost to it; no such services or information were furnished directly to the
Fund, but certain of these services might have relieved the Fund of expenses
which it would otherwise have had to pay. Such information and services are
considered by the Adviser, and brokerage commissions are allocated in
accordance with its assessment of such information and services, but only in a
manner consistent with the placing of purchase and sale orders with brokers
and/or dealers, which, in the judgement of the Adviser, are able to execute
such orders as expeditiously as possible. Orders may also be placed with
brokers or dealers who sell shares of the Fund or other funds for which the
Adviser acts as investment adviser, but this fact, or the volume of such sales,
is not a consideration in their selection.
During 2000, 2001 and 2002, the Fund paid brokerage commissions of
$181,952, $287,820 and $260,016 respectively, of which $112,916 (62%), $172,860
(60%) and $25,449 (10%) respectively, was paid to Value Line Securities, Inc.,
the Fund's distributor and a subsidiary of the Adviser. Value Line Securities,
Inc. clears transactions for the Fund through unaffiliated broker-dealers.
During 2002, the Fund paid $67,156 to Value Line Securities, Inc. for
reimbursement of trading services on behalf of the Fund.
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
Value Line Securities 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 2002,
$218,216 (84%) of the Fund's brokerage commissions were paid to brokers or
dealers solely for their services in obtaining the best prices and executions;
the balance, or $41,800 (16%), went to brokers or dealers who provided
information or services to the Adviser and, therefore, indirectly to the Fund
and the other entities that it advises. The Fund is advised that the receipt of
such information and services has not reduced in any determinable amount the
overall expenses of the Adviser.
PORTFOLIO TURNOVER. The Fund's annual portfolio turnover rate may exceed
100%. 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 objective, 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.
B-13
AUTOMATIC PURCHASES: The Fund offers a free service to its shareholders,
Valu-Matic, through which monthly investments of $25 or more may be made
automatically into the shareholder's Fund account. The required form to enroll
in this program is available upon request from the Distributor.
RETIREMENT PLANS: Shares of the Fund may be purchased as the investment medium
for various tax-sheltered retirement plans. Upon request, the Distributor will
provide information regarding eligibility and permissible contributions.
Because a retirement plan is designed to provide benefits in future years, it
is important that the investment objectives of the Fund be consistent with the
participant's retirement objectives. Premature withdrawals from a retirement
plan may result in adverse tax consequences. For more complete information,
contact Shareholder Services at 1-800-243-2729.
REDEMPTION: The right of redemption may be suspended, or the date of payment
postponed beyond the normal seven-day period, by the Fund under the following
conditions authorized by the 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 Securities and
Exchange Commission may by order permit for the protection of the Fund's
shareholders.
The value of shares of the Fund on redemption may be more or less than the
shareholder's cost, depending upon the market value of the Fund's assets at the
time. Shareholders should note that if a loss has been realized on the sale of
shares of the Fund, the loss may be disallowed for tax purposes if shares of
the same Fund are purchased within (before or after) 30 days of the sale.
It is possible that conditions may exist in the future which would, in the
opinion of the Board of Directors, make it undesirable for the Fund to pay for
redemptions in cash. In such cases the Board may authorize payment to be made
in portfolio securities or other property of the Fund. However, the Fund has
obligated itself under the 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 New York Stock Exchange is currently closed on New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day and on the
preceding Friday or subsequent Monday if one of those days falls on a Saturday
or Sunday, respectively. The net asset value per share is determined by
dividing the total value of the investments and other assets of the Fund, less
any liabilities, by the total outstanding shares. Securities listed on a
securities exchange are valued at the closing sales price on the date as of
which the net asset value is being determined. The Fund generally values equity
securities traded on the NASDAQ Stock Market at the NASDAQ Official Closing
Price. In the absence of closing sales prices for such securities and for
securities traded in the over-the-counter market, the security is valued at the
midpoint between the latest available and representative asked and bid prices.
Securities for which
B-14
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 qualified and intends to continue to qualify as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"). The Fund so qualified during the Fund's last fiscal year. By so
qualifying, 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,
derive at least 90% of its gross income for each taxable year from dividends,
interest, payments with respect to securities loans, gains from the sale or
other disposition of stock, securities or foreign currencies, or other income
(including gains from options, futures and forward contracts) derived with
respect to its business of investing in such stock, securities or currencies
(the "90% income test") and satisfy certain quarterly asset diversification
requirements.
If the Fund qualifies as a regulated investment company and, for each
taxable year, it distributes to its shareholders an amount equal to or
exceeding the sum of (i) 90% of its "investment company taxable income" as that
term is defined in the Code (which includes, among other things, dividends,
taxable interest, and the excess of any net short-term capital gains over net
long-term capital losses, as reduced by certain deductible expenses) without
regard to the deduction for dividends paid and (ii) 90% of the excess of its
gross tax-exempt interest, if any, over certain disallowed deductions, the Fund
generally will be relieved of U.S. federal income tax on any income of the
Fund, including "net capital gains" (the excess of net long-term capital gain
over net short-term capital loss), distributed to shareholders. However, if the
Fund retains any 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 would not be eligible for tax treatment
as a conduit of income to its shareholders.
The Code requires each regulated investment company to pay a nondeductible
4% excise tax to the extent the company does not distribute, during each
calendar year, 98% of its ordinary income, determined on a calendar year basis,
and 98% of its capital gains in excess of capital losses, determined, in
general, for a one-year period ending on October 31 of such year, plus certain
undistributed amounts from previous years. The Fund anticipates that it will
make sufficient timely distributions to avoid imposition of the excise tax.
Realized losses incurred after October 31, if so elected by the Fund, are
deemed to arise on the first day of the following fiscal year. In the year
ended December 31, 2002, the Fund elected to defer $1,398,000 of post-October
net capital losses to the next taxable year.
Unless a shareholder elects otherwise, distributions from the Fund will be
automatically invested in additional common shares of the Fund. For U.S.
federal income tax purposes, such distributions generally will be taxable
whether a shareholder takes them in cash or they are reinvested in additional
B-15
shares of the Fund. In general, assuming that the Fund has sufficient earnings
and profits, dividends from investment company taxable income are taxable as
ordinary income, and 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. 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.
On January 7, 2003, President Bush proposed an economic growth plan which
contains a provision that would exclude from income dividends paid by
corporations to the extent paid out of previously taxed corporate income. There
can be no assurance as to whether such provisions will be enacted into law or
as to its scope if enacted and therefore its effect upon shareholders is
uncertain at this time.
At the time of an investor's purchase of Fund shares, a portion of the
purchase price may be attributable to realized or unrealized appreciation in
the Fund's portfolio or undistributed taxable income of the Fund. Consequently,
subsequent distributions by the Fund with respect to these shares from such
appreciation or income may be taxable to such investor even if the net asset
value of the investor's shares is, as a result of the distributions, reduced
below the investor's cost for such shares and the distributions economically
represent a return of a portion of the investment. In particular, investors
should be careful to consider the tax implications of buying shares just prior
to a distribution. The price of shares purchased at that time (at the net asset
value per share) may include the amount of the forthcoming distribution. Those
purchasing just prior to a distribution will then receive, in effect, a return
of capital upon the distribution which will nevertheless be taxable to them.
Furthermore, under the Code, dividends declared by the Fund in October,
November or December of any calendar year, and payable to shareholders of
record in such a month, shall be deemed to have been received by such
shareholder on December 31 of such calendar year if such dividend is actually
paid in January of the following calendar year.
If the Fund invests in certain pay-in-kind securities, zero coupon
securities or, in general, any other securities with original issue discount
(or with market discount if the Fund elects to include market discount in
income currently), the Fund generally must accrue income on such investments
for each taxable year, which generally will be prior to the receipt of the
corresponding cash payments. However, the Fund must distribute, at least
annually, all or substantially all of its investment company taxable income,
including such accrued income, to shareholders to qualify as a regulated
investment company under the Code and avoid U.S. federal income and excise
taxes. Therefore, the Fund may have to dispose of its portfolio securities
under disadvantageous circumstances to generate cash, or may have to borrow the
cash, to satisfy distribution requirements.
Dividends received by the Fund from U.S. corporations in respect of any
share of stock with a tax holding period of at least 46 days (91 days in the
case of certain preferred stock) extending before and 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
B-16
required. In order to qualify for the deduction, corporate shareholders must
meet the minimum holding period requirement stated above with respect to their
Fund shares, taking into account any holding period reductions from certain
hedging or other transactions or positions that diminish their risk of loss
with respect to their Fund shares, and, if they borrow to acquire or otherwise
incur debt attributable to Fund shares, they may be denied a portion of the
dividends-received deduction. The entire dividend, including the otherwise
deductible amount, will be included in determining the excess, if any, of a
corporation's adjusted current earnings over its alternative minimum taxable
income, which may increase a corporation's alternative minimum tax liability.
Upon request, the Fund will inform shareholders of the amounts of the
qualifying dividends.
Options written or purchased by the Fund and futures contracts purchased
on certain securities and indices may cause the Fund to recognize gains or
losses from marking-to-market even though such options may not have lapsed,
been closed out, or exercised or such futures contracts may not have been
performed or closed out. The tax rules applicable to these contracts may affect
the characterization of some capital gains and losses recognized by the Fund as
long-term or short-term. Additionally, the Fund may be required to recognize
gain if an option, futures contract, short sale, or other transaction that is
not subject to the mark-to-market rules is treated as a "constructive sale" of
an "appreciated financial position" held by the Fund under Section 1259 of the
Code. Any net mark-to-market gains and/or gains from constructive sales may
also have to be distributed to satisfy the distribution requirements referred
to above even though the Fund may receive no corresponding cash amounts,
possibly requiring the Fund to dispose of portfolio securities or to borrow to
obtain the necessary cash. Losses on certain options, futures and/or offsetting
positions (portfolio securities or other positions with respect to which the
Fund's risk of loss is substantially diminished by one or more options or
futures contracts) may also be deferred under the tax straddle rules of the
Code, which may also affect the characterization of capital gains or losses
from straddle positions and certain successor positions as long-term or
short-term. Certain tax elections may be available that would enable the Fund
to ameliorate some adverse effects of the tax rules described in this
paragraph. The tax rules applicable to options, futures contracts, short sales,
and straddles may affect the amount, timing and character of the Fund's income
and gains or losses and hence of its distributions to shareholders.
A shareholder may realize a capital gain or capital loss on the sale,
exchange or redemption of shares of the Fund. The tax consequences of a sale,
exchange or redemption depend upon several factors, including the shareholder's
adjusted tax basis in the shares sold, exchanged or redeemed and the length of
time the shares have been held. Initial basis in the shares will be the actual
cost of those shares (net asset value of Fund shares on purchase or
reinvestment date). Shareholders should consult their own tax advisers with
reference to their individual circumstances to determine whether any particular
transaction in the Fund's shares is properly treated as a sale for tax
purposes, as the following discussion assumes, and the tax treatment of any
gains or losses recognized in such transactions. In general, if Fund shares are
sold 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
B-17
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 over excess losses.
For shareholders who fail to furnish to the Fund their social security or
taxpayer identification numbers and certain related information or who fail to
certify that they are not subject to back-up withholding, dividends,
distributions of capital gains and redemption proceeds paid by the Fund will be
subject to a Federal income tax 30% "backup withholding" requirement. In
addition, the Fund may be required to backup withhold if it receives notice
from the IRS or a broker that the number provided is incorrect or backup
withholding is applicable as a result of previous underreporting of interest or
dividend income. If the withholding provisions are applicable, any such
dividends or capital-gains distributions to these shareholders, whether taken
in cash or reinvested in additional shares, and any redemption proceeds will be
reduced by the amounts required to be withheld.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to shareholders who are U.S. persons (i.e., U.S. citizens or
residents, domestic corporations and partnerships, and certain trusts and
estates) and is not intended to be a complete discussion of all Federal tax
consequences. This discussion does not address the special tax rules that may
be applicable to particular types of investors, such as financial institutions,
insurance companies, securities dealers or tax-exempt or tax-deferred plans,
accounts or entities. Shareholders who are not U.S. persons may be subject to a
non-resident alien U.S. withholding tax at the rate of 30% or at a lower treaty
rate on amounts treated as ordinary dividends from the Fund and, unless an
effective IRS Form W-8 BEN or other authorized certificate is on file, to
backup withholding at the rate of 30% on certain other payments from the Fund.
Shareholders are advised to consult with their tax advisers concerning the
application of Federal, state, local and foreign taxes to an investment in the
Fund.
PERFORMANCE DATA
From time to time, the Fund may state its total return in advertisements
and investor communications. Total return may be stated for any relevant period
as specified in the advertisement or communication. Any statements of total
return or other performance data on the Fund will be accompanied by information
on the Fund's average annual compounded rate of return for the periods of 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.
The Fund's average annual compounded rate of return is determined by
reference to a hypothetical $1,000 investment that includes capital
appreciation and depreciation for the stated period, according to the following
formula:
P(1+T)(n) = ERV
Where: P = a hypothetical initial purchase order of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $1,000 purchase at
the end of the period.
The Fund may also quote after-tax total returns to show the impact of
assumed federal income taxes on an investment in the Fund. The Fund's total
return "after taxes on distributions" shows the effect of taxable
distributions, but not any taxable gain or loss, on an investment in shares of
the Fund for a
B-18
specified period of time. The Fund's total return "after taxes on distributions
and sale of Fund shares" shows the effect of both taxable distributions and any
taxable gain or loss realized by the shareholder upon the sale of Fund shares
at the end of a specified period. To determine these figures, all income,
short-term capital gains distributions, and long-term capital gains
distributions are assumed to have been taxed at the highest marginal
individualized federal tax rate then in effect. Those maximum tax rates are
applied to distributions prior to reinvestment and the after-tax portion is
assumed to have been reinvested in the Fund. State and local taxes are ignored.
Actual after-tax returns depend on a shareholder's tax situation and may
differ from those shown. After-tax returns reflect past tax effects and are not
predictive of future tax effects.
Average Annual Total Return (After Taxes on Distributions) will be
computed as follows:
P (1+T)(n) = ATV(D)
Where: P = a hypothetical initial investment of $1,000
T = average annual total return (after taxes on distributions)
n = number of years
ATV(D) = ending value of a hypothetical $1,000 investment made at the
beginning of the period, at the end of the period (or
fractional portion thereof), after taxes on fund
distributions but not after taxes on redemptions.
Average Annual Total Return (After Taxes on Distributions and Sale of Fund
Shares) will be computed as follows:
P (1+T)(n) = ATV(DR)
Where: P = a hypothetical initial investment of $1,000
T = average annual total return (after taxes on distributions)
n = number of years
ATV(DR) = ending value of a hypothetical $1,000 investment made at the
beginning of the period, at the end of the period (or
fractional portion thereof), after taxes on fund
distributions but not after taxes on redemptions.
For the one, five and ten year periods ending December 31, 2002, the
Fund's average annual total returns were -25.35%, -3.44% and 5.36%,
respectively; the Fund's average annual total returns (after taxes on
distributions) were -25.50%, -4.10% and 3.25%, respectively; the Fund's average
annual total returns (after taxes on distributions and sale of Fund shares)
were -15.43%, -2.46% and 3.95%, 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-19
FINANCIAL STATEMENTS
The Fund's financial statements for the year ended December 31, 2002,
including the financial highlights for each of the five fiscal years in the
period ended December 31, 2002, appearing in the 2002 Annual Report to
Shareholders and the report thereon of PricewaterhouseCoopers LLP, independent
accountants, appearing therein, are incorporated by reference in this Statement
of Additional Information.
B-20
PART C: OTHER INFORMATION
ITEM 23. EXHIBITS.
(a) Articles of Incorporation, as amended.*
(b) By-laws.*
(c) Instruments Defining Rights of Security Holders. Reference is made to
Article Fifth of the Articles of Incorporation filed as Exhibit (a)
to Post-Effective Amendment No. 84, filed February 24, 1999.
(d) Investment Advisory Agreement.*
(e) Underwriting Contract.*
(f) Not applicable.
(g) Custodian Agreement.*
(h) Not applicable.
(i) Legal Opinion.*
(j) Consent of independent accountants.
(k) Not applicable.
(l) Not applicable.
(m) Service and Distribution Plan.***
(p) Code of Ethics.**
* Filed as an exhibit to Post-Effective Amendment No. 84, filed
February 24, 1999, and incorporated herein by reference.
** Filed as an exhibit to Post-Effective Amendment No. 85, filed April
26, 2000, and incorporated herein by reference.
*** Filed as an exhibit to Post-Effective Amendment No. 86, filed April
27, 2001, and incorporated herein by reference.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None
ITEM 25. INDEMNIFICATION.
Incorporated by reference to Article Seventh (7)(c) of the Articles of
Incorporation filed as Exhibit (a) to Post-Effective Amendment No. 84, filed
February 24, 1999.
ITEM 26. BUSINESS OR OTHER CONNECTIONS OF INVESTMENT ADVISER.
Value Line, Inc., Registrant's investment adviser, acts as investment
adviser for a number of individuals, trusts, corporations and institutions, in
addition to the registered investment companies in the Value Line Family of
Funds listed in Item 27.
C-1
POSITION WITH
NAME THE ADVISER OTHER EMPLOYMENT
---- ----------- ----------------
Jean Bernhard Buttner Chairman of the Board, Chairman of the Board and Chief Executive
President and Chief Officer of Arnold Bernhard & Co., Inc. and
Executive Officer Chairman of the Value Line Funds and the
Distributor
Samuel Eisenstadt Senior Vice President and ----------------------------------------------
Director
David T. Henigson Vice President, Treasurer Vice President and a Director of Arnold
and Director Bernhard & Co., Inc. and the Distributor
Howard A. Brecher Vice President, Secretary Vice President, Secretary, Treasurer and a
and Director Director of Arnold Bernhard & Co., Inc.
Harold Bernard, Jr. Director Attorney-at-law; Retired Administrative Law
Judge
Herbert Pardes, MD Director President and CEO of New York-Presbyterian
Hospital
Marion N. Ruth Director Real Estate Executive. President, Ruth Realty
(real estate broker). Director or Trustee of
each of the Value Line Funds
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) Value Line Securities, Inc., acts as principal underwriter for the
following Value Line funds, including the Registrant: The Value Line
Fund, Inc.; Value Line Income and Growth Fund, Inc.; The Value Line
Special Situations Fund, Inc.; Value Line Leveraged Growth Investors,
Inc.; The Value Line Cash Fund, Inc.; Value Line U.S. Government
Securities Fund, Inc.; Value Line Centurion Fund, Inc.; The Value
Line Tax Exempt Fund, Inc.; Value Line Convertible Fund, Inc.; Value
Line Aggressive Income Trust; Value Line New York Tax Exempt Trust;
Value Line Strategic Asset Management Trust; Value Line Emerging
Opportunities Fund, Inc.; Value Line Asset Allocation Fund, Inc.;
Value Line U.S. Multinational Company Fund, Inc.
(b)
(2)
POSITION AND (3)
(1) OFFICES POSITION AND
NAME AND PRINCIPAL WITH VALUE LINE OFFICES WITH
BUSINESS ADDRESS SECURITIES, INC. REGISTRANT
---------------- ---------------- ----------
Jean Bernhard Buttner Chairman of the Chairman of the
Board Board and
President
David T. Henigson Vice President, Vice President,
Secretary, Secretary and
Treasurer and Treasurer
Director
Stephen LaRosa Asst. Vice Asst. Treasurer
President
The business address of each of the officers and directors is 220 East 42nd
Street, New York, NY 10017-5891.
(c) Not applicable.
C-2
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 NFDS
P.O. Box 219729
Kansas City, MO 64121
For records pursuant to Rule 31a-1(b)(2)(iv)
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
For all other records
ITEM 29. MANAGEMENT SERVICES.
None.
ITEM 30. UNDERTAKINGS.
None.
----------------
C-3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Post-Effective
Amendment No. 88 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated February 14, 2003 relating to the financial
statements and financial highlights which appear in the December 31, 2002
Annual Report to Shareholders of The Value Line Fund, Inc., which are also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the headings "Financial Highlights", "Investment
Advisory and Other Services" and "Financial Statements" in such Registration
Statement.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
April 21, 2003
C-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment
to its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, and State of New York, on
the 18th day of April, 2003.
THE VALUE LINE FUND, INC.
By: /S/ DAVID T. HENIGSON
-----------------------------------
DAVID T. HENIGSON, VICE PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed below by the following persons in the capacities and on the
dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
*JEAN B. BUTTNER Chairman and Director; April 18, 2003
(JEAN B. BUTTNER) President; Principal
Executive Officer
*JOHN W. CHANDLER Director April 18, 2003
(JOHN W. CHANDLER)
*FRANCES T. NEWTON Director April 18, 2003
(FRANCES T. NEWTON)
*FRANCIS C. OAKLEY Director April 18, 2003
(FRANCIS C. OAKLEY)
*DAVID H. PORTER Director April 18, 2003
(DAVID H. PORTER)
*PAUL CRAIG ROBERTS Director April 18, 2003
(PAUL CRAIG ROBERTS)
*MARION N. RUTH Director April 18, 2003
(MARION N. RUTH)
*NANCY-BETH SHEERR Director April 18, 2003
(NANCY-BETH SHEERR)
/S/ DAVID T. HENIGSON Treasurer; Principal Financial April 18, 2003
--------------------- and Accounting Officer
(DAVID T. HENIGSON)
*By /S/ DAVID T. HENIGSON
-------------------------
(DAVID T. HENIGSON, ATTORNEY-IN-FACT)
C-5