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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 14, 1998
FILE NOS. 33-
811-
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. / /
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. / /
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VALUE LINE HEDGED OPPORTUNITY FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
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<S> <C> <C> <C> <C>
220 East 42nd Street
New York, New York
(ADDRESS OF PRINCIPAL EXECUTIVE 10017-5891
OFFICES) (ZIP CODE)
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Registrant's Telephone Number, including Area Code: (212) 907-1500
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David T. Henigson
Value Line, Inc.
220 East 42nd Street
New York, New York 10017-5891
(NAME AND ADDRESS OF AGENT FOR SERVICE)
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Copy to:
Peter D. Lowenstein
Two Greenwich Plaza, Suite 100
Greenwich, CT 06830
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APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
As soon as practicable after the effective date of this registration statement.
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Title of Securities Being Registered......... Shares of Common Stock, $.01 par value
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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VALUE LINE HEDGED OPPORTUNITY FUND, INC.
FORM N-1A
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
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N-1A ITEM NO. LOCATION
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PART A (PROSPECTUS)
Item 1. Cover Page..................................... Cover Page
Item 2. Synopsis....................................... Summary of Fund Expenses
Item 3. Condensed Financial Information................ Summary of Fund Expenses
Item 4. General Description of Registrant.............. Cover Page; Investment Objective and Policies;
Investment Restrictions; Additional
Information
Item 5. Management of the Fund......................... Summary of Fund Expenses; Management of the
Fund; Additional Information
Item 6. Capital Stock and Other Securities............. Dividends, Distributions and Taxes; Additional
Information
Item 7. Purchase of Securities Being Offered........... How to Buy Shares; Calculation of Net Asset
Value; Investor Services
Item 8. Redemption or Repurchase....................... How to Redeem Shares
Item 9. Pending Legal Proceedings...................... Not Applicable
PART B (STATEMENT OF ADDITIONAL INFORMATION)
Item 10. Cover Page..................................... Cover Page
Item 11. Table of Contents.............................. Table of Contents
Item 12. General Information and History................ Additional Information (Part A)
Item 13. Investment Objective and Policies.............. Investment Objective and Policies; Investment
Restrictions
Item 14. Management of the Fund......................... Directors and Officers
Item 15. Control Persons and Principal Holders of
Securities................................... Management of the Fund (Part A); Directors and
Officers
Item 16. Investment Advisory and Other Services......... Management of the Fund (Part A); The Adviser
Item 17. Brokerage Allocation........................... Management of the Fund (Part A); Brokerage
Arrangements
Item 18. Capital Stock and Other Securities............. Additional Information (Part A)
Item 19. Purchase, Redemption and Pricing of Securities
Being Offered................................ How to Buy Shares; How to Redeem Shares;
Calculation of Net Asset Value (Part A)
Item 20. Tax Status..................................... Taxes
Item 21. Underwriters................................... Not Applicable
Item 22. Calculation of Performance Data................ Performance Information (Part A); Performance
Data
Item 23. Financial Statements........................... Financial Statements
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PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
VALUE LINE
HEDGED OPPORTUNITY PROSPECTUS
FUND, INC. , 1998
220 East 42nd Street, New York, New York 10017-5891
1-800-223-0818 or 1-800-243-2729
www.valueline.com
Value Line Hedged Opportunity Fund, Inc. (the "Fund")
is a no-load, open-end investment company whose
investment objective is capital appreciation utilizing
an aggressive investment strategy that will employ
leverage. It will seek to hedge exposure of its
portfolio securities to broad stock market movements
through the use of options, futures contracts and
short sales in order to achieve a market neutral
position.
The Fund's investment adviser is Value Line, Inc. (the
"Adviser").
Shares of the Fund are offered at net asset value.
There are no sales charges or redemption fees.
FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, NOR ARE THEY FEDERALLY INSURED OR OTHERWISE
PROTECTED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD, OR ANY OTHER AGENCY.
This Prospectus sets forth concise information about the Fund that a
prospective investor ought to know before investing. This Prospectus
should be retained for future reference. Additional information about
the Fund is contained in a Statement of Additional Information, dated
, 1998, which may be obtained at no charge by writing or
telephoning the Fund at the address or telephone numbers listed above.
The Statement, which is incorporated into this Prospectus by reference,
has been filed with the Securities and Exchange Commission and is
available along with other related materials on the Commission's
Internet Web site at http://www.sec.gov.
DISTRIBUTOR
Value Line Securities, Inc.
220 East 42nd Street
New York, NY 10017-5891
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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SUMMARY OF FUND EXPENSES
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SHAREHOLDER TRANSACTION EXPENSES
Sales Load on Purchases......................... None
Sales Load on Reinvested Dividends.............. None
Deferred Sales Load............................. None
Redemption Fees................................. None
Exchange Fee.................................... None
ANNUAL FUND OPERATING EXPENSES AFTER EXPENSE
REIMBURSEMENTS(1)
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees................................. 0%
12b-1 Fees(2)................................... 0%
Other Expenses.................................. 0%
Total Fund Operating Expenses (after expenses
absorbed and fee waiver)....................... 0%
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EXAMPLE 1 YEAR 3 YEARS
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You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return
and (2) redemption at the end of each time period and no voluntary waiver of fees and
expenses:.................................................................................. $ $
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(1) The Adviser has voluntarily agreed to bear all expenses for the fiscal year
ending , 1998. If the Adviser did not bear such expenses, the
Fund's total operating expenses on an annualized basis would be % of
average net assets (Management Fees=.75%, 12b-1 Fees=.25% and estimated
Other Expenses=. %). The foregoing is based upon the annualized expenses
for the period from commencement of operations to , 1998, and is
designed to assist investors in understanding the various costs and expenses
that an investor in the Fund will bear directly or indirectly. Because the
Fund is a new fund and has not completed a full fiscal year, "Other
Expenses" is based upon amounts estimated to be payable in the current
fiscal year. ACTUAL EXPENSES IN THE FUTURE MAY BE GREATER OR LESS THAN THOSE
SHOWN. See "Management of the Fund" and "Service and Distribution Plan."
(2) Because 12b-1 fees continue for the life of the investment, over time a long
term investor may pay more than the economic equivalent of the maximum
front-end sales charges permitted by the National Association of Securities
Dealers, Inc.
2
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INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is capital appreciation utilizing an
aggressive investment strategy that will employ leverage. It will seek to hedge
exposure of its portfolio securities to broad stock market movements through the
use of options, futures contracts and short sales in order to achieve a market
neutral position. Under normal conditions, the Fund will invest not less than
80% of the market value of its total assets in common stocks or securities
convertible into common stocks. This is a fundamental policy of the Fund which
cannot be changed without shareholder approval. When the Adviser deems it
appropriate in the light of economic or market conditions, a portion of the
Fund's total assets may be held from time to time in cash, U.S. Government
securities, or money-market instruments which are rated in the top two
categories by a nationally recognized rating organization. There can be no
assurance that the Fund will achieve its investment objective. There are risks
in all investments, including any stock investment, and in all mutual funds that
invest in stocks.
BASIC INVESTMENT STRATEGY
The Fund seeks a total return greater than that of the three month U.S.
Treasury Bill rate. The Fund seeks to achieve its objective by investing in a
diversified portfolio of common stocks while simultaneously utilizing index
futures, options on index futures and short sales to fully hedge its portfolio.
For example, the Fund could hedge the market value of that portion of its
portfolio which is held in stocks which form a part of Standard & Poor's 500
Composite Stock Price Index (the "S&P 500 Index") by selling S&P 500 Index
Futures in an amount representing the same market value. Similarly, it could
hedge the market value of other portions of its portfolio by selling options and
index futures that the Adviser believes most closely match the characteristics
for those securities. It could also sell specified securities short to hedge
against declines in the market price of similar specific securities in the
Fund's portfolio.
Although the Fund's strategy is to be fully hedged, it does not seek to be
perfectly hedged. Although, in theory, perfect hedging utilizing index futures
absolutely protects against loss in market value, by definition it also limits
returns to the three month Treasury Bill rate or the prevailing money market
rate. Because it is the Fund's strategy to actively select stocks that the
Adviser believes have the promise to outperform the stock market, its policy of
fully hedging is designed to permit it to realize a greater return than the
three month U.S. Treasury Bill rate while accepting a degree of risk of loss.
In selecting securities for purchase or sale, the Adviser may rely on the
Value Line Timeliness-TM- Ranking System or the Value Line Performance-TM-
Ranking System, if a ranking is available for that particular stock. 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.
The Timeliness Rankings are published weekly in the Standard Edition of The
Value Line Investment Survey for approximately 1,700 stocks. On a scale of 1
(highest) to 5 (lowest), the rankings compare the Adviser's estimate of the
probable market performance of each stock during the coming 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 the Value Line Small-Cap Growth Fund, Inc.
since 1993 and was employed in managing pension client assets from 1981 to 1997.
The Performance Ranking System evaluates the approximately 1,800 stocks in the
Expanded Edition of The Value Line Investment Survey. This stock selection
system relies on factors similar to those found in the Value Line Timeliness
Ranking System. The Performance Ranks use
3
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a scale of 1 (highest) to 5 (lowest) to compare the Adviser's estimate of the
probable market performance of each Expanded Edition stock during the coming
twelve months relative to all 1,800 stocks under review in the Expanded Edition.
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 whether the market is
undervaluing or overvaluing a particular security. The utilization of these
Rankings is no assurance that the Fund will perform more favorably than the
market in general over any particular period.
LEVERAGE
The Fund expects to employ significant "leverage" by borrowing funds to
purchase or carry securities. Borrowing increases both investment opportunity
and investment risk. Since substantially all of the Fund's assets fluctuate in
value, whereas the interest obligation resulting from the borrowing is a fixed
one, the asset value per share of the Fund will tend to increase more when the
portfolio assets increase in value and decrease more when portfolio assets
decrease in value than would otherwise be the case. This is the speculative
factor known as leverage.
The Fund will only borrow from banks, and only if the value of the Fund's
assets, less its liabilities other than borrowings, is equal to at least 300% of
all borrowings including the proposed borrowing. If at any time the value of the
Fund's assets should fail to meet the 300% coverage requirement, the Fund will,
within three business days, reduce its borrowings to the extent necessary. To do
so, or to meet maturing bank loans, the Fund might on occasion be required to
dispose of portfolio securities when such disposition might not otherwise be
desirable. This is a fundamental policy of the Fund which may not be changed
without approval of a majority of its outstanding shares.
Interest on money borrowed is an expense of the Fund which it would not
otherwise incur, with the result that it may have little or no investment income
during periods when its borrowings are substantial. The Fund may be required to
maintain minimum average balances in connection with its borrowings or to pay a
commitment or other fee to maintain a line of credit.
OTHER INVESTMENT PRACTICES
OPTIONS. The Fund may purchase put and call options on securities. A call
or put option is a contract that gives the Fund, in return for a premium paid on
purchase of the option, the right to buy from, or to sell to, the seller of the
option the security underlying the option at a specified exercise price during
the term of the option. The Fund also may sell covered call options on
securities owned by the Fund.
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 provided that the Fund may hold positions in futures
contracts and related options that do not fall within the definition of bona
fide hedging transactions if the aggregate initial margin and premiums required
to establish such positions will not exceed 5% of the Fund's net assets (after
taking into account unrealized profits and unrealized losses on any such
positions) and 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%. Upon
entering into a futures contract, the Fund will be required to deposit with its
custodian in a segregated account a specified amount of cash or securities.
4
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Hedging transactions involve certain risks including the risk of loss
because of imperfect correlation between movements in the price of the stock
index futures 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, 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.
SHORT SALES. The Fund may make short sales of securities. Short sales are
transactions in which the Fund sells a security or other asset which it does not
own in anticipation of a decline in the market value of the security or other
asset. The Fund will realize a profit or incur a loss depending upon whether the
price of the security sold short decreases or increases in value between the
date of the short sale and the date on which the Fund must replace the borrowed
security and there can be no assurance that the Fund will be able to close out
the position at any particular time or at an acceptable price. When the Fund
engages in short sales it must deposit in a segregated account an amount of cash
or U.S. Government securities equal to the difference between (1) the market
value of the securities sold short at the time they were sold short and (2) the
value of any cash or U.S. Government securities required to be deposited as
collateral in connection with the short sale. In addition, while the short
position remains open, the Fund must daily maintain the segregated account at
such a level that (1) the amount deposited as collateral will equal the current
market value of the securities sold short and (2) the amount deposited in it
plus the amount deposited as collateral will not be less than the market value
of the securities at the time they were sold short. Short sales are speculative
investments and involve special risks and may also produce higher than normal
portfolio turnover resulting in increased transaction costs to the Fund.
The Fund may also make short sales against-the-box, in which it sells short
securities it owns or has the right to obtain without payment of additional
consideration. If the Fund enters into a short sale against-the-box, it will be
required to set aside securities equivalent in kind and amount to the securities
sold short (or securities convertible or exchangeable into those securities) and
will be required to hold such securities while the short sale is outstanding.
The Fund will incur transaction costs, including interest expenses, in
connection with opening, maintaining and closing short sales against-the-box. If
the Fund engages in any short sales against-the-box, it will incur the risk that
the security sold short will appreciate in value after the sale, with the result
that the Fund will lose the benefit of any such appreciation.
LENDING PORTFOLIO SECURITIES. The Fund may lend its portfolio securities to
broker-dealers or institutional investors if as a result thereof the aggregate
value of all securities loaned does not exceed 33 1/3% of the total assets of
the Fund. The loans will be made in conformity with applicable regulatory
policies and will be 100% collateralized by cash, cash equivalents or U.S.
Treasury bills on a daily basis in an amount equal to the market value of the
securities loaned and interest earned. The Fund will retain the right to call,
upon notice, the loaned securities and intends to call loaned voting securities
in anticipation of any important or material matter to be voted on by
shareholders. While there may be delays in recovery or even loss of rights in
the collateral should the borrower fail financially, the loans will be made only
to firms deemed by the Adviser to be of good standing and will not be made
unless, in the judgment of the Adviser, the consideration which can be earned
from such loan justifies the risk. The Fund may pay reasonable custodian and
administrative fees in connection with the loans.
5
<PAGE>
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, the Fund
could experience both delays in liquidating the underlying securities and
losses, including: (a) possible decline in the value of the underlying security
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. The Board of Directors
monitors the creditworthiness of parties with which the Fund enters into
repurchase agreements.
SMALL COMPANIES. The Fund may invest in securities issued by small
companies (i.e. companies that have a market capitalization of less than $1
billion.) Such companies may offer greater opportunities for capital
appreciation than larger companies, but investment in such companies may involve
special risks. Such companies may have limited product lines, markets or
financial resources, and their securities may trade less frequently and in more
limited volume than those of larger, more mature companies. The values of these
securities may fluctuate more sharply than those of other securities, and the
Fund may experience difficulty in establishing or closing out positions in these
securities at prevailing market prices.
PORTFOLIO TURNOVER. It is expected that the Fund's annual portfolio
turnover rate will 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. To the extent
portfolio turnover results in the realization of net short-term capital gains,
such gains ordinarily are taxed to shareholders at ordinary income tax rates.
RISK FACTORS
Investors should be aware of the following:
- There are risks in all investments, including any stock investment, and in
all mutual funds. The Fund's net asset value will fluctuate to reflect the
investment performance of the securities held by the Fund.
- The value a shareholder receives upon redemption may be greater or less
than the value of such shares when acquired.
- The use of investment techniques such as borrowing funds, short selling,
trading in stock index futures contracts and in options on such contracts,
investing in repurchase agreements and lending portfolio securities
involves costs and greater risk than does an investment in a fund that
does not engage in these activities and certain of these techniques may
result in losses to the Fund.
6
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INVESTMENT RESTRICTIONS
The Fund has adopted a number of investment restrictions which may not be
changed without shareholder approval. These are set forth in the Statement of
Additional Information.
MANAGEMENT OF THE FUND
The management and affairs of the Fund are supervised by the Fund's Board of
Directors. The Fund's officers conduct and supervise the daily business
operations of the Fund. The Fund's investment decisions are made by an
investment committee of employees of the Adviser. The Fund's Annual Report
contains a discussion of the Fund's performance, which will be made available
upon request and without charge.
THE ADVISER. The Adviser was organized in 1982 and is the successor to
substantially all of the operations of Arnold Bernhard & Co., Inc. ("AB&Co.").
The Adviser was formed as part of a reorganization of AB&Co., a sole
proprietorship formed in 1931 which became a New York corporation in 1946.
AB&Co. currently owns approximately 81% of the outstanding shares of the
Adviser's common stock. Jean Bernhard Buttner, Chairman, President and Chief
Executive Officer of the Adviser, owns all of the voting stock of AB&Co.
Substantially all of the non-voting stock is owned by or for the benefit of
members of the Bernhard family. The Adviser currently acts as investment adviser
to the other Value Line mutual funds and furnishes investment advisory services
to private and institutional accounts with combined assets in excess of $5
billion. 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. The Adviser manages the Fund's
investments, provides various administrative services and supervises the Fund's
daily business affairs, subject to the authority of the Board of Directors. The
Adviser is paid an advisory fee at an annual rate of 0.75% of the Fund's average
daily net assets during the year. Although this fee is higher than that paid by
other investment companies, it is not unusually high for investment companies
with a similar investment objective. From time to time, the Adviser may
voluntarily assume certain expenses of the Fund and waive its advisory fee. This
will have the effect of lowering the overall expense ratio of the Fund. For more
information about the Fund's management fees and expenses, see the "Summary of
Fund Expenses" on page 2.
BROKERAGE. The Fund pays a portion of its total brokerage commissions to
Value Line Securities, Inc., which clears transactions for the Fund through
unaffiliated broker-dealers.
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 scheduled 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. The New York
Stock Exchange is currently closed on New Year's Day, Martin Luther King Jr.
Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. 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 and over-the-counter securities traded on the NASDAQ
national market are valued at the closing sales price on the date as of which
the net asset value is being determined. In the absence of closing sales prices
for such securities and for securities traded in the over-the-counter market,
the security is valued at the midpoint between the latest available and
representative asked and bid prices. Securities for which market quotations are
not readily available or which are not readily marketable and all other assets
of the Fund are valued at fair value as the Board of Directors or persons acting
at their direction may determine in good faith. Short-term investments that
mature in less than 60 days are valued at amortized cost if their original
maturity was 60 days or less, or by amortizing their value on the
7
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61st day prior to maturity, if their original term exceeds 60 days (unless the
Directors determine that amortized cost value does not represent fair value, in
which case fair value will be determined as described above).
HOW TO BUY SHARES
PURCHASE BY CHECK. To buy shares, send a check made payable to "NFDS-Agent"
and a completed and signed application form to Value Line Funds, c/o NFDS, P.O.
Box 419729, Kansas City, MO 64141-6729. Third party checks will not be accepted
for either initial or subsequent investments. For assistance in completing the
application and for information on pre-authorized telephone purchases, call
Value Line Securities at 1-800-223-0818 during New York business hours. Upon
receipt of the completed and signed purchase application and a check, National
Financial Data Services, Inc. ("NFDS"), the Fund's shareholder servicing agent,
will buy full and fractional shares (to three decimal places) at the net asset
value next computed after the funds are received and will confirm the investment
to the investor. Subsequent investments may be made by attaching a check to the
confirmation's "next payment" stub, by telephone or by federal funds wire.
Investors may also buy shares through broker-dealers other than Value Line
Securities. Such broker-dealers may charge investors a reasonable service fee.
Neither Value Line Securities nor the Fund receives any part of such fees when
charged (and which can be avoided by investing directly). If an order to
purchase shares is cancelled due to nonpayment or because the purchaser's check
does not clear, the purchaser will be responsible for any loss incurred by the
Fund or Value Line Securities by reason of such cancellation. If the purchaser
is a shareholder, Value Line Securities reserves the right to redeem sufficient
shares from the shareholder's account to protect the Fund against loss. Minimum
orders are $1,000 for an initial purchase and $100 for each subsequent purchase.
The Fund may refuse any order for the purchase of shares. The Fund reserves the
right to waive the initial and subsequent investment minimums at any time.
WIRE PURCHASE -- $1,000 MINIMUM. An investor should call 1-800-243-2729 to
obtain an account number. After receiving an account number, instruct your
commercial bank to wire transfer "federal funds" via the Federal Reserve System
as follows:
State Street Bank and Trust Company, Boston, MA
ABA # 011000028
Attn: Mutual Fund Division
DDA # 99049868
Value Line Hedged Opportunity Fund
A/C # ________________________
Shareholder's name and account information
Tax ID # ________________________
NOTE: A COMPLETED AND SIGNED APPLICATION MUST BE MAILED IMMEDIATELY AND
RECEIVED BY NFDS BEFORE IT CAN HONOR ANY WITHDRAWAL OR EXCHANGE TRANSACTIONS.
After your account has been opened, you may wire additional investments in
the same manner.
For an initial investment made by federal funds wire purchase, the wire must
include a valid social security number or tax identification number. Investors
purchasing shares in this manner will then have 30 days after purchase to
provide the certification and signed account application. All payments should be
made in U.S. dollars and, to avoid fees and delays, should be drawn on only U.S.
banks. Until receipt of the above, any distributions from the account will be
subject to withholding at the rate of 31%.
SUBSEQUENT TELEPHONE PURCHASES -- $250 MINIMUM. Upon completion of the
telephone purchase authorization section of the account application,
shareholders who own Fund shares with a
8
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current value of $500 or more may also purchase additional shares in amounts of
$250 or more up to twice the value of their shares by calling 1-800-243-2729
between 9:00 a.m. and 4:00 p.m. New York time. Such orders will be priced at the
closing net asset value on the day received and payment will be due within three
business days. If payment is not received within the required time or a
purchaser's check does not clear, the order is subject to cancellation and the
purchaser will be responsible for any loss incurred by the Fund or Value Line
Securities. Shares may not be purchased by telephone for a tax-sheltered
retirement plan.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund distributes net investment income and any net realized capital
gains to shareholders at least annually. Income dividends and capital gains
distributions are automatically reinvested in additional shares of the Fund
unless the shareholder has requested otherwise. Because the Fund intends to
distribute all of its net investment income and capital gains to shareholders,
it is not expected that the Fund will be required to pay any federal income
taxes or excise tax. However, shareholders of the Fund normally will have to pay
federal income taxes, and any applicable state or local taxes, on the dividends
and capital gains distributions they receive from the Fund (whether or not
reinvested in additional Fund shares). Shareholders will be informed annually of
the amount and nature of the Fund's income and distributions.
Shares purchased shortly before the record date for a dividend or
distribution may have the effect of returning capital although such dividends
and distributions are subject to taxes.
PERFORMANCE INFORMATION
The Fund may from time to time include information regarding its total
return performance in advertisements or in information furnished to existing or
prospective shareholders. When information regarding total return is furnished,
it will be based upon changes in the Fund's net asset value, and will assume the
reinvestment of all capital gains distributions and income dividends. It will
take into account nonrecurring charges, if any, which the Fund may incur but
will not take into account income taxes due on Fund distributions.
Comparative performance information may be used from time to time in
advertising the Fund's shares, including data from Lipper Analytical Services,
Inc. and other industry or financial publications. The Fund may compare its
performance to that of other mutual funds with similar investment objectives and
to stock or other relevant indices. From time to time, articles about the Fund
regarding its performance or ranking may appear in national publications such as
Kiplinger's Personal Finance, Money Magazine, Financial World, Morningstar,
Personal Investors, Forbes, Fortune, Business Week, Wall Street Journal,
Investor's Business Daily, Donoghue, The Financial Times, The Economist, Worth,
Smart Money, Mutual Fund Forecaster, U.S. News and World Report and Barron's.
Some of these publications may publish their own rankings or performance reviews
of mutual funds, including the Fund. Reference to or reprints of such articles
may be used in the Fund's promotional literature.
Investors should note that the investment results of the Fund will fluctuate
over time, and any presentation of the Fund's total return for any period should
not be considered as a representation of what an investment may earn or what an
investor's total return may be in any future period.
HOW TO REDEEM SHARES
Shares of the Fund may be redeemed at any time at their current net asset
value next determined after NFDS receives a request in proper form. ALL REQUESTS
FOR REDEMPTION SHOULD BE SENT TO NFDS, P.O. BOX 419729, KANSAS CITY, MO
64141-6729. 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
9
<PAGE>
time. A shareholder holding certificates for shares must surrender the
certificates properly endorsed with signature guaranteed. A signature guarantee
may be executed by any "eligible" guarantor. Eligible guarantors include
domestic banks, savings associations, credit unions, member firms of a national
securities exchange, and participants in the New York Stock Exchange Medallion
Signature Program, the Securities Transfer Agents Medallion Program ("STAMP")
and the Stock Exchanges Medallion Program. A guarantee from a Notary Public is
not an acceptable source. The signature on any request for redemption of shares
not represented by certificates, or on any stock power in lieu thereof, must be
similarly guaranteed. In each case the signature or signatures must correspond
to the names in which the account is registered. Additional documentation may be
required when shares are registered in the name of a corporation, agent or
fiduciary. For further information, you should contact NFDS.
The Fund does not impose a redemption charge, but shares redeemed through
brokers or dealers may be subject to a service charge by such firms. A check for
the redemption proceeds will be mailed within seven days following receipt of
all required documents. However, payment may be postponed under unusual
circumstances such as when normal trading is not taking place on the New York
Stock Exchange. In addition, shares purchased by check may not be redeemed for
up to 15 calendar days following the purchase date.
If the Board of Directors determines that it is in the best interests of the
Fund, the Fund may redeem, upon prior written notice, at net asset value all
shareholder accounts which, due to redemptions, fall below $500 in net asset
value. In such event, an investor will have 60 days to increase the shares in
his account to the minimum level.
SERVICE AND DISTRIBUTION PLAN
The Fund has a Service and Distribution Plan (the "Plan"), adopted pursuant
to Rule 12b-1 under the Investment Company Act of 1940, for the payment at an
annual rate of 0.25% of the Fund's average daily net assets of certain expenses
incurred by Value Line Securities, Inc. (the "Distributor") in advertising,
marketing and distributing the Fund's shares and for servicing the Fund's
shareholders. Under the Plan, the Distributor may make payments to securities
dealers, banks, financial institutions and other organizations which render
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.
INVESTOR SERVICES
VALU-MATIC.-REGISTERED TRADEMARK- The Fund offers a free service to its
shareholders, Valu-Matic-Registered Trademark-, through which monthly
investments of $25 or more may be made automatically into the shareholder's Fund
account. The shareholder authorizes the Fund to debit the shareholder's bank
account monthly for the purchase of Fund shares on or about the 3rd or 18th of
each month. Further information regarding this service can be obtained from
Value Line Securities by calling 1-800-223-0818.
EXCHANGE OF SHARES. Shares of the Fund may be exchanged for shares of the
other Value Line funds in any identically registered account on the basis of the
respective net asset values next computed after receipt of the exchange order.
No telephone exchanges can be made for less than $1,000. If shares of the Fund
are being exchanged for shares of The Value Line Cash Fund, Inc. or The Value
Line Tax Exempt Fund--Money Market Portfolio and the shares (including shares in
accounts under the control of one
10
<PAGE>
investment advisor) have a value in excess of $500,000, then, at the discretion
of the Adviser, the shares to be purchased will be purchased at the closing
price on the third business day following the redemption of the shares being
exchanged to allow the Fund to utilize normal securities settlement procedures
in transferring the proceeds of the redemption.
The exchange privilege may be exercised only if the shares to be acquired
may be sold in the investor's State. Prospectuses for the other funds may be
obtained from Value Line Securities by calling 1-800-223-0818. Each such
exchange involves a redemption and a purchase for tax purposes.
Broker-dealers are not prohibited from charging a commission for handling the
exchange of Fund shares. To avoid paying such a commission, send the request
with signature guaranteed to NFDS. The Fund reserves the right to terminate the
exchange privilege of any account making more than eight exchanges a year. (An
exchange out of The Value Line Cash Fund, Inc. or The Value Line Tax Exempt
Fund--Money Market Portfolio is not counted for this purpose.) The exchange
privilege may be modified or terminated upon sixty days' notice to shareholders,
and any of the Value Line funds may discontinue offering its shares generally or
in any particular state without prior notice. To make an exchange, call
1-800-243-2729. Although it has not been a problem in the past, shareholders
should be aware that a telephone exchange may be difficult during periods of
major economic or market changes.
SYSTEMATIC CASH WITHDRAWAL PLAN. A shareholder who has invested a minimum
of $5,000 in the Fund, or whose shares have attained that value, may request a
transfer of his shares to a Value Line Systematic Cash Withdrawal Account which
NFDS will maintain in his name on the Fund's books. Under the Systematic Cash
Withdrawal Plan ("the Plan"), the shareholder will request that NFDS, acting as
his agent, redeem monthly or quarterly a sufficient number of shares to provide
for payment to him, or someone he designates, of any specified dollar amount
(minimum $25). All certificated shares must be placed on deposit under the Plan
and dividends and capital gains distributions, if any, are automatically
reinvested at net asset value. The Plan will automatically terminate when all
shares in the account have been redeemed. The shareholder may at any time
terminate the Plan, change the amount of the regular payment, or request
liquidation of the balance of his account on written notice to NFDS. The Fund
may terminate the Plan at any time on written notice to the shareholder.
TAX-SHELTERED RETIREMENT PLANS. Shares of the Fund may be purchased for
various types of retirement plans. For more complete information, contact Value
Line Securities, Inc. at 1-800-223-0818 during New York business hours.
ADDITIONAL INFORMATION
The Fund is an open-end, diversified management investment company
incorporated in Maryland on January 2, 1998. The Fund has 50 million authorized
shares of common stock, $.01 par value. Each share 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.
INQUIRIES. All inquiries regarding the Fund should be directed to the Fund
at the telephone numbers or address set forth on the cover page of this
Prospectus. Inquiries from shareholders regarding their accounts and account
balances should be directed to National Financial Data Services, Inc., servicing
agent for State Street Bank and Trust Company, the Fund's transfer agent,
1-800-243-2729. Shareholders should note they may be required to pay a fee for
special requests such as historical transcripts of an account. Our Info-Line
provides the latest account information 24 hours a day, every day, and is
available to shareholders with pushbutton phones. The Info-Line toll-free number
is 1-800-243-2739.
11
<PAGE>
WITHHOLDING. Mutual funds are required to withhold 31% for federal income
tax purposes of dividends, distributions of capital gains and redemption
proceeds from accounts without a valid social security or tax identification
number. You must provide this information when you complete the Fund's
application and certify that you are not currently subject to federal backup
withholding. The Fund reserves the right to close, by redemption, accounts for
which the holder fails to provide a valid social security or tax identification
number.
SHAREHOLDER MEETINGS. The Fund does not intend to hold routine annual
meetings of shareholders. However, special meetings of shareholders will be held
as required by law, for purposes such as changing fundamental policies or
approving an advisory agreement. Shareholders of record of not less than a
majority of the outstanding shares of the Fund may remove a Director by votes
cast in person or by proxy at a meeting called for that purpose. The Directors
are required to call a meeting of shareholders for the purpose of voting upon
the question of the removal of any Director when so requested by the
shareholders of record of not less than 10% of the Fund's outstanding shares.
12
<PAGE>
THE VALUE LINE FAMILY OF FUNDS
- -------------------------------------------
1950--THE VALUE LINE FUND seeks long-term growth of capital along with modest
current income by investing substantially all of its assets in common stocks or
securities convertible into common stock.
1952--THE VALUE LINE INCOME FUND'S primary investment objective is income, as
high and dependable as is consistent with reasonable growth. Capital growth to
increase total return is a secondary objective.
1956--THE VALUE LINE SPECIAL SITUATIONS FUND seeks to obtain long-term growth of
capital by investing not less than 80% of its assets in "special situations". No
consideration is given to achieving current income.
1972--VALUE LINE LEVERAGED GROWTH INVESTORS' sole investment objective is to
realize capital growth by investing substantially all of its assets in common
stocks. The Fund may borrow up to 50% of its net assets to increase its
purchasing power.
1979--THE VALUE LINE CASH FUND, a money market fund, seeks high current income
consistent with preservation of capital and liquidity.
1981--VALUE LINE U.S. GOVERNMENT SECURITIES FUND seeks maximum income without
undue risk to principal. Under normal conditions, at least 80% of the value of
its net assets will be invested in issues of the U.S. Government and its
agencies and instrumentalities.
1983--VALUE LINE CENTURION FUND* seeks long-term growth of capital as its sole
objective by investing primarily in stocks ranked 1 or 2 by Value Line for
year-ahead relative performance.
1984--THE VALUE LINE TAX EXEMPT FUND seeks to provide investors with maximum
income exempt from federal income taxes while avoiding undue risk to principal.
The Fund offers investors a choice of two portfolios: a Money Market Portfolio
and a High-Yield Portfolio.
1985--VALUE LINE CONVERTIBLE FUND seeks high current income together with
capital appreciation primarily from convertible securities ranked 1 or 2 for
year-ahead performance by The Value Line Convertible Ranking System.
1986--VALUE LINE AGGRESSIVE INCOME TRUST seeks to maximize current income by
investing in high-yielding, low-rated, fixed-income corporate securities.
1987--VALUE LINE NEW YORK TAX EXEMPT TRUST seeks to provide New York taxpayers
with maximum income exempt from New York State, New York City and federal
individual income taxes while avoiding undue risk to principal.
1987--VALUE LINE STRATEGIC ASSET MANAGEMENT TRUST* invests in stocks, bonds and
cash equivalents according to computer trend models developed by Value Line. The
objective is to professionally manage the optimal allocation of these
investments at all times.
1993--VALUE LINE SMALL-CAP GROWTH FUND invests primarily in common stocks or
securities convertible into common stock, with its primary objective being
long-term growth of capital.
1993--VALUE LINE ASSET ALLOCATION FUND seeks high total investment return,
consistent with reasonable risk. The Fund invests in stocks, bonds and money
market instruments utilizing quantitative modeling to determine the correct
asset mix.
1995--VALUE LINE U.S. MULTINATIONAL COMPANY FUND'S investment objective is
maximum total return. It invests primarily in securities of U.S. companies that
have significant sales from international operations.
1998--VALUE LINE HEDGED OPPORTUNITY FUND seeks capital appreciation utilizing an
aggressive investment strategy that will employ leverage. It will seek to hedge
exposure of its portfolio securities to broad stock market movements through the
use of options, futures contracts and short sales in order to achieve a market
neutral position.
- ------------------------
* ONLY AVAILABLE THROUGH THE PURCHASE OF GUARDIAN INVESTOR, A TAX DEFERRED
VARIABLE ANNUITY, OR VALUEPLUS, A VARIABLE LIFE INSURANCE POLICY.
FOR MORE COMPLETE INFORMATION ABOUT ANY OF THE VALUE LINE FUNDS, INCLUDING
CHARGES AND EXPENSES, SEND FOR A PROSPECTUS FROM VALUE LINE SECURITIES, INC.,
220 E. 42ND STREET, NEW YORK, NEW YORK 10017-5891 OR CALL 1-800-223-0818, 24
HOURS A DAY, 7 DAYS A WEEK. READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST OR
SEND MONEY.
13
<PAGE>
INVESTMENT ADVISER
Value Line, Inc.
220 East 42nd Street
New York, NY 10017-5891
DISTRIBUTOR
Value Line Securities, Inc.
220 East 42nd Street
New York, NY 10017-5891
SHAREHOLDER SERVICING AGENT
State Street Bank and Trust Company
c/o NFDS
P.O. Box 419729
Kansas City, MO 64141-6729
CUSTODIAN & TRANSFER AGENT
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
LEGAL COUNSEL
Peter D. Lowenstein, Esq.
Two Greenwich Plaza, Suite 100
Greenwich, CT 06830
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary of Fund Expenses................ 2
Investment Objective and Policies....... 3
Risk Factors............................ 6
Investment Restrictions................. 6
Management of the Fund.................. 6
Calculation of Net Asset Value.......... 7
How to Buy Shares....................... 7
Dividends, Distributions and Taxes...... 8
Performance Information................. 9
How to Redeem Shares.................... 9
Service and Distribution Plan........... 10
Investor Services....................... 10
Additional Information.................. 11
</TABLE>
- -------------------------------------------
PROSPECTUS
- -------------------
, 1998
VALUE LINE
HEDGED
OPPORTUNITY
FUND, INC.
(800) 223-0818
[LOGO]
<PAGE>
VALUE LINE HEDGED OPPORTUNITY FUND, INC.
220 East 42nd Street, New York, New York 10017-5891
1-800-223-0818 or 1-800-243-2729
www.valueline.com
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
, 1998
- -------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and must be
read in conjunction with the Prospectus of Value Line Hedged Opportunity Fund,
Inc. (the "Fund") dated , 1998, a copy of which may be obtained without
charge by writing or telephoning the Fund.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Investment Objective and Policies................................................... B-2
Other Investment Strategies......................................................... B-2
Investment Restrictions............................................................. B-4
Directors and Officers.............................................................. B-5
The Adviser......................................................................... B-6
Brokerage Arrangements.............................................................. B-7
How to Buy Shares................................................................... B-8
How to Redeem Shares................................................................ B-9
Service and Distribution Plan....................................................... B-9
Taxes............................................................................... B-9
Performance Data.................................................................... B-11
Additional Information.............................................................. B-11
Financial Statements................................................................ B-12
</TABLE>
The Fund's investment adviser is Value Line, Inc. (the "Adviser").
B-1
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
(SEE ALSO "INVESTMENT OBJECTIVE AND POLICIES" IN THE FUND'S PROSPECTUS)
The Fund will not concentrate its investments in any particular industry but
reserves the right to invest up to 25% of its total assets (taken at market
value) in any one industry. The Fund does not invest for the purposes of
management or control of companies whose securities the Fund owns.
OTHER INVESTMENT STRATEGIES
(SEE ALSO "INVESTMENT OBJECTIVES AND POLICIES" IN THE FUND'S PROSPECTUS)
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"). These transactions may be entered
into for bona fide hedging and other permissible risk management purposes
including protecting against anticipated changes in the value of portfolio
securities the Fund owns or intends to purchase.
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 of 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
B-2
<PAGE>
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 or reflect the change in the value of the
underlying contract. The value of the option purchased by the Fund does change
and is reflected in the net asset value of the Fund. The writer of an option,
however, must make margin payments on the underlying futures contract. Exchanges
provide trading mechanisms so that an option once purchased can later be sold
and an option once written can later be liquidated by an offsetting purchase.
Successful use of stock index futures by the Fund also is subject to the
Adviser's ability to predict correctly movements in the direction of the market.
If the Adviser's judgment about the several directions of the market is wrong,
the Fund's overall performance may be worse than if no such contracts had been
entered into. For example, if the Fund has hedged against the possibility of a
decline in the market adversely affecting stocks held in its portfolio and stock
prices increase instead, the Fund will lose part or all of the benefit of the
increased value of its stock which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the Fund
has insufficient cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may be, but will not necessarily
be, at increased prices which reflect the rising market. The Fund may have to
sell securities at a time when it may be disadvantageous to do so. When stock
index futures are purchased to hedge against a possible increase in the price of
stocks before the Fund is able to invest its cash (or cash equivalents) in
stocks in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest in stocks at that time because
of concern as to possible further market decline or for other reasons, the Fund
will realize a loss on the futures contract that is not offset by a reduction in
the price of securities purchased.
Use of options on stock index futures entails the risk that trading in the
options may be interrupted if trading in certain securities included in the
index is interrupted. The Fund will not purchase these options unless its
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.
INVESTMENT RESTRICTIONS
The following policies and investment restrictions are, unless otherwise
indicated, fundamental policies of the Fund and, under the Investment Company
Act of 1940, as amended (the "1940 Act") may not be changed without the
affirmative vote of a majority of the outstanding voting securities of the Fund.
Under the 1940 Act, a "majority of the outstanding voting securities of the
Fund" means
B-3
<PAGE>
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. The Fund may not:
(1) Engage in the underwriting of securities, except pursuant to a
merger or acquisition or to the extent that, in connection with the
disposition of its portfolio securities, it may be deemed to be an
underwriter under federal securities laws.
(2) Issue senior securities to the extent such issuance would violate
applicable law.
(3) Invest in real estate or interest in real estate although the Fund
may purchase marketable securities of issuers which engage in real estate
operations and of real estate investment trusts.
(4) Invest in commodities or commodity contracts, except that the Fund
may invest in stock index and other financial futures contracts and options
thereon.
(5) With respect to 75% of its total assets, invest in the securities
of any one issuer if immediately thereafter more than 5% of the value of its
total assets would be invested in such 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.
(6) Invest more than 25% of its total assets in securities of issuers
in any one industry.
(7) Make loans to other persons except by purchase of debt obligations
or by entering into repurchase agreements or through the lending of the
Fund's portfolio securities.
It is contrary to the present policy of the Fund, which may be
changed by the Board of Directors of the Fund without shareholder approval,
to:
(8) Make short sales of securities or maintain a short position if,
when added together, more than 100% of the value of a Fund's net assets
would be (i) deposited as collateral for the obligation to replace short
sales, and (ii) allocated to segregated accounts in connection with short
sales. Short sales against-the-box are not subject to this limitation.
(9) Purchase or sell any call options, except that the Fund may 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 call options on stock index futures
contracts or write covered options on such contracts.
(10) Purchase securities on margin, except such short-term credits as
may be necessary for the clearance of purchases and sales of securities. For
this purpose, the deposit or payment of initial or variation margin in
connection with futures contracts or related options transactions is not
considered the purchase of a security on margin.
B-4
<PAGE>
(11) Purchase restricted or "illiquid" securities, including repurchase
agreements maturing in more than seven days, if as a result, more than 15%
of the Fund's net assets would then be invested in such securities
(excluding securities which are eligible for resale pursuant to Rule 144A
under the Securities Act of 1933).
(12) Participate on a joint or joint and several basis in any trading
account in securities, except that this prohibition 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.
(13) Purchase securities of other registered investment companies,
except to the extent permitted by the Investment Company Act of 1940, as
amended, in mergers or other business combinations.
(14) Purchase securities for the purpose of exercising control over
another company.
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.
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH FUND PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- --------------------------------- ---------------------- -----------------------------------------------------
<S> <C> <C>
*Jean Bernhard Buttner Chairman of the Board Chairman, President and Chief Executive Officer of
Age 63 of Directors and the Adviser and Value Line Publishing, Inc. Chairman
President and President of the Value Line Funds and Value Line
Securities, Inc.
Francis C. Oakley Director Professor of History, Williams College, 1961 to
54 Scott Hill Road present and President Emeritus since 1994; President
Williamstown, MA 01267 of Williams College, 1985-1993; Director, Berkshire
Age 66 Life Insurance Company
Marion N. Ruth Director Real Estate Executive; President, Ruth Realty (real
5 Outrider Road estate broker).
Rolling Hills, CA 90274
Age 63
Frances T. Newton Director Computer Programming Professional, Duke Power
4921 Buckingham Drive Company.
Charlotte, NC 28209
Age 56
Stephen Grant Vice President Portfolio Manager with the Adviser.
Age 44
Steven M. Yeary Vice President Portfolio Manager with the Adviser since 1995;
Age 43 Securities Analyst with the Adviser since 1993.
</TABLE>
B-5
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH FUND PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- --------------------------------- ---------------------- -----------------------------------------------------
<S> <C> <C>
David T. Henigson Vice President, Compliance Officer and since 1992, Vice President and
Age 40 Secretary and Director of the Adviser. Director and Vice President
Treasurer of the Distributor.
</TABLE>
- ------------------------
* "Interested" director as defined in the Investment Company Act of 1940 (the
"1940 Act").
Unless otherwise indicated, the address for each of the above is 220 East 42nd
Street, New York, NY.
Directors and certain officers of the Fund are also directors and officers
of other investment companies for which the Adviser acts as investment adviser.
The following table sets forth information regarding compensation of Directors
by the Fund and by the Fund and the three other Value Line Funds of which each
of the Directors is a director for the fiscal year ended , 1998.
Directors who are officers or employees of the Adviser do not receive any
compensation from the Fund or any of the Value Line Funds.
COMPENSATION TABLE
FISCAL YEAR ENDED , 1998
<TABLE>
<CAPTION>
TOTAL
PENSION OR ESTIMATED COMPENSATION
RETIREMENT ANNUAL FROM FUND
AGGREGATE BENEFITS BENEFITS AND FUND
COMPENSATION ACCRUED AS PART UPON COMPLEX
NAME OF PERSON FROM FUND OF FUND EXPENSES RETIREMENT (4 FUNDS)
- ------------------------------------------- -------------- --------------------- --------------- --------------
<S> <C> <C> <C> <C>
Jean B. Buttner $ -0- N/A N/A $ -0-
Francis C. Oakley -0- N/A N/A 20,000
Marion N. Ruth -0- N/A N/A 20,000
Frances T. Newton -0- N/A N/A 20,000
</TABLE>
As of the date of this Statement of Additional Information, the Adviser
owned 100% of the Fund's outstanding shares.
THE ADVISER
(SEE ALSO "MANAGEMENT OF THE FUND" IN THE FUND'S PROSPECTUS)
The investment advisory agreement between the Fund and the Adviser dated
, 1998 provides for an advisory fee at an annual rate of 0.75% of
the Fund's average daily net assets during the year. 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 agent, legal, audit and Fund accounting
expenses, 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.
B-6
<PAGE>
The Adviser acts as investment adviser to 15 other investment companies
constituting The Value Line Family of Funds and furnishes investment advisory
services to private and institutional accounts with combined assets in excess of
$5 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 Fund does not purchase or sell a security based solely on information
contained in any of the Value Line publications. 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 Adviser has
imposed rules upon itself and such persons requiring monthly reports of security
transactions for their respective accounts and restricting trading in various
types of securities in order to avoid possible conflicts of interest. The
Adviser may from time to time, directly or through affiliates, enter into
agreements to furnish for compensation special research or financial services to
companies, including services in connection with acquisitions, mergers or
financings. In the event that such agreements are in effect with respect to
issuers of securities held in the portfolio of the Fund, specific reference to
such agreements will be made in the "Schedule of Investments" in shareholder
reports of the Fund. As of the date of this Statement of Additional Information,
no such agreements exist.
BROKERAGE ARRANGEMENTS
(SEE ALSO "MANAGEMENT OF THE FUND" IN THE FUND'S PROSPECTUS)
Orders for the purchase and sale of portfolio securities are placed with
brokers and dealers who, in the judgment of the Adviser, are able to execute
them as expeditiously as possible and at the best obtainable price. Purchases
and sales of securities which are not listed or traded on a securities exchange
will ordinarily be executed with primary market makers acting as principal,
except when it is determined that better prices and executions may otherwise be
obtained. 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. Such
services may include but are not limited to information as to the availability
of securities for purchase or sale; statistical or factual information or
opinions pertaining to investments; and appraisals or evaluations of portfolio
securities. Such allocation will be in such amounts and in such proportions as
the Adviser may determine. 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. A portion of the Fund's brokerage commissions may be 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.
B-7
<PAGE>
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, Inc. 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.
PORTFOLIO TURNOVER. It is expected that the Fund's annual portfolio
turnover rate will 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. Portfolio
turnover is not a limiting factor with respect to investment decisions.
HOW TO BUY SHARES
(SEE ALSO "CALCULATION OF NET ASSET VALUE", "HOW TO BUY SHARES",
"SERVICE AND DISTRIBUTION PLAN" AND "INVESTOR SERVICES" IN THE FUND'S
PROSPECTUS)
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 in certain situations.
The Fund has entered into a distribution agreement with Value Line
Securities, Inc. (the "Distributor") 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. However, see "Service and Distribution Plan" for certain payments
to the Distributor. The Distributor also serves as distributor to the other
Value Line funds.
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 the Distributor at 1-800-223-0818 during New York business hours.
HOW TO REDEEM SHARES
(SEE ALSO "HOW TO REDEEM SHARES" AND "INVESTOR SERVICES" IN THE FUND'S
PROSPECTUS)
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
B-8
<PAGE>
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. 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.
SERVICE AND DISTRIBUTION PLAN
(SEE ALSO "SERVICE AND DISTRIBUTION PLAN" IN THE FUND'S PROSPECTUS)
The Service and Distribution Plan, adopted pursuant to Rule 12b-1 under the
Investment Company Act of 1940, provides for the payment of certain expenses
incurred by Value Line Securities, Inc. in advertising, marketing and
distributing the Fund's shares and for servicing the Fund's shareholders at an
annual rate of 0.25% of the Fund's average daily net assets.
TAXES
(SEE "DIVIDENDS, DISTRIBUTIONS AND TAXES" IN THE FUND'S PROSPECTUS)
The Fund intends to qualify as a regulated investment company under the
United States Internal Revenue Code (the "Code"). 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).
Distributions of investment income and of the excess of net short-term
capital gain over net long-term capital loss are taxable to shareholders as
ordinary income (whether or not reinvested in additional Fund shares).
Distributions of the excess of net long-term capital gain over net short-term
capital loss (net capital gains) are taxable to shareholders as long-term
capital gain, regardless of the length of time the shares of the Fund have been
held by such shareholders and regardless of whether the distribution is received
in cash or in additional shares of the Fund. It is expected that dividends from
domestic corporations will constitute most of the Fund's gross income and that a
substantial portion of the dividends paid by the Fund will qualify for the
dividends-received deduction for corporate investors. Upon request, the Fund
will advise investors of the amount of dividends which so qualify.
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 determined, in general, on an October 31 year end,
plus certain undistributed amounts from previous years. The Fund anticipates
that it will make sufficient timely distributions to avoid imposition of the
excise tax.
B-9
<PAGE>
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.
A distribution by the Fund will result in a reduction in the Fund's net
asset value per share. Such a distribution is taxable to the shareholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a return of a portion of the
shareholder's 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 includes the amount of the forthcoming
distribution. Those purchasing just prior to a distribution will then receive a
return of a portion of their investment upon the distribution which nevertheless
is taxable to them. All distributions, whether received in cash or reinvested in
shares, must be reported by each shareholder on his or her federal income tax
return. Under the Code, dividends declared by the Fund in October, November and
December of any calendar year, and payable to shareholders of record in such a
month, shall be deemed to have been received by the shareholder on December 31
of such calendar year if such dividend is actually paid in January of the
following calendar year.
A shareholder may realize a capital gain or capital loss on the sale or
redemption of shares of the Fund. The tax consequences of a sale or redemption
depend upon several factors, including the shareholder's tax basis in the shares
sold or redeemed and the length of time the shares have been held. Basis in the
shares may be the actual cost of those shares (net asset value of Fund shares on
purchase or reinvestment date), or under special rules, an average cost. Under
certain circumstances, a loss on the sale or redemption of shares held for six
months or less may be treated as a long-term capital loss to the extent that the
Fund has distributed long-term capital gain dividends on such shares. Moreover,
a loss on sale or redemption of Fund shares will be disallowed to the extent the
shareholder purchases other shares of the Fund within 30 days before or after
the date the shares are sold or redeemed.
For shareholders who fail to furnish to the Fund their social security or
taxpayer identification numbers and certain related information, or who fail to
certify that they are not subject to backup withholding, dividends,
distributions of capital gains and redemption proceeds paid by the Fund will be
subject to a 31% Federal income tax withholding requirement. If the withholding
provisions are applicable, any 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 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.
Shareholders are advised to consult with their tax advisers concerning the
application of federal, state and local tax laws 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
B-10
<PAGE>
communication. Any statements of total return or other performance data on the
Fund will be accompanied by information on the Fund's average annual total
return over the most recent four calendar quarters and the period from the
Fund's inception of operations. The Fund may also advertise aggregate annual
total return information over different periods of time.
The Fund's average annual total 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) = ERV
<TABLE>
<S> <C> <C> <C>
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.
</TABLE>
ADDITIONAL INFORMATION
EXPERTS
The financial statement of the Fund as of , 1998, included in
this Statement of Additional Information has been so included in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in accounting and auditing.
CUSTODIAN
The Fund employs State Street Bank and Trust Company, Boston, MA as
custodian for the Fund. The custodian's responsibilities include safeguarding
and controlling the Fund's cash and securities, handling the receipt and
delivery of securities and collecting interest and dividends on the Fund's
investments. The custodian does not determine the investment policies of the
Fund or decide which securities the Fund will buy or sell.
B-11
<PAGE>
FINANCIAL STATEMENTS
VALUE LINE HEDGED OPPORTUNITY FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
, 1998
<TABLE>
<S> <C>
ASSETS
Cash......................................................................... $ 100,000
Deferred Organization Costs.................................................. 70,000
---------
Total Assets................................................................. 170,000
LIABILITIES
Deferred Organization Costs Payable.......................................... 70,000
---------
Net Assets................................................................... $ 100,000
---------
---------
Shares of $.01 par value Common Stock (authorized 50,000,000 shares)
Shares issued and outstanding............................................... 10,000
---------
Net Asset Value Per Share.................................................... $10.00
---------
---------
</TABLE>
NOTES TO STATEMENT OF ASSETS AND LIABILITIES
NOTE 1 -- ORGANIZATION
Value Line Hedged Opportunity Fund, Inc. (the "Fund") was formed as a
corporation under the laws of the State of Maryland on January 2, 1998, and is
registered as an open-end management investment company with the Securities and
Exchange Commission. The Fund has had no significant transactions other than the
issuance of an aggregate of 10,000 shares of common stock for $100,000 to Value
Line, Inc., representing the initial capital of the Fund, and those transactions
relating to organizational matters.
Costs incurred in connection with the Fund's organization and initial
registration, estimated to be $70,000, will be amortized over a period not
exceeding sixty months beginning at the commencement of operations of the Fund.
In the event any of the initial shares of the Fund are redeemed by any holder
thereof during the five-year amortization period, the redemption proceeds will
be reduced by a pro rata portion of any unamortized deferred organizational
expenses in the same proportion as the number of initial shares being redeemed
bears to the number of initial shares outstanding at the time of redemption.
NOTE 2 -- INVESTMENT ADVISORY AGREEMENT
The Fund has executed an Investment Advisory Agreement with Value Line, Inc.
The compensation to be paid to the Investment Adviser is as set forth under "The
Adviser" in this Statement of Additional Information.
NOTE 3 -- SERVICE AND DISTRIBUTION PLAN
The Fund has adopted a Service and Distribution Plan pursuant to Rule 12b-1
under the Investment Company Act of 1940. The compensation payable to the
Distributor is set forth under "Service and Distribution Plan" in this Statement
of Additional Information.
B-12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDER AND BOARD OF DIRECTORS
OF VALUE LINE HEDGED OPPORTUNITY FUND, INC.
In our opinion, the accompanying statement of assets and liabilities
presents fairly, in all material respects, the financial position of Value Line
Hedged Opportunity Fund, Inc. (the "Fund") at , 1998, in conformity
with generally accepted accounting principles. This financial statement is the
responsibility of the Fund's management; our responsibility is to express an
opinion on this financial statement based on our audit. We conducted our audit
of this financial statement in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
, 1998
B-13
<PAGE>
VALUE LINE HEDGED OPPORTUNITY FUND, INC.
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
<TABLE>
<C> <C> <S> <C>
a. Financial Statements
To be supplied by amendment.
b. Exhibits
1. Articles of Incorporation filed January 2, 1998 --Exhibit 1
2. By-Laws. --Exhibit 2
3. Not applicable.
4. Proposed Form of specimen stock certificate. --Exhibit 4*
5. Proposed Form of Investment Advisory Agreement between --Exhibit 5
the Registrant and Value Line, Inc.
6. Proposed Form of Distribution Agreement between the --Exhibit 6
Registrant and Value Line Securities, Inc.
7. Not applicable
8. Proposed Form of Custodian Agreement between the --Exhibit 8*
Registrant and State Street Bank & Trust Company.
9. Proposed Form of Transfer Agency Agreement between the --Exhibit 9*
Registrant and State Street Bank & Trust Company.
10. Opinion of Counsel. --Exhibit
10*
11. Not applicable.
12. Not applicable.
13. Form of Investment Letter from Value Line, Inc. to the --Exhibit
Registrant. 13*
14. Model Retirement Plan. --Exhibit
14*
15. Service and Distribution Plan. --Exhibit 15
16. Not applicable.
</TABLE>
- ------------------------
*To be filed by Amendment.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
The Registrant is not controlled directly or indirectly by any person.
Information with respect to the Registrant's investment adviser is set forth
under the caption "The Adviser" in the Statement of Additional Information
forming Part B of the Registration Statement.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
As of the date hereof, Value Line, Inc. owned all of the outstanding shares
of common stock of the Registrant.
C-1
<PAGE>
ITEM 27. INDEMNIFICATION.
Article VIII of Registrant's Articles of Incorporation is as follows:
ARTICLE VIII
LIABILITY AND INDEMNIFICATION
(1) To the full extent that limitations on the liability of directors and
officers are permitted by the Maryland General Corporation Law, no director or
officer of the Corporation shall have any liability to the Corporation or its
stockholders for money damages. This limitation on liability applies to events
occurring at the time a person serves as a director or officer of the
Corporation whether or not that person is a director or officer at the time of
any proceeding in which liability is asserted.
(2) The Corporation shall indemnify and advance expenses to its currently
acting and its former directors to the full extent that indemnification of
directors and advancement of expenses is permitted by the Maryland General
Corporation Law. The Corporation shall indemnify and advance expenses to its
officers to the same extent as its directors and may do so to such further
extent as is consistent with law. The Board of Directors may by By-law,
resolution or agreement make further provision for indemnification of directors,
officers, employees and agents to the full extent permitted by the Maryland
General Corporation Law.
(3) No provision of this Article EIGHTH shall be effective to protect or
purport to protect any director or officer of the Corporation against any
liability to the Corporation or its stockholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
(4) Reference to the Maryland General Corporation law in this Article
EIGHTH are to that law as from time to time amended. No amendment to the Charter
of the Corporation shall affect any right of any person under this Article
EIGHTH based on any event, omission or proceeding prior to the amendment.
Article V of the Registrant Bylaws is as follows:
ARTICLE V
INDEMNIFICATION AND INSURANCE
SECTION 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Any person who was
or is a party or is threatened to be made a party in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is a current or former
director or officer of the Corporation, or is or was serving while a director or
officer of the Corporation at the request of the Corporation as a director,
officer, partner, trustee employee, agent or fiduciary of another corporation,
partnership, joint venture, trust, enterprise or employee benefit plan, shall be
indemnified by the Corporation against judgments, penalties, fines, excise
taxes, settlements and reasonable expenses (including attorneys' fees) actually
incurred by such person in connection with such action, suit or proceeding to
the full extent permissible under the Maryland General Corporation Law, the
Securities Act of 1933 and the Investment Company Act of 1940, as such statutes
are now or hereafter in force, except that such indemnity shall not protect any
such person against any liability to the Corporation or any stockholder thereof
to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office ("disabling conduct"),
SECTION 2. ADVANCES. Any current or former director or officer of the
Corporation claiming indemnification within the scope of this Article V shall be
entitled to advances from the Corporation for payment of the reasonable expenses
incurred by him in connection with proceedings to which he is a party in the
manner and to the full extent permissible under the Maryland General Corporation
Law, the Securities Act of 1933 and the Investment Company Act of 1940, as such
statutes are now or hereafter in force; provided, however, that the person
seeking indemnification shall provide to the Corporation a
C-2
<PAGE>
written affirmation of his good faith belief that the standard of conduct
necessary for indemnification by the Corporation has been met and a written
undertaking to repay any such advance unless it is ultimately determined that he
is entitled to indemnification, and provided further that at least one of the
following additional conditions, is met: (1) the person seeking indemnification
shall provide a security in form and amount acceptable to the Corporation for
his undertaking; (2) the Corporation is insured against losses arising by reason
of the advance; or (3) a majority of a quorum of directors of the Corporation
who are neither "interest persons" as defined in Section 2(a)(19) of the
Investment Company Act of 1940, as amended, nor parties to the proceeding
("disinterested non-party directors"), or independent legal counsel, in a
written opinion, shall determine, based on a review of facts readily available
to the Corporation at the time the advance is proposed to be made, that there is
reason to believe that the person seeking indemnification will ultimately be
found to be entitled to indemnification.
SECTION 3. PROCEDURE. At the request of any current or former director or
officer, or any employee or agent whom the Corporation proposes to indemnify,
the Board of Directors shall determine, or cause to be determined, in a manner
consistent with the Maryland General Corporation Law, the Securities Act of 1933
and the Investment Company Act of 1940, as such statutes are now or hereafter in
force, whether the standards required by this Article V have been met; provided,
however, that indemnification shall be made only following: (1) a final decision
on the merits by a court or other body before whom the proceeding was brought
that the person to be indemnified was not liable by reason of disabling conduct
or (2) in the absence of such a decision, a reasonable determination, based upon
a review of the facts, that the person to be indemnified was not liable by
reason of disabling conduct, by (a) the vote of a majority of a quorum of
disinterested non-party directors or (b) an independent legal counsel in a
written opinion.
SECTION 4. INDEMNIFICATION OF EMPLOYEES AND AGENTS. Employees and agents
who are not officers or directors of the Corporation may be indemnified, and
reasonable expenses may be advanced to such employees or agents, in accordance
with the procedures set forth in this Article V to the extent permissible under
the Investment Company Act of 1940, the Securities Act of 1933 and the Maryland
General Corporation Law, as such statutes are now or hereafter in force, and to
such further extent, consistent with the foregoing, as may be provided by action
of the Board of Directors or by contract.
SECTION 5. OTHER RIGHTS. The indemnification provided by this Article V
shall not be deemed exclusive of any other right, in respect of indemnification
or otherwise, to which those seeking such indemnification may be entitled under
any insurance or other agreement, vote of stockholders or disinterested
directors or otherwise, both as to action by a director or officer of the
Corporation in his official capacity and as to action by such person in another
capacity while holding such office or position, and shall continue as to a
person who has ceased to be a director or officer and shall inure to the benefit
of the heirs, executors and administrators of such a person.
C-3
<PAGE>
ITEM 28. 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 29.
<TABLE>
<CAPTION>
POSITION WITH
NAME THE ADVISER OTHER EMPLOYMENT
- ---------------------------- ---------------------------------- ------------------------------------------------
<S> <C> <C>
Jean Bernhard Buttner Chairman of the Board, President, Chairman of the Board and Chief Executive
and Chief Executive Officer Officer of Arnold Bernhard & Co., Inc.; Chairman
of each of the Value Line Funds and the
Distributor
Samuel Eisenstadt Senior Vice President and Director
David T. Henigson Vice President, Treasurer and Vice President and a Director of Arnold Bernhard
Director & Co., Inc. and the Distributor
Howard A. Brecher Vice President, Secretary and Secretary and Treasurer of Arnold Bernhard &
Director Co., Inc.
Harold Bernard, Jr. Director Retired Administrative Law Judge
William S. Kanaga Director Retired Chairman of Arthur Young (now Ernst &
Young)
W. Scott Thomas Director Partner, Brobeck, Phleger & Harrison, attorneys
</TABLE>
ITEM 29. 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.; The Value Line Income Fund, Inc.; The Value Line Special
Situations Fund, Inc.; Value Line Leverage 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 Small-Cap Growth Fund, Inc.; Value Line
Asset Allocation Fund, Inc.; Value Line U.S. Multinational Company Fund,
Inc.
(b)
<TABLE>
<CAPTION>
(2)
POSITION AND (3)
(1) OFFICES POSITION AND
NAME AND PRINCIPAL WITH VALUE LINE OFFICES WITH
BUSINESS ADDRESS SECURITIES, INC. REGISTRANT
- -------------------------- -------------------------- --------------------------
<S> <C> <C>
Jean Bernhard Buttner Chairman of the Board Chairman of the Board and
President
David T. Henigson Vice President, Secretary, Vice President, Secretary
Treasurer and Director and Treasurer
Stephen LaRosa Asst. Vice President Asst. Treasurer
The business address of each of the officers and directors is 220 East 42nd
Street, New York, NY 10017-5891.
</TABLE>
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<PAGE>
(c) Not applicable.
ITEM 30. 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 419729
Kansas City, MO 64141
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 31. MANAGEMENT SERVICES.
None.
ITEM 32. UNDERTAKINGS.
Registrant undertakes to file a post-effective amendment including financial
statements which need not be certified, within six months from the effective
date of this Registration Statement.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this 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, the 14th day of
January, 1998.
VALUE LINE HEDGED OPPORTUNITY
By /s/ DAVID T. HENIGSON
..............................................
DAVID T. HENIGSON, VICE PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------------------------ ----------------------------- --------------------
<C> <S> <C>
/s/ DAVID T. HENIGSON Chairman of the Board; January 14, 1998
..................................................... President; Principal
DAVID T. HENIGSON Executive Officer
/s/ STEPHEN LAROSA Treasurer; Principal January 14, 1998
..................................................... Financial and Accounting
STEPHEN LAROSA Officer
</TABLE>
C-6
<PAGE>
ARTICLES OF INCORPORATION
OF
VALUE LINE HEDGED OPPORTUNITY FUND, INC.
ARTICLE I
INCORPORATION
The undersigned, David T. Henigson, whose address is 220 East 42nd Street,
New York, New York 10017, being at least 18 years of age, does hereby act as an
incorporator and forms a corporation, under and by virtue of the Maryland
General Corporation Law.
ARTICLE II
NAME
The name of the Corporation is Value Line Hedged Opportunity Fund, Inc.
ARTICLE III
PURPOSES AND POWERS
The Corporation is formed to conduct and carry on the business of an
investment company.
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
The post office address of the principal office of the Corporation in the
State of Maryland is c/o The Prentice-Hall Corporation System, Maryland, 11 East
Chase Street, Baltimore, Maryland 21202. The name and address of the resident
agent of the Corporation in the State of Maryland is The Prentice-Hall
Corporation System, Maryland, a Maryland Corporation, 11 East Chase Street,
Baltimore, Maryland 21202.
ARTICLE V
CAPITAL STOCK
(1) The total number of shares of capital stock that the Corporation shall
have authority to issue is fifty million (50,000,000) shares, of the par value
of one cent ($.01) per share and of the aggregate par value of five hundred
thousand dollars ($500,000), all of which fifty million (50,000,000) shares are
designated Common Stock.
(2) The Corporation may issue fractional shares. Any fractional share
shall carry proportionately the rights of a whole share including, without
limitation, the right to vote and the right to receive dividends. A fractional
share shall not, however, have the right to receive a certificate evidencing it.
(3) All persons who shall acquire stock in the Corporation shall acquire
the same subject to the provisions of this Charter and the By-Laws of the
Corporation, as each may be amended, supplemented and/or restated from time to
time.
<PAGE>
(4) No holder of stock of the Corporation by virtue of being such a holder
shall have any right to purchase or subscribe for any shares of the
Corporation's capital stock or any other security that the Corporation may issue
or sell (whether out of the number of shares authorized by this Charter or out
of any shares of the Corporation's capital stock that the Corporation may
acquire) other than a right that the Board of Directors in its discretion may
determine to grant.
(5) The Board of Directors shall have authority by resolution to classify
and reclassify any authorized but unissued shares of capital stock from time to
time by setting or changing in any one or more respects the preferences,
conversion or other rights, voting powers, restrictions, limitation as to
dividends, qualifications of terms or conditions of redemption of the capital
stock.
(6) Notwithstanding any provision of law requiring any action to be taken
or authorized by the affirmative vote of a greater proportion of the votes of
all classes or of any class of stock of the Corporation, such actions shall be
effective and valid if taken or authorized by the affirmative vote of a majority
of the total number of votes entitled to be cast thereon, except to the extent
otherwise required by the Investment Company Act of 1940 and rules thereunder.
(7) The presence in person or by proxy of the holders of shares entitled to
cast one-third of the votes entitled to be cast (without regard to class) shall
constitute a quorum at any meeting of the stockholders, except with respect to
any matter which, under applicable statutes or regulatory requirements or the
Corporation's Charter, requires approval by a separate vote of one or more
classes of stock, in which case the presence in person or by proxy of the
holders of shares entitled to cast one-third of the votes entitled to be cast
separately on the matter shall constitute a quorum.
(8) On each matter submitted to a vote of the stockholders, each holder of
a share of stock shall be entitled to one vote for each share standing in his
name on the books of the corporation irrespective of the class thereof. All
holders of shares of stock shall vote as a single class except as may otherwise
be required by law pursuant to any applicable order, rule or interpretation
issued by the Securities and Exchange Commission, or otherwise, or except with
respect to any matter which affects only one or more classes of stock, in which
case only the holders of shares of the class or classes affected shall be
entitled to vote.
ARTICLE VI
REDEMPTION
Each holder of shares of the Corporation's capital stock shall be entitled
to require the Corporation to redeem all or any part of the shares of capital
stock of the Corporation standing in the name of the holder on the books of the
Corporation, and all shares of capital stock issued by the Corporation shall be
subject to redemption by the Corporation, at the net asset value of the shares
as in effect from time to time, subject to any redemption or liquidation charge,
contingent deferred service charge or other
2
<PAGE>
charge on redemption, all as may be determined by or pursuant to the
direction of the Board of Directors of the Corporation in accordance with the
provisions of Article VII, subject to the right of the Board of Directors of
the Corporation to suspend the right of redemption or postpone the date of
payment of the redemption price in accordance with the provisions of
applicable law. Without limiting the generality of the foregoing, the
Corporation shall, to the extent permitted by applicable law, have the right
at any time to redeem the shares owned by any holder of capital stock of the
Corporation (i) if the redemption is, in the opinion of the Board of
Directors of the Corporation, desirable in order to prevent the Corporation
from being deemed a "personal holding company" within the meaning of the
Internal Revenue Code of 1986 or (ii) if the value of the shares in the
account maintained by the Corporation or its transfer agent for any class of
stock for the stockholder is $500 (five hundred dollars) or less and the
stockholder has been given at least 60 (sixty) days' written notice of the
redemption and has failed to make additional purchases of shares in an amount
sufficient to bring the value in his account to $500 (five hundred dollars)
or more before the redemption is effected by the Corporation. Payment of the
redemption price shall be made in cash by the Corporation at the time and in
the manner as may be determined from time to time by the Board of Directors
of the Corporation unless, in the opinion of the Board of Directors, which
shall be conclusive, conditions exist that make payment wholly in cash unwise
or undesirable; in such event the Corporation may make payment wholly or
partly by securities or other property included in the assets belonging or
allocable to the class of the shares redemption of which is being sought, the
value of which shall be determined as provided herein. The Board of
Directors may establish procedures for redemption of shares.
ARTICLE VII
BOARD OF DIRECTORS
(1) The number of directors constituting the Board of Directors shall be
one (1) or such other number as may be set forth in the By-laws or determined by
the Board of Directors pursuant to the By-laws. David T. Henigson is the
initial director of the Corporation and shall hold office until the first annual
meeting of stockholders or until his successor is elected and qualifies.
(2) In furtherance, and not in limitation, of the powers conferred by the
laws of the State of Maryland, the Board of Directors is expressly authorized:
(i) To make, alter or repeal the By-laws of the Corporation, except
where such power is reserved by the By-laws to the stockholders, and except as
otherwise required by the Investment Company Act of 1940, as amended.
(ii) From time to time to determine whether and to what extent and at
what times and places and under what conditions and regulations the books and
accounts of the Corporation, or any of them other than the stock ledger, shall
be open to the inspection of the stockholders. No stockholder shall have any
right to inspect any account of book or documents of the Corporation, except as
conferred by law or authorized by resolution of the Board of Directors.
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<PAGE>
(iii) Without the assent or vote of the stockholders, to authorize the
issuance from time to time of shares of the stock of any class of the
Corporation, whether now or hereafter authorized, and securities convertible
into shares of stock of the Corporation of any class or classes, whether now or
hereafter authorized, for such consideration as the Board of Directors may deem
advisable.
(iv) Notwithstanding anything in this Charter to the contrary, to
establish in its absolute discretion the basis or method for determining the
value of the assets belonging to any class, the amount of the liabilities
belonging to any class and the net asset value of each share of any class of
the Corporation's stock.
(v) To determine what constitutes net profits, earnings, surplus or
net assets in excess of capital, and to determine what accounting periods
shall be used by the Corporation for any purpose; to set apart out of any
funds of the Corporation reserves for such purposes as it shall determine and
to abolish the same; to declare and pay any dividends and distributions in
cash, securities or other property from surplus or any funds legally
available therefor, at such intervals as it shall determine; to declare
dividends or distributions by means of a formula or other method of
determination, at meetings held not less frequently than the established
payment dates for dividends or any other distributions on any basis,
including dates occurring not less frequently than the effectiveness of
declaration thereof.
(3) Any determination made in good faith, and in accordance with
accepted accounting practices, if applicable, by or pursuant to the direction
of the Board of Directors, with respect to the amount of assets, obligations
or liabilities of the Corporation, as to the amount of net income of the
Corporation from dividends and interest for any period or amounts at any time
legally available for the payment of dividends, as to the amount of any
reserves or charges set up and the propriety thereof, as to the time or
purpose for creating reserves or as to the use, alteration or cancellation of
any reserves or charges (whether or not any obligation or liability for which
the reserves or charges have been created has been paid or discharged or is
then or thereafter required to be paid or discharged), as to the value of any
security owned by the Corporation, the determination of the net asset value
of shares of any class of the Corporation's capital stock, or as to any other
matters relating to the issuance, sale or the acquisition or disposition of
securities or shares of capital stock of the Corporation, and any reasonable
determination made in good faith by the Board of Directors whether any
transaction constitutes a purchase of securities on "margin," a sale of
securities "short," or an underwriting or the sale of, or a participation in
any underwriting or selling group in connection with the public distribution
of, any securities, shall be final and conclusive, and shall be binding upon
the Corporation and all holders of its capital stock, past, present and
future, and shares of the capital stock of the Corporation are issued and
sold on the condition and understanding, evidenced by the purchase of shares
of capital stock or acceptance of share certificates, that any and all such
determinations shall be binding as aforesaid. No provision of this Charter
of the Corporation shall be effective to (i) require a waiver of compliance
with any provision of the Securities Act of
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<PAGE>
1933, as amended, or the Investment Company Act of 1940, as amended, or of any
valid rule, regulation or order of the Securities and Exchange Commission under
those Acts or (ii) protect or purport to protect any director or officer of the
Corporation against any liability to the Corporation or its security holders to
which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his office.
ARTICLE VIII
LIABILITY AND INDEMNIFICATION
(1) To the full extent that limitations on the liability of directors
and officers are permitted by the Maryland General Corporation Law, no director
or officer of the Corporation shall have any liability to the Corporation or its
stockholders for money damages. This limitation on liability applies to events
occurring at the time a person serves as a director or officer of the
Corporation whether or not that person is a director or officer at the time of
any proceeding in which liability is asserted.
(2) The Corporation shall indemnify and advance expenses to its currently
acting and its former directors to the full extent that indemnification of
directors and advancement of expenses is permitted by the Maryland General
Corporation Law. The Corporation shall indemnify and advance expenses to its
officers to the same extent as its directors and may do so to such further
extent as is consistent with law. The Board of Directors may by By-law,
resolution or agreement make further provision for indemnification of directors,
officers, employees and agents to the full extent permitted by the Maryland
General Corporation Law.
(3) No provision of this Article EIGHTH shall be effective to protect or
purport to protect any director or officer of the Corporation against any
liability to the Corporation or its stockholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
(4) Reference to the Maryland General Corporation law in this Article
EIGHTH are to that law as from time to time amended. No amendment to the
Charter of the Corporation shall affect any right of any person under this
Article EIGHTH based on any event, omission or proceeding prior to the
amendment.
ARTICLE IX
AMENDMENTS
The Corporation reserves the right from time to time to make any amendment
to its Charter, now or hereafter authorized by law, including any amendment that
alters the contract rights, as expressly set forth in this Charter, of any
outstanding stock.
5
<PAGE>
IN WITNESS WHEREOF, I have adopted and signed these Articles of
Incorporation and do hereby acknowledge that the adoption and signing are my
act.
By: /s/ David T. Henigson
---------------------------
David T. Henigson
Incorporator
Dated the 2nd day of January, 1998
6
<PAGE>
BY-LAWS
OF
VALUE LINE HEDGED OPPORTUNITY FUND, INC.
A Maryland Corporation
ARTICLE I
STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. No annual meeting of the stockholders of the
Corporation shall be held in any year in which the election of directors is not
required to be acted upon under the Investment Company Act of 1940, as amended,
unless otherwise determined by the Board of Directors. An annual meeting may be
held at any place within the United States as may be determined by the Board of
Directors and as shall be designated in the notice of the meeting, and at the
time specified by the Board of Directors. Any business of the Corporation may
be transacted at an annual meeting without being specifically designated in the
notice unless otherwise provided by statute, the Corporation's Articles of
Incorporation or these By-Laws.
SECTION 2. SPECIAL MEETING. Special meetings of the stockholders for any
purpose or purposes, unless otherwise prescribed by statute or by the
Corporation's Articles of Incorporation, may be held at any place within the
United States, and may be called at any time by the Board of Directors or by the
President, and shall be called by the President or Secretary at the request in
writing of a majority of the Board of Directors or at the request in writing of
stockholders entitled to cast at least 10 (ten) percent of the votes entitled to
be cast at the meeting upon payment by such stockholders to the Corporation of
the reasonably estimated cost of preparing and mailing a notice of the meeting
(which estimated cost shall be provided to such stockholders by the Secretary of
the Corporation). Notwithstanding the foregoing, unless requested by
stockholders entitled to cast a majority of the votes entitled to be cast at the
meeting, a special meeting of the stockholders need not be called at the request
of stockholders to consider any matter which is substantially the same as a
matter voted on at any special meeting of the stockholders held during the
preceding 12 (twelve) months. A written request shall state the purpose or
purposes of the proposed meeting.
SECTION 3. NOTICE OF MEETINGS. Written or printed notice of the purpose or
purposes and of the time and place of every meeting of the stockholders shall be
given by the Secretary of the Corporation to each stockholder of record entitled
to vote at the meeting and to such other stockholders entitled to notice of the
meeting, by placing the notice in the mail at least 10 (ten) days, but not more
than 90 (ninety) days, prior to the date designated for the meeting addressed to
each stockholder at his address appearing on the books of the Corporation or
supplied by the stockholder to the Corporation for the purpose of notice. The
notice of any meeting of stockholders may be accompanied by a form of proxy
approved by the Board of Directors in favor of the actions or persons as the
Board of Directors may select. Notice of any meeting of stockholders shall be
deemed waived by any stockholder who attends the meeting in person or by proxy,
or who before or after the meeting submits a signed waiver of notice that is
filed
<PAGE>
with the records of the meeting.
SECTION 4. QUORUM. Except as otherwise provided by statute or by the
Corporation's Articles of Incorporation, the presence in person or by proxy of
stockholders of the Corporation entitled to cast at least one-third of the votes
entitled to be cast without regard to class or, in the event a separate vote of
one or more classes is required, one-third of the votes entitled to be cast
separately, shall constitute a quorum at each meeting of the stockholders and
all questions shall be decided by a majority of the votes cast on the question
(except for the election of directors, which shall be by plurality vote). In
the absence of a quorum, the stockholders present in person or by proxy, by
majority vote and without further notice other than by announcement at the
meeting, may adjourn the meeting from time to time as provided in Section 5 of
this Article I until a quorum shall attend. The stockholders present at any
duly organized meeting may continue to do business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum. The absence from any meeting in person or by proxy of holders of the
number of shares of stock of the Corporation in excess of the number that may be
required by the laws of the State of Maryland, the Investment Company Act of
1940, as amended, or other applicable statute, the Corporation's Articles of
Incorporation or these By-Laws, for action upon any given matter shall not
prevent action at the meeting on any other matter or matters that may properly
come before the meeting, so long as there are present, in person or by proxy,
holders of the number of shares of stock of the Corporation required for action
upon the other matter or matters.
SECTION 5. ADJOURNMENT. Any meeting of the stockholders may be adjourned
from time to time, without notice other than by announcement at the meeting at
which the adjournment is taken. At any adjourned meeting at which a quorum
shall be present any action may be taken that could have been taken at the
meeting originally called. A meeting of the stockholders may not be adjourned,
without further notice and the establishing of a new record date, to a date more
than 120 (one hundred twenty) days after the original record date.
SECTION 6. ORGANIZATION. At every meeting of the stockholders, the
Chairman of the Board, or in his absence or inability to act, the President, or
in his absence or inability to act, a Vice President, or in the absence or
inability to act of the Chairman of the Board, the President and all the Vice
Presidents, a chairman chosen by the stockholders, shall act as Chairman of the
meeting. The Secretary, or in his absence or inability to act, a person
appointed by the chairman of the meeting, shall act as secretary of the meeting
and keep the minutes of the meeting.
SECTION 7. ORDER OF BUSINESS. The order of business at all meetings of the
stockholders shall be as determined by the chairman of the meeting.
SECTION 8. VOTING. Except as otherwise provided by the Corporation's
Articles of Incorporation, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
stockholders to one vote for every share of stock standing in his name on the
records of the
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Corporation as of the record date determined pursuant to Section 9 of this
Article I. Each stockholder entitled to vote at any meeting of stockholders
may authorize another person or persons to act for him by a proxy signed by the
stockholder or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven months from the date thereof, unless otherwise provided in
the proxy. Every proxy shall be revocable at the pleasure of the stockholder
executing it, except in those cases in which the proxy states that it is
irrevocable and in which an irrevocable proxy is permitted by law. If a vote
shall be taken on any question other than the election of directors, which shall
be by written ballot, then unless required by statute or these By-Laws, or
determined by the chairman of the meeting to be advisable, any such vote need
not be by ballot. On a vote by ballot, each ballot shall be signed by the
stockholder voting, or by his proxy, and shall state the number of shares voted.
SECTION 9. FIXING OF RECORD DATE. The Board of Directors may set a record
date for the purpose of determining stockholders entitled notice of and to vote
at any meeting of the stockholders. The record date for a particular meeting
shall be not more than 90 (ninety) nor fewer than 10 (ten) days before the date
of the meeting. All persons who were holders of record of shares as of the
record date of a meeting, and no others, shall be entitled to notice of and to
vote at such meeting and any adjournment thereof.
SECTION 10. INSPECTORS. The Board of Directors may, in advance of any
meeting of stockholders, appoint one or more inspectors to act at the meeting or
at any adjournment of the meeting. If the inspectors shall not be so appointed
or if any of them shall fail to appear or act, the chairman of the meeting may,
and on the request of any stockholder entitled to vote at the meeting shall,
appoint inspectors. Each inspector, before entering upon the discharge of his
duties, shall take and sign an oath to execute faithfully the duties of
inspector at the meeting with strict impartiality and according to the best of
his ability. The inspectors shall determine the number of shares outstanding
and the voting power of each share, the number of shares represented at the
meeting, the existence of a quorum and the validity and effect of proxies, and
shall receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do those acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the chairman of the meeting or any stockholder entitled to vote at
the meeting, the inspectors shall make a report in writing of any challenge,
request or matter determined by them and shall execute a certificate of any fact
found by them. No director or candidate for the office of director shall act as
inspector of an election of directors. Inspectors need not be stockholders of
the Corporation.
SECTION 11. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Except as
otherwise provided by statute or the Corporation's Articles of Incorporation,
any action required to be taken at any meeting of stockholders, or any action
that may be taken at any meeting of the stockholders, may be taken without a
meeting, without prior notice and without a vote, if the following are filed
with the records of stockholders' meetings: (i) a unanimous written
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consent that sets forth the action and is signed by each stockholder entitled to
vote on the matter and (ii) a written waiver of any right to dissent signed by
each stockholder entitled to notice of the meeting but not entitled to vote at
the meeting.
SECTION 12. NOTICE OF STOCKHOLDER BUSINESS.
(a) At any Annual or Special Meeting of the Stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an Annual or Special Meeting business
must be (A) (i) specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board of Directors, (ii) otherwise properly
brought before the meeting by or at the direction of the Board of Directors, or
(iii) subject to the provisions of Section 13 of this Article I, otherwise
properly brought before the meeting by a Stockholder and (B) a proper subject
under applicable law for Stockholder action.
(b) For business to be properly brought before an Annual or Special Meeting
by a Stockholder, the Stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation. To be timely, any such notice must
be delivered to or mailed and received at the principal executive offices of the
Corporation not later than 60 days prior to the date of the meeting; provided,
however, that if less than 70 days' notice or prior public disclosure of the
date of the meeting is given or made to Stockholders, any such notice by a
Stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which notice of the date of the
Annual or Special Meeting was given or such public disclosure was made.
(c) Any such notice by a Stockholder shall set forth as to each matter the
Stockholder proposes to bring before the Annual or Special Meeting (i) a brief
description of the business desired to be brought before the Annual or Special
Meeting and the reasons for conducting such business at the Annual or Special
Meeting, (ii) the name and address, as they appear on the Corporation's books,
of the Stockholder proposing such business, (iii) the class and number of shares
of the capital stock of the Corporation which are beneficially owned by the
Stockholder, and (iv) any material interest of the Stockholder in such business.
(d) Notwithstanding anything in the By-Laws to the contrary, no business
shall be conducted at any Annual or Special Meeting except in accordance with
the procedures set forth in this Section 12. The Chairman of the Annual or
Special Meeting shall, if the facts warrant, determine and declare to the
meeting that business was not properly brought before the meeting in accordance
with the provisions of this Section 12, and if he should so determine, he shall
so declare to the meeting and any such business not properly brought before the
meeting shall not be considered or transacted.
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SECTION 13. STOCKHOLDER BUSINESS NOT ELIGIBLE FOR CONSIDERATION.
(a) Notwithstanding anything in these By-Laws to the contrary, any proposal
that is otherwise properly brought before an Annual or Special Meeting by a
Stockholder will not be eligible for consideration by the Stockholders at such
Annual or Special Meeting if such proposal is substantially the same as a matter
properly brought before such Annual or Special Meeting by or at the direction of
the Board of Directors of the Corporation. The Chairman of such Annual or
Special Meeting shall, if the facts warrant, determine and declare that a
Stockholder proposal is substantially the same as a matter properly brought
before the meeting by or at the direction of the Board of Directors, and, if he
should so determine, he shall so declare to the meeting and any such Stockholder
proposal shall not be considered at the meeting.
(b) This Section 13 shall not be construed or applied to make ineligible
for consideration by the Stockholders at any Annual or Special Meeting any
Stockholder proposal required to be included in the Corporation's proxy
statement relating to such meeting pursuant to Rule 14a-8 under the Securities
Exchange Act of 1934, or any successor rule thereto.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. Except as otherwise provided in the
Corporation's Articles of Incorporation, the business and affairs of the
Corporation shall be managed under the direction of the Board of Directors. All
powers of the Corporation may be exercised by or under authority of the Board of
Directors except as conferred on or reserved to the stockholders by law, by the
Corporation's Articles of Incorporation or by these By-Laws.
SECTION 2. NUMBER OF DIRECTORS. The number of directors shall be fixed from
time to time by resolution of the Board of Directors adopted by a majority of
the entire Board of Directors; provided, however, that the number of directors
shall in no event be fewer than the number permitted by Maryland law nor more
than fifteen. Any vacancy created by an increase in Directors may be filled in
accordance with Section 6 of this Article II. No reduction in the number of
directors shall have the effect of removing any director from office prior to
the expiration of his term unless the director is specifically removed pursuant
to Section 5 of this Article II at the time of the decrease. A director need
not be a stockholder of the Corporation, a citizen of the United States or a
resident of the State of Maryland.
SECTION 3. ELECTION AND TERM OF DIRECTORS. The term of office of each
director shall be from the time of his election and qualification until his
successor shall have been elected and shall have qualified, or until his death,
or until he shall have resigned or have been removed as provided in these
By-laws, or as otherwise provided by statute or the Corporation's Articles of
Incorporation.
SECTION 3.1 DIRECTOR NOMINATIONS.
(a) Only persons who are nominated in accordance with the
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procedures set forth in this Section 3.1 shall be eligible for election or
re-election as Directors. Nominations of persons for election or re-election to
the Board of Directors of the Corporation may be made at a meeting of
Stockholders by or at the direction of the Board of Directors or by any
Stockholder of the Corporation who is entitled to vote for the election of such
nominee at the meeting and who complies with the notice procedures set forth in
this Section 3.1.
(b) Such nominations, other than those made by or at the direction of the
Board of Directors, shall be made pursuant to timely notice delivered in writing
to the Secretary of the Corporation. To be timely, any such notice by a
Stockholder must be delivered to or mailed and received at the principal
executive offices of the Corporation not later than 60 days prior to the
meeting; provided, however, that if less than 70 days' notice or prior public
disclosure of the date of the meeting is given or made to Stockholders, any such
notice by a Stockholder to be timely must be so received not later than the
close of business on the 10th day following the day on which notice of the date
of the meeting was given or such public disclosure was made.
(c) Any such notice by a Stockholder shall set forth (i) as to each person
whom the Stockholder proposes to nominate for election or re-election as a
Director, (A) the name, age, business address and residence address of such
person, (B) the principal occupation or employment of such person, (C) the class
and number of shares of the capital stock of the Corporation which are
beneficially owned by such person and (D) any other information relating to such
person that is required to be disclosed in solicitations of proxies for the
election of Directors pursuant to Regulation 14A under the Securities Exchange
Act of 1934 or any successor regulation thereto (including without limitation
such persons' written consent to being named in the proxy statement as a nominee
and to serving as a Director if elected and whether any person intends to seek
reimbursement from the Corporation of the expenses of any solicitation of
proxies should such person be elected a Director of the Corporation); and (ii)
as to the Stockholder giving the notice (A) the name and address, as they appear
on the Corporation's books, of such Stockholder and (B) the class and number of
shares of the capital stock of the Corporation which are beneficially owned by
such Stockholder. At the request of the Board of Directors any person nominated
by the Board of Directors for election as a Director shall furnish to the
Secretary of the Corporation that information required to be set forth in a
Stockholder's notice of nomination which pertains to the nominee.
(d) If a notice by a Stockholder is required to be given pursuant to
this Section 3.1, no person shall be entitled to receive reimbursement from
the Corporation of the expenses of a solicitation of proxies for the election
as a Director of a person named in such notice unless such notice states that
such reimbursement will be sought from the Corporation. No person shall be
eligible for election as a Director of the Corporation unless nominated in
accordance with the procedures set forth in this Section 3.1. The Chairman of
the meeting shall, if the facts warrant, determine and declare to the meeting
that a nomination was not made in accordance with the procedures prescribed
by the By-Laws, and if he should so determine, he shall so declare to the
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meeting and the defective nomination shall be disregarded for all purposes.
SECTION 4. RESIGNATION. A director of the Corporation may resign at any
time by qiving written notice of his resignation to the Board of Directors or
the Chairman of the Board or to the President or the Secretary of the
Corporation. Any resignation shall take effect at the time specified in it or,
should the time when it is to become effective not be specified in it,
immediately upon its receipt. Acceptance of a resignation shall not be
necessary to make it effective unless the resignation states otherwise.
SECTION 5. REMOVAL OF DIRECTORS. Any director of the Corporation may be
removed by the stockholders with or without cause at any time by a vote of a
majority of the votes entitled to be cast for the election of directors.
SECTION 6. VACANCIES. Subject to the provisions of the Investment Company
Act of 1940, as amended, any vacancies in the Board of Directors, whether
arising from death, resignation, removal or any other cause except an increase
in the number of directors, shall be filled by a vote of the majority of the
Board of Directors then in office even though that majority is less than a
quorum, provided that no vacancy or vacancies shall be filled by action of the
remaining directors if, after the filling of the vacancy or vacancies, fewer
than two-thirds of the directors then holding office shall have been elected by
the stockholders of the Corporation. A majority of the entire Board in office
prior to the increase may fill a vacancy which results from an increase in the
number of directors. In the event that at any time a vacancy exists in any
office of a director that may not be filled by the remaining directors, a
special meeting of the stockholders shall be held as promptly as possible and in
any event within 60 (sixty) days, for the purpose of filling the vacancy or
vacancies. Any director elected or appointed to fill a vacancy shall hold
office until a successor has been chosen and qualifies or until his earlier
resignation or removal.
SECTION 7. PLACE OF MEETINGS. Meetings of the Board may be held at any
place that the Board of Directors may from time to time determine or that is
specified in the notice of the meeting.
SECTION 8. REGULAR MEETINGS. Regular meetings of the Board of Directors may
be held without notice at the time and place determined by the Board of
Directors.
SECTION 9. SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by two or more directors of the Corporation or by the Chairman of the
Board or the President.
SECTION 10. NOTICE OF SPECIAL MEETINGS. Notice of each special meeting of
the Board of Directors shall be given by the Secretary as hereinafter provided.
Each notice shall state the time and place of the meeting and shall be delivered
to each director, either personally or by telephone or other standard form of
telecommunication, at least 24 (twenty-four) hours before the time at which the
meeting is to be held, or by first-class mail, postage prepaid, addressed to the
director at his residence or
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usual place of business, and mailed at least 3 (three) days before the day on
which the meeting is to be held.
SECTION 11. WAIVER OF NOTICE OF MEETINGS. Notice of any special meeting
need not be given to any director who shall, either before or after the meeting,
sign a written waiver of notice that is filed with the records of the meeting or
who shall attend the meeting.
SECTION 12. QUORUM AND VOTING. One-third of the members of the entire
Board of Directors shall be present in person at any meeting of the Board in
order to constitute a quorum for the transaction of business at the meeting,
provided that a quorum shall be no less than two Directors, except where the
Board consists of only one Director, a quorum shall be one Director, and except
as otherwise expressly required by statute, the Corporation's Articles of
Incorporation, these By-Laws, the Investment Company Act of 1940, as amended, or
any other applicable statute, the act of a majority of the directors present at
any meeting at which a quorum is present shall be the act of the Board. In the
absence of a quorum at any meeting of the Board, a majority of the directors
present may adjourn the meeting to another time and place until a quorum shall
be present. Notice of the time and place of any adjourned meeting shall be
given to the directors who were not present at the time of the adjournment and,
unless the time and place were announced at the meeting at which the adjournment
was taken, to the other directors. At any adjourned meeting at which a quorum
is present, any business may be transacted that might have been transacted at
the meeting as originally called.
SECTION 13. ORGANIZATION. The Board of Directors may, by resolution
adopted by a majority of the entire Board, designate a Chairman of the Board,
who shall preside at each meeting of the Board. In the absence or inability of
the Chairman of the Board to act, the President, or, in his absence or inability
to act, another director chosen by a majority of the directors present, shall
act as chairman of the meeting and preside at the meeting. The Secretary, or,
in his absence or inability to act, any person appointed by the chairman, shall
act as secretary of the meeting and keep the minutes thereof.
SECTION 14. COMMITTEES. The Board of Directors may designate one or more
committees of the Board of Directors, each consisting of 2 (two) or more
directors. To the extent provided in the resolution, and permitted by law, the
committee or committees shall have and may exercise the powers of the Board of
Directors in the management of the business and affairs of the Corporation and
may authorize the seal of the Corporation to be affixed to all papers that may
require it. Any committee or committees shall have the name or names determined
from time to time by resolution adopted by the Board of Directors. Each
committee shall keep reqular minutes of its meetings and report the same to the
Board of Directors when required. The members of a committee present at any
meeting, whether or not they constitute a quorum, may appoint a director to act
in the place of an absent member.
SECTION 15. WRITTEN CONSENT OF DIRECTORS IN LIEU OF A MEETING. Subject to
the provisions of the Investment Company Act
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of 1940, as amended, any action required or permitted to be taken at any meeting
of the Board of Directors or of any committee of the Board may be taken without
a meeting if all members of the Board or committee, as the case may be, consent
thereto in writing, and the writing or writings are filed with the minutes of
the proceedings of the Board or committee.
SECTION 16. TELEPHONE CONFERENCE. Members of the Board of Directors or any
committee of the Board may participate in any Board or committee meeting (other
than a meeting at which the investment advisory agreement is approved) by means
of a conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other at the same time.
Participation by such means shall constitute presence in person at the meeting.
SECTION 17. COMPENSATION. Each director shall be entitled to receive
compensation, if any, as may from time to time be fixed by the Board of
Directors, including a fee for each meeting of the Board or any committee
thereof, regular or special, he attends. Directors may also be reimbursed by
the Corporation for all reasonable expenses incurred in traveling to and from
the place of a Board or committee meeting.
ARTICLE III
OFFICERS, AGENTS AND EMPLOYEES
SECTION 1. NUMBER AND QUALIFICATIONS. The officers of the Corporation shall
be a President, a Secretary and a Treasurer, each of whom shall be elected by
the Board of Directors. The Board of Directors may elect or appoint one or more
Vice Presidents and may also appoint any other officers, agents and employees it
deems necessary or proper. Any two or more offices may be held by the same
person, except the offices of President and Vice President, but no officer shall
execute, acknowledge or verify any instrument in more than one capacity.
Officers shall be elected by the Board of Directors each year at its first
meeting held after the annual meeting of stockholders, each to hold office until
the meeting of the Board following the next annual meeting of the stockholders
and until his successor shall have been duly elected and shall have qualified,
or until his death, or until he shall have resigned or have been removed, as
provided in these By-Laws. The Board of Directors may from time to time elect,
or designate to the President the power to appoint, such officers (including one
or more Assistant Vice Presidents, one or more Assistant Treasurers and one or
more Assistant Secretaries) and such agents as may be necessary or desirable for
the business of the Corporation. Such other officers and agents shall have such
duties and shall hold their offices for such terms as may be prescribed by the
Board or by the appointing authority.
SECTION 2. RESIGNATIONS. Any officer of the Corporation may resign at any
time by giving written notice of his resignation to the Board of Directors, the
Chairman of the Board, the President or the Secretary. Any resignation shall
take effect at the time specified therein or, if the time when it shall become
effective is not specified therein, immediately upon its receipt. Acceptance of
a resignation shall not be necessary to make it effective unless the resignation
states otherwise.
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SECTION 3. REMOVAL OF OFFICER, AGENT OR EMPLOYEE. Any officer, agent or
employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate the power of removal as to
agents and employees not elected or appointed by the Board of Directors. Removal
shall be without prejudice to the person's contract rights, if any, but the
appointment of any person as an officer, agent or employee of the Corporation
shall not of itself create contract rights.
SECTION 4. VACANCIES. A vacancy in any office whether arising from death,
resignation, removal or any other cause, may be filled for the unexpired portion
of the term of the office that shall be vacant, in the manner prescribed in
these By-Laws for the regular election or appointment to the office.
SECTION 5. COMPENSATION. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer with respect to other officers under his control.
SECTION 6. BONDS OR OTHER SECURITY. If required by the Board, any officer,
agent or employee of the Corporation shall give a bond or other security for the
faithful performance of his duties, in an amount and with any surety or sureties
as the Board may require.
SECTION 7. PRESIDENT. The President shall be the chief executive officer of
the Corporation. In the absence or inability of the Chairman of the Board (or
if there is none) to act, the President shall preside at all meetings of the
stockholders and of the Board of Directors. The President shall have, subject
to the control of the Board of Directors, general charge of the business and
affairs of the Corporation, and may employ and discharge employees and agents of
the Corporation, except those elected or appointed by the Board, and he may
delegate these powers.
SECTION 8. VICE PRESIDENT. Each Vice President shall have the powers and
perform the duties that the Board of Directors or the President may from time to
time prescribe.
SECTION 9. TREASURER. Subject to the provisions of any contract that may be
entered into with any custodian pursuant to authority granted by the Board of
Directors, the Treasurer shall have charge of all receipts and disbursements of
the Corporation and shall have or provide for the custody of the Corporation's
funds and securities; he shall have full authority to receive and give receipts
for all money due and payable to the Corporation, and to endorse checks, drafts
and warrants, in its name and on its behalf and to give full discharge for the
same; he shall deposit all funds of the Corporation, except those that may be
required for current use, in such banks or other places of deposit as the Board
of Directors may from time to time designate; and, in general, he shall perform
all duties incident to the office of Treasurer and such other duties as may from
time to time be assigned to him by the Board of Directors or the President.
SECTION 10. SECRETARY. The Secretary shall
(a) keep or cause to be kept in one or more books provided for the purpose,
the minutes of all meetings of the Board of Directors,
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the committees of the Board and the stockholders;
(b) see that all notices are duly given in accordance with the provisions
of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and affix
and attest the seal to all stock certificates of the Corporation (unless the
seal of the Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all other documents to be
executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept and
filed; and
(e) in general, perform all the duties incident to the office of Secretary
and such other duties as from time to time may be assigned to him by the Board
of Directors or the President.
SECTION 11. DELEGATION OF DUTIES. In case of the absence of any officer of
the Corporation, or for any other reason that the Board of Directors may deem
sufficient, the Board may confer for the time being the powers or duties, or any
of them, of such officer upon any other officer or upon any director.
ARTICLE IV
STOCK
SECTION 1. STOCK CERTIFICATES. Each holder of stock of the Corporation
shall be entitled upon specific written request to such person as may be
designated by the Corporation to have a certificate or certificates, in a form
approved by the Board, representing the number of shares of stock of the
Corporation owned by him; provided, however, that certificates for fractional
shares will not be delivered in any case. The certificates representing shares
of stock shall be signed by or in the name of the Corporation by the Chairman,
the President or a Vice President and by the Secretary or an Assistant Secretary
or the Treasurer or an Assistant Treasurer and sealed with the seal of the
Corporation. Any or all of the signatures or the seal on the certificate may be
facsimiles. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate shall be
issued, it may be issued by the Corporation with the same effect as if such
officer, transfer agent or registrar were still in office at the date of issue.
SECTION 2. BOOKS OF ACCOUNT AND RECORD OF STOCKHOLDERS. There shall be kept
at the principal executive office of the Corporation correct and complete books
and records of account of all the business and transactions of the Corporation.
SECTION 3. TRANSFERS OF SHARES. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary or with a transfer agent or
transfer
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clerk, and on surrender of the certificate or certificates, if issued, for the
shares properly endorsed or accompanied by a duly executed stock transfer power
and the payment of all taxes thereon. Except as otherwise provided by law, the
Corporation shall be entitled to recognize the exclusive right of a person in
whose name any share or shares stand on the record of stockholders as the owner
of the share or shares for all purposes, including, without limitation, the
rights to receive dividends or other distributions and to vote as the owner, and
the Corporation shall not be bound to recognize any equitable or legal claim to
or interest in any such share or shares on the part of any other person.
SECTION 4. REGULATIONS. The Board of Directors may make any additional
rules and regulations, not inconsistent with these By-Laws, as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of stock of the Corporation. It may appoint, or authorize any officer or
officers to appoint, one or more transfer agents or one or more transfer clerks
and one or more registrars and may require all certificates for shares of stock
to bear the signature or signatures of any of them.
SECTION 5. STOLEN, LOST, DESTROYED OR MUTILATED CERTIFICATES. The holder of
any certificate representing shares of stock of the Corporation shall
immediately notify the Corporation of its theft, loss, destruction or mutilation
and the Corporation may issue a new certificate of stock in the place of any
certificate issued by it that has been alleged to have been stolen, lost or
destroyed or that shall have been mutilated. The Board may, in its discretion,
require the owner (or his legal representative) of a stolen, lost, destroyed or
mutilated certificate: to give to the Corporation a bond in a sum, limited or
unlimited, and in a form and with any surety or sureties, as the Board in its
absolute discretion shall determine, to indemnify the Corporation against any
claim that may be made against it on account of the alleged theft, loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board of Directors, in its absolute
discretion, may refuse to issue any such new certificate, except pursuant to
legal proceedings under the laws of the State of Maryland.
SECTION 6. FIXING OF RECORD DATE FOR DIVIDENDS, DISTRIBUTIONS, ETC. The
Board may fix, in advance, a date not more than 90 (ninety) days preceding the
date fixed for the payment of any dividend or the making of any distribution or
the allotment of rights to subscribe for securities of the Corporation, or for
the delivery of evidences of rights or evidences of interests arising out of any
change, conversion or exchange of common stock or other securities, as the
record date for the determination of the stockholders entitled to receive any
such dividend, distribution, allotment, rights or interests, and in such case
only the stockholders of record at the time so fixed shall be entitled to
receive such dividend, distribution, allotment, rights or interests.
SECTION 7. INFORMATION TO STOCKHOLDERS AND OTHERS. Any stockholder of the
Corporation or his agent may inspect and copy during the Corporation's usual
business hours the Corporation's By-Laws, minutes of the proceedings of its
stockholders, annual
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statements of its affairs and voting trust agreements on file at its principal
office.
ARTICLE V
INDEMNIFICATION AND INSURANCE
SECTION 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Any person who was or
is a party or is threatened to be made a party in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is a current or former
director or officer of the Corporation, or is or was serving while a director or
officer of the Corporation at the request of the Corporation as a director,
officer, partner, trustee, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust, enterprise or employee benefit plan, shall be
indemnified by the Corporation against judgments, penalties, fines, excise
taxes, settlements and reasonable expenses (including attorneys' fees) actually
incurred by such person in connection with such action, suit or proceeding to
the full extent permissible under the Maryland General Corporation Law, the
Securities Act of 1933 and the Investment Company Act of 1940, as such statutes
are now or hereafter in force, except that such indemnity shall not protect any
such person against any liability to the Corporation or any stockholder thereof
to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office ("disabling conduct").
SECTION 2. ADVANCES. Any current or former director or officer of the
Corporation claiming indemnification within the scope of this Article V shall be
entitled to advances from the Corporation for payment of the reasonable expenses
incurred by him in connection with proceedings to which he is a party in the
manner and to the full extent permissible under the Maryland General Corporation
Law, the Securities Act of 1933 and the Investment Company Act of 1940, as such
statutes are now or hereafter in force; provided however, that the person
seeking indemnification shall provide to the Corporation a written affirmation
of his good faith belief that the standard of conduct necessary for
indemnification by the Corporation has been met and a written undertaking to
repay any such advance unless it is ultimately determined that he is entitled to
indemnification, and provided further that at least one of the following
additional conditions is met: (1) the person seeking indemnification shall
provide a security in form and amount acceptable to the Corporation for his
undertaking; (2) the Corporation is insured against losses arising by reason of
the advance; or (3) a majority of a quorum of directors of the Corporation who
are neither "interested persons" as defined in Section 2(a)(19) of the
Investment Company Act of 1940, as amended, nor parties to the proceeding
("disinterested non-party directors"), or independent legal counsel, in a
written opinion, shall determine, based on a review of facts readily available
to the Corporation at the time the advance is proposed to be made, that there is
reason to believe that the person seeking indemnification will ultimately be
found to be entitled to indemnification.
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SECTION 3. PROCEDURE. At the request of any current or former director or
officer, or any employee or agent whom the Corporation proposes to indemnify,
the Board of Directors shall determine, or cause to be determined, in a manner
consistent with the Maryland General Corporation Law, the Securities Act of 1933
and the Investment Company Act of 1940, as such statutes are now or hereafter in
force, whether the standards required by this Article V have been met; provided,
however, that indemnification shall be made only following: (1) a final decision
on the merits by a court or other body before whom the proceeding was brought
that the person to be indemnified was not liable by reason of disabling conduct
or (2) in the absence of such a decision, a reasonable determination, based upon
a review of the facts, that the person to be indemnified was not liable by
reason of disabling conduct, by (a) the vote of a majority of a quorum of
disinterested non-party directors or (b) an independent legal counsel in a
written opinion.
SECTION 4. INDEMNIFICATION OF EMPLOYEES AND AGENTS. Employees and agents
who are not officers or directors of the Corporation may be indemnified, and
reasonable expenses may be advanced to such employees or agents, in accordance
with the procedures set forth in this Article V to the extent permissible under
the Investment Company Act of 1940, the Securities Act of 1933 and the Maryland
General Corporation Law, as such statutes are now or hereafter in force, and to
such further extent, consistent with the foregoing, as may be provided by action
of the Board of Directors or by contract.
SECTION 5. OTHER RIGHTS. The indemnification provided by this Article V
shall not be deemed exclusive of any other right, in respect of indemnification
or otherwise, to which those seeking such indemnification may be entitled under
any insurance or other agreement, vote of stockholders or disinterested
directors or otherwise, both as to action by a director or officer of the
Corporation in his official capacity and as to action by such person in another
capacity while holding such office or position, and shall continue as to a
person who has ceased to be a director or officer and shall inure to the benefit
of the heirs, executors and administrators of such a person.
SECTION 6. INSURANCE. The Corporation shall have the power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or who, while a director, officer,
employee or agent of the Corporation, is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust, enterprise
or employee benefit plan, against any liability asserted against and incurred by
him in any such capacity, or arising out of his status as such, provided that no
insurance may be obtained by the Corporation for liabilities against which it
would not have the power to indemnify him under this Article V or applicable
law.
SECTION 7. CONSTITUENT, RESULTING OR SURVIVING CORPORATIONS. For the
purposes of this Article V, references to the "Corporation" shall include all
constituent corporations absorbed in a consolidation or merger as well the
resulting or surviving corporation so that any person who is or was a director,
officer,
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employee or agent of a constituent corporation or is or was serving at the
request of a constituent corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise
shall stand in the same position under this Article V with respect to the
resulting or surviving corporation as he would if he had served the resulting or
surviving corporation in the same capacity.
ARTICLE VI
SEAL
The seal of the Corporation shall be circular in form and shall bear the
name of the Corporation, the year of its incorporation, the words "Corporate
Seal" and "Maryland" and any emblem or device approved by the Board of
Directors. The seal may be used by causing it or a facsimile to be impressed or
affixed or in any other manner reproduced, or by placing the word "(seal)"
adjacent to the signature of the authorized officer of the Corporation.
ARTICLE VII
FISCAL YEAR
The Corporation's fiscal year shall be fixed by the Directors.
ARTICLE VIII
AMENDMENTS
These By-Laws may be amended or repealed by the affirmative vote of a
majority of the Board of Directors at any regular or special meeting of the
Board of Directors, subject to the requirements of the Investment Company Act of
1940, as amended.
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INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of the ____ day of _______, 1998, between VALUE LINE HEDGED
OPPORTUNITY FUND, INC. a Maryland corporation (hereinafter called "the Fund"),
and VALUE LINE, INC., a New York corporation (hereinafter called "the Company");
WITNESSETH:
WHEREAS, the Fund desires to have the Company act as its investment adviser and
provide it with investment research, advice, supervision and management; and
WHEREAS, the Company is willing to undertake the same upon the terms and
conditions set forth herein.
NOW THEREFORE, it is hereby agreed by and between the parties hereto as
follows:
1. DUTIES. The Company shall provide the Fund with such investment research,
data advice and supervision as the latter may from time to time consider
necessary for proper supervision of its funds. The Company shall act as manager
and investment adviser of the Fund and, as such, shall furnish continuously an
investment program and shall determine from time to time what securities shall
be purchased or sold by the Fund, and what portion of the assets of the Fund
shall be held uninvested, subject always to the provisions of the Fund's
Articles of Incorporation and By-Laws, to the Fund's fundamental investment
policies as in effect from time to time, and to the control and review by the
Fund's Board of Directors. The Company shall take, on behalf of the Fund, all
actions which it deems necessary to carry into effect the investment policies
determined as provided above, and to that end the Company may designate a person
or persons who are to be authorized by the Fund as the representative or
representatives of the Fund, to give instructions to the Custodian of the assets
of the Fund as to deliveries of securities and payments of cash for the account
of the Fund.
2. ALLOCATION OF CHARGES AND EXPENSES; BROKERAGE. The Company shall furnish
at its own expense all administrative services, office space, equipment and
administrative and clerical personnel necessary for managing the affairs of the
Fund. The Company shall also provide persons satisfactory to the Fund's Board
of Directors to act as officers and employees of the Fund and shall pay the
salaries and wages of all officers and employees of the Fund who are also
officers and employees of the Company or of an affiliated person (as defined in
the Investment Company Act of 1940) other than the Fund. All other costs and
expenses not expressly assumed by the Company under this Agreement, or to be
paid by the Distributor or Distributors of the shares of the Fund, shall be paid
by the Fund, including (i) interest and taxes; (ii) brokerage commissions and
other costs in connection with the purchase or sale of securities; (iii)
insurance premiums for fidelity and other coverage requisite to its operations;
(iv) compensation and expenses of its directors other than those affiliated with
the Company; (v) legal, audit and
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fund accounting expenses; (vi) custodian and shareholder servicing agent fees
and expenses; (viii) expenses incident to the issuance of its shares against
payment therefor by or on behalf of the subscribers thereto, including printing
of stock certificates; (ix) fees and expenses incident to the registration under
the Securities Act of 1933 or under any state securities laws of shares of the
Fund for public sale and fees imposed on the Fund under the Investment Company
Act of 1940; (x) expenses of printing and mailing prospectuses, reports and
notices and proxy material to shareholders of the Fund; (xi) all other expenses
incidental to holding meetings of the Fund's shareholders; (xii) a pro rata
share, based on relative net asset value of the Fund and other investment
companies for which the Company also acts as manager and investment adviser, of
50% of the fees or dues of the Investment Company Institute; (xiii) fees and
expenses in connection with registration of the Fund or qualification of its
shares under the securities laws of states and foreign jurisdictions and (xiv)
such non-recurring expenses as may arise, including actions, suits or
proceedings to which the Fund is a party and the legal obligation which the Fund
may have to indemnify its officers and directors with respect thereto.
The Company shall place purchase and sale orders for portfolio transactions of
the Fund with brokers and/or dealers including, where permitted by law, the
Fund's Distributor or affiliates thereof or of the Company, which, in the
judgment of the Company, are able to execute such orders as expeditiously as
possible and at the best obtainable price. Purchases and sales of securities
which are not listed or traded on a securities exchange shall ordinarily be
executed with primary market makers acting as principal except when it is
determined that better prices and executions may otherwise be obtained,
provided, that the Company may cause the Fund to pay a member of a securities
exchange, broker or dealer an amount of commission another member of an
exchange, broker or dealer would have charged for effecting that transaction if
the Company determines in good faith that such amount of commission was
reasonable in relation to the value of the brokerage and research services
provided by such member, broker or dealer, viewed in terms of that particular
transaction or the Company's overall responsibilities. As used herein,
"brokerage and research services" shall have the same meaning as in Section
28(e)(3) of the Securities Exchange Act of 1934, as such Section may be amended
from time to time, and any rules or regulations promulgated thereunder by the
Securities and Exchange Commission. It is understood that, consistent with the
Company's fiduciary duty to the Fund, it is the intent of this Agreement to
allow the Company the widest discretion permitted by law in determining the
manner and means by which portfolio securities' transactions can be affected in
the best interests of the Fund.
3. COMPENSATION. (a) For its services and for the facilities to be furnished
as provided herein, the Fund shall pay to the Company an advisory fee payable
monthly, computed at the annual rate of .75% of the Fund's average daily net
assets during the year, pro rated for any portion of a year during which the
Agreement is in effect. For this purpose, the value of the Fund's net assets
shall be determined in the same manner as for the purchase and redemption of
<PAGE>
Fund shares as described in the Fund's current Prospectus.
(b) If the Fund's Distributor receives fees in connection with the tender of
portfolio securities of the Fund, the gross amount of the advisory fee computed
in accordance with the preceding paragraph 3(a) shall be reduced by the amount
of tender fees received; if the amount of such tender fees exceeds the amount of
advisory fees computed in accordance with paragraph 3(a), the excess shall be
paid by the Company to the Fund.
(c) In the event that the total expenses of the Fund, excluding interest,
taxes, brokerage commissions and extraordinary expenses, exceeds in any fiscal
year the lowest applicable percentage limitation prescribed by any state in
which shares of the Fund are sold, the compensation of the Company, computed in
accordance with the preceding two paragraphs 3(a) and 3(b), shall be reduced by
the amount of such excess.
4. DURATION AND TERMINATION OF AGREEMENT. This Agreement shall become
effective on the date set forth above and shall continue in effect for a period
of more than two years from the date of its execution only so long as such
continuance is specifically approved at least annually in accordance with the
Investment Company Act of 1940. This Agreement may be terminated on sixty days
written notice by either party. This Agreement shall terminate automatically in
the event of its assignment as defined in the Investment Company Act of 1940.
5. NAME OF FUND. The Company consents to the use by the Fund of the name
"Value Line Hedged Opportunity Fund, Inc." so long, and only so long, as this
Agreement (or any agreement with any organization which has succeeded to the
business of the Company) or any extension, renewal or amendment thereof, remains
in effect. The Fund agrees that if and when no such agreement is in effect, (a)
it will cease to use said name or any name indicating or suggesting that the
Fund is advised by or otherwise connected with the Company and (b) it will not
thereafter refer to the former association between the Company and the Fund.
6. COMPANY MAY ACT FOR OTHERS. Nothing herein contained shall limit the
freedom of the Company or any affiliated person of the Company to render
investment supervisory or corporate administrative services to other investment
companies, to act as investment adviser or investment counselor to other
persons, firms or corporations, and to engage in other business activities.
7. AMENDMENT OF AGREEMENT. This Agreement may not be amended except pursuant
to a direction given by the vote of the holders of a majority (as defined in the
Investment Company Act of 1940) of the outstanding shares of the Fund.
8. LIABILITY. The Company shall not be liable for any error of judgment, or
mistake of law, or any loss suffered by the Fund, in connection with the matters
to which this Agreement relates, except for loss resulting from willful
misfeasance, bad faith or gross negligence of the Company in the performance of
its duties or from
<PAGE>
reckless disregard by the Company of its obligations and duties hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date and year first above
written.
VALUE LINE HEDGED OPPORTUNITY
FUND, INC.
By:
-------------------------
VALUE LINE, INC.
By:
-------------------------
<PAGE>
DISTRIBUTION AGREEMENT
Between
VALUE LINE HEDGED OPPORTUNITY FUND, INC.
and
VALUE LINE SECURITIES, INC.
, 1998
Value Line Securities, Inc.
220 East 42nd Street
New York, N.Y. 10017
Dear Sirs:
VALUE LINE HEDGED OPPORTUNITY FUND, INC. (the "Fund"), a Maryland
corporation, is registered as an Investment Company under the Investment Company
Act of 1940 and has registered an indefinite number of shares of common stock
under the Securities Act of 1933, Registration Number 33- , to be offered
continuously for sale to the public in accordance with terms and conditions set
forth in the Prospectus included in such Registration Statement as it may be
amended from time to time.
In this connection, the Fund desires that your firm act as principal
underwriter and distributor (herein "distributor") of the Fund for the sale and
distribution of shares which have been registered as described above and any
additional shares which may become registered during the term of this Agreement.
You have advised the Fund that you are willing to act as distributor, and it is,
accordingly, agreed between us as follows:
1. The Fund hereby appoints you distributor for the sale of its shares,
pursuant to the aforesaid continuous public offering in connection with any
sales made to Fund investors in any states and/or jurisdictions in which you are
or shall from time to time become qualified as a broker/dealer, or through
securities dealers with whom you have entered into sales agreements.
2. You hereby accept such appointment and agree to use your best efforts
to sell such shares, provided, however, that when requested by the Fund at any
time because of market or other economic considerations or abnormal
circumstances of any kind, you will suspend such efforts. The Fund may also
withdraw the offering of the shares at any time when required by the provisions
of any statute, order, rule or regulation of any governmental body having
jurisdiction. It is understood that you do not undertake to sell all or any
specific portion of the shares of the Fund.
3. The shares shall be sold by you at net asset value as determined in
the Fund's Prospectus effective at the time of sale. Shares may be sold
directly to prospective purchasers or through securities dealers who have
entered into sales agreement with you. However, in no event will shares be
issued prior to the receipt by us of full payment for such shares.
<PAGE>
4. You agree that the Fund shall have the right to accept or reject
orders for the purchase of shares of the Fund. Any consideration which you may
receive in connection with a rejected purchase order will be returned promptly.
In the event that any cancellation of a share purchase order, cancellation of a
redemption order or error in the timing of the acceptance of purchase or
redemption orders shall result in a gain or loss, you agree promptly to
reimburse the Fund for any amount by which losses shall exceed gains so arising;
to retain any net gains so arising for application against losses so arising in
future periods and, on the termination of this Agreement, to pay over to the
Fund the amount of any such net gains which may have accumulated. The Fund
shall register or cause to be registered all shares sold by you pursuant to the
provisions hereof in such name or names and amounts as you may request from time
to time, and the Fund shall issue or cause to be issued certificates evidencing
such shares for delivery to you or pursuant to your direction if, and to the
extent that, the shareholder requests issuance of such share certificate.
5. The Fund has delivered to you a copy of its initial Prospectus
dated as of the effective date of its Registration Statement pursuant to the
Securities Act of 1933. It agrees that it will use its best efforts to
continue the effectiveness of the Registration Statement under the Securities
Act of 1933. The Fund further agrees to prepare and file any amendments to
its Registration Statement as may be necessary and any supplemental data in
order to comply with the Securities Act of 1933.
6. The Fund is registered under the Investment Company Act of 1940 as an
investment company, and it will use its best efforts to maintain such
registration and to comply with the requirements of said Act.
7. You agree:
(a) That neither you nor any of your officers will take any short
position in the shares of the Fund.
(b) To furnish to the Fund any pertinent information required to be
included with respect to you as distributor within the meaning of the Securities
Act of 1933 in any reports or registration required to be filed with any
governmental authority.
(c) You will not give any information or make any representations
other than as contained in the Registration Statement or Prospectus filed under
the Securities Act of 1933, as in effect from time to time, or in any
supplemental sales literature authorized by the Fund for use in connection with
the sale of shares.
8. You shall pay all usual expenses of distribution, including
advertising and the costs of printing and mailing of Prospectuses, other than
those furnished to existing shareholders.
<PAGE>
9. This Agreement will continue in effect for a period of two years and
shall continue in effect from year to year thereafter provided:
(a) Such continuation shall be specifically approved at least
annually by the Board of Directors, including the vote of majority of the
Directors of the Fund who are not parties to this Agreement or "interested
persons" (as defined in the Investment Company Act of 1940) of any such persons
cast in person at a meeting called for the purpose of voting on such approval or
by vote of the holders of a majority of the outstanding voting securities of the
Fund and by such vote of the Board of Directors.
(b) You shall have notified the Fund in writing at least sixty days
prior to the termination date that you shall not desire such continuation.
(c) We shall not have notified you in writing at least sixty days
prior to the termination date that we do not desire your continuation.
10. This Agreement may not be amended or changed except in writing and
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors, but this Agreement shall not be assigned by either
party and shall automatically terminate upon its assignment.
If the foregoing is in accordance with your understanding, kindly so
indicate by signing in the space provided below.
VALUE LINE HEDGED OPPORTUNITY
FUND, INC.
By:
--------------------------
Accepted:
Value Line Securities, Inc.
_______________________________
<PAGE>
Value Line Hedge Opportunity Fund, Inc.
Service and Distribution Plan (the "Plan")
The Plan is adopted as of this ______ day of ________, 1998, by the Board
of Directors of Value Line Hedged Opportunity Fund, Inc., a Maryland corporation
(the "Fund").
1. The Plan is adopted pursuant to Rule 12b-1 under the Investment Company Act
of 1940 (the "Act") so as to allow the Fund to make payments as contemplated
herein, in conjunction with the distribution of shares of Common Stock of the
Fund ("Shares"). Payments also may be made by Value Line, Inc., the Fund's
investment adviser, out of its fees, its past profits or any other source
available to it.
2. The Plan is designed to finance activities of Value Line Securities, Inc.
("VLS") principally intended to result in sale of the Shares and to include the
following: (a) to provide incentive to securities dealers to sell Shares and to
provide administrative support services to the Fund and its shareholders; (b) to
compensate other participating financial institutions and organizations
(including individuals) for providing administrative support services to the
Fund and its shareholders; (c) to pay for costs incurred in conjunction with
advertising and marketing of Shares including expenses of preparing, printing
and distributing prospectuses and sales literature to prospective shareholders,
securities dealers and others, and for servicing the accounts of shareholders
and (d) other costs incurred in the implementation and operation of the Plan.
<PAGE>
3. As compensation for the services to be provided under this Plan, VLS shall
be paid a fee at the annual rate of 25% of the Fund's average daily net assets.
4. All payments to securities dealers, participating financial institutions
and other organizations shall be made pursuant to the terms of a Distribution
Agreement between VLS and such dealer, institution or organization.
5. The Board of Directors shall be provided, at least quarterly, with a
written report of all amounts expended pursuant to the Plan and the purpose for
which the amounts were expended.
6. The Plan will become effective immediately upon approval by (a) a majority
of the outstanding shares of Common Stock of the Fund and (b) a majority of the
Board of Directors who are not "interested persons" (as defined in the Act) of
the Fund and have no direct or indirect financial interest in the operation of
the Plan or in any agreements entered into in connection with the Plan, pursuant
to a vote cast in person at a meeting called for the purpose of voting on the
approval of the Plan.
7. The Plan shall continue for a period of one year from its effective date,
unless earlier terminated in accordance with its terms, and thereafter shall
continue automatically for successive annual periods, provided such continuance
is approved at least annually in the manner provided by the Act.
8. The plan may be amended at any time by the Board of Directors provided that
(a) any amendment to increase materially the costs which the Fund may bear
pursuant to the Plan shall be effective only upon approval by a vote of a
majority of the outstanding voting securities of the Fund and (b) any material
amendments of the terms of the Plan shall become effective only upon approval as
provided in paragraph 6 (b) hereof.
<PAGE>
9. The Plan is terminable without penalty at any time by (a) vote of a
majority of the Board of Directors of the Fund, including a majority of the
Directors who are not "interested persons" (as defined in the Act) of the Fund
and have not direct or indirect financial interest in the operation of the Plan
or in any agreements entered into in connection with the Plan, or (b) vote of a
majority of the outstanding voting securities on the Fund.
10. While the Plan is in effect, the selection and nomination of Directors who
are not "interested persons" (as defined in the Act) of the Fund shall be
committed to the discretion of the Directors who are not "interested persons."
11. The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to paragraph 5 hereof, for a period not less than six
years from the date thereof, the first two years in an easily accessible place.
