<PAGE>
THE VALUE LINE CASH FUND, INC.
A MONEY MARKET MUTUAL FUND
--------------------------------
PROSPECTUS
MAY 3, 1999
- --------------------------------------------------------------------------------
[LOGO]
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS, AND ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
FUND SUMMARY
What are the Fund's goals? PAGE 2
What are the Fund's main investment strategies? PAGE
2
What are the main risks of investing in the Fund?
PAGE 2
How has the Fund performed? PAGE 3
What are the Fund's fees and expenses? PAGE 4
HOW WE MANAGE THE FUND
Our principal investment strategies PAGE 5
The type of securities in which we invest PAGE 5
The principal risks of investing in the Fund PAGE 6
WHO MANAGES THE FUND
Investment Adviser PAGE 7
Management fees PAGE 7
ABOUT YOUR ACCOUNT
How to buy shares PAGE 8
How to sell shares PAGE 10
Special services PAGE 12
Dividends, distributions and taxes PAGE 13
FINANCIAL HIGHLIGHTS
Financial Highlights PAGE 14
<PAGE>
FUND SUMMARY
- --------------------------------------------------------------------------------
WHAT ARE THE FUND'S GOALS?
The Fund is a money market mutual fund whose investment
objective is to secure as high a level of current income as
is consistent with maintaining liquidity and preserving
capital. The Fund attempts to maintain a stable net asset
value of $1.00 per share. Although the Fund will strive to
achieve these goals, there is no assurance that it will.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
To achieve the Fund's goals, we invest in high quality,
short-term U.S. dollar denominated money market instruments.
The Fund does not invest for the purpose of seeking capital
appreciation or gains and is managed to provide a stable net
asset value of $1.00 per share. The Fund's average maturity
of its holdings will not exceed 90 days and its yield will
fluctuate with changes in short-term interest rates. Income
on short-term securities tends to be lower than income on
longer term debt securities so the Fund's yield will likely
be lower than the yield on longer term fixed income funds.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Investing in any mutual fund involves risk. The chief risk
that you assume when investing in the Fund is interest rate
risk, the possibility that as interest rates rise the value
of some fixed income securities may decrease. There is also
the risk that any of the Fund's holdings could have its
credit rating downgraded, or the issuer could default, or
that there could be a sharp rise in interest rates, causing
the value of the Fund's securities to fall. An investment in
the Fund is not a complete investment program and you should
consider it just one part of your total investment program.
AN INVESTMENT IN THE FUND IS NOT INSURED OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR
INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY
BY INVESTING IN THE FUND.
2
<PAGE>
HOW HAS THE FUND PERFORMED?
This bar chart and table can help you evaluate the potential
risks of investing in the Fund. We show how returns for the
Fund's shares have varied over the past ten calendar years,
as well as the average annual returns of these shares for
one, five, and ten years all compared to the performance of
the Lipper Money Market Funds Average. The Fund's past
performance is not necessarily an indication of how it will
perform in the future.
TOTAL RETURNS AS OF 12/31 EACH YEAR (%)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
<S> <C>
1989 9.05%
1990 7.91%
1991 5.89%
1992 3.74%
1993 3.06%
1994 3.69%
1995 5.40%
1996 5.00%
1997 5.10%
1998 5.06%
</TABLE>
<TABLE>
<S> <C> <C>
BEST QUARTER: Q2 1989 2.35%
WORST QUARTER: Q1 1994 0.69%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/98
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
- ---------------------------------------------------------------
VALUE LINE CASH FUND 5.06% 4.84% 5.37%
- ---------------------------------------------------------------
LIPPER MONEY MARKET FUNDS AVERAGE 4.86% 4.78% 5.22%
- ---------------------------------------------------------------
</TABLE>
The Fund's 7-day yield as of December 31, 1998 was 4.84%. The
current 7-day yield may be obtained from the Fund by calling
800-243-2739.
3
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
These tables describe the fees and expenses you pay in
connection with an investment in the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
<S> <C>
- --------------------------------------------------------
MAXIMUM SALES CHARGES (LOAD) IMPOSED ON PURCHASES NONE
AS A PERCENTAGE OF OFFERING PRICE
- --------------------------------------------------------
MAXIMUM DEFERRED SALES CHARGES (LOAD) AS A NONE
PERCENTAGE OF ORIGINAL PURCHASE PRICE OR
REDEMPTION PRICE, WHICHEVER IS LOWER
- --------------------------------------------------------
MAXIMUM SALES CHARGES (LOAD) IMPOSED ON REINVESTED
DIVIDENDS NONE
- --------------------------------------------------------
REDEMPTION FEE NONE
- --------------------------------------------------------
EXCHANGE FEE NONE
- --------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------------------------
MANAGEMENT FEES 0.40%
- ---------------------------------------------------------
DISTRIBUTION AND SERVICE (12B-1) FEES NONE
- ---------------------------------------------------------
OTHER EXPENSES 0.17%
- ---------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES 0.57%
- ---------------------------------------------------------
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of
investing in the Fund to the cost of investing in other
mutual funds. We show the cumulative amount of Fund expenses
on a hypothetical investment of $10,000 with an annual 5%
return over the time shown, assuming that the Fund's
operating expenses remain the same. This is an example only,
and your actual costs may be greater or less than those shown
here. Based on these assumptions, your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------
VALUE LINE CASH FUND $58 $183 $318 $714
- ------------------------------------------------------------------
</TABLE>
4
<PAGE>
HOW WE MANAGE THE FUND
- --------------------------------------------------------------------------------
OUR PRINCIPAL INVESTMENT STRATEGIES
To reach its objective of seeking as high a level of current
income as is consistent with preservation of capital and
liquidity, the Fund invests in short-term money market
securities meeting quality standards for money market funds
under the Investment Company Act of 1940.
THE TYPE OF SECURITIES IN WHICH WE INVEST
The Fund invests only in short-term instruments. To minimize
the effect of changing interest rates on the net asset value
of its shares, the Fund keeps the average maturity of its
holdings to 90 days or less to reduce interest rate risks.
The Fund invests at least 95% of its total assets in prime
money market instruments, that is securities of issuers with
the highest credit rating assigned by at least two
established national rating organizations or by one rating
organization if the security is rated by only one or, if
unrated, the equivalent rating established by the Adviser. No
more than 5% of the Fund's assets can be invested in
securities with the second highest credit rating. The
following is a brief description of the types of short-term
instruments in which the Fund may invest:
U.S. GOVERNMENT SECURITIES: includes U.S. Treasury bills,
notes and bonds, which are direct obligations of the U.S.
Treasury supported by the full faith and credit of the United
States as well as securities issued by agencies and
instrumentalities of the U.S. Government supported by the
right of the issuer to borrow from the U.S. Treasury or
supported only by the credit of the instrumentality.
BANK INSTRUMENTS: includes certificates of deposit and
bankers' acceptances.
COMMERCIAL PAPER: refers to short-term unsecured promissory
notes issued by corporations.
ASSET BACKED SECURITIES: refers to an underlying pool of
assets such as credit card or automobile trade receivables or
corporate loans or bonds which backs these bonds and provides
the interest and principal payments to investors.
CORPORATE OBLIGATIONS: includes other short-term corporate
debt obligations.
REPURCHASE AGREEMENTS: refers to contracts to repurchase
securities at a fixed price within a specified period of
time, usually less than one week.
5
<PAGE>
THE PRINCIPAL RISKS OF INVESTING IN THE FUND
The chief risk that you assume when investing in the Fund is
interest rate risk, the possibility that as interest rates
rise the value of some fixed income securities may decrease.
Other risks that you assume when investing in the Fund are
market risk, credit risk and income risk. Market risk is the
risk that the securities in a certain market will decline in
value because of factors such as economic conditions. Credit
risk is the risk that any of the Fund's holdings will have
its credit rating downgraded or will default, thereby
reducing the Fund's income level and share price. Income risk
is the risk that the Fund's income may decline because of
falling interest rates and other market conditions.
YEAR 2000 RISKS
Like other mutual funds, the Fund could be adversely affected
if the computer systems used by the Adviser and other service
providers do not properly process and calculate date-related
information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The Adviser is
taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to the computer
systems that it uses and to obtain satisfactory assurances
that comparable steps are being taken by the Fund's other
major service providers. At this time, however, there can be
no assurance that these steps will be sufficient to avoid any
adverse impact to the Fund.
The Year 2000 Problem is expected to impact U.S. Government
agencies and instrumentalities and corporations, which may
include issuers of portfolio securities held by the Fund, to
varying degrees based upon various factors, including, but
not limited to, the corporation's industry sector and degree
of technological sophistication. The Fund is unable to
predict what impact, if any, the Year 2000 Problem will have
on issuers of the portfolio securities held by the Fund.
6
<PAGE>
WHO MANAGES THE FUND
- --------------------------------------------------------------------------------
The business and affairs of the Fund are managed by the
Fund's officers under the direction of the Fund's Board of
Directors.
INVESTMENT ADVISER
Value Line, Inc., 220 East 42nd Street, New York, NY 10017,
serves as
the Fund's investment adviser and manages the Fund's business
affairs. Value Line also acts as investment adviser to the
other Value Line mutual funds and furnishes investment
counseling services to private and institutional clients
resulting in combined assets under management of over $5
billion.
The Adviser was organized in 1982 and is the successor to
substantially all of the operations of Arnold Bernhard & Co.,
Inc. which with its predecessor had been in business since
1931. Value Line Securities, Inc., the Fund's distributor, is
a subsidiary of the Adviser. Another subsidiary of the
Adviser publishes The Value Line Investment Survey and other
publications.
MANAGEMENT FEES
For managing the Fund and its investments, the Adviser is
paid a yearly fee of 0.40% of the Fund's average daily net
assets.
7
<PAGE>
ABOUT YOUR ACCOUNT
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
/ / BY WIRE
If you are making an initial purchase by wire, you must call
us at 800-243-2729 so we can assign you an account number.
Request your bank to wire the amount you want to invest to
State Street Bank and Trust Company, ABA #011000028,
attention DDA # 99049868. Include your name, account number,
tax identification number and the name of the Fund in which
you want to invest.
/ / THROUGH A BROKER-DEALER
You can open an account and buy shares through a
broker-dealer, who may charge a fee for this service.
/ / BY MAIL
Complete the Account Application and mail it with your check
payable to NFDS, Agent, to Value Line Funds, c/o National
Financial Data Services, Inc., P.O. Box 419729, Kansas City,
MO 64141-6729. If you are making an initial purchase by mail,
you must include a completed Account Application or an
appropriate retirement plan application if you are opening a
retirement account, with your check.
/ / MINIMUM/ADDITIONAL INVESTMENTS
Once you have completed an application, you can open an
account with an initial investment of $1,000, and make
additional investments at any time for as little as $100.
/ / TIME OF PURCHASE
Your price for Fund shares is the Fund's net asset value per
share (NAV), which is generally calculated as of the close of
trading on the New York Stock Exchange (currently 4:00 p.m.,
Eastern time) every day the Exchange is open for business.
The 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 and on the preceding Friday or subsequent
Monday if any of those days falls on a Saturday or Sunday,
respectively. Your order will be priced at the next NAV
calculated after your order is accepted by the Fund. The net
asset value will normally remain fixed at $1.00 per share.
Newly-purchased shares will begin to accrue dividends on the
business day after the Fund receives Federal Funds from your
purchase payment. A payment by check is normally
8
<PAGE>
converted to Federal Funds within one business day following
receipt by the Fund. A business day is any day that the New
York Stock Exchange is open for business. We reserve the
right to reject any purchase order and to waive the initial
and subsequent investment minimums at any time.
Fund shares may be purchased through various third-party
intermediaries including banks, brokers, financial advisers
and financial supermarkets. When authorized by the Fund,
orders will be priced at the NAV next computed after receipt
by the intermediary.
/ / NET ASSET VALUE
We calculate NAV by adding the market value of all the
securities and assets in the Fund's portfolio, deducting all
liabilities, and dividing the resulting number by the number
of shares outstanding. The result is the net asset value per
share. The securities held by the Fund are valued on the
basis of amortized cost which does not take into account
unrealized capital gains or losses. This involves valuing an
instrument at cost and thereafter assuming a constant
amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the
market value of the instrument. It is the policy of the Fund
to attempt to maintain a net asset value of $1.00 per share.
9
<PAGE>
HOW TO SELL SHARES
/ / BY MAIL
You can redeem your shares (sell them back to the Fund) by
mail by writing to: Value Line Funds, c/o National Financial
Data Services, Inc., P.O. Box 419729, Kansas City, MO
64141-6729. The request must be signed by all owners of the
account, and you must include a signature guarantee for each
owner. Signature guarantees are also required when redemption
proceeds are going to anyone other than the account holder(s)
of record. If you hold your shares in certificates, you must
submit the certificates properly endorsed with signature
guaranteed with your request to sell the shares. A signature
guarantee can be obtained from most banks or securities
dealers, but not from a notary public.
A signature guarantee helps protect against fraud.
/ / BY TELEPHONE OR WIRE
You can sell $1,000 or more of your shares by telephone or
wire, with the proceeds sent to your bank the next business
day after we receive your request.
/ / BY CHECK
You can sell $500 or more of your shares by writing a check
payable to the order of any person.
/ / THROUGH A BROKER-DEALER
You may sell your shares through a broker-dealer, who may
charge a fee for this service.
The Fund has authorized certain brokers to accept purchase
and redemption orders on behalf of the Fund. The Fund has
also authorized these brokers to designate others to accept
purchase and redemption orders on behalf of the Fund.
We treat any order to buy or sell shares that you place with
one of these brokers, or anyone they have designated, as if
you had placed it directly with the Fund. The shares that you
buy or sell through brokers or anyone they have designated
are priced at the next net asset value that is computed after
they receive your order.
10
<PAGE>
/ / BY EXCHANGE
You can exchange all or part of your investment in the Fund
for shares in other Value Line funds. You may have to pay
taxes on your exchange. When you exchange shares, you are
purchasing shares in another fund so you should be sure to
get a copy of that fund's prospectus and read it carefully
before buying shares through an exchange. To execute an
exchange, call 800-243-2729.
When you send us a properly completed request to sell or
exchange shares, you will receive the net asset value that is
next determined after we receive your request. For each
account involved you should provide the account name, number,
name of Fund and exchange or redemption amount. You may have
to pay taxes on the gain from your sale of shares. We will
pay you promptly, normally the next business day, but no
later than seven days after we receive your request to sell
your shares. If you purchased your shares by check, we will
wait until your check has cleared, which can take up to 15
days from the day of purchase, before we send the proceeds to
you.
ACCOUNT MINIMUM
If as a result of redemptions your account balance falls
below $500, the Fund may ask you to increase your balance
within 30 days. If your account is not at the minimum by the
required time, the Fund may redeem your account, after first
notifying you in writing.
11
<PAGE>
SPECIAL SERVICES
To help make investing with us as easy as possible, and to
help you build your investments, we offer the following
special services. You can get further information about these
programs by calling Shareholder Services at 800-223-0818.
/ / Valu-Matic-Registered Trademark- allows you to make
regular monthly investments of $25 or more automatically
from your checking account.
/ / Through our Systematic Cash Withdrawal Plan you can
arrange a regular monthly or quarterly payment from your
account payable to you or someone you designate. If your
account is $5,000 or more, you can have monthly or
quarterly withdrawals of $25 or more.
/ / You may buy shares in the Fund for your individual or
group retirement plan, including your Regular or Roth
IRA. You may establish your IRA account even if you
already are a member of an employer-sponsored retirement
plan. Not all contributions to an IRA account are tax
deductible; consult your tax advisor about the tax
consequences of your contribution.
12
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund earns interest daily on its investments and
distributes the income daily. Any capital gains that it has
realized are distributed annually. We automatically reinvest
all dividends and any capital gains, unless you instruct us
otherwise in your application to purchase shares.
Tax laws are subject to change, so we urge you to consult
your tax adviser about your particular tax situation and how
it might be affected by current tax law. The tax status of
your dividends from the Fund is not affected by whether you
reinvest your dividends or receive them in cash. Dividends
paid by the Fund from short-term capital gains and net
investment income are generally taxable as ordinary income.
Because the Fund is not expected to have long term capital
gains, we do not expect any of the Fund's distributions or
dividends to be taxable as long-term capital gains. You may
be subject to state and local taxes on distributions.
We will send you a statement by January 31 each year
detailing the amount and nature of all dividends and capital
gains that you were paid during the prior year.
13
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you
understand the Fund's financial performance for the past five
years. Certain information reflects financial results for a
single Fund share. The total returns in the table represent
the rate that an investor would have earned or lost on an
investment in the Fund assuming reinvestment of all dividends
and distributions. This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with the
Fund's financial statements, is included in the Fund's annual
report, which is available upon request by calling
800-223-0818.
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $1.000 $1.000 $1.000 $1.000 $1.000
- ------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .051 .051 .050 .054 .037
Net realized loss on securities -- -- -- -- (.005)
Voluntary capital contribution
from Adviser -- -- -- -- .005
- ------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net
investment income (.051) (.051) (.050) (.054) (.037)
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $1.000 $1.000 $1.000 $1.000 $1.000
- ------------------------------------------------------------------------------------------------------------
TOTAL RETURN 5.06% 5.10% 5.00% 5.40% 3.69%(1)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(in thousands) $317,311 $303,094 $361,797 $359,343 $ 341,632
Ratio of expenses to average
net assets %.57 %.59 %.55 .57% .61%
Ratio of net income to average
net assets 4.93% 4.97% 4.86% 5.27% 3.63%
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The total return for 1994 reflects the effect of a
voluntary capital contribution from the Adviser. Without
such contribution the total return would have been 3.18%.
- --------------------------------------------------------------------------------
14
<PAGE>
FOR MORE INFORMATION
Additional information about the Fund's investments is
available in the Fund's annual and semi-annual reports to
shareholders. You can find more detailed information about
the Fund in the current Statement of Additional Information
dated May 3, 1999, which we have filed electronically with
the Securities and Exchange Commission (SEC) and which is
legally a part of this prospectus. If you want a free copy of
the Statement of Additional Information, the annual or
semi-annual report, or if you have any questions about
investing in this Fund, you can write to us at 220 East 42nd
Street, New York, NY 10017-5891 or call toll-free
800-223-0818. You may also obtain the prospectus at no cost
from our Internet site at http://www.valueline.com.
You can find reports and other information about the Fund on
the SEC Web site (http://www.sec.gov), or you can get copies
of this information, after payment of a duplicating fee, by
writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-6009. Information about the Fund,
including its Statement of Additional Information, can be
reviewed and copied at the Securities and Exchange
Commission's Public Reference Room in Washington, D.C. You
can get information on operation of the public reference room
by calling the SEC at 1-800-SEC-0330.
<TABLE>
<S> <C>
INVESTMENT ADVISER SERVICE AGENT
Value Line, Inc. State Street Bank and Trust Company
220 East 42nd Street c/o NFDS
New York, NY 10017-5891 P.O. Box 419729
Kansas City, MO 64141-6729
CUSTODIAN DISTRIBUTOR
State Street Bank and Trust Company Value Line Securities, Inc.
225 Franklin Street 220 East 42nd Street
Boston, MA 02110 New York, NY 10017-5891
</TABLE>
<TABLE>
<S> <C>
Value Line Securities, Inc.
220 East 42nd Street, New York, NY 10017-5891 File no. 811-2898
</TABLE>
<PAGE>
THE VALUE LINE CASH 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
MAY 3, 1999
- -------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus of The Value Line Cash Fund, Inc. dated
May 3, 1999, a copy of which may be obtained without charge by writing or
telephoning the Fund. The financial statements, accompanying notes and report of
independent auditors appearing in the Fund's 1998 Annual Report to Shareholders
are incorporated by reference in this Statement. A copy of the Annual Report is
available from the Fund upon request and without charge by calling 800-223-0818.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Description of the Fund and Its Investments and Risks............................... B-2
Management of the Fund.............................................................. B-5
Investment Advisory and Other Services.............................................. B-7
Brokerage Arrangements.............................................................. B-8
Capital Stock....................................................................... B-9
Purchase, Redemption and Pricing of Shares.......................................... B-9
Taxes............................................................................... B-10
Determination of Yield.............................................................. B-11
Financial Statements................................................................ B-11
Appendix............................................................................ B-12
</TABLE>
B-1
<PAGE>
DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
HISTORY AND CLASSIFICATION. The Fund is an open-end, diversified management
investment company incorporated in Maryland in 1979. The Fund's investment
adviser is Value Line, Inc. (the "Adviser").
INVESTMENT STRATEGIES AND RISKS. The Fund's investment objective is to seek
as high a level of current income as is consistent with preservation of capital
and liquidity. There can be no assurance that the Fund will achieve its
investment objective. The Fund's investment objective cannot be changed without
shareholder approval.
The Fund invests only in short-term instruments (maturing or deemed by the
Securities and Exchange Commission to mature in 397 days or less) and primarily
invests in:
(1)U.S. government obligations such as U.S. Treasury bills, notes or bonds,
and obligations of agencies or instrumentalities of the U.S. government
such as the Federal Home Loan Banks, the Federal Land Banks, or the
Federal National Mortgage Association.
(2)Obligations (including certificates of deposit and bankers acceptances)
of: (a) banks or savings and loan associations subject to regulation by
the U.S. government (including foreign branches of such banks), generally
limited to institutions with a net worth of at least $100 million and to
banks where the bank or its holding company carries a Value Line
financial strength rating of at least "A" (the third highest of nine
rating groups) or (b) U.S. branches of foreign banks, limited to
institutions having total assets of not less than $1 billion or its
equivalent.
(3)Instruments fully secured or collateralized by the type of obligation
described in the preceding paragraphs.
(4)Commercial paper issued by corporations maturing within 397 days from the
day of purchase and rated Prime-2 or better by Moody's Investors Service,
Inc. ("Moody's") or A-2 or better by Standard & Poor's Corporation
("Standard & Poor's"), or issued by corporations having unsecured debt
outstanding which is rated at least Aa by Moody's or AA by Standard &
Poor's.
(5)Asset backed securities in which an underlying pool of assets such as
credit card or automobile trade receivables or corporate loans or bonds
backs these bonds and provides the interest and principal payments to
investors.
(6)Other debt instruments issued by corporations maturing within 397 days
from the day of purchase and rated at least Aa by Moody's or AA by
Standard & Poor's.
See the Appendix for an explanation of the Value Line, Moody's and Standard
& Poor's ratings.
The Fund may also purchase variable or floating rate instruments with
periodic demand features referred to as "liquidity puts."
The Fund will limit its portfolio investments to U.S. dollar denominated
instruments that its Board of Directors determines present minimal credit risks
and which are "Eligible Securities" at the time of acquisition. The term
Eligible Securities includes securities rated by the Requisite NRSROs in one of
the two highest short-term rating categories (highest rating is "First Tier
Securities") or securities of
B-2
<PAGE>
issuers that have received such rating with respect to other short-term debt
securities and comparable unrated securities. "Requisite NRSROs" means (a) any
two nationally recognized statistical rating organizations ("NRSROs") that have
issued a rating with respect to a security or class of debt obligations of an
issuer, or (b) one NRSRO, if only one NRSRO has issued a rating with respect to
such security or issuer at the time the Fund purchases the security.
The Fund may not invest more than 5% of its total assets in the securities
of any one issuer, except for obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. In addition, the Fund may not
invest more than 5% of its total assets in Eligible Securities that have not
received the highest rating from the Requisite NRSROs and unrated securities of
comparable quality ("Second Tier Securities"). Futhermore, the Fund may not
invest more than the greater of 1% of its total assets or $1 million in the
Second Tier Securities of any one issuer.
Investments in obligations of a foreign branch of a U.S. bank and in U.S.
branches of a foreign bank may subject the Fund to additional investment risks.
These risks may include international and political developments, foreign
government restrictions, foreign withholding taxes or possible seizure or
nationalization of foreign deposits. In addition, foreign branches of domestic
banks and foreign banks are not necessarily subject to the same regulatory
requirements that apply to domestic banks, such as reserve requirements, loan
limitations, examinations, accounting and record keeping.
The Adviser uses its best judgment in selecting investments, taking into
consideration rates, terms and marketability of obligations as well as the
capitalization, earnings, liquidity and other indicators of the financial
condition of their issuers in arriving at investment decisions. Due to
fluctuations in the interest rates, the market value of the securities in the
portfolio may vary during the period of the shareholder's investment in the
Fund. To minimize the effect of changing interest rates on the net asset value
of its shares, the Fund intends to keep the average maturity of its holdings to
90 days or less.
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 Fund has a fundamental
policy that it will not enter into repurchase agreements which will not mature
within seven days if any such investment, together with all other assets held by
the Fund which are not readily marketable, amounts to more than 10% of its total
assets. The Board of Directors monitors the creditworthiness of parties with
which the Fund enters into repurchase agreements.
B-3
<PAGE>
YEAR 2000. Like other mutual funds, the Fund could be adversely affected if
the computer systems used by the Adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Adviser
is taking steps that it believes are reasonably designed to address the Year
2000 Problem with respect to the computer systems that it uses and to obtain
satisfactory assurances that comparable steps are being taken by the Fund's
other major service providers. At this time, however, there can be no assurance
that these steps will be sufficient to avoid any adverse impact to the Fund.
The Year 2000 Problem is expected to impact U.S. Government agencies and
instrumentalities and corporations, which may include issuers of portfolio
securities held by the Fund, to varying degrees based upon various factors,
including, but not limited to, the corporation's industry sector and degree of
technological sophistication. The Fund is unable to predict what impact, if any,
the Year 2000 Problem will have on issuers of the portfolio securities held by
the Fund.
FUND POLICIES.
(i)
The Fund may not issue senior securities except evidences of
indebtedness permitted under clause (ii) below.
(ii)
The Fund may not borrow money in excess of 10% of the value of its
assets and then only as a temporary measure to meet unusually heavy
redemption requests or for other extraordinary or emergency purposes or
mortgage, pledge or hypothecate any assets except as may be necessary in
connection with such borrowings. Securities will not be purchased while
borrowings are outstanding.
(iii)
The Fund may not engage in the underwriting of securities of other
issuers.
(iv)
The Fund may not invest 25% or more of its assets in securities of
issuers in any one industry.
(v)
The Fund may not purchase securities of other investment companies
or invest in real estate, mortgages or illiquid securities of real
estate investment trusts although the Fund may purchase securities of
issuers which engage in real estate operations.
(vi)
The Fund may not lend money except in connection with the purchase
of debt obligations or by investment in repurchase agreements,
provided that repurchase agreements maturing in more than seven days when
taken together with other illiquid investments do not exceed 10% of the
Fund's assets.
(vii)
The Fund may not engage in arbitrage transactions, short sales,
purchases on margin or participate on a joint or joint and several
basis in any trading account in securities.
(viii)
The Fund may not purchase oil, gas, or other mineral exploration or
development programs.
(ix)
The Fund may not purchase more than 10% of the outstanding debt
securities of any one issuer. This restriction does not apply to
obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
(x)
The Fund may not invest more than 5% of its total assets in
securities of issuers having a record, together with their
predecessors, of less than three years of continuous operation. This
restriction does not apply to any obligation issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
B-4
<PAGE>
(xi)
The Fund may not purchase securities for the purpose of exercising
control over another company.
(xii)
The Fund may not invest in commodities or commodity contracts.
(xiii)
The Fund may not purchase the securities of any issuer if, to the
knowledge of the Fund, those officers and directors of the Fund and
of the Adviser, who each owns more than 0.5% of the outstanding securities
of such issuer, together own more than 5% of such securities.
(xiv)
The primary investment objective of the Fund is to accrue as high a
level of current income as is consistent with liquidity and
preservation of capital.
The policies set forth above may not be changed without the affirmative vote
of the majority of the outstanding voting securities of the Fund which means the
lesser of (1) the holders of more than 50% of the outstanding shares of capital
stock of the Fund or (2) 67% of the shares present if more than 50% of the
shares are present at a meeting in person or by proxy.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed by the Fund's officers
under the direction of the Board of Directors. Set forth below is certain
information regarding the Directors and Officers of the Fund.
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
Age 64 of Directors and Officer of the Adviser and Value Line Pub-
President lishing, Inc. Chairman and President of the
Value Line Funds and Value Line Securities,
Inc. (the "Distributor"); Chairman and
President of each of the 15 Value Line Funds.
John W. Chandler Director Consultant, Academic Search Consultation
2801 New Mexico Ave., N.W. Service, Inc. Trustee Emeritus and Chairman
Washington, DC 20007 (1993-1994) of Duke University; President
Age 75 Emeritus, Williams College.
*Leo R. Futia Director Retired Chairman and Chief Executive Officer
201 Park Avenue South of The Guardian Life Insurance Company of
New York, NY 10003 America and Director since 1970. Director
Age 79 (Trustee) of The Guardian Insurance & Annuity
Company, Inc., Guardian Investor Services
Corporation and the Guardian-sponsored mutual
funds.
David H. Porter Director President Emeritus, Skidmore College since
5 Birch Run Drive January 1, 1999; President, Skidmore College,
Saratoga Springs, NY 12866 1987-1998; Director of Adirondack Trust
Age 63 Company.
</TABLE>
B-5
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH FUND PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ---------------------------------- --------------------- ---------------------------------------------
<S> <C> <C>
Paul Craig Roberts Director Chairman, Institute for Political Economy;
505 S. Fairfax Street Director, A. Schulman Inc. (plastics).
Alexandria, VA 22320
Age 60
Nancy-Beth Sheerr Director Chairman, Radcliffe College Board of
1409 Beaumont Drive Trustees.
Gladwyne, PA 19035
Age 49
Nathan N. J. Grant Vice President Portfolio Manager with the Adviser since
Age 29 1996; Trader, Fixed Income Securities,
Blaylock & Partner, 1994-1996.
Christopher Coyle Vice President Portfolio Manager with the Adviser since
Age 28 1998; Securities Analyst with the Adviser
1996-1998; Credit Analyst, Bank One Corp.
David T. Henigson Vice President, Director, Vice President and Compliance
Age 41 Secretary and Officer of the Adviser. Director and Vice
Treasurer President of the Distributor. Vice Presi-
dent, Secretary and Treasurer of each of the
15 Value Line Funds.
</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 of the Fund are also directors/trustees of 11 other Value Line
Funds.
The following table sets forth information regarding compensation of
Directors by the Fund and by the Fund and the eleven other Value Line Funds of
which each of the Directors is a director or trustee for the fiscal year ended
December 31, 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 DECEMBER 31, 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 PERSONS FROM FUND OF FUND EXPENSES RETIREMENT (12 FUNDS)
- ------------------------------------------- --------------- ------------------ ----------- --------------
<S> <C> <C> <C> <C>
Jean B. Buttner $ -0- N/A N/A $ -0-
John W. Chandler 2,968 N/A N/A 35,620
Leo R. Futia 2,718 N/A N/A 32,620
David H. Porter 2,968 N/A N/A 35,620
Paul Craig Roberts 2,718 N/A N/A 32,620
Nancy-Beth Sheer 2,968 N/A N/A 35,620
</TABLE>
B-6
<PAGE>
As of February 5, 1999, no person owned of record or, to the knowledge of
the Fund, owned beneficially, 5% or more of the outstanding stock of the Fund
other than the Adviser and its affiliates, which owned an aggregate of
35,205,851 shares of record or approximately 10.3% and The Guardian Insurance &
Annuity Company, Inc., 3900 Burgess Place, Bethlehem, PA 18017, which owned
19,769,892 shares (approximately 5.8%). In addition, officers and directors of
the Fund as a group owned an aggregate of 7,876,250 or approximately 2.3% and
First Union National Bank as Trustee of the Value Line, Inc. Profit Sharing and
Savings Plan owned 9,263,000 shares or approximately 2.7%.
INVESTMENT ADVISORY AND OTHER SERVICES
The Fund's investment adviser is Value Line, Inc. (the "Adviser"). Arnold
Bernhard & Co., Inc., 220 East 42nd Street, New York, NY 10017, a holding
company, owns approximately 81% of the outstanding shares of the Adviser's
common stock. Jean Bernhard Buttner, Chairman, President and Chief Executive
Officer of the Adviser and Chairman and President of the Fund, owns all of the
voting stock of Arnold Bernhard & Co., Inc.
The investment advisory agreement between the Fund and the Adviser, dated
August 10, 1988, provides for an advisory fee payable monthly at an annual rate
of 0.40% of the Fund's average daily net assets during the year. During 1996,
1997 and 1998, the Fund paid or accrued to the Adviser advisory fees of
$1,476,000, $1,298,567 and $1,284,721, respectively.
The investment advisory agreement provides that the Adviser shall render
investment advisory and other services to the Fund including, at its expense,
all administrative services, office space and the services of all officers and
employees of the Fund. The Fund pays all other expenses not assumed by the
Adviser including taxes, interest, brokerage commissions, insurance premiums,
fees and expenses of the custodian and shareholder servicing agents, legal and
accounting fees, fees and expenses in connection with qualification under
federal and state securities laws and costs of shareholder reports and proxy
materials. The Fund has agreed that it will use the words "Value Line" in its
name only so long as Value Line, Inc. serves as investment adviser to the Fund.
The agreement will terminate upon its assignment.
The Adviser acts as investment adviser to 14 other investment companies
constituting The Value Line Family of Funds and furnishes investment counseling
services to private and institutional accounts resulting in combined assets
under management 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 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
B-7
<PAGE>
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.
The Fund has entered into a distribution agreement with Value Line
Securities, Inc. (the "Distributor") whose address is 220 East 42nd Street, New
York, NY 10017, pursuant to which the Distributor acts as principal underwriter
and distributor of the Fund for the sale and distribution of its shares. The
Distributor is a wholly-owned subsidiary of the Adviser. For its services under
the agreement, the Distributor is not entitled to receive any compensation. The
Distributor also serves as distributor to the other Value Line funds. Jean
Bernhard Buttner is Chairman and President of the Distributor.
The Adviser has retained State Street Bank and Trust Company ("State
Street") to provide certain bookkeeping and accounting services for the Fund.
The Adviser pays State Street $32,400 per annum for each Value Line fund for
which State Street provides these services. State Street, whose address is 225
Franklin Street, Boston, MA 02110, also acts as the Fund's custodian, transfer
agent and dividend-paying agent. As custodian, State Street is responsible for
safeguarding the Fund's cash and securities, handling the receipt and delivery
of securities and collecting interest and dividends on the Fund's investments.
As transfer agent and dividend-paying agent, State Street effects transfers of
Fund shares by the registered owners and transmits payments for dividends and
distributions declared by the Fund. National Financial Data Services, Inc., a
State Street affiliate, whose address is 330 W. 9(th) Street, Kansas City, MO
64105, provides certain transfer agency functions to the Fund as an agent for
State Street. PricewaterhouseCoopers LLP, whose address is 1177 Avenue of the
Americas, New York, NY 10036, acts as the Fund's independent accountants and
also performs certain tax preparation services.
BROKERAGE ARRANGEMENTS
Since it is expected that most purchases made by the Fund will be principal
transactions at net prices, the Fund will incur little or no brokerage costs.
Purchases of portfolio securities from underwriters will include a commission or
concession paid by the issuer to the underwriter and purchases from dealers will
include the spread between the bid and asked prices. The Fund's policy is to
seek prompt execution at the most favorable prices. Transactions may be directed
to dealers in return for special research and statistical information, as well
as for services rendered by such dealers in the execution of orders. It is not
possible to place a dollar value on the special executions or on the research
services received by the Adviser from dealers effecting portfolio transactions.
While any such research services may allow the Adviser to supplement its own
research staffs of other securities firms, the Adviser has advised the Fund
that, in its opinion, the receipt of such research services from others will not
reduce its over-all expenses.
Since securities with maturities of less than one year are excluded from
required portfolio turnover rate calculations, the Fund's portfolio turnover
rate for reporting purposes will be zero.
B-8
<PAGE>
CAPITAL STOCK
Each share of the Fund's common stock, $.10 par value, has one vote with
fractional shares voting proportionately. Shares have no preemptive rights, are
freely transferable, are entitled to dividends as declared by the Directors and,
if the Fund were liquidated, would receive the net assets of the Fund.
PURCHASE, REDEMPTION AND PRICING OF SHARES
PURCHASES: Shares of the Fund are purchased at net asset value next calculated
after receipt of a purchase order. Minimum orders are $1,000 for an initial
purchase and $100 for each subsequent purchase. The Fund reserves the right to
reduce or waive the minimum purchase requirements in certain cases such as
pursuant to payroll deduction plans, etc., where subsequent and continuing
purchases are contemplated.
AUTOMATIC PURCHASES: The Fund offers a free service to its shareholders,
Valu-Matic, through which monthly investments of $25 or more may be made
automatically into the shareholder's Fund account. The required form to enroll
in this program is available upon request from the Distributor.
RETIREMENT PLANS: Shares of the Fund may be purchased as the investment medium
for various tax-sheltered retirement plans. Upon request, the Distributor will
provide information regarding eligibility and permissible contributions. Because
a retirement plan is designed to provide benefits in future years, it is
important that the investment objectives of the Fund be consistent with the
participant's retirement objectives. Premature withdrawals from a retirement
plan may result in adverse tax consequences. For more complete information,
contact Shareholder Services at 1-800-223-0818.
REDEMPTION: The right of redemption may be suspended, or the date of payment
postponed beyond the normal seven-day period, by the Fund under the following
conditions authorized by the 1940 Act: (1) For any period (a) during which the
New York Stock Exchange is closed, other than customary weekend and holiday
closing, or (b) during which trading on the New York Stock Exchange is
restricted; (2) For any period during which an emergency exists as a result of
which (a) disposal by the Fund of securities owned by it is not reasonably
practical, or (b) it is not reasonably practical for the Fund to determine the
fair value of its net assets; (3) For such other periods as the Securities and
Exchange Commission may by order permit for the protection of the Fund's
shareholders.
CALCULATION OF NET ASSET VALUE: The net asset value of the Fund's shares for
purposes of both purchases and redemptions is determined once daily as of the
close of regular trading on the New York Stock Exchange (generally 4:00 p.m.,
New York time) on each day that the New York Stock Exchange is open for trading
except on days on which no orders to purchase, sell or redeem Fund shares have
been received. The New York Stock Exchange is currently closed on New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day and on the
preceding Friday or subsequent Monday if one of those days falls on a Saturday
or Sunday, respectively. The net asset value per share is determined by dividing
the total value of the investments and other assets of the Fund, less any
liabilities, by the total outstanding shares and adjusting the result to the
nearest full cent per share. The securities held by the Fund are valued on the
basis of amortized cost which does not take into account unrealized capital
gains or losses. This involves valuing an instrument at cost and thereafter
B-9
<PAGE>
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. While this method provides certainty in valuation, it may result
in periods during which value, as determined by amortized cost, is higher or
lower than the price the Fund would receive if it sold the instrument. Thus, if
the use of amortized cost by the Fund resulted in a lower aggregate portfolio
value on a particular day, a prospective investor in the Fund would be able to
obtain a somewhat higher yield than would result from investment in a fund
utilizing solely market values, and existing investors in the Fund would receive
less investment income. The converse would apply in a period of rising interest
rates.
TAXES
The Fund intends to continue to qualify as a regulated investment company
under the Internal Revenue Code of 1986, as amended (the "Code"). The Fund so
qualified during the Fund's last fiscal year. By so qualifying, the Fund is not
subject to Federal income tax on its net investment income or net realized
capital gains which are distributed to shareholders (whether or not reinvested
in additional Fund shares).
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.
All distributions, whether received in shares or cash, must be reported by
each shareholder on his Federal income tax return. Furthermore, under the Code,
dividends declared by the Fund in October, November or December of any calendar
year, and payable to shareholders of record in such a month, shall be deemed to
have been received by the shareholder on December 31 of such calendar year if
such dividend is actually paid in January of the following calendar year.
For shareholders who fail to furnish to the Fund their social security or
taxpayer identification numbers and certain related information or who fail to
certify that they are not subject to back-up withholding, dividends,
distributions of capital gains and redemption proceeds paid by the Fund will be
subject to a 31% Federal income tax withholding requirement. If the withholding
provisions are applicable, any such dividends or capital-gains distributions to
these shareholders, whether taken in cash or reinvested in additional shares,
and any redemption proceeds will be reduced by the amounts required to be
withheld.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to 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 taxes to an investment in the Fund.
B-10
<PAGE>
DETERMINATION OF YIELD
The Fund will make available on each business day a "yield quotation", which
is a computation of the yield on its portfolio. The yield is calculated by
determining the net change in the value of a hypothetical preexisting account in
the Fund having a balance of one share at the beginning of a seven calendar day
period for which yield is to be quoted, dividing the net change by the value of
the account at the beginning of the period to obtain the base period return, and
annualizing the results (i.e., multiplying the base period return by 365/7). The
net change in the value of the account reflects the value of additional shares
purchased with dividends declared on the original share and any such additional
shares, but does not include realized gains and losses or unrealized
appreciation and depreciation. The Fund may also calculate an effective
annualized yield quotation computed on a compound basis by adding 1 to the base
period return (calculated as described above), raising that sum to a power equal
to 365 divided by 7, and subtracting 1.
Current yield will fluctuate from time to time and is not necessarily
representative of future results. Current yield information may be useful in
reviewing the Fund's performance, but because current yield will fluctuate such
information may not provide a basis for comparison with bank deposits, or other
investments which pay a fixed yield for a stated period of time. The kind and
quality of the instruments in the Fund's portfolio, its portfolio maturity, and
its operating expenses affect the current yield of the Fund. An investor's
principal is not guaranteed by the Fund.
Investors should recognize that in periods of declining interest rates the
Fund's yield will tend to be somewhat higher than prevailing market rates, and
in periods of rising interest rates the Fund's yield will tend to be somewhat
lower. Also, when interest rates are falling, the inflow of net new money to the
Fund from the continuous sale of its shares will likely be invested in portfolio
instruments producing lower yields than the balance of the Fund's portfolio,
thereby reducing the current yield of the Fund. In periods of rising interest
rates, the opposite can be expected to occur.
On occasion, the Fund may compare its yield to relevant indices, including
U.S., domestic and international taxable bond indices and data from Lipper
Analytical Services, Inc. or Standard & Poor's indices. From time to time,
evaluations of the Fund's performance by independent sources may also be used in
advertisements and in information furnished to present or prospective investors.
As with yield quotations, yield comparisons should not be considered as
representative of the Fund's yields for any future period. For the seven-day
period ended December 31, 1998, the yield for the Fund was 4.84%.
FINANCIAL STATEMENTS
The Fund's financial statements for the year ended December 31, 1998,
including the financial highlights for each of the five fiscal years in the
period ended December 31, 1998, appearing in the 1998 Annual Report to
Shareholders and the report thereon of PricewaterhouseCoopers LLP, independent
accountants, appearing therein, are incorporated by reference in this Statement
of Additional Information.
B-11
<PAGE>
APPENDIX
DESCRIPTION OF SHORT-TERM INSTRUMENTS
The types of instruments that form the major part of the Fund's investments
are described below:
U.S. GOVERNMENT AGENCY SECURITIES: Federal agency securities are debt
obligations which principally result from lending programs of the U.S.
government. Housing and agriculture have traditionally been the principal
beneficiaries of federal programs, and agencies involved in providing credit to
agriculture and housing account for the bulk of the outstanding debt securities.
U.S. TREASURY BILLS: U.S. Treasury bills are issued with maturities of any
period up to one year. Three-month bills are currently offered by the Treasury
on a 13-week cycle and are auctioned each week by the Treasury. Bills are sold
on a discount basis; the difference between the purchase price and the maturity
value (or the resale price if they are sold before maturity) constitutes the
interest income for the investor.
CERTIFICATES OF DEPOSIT: A certificate of deposit is a negotiable receipt
issued by a bank or savings and loan association in exchange for the deposit of
funds. The issuer agrees to pay the amount deposited plus interest to the bearer
of the receipt on the date specified on the certificate.
COMMERCIAL PAPER: Commercial paper is generally defined as unsecured
short-term notes issued in bearer form by large well known corporations and
finance companies. Maturities on commercial paper range from a few days to nine
months. Commercial paper is also sold on a discount basis.
BANKERS' ACCEPTANCES: A bankers' acceptance generally arises from a
short-term credit arrangement designed to enable businesses to obtain funds to
finance commercial transactions. Generally, an acceptance is a time draft drawn
on a bank by an exporter or an importer to obtain a stated amount of funds to
pay for specific merchandise. The draft is then "accepted" by a bank that, in
effect, unconditionally guarantees to pay the face value of the instrument on
its maturity date.
DESCRIPTION OF COMMERCIAL PAPER RATINGS
A Prime rating is the highest commercial paper rating assigned by Moody's
Investors Service, Inc. ("Moody's"). Issuers rated Prime are further referred by
use of numbers 1, 2, and 3 to denote relative strength within this highest
classification. Among the factors considered by Moody's in assigning ratings are
the following: (1) evaluation of the management of the issuers; (2) economic
evaluation of the issuer's industry or industries and an appraisal of
speculative type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer, and (8) recognition by management of
obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations.
Commercial paper rated A by Standard & Poor's corporation ("S&P") has the
following characteristics as determined by S&P: Liquidity ratios are better than
the industry average. Long-term senior debt rating is A or better. In some cases
BBB credits may be acceptable. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow have an upward trend with
allowances made for unusual circumstances. Typically, the issuer's industry is
B-12
<PAGE>
well established, the issuer has a strong position within its industry and the
reliability and quality of management is unquestioned. Issuers rated A are
further referred by use of numbers 1+, 1, 2 and 3 to denote relative strength
within the highest classification.
DESCRIPTION OF CORPORATE BOND RATINGS
Bonds rated Aa by Moody's are judged by Moody's to be of high quality by all
standards. Together with bonds rated Aaa (Moody's highest rating) they comprise
what are generally known as high-grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risks appear somewhat larger
than in Aaa securities.
Bonds rated AA by S&P are judged by S&P to be high-grade obligations, and,
in the majority of instances, to differ only in small degree from issues rated
AAA. Bonds rated AAA are considered by S&P to be highest grade obligations and
possess the ultimate degree of protection as to principal and interest. Here, as
with AAA bonds, prices move with the long-term money market.
DESCRIPTION OF VALUE LINE FINANCIAL STRENGTH RATINGS
A Value Line Financial Strength rating of A++, A+ or A indicates that the
company is within the financially strongest one-third among approximately 1,700
companies followed by The Value Line Investment Survey. The ratings are based
upon computer analysis of a number of key variables that determine (a) financial
leverage, (b) business risk and (c) company size plus the judgment of senior
analysts regarding factors that cannot be quantified across-the-board for all
stock. The primary variables that are indexed and studied include equity
coverage of debt, equity coverage of intangibles, "quick ratio", accounting
methods, variability of return, quality of fixed charge coverage, stock price
stability, and company size.
B-13
