<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 1999
FILE NO. 2-87913
FILE NO. 811-3904
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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. 16 /X/
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 16 /X/
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THE VALUE LINE TAX EXEMPT FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
220 East 42nd Street
New York, New York 10017-5891
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's Telephone number, including Area Code: (212) 907-1500
David T. Henigson
Value Line, Inc.
220 East 42nd Street
New York, New York 10017-5891
(NAME AND ADDRESS OF AGENT FOR SERVICE)
Copy to:
Peter D. Lowenstein
Two Greenwich Plaza, Suite 100
Greenwich, CT 06830
It is proposed that this filing will become effective (check
appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/X/ on July 1, 1999 pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485
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<PAGE>
THE VALUE LINE TAX EXEMPT FUND, INC.
THE MONEY MARKET PORTFOLIO
THE HIGH-YIELD PORTFOLIO
--------------------------------
PROSPECTUS
July 1, 1999
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[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
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FUND SUMMARY
What are the Fund's goals? PAGE 2
What are the main investment strategies of the
Portfolios? PAGE 2
What are the main risks of investing in the Fund?
PAGE 2
How have the Portfolios performed? PAGE 3
What are the Fund's fees and expenses? PAGE 5
HOW WE MANAGE THE FUND
Our principal investment strategies PAGE 6
The type of securities in which we invest PAGE 6
The principal risks of investing in the Fund PAGE 7
WHO MANAGES THE FUND
Investment Adviser PAGE 9
Management fees PAGE 9
Portfolio management PAGE 9
ABOUT YOUR ACCOUNT
How to buy shares PAGE 10
How to sell shares PAGE 12
Special services PAGE 13
Dividends, distributions and taxes PAGE 14
FINANCIAL HIGHLIGHTS
Financial Highlights PAGE 15
<PAGE>
FUND SUMMARY
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WHAT ARE THE FUND'S GOALS?
The Fund's primary investment objective is to provide
investors with the maximum income exempt from federal income
taxes while avoiding undue risk to principal. The Fund
presently offers investors a choice of two portfolios: the
Money Market Portfolio and the High-Yield Portfolio. Capital
appreciation is a secondary objective of the High-Yield
Portfolio. Although the Fund will strive to achieve its
goals, there is no assurance that it will.
WHAT ARE THE MAIN INVESTMENT STRATEGIES OF THE PORTFOLIOS?
The Money Market Portfolio invests primarily in investment
grade municipal notes and intends to keep the average
maturity of its holdings to 90 days or less. The Money Market
Portfolio does not invest for the purpose of seeking capital
appreciation or gains. The High-Yield Portfolio invests
primarily in investment grade municipal bonds and presently
expects to maintain an average maturity of between 10 and 30
years.
WHAT ARE THE MAIN 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.
Investing in any mutual fund involves risk, including the
risk that you may receive little or no return on your
investment, and the risk that you may lose part or all of the
money you invest. The price of shares of the High-Yield
Portfolio will increase and decrease according to changes in
the value of the Portfolio's investments. 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 Money Market Portfolio is not insured or
guaranteed by the Federal Deposit Insurance Corporation or
any other government agency. Although the Money Market
Portfolio seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in
the Fund. For a more complete discussion of risk, please turn
to page 7.
2
<PAGE>
HOW HAVE THE PORTFOLIOS PERFORMED?
The following information can help you evaluate the potential
risks of investing in the Portfolios. We show how returns for
the Portfolios' 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 compared to a broad measure of
market performance. You should remember that unlike the
Portfolios, the indexes are unmanaged and do not include the
costs of buying, selling and holding the securities. The past
performance of the Portfolios is not necessarily an
indication of how they will perform in the future.
TOTAL RETURNS AS OF 12/31 EACH YEAR (%)
MONEY MARKET PORTFOLIO
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1989 5.86%
<S> <C>
1990 5.42%
1991 4.05%
1992 2.53%
1993 1.61%
1994 2.00%
1995 2.91%
1996 2.65%
1997 2.65%
1998 2.47%
</TABLE>
<TABLE>
<S> <C> <C>
BEST QUARTER: Q2 1989 +1.53%
WORST QUARTER: Q1 1994 +0.38%
</TABLE>
The Money-Market Portfolio's 7-day yield as of March 31,
1999, was 1.99%. The current 7-day yield may be obtained by
calling 800-243-2739.
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/98
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
- ----------------------------------------------------------------
MONEY MARKET PORTFOLIO 2.47% 2.53% 3.21%
- ----------------------------------------------------------------
LIPPER TAX-EXEMPT MONEY MARKET
FUNDS AVERAGE INDEX 2.92% 2.93% 3.48%
- ----------------------------------------------------------------
</TABLE>
3
<PAGE>
TOTAL RETURNS AS OF 12/31 EACH YEAR (%)
HIGH-YIELD PORTFOLIO
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1989 8.36%
<S> <C>
1990 6.55%
1991 12.23%
1992 7.85%
1993 11.48%
1994 -6.91%
1995 16.68%
1996 3.55%
1997 8.79%
1998 5.46%
</TABLE>
<TABLE>
<S> <C> <C>
BEST QUARTER: Q4 1995 +4.41%
WORST QUARTER: Q3 1994 (6.57%)
</TABLE>
The High-Yield Portfolio's year-to-date return for the three
months ended March 31, 1999, was .35%.
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/98
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
- ---------------------------------------------------------------
HIGH-YIELD PORTFOLIO 5.46% 5.23% 7.23%
- ---------------------------------------------------------------
LEHMAN BROTHERS MUNICIPAL BOND
INDEX 6.48% 6.22% 8.22%
- ---------------------------------------------------------------
</TABLE>
4
<PAGE>
WHAT ARE THE FUND'S FEES AND EXPENSES?
These tables describe the fees and expenses you pay in
connection with an investment in either of the Fund's
portfolios.
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
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REDEMPTION FEE NONE
- --------------------------------------------------------
EXCHANGE FEE NONE
- --------------------------------------------------------
</TABLE>
ANNUAL FUND OPERATING EXPENSES(EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
<TABLE>
<CAPTION>
MONEY MARKET HIGH-YIELD
PORTFOLIO PORTFOLIO
<S> <C> <C>
- -------------------------------------------------------------------
MANAGEMENT FEES 0.50% 0.50%
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DISTRIBUTION AND SERVICE (12B-1) FEES NONE NONE
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OTHER EXPENSES 0.68% 0.13%
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TOTAL ANNUAL FUND OPERATING EXPENSES 1.18% 0.63%
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</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. 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>
- -------------------------------------------------------------------------
MONEY MARKET PORTFOLIO $120 $375 $649 $1,432
- -------------------------------------------------------------------------
HIGH-YIELD PORTFOLIO $ 64 $202 $351 $ 786
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</TABLE>
5
<PAGE>
HOW WE MANAGE THE FUND
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OUR PRINCIPAL INVESTMENT STRATEGIES
We analyze economic and market conditions, seeking to
identify the securities that we think make the best
investments. Under normal conditions, the Fund's assets will
be invested so that at least 80% of the annual income of the
Fund will be exempt from federal income taxation.
THE TYPE OF SECURITIES IN WHICH WE INVEST
The Money Market Portfolio invests in short-term municipal
obligations. 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 the holdings to 90 days or
less. The Money Market Portfolio invests only in those
securities which are rated in the highest two categories of a
nationally recognized rating organization and attempts to
maintain a stable net asset value of $1.00 per share.
The High-Yield Portfolio invests in municipal bonds that are
rated at the time of purchase within the four highest
categories of a nationally recognized rating organization, or
if not rated, deemed by the Adviser to be of comparable
quality. These bonds include both secured and unsecured debt
obligations. Capital appreciation is a secondary objective.
Municipal bonds are debt securities issued by or on behalf of
states, territories and possessions of the United States and
their political subdivisions, agencies and instrumentalities
which provide income free from federal, state or local
personal income taxes. Municipal bonds are generally one of
the following: General Obligation Bonds which are secured by
the full faith and credit of the issuer and its taxing power
or Revenue Bonds which are payable from revenue derived from
a particular facility or service.
The two portfolios may also invest in variable rate demand
instruments, industrial development bonds and other
securities which pay interest from revenues of projects with
similar characteristics.
Yields of municipal securities depend upon a number of
factors, including the financial condition of the issuer,
economic conditions, money and capital market conditions, the
volume of municipal securities available, conditions within
the municipal securities market, the slope of the yield
curve, changes
6
<PAGE>
in tax laws, regulations and rules, and the maturity, rating
and size of individual offerings.
TEMPORARY DEFENSIVE POSITION
From time to time in response to adverse market or other
conditions, we may invest a portion of the High-Yield
Portfolio's net assets in cash, cash equivalents or U.S.
Government securities for temporary defensive purposes. This
could help the Fund avoid losses, but it may result in lost
opportunities and lower yields. If this becomes necessary,
the Fund may not achieve its investment objectives.
PORTFOLIO TURNOVER
The High-Yield Portfolio may engage in active and frequent
trading of portfolio securities in order to take advantage of
better investment opportunities to achieve its investment
objectives which would result in additional expenses. High
portfolio turnover may negatively affect the Fund's
performance. Portfolio turnover may also result in capital
gain distributions that could raise your income tax
liability.
THE PRINCIPAL RISKS OF INVESTING IN THE FUND
Because of the nature of the High-Yield Portfolio, you should
consider an investment in it to be a long-term investment
that will best meet its objectives when held for a number of
years. Lower rated securities have certain speculative
characteristics and involve greater investment risk,
including the possibility of default or bankruptcy, than is
the case with higher rated securities. When investing in the
Fund you will also assume an 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. There is also the
risk that government actions could have an adverse risk on
municipal bond prices. An investment in the Fund is not
insured or guaranteed by the Federal Deposit Insurance
Corporation or any other governmental agency. Please see the
Statement of Additional
7
<PAGE>
Information for a further discussion of risks. Information on
the Fund's recent holdings can be found in the Fund's current
annual or semi-annual report.
YEAR 2000 RISKS
Like other mutual funds, the Fund could be adversely affected
if the computer systems used by the Adviser and the Fund's
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 may impact municipalities, which may
include issuers of portfolio securities held by the Fund, to
varying degrees based upon various factors, including, but
not limited to, the municipality's 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.
8
<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 0.50% of the Fund's average daily net
assets.
PORTFOLIO MANAGEMENT
A committee of employees of the Investment Adviser is jointly
and primarily responsible for the day-to-day management of
the Fund's two portfolios.
9
<PAGE>
ABOUT YOUR ACCOUNT
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
/ / BY TELEPHONE
Once you have opened an account, you can buy additional
shares in the High-Yield Portfolio by calling 800-243-2729
between 9:00 a.m. and 4:00 p.m. New York time. You must pay
for these shares within three business days of placing your
order.
/ / 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 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 $250. The
price you pay for shares in the High-Yield Portfolio will
depend on when we receive your purchase order.
/ / TIME OF PURCHASE
Your price for shares in the High-Yield Portfolio 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
10
<PAGE>
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.
Newly-purchased shares in the Money Market Portfolio 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 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. The Money Market Portfolio's net asset value per
share will normally remain fixed at $1.00 per share. 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 the intermediary is
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 Portfolio, deducting all
liabilities, and dividing the resulting number by the number
of shares outstanding. The result is the net asset value per
share. Securities held by the Money Market Portfolio are
valued on the basis of amortized cost which does not take
into account unrealized capital gains and 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. Bonds and other
fixed-income securities of the High-Yield Portfolio are
valued on the basis of prices provided by an independent
pricing service.
11
<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 (MONEY MARKET PORTFOLIO ONLY)
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 (MONEY MARKET PORTFOLIO ONLY)
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.
12
<PAGE>
/ / BY EXCHANGE
The shares of one portfolio may be exchanged for shares of
the other portfolio or 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.
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.
13
<PAGE>
/ / 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.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund declares dividends daily from its net investment
income. In the Money Market Portfolio, dividends are
automatically reinvested each day in additional shares.
Dividends credited to a shareholder's account in the High-
Yield Portfolio are distributed monthly. The Fund distributes
any capital gains that it has realized annually.
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. Because the
Fund invests in municipal bonds, certain dividends you
receive will be exempt from regular federal income tax. All
or a portion of these dividends, however, may be subject to
state and local taxes or to the federal alternative minimum
tax. Distributions from a fund's long-term capital gains are
taxable as capital gains, while dividends from short-term
capital gains and net investment income from non-tax-exempt
securities are generally taxable as ordinary income. In
addition, 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.
14
<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>
HIGH-YIELD PORTFOLIO
YEARS ENDED ON LAST DAY OF FEBRUARY,
- ---------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR $11.04 $10.78 $10.82 $10.40 $10.97
- ---------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .52 .54 .55 .55 .57
Net gains or losses
on securities (both
realized and
unrealized) .03 .36 (.04) .42 (.53)
- ---------------------------------------------------------------------------
Total from investment
operations .55 .90 .51 .97 .04
- ---------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net
investment income (.52) (.54) (.55) (.55) (.57)
Distributions from
capital gains (.27) (.10) -- -- (.04)
- ---------------------------------------------------------------------------
Total distributions (.79) (.64) (.55) (.55) (.61)
- ---------------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR $10.80 $11.04 $10.78 $10.82 $10.40
- ---------------------------------------------------------------------------
TOTAL RETURN 4.88% 8.56% 4.86% 9.55% .64%
- ---------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(in thousands) $182,017 $188,109 $193,641 $222,760 $241,467
Ratio of expenses to
average net assets .63%(2) .63%(1) .60%(1) .62% .61%
Ratio of net income to
average net assets 4.71% 4.98% 5.13% 5.22% 5.54%
Portfolio turnover rate 192% 119% 73% 95% 60%
</TABLE>
(1) Before offset of custody credits.
(2)Ratio reflects expenses grossed up for custody credit
arrangement. The ratio of expenses net of custody credits
would have been .62%.
- --------------------------------------------------------------------------------
15
<PAGE>
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
MONEY MARKET PORTFOLIO
YEARS ENDED ON LAST DAY OF FEBRUARY,
- ----------------------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
- ----------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .02 .03 .03 .03 .02
- ----------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net
investment income (.02) (.03) (.03) (.03) (.02)
- ----------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR $1.00 $1.00 $1.00 $1.00 $1.00
- ----------------------------------------------------------------------
TOTAL RETURN 2.39% 2.65% 2.56% 2.92% 2.22%
- ----------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(in thousands) $15,526 $16,758 $19,668 $21,777 $25,681
Ratio of expenses to
average net assets 1.18%(2) 1.03%(1) 1.00%(1) 1.01% .89%
Ratio of net income to
average net assets 2.38% 2.63% 2.54% 2.89% 2.17%
</TABLE>
(1)Before offset of custody credits.
(2)Ratio reflects expenses grossed up for custody credit
arrangement. The ratio of expenses net of custody credits
would have been 1.16%.
- --------------------------------------------------------------------------------
16
<PAGE>
FOR MORE INFORMATION
Additional information about the Fund's investments is
available in the Fund's annual and semi-annual reports to
shareholders. In the Fund's annual report, you will find a
discussion of the market conditions and investment strategies
that significantly affected the Fund's performance during its
last fiscal year. You can find more detailed information
about the Fund in the current Statement of Additional
Information dated July 1, 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
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. 811-3904
</TABLE>
<PAGE>
THE VALUE LINE TAX EXEMPT 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
JULY 1, 1999
- -------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus of The Value Line Tax Exempt Fund, Inc.
dated July 1, 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 1999 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-7
Investment Advisory and Other Services.............................................. B-9
Portfolio Transactions.............................................................. B-10
Capital Stock....................................................................... B-11
Purchase, Redemption and Pricing of Shares.......................................... B-11
Taxes............................................................................... B-14
Performance Data.................................................................... B-16
Financial Statements................................................................ B-17
Security Ratings.................................................................... B-17
</TABLE>
B-1
<PAGE>
DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
CLASSIFICATION. The Fund is an open-end, diversified management investment
company incorporated in Maryland in 1983. The Fund's investment adviser is Value
Line, Inc. (the "Adviser").
INVESTMENT OBJECTIVE. The Fund's primary investment objective is to provide
investors with the maximum income exempt from federal income taxes while
avoiding undue risk to principal.
INVESTMENT STRATEGY. The Fund seeks to achieve its objective by offering
two separate and distinct portfolios. Each portfolio will invest substantially
all of its assets in investment-grade municipal securities, the interest on
which is deemed exempt from federal income tax. Under normal conditions, the
Fund's assets will be invested so that at least 80% of the annual income of the
Fund will be exempt from federal income taxes. This is a fundamental policy of
the Fund which will not be changed without shareholders' approval. The Fund
reserves the right to create additional portfolios although there are no present
plans to do so. No assurance can be made that the objectives of any portfolio
will be attained.
The basic differences between the two portfolios will be the length of time
until the maturities of their holdings, the yield and the expected stability of
the Net Asset Value as set forth below:
MONEY MARKET PORTFOLIO: Expected weighted average maturity is 90 days or
less. Generally, maturities will be no more than 397 days at time of purchase.
The Fund will attempt to maintain the net asset value at $1.00 per share but
attainment of such is not assured. Investments will consist of short-term
municipal or United States Government obligations and notes and will be limited
to those obligations which are backed by the full faith and credit of the United
States or are rated Aa3 or better, MIG-2 or better or Prime-1 by Moody's
Investors Service, Inc. ("Moody's") and AA or better, A-1 or better or SP-2 or
better by Standard & Poor's Ratings Services ("S&P"). If the municipal
obligations are not rated, then the issuer's long-term bond rating must be at
least Aa3 as determined by Moody's or AA as determined by S&P. In the case of
industrial revenue bonds, the corporation responsible for the debt must carry a
Value Line Financial Strength rating of A+ or better (the second highest of nine
rating groups).
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, securities of 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.
HIGH-YIELD PORTFOLIO: Expected weighted average maturity is between 10 and
30 years. Typically, the municipal bonds in the High-Yield Portfolio will be
rated at the time of purchase within the four highest grades assigned by Moody's
(Aaa, Aa, A and Baa) or S&P (AAA, AA, A and BBB) or will be obligations of
issuers of equivalent creditworthiness, in the opinion of the Adviser. Those
bonds rated "BBB" or "Baa" may have more speculative characteristics and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case for
higher grade bonds. These bonds include both secured and
B-2
<PAGE>
unsecured debt obligations and, as a group, possess a fairly high degree of
dependability of interest payments although certain of these bonds may have
speculative characteristics. Portfolio securities may be sold without regard to
the length of time that they have been held in order to take advantage of new
investment opportunities or yield differentials, or because the Adviser desires
to preserve gains or limit losses due to changing economic conditions. Capital
appreciation is a secondary objective of the High-Yield Portfolio. Portfolio
turnover for the High-Yield Portfolio in recent periods is shown under
"Financial Highlights", above. High portfolio turnover may result in
correspondingly greater transaction costs.
The two Portfolios may also invest in variable rate demand instruments and
industrial development bonds and other securities, which pay interest from
revenues of projects with similar characteristics. The Portfolios may also
contain commercial paper (considered Eligible Securities as defined above), U.S.
government securities, repurchase agreements or other taxable short-term money
market instruments when the Adviser deems such action appropriate.
Yields of municipal securities depend upon a number of factors, including
the financial condition of the issuer, economic conditions, money and capital
market conditions, the volume of municipal securities available, conditions
within the municipal securities market, the slope of the yield curve, proposed
and actual changes in tax laws, regulations and rules, and the maturity, rating,
and size of individual offerings. Market values of municipal securities will
vary inversely in relation to their yields. The magnitude of changes in market
values in response to changes in market rates of interest typically varies in
proportion to maturity of the obligations.
VARIABLE RATE DEMAND INSTRUMENTS. Variable rate demand instruments are
tax-exempt municipal obligations that provide for a periodic adjustment in the
interest rate paid on the instrument according to changes in interest rates
generally. These instruments permit the Fund to demand payment of the unpaid
principal balance plus accrued interest upon a specified number of days' notice
to the issuer or its agent. The demand feature may be backed by a bank letter of
credit or guarantee issued with respect to such instrument. The Fund intends to
exercise the demand only (1) upon a default under the terms of the municipal
obligation, (2) as needed to provide liquidity to the Fund, or (3) to maintain a
high quality investment portfolio. The issuer of a variable rate demand
instrument may have a corresponding right to prepay at its discretion the
outstanding principal of the instrument plus accrued interest upon notice
comparable to that required for the holder to demand payment. The variable rate
demand instruments that the Fund may purchase are payable on demand on not more
than seven calendar days' notice. The terms of the instruments provide that
interest rates are adjustable at intervals ranging from daily up to six months,
and the adjustments are based upon the prime rate of a bank or other appropriate
interest rate adjustment index as provided in the respective instruments.
WHEN-ISSUED SECURITIES. Municipal securities may be purchased or sold on a
delayed-delivery basis or on a when-issued basis. These transactions arise when
the Fund buys or sells securities with payment and delivery taking place in the
future, to secure what is considered to be an advantageous price and yield to
the Fund. No payment is made until delivery is due, often a month or more after
the purchase. When the Fund engages in when-issued and delayed-delivery
transactions, certain risks are involved. The Fund relies on the buyer or
seller, as the case may be, to consummate the transaction. Failure of the buyer
or seller to do so may result in the Fund failing to obtain a price considered
to be advantageous. The securities are subject to market fluctuations and no
interest accrues to the purchaser during this period. At the time the Fund
commits to purchase
B-3
<PAGE>
municipal securities on a delayed-delivery basis or a when-issued basis, it will
record the transaction and reflect the value of the municipal securities in
determining the net asset value of the appropriate portfolio. A separate account
for the Fund consisting of cash or liquid securities equal to the amount of the
when-issued commitments will be established at the Fund's custodian bank. For
the purpose of determining the adequacy of the securities in the account, the
deposited securities will be valued at market. If the market value of the
deposited securities declines, additional cash or securities will be placed in
the account on a daily basis so that the market value of the account will equal
the amount of such commitments by the Fund.
STANDBY COMMITMENTS. When municipal securities are purchased for the Money
Market Portfolio, the Fund may obtain a "standby commitment"--that is, the right
to resell the security to the seller at an agreed-upon price on certain dates or
within a specific period. The Fund's right to exercise a standby commitment will
be unconditional and unqualified. A standby commitment is not transferable by
the Fund, and therefore terminates if the Fund sells the security to a third
party. The Fund may pay for certain standby commitments either in cash or by
paying a higher price for portfolio securities which are acquired subject to
such a commitment, thereby reducing the yield to maturity otherwise available
for the same securities. The Fund will enter into standby commitments only with
banks and securities dealers which, in the opinion of the Adviser, present
minimal credit risks. The Fund's ability to exercise a standby commitment will
depend on the ability of the broker-dealer or bank to pay for the securities if
the standby commitment is exercised. In the event that a broker-dealer or bank
should default on its obligation to repurchase the security, the Fund might be
unable to recover all or a portion of any loss sustained from having to sell the
security elsewhere.
LENDING SECURITIES. The Fund may lend limited amounts of its portfolio
securities to broker-dealers or institutional investors which the Adviser deems
qualified, but only when the borrower agrees to maintain cash collateral with
the Fund equal at all times to at least 100% of the value of the loaned
securities and accrued interest. The Fund will continue to receive interest on
the lent securities and will invest the cash collateral in readily marketable
short-term obligations of high quality, thereby earning additional interest.
Interest on loaned municipal securities received by the borrower and paid over
to the Fund will not be exempt from federal income taxes in the hands of the
Fund. The Fund will not lend securities if, as a result, the aggregate of such
loans in each Portfolio would exceed 10% of the value of that Portfolio's total
assets. The Fund may terminate such loans at any time.
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 value of the underlying
securities will always be at least equal to the repurchase price, including any
accrued interest earned on the repurchase agreement. 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
B-4
<PAGE>
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. It is expected that repurchase agreements will give rise
to income which will not qualify as tax-exempt income when distributed by the
Fund. The Board of Directors monitors the creditworthiness of parties with which
the Fund enters into repurchase agreements.
While the Fund has no plans to do so during the current year, it may enter
into reverse repurchase agreements, which involve the sale of securities held by
the Fund with an agreement to repurchase the securities at an agreed-upon price,
date and interest payment.
MUNICIPAL SECURITIES
Municipal securities are debt issues of governmental bodies, other than the
U.S. government, within the United States, including securities issued by or on
behalf of states, territories, and possessions of the United States, by the
District of Columbia, and by political subdivisions and their duly constituted
agencies and instrumentalities. The interest on these issues generally is not
includable in "gross income" for federal income tax purposes, subject, however,
to many exceptions and limitations. The purpose of these issues is to obtain
funds for various public uses, including the construction, repair, or
improvement of various public facilities, such as airports, bridges, highways,
housing, hospitals, mass transit, schools, streets, waterworks and sewage
systems.
The two principal classifications of municipal bonds are "general
obligation" and "revenue" bonds. GENERAL OBLIGATION bonds are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
interest and principal. REVENUE bonds are payable only from the revenues derived
from a particular facility or class of facilities or, in some cases, from the
revenues from a special excise tax or other specific source, but not from
general tax revenues. Revenue bonds include tax-exempt industrial revenue bonds
that generally do not have the pledge of the credit of the issuer but are
supported by revenues from a taxable corporation that operates a facility that
was financed by the funds from the bond issue, and the pledge, if any, of real
and personal property so financed as security for such payment. There are also a
variety of hybrid and special types of municipal securities that have
characteristics of both general obligation and revenue bonds.
Municipal notes are short-term obligations issued to obtain temporary funds
for states, cities, municipalities and municipal agencies. These notes include
tax, revenue and bond anticipation notes that provide temporary funds until the
anticipated taxes, revenues, or bond proceeds, respectively, are received by the
issuer. Other municipal notes include construction loan notes and short-term
discount notes. Certain project notes, issued by a state or local housing
authority, are secured by the full faith and credit of the United States.
Municipal commercial paper consists of very short-term negotiable notes, which
provide seasonal working capital needs or interim construction financing. The
commercial paper and tax and revenue anticipation notes are paid from general
revenues or may be refinanced with long-term debt.
Legislation to restrict or eliminate the federal income tax exemption for
interest on municipal securities has, from time to time, been introduced before
Congress. If such a proposal were enacted, the availability of municipal
securities for investment by the Fund could be adversely affected. In such
event, the Fund would re-evaluate its investment objective and submit possible
changes in the structure of the Fund for the consideration of the shareholders.
B-5
<PAGE>
FUND POLICIES.
(i)
The Fund may not borrow money in either Portfolio, except from banks
on a temporary basis or via entering into reverse repurchase
agreements for extraordinary or emergency purposes or to facilitate
redemptions and in amounts not exceeding 10% of the total assets of that
Portfolio, or mortgage, pledge or hypothecate the assets of any Portfolio
except as may be necessary in connection with such borrowings. Securities
will not be purchased while borrowings are outstanding.
(ii)
The Fund may not engage in the underwriting of securities except to
the extent that the Fund may be deemed an underwriter as to
restricted securities under the Securities Act of 1933 in selling portfolio
securities.
(iii)
The Fund may not invest 25% or more of its assets in securities of
issuers conducting their principal business activities in any one
industry.
(iv)
The Fund may not purchase equity securities, securities convertible
into equity securities or invest in real estate, although the Fund
may invest in municipal securities secured by real estate or interests
therein.
(v)
The Fund may not lend money except as provided under "Lending
Securities" or 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.
(vi)
The Fund may not engage in short sales, purchases on margin or
participate on a joint or a joint and several basis in any trading
account in securities.
(vii)
The Fund may not write, purchase or sell puts (except for standby
commitments), calls or combinations thereof or purchase interests in
oil, gas or other mineral exploration or development programs or leases.
(viii)
The Fund may not invest more than 5% of its total assets in the
securities of any one issuer or purchase more than 10% of the
outstanding publicly issued debt obligations of any issuer or invest in
companies for the purpose of exercising control. This restriction does not
apply to obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
(ix)
The Fund may not invest more than 5% of its total assets in
securities of issuers having a record, together with its
predecessors, of less than three years of continuous operation. This
restriction does not apply to any obligation issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
(x)
The Fund may not invest more than 2% of the value of its total
assets in warrants (valued at the lower of cost or market), except
that warrants attached to other securities are not subject to these
limitations.
(xi)
The Fund may not invest in commodities or commodity contracts.
(xii)
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.
B-6
<PAGE>
If a percentage restriction is adhered to at the time of investment, a later
change in percentage resulting from changes in values or assets will not be
considered a violation of the restriction. For purposes of industry
classifications, the Fund follows the industry classifications in The Value Line
Investment Survey.
The policies set forth above may not be changed without the affirmative vote
of the majority of the outstanding voting securities of the Fund which means the
lesser of (1) the holders of more than 50% of the outstanding shares of capital
stock of the Fund or (2) 67% of the shares present if more than 50% of the
shares are present at a meeting in person or by proxy.
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.
</TABLE>
- --------------
* "Interested" director as defined in the Investment Company Act of 1940 (the
"1940 Act").
B-7
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH FUND PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ---------------------------------- --------------------- ---------------------------------------------
<S> <C> <C>
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.
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 50
Charles Heebner Vice President Senior Portfolio Manager with the Adviser.
Age 63
Raymond S. Cowen Vice President Assistant Research Director with the Ad-
Age 77 viser.
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>
- --------------
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
February 28, 1999. Directors who are officers or employees of the Adviser do not
receive any compensation from the Fund or any of the Value Line Funds.
B-8
<PAGE>
COMPENSATION TABLE
FISCAL YEAR ENDED FEBRUARY 28, 1999
<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>
As of February 28, 1999, no person owned of record or, to the knowledge of
the Fund, owned beneficially, 5% or more of the outstanding shares of either the
High-Yield Portfolio or the Money Market Portfolio except William E. Dorion and
Elaine H. Dorion, 8363 Creedmore South Dr., Warrenton, VA 20187, who owned
996,477 shares of the Money Market Portfolio representing 6.52% of the
outstanding shares. At February 28, 1999, the Adviser and/or affiliated
companies owned 120,333 shares of the High-Yield Portfolio common shares,
representing less than 1% of the outstanding shares. At that date officers and
directors of the Fund as a group owned 168,105 shares of the High Yield
Portfolio, representing approximately 1% of the outstanding shares, and 2,575
shares of the Money Market Portfolio, representing less than 1% of the
outstanding shares.
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 a monthly advisory fee at an annual rate of 0.50%
of the Fund's average daily net assets during the year. During its fiscal years
ended in February, 1997, 1998 and 1999, the Fund paid or accrued to the Adviser
advisory fees of $1,145,737, $1,044,179 and $1,006,500, 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.
B-9
<PAGE>
realized short-term capital gains are taxable to shareholders as ordinary
income. The Fund does not anticipate that any distributions will be eligible for
the dividends-received deduction for corporate shareholders.
Distributions of realized long-term capital gains are taxable to
shareholders as long-term capital gain (including the portion subject to the
lower 20% capital gain rate for individuals), 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 is reinvested in additional Fund
shares. The computation of net capital gains takes into account any capital loss
carryforward of the Fund. For federal income tax purposes the Money Market
Portfolio had a capital loss carryover at February 28,1999, of $37,266 of which
$27,649 will expire in 2000, $998 in 2004, $1,285 in 2005, $2,067 in 2006 and
$5,267 in 2007. To the extent future capital gains are offset by such capital
losses, the Money Market Portfolio does not anticipate distributing any such
gains to its shareholders.
Investments in the Fund generally would not be suitable for non-taxable
entities, such as tax-exempt institutions, qualified retirement plans, H.R. 10
plans and individual retirement accounts since such investors would not gain any
additional federal tax benefit from receiving tax-exempt income.
The Code may require a shareholder who receives exempt-interest dividends to
treat as taxable income a portion of certain otherwise non-taxable social
security and railroad retirement benefit payments. Futhermore, that portion of
any dividend paid by the Fund which represents income derived from private
activity bonds held by the Fund may not retain its tax-exempt status in the
hands of a shareholder who is a "substantial user" of a facility financed by
such bonds, or a "related person". Moreover, some or all of the Fund's dividends
may be a specific preference item or a component of an adjustment item, for
purposes of determining federal alternative minimum taxes. Additionally, the
receipt of Fund dividends and distributions may affect (1) a corporate
shareholder's federal "environmental" tax liability and (2) a Subchapter S
corporate shareholder's federal "excess net passive income" tax liability.
All distributions including distributions of exempt-interest dividends,
whether received in Fund shares or cash, must be reported by each shareholder on
his federal income tax return. Although exempt-interest dividends are reportable
on one's tax return, those dividends are excludable from the investor's taxable
income for federal income tax purposes. 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 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 distribution by the Fund reduces the Fund's net asset value per share.
Such a distribution may be 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 capital. 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 the time at the net asset value per share
includes the amount of the forthcoming distribution. Those purchasing just prior
to a distribution will then receive a return of capital upon the distribution
which may nevertheless be taxable to them.
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
B-15
<PAGE>
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.
PERFORMANCE DATA
From time to time, the Fund may state its total return in advertisements and
investor communications. Total return may be stated for any relevant period as
specified in the advertisement or communication. Any statements of total return
or other performance data on the Fund will be accompanied by information on the
Fund's average annual compounded rate of return for the periods of one year,
five years and ten years, all ended on the last day of a recent calendar
quarter. The Fund may also advertise aggregate total return information for
different periods of time.
A portfolio's average annual compounded rate of return is determined by
reference to a hypothetical $1,000 investment that includes capital appreciation
and depreciation for the stated period, according to the following formula:
P(1+T) to the power of n= ERV
Where: P = a hypothetical initial purchase order of
$1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of the
hypothetical $1,000 purchase at the end
of the period.
The High-Yield Portfolio's average annual total returns for the one, five
and ten year periods ending February 28, 1999 were 4.88%, 5.69% and 7.15%,
respectively.
The Fund's total return may be compared to relevant indices and data from
Lipper Analytical Services, Inc. or Morningstar.
From time to time, evaluations of the Fund's performance by independent
sources may also be used in advertisements and in information furnished to
present or prospective investors in the Fund.
The yield computation for the High-Yield Portfolio is determined by dividing
the net investment income per share earned during the period by the maximum
offering price per share on the last day of the period and annualizing the
resulting figure, according to the following formula:
a - b 6
Yield = 2 [( +1) -1]
---
cd
B-16
<PAGE>
where: a = dividends and interest earned during the
period (calculated as required by the
Securities and Exchange Commission);
b = expenses accrued for the period (net of
reimbursements);
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends;
d = the maximum offering price per share on
the last day of the period.
The above formula will be used in calculating quotations of yield, based on
specified 30-day periods identified in advertising by the Fund.
The Fund may also, from time to time, include a reference to its current
quarterly or annual distribution rate in investor communications and sales
literature preceded or accompanied by a Prospectus, reflecting the amounts
actually distributed to shareholders which could include capital gains and other
items of income not reflected in the Fund's yield, as well as interest and
dividend income received by the Fund and distributed to shareholders (which is
reflected in the Fund's yield).
All calculations of the Fund's distribution rate are based on the
distributions per share which are declared, but not necessarily paid, during the
fiscal year. The distribution rate is determined by dividing the distributions
declared during the period by the maximum offering price per share on the last
day of the period and annualizing the resulting figure. In calculating its
distribution rate, the Fund uses the same assumptions that apply to its
calculation of yield. The distribution rate does not reflect capital
appreciation or depreciation in the price of the Fund's shares and should not be
considered to be a complete indicator of the return to the investor on his
investment.
Investors should note that the investment results of the Fund will fluctuate
over time, and any presentation of the Fund's current yield, total return or
distribution rate for any period should not be considered as a representation of
what an investment may earn or what an investor's total return, yield or
distribution rate may be in any future period.
FINANCIAL STATEMENTS
The Fund's financial statements for the year ended February 28, 1999,
including the financial highlights for each of the five fiscal years in the
period ended February 28, 1999, appearing in the 1999 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.
SECURITY RATINGS
RATINGS OF MUNICIPAL SECURITIES
MOODY'S INVESTORS SERVICE, INC. AAA--the "best quality". AA--"high quality
by all standards", but margins of protection or other elements make long-term
risks appear somewhat larger than Aaa rated municipal bonds. A--"upper medium
grade obligations". Security for principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment
sometime in the future. BAA--"medium grade"; neither highly protected nor poorly
secured; interest payments and principal security appear adequate for the
present, but certain
B-17
<PAGE>
protective elements may be lacking or may be characteristically unreliable over
any great length of time; lack outstanding investment characteristics and in
fact may have speculative characteristics as well.
STANDARD & POOR'S RATINGS SERVICES. AAA--"obligations of the highest
quality". AA-- issues with investment characteristics "only slightly less marked
than those of the prime quality issues." A--"the third strongest capacity for
payment of debt service". Principal and interest payments on bonds in this
category are regarded as safe. It differs from the two higher ratings because,
with respect to general obligations bonds, there is some weakness which, under
certain adverse circumstances, might impair the ability of the issuer to meet
debt obligations at some future date. With respect to revenue bonds, debt
service coverage is good, but not exceptional, and stability of the pledged
revenues could show some variations because of increased competition or economic
influences in revenues. BBB--the lowest "investment grade" security rating. The
difference between A and BBB ratings is that the latter shows more than one
fundamental weakness, or one very substantial fundamental weakness. With respect
to revenue bonds, debt coverage is only fair. Stability of the pledged revenues
could show substantial variations, with the revenue flow possibly being subject
to erosion over time.
RATINGS OF MUNICIPAL NOTES
MOODY'S INVESTORS SERVICE, INC. MIG-1: the best quality. MIG-2: high
quality, with margins for protection ample although not so large as in the
preceding group. MIG-3: favorable quality, with all security elements accounted
for, but lacking the undeniable strength of the preceding grades. Market access
for refinancing, in particular, is likely to be less well established.
STANDARD & POOR'S CORPORATION. SP-1: Very strong capacity to pay principal
and interest. SP-2: Satisfactory capacity to pay principal and interest.
RATINGS OF COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE, INC. PRIME-1: highest quality; PRIME-2: higher
quality.
STANDARD & POOR'S CORPORATION. A-1: A very strong degree of safety. A-2:
Strong degree of safety.
RATINGS OF CORPORATIONS
The Value Line financial strength rating of A++, A+, A or B++ indicates that
the company is within the financially strongest one-half of the approximately
3,500 companies followed by the Standard and Expanded Editions of The Value Line
Investment Survey.
The Value Line ratings are based upon computer analysis of a number of key
variables that measure (a) financial leverage, (b) business risk and (c) company
size plus, in the Standard Edition of The Value Line Investment Survey, the
judgment of senior analysts regarding factors that cannot be quantified
across-the-board for all stocks. 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-18
<PAGE>
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 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 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. 9th Street, Kansas City, MO
64105, provides certain transfer agency functions to the Fund as an agent for
State Street. PricewaterhouseCoopers LLP, whose address is 1177 Avenue of the
Americas, New York, NY 10036, acts as the Fund's independent accountants and
also performs certain tax preparation services.
PORTFOLIO TRANSACTIONS
Portfolio securities are purchased from and sold to parties acting as either
principal or agent. Newly-issued securities ordinarily are purchased directly
from the issuer or from an underwriter; other purchases and sales usually are
placed with those dealers from whom it appears that the best price and execution
will be obtained. Usually no brokerage commissions, as such, are paid by the
B-10
<PAGE>
Fund for such purchases and sales, although the price paid usually includes an
undisclosed compensation to the dealer acting as principal. The prices paid to
underwriters of newly-issued securities usually include a concession paid by the
issuer to the underwriter, and purchases of after-market securities from dealers
ordinarily are executed at a price between the bid and asked price. The Fund
paid no brokerage commissions in fiscal 1997, 1998 or 1999.
Transactions are allocated to various dealers by the Adviser in its best
judgment. The primary consideration is prompt and effective execution of orders
at the most favorable price. Subject to that primary consideration, dealers may
be selected for research, statistical or other services to enable the Adviser to
supplement its own research and analysis with the views and information of other
securities firms.
Research services furnished by brokers through which the Fund effects
securities transactions may be used by the Adviser in advising other funds and
accounts it manages and, conversely, research services furnished to the Adviser
by brokers in connection with the other funds and accounts it manages may be
used by the Adviser in advising the Fund. Since such research services are
supplementary to the research efforts of the Adviser and must be analyzed and
reviewed by it, the receipt of such information is not expected to materially
reduce its overall expenses.
PORTFOLIO TURNOVER. The High-Yield Portfolio's annual portfolio turnover
rate may exceed 100%. A rate of portfolio turnover of 100% would occur if all of
the portfolio were replaced in a period of one year. To the extent that the
High-Yield Portfolio engages in short-term trading in attempting to achieve its
objective, it may increase portfolio turnover and incur additional expenses than
might otherwise be the case. The portfolio turnover rate for recent fiscal years
is shown under "Financial Highlights" in the Fund's Prospectus.
CAPITAL STOCK
Each share of the Fund's common stock, $.01 par value, has one vote with
fractional shares voting proportionately. Shares of each Portfolio have equal
voting rights and preferences as to conversion, exchange, retirement or any
other feature. 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 $250 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.
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
B-11
<PAGE>
customary weekend and holiday closing, or (b) during which trading on the New
York Stock Exchange is restricted; (2) For any period during which an emergency
exists as a result of which (a) disposal by the Fund of securities owned by it
is not reasonably practical, or (b) it is not reasonably practical for the Fund
to determine the fair value of its net assets; (3) For such other periods as the
Securities and Exchange Commission may by order permit for the protection of the
Fund's shareholders.
The value of shares of the High-Yield Portfolio 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.
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 30 days to increase the shares in
his account to the minimum level.
BY TELEPHONE OR WIRE (MONEY MARKET PORTFOLIO ONLY). You may redeem shares by
telephone or wire instructions to NFDS by so indicating on the initial
application. Payment will normally be transmitted on the business day following
receipt of your instructions to the bank account at a member bank of the Federal
Reserve System you have designated on your initial purchase application. The
Fund employs reasonable procedures to confirm that instructions communicated by
telephone are genuine. These procedures include requiring some form of personal
identification prior to acting upon instructions received by telephone. The Fund
will not be liable for following instructions communicated by telephone that it
reasonably believes to be genuine. Any loss will be borne by the investor. Heavy
wire traffic may delay the arrival of a wire until after public hours at your
bank. Telephone or wire redemptions must be in amounts of $1,000 or more and
your instructions must include your name and account number. The number to call
before the close of business on the New York Stock Exchange is 1-800-243-2729.
Procedures for redeeming Fund shares by telephone may be modified or terminated
without notice at any time by the Fund.
BY CHECK (MONEY MARKET PORTFOLIO ONLY). You may elect this method of redemption
by so indicating on the initial application and you will be provided a supply of
checks by NFDS. These checks may be made payable to the order of any person in
any amount of $500 or more. When your check is presented for payment, the Fund
will redeem a sufficient number of full and fractional shares in your account to
cover the amount of the check. Dividends will be earned by the shareholder on
the check proceeds until it clears. Checks will be returned unpaid if there are
insufficient shares to meet the withdrawal amount.
This method of redemption requires that your shares must remain in an open
account and that no share certificates are issued and outstanding. You cannot
close your account through the issuance of a check because the exact balance at
the time your check clears will not be known when you write the check.
If you use this privilege you will be required to sign a signature card
which will subject you to State Street Bank and Trust Company's rules and
regulations governing checking accounts. The authorization form which you must
sign also contains a provision relieving the bank, NFDS, the Fund, Value Line
Securities and the Adviser from liability for loss, if any, which you may
sustain
B-12
<PAGE>
arising out of a non-genuine instruction pursuant to this redemption feature.
Any additional documentation required to assure a genuine redemption must be
maintained on file with NFDS in such a current status as NFDS may deem
necessary. A new form properly signed and with the signature guaranteed must be
received and accepted by NFDS before authorized redemption instructions already
on file with NFDS can be changed.
An additional supply of checks will be furnished upon request. There
presently is no charge to the shareholder for these checks or their clearance.
However, the Fund and NFDS reserve the right to make reasonable charges and to
terminate or modify any or all of the services in connection with this privilege
at any time and without prior notice. NFDS will impose a $5 fee for stopping
payment of a check upon your request or if NFDS cannot honor the check due to
insufficient funds or for other valid reasons.
IMPORTANT: Shares purchased by check may not be redeemed until the Fund is
reasonably assured of the final collection of the purchase check which may take
up to 15 days.
CALCULATION OF NET ASSET VALUE: The net asset value per share of each Portfolio
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.
HIGH-YIELD PORTFOLIO. Bonds and other fixed-income securities of the High-Yield
Portfolio are valued on the basis of prices provided by an independent pricing
service approved by the Board of Directors. Because of the large number of
outstanding issues of municipal bonds, the majority of issues do not trade each
day; therefore, recent last sale prices are not always available. In valuing
such securities, the pricing service generally takes into account
institutional-size trading in similar groups of securities and any developments
related to specific securities. Securities are valued by the pricing service at
the most recent available bid prices provided by investment dealers when such
prices are readily available and are representative of the bid side of the
market. (The municipal bond market is typically a "dealer" market, meaning that
investment dealers buy and sell bonds for their own accounts rather than for
customers. As a result, the "spreads" or differences between bid and asked
prices for certain municipal bonds may differ substantially among dealers.)
The methods used by the pricing service and the valuations so established
are periodically reviewed by the officers of the Fund under the general
supervision of the Board of Directors. There are a number of pricing services
available and the Directors, on the basis of ongoing evaluation of these
services, may use other pricing services or discontinue the use of any pricing
service in whole or in part. Short-term instruments maturing within 60 days of
the date of purchase will be valued at amortized cost, unless this does not
represent fair value. Other assets and securities for which no quotations are
readily available will be valued at their fair value as the Board of Directors
or persons acting at their direction may determine.
MONEY MARKET PORTFOLIO. It is the policy of the Money Market Portfolio to
attempt to maintain a net asset value of $1.00 per share for purposes of sales
and redemptions. The instruments held by the Money Market Portfolio are valued
on the basis of amortized cost which does not take into account
B-13
<PAGE>
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. 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 Portfolio would receive if it sold the
instrument. Thus, if the use of amortized cost by the Portfolio resulted in a
lower aggregate portfolio value on a particular day, a prospective investor in
the Portfolio 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 Portfolio would receive less investment income. The converse would apply
in a period of rising interest rates.
The valuation of securities based upon their amortized cost and the
commitment to maintain the Portfolio's per share net asset value of $1.00 is
permitted by Rule 2a-7 under the Investment Company Act of 1940 (the "1940
Act"). The rule requires that the Fund maintain a dollar-weighted average
portfolio maturity for the Money Market Portfolio of 90 days or less, purchase
instruments which have remaining maturities of 397 days or less only (except
those which have a maturity in excess of 397 days but which permit the holder to
demand payment at any time or at a specified time within 397 days), and invest
only in securities determined by the Adviser (or where appropriate by the Board
of Directors) to present minimal credit risks and that are, at the time of
acquisition, eligible securities. The Directors have established procedures
designed to achieve this objective including a review of the portfolio's
holdings by the Directors, at such intervals as they may deem appropriate, to
determine whether the portfolio's net asset value calculated by using available
market quotations deviates from $1.00 per share based on amortized cost. The
extent of any deviation will be examined by the Directors and if such deviation
exceeds 1/2 of 1%, the Directors will promptly consider what action, if any,
will be initiated. In the event the Directors determine that a deviation exists
which may result in material dilution or other unfair results to investors or
existing shareholders, they have agreed to take such corrective action as they
regard as necessary and appropriate, including selling portfolio instruments
prior to maturity to realize capital gains or losses or to shorten average
portfolio maturity, withholding dividends, making a special capital
distribution, redeeming shares in kind, or establishing a net asset value per
share by using available market quotations.
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.
Distributions of net tax-exempt income, in the form of "exempt-interest
dividends", are excludable from the shareholder's income for federal income tax
purposes (except as provided below) if the Fund qualifies to pay exempt-interest
dividends. Distributions of other investment income and any
B-14
<PAGE>
PART C: OTHER INFORMATION
ITEM 23. EXHIBITS.
(a) Articles of Incorporation.
(b) By-laws.
(c) Not applicable.
(d) Investment Advisory Agreement.
(e) Distribution Agreement.
(f) Not applicable.
(g) Custodian Agreement.
(h) Not applicable.
(i) Legal Opinion.
(j) Consent of independent accountants.
(k) Not applicable.
(l) Not applicable.
(m) Not applicable.
(n) Financial data schedule.
(o) Not applicable.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 25. INDEMNIFICATION.
Incorporated by reference to Article Seventh (7)(c) of the Articles of
Incorporation filed as Exhibit (a) hereto.
ITEM 26. BUSINESS OR OTHER CONNECTIONS OF INVESTMENT ADVISER.
Value Line, Inc., Registrant's investment adviser, acts as investment
adviser for a number of individuals, trusts, corporations and institutions, in
addition to the registered investment companies in the Value Line Family of
Funds listed in Item 27.
<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 Officer
and Chief Executive Officer of Arnold Bernhard & Co., Inc. and Chairman 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 Vice President, Secretary, Treasurer and a Director
Director of Arnold Bernhard & Co., Inc.
Harold Bernard, Jr. Director Retired Administrative Law Judge
W. Scott Thomas Director Partner, Brobeck, Phleger & Harrison, attorneys,
One Market Plaza, San Francisco, CA 94105
Linda S. Wilson Director President, Radcliffe College, 10 Garden Street,
Cambridge, MA 02138
</TABLE>
C-1
<PAGE>
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) Value Line Securities, Inc., acts as principal underwriter for the
following Value Line funds, including the Registrant: The Value Line
Fund, Inc.; The Value Line Income Fund, Inc.; The Value Line Special
Situations Fund, Inc.; Value Line Leveraged Growth Investors, Inc.; The
Value Line Cash Fund, Inc.; Value Line U.S. Government Securities Fund,
Inc.; Value Line Centurion Fund, Inc.; The Value Line Tax Exempt Fund,
Inc.; Value Line Convertible Fund, Inc.; Value Line Aggressive Income
Trust; Value Line New York Tax Exempt Trust; Value Line Strategic Asset
Management Trust; Value Line 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 Chairman of the
Board Board and President
David T. Henigson Vice President, Vice President,
Secretary, Secretary and
Treasurer and Treasurer
Director
Stephen LaRosa Asst. Vice Asst. Treasurer
President
</TABLE>
The business address of each of the officers and directors is 220 East
42nd Street, NY 10017-5891.
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
Value Line, Inc.
220 East 42nd Street
New York, NY 10017
For records pursuant to:
Rule 31a-1(b)(4),(5),(6),(7),(10),(11)
Rule 31a-1(f)
State Street Bank and Trust Company
c/o 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 29. MANAGEMENT SERVICES.
None.
ITEM 30. UNDERTAKINGS.
None.
--------------
C-2
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 16 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated April 23, 1999, relating to the financial
statements and financial highlights appearing in the February 28, 1999 Annual
Report to Shareholders of The Value Line Tax Exempt Fund, Inc., which are also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the heading "Financial Highlights" in the Prospectus
and under the heading "Financial Statements" in the Statement of Additional
Information.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
April 26, 1999
C-3
<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 Amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, and State of New York, on
the 26th day of April, 1999.
THE VALUE LINE TAX EXEMPT FUND, INC.
By: /s/ DAVID T. HENIGSON
...................................
DAVID T. HENIGSON, VICE PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed below by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
-------------------------------------------- --------------------------------- ---------------------
<S> <C> <C> <C>
*JEAN B. BUTTNER Chairman and Director; President; April 26, 1999
(JEAN B. BUTTNER) Principal Executive Officer
*JOHN W. CHANDLER Director April 26, 1999
(JOHN W. CHANDLER)
*LEO R. FUTIA Director April 26, 1999
(LEO R. FUTIA)
*DAVID H. PORTER Director April 26, 1999
(DAVID H. PORTER)
*PAUL CRAIG ROBERTS Director April 26, 1999
(PAUL CRAIG ROBERTS)
*NANCY-BETH SHEERR Director April 26, 1999
(NANCY-BETH SHEERR)
/s/ DAVID T. HENIGSON Treasurer; Principal Financial April 26, 1999
............................................ and Accounting Officer
(DAVID T. HENIGSON)
</TABLE>
*By /s/ DAVID T. HENIGSON
.................................
(DAVID T. HENIGSON,
ATTORNEY-IN-FACT)
C-4
<PAGE>
Exhibit (a)
ARTICLES OF INCORPORATION
OF
THE VALUE LINE TAX EXEMPT FUND, INC.
FIRST: The undersigned, PETER D. LOWENSTEIN, whose post office
address is 711 Third Avenue, New York, N.Y. 10017, being at least eighteen years
of age, under and by virtue of the General Laws of the State of Maryland
authorizing the formation of corporations, is acting as sole incorporator with
the intention of forming a corporation.
SECOND: The name of the corporation is THE VALUE LINE TAX EXEMPT
FUND, INC. (the "Corporation").
THIRD: The duration of the Corporation shall be perpetual.
FOURTH: The purpose for which the Corporation is formed and the
business or objects to be transacted, carried on and promoted by it, is to act
as an open-end investment company of the management type registered as such with
the Securities and Exchange Commission pursuant to the Investment Company Act of
1940 (the "1940 Act") and to exercise and generally to enjoy all of the powers,
rights and privileges granted to, or conferred upon, corporations by the General
Laws of the State of Maryland now or hereafter in force.
FIFTH: The post office address of the place of the principal office
of the Corporation within the State of Maryland is 929 North Howard Street,
Baltimore, Maryland 21201, c/o The Prentice-Hall Corporation System, Maryland.
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The Corporation's resident agent within the State of Maryland is The
Prentice-Hall Corporation System, Maryland, whose post office address is 929
North Howard Street, Baltimore, Maryland 21201. Said resident agent is a
corporation of the State of Maryland.
SIXTH: The total number of shares of capital stock of all classes
which the Corporation shall have authority to issue is two hundred million
(200,000,000) shares, $.0l par value (the "Shares"), and of the aggregate par
value of two million dollars ($2,000,000). Seventy-five million of such Shares
may be issued in the following classes, each class comprising the number of
shares and having the designations indicated; subject, however, to the authority
herein granted to the Board of Directors to increase or decrease any such number
of Shares:
Money Market Portfolio 50,000,000 Shares
High-Yield Portfolio 25,000,000 Shares.
The balance of 125,000,000 Shares may be issued by the Board of Directors in
such initial classes, or in any new class or classes, each comprising such
number of Shares and having such preferences, rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption as shall be fixed and determined from time to time by
resolution or resolutions providing for the issuance of such Shares adopted by
the Board of Directors, to whom authority so to fix and determine the same is
hereby expressly granted. In addition, the Board of Directors is hereby
expressly granted authority to increase or decrease the
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number of Shares of any class, but the number of Shares of any class shall not
be decreased by the Board of Directors below the number of Shares thereof then
outstanding.
The Board of Directors may classify or reclassify any unissued
Shares into one or more classes that may be established and designated from time
to time. The Corporation may hold as treasury Shares, reissue for such
consideration and on such terms as the Board of Directors may determine, or
cancel, at their discretion from time to time, any Shares of any class
reacquired by the Corporation.
SEVENTH: Section 7.1 Procedure for Designation. The establishment
and designation of any class of Shares in addition to those established and
designated in Section 7.2 shall be effective upon (i) the authorization of such
class by vote of a majority of the Board of Directors, including the
establishment and designation of the preferences, rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption of such class, and (ii) the filing for record of the
articles supplementary required by Section 2-208 of the Maryland General
Corporation Law with the State Department of Assessments and Taxation of
Maryland. At any time when there are no Shares outstanding or subscribed for a
particular class previously established and designated by the Board of
Directors, the class may be liquidated by similar means.
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Section 7.2. Establishment and Designation of Classes. Without
limiting the authority of the Board of Directors set forth herein to establish
and designate any further classes, there are hereby established and designated
two classes of stock to be known as: The Money Market Portfolio and The
High-Yield Portfolio. The Shares of said classes and any Shares of any further
class that may from time to time be established and designated by the Board of
Directors (unless provided otherwise by the Board of Directors with respect to
such further class at the time of establishing and designating such further
class) shall have the following relative preferences, rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption:
(a) Assets Belonging to Classes. All consideration received by the
Corporation for the issue or sale of Shares of a particular class,
together with all assets in which such consideration is invested or
reinvested, all income, earnings, profits, and proceeds thereof, including
any proceeds derived from the sale, exchange of liquidation of such
assets, and any funds or payments derived from any reinvestment of such
proceeds in whatever form the same may be, shall irrevocably belong to
that class for all purposes, subject only to the rights of creditors, and
shall be so recorded upon
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the books and accounts of the Corporation. Such consideration, assets,
income, earnings, profits, and proceeds thereof, including any proceeds
derived from the sale, exchange or liquidation of such assets, and any
funds or payments derived from any reinvestment of such proceeds, in
whatever form the same may be, together with any General Items allocated
to that class as provided in the following sentence, are herein referred
to as "assets belonging to" that class. In the event that there are any
assets, income, earnings, profits, and proceeds thereof, funds, or
payments which are not readily identifiable as belonging to any particular
class (collectively "General Items"), such General Items shall be
allocated by or under the supervision of the Board of Directors to and
among any one or more of the classes established and designated from time
to time in such manner and on such basis as the Board of Directors, in its
sole discretion, deems fair and equitable, and any General Items so
allocated to a particular class shall belong to that class. Each such
allocation by the Board of Directors shall be conclusive and binding for
all purposes.
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(b) Liabilities Belonging to Class. The assets belonging to each
particular class shall be charged with the liabilities of the Corporation
in respect of that class and all expenses, costs, charges and reserves
attributable to that class, and any general liabilities, expenses, costs,
charges or reserves of the Corporation which are not readily identifiable
as belonging to any particular class shall be allocated and charged by or
under the supervision of the Board of Directors to and among any one or
more of the classes established and designated from time to time in such
manner and on such basis as the Board of Directors, in its sole
discretion, deems fair and equitable. The liabilities, expenses, costs,
charges and reserves allocated and so charged to a class are herein
referred to as "liabilities belonging to" that class. Each allocation of
liabilities, expenses, costs, charges and reserves by the Board of
Directors shall be conclusive and binding for all purposes.
(c) Income Belonging to Class. The Board of Directors shall have
full discretion, to the extent not inconsistent with the Maryland General
Corporation Law and the 1940 Act, to determine which items shall be
treated as income and which
<PAGE>
-7-
items as capital; and each such determination and allocation shall be
conclusive and binding. "Income belonging to" a class includes all income,
earnings and profits derived from assets belonging to that class, less any
expenses, costs, charges or reserves belonging to that class, for the
relevant time period.
(d) Dividends. Dividends and distributions on Shares of a particular
class may be declared and paid with such frequency, in such form and in
such amount as the Board of Directors may from time to time determine.
Dividends may be declared daily or otherwise pursuant to a standing
resolution or resolutions adopted only once or with such frequency as the
Board of Directors may determine, after providing for actual and accrued
liabilities belonging to that class.
All dividends on Shares of a particular class shall be paid only out
of the income belonging to that class and capital gains distribution on
Shares of a particular class shall be paid only out of the capital gains
belonging to that class. All dividends and distributions on Shares of a
particular class shall be distributed pro rata to the holders of that
class in proportion to the number of Shares of that class held
<PAGE>
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by such holders at the date and time of record established for the payment
of such dividends or distributions, except that in connection with any
dividend or distribution program or procedure the Board of Directors may
determine that no dividend or distribution shall be payable on Shares as
to which the Shareholder's purchase order and/or payment have not been
received by the time or times established by the Board of Directors under
such program or procedure.
The Board of Directors shall have the power, in its sole discretion,
to distribute in any fiscal year as dividends, including dividends
designated in whole or in part as capital gains distributions, amounts
sufficient, in the opinion of the Board of Directors, to enable the
Corporation to qualify as a regulated investment company under the
Internal Revenue Code of 1954, as amended, or any successor or comparable
statute thereto, and regulations promulgated thereunder, and to avoid
liability of the Corporation for federal income tax in respect of that
year. However, nothing in the foregoing shall limit the authority of the
Board of Directors to make distributions greater than or less than the
amount necessary to qualify as a regulated investment company and to avoid
liability of the Corporation for such tax.
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Dividends and distributions may be paid in cash, property or Shares,
or a combination thereof, as determined by the Board of Directors or
pursuant to any program that the Board of Directors may have in effect at
the time. Any such dividend or distribution paid in Shares will be paid at
the current net asset value thereof as defined in subsection 7.2(h).
(e) Liquidation. In the event of the liquidation of the Corporation
or of a particular class, the Shareholders of each class that has been
established and designated and is being liquidated shall be entitled to
receive, as a class, when and as declared by the Board of Directors, the
excess of the assets belonging to that class over the liabilities
belonging to that class. The holders of Shares of any class shall not be
entitled thereby to any distribution upon liquidation of any other class.
The assets so distributable to the Shareholders of any particular class
shall be distributed among such Shareholders in proportion to the number
of Shares of that class held by them and recorded on the books of the
Corporation. The liquidation of any particular class in which there are
Shares then outstanding may be authorized by vote of a majority of the
Board of Directors then in office, subject to the approval of a majority
of the outstanding securities of that class, as defined in the 1940 Act.
<PAGE>
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(f) Voting. On each matter submitted to a vote of the Shareholders,
each holder of Shares shall be entitled to one vote for each Share
standing in his name on the books of the Corporation, irrespective of the
class thereof, and all Shares of all classes shall vote as a single class
("Single Class Voting"); provided, however, that (i) as to any matter with
respect to which a separate vote of any class is required by the 1940 Act
or by the Maryland General Corporation Law, such requirement as to a
separate vote by that class shall apply in lieu of Single Class Voting as
described above; (ii) in the event that the separate vote requirements
referred to in (i) above apply with respect to one or more classes, then,
subject to (iii) below, the Shares of all other classes shall vote as a
single class; and (iii) as to any matter which does not affect the
interest of a particular class, only the holders of Shares of the one or
more affected classes shall be entitled to vote.
(g) Redemption by Shareholder. Each holder of Shares of a particular
class shall have the right at such times as may be permitted by the
Corporation to require the Corporation to redeem all or any part of his
Shares of that class at a redemption price per share equal to the net
asset value per Share of that class next deter-
<PAGE>
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mined (in accordance with subsection (i) of this Section 7.2) after the
Shares are properly tendered for redemption, less such redemption charge
as is determined by the Board of Directors, which redemption charge shall
not exceed one percent (1%) of said net asset value per share. Payment of
the proceeds of redemption shall be in cash.
Notwithstanding the foregoing, the Corporation may postpone payment
of the redemption price and may suspend the right of the holders of Shares
of any class to require the Corporation to redeem Shares of that class
during any period or at any time when, and to the extent permissible under
the Investment Company Act of 1940.
(h) Redemption by the Corporation. The Board of Directors may cause
the Corporation to redeem at current net asset value the Shares of any
class from a Shareholder whose Shares have an aggregate current net asset
value of less than five hundred dollars ($500). No such redemption shall
be effected unless the Corporation has given the Shareholder at least
sixty (60) days' notice of its intention to redeem the Shares and an
opportunity to purchase a sufficient number of additional Shares to bring
the aggregate current net asset value of his Shares to five hundred
dollars ($500). Upon redemption of Shares pursuant
<PAGE>
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to this Section, the Corporation shall promptly cause payment of the full
redemption price to be made to the holder of Shares so redeemed.
(i) Net Asset Value per Share. The net asset value per Share of any
class shall be the quotient obtained by dividing the value of the net
assets of that class (being the value of the assets belonging to that
class less the liabilities belonging to that class) by the total number of
Shares of that class outstanding.
(j) Equality. All Shares of each particular class shall represent an
equal proportionate interest in the assets belonging to that class
(subject to the liabilities belonging to that class), and each Share of
any particular class shall be equal to each other Share of that class. The
Board of Directors may from time to time divide or combine the Shares of
any particular class into a greater or lesser number of Shares of that
class without thereby changing the proportionate beneficial interest in
the assets belonging to that Class or in any way affecting the rights of
Shares of any other class.
(k) Conversion or Exchange Rights. Subject to compliance with the
requirements of the 1940 Act, the Board of Directors shall have the
authority to
<PAGE>
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provide that holders of Shares of any class shall have the right to
convert or exchange said Shares into Shares of one or more other classes
of Shares in accordance with such requirements and procedures as may be
established by the Board of Directors.
EIGHTH: Section 8.1. Issuance of New Stock. The Board of Directors
is authorized to issue and sell or cause to be issued and sold from time to time
(without the necessity of offering the same or any part thereof to existing
shareholders) all or any portion or portions of the entire authorized but
unissued Shares of the Corporation, and all or any portion or portions of the
Shares of the Corporation from time to time in its treasury, for cash or for any
other lawful consideration or considerations and on or for any terms,
conditions, or prices consistent with the provisions of law and of the Articles
of Incorporation at the time in force; provided, however, that in no event shall
Shares of the Corporation having a par value be issued or sold for a
consideration or considerations less in amount or value than the par value of
the Shares so issued or sold, and provided further that in no event shall any
Shares of the Corporation be issued or sold for a consideration (which shall be
net to the Corporation after underwriting discounts or commissions) less in
amount or value than the net asset value of the Shares so issued or sold
determined next after an order
<PAGE>
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to purchase such Shares is accepted, except that Shares may be sold to an
underwriter at (a) the net asset value determined next after such orders are
received by a dealer with whom such underwriter has a sales agreement or (b) the
net asset value determined at a later time.
Section 8.2. Fractional Shares. The Corporation may issue and sell
fractions of Shares having pro rata all the rights of full Shares, including,
without limitation, the right to vote and to receive dividends, and wherever the
words "Share" or "Shares" are used in these Articles or in the Bylaws they shall
be deemed to include fractions of Shares, where the context does not clearly
indicate that only full Shares are intended.
NINTH: The number of directors constituting the Board of Directors
shall be ten, which number may be changed in accordance with the Bylaws of the
Corporation but shall never be less than the number prescribed by the General
Corporation Law. The names of the persons who shall act as directors until the
first annual meeting of the Corporation and until their successors have been
duly chosen and qualified are:
George W. Anderson
Arnold Bernhard
Jean Bernhard Buttner
Shelby Cullom Davis
Leo R. Futia
Edmund F. Mansure
Charles E. Reed
Ruxton M. Ridgely
Paul Craig Roberts
Mark K. Tavel.
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TENTH: Notwithstanding any provision of law requiring a greater
proportion than a majority of the votes of all classes (or of any class entitled
to vote thereon as a separate class) to take or authorize any action, in
accordance with the authority granted by Section 2-104(b)(5) of the Maryland
General Corporation Law, the Corporation is hereby authorized to take such
action upon the concurrence of a majority of the aggregate number of Shares
entitled to vote thereon (or of a majority of the aggregate number of Shares of
a class entitled to vote thereon as a separate class). The right to cumulate
votes in the election of directors is expressly prohibited.
ELEVENTH: Except as may otherwise be provided in the Bylaws, the
Board of Directors of the Corporation is expressly authorized to make, alter,
amend and repeal Bylaws or to adopt new Bylaws of the Corporation, without any
action on the part of the Shareholders; but the Bylaws made by the Board of
Directors and the power so conferred may be altered or repealed by the
Shareholders.
TWELFTH: The Corporation acknowledges that it is utilizing its
corporate name pursuant to contract with Value Line, Inc., a New York
corporation, and that Value Line, Inc. reserves the right to withdraw its
permission to utilize such name upon the expiration of any such contract or
successor
<PAGE>
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contract, and further agrees that Value Line, Inc. reserves to itself and any
successor to its business the right to grant and withdraw the nonexclusive right
to use the name "Value Line" or any similar name to any other corporation or
entity, including, but not limited to, any investment company of which Value
Line, Inc. or any subsidiary or affiliate thereof, or any successor to the
business of any thereof, shall be the investment adviser.
THIRTEENTH: The Board of Directors may, in its discretion from time
to time, authorize the Corporation to enter into any contract with any
corporation, firm, trust or association in which any director, officer or
employee of this Corporation may be an officer, director, employee or
shareholder of such other party to the contract, and no such contract shall be
invalidated or rendered voidable by reason of the existence of any such
relationship.
FOURTEENTH: The Corporation reserves the right from time to time to
make any amendment of these Articles of Incorporation, now or hereafter
authorized by law, including any amendment which alters contract rights, as
expressly set forth in these Articles of Incorporation, of any outstanding
Share. Any amendment to these Articles of Incorporation may be adopted at either
an annual or special meeting of the shareholders upon receiving an affirmative
majority vote of all outstanding Shares and an affirmative majority of the
outstanding Shares of each class entitled
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to vote thereon separately as a class in accordance with Section 7.2(f) hereof.
IN WITNESS WHEREOF, the undersigned incorporator of The Value Line
Tax Exempt Fund, Inc., who executed the foregoing Articles of Incorporation,
hereby acknowledges that, to the best of his knowledge, the matters and facts
set forth therein are true in all material respects under the penalties of
perjury.
Dated the 11th day of October, 1983.
s/ Peter D. Lowenstein
-------------------------------
Peter D. Lowenstein
<PAGE>
Exhibit (b)
BY LAWS
OF
THE VALUE LINE TAX EXEMPT FUND, INC.
ARTICLE 1
STOCKHOLDERS
SECTION 1. No annual meeting of the stockholders of the Corporation
shall be held unless required by applicable law or otherwise determined by the
Board of Directors. Any annual meeting of stockholders held pursuant to the
foregoing sentence shall be held at such time and place as may be determined by
the Board of Directors and shall be designated in the notice of meeting.
SECTION 2. Special meetings of the stockholders for any purpose or
purposes may be held upon call by the Chairman of the Board or the
President or by a majority of the Board of Directors, and shall be called
by the Chairman of the Board, the President, a Vice President, the
Secretary or any director at the request in writing of a majority of the
Board of Directors or of stockholders holding at least 25% of the stock of
the Corporation outstanding and entitled to vote at the meeting, at such
time and at such place within or without the State of Maryland as may be
fixed by the Chairman of the Board or the President or the Board of
Directors or by the stockholders holding at least 25% of the stock of the
Corporation outstanding and so entitled to vote, as the case may be, and
as may be stated in the notice setting forth such call. Such request shall
state the purpose or purposes of the proposed meeting and only such
purpose or purposes so specified may properly be brought before such
meeting.
SECTION 3. Written or printed notice of every annual or special
meeting of stockholders stating the time and place thereof and the general
nature of the business proposed to be transacted at any such meeting,
shall be delivered personally or mailed at least ten days prior thereto to
each stockholder of record entitled to vote at the meeting at his address
as the same appears on the books of the Corporation. Such further notice
<PAGE>
shall be given as may be required by law. Meetings may be held without
notice if all of the stockholders entitled to vote are present or
represented at the meeting, or if notice is waived in writing, either
before or after the meeting, by those not present or represented at the
meeting. No notice of an adjourned meeting of the stockholders other than
an announcement of the time and place thereof at the preceding meeting
shall be required.
SECTION 4. At every meeting of the stockholders the holders of
record of one-third of the outstanding shares of the stock of the
Corporation entitled to vote at the meeting, whether present in person or
represented by proxy, shall constitute a quorum, except as otherwise
provided by law. If at any meeting there shall be no quorum, the holders
of record, entitled to vote at the meeting, of a majority of such shares
so present or represented may adjourn the meeting from time to time to a
date not more than 120 days from the original record date, without notice
other than announcement at the meeting, until a quorum shall have been
obtained when any business may be transacted which might have been
transacted as first convened had there been a quorum.
SECTION 5. Meetings of the stockholders shall be presided over by
the Chairman of the Board, or, if he is not present, by the President or a
Vice President or, in their absence, by a chairman to be chosen at the
meeting. The Secretary of the Corporation or, if he is not present, an
Assistant Secretary of the Corporation or, if neither is present, a
secretary to be chosen at the meeting shall act as secretary of the
meeting.
SECTION 6. Each stockholder entitled to vote at any meeting shall
have one vote in person or by proxy for each share of stock held by him,
but no proxy shall be voted on after 11 months from its date, unless such
proxy provides for a longer period. All elections of directors shall be
had and all questions, except as otherwise provided by law or by the
Articles of Incorporation or by these By-Laws, shall be decided by a
majority vote of the stockholders present or represented and entitled to
vote thereat in person or by proxy. It shall be the duty of the officer
who shall have charge of the stock ledger of the Corporation to prepare
and make, at least ten days before every election of directors, a complete
list of the stockholders entitled to vote at such election, arranged in
alphabetical order. Such list shall be open, at the place where said
election is to be held for said ten days, to the examination of any
stockholder and shall be produced and kept at the time and place of
election during the whole time thereof and subject to the inspection of
any stockholder who may be present.
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<PAGE>
SECTION 7. The vote on the election of directors, and other
questions properly brought before any meeting, need not be by ballot
except when so demanded by a majority of the shareholders present and
entitled to vote thereon, or when so ordered by the chairman of such
meeting. The chairman of each meeting at which directors are to be elected
by ballot or at which any question is to be so voted on shall appoint two
inspectors of election. No director or candidate for the office of
director shall be appointed as such inspector. Inspectors shall first take
and subscribe an oath or affirmation faithfully to execute the duties of
inspector as such meeting with strict impartiality and according to the
best of their ability, and shall take charge of the polls and after the
balloting shall make a certificate of the result of the vote taken. Except
when the stock transfer books of the Corporation shall have been closed,
or a date shall have been fixed as a record date for the determination of
its stockholders entitled to vote, as hereinafter provided by Section 8 of
this Article I, no share of stock shall be voted on at any election for
directors which shall have been transferred on the books of the
Corporation within twenty days next preceding such election of directors.
SECTION 8. The Board of Directors may close the stock transfer books
of the Corporation for a period not exceeding twenty days preceding the
date of any meeting of stockholders, or the date for the payment of any
dividend, or the date for the allotment of rights, or the date when any
change or conversion or exchange of stock shall go into effect; or, in
lieu of closing the stock transfer books, the Board of Directors may fix
in advance a date, not exceeding sixty days preceding the date of any
meeting of stockholders, or the date for the payment of any dividend, or
the date for the allotment of rights, or the date when any change or
conversion or exchange of stock shall go into effect, or a date in
connection with the obtaining of any consent, as a record date for the
determination of the stockholders entitled to notice of, and to vote at
any such meeting and at any adjournment thereof, or entitled to receive
payment of any such dividend, or to any such allotment of rights, or to
exercise the rights in respect of any such change, conversion or exchange
of stock, or to give such stockholders, as shall be stockholders of record
on the date so fixed, shall be entitled to such notice of, and to vote at,
such meeting and any adjournment thereof, or to receive payment of such
dividend, or to receive such allotment of rights, or to exercise such
rights, or to give such consent, as the case may be, notwithstanding any
transfer of any stock on the books of the Corporation after any such
record date fixed as aforesaid.
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<PAGE>
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. The Board of Directors of the Corporation shall consist
of not less than three nor more than fifteen persons, who need not be
stockholders. The number of Directors (within the above limits) shall be
fixed from time to time by a majority of the Board of Directors. The
directors shall be elected annually and shall hold office, unless sooner
removed, until their respective successors are elected and qualify. A
majority of the whole Board, but in no event less than two, shall
constitute a quorum for the transaction of business, but if at any meeting
of the Board there shall be less than a quorum present, a majority of the
directors present may adjourn the meeting from time to time, until a
quorum shall have been obtained, when any business may be transacted which
might have been transacted at the meeting as first convened had there been
a quorum. No notice of an adjourned meeting of the directors other than an
announcement of the time and place thereof at the preceding meeting shall
be required. The acts of the majority of the directors present at any
meeting at which there is a quorum, shall, except as otherwise provided by
law, by the Articles of Incorporation or by these By-Laws, be the acts of
the Board.
SECTION 2. Unless otherwise provided in the Articles of
Incorporation or these By-Laws, vacancies and newly created directorships
resulting from any increase in the authorized number of directors or from
any other cause may be filled by a majority of the directors then in
office. In the case of a vacancy resulting from any cause other than an
increase in the authorized number of directors, such action shall be
deemed to be duly taken even if a majority of such directors is less than
a quorum. A director so chosen shall hold office until the next annual
meeting of stockholders and until his respective successor is elected and
shall have qualified. The stockholders by majority vote, at any meeting
called for the purpose, may remove, with or without cause, any director
and, at any meeting called for the purpose, fill the vacancy in the Board
thus caused.
SECTION 3. Meetings of the Board of Directors shall be held at such
place, within or without the State of Maryland, as may from time to time
be fixed by resolution of the Board or as may be specified in the call of
any meeting. Regular meetings of the Board of Directors shall be held at
such times as may from time to time be fixed by resolution of the Board
and special meetings may be held at any time upon the call of a majority
of
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<PAGE>
the persons constituting the Board of Directors or the Chairman of the
Board or the President or the Secretary, by oral, telephonic, telegraphic
or written notice, duly served on or sent or mailed to each director at
least twenty-four hours before the meeting. The notice of any special
meeting shall specify the purposes thereof. A meeting of the Board may be
held without notice immediately after the annual meeting of the
stockholders at the same place at which such meeting is held. Notice need
not be given of regular meetings of the Board held at times fixed by
resolution of the Board. Meetings may be held at any time without notice
if all of the directors are present or if notice is waived in writing,
either before or after the meeting, by those not present.
SECTION 4. Meetings of the Board of Directors shall be presided over
by the Chairman of the Board or the President or, if neither is present,
by a Vice President or, if none of the above are present, by a chairman to
be chosen at the meet- and the Secretary or, if he is not present, an
Assistant Secretary of the Corporation or, if neither is present, a
secretary to be chosen at the meeting shall act as secretary of the
meeting.
SECTION 5. The directors shall receive such fees or compensation for
services to the Corporation (including attendance at meetings of the Board
or of committees designated by the Board pursuant to Section 7 of this
Article II) as may be fixed by the Board of Directors from time to time by
resolution or resolutions.
SECTION 6. The Board of Directors may, by resolution or resolutions,
passed by a majority of the whole Board, designate one or more committees,
each such committee to consist of two or more of the directors of the
Corporation, which, to the extent provided in said resolution or
resolutions and subject to the General Laws of the State of Maryland,
shall have and may exercise the powers of the Board in the management of
the business and affairs of the Corporation, and may have power to
authorize the seal of the Corporation, to be affixed to all papers which
may require it. Such committee or committees shall have such name or names
as may be determined from time to time by resolution adopted by the Board
of Directors. A majority of the members of any such committee may
determine its action and fix the time and place of its meetings unless the
Board of Directors shall otherwise provide. The Board of Directors shall
have power at any time to change the membership of, to fill vacancies in,
or to dissolve any such committee.
-5-
<PAGE>
SECTION 7. Any action required or permitted to be taken at any
meeting of the Board of Directors or by any committee thereof may be taken
without a meeting if an unanimous written consent which sets forth the
action is signed by each member of the Board or committee and is filed
with the minutes of proceedings of the Board or committee. Members of the
Board or a committee thereof may participate in a meeting by means of a
conference telephone or similar communications equipment if all persons
participating in the meeting can hear each other at the same time.
ARTICLE III
OFFICERS
SECTION 1. The Board of Directors, as soon as practicable after the
election of directors at the annual meeting of the stockholders held in
each year, shall appoint from among their members a Chairman of the Board
and a President of the Corporation and shall appoint one or more Vice
Presidents, a Secretary and a Treasurer, Assistant Secretaries and
Assistant Treasurers and, from time to time, any other officers and agents
as it may deem proper. Any two of the above-mentioned offices, except
those of President and a Vice President, may be held by the same person,
but no officer shall execute, acknowledge or verify any instrument in more
than one capacity if such instrument be required by law, or by these
By-Laws to be executed, acknowledged or verified by any two or more
officers.
SECTION 2. The term of office of all officers shall be one year or
until their respective successors are chosen; but any officer or agent
chosen or appointed by the Board of Directors may be removed, if the Board
of Directors finds, in its judgment, that the best interests of the
Corporation will be served, at any time by the affirmative vote of a
majority of the members of the Board then in office.
SECTION 3. Subject to such limitations as the Board of Directors may
from time to time prescribe, the officers of the Corporation shall each
have such powers and duties as generally appertain to their respective
offices, as well as such powers and duties as from time to time may be
conferred by the Board of Directors. Any officer, agent or employee of the
Corporation may be required by the Board of Directors to give bond for the
faithful discharge of his duties, in such sum and of such character as
the Board may from time to time prescribe.
-6-
<PAGE>
ARTICLE IV
CERTIFICATE OF STOCK
SECTION 1. The interest of each stockholder of the Corporation shall
be evidenced by a certificate or certificates for shares of stock of the
Corporation, in such form as the Board of Directors may from time to time
prescribe, or by a recording of each stockholders interest on the records
of the Corporation's Transfer Agent. The certificates for shares of stock
of the Corporation shall be signed by the Chairman of the Board, the
President or a Vice President, and the Treasurer or an Assistant Treasurer
or the Secretary or an Assistant Secretary, and shall be countersigned and
registered in such manner, if any, as the Board may by resolution
prescribe, provided, however, that, where any such certificate is signed
(1) by a transfer agent or by an assistant transfer agent or (2) by a
transfer clerk acting on behalf of the Corporation and a registrar, the
signature of any such Chairman of the Board, President, Vice President,
Treasurer, Assistant Treasurer, Secretary or Assistant Secretary, may be
facsimile, engraved or printed. In case any officer or officers whose
manual or facsimile signatures appear on any certificate or certificates
of this Corporation shall cease to be such officer or officers, whether
because of death, resignation or otherwise, before such certificate or
certificates of stock have been actually countersigned and issued, such
certificate or certificates may be countersigned and issued as though such
person or persons whose manual facsimile signatures appear thereon had not
ceased to be such officer or officers of the Corporation unless, prior to
issuance, written instructions to the contrary shall have been received by
the transfer agent, signed by an officer of this Corporation, and they
shall be recognized by this Corporation as valid and binding certificates
of stock of this Corporation for all purposes and in all respects.
SECTION 2. The shares of stock of the Corporation shall be
transferable on the books of the Corporation by the holder thereof in
person or by a duly authorized attorney, upon surrender for cancellation
of a certificate or certificates for a like number of shares, with a duly
executed assignment and power of transfer endorsed thereon or attached
thereto, and with such proof of the authenticity of the signatures as the
Corporation or its agent may reasonably require.
SECTION 3. No certificate for shares of stock of the Corporation
shall be issued in place of any certificate alleged to have been lost,
stolen, mutilated or destroyed except upon production of such evidence of
the loss, theft, mutilation or destruction and upon indemnification of the
Corporation and its agents to such extent and in such manner as the Board
of Directors may from time to time prescribe.
-7-
<PAGE>
ARTICLE V
CORPORATE BOOKS
The books of the Corporation may be kept outside of the State of
Maryland at such place or places as the Board of Directors may from time
to time determine.
ARTICLE VI
SIGNATURES
SECTION 1. Except as otherwise provided in these By-Laws or as the
Board of Directors may generally or in particular cases authorize the
execution thereof in some other manner, all deeds, leases, transfers,
contracts, bonds, notes, checks, drafts and other obligations made,
accepted or endorsed by the Corporation and all endorsements, assignments,
transfers, stock powers or other instruments of transfer of securities
owned by or standing in the name of the Corporation shall be signed or
executed by two officers of the Corporation, who shall be the Chairman of
the Board, the President or a Vice President and a Vice President, the
Secretary or the Treasurer.
SECTION 2. The Chairman of the Board or the President of the
Corporation or, in their absence or disability or at their request, a Vice
President of this Corporation may authorize from time to time the
signature and issuance of proxies to vote upon shares of stock of other
corporations owned by the Corporation unless otherwise provided by the
Board of Directors. All proxies for shares held in the name of the
Corporation shall be signed in the name of the Corporation by two officers
of the Corporation, who shall be the Chairman of the Board or the
President or a Vice President and a Vice President, the Secretary or the
Treasurer.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Corporation shall be determined by the Board
of Directors.
ARTICLE VIII
CORPORATE SEAL
The corporate seal of the Corporation shall consist of a flat faced
circular die with the word "Maryland", together with the name of the
Corporation, the year of its organization, and such other appropriate
legend as the Board of Directors may from
-8-
<PAGE>
time to time determine, cut or engraved thereon. In lieu of the corporate
seal, when so authorized by the Board of Directors or a duly empowered
committee thereof, a facsimile thereof may be impressed or affixed or
reproduced. Notwithstanding the foregoing, if the Corporation is required
to place its corporate seal to a document, it is sufficient to meet the
requirements of any law, rule or regulation relating to a corporate seal
to place the word ("seal") adjacent to the signature of the authorized
officer of the Corporation.
ARTICLE IX
OFFICES
The Corporation and the stockholders and the directors may have
offices outside the State of Maryland at such places as shall be
determined from time to time by the Board of Directors.
ARTICLE X
AMENDMENTS
The By-Laws of the Corporation may be amended, added to, rescinded
or repealed at any meeting of the stockholders, or by vote of a majority
of the directors then in office at any meeting of the Board of Directors;
except that after the initial issue of any shares of capital stock of the
Corporation, the provisions of this Article X may be altered, amended or
repealed only upon the affirmative vote of the holders of a majority of
all shares of capital stock of the Corporation at the time outstanding and
entitled to vote.
ARTICLE XI
ADDITIONAL PROVISIONS
SECTION 1. The books of account of the Corporation shall be examined
by an independent firm of public accountants, selected as required by law,
at the close of each fiscal year of the Corporation and at such other
times, if any, as may be directed by the Board of Directors of the
Corporation. A report to the stockholders based upon each such examination
shall be mailed to each stockholder of the Corporation, of record on such
date with respect to each report as may be determined by the Board of
Directors, at his address as the same appears on the books of the
Corporation. Each such report shall show the assets and liabilities of the
Corporation as of the close of the year covered by the report, its income
and expenses, the net asset value of its outstanding shares, the
securities in which the funds of the Corporation were then invested and
such other matters as the Board of Directors shall determine.
-9-
<PAGE>
SECTION 2. In any case where an officer or director of the
Corporation or of any investment adviser of the Corporation, or a member
of any committee of the Corporation, is also an officer or director of
another corporation and the purchase or sale of the securities issued by
such other corporation is under consideration, the officer, director or
committee member concerned will abstain from participating in any decision
made on behalf of the Corporation to purchase or sell any securities
issued by such other corporation.
SECTION 3. The Corporation shall have as custodian or custodians one
or more trust companies or banks of good standing, each having a capital,
surplus and undivided profits aggregating not less than ten million
dollars ($10,000,000), and the funds and securities held by the
Corporation shall be kept in the custody of one or more such custodians,
provided such custodian or custodians can be found ready and willing to
act, and further provided that the Corporation may use as sub-custodians,
for the purpose of holding any foreign securities and related funds of the
Corporation, such foreign banks as the Board of Directors may approve and
as shall be permitted by law. Upon the resignation or inability to serve
of any custodian or custodians, the Corporation will use its best efforts
to obtain a successor custodian or custodians and will require that the
cash and securities owned by the Corporation be delivered directly to such
successor custodian or custodians. In the event, however, that no
successor custodian or custodians can be found, the Corporation will
submit to its stockholders, before permitting delivery of the cash and
securities owned by the Corporation to other than a successor custodian or
custodians, the question of whether the Corporation shall be liquidated or
shall function without any custodian.
ARTICLE XII
INDEMNIFICATION OF DIRECTORS,
OFFICERS AND EMPLOYEES
The Corporation shall indemnify to the full extent authorized by law
any person made or threatened to be made a party to any action, suit or
proceeding, whether criminal, civil, administrative or investigative, by
reason of the fact that he, his testator or intestate is or was a
director, officer or employee of the Corporation or serves or served any
other enterprise as a director, officer or employee at the request of the
Corporation.
-10-
<PAGE>
Exhibit (d)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of the 10 day of August 1988, between THE VALUE LINE TAX
EXEMPT FUND, INC., a Maryland corporation (hereinafter called "the Fund"), and
VALUE LINE, INC., a New York corporation (hereinafter called "the Company");
W I T N E S S E T H
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.
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, bookkeeping 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 and audit expenses; (vi) custodian
and shareholder servicing agent fees and expenses; (vii) expenses incident to
the redemption of its shares; (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
A-1
<PAGE>
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 act 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 for effecting a purchase or
sale order for a portfolio transaction in excess of the 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, 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 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 effected 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 1/2 of 1% of the Fund's average
net assets during the year, pro rated for any portion of a year during which
this 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 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 will continue in effect from year to
year thereafter 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.
A-2
<PAGE>
5. Name of Fund. The Company consents to the use by the Fund of the name
"The Value Line Tax Exempt 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 in the
performance of its duties or from 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.
THE VALUE LINE TAX EXEMPT FUND, INC.
By /s/ Thomas J. Sexton
---------------------------------
VALUE LINE, INC.
By /s/ Illegible
---------------------------------
A-3
<PAGE>
Exhibit (c)
DISTRIBUTION AGREEMENT
Between
THE VALUE LINE TAX EXEMPT FUND, INC.
and
VALUE LINE SECURITIES, INC.
February 1, 1984
VALUE LINE SECURITIES, INC.
711 Third Avenue
New York, New York 10017
Dear Sirs:
THE VALUE LINE TAX EXEMPT FUND, INC. (the "Fund") a Maryland corporation,
is registered as an Investment Company under the Investment Company Act of 1940
and an indefinite number of shares of its capital stock have been registered
under the Securities Act of 1933 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.
<PAGE>
-2-
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 through securities dealers who have entered into sales
agreements with you. However, in no event will shares be issued prior to the
receipt by us of full payment for such shares.
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
certificates.
5. The Fund has delivered to you a copy of its initial Prospectus dated on
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.
<PAGE>
-3-
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 or 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 the Prospectus, other than those
furnished to existing shareholders.
9. This Agreement shall remain in effect until 1985, 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 a 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 a vote of the holders of a majority of the outstanding voting securities of
the Fund and by such a vote of the Board of Directors.
(b) You shall not 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.
<PAGE>
-4-
10. This Agreement may not be amended or changed except in writing and
shall be binding upon and shall enure to the benefits of the parties hereto and
their respective successors. but this Agreement shall not be assigned by either
party and shall automatically terminate upon assignment.
If the foregoing is in accordance with your undertaking, kindly so
indicate by signing in the space provided below.
THE VALUE LINE TAX EXEMPT FUND, INC.
By /s/ [Illegible]
---------------------------------
Accepted:
VALUE LINE SECURITIES, INC.
By /s/ Thomas J. Sexton
-------------------------
<PAGE>
Exhibit (g)
CUSTODIAN AGREEMENT
Dated as of:
Between
THE VALUE LINE TAX-EXEMPT FUND, INC.
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
----
1. Bank Appointed Custodian ..............................................1
2. Definitions ...........................................................1
(a) Authorized Person ...............................................1
(b) Security ........................................................2
(c) Portfolio Security ..............................................2
(d) Officers' Certificate ...........................................2
(e) Book-Entry System and Depository ................................2
3. A. Proper Instructions .............................................3
B. Bank's Communications with Fund .................................4
4. Separate Accounts .....................................................5
5. Certification as to Authorized Persons ................................5
6. Custody of Cash and Securities ........................................6
A. Cash ............................................................6
(a) Purchase of Securities ....................................6
(b) Redemptions ...............................................7
(c) Distributions and Expenses of Fund ........................7
(d) Payment in Respect of Securities ..........................7
(e) Repayment of Cash .........................................7
(f) Other Authorized Payments .................................8
(g) Termination ...............................................8
B. Securities ......................................................8
(a) Book-Entry System .........................................10
(b) Use of Direct Paper System for Commercial
Paper .....................................................12
C. Options and Futures Transactions ................................14
(a) Puts and Calls Traded on Securities
Exchanges, NASDAQ or Over-the-Counter .....................14
(b) Puts, Calls and Futures Traded on
Commodities Exchanges .....................................15
(c) Segregated Account ........................................16
D. Segregated Account for "when issued", "forward
commitment" and Reverse Repurchase Agreement
Transactions ....................................................17
7. Transfer of Securities ................................................18
8. Redemptions ...........................................................20
9. Merger, Dissolution, etc. of Fund .....................................20
10. Actions of Bank Without Prior Authorization ...........................21
11. Maintenance of Records and Confidentiality ............................23
<PAGE>
12. Concerning the Bank ...................................................23
A. Performance of Duties ...........................................23
B. Responsibility of Custodian .....................................24
C. No Duty of Bank .................................................24
D. Fees and Expenses of Bank .......................................25
F. Advances by Bank ................................................26
13. Termination ...........................................................26
14. Notices ...............................................................28
15. Amendments ............................................................29
16. Parties ...............................................................29
17. Governing Law .........................................................29
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT made as of this 21st day of June, 1990 between THE VALUE LINE
TAX-EXEMPT FUND, INC., a corporation established under the laws of Maryland (the
"Fund"), and STATE STREET BANK AND TRUST COMPANY ("Bank").
The Fund, an open-end management investment company, desires to place and
maintain its portfolio securities and cash in the custody of the Bank. The Bank
has at least the minimum qualifications required by Section 17(f)(1) of the
Investment Company Act of 1940 to act as custodian of the portfolio securities
and cash of the Fund, and has indicated its willingness to so act, subject to
the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows
1. Bank Appointed Custodian. The Fund hereby appoints the Bank as
custodian of its portfolio securities and cash delivered to the Bank as
hereinafter described, and the Bank agrees to act as such upon the terms and
conditions hereinafter set forth.
2. Definitions. Whenever used herein, the terms listed below will have the
following meaning:
(a) Authorized Person. Authorized person will mean any of the
persons duly authorized to give Proper Instructions or otherwise act on
behalf of the Fund by appropriate resolution of the Board of Directors.
<PAGE>
(b) Security. The term security as used herein will have the same
meaning as when such term is used in the Securities Act of 1933 as
amended, including, without limitation, any note, stock, treasury stock,
bond, debenture, evidence of indebtedness, certificate of interest or
participation in any profit sharing agreement, collateral-trust
certificate, preorganization certificate or subscription, transferable
share, investment contract, voting-trust certificate, certificate of
deposit for a security, fractional undivided interest in oil, gas, or
other mineral rights, any put, call, straddle, option, or privilege on any
security, certificate of deposit, or group or index of securities
(including any interest therein or based on the value thereof), or any
put, call, straddle, option, or privilege entered into on a national
securities exchange relating to a foreign currency, or, in general, any
interest or instrument commonly known as a "security", or any certificate
of interest or participation in, temporary or interim certificate for,
receipt for, guarantee of, or warrant or right to subscribe to, or option
contract to purchase or sell any of the foregoing and futures, forward
contracts and options thereon.
(c) Portfolio Security. Portfolio security will mean any security
owned by the Fund.
(d) Officers' Certificate. Officers' Certificate will mean unless
otherwise indicated, any request, direction, instruction, or certification
in writing signed by any two Authorized Persons of the Fund.
(e) Book-Entry System and Depository. Book-Entry System shall mean
the Federal Reserve-Treasury Department Book Entry System for United
States government, instrumentality and agency securities operated by the
Federal Reserve Banks, its successor or successors and its nominee or
nominees. Depository shall mean the Depository
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Trust Company ("DTC"), a clearing agency registered with the Securities and
Exchange Commission under Section 17A of the Securities Exchange Act of 1934,
its successor or successors and its nominee or nominees. The term "Depository"
shall further mean and include any other person authorized to act as a
depository under the Investment Company Act of 1940, its successor or successors
and its nominee or nominees specifically identified in a certified copy of a
resolution of the Fund's Directors.
3A. Proper Instructions. For purposes of this Agreement, "Proper
Instructions" shall mean (i) instructions regarding the purchase or sale of
securities for the portfolio of the Fund, and payments and deliveries in
connection therewith, given by an Authorized Person as designated in an
Officers' Certificate, such instructions to be given in such form and manner as
the Bank and the Fund shall agree upon from time to time, and (ii) instructions
(which may be continuing instructions) regarding other matters signed or
initialled by such one or more persons from time to time designated in an
Officers' Certificate as having been authorized by the Directors of the Fund.
Oral instructions given by a person whom the Bank reasonably believes to be
authorized to give such instructions with respect to the transaction involved
will be considered Proper Instructions only if the Bank receives written
instructions (which may be sent by telecopier) confirming such oral
instructions, provided however that if the Bank is notified by an Authorized
Person of the Fund that the Fund is unable to promptly confirm such oral
instructions in writing, then the Bank may act upon receipt of a second oral
instruction confirming such prior oral instruction. The Bank shall compare the
original oral instruction with any confirmatory written or oral instruction, as
the case may be, and shall report any discrepancy to the Fund immediately, and
the Bank shall be responsible for any expense incurred in taking any action,
including any reprocessing, necessary to correct any
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<PAGE>
such discrepancy or error in Proper Instructions given by the Fund, to the
extent such expense is caused by the unreasonable delay of the Bank in reporting
such discrepancy to the Fund. Except as provided in the preceeding sentence, the
Fund shall be responsible, at the Fund's expense, for taking any action,
including any reprocessing, necessary to correct any such discrepancy or error
in Proper Instructions given by the Fund, and to the extent such action requires
the Bank to act, the Fund shall give the Bank specific Proper Instructions as to
the action required. The Bank shall act upon and comply with any subsequent
Proper Instructions which modifies a prior Proper Instruction. Upon receipt of
an Officers' Certificate as to the authorization by the Directors of the Fund
accompanied by a detailed description of procedures approved by the Fund, Proper
Instructions may include communication effected directly between
electro-mechanical or electronic devices provide that the Directors and the Bank
are satisfied that such procedures afford adequate safeguards for the Fund's
assets.
3B. Bank's Communications with Fund. For purposes of this Agreement, all
communications from the Bank to the Fund shall be in writing (which may be sent
by means of a telecopier) and any such writing reasonably believed by the Fund
to be from a person authorized to make such communication on behalf of the Bank
may be relied upon the Fund. An oral communication from a person whom the Fund
reasonably believes to be authorized to make such communication on behalf of the
Bank with respect to the transaction may be relied upon by the Fund only if the
Fund receives a written communication (which may be sent by telecopier)
confirming such oral communication, provided however, that if the Fund is
notified by such authorized person that the Bank is unable to promptly confirm
such oral communication in writing, then the Fund may act in reliance upon
receipt of a second oral communication confirming such prior oral communication.
The Fund shall compare the original oral communication with any confirmatory
written or oral
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<PAGE>
communication, as the case may be, and shall report any discrepancy to the Bank
immediately, and the Fund shall be responsible for any expense incurred in
taking any action, including any reprocessing, necessary to correct any such
discrepancy or error in communications given by the Bank, to the extent such
expense is caused by the unreasonable delay of the Fund in reporting such
discrepancy to the Bank. Except as provided in the preceding sentence, the Bank
shall be responsible, at the Bank's expense, for any action taken, including any
reprocessing, necessary to correct any such discrepancy or error in
communications given by the Bank, and to the extent such action requires the
Bank to act, the Fund shall give the Bank specific Proper Instructions as to the
action required. The Fund may act in reliance upon any subsequent communication
from the Bank which modifies a prior communication.
4. Separate Accounts. If the Fund has more than one series or portfolio,
the Bank will segregate the assets of the Fund into a Separate Account for each
such series or portfolio containing the assets of such series or portfolio (and
all investment earnings thereon), all as directed from time to time by Proper
Instructions.
5. Certification as to Authorized Persons. The Secretary or Assistant
Secretary of the Fund will at all times maintain on file with the Bank his
certification to the Bank, in such form as may be acceptable to the Bank, of the
names and signatures of the Authorized Persons, it being understood that upon
the occurrence of any change in the information set forth in the most recent
certification on file (including without limitation any person named in the most
recent certification who is no longer an Authorized Person as designated
therein), the Secretary or Assistant Secretary of the Fund will sign a new or
amended certification setting forth the change and the new, additional or
omitted names or signatures. The Bank will be entitled to rely and act upon any
Officers' Certificate given to
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<PAGE>
it by the Fund which has been signed by Officers named in the most recent
certification.
6. Custody of Cash and Securities. As custodian for the Fund, the Bank
will keep safely all of the portfolio securities delivered to the Bank, and will
deposit to the account of the Fund all of the cash of the Fund delivered to the
Bank, as set forth below.
A. Cash. The Bank will open and maintain a separate account or
accounts in the name of the Fund or in the name of the Bank, as custodian of the
Fund, subject only to draft or order by the Bank acting pursuant to the terms of
this Agreement. The Bank will hold in such account or accounts as custodian,
subject to the provisions hereof (including sections 6(C) and 6(D), all cash
received by it, for the account of the Fund. Upon receipt by the Bank of Proper
Instructions (which may be continuing instructions) or in the case of payments
for redemptions and repurchases of outstanding shares of beneficial interest of
the Fund, notification from the Fund's transfer agent as provided in Section 8,
requesting such payment, designating the payee or the account or accounts to
which the Bank will release funds or deposit, and stating that is is for a
purpose permitted under the terms of this Section 6(A), specifying the
applicable subsection, or describing such purpose with sufficient particularity
to permit the Bank to ascertain the applicable subsection, the Bank will make
payments of cash held for the accounts of the Fund, insofar as funds are
available for that purpose, only as permitted in (a)-(g) below.
(a) Purchase of Securities: upon the purchase of securities for the
Fund, against contemporaneous receipt of such securities by the Bank
registered in the name of the Fund or in the name of, or properly endorsed
and in form for transfer to, the Bank, or a nominee of the Bank, or
receipt for the account of the Bank through use of (1) the
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Book-Entry System pursuant to Section 6(B)(a)(3) below, (2) a Depository
pursuant to 6(B)(b) below, or (3) Book Entry Paper pursuant to Section
6(B)(c) below, each such payment to be made at the purchase price shown on
a broker's confirmation (or transaction report in the case of Book Entry
Paper) of purchase of the securities received by the Bank before such
payment is made, as confirmed in the Proper Instructions received by the
Bank before payment is made;
(b) Redemptions: in such amount as may be necessary for the
repurchase or redemption of shares of beneficial interest of the Fund
offered for repurchase or redemption in accordance with Section 8 of this
Agreement;
(c) Distributions and Expenses of Fund: for the payment on the
account of the Fund of dividends or other distributions to shareholders as
may from time to time be declared by the Directors of the Fund, interest,
taxes, management or supervisory fees, distribution fees, fees of the Bank
for its services hereunder and reimbursement of the expenses and
liabilities of the Bank as provided hereunder, fees of any transfer agent,
fees for legal, accounting, and auditing services, or other operating
expenses of the Fund;
(d) Payment in Respect of Securities: for payments in connection
with the conversion, exchange or surrender of portfolio securities or
securities subscribed to by the Fund held by or to be delivered to the
Bank;
(e) Repayment of Cash: to repay the cash delivered to the Fund for
the purpose of collateralizing the obligation to return to the Fund
certificates borrowed from the Trust representing portfolio securities,
but only upon redelivery to the Bank of such borrowed certificates;
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<PAGE>
(f) Other Authorized Payments: for other authorized transactions of
the Fund, or other obligations of the Fund incurred for proper Fund
purposes; provided that before making any such payment the Bank will also
receive a certified copy of a resolution of the Directors signed by an
Authorized Person of the Fund (other than the Person certifying such
resolution) and certified by its Clerk or Assistant Clerk, naming the
person or persons to whom such payment is to be made, and either
describing the transaction for which payment is to be made and declaring
it to be an authorized transaction of the Fund, or specifying the amount
of the obligation for which payment is to be made, setting forth the
purpose for which such obligation was incurred and declaring such purpose
to be a proper corporate purpose; and
(g) Termination: upon the termination of this Agreement as
hereinafter set forth pursuant to Section 9 and Section 13 of this
Agreement.
The Bank is hereby authorized to endorse for collection and collect on
behalf of and in the name of the Fund all checks, drafts, or other negotiable or
transferrable instruments or other orders for the payment of money received by
it for the account of the Fund.
B. Securities. Except as provided in subsections (a), (b) and (c) of
this Section 6(B), and in Sections 6(C) and 6(D), the Bank as custodian, will
receive and hold pursuant to the provisions hereof, in a separate account or
accounts and physically segregated at all times from those of other persons, any
and all portfolio securities which may now or hereafter be delivered to it by or
for the account of the Fund. All such portfolio securities will be held or
disposed of by the Bank for, and subject at all times to, the instructions of
the Fund pursuant to the terms of this Agreement. Subject to the
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<PAGE>
specific provisions in Subparagraphs (a), (b), and (c) relating to securities
that are not physically held by the Bank, the Bank will register all portfolio
securities (unless otherwise directed by Proper Instructions or an Officers'
Certificate), in the name of a registered nominee of the Bank as defined in the
Internal Revenue Code and any Regulations of the Treasury Department issued
thereunder, which nominee shall be exclusively assigned to the Fund, and will
execute and deliver all such certificates in connection therewith as may be
required by such laws or Regulations or under the laws of any State. The Bank
will ensure that the specific portfolio securities of the Fund held by it
hereunder will be at all times identifiable.
The Bank will use the same care with respect to the safekeeping of
portfolio securities and cash of the Fund held by it as it uses in respect of
its own similar property but it need not maintain any special insurance for the
benefit of the Fund.
The Fund will from time to time furnish to the Bank appropriate
instruments to enable it to hold or deliver in proper form for transfer, or to
register in the name of its registered nominee, any securities which it may hold
for the account of the Fund and which may from time to time be registered in the
name of the Fund.
Neither the Bank nor any nominee of the Bank will vote any of the
portfolio securities held hereunder by or for the account of the Fund, except in
accordance with Proper Instructions of an Officers' Certificate.
The Bank will execute and deliver, or cause to be executed and delivered,
to the Fund all notices, proxies and proxy soliciting materials with respect to
such securities, such proxies to be executed by the registered holder of such
securities (if registered otherwise than in the name of the Fund), but without
indicating the manner in which such proxies are to be voted.
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<PAGE>
(a) Book-Entry System. Provided (i) the Bank has received a
certified copy of a resolution of the Directors of the Fund specifically
approving deposits of the Fund assets in the Book-Entry System, indicating
that, and (ii) for each year following such approval, the Directors of the
Fund has reviewed and approved the arrangement and has not delivered an
Officer's Certificate to the Bank indicating that it has withdrawn its
approval:
1. The Bank may keep Securities of the Fund in the Book-Entry
System provided that such securities are represented in an account
("Account") of the Bank (or its agent) in such System which shall
not include any assets of the Bank (or such agent) other than assets
held as a fiduciary, custodian, or otherwise for customers.
2. The records of the Bank (and any such agent) with respect
to the Fund's participation in the Book-Entry System through the
Bank (or any such agent) will identify by book entry securities
belonging to the Fund which are included with other securities
deposited in the Account and shall at all times during the regular
business hours of the Bank (or such agent) be open for inspection by
duly authorized officers, employees or agents of the Fund. Where
securities are transferred to the Fund's account, the Bank shall
also, by book entry or otherwise, identify as belonging to the Fund
a quantity of securities in fungible bulk of securities (i)
registered in the name of the Bank or its nominee, or (ii) shown on
the Bank's account on the books of the Federal Reserve Bank.
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<PAGE>
3. The Bank (or its agent) shall pay for securities purchased
for the account of the Fund or shall pay cash collateral against the
return of securities loaned by the Fund upon (i) receipt of advice
from the Book-Entry System that such Securities have been
transferred to the Account, and (ii) the making of an entry on the
records of the Bank (or its agent) to reflect such payment and
transfer for the account of the Fund. The Bank (or its agent) shall
transfer securities sold or loaned for the account of the Fund upon
(a) receipt of advice from the Book-Entry System that
payment for Securities sold or payment of the initial cash
collateral against the delivery of securities loaned by the
Fund has been transferred to the Account, and
(b) the making of an entry on the records of the Bank
(or its agent) to reflect such transfer and payment for the
account of the Fund. Copies of all advices from the Book-Entry
System of transfers of Securities for the account of the Fund
shall identify the Fund, be maintained for the Fund by the
Bank and shall be provided to the Fund at its request. The
Bank shall send the Fund a confirmation, as defined by Rule
17f-4 under the Investment Company Act of 1940, of any
transfers to or from the account of the Fund.
4. The Bank will promptly provide the Fund with any report
obtained by the Bank or its agent on the Book-Entry System's
accounting system, internal accounting control and procedures for
safeguarding Securities deposited in the Book-Entry System. The
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Bank will provide the Fund and cause any such agent to provide, at
such times as the Fund may reasonably require, with reports by
independent public accountants on the accounting system, internal
accounting control and procedures for safeguarding securities,
including Securities deposited in the Book-Entry System, relating to
the services provided by the Bank or such agent under the Agreement.
5. Anything to the contrary in the Agreement notwithstanding,
the Bank shall be liable to the Fund for any loss or damage to the
Fund resulting from use of the Book-Entry System by reason of any
gross negligence, wilful misfeasance or bad faith of the Bank or any
of its agents or of any of its or their employees or from any
reckless disregard by the Bank or any such agent of its duty to
enforce effectively such rights as it may have against the
Book-Entry System; at the election of the Fund, it shall be entitled
to be subrogated for the Bank in any claim against the Book-Entry
System or any other person which the Bank or its agent may have as a
consequence of any such loss or damage if and to the extent that the
Fund has not been made whole for any loss or damage.
(b) Use of Direct Paper System for Commercial Paper. Provided (i)
the Bank has received a certified copy of a resolution of the Fund's
Directors specifically approving participation in a system maintained by
the Bank for the holding of commercial paper in direct paper form ("Direct
Paper") and (ii) for each year following such approval the Directors of
the Fund have received and approved the arrangements, upon receipt of
Proper Instructions and upon receipt of confirmation from an Issuer (as
defined below) that the Fund has purchased such Issuer's Direct Paper,
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the Bank shall issue and hold in direct paper form, on behalf of the Fund,
commercial paper issued by issuers with whom the Bank has entered into a
direct paper agreement (the "Issuers"). In maintaining its Direct Paper
System, the Bank agrees that:
1. the Bank will maintain all Direct Paper held by the Fund in
an account of the Bank that includes only assets held by it for
customers;
2. the records of the Bank with respect to the Fund's purchase
of Direct Paper through the Bank will identify, by book entry,
Commercial Paper belonging to the Fund which is included in the
Direct Paper System and shall at all times during the regular
business hours of the Bank be open for inspection by duly authorized
officers, employees or agents of the Fund.
3. (a) The Bank shall pay for Direct Paper purchased for the
account of the Fund upon contemporaneous (i) receipt of advice from
the Issuer that such sale of Direct Paper has been effected, and
(ii) the making of an entry on the records of the Bank to reflect
such payment and transfer for the account of the Fund.
(b) The Bank shall cancel such Direct Paper obligation
upon the maturity thereof upon contemporaneous (i) receipt of advice
that payment for such Direct Paper has been transferred to the Fund,
and (ii) the making of an entry on the records of the Bank to
reflect such payment for the account of the Fund.
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4. the Bank shall transmit to the Fund a transaction journal
confirming each transaction in Direct Paper for the account of the
Fund on the next business day following the transaction;
5. the Bank will send to the Fund such reports on its system
of internal accounting control as the Fund may reasonably request
from time to time;
C. Options and Futures Transactions.
(a) Puts and Calls Traded on Securities Exchanges. NASDAQ or
Over-the-Counter.
1. The Bank shall take action as to put options ("puts") and
call options ("calls") purchased or sold (written) by the Fund
regarding escrow or other arrangements (i) in accordance with the
provisions of any agreement entered into upon receipt of Proper
Instructions between the Bank, any broker-dealer registered under
the Securities Exchange Act of 1934 and a member of the National
Association of Securities Dealers, Inc., and, if necessary, the Fund
relating to the compliance with the rules of the Options Clearing
Corporation and of any registered national securities exchange, or
of any similar organization or organizations.
2. Unless another agreement requires it to do so, the Bank
shall be under no duty or obligation to see that the Fund has
deposited or is maintaining adequate margin, if required, with any
broker in connection with any option, nor shall the Bank be under
any duty or obligation to present such option to the broker for
exercise unless it receives Proper Instructions from the Fund. The
Bank shall have no
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responsibility for the legality of any put or call purchased or sold
on behalf of the Fund, the propriety of any such purchase or sale,
or the adequacy of any collateral delivered to a broker in
connection with an option or deposited to or withdrawn from a
Segregated Account as described in sub-paragraph c of this Section
6(C). The Bank specifically, but not by way of limitation, shall not
be under any duty or obligation to: (i) periodically check or notify
the Fund that the amount of such collateral held by a broker or held
in a Segregated Account as described in sub-paragraph (c) of this
Section 6(C) is sufficient to protect such broker of the Fund
against any loss; (ii) effect the return of any collateral delivered
to a broker; or (iii) advise the Fund that any option it holds, has
or is about to expire. Such duties or obligations shall be the sole
responsibility of the Fund.
(b) Puts, Calls and Futures Traded on Commodities Exchanges.
1. The Bank shall take action as to puts, calls and futures
contracts ("Futures") purchased or sold by the Fund in accordance
with the provisions of any agreement among the Fund, the Bank and a
Futures Commission Merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the Commodity Futures
Trading Commission and/or any Contract Market, or any similar
organization or organizations, regarding account deposits in
connection with transactions by the Fund.
2. The responsibilities and liabilities of the Bank as to
Futures, puts and calls traded on commodities exchanges, any Futures
Commission Merchant
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account and the Segregated Account shall be limited as set forth in
sub-paragraph (a)(2) of this Section 6(C) as if such sub-paragraph
referred to Futures Commission Merchants rather than brokers, and
Futures and puts and calls thereon instead of options.
(c) Segregated Account.
The Bank shall upon receipt of Proper Instructions establish and
maintain a Segregated Account or Accounts for and on behalf of the Fund,
into which Account or Accounts may be transferred cash and/or securities
including securities maintained in an Account by the Bank pursuant to
Section 6(B) hereof, (i) in accordance with the provisions of any
agreement among the Fund, the Bank and a broker-dealer registered under
the Exchange Act and a member of the NASD or any Futures Commission
Merchant registered under the Commodity Exchange Act, relating to
compliance with the rules of the Options Clearing Corporation and of any
registered national securities exchange or the Commodity Futures Trading
Commission or any registered Contract Market, or of any similar
organization or organizations regarding escrow or other arrangements in
connection with transactions by the Fund, and (ii) for the purpose of
segregating cash or securities in connection with options purchased or
written by the Fund, or commodity futures purchased or written by the
Fund, and (iii) for the purposes of compliance by the Fund with the
procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange Commission
relating to the maintenance of Segregated Accounts by registered
investment companies and (iv) for other proper corporate purposes, but
only, in the case of clause (iv), upon receipt of, in addition to Proper
Instructions, a certified copy of a resolution of the Directors of the
Fund signed by an officer of the Fund and
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certified by the Clerk of an Assistant Clerk, setting forth the purpose or
purposes of such Segregated Account and declaring such purposes to be
proper corporate purposes.
B. Segregated Account for "when-issued", "forward commitment" and
reverse repurchase agreement transactions. Notwithstanding the provisions of
Section 6(A), 6(B) and 6(C) hereof, the Bank will maintain a segregated account
(the "Segregated Account") in the name of the Fund (i) for the deposit of liquid
assets, such as cash, U.S. Government securities or other high grade debt
obligations, having a market value (marked to the market on a daily basis) at
all times equal to not less than the aggregate purchase price due on the
settlement dates of all the Fund's then outstanding forward commitment or
"when-issued" agreements relating to the purchase of portfolio securities and
all the Fund's then outstanding commitments under reverse repurchase agreements
entered into with broker-dealer firms, and (ii) for the deposit of any portfolio
securities which the Fund has agreed to sell on a forward commitment basis, all
in accordance with Securities and Exchange Commission Release No. IC-10666. No
assets shall be deposited in the Segregated Account except pursuant to Proper
Instructions. Assets may be withdrawn from the segregated account pursuant to
Proper Instructions only (a) for sale or delivery to meet the Fund's obligations
under outstanding firm commitment or when-issued agreements for the purchase of
portfolio securities and under reverse repurchase agreements, (b) for exchange
for other liquid assets of equal or greater value deposited in the Segregated
Account, (c) to the extent that the Fund's outstanding forward commitment or
when-issued agreements for the purchase of portfolio securities or reverse
repurchase agreements are sold to other parties or the Fund's obligations
thereunder are met from assets of the Fund other than those in the Segregated
Account, or (d) for delivery upon settlement of a forward commitment agreement
for the sale of portfolio securities.
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7. Transfer of Securities. The Bank will transfer, exchange, deliver or
release portfolio securities held by it hereunder, insofar as such securities
are available for such purpose, provided that before making any transfer,
exchange, delivery or release under this Section the Bank will receive Proper
Instructions requesting such transfer, exchange or delivery stating that it is
for a purpose permitted under the terms of this Section 7, specifying the
applicable subsection, or describing the purpose of the transaction with
sufficient particularity to permit the Bank to ascertain the applicable
subsection, only
(a) upon sales of portfolio securities for the account of the Fund,
against contemporaneous receipt by the Bank of payment therefor in full,
each such payment to be in the amount of the sale price shown in a
broker's confirmation of sale of the portfolio securities received by the
Bank before such payment is made, as confirmed in the Proper Instructions
received by the Bank before such payment is made, provided however, that
portfolio securities may be delivered to the broker selling the same for
examination in accordance with "street delivery" custom;
(b) in exchange for or upon conversion into other securities alone
or other securities and cash pursuant to any plan or merger,
consolidation, reorganization, share split-up, change in par value,
recapitalization or readjustment or otherwise;
(c) upon conversion of portfolio securities pursuant to their terms
into other securities;
(d) upon exercise of subscription, purchase or sale or other similar
rights represented by such portfolio securities;
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(e) for the purpose of redeeming in kind shares of beneficial
interest of the Fund upon authorization from the Fund;
(f) in the case of option contracts owned by the Fund, for
presentation to the endorsing broker;
(g) when such portfolio securities are called, redeemed or retired
or otherwise become payable;
(h) for the purpose of releasing certificates representing portfolio
securities of the Fund, against contemporaneous receipt by the Bank of the
fair market value of such security, as set forth in Proper Instructions
received by the Bank before such payment is made;
(i) for the purpose of tendering shares pursuant to a tender offer
therefor;
(j) for the purpose of delivering securities lent by the Fund to a
bank or broker-dealer, but only against receipt in accordance with street
delivery custom, except as otherwise provided in Subsections 6(B)(a) and
(b) hereof, of adequate collateral as agreed upon from time to time by the
Fund and the Bank, and upon receipt of payment in connection with any
repurchase agreement relating to such securities entered into by the Fund;
(k) for other authorized transactions of the Fund or for other
proper corporate purposes; provided that before making such transfer, the
Bank will also receive a certified copy of resolution of the Directors of
the Fund, signed by an authorized officer of the Fund (other than the
officer certifying such resolution) and certified by its Secretary or
Assistant Secretary, specifying the portfolio securities to be delivered,
setting forth the transaction
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in or purpose for which such delivery is to be made, declaring such
transaction to be an authorized transaction of the Fund or such purpose to
be a proper corporate purpose, and naming the person or persons to whom
delivery of such securities shall be made; and
(1) upon termination of this Agreement as hereinafter set forth
pursuant to Section 9 and Section 13 of this Agreement.
As to any deliveries made by the Bank pursuant to subsections (a), (b),
(c), (d), (f), (g), (h), (i) and (j) securities or cash receivable in exchange
therefor shall be delivered to the Bank.
8. Redemptions. In the case of payment of assets of the Fund held by the
Bank in connection with redemptions and repurchases by the Fund of outstanding
shares of beneficial interest, the Bank will rely on notification by the Fund's
transfer agent if receipt of a request for redemption and certificates, if
issued, in proper form for redemption before such payment is made. Payment shall
be made in accordance with the Articles of Incorporation of the Fund, from
assets available for said purposes.
9. Merger, Dissolution, etc. of Fund. In the case of the following
transactions not in the ordinary course of business, namely, the merger of the
Fund into or the consolidation of the Fund with another investment company, the
sale by the Fund of all, or substantially all of its assets to another
investment company, or the liquidation or dissolution of the Fund and
distribution of its assets, the Bank will deliver the portfolio securities held
by it under this Agreement and disburse cash only upon the order of the Fund set
forth in an Officers' Certificate, accompanied by a certified copy of a
resolution of the Fund's Directors authorizing any of the foregoing
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transactions. Upon completion of such delivery and disbursement and the payment
of the fees, disbursements and expenses of the Bank due to the Bank pursuant to
Section 12E hereof, this Agreement will terminate.
10. Actions of Bank Without Prior Authorization. Notwithstanding anything
herein to the contrary, unless and until the Bank receives an Officers'
Certificate to the contrary, it will without prior authorization or instruction
of the Fund or the transfer agent:
(a) Receive and hold for the account of the Fund hereunder and
deposit in the account or accounts referred to in Section 6 hereof, all
income, dividends, interest and other payments or distribution of cash
with respect to the portfolio securities held thereunder;
(b) Present for payment all coupons and other income items held by
it for the account of the Fund which call for payment upon presentation
and hold the cash received by it upon such payment for the account of the
Fund in the account or accounts referred to in Section 6 hereof;
(c) Receive and hold for the account of the Fund hereunder and
deposit in the account or accounts referred to in Section 6 hereof all
securities received as a distribution on portfolio securities as a result
of a stock dividend, share split-up, reorganization, recapitalization,
merger, consolidation, readjustment, distribution of rights and similar
securities issued with respect to any portfolio securities held by it
hereunder.
(d) Execute as agent on behalf of the Fund all necessary ownership
and other certificates and affidavits required by the Internal Revenue
Code or the regulations of the Treasury Department issued thereunder, or
by the laws
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of any state, now or hereafter in effect, inserting the Fund's name on
such certificates as the owner of the securities covered thereby, to the
extent it may lawfully do so and as may be required to obtain payment in
respect thereof. The Bank will execute and deliver such certificates in
connection wit portfolio securities delivered to it or by it under this
Agreement as may be required under the provisions of the Internal Revenue
Code and any Regulations of the Treasury Department issued thereunder, or
under the laws of any State;
(e) Present for payment all portfolio securities which are called,
redeemed, retired or otherwise become payable, and hold cash received by
it upon payment for the account of the Fund in the account or accounts
referred to in Section 6 hereof; and
(f) Exchange interim receipts or temporary securities for definitive
securities.
The Bank will use all diligence to collect any funds which may to its
knowledge become collectible arising from such securities, including dividends,
interest and other income, and to transmit to the Fund notice actually received
by it of any call for redemption, offer of exchange, right of subscription,
reorganization or other proceedings affecting such securities.
If portfolio securities upon which such income is payable are in default
or payment is refused after due demand or presentation, the Bank will notify the
Fund by telecopier of any default or refusal to pay no later than one business
day from the day on which it receives knowledge of such default or refusal. In
addition, the Bank will send the Fund a written report once each month showing
any income on any portfolio security held by it which is more than ten days
overdue on the date of such report and which has not previously been reported.
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11. Maintenance of Records. The Bank will maintain records with respect to
transactions for which the Bank is responsible pursuant to the terms and
conditions of this Agreement and in compliance with the applicable rules and
regulations under the Investment Company Act of 1940 as amended, and will
furnish the Fund daily with a statement of condition of the Fund. The Bank will
furnish to the Fund at the end of every month, and at the close of each quarter
of the Fund's fiscal year, a list of the portfolio securities and the aggregate
amount of cash held by it for the Fund. The books and records of the Bank
pertaining to its actions under this Agreement and reports by the Bank or its
independent accountants concerning its accounting system, procedures for
safeguarding securities and internal accounting controls will be open to
inspection and audit at reasonable times by officers of or auditors employed by
the Fund and will be preserved by the Bank in the manner and in accordance with
the applicable rules and regulations under the Investment Company Act of 1940.
The Bank agrees to treat all records and other information relative to the
Fund and its shareholders as confidential, except it may disclose such
information after prior notification to and approval in writing by the Fund,
which approval shall not be unreasonably withheld. Nothing in this Section 11
shall prevent the Bank from divulging information to bank or securities
regulatory authorities or where the Bank may be exposed to civil or criminal
contempt proceedings for failure to comply.
12. Concerning the Bank.
A. Performance of Duties.
(1) The Bank and the Fund shall each exercise reasonable care
in the performance of their respective duties and functions under
this Agreement.
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(2) In its dealings with the Fund, the Bank shall be entitled
to rely upon any Officers' Certificate, Proper Instructions,
resolution of the Directors, telegram, facsimile communication,
written notice, or certificate.
B. Responsibility of Custodian. So long as and to the extent that it
is in the exercise of reasonable care, the Custodian shall not be
responsible for the title, validity or genuineness of any property or
evidence of title thereto received by it or delivered by it pursuant to
this Contract and shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by
it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of
a three-party futures or options agreement. The Custodian shall be held
harmless and be protected by the Fund and shall be held to the exercise of
reasonable care in carrying out the Proper Instructions of the Fund. It
shall be entitled to rely on and may act upon advice of counsel (who may
be counsel for the Fund) or mutually acceptable to both parties on all
matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice.
C. No Duty of Bank. The Bank will be under no duty or obligation to
inquire into and will not be liable for:
(a) the validity of the issue of any portfolio securities
purchased by or for the Fund, the legality of the purchases thereof
or the propriety of the price incurred therefor;
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<PAGE>
(b) the legality of any sale of any portfolio securities by or
for the Fund or the propriety of the amount for which the same are
sold;
(c) the legality of an issue or sale of any shares of common
stock of the Fund or the sufficiency of the amount to be received
therefor provided that it reflects the net asset value as provided
by the Fund;
(d) the legality of the repurchase of any shares of common
stock of the Fund or the propriety of the amount to be paid therefor
provided that it reflects the net asset value as provided by the
Fund;
(e) the legality of the declaration of any dividend by the
Fund or the legality of the distribution of any portfolio securities
as payment in kind of such dividend; or
(f) any property or moneys of the Fund unless and until
received by it, except as otherwise provided in Section 10 hereof,
and any such property or moneys delivered or paid by it pursuant to
the terms hereof.
Moreover, the Bank will not be under any duty or obligation to ascertain
whether any portfolio securities at any time delivered to or held by it for the
account of the Fund are such as may properly be held by the Fund under the
provisions of its Agreement and Declaration of Fund or By-Laws, any federal or
state statutes or any rule or regulation of any governmental agency.
D. Fees and Expenses of Bank. The Fund will pay or reimburse the
Bank from time to time for any transfer taxes payable upon transfer of
portfolio securities made hereunder, and for the Bank's normal
disbursements,
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<PAGE>
expenses and charges made or incurred by the Bank in the performance of
this Agreement (including any duties listed on any Schedule hereto, if
any). For the services rendered by the Bank hereunder, the Fund will pay
to the Bank such compensation or fees at such rate and at such times as
shall be agreed upon in writing by the parties from time to time. The Bank
will also be entitled to reimbursement by the Fund for normal industry
costs for securities transfers and services incurred in conjunction with
termination of this Agreement by the Fund.
E. Advances by Bank. The Bank may, in its sole discretion, advance
funds on behalf of the Fund to make any payment permitted by this
Agreement upon receipt of Proper Instructions as required by this
Agreement for such payments by the Fund. Should such a payment or
payments, with advanced funds, result in an overdraft (due to
insufficiencies of the Fund's account with the Bank, or for any other
reason) any such related indebtedness shall be deemed a loan made by the
Bank to the Fund payable on demand and bearing interest at the current
rate charged by the Bank for such loans unless the Fund shall provide the
Bank with agreed-upon compensating balances. The Fund authorizes the Bank,
in its sole discretion, at any time to charge any overdraft or
indebtedness, together with interest due thereon, against any balance of
account standing to the credit of the Fund on the Bank's books.
13. Termination.
(a) This Agreement may be terminated at any time without penalty
upon ninety days written notice delivered by either party to the other by
means of registered mail, and upon the expiration of such ninety days this
Agreement will terminate; provided, however, that the effective date of
such termination may be postponed to a date of delivery
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<PAGE>
of such notice (i) by the Bank in order to prepare for the transfer by the
Bank of all of the assets of the Fund held hereunder, and (ii) by the Fund
in order to give the Fund an opportunity to make suitable arrangements for
a successor custodian. At any time after the termination of this
Agreement, the Fund will, at its request, have access to the records of
the Bank relating to the performance of its duties as custodian.
(b) In the event of the termination of this Agreement, the Bank will
immediately upon receipt or transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to completion the transfer
of all cash and the delivery of all portfolio securities duly endorsed and
all records maintained under Section 11 to the successor custodian when
appointed by the Fund. The obligation of the Bank to deliver and transfer
over the assets of the Fund held by it directly to such successor
custodian will commence as soon as such successor is appointed and will
continue until completed as aforesaid. If the Fund does not select a
successor custodian within ninety days from the date of delivery of notice
of termination the Bank may, subject to the provisions of subsection (c)
of this Section 13, deliver the portfolio securities and cash of the Fund
held by the Bank to a bank or trust company of its own selection which
meets the requirements of Section 17(f)(1) of the Investment Company Act
of 1940 and has a reported capital, surplus and undivided profits
aggregating not less than $2,000,000, to be held as the property of the
Fund under terms similar to those on which they were held by the Bank,
whereupon such bank or trust company so selected by the Bank will become
the successor custodian of such assets of the Fund with the same effect as
though selected by the Directors of the Fund.
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<PAGE>
(c) Prior to the expiration of ninety days after notice of
termination has been given, the Fund may furnish the Bank with an order of
the Fund advising that a successor custodian cannot be found willing and
able to act upon reasonable and customary terms and that there has been
submitted to the shareholders of the Fund the question of whether the Fund
will be liquidated or will function without a custodian for the assets of
the Fund held by the Bank. In that event the Bank will deliver the
portfolio securities and cash of the Fund held by it, subject as
aforesaid, in accordance with one of such alternatives which may be
approved by the requisite vote of shareholders, upon receipt by the Bank
of a copy of the minutes of the meeting of shareholders at which action
was taken, certified by the Fund's Secretary.
14. Notices. Any notice or other instrument in writing authorized or
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and mailed or delivered to it at
its office at the address set forth below; namely:
(a) In the case of notices sent to the Fund to:
The Value Line Tax-Exempt Fund, Inc.
c/o Value Line Inc.
711 3rd Avenue
New York, New York 10017
Attn: Treasurer
(b) In the case of notices sent to the Bank to:
State Street Bank and Trust Company
Mutual Fund Services
l776 Heritage Drive
North Quincy, MA 02171
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<PAGE>
or at such other place as such party may from time to time designate
in writing.
15. Amendments. This Agreement may not be altered or amended, except by an
instrument in writing, executed by both parties, and in the case of the Fund,
such alteration or amendment will be authorized and approved by its Directors.
16. Parties. This Agreement will be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Fund
without the written consent of the Bank or by the Bank without the written
consent of the Fund, authorized and approved by its Directors; and provided
further that termination proceedings pursuant to Section 13 hereof will not be
deemed to be an an assignment within the meaning of this provision.
17. Governing Law. This Agreement and all performance hereunder will be
governed by the laws of the Commonwealth of Massachusetts.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate and their respective corporate seals to be affixed hereto
as of the date first above written by their respective officers thereunto duly
authorized.
THE VALUE LINE TAX-EXEMPT FUND, INC.
By: /s/ Jean B. Buttner
------------------------------------
ATTEST:
/s/ [ILLEGIBLE]
- -------------------------------
STATE STREET BANK AND TRUST COMPANY
By: /s/ [ILLEGIBLE]
------------------------------------
ATTEST:
/s/ [ILLEGIBLE]
- -------------------------------
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<PAGE>
AMENDMENT TO CUSTODIAN CONTRACT
AMENDMENT made by and between STATE STREET BANK AND TRUST COMPANY (the
"Custodian") each Fund listed on Appendix A (the "Fund").
WHEREAS, the Custodian and each Fund are parties to a Custodian Contract,
as amended (each a "Custodian Contract") governing the terms and conditions
under which the Custodian maintains custody of the securities and other assets
of the Fund; and
WHEREAS, the Custodian and each Fund desires to amend the relevant
Custodian Contract;
NOW THEREFORE, the Custodian and each Fund hereby amend and revise in its
entirety the defined term "Authorized person" in Section 2(a) of the Custodian
Contract as follows:
"Authorized person" of a Fund shall mean any of the persons duly
authorized to give Proper Instructions or otherwise act with respect to
such Fund on behalf of the Board of Trustees/Directors of such Fund by
appropriate resolution of such Board of Trustees/Directors, it being
understood that the signatures of two Authorized persons of a Fund shall
be required for the release of the assets of the Fund.
1
<PAGE>
Except as specifically superseded or modified herein, the terms and provisions
of the Custodian Contract shall continue to apply with full force and effect.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative as of the
1st day of October, 1997.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Ronald E. Logue
-------------------------------
Ronald E. Logue
Executive Vice President
Attest: /s/ Thomas M. Lenz
---------------------------
Thomas M. Lenz
Vice President
EACH FUND LISTED ON APPENDIX A
By: /s/ Jean B. Buttner
-------------------------------
Name: Jean B. Buttner
Title: Chairman / President
Attest: /s/ David T. [ILLEGIBLE]
---------------------------
Name: David T. [ILLEGIBLE]
Title: Secretary
2
<PAGE>
APPENDIX A
LIST OF FUNDS
Value Line Aggressive Income Trust
Value Line Asset Allocation Fund, Inc.,
Value Line Cash Fund, Inc., (The)
Value Line Centurion Fund, Inc.
Value Line Convertible Fund, Inc.
Value Line Fund, Inc. (The)
Value Line Income Fund, Inc., (The)
Value Line Leveraged Growth Investors, Inc.
Value Line New York Tax Exempt Trust
Value Line Small-Cap Growth Fund, Inc.
Value Line Special Situations Fund, Inc.
Value Line Strategic Asset Management Trust
Value Line Tax-Exempt Fund, Inc. (The)
Value Line U.S. Government Securities Fund, Inc.
Value Line U.S. Multi-National Company Fund, Inc.
3
<PAGE>
Exhibit (i)
PETER D. LOWENSTEIN
ATTORNEY AT LAW
TWO GREENWICH PLAZA, SUITE 100
GREENWICH, CONNECTICUT 06830
203 622-3932
FAX 203 622-0321
April 29, 1999
The Value Line Tax Exempt Fund, Inc.
220 East 42nd Street
New York, NY 10017
Gentlemen:
I have acted as special counsel to The Value Line Tax Exempt Fund, Inc., a
Maryland corporation (the "Fund"), in connection with certain matters,
including the issuance of shares of its common stock, $1.01 par value (the
"Common Stock").
As special counsel for the Fund, I am familiar with its Charter and
By-laws. I have examined the prospectus included in Post-Effective Amendment No.
16 to its Registration Statement on Form N-1A, File No. 2-87913 (the
"Registration Statement"), substantially in the form in which it is to become
effective (the "Prospectus"). I have further examined and relied upon a
certificate of the Maryland State Department of Assessments and Taxation to the
effect that the Fund is duly incorporated and existing under the laws of the
State of Maryland and is in good standing and duly authorized to transact
business in the State of Maryland.
I have also examined and relied upon such corporate records of the Fund
and other documents and certificates with respect to factual matters as I have
deemed necessary to render the opinion expressed herein. I have assumed, without
independent verification, the genuineness of all signatures, the authenticity of
all documents submitted to me as originals and the conformity with originals of
all documents submitted to me as copies.
Based on such examination, I am of the opinion and so advise you that:
1. The Fund is duly organized and validly existing as a
corporation in good standing under the laws of the State of
Maryland.
2. The shares of Common Stock of the Fund to be offered for sale
pursuant to the Prospectus are to the extent of the number of
shares authorized to be issued, duly authorized and, when
sold, issued and paid for as contemplated by the Prospectus,
will have been validly and legally issued and will be fully
paid and nonassessable.
<PAGE>
I am a member of the bars of the States of Connecticut and New York and I
do not purport to be an expert in, and express no opinion with respect to, the
laws of any jurisdiction other than the federal laws of the United States and
the laws of the States of Connecticut and New York.
I consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/ Peter D. Lowenstein
Peter D. Lowenstein
PDL:psp
