<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 30, 1999
FILE NO. 2-96484
FILE NO. 811-4258
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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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VALUE LINE CONVERTIBLE 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 September 1, 1999 pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485
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<PAGE>
VALUE LINE CONVERTIBLE FUND, INC.
--------------------------------
PROSPECTUS
September 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 is the Fund's goal? PAGE 2
What are the Fund's main investment strategies? PAGE
2
What are the main risks of investing in the Fund?
PAGE 2
How has the Fund performed? PAGE 3
What are the Fund's fees and expenses? PAGE 4
HOW WE MANAGE THE FUND
Our principal investment strategies PAGE 5
The principal risks of investing in the Fund PAGE 8
WHO MANAGES THE FUND
Investment Adviser PAGE 9
Management fees PAGE 9
Portfolio management PAGE 9
ABOUT YOUR ACCOUNT
How to buy shares PAGE 10
How to sell shares PAGE 12
Special services PAGE 13
Dividends, distributions and taxes PAGE 14
FINANCIAL HIGHLIGHTS
Financial Highlights PAGE 15
<PAGE>
FUND SUMMARY
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WHAT IS THE FUND'S GOAL?
The Fund's investment objective is to seek high current
income together with capital appreciation. Although the Fund
will strive to achieve its goal, there is no assurance that
it will.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
To achieve the Fund's goals, we invest, under normal
conditions, at least 70% of the Fund's net assets in
"convertible securities"--that is bonds, debentures,
corporate notes, preferred stocks or other securities which
are convertible into common stock. Convertible securities are
often lower-quality debt securities.
In selecting securities for purchase or sale, we may rely on
the Value Line Ranking System for convertible securities. The
return provided by a convertible security depends largely on
the performance of the common stock for which it can be
exchanged. Thus, Value Line's evaluation of the convertible
security begins with its ranking of the underlying common
stock, using the Value Line Timeliness-TM- Ranking System or
the Value Line Performance-TM- Ranking System. The rank for
the common stock is then combined with the Adviser's
evaluation of the convertible.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Investing in any mutual fund involves risk, including the
risk that you may receive little or no return on your
investment, and the risk that you may lose part or all of the
money you invest. Therefore, before you invest in this Fund
you should carefully evaluate the risks.
The chief risk that you assume when investing in the Fund is
market risk, the possibility that the securities in a certain
market will decline in value because of factors such as
economic conditions. Market risk may affect a single issuer,
industry, sector of the economy or the market as a whole.
The price of Fund shares will increase and decrease according
to changes in the value of the Fund's investments. The Fund
will be affected by changes in stock prices which tend to
fluctuate more than bond prices and by changes in interest
rates.
An investment in the Fund is not a complete investment
program and you should consider it just one part of your
total investment program. For a more complete discussion of
risk, please turn to page 8.
2
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HOW HAS THE FUND PERFORMED?
This bar chart and table can help you evaluate the potential
risks of investing in the Fund. We show how returns for the
Fund's shares have varied over the past ten calendar years,
as well as the average annual returns of these shares for
one, five, and ten years all compared to the performance of
the S&P 500-Registered Trademark- Index, which is a broad
based market index. You should remember that unlike the Fund,
the index is unmanaged and does not include the costs of
buying, selling, and holding the securities. The Fund's past
performance is not necessarily an indication of how it will
perform in the future.
TOTAL RETURNS AS OF 12/31 EACH YEAR (%)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1989 10.72%
<S> <C>
1990 -3.72%
1991 28.71%
1992 13.83%
1993 14.83%
1994 -5.28%
1995 22.75%
1996 20.20%
1997 17.03%
1998 0.54%
</TABLE>
<TABLE>
<S> <C> <C>
BEST QUARTER: Q1 1991 +10.15%
WORST QUARTER: Q3 1998 (11.78%)
</TABLE>
As of June 30, 1999, the Fund had a year-to-date total return
of %.
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/98
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
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VALUE LINE CONVERTIBLE FUND 0.54% 10.46% 11.42%
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S&P 500-REGISTERED TRADEMARK- INDEX 28.58% 24.06% 19.21%
- ---------------------------------------------------------------
</TABLE>
3
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WHAT ARE THE FUND'S FEES AND EXPENSES?
These tables describe the fees and expenses you pay in
connection with an investment in the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
<S> <C>
- --------------------------------------------------------
MAXIMUM SALES CHARGES (LOAD) IMPOSED ON PURCHASES NONE
AS A PERCENTAGE OF OFFERING PRICE
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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
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</TABLE>
ANNUAL FUND OPERATING EXPENSES(EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------------------------
MANAGEMENT FEES 0.75%
- ---------------------------------------------------------
DISTRIBUTION AND SERVICE (12B-1) FEES NONE
- ---------------------------------------------------------
OTHER EXPENSES 0.25%
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TOTAL ANNUAL FUND OPERATING EXPENSES 1.00%
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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, assuming that the Fund's
operating expenses remain the same. This is an example only,
and your actual costs may be greater or less than those shown
here. Based on these assumptions, your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
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VALUE LINE CONVERTIBLE FUND $102 $318 $552 $1,225
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</TABLE>
4
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HOW WE MANAGE THE FUND
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OUR PRINCIPAL INVESTMENT STRATEGIES
Because of the nature of the Fund, you should consider an
investment in it to be a long-term investment that will best
meet its objectives when held for a number of years. The
following is a description of how the Adviser pursues the
Fund's objectives.
Under normal conditions, the Fund will invest at least 70% of
its net assets in convertible securities. The balance of the
Fund's portfolio may include non-convertible debt or equity
securities, U.S. government securities, warrants, repurchase
agreements or other money market instruments. Securities
received upon conversion or exercise of warrants and
securities remaining upon the breakup of units or detachments
of warrants may also be retained in the Fund's portfolio to
permit orderly disposition or for federal income tax
purposes. The Fund is not required to sell securities for the
purpose of assuring that 70% of its assets are invested in
convertible securities.
Convertible securities are often lower-quality debt
securities and have less potential for gain or loss than
common stock.
In selecting securities for purchase or sale, the Adviser may
rely on the Value Line Ranking System for convertible
securities which has evolved over many years of research. The
return provided by a convertible security depends largely on
the performance of the common stock for which it can be
exchanged. Thus, the Value Line Ranking System's evaluation
of the convertible begins with its ranking of the underlying
common stock, using the Value Line Timeliness-TM- Ranking
System or the Value Line Performance-TM- Ranking System.
The Value Line Timeliness Ranking System has evolved after
many years of research and has been used in substantially its
present form since 1965. It is based upon historical prices
and reported earnings, recent earnings and price momentum and
the degree to which the latest reported earnings deviated
from estimated earnings, among other factors. The Timeliness
Rankings are published weekly in the Standard Edition of The
Value Line Investment Survey for approximately 1,700 of the
most actively traded stocks in U.S. markets, including stocks
with large, mid and small market capitalizations. There are
only a few stocks of foreign issuers that are included and
stocks that have traded for less than two years are not
ranked. On a scale of 1 (highest) to 5 (lowest), the rankings
compare the Adviser's estimate of the
5
<PAGE>
probable market performance of each stock during the coming
six to twelve months relative to all 1,700 stocks under
review. The Rankings are updated weekly to reflect the most
recent information.
The Value Line Performance Ranking System for common stocks
was introduced in 1995. It is a variation of the Value Line
Small-Capitalization Ranking System, which has been employed
in managing pension client assets since 1981, and in managing
the Value Line Small-Cap Growth Fund, Inc. since 1993. The
Performance Ranking System evaluates the approximately 1,800
stocks in the Expanded Edition of The Value Line Investment
Survey which consists of stocks with mostly smaller market
capitalizations (under $1 billion) and only a few stocks of
foreign issuers. This stock ranking system relies on factors
similar to those found in the Value Line Timeliness Ranking
System except that it does not utilize earnings estimates.
The Performance Ranks use a scale of 1 (highest) to 5
(lowest) to compare the Adviser's estimate of the probable
market performance of each Expanded Edition stock during the
coming six to twelve months relative to all 1,800 stocks
under review in the Expanded Edition.
The rank for the common stock is then combined with the
Adviser's evaluation of the convertible. Using a statistical
evaluation model, a rank is assigned to the approximately 375
convertibles and more than 18 warrants in The Value Line
Convertibles Survey issued by companies that are ranked in
The Value Line Investment Survey. An additional 225
convertibles and 102 warrants are evaluated but not ranked
because the underlying stocks are not ranked by The Value
Line Investment Survey. The Value Line Convertible Ranking
System, which has been published in essentially its present
form since 1973, makes a comparison of the historic price
relationship of the convertible to its underlying stock (or
to other issues of a similar nature) making adjustments for
any changes in conditions that have occurred, to estimate the
degree to which the convertible may be underpriced or
overpriced. Convertibles issued by companies that are ranked
by The Value Line Investment Survey are then ranked on a
scale of 1 (highest) to 5 (lowest) based on the total return
(from income or dividends plus appreciation) the Adviser
estimates it will provide relative to its risk during the
coming year. The Value Line Convertible Rankings are
published four times a month in The Value Line Convertibles
Survey.
6
<PAGE>
The Value Line Rankings do not eliminate market risk, but the
Adviser believes that they provide objective standards for
determining expected relative performance over the next six
to twelve months. Under normal conditions, the Fund will
purchase convertible securities ranked 1 or 2; those
convertible securities that fall in rank below 3 will be sold
as soon as practical, although those ranked 1 or 2 may also
be sold if the Adviser deems a sale advisable. The number of
convertible securities ranked 1 and 2 will change from week
to week. As of June 21, 1999, there were 77 convertible
securities ranked 1 and 90 ranked 2, not all of which will be
purchased by the Fund. The utilization of these Rankings is
no assurance that the Fund will perform more favorably than
the market in general over any particular period.
The Fund also may purchase certain restricted securities
("Rule 144A securities") for which there is a secondary
market of qualified institutional buyers, as contemplated by
Rule 144A under the Securities Act of 1933. Rule 144A
provides an exemption from the registration requirements of
the Securities Act for the resale of certain restricted
securities to qualified institutional buyers. The Fund may
also lend its portfolio securities, enter into repurchase
agreements, write covered call options and make short sales.
TEMPORARY DEFENSIVE POSITION
From time to time in response to adverse market, economic,
political or other conditions, we may invest a portion of the
Fund's 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. If this becomes necessary, the Fund's assets
may not be invested in accordance with its strategy and may
not achieve its investment objectives.
PORTFOLIO TURNOVER
The Fund engages in active and frequent trading of portfolio
securities in order to take advantage of better investment
opportunities to achieve its investment objectives which
results in higher brokerage commissions and other 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.
7
<PAGE>
THE PRINCIPAL RISKS OF INVESTING IN THE FUND
/ / Because the Fund may invest a substantial portion of its
assets in convertible securities, the value of the
securities in its portfolio might decrease in response to
the activities of an individual company or in response to
general market or economic conditions. If this occurs,
the Fund's share price may decrease.
/ / The Fund's use of the Value Line Ranking Systems involves
the risk that over certain periods of time the price of
securities not covered by the Ranking Systems, or lower
ranked securities, may appreciate to a greater extent
than those securities in the Fund's portfolio.
/ / Certain securities may be difficult or impossible to sell
at the time and price that the Fund would like. The Fund
may have to lower the price, sell other securities
instead or forego an investment opportunity. This could
have a negative effect on the Fund's performance.
/ / Please see the Statement of Additional Information for a
further discussion of risks. Information on the Fund's
recent holdings can be found in the Fund's current annual
or semi-annual report.
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 is expected to impact corporations,
which may include issuers of portfolio securities held by the
Fund, to varying degrees based upon various factors,
including, but not limited to, the corporation's industry
sector and degree of technological sophistication. The Fund
is unable to predict what impact, if any, the Year 2000
Problem will have on issuers of the portfolio securities held
by the Fund.
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 has been in business since
1931. Value Line Securities, Inc., the Fund's distributor, is
a subsidiary of the Adviser. Another subsidiary of the
Adviser publishes The Value Line Investment Survey, The Value
Line Convertibles Survey and other publications.
MANAGEMENT FEES
For managing the Fund and its investments, the Adviser is
paid a yearly fee of 0.75% 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 portfolio.
9
<PAGE>
ABOUT YOUR ACCOUNT
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
/ / BY TELEPHONE
Once you have opened an account, you can buy additional
shares by calling 800-243-2729 between 9:00 a.m. and 4:00
p.m. New York time. You must pay for these shares within
three business days of placing your order.
/ / BY WIRE
If you are making an initial purchase by wire, you must call
us at 800-243-2729 so we can assign you an account number.
Request your bank to wire the amount you want to invest to
State Street Bank and Trust Company, ABA #011000028,
attention DDA # 99049868. Include your name, account number,
tax identification number and the name of the Fund in which
you want to invest.
/ / THROUGH A BROKER-DEALER
You can open an account and buy shares through a
broker-dealer, who may charge a fee for this service.
/ / BY MAIL
Complete the Account Application and mail it with your check
payable to NFDS, Agent, to Value Line Funds, c/o National
Financial Data Services, Inc., P.O. Box 419729, Kansas City,
MO 64141-6729. If you are making an initial purchase by mail,
you must include a completed Account Application or an
appropriate retirement plan application if you are opening a
retirement account, with your check.
/ / MINIMUM/ADDITIONAL INVESTMENTS
Once you have completed an application, you can open an
account with an initial investment of $1,000, and make
additional investments at any time for $250. The price you
pay for shares will depend on when we receive your purchase
order.
/ / TIME OF PURCHASE
Your price for Fund shares is the Fund's net asset value per
share (NAV), which is generally calculated as of the close of
trading on the New York Stock Exchange (currently 4:00 p.m.,
Eastern time) every day the Exchange is open for business.
The Exchange is currently closed on New Year's Day, Martin
Luther King, Jr. Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day and on
10
<PAGE>
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. 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 Fund's portfolio, deducting all
liabilities, and dividing the resulting number by the number
of shares outstanding. The result is the net asset value per
share. The Fund's convertible securities are valued on the
basis of prices provided by an independent pricing service.
Securities for which quotations are not available from the
pricing service, and all other assets of the Fund, are valued
at fair value as the Board of Directors or persons acting at
their direction may determine in good faith. Any investments
which have a maturity of less than 60 days we price at
amortized cost. The amortized cost method of valuation
involves valuing a security at its cost and accruing any
discount or premium over the period until maturity,
regardless of the impact of fluctuating interest rates on the
market value of the security.
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 219729, Kansas City, MO
64121-9729. The request must be signed by all owners of the
account, and you must include a signature guarantee for each
owner. Signature guarantees are also required when redemption
proceeds are going to anyone other than the account holder(s)
of record. If you hold your shares in certificates, you must
submit the certificates properly endorsed with signature
guaranteed with your request to sell the shares. A signature
guarantee can be obtained from most banks or securities
dealers, but not from a notary public. A signature guarantee
helps protect against fraud.
/ / BY TELEPHONE OR WIRE
You can sell $1,000 or more of your shares by telephone or
wire, with the proceeds sent to your bank the next business
day after we receive your request.
/ / BY CHECK
You can sell $500 or more of your shares by writing a check
payable to the order of any person.
/ / THROUGH A BROKER-DEALER
You may sell your shares through a broker-dealer, who may
charge a fee for this service.
The Fund has authorized certain brokers to accept purchase
and redemption orders on behalf of the Fund. The Fund has
also authorized these brokers to designate others to accept
purchase and redemption orders on behalf of the Fund. We
treat any order to buy or sell shares that you place with one
of these brokers, or anyone they have designated, as if you
had placed it directly with the Fund. The shares that you buy
or sell through brokers or anyone they have designated are
priced at the next net asset value that is computed after
they receive your order.
/ / BY EXCHANGE
You can exchange all or part of your investment in the Fund
for shares in other Value Line funds. You may have to pay
taxes on your exchange. When you exchange shares, you are
purchasing shares in another fund so you should be sure to
get a copy of that fund's prospectus and read it carefully
before buying shares through an exchange. To execute an
exchange, call 800-243-2729.
12
<PAGE>
When you send us a 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 date 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.
REDEMPTION IN KIND
The Fund reserves the right to make a redemption in
kind--payment in portfolio securities rather than cash--if
the amount being redeemed is large enough to affect Fund
operations.
SPECIAL SERVICES
To help make investing with us as easy as possible, and to
help you build your investments, we offer the following
special services. You can get further information about these
programs by calling Shareholder Services at 800-223-0818.
/ / Valu-Matic-Registered Trademark- allows you to make
regular monthly investments of $25 or more automatically
from your checking account.
/ / Through our Systematic Cash Withdrawal Plan you can
arrange a regular monthly or quarterly payment from your
account payable to you or someone you designate. If your
account is $5,000 or more, you can have monthly or
quarterly withdrawals of $25 or more.
13
<PAGE>
/ / You may buy shares in the Fund for your individual or
group retirement plan, including your Regular or Roth
IRA. You may establish your IRA account even if you
already are a member of an employer-sponsored retirement
plan. Not all contributions to an IRA account are tax
deductible; consult your tax advisor about the tax
consequences of your contribution.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to pay dividends from its net investment
income quarterly and to distribute any capital gains that it
has realized annually. We automatically reinvest all
dividends and any capital gains, unless you instruct us
otherwise in your application to purchase shares.
Tax laws are subject to change, so we urge you to consult
your tax adviser about your particular tax situation and how
it might be affected by current tax law. The tax status of
your dividends from the Fund is not affected by whether you
reinvest your dividends or receive them in cash.
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 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>
YEARS ENDED APRIL 30,
- ------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $14.80 $13.07 $14.10 $11.79 $12.26
- ------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income .57 .65 .70 .66 .74
Net gains or losses on securities (both
realized and unrealized) (1.33) 2.50 .50 2.33 (.02)
- ------------------------------------------------------------------------------------------------------------
Total from investment operations (.76) 3.15 1.20 2.99 .72
- ------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income (.60) (.67) (.65) (.68) (.76)
Distributions from realized capital gains (.67) (.75) (1.58) -- (.43)
- ------------------------------------------------------------------------------------------------------------
Total distributions (1.27) (1.42) (2.23) (.68) (1.19)
- ------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $12.77 $14.80 $13.07 $14.10 $11.79
- ------------------------------------------------------------------------------------------------------------
TOTAL RETURN (4.64)% 25.04% 8.80% 26.07% 6.53%
- ------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
thousands) $ 69,277 $ 97,679 $ 68,684 $ 72,620 $ 50,523
Ratio of expenses to average
net assets 1.00%(1) %.98(1) 1.01%(1) 1.08% 1.08%
Ratio of net investment income to
average net assets 3.98% 4.63% 4.94% 5.14% 6.13%
Portfolio turnover rate %123 %111 %164 129% 87%
</TABLE>
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(1) Before offset of custody credits. Including the custody
credits would not have changed the expense ratio. The
ratio of expenses to average net assets would not have
changed net of custody credits.
15
<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 September 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 219729
Kansas City, MO 64121-9729
CUSTODIAN DISTRIBUTOR
State Street Bank and Trust Company Value Line Securities, Inc.
225 Franklin Street 220 East 42nd Street
Boston, MA 02110 New York, NY 10017-5891
</TABLE>
<TABLE>
<S> <C>
Value Line Securities, Inc.
220 East 42nd Street, New York, NY 10017-5891 File no. 811-4258
</TABLE>
<PAGE>
VALUE LINE CONVERTIBLE 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
SEPTEMBER 1, 1999
- -------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus of Value Line Convertible Fund, Inc.
dated September 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 accountants 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-6
Investment Advisory and Other Services.............................................. B-8
Brokerage Allocation and Other Practices............................................ B-9
Capital Stock....................................................................... B-10
Purchase, Redemption and Pricing of Shares.......................................... B-10
Taxes............................................................................... B-12
Performance Data.................................................................... B-13
Financial Statements................................................................ B-14
</TABLE>
B-1
<PAGE>
DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
HISTORY AND CLASSIFICATION. The Fund is an open-end, diversified management
investment company incorporated in Maryland in 1985. The Fund's investment
adviser is Value Line, Inc. (the "Adviser").
NON-PRINCIPAL INVESTMENT STRATEGIES AND ASSOCIATED RISKS.
- RESTRICTED SECURITIES. On occasion, the Fund may purchase securities
which would have to be registered under the Securities Act of 1933 if they were
to be publicly distributed. However, it will not do so if the value of such
securities and other securities which are not readily marketable (including
repurchase agreements maturing in more than seven days) would exceed 10% of the
market value of its total assets. It is management's policy to permit the
occasional acquisition of such restricted securities only if (except in the case
of short-term, non-convertible debt securities) there is an agreement by the
issuer to register such securities, ordinarily at the issuer's expense, when
requested to do so by the Fund. The acquisition in limited amounts of restricted
securities is believed to be helpful toward the attainment of the Fund's
investment objective without unduly restricting its liquidity or freedom in the
management of its portfolio. However, because restricted securities may only be
sold privately or in an offering registered under the Securities Act of 1933, or
pursuant to an exemption from such registration, substantial time may be
required to sell such securities, and there is greater than usual risk of price
decline prior to sale.
In addition, the Fund may purchase certain restricted securities ("Rule 144A
securities") for which there is a secondary market of qualified institutional
buyers, as contemplated by Rule 144A under the Securities Act of 1933. Rule 144A
provides an exemption from the registration requirements of the Securities Act
for the resale of certain restricted securities to qualified institutional
buyers. The Adviser, under the supervision of the Board of Directors, will
consider whether securities purchased under Rule 144A are liquid or illiquid for
purposes of the Fund's limitation on investment in securities which are not
readily marketable or are illiquid. Among the factors to be considered are the
frequency of trades and quotes, the number of dealers and potential purchasers,
dealer undertakings to make a market and the nature of the security and the time
needed to dispose of it. To the extent that the liquid Rule 144A securities that
the Fund holds become illiquid, due to lack of sufficient qualified
institutional buyers or market or other conditions, the percentage of the Fund's
assets invested in illiquid assets would increase. The Adviser, under the
supervision of the Board of Directors, will monitor the Fund's investments in
Rule 144A securities and will consider appropriate measures to enable the Fund
to maintain sufficient liquidity for operating purposes and to meet redemption
requests.
- COVERED CALL OPTIONS. The Fund may write covered call options on
securities held in its portfolio ("covered options") in an attempt to earn
additional income on its portfolio or to partially offset an expected decline in
the price of a security. When the Fund writes a covered call option, it gives
the purchaser of the option the right to buy the underlying common stock at the
price specified in the option (the "exercise price") at any time during the
option period. If the option expires unexercised, the Fund will realize income
to the extent of the amount received for the option (the "premium"). If the
option is exercised, a decision over which the Fund has no control, the Fund
must sell the underlying security to the option holder at the exercise price. By
writing a covered option, the Fund foregoes, in exchange for the premium less
the commission ("net premium"), the opportunity to profit during the option
period from an increase in the market value of the underlying security
B-2
<PAGE>
above the exercise price. The Fund will not write call options in an aggregate
amount greater than 25% of its net assets and will only write call options which
are traded on a national securities exchange.
The Fund will purchase call options only to close out a position. When an
option is written on securities in the Fund's portfolio and it appears that the
purchaser of that option is likely to exercise the option and purchase the
underlying security, it may be considered appropriate to avoid liquidating the
Fund's position, or the Fund may wish to extinguish a call option sold by it so
as to be free to sell the underlying security. In such instances the Fund may
purchase a call option on the same security with the same exercise price and
expiration date which had been previously written. Such a purchase would have
the effect of closing out the option which the Fund has written. The Fund
realizes a gain if the amount paid to purchase the call option is less than the
premium received for writing a similar option and a loss if the amount paid to
purchase a call option is greater than the premium received for writing a
similar option. Generally, the Fund realizes a short-term capital loss if the
amount paid to purchase the call option with respect to a stock is greater than
the premium received for writing the option. If the underlying security has
substantially risen in value, it may be difficult or expensive to purchase the
call option for the closing transaction.
- LENDING PORTFOLIO SECURITIES. The Fund may lend its portfolio securities
to broker-dealers or institutional investors if, as a result thereof, the
aggregate value of all securities loaned does not exceed 33 1/3% of the total
assets of the Fund (including the loan collateral). The loans will be made in
conformity with applicable regulatory policies and will be 100% collateralized
by cash, or liquid securities on a daily basis in an amount equal to the market
value of the securities loaned and interest earned. The Fund retains the right
to call the loaned securities upon notice and intends to call loaned voting
securities in anticipation of any important or material matter to be voted on by
stockholders. While there may be delays in recovery or even loss of rights in
the collateral should the borrower fail financially, the loans will be made only
to firms deemed by the Adviser to be of good standing and will not be made
unless, in the judgment of the Adviser, the consideration which can be earned
from such loans justifies the risk. The Fund may pay reasonable custodian and
administrative fees in connection with the loans.
- SHORT SALES. The Fund may from time to time make short sales of
securities in order to protect a profit or attempt to minimize a loss with
respect to convertible securities. The Fund will only make a short sale of a
security if it owns other securities convertible into an equivalent amount of
such securities. No more than 10% of the value of the Fund's net assets taken at
market may at any one time be held as collateral for such sales.
- REPURCHASE AGREEMENTS. The Fund may invest temporary cash balances in
repurchase agreements. A repurchase agreement involves a sale of securities to
the Fund, with the concurrent agreement of the seller (a member bank of the
Federal Reserve System or a securities dealer which the Adviser believes to be
financially sound) to repurchase the securities at the same price plus an amount
equal to an agreed-upon interest rate, within a specified time, usually less
than one week, but, on occasion, at a later time. The Fund will make payment for
such securities only upon physical delivery or evidence of book-entry transfer
to the account of the custodian or a bank acting as agent for the Fund.
Repurchase agreements may also be viewed as loans made by the Fund which are
collateralized by the securities subject to repurchase. The value of the
underlying securities will be at least equal at all times to the total amount of
the repurchase obligation, including the interest factor.
B-3
<PAGE>
In the event of a bankruptcy or other default of a seller of a repurchase
agreement, the Fund could experience both delays in liquidating the underlying
securities and losses, including: (a) possible decline in the value of the
underlying security during the period while the Fund seeks to enforce its rights
thereto; (b) possible subnormal levels of income and lack of access to income
during this period; and (c) expenses of enforcing its rights. The Board of
Directors monitors the creditworthiness of parties with which the Fund enters
into repurchase agreements.
- FOREIGN SECURITIES. The Fund may purchase U.S. dollar denominated
securities of foreign issuers which are publicly traded in the United States.
Foreign securities involve additional risks and may be affected by the strength
of foreign currencies relative to the U.S. dollar, or by political or economic
developments in foreign countries. Foreign companies may not be subject to
accounting standards or government supervision comparable to U.S. companies, and
there may be less public information about their operations. These risks are
typically greater for investments in less-developed countries whose governments
and financial markets may be more susceptible to adverse political and economic
developments. The Adviser considers these factors in making investments for the
Fund. There is no limitation on the amount of the Fund's assets that may be
invested in these types of foreign securities.
FUND POLICIES.
(i)
The Fund may not issue senior securities except evidences of
indebtedness permitted under clause (ii) below.
(ii)
The Fund may not borrow money in excess of 10% of the value of its
assets and then only as a temporary measure to meet unusually heavy
redemption requests or for other extraordinary or emergency purposes.
Securities will not be purchased while borrowings are outstanding. No assets
of the Fund may be pledged, mortgaged or otherwise encumbered, transferred
or assigned to secure a debt.
(iii)
The Fund may not engage in the underwriting of securities except to
the extent that the Fund may be deemed an underwriter as to
restricted securities under the Securities Act of 1933 in selling portfolio
securities.
(iv)
The Fund may not invest 25% or more of its assets in securities of
issuers in any one industry.
(v)
The Fund may not purchase securities of other investment companies
or invest in real estate, mortgages or illiquid securities of real
estate investment trusts although the Fund may purchase securities of
issuers which engage in real estate operations.
(vi)
The Fund may not lend money except in connection with the purchase
of debt obligations or by investment in repurchase agreements,
provided that repurchase agreements maturing in more than seven days when
taken together with other illiquid investments do not exceed 10% of the
Fund's assets. The Fund may lend its portfolio securities to broker-dealers
and institutional investors if as a result thereof the aggregate value of
all securities loaned does not exceed 33 1/3% of the total assets of the
Fund.
(vii)
The Fund may not engage in short sales, except to the extent that it
owns other securities convertible into an equivalent amount of such
securities. Such transactions may only
B-4
<PAGE>
occur for the purpose of protecting a profit or in attempting to minimize a
loss with respect to convertible securities. No more than 10% of the value
of the Fund's net assets taken at market may at any one time be held as
collateral for such sales.
(viii)
The Fund may not purchase or sell any put or call options or any
combination thereof, except that the Fund may write and sell covered
call option contracts on securities owned by the Fund. The Fund may also
purchase call options for the purpose of terminating its outstanding
obligations with respect to securities upon which covered call option
contracts have been written (i.e., "closing purchase transactions").
(ix)
The Fund may not invest more than 5% of its total assets in the
securities of any one issuer or purchase more than 10% of the
outstanding voting securities, or any other class of securities, of any one
issuer. For purposes of this restriction, all outstanding debt securities of
an issuer are considered as one class, and all preferred stock of an issuer
is considered as one class. This restriction does not apply to obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
(x)
The Fund may not invest more than 5% of its total assets in
securities of issuers having a record, together with its
predecessors, of less than three years of continuous operation. This
restriction does not apply to any obligation issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
(xi)
The Fund may not purchase securities for the purpose of exercising
control over another company.
(xii)
The Fund may not invest more than 2% of the value of its total
assets in warrants (valued at the lower of cost or market), except
that warrants attached to other securities are not subject to these
limitations.
(xiii)
The Fund may not invest in commodities or commodity contracts.
(xiv)
The Fund may not purchase the securities of any issuer if, to the
knowledge of the Fund, those officers and directors of the Fund and
of the Adviser, who each owns more than 0.5% of the outstanding securities
of such issuer, together own more than 5% of such securities.
(xv)
The Fund may not purchase securities on margin or participate on a
joint or a joint and several basis in any trading account in
securities.
(xvi)
The Fund may not purchase oil, gas or other mineral type development
programs or leases, except that the Fund may invest in the
securities of companies which invest in or sponsor such programs.
(xvii)
The investment objective of the Fund is to seek high current income
together with capital appreciation.
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.
B-5
<PAGE>
The policies set forth above may not be changed without the affirmative vote
of the majority of the outstanding voting securities of the Fund which means the
lesser of (1) the holders of more than 50% of the outstanding shares of capital
stock of the Fund or (2) 67% of the shares present if more than 50% of the
shares are present at a meeting in person or by proxy.
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed by the Fund's officers
under the direction of the Board of Directors. Set forth below is certain
information regarding the Directors and Officers of the Fund.
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH FUND PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ---------------------------------- --------------------- ---------------------------------------------
<S> <C> <C>
*Jean Bernhard Buttner Chairman of the Board Chairman, President and Chief Executive
Age 64 of Directors and Officer of the Adviser and Value Line Pub-
President lishing, Inc. Chairman and President of the
Value Line Funds and Value Line Securities,
Inc. (the "Distributor"); Chairman and
President of each of the 15 Value Line Funds.
John W. Chandler Director Consultant, Academic Search Consultation
2801 New Mexico Ave., N.W. Service, Inc. Trustee Emeritus and Chairman
Washington, DC 20007 (1993-1994) of Duke University; President
Age 75 Emeritus, Williams College.
*Leo R. Futia Director Retired Chairman and Chief Executive Officer
201 Park Avenue South of The Guardian Life Insurance Company of
New York, NY 10003 America and Director since 1970. Director
Age 79 (Trustee) of The Guardian Insurance & Annuity
Company, Inc., Guardian Investor Services
Corporation and the Guardian-sponsored mutual
funds.
David H. Porter Director President Emeritus, Skidmore College since
5 Birch Run Drive January 1, 1999; Visiting Professor of
Saratoga Springs, NY 12866 Classics, Williams College, since July 1,
Age 63 1999; President, Skidmore College, 1987-1998;
Director of Adirondack Trust Company.
Paul Craig Roberts Director Chairman, Institute for Political Economy;
505 S. Fairfax Street Director, A. Schulman Inc. (plastics).
Alexandria, VA 22320
Age 60
</TABLE>
B-6
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH FUND PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ---------------------------------- --------------------- ---------------------------------------------
<S> <C> <C>
Nancy-Beth Sheerr Director Chairman, Radcliffe College Board of
1409 Beaumont Drive Trustees.
Gladwyne, PA 19035
Age 50
Bruce Alston Vice President Portfolio Manager with the Adviser since
Age 53 1997; Portfolio Manager with Dreyfus
Management, Inc. 1994-1996, and Prudential
Capital Markets Group, 1981-1994.
Nathan N.J. Grant Vice President Portfolio Manager with the Adviser since
Age 29 1996; Trader, Fixed Income Securities,
Blaylock & Partner, 1994-1996.
David T. Henigson Vice President, Director, Vice President and Compliance
Age 42 Secretary and Officer of the Adviser. Director and Vice
Treasurer President of the Distributor. Vice Presi-
dent, Secretary and Treasurer of each of the
15 Value Line Funds.
</TABLE>
- --------------
* "Interested" director as defined in the Investment Company Act of 1940 (the
"1940 Act").
Unless otherwise indicated, the address for each of the above is 220 East 42nd
Street, New York, NY.
Directors of the Fund are also directors/trustees of 11 other Value Line
Funds.
The following table sets forth information regarding compensation of
Directors by the Fund and by the Fund and the eleven other Value Line Funds of
which each of the Directors is a director or trustee for the fiscal year ended
April 30, 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.
COMPENSATION TABLE
FISCAL YEAR ENDED APRIL 30, 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 Sheerr 2,968 N/A N/A 35,620
</TABLE>
B-7
<PAGE>
As of May 31, 1999, no person owned of record or, to the knowledge of the
Fund, owned beneficially, 5% or more of the outstanding stock of the Fund other
than Charles Schwab & Co., Inc., 101 Montgomery Street, San Francisco, CA 94104
which owned 528,939 shares or approximately 10.2% of the shares outstanding. The
Adviser and its affiliates owned 226,752 shares of record or approximately 4.4%
of the outstanding shares. Officers and directors of the Fund as a group owned
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 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.
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 3/4 of
1% of the Fund's average daily net assets during the year. During the fiscal
years ended April 30, 1997, 1998 and 1999, the Fund paid or accrued to the
Adviser advisory fees of $517,810, $638,379 and $592,362, 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 agent, legal and
accounting fees, fees and expenses in connection with qualification under
federal and state securities laws and costs of shareholder reports and proxy
materials. The Fund has agreed that it will use the words "Value Line" in its
name only so long as Value Line, Inc. serves as investment adviser to the Fund.
The agreement will terminate upon its assignment.
The Adviser acts as investment adviser to 14 other investment companies
constituting The Value Line Family of Funds and furnishes investment counseling
services to private and institutional accounts resulting in combined assets
under management in excess of $5 billion.
Certain of the Adviser's clients may have investment objectives similar to
the Fund and certain investments may be appropriate for the Fund and for other
clients advised by the Adviser. From time to time, a particular security may be
bought or sold for only one client or in different amounts and at different
times for more than one but less than all such clients. In addition, a
particular security may be bought for one or more clients when one or more other
clients are selling such security, or purchases or sales of the same security
may be made for two or more clients at the same time. In such event, such
transactions, to the extent practicable, will be averaged as to price and
allocated as to amount in proportion to the amount of each order. In some cases,
this procedure could have a detrimental effect on the price or amount of the
securities purchased or sold by the Fund. In other cases, however, it is
believed that the ability of the Fund to participate, to the extent permitted by
law, in volume transactions will produce better results for the Fund.
B-8
<PAGE>
The Adviser and/or its affiliates, officers, directors and employees may
from time to time own securities which are also held in the portfolio of the
Fund. The Adviser has imposed rules upon itself and such persons requiring
monthly reports of security transactions for their respective accounts and
restricting trading in various types of securities in order to avoid possible
conflicts of interest. The Adviser may from time to time, directly or through
affiliates, enter into agreements to furnish for compensation special research
or financial services to companies, including services in connection with
acquisitions, mergers or financings. In the event that such agreements are in
effect with respect to issuers of securities held in the portfolio of the Fund,
specific reference to such agreements will be made in the "Schedule of
Investments" in shareholder reports of the Fund. As of the date of this
Statement of Additional Information no such agreements exist.
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.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Orders for the purchase and sale of portfolio securities are placed with
brokers and dealers who, in the judgment of the Adviser, are able to execute
them as expeditiously as possible and at the best obtainable price. Debt
securities are traded principally in the over-the-counter market on a net basis
through dealers acting for their own account and not as brokers. Purchases and
sales of securities which are not listed or traded on a securities exchange will
ordinarily be executed with primary market makers acting as principal, except
when it is determined that better prices and executions may otherwise be
obtained. The Adviser is also authorized to place purchase or sale orders with
brokers or dealers who may charge a commission in excess of that charged by
other brokers or dealers if the amount of the commission charged is reasonable
in relation to the value of the brokerage and research services provided. Such
allocation will be in such amounts and in such proportions as the Adviser may
determine. Orders may also be placed with brokers or dealers who sell shares of
the Fund or other funds for which the Adviser acts as investment adviser, but
this fact,
B-9
<PAGE>
or the volume of such sales, is not a consideration in their selection. During
the fiscal year ended April 30, 1997, 1998 and 1999, the Fund paid brokerage
commissions of $33,824, $22,709 and $28,811, respectively.
The Board of Directors has adopted procedures incorporating the standards of
Rule 17e-1 under the 1940 Act which requires that the commissions paid to Value
Line Securities or any other "affiliated person" be "reasonable and fair"
compared to the commissions paid to other brokers in connection with comparable
transactions. The procedures require that the Adviser furnish reports to the
Directors with respect to the payment of commissions to affiliated brokers and
maintain records with respect thereto. During the fiscal year ended April 30,
1999, $21,791 (76%) of the Fund's brokerage commissions were paid to brokers or
dealers solely for their services in obtaining the best prices and executions;
the balance, or $7,021 (24%), went to brokers or dealers who provided
information or services to the Adviser and, therefore, indirectly to the Fund
and to shareholders of the Value Line funds. The information and services
furnished to the Adviser include the furnishing of research reports and
statistical compilations and computations and the providing of current
quotations for securities. The services and information were furnished to the
Adviser at no cost to it; no such services or information were furnished
directly to the Fund, but certain of these services might have relieved the Fund
of expenses which it would otherwise have had to pay. Such information and
services are considered by the Adviser, and brokerage commissions are allocated
in accordance with its assessment of such information and services, but only in
a manner consistent with the placing of purchase and sale orders with brokers
and/or dealers, which, in the judgment of the Adviser, are able to execute such
orders as expeditiously as possible and at the best obtainable price. The Fund
is advised that the receipt of such information and services has not reduced in
any determinable amount the overall expenses of the Adviser.
PORTFOLIO TURNOVER. The Fund's annual portfolio turnover rate has exceeded
100% in each of the last four years. A rate of portfolio turnover of 100% would
occur if all of the Fund's portfolio were replaced in a period of one year. To
the extent that the Fund engages in short-term trading in attempting to achieve
its objective, it may increase portfolio turnover and incur higher brokerage
commissions and other expenses than might otherwise be the case. The Fund's
portfolio turnover rate for recent fiscal years is shown under "Financial
Highlights" in the Fund's Prospectus.
CAPITAL STOCK
Each share of beneficial interest of the Fund, $1 par value, has one vote
with fractional shares voting proportionately. Shares have no preemptive rights,
are freely transferable, are entitled to dividends as declared by the Trustees
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.
B-10
<PAGE>
AUTOMATIC PURCHASES: The Fund offers a free service to its shareholders,
Valu-Matic, through which monthly investments of $25 or more may be made
automatically into the shareholder's Fund account. The required form to enroll
in this program is available upon request from the Distributor.
RETIREMENT PLANS: Shares of the Fund may be purchased as the investment medium
for various tax-sheltered retirement plans. Upon request, the Distributor will
provide information regarding eligibility and permissible contributions. Because
a retirement plan is designed to provide benefits in future years, it is
important that the investment objectives of the Fund be consistent with the
participant's retirement objectives. Premature withdrawals from a retirement
plan may result in adverse tax consequences. For more complete information,
contact Shareholder Services at 1-800-223-0818.
REDEMPTION: The right of redemption may be suspended, or the date of payment
postponed beyond the normal seven-day period, by the Fund under the following
conditions authorized by the 1940 Act: (1) For any period (a) during which the
New York Stock Exchange is closed, other than customary weekend and holiday
closing, or (b) during which trading on the New York Stock Exchange is
restricted; (2) For any period during which an emergency exists as a result of
which (a) disposal by the Fund of securities owned by it is not reasonably
practical, or (b) it is not reasonably practical for the Fund to determine the
fair value of its net assets; (3) For such other periods as the Securities and
Exchange Commission may by order permit for the protection of the Fund's
shareholders.
The value of shares of the Fund on redemption may be more or less than the
shareholder's cost, depending upon the market value of the Fund's assets at the
time. Shareholders should note that if a loss has been realized on the sale of
shares of the Fund, the loss may be disallowed for tax purposes if shares of the
same Fund are purchased within (before or after) 30 days of the sale.
It is possible that conditions may exist in the future which would, in the
opinion of the Board of Directors, make it undesirable for the Fund to pay for
redemptions in cash. In such cases the Board may authorize payment to be made in
portfolio securities or other property of the Fund. However, the Fund has
obligated itself under the 1940 Act to redeem for cash all shares presented for
redemption by any one shareholder up to $250,000 (or 1% of the Fund's net assets
if that is less) in any 90-day period. Securities delivered in payment of
redemptions are valued at the same value assigned to them in computing the net
asset value per share. Shareholders receiving such securities may incur
brokerage costs on their sales.
CALCULATION OF NET ASSET VALUE: The net asset value of the Fund's shares for
purposes of both purchases and redemptions is determined once daily as of the
close of regular trading on the New York Stock Exchange (generally 4:00 p.m.,
New York time) on each day that the New York Stock Exchange is open for trading
except on days on which no orders to purchase, sell or redeem Fund shares have
been received. The New York Stock Exchange is currently closed on New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day and on the
preceding Friday or subsequent Monday if one of those days falls on a Saturday
or Sunday, respectively. The net asset value per share is determined by dividing
the total value of the investments and other assets of the Fund, less any
liabilities, by the total outstanding shares. Fixed-income corporate securities
are valued on the basis of prices provided by an independent pricing service
approved by the Trustees. In valuing such securities, the pricing service
generally takes into account appropriate factors such as institutional size
trading characteristics and other market data. Securities not priced in this
manner are valued at
B-11
<PAGE>
the midpoint between the latest available bid and asked prices in the principal
market (last sales price if the principal market is an exchange) in which such
securities are normally traded. Other assets and securities for which market
valuations are not readily available are valued at their fair value as the
Trustees or persons acting at their direction may determine. Short-term
instruments with maturities of 60 days or less at the date of purchase are
valued at amortized cost, which approximates market.
TAXES
The Fund 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.
Realized losses incurred after October 31, if so elected by the Fund, are
deemed to arise on the first day of the following fiscal year. In the year ended
April 30, 1999, the Fund did not incur such losses.
Distributions of net investment income and of the excess of net short-term
capital gain over net long-term capital loss are taxable to shareholders as
ordinary income. Distributions of the excess of net long-term capital gain over
net short-term capital loss (net capital gains) are taxable to the shareholders
as long-term capital gain, regardless of the length of time the shares of the
Fund have been held by such shareholders and regardless of whether the
distribution is received in cash or in additional shares of the Fund. Because a
portion of the Fund's income will consist of dividends paid by U.S.
corporations, a portion of the dividends paid by the Fund will be eligible for
the corporate dividends-received deduction. The Fund will inform shareholders of
the amounts of qualifying dividends.
A distribution by the Fund will reduce the Fund's net asset value per share.
Such a distribution is taxable to the shareholder as ordinary income or capital
gain as described above even though, from an investment standpoint, it may
constitute a return of 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 that time (at the net asset value per share) may
include the amount of the forthcoming distribution. Those purchasing just prior
to a distribution will then receive a return of capital upon the distribution
which will nevertheless be taxable to them. All distributions, whether received
in shares or cash, must be reported by each shareholder on his Federal income
tax return. Furthermore, under the Code, dividends declared by the Fund in
October, November or December of any calendar year, and payable to shareholders
of record in such a month, shall be deemed to have been received by the
shareholder on December 31 of such calendar year if such dividend is actually
paid in January of the following calendar year.
B-12
<PAGE>
A shareholder may realize a capital gain or capital loss on the sale or
redemption of shares of the Fund. The tax consequences of a sale or redemption
depend upon several factors, including the shareholder's tax basis in the shares
sold or redeemed and the length of time the shares have been held. Basis in the
shares may be the actual cost of those shares (net asset value of Fund shares on
purchase or reinvestment date). Under certain circumstances, a loss on the sale
or redemption of shares held for twelve months or less may be treated as a
long-term capital loss to the extent that the Fund has distributed long-term
capital gain dividends on such shares. Moreover, a loss on sale or redemption of
Fund shares will be disallowed if shares of the Fund are purchased within 30
days before or after the shares are sold or redeemed.
For shareholders who fail to furnish to the Fund their social security or
taxpayer identification numbers and certain related information or who fail to
certify that they are not subject to back-up withholding, dividends,
distributions of capital gains and redemption proceeds paid by the Fund will be
subject to a 31% Federal income tax withholding requirement. If the withholding
provisions are applicable, any such dividends or capital-gains distributions to
these shareholders, whether taken in cash or reinvested in additional shares,
and any redemption proceeds will be reduced by the amounts required to be
withheld.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents, domestic
corporations and partnerships, and certain trusts and estates) and is not
intended to be a complete discussion of all Federal tax consequences.
Shareholders are advised to consult with their tax advisers concerning the
application of Federal, state and local taxes to an investment in the Fund.
PERFORMANCE DATA
From time to time, the Fund may state its total return in advertisements and
investor communications. Total return may be stated for any relevant period as
specified in the advertisement or communication. Any statements of total return
or other performance data on the Fund will be accompanied by information on the
Fund's average annual compounded rate of return for the periods of one year,
five years and ten years, all ended on the last day of a recent calendar
quarter. The Fund may also advertise aggregate total return information for
different periods of time.
The Fund's average annual compounded rate of return is determined by
reference to a hypothetical $1,000 investment that includes capital appreciation
and depreciation for the stated period, according to the following formula:
P(1+T) 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 Fund's average annual total returns for the one, five and ten year
periods ending December 31, 1998 were 0.54%, 10.46% and 11.42%, respectively.
B-13
<PAGE>
The Fund's total return may be compared to relevant indices and data from
Lipper Analytical Services, Inc., Morningstar or Standard & Poor's Indices.
From time to time, evaluations of the Fund's performance by independent
sources may also be used in advertisements and in information furnished to
present or prospective investors in the Fund.
Investors should note that the investment results of the Fund will fluctuate
over time, and any presentation of the Fund's current yield, total return or
distribution rate for any period should not be considered as a representation of
what an investment may earn or what an investor's total return, yield or
distribution rate may be in any future period.
FINANCIAL STATEMENTS
The Fund's financial statements for the year ended April 30, 1999, including
the financial highlights for each of the five fiscal years in the period ended
April 30, 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.
B-14
<PAGE>
PART C: OTHER INFORMATION
ITEM 23. EXHIBITS.
(a) Articles of Incorporation.
(b) By-laws.
(c) Instruments Defining Rights of Security Holders. Reference is made to
Article Sixth of the Articles of Incorporation filed as Exhibit (a)
hereto.
(d) Investment Advisory Agreement.
(e) Distribution Agreement.
(f) Not applicable.
(g) Custodian Agreement and Amendment thereto.
(h) Not applicable.
(i) Legal Opinion.
(j) Not applicable.
(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 XII of the By-laws filed as Exhibit (b)
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.
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH
NAME THE ADVISER OTHER EMPLOYMENT
- -------------------------- -------------------------------- ---------------------------------------------------
<S> <C> <C>
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>
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) Value Line Securities, Inc., acts as principal underwriter for the
following Value Line funds, including the Registrant: The Value Line
Fund, Inc.; Value Line Income and Growth Fund, Inc.; The Value Line
Special Situations Fund, Inc.; Value Line Leveraged Growth Investors,
Inc.; The Value Line Cash Fund, Inc.; Value Line U.S. Government
Securities Fund, Inc.; Value Line Centurion Fund, Inc.; The Value Line
Tax Exempt Fund, Inc.; Value Line Convertible Fund, Inc.; Value Line
Aggressive Income Trust; Value Line New York Tax Exempt Trust; Value Line
Strategic Asset Management Trust; Value Line 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)
C-2
<PAGE>
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
For all other records
ITEM 29. MANAGEMENT SERVICES.
None.
ITEM 30. UNDERTAKINGS.
None.
--------------
C-3
<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 June 18, 1999, relating to the financial
statements and financial highlights appearing in the April 30, 1999 Annual
Report to Shareholders of Value Line Convertible 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 headings "Investment Advisory and Other Services" and "Financial
Statements" in the Statement of Additional Information.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
June 28, 1999
C-4
<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 28th day of June, 1999.
VALUE LINE CONVERTIBLE FUND
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; June 28, 1999
(JEAN B. BUTTNER) Principal Executive Officer
*JOHN W. CHANDLER Director June 28, 1999
(JOHN W. CHANDLER)
*LEO R. FUTIA Director June 28, 1999
(LEO R. FUTIA)
*DAVID H. PORTER Director June 28, 1999
(DAVID H. PORTER)
*PAUL CRAIG ROBERTS Director June 28, 1999
(PAUL CRAIG ROBERTS)
*NANCY-BETH SHEERR Director June 28, 1999
(NANCY-BETH SHEERR)
/s/ DAVID T. HENIGSON Treasurer; Principal Financial June 28, 1999
............................................ and Accounting Officer
(DAVID T. HENIGSON)
</TABLE>
*By /s/ DAVID T. HENIGSON
.................................
(DAVID T. HENIGSON,
ATTORNEY-IN-FACT)
C-5
<PAGE>
Exhibit (a)
ARTICLES OF INCORPORATION
OF
VALUE LINE CONVERTIBLE 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 VALUE LINE CONVERTIBLE 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: (1) 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.
(2) 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: (1) The total number of shares of capital stock which the
Corporation shall have authority to issue is fifty million (50,000,000) shares,
$1.00 par value, all of one class having an aggregate par value of fifty million
dollars ($50,000,000).
(2) 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. Any fractional share, if any such
fractional shares are outstanding,
<PAGE>
shall carry proportionately all the rights of a whole share, including the right
to vote and the right to receive dividends. The presence in person or by proxy
of the holders of record of one-third of the shares of capital stock of the
Corporation outstanding and entitled to vote thereat shall constitute a quorum
at any meeting of the shareholders, except as otherwise provided by law. If at
any meeting of the shareholders there shall be less than a quorum present, the
shareholders present at such meeting may, without further notice, adjourn the
same from time to time until a quorum shall attend, but no business shall be
transacted at any such adjourned meeting except such as might have been lawfully
transacted had the meeting not been adjourned.
(3) All shares of the capital stock of the Corporation now or
hereafter authorized shall be subject to redemption and redeemable, in the sense
used in the General Corporation Law of the State of Maryland authorizing the
formation of corporations, at the redemption price for any such shares,
determined in the manner set out in these Articles of Incorporation or in any
amendment thereto. In the absence of any specification as to the purposes for
which shares of the capital stock of the Corporation are redeemed or purchased
by it, all shares so redeemed or purchased shall be deemed to be acquired for
retirement in the sense contemplated by the laws of the State of Maryland and
the number of the authorized shares of the capital stock of the Corporation
shall not be reduced by the number of any shares redeemed or purchased by it.
(4) Notwithstanding any provision of law requiring any action to be
taken or authorized by the affirmative vote of the holders of a designated
proportion greater than a majority of the shares or votes entitled to be cast,
such action shall be effective and valid if taken or authorized by the
affirmative vote of the holders of a majority of the total number of shares
outstanding and entitled to vote thereon pursuant to the provisions of these
Articles of Incorporation. The right to cummulate votes in the election of
directors is expressly prohibited.
(5) No holder of stock of the Corporation shall, as such holder,
have any right to purchase or subscribe for any shares of the capital stock of
the Corporation which it may issue or sell (whether out of the number of shares
authorized by these Articles of Incorporation, or out of any shares of the
capital stock of the Corporation acquired by it after the issue thereof, or
otherwise) other than such right, if any, as the Board of Directors, in its
discretion, may determine.
(6) All persons who shall acquire stock in the corporation shall
acquire the same subject to the provisions of these Articles of Incorporation.
-2-
<PAGE>
SEVENTH: (1) The number of directors constituting the Board of Directors
shall be three, which number may be changed in accordance with the By-Laws 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:
Thomas J. Sexton
Mark K. Tavel
Peter D. Lowenstein
(2) The By-Laws of the Corporation may divide the Directors of the
Corporation into classes and prescribe the tenure of office of the several
classes, but no class shall be elected for a period shorter than that from the
time of the election following the division into classes until the next annual
meeting and thereafter for a period shorter than the interval between annual
meetings or for a longer period than five years, and the term of office of at
least one class shall expire each year.
(3) Any officer elected or appointed by the Board of Directors or by
any committee of said Board or by the stockholders or otherwise, may be removed
at any time with or without cause, in such lawful manner as may be provided in
the By-Laws of the Corporation.
(4) If the By-Laws so provide, the Board of Directors of the
Corporation shall have power to hold their meetings, to have an office or
offices and, subject to the provisions of the laws of Maryland, to keep the
books of the Corporation outside of said State at such places as may from time
to time be designated by them.
(5) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the Board of Directors may exercise all
such powers and do all acts and things as may be exercised or done by the
Corporation, subject, nevertheless, to the express provisions of the laws of
Maryland, of these Articles of Incorporation and of the By-Laws of the
Corporation.
(6) Shares of stock in other corporations shall be voted by the
President or a Vice-President, or such officer or officers of the Corporation or
such other person or persons as the Board of Directors shall designate for the
purpose, or by proxy or proxies thereunto duly authorized by the Board of
Directors, except as otherwise ordered by vote of the holders of a majority of
the shares of capital stock of the Corporation outstanding and entitled to vote
in respect thereto.
-3-
<PAGE>
(7) Except as may otherwise be provided in the By-Laws, the Board of
Directors of the Corporation is expressly authorized to make, alter, amend and
repeal By-Laws or to adopt new By-Laws of the Corporation, without any action on
the part of the shareholders; but the By-Laws made by the Board of Directors and
the power so conferred may be altered or repealed by the shareholders.
EIGHTH: The following provisions are hereby adopted for the purpose of
defining and regulating the powers of the Corporation and of the Directors and
stockholders.
SECTION I: ISSUE OF THE CORPORATION'S SHARES
1.01 General. The Board of Directors may from time to time issue and sell
or cause to be issued or sold any of the Corporation's authorized shares,
including any additional shares hereafter authorized and any shares redeemed or
repurchased by the Corporation, except that only shares previously contracted to
be sold may be issued during any period when the determination of net asset
value is suspended pursuant to the provisions of Section III hereof. All such
authorized shares, when issued in accordance with the terms of this Section I,
shall be fully paid and nonassessable.
1.02 Price. No shares of the Corporation shall be issued or sold by the
Corporation, except as a stock dividend distributed to shareholders, for less
than an amount which would result in proceeds to the Corporation, before taxes
payable by the Corporation in connection with such transactions, of at least the
net asset value per share determined as set forth in Section III hereof as of
such time as the Board of Directors shall have by resolution theretofore
prescribed by not earlier than the close of business on the business day (which
term, as used herein, shall mean a day on which the New York Stock Exchange is
open all or part of the day for unrestricted trading) next preceding the date of
receipt of an unconditional purchase order for such shares. In the absence of a
resolution of the Board of Directors applicable to the transaction, such net
asset value shall be that next determined after receipt of such purchase order.
For this purpose, the time of receipt of such an unconditional order shall be
the time it is first received by the principal underwriter or by the custodian
or depository of the Corporation's assets or by another agent of the Corporation
designated for the purpose.
1.03 On Merger or Consolidation. In connection with the acquisition of all
or substantially all the assets or stock of another investment company or
investment trust, the Board of Directors may issue or cause to be issued shares
of the Corporation and accept in payment therefor, in lieu of cash, such assets
at their market value, or such stock at the value of the assets held by such
investment company or investment trust as determined by the Board of Directors
either with or without adjustment for contingent costs or liabili-
-4-
<PAGE>
ties, provided that the funds of the Corporation are permitted by law to be
invested in such assets or stock.
1.04 Fractional Shares. The Board of Directors 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.
SECTION II: REDEMPTION AND REPURCHASE OF
THE CORPORATION'S SHARES
2.01 Redemption of Shares. The Corporation shall redeem its shares,
subject to the conditions and at the price determined as hereinafter set forth,
upon proper application of the record holder thereof at such office or agency as
may be designated from time to time for that purpose by the Board of Directors.
Any such application must be accompanied by the certificate or certificates, if
any, evidencing such shares, duly endorsed or accompanied by a proper instrument
of transfer. The Board of Directors shall have power to determine from time to
time the form and the other accompanying documents which shall be necessary to
constitute a proper application for redemption.
2.02 Price. Such shares shall be redeemed at their net asset value
determined as set forth in Section II hereof as of such time as the Board of
Directors shall have theretofore prescribed by resolution, which time shall not
be later than the close of business on the next business day succeeding, and not
earlier than the close of business on the next business day preceding, the date
on which proper application is made for redemption. In the absence of such
resolution, the redemption price of shares deposited shall be the net asset
value of such shares next determined as set forth in Section III hereof after
receipt of such application.
2.03 Payment. Payment for such shares shall be made to the shareholders of
record within seven days after the date upon which proper application is
received, subject to the provisions of Section 2.04 hereof. Such payment shall
be made in cash or other assets of the Corporation or both, as the Board of
Directors shall prescribe. For the purposes of such payment for shares redeemed,
the value of assets delivered shall be determined as set forth in Section III
hereof as of the same time as of which the per share net asset value of such
shares is determined.
2.04 Effect of Suspension of Determination of Net Asset Value. If,
pursuant to Section 3.03 hereof, the Board of Directors shall declare a
suspension of the determination of net asset value, the rights of shareholders
(including those who shall have applied for redemption pursuant to Section 2.01
hereof, but who shall not yet have received payment) to have shares redeemed and
paid for by the
-5-
<PAGE>
Corporation shall be suspended until the termination of such suspension is
declared. Any record holder whose redemption right is so suspended may, during
the period of such suspension, by appropriate written notice of revocation to
the office or agency where application was made, revoke his application and
withdraw any share certificates which accompanied such application. The
redemption price of shares for which redemption applications have not been
revoked shall be the net asset value of such shares next determined as set forth
in Section III after the termination of such suspension, and payment shall be
made within seven days after the date upon which the application was made plus
the period after such application during which the determination of net asset
value was suspended.
2.05 Repurchase by Agreement. The Corporation may repurchase shares of the
Corporation directly, or through its principal underwriter or other agent
designated for the purpose, by agreement with the owner thereof at a price not
exceeding the net asset value per share determined as of the time when the
purchase or contract of purchase is made or the net asset value as of any time
which may be later determined pursuant to Section III hereof, provided payment
is not made for the shares prior to the time as which such net asset value is
determined.
2.06 Corporation's Option to Redeem Shares.
(a) The Corporation shall have the right at any time and without
prior notice to the shareholder to redeem all shares in any account for their
then current net asset value per share if all shares in the account have an
aggregate net asset value of less than $1,000, or such lesser amount as the
Board of Directors may from time to time determine.
(b) The Corporation shall have the right at any time and without
prior notice to the shareholder to redeem shares in any account for their then
current net asset value per share if and to the extent it shall be necessary to
reimburse the Corporation for any loss sustained by the Corporation by reason of
the failure of the shareholder in whose name such account is registered to make
full payment for shares of the Corporation purchased by such shareholder.
SECTION III: NET ASSET VALUE OF SHARES
3.01 By Whom Determined. The Board of Directors shall have the power and
duty to determine from time to time the net asset value per share of the
outstanding shares of the Corporation. It may delegate such power and duty to
one or more of the directors and officers of the Corporation, to the custodian
or depository of the Corporation's assets, or to another agent of the
Corporation appointed for such purpose. Any determination made pursuant to
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this Section by the Board of Directors or its delegate shall be binding on all
parties concerned.
3.02 When Determined. The net asset value shall be determined at such
times as the Board of Directors shall prescribe by resolution, provided that
such net asset value shall be determined at least once each week as of the close
of business on a business day. In the absence of a resolution of the Board of
Directors, the net asset value shall be determined as of the close of trading on
the New York Stock Exchange on each business day.
3.03 Suspension of Determination of Net Asset Value. The Board of
Directors may declare a suspension of the determination of net asset value for
the whole or any part of any period (a) during which the New York Stock Exchange
is closed, other than customary weekend and holiday closings, (b) during which
trading on the New York Stock Exchange is restricted, (c) during which an
emergency exists as a result of which disposal by the Corporation of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Corporation fairly to determine the value of its net assets, or (d)
during which a governmental body having jurisdiction over the Corporation may by
order permit for the protection of the security holders of the Corporation. Such
suspension shall take effect at such time as the Board of Directors shall
specify, which shall not be later than the close of business on the business day
next following the declaration, and thereafter there shall be no determination
of net asset value until the Board of Directors shall declare the suspension at
the end, except that the suspension shall terminate in any event on the first
day on which (a) the condition giving rise to the suspension shall have ceased
to exist, and (b) no other condition exists under which suspension is authorized
under this Section 3.03. Each declaration by the Board of Directors pursuant to
this Section 3.03 shall be consistent with such rules and regulations, if any,
relating to the subject matter thereof as shall have been promulgated by the
Securities and Exchange Commission or any other governmental body having
jurisdiction over the Corporation and as shall be in effect at the time. To the
extent not inconsistent with such official rules and regulations, the
determination of the Board of Directors shall be conclusive.
3.04 Computation of Per Share Net Asset Value. The net asset value of each
share as of any particular time shall be the quotient obtained by dividing the
value of the net assets of the Corporation by the total number of shares
outstanding.
3.05 Miscellaneous. For the purposes of Section III:
(a) Shares of the Corporation sold shall be deemed to be outstanding
as of the time an unconditional purchase order therefor
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has been received by the Corporation (directly or through one of its agents) or
by one of its underwriters and the sale price in currency has been determined.
When the sale is reported to the Corporation or to its agent for determining net
asset value, the sale price thereof to the Corporation (less commission, if any,
and less any stamp or other tax payable by the Corporation in connection with
issue and sale thereof) shall thereupon be deemed to be an asset of the
Corporation.
(b) Shares of the Corporation for which an application for
redemption has been made or which are subject to repurchase by the Corporation
shall be deemed to be outstanding up to and including the time as of which the
redemption or repurchase price is determined. After such time, they shall be
deemed to be no longer outstanding and the price until paid shall be deemed to
be a liability of the Corporation.
(c) Funds on deposit and contractual obligations payable to the
Corporation in foreign currency and liabilities and contractual obligations
payable by the Corporation in foreign currency shall be taken at the current
rate of exchange as nearly as practicable at the time as of which the net asset
value is computed.
SECTION IV: MISCELLANEOUS
4.01 Inspection of Corporation's Books. The Board of Directors shall have
power from time to time to determine whether and to what extent, and at what
times and places and under what conditions and regulations, the accounts and
books of the Corporation (other than the stock ledger) or any of them shall be
open to the inspection of shareholders; and no shareholder shall have any right
of inspecting any account, book or document of the Corporation except as at the
time conferred by statute, unless authorized by a resolution of the shareholders
or the Board of Directors.
4.02 Name. 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 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 advisor.
4.03 Contracts. The Board of directors may, in its discretion from time to
time, authorize the Corporation to enter into any con-
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tract 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.
NINTH: 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.
IN WITNESS WHEREOF, the undersigned incorporator of Value Line Convertible
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 1st day of March, 1985.
/s/ Peter D. Lowenstein
-----------------------------
Peter D. Lowenstein
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Exhibit (b)
BY-LAWS
OF
VALUE LINE CONVERTIBLE FUND, INC.
ARTICLE 1
STOCKHOLDERS
SECTION 1. The annual meeting of the stockholders of the Corporation
shall be held at such date, time and place, either within or without the State
of Maryland, as may be designated by resolution of the Board of Directors from
time to time, for the purpose of electing directors and for transacting such
other business as may properly be brought before the meeting. Only such
business, in addition to that prescribed by law, by the Articles of
Incorporation and by these By-Laws, may be brought before such meeting as may be
specified by resolution of the Board of Directors, or by a writing filed with
the Secretary of the Corporation and signed by the Chairman of the Board or the
President or a majority of the directors or by stockholders holding at least 25%
of the stock of the Corporation outstanding and entitled to vote at the 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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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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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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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.
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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.
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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.
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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
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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.
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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.
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Exhibit (d)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of the 10 day of Aug. 1988, between VALUE LINE
CONVERTIBLE FUND, INC., a Maryland corporation (hereinafter called "the Fund"),
and VALUE LINE, INC., a New York corporation (hereinafter called "the Company");
WITNESSETH:
WHEREAS, the Fund desires to have the Company act as its investment
adviser and provide it with investment research, advice, supervision and
management; and
WHEREAS, the Company is willing to undertake the same upon the terms and
conditions set forth.
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 3/4 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. Value of Fund. The Company consents to the use by the Fund of the name
"Value Line Convertible 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.
VALUE LINE CONVERTIBLE FUND, INC.
By /s/ Thomas J. Sexton
---------------------------------
VALUE LINE, INC.
By /s/ [ILLEGIBLE]
---------------------------------
A-3
<PAGE>
Exhibit (e)
DISTRIBUTION AGREEMENT
Between
VALUE LINE CONVERTIBLE FUND, INC.
and
VALUE LINE SECURITIES, INC.
May 20, 1985
VALUE LINE SECURITIES, INC.
711 Third Avenue
New York, New York 10017
Dear Sirs:
VALUE LINE CONVERTIBLE FUND, INC. (the "Fund"), 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 or 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 of said Act.
7. You agree:
(a) That neither you nor any of your officers will take any short
position in the shares of the Fund.
(b) To furnish to the Fund any pertinent information required to be
included with respect to you as distributor within the meaning of the Securities
Act of 1933 in any reports or registration required to be filed with any
governmental authority.
(c) You will not give any information or make any representations
other than as contained in the Registration Statement or Prospectus filed under
the Securities Act of 1933, as in effect from time to time, or in any
supplemental sales literature authorized by the Fund for use in connection with
the sale of shares.
8. You shall pay all usual expenses of distribution, including advertising
and the costs of printing and mailing of 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.
VALUE LINE CONVERTIBLE FUND, INC.
By /s/ [ILLEGIBLE]
------------------------------
Accepted:
VALUE LINE SECURITIES, INC.
By /s/ Thomas J. Sexton
------------------------------
<PAGE>
CUSTODIAN AGREEMENT
Dated as of:
Between
VALUE LINE CONVERTIBLE 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
E. 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 VALUE LINE
CONVERTIBLE 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)(l) 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
-2-
<PAGE>
Trust Company ("DTC"), a clearing agency registered with the Securities
and Exchange Commission under Section 17A of the Securities Exchange Act
of 1934, it 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
-3-
<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
-4-
<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
-5-
<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
-6-
<PAGE>
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;
-7-
<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
-8-
<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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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.
D. 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 beheld 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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(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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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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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 l7(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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(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:
Value Line Convertible 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
1776 Heritage Drive
North Quincy, MA 02171
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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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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.
VALUE LINE CONVERTIBLE FUND, INC.
By: /s/ Jean S. Buttnea
--------------------------------
ATTEST:
/s/ [ILLEGIBLE]
- -----------------------
STATE STREET BANK AND TRUST COMPANY
By: /s/ [ILLEGIBLE]
--------------------------------
ATTEST:
/s/ [ILLEGIBLE]
- -----------------------
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Exhibit(g)
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 S. Buttnea
--------------------------------
Name: Jean S. Buttnea
Title: Chairman/President
Attest: /s/ David T. Henigson
----------------------------
Name: David T. Henigson
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)
[Letterhead of Peter D. Lowenstein]
June 28, 1999
Value Line Convertible Fund, Inc.
220 East 42nd Street
New York, NY 10017
Gentlemen:
I have acted as special counsel to Value Line Convertible Fund, Inc., a
Maryland corporation (the "Fund"), in connection with certain matters, including
the issuance of shares of its common stock, $1.00 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. 2-96484 (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 document 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
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> APR-30-1999
<INVESTMENTS-AT-COST> 65806
<INVESTMENTS-AT-VALUE> 73941
<RECEIVABLES> 2533
<ASSETS-OTHER> 686
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 77160
<PAYABLE-FOR-SECURITIES> 7782
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 101
<TOTAL-LIABILITIES> 7883
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 67167
<SHARES-COMMON-STOCK> 5424
<SHARES-COMMON-PRIOR> 6598
<ACCUMULATED-NII-CURRENT> 144
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (6169)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8135
<NET-ASSETS> 69277
<DIVIDEND-INCOME> 1339
<INTEREST-INCOME> 2621
<OTHER-INCOME> 0
<EXPENSES-NET> 792
<NET-INVESTMENT-INCOME> 3168
<REALIZED-GAINS-CURRENT> (6168)
<APPREC-INCREASE-CURRENT> (952)
<NET-CHANGE-FROM-OPS> (3952)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3432
<DISTRIBUTIONS-OF-GAINS> 3713
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 13575
<NUMBER-OF-SHARES-REDEEMED> 15227
<SHARES-REINVESTED> 478
<NET-CHANGE-IN-ASSETS> (28402)
<ACCUMULATED-NII-PRIOR> 407
<ACCUMULATED-GAINS-PRIOR> 3713
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 592
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 797
<AVERAGE-NET-ASSETS> 79584
<PER-SHARE-NAV-BEGIN> 14.80
<PER-SHARE-NII> .57
<PER-SHARE-GAIN-APPREC> (1.33)
<PER-SHARE-DIVIDEND> .60
<PER-SHARE-DISTRIBUTIONS> .67
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.77
<EXPENSE-RATIO> 1.00
</TABLE>
