<PAGE>
As filed with the Securities and Exchange Commission on June 20, 1997
Registration No. 33-12400
Registration No. 811-5052
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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. 11 /X/
and
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 11 /X/
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VALUE LINE NEW YORK TAX EXEMPT TRUST
(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)
/X/ on July 1, 1997 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on (date) pursuant to paragraph (a) of rule 485
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PURSUANT TO THE PROVISIONS OF RULE 24F-2(A)(1) UNDER THE INVESTMENT COMPANY ACT
OF 1940, REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF SHARES OF BENEFICIAL
INTEREST UNDER THE SECURITIES ACT OF 1933. REGISTRANT FILED ITS RULE 24F-2
NOTICE FOR THE YEAR ENDED FEBRUARY 28, 1997 ON OR ABOUT MARCH 25, 1997.
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<PAGE>
VALUE LINE NEW YORK TAX EXEMPT TRUST
FORM N-1A
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
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<S> <C> <C>
PART A (PROSPECTUS)
Item 1. Cover Page............................................ Cover Page
Item 2. Synopsis.............................................. Not Applicable
Item 3. Condensed Financial Information....................... Summary of Trust Expenses; Financial
Highlights
Item 4. General Description of Registrant..................... Cover Page; Investment Objective and
Policies; Investment Restrictions;
Additional Information
Item 5. Management of the Fund................................ Summary of Trust Expenses; Management
of the Trust; Additional Information
Item 6. Capital Stock and Other Securities.................... Dividends and Distributions; Taxes;
Additional Information
Item 7. Purchase of Securities Being Offered.................. How to Buy Shares; Calculation of Net
Asset Value; Investor Services
Item 8. Redemption or Repurchase.............................. How to Redeem Shares
Item 9. Pending Legal Proceedings............................. Not Applicable
PART B (STATEMENT OF ADDITIONAL INFORMATION)
Item 10. Cover Page............................................ Cover Page
Item 11. Table of Contents..................................... Table of Contents
Item 12. General Information and History....................... Additional Information (Part A)
Item 13. Investment Objectives and Policies.................... Investment Objective and Policies;
Investment Restrictions
Item 14. Management of the Fund................................ Trustees and Officers
Item 15. Control Persons and Principal Holders of Securities... Management of the Trust (Part A);
Trustees and Officers
Item 16. Investment Advisory and Other Services................ Management of the Trust (Part A); The
Adviser
Item 17. Brokerage Allocation.................................. Management of the Trust (Part A);
Portfolio Transactions
Item 18. Capital Stock and Other Securities.................... Additional Information (Part A)
Item 19. Purchase, Redemption and Pricing of Secur-
ities Being Offered................................. How to Buy Shares; Suspension of
Redemptions; Calculation of Net Asset
Value (Part A)
Item 20. Tax Status............................................ Taxes
Item 21. Underwriters.......................................... Not Applicable
Item 22. Calculation of Performance Data....................... Performance Information (Part A);
Performance Data
Item 23. Financial Statements.................................. Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
<TABLE>
<S> <C>
VALUE LINE NEW YORK PROSPECTUS
TAX EXEMPT TRUST July 1, 1997
</TABLE>
220 East 42nd Street, New York, New York 10017-5891
1-800-223-0818 or 1-800-243-2729
Value Line New York Tax Exempt Trust (the "Trust")
is a no-load, non-diversified investment company
whose investment objective is to provide New York
taxpayers with the maximum income exempt from New
York State, New York City and federal personal
income taxes while avoiding undue risk to principal.
The Trust's investment adviser is Value Line, Inc.
(the "Adviser").
Shares of the Trust are offered at net asset value.
There are no sales charges or redemption fees.
This Prospectus sets forth concise information about the Trust that a
prospective investor ought to know before investing. This Prospectus
should be retained for future reference. Additional information about
the Trust is contained in a Statement of Additional Information, dated
July 1, 1997, which has been filed with the Securities and Exchange
Commission and is incorporated into this Prospectus by reference. A copy
of the Statement of Additional Information may be obtained at no charge
by writing or telephoning the Trust at the address or telephone numbers
listed above.
DISTRIBUTOR
Value Line Securities, Inc.
220 East 42nd Street
New York, New York 10017-5891
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
SUMMARY OF TRUST EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load on Purchases....................................................... None
Sales Load on Reinvested Dividends............................................ None
Deferred Sales Load........................................................... None
Redemption Fees............................................................... None
Exchange Fee.................................................................. None
ANNUAL TRUST OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees............................................................... .60%
12b-1 Fees.................................................................... None
Other Expenses................................................................ .32%
Total Trust Operating Expenses................................................ .92%
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
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<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and
(2) redemption at the end of each time period:.... $9 $29 $51 $113
</TABLE>
The foregoing is based upon the expenses for the year ended February 28,
1997 and is designed to assist investors in understanding the various costs and
expenses that an investor in the Trust will bear directly or indirectly. Actual
expenses in the future may be greater or less than those shown.
FINANCIAL HIGHLIGHTS
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following information on selected per share data and ratios, insofar as
it pertains to each of the five years in the period ended February 28, 1997, has
been audited by Price Waterhouse LLP, independent accountants, whose unqualified
report thereon appears in the Trust's Annual Report to Shareholders which is
incorporated by reference in the Statement of Additional Information. This
information should be read in conjunction with the financial statements and
notes thereto which appear in the Trust's Annual Report to Shareholders
available from the Trust without charge.
2
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED LAST DAY OF FEBRUARY,
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1997 1996 1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year........................ $ 10.28 $ 9.81 $ 10.49 $ 10.84 $ 9.90 $ 9.50 $ 9.65 $ 9.76
-------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income..... .480 .491 .523 .570 .596 .634 .707 .702
Net gains or losses on
securities (both realized
and unrealized).......... (.113) .470 (.611) .062 1.080 .400 (.150) (.046)
-------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations........... .367 .961 (.088) .632 1.676 1.034 .557 .656
-------- -------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net
investment income........ (.480) (.491) (.523) (.570) (.596) (.634) (.707) (.702)
Distributions from capital
gains.................... (.127) -- (.069) (.412) (.140) -- -- (.064)
-------- -------- -------- -------- -------- -------- -------- --------
Total distributions... (.607) (.491) (.592) (.982) (.736) (.634) (.707) (.766)
-------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
year........................ $ 10.04 $ 10.28 $ 9.81 $ 10.49 $ 10.84 $ 9.90 $ 9.50 $ 9.65
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
Total return.................. 3.73% 10.00% (.58%) 5.98% 17.56% 11.18% 5.99% 6.87%
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands).................. $32,745 $40,169 $39,139 $44,190 $41,528 $35,478 $32,327 $29,274
Ratio of expenses to average
net assets.................. .92%(3) .92% .86% .87% .85% .92% .91% 1.01%
Ratio of net investment income
to average net assets....... 4.79% 4.87% 5.36% 5.21% 5.82% 6.50% 7.46% 7.16%
Portfolio turnover rate....... 86% 119% 105% 54% 137% 124% 61% 39%
<CAPTION>
JULY 2, 1987
(COMMENCEMENT
OF OPERATIONS) TO
1989 FEBRUARY 29, 1988
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<S> <C> <C>
Net asset value, beginning of
year........................ $ 9.93 $ 10.00
-------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income..... .733(1) .520(1)
Net gains or losses on
securities (both realized
and unrealized).......... (.112) (.070)
-------- --------
Total from investment
operations........... .621 .450
-------- --------
LESS DISTRIBUTIONS:
Dividends from net
investment income........ (.733) (.520)
Distributions from capital
gains.................... (.058) --
-------- --------
Total distributions... (.791) (.520)
-------- --------
Net asset value, end of
year........................ $ 9.76 $ 9.93
-------- --------
-------- --------
Total return.................. 6.54%(2) 4.77%(2)
-------- --------
-------- --------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands).................. $26,412 $19,648
Ratio of expenses to average
net assets.................. .76%(2) --*(2)
Ratio of net investment income
to average net assets....... 7.51%(2) 8.15%*(2)
Portfolio turnover rate....... 73% 17%
</TABLE>
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* Annualized
(1) Net of waiver of advisory fee and voluntary expense reimbursement. Had
these fees and expenses been fully borne by the Trust, net investment
income per share would have been $.714 and $.416 for fiscal 1989 and
1988, respectively.
(2) Due to waiver of advisory fee and expense reimbursement by the Adviser
and the short period for 1988, data are not indicative of future
periods. Had all expenses been absorbed by the Trust, total return, the
ratio of expenses and the ratio of net investment income to average net
assets would have been 6.06%, .95% and 7.32% for fiscal 1989 and, on an
annualized basis, 5.96%, 1.61% and 6.53% for fiscal 1988, respectively.
(3) Before offset for custody credits.
3
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Trust's investment objective is to provide New York taxpayers with the
maximum income exempt from New York State, New York City and federal personal
income taxes while avoiding undue risk to principal. Under normal conditions,the
Trust's assets will be invested so that at least 80% of the annual income of the
Trust will be exempt from both federal income tax and New York State and City
personal income taxes, except during times of adverse market conditions. This is
a fundamental policy of the Trust which will not be changed without
shareholders' approval. No assurance can be made that the Trust's investment
objective will be achieved. A portion of the Trust's income may be subject to
federal, state and local taxes.
The investment objective and policies of the Trust, other than the
fundamental policy described above or those enumerated under "Investment
Restrictions" in the Statement of Additional Information, may be changed by the
Trustees without shareholder approval.
BASIC INVESTMENT STRATEGY
The Trust will invest primarily in New York State municipal and public
authority debt obligations having a maturity of more than one year which are
rated at the time of purchase within the four highest grades assigned by Moody's
Investors Services (Aaa, Aa, A and Baa) or Standard & Poor's Corporation (AAA,
AA, A and BBB). The Trust may also invest up to 30% of its assets in bonds rated
Ba or B by Moody's or BB or B by Standard & Poor's. As of February 28, 1997, the
Trust had no securities rated below investment grade (Aaa through Baa).
Investments rated Baa or BBB or lower have speculative characteristics;
lower-rated investments normally provide higher yields but are speculative and
involve greater risk including the possibility of default or bankruptcy than is
the case with high rated securities. These securities may also be subject to
greater market fluctuations. The Trust may also invest up to 100% of its assets
in unrated securities which the Adviser determines are of comparable quality to
the rated securities in which the Trust may invest. The amount of information
about the financial condition of an issuer of New York tax-exempt bonds may not
be as extensive as that which is made available by corporations whose securities
are publicly traded. See "Special Considerations," below. The Trust may also
purchase obligations of municipal issuers located in Puerto Rico, the U.S.
Virgin Islands and Guam since dividends paid by the Trust, to the extent
attributable to such sources, are exempt from federal, New York State and New
York City income taxes. Portfolio securities may be sold without regard to the
length of time that they have been held in order to take advantage of new
investment opportunities or yield differentials, or because the Adviser desires
to preserve gains or limit losses due to changing economic conditions. High
portfolio turnover may result in correspondingly greater transaction costs.
Up to 20% of the Trust's total assets may be invested in taxable money
market instruments, non-New York tax-exempt securities, futures and options. The
Trust may temporarily invest more than 20% of its total assets in taxable money
market instruments and non-New York tax-exempt securities when the Adviser deems
a "defensive" posture to be advisable because of market conditions. The Trust
may only purchase those non-New York tax-exempt securities which satisfy the
standards for New York tax-exempt securities set forth in the preceding
paragraph. The types of taxable money market instruments in which the Trust may
invest are the following: commercial paper (rated A-2 or better by Standard &
Poor's or Prime-2 or better by Moody's), U.S. government securities, repurchase
agreements or other short-term money market instruments.
4
<PAGE>
Yields of municipal securities depend upon a number of factors, including
the financial condition of the issuer, economic and money and capital market
conditions, the volume of municipal securities available, conditions within the
municipal securities market, proposed and actual changes in tax laws,
regulations and rules, and the maturity, rating, and size of individual
offerings. Market values of municipal securities will vary inversely in relation
to their yields. The magnitude of changes in market values in response to
changes in market rates of interest typically varies in proportion to the
maturity of the obligations.
SPECIAL CONSIDERATIONS AFFECTING THE TRUST. The Trust's ability to achieve
its investment objective is dependent upon the ability of the issuers of New
York municipal securities to meet their continuing obligations for the payment
of principal and interest. New York State and New York City face long-term
economic problems that could seriously affect their ability and that of other
issuers of New York municipal securities to meet their financial obligations.
Certain substantial issuers of New York municipal securities (including
issuers whose obligations may be acquired by the Trust) have experienced serious
financial difficulties in recent years. These difficulties have at times
jeopardized the credit standing and impaired the borrowing abilities of all New
York issuers and have generally contributed to higher interest costs for their
borrowings and fewer markets for their outstanding debt obligations. In recent
years, several different issues of municipal securities of New York State and
its agencies and instrumentalities and of New York City have been downgraded by
Standard & Poor's and Moody's. On the other hand, strong demand for New York
municipal securities has at times had the effect of permitting New York
municipal securities to be issued with yields relatively lower, and after
issuance, to trade in the market at prices relatively higher, than comparably
rated municipal securities issued by other jurisdictions. A recurrence of the
financial difficulties previously experienced by certain issuers of New York
municipal securities could result in defaults or declines in the market values
of those issuers' existing obligations and, possibly, in the obligations of
other issuers of New York municipal securities. Although as of the date of this
Prospectus, no issuers of New York municipal securities are in default with
respect to the payment of their municipal securities, the occurrence of any such
default could affect adversely the market values and marketability of all New
York municipal securities and, consequently, the net asset value of the Trust's
portfolio.
Other considerations affecting the Trust's investments in New York municipal
securities are summarized in the Statement of Additional Information.
The Trust's classification as a "non-diversified" investment company allows
it to have a larger position in the securities of a single issuer than would be
the case if it were diversified. Because a relatively high percentage of the
Trust's assets may be invested in the obligations of a limited number of
issuers, the portfolio securities of the Trust may be more susceptible to any
single economic, political or regulatory occurrence than the portfolio
securities of a diversified investment company. To meet federal tax requirements
for qualification as a "regulated investment company," the Trust will limit its
investments so that at the close of each quarter in each fiscal year, with
regard to at least 50% of its assets, no more than 5% of its total assets will
be invested in the securities of a single issuer; additionally, not more than
25% of the Trust's total assets will be invested in securities (other than U.S.
government securities) of any one issuer. These limitations may be changed by
the Trustees if federal tax requirements change.
5
<PAGE>
MISCELLANEOUS INVESTMENT PRACTICES
WHEN-ISSUED SECURITIES. Tax-exempt securities may be purchased or sold on a
delayed-delivery basis or on a when-issued basis. These transactions arise when
securities are purchased or sold by the Trust with payment and delivery taking
place in the future, in order to secure what is considered to be an advantageous
price and yield to the Trust. No payment is made until delivery is due, often a
month or more after the purchase. When the Trust engages in when-issued and
delayed-delivery transactions, certain risks are involved. The Trust relies on
the buyer or seller, as the case may be, to consummate the transaction. Failure
of the buyer or seller to do so may result in the Trust missing the opportunity
of obtaining a price considered to be advantageous. The securities are subject
to market fluctuations and no interest accrues to the purchaser during this
period. At the time the Trust makes the commitment to purchase municipal
securities on a delayed-delivery basis or a when-issued basis, it will record
the transaction and reflect the value of the municipal securities in determining
its net asset value. A separate account for the Trust consisting of cash or
high-grade securities equal to the amount of the when-issued commitments will be
established at the Trust's custodian bank. For the purpose of determining the
adequacy of the securities in the account, the deposited securities will be
valued at market. If the market value of such securities declines, additional
cash or securities will be placed in the account on a daily basis so that the
market value of the account will equal the amount of such commitments by the
Trust.
PRIVATE PLACEMENT. The Trust may acquire privately negotiated loans to
tax-exempt borrowers as such securities are expected to provide the Trust with a
higher rate of interest than is generally available from marketable securities.
To the extent that these private placements are not readily marketable, the
Trust will limit its investment in such securities (and in other illiquid
securities) to no more than 10% of the value of its total assets. Because an
active trading market may not exist for such securities, the price that the
Trust may pay for these securities or receive on their resale may be lower than
that for similar securities with a more liquid market.
VARIABLE RATE DEMAND INSTRUMENTS. The Trust may also invest in variable
rate demand instruments which are tax-exempt obligations that provide for a
periodic adjustment in the interest rate paid on the instrument according to
changes in interest rates generally. These instruments permit the Trust to
demand payment of the unpaid principal balance plus accrued interest upon a
specified number of days' notice to the issuer or its agent. The demand feature
may be backed by a bank letter of credit or guarantee issued with respect to
such instrument. The Trust intends to exercise the demand only (1) upon a
default under the terms of the municipal obligation, (2) as needed to provide
liquidity to the Trust, or (3) to maintain a high quality investment portfolio.
The issuer of a variable rate demand instrument may have a corresponding right
to prepay in its discretion the outstanding principal of the instrument plus
accrued interest upon notice comparable to that required for the holder to
demand payment. The variable rate demand instruments that the Trust may purchase
are payable on demand on not more than seven calendar days' notice. The terms of
the instruments provide that interest rates are adjustable at intervals ranging
from daily up to six months, and the adjustments are based upon the prime rate
of a bank or other appropriate interest rate adjustment index as provided in the
respective instruments.
LENDING SECURITIES. The Trust may lend limited amounts of its portfolio
securities to broker-dealers or institutional investors which the Adviser deems
qualified, but only when the borrower agrees to maintain cash collateral with
the Trust equal at all times to at least 100% of the value of the lent
securities and accrued interest. The Trust will continue to receive interest on
the lent securities
6
<PAGE>
and will invest the cash collateral in readily marketable short-term obligations
of high quality, thereby earning additional interest. Interest on lent municipal
securities received by the borrower and paid over to the Trust will not be
exempt from federal income taxes in the hands of the Trust. No loans of
securities will be made if, as a result, the aggregate of such loans would
exceed 10% of the value of the Trust's total assets. The Trust may terminate
such loans at any time.
FINANCIAL FUTURES CONTRACTS. The Trust may invest in financial futures
contracts ("futures contracts") and related options thereon limited to 30% of
the Trust's net assets. If the Adviser anticipates that interest rates will
rise, the Trust may sell a futures contract or write a call option thereon or
purchase a put option on such futures contract to attempt to hedge against a
decrease in the value of the Trust's securities. If the Adviser anticipates that
interest rates will decline, the Trust may purchase a futures contract or a call
option thereon to protect against an increase in the prices of the securities
the Trust intends to purchase. These futures contracts and related options
thereon will be used only as a hedge against anticipated interest rate changes.
A futures contract sale creates an obligation on the part of the Trust, as
seller, to deliver the specific type of instrument called for in the contract at
a specified future time at a specified price. A futures contract purchase
creates an obligation by the Trust, as purchaser, to take delivery of the
specific type of financial instrument at a specified future time at a specified
price.
Although the terms of futures contracts specify actual delivery or receipt
of securities, in most instances the contracts are closed out before the
settlement date without the making or taking of delivery of the securities.
Closing out a futures contract is effected by entering into an offsetting
purchase or sale transaction. An offsetting transaction for a futures contract
sale is effected by the Trust entering into a futures contract purchase for the
same aggregate amount of the specific type of financial instrument and same
delivery date. If the price in the sale exceeds the price in the offsetting
purchase, the Trust is immediately paid the difference and thus realizes a gain.
If the purchase price of the offsetting transaction exceeds the sale price, the
Trust pays the difference and realizes a loss. Similarly, the closing out of a
futures contract purchase is effected by the Trust entering into a futures
contract sale. If the offsetting sale price exceeds the purchase price, the
Trust realizes a gain, and if the offsetting sale price is less than the
purchase price, the Trust realizes a loss.
The Trust is required to maintain margin deposits with brokerage firms
through which it effects futures contracts and options thereon. The initial
margin requirements vary according to the type of the underlying security. In
addition, due to current industry practice, daily variations in gains and losses
on open contracts are required to be reflected in cash in the form of variation
margin payments. The Trust may be required to make additional margin payments
during the term of the contract.
Currently, futures contracts can be purchased on debt securities such as
U.S. Treasury bills, bonds, and notes, certificates of the Government National
Mortgage Association and bank certificates of deposit. The Trust may invest in
futures contracts covering these types of financial instruments as well as in
new types of such contracts that become available in the future.
The Trust will only enter into financial contracts which are traded on
national futures exchanges, principally the Chicago Board of Trade and the
Chicago Mercantile Exchange.
A risk in employing futures contracts to protect against the price
volatility of portfolio securities is that the price of a futures contract may
move more or less than the price of the securities being hedged. There is also a
risk of imperfect correlation where the securities underlying futures contracts
have different maturities than the portfolio securities being hedged. Another
risk is that the Trust's
7
<PAGE>
Adviser could be incorrect in its expectations as to the direction or extent of
various interest rate movements or the time span within which the movements take
place. For example, if the Trust sold futures contracts for the sale of
securities in anticipation of an increase in interest rates, and then interest
rates declined instead, causing bond prices to rise, the Trust would lose money
on the sale. The risk of imperfect correlation may be increased if the futures
contracts being used are on taxable securities rather than on tax-exempt
securities since there is no guarantee that the prices of taxable securities
will move in a manner similar to the prices of tax-exempt securities.
Unlike a futures contract, which requires the parties to buy and sell a
security on a set date, an option on a futures contract entitles its holder to
decide on or before a future date whether to enter into such a contract. If the
holder decides not to enter into the contract, the premium paid for the option
is lost. Since the price of the option is fixed at the point of sale, there are
no daily payments of cash in the nature of "variation" or "maintenance" margin
payments to reflect the change in the value of the underlying contract as there
are in a purchase or sale of a futures contract. The value of the option does
change and is reflected in the net asset value of the Trust.
Put and call options on financial futures have characteristics similar to
those of other options. In addition to the risks associated with investing in
options on securities, there are particular risks associated with investing in
options on futures. In particular, the ability to establish and close out
positions on such options will be subject to the development and maintenance of
a liquid secondary market. The Trust will enter into an option on futures
position only if there appears to be a liquid secondary market therefor,
although there can be no assurance that such a market will actually develop or
be maintained.
The Trust may also utilize municipal bond index futures contracts and
options thereon for hedging purposes. The Trust's strategies in employing such
contracts will be similar to those discussed above with respect to financial
futures and related options. A municipal bond index is a method of reflecting in
a single number the market value of many different municipal bonds and is
designed to be representative of the municipal bond market generally. The index
fluctuates in response to changes in the market values of the bonds included
within the index. Unlike futures contracts on particular financial instruments,
transactions in futures on a municipal bond index will be settled in cash, if
held until the close of trading in the contract. However, like any other futures
contract, a position in the contract may be closed out by purchase or sale of an
offsetting contract for the same delivery month prior to expiration of the
contract. Trading in the municipal bond index futures contract takes place on
the Chicago Board of Trade.
The Trust may not enter into futures contracts or related options thereon if
immediately thereafter the amount committed to margin plus the amount paid for
option premiums exceeds 5% of the value of the Trust's total assets. In
instances involving the purchase of futures contracts by the Trust, an amount
equal to the market value of the futures contract will be deposited in a
segregated account of cash and cash equivalents to collateralize the position
and thereby insure that the use of such futures contract is unleveraged.
INVESTMENT RESTRICTIONS
The Trust has adopted a number of investment restrictions which may not be
changed without shareholder approval. These are set forth under "Investment
Restrictions" in the Statement of Additional information.
8
<PAGE>
MANAGEMENT OF THE TRUST
The management and affairs of the Trust are supervised by the Trustees. The
Trust's officers conduct and supervise the daily business operations of the
Trust. The Trust's investment decisions are made by an investment committee of
employees of the Adviser. The Trust's Annual Report contains a discussion of the
Trust's performance, which will be made available upon request and without
charge.
THE ADVISER. The Adviser was organized in 1982 and is the successor to
substantially all of the operations of Arnold Bernhard & Co., Inc. ("AB&Co.").
The Adviser was formed as part of a reorganization of AB&Co., a sole
proprietorship formed in 1931 which became a New York corporation in 1946.
AB&Co. currently owns approximately 81% of the outstanding shares of the
Adviser's common stock. Jean Bernhard Buttner, Chairman, President and Chief
Executive Officer of the Adviser, owns all of the voting stock of AB&Co. All of
the non-voting stock is owned by or for the benefit of members of the Bernhard
family and certain employees and former employees of the Adviser and AB&Co. The
Adviser currently acts as investment adviser to the other Value Line mutual
funds and furnishes investment advisory services to private and institutional
accounts with combined assets in excess of $5 billion. Value Line Securities,
Inc., the Trust's distributor, is a subsidiary of the Adviser. The Adviser
manages the Trust's investments, provides various administrative services and
supervises the Trust's daily business affairs, subject to the authority of the
Trustees. The Adviser is paid an advisory fee on a monthly basis at an annual
rate of .60% of the Trust's average daily net assets during the year. For more
information about the Trust's management fees and expenses, see the "Summary of
Trust Expenses" on page 2.
CALCULATION OF NET ASSET VALUE
The net asset value of the Trust's shares for purposes of both purchases and
redemptions is determined once daily as of the close of trading of the New York
Stock Exchange (currently 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 Trust shares have been received. The New York Stock
Exchange is currently closed on New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value per share is determined by dividing the total value of the
investments and other assets of the Trust, less any liabilities, by the total
outstanding shares.
Fixed-income securities are valued on the basis of prices provided by an
independent pricing service approved by the Trustees. The Adviser will
periodically review and evaluate the procedures, methods and quality of services
provided by the pricing service then being used by the Trust and may, from time
to time, recommend to the Trustees the use of other pricing services or
discontinuance of the use of any pricing service in whole or part. The Trustees
may determine to approve such recommendation or to make other provisions for
pricing of the Trust's portfolio securities. Non-tax-exempt securities for which
market quotations are readily available are stated at market value. Short-term
instruments that will mature in 60 days or less are stated at amortized cost,
which approximates market value. Options are valued at their last sale price at
the close of option trading on the exchanges on which they are traded (if there
were no sales that day, the option is valued at the mean between the closing bid
and asked prices), and futures and options thereon which are traded on
commodities exchanges are valued at their last sale price as of the close of
such commodities exchanges. Other assets and securities for which market
valuations are not readily available are valued at their fair value as the
Trustees may determine.
9
<PAGE>
HOW TO BUY SHARES
PURCHASE BY CHECK. To purchase shares, send a check made payable to
"NFDS-Agent" and a completed and signed application form to Value Line Funds,
c/o NFDS, P.O. Box 419729, Kansas City, MO 64141-6729. Third party checks will
not be accepted for either initial or subsequent investments. For assistance in
completing the application and for information on pre-authorized telephone
purchases, call Value Line Securities at 1-800-223-0818 during New York business
hours. Upon receipt of the completed and signed purchase application and a
check, National Financial Data Services Inc. ("NFDS"), the Trust's shareholder
servicing agent, will purchase full and fractional shares (to three decimal
places) at the net asset value next computed after the funds are received and
will confirm the investment to the investor. Subsequent investments may be made
by attaching a check to the confirmation's "next payment" stub, by telephone
purchase or by federal funds wire. Investors may also arrange to purchase or
redeem shares through broker-dealers other than through Value Line Securities.
Such broker-dealers may charge investors a reasonable service fee. Neither Value
Line Securities nor the Trust receives any part of such fees when charged (and
which can be avoided by investing directly). If an order to purchase shares is
cancelled due to nonpayment or because the investor's check does not clear, the
purchaser will be responsible for any loss incurred by the Trust or Value Line
Securities by reason of such cancellation. If the purchaser is a shareholder,
Value Line Securities reserves the right to redeem sufficient shares from the
shareholder's account to protect the Trust against loss. The Trust may refuse
any order for the purchase of shares. Share certificates will not be issued
unless specifically requested in writing. Minimum orders are $1,000 for an
initial purchase and $250 for each subsequent purchase.
SHARES OF THE TRUST ARE NOT OFFERED FOR SALE IN ALL STATES. CONSULT VALUE
LINE SECURITIES FOR INFORMATION.
WIRE PURCHASE--$1,000 MINIMUM. An investor should call 1-800-243-2729 to
obtain an account number. After receiving an account number, instruct your
commercial bank to wire transfer "federal funds" via the Federal Reserve System
as follows:
State Street Bank and Trust Company, Boston, MA
ABA #011000028
Attn: Mutual Fund Division
DDA #99049868
Value Line New York Tax Exempt Trust
A/C #________________________
Shareholder's name and account information
Tax ID #________________________
NOTE: A COMPLETED AND SIGNED APPLICATION MUST BE MAILED IMMEDIATELY AND
RECEIVED BY NFDS BEFORE IT CAN HONOR ANY WITHDRAWAL OR EXCHANGE TRANSACTIONS.
After your account has been opened you may wire additional investments in
the same manner.
For an initial investment made by federal funds wire purchase, the wire must
include a valid social security number or tax identification number. Investors
purchasing shares in this manner will then have 30 days after purchase to
provide the certification and signed account application. All payments should be
made in U.S. dollars and to avoid fees and delays, should be drawn on only U.S.
banks. Until receipt of the above, any distributions from the account will be
subject to 31% withholding.
10
<PAGE>
SUBSEQUENT TELEPHONE PURCHASES--$250 MINIMUM. Upon completion of the
telephone purchase authorization section of the account application,
shareholders who own Trust shares with a current value of $500 or more may also
purchase additional shares in amounts of $250 or more up to twice the value of
their shares by calling 1-800-243-2729 between 9:00 a.m. and 4:00 p.m., New York
time. Such orders will be priced at the closing net asset value on the day
received and payment will be due within three business days. If payment is not
received within the required time or a purchaser's check does not clear, the
order is subject to cancellation and the purchaser will be responsible for any
loss incurred by the Trust or Value Line Securities.
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income are declared daily and paid monthly.
Net realized capital gains, if any, are distributed to shareholders at least
annually. Income earned by the Trust on weekends, holidays and other days on
which the Trust is closed for business is declared as a dividend on the next day
on which the Trust is open for business. Income dividends and capital gains
distributions are automatically reinvested in additional shares of the Trust
unless the shareholder has requested otherwise.
PERFORMANCE INFORMATION
The Trust may from time to time include information regarding its total
return performance or yield in advertisements or in information furnished to
existing or prospective shareholders. When information regarding total return is
furnished, it will be based upon changes in the Trust's net asset value and will
assume the reinvestment of all capital gains distributions and income dividends.
It will take into account nonrecurring charges, if any, which the Trust may
incur but will not take into account income taxes due, if any, on non-tax-exempt
Trust distributions.
The table below illustrates the total return performance of the Trust for
the periods indicated by showing the value of a hypothetical $1,000 investment
made at the beginning of each period. The information contained in the table has
been computed by applying the Trust's average annual total return to the
hypothetical $1,000 investment. The table assumes reinvestment of all capital
gains distributions and income dividends, but does not take into account income
taxes which may be payable on any taxable Trust distributions or dividends.
<TABLE>
<CAPTION>
AVERAGE
ANNUAL TOTAL
RETURN
------------
<S> <C> <C>
For the year ended February 28, 1997.................................. $1,037 3.73%
For the five years ended February 28, 1997............................ $1,414 7.17%
From July 2, 1987 (commencement of operations) to February 28, 1997... $1,988 7.37%
</TABLE>
When information regarding "yield" is furnished it will refer to the net
investment income per share generated by an investment in the Trust over a
thirty-day period. This income will then be annualized by assuming that the
amount of income generated by the investment during that thirty-day period is
generated each 30 days over one year and assuming that the income is reinvested
every six months.
Comparative performance information may be used from time to time in
advertising the Trust's shares, including data from Lipper Analytical Services,
Inc. and other industry or financial publications. The Trust may compare its
performance to that of other mutual funds with similar investment
11
<PAGE>
objectives and to stock or other relevant indices. From time to time, articles
about the Trust regarding its performance or ranking may appear in national
publications such as KIPLINGER'S PERSONAL FINANCE, MONEY MAGAZINE, FINANCIAL
WORLD, MORNINGSTAR, PERSONAL INVESTOR, FORBES, FORTUNE, BUSINESS WEEK, WALL
STREET JOURNAL, INVESTOR'S BUSINESS DAILY and BARRON'S. Some of these
publications may publish their own rankings or performance reviews of mutual
funds, including the Trust. Reference to or reprints of such articles may be
used in the Trust's promotional literature.
Investors should note that the investment results of the Trust will
fluctuate over time, and any presentation of the Trust's current yield or total
return for any period should not be considered as a representation of what an
investment may earn or what an investor's total return or yield may be in any
future period.
TAXES
The Trust will advise shareholders annually as to the federal and New York
State and New York City income tax status of income dividends and capital gains
distributions paid during the calendar year.
FEDERAL INCOME TAX ASPECTS. The Trust will distribute substantially all of
its net investment income each year as dividends. The Trust intends to invest in
tax-exempt securities so that it will qualify to pay "exempt-interest dividends"
(as defined in the Internal Revenue Code of 1986, as amended (the "Code")) to
shareholders. The Trust's dividends payable from net tax-exempt interest earned
from securities will qualify as exempt-interest dividends if, among other
things, at the close of each quarter of the taxable year of the Trust, at least
50% of the value of the Trust's total assets consists of securities which are
tax-exempt obligations of the states or their political subdivisions, including
Puerto Rico, Guam and the U.S. Virgin Islands. The exemption of such income for
federal income tax purposes may not necessarily result in similar exemptions
under the laws of a particular state or local taxing authority. Shareholders
should consult their own tax advisers concerning the federal, state and local
tax status of distributions by the Trust.
The Trust may invest in some securities that are not tax-exempt.
Distributions of net investment income from those investments are taxable to the
shareholder as ordinary income. Additionally, any net realized short-term
capital gains distributed by the Trust are taxable as ordinary income. It is not
expected that any of the Trust's distributions would qualify for the
dividends-received deduction for corporate shareholders. The percentage of the
dividend distributions that are tax-exempt is applied uniformly to all
distributions during the Trust's taxable year and thus is an annual average for
the Trust rather than a day-by-day computation for each shareholder. Long-term
capital gains distributions, if any, to shareholders are taxable as long-term
capital gains without regard to the period of time the shareholder has held the
shares in the Trust. Any long-term capital gains distributions, as well as
distributions of non-tax-exempt net investment income and distributions of
short-term capital gains, are taxable to the shareholder, whether received in
cash or reinvested in Trust shares. Additionally, if a shareholder realizes a
loss on the sale or redemption of shares held for six months or less, the loss
to the extent of exempt-interest dividends received by the shareholder will be
disallowed. Furthermore, any such loss may be subject to additional restrictions
to the extent the Trust's income is treated as long-term capital gain. For
federal income tax purposes, the Trust had a capital loss carryover at February
28, 1997, of $107,675, which will expire in 2005. To the extent future capital
gains are offset by such capital losses, the Trust does not anticipate
distributing any such gains to its shareholders.
12
<PAGE>
Interest income derived from specified "private activity" obligations held
by the Trust, if any, may be subject to the federal alternative minimum tax. The
Trust will not treat interest income from these securities as tax-exempt for
purposes of measuring compliance with the 80% fundamental investment policy
described above under "Investment Objective and Policies". To the extent that
the Trust invests in these securities, shareholders, depending on their own tax
status, may be subject to alternative minimum tax on that part of the Trust's
distributions derived from these securities. (Consult your tax advisor for
information on whether the alternative minimum tax applies to you.) Also,
dividends from the Trust may give rise to the alternative minimum tax for
corporate shareholders under the adjusted current earnings rules of the Code.
Interest on indebtedness which is incurred or continued to purchase or carry
shares of a mutual fund which distributes exempt-interest dividends during the
year, such as the Trust, is not deductible for federal income tax purposes.
Further, the Trust may not be an appropriate investment for persons who are
"substantial users" of facilities financed by industrial development bonds held
by the Trust or are "related persons" to such users; such persons should consult
their tax adviser before investing in the Trust.
Under the Omnibus Budget Reconciliation Act of 1993, all or a portion of the
Trust's gain from the sale or redemption of tax-exempt obligations acquired
after April 30, 1993 attributable to market discount will be treated as ordinary
income rather than capital gain. This rule may increase the amount of ordinary
income dividends received by shareholders.
NEW YORK STATE AND LOCAL TAXES. Exempt-interest dividends derived from
interest on qualifying New York tax-exempt securities will be exempt from New
York State and New York City personal income taxes, but not corporate franchise
taxes. Dividends and distributions derived from taxable income and capital gains
are not exempt from New York State and New York City taxes. Interest on
indebtedness incurred or continued by a shareholder to purchase or carry shares
of the Trust is not deductible for New York State and New York City personal
income tax purposes. The Trust will notify shareholders annually stating the
portion of the Trust's tax-exempt income attributable to New York tax-exempt
securities. The foregoing is only a general summary of certain New York state
and local tax considerations generally affecting shareholders and is not
intended as a substitute for careful tax planning. Shareholders should consult
their own tax advisers regarding their own tax situations.
HOW TO REDEEM SHARES
Shares of the Trust may be redeemed at any time at their current net asset
value next determined after NFDS receives a request in proper form. ALL REQUESTS
FOR REDEMPTION SHOULD BE SENT TO NFDS, P.O. BOX 419729, KANSAS CITY, MO
64141-6729. The value of shares of the Trust on redemption may be more or less
than the shareholder's cost, depending upon the market value of the Trust's
assets at the time. A shareholder holding certificates for shares must surrender
the certificate properly endorsed with signature guaranteed. A signature
guarantee may be executed by any "eligible" guarantor. Eligible guarantors
include domestic banks, savings associations, credit unions, member firms of a
national securities exchange, and participants in the New York Stock Exchange
Medallion Signature Program, the Securities Transfer Agents Medallion Program
("STAMP") and the Stock Exchanges Medallion Program. A guarantee from a notary
public is not an acceptable source. The signature on any request for redemption
of shares not represented by certificates, or on any stock power in lieu
thereof, must be similarly guaranteed. In each case the signature or signatures
must correspond to
13
<PAGE>
the names in which the account is registered. Additional documentation may be
required when shares are registered in the name of a corporation, agent or
fiduciary. For further information, you should contact NFDS.
The Trust does not make a redemption charge but shares redeemed through
brokers or dealers may be subject to a service charge by such firms. A check in
payment of redemption proceeds will be mailed within seven days following
receipt of all required documents. However, payment may be postponed under
unusual circumstances such as when normal trading is not taking place on the New
York Stock Exchange. In addition, shares purchased by check may not be redeemed
for up to 15 calendar days following the purchase date.
If the Trustees determine that it is in the best interests of the Trust, the
Trust has the right to redeem, upon prior written notice, at net asset value,
all shareholder accounts which, due to redemptions, fall below $500 in net asset
value. In such event, an investor will have 30 days to increase the shares in
his account to the minimum level.
BY TELEPHONE OR WIRE. You may redeem shares by telephone or wire
instructions to NFDS by so indicating on the initial application. Payment will
normally be transmitted on the business day following receipt of your
instructions to the bank account at a member bank of the Federal Reserve System
you have designated on your initial purchase application. The Fund employs
reasonable procedures to confirm that instructions communicated by telephone are
genuine. These procedures include requiring some form of personal identification
prior to acting upon instructions received by telephone. The Fund will not be
liable for following instructions communicated by telephone that it reasonably
believes to be genuine. Any loss will be borne by the investor. Heavy wire
traffic may delay the arrival of a wire until after public hours at your bank.
Telephone or wire redemptions must be in amounts of $1,000 or more and your
instructions must include your name and account number. The number to call
before the close of business on the New York Stock Exchange is 1-800-243-2729.
Procedures for redeeming Fund shares by telephone may be modified or terminated
without notice at any time by the Trust.
BY CHECK. You may elect this method of redemption by so indicating on the
initial application and you will be provided a supply of checks by NFDS. These
checks may be made payable to the order of any person in any amount of $500 or
more. When your check is presented for payment, the Trust will redeem a
sufficient number of full and fractional shares in your account to cover the
amount of the check. Dividends will be earned by the shareholder on the check
proceeds until it clears. Checks will be returned unpaid if there are
insufficient shares to meet the withdrawal amount. Potential fluctuations in the
net asset value of the Trust's shares should be considered in determining the
amount of the check.
This method of redemption requires that your shares must remain in an open
account and that no share certificates are issued and outstanding. You cannot
close your account through the issuance of a check because the exact balance at
the time your check clears will not be known when you write the check.
If you use this privilege you will be required to sign a signature card
which will subject you to State Street Bank and Trust Company's rules and
regulations governing checking accounts. The authorization form which you must
sign also contains a provision relieving the bank, NFDS, the Trust, Value Line
Securities and the Adviser from liability for loss, if any, which you may
sustain arising out of a non-genuine instruction pursuant to this redemption
feature. Any additional documentation required to
14
<PAGE>
assure a genuine redemption must be maintained on file with NFDS in such a
current status as NFDS may deem necessary. A new form properly signed and with
the signature guaranteed as described above must be received and accepted by
NFDS before authorized redemption instructions already on file with NFDS can be
changed.
An additional supply of checks will be furnished upon request. There
presently is no charge to the shareholder for these checks or their clearance.
However, the Trust and NFDS reserve the right to make reasonable charges and to
terminate or modify any or all of the services in connection with this privilege
at any time and without prior notice. NFDS will impose a $5 fee for stopping
payment of a check upon your request or if NFDS cannot honor the check due to
insufficient funds or other valid reasons.
IMPORTANT: Shares purchased by check may not be redeemed until the Trust is
reasonably assured of the final collection of the purchase check, currently
determined to be up to 15 calendar days.
INVESTOR SERVICES
VALU-MATIC-REGISTERED TRADEMARK-. The Fund offers a free service to its
shareholders, Valu-Matic-Registered Trademark-, through which monthly
investments of $25 or more may be made automatically into the shareholder's Fund
account. The shareholder authorizes the Fund to debit the shareholder's bank
account monthly for the purchase of Fund shares on or about the 3rd or 18th of
each month. Further information regarding this service can be obtained from
Value Line Securities by calling 1-800-223-0818.
EXCHANGE OF SHARES. Shares of the Trust may be exchanged for shares of the
other Value Line funds on the basis of the respective net asset values next
computed after receipt of the exchange order. No telephone exchanges can be made
for less than $1,000. If shares of the Trust are being exchanged for shares of
The Value Line Cash Fund, Inc. or The Value Line Tax Exempt Fund--Money Market
Portfolio and the shares (including shares in accounts under the control of one
investment adviser) have a value in excess of $500,000, then, at the discretion
of the Adviser, the shares to be purchased will be purchased at the closing
price on the third business day following the redemption of the shares being
exchanged to allow the Fund to utilize normal securities settlement procedures
in transferring the proceeds of the redemption.
The exchange privilege may be exercised only if the shares to be acquired
may be sold in the investor's State. Prospectuses for the other funds may be
obtained from Value Line Securities, Inc. by calling 1-800-223-0818. Each such
exchange involves a redemption and a purchase for tax purposes. Broker-dealers
are not prohibited from charging a commission for handling the exchange of Trust
shares. Such a commission can be avoided, however, by sending the request in
proper form to NFDS. The Trust reserves the right to terminate the exchange
privilege of any account making more than eight exchanges a year. (An exchange
out of The Value Line Cash Fund, Inc. or The Value Line Tax Exempt Fund--Money
Market Portfolio is not counted for this purpose.) The exchange privilege may be
modified or terminated at any time, and any of the Value Line funds may
discontinue offering its shares generally, or in any particular State, without
prior notice. To make an exchange, call 1-800-243-2729. Although it has not been
a problem in the past, shareholders should be aware that a telephone exchange
may be difficult during periods of major economic or market changes.
SYSTEMATIC CASH WITHDRAWAL PLAN. A shareholder who has invested a minimum
of $5,000 in the Trust, or whose shares have attained that value, may request a
transfer of his shares to a Value
15
<PAGE>
Line Systematic Cash Withdrawal Account which NFDS will maintain in his name on
the Trust's books. Under the Systematic Cash Withdrawal Plan (the "Plan") the
shareholder will request that NFDS, acting as his agent, redeem monthly or
quarterly a sufficient number of shares to provide for payment to him, or
someone he designates, of any specified dollar amount (minimum $25).
All certificated shares must be placed on deposit under the Plan and
dividends and capital gains distributions, if any, are automatically reinvested
at net asset value. The Plan will automatically terminate when all shares in the
account have been redeemed. The shareholder may at any time terminate the Plan,
change the amount of the regular payment, or request liquidation of the balance
of his account on written notice to NFDS. The Trust may terminate the Plan at
any time on written notice to the shareholder.
ADDITIONAL INFORMATION
The Trust is an open-end, non-diversified management investment company
established under the laws of The Commonwealth of Massachusetts by a Declaration
of Trust dated February 12, 1987. The Trust may issue an unlimited number of
shares of beneficial interest, $.01 par value. Each share has one vote, with
fractional shares voting proportionately. Shares are freely transferable, are
entitled to dividends as declared by the Trustees, and, if the Trust were
liquidated, would receive the net assets of the Trust.
The Trustees have the authority to issue two or more series of shares and to
designate the relative rights and preferences as between the different series,
although they have not exercised that authority.
INQUIRIES. All inquiries regarding the Trust should be directed to the
Trust at the telephone numbers or address set forth on the cover page of this
Prospectus. Shareholder inquiries regarding their accounts and account balances
should be directed to National Financial Data Services, Inc., servicing agent
for State Street Bank and Trust Company, the Fund's transfer agent. Shareholders
should note that they may be required to pay a fee for special requests such as
historical transcripts of an account. Our Info-Line provides the latest account
information 24 hours a day, and is available to shareholders with pushbutton
phones. The Info-Line toll-free number is 1-800-243-2739.
WITHHOLDING. Mutual funds are required to withhold 31% of taxable
dividends, distributions of capital gains and redemption proceeds in accounts
without a valid social security or tax identification number. You must provide
this information when you complete the Trust's application and certify that you
are not currently subject to back-up withholding. The Fund reserves the right to
close by redemption accounts for which the holder fails to provide a valid
social security or tax identification number.
16
<PAGE>
THE VALUE LINE FAMILY OF FUNDS
- --------------------------------------------
1950--THE VALUE LINE FUND seeks long-term growth of capital along with modest
current income by investing substantially all of its assets in common stocks or
securities convertible into common stock.
1952--THE VALUE LINE INCOME FUND'S primary investment objective is income, as
high and dependable as is consistent with reasonable growth. Capital growth to
increase total return is a secondary objective.
1956--THE VALUE LINE SPECIAL SITUATIONS FUND seeks to obtain long-term growth of
capital by investing not less than 80% of its assets in "special situations". No
consideration is given to achieving current income.
1972--VALUE LINE LEVERAGED GROWTH INVESTORS' sole investment objective is to
realize capital growth by investing substantially all of its assets in common
stocks. The Fund may borrow up to 50% of its net assets to increase its
purchasing power.
1979--THE VALUE LINE CASH FUND, a money market fund, seeks high current income
consistent with preservation of capital and liquidity.
1981--VALUE LINE U.S. GOVERNMENT SECURITIES FUND seeks maximum income without
undue risk to principal. Under normal conditions, at least 80% of the value of
its net assets will be invested in issues of the U.S. Government and its
agencies and instrumentalities.
1983--VALUE LINE CENTURION FUND* seeks long-term growth of capital as its sole
objective by investing primarily in stocks ranked 1 or 2 by Value Line for
year-ahead relative performance.
1984--THE VALUE LINE TAX EXEMPT FUND seeks to provide investors with maximum
income exempt from federal income taxes while avoiding undue risk to principal.
The Fund offers investors a choice of two portfolios: a Money Market Portfolio
and a High-Yield Portfolio.
1985--VALUE LINE CONVERTIBLE FUND seeks high current income together with
capital appreciation primarily from convertible securities ranked 1 or 2 for
year-ahead performance by The Value Line Convertible Ranking System.
1986--VALUE LINE AGGRESSIVE INCOME TRUST seeks to maximize current income by
investing in high-yielding, low-rated, fixed-income corporate securities.
1987--VALUE LINE NEW YORK TAX EXEMPT TRUST seeks to provide New York taxpayers
with maximum income exempt from New York State, New York City and federal
individual income taxes while avoiding undue risk to principal.
1987--VALUE LINE STRATEGIC ASSET MANAGEMENT TRUST* invests in stocks, bonds and
cash equivalents according to computer trend models developed by Value Line. The
objective is to professionally manage the optimal allocation of these
investments at all times.
1992--VALUE LINE INTERMEDIATE BOND FUND seeks high current income consistent
with low volatility of principal by investing in a diversified portfolio of
investment-grade debt securities with a dollar-weighted average portfolio
maturity of between three and ten years.
1993--VALUE LINE SMALL-CAP GROWTH FUND invests primarily in common stocks or
securities convertible into common stock, with its primary objective being
long-term growth of capital.
1993--VALUE LINE ASSET ALLOCATION FUND seeks high total investment return,
consistent with reasonable risk. The Fund invests in stocks, bonds and money
market instruments utilizing quantitative modeling to determine the correct
asset mix.
1995--VALUE LINE U.S. MULTINATIONAL COMPANY FUND'S investment objective is
maximum total return. It invests primarily in securities of U.S. companies that
have significant sales from international operations.
- ----------
* ONLY AVAILABLE THROUGH THE PURCHASE OF GUARDIAN INVESTOR, A TAX DEFERRED
VARIABLE ANNUITY, OR VALUEPLUS, A VARIABLE LIFE INSURANCE POLICY.
FOR MORE COMPLETE INFORMATION ABOUT ANY OF THE VALUE LINE FUNDS, INCLUDING
CHARGES AND EXPENSES, SEND FOR A PROSPECTUS FROM VALUE LINE SECURITIES, INC.,
220 E. 42ND STREET, NEW YORK, NEW YORK 10017-5891 OR CALL 1-800-223-0818, 24
HOURS A DAY, 7 DAYS A WEEK. READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST OR
SEND MONEY.
17
<PAGE>
INVESTMENT ADVISER
Value Line, Inc.
220 East 42nd Street
New York, NY 10017-5891
DISTRIBUTOR
Value Line Securities, Inc.
220 East 42nd Street
New York, NY 10017-5891
SHAREHOLDER SERVICING AGENT
State Street Bank and Trust Company
c/o NFDS
P.O. Box 419729
Kansas City, MO 64141-6729
CUSTODIAN & TRANSFER AGENT
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
LEGAL COUNSEL
Peter D. Lowenstein, Esq.
Two Greenwich Plaza, Suite 100
Greenwich, CT 06830
----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Summary of Trust Expenses...................... 2
Financial Highlights........................... 2
Investment Objective and Policies.............. 4
Investment Restrictions........................ 8
Management of the Trust........................ 9
Calculation of Net Asset Value................. 9
How to Buy Shares.............................. 10
Dividends and Distributions.................... 11
Performance Information........................ 11
Taxes.......................................... 12
How to Redeem Shares........................... 13
Investor Services.............................. 15
Additional Information......................... 16
</TABLE>
- -------------------------------------------
PROSPECTUS
- -------------------
July 1, 1997
Value Line
New York
Tax Exempt
Trust
(800) 223-0818
[LOGO]
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<PAGE>
VALUE LINE NEW YORK TAX EXEMPT TRUST
220 East 42nd Street, New York, New York 10017-5891
1-800-223-0818 or 1-800-243-2729
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
JULY 1, 1997
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and must be
read in conjunction with the Prospectus of Value Line New York Tax Exempt Trust
(the "Trust") dated July 1, 1997, a copy of which may be obtained without charge
by writing or telephoning the Trust.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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Investment Objective and Policies.................................................... B-1
Special Considerations Relating to New York Municipal Securities..................... B-5
Investment Restrictions.............................................................. B-18
Trustees and Officers................................................................ B-19
The Adviser.......................................................................... B-21
Portfolio Transactions............................................................... B-22
How to Buy Shares.................................................................... B-23
Suspension of Redemptions............................................................ B-23
Taxes................................................................................ B-23
Performance Data..................................................................... B-25
Additional Information............................................................... B-27
Financial Statements................................................................. B-27
Security Ratings..................................................................... B-28
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INVESTMENT OBJECTIVE AND POLICIES
(SEE ALSO "INVESTMENT OBJECTIVE AND POLICIES" IN THE TRUST'S PROSPECTUS)
The Trust is a no-load, non-diversified, open-end management investment
company. Its investment objective is to provide New York taxpayers with the
maximum income exempt from New York
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State, New York City and federal personal income taxes while avoiding undue risk
to principal. Under normal conditions the Trust's assets will be invested so
that at least 80% of the annual income of the Trust will be exempt from both
federal income tax and New York State and City personal income taxes, except
during times of adverse market conditions.
TAX-EXEMPT SECURITIES. Tax-exempt securities are debt issues of
governmental bodies, other than the U.S. government, within the United States,
including securities issued by or on behalf of states, territories, and
possessions of the United States, by the District of Columbia, and by political
subdivisions and their duly constituted agencies and instrumentalities. The
interest on these issues generally is not includable in "gross income" for
federal income tax purposes, subject, however, to many exceptions and
limitations. The purpose of these issues is to obtain funds for public purposes,
including the construction, repair, or improvement of various public facilities,
such as airports, bridges, highways, housing, hospitals, mass transit, schools,
streets, waterworks and sewage systems.
The two principal classifications of tax-exempt bonds are "general
obligation" and "revenue" bonds. GENERAL OBLIGATION bonds are secured by the
issuer's pledge of its full faith, credit and, if any, taxing power for the
payment of interest and principal. REVENUE bonds are payable only from the
revenues derived from a particular facility or class of facilities or, in some
cases, from the revenues from a special excise tax or other specific source, but
not from general tax revenues. Revenue bonds include industrial revenue and
health care bonds that are not secured by the credit of the issuer but are
payable solely from payments received by the issuer from a private entity that
operates a facility that was financed by the funds from the bond issue. The
obligations of such a private entity are secured in some cases by the real or
personal property so financed or by bond insurance or a letter of credit issued
by a bank. There are also a variety of hybrid and special types of tax-exempt
securities that have characteristics of both general obligation and revenue
bonds.
Tax-exempt notes are short-term obligations issued to obtain temporary funds
for states, cities, counties, and municipal agencies. These notes include tax,
revenue and bond anticipation notes that provide temporary funds until the
anticipated taxes, revenues, or bond proceeds, respectively, are received by the
issuer. Other tax-exempt notes include construction loan notes and short-term
discount notes. Certain project notes, issued by a state or local housing
authority, are secured by the full faith and credit of the United States.
Tax-exempt commercial paper consists of very short-term negotiable notes, which
provide seasonal working capital needs or interim construction financing. The
commercial paper and tax and revenue anticipation notes are payable from general
revenues, or may be refinanced with long-term debt.
Legislation to restrict or eliminate the federal income tax exemption for
interest on municipal securities has, from time to time, been introduced before
Congress. If such a proposal were enacted, the availability of municipal
securities for investment by the Trust could be adversely affected. In such
event, the Trust would re-evaluate its investment objective and submit possible
changes in the structure of the Trust for the consideration of the shareholders.
REPURCHASE AGREEMENTS. The Trust may invest temporary cash balances in
repurchase agreements in an amount not to exceed 5% of its total assets. A
repurchase agreement involves a sale of securities to the Trust, with the
concurrent agreement of the seller (a member bank of the Federal
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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 Trust 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
Trust. Repurchase agreements may also be viewed as loans made by the Trust which
are collateralized by the securities subject to repurchase. The value of the
underlying securities will be at least equal at all times to the total amount of
the repurchase obligation, including the interest factor. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, the Trust
could experience both delays in liquidating the underlying security and losses,
including: (a) possible decline in the value of the underlying security during
the period while the Trust 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 Trust has a fundamental policy that it
will not enter into repurchase agreements which will not mature within seven
days if any such investment, together with all other assets held by the Trust
which are not readily marketable (including private placements), amounts to more
than 10% of its total assets. It is expected that repurchase agreements will
give rise to income which will not qualify as tax-exempt income when distributed
by the Trust. The Trustees monitor the creditworthiness of parties with which
the Trust enters into repurchase agreements.
While the Trust has no plans to do so during the current year, it may enter
into reverse repurchase agreements, which involve the sale of securities held by
the Trust with an agreement to repurchase the securities at an agreed-upon
price, date and interest payment.
OPTIONS. The Trust may purchase or sell (write) options on debt securities
as a means of achieving additional return or hedging the value of the Trust's
portfolio. The Trust will only buy options listed on national securities
exchanges. The Trust will not purchase options if, as a result, the aggregate
cost of all outstanding options exceeds 5% of the Trust's total assets.
Presently there are no options on New York tax-exempt securities traded on
national securities exchanges and until such time as they become available, the
Trust will not invest in options on debt securities.
A call option is a contract that gives the holder of the option the right to
buy from the writer of the call option, in return for a premium paid by the
holder to the writer, the security underlying the option at a specified exercise
price at any time during the term of the option. The writer of the call option
has the obligation upon exercise of the option to deliver the underlying
security upon payment of the exercise price during the option period. A put
option is a contract that gives the holder of the option the right to sell to
the writer, in return for a premium paid by the holder to the writer, the
underlying security at a specified price during the term of the option. The
writer of the put has the obligation to buy the underlying security upon
exercise, at the exercise price during the option period. The Trust generally
would write call options only in circumstances where the Adviser does not
anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security.
The Trust will only write covered call or covered put options listed on
national securities exchanges. The Trust may not write covered options in an
amount exceeding 20% of the value of its total assets. A call option is
"covered" if the Trust owns the underlying security subject to the call option
or
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has an absolute and immediate right to acquire that security or futures contract
without additional cash consideration (or for additional cash consideration held
in a segregated account by its custodian) upon conversion or exchange of other
securities held in its portfolio. A call option is also covered if the Trust
holds a call on the same security or futures contract as the call written where
the exercise price of the call held is (i) equal to or less than the exercise
price of the call written or (ii) greater than the exercise price of the call
written if the difference is maintained by the Trust in cash, Treasury bills or
other high grade short-term obligations in a segregated account with its
custodian. A put option is "covered" if the Trust maintains cash, Treasury bills
or other high-grade, short-term obligations with a value equal to the exercise
price in a segregated account with its custodian, or else holds a put on the
same security or futures contract as the put written where the exercise price of
the put held is equal to or greater than the exercise price of the put written.
If the Trust has written an option, it may terminate its obligation by
effecting a closing purchase transaction. This is accomplished by purchasing an
option of the same series as the option previously written. However, once the
Trust has been assigned an exercise notice, the Trust will be unable to effect a
closing purchase transaction. Similarly, if the Trust is the holder of an option
it may liquidate its position by effecting a closing sale transaction. This is
accomplished by selling an option of the same series as the option previously
purchased. There can be no assurance that either a closing purchase or sale
transaction can be effected when the Trust so desires.
The Trust will realize a profit from a closing transaction if the price of
the transaction is less than the premium received from writing the option or is
more than the premium paid to purchase the option; the Trust will realize a loss
from a closing transaction if the price of the transaction is more than the
premium received from writing the option or is less than the premium paid to
purchase the option. Since call option prices generally reflect increases in the
price of the underlying security, any loss resulting from the repurchase of a
call option may also be wholly or partially offset by unrealized appreciation of
the underlying security. Other principal factors affecting the market value of a
put or a call option include supply and demand, interest rates, the current
market price and price volatility of the underlying security and the time
remaining until the expiration date.
An option position may be closed out only on an exchange which provides a
secondary market for an option of the same series. Although the Trust will
generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option. In such event it might not be
possible to effect closing transactions in particular options, so that the Trust
would have to exercise its options in order to realize any profit and would
incur brokerage commissions upon the exercise of call options and upon the
subsequent disposition of underlying securities for the exercise of put options.
If the Trust as a covered call option writer is unable to effect a closing
purchase transaction in a secondary market, it will not be able to sell the
underlying security until the option expires or it delivers the underlying
security upon exercise.
INVESTMENT RISKS OF HIGH YIELDING SECURITIES.
The Trust may invest up to 30% of its assets in bonds rated Ba or B by
Moody's Investors Services or BB or B by Standard & Poors. These high-yielding,
lower-rated securities, have certain speculative characteristics and involve
greater investment risk, including the possibility of default or bankruptcy,
than is the case with higher-rated securities.
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Since investors generally perceive that there are greater risks associated
with the lower-rated securities of the type in which the Trust may invest, the
yields and prices of such securities may tend to fluctuate more than those of
higher-rated securities. In the lower quality segments of the fixed-income
securities market, changes in perceptions of issuers' creditworthiness tend to
occur more frequently and in a more pronounced manner than do changes in higher
quality segments of the fixed-income securities market, resulting in greater
yield and price volatility. Another factor which causes fluctuations in the
prices of fixed-income securities is the supply and demand for similarly rated
securities. In addition, though prices of fixed-income securities fluctuate in
response to the general level of interest rates, the prices of high yield bonds
have been found to be less sensitive to interest rate changes than higher-rated
instruments, but more sensitive to adverse economic changes or individual
developments. Fluctuations in the prices of portfolio securities subsequent to
their acquisition will not affect cash income from such securities but will be
reflected in the Trust's net asset value. Lower-rated and comparable non-rated
securities tend to offer higher yields than higher-rated securities with the
same maturities because the historical financial conditions of the issuers of
such securities may not have been as strong as that of other issuers. Since
lower-rated securities generally involve greater risks of loss of income and
principal than higher-rated securities, investors should consider carefully the
relative risks associated with investments in securities which carry lower
ratings and in comparable non-rated securities.
An additional risk of high yield securities is the limited liquidity and
secondary market support and thus the absence of readily available market
quotations. As a result, the responsibility of the Trust's Trustees to value the
securities becomes more difficult and judgment plays a greater role in valuation
because there is less reliable, objective data available.
SPECIAL CONSIDERATIONS RELATING TO NEW YORK MUNICIPAL SECURITIES
Some of the significant financial considerations relating to the Trust's
investment in New York municipal securities are summarized below. This summary
information is not intended to be a complete description and is principally
derived from official statements relating to issues of New York municipal
securities that were available prior to the date of this Statement of Additional
Information. The accuracy and completeness of the information contained in those
official statements have not been independently verified.
STATE ECONOMY. New York is the third most populous state in the nation and
has a relatively high level of personal wealth. The State's economy is diverse
with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small share
of the nation's farming and mining activity. The State has a declining
proportion of its workforce engaged in manufacturing, and an increasing
proportion engaged in service industries. New York City (the "City"), which is
the most populous city in the State and nation and is the center of the nation's
largest metropolitan area, accounts for a large portion of the State's
population and personal income.
The State has historically been one of the wealthiest states in the nation.
For decades, however, the State has grown more slowly than the nation as a
whole, gradually eroding its relative economic position.
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There can be no assurance that the State economy will not experience
worse-than-predicted results in the 1997-1998 fiscal year, with corresponding
material and adverse effects on the State's projections of receipts and
disbursements.
State per capita personal income has historically been significantly higher
than the national average, although the ratio has varied substantially. Between
1975 and 1990, total employment grew by 21.3 percent while the labor force grew
only by 15.7 percent, unemployment fell from 9.5 percent to 5.2 percent of the
labor force. In 1991 and 1992, however, total employment in the State fell by
5.5 percent. As a result, the unemployment rate rose to 8.5 percent reflecting a
recession that has had a particularly strong impact on the entire Northeast.
Calendar years 1993 and 1994 saw only a partial recovery, with the unemployment
rate decreasing to 7.8 percent and 6.9 percent, respectively. The unemployment
rate for 1995 was 6.3 percent and was projected by the Division of Budget to be
6.2 percent for 1996.
STATE BUDGET. The State Constitution requires the governor (the "Governor")
to submit to the State legislature (the "Legislature") a balanced executive
budget which contains a complete plan of expenditures for the ensuing fiscal
year and all moneys and revenues estimated to be available therefor, accompanied
by bills containing all proposed appropriations or reappropriations and any new
or modified revenue measures to be enacted in connection with the executive
budget. The entire plan constitutes the proposed State financial plan for that
fiscal year. The Governor is required to submit to the Legislature quarterly
budget updates which include a revised cash-basis state financial plan, and an
explanation of any changes from the previous state financial plan.
The State's budget for the 1996-97 fiscal year was enacted by the
Legislature on July 13, 1996, more than three months after the start of the
fiscal year. Prior to adoption of the budget, the Legislature enacted
appropriations for disbursements considered to be necessary for State operations
and other purposes, including necessary appropriations for all State-supported
debt service. The State Financial Plan for the 1996-97 fiscal year was
formulated on July 25, 1996 and was based on the State's budget as enacted by
the Legislature and signed into law by the Governor, as well as actual results
for the first quarter of the current fiscal year (the "1996-97 State Financial
Plan").
The Governor presented his 1997-98 Executive Budget to the Legislature on
January 14, 1997. It is expected that the Governor will prepare amendments to
his Executive Budget as permitted under law. There can be no assurance that the
Legislature will enact the Executive Budget as proposed by the Governor into
law, or that the State's adopted budget projections will not differ materially
and adversely from the projections set forth therein.
The 1997-98 Executive Budget projected a balance on a cash basis in the
General Fund. It reflected a continuing strategy of substantially reduced State
spending, including program restructurings, reductions in social welfare
spending, and efficiency and productivity initiatives. Total General Fund
receipts and transfers from other funds were projected to be $32.88 billion, a
decrease of $88 million from total receipts projected in the 1996-97 fiscal
year. Total General Fund disbursements and transfers to other funds were
projected to be $32.84 billion, a decrease of $56 million from spending totals
projected for the 1996-1997 fiscal year. As compared to the 1996-97 State
Financial Plan, the 1997-98 Executive Budget proposed a year-to-year decline in
General Fund spending of 0.2 percent.
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State funds spending (i.e., General Fund plus other dedicated funds, with the
exception of federal aid) was projected to grow by 1.2 percent. Spending from
all governmental funds (excluding transfers) was proposed to increase by 2.2
percent from the prior fiscal year.
In the 1997-98 Executive Budget, the Governor indicated that, before taking
action to balance the 1997-98 financial plan, the budget forecast projected an
imbalance of almost $2.3 billion. Before reflecting any actions proposed by the
Governor to restrain spending, General Fund disbursements for 1997-98 were
projected to grow by approximately 4 percent. This increase would have resulted
from growth in Medicaid, higher fixed costs such as pensions and debt service,
collective bargaining agreements, inflation, and the loss of non-recurring
resources that offset spending in 1996-97. General Fund receipts were projected
to fall by roughly 3 percent. This reduction would have been attributable to
modest growth in the State's economy and underlying tax base, the loss of non-
recurring revenues available in 1996-97 and implementation of previously enacted
tax reduction programs. The 1997-98 Executive Budget proposed to close this gap
primarily through a series of spending reductions and Medicaid cost containment
measures, the use of a portion of the 1996-97 projected budget surplus, and
other actions, with a projected 1997-98 closing fund balance in the General Fund
of $397 million.
The 1997-98 Executive Budget projected General Fund receipts of $33.02
billion and $33.91 billion for 1998-99 and 1999-2000, respectively. The receipts
projections were prepared on the basis of an economic forecast of a steadily
growing national economy, in an environment of low inflation and slow employment
growth. The forecast for the State's economic performance likewise was for slow
but steady economic growth. The receipt projections reflected tax reductions
proposed in the 1997-98 Executive Budget that will reduce receipts by an
estimated $798 million in 1998-99 and $1.43 billion in 1999-2000. The bulk of
previously enacted tax reductions are annualized in 1997-98 and their impact in
the out years was largely proportional to projected growth in the underlying tax
liability.
Disbursements from the General Fund are projected at $34.60 billion in
1998-99 and $35.93 billion in 1999-2000, before assuming additional spending
efficiencies and/or additional federal revenue maximization. Assuming
implementation of proposed cost containment and other actions proposed in the
1997-98 Executive Budget, annual disbursements for fiscal years 1998-99 and
1999-2000 grow by $1.77 billion and $1.33 billion, respectively.
The Executive Budget contained projections of a potential imbalance in the
1998-1999 fiscal year of $988 million and in the 1999-2000 fiscal year of $1.2
billion, assuming implementation of the 1997-1998 Executive Budget
recommendations and implementation of $600 million and $800 million of
unspecified efficiency initiatives and other actions in the 1998-1999 and
1999-2000 fiscal years, respectively. The Executive Budget stated that the
assumed unspecified efficiency initiatives and other actions for such fiscal
years are comparable with reductions over the past several years, and that the
Governor plans to make additional proposals to limit State spending in order to
address any potential remaining gap.
It is expected that the 1997-98 financial plan will reflect a continuing
strategy of substantially reduced State spending, including agency
consolidations, reductions in the State workforce, and efficiency and
productivity initiatives.
The Division of the Budget believed that the economic assumptions and
projections of receipts and disbursements accompanying the 1997-98 Executive
Budget were reasonable. However, the
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economic and financial condition of the State may be affected by various
financial, social, economic and political factors. Those factors can be very
complex, can vary from fiscal year to fiscal year, and are frequently the result
of actions taken not only by the State but also by entities, such as the federal
government, that are outside the State's control. Because of the uncertainty and
unpredictability of changes in these factors, their impact cannot be fully
included in the assumptions underlying the State's projections. There can be no
assurance that the State economy will not experience results that are worse than
predicted, with corresponding material and adverse effects on the State's
financial projections.
To make progress toward addressing recurring budgetary imbalances, the
1997-98 Executive Budget proposed significant actions to align recurring
receipts and disbursements in future fiscal years. However, there can be no
assurance that the Legislature will enact the Governor's proposals or that the
State's actions will be sufficient to preserve budgetary balance or to align
recurring receipts and disbursements in either 1997-98 or in future fiscal
years. In the State's 1997-98 fiscal year and in certain recent fiscal years,
the State has failed to enact a budget prior to the beginning of the State's
fiscal year.
In addition, there has been discussion of additional tax reductions, beyond
those reflected in the State's current projections for 1997-98 and the out years
that, if enacted, could make it more difficult to achieve budget balance over
this period. In particular, modifying the State's sales tax treatment of
clothing has been discussed. The State now receives approximately $700 million
annually under the current tax statutes from taxation on clothing, and
localities receive a roughly equivalent amount.
Uncertainties with regard to both the economy and potential decisions at the
federal level add further pressure on future budget balance in New York State.
Risks to the financial plan include either a financial market or broader
economic "correction" during the period, a risk heightened by the relatively
lengthy expansions currently underway. In addition, a normal "forecast error" of
one percentage point in the expected growth rate could raise or lower receipts
by $600 million during the last year of the projection period. Potential changes
to federal tax law could alter the federal definitions of income on which many
State taxes rely. Similarly, the financial plan assumed no significant federal
disallowances or other actions which could affect State finances.
On August 22, 1996, the President signed into law the Personal
Responsibility and Work Opportunity Reconciliation Act of 1996. This federal
legislation fundamentally changed the programmatic and fiscal responsibilities
for administration of welfare programs at the federal, state and local levels.
The new law abolishes the federal Aid to Families with Dependent Children
program (AFDC), and creates a new Temporary Assistance to Needy Families program
(TANF) funded with a fixed federal block grant to states. The new law also
imposes (with certain exceptions) a five-year durational limit on TANF
recipients, requires that virtually all recipients be engaged in work or
community service activities within two years of receiving benefits, and limits
assistance provided to certain immigrants and other classes of individuals.
States are required to meet work activity participation targets for their TANF
caseload; these requirements are phased in over time. States that fail to meet
these federally mandated job participation rates, or that fail to conform with
certain other federal standards, face potential sanctions in the form of a
reduced federal block grant.
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On October 16, 1996, the Governor submitted the State's TANF implementation
plan to the federal government as required under the new federal welfare law. On
December 13, 1996, the State's plan was approved by the federal government.
Legislation will be required to implement the State's TANF plan, and the
Governor has introduced legislation necessary to conform with federal law.
States are required to comply with the new federal welfare reform law no
later than July 1, 1997. There can be no assurances that the State Legislature
will enact welfare reform proposals as submitted by the Governor and as required
under federal law.
An additional risk to the financial plan arises from the potential impact of
certain litigation now pending against the State, which could produce adverse
effects on the State's projections of receipts and disbursements. Specifically,
in the case of TUG BUSTER BOUCHARD ET AL. V. WETZLER, the Division of the Budget
believed that the court's decision, as interpreted by the State, would reduce
tax revenues by approximately $5 million in 1997-98 and $2 million thereafter.
RECENT FINANCIAL RESULTS. The General Fund is the principal operating fund
of the State and is used to account for all financial transactions, except those
required to be accounted for in another fund. It is the State's largest fund and
receives almost all State taxes and other resources not dedicated to particular
purposes.
The General Fund was projected to be balanced on a cash basis for the
1996-97 fiscal year. Total receipts and transfers from other funds were
projected to be $33.17 billion, an increase of $365 million from the prior
fiscal year. Total General Fund disbursements and transfers to other funds were
projected to be $33.12 billion for the 1996-97 fiscal year, an increase of $444
million from the total in the prior fiscal year.
The State's financial position on a GAAP (generally accepted accounting
principles) basis as of March 31, 1996 showed an accumulated deficit in its
combined governmental funds of $1.23 billion, reflecting liabilities of $14.59
billion and assets of $13.35 billion.
DEBT LIMITS AND OUTSTANDING DEBT. There are a number of methods by which
the State of New York may incur debt. Under the State Constitution, the State
may not, with limited exceptions for emergencies, undertake long-term general
obligation borrowing (i.e., borrowing for more than one year) unless the
borrowing is authorized in a specific amount for a single work or purpose by the
Legislature and approved by the voters. There is no limitation on the amount of
long-term general obligation debt that may be so authorized and subsequently
incurred by the State.
The State may undertake short-term borrowings without voter approval (i) in
anticipation of the receipt of taxes and revenues, by issuing tax and revenue
anticipation notes, and (ii) in anticipation of the receipt of proceeds from the
sale of duly authorized but unissued general obligation bonds, by issuing bond
anticipation notes. The State may also, pursuant to specific constitutional
authorization, directly guarantee certain obligations of the State of New York's
authorities and public benefit corporations ("Authorities"). Payments of debt
service on New York State general obligation and New York State-guaranteed bonds
and notes are legally enforceable obligations of the State of New York.
The State employs additional long-term financing mechanisms, lease-purchase
and contractual-obligation financings, which involve obligations of public
authorities or municipalities that are State-supported but are not general
obligations of the State. Under these financing arrangements, certain
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public authorities and municipalities have issued obligations to finance the
construction and rehabilitation of facilities or the acquisition and
rehabilitation of equipment, and expect to meet their debt service requirements
through the receipt of rental or other contractual payments made by the State.
Although these financing arrangements involve a contractual agreement by the
State to make payments to a public authority, municipality or other entity, the
State's obligation to make such payments is generally expressly made subject to
appropriation by the Legislature and the actual availability of money to the
State for making the payments. The State has also entered into a
contractual-obligation financing arrangement with the Local Government
Assistance Corporation ("LGAC") to restructure the way the State makes certain
local aid payments.
In 1990, as part of a State fiscal reform program, legislation was enacted
creating LGAC, a public benefit corporation empowered to issue long-term
obligations to fund certain payments to local governments traditionally funded
through New York State's annual seasonal borrowing. The legislation empowered
LGAC to issue its bonds and notes in an amount not in excess of $4.7 billion
(exclusive of certain refunding bonds) plus certain other amounts. Over a period
of years, the issuance of these long-term obligations, which were to be
amortized over no more than 30 years, was expected to eliminate the need for
continued short-term seasonal borrowing. The legislation also dedicated revenues
equal to one-quarter of the four cent State sales and use tax to pay debt
service on these bonds. The legislation also imposed a cap on the annual
seasonal borrowing of the State at $4.7 billion, less net proceeds of bonds
issued by LGAC and bonds issued to provide for capitalized interest, except in
cases where the Governor and the legislative leaders have certified the need for
additional borrowing and provided a schedule for reducing it to the cap. If
borrowing above the cap was thus permitted in any fiscal year, it was required
by law to be reduced to the cap by the fourth fiscal year after the limit was
first exceeded. As of June 1995, LGAC had issued bonds to provide net proceeds
of $4.7 billion, completing the program.
On January 13, 1992, Standard & Poor's Corporation ("Standard & Poor's")
reduced its ratings on the State's general obligation bonds from A to A- and, in
addition, reduced its ratings on the State's moral obligation, lease purchase,
guaranteed and contractual obligation debt. On January 6, 1992, Moody's
Investors Service, Inc. ("Moody's") reduced its ratings on outstanding
limited-liability State lease purchase and contractual obligations from A to
Baa1. On February 28, 1994, Moody's reconfirmed its A rating on the State's
general obligation long-term indebtedness.
The State had anticipated that its capital programs would be financed, in
part, by State and public authorities borrowings in 1996-97. The State had
expected to issue $411 million in general obligation bonds (including $153.6
million for purposes of redeeming outstanding bond anticipation notes) and $154
million in general obligation commercial paper. The Legislature had also
authorized the issuance of up to $101 million in certificates of participation
during the State's 1996-97 fiscal year for equipment purchases. The projection
of the State regarding its borrowings may change if circumstances require.
In November 1996 voters approved a $1.75 billion State general obligation
bond referendum to finance various environmental improvement and remediation
projects. As a result, the amount of general obligation bonds issued during the
1996-97 fiscal year may increase above the $411 million currently included in
the 1996-97 borrowing plan to finance a portion of this new program.
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Principal and interest payments on general obligation bonds and interest
payments on bond anticipation notes were $735 million for the 1995-96 fiscal
year, and were estimated to be $719 million for the 1996-97 fiscal year.
Principal and interest payments on fixed rate and variable rate bonds issued by
LGAC were $340 million for the 1995-96 fiscal year, and were estimated to be
$323 million for 1996-97.
New York State has never defaulted on any of its general obligation
indebtedness or its obligations under lease-purchase or contractual-obligation
financing arrangements and has never been called upon to make any direct
payments pursuant to its guarantees.
LITIGATION. Certain litigation pending against New York State or its
officers or employees could have a substantial or long-term adverse effect on
New York State finances. Among the more significant of these cases are those
that involve (1) the validity of agreements and treaties by which various Indian
tribes transferred title to New York State of certain land in central and
upstate New York; (2) certain aspects of New York State's Medicaid policies,
including its rates, regulations and procedures; (3) action against New York
State and New York City officials alleging inadequate shelter allowances to
maintain proper housing; (4) challenges to the practice of reimbursing certain
Office of Mental Health patient care expenses from the client's Social Security
benefits; (5) alleged responsibility of New York State officials to assist in
remedying racial segregation in the City of Yonkers; (6) challenges by
commercial insurers, employee welfare benefit plans, and health maintenance
organizations to the imposition of surcharges on inpatient hospital bills; (7)
challenges to certain aspects of petroleum business taxes; (8) action alleging
damages resulting from the failure by the State's Department of Environmental
Conservation to timely provide certain data; (9) a challenge to the
constitutionality of a State lottery game; (10) an action seeking reimbursement
from the State for certain costs arising out of the provision of pre-school
services and programs for children with handicapped conditions; and (ii)
challenges to regulations promulgated by the Superintendent of Insurance
establishing excess malpractice premium rates for the 1986-87 through 1995-96
and 1996-97 fiscal years, respectively.
Several actions challenging the constitutionality of legislation enacted
during the 1990 legislative session which changed actuarial funding methods for
determining state and local contributions to state employee retirement systems
have been decided against the State. As a result, the Comptroller developed a
plan to restore the State's retirement systems to prior funding levels. Such
funding is expected to exceed prior levels by $116 million in fiscal 1996-97,
$193 million in fiscal 1997-98, peaking at $241 million in fiscal 1998-99.
Beginning in fiscal 2001-02, State contributions required under the
Comptroller's plan are projected to be less than that required under the prior
funding method. As a result of the United States Supreme Court decision in the
case of STATE OF DELAWARE V. STATE OF NEW YORK, on January 21, 1994, the State
entered into a settlement agreement with various parties. Pursuant to all
agreements executed in connection with the action, the State was required to
make aggregate payments of $351.4 million. Annual payments to the various
parties will continue through the State's 2002-03 fiscal year in amounts which
will not exceed $48.4 million in any fiscal year subsequent to the State's
1994-95 fiscal year. Litigation challenging the constitutionality of the
treatment of certain moneys held in a reserve fund was settled in June 1996 and
certain amounts in a Supplemental Reserve Fund previously credited by the State
against prior State and local pension contributions will be paid in 1998.
B-11
<PAGE>
The legal proceedings noted above involve State finances, State programs and
miscellaneous tort, real property and contract claims in which the State is a
defendant and the monetary damages sought are substantial. These proceedings
could affect adversely the financial condition of the State. Adverse
developments in these proceedings or the initiation of new proceedings could
affect the ability of the State to maintain a balanced financial plan. An
adverse decision in any of these proceedings could exceed the amount of the
reserve established in the State's financial plan for the payment of judgments
and, therefore, could affect the ability of the State to maintain a balanced
financial plan. In its audited financial statements for the fiscal year ended
March 31, 1996, the State reported its estimated liability for awarded and
anticipated unfavorable judgments to be $474 million.
Although other litigation is pending against New York State, except as
described herein, no current litigation involves New York State's authority, as
a matter of law, to contract indebtedness, issue its obligations, or pay such
indebtedness when it matures, or affects New York State's power or ability, as a
matter of law, to impose or collect significant amounts of taxes and revenues.
AUTHORITIES. The fiscal stability of New York State is related, in part, to
the fiscal stability of its Authorities, which generally have responsibility for
financing, constructing and operating revenue-producing public benefit
facilities. Authorities are not subject to the constitutional restrictions on
the incurrence of debt which apply to the State itself, and may issue bonds and
notes within the amounts of, and as otherwise restricted by, their legislative
authorization. The State's access to the public credit markets could be
impaired, and the market price of its outstanding debt may be materially and
adversely affected, if any of the Authorities were to default on their
respective obligations, particularly with respect to debt that are
State-supported or State-related. As of September 30, 1995, date of the latest
data available, there were 17 Authorities that had outstanding debt of $100
million or more. The aggregate outstanding debt, including refunding bonds, of
these 17 Authorities was $73.45 billion.
Authorities are generally supported by revenues generated by the projects
financed or operated, such as fares, user fees on bridges, highway tolls and
rentals for dormitory rooms and housing. In recent years, however, New York
State has provided financial assistance through appropriations, in some cases of
a recurring nature, to certain of the Authorities for operating and other
expenses and, in fulfillment of its commitments on moral obligation indebtedness
or otherwise, for debt service. This operating assistance is expected to
continue to be required in future years. In addition, certain statutory
arrangements provide for State local assistance payments otherwise payable to
localities to be made under certain circumstances to certain Authorities. The
State has no obligation to provide additional assistance to localities whose
local assistance payments have been paid to Authorities under these
arrangements. However, in the event that such local assistance payments are so
diverted, the affected localities could seek additional State funds.
NEW YORK CITY AND OTHER LOCALITIES. The fiscal health of the State of New
York may also be impacted by the fiscal health of its localities, particularly
the City of New York, which has required and continues to require significant
financial assistance from New York State. The City depends on State aid both to
enable the City to balance its budget and to meet its cash requirements. There
can be no assurance that there will not be reductions in State aid to the City
from amounts currently projected or that State budgets will be adopted by the
April 1 statutory deadline or that any such reductions or delays will not have
adverse effects on the City's cash flow or expenditures. In addition, the
Federal budget negotiation process could result in a reduction in or a delay in
the receipt of Federal grants which could have additional adverse effects on the
City's cash flow or revenues.
B-12
<PAGE>
For each of the 1981 through 1996 fiscal years, the City achieved balanced
operating results as reported in accordance with then applicable GAAP. The City
was required to close substantial budget gaps in recent years in order to
maintain balanced operating results. There can be no assurance that the City
will continue to maintain balanced operating results. There can be no assurance
that the City will continue to maintain a balanced budget as required by State
law without additional tax or other revenue increases or additional reductions
in City services or entitlement programs, which could adversely affect the
City's economic base.
In 1975, New York City suffered a fiscal crisis that impaired the borrowing
ability of both the City and New York State. In that year the City lost access
to the public credit markets. The City was not able to sell short-term notes to
the public again until 1979.
In 1975, Standard & Poor's suspended its A rating of City bonds. This
suspension remained in effect until March 1981, at which time the City received
an investment grade rating of BBB from Standard & Poor's. On July 2, 1985,
Standard & Poor's revised its rating of City bonds upward to BBB+ and on
November 19, 1987, to A-. Moody's ratings of City bonds were revised in November
1981 from B (in effect since 1977) to Ba1, in November 1983 to Baa, in December
1985 to Baa1, in May 1988 to A and again in February 1991 to Baa1. On July 10,
1995, Standard & Poor's downgraded its rating on the City's $23 billion of
outstanding general obligation bonds to "BBB+" from "A-", citing the City's
chronic structural budget problems and weak economic outlook. Standard & Poor's
stated that New York City's reliance on one-time revenue measures to close
annual budget gaps, a dependence on unrealized labor savings, overly optimistic
estimates of revenues and state and federal aid and the City's continued high
debt levels also contributed to its decision to lower the rating.
New York City is heavily dependent on New York State and federal assistance
to cover insufficiencies in its revenues. There can be no assurance that in the
future federal and State assistance will enable the City to make up its budget
deficits. To help alleviate the City's financial difficulties, the Legislature
created the Municipal Assistance Corporation ("MAC") in 1975. Since its
creation, MAC has provided, among other things, financing assistance to the City
by refunding maturing City short-term debt and transferring to the City funds
received from sales of MAC bonds and notes. MAC is authorized to issue bonds and
notes payable from certain stock transfer tax revenues, from the City's portion
of the State sales tax derived in the City and, subject to certain prior claims,
from State per capita aid otherwise payable by the State to the City. Failure by
the State to continue the imposition of such taxes, the reduction of the rate of
such taxes to rates less than those in effect on July 2, 1975, failure by the
State to pay such aid revenues and the reduction of such aid revenues below a
specified level are included among the events of default in the resolutions
authorizing MAC's long-term debt. The occurrence of an event of default may
result in the acceleration of the maturity of all or a portion of MAC's debt.
MAC bonds and notes constitute general obligations of MAC and do not constitute
an enforceable obligation or debt of either the State or the City. As of March
31, 1997, MAC had outstanding an aggregate of approximately $4.592 billion of
its bonds. MAC is authorized to issue bonds and notes to refund its outstanding
bonds and notes and to fund certain reserves, without limitation as to principal
amount, and to finance certain capital commitments to the Transit Authority and
the New York City School Construction Authority through the 1997 fiscal year in
the event the City fails to provide such financing.
As of March 31, 1997, the City had received an aggregate of approximately
$4.85 billion from MAC for certain authorized uses by the City exclusive of
capital purposes. In addition, the City had
B-13
<PAGE>
received an aggregate of approximately $2.352 billion from MAC for capital
purposes in exchange for serial bonds in a like principal amount, of which $191
million was held by MAC as of March 31, 1997, after $569.1 million was redeemed
on January 7, 1997. MAC has also exchanged $1.839 billion principal amount of
MAC bonds for City debt, of which approximately $57.1 million was redeemed on
January 7, 1997. MAC made the $609.3 million of net redemption proceeds
available to the City for capital financing.
Since 1975, the City's financial condition has been subject to oversight and
review by the New York State Financial Control Board (the "Control Board") and
since 1978 the City's financial statements have been audited by independent
accounting firms. To be eligible for guarantees and assistance, the City is
required during a "control period" to submit annually for Control Board
approval, and when a control period is not in effect for Control Board review, a
financial plan for the next four fiscal years covering the City and certain
agencies showing balanced budgets determined in accordance with GAAP. New York
State also established the Office of the State Deputy Comptroller for New York
City ("OSDC") to assist the Control Board in exercising its powers and
responsibilities. On June 30, 1986, the City satisfied the statutory
requirements for termination of the control period. This means that the Control
Board's powers of approval are suspended, but the Board continues to have
oversight responsibilities.
On May 8, 1997, the City released the Financial Plan for the 1998 through
2001 fiscal years (the "1998-2001 Financial Plan"), which relates to the City,
the Board of Education ("BOE") and the City University of New York ("CUNY") and
was based on the Executive Budget and Budget Message for the City's 1998 fiscal
year (the "City Executive Budget"). The City Executive Budget and the 1998-2001
Financial Plan projected revenues and expenditures for the 1998 fiscal year
balanced in accordance with GAAP. The City Executive Budget and the 1998-2001
Financial Plan included increased tax revenue projections and additional
expenditures for textbooks, computers, improved education programs and welfare
reform, law enforcement, immigrant naturalization and other initiatives. In
addition, the City Executive Budget and the 1998-2001 Financial Plan set forth
gap-closing actions to eliminate a previously projected gap of $720 million for
the 1998 fiscal year, after taking into account the prepayment in the 1997
fiscal year of $856 million of debt service due in the 1998 and 1999 fiscal
years. The gap-closing actions for the 1998 fiscal year included (i) additional
agency actions totaling $660 million; (ii) the prepayment in the 1998 fiscal
year of $200 million of debt service due in the 1999 fiscal year; (iii) the
proposed sale of various assets; (iv) additional State aid of $294 million,
including a proposal that the State accelerate a $142 million revenue sharing
payment to the City from March 1999; and (v) entitlement savings of $128 million
which would result from certain of the reductions in Medicaid spending proposed
in the Governor's 1997-1998 Executive Budget and the State making available to
the City $77 million of additional Federal block grant aid, as proposed in the
Governor's 1997-1998 Executive Budget. The City Executive Budget is subject to
approval by the City Council, and there can be no assurance that the City
Executive Budget will be adopted in its proposed form. The 1998-2001 Financial
Plan also set forth projections for the 1999 through 2001 fiscal years and
projected gaps of $2.0 billion, $2.9 billion and $2.7 billion for the 1999
through 2001 fiscal years, respectively.
The 1998-2001 Financial Plan included a proposed tax reduction program
totaling $284 million, $651 million, $895 million and $1.2 billion in the 1998
through 2001 fiscal year, respectively. The tax reduction program included a
proposed elimination of the 4% City sales tax on clothing items under
B-14
<PAGE>
$500 as of December 1, 1997, as well as a proposed reduction in the City
property tax and personal income tax which the 1998-2001 Financial Plan assumed
will be offset by proposed increased State aid totaling $47 million, $254
million, $472 million and $722 million in the 1998 through 2001 fiscal years,
respectively.
The 1998-2001 Financial Plan assumed (i) approval by the Governor and the
State Legislature of the extension of the 14% personal income tax surcharge,
which is scheduled to expire on December 31, 1997 and is projected to provide
revenue (if extended) of $169 million, $501 million and $531 million in the 1998
through 2000 fiscal years, respectively, and of the extension of the 12.5%
personal income tax surcharge, which is scheduled to expire on December 31, 1998
and is projected to provide revenue (if extended) of $190 million and $527
million in the 1999 and 2000 fiscal years, respectively; (ii) collection of the
project rent payments for the City's airports, totalling $270 million and $180
million in the 1998 and 1999 fiscal years, respectively, which may depend on the
successful completion of negotiations with the Port Authority or the enforcement
of the City's rights under the existing leases through pending legal actions;
(iii) the ability of the New York City Health and Hospital Corporation to
identify actions to offset substantial City and State revenue reductions and the
receipt by BOE of additional State aid; and (iv) State approval of the cost
containment initiatives and State aid proposed by the City for the 1998 fiscal
year, and $115 million in State aid which is assumed in the 1998-2001 Financial
Plan but not provided for in the Governor's 1997-1998 Executive Budget. The
1998-2001 Financial Plan reflected the increased costs which the City is
prepared to incur as a result of welfare legislation recently enacted by
Congress, but not certain of the costs resulting from legislation proposed by
the Governor, which would, if enacted, implement such Federal welfare
legislation. Moreover, certain of the proposed entitlement cost containment and
other initiatives included in the 1998-2001 Financial Plan have been previously
considered and rejected by the Legislature. The nature and extent of the impact
on the City of the State budget, when adopted, is uncertain, and no assurance
can be given that the State actions included in the State adopted budget may not
have a significant adverse impact on the City's budget and its financial plan.
The projections set forth in the 1998-2001 Financial Plan were based on
various assumptions and contingencies which are uncertain and which may not
materialize. Changes in major assumptions could significantly affect the City's
ability to balance its budget as required by State law and to meet its annual
cash flow and financing requirements. Such assumptions and contingencies include
the condition of the regional and local economies, the impact on real estate tax
revenues of the real estate market, wage increases for City employees consistent
with those assumed in the 1998-2001 Financial Plan, employment growth, the
ability to implement proposed reductions in City personnel and other cost
reduction initiatives, the ability of the HHC and the BOE to take actions to
offset reduced revenues, the ability to complete revenue generating
transactions, provision of State and Federal aid and mandate relief and the
impact on City revenues and expenditures of Federal and State welfare reform and
any future legislation affecting Medicare or other entitlements.
Implementation of the 1998-2001 Financial Plan is also dependent upon the
City's ability to market its securities successfully. The City's financing
program for fiscal years 1998 through 2001 contemplates the issuance of $5.7
billion of general obligation bonds and $5.7 billion of bonds to be issued by
the proposed New York City Transitional Finance Authority (the "Finance
Authority") to finance City capital projects. The Finance Authority, was created
as part of the City's effort to assist in keeping the City's indebtedness within
the forecast level of the constitutional restrictions on the
B-15
<PAGE>
amount of debt the City is authorized to incur. Indebtedness subject to the
constitutional debt limit includes liability on capital contracts that are
expected to be funded with general obligation bonds, as well as general
obligation bonds. In addition, the City issues revenue and tax anticipation
notes to finance its seasonal working capital requirements. The success of
projected public sales of City bonds and notes, New York City Municipal Water
Finance Authority ("Water Authority") bonds and Finance Authority bonds will be
subject to prevailing market conditions, and no assurance can be given that such
sales will be completed. If the City were unable to sell its general obligation
bonds and notes or the Water Authority or the Finance Authority were unable to
sell its bonds, the City would be prevented from meeting its planned capital and
operating expenditures. Future developments concerning the City and public
discussion of such developments, as well as prevailing market conditions, may
affect the market for outstanding City general obligation bonds and notes.
The City Comptroller and other agencies and public officials have issued
reports and made public statements which, among other things, state that
projected revenues and expenditures may be different from those forecast in the
City's financial plans. It is reasonable to expect that such reports and
statements will continue to be issued and to engender public comment. It is
expected that the City Comptroller and other agencies will issue reports in the
near future commenting on the City Executive Budget and/or the 1998-2001
Financial Plan.
The City since 1981 has fully satisfied its seasonal financing needs in the
public credit markets, repaying all short-term obligations within their fiscal
year of issuance. The City has issued $2.4 billion of short-term obligations in
fiscal year 1997 to finance the City's current estimate of its seasonal cash
flow needs for the 1997 fiscal year. Seasonal financing requirements for the
1996 fiscal year increased to $2.4 billion from $2.2 billion and $1.75 billion
in the 1995 and 1994 fiscal years, respectively. Seasonal financing requirements
were $1.4 billion and $2.25 billion in the 1993 and 1992 fiscal years,
respectively. The delay in the adoption of the State's budget in certain past
fiscal years has required the City to issue short-term notes in amounts
exceeding those expected early in such fiscal year.
Certain localities, in addition to the City, could have financial problems
leading to requests for additional New York State assistance. The potential
impact on the State of such requests by localities was not included in the
State's projections of its receipts and disbursements.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted
in the creation of the Financial Control Board for the City of Yonkers (the
"Yonkers Board") by New York State in 1984. The Yonkers Board is charged with
oversight of the fiscal affairs of Yonkers. Future actions taken by the Governor
or the Legislature to assist Yonkers could result in allocation of New York
State resources in amounts that cannot yet be determined.
Beginning in 1990, the City of Troy experienced a series of budgetary
deficits that resulted in the establishment of a Supervisory Board for the City
of Troy in 1994. The Supervisory Board's powers were increased in 1995, when
Troy MAC was created to help Troy avoid default on certain obligations. The
legislation creating Troy MAC prohibits the city of Troy from seeking federal
bankruptcy protection while Troy MAC bonds are outstanding.
Seventeen municipalities received extraordinary assistance during the 1996
legislative session through $50 million in special appropriations targeted for
distressed cities.
B-16
<PAGE>
Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. In 1994, the total indebtedness of all localities in
New York State other than New York City was approximately $17.7 billion. A small
portion (approximately $82.9 million) of that indebtedness represented borrowing
to finance budgetary deficits and was issued pursuant to enabling New York State
legislation. State law requires the comptroller to review and make
recommendations concerning the budgets of those local government units other
than New York City authorized by State law to issue debt to finance deficits
during the period that such deficit financing is outstanding. Seventeen
localities had outstanding indebtedness for deficit financing at the close of
their fiscal year ending in 1994.
From time to time, federal expenditure reductions could reduce, or in some
cases eliminate, federal funding of some local programs and accordingly might
impose substantial increased expenditure requirements on affected localities. If
New York State, New York City or any of the Authorities were to suffer serious
financial difficulties jeopardizing their respective access to the public credit
markets, the marketability of notes and bonds issued by localities within New
York State could be adversely affected. Localities also face anticipated and
potential problems resulting from certain pending litigation, judicial decisions
and long-range economic trends. Long-range potential problems of declining urban
population, increasing expenditures and other economic trends could adversely
affect localities and require increasing New York State assistance in the
future.
B-17
<PAGE>
INVESTMENT RESTRICTIONS
The policies set forth below are, unless otherwise indicated, fundamental
policies of the Trust and may not be changed without the affirmative vote of a
majority of the outstanding voting securities of the Trust. As used in this
Statement of Additional Information and in the Prospectus, a "majority of the
outstanding voting securities of the Trust" means the lesser of (1) the holders
of more than 50% of the outstanding shares of beneficial interest of the Trust
or (2) 67% of the shares present if more than 50% of the shares are present at a
meeting in person or by proxy.
The Trust may not:
(1) Purchase equity securities or securities convertible into equity
securities.
(2) Purchase or sell any put or call options or any combination thereof
except options on financial futures or municipal bond index contracts or
options on debt securities as described in the Prospectus or this Statement
of Additional Information.
(3) 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 Trust may be
pledged, mortgaged or otherwise encumbered, transferred or assigned to
secure a debt.
(4) Engage in the underwriting of securities, except to the extent that
the purchase of municipal securities, or other permitted investments,
directly from the issuer thereof (or from an underwriter for an issuer) and
the later disposition of such securities in accordance with the Trust's
investment program, may be deemed to be an underwriting.
(5) Invest in real estate, mortgages or illiquid securities of real
estate investment trusts although the Trust may invest in municipal
securities secured by real estate or interests therein.
(6) Invest in commodities or commodity contracts except that the Trust
may purchase financial futures contracts and related options as described in
the Prospectus.
(7) 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 including restricted securities, do not
exceed 10% of the Trust's assets. The Trust 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 10% of
the total assets of the Trust.
(8) Purchase more than 10% of the outstanding voting securities of any
one issuer. For purposes of this 10% 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.
(9) Invest in companies for the purpose of exercising management or
control or purchase securities of other investment companies.
B-18
<PAGE>
(10) Invest 25% or more of its assets in securities of issuers in any
one industry; provided that there shall be no such limitation on the
purchase of municipal securities and, for temporary defensive purposes,
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
(11) Invest more than 5% of its total assets in securities of issuers
having a record, together with predecessors, of less than three years of
continuous operation. The restriction does not apply to any obligation
issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
(12) Purchase or retain the securities of any issuer if, to the
knowledge of the Trust, those officers and trustees of the Trust and
officers and directors of the Adviser, who each owns more than .5% of the
outstanding securities of such issuer, together own more than 5% of such
securities.
(13) Issue senior securities except evidences of indebtedness permitted
by restriction 3 above.
(14) Sell securities short or participate on a joint or a joint and
several basis in any trading account in securities.
(15) Purchase oil, gas or other mineral type development programs or
leases.
(16) Purchase restricted securities or securities that are not readily
marketable or invest in repurchase agreements maturing in more than seven
days if, as a result of such investment, more than 10% of the Trust's assets
would be invested in such securities.
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 Trust follows the industry classifications in The Value
Line Investment Survey.
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH TRUST PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- ---------------------------- --------------------- ----------------------------------------------------
<S> <C> <C>
*Jean Bernhard Buttner Chairman of the Board Chairman, President and Chief Executive Officer of
Age 62 of Trustees, Value Line, Inc. (the "Adviser") and Value Line
President and Chief Publishing, Inc. Chairman of the Value Line Funds
Executive Officer and Value Line Securities, Inc. (the "Dis-
tributor").
<FN>
- ------------------------
* "Interested" trustee as defined in the Investment Company Act of 1940 (the
"1940 Act").
</TABLE>
B-19
<PAGE>
TRUSTEES AND OFFICERS--(CONTINUED)
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH FUND PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- ---------------------------- --------------------- ----------------------------------------------------
<S> <C> <C>
John W. Chandler Trustee Consultant, Academic Search Consultation Service,
2801 New Mexico Inc. since 1992; Consultant, Korn/Ferry
Ave., N.W. International 1990-1992. Trustee Emeritus and
Washington, DC 20007 Chairman (1993-1994) of Duke University; President
Age 73 Emeritus, Williams College.
*Leo R. Futia Trustee Retired Chairman and Chief Executive Officer of The
201 Park Avenue South Guardian Life Insurance Company of America and
New York, NY 10003 Director since 1970. Director (Trustee) of The
Age 77 Guardian Insurance & Annuity Company, Inc., Guardian
Investor Services Corporation and the
Guardian-sponsored mutual funds.
Charles E. Reed Trustee Retired. Formerly, Senior Vice President of General
3200 Park Avenue Electric Co.; Director Emeritus of People's Bank,
Bridgeport, CT 06604 Bridgeport, CT.
Age 83
Paul Craig Roberts Trustee Distinguished Fellow, Cato Institute, since 1993;
505 S. Fairfax Street formerly, William E. Simon Professor of Political
Alexandria, VA 22320 Economy, Center for Strategic and International
Age 58 Studies; Director, A. Schulman Inc. (plastics) since
1992.
Nancy-Beth Sheerr Director Chairman, Radcliffe College Board of Trustees.
1409 Beaumont Drive
Gladwyne, PA 19035
Age 48
Charles Heebner Vice President Senior Portfolio Manager with the Adviser.
Age 61
Raymond S. Cowen Vice President Assistant Research Director with the Adviser.
Age 75
David T. Henigson Vice President, Director, Vice President and Compliance Officer of
Age 39 Secretary and the Adviser. Director and Vice President of the
Treasurer Distributor.
<FN>
- ------------------------
* "Interested" trustee as defined in the Investment Company Act of 1940 (the
"1940 Act").
</TABLE>
Unless otherwise indicated, the address for each of the above is 220 East
42nd Street, New York, NY.
B-20
<PAGE>
Trustees and certain officers of the Trust are also trustees/directors and
officers of the other investment companies for which the Adviser acts as
investment adviser. The following table sets forth information regarding
compensation of Trustees by the Trust and by the Trust and eleven other Value
Line Funds of which each of the Trustees is a director or trustee for the fiscal
year ended February 28, 1997. Trustees who are officers or employees of the
Adviser do not receive any compensation from the Trust or any of the Value Line
Funds.
COMPENSATION TABLE
FISCAL YEAR ENDED FEBRUARY 28, 1997
<TABLE>
<CAPTION>
TOTAL
PENSION OR ESTIMATED COMPENSATION
RETIREMENT ANNUAL FROM TRUST
AGGREGATE BENEFITS ACCRUED BENEFITS AND TRUST
COMPENSATION AS PART OF FUND UPON COMPLEX (12
NAME OF PERSON FROM FUND EXPENSES RETIREMENT FUNDS)
- ---------------------------------------------------------------------- ------------ ---------------- ---------- ------------
<S> <C> <C> <C> <C>
Jean B. Buttner....................................................... $ -0- N/A N/A $ -0-
John W. Chandler...................................................... 2,991 N/A N/A 35,890
Leo R. Futia.......................................................... 2,741 N/A N/A 32,890
Charles E. Reed....................................................... 2,991 N/A N/A 35,890
Paul Craig Roberts.................................................... 2,991 N/A N/A 35,890
Nancy-Beth Sheerr..................................................... 692 N/A N/A 8,305
</TABLE>
As of February 28, 1997, no person owned of record or, to the knowledge of
the Trust, owned beneficially, 5% or more of the outstanding shares of the
Trust. The Adviser owned 105,118 shares (3.2%) of the Trust.
THE ADVISER
(SEE ALSO "MANAGEMENT OF THE TRUST" IN THE TRUST'S PROSPECTUS)
The Trust's investment adviser is Value Line, Inc. The investment advisory
agreement between the Trust and the Adviser dated August 10, 1988 provides for a
monthly advisory fee computed at the annual rate of 0.6% of the Trust's average
daily net assets during the year. During fiscal 1995, 1996 and 1997, the Trust
paid or accrued to the Adviser advisory fees of $237,733, $238,206 and $217,260
respectively. During the fiscal year ended February 28, 1997, the Trust paid or
accrued to the Adviser $2,880 for printing services.
The investment advisory agreement provides that the Adviser shall render
investment advisory and other services to the Trust including, at its expense,
all administrative services, office space and the services of all officers and
employees of the Trust. The Trust pays all other expenses incurred in its
organization and operation which are 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 Trust has agreed
that it will use the words "Value Line" in its name only so long as Value Line,
Inc. serves as investment adviser of the Trust.
B-21
<PAGE>
The Adviser acts as investment adviser to 15 other investment companies
constituting The Value Line Family of Funds, and furnishes investment advisory
services to private and institutional accounts with combined assets in excess of
$5 billion.
Certain of the Adviser's clients may have investment objectives similiar to
the Trust and certain investments may be appropriate for the Trust 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 Trust. In other cases, however, it is
believed that the ability of the Trust to participate, to the extent permitted
by law, in volume transactions will produce better results for the Trust.
The Adviser and/or its affiliates, officers, Trustees and employees may from
time to time own securities which are also held in the portfolio of the Trust.
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.
PORTFOLIO TRANSACTIONS
Portfolio securities are purchased from and sold to parties acting as either
principal or agent. Newly-issued securities ordinarily are purchased directly
from the issuer or from an underwriter; other purchases and sales usually are
placed with those dealers from whom it appears that the best price and execution
will be obtained. Usually no brokerage commissions, as such, are paid by the
Trust for such purchases and sales, although the price paid usually includes an
undisclosed compensation to the dealer acting as agent. The prices paid to
underwriters of newly-issued securities usually include a concession paid by the
issuer to the underwriter, and purchases of after-market securities from dealers
ordinarily are executed at a price between the bid and asked price. The Trust
paid no brokerage commissions in fiscal 1995, 1996 or 1997.
Transactions are allocated to various dealers by the Adviser in its best
judgment. The primary consideration is prompt and effective execution of orders
at the most favorable price. Subject to that primary consideration, dealers may
be selected for research, statistical or other services to enable the Adviser to
supplement its own research and analysis with the views and information of other
securities firms.
Research services furnished by brokers through which the Trust effects
securities transactions may be used by the Adviser in advising other funds and
accounts it manages and, conversely, research services furnished to the Adviser
by brokers in connection with other funds and accounts it manages may be used by
the Adviser in advising the Trust. Since such research services are
supplementary to the research efforts of the Adviser and must be analyzed and
reviewed by it, the receipt of such information is not expected to materially
reduce its overall expenses.
B-22
<PAGE>
HOW TO BUY SHARES
(SEE ALSO "CALCULATION OF NET ASSET VALUE", "HOW TO BUY SHARES" AND
"INVESTOR SERVICES" IN THE FUND'S PROSPECTUS)
The Trust 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.
The Trust has a distribution agreement with Value Line Securities, Inc.,
(the "Distributor") pursuant to which the Distributor acts as principal
underwriter and distributor of the Trust for the sale and distribution of its
shares. The Distributor, a wholly-owned subsidiary of the Adviser, receives no
compensation for its services under the agreement. The Distributor also serves
as distributor to the other Value Line funds.
AUTOMATIC PURCHASES. The Trust 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 Trust account. The required form to enroll
in this program is available upon request from the Distributor.
SUSPENSION OF REDEMPTIONS
The right of redemption may be suspended, or the date of payment postponed
beyond the normal seven-day period by the Trust 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 Trust of securities owned by it is not reasonably practical, or (b) it is
not reasonably practical for the Trust 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 Trust's shareholders.
TAXES
(SEE "DIVIDENDS AND DISTRIBUTIONS" AND "TAXES" IN THE TRUST'S PROSPECTUS)
The Trust intends to continue to qualify as a regulated investment company
under the Internal Revenue Code (the "Code"). During the Trust's last fiscal
year, the Trust so qualified. By so qualifying, the Trust is not subject to
federal income tax on its net investment income or net realized capital gains
which are distributed to shareholders.
Distributions of net tax-exempt income, in the form of "exempt-interest
dividends", are excludible from the shareholder's income for federal income tax
purposes (except as provided below) if the Trust qualifies to pay
exempt-interest dividends. Distributions of other investment income and any
realized short-term capital gains are taxable to shareholders as ordinary
income. The Trust does not anticipate that any distributions will be eligible
for the dividends-received deduction for corporate shareholders.
Distributions of realized long-term capital gains are taxable to
shareholders as long-term capital gain, regardless of the length of time the
shares of the Trust have been held by such shareholders and regardless of
whether the distribution is received in cash or is reinvested in additional
Trust shares. The computation of net capital gains takes into account any
capital loss carryforward of the Trust. For
B-23
<PAGE>
Federal income tax purposes, the Trust had a capital loss carryover at February
28, 1997, of $107,675 which will expire in 2005. To the extent future capital
gains are offset by such capital losses, the Trust does not anticipate
distributing any such gains to its shareholders.
Investments in the Trust, generally, would not be suitable for non-taxable
entities, such as tax-exempt institutions, qualified retirement plans, H.R. 10
plans and individual retirement accounts, since an investor would not gain any
additional federal tax benefit from the receipt of tax-exempt income.
The Code may require a shareholder who receives exempt-interest dividends to
treat as taxable income a portion of certain otherwise non-taxable social
security and railroad retirement benefit payments. Furthermore, that portion of
any dividend paid by the Trust which represents income derived from private
activity bonds held by the Trust may not retain its tax-exempt status in the
hands of a shareholder who is a "substantial user" of a facility financed by
such bonds, or a "related person". Moreover, some or all of the Trust's
dividends may be a specific preference item or a component of an adjustment
item, for purposes of determining federal alternative minimum taxes.
Additionally, the receipt of Trust dividends and distributions may affect (1) a
corporate shareholder's federal "environmental" tax liability and (2) a
Subchapter S corporate shareholder's federal "excess net passive income" tax
liability.
As described above and in the Trust's Prospectus, the Trust may invest in
certain types of futures contracts and may purchase or sell certain types of
options. The Trust anticipates that these investment activities will not prevent
the Trust from qualifying as a regulated investment company. As a general rule,
these investment activities will increase or decrease the amount of long-term
and short-term capital gains or losses realized by the Trust, and, accordingly,
will affect the amount of capital gains distributed to the Trust's shareholders.
A shareholder may realize a capital gain or capital loss on the sale or
redemption of shares of the Trust. 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 Trust shares
on purchase or reinvestment date), or under special rules, an average cost. A
loss on the sale or redemption of shares held for six months or less will be
disallowed to the extent of the amount of an exempt-interest dividend received
by the shareholder during that period. Further, under certain circumstances, a
loss on the sale or redemption of shares held for six months or less may be
treated as a long-term capital loss to the extent that the Trust has distributed
long-term capital gain dividends on such shares. Moreover, a loss on the sale or
redemption of Trust shares will be disallowed to the extent the shareholder
purchases other shares of the Trust within 30 days before or after the date the
shares are sold or redeemed.
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, as of the 12-month period
ending October 31, plus certain undistributed amounts from previous years. The
Trust anticipates that it will make sufficient timely distributions to avoid
imposition of the excise tax.
All distributions including distributions of exempt-interest dividends,
whether received in Trust shares or cash, must be reported by each shareholder
on his federal income tax return. Although
B-24
<PAGE>
exempt-interest dividends are reportable on one's tax return, those dividends
are excludable from the investor's taxable income for federal income tax
purposes. Under the Code, dividends declared by the Trust in October, November
and December of any calendar year, and payable to shareholders of record in such
month, shall be deemed to have been received by the shareholder on December 31
of such calendar year if such dividend is actually paid in January of the
following year.
A distribution by the Trust reduces the Trust's net asset value per share.
Such a distribution may be taxable to the shareholder as ordinary income or
capital gain as described above, even though, from an investment standpoint, it
may constitute a return of capital. In particular, investors should be careful
to consider the tax implications of buying shares just prior to a capital gains
distribution. The price of shares purchased at that time at the net asset value
per share includes the amount of the forthcoming distribution. Those purchasing
just prior to a distribution will then receive a return of capital upon the
distribution which may nevertheless be taxable to them.
For shareholders who fail to furnish to the Trust their social security or
taxpayer identification numbers and certain related information, or who fail to
certify that they are not subject to backup withholding, taxable dividends,
distributions of capital gains and redemption proceeds paid by the Trust may 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 Trust
shares, and any redemption proceeds will be reduced by the amounts required to
be withheld. The backup withholding provisions will not apply to any amount paid
or treated as paid by the Trust if the Trust reasonably estimates that 95
percent or more of all dividends paid or treated as paid during the year are
exempt-interest dividends.
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 and U.S. domestic
corporations, partnerships, 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 Trust.
PERFORMANCE DATA
From time to time, the Trust 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 Trust will be accompanied by information
on the Trust's average annual total return over the most recent four calendar
quarters and the period from the Trust's inception of operations. The Trust may
also advertise aggregate total return information for different periods of time.
B-25
<PAGE>
The Trust's average annual total return is determined by reference to a
hypothetical $1,000 investment that includes capital appreciation and
depreciation for the stated period, according to the following formula:
T equals the nth root of ((E multiplied by R multiplied by V) divided by P))
minus 1
<TABLE>
<S> <C> <C> <C>
Where: P = a hypothetical initial purchase order of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $1,000 purchase at the end of
the period.
</TABLE>
Aggregate total return is calculated in a similar manner, except that the
results are not annualized. Each calculation assumes that all dividends and
distributions are reinvested at net asset value on the reinvestment dates during
the period.
As stated in the Prospectus, the Trust may also quote its current yield in
advertisements and investor communications.
The yield computation is determined by dividing the net investment income
per share earned during the period by the maximum offering price per share on
the last day of the period and annualizing the resulting figure, according to
the following formula:
Yield equals 2 [(((a minus b divided by c multiplied by d plus 1) to the power
of 6) minus 1]
<TABLE>
<S> <C> <C> <C>
Where: a = dividends and interest earned during the period (calculated as required by
the Securities and Exchange Commission);
b = expenses accrued for the period (net of reimbursements);
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends;
d = the maximum offering price per share on the last day of the period.
</TABLE>
The above formula will be used in calculating quotations of yield, based on
specified 30-day periods identified in advertising by the Trust.
The Trust may also, from time to time, include a reference to its current
quarterly or annual distribution rate in investor communications and sales
literature preceded or accompanied by a Prospectus, reflecting the amounts
actually distributed to shareholders which could include capital gains and other
items of income not reflected in the Trust's yield, as well as interest and
dividend income received by the Trust and distributed to shareholders (which is
reflected in the Trust's yield).
All calculations of the Trust's distribution rate are based on the
distributions per share which are declared, but not necessarily paid, during the
fiscal year. The distribution rate is determined by dividing the distributions
declared during the period by the maximum offering price per share on the last
day of the period and annualizing the resulting figure. In calculating its
distribution rate, the Trust
B-26
<PAGE>
has used the same assumptions that apply to its calculation of yield. The
distribution rate does not reflect capital appreciation or depreciation in the
price of the Trust's shares and should not be considered to be a complete
indicator of the return to the investor on his investment.
The Trust's current yield, distribution rate and total return may be
compared to relevant indices, including U.S. domestic tax-exempt bond indices
and data from Lipper Analytical Services, Inc., or Standard & Poor's Indices.
From time to time, evaluations of the Trust's performance by independent sources
may also be used in advertisements and in information furnished to present or
prospective investors in the Trust.
ADDITIONAL INFORMATION
The Declaration of Trust provides that obligations of the Trust are not
binding upon the Trustees individually but only upon the property of the Trust,
that the Trustees and officers will not be liable for errors of judgment or
mistakes of fact or law, and that the Trust will indemnify its Trustees and
officers against liabilities and expenses incurred in connection with litigation
in which they may be involved because of their offices with the Trust except if
it is determined in the manner provided in the Declaration of Trust that they
have not acted in good faith in the reasonable belief that their actions were in
the best interests of the Trust. However, nothing in the Declaration of Trust
protects or indemnifies a Trustee or officer against any liability to which he
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
office. The Declaration of Trust provides that a Trustee of the Trust can be
removed with cause if two-thirds of the remaining Trustees vote that the Trustee
be removed.
EXPERTS
The financial statements of the Trust and the financial highlights included
in the Fund's Annual Report to Shareholders and incorporated by reference in
this Statement of Additional Information have been so incorporated by reference
in reliance on the report of Price Waterhouse, LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
CUSTODIAN
The Trust employs State Street Bank and Trust Company, Boston, MA as
custodian for the Trust. The custodian's responsibilities include safeguarding
and controlling the Trust's cash and securities, handling the receipt and
delivery of securities and collecting interest and dividends on the Trust's
investments. The custodian does not determine the investment policies of the
Trust or decide which securities the Trust will buy or sell.
FINANCIAL STATEMENTS
The Trust's financial statements for the year ended February 28, 1997,
including the financial highlights for each of the five fiscal years in the
period then ended appearing in the 1997 Annual Report to Shareholders and the
report thereon of Price Waterhouse, LLP, independent accountants, appearing
therein, are incorporated by reference in this Statement of Additional
Information.
The Trust's 1997 Annual Report to Shareholders is enclosed with this
Statement of Additional Information.
B-27
<PAGE>
SECURITY RATINGS
RATINGS OF MUNICIPAL SECURITIES
MOODY'S INVESTORS SERVICE, INC. AAA--the "best quality", AA--"high quality
by all standards", but margins of protection or other elements make long-term
risks appear somewhat larger than Aaa rated municipal bonds. A--"upper medium
grade obligations". Security for principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment
sometime in the future. BAA--"medium grade", neither highly protected nor poorly
secured; interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time; lack outstanding
investment characteristics and in fact may have speculative characteristics as
well. BA--judged to have speculative elements; their future cannot be considered
as well assured. Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good and bad times
over the future. Uncertainty of position characterizes bonds in this class.
B--generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.
STANDARD & POOR'S CORPORATION. AAA--"obligations of the highest quality".
AA--issues with investment characteristics "only slightly less marked than those
of the prime quality issues". A-- "the third strongest capacity for payment of
debt service". Principal and interest payments on bonds in this category are
regarded as safe. It differs from the two higher ratings because, with respect
to general obligations bonds, there is some weakness which, under certain
adverse circumstances, might impair the ability of the issuer to meet debt
obligations at some future date. With respect to revenue bonds, debt service
coverage is good, but not exceptional, and stability of the pledged revenues
could show some variations because of increased competition or economic
influences in revenues. BBB--the lowest "investment grade" security rating. The
difference between A and BBB ratings is that the latter shows more than one
fundamental weakness, or one very substantial fundamental weakness. With respect
to revenue bonds, debt coverage is only fair. Stability of the pledged revenues
could show substantial variations, with the revenue flow possibly being subject
to erosion over time. BB and B-- regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation. While debt rated BB or B will likely have some
quality and protective characteristics, these are outweighted by large
uncertainties or major risk exposures to adverse conditions.
RATINGS OF MUNICIPAL NOTES
MOODY'S INVESTORS SERVICE, INC. MIG-1: the best quality. MIG-2: high
quality, with margins for protection ample although not so large as in the
preceding group. MIG-3: favorable quality, with all security elements accounted
for, but lacking the undeniable strength of the preceding grades. Market access
for refinancing, in particular, is likely to be less well established.
STANDARD & POOR'S CORPORATION. SP-1: Very strong capacity to pay principal
and interest. SP-2: Satisfactory capacity to pay principal and interest.
RATINGS OF COMMERCIAL PAPER
MOODY'S INVESTORS SERVICE, INC. PRIME-1: highest quality. PRIME-2: higher
quality.
STANDARD & POOR'S CORPORATION. A-1: A very strong degree of safety. A-2:
Strong degree of safety.
B-28
<PAGE>
VALUE LINE NEW YORK TAX EXEMPT TRUST
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
a. Financial Statements
Included in Part A of this Registration Statement:
Financial Highlights for each of the nine years in the period ended
February 28, 1997 and the period from July 2, 1987 to February 29,
1988.
Incorporated by reference in Part B of this Registration Statement:*
Schedule of Investments at February 28, 1997
Statement of Assets and Liabilities at February 28, 1997
Statement of Operations for the year ended February 28, 1997
Statements of Changes in Net Assets for the years ended February 28,
1997 and February 29, 1996
Financial Highlights for each of the five years in the period ended
February 28, 1997.
Notes to Financial Statements
Report of Independent Accountants
Statements, schedules and historical information other than those listed
above have been omitted since they are either not applicable or are not
required.
- ---------
* Incorporated by reference from the Annual Report to Shareholders for the
year ended
February 28, 1997.
b. Exhibits
16. Calculation of Performance Data--Exhibit 1
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of February 28, 1997, there were 926 holders of the Registrant's shares
of beneficial interest, $.01 par value per share.
ITEM 27. INDEMNIFICATION.
Incorporated by reference from Post-Effective Amendment No. 1 (filed with
the Commission November 5, 1987).
C-1
<PAGE>
ITEM 28. BUSINESS OR OTHER CONNECTIONS OF INVESTMENT ADVISER.
Value Line, Inc., Registrant's investment adviser, acts as investment
adviser for a number of individuals, trusts, corporations and institutions, in
addition to the registered investment companies in the Value Line Family of
Funds listed in Item 29.
<TABLE>
<CAPTION>
POSITION WITH
NAME THE ADVISER OTHER EMPLOYMENT
- ---------------------------- ------------------------------- ---------------------------------------------------
<S> <C> <C>
Jean Bernhard Buttner Chairman of the Board, Chairman of the Board and Chief Executive Officer
President and Chief of Arnold Bernhard & Co., Inc. and Value Line
Executive Officer Publishing, Inc. Chairman of the Value Line Funds
and Value Line Securities, Inc.
Samuel Eisenstadt Senior Vice President and ---------------------------------------------------
Director
David T. Henigson Vice President, Treasurer and Vice President and a Director of Arnold Bernhard &
Director Co., Inc. and the Distributor
Howard A. Brecher Vice President, Secretary and Secretary and Treasurer of Arnold Bernhard & Co.,
Director Inc.
Harold Bernard, Jr. Director Administrative Law Judge
William S. Kanaga Director Retired Chairman of Arthur Young (now Ernst &
Young)
W. Scott Thomas Director Partner, Brobeck, Phleger & Harrison, attorneys.
</TABLE>
C-2
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) Value Line Securities, Inc., acts as principal underwriter for the
following Value Line Funds, including the Registrant: The Value Line
Fund, Inc.; The Value Line Income Fund, Inc.; The Value Line Special
Situations Fund, Inc.; Value Line 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 Intermediate Bond Fund, Inc.; Value Line
Small-Cap Growth Fund, Inc.; Value Line Asset Allocation Fund, Inc.;
Value LIne U.S. Multinational Company Fund, Inc.
(b)
<TABLE>
<CAPTION>
(2)
POSITION AND (3)
(1) OFFICES POSITION AND
NAME AND PRINCIPAL WITH VALUE LINE OFFICES WITH
BUSINESS ADDRESS SECURITIES, INC. REGISTRANT
- -------------------------- -------------------------- ----------------------------
<S> <C> <C>
Jean Bernhard Buttner Chairman of the Board Chairman of the Board
David T. Henigson Vice President, Secretary, Vice President, Secretary
Treasurer and Director and Treasurer
Stephen LaRosa Asst. Vice President Asst. Treasurer,
Asst. Secretary
</TABLE>
The business address of each of the officers and directors is 220 East
42nd Street, New York, NY 10017-5891.
(c) Not applicable.
C-3
<PAGE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Value Line, Inc., 220 East 42nd St., New York, NY 10017 for records pursuant
to Rule 31a-1(b)(4),(5),(6),(7),(10),(11), Rule 31a-(i), State Street Bank and
Trust Company, c/o NFDS, P.O. Box 419729, Kansas City, MO 64141 for records
pursuant to Rule 31a-1(b)(2)(iv), State Street Bank and Trust Company, 225
Franklin Street, Boston, MA 02110 for all other records.
ITEM 31. MANAGEMENT SERVICES.
None.
ITEM 32. UNDERTAKINGS.
Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
--------------
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. 11 to the registration statement on Form N-1A (the "Registration
Statement"), of our report dated April 21, 1997, relating to the financial
statements and financial highlights appearing in the February 28, 1997 Annual
Report to Shareholders of Value Line New York Tax Exempt Trust, 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 "Additional Information" and "Financial Statements" in
the Statement of Additional Information.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
June 17, 1997
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies, that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment
to its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, and State of New York, on
the 16th day of June, 1997.
VALUE LINE NEW YORK TAX EXEMPT TRUST
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
- ---------------------------------------------- ---------------------------------------------- -----------------
<C> <S> <C>
* /s/ JEAN B. BUTTNER Chairman and Trustee; President; Chief June 16, 1997
(JEAN B. BUTTNER) Executive Officer
* JOHN W. CHANDLER Trustee June 16, 1997
(JOHN W. CHANDLER)
* LEO R. FUTIA Trustee June 16, 1997
(LEO R. FUTIA)
*CHARLES E. REED Trustee June 16, 1997
(CHARLES E. REED)
* PAUL CRAIG ROBERTS Trustee June 16, 1997
(PAUL CRAIG ROBERTS)
* NANCY-BETH SHEERR
(NANCY-BETH SHEERR)
/s/ DAVID T. HENIGSON Secretary and Treasurer; Principal Financial June 16, 1997
............................................. and Accounting Officer
(DAVID T. HENIGSON)
</TABLE>
* By /s/ DAVID T. HENIGSON
..................................
(DAVID T. HENIGSON,
Attorney-in-fact)
C-5
<PAGE>
VALUE LINE NEW YORK TAX EXEMPT TRUST
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATION
EXHIBIT 16
Year(s) Ended 02/28/97: 1 year 5 years 9.66 years*
------ ------- -----------
Initial Investment: 1,000 1,000 1,000
Balance at End of Period: 1,037 1,414 1,988
Change: 37 414 988
Percentage Change: 3.73% 41.35% 98.80%
Average Annual Total Return: 3.73% 7.17% 7.37%
*from 07/02/87 (commencement of operations)
