<PAGE>
As filed with the Securities and Exchange Commission on June 26, 1998
Registration No. 33-12400
Registration No. 811-5052
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 12 /X/
and
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 12 /X/
-------------
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)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/X/ On July 1, 1998 pursuant to paragraph (b)
/ / On (date) pursuant to paragraph (a)(1)
/ / On (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
/ / This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
--------------
TITLE OF SECURITIES BEING REGISTERED: SHARES OF BENEFICIAL INTEREST, $.01 PAR
VALUE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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
- ---------------- ---------------------------------------
<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; Calculation of Net
Asset Value (Part A); Suspension of
Redemptions
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, 1998
</TABLE>
220 East 42nd Street, New York, New York 10017-5891
1-800-223-0818 or 1-800-243-2729
www.valueline.com
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, 1998, which may be obtained at no charge by writing or
telephoning the Trust at the address or telephone numbers listed above.
The Statement, which is incorporated into this Prospectus by reference,
has been filed with the Securities and Exchange Commission and is
available along with other related materials on the Commission's
Internet Web site at http://www.sec.gov.
DISTRIBUTOR
Value Line Securities, Inc.
220 East 42nd Street
New York, 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
------ ------- ------- --------
<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,
1998 and is designed to assist investors in understanding the various costs and
expenses that an investor in the Trust will bear directly or indirectly. This
example should not be considered a representation of past or future expenses;
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, 1998, 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,
---------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
year........................ $ 10.04 $ 10.28 $ 9.81 $ 10.49 $ 10.84 $ 9.90 $ 9.50 $ 9.65 $ 9.76
-------- -------- -------- -------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income..... .445 .480 .491 .523 .570 .596 .634 .707 .702
Net gains or losses on
securities (both realized
and unrealized).......... .469 (.113) .470 (.611) .062 1.080 .400 (.150) (.046)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total from investment
operations........... .914 .367 .961 (.088) .632 1.676 1.034 .557 .656
-------- -------- -------- -------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net
investment income........ (.444) (.480) (.491) (.523) (.570) (.596) (.634) (.707) (.702)
Distributions from capital
gains.................... -- (.127) -- (.069) (.412) (.140) -- -- (.064)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total distributions... (.444) (.607) (.491) (.592) (.982) (.736) (.634) (.707) (.766)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
year........................ $ 10.51 $ 10.04 $ 10.28 $ 9.81 $ 10.49 $ 10.84 $ 9.90 $ 9.50 $ 9.65
-------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total return.................. 9.31% 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).................. $34,597 $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%(3) .92% .86% .87% .85% .92% .91% 1.01%
Ratio of net investment income
to average net assets....... 4.35% 4.79% 4.87% 5.36% 5.21% 5.82% 6.50% 7.46% 7.16%
Portfolio turnover rate....... 116% 86% 119% 105% 54% 137% 124% 61% 39%
<CAPTION>
1989
--------
<S> <C>
Net asset value, beginning of
year........................ $ 9.93
--------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income..... .733(1)
Net gains or losses on
securities (both realized
and unrealized).......... (.112)
--------
Total from investment
operations........... .621
--------
LESS DISTRIBUTIONS:
Dividends from net
investment income........ (.733)
Distributions from capital
gains.................... (.058)
--------
Total distributions... (.791)
--------
Net asset value, end of
year........................ $ 9.76
--------
--------
Total return.................. 6.54%(2)
--------
--------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands).................. $26,412
Ratio of expenses to average
net assets.................. .76%(2)
Ratio of net investment income
to average net assets....... 7.51%(2)
Portfolio turnover rate....... 73%
</TABLE>
- ---------------
(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 for fiscal 1989.
(2) Due to waiver of advisory fee and expense reimbursement by the Adviser,
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.
(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 Service, Inc. (Aaa, Aa, A and Baa) or Standard & Poor's Ratings
Services (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, 1998, 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. Although
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 in recent years, the most recent actions of
Standard & Poor's and Moody's have been to place the debt obligations of New
York State on Credit Watch with positive implications and to upgrade the debt
obligations of New York City, respectively. 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
liquid 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 ADVISER. The Adviser was organized in 1982 and is the successor to
substantially all of the operations of Arnold Bernhard & Co., Inc. ("AB&Co.").
The Adviser was formed as part of a reorganization of AB&Co., a sole
proprietorship formed in 1931 which became a New York corporation in 1946.
AB&Co. currently owns approximately 81% of the outstanding shares of the
Adviser's common stock. Jean Bernhard Buttner, Chairman, President and Chief
Executive Officer of the Adviser, owns all of the voting stock of AB&Co.
Substantially all of the non-voting stock is owned by or for the benefit of
members of the Bernhard family. The Adviser currently acts as investment adviser
to the other Value Line mutual funds and furnishes investment advisory services
to private and institutional accounts with combined assets in excess of $5
billion. Value Line Securities, Inc., the Trust's distributor, is a subsidiary
of the Adviser. Another subsidiary of the Adviser publishes The Value Line
Investment Survey and other publications. The Adviser manages the 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 regular trading of the
New York Stock Exchange (generally 4:00 p.m., New York time) on each day that
the New York Stock Exchange is open for trading except on days on which no
orders to purchase, sell or redeem Trust shares have been received. The New York
Stock Exchange is currently closed on New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. 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 or persons acting at their direction 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. The Fund reserves the
right to waive the initial and subsequent investment minimums at any time.
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
10
<PAGE>
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.
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 or dividends. 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.
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, 1998.................................. $1,091 9.31%
For the five years ended February 28, 1998............................ $1,314 5.62%
For the ten years ended February 28, 1998............................. $2,074 7.57%
</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
11
<PAGE>
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 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.
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 (including the portion subject to the lower 20% capital gain
rate for individuals). 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.
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 advisors with regard to the federal tax consequences of the
purchase, ownership, or disposition of Trust shares, as well as the tax
consequences arising under the laws of any state, foreign country or other
taxing jurisdiction.
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
13
<PAGE>
thereof, must be similarly guaranteed. In each case the signature or signatures
must correspond to the names in which the account is registered. Additional
documentation may be required when shares are registered in the name of a
corporation, agent or fiduciary. For further information, you should contact
NFDS.
The Trust does not impose a redemption charge but shares redeemed through
brokers or dealers may be subject to a service charge by such firms. A check 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
until the check has cleared which may take up to 15 calendar days from 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-
14
<PAGE>
genuine instruction pursuant to this redemption feature. Any additional
documentation required to assure a genuine redemption must be maintained on file
with NFDS in such a current status as NFDS may deem necessary. A new form
properly signed and with the signature guaranteed 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.
15
<PAGE>
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 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. The Trust's Annual
Report contains a discussion of the Trust's performance, and will be made
available upon request and without charge.
WITHHOLDING. The Trust may be required to withhold U.S. federal income tax
at the rate of 31% of all taxable distributions payable to certain shareholders
who fail to provide the Trust with their correct taxpayer identification number
or to make required certifications, or who have been notified by the Internal
Revenue Service that they are subject to backup withholding. Backup withholding
is not an additional tax. Any amounts withheld may be credited against the
shareholder's U.S. federal income tax liability. The Trust reserves the right to
close, by redemption, accounts for which the holder fails to provide a valid
social security or taxpayer identification number when required to do so.
YEAR 2000. Like other mutual funds, the Trust could be adversely affected
if the computer systems used by the Adviser and other service providers do not
properly process and calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000 Problem." The Adviser
is taking steps that it believes are reasonably designed to address the
16
<PAGE>
Year 2000 Problem with respect to the computer systems that it uses and to
obtain satisfactory assurances that comparable steps are being taken by the
Trust's other major service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact to the
Trust.
The Year 2000 Problem is expected to impact corporations, which may include
issuers of portfolio securities held by the Trust, to varying degrees based upon
various factors, including, but not limited to, the corporation's industry
sector and degree of technological sophistication. The Trust is unable to
predict what impact, if any, the Year 2000 Problem will have on issuers of the
portfolio securities held by the Trust.
17
<PAGE>
THE VALUE LINE FAMILY OF FUNDS
- --------------------------------------------
1950--THE VALUE LINE FUND seeks long-term growth of capital along with modest
current income by investing substantially all of its assets in common stocks or
securities convertible into common stock.
1952--THE VALUE LINE INCOME FUND'S primary investment objective is income, as
high and dependable as is consistent with reasonable growth. Capital growth to
increase total return is a secondary objective.
1956--THE VALUE LINE SPECIAL SITUATIONS FUND seeks to obtain long-term growth of
capital by investing not less than 80% of its assets in "special situations". No
consideration is given to achieving current income.
1972--VALUE LINE LEVERAGED GROWTH INVESTORS' sole investment objective is to
realize capital growth by investing substantially all of its assets in common
stocks. The Fund may borrow up to 50% of its net assets to increase its
purchasing power.
1979--THE VALUE LINE CASH FUND, a money market fund, seeks high current income
consistent with preservation of capital and liquidity.
1981--VALUE LINE U.S. GOVERNMENT SECURITIES FUND seeks maximum income without
undue risk to principal. Under normal conditions, at least 80% of the value of
its net assets will be invested in issues of the U.S. Government and its
agencies and instrumentalities.
1983--VALUE LINE CENTURION FUND* seeks long-term growth of capital as its sole
objective by investing primarily in stocks ranked 1 or 2 by Value Line for
year-ahead relative performance.
1984--THE VALUE LINE TAX EXEMPT FUND seeks to provide investors with maximum
income exempt from federal income taxes while avoiding undue risk to principal.
The Fund offers investors a choice of two portfolios: a Money Market Portfolio
and a High-Yield Portfolio.
1985--VALUE LINE CONVERTIBLE FUND seeks high current income together with
capital appreciation primarily from convertible securities ranked 1 or 2 for
year-ahead performance by The Value Line Convertible Ranking System.
1986--VALUE LINE AGGRESSIVE INCOME TRUST seeks to maximize current income by
investing in high-yielding, low-rated, fixed-income corporate securities.
1987--VALUE LINE NEW YORK TAX EXEMPT TRUST seeks to provide New York taxpayers
with maximum income exempt from New York State, New York City and federal
individual income taxes while avoiding undue risk to principal.
1987--VALUE LINE STRATEGIC ASSET MANAGEMENT TRUST* invests in stocks, bonds and
cash equivalents according to computer trend models developed by Value Line. The
objective is to professionally manage the optimal allocation of these
investments at all times.
1993--VALUE LINE SMALL-CAP GROWTH FUND invests primarily in common stocks or
securities convertible into common stock, with its primary objective being
long-term growth of capital.
1993--VALUE LINE ASSET ALLOCATION FUND seeks high total investment return,
consistent with reasonable risk. The Fund invests in stocks, bonds and money
market instruments utilizing quantitative modeling to determine the 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.
18
<PAGE>
INVESTMENT ADVISER
Value Line, Inc.
220 East 42nd Street
New York, NY 10017-5891
DISTRIBUTOR
Value Line Securities, Inc.
220 East 42nd Street
New York, NY 10017-5891
SHAREHOLDER SERVICING AGENT
State Street Bank and Trust Company
c/o NFDS
P.O. Box 419729
Kansas City, MO 64141-6729
CUSTODIAN & TRANSFER AGENT
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
LEGAL COUNSEL
Peter D. Lowenstein, Esq.
Two Greenwich Plaza, Suite 100
Greenwich, CT 06830
----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Summary of 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, 1998
VALUE LINE
NEW YORK
TAX EXEMPT
TRUST
(800) 223-0818
[LOGO]
<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
www.valueline.com
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
JULY 1, 1998
- --------------------------------------------------------------------------------
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, 1998, a copy of which may be obtained without charge
by writing or telephoning the Trust.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
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
</TABLE>
--------------
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
B-1
<PAGE>
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
B-2
<PAGE>
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
B-3
<PAGE>
option or 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 Service, Inc. or BB or B by Standard & Poor's Ratings
Services. 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.
B-4
<PAGE>
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
investments 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. State per capita
personal income has historically been significantly higher than the national
average, although the ratio has varied substantially.
B-5
<PAGE>
Moderate growth is projected to continue in 1998 and 1999 for employment,
wages, and personal income, although the growth rates will lessen gradually
during the course of the two years. Overall employment growth is expected to
continue at a modest rate, reflecting the slowing growth in the national
economy, continued spending restraint in government, and restructuring in the
health care, social service, and banking sectors.
There can be no assurance that the State economy will not experience
worse-than-predicted results, with corresponding material and adverse effects on
the State's projections of receipts and disbursements.
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 1997-98 fiscal year was adopted by the
Legislature on August 4, 1997, more than four 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 State-supported debt
service. The State Financial Plan for the 1997-98 fiscal year was formulated on
August 11, 1997 and was based on the State's budget as enacted by the
Legislature, as well as actual results for the first quarter of the current
fiscal year (the "1997-98 State Financial Plan"). In recent years, the State has
failed to adopt a budget prior to the beginning of its fiscal year. There can be
no assurance that State budgets in future fiscal years will be adopted by the
April 1 statutory deadline.
The Governor is required by law to propose a balanced budget each year. In
order to address any potential remaining budget gap, the Governor is expected to
make additional proposals to bring receipts in line with disbursements. The
State has closed projected budget gaps of $5.0 billion, $3.9 billion and $2.3
billion in its 1995-96, 1996-97 and 1997-98 fiscal years, respectively.
The 1997-98 General Fund Financial Plan is projected to be balanced on a
cash basis, with a projected cash surplus of $1.83 billion. As compared to the
Governor's Executive Budget as amended in February 1997, the State's adopted
budget for 1997-98 increased General Fund spending by $1.7 billion, primarily
from increases for local assistance ($1.3 billion). Resources used to fund these
additional expenditures include increased revenues projected for the 1997-98
fiscal year, increased resources produced in the 1996-97 fiscal year that will
be utilized in 1997-98, re-estimates of social service, fringe benefit and other
spending, and certain non-recurring resources.
The 1997-98 adopted budget includes multi-year reductions, including a State
funded property and local income tax reduction program, estate tax relief,
utility gross receipts tax reductions, permanent reductions in the State sales
tax on clothing, and elimination of assessments on medical providers. These
reductions are intended to reduce the overall level of State and local taxes in
New York and to improve the State's competitive position vis-a-vis other states.
The various elements of the State and local tax and assessments reductions have
little or no impact on the 1997-98 State Financial
B-6
<PAGE>
Plan, and do not begin to materially affect the outyear projections until the
State's 1999-2000 fiscal year.
Other actions taken in the 1997-98 adopted budget add further pressure to
future budget balance in New York State. For example, the fiscal effects of tax
reductions adopted in the 1997-98 budget are projected to grow more
substantially beyond the 1998-99 fiscal year, with incremental costs averaging
in excess of $1.3 billion annually over the last three years of the tax
reduction program. These incremental costs reflect the phase-in of State-funded
school property tax and local income tax relief, the phase-out of the
assessments on medical providers, and reductions in estate and gift levies,
utility gross receipts taxes, and the State sales tax on clothing. The full
annual cost of the enacted tax reduction package is estimated at approximately
$4.8 billion when fully effective in State fiscal year 2001-02. In addition, the
1997-98 budget included multi-year commitments for school aid and pre-
kindergarten early learning programs which could add as much as $1.4 billion in
costs when fully annualized in fiscal year 2001-02. These spending commitments
are subject to annual appropriation.
On September 11, 1997, the New York State Comptroller issued a report which
noted that the ability to deal with future budget gaps could become a
significant issue in the State's 2000-2001 fiscal year, when the cost of tax
cuts increases by $1.9 billion. The report contained projections that, based on
current economic conditions and current law for taxes and spending, showed a gap
in the 2000-2001 State fiscal year of $5.6 billion and of $7.4 billion in the
2001-2002 State fiscal year. The report noted that these gaps would be smaller
if recurring spending reductions produce savings in earlier years. The State
Comptroller has also stated that if Wall Street earnings moderate and the State
experiences a moderate recession, the gap for the 2001-2002 State fiscal year
could grow to nearly $12 billion.
The Governor presented his 1998-99 Executive Budget to the Legislature on
January 20, 1998. The Executive Budget contains financial projections for the
State's 1997-98 through 2000-01 fiscal years, detailed estimates of receipts and
a proposed Capital Program and Financing Plan for the 1997-98 through 2002-03
fiscal years. It is expected that the Governor will prepare amendments to his
Executive Budget as permitted under law and that these amendments will be
reflected in a revised Financial Plan. There can be no assurance that the
Legislature will enact into law the Executive Budget as proposed by the
Governor, or that the State's adopted budget projections will not differ
materially and adversely from the projections set forth therein.
The 1998-99 Financial Plan is projected to be balanced on a cash basis in
the General Fund. Total General Fund receipts, including transfers from other
funds, are projected to be $36.22 billion, an increase of $1.02 billion over
projected receipts in the current fiscal year. Total General Fund disbursements,
including transfers to other funds, are projected to be $36.18 billion, an
increase of $1.02 billion over the projected expenditures (including
pre-payments), for the current fiscal year. As compared to the 1997-98 State
Financial Plan, the Executive Budget proposes year-to-year growth in General
Fund spending of 2.89 percent. State Funds spending (i.e., General Fund plus
other dedicated funds, with the exception of federal aid) is projected to grow
by 8.5 percent. Spending from All Governmental Funds (excluding transfers) is
proposed to increase by 7.6 percent from the prior fiscal year.
The forecast of General Fund receipts in 1998-99 incorporates several
Executive Budget tax proposals that, if enacted, would further reduce receipts
otherwise available to the General Fund by
B-7
<PAGE>
approximately $700 million during 1998-99. The Executive Budget proposes
accelerating school tax relief for senior citizens under STAR, which is
projected to reduce General Fund receipts by $537 million in 1998-99. The
proposed reduction supplements STAR tax reductions already scheduled in law,
which are projected at $187 million in 1998-99. The Budget also proposes several
new tax-cut initiatives and other funding changes that are projected to further
reduce receipts available to the General Fund by over $200 million. These
initiatives include reducing the fee to register passenger motor vehicles and
earmarking a larger portion of such fees to dedicated funds and other purposes;
extending the number of weeks in which certain clothing purchases are exempt
from sales taxes; more fully conforming State law to reflect recent Federal
changes in estate taxes; continuing lower pari-mutuel tax rates; and
accelerating scheduled property tax relief for farmers from 1999 to 1998. In
addition to the specific tax and fee reductions discussed above, the Executive
Budget also proposes establishing a reserve of $100 million to permit the
acceleration into 1998-99 of other tax reductions that are otherwise scheduled
in law for implementation in future fiscal years.
The Division of the Budget estimates that the 1998-99 Financial Plan
includes approximately $62 million in non-recurring resources, comprising less
than two-tenths of one percent of General Fund disbursements. The non-recurring
resources projected for use in 1998-99 consist of $27 million in retroactive
federal welfare reimbursements for family assistance recipients with HIV/AIDS,
$25 million in receipts from the Housing Finance Agency that were originally
anticipated in 1997-98, and $10 million in other measures, including $5 million
in asset sales.
Disbursements from Capital Projects funds in 1998-99 are estimated at $4.82
billion, or $1.07 billion higher than 1997-98. The proposed spending plan
includes: $2.51 billion in disbursements for transportation purposes, including
the State and local highway and bridge program; $815 million for environmental
activities; $379 million for correctional services; $228 million for the State
University of New York ("SUNY") and the City University of New York ("CUNY");
$290 million for mental hygiene projects; and $375 million for CEFAP.
Approximately 28 percent of capital projects are proposed to be financed by
"pay-as-you-go" resources. State-supported bond issuances finance 46 percent of
capital projects, with federal grants financing the remaining 26 percent.
The economic and financial condition of the State may be affected by various
financial, social, economic and political factors. Those factors can be very
complex, may vary from fiscal year to fiscal year, and are frequently the result
of actions taken not only by the State and its agencies and instrumentalities,
but also by entities, such as the federal government, that are not under the
control of the State. In addition, the financial plan is based upon forecasts of
national and State economic activity. Economic forecasts have frequently failed
to predict accurately the timing and magnitude of changes in the national and
the State economies. Actual results, however, could differ materially and
adversely from the projections set forth in a financial plan, and those
projections may be changed materially and adversely from time to time.
In the past, the State has taken management actions and made use of internal
sources to address potential State financial plan shortfalls, and the Division
of Budget believes it could take similar actions should variances occur in its
projections for the current fiscal year.
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
B-8
<PAGE>
fund. It is the State's largest fund and receives almost all State taxes and
other resources not dedicated to particular purposes.
The State ended the first six months of its 1997-98 fiscal year with an
unaudited General Fund cash balance of $3.2 billion, or $254 million above the
August Financial Plan estimate. Total unaudited receipts, including transfers
from other funds, totaled $18.8 billion, or $340 million higher than expected.
The additional receipts reflected higher-than-anticipated tax revenues of $244
million and miscellaneous receipts of $93 million. Unaudited General Fund
spending for the same period equaled $16.0 billion, or $86 million above the
cashflow projections published in the August Financial Plan. For fiscal year
1997-98, total General Fund receipts were projected at $35.09 billion, an
increase of $2.05 billion from 1996-97 results. Total disbursements, including
transfers to capital projects, debt service and other funds, were projected at
$34.60 billion, or 5.2 percent higher than disbursements in 1996-97.
The mid-year update projected a closing balance in the General Fund of $927
million, which was composed of a $530 million reserve for future needs, a $332
million balance in the Tax Stabilization Reserve Fund ("TSRF"), and a $65
million balance in the Contingency Reserve Fund ("CRF").
As part of the 1997-98 Adopted Budget Report, the State also issued its
update to the GAAP-basis Financial Plan for the State's 1997-98 fiscal year,
based on the cash-basis 1997-98 State Financial Plan completed in August. The
GAAP-basis update projected a General Fund operating deficit of $959 million,
primarily reflecting the use of a portion of the 1996-97 cash surplus to fund
1997-98 liabilities, offset by the $530 million reserve for future needs.
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 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
B-9
<PAGE>
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 February 1997, the Job Development Authority ("JDA") issued approximately
$85 million of State-guaranteed bonds to refinance certain of its outstanding
bonds and notes in order to restructure and improve JDA's capital structure. Due
to concerns regarding the economic viability of its programs, JDA's loan and
loan guarantee activities had been suspended since the Governor took office in
1995. As a result of the structural imbalances in JDA's capital structure, and
defaults in its loan portfolio and loan guarantee program incurred between 1991
and 1996, JDA would have experienced a debt service cash flow shortfall had it
not completed its recent refinancing. JDA anticipates that it will transact
additional refinancings in 1999, 2000 and 2003 to complete its long-term plan of
finance and further alleviate cash flow imbalances which are likely to occur in
future years. The State does not anticipate that it will be called upon to make
any payments pursuant to the State guarantee in the 1997-98 fiscal year. JDA
recently resumed its lending activities under a revised set of lending programs
and underwriting guidelines.
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) to yield net proceeds. 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 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 August 28, 1997, Standard & Poor's revised its ratings on
the State's general obligation bonds from A- to A and revised its ratings on the
State's moral obligation, lease purchase, guaranteed and contractual obligation
debt. On March 2, 1998, Standard & Poor's affirmed its A rating on the State's
outstanding bonds.
On January 6, 1992, 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. On March 20, 1998, Moody's assigned
the highest commercial paper rating of P-1 to the short-term notes of the State
and stated that the outlook for the State's general obligations is stable.
B-10
<PAGE>
The State anticipates that its capital programs will be financed, in part,
by State and public authorities borrowings in the 1997-98 fiscal year. The State
expects to issue $605 million in general obligation bonds (including $140
million for purposes of redeeming outstanding bond anticipation notes) and $140
million in general obligation commercial paper. The Legislature has also
authorized the issuance of $311 million in certificates of participation
(including costs of issuance, reserve funds and other costs) during the State's
1997-98 fiscal year for equipment purchases. The projection of State borrowings
for the 1997-98 fiscal year is subject to change as market conditions, interest
rates and other factors vary throughout the fiscal year.
The proposed 1997-98 through 2002-03 Capital Program and Financing Plan was
released with the 1998-99 Executive Budget on January 20, 1998. As a part of
that Plan, changes were proposed to the State's 1997-98 borrowing plan,
including: the delay in the issuance of COPs to finance welfare information
systems until 1998-99 to permit a thorough assessment of needs; and the
elimination of issuances for the CEFAP to reflect the proposed conversion of
that bond-financed program to pay-as-you-go financing.
As a result of these changes, the State's 1997-98 borrowing plan now
reflects: $501 million in general obligation bonds (including $140 million for
purposes of redeeming outstanding BANs) and $140 million in general obligation
commercial paper; the issuance of $83 million in COPs for equipment purchases;
and approximately $1.8 billion in borrowings by public authorities pursuant to
lease-purchase and contractual-obligation financings for capital programs of the
State, including costs of issuance, reserve funds, and other costs, net of
anticipated refundings and other adjustments for 1997-98 capital projects. The
projection of State borrowings for the 1997-98 fiscal year is subject to change
as market conditions, interest rates and other factors vary through the end of
the fiscal year.
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 to
regulations promulgated by the Superintendent of Insurance establishing certain
excess medical malpractice premium rates; (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) challenges to the constitutionality of Public Health Law
2807-d, which imposes a gross receipts tax from certain patient care services;
(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; (11) action seeking enforcement of certain sales and
excise taxes and tobacco products and motor fuel sold to non-Indian consumers on
Indian reservations; and (12) a challenge to the constitutionality of Clean
Water/Clean Air Bond Act.
B-11
<PAGE>
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.
The legal proceedings noted above involve State finances, State programs and
miscellaneous cure rights, tort, real property and contract claims in which the
State is a defendant and the monetary damages sought are substantial, generally
in excess of $100 million. These proceedings could affect adversely the
financial condition of the State in the 1997-98 fiscal year or thereafter.
Adverse developments in these proceedings, other proceedings for which there are
unanticipated, unfavorable and material judgments, 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 1996-97
fiscal year, the State reported its estimated liability for awarded and
anticipated unfavorable judgments to be $364 million, of which $134 million is
expected to be paid during the 1997-98 fiscal year.
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 is
State-supported or State-related.
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
B-12
<PAGE>
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.
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-. On February 3, 1998, Standard & Poor's
placed a BBB+ rating on the City's general obligation debt on CreditWatch with
positive implications. 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 February
25, 1998, Moody's upgraded nearly $28 billion of the City's debt from Baa1 to
A3.
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
B-13
<PAGE>
enforceable obligation or debt of either the State or the City. As of June 30,
1997, MAC had outstanding an aggregate of approximately $4.267 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.
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 June 10, 1997, the City submitted to the Control Board the Financial Plan
(the "1998-2001 Financial Plan") for the 1998 through 2001 fiscal years,
relating to the City, the Board of Education ("BOE") and CUNY and reflected the
City's expense and capital budgets for the 1998 fiscal year, which were adopted
on June 6, 1997. The 1998-2001 Financial Plan projected revenues and
expenditures for the 1998 fiscal year balanced in accordance with GAAP. The
1998-99 Financial Plan projects General Fund receipts (including transfers from
other funds) of $36.22 billion, an increase of $1.02 billion over the estimated
1997-987 level. Recurring growth in the State General Fund tax base is projected
to be approximately six percent during 1998-99, after adjusting for tax law and
administrative changes. This growth rate is lower than the rates for 1996-97 or
currently estimated for 1997-98, but roughly equivalent to the rate for 1995-96.
The 1998-99 forecast for user taxes and fees also reflects the impact of
scheduled tax reductions that will lower receipts by $38 million, as well as the
impact of two Executive Budget proposals that are projected to lower receipts by
an additional $79 million. The first proposal would divert $30 million in motor
vehicle registration fees from the General Fund to the Dedicated Highway and
Bridge Trust Fund; the second would reduce fees for motor vehicle registrations,
which would further lower receipts by $49 million. The underlying growth of
receipts in this category is projected at 4 percent, after adjusting for these
scheduled and recommended changes.
In comparison to the current fiscal year, business tax receipts are
projected to decline slightly in 1998-99, falling from $4.98 million to $4.96
billion. The decline in this category is largely attributable to scheduled tax
reductions. In total, collections for corporation and utility taxes and the
petroleum business tax are projected to fall by $107 million from 1997-98. The
decline in receipts in these categories is partially offset by growth in the
corporation franchise, insurance and bank taxes, which are projected to grow by
$88 million over the current fiscal year.
The Financial Plan is projected to show a GAAP-basis surplus of $131 million
for 1997-98 and a GAAP-basis deficit of $1.3 billion for 1998-99 in the General
Fund, primarily as a result of the use of the
B-14
<PAGE>
1997-98 cash surplus. In 1998-99, the General Fund GAAP Financial Plan shows
total revenues of $34.68 billion, total expenditures of $35.94 billion, and net
other financing sources and uses of $42 million.
Since the preparation of the 1998-2001 Financial Plan, the State has adopted
its budget for the 1997-1998 fiscal year. The State budget enacted a smaller
sales tax reduction than the tax reduction program assumed by the City in the
financial plan, which will increase projected City sales tax revenues; provided
for State aid to the City which was less than assumed in the financial plan; and
enacted a State funded tax relief program which begins a year later than
reflected in the financial plan. In addition, the net effect of tax law changes
made in the Federal Balanced Budget Act of 1997 are expected to increase tax
revenues in the 1998 fiscal year.
Although the City has maintained balanced budgets in each of its last
sixteen fiscal years and is projected to achieve balanced operating results for
the 1997 fiscal year, there can be no assurance that the gap-closing actions
proposed in the 1998-2001 Financial Plan can be successfully implemented or that
the City will maintain a balanced budget in future years without additional
State aid, revenue increases or expenditure reductions. Additional tax increases
and reductions in essential City services could adversely affect the City's
economic base.
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 Health and Hospitals Corporation 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 amount of debt the
City is authorized to incur. Despite this additional financing mechanism, the
City currently projects that, if no further action is taken, it will reach its
debt limit in City fiscal year 1999-2000. 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. On June 2, 1997, an action was commenced seeking a declaratory
judgment declaring the legislation establishing the Transitional Finance
Authority to be unconstitutional. If such legislation were voided, projected
contracts for the City capital projects would exceed the City's debt limit
during fiscal year 1997-98. Future developments concerning the City or entities
issuing debt for the benefit of the City, and public discussion of such
developments, as well as prevailing market conditions and securities
B-15
<PAGE>
credit ratings, may affect the ability or cost to sell securities issued by the
City or such entities and may also affect the market for their outstanding
securities.
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.
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. Although the City's current financial plan projects $2.4
billion of seasonal financing for the 1998 fiscal year, the City expects to
undertake only approximately $1.4 billion of seasonal financing. The City issued
$2.4 billion of short-term obligations in fiscal year 1997. 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 in the 1993 fiscal year. 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 years.
Certain localities, in addition to the City, have experienced financial
problems and have requested and received additional New York State assistance
during the last several State fiscal years. The potential impact on the State of
any future requests by localities for additional assistance is not included in
the State's projections of its receipts and disbursements for the 1997-98 fiscal
year.
Fiscal difficulties experienced by the City of Yonkers ("Yonkers") resulted
in the re-establishment 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
State to assist Yonkers could result in increased State expenditures for
extraordinary local assistance.
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. Troy MAC has issued
bonds to effect a restructuring of the City of Troy's obligations.
Eighteen municipalities received extraordinary assistance during the 1996
legislative session through $50 million in special appropriations targeted for
distressed cities, and that was largely continued in 1997. Twenty-eight
municipalities are scheduled to share in more than $32 million in targeted
unrestricted aid allocated in the 1997-98 budget. An additional $21 million will
be dispersed among all cities, towns and villages, a 3.97% increase in General
Purpose State Aid.
Municipalities and school districts have engaged in substantial short-term
and long-term borrowings. In 1995, the total indebtedness of all localities in
New York State other than New York City was approximately $19 billion. A small
portion (approximately $102.3 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
B-16
<PAGE>
debt to finance deficits during the period that such deficit financing is
outstanding. Eighteen 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
Age 63 of Trustees, of Value Line, Inc. (the "Adviser") and Value
President and Chief Line Publishing, Inc. Chairman of the Value
Executive Officer Line Funds and Value Line Securities, Inc. (the
"Distributor").
</TABLE>
- --------------
* "Interested" trustee as defined in the Investment Company Act of 1940 (the
"1940 Act").
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
2801 New Mexico Ave., N.W. Service, Inc.; Trustee Emeritus and Chairman
Washington, DC 20007 (1993-1994) of Duke University; President
Age 74 Emeritus, Williams College.
*Leo R. Futia Trustee Retired Chairman and Chief Executive Officer
201 Park Avenue South of The Guardian Life Insurance Company of
New York, NY 10003 America and Director since 1970. Director
Age 78 (Trustee) of The Guardian Insurance & Annuity
Company, Inc., Guardian Investor Services
Corporation and the Guardian-sponsored mutual
funds.
David H. Porter Trustee President of Skidmore College; Director of
813 North Broadway Adirondack Trust Company.
Saratoga Springs, NY 12866
Age 62
Paul Craig Roberts Trustee Chairman, Institute for Political Economy;
505 S. Fairfax Street Director, A. Schulman Inc. (plastics).
Alexandria, VA 22320
Age 59
Nancy-Beth Sheerr Director Chairman, Radcliffe College Board of Trustees.
1409 Beaumont Drive
Gladwyne, PA 19035
Age 49
Charles Heebner Vice President Senior Portfolio Manager with the Adviser.
Age 62
Raymond S. Cowen Vice President Assistant Research Director with the Adviser.
Age 76
David T. Henigson Vice President, Vice President, Director and Compliance
Age 40 Secretary and Officer of the Adviser. Director and Vice
Treasurer President of the Distributor.
</TABLE>
- --------------
* "Interested" trustee as defined in the Investment Company Act of 1940 (the
"1940 Act").
Unless otherwise indicated, the address for each of the above is 220 East
42nd Street, New York, NY.
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, 1998. 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, 1998
<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...................................................... 2,968 N/A N/A 35,620
Leo R. Futia.......................................................... 2,718 N/A N/A 32,620
David H. Porter....................................................... 553 N/A N/A 6,633
Paul Craig Roberts.................................................... 2,968 N/A N/A 35,620
Nancy-Beth Sheerr..................................................... 2,968 N/A N/A 35,620
</TABLE>
As of February 28, 1998, 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 109,765 shares (3.3%) of the Trust. In addition, an
officer of the Trust owned 20,696 shares (0.6%).
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 1996, 1997 and 1998, the Trust
paid or accrued to the Adviser advisory fees of $238,206, $217,260 and $200,703,
respectively.
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 14 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 1996, 1997 or 1998.
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.
The Trust has authorized one or more brokers to accept on its behalf
purchase and redemption orders and such brokers are authorized to designate
other intermediaries to accept purchase and redemption orders on the Trust's
behalf. The Trust will be deemed to have received a purchase or redemption order
when an authorized broker or its authorized designee accepts the order, in which
event customer orders will be priced at the Trust's net asset value next
computed after they are accepted by the authorized broker or the broker's
authorized designee.
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) and 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
B-23
<PAGE>
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 (including the portion subject to the
lower 20% capital gain rate for individuals), 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.
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
B-24
<PAGE>
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 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 advisors 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:
n
P(1 + T) = ERV
<TABLE>
<S> <C> <C> <C>
Where: P = a hypothetical initial purchase order of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of the hypothetical $1,000 purchase at the end of
the period.
</TABLE>
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:
a - b 6
Yield = 2[( ------ +1) -1]
cd
<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 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.
B-26
<PAGE>
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, 1998,
including the financial highlights for each of the five fiscal years in the
period then ended appearing in the 1998 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 1998 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 RATINGS SERVICES. AAA--"obligations of the highest
quality". AA-- issues with investment characteristics "only slightly less marked
than those of the prime quality issues". A--"the third strongest capacity for
payment of debt service". Principal and interest payments on bonds in this
category are regarded as safe. It differs from the two higher ratings because,
with respect to general obligations bonds, there is some weakness which, under
certain adverse circumstances, might impair the ability of the issuer to meet
debt obligations at some future date. With respect to revenue bonds, debt
service coverage is good, but not exceptional, and stability of the pledged
revenues could show some variations because of increased competition or economic
influences in revenues. BBB--the lowest "investment grade" security rating. The
difference between A and BBB ratings is that the latter shows more than one
fundamental weakness, or one very substantial fundamental weakness. With respect
to revenue bonds, debt coverage is only fair. Stability of the pledged revenues
could show substantial variations, with the revenue flow possibly being subject
to erosion over time. 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 ten years in the period ended
February 28, 1998.
Incorporated by reference in Part B of this Registration Statement:*
Schedule of Investments at February 28, 1998
Statement of Assets and Liabilities at February 28, 1998
Statement of Operations for the year ended February 28, 1998
Statements of Changes in Net Assets for the years ended February 28,
1998 and February 28, 1997
Financial Highlights for each of the five years in the period ended
February 28, 1998.
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, 1998.
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, 1998, there were 1,021 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., 220 East 42nd
Executive Officer Street, New York, NY 10017, and Value Line
Publishing, Inc. Chairman of each 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 Vice President, Secretary, Treasurer and a Director
Director of Arnold Bernhard & Co., Inc.
Harold Bernard, Jr. Director Retired Administrative Law Judge
William S. Kanaga Director Retired Chairman of Arthur Young (now Ernst &
Young)
W. Scott Thomas Director Partner, Brobeck, Phleger & Harrison, attorneys,
One Market Plaza, San Francisco, CA 94105.
</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 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. 12 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated April 21, 1998, relating to the financial
statements and financial highlights appearing in the February 28, 1998 Annual
Report to Shareholders of Value Line New York Tax Exempt Trust, which is 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 23, 1998
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 23rd day of June, 1998.
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 23, 1998
(JEAN B. BUTTNER) Executive Officer
* JOHN W. CHANDLER Trustee June 23, 1998
(JOHN W. CHANDLER)
* LEO R. FUTIA Trustee June 23, 1998
(LEO R. FUTIA)
*DAVID H. PORTER Trustee June 23, 1998
(DAVID H. PORTER)
* PAUL CRAIG ROBERTS Trustee June 23, 1998
(PAUL CRAIG ROBERTS)
* NANCY-BETH SHEERR
(NANCY-BETH SHEERR)
/s/ DAVID T. HENIGSON Secretary and Treasurer; Principal Financial June 23, 1998
............................................. and Accounting Officer
(DAVID T. HENIGSON)
</TABLE>
* By /s/ DAVID T. HENIGSON
..................................
(DAVID T. HENIGSON,
Attorney-in-fact)
C-5
