<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 29, 1999
FILE NO. 33-12400
FILE NO. 811-5052
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 13 /X/
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 13 /X/
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VALUE LINE NEW YORK TAX EXEMPT TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
220 East 42nd Street
New York, New York 10017-5891
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's Telephone number, including Area Code: (212) 907-1500
David T. Henigson
Value Line, Inc.
220 East 42nd Street
New York, New York 10017-5891
(NAME AND ADDRESS OF AGENT FOR SERVICE)
Copy to:
Peter D. Lowenstein
Two Greenwich Plaza, Suite 100
Greenwich, CT 06830
It is proposed that this filing will become effective (check
appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/X/ on July 1, 1999 pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485
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<PAGE>
VALUE LINE NEW YORK TAX EXEMPT TRUST
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PROSPECTUS
July 1, 1999
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[LOGO]
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS, AND ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
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TRUST SUMMARY
What is the Trust's goal? PAGE 2
What are the Trust's main investment strategies? PAGE
2
What are the main risks of investing in the Trust?
PAGE 2
How has the Trust performed? PAGE 3
What are the Trust's fees and expenses? PAGE 4
HOW WE MANAGE THE TRUST
Our principal investment strategies PAGE 5
The type of securities in which we invest PAGE 5
The principal risks of investing in the Trust PAGE 6
WHO MANAGES THE TRUST
Investment Adviser PAGE 8
Management fees PAGE 8
Portfolio management PAGE 8
ABOUT YOUR ACCOUNT
How to buy shares PAGE 9
How to sell shares PAGE 11
Special services PAGE 12
Dividends, distributions and taxes PAGE 13
FINANCIAL HIGHLIGHTS
Financial Highlights PAGE 14
<PAGE>
TRUST SUMMARY
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WHAT IS THE TRUST'S GOAL?
The Trust's primary investment objective is to provide New
York taxpayers with the maximum income exempt from New York
State, New York City and federal income taxes while avoiding
undue risk to principal. Although the Trust will strive to
achieve its goal, there is no assurance that it will.
WHAT ARE THE TRUST'S MAIN INVESTMENT STRATEGIES?
To achieve the Trust's goal, we invest the Trust's assets so
that, under normal conditions, 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. The
Trust invests primarily in investment grade New York
municipal securities having a maturity of more than one year.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE TRUST?
The chief risk that you assume when investing in the Trust is
interest rate risk, the possibility that as interest rates
rise the value of some fixed income securities may decrease.
Investing in any mutual fund involves risk, including the
risk that you may receive little or no return on your
investment, and the risk that you may lose part or all of the
money you invest. The price of Trust shares will increase and
decrease according to changes in the value of the Trust's
investments. The market values of municipal securities will
vary inversely in relation to their yields. 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. The Trust is nondiversified which
means that it may invest a greater portion of its assets in a
single issuer than a diversified fund. Thus, it may be
exposed to greater risk. An investment in the Trust is not a
complete investment program and you should consider it just
one part of your total investment program. For a more
complete discussion of risk, please turn to page 6.
2
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HOW HAS THE TRUST PERFORMED?
This bar chart and table can help you evaluate the potential
risks of investing in the Trust. We show how returns for the
Trust's shares have varied over the past ten calendar years,
as well as the average annual returns of these shares for
one, five, and ten years all compared to the performance of
the Lehman Brothers Municipal Bond Index, which is a broad
based market index. You should remember that unlike the
Trust, the index is unmanaged and does not include the costs
of buying, selling, and holding the securities. The Trust's
past performance is not necessarily an indication of how it
will perform in the future.
TOTAL RETURNS AS OF 12/31 EACH YEAR (%)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1989 8.23%
<S> <C>
1990 4.13%
1991 14.36%
1992 9.54%
1993 13.87%
1994 -7.73%
1995 17.30%
1996 2.35%
1997 9.34%
1998 6.12%
</TABLE>
<TABLE>
<S> <C> <C>
BEST QUARTER: Q1 1995 +17.06%
WORST QUARTER: Q1 1994 (5.97%)
</TABLE>
The Trust's year-to-date return for the three months ended
March 31, 1999, was .08%.
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/98
<TABLE>
<CAPTION>
1 YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
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VALUE LINE NEW YORK TAX EXEMPT
TRUST 6.12% 5.15% 7.53%
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LEHMAN BROS. MUNICIPAL BOND INDEX 6.48% 6.22% 8.22%
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</TABLE>
3
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WHAT ARE THE TRUST'S FEES AND EXPENSES?
These tables describe the fees and expenses you pay in
connection with an investment in the Trust.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
<S> <C>
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MAXIMUM SALES CHARGES (LOAD) IMPOSED ON PURCHASES NONE
AS A PERCENTAGE OF OFFERING PRICE
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MAXIMUM DEFERRED SALES CHARGES (LOAD) AS A NONE
PERCENTAGE OF ORIGINAL PURCHASE PRICE OR
REDEMPTION PRICE, WHICHEVER IS LOWER
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MAXIMUM SALES CHARGES (LOAD) IMPOSED ON REINVESTED
DIVIDENDS NONE
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REDEMPTION FEE NONE
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EXCHANGE FEE NONE
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</TABLE>
ANNUAL TRUST OPERATING EXPENSES(EXPENSES THAT ARE DEDUCTED
FROM TRUST ASSETS)
<TABLE>
<CAPTION>
<S> <C>
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MANAGEMENT FEES 0.60%
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DISTRIBUTION AND SERVICE (12B-1) FEES NONE
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OTHER EXPENSES 0.38%
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TOTAL ANNUAL TRUST OPERATING EXPENSES 0.98%
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</TABLE>
EXAMPLE
This example is intended to help you compare the cost of
investing in the Trust to the cost of investing in other
mutual funds. We show the cumulative amount of Trust expenses
on a hypothetical investment of $10,000 with an annual 5%
return over the time shown. This is an example only, and your
actual costs may be greater or less than those shown here.
Based on these assumptions, your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
$100 $312 $542 $1,201
</TABLE>
4
<PAGE>
HOW WE MANAGE THE TRUST
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OUR PRINCIPAL INVESTMENT STRATEGIES
We analyze economic and market conditions, seeking to
identify the securities that we think make the best
investments. Under normal conditions, the 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.
THE TYPE OF SECURITIES IN WHICH WE INVEST
We invest primarily in New York State municipal and public
authority debt obligations having a maturity of more than one
year and which are rated at the time of purchase within the
four highest categories of a nationally recognized rating
organization, or if not rated, deemed by the Adviser to be of
comparable quality.
The investments are generally one of the following: General
Obligation Bonds which are secured by the full faith and
credit of the issuer and its taxing power or Revenue Bonds
which are payable from revenue derived from a particular
facility or service.
TEMPORARY DEFENSIVE POSITION
From time to time in response to adverse market or other
conditions, we may invest a portion of the Trust's net assets
in cash, cash equivalents, U.S. Government securities or
non-New York tax-exempt securities for temporary defensive
purposes. This could help the Trust avoid losses, but it may
result in lost opportunities and lower yields. If this
becomes necessary, the Fund may not achieve its investment
objectives.
PORTFOLIO TURNOVER
The Trust may engage in active and frequent trading of
portfolio securities in order to take advantage of better
investment opportunities to achieve its investment objectives
which would result in additional expenses. High portfolio
turnover may negatively affect the Trust's performance.
Portfolio turnover may also result in capital gain
distributions that could raise your income tax liability.
THE PRINCIPAL RISKS OF INVESTING IN THE TRUST
Because of the nature of the Trust, you should consider an
investment in it to be a long-term investment that will best
meet its objectives when held for a
5
<PAGE>
number of years. The Trust's ability to achieve its
investment objective is dependent upon the ability of 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. 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, the
slope of the yield curve, 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.
When investing in the Trust you will also assume an interest
rate risk, the possibility that as interest rates rise the
value of some fixed income securities may decrease. Other
risks that you assume when investing in the Trust are market
risk, credit risk and income risk. Market risk is the risk
that securities in a certain market will decline in value
because of factors such as economic conditions. Credit risk
is the risk that any of the Trust's holdings will have its
credit rating downgraded or will default, thereby reducing
the Trust's income level and share price. Income risk is the
risk that the Trust's income may decline because of falling
interest rates and other market conditions. There is also the
risk that government actions could have an adverse effect on
municipal bond prices. An investment in the Trust is not
insured or guaranteed by the Federal Deposit Insurance
Corporation or any other governmental agency.
Please see the Statement of Additional Information for a
further discussion of risks. Information on the Trust's
recent holdings can be found in the Trust's current annual or
semi-annual report.
YEAR 2000 RISKS
Like other mutual funds, the Trust could be adversely
affected if the computer systems used by the Adviser and the
Trust's service providers do not properly process and
calculate date-related information and data from and after
January 1, 2000. This is commonly known as the "Year 2000
Problem." The Adviser is taking steps that it believes are
reasonably designed to address the Year 2000 Problem with
respect to the computer systems that it uses and
6
<PAGE>
to obtain satisfactory assurances that comparable steps are
being taken by the Fund's other major service providers. At
this time, however, there can be no assurance that these
steps will be sufficient to avoid any adverse impact to the
Trust.
The Year 2000 Problem may impact municipalities, which may
include issuers of portfolio securities held by the Trust, to
varying degrees based upon various factors, including, but
not limited to, the municipality's 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.
7
<PAGE>
WHO MANAGES THE TRUST
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The business and affairs of the Trust are managed by the
Trust's officers under the direction of the Trust's Board of
Trustees.
INVESTMENT ADVISER
Value Line, Inc., 220 East 42nd Street, New York, NY 10017,
serves as the Trust's investment adviser and manages the
Trust's business affairs. Value Line also acts as investment
adviser to the other Value Line mutual funds and furnishes
investment counseling services to private and institutional
clients resulting in combined assets under management of over
$5 billion.
The Adviser was organized in 1982 and is the successor to
substantially all of the operations of Arnold Bernhard & Co.,
Inc. which with its predecessor has been in business since
1931. Value Line Securities, Inc., the Trust's distributor,
is a subsidiary of the Adviser. Another subsidiary of the
Adviser publishes The Value Line Investment Survey and other
publications.
MANAGEMENT FEES
For managing the Trust and its investments, the Adviser is
paid a yearly fee of 0.60% of the Trust's average daily net
assets.
PORTFOLIO MANAGEMENT
A committee of employees of the Investment Adviser is jointly
and primarily responsible for the day-to-day management of
the Trust's portfolio.
8
<PAGE>
ABOUT YOUR ACCOUNT
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HOW TO BUY SHARES
/ / BY TELEPHONE
Once you have opened an account, you can buy additional
shares by calling 800-243-2729 between 9:00 a.m. and 4:00
p.m. New York time. You must pay for these shares within
three business days of placing your order.
/ / BY WIRE
If you are making an initial purchase by wire, you must call
us at 800-243-2729 so we can assign you an account number.
Request your bank to wire the amount you want to invest to
State Street Bank and Trust Company, ABA #011000028,
attention DDA # 99049868. Include your name, account number,
tax identification number and the name of the fund in which
you want to invest.
/ / THROUGH A BROKER-DEALER
You can open an account and buy shares through a
broker-dealer, who may charge a fee for this service.
/ / BY MAIL
Complete the Account Application and mail it with your check
payable to NFDS, Agent, to Value Line Funds, c/o National
Financial Data Services, Inc., P.O. Box 419729, Kansas City,
MO 64141-6729. If you are making an initial purchase by mail,
you must include a completed Account Application with your
check.
/ / MINIMUM/ADDITIONAL INVESTMENTS
Once you have completed an application, you can open an
account with an initial investment of $1,000, and make
additional investments at any time for $250. The price you
pay for shares will depend on when we receive your purchase
order.
/ / TIME OF PURCHASE
Your price for Trust shares is the Trust's net asset value
per share (NAV), which is generally calculated as of the
close of trading on the New York Stock Exchange (currently
4:00 p.m., Eastern time) every day the Exchange is open for
business. The Exchange is currently closed on New Year's Day,
Martin Luther King, Jr. Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day and on the preceding Friday or subsequent
Monday if any of those days falls on a Saturday or Sunday,
respectively. Your order will be priced at the next NAV
calculated after your order is accepted by the Trust.
9
<PAGE>
Trust shares may be purchased through various third-party
intermediaries including banks, brokers, financial advisers
and financial supermarkets. When the intermediary is
authorized by the Trust, orders will be priced at the NAV
next computed after receipt by the intermediary.
/ / NET ASSET VALUE
We calculate NAV by adding the market value of all the
securities and assets in the Trust's portfolio, deducting all
liabilities, and dividing the resulting number by the number
of shares outstanding. The result is the net asset value per
share. We price securities for which market prices or
quotations are available at their market value. We price
securities for which market valuations are not available at
their fair market value as determined by the Board of
Trustees. Fixed-income municipal securities are valued on the
basis of prices provided by an independent pricing service.
Any investments which have a maturity of less than 60 days we
price at amortized cost. The amortized cost method of
valuation involves valuing a security at its cost and
accruing any discount or premium over the period until
maturity, regardless of the impact of fluctuating interest
rates on the market value of the security.
10
<PAGE>
HOW TO SELL SHARES
/ / BY MAIL
You can redeem your shares (sell them back to the Trust) by
mail by writing to: Value Line Funds, c/o National Financial
Data Services, Inc., P.O. Box 419729, Kansas City, MO
64141-6729. The request must be signed by all owners of the
account, and you must include a signature guarantee for each
owner. Signature guarantees are also required when redemption
proceeds are going to anyone other than the account holder(s)
of record. If you hold your shares in certificates, you must
submit the certificates properly endorsed with signature
guaranteed with your request to sell the shares. A signature
guarantee can be obtained from most banks or securities
dealers, but not from a notary public. A signature guarantee
helps protect against fraud.
/ / BY TELEPHONE OR WIRE
You can sell $1,000 or more of your shares by telephone or
wire, with the proceeds sent to your bank the next business
day after we receive your request.
/ / BY CHECK
You can sell $500 or more of your shares by writing a check
payable to the order of any person.
/ / THROUGH A BROKER-DEALER
You may sell your shares through a broker-dealer, who may
charge a fee for this service.
The Trust has authorized certain brokers to accept purchase
and redemption orders on behalf of the Trust. The Trust has
also authorized these brokers to designate others to accept
purchase and redemption orders on behalf of the Trust.
We treat any order to buy or sell shares that you place with
one of these brokers, or anyone they have designated, as if
you had placed it directly with the Trust. The shares that
you buy or sell through brokers or anyone they have
designated are priced at the next net asset value that is
computed after they receive your order.
/ / BY EXCHANGE
You can exchange all or part of your investment in the Trust
for shares in other Value Line funds. You may have to pay
taxes on your exchange. When you exchange shares, you are
purchasing shares in another fund so you should be sure to
get a copy of that fund's prospectus and read it carefully
before buying shares through an exchange. To execute an
exchange, call 800-243-2729.
11
<PAGE>
When you send us a properly completed request to sell or
exchange shares, you will receive the net asset value that is
next determined after we receive your request. For each
account involved, you should provide the account name,
number, name of fund and exchange or redemption amount. You
may have to pay taxes on the gain from your sale of shares.
We will pay you promptly, normally the next business day, but
no later than seven days after we receive your request to
sell your shares. If you purchased your shares by check, we
will wait until your check has cleared, which can take up to
15 days from the day of purchase, before we send the proceeds
to you.
ACCOUNT MINIMUM
If as a result of redemptions your account balance falls
below $500, the Trust may ask you to increase your balance
within 30 days. If your account is not at the minimum by the
required time, the Trust may redeem your account, after first
notifying you in writing.
SPECIAL SERVICES
To help make investing with us as easy as possible, and to
help you build your investments, we offer the following
special services. You can get further information about these
programs by calling Shareholder Services at 800-223-0818.
/ / Valu-Matic-Registered Trademark- allows you to make
regular monthly investments of $25 or more automatically
from your checking account.
/ / Through our Systematic Cash Withdrawal Plan you can
arrange a regular monthly or quarterly payment from your
account payable to you or someone you designate. If your
account is $5,000 or more, you can have monthly or
quarterly withdrawals of $25 or more.
12
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Trust declares dividends from its net investment income
daily, and distributes the accrued dividends to you each
month. Capital gains, if any, are distributed annually. We
automatically reinvest all dividends and any capital gains,
unless you instruct us otherwise in your application to
purchase shares.
Tax laws are subject to change, so we urge you to consult
your tax adviser about your particular tax situation and how
it might be affected by current tax law. The tax status of
your dividends from the Trust is not affected by whether you
reinvest your dividends or receive them in cash.
Distributions from the Trust's long-term capital gains are
taxable as capital gains, while dividends from short-term
capital gains are generally taxable as ordinary income. In
addition, you may be subject to state and local taxes on
distributions.
We will send you a statement by January 31 each year
detailing the amount and nature of all dividends and capital
gains that you were paid during the prior year.
13
<PAGE>
FINANCIAL HIGHLIGHTS
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The financial highlights table is intended to help you
understand the Trust's financial performance for the past
five years. Certain information reflects financial results
for a single Trust share. The total returns in the table
represent the rate that an investor would have earned or lost
on an investment in the Trust assuming reinvestment of all
dividends and distributions. This information has been
audited by PricewaterhouseCoopers LLP, whose report, along
with the Trust's financial statements, is included in the
Trust's annual report, which is available upon request by
calling 800-223-0818.
FINANCIAL HIGHLIGHTS
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<TABLE>
<S> <C> <C> <C> <C> <C>
YEARS ENDED ON LAST DAY OF FEBRUARY,
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1999 1998 1997 1996 1995
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NET ASSET VALUE,
BEGINNING OF YEAR $10.51 $10.04 $10.28 $9.81 $10.49
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INCOME (LOSS) FROM
INVESTMENT
OPERATIONS:
Net investment income .43 .44 .48 .49 .52
Net gains or losses
on securities (both
realized and
unrealized) .14 .47 (.11) .47 (.61)
- ----------------------------------------------------------------------
Total from investment
operations .57 .91 .37 .96 (.09)
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LESS DISTRIBUTIONS:
Dividends from net
investment income (.42) (.44) (.48) (.49) (.52)
Distributions from
capital gains (.33) -- (.13) -- (.07)
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Total distributions (.75) (.44) (.61) (.49) (.59)
- ----------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR $10.33 $10.51 $10.04 $10.28 $9.81
- ----------------------------------------------------------------------
TOTAL RETURN 5.56% 9.31% 3.73% 10.00% (.58)%
- ----------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(in thousands) $33,403 $34,597 $32,745 $40,169 $39,139
Ratio of expenses to
average net assets .98%(2) .92%(1) .92%(1) .92% .86%
Ratio of net income to
average net assets 4.05% 4.35% 4.79% 4.87% 5.36%
Portfolio turnover rate 56% 116% 86% 119% 105%
</TABLE>
(1) BEFORE OFFSET OF CUSTODY CREDITS.
(2)RATIO REFLECTS EXPENSES GROSSED UP FOR CUSTODY CREDIT
ARRANGEMENT. THE RATIO OF EXPENSES NET OF CUSTODY CREDITS
WOULD HAVE BEEN .97%.
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14
<PAGE>
FOR MORE INFORMATION
Additional information about the Trust's investments is
available in the Trust's annual and semi-annual reports to
shareholders. In the Trust's annual report, you will find a
discussion of the market conditions and investment strategies
that significantly affected the Trust's performance during
its last fiscal year. You can find more detailed information
about the Trust in the current Statement of Additional
Information dated July 1, 1999, which we have filed
electronically with the Securities and Exchange Commission
(SEC) and which is legally a part of this prospectus. If you
want a free copy of the Statement of Additional Information,
the annual or semi-annual report, or if you have any
questions about investing in this Trust, you can write to us
at 220 East 42nd Street, New York, NY 10017-5891 or call
toll-free 800-223-0818. You may also obtain the prospectus
from our Internet site at
http://www.valueline.com.
You can find reports and other information about the Trust on
the SEC Web site (http://www.sec.gov), or you can get copies
of this information, after payment of a duplicating fee, by
writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-6009. Information about the Trust,
including its Statement of Additional Information, can be
reviewed and copied at the Securities and Exchange
Commission's Public Reference Room in Washington, D.C. You
can get information on operation of the public reference room
by calling the SEC at 1-800-SEC-0330.
<TABLE>
<S> <C>
INVESTMENT ADVISER SERVICE AGENT
Value Line, Inc. State Street Bank and Trust Company
220 East 42nd Street c/o NFDS
New York, NY 10017-5891 P.O. Box 419729
Kansas City, MO 64141-6729
CUSTODIAN DISTRIBUTOR
State Street Bank and Trust Company Value Line Securities, Inc.
225 Franklin Street 220 East 42nd Street
Boston, MA 02110 New York, NY 10017-5891
</TABLE>
<TABLE>
<S> <C>
Value Line Securities, Inc.
220 East 42nd Street, New York, NY 10017-5891 File no. 811-5052
</TABLE>
<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
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STATEMENT OF ADDITIONAL INFORMATION
JULY 1, 1999
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This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus of Value Line New York Tax Exempt Trust
dated July 1, 1999, a copy of which may be obtained without charge by writing or
telephoning the Trust. The financial statements, accompanying notes and report
of independent auditors appearing in the Trust's 1999 Annual Report to
Shareholders are incorporated by reference in this Statement. A copy of the
Annual Report is available from the Fund upon request and without charge by
calling 800-223-0818.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Description of the Trust and Its Investments and Risks.............................. B-2
Special Consideration Relating to New York Municipal Securities..................... B-9
Management of the Trust............................................................. B-22
Investment Advisory and Other Services.............................................. B-24
Portfolio Transactions.............................................................. B-25
Capital Stock....................................................................... B-26
Purchase, Redemption and Pricing of Shares.......................................... B-26
Taxes............................................................................... B-27
Performance Data.................................................................... B-29
Financial Statements................................................................ B-29
Security Ratings.................................................................... B-30
</TABLE>
B-1
<PAGE>
DESCRIPTION OF THE TRUST AND ITS INVESTMENTS AND RISKS
CLASSIFICATION. The Trust is an open-end, nondiversified management
investment company established as a Massachusetts business trust in 1987. The
Trust's investment adviser is Value Line, Inc. (the "Adviser").
INVESTMENT OBJECTIVE. 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 Trust's investment objective cannot be changed without shareholder
approval.
INVESTMENT STRATEGY AND RISKS. 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, 1999, 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 higher 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.
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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, the slope of the yield
curve, 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.
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.
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MISCELLANEOUS PRINCIPAL AND NON-PRINCIPAL 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
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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
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have different maturities than the portfolio securities being hedged. Another
risk is that the Trust's 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.
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 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,
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within a specified time, usually less than one week, but, on occasion, at a
later time. The Trust will make payment for such securities only upon physical
delivery or evidence of book-entry transfer to the account of the custodian or a
bank acting as agent for the Trust. Repurchase agreements may also be viewed as
loans made by the Trust which are collateralized by the securities subject to
repurchase. The value of the underlying securities will be at least equal at all
times to the total amount of the repurchase obligation, including the interest
factor. In the event of a bankruptcy or other default of a seller of a
repurchase agreement, the Trust could experience both delays in liquidating the
underlying security and losses, including: (a) possible decline in the value of
the underlying security during the period while the Trust seeks to enforce its
rights thereto; (b) possible subnormal levels of income and lack of access to
income during this period; and (c) expenses of enforcing its rights. The Trust
has a fundamental policy that it will not enter into repurchase agreements which
will not mature within seven days if any such investment, together with all
other assets held by the Trust which are not readily marketable (including
private placements), amounts to more than 10% of its total assets. It is
expected that repurchase agreements will give rise to income which will not
qualify as tax-exempt income when distributed by the Trust. The Trustees monitor
the creditworthiness of parties with which the Trust enters into repurchase
agreements.
While the Trust has no plans to do so during the current year, it may enter
into reverse repurchase agreements, which involve the sale of securities held by
the Trust with an agreement to repurchase the securities at an agreed-upon
price, date and interest payment.
OPTIONS. The Trust may purchase or sell (write) options on debt securities
as a means of achieving additional return or hedging the value of the Trust's
portfolio. The Trust will only buy options listed on national securities
exchanges. The Trust will not purchase options if, as a result, the aggregate
cost of all outstanding options exceeds 5% of the Trust's total assets.
Presently there are no options on New York tax-exempt securities traded on
national securities exchanges and until such time as they become available, the
Trust will not invest in options on debt securities.
A call option is a contract that gives the holder of the option the right to
buy from the writer of the call option, in return for a premium paid by the
holder to the writer, the security underlying the option at a specified exercise
price at any time during the term of the option. The writer of the call option
has the obligation upon exercise of the option to deliver the underlying
security upon payment of the exercise price during the option period. A put
option is a contract that gives the holder of the option the right to sell to
the writer, in return for a premium paid by the holder to the writer, the
underlying security at a specified price during the term of the option. The
writer of the put has the obligation to buy the underlying security upon
exercise, at the exercise price during the option period. The Trust generally
would write call options only in circumstances where the Adviser does not
anticipate significant appreciation of the underlying security in the near
future or has otherwise determined to dispose of the security.
The Trust will only write covered call or covered put options listed on
national securities exchanges. The Trust may not write covered options in an
amount exceeding 20% of the value of its total assets. A call option is
"covered" if the Trust owns the underlying security subject to the call option
or 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
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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.
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
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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 below investment grade 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.
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.
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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 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
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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 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;
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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 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
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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 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
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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.
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
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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.
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
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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 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
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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 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
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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 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
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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 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,
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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 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-20
<PAGE>
TRUST POLICIES.
(i)
The Trust may not issue senior securities except evidences of
indebtedness permitted under clause (ii) below.
(ii)
The Trust may not borrow money in excess of 10% of the value of its
assets and then only as a temporary measure to meet unusually heavy
redemption requests or for other extraordinary or emergency purposes.
Securities will not be purchased while borrowings are outstanding. No assets
of the Trust may be pledged, mortgaged or otherwise encumbered, transferred
or assigned to secure a debt except in connection with the Trust's entering
into interest rate futures contracts.
(iii)
The Trust may not 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.
(iv)
The Trust may not purchase securities of other investment companies
or 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.
(v)
The Trust may not lend money except in connection with the purchase
of debt obligations or by investment in repurchase agreements,
provided that repurchase agreements maturing in more than seven days when
taken together with other illiquid investments do not exceed 10% of the
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 33 1/3% of the
total assets of the Trust.
(vi)
The Fund may not engage in short sales or participate on a joint or
a joint and several basis in any trading account in securities.
(vii)
The Trust may not 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 Statement of Additional Information.
(viii)
The Trust may not purchase more than 10% of the outstanding voting
securities of any one issuer. For purposes of this restriction, all
outstanding debt securities of an issuer are considered as one class. This
restriction does not apply to obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
(ix)
The Trust may not invest more than 5% of its total assets in
securities of issuers having a record, together with its
predecessors, of less than three years of continuous operation. This
restriction does not apply to any obligation issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
(x)
The Trust may not purchase equity securities or securities
convertible into equity securities.
(xi)
The Trust may not invest in commodities or commodity contracts
except that the Trust may purchase financial futures contracts and
related options.
B-21
<PAGE>
(xii)
The Trust may not purchase the securities of any issuer if, to the
knowledge of the Trust, those officers and directors of the Trust
and of the Adviser, who each owns more than 0.5% of the outstanding
securities of such issuer, together own more than 5% of such securities.
(xiii)
The Trust may not purchase oil, gas or other mineral type
development programs or leases.
(xiv)
The Trust may not 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.
(xv)
The Trust may not 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.
(xvi)
The primary investment objective of the Trust is to provide New York
taxpayers with the maximum income exempt from New York State, New
York City, and federal income taxes while avoiding undue risk to principal.
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.
The policies set forth above may not be changed without the affirmative vote
of the majority of the outstanding voting securities of the Trust which means
the lesser of (1) the holders of more than 50% of the outstanding shares of
capital stock 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.
MANAGEMENT OF THE TRUST
The business and affairs of the Trust are managed by the Trust's officers
under the direction of the Board of Trustees. Set forth below is certain
information regarding the Trustees and Officers of the Trust.
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH FUND PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ---------------------------------- --------------------- ---------------------------------------------
<S> <C> <C>
*Jean Bernhard Buttner Chairman of the Board Chairman, President and Chief Executive
Age 64 of Trustees and Officer of the Adviser and Value Line Pub-
President lishing, Inc. Chairman and President of the
Value Line Funds and Value Line Securities,
Inc. (the "Distributor"); Chairman and
President of each of the 15 Value Line Funds.
John W. Chandler 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 75 Emeritus, Williams College.
</TABLE>
B-22
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH FUND PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ---------------------------------- --------------------- ---------------------------------------------
<S> <C> <C>
*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 79 (Trustee) of The Guardian Insurance & Annuity
Company, Inc., Guardian Investor Services
Corporation and the Guardian-sponsored mutual
funds.
David H. Porter Trustee President Emeritus, Skidmore College since
5 Birch Run Drive January 1, 1999; President, Skidmore College,
Saratoga Springs, NY 12866 1987-1998; Director of Adirondack Trust
Age 63 Company.
Paul Craig Roberts Trustee Chairman, Institute for Political Economy;
505 S. Fairfax Street Director, A. Schulman Inc. (plastics).
Alexandria, VA 22320
Age 60
Nancy-Beth Sheerr Trustee Chairman, Radcliffe College Board of
1409 Beaumont Drive Trustees.
Gladwyne, PA 19035
Age 50
Charles Heebner Vice President Senior Portfolio Manager with the Adviser.
Age 63
Raymond S. Cowen Vice President Assistant Research Director with the Ad-
Age 77 viser.
David T. Henigson Vice President, Director, Vice President and Compliance
Age 41 Secretary and Officer of the Adviser. Director and Vice
Treasurer President of the Distributor. Vice Presi-
dent, Secretary and Treasurer of each of the
15 Value Line Funds.
</TABLE>
- --------------
* "Interested" director as defined in the Investment Company Act of 1940 (the
"1940 Act").
Unless otherwise indicated, the address for each of the above is 220 East 42nd
Street, New York, NY.
Trustees of the Trust are also directors/trustees of 11 other Value Line
Funds.
The following table sets forth information regarding compensation of
Trustees by the Trust and by the Trust and the eleven other Value Line Funds of
which each of the Trustees is a director or trustee for the fiscal year ended
February 28, 1999. Trustees who are officers or employees of the Adviser do not
receive any compensation from the Trust or any of the Value Line Funds.
B-23
<PAGE>
COMPENSATION TABLE
FISCAL YEAR ENDED FEBRUARY 28, 1999
<TABLE>
<CAPTION>
TOTAL
PENSION OR ESTIMATED COMPENSATION
RETIREMENT ANNUAL FROM FUND
AGGREGATE BENEFITS BENEFITS AND FUND
COMPENSATION ACCRUED AS PART UPON COMPLEX
NAME OF PERSONS FROM FUND OF FUND EXPENSES RETIREMENT (12 FUNDS)
- ------------------------------------------- --------------- ------------------ ----------- --------------
<S> <C> <C> <C> <C>
Jean B. Buttner $ -0- N/A N/A $ -0-
John W. Chandler 2,968 N/A N/A 35,620
Leo R. Futia 2,718 N/A N/A 32,620
David H. Porter 2,968 N/A N/A 35,620
Paul Craig Roberts 2,718 N/A N/A 32,620
Nancy-Beth Sheer 2,968 N/A N/A 35,620
</TABLE>
As of February 28, 1999, no person owned of record or, to the knowledge of
the Trust, owned beneficially, 5% or more of the outstanding stock of the Trust.
The Adviser and its affiliates owned 117,885 shares of record or approximately
3.6% of the outstanding shares. Officers and Trustees of the Trust as a group
owned less than 1% of the outstanding shares.
INVESTMENT ADVISORY AND OTHER SERVICES
The Trust's investment adviser is Value Line, Inc. (the "Adviser"). Arnold
Bernhard & Co., Inc., 220 East 42nd Street, New York, NY 10017, a holding
company, owns approximately 81% of the outstanding shares of the Adviser's
common stock. Jean Bernhard Buttner, Chairman, President and Chief Executive
Officer of the Adviser and Chairman and President of the Trust, owns all of the
voting stock of Arnold Bernhard & Co., Inc.
The investment advisory agreement between the Trust and the Adviser, dated
August 10, 1988, provides for a monthly advisory fee at an annual rate of 0.6%
of the Trust's average daily net assets during the year. During the fiscal years
ended February 28, 1997, 1998 and 1999, the Trust paid or accrued to the Adviser
advisory fees of $217,260, $200,703 and 204,231, 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 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 to the Trust.
The agreement will terminate upon its assignment.
The Adviser acts as investment adviser to 14 other investment companies
constituting The Value Line Family of Funds and furnishes investment counseling
services to private and institutional accounts resulting in combined assets
under management in excess of $5 billion.
B-24
<PAGE>
Certain of the Adviser's clients may have investment objectives similar 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, directors 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.
The Trust has entered into a distribution agreement with Value Line
Securities, Inc. (the "Distributor") whose address is 220 East 42nd Street, New
York, NY 10017, pursuant to which the Distributor acts as principal underwriter
and distributor of the Trust for the sale and distribution of its shares. The
Distributor is a wholly-owned subsidiary of the Adviser. For its services under
the agreement, the Distributor is not entitled to receive any compensation. The
Distributor also serves as distributor to the other Value Line funds. Jean
Bernhard Buttner is Chairman and President of the Distributor.
The Adviser has retained State Street Bank and Trust Company ("State
Street") to provide certain bookkeeping and accounting services for the Trust.
The Adviser pays State Street $32,400 per annum for each Value Line fund for
which State Street provides these services. State Street, whose address is 225
Franklin Street, Boston, MA 02110, also acts as the Trust's custodian, transfer
agent and dividend-paying agent. As custodian, State Street is responsible for
safeguarding the Trust's cash and securities, handling the receipt and delivery
of securities and collecting interest and dividends on the Trust's investments.
As transfer agent and dividend-paying agent, State Street effects transfers of
Trust shares by the registered owners and transmits payments for dividends and
distributions declared by the Trust. National Financial Data Services, Inc., a
State Street affiliate, whose address is 330 W. 9th Street, Kansas City, MO
64105, provides certain transfer agency functions to the Trust as an agent for
State Street. PricewaterhouseCoopers LLP, whose address is 1177 Avenue of the
Americas, New York, NY 10036, acts as the Trust's independent accountants and
also performs certain tax preparation services.
PORTFOLIO TRANSACTIONS
Portfolio securities are purchased from and sold to parties acting as either
principal or agent. Newly-issued securities ordinarily are purchased directly
from the issuer or from an underwriter; other purchases and sales usually are
placed with those dealers from whom it appears that the best price and execution
will be obtained. Usually no brokerage commissions, as such, are paid by the
Trust for such purchases and sales, although the price paid usually includes an
undisclosed compensation to the dealer acting as principal. The prices paid to
underwriters of newly-issued
B-25
<PAGE>
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 1997, 1998 or 1999.
Transactions are allocated to various dealers by the Adviser in its best
judgment. The primary consideration is prompt and effective execution of orders
at the most favorable price. Subject to that primary consideration, dealers may
be selected for research, statistical or other services to enable the Adviser to
supplement its own research and analysis with the views and information of other
securities firms.
Research services furnished by brokers through which the 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 the 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.
PORTFOLIO TURNOVER. The Fund's annual portfolio turnover rate may exceed
100%. A rate of portfolio turnover of 100% would occur if all of the Trust's
portfolio were replaced in a period of one year. To the extent that the Fund
engages in short-term trading in attempting to achieve its objective, it may
increase portfolio turnover and incur additional expenses than might otherwise
be the case. The Trust's portfolio turnover rate for recent fiscal years is
shown under "Financial Highlights" in the Trust's Prospectus.
CAPITAL STOCK
Each share of beneficial interest of the Trust, $.01 par value, has one vote
with fractional shares voting proportionately. Shares have no preemptive rights,
are freely transferable, are entitled to dividends as declared by the Trustees
and, if the Trust were liquidated, would receive the net assets of the Trust.
PURCHASE, REDEMPTION AND PRICING OF SHARES
PURCHASES: Shares of the Trust are purchased at net asset value next calculated
after receipt of a purchase order. Minimum orders are $1,000 for an initial
purchase and $250 for each subsequent purchase. The 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.
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.
REDEMPTION: 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
B-26
<PAGE>
reasonably practical for the Trust to determine the fair value of its net
assets; (3) For such other periods as the Securities and Exchange Commission may
by order permit for the protection of the Trust's shareholders.
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. Shareholders should note that if a loss has been realized on the sale of
shares of the Trust, the loss may be disallowed for tax purposes if shares of
the same Trust are purchased within (before or after) 30 days of the sale.
TAXES
The Trust intends to continue to qualify as a regulated investment company
under the Internal Revenue Code of 1986, as amended (the "Code"). The Trust so
qualified during the Trust's last fiscal year. 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 (whether or not reinvested
in additional Trust shares).
The Code requires each regulated investment company to pay a nondeductible
4% excise tax to the extent the company does not distribute, during each
calendar year, 98% of its ordinary income, determined on a calendar year basis,
and 98% of its capital gains, determined, in general, on an October 31 year end,
plus certain undistributed amounts from previous years. The Trust anticipates
that it will make sufficient timely distributions to avoid imposition of the
excise tax.
Realized losses incurred after October 31, if so elected by the Trust, are
deemed to arise on the first day of the following fiscal year. In the year ended
February 28, 1999, the Trust did not incur such losses.
Distributions of net tax-exempt income, in the form of "exempt-interest
dividends", are excludable from the shareholder's income for federal income tax
purposes (except as provided below) if the Trust qualifies to pay
exempt-interest dividends. Distributions of other investment income and any
realized short-term capital gains are taxable to shareholders as ordinary
income. The Trust does not anticipate that any distributions will be eligible
for the dividends-received deductions 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 such investors would not gain any
additional federal tax benefit from receiving tax-exempt income.
The Code may require a shareholder who receives exempt-interest dividends to
treat as taxable income a portion of certain otherwise non-taxable social
security and railroad retirement benefit payments. 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
B-27
<PAGE>
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 Subschapter S corporate
shareholder's federal "excess net passive income" tax liability.
A distribution by the Trust will reduce 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
distribution. The price of shares purchased at that time (at the net asset value
per share) may include the amount of the forthcoming distribution. Those
purchasing just prior to a distribution will then receive a return of capital
upon the distribution which may be taxable to them. All distributions, whether
received in shares or cash, must be reported by each shareholder on his Federal
income tax return. Furthermore, under the Code, dividends declared by the Trust
in October, November or December of any calendar year, and payable to
shareholders of record in such a month, shall be deemed to have been received by
the shareholder on December 31 of such calendar year if such dividend is
actually paid in January of the following calendar year.
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). Under certain circumstances, a loss on the
sale or redemption of shares held for twelve months or less may be treated as a
long-term capital loss to the extent that the Trust has distributed long-term
capital gain dividends on such shares. Moreover, a loss on sale or redemption of
Trust shares will be disallowed if shares of the Trust are purchased within 30
days before or after the shares are sold or redeemed.
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 back-up withholding, dividends,
distributions of capital gains and redemption proceeds paid by the Trust will be
subject to a 31% Federal income tax withholding requirement. If the withholding
provisions are applicable, any such dividends or capital-gains distributions to
these shareholders, whether taken in cash or reinvested in additional shares,
and any redemption proceeds will be reduced by the amounts required to be
withheld.
B-28
<PAGE>
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents, domestic
corporations and partnerships, and certain trusts and estates) and is not
intended to be a complete discussion of all Federal tax consequences.
Shareholders are advised to consult with their tax advisers concerning the
application of Federal, state and local taxes to an investment in the 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 compounded rate of return for the periods of one
year, five years and ten years, all ended on the last day of a recent calendar
quarter. The Trust may also advertise aggregate total return information for
different periods of time.
The Trust's average annual compounded rate of return is determined by
reference to a hypothetical $1,000 investment that includes capital appreciation
and depreciation for the stated period, according to the following formula:
P(1+T) to the power of n = ERV
Where: P = a hypothetical initial purchase order of
$1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of the
hypothetical $1,000 purchase at the end
of the period.
The Trust's average annual total returns for the one, five and ten year
periods ending February 28, 1999 were 5.56%, 5.53% and 7.47%, respectively.
The Trust's total return may be compared to relevant indices and data from
Lipper Analytical Services, Inc. or Morningstar.
From time to time, evaluations of the Trust's performance by independent
sources may also be used in advertisements and in information furnished to
present or prospective investors in the Trust.
Investors should note that the investment results of the Trust will
fluctuate over time, and any presentation of the Trust's current yield, total
return or distribution rate for any period should not be considered as a
representation of what an investment may earn or what an investor's total
return, yield or distribution rate may be in any future period.
FINANCIAL STATEMENTS
The Trust's financial statements for the year ended February 28, 1999,
including the financial highlights for each of the five fiscal years in the
period ended February 28, 1999, appearing in the 1999 Annual Report to
Shareholders and the report thereon of PricewaterhouseCoopers LLP, independent
accountants, appearing therein, are incorporated by reference in this Statement
of Additional Information.
B-29
<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-30
<PAGE>
PART C: OTHER INFORMATION
ITEM 23. EXHIBITS.
(a) Declaration of Trust.
(b) By-laws.
(c) Not applicable.
(d) Investment Advisory Agreement.
(e) Distribution Agreement.
(f) Not applicable.
(g) Custodian Agreement.
(h) Not applicable.
(i) Legal Opinion.
(j) Consent of independent accountants.
(k) Not applicable.
(l) Not applicable.
(m) Not applicable.
(n) Financial data schedule.
(o) Not applicable.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None
ITEM 25. INDEMNIFICATION.
Incorporated by reference to Section 4.3 of the Declaration of Trust filed
as Exhibit (a) hereto.
ITEM 26. BUSINESS OR OTHER CONNECTIONS OF INVESTMENT ADVISER.
Value Line, Inc., Registrant's investment adviser, acts as investment
adviser for a number of individuals, trusts, corporations and institutions, in
addition to the registered investment companies in the Value Line Family of
Funds listed in Item 27.
<TABLE>
<CAPTION>
POSITION WITH
NAME THE ADVISER OTHER EMPLOYMENT
- -------------------------- -------------------------------- ---------------------------------------------------
<S> <C> <C>
Jean Bernhard Buttner Chairman of the Board, President Chairman of the Board and Chief Executive Officer
and Chief Executive Officer of Arnold Bernhard & Co., Inc. and Chairman of the
Value Line Funds and the Distributor
Samuel Eisenstadt Senior Vice President and ---------------------------------------------
Director
David T. Henigson Vice President, Treasurer and Vice President and a Director of Arnold Bernhard &
Director Co., Inc. and the Distributor
Howard A. Brecher Vice President, Secretary and Vice President, Secretary, Treasurer and a Director
Director of Arnold Bernhard & Co., Inc.
Harold Bernard, Jr. Director Retired Administrative Law Judge
W. Scott Thomas Director Partner, Brobeck, Phleger & Harrison, attorneys,
One Market Plaza, San Francisco, CA 94105
Linda S. Wilson Director President, Radcliffe College, 10 Garden Street,
Cambridge, MA 02138
</TABLE>
C-1
<PAGE>
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) Value Line Securities, Inc., acts as principal underwriter for the
following Value Line funds, including the Registrant: The Value Line
Fund, Inc.; The Value Line Income Fund, Inc.; The Value Line Special
Situations Fund, Inc.; Value Line Leveraged Growth Investors, Inc.; The
Value Line Cash Fund, Inc.; Value Line U.S. Government Securities Fund,
Inc.; Value Line Centurion Fund, Inc.; The Value Line Tax Exempt Fund,
Inc.; Value Line Convertible Fund, Inc.; Value Line Aggressive Income
Trust; Value Line New York Tax Exempt Trust; Value Line Strategic Asset
Management Trust; Value Line Small-Cap Growth Fund, Inc.; Value Line
Asset Allocation Fund, Inc.; Value Line U.S. Multinational Company Fund,
Inc.
(b)
<TABLE>
<CAPTION>
(2)
POSITION AND (3)
(1) OFFICES POSITION AND
NAME AND PRINCIPAL WITH VALUE LINE OFFICES WITH
BUSINESS ADDRESS SECURITIES, INC. REGISTRANT
- ------------------------- ------------------ --------------------
<S> <C> <C>
Jean Bernhard Buttner Chairman of the Chairman of the
Board Board and President
David T. Henigson Vice President, Vice President,
Secretary, Secretary and
Treasurer and Treasurer
Director
Stephen LaRosa Asst. Vice Asst. Treasurer
President
</TABLE>
The business address of each of the officers and directors is 220 East
42nd Street, NY 10017-5891.
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
Value Line, Inc.
220 East 42nd Street
New York, NY 10017
For records pursuant to:
Rule 31a-1(b)(4),(5),(6),(7),(10),(11)
Rule 31a-1(f)
State Street Bank and Trust Company
c/o NFDS
P.O. Box 419729
Kansas City, MO 64141
For records pursuant to Rule 31a-1(b)(2)(iv)
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
For all other records
ITEM 29. MANAGEMENT SERVICES.
None.
ITEM 30. UNDERTAKINGS.
None.
--------------
C-2
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 13 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated April 23, 1999, relating to the financial
statements and financial highlights appearing in the February 28, 1999 Annual
Report to Shareholders of Value Line New York Tax Exempt Trust, which are also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the heading "Financial Highlights" in the Prospectus
and under the heading "Financial Statements" in the Statement of Additional
Information.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
April 26, 1999
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, and State of New York, on
the 26th day of April, 1999.
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
-------------------------------------------- --------------------------------- ---------------------
<S> <C> <C> <C>
*JEAN B. BUTTNER Chairman and Director; President; April 26, 1999
(JEAN B. BUTTNER) Principal Executive Officer
*JOHN W. CHANDLER Director April 26, 1999
(JOHN W. CHANDLER)
*LEO R. FUTIA Director April 26, 1999
(LEO R. FUTIA)
*DAVID H. PORTER Director April 26, 1999
(DAVID H. PORTER)
*PAUL CRAIG ROBERTS Director April 26, 1999
(PAUL CRAIG ROBERTS)
*NANCY-BETH SHEERR Director April 26, 1999
(NANCY-BETH SHEERR)
/s/ DAVID T. HENIGSON Treasurer; Principal Financial April 26, 1999
............................................ and Accounting Officer
(DAVID T. HENIGSON)
</TABLE>
*By /s/ DAVID T. HENIGSON
.................................
(DAVID T. HENIGSON,
ATTORNEY-IN-FACT)
C-4
<PAGE>
EXHIBIT A
FILED
FEB 12 1987
SECRETARY OF STATE
CORPORATE DIVISION
DECLARATION OF TRUST
OF
VALUE LINE NEW YORK TAX-EXEMPT TRUST
DATED FEBRUARY 12, 1987
DECLARATION OF TRUST made February 12, 1987 by the undersigned Trustee
(together with all other persons from time to time duly elected, qualified and
serving as Trustees in accordance with the provisions of Article II hereof, the
"Trustees");
WHEREAS, the Trustee desires to establish a trust for the investment and
reinvestment of funds contributed thereto; and
WHEREAS, the Trustee desires that the beneficial interest in the trust
assets be divided into transferable shares of beneficial interest, as
hereinafter provided;
NOW, THEREFORE, the Trustee declares that all money and property
contributed to the trust established hereunder shall be held and managed in
trust for the benefit of the holders, from time to time, of the shares of
beneficial interest issued hereunder and subject to the provisions hereof.
ARTICLE I
NAME AND DEFINITIONS
Section 1.1. Name. The name of the trust created hereby is the "Value Line
New York Tax-Exempt Trust".
Section 1.2. Definitions. Wherever they are used herein, the following
terms have the following respective meanings:
(a) "By-laws" means the By-laws referred to in Section 2.8 hereof, as from
time to time amended.
(b) The terms "Commission" and "Interested Person", have the meanings
given them in the 1940 Act. Except as otherwise defined by the Trustees in
conjunction with the establishment of any series of Shares, the term "vote of a
majority of the Shares outstanding and entitled to vote" shall have the same
meaning as the term "vote of a majority of the outstanding voting securities"
given it in the 1940 Act.
(c) "Custodian" means any Person other than the Trust who has custody of
any Trust Property as required by 17(f) of the 1940 Act, but does not include a
system for the central handling of securities described in said 17(f).
<PAGE>
(d) "Declaration" means this Declaration of Trust as amended from time to
time. Reference in this Declaration of Trust to "Declaration," "hereof,"
"herein," and "hereunder" shall be deemed to refer to this Declaration rather
than exclusively to the article or section in which such words appear.
(e) "Distributor" means the party, other than the Trust, to the contract
described in Section 3.1 hereof.
(f) "His" shall include the feminine and neuter, as well as the masculine,
genders.
(g) "Investment Adviser" means the party, other than the Trust, to the
contract described in Section 3.2 hereof.
(h) The "1940 Act" means the Investment Company Act of 1940, as amended
from time to time.
(i) "Person" means and includes individuals, corporations, partnerships,
trusts, associations, joint ventures and other entities, whether or not legal
entities, and governments and agencies and political subdivisions thereof.
(j) "Shareholder" means a record owner of Outstanding Shares.
(k) "Shares" means the equal proportionate units of interest into which
the beneficial interest in the Trust shall be divided from time to time,
including the Shares of any and all series which may be established by the
Trustees, and includes fractions of Shares as well as whole Shares.
"Outstanding" Shares means those Shares shown from time to time on the books of
the Trust or its Transfer Agent as then issued and outstanding, but shall not
include Shares which have been redeemed or repurchased by the Trust and which
are at the time held in the Treasury of the Trust.
(l) "Transfer Agent" means any one or more Persons other than the Trust
who maintains the Shareholder records of the Trust, such as the list of
Shareholders, the number of Shares credited to each account, and the like.
(m) The "Trust" means the Value Line New York Tax-Exempt Trust.
(n) The "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the account of the
Trust or the Trustees.
(o) The "Trustees" means the person who has signed this Declaration, so
long as he shall continue in office in accordance with the terms hereof, and all
other persons who may from time to time be duly elected, qualified and serving
as Trustees
-2-
<PAGE>
in accordance with the provisions of Article II hereof, and reference herein to
a Trustee or the Trustees shall refer to such person or persons in this capacity
or their capacities as trustees hereunder.
ARTICLE II
TRUSTEES
Section 2.1. General Powers. The Trustees shall have exclusive and
absolute control over the Trust Property and over the business of the Trust to
the same extent as if the Trustees were the sole owners of the Trust Property
and business in their own right, but with such powers of delegation as may be
permitted by this Declaration. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices both within and without the Commonwealth of Massachusetts,
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities of the United States of America and
of foreign governments, and to do all such other things and execute all such
instruments as they deem necessary, proper or desirable in order to promote the
interests of the Trust although such things are not herein specifically
mentioned. Any determination as to what is in the interests of the Trust made by
the Trustees in good faith shall be conclusive. In construing the provisions of
this Declaration, the presumption shall be in favor of a grant of power to the
Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be exercised
without order of or resort to any court.
Section 2.2. Investments. The Trustees shall have the power:
(a) To operate as and carry on the business of an investment company, and
exercise all the powers necessary and appropriate to the conduct of such
operations.
(b) To invest in, hold for investment, or reinvest in, securities,
including common and preferred stocks; warrants; bonds, debentures, bills, time
notes and all other evidences of indebtedness; negotiable or non-negotiable
instruments; government securities, including securities of any state,
municipality or other political subdivision thereof, or any governmental or
quasi-governmental agency or instrumentality; and money market instruments
including bank certificates of deposits, finance paper, commercial paper,
bankers acceptances and all kinds of
-3-
<PAGE>
repurchase agreements, of any corporation, company, trust, association, firm or
other business organization however established, and of any country, state,
municipality or other political subdivision, or any governmental or
quasi-governmental agency or instrumentality.
(c) To acquire (by purchase, subscription or otherwise), to hold, to trade
in and deal in, to acquire any rights or options to purchase or sell, to sell or
otherwise dispose of, to lend, and to pledge any such securities and repurchase
agreements.
(d) To exercise all rights, powers and privileges of ownership or interest
in all securities and repurchase agreements included in the Trust Property,
including the right to vote thereon and otherwise act with respect thereto and
to do all acts for the preservation, protection, improvement and enhancement in
value of all such securities and repurchase agreements.
(e) To acquire (by purchase, lease or otherwise) and to hold, use,
maintain, develop and dispose of (by sale or otherwise) any property, real or
personal, including cash, and any interest therein.
(f) To borrow money and in this connection issue notes or other evidence
of indebtedness; to secure borrowings by mortgaging, pledging or otherwise
subjecting as security the Trust Property; to endorse, guarantee, or undertake
the performance of any obligation or engagement of any other Person and to lend
Trust Property.
(g) To aid by further investment any corporation, company, trust,
association or firm, any obligation of or interest in which is included in the
Trust Property or in the affairs of which the Trustees have any direct or
indirect interest; to do all acts and things designed to protect, preserve,
improve or enhance the value of such obligation or interest; to guarantee or
become surety on any or all of the contracts, stocks, bonds, notes, debentures
and other obligations of any such corporation, company, trust, association or
firm.
(h) In general to carry on any other business in connection with or
incidental to any of the foregoing powers, to do everything necessary, suitable
or proper for the accomplishment of any purpose or the attainment of any object
or the furtherance of any power hereinbefore set forth, either alone or in
association with others, and to do every other act or thing incidental or
appurtenant to or growing out of or connected with the aforesaid business or
purposes, objects or powers.
The foregoing clauses shall be construed both as objects and powers, and
the foregoing enumeration of specific powers shall not be held to limit or
restrict in any manner the general powers of the Trustees.
-4-
<PAGE>
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
Section 2.3. Legal Title. Legal title to all the Trust Property, including
the property of any series of the Trust, shall be vested in the Trustees as
joint tenants except that the Trustees shall have power to cause legal title to
any Trust Property to be held by or in the name of one or more of the Trustees,
or in the name of the Trust, or in the name of any other Person as nominee, on
such terms as the Trustees may determine, provided that the interest of the
Trust therein is deemed appropriately protected. The right, title and interest
of the Trustees in the Trust Property and the property of each series of the
Trust shall vest automatically in each Person who may hereafter become a
Trustee. Upon the termination of the term of office, resignation, removal or
death of a Trustee he shall automatically cease to have any right, title or
interest in any of the Trust Property or the property of any series of the
Trust, and the right, title and interest of such Trustee in the Trust Property
shall vest automatically in the remaining Trustees. Such vesting and cessation
of title shall be effective whether or not conveyancing documents have been
executed and delivered.
Section 2.4. Issuance and Repurchase of Securities. The Trustees shall
have the power to issue, sell, repurchase, redeem, retire, cancel, acquire,
hold, resell, reissue, dispose of, transfer, and otherwise deal in Shares and,
subject to the provisions set forth in Articles VI and VII and Section 5.11
hereof, to apply to any such repurchase, redemption, retirement, cancellation or
acquisition of Shares any funds or property of the particular series of the
Trust with respect to which such Shares are issued, whether capital or surplus
or otherwise, to the full extent now or hereafter permitted by the laws of the
Commonwealth of Massachusetts governing business corporations.
Section 2.5. Delegation; Committees. The Trustees shall have power to
delegate from time to time to such of their number or to officers, employees or
agents of the Trust the doing of such things and the execution of such
instruments either in the name of the Trust or the names of the Trustees or
otherwise as the Trustees may deem expedient, to the same extent as such
delegation is permitted by the 1940 Act.
Section 2.6. Collection and Payment. The Trustees shall have power to
collect all property due to the Trust; to pay all claims, including taxes,
against the Trust Property; to prosecute, defend, compromise or abandon any
claims relating to the Trust Property; to foreclose any security interest
securing any obligations, by virtue of which any property is owed to the
-5-
<PAGE>
Trust; and to enter into releases, agreements and other instruments.
Section 2.7. Expenses. The Trustees shall have the power to incur and pay
any expenses which in the opinion of the Trustees are necessary or incidental to
carry out any of the purposes of this Declaration, and to pay reasonable
compensation from the funds of the Trust to themselves as Trustees. The Trustees
shall fix the compensation of all officers, employees and Trustees.
Section 2.8. Manner of Acting; By-laws. Except as otherwise provided
herein or in the By-laws, any action to be taken by the Trustees may be taken by
a majority of the Trustees present at a meeting of Trustees (a quorum being
present), including any meeting held by means of a conference telephone circuit
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, or by written consents of the entire number
of Trustees then in office. The Trustees may adopt By-laws not inconsistent with
this Declaration to provide for the conduct of the business of the Trust and may
amend or repeal such By-laws to the extent such power is not reserved to the
Shareholders.
Notwithstanding the foregoing provisions of this Section 2.8 and in
addition to such provisions or any other provision of this Declaration or of the
By-laws, the Trustees may by resolution appoint a committee consisting of less
than the whole number of Trustees then in office, which committee may be
empowered to act for and bind the Trustees and the Trust, as if the acts of such
committee were the acts of all the Trustees then in office, with respect to the
institution, prosecution, dismissal, settlement, review or investigation of any
action, suit or proceeding which shall be pending or threatened to be brought
before any court, administrative agency or other adjudicatory body.
Section 2.9. Miscellaneous Powers. The Trustees shall have the power to:
(a) employ or contract with such Persons as the Trustees may deem desirable for
the transaction of the business of the Trust; (b) enter into joint ventures,
partnerships and any other combinations or associations; (c) remove Trustees or
fill vacancies in or add to their number, elect and remove such officers and
appoint and terminate such agents or employees as they consider appropriate, and
appoint from their own number, and terminate, any one or more committees which
may exercise some or all of the power and authority of the Trustees as the
Trustees may determine; (d) purchase, and pay for out of Trust Property,
insurance policies insuring the Shareholders, Trustees, officers, employees,
agents, investment advisers, distributors, selected dealers or independent
contractors of the Trust against all claims arising by reason of holding any
such position or by reason of any
-6-
<PAGE>
action taken or omitted by any such Person in such capacity, whether or not
constituting negligence, or whether or not the Trust would have the power to
indemnify such Person against such liability; (e) establish pension,
profit-sharing, share purchase, and other retirement, incentive and benefit
plans for any Trustees, officers, employees and agents of the Trust; (f) to the
extent permitted by law, indemnify any person with whom the Trust has dealings,
including the Investment Adviser, Distributor, Transfer Agent and selected
dealers, to such extent as the Trustees shall determine; (g) guarantee
indebtedness or contractual obligations of others; (h) determine and change the
fiscal year of the Trust and the method by which its accounts shall be kept; and
(i) adopt a seal for the Trust but the absence of such seal shall not impair the
validity of any instrument executed on behalf of the Trust.
Section 2.10. Principal Transactions. Except in transactions not permitted
by the 1940 Act or rules and regulations adopted by the Commission, the Trustees
may, on behalf of the Trust, buy any securities from or sell any securities to,
or lend any assets of the Trust to, any Trustee or officer of the Trust or any
firm of which any such Trustee or officer is a member acting as principal, or
have any such dealings with the Investment Adviser, Distributor or transfer
agent or with any Interested Person of such Person; and the Trust may employ any
such Person, or firm or company in which such Person is an Interested Person, as
broker, legal counsel, registrar, transfer agent, dividend disbursing agent or
custodian upon customary terms.
Section 2.11. Number of Trustees. The number of Trustees shall initially
be one (1), and thereafter shall be such number as shall be fixed from time to
time by a written instrument signed by a majority of the Trustees, provided,
however, that the number of Trustees shall in no event be less than one (1) nor
more than fifteen (15).
Section 2.12. Election and Term. Except for the Trustees named herein or
appointed to fill vacancies pursuant to Section 2.14 hereof, the Trustees shall
be elected by the Shareholders owning of record a plurality of the Shares voting
at the annual meeting of Shareholders or special meeting in lieu thereof. Except
in the event of resignation or removals pursuant to Section 2.13 hereof, each
Trustee shall hold office until the next annual meeting of Shareholders or
special meeting in lieu thereof and until his successor is elected and
qualified.
Section 2.13. Resignation and Removal. Any Trustee may resign his trust
(without need for prior or subsequent accounting) by an instrument in writing
signed by him and delivered to the other Trustees and such resignation shall be
effective upon such delivery, or at a later date according to the terms of the
instrument. Any of the Trustees may be removed (provided the
-7-
<PAGE>
aggregate number of Trustees after such removal shall not be less than one) with
cause, by the action of two-thirds of the remaining Trustees. Upon the
resignation or removal of a Trustee, or his otherwise ceasing to be a Trustee,
he shall execute and deliver such documents as the remaining Trustees shall
require for the purpose of conveying to the Trust or the remaining Trustees any
Trust Property or property of any series of the Trust held in the name of the
resigning or removed Trustee. Upon the incapacity or death of any Trustee, his
legal representative shall execute and deliver on his behalf such documents as
the remaining Trustees shall require as provided in the preceding sentence.
Section 2.14. Vacancies. The term of office of a Trustee shall terminate
and a vacancy shall occur in the event of the death, resignation, removal,
bankruptcy, adjudicated incompetence or other incapacity to perform the duties
of the office of a Trustee. No such vacancy shall operate to annul the
Declaration or to revoke any existing agency created pursuant to the terms of
the Declaration. In the case of an existing vacancy, including a vacancy
existing by reason of an increase in the number of Trustees, subject to the
provisions of Section 16(a) of the 1940 Act, the remaining Trustees shall fill
such vacancy by the appointment of such other person as they in their discretion
shall see fit, made by a written instrument signed by a majority of the Trustees
then in office. Any such appointment shall not become effective, however, until
the person named in the written instrument of appointment shall have accepted in
writing such appointment and agreed in writing to be bound by the terms of the
Declaration. An appointment of a Trustee may be made in anticipation of a
vacancy to occur at a later date by reason of retirement, resignation or
increase in the number of Trustees, provided that such appointment shall not
become effective prior to such retirement, resignation or increase in the number
of Trustees. Whenever a vacancy in the number of Trustees shall occur, until
such vacancy is filled as provided in this Section 2.14, the Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by the Declaration.
A written instrument certifying the existence of such vacancy signed by a
majority of the Trustees in office shall be conclusive evidence of the existence
of such vacancy.
Section 2.15. Delegation of Power to Other Trustees. Any Trustee may, by
power of attorney, delegate his power for a period not exceeding six (6) months
at any one time to any other Trustee or Trustees; provided that in no case shall
less than two (2) Trustees personally exercise the powers granted to the
Trustees under this Declaration except as herein otherwise expressly provided.
-8-
<PAGE>
ARTICLE III
CONTRACTS
Section 3.1. Underwriting Contract. The Trustees may in their discretion
from time to time enter into an exclusive or non-exclusive underwriting contract
or contracts providing for the sale of the Shares to net the Trust not less than
the amount provided for in Section 7.1 of Article VII hereof, whereby the
Trustees may either agree to sell the Shares to the other party to the contract
or appoint such other party their sales agent for the Shares, and in either case
on such terms and conditions as may be prescribed in the By-laws, if any, and
such further terms and conditions as the Trustees may in their discretion
determine not inconsistent with the provisions of this Article III or of the
By-laws; and such contract may also provide for the repurchase of the Shares by
such other party as agent of the Trustees.
Section 3.2. Advisory or Management Contract. The Trustees may in their
discretion from time to time enter into an investment advisory or management
contract whereby the other party to such contract shall undertake to furnish to
the Trust such management, investment advisory, statistical and research
facilities and services and such other facilities and services, if any, and all
upon such terms and conditions as the Trustees may in their discretion
determine, including the grant of authority to such other party to determine
what securities shall be purchased or sold by the Trust and what portion of its
assets shall be uninvested, which authority shall include the power to make
changes in the Trust's investments.
Section 3.3. Affiliations of Trustees or Officers, Etc. The fact that:
(i) any of the Shareholders, Trustees or officers of the Trust is a
shareholder, director, officer, partner, trustee, employee, manager,
adviser or distributor of or for any partnership, corporation, trust,
association or other organization or of or for any parent or affiliate of
any organization, with which a contract of the character described in
Sections 3.1 or 3.2 above or for services as Custodian, Transfer Agent or
disbursing agent or for related services may have been or may hereafter be
made, or that any such organization, or any parent or affiliate thereof,
is a Shareholder of or has an interest in the Trust, or that
(ii) any partnership, corporation, trust, association or other
organization with which a contract of the character described in Sections
3.1 or 3.2 above or for services as Custodian, Transfer Agent or
disbursing agent or for related services may have been or may hereafter be
made
-9-
<PAGE>
also has any one or more of such contracts with one or more other
partnerships, corporations, trusts, associations or other organizations,
or has other business or interests,
shall not affect the validity of any such contract or disqualify any
Shareholder, Trustee or officer of the Trust from voting upon or executing the
same or create any liability or accountability to this Trust or its
Shareholders.
Section 3.4. Compliance with 1940 Act. Any contract entered into pursuant
to Sections 3.1 or 3.2 shall be consistent with and subject to the requirements
of Section 15 of the Investment Company Act of 1940 (including any amendment
thereof or other applicable Act of Congress hereafter enacted) with respect to
its continuance in effect, its termination and the method of authorization and
approval of such contract or renewal thereof.
ARTICLE IV
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES AND OTHERS
Section 4.1. No Personal Liability of Shareholders, Trustees, Etc. No
Shareholder shall be subject to any personal liability whatsoever to any Person
in connection with Trust Property or the acts, obligations or affairs of the
Trust. No Trustee, officer, employee or agent of the Trust shall be subject to
any personal liability whatsoever to any Person, other than to the Trust or its
Shareholders, in connection with Trust Property or the affairs of the Trust,
save only that arising from bad faith, willful misfeasance, gross negligence or
reckless disregard of his duties with respect to such Person; and all such
Persons shall look solely to the Trust Property for satisfaction of claims of
any nature arising in connection with the affairs of the Trust. If any
Shareholder, Trustee, officer, employee, or agent, as such, of the Trust, is
made a party to any suit or proceeding to enforce any such liability of the
Trust, he shall not, on account thereof, be held to any personal liability. The
Trust shall indemnify and hold each Shareholder harmless from and against all
claims and liabilities, to which such Shareholder may become subject by reason
of his being or having been a Shareholder, and shall reimburse such Shareholder
for all legal and other expenses reasonably incurred by him in connection with
any such claim or liability, provided that any such expenses shall be paid
solely out of the funds and property of the series of the Trust with respect to
which such Shareholder's Shares are issued. The rights accruing to a Shareholder
under this Section 4.1 shall not exclude any other right to which such
Shareholder may be lawfully entitled, nor shall anything herein contained
restrict the right of the Trust to indemnify or reimburse a Shareholder
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in any appropriate situation even though not specifically provided herein.
Section 4.2. Non-Liability of Trustees, Etc. No Trustee, officer, employee
or agent of the Trust shall be liable to the Trust, its Shareholders, or to any
Shareholder, Trustee, officer, employee, or agent thereof for any action or
failure to act (including without limitation the failure to compel in any way
any former or acting Trustee to redress any breach of trust) except for his own
bad faith, willful misfeasance, gross negligence or reckless disregard of the
duties involved in the conduct of his office.
Section 4.3. Mandatory Indemnification. (a) Subject to the exceptions and
limitations contained in paragraph (b) below:
(i) every person who is, or has been, a Trustee or officer of the Trust
shall be indemnified by the Trust to the fullest extent permitted by law against
all liability and against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having been a Trustee
or officer and against amounts paid or incurred by him in the settlement
thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall apply to
all claims, actions, suits or proceedings (civil, criminal, or other, including
appeals), actual or threatened; and the words "liability" and "expenses" shall
include, without limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee or
officer:
(i) against any liability to the Trust or the Shareholders by reason
of a final adjudication by the court or other body before which the
proceeding was brought that he engaged in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his office;
(ii) with respect to any matter as to which he shall have been
finally adjudicated not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Trust;
(iii) in the event of a settlement or other disposition not
involving a final adjudication as provided in paragraph (b)(i) resulting
in a payment by a Trustee or officer, unless there has been a
determination that such Trustee or
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officer did not engage in willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of his office:
(A) by the court or other body approving the settlement or
other disposition; or
(B) based upon a review of readily available facts (as opposed
to a full trial-type inquiry) by (x) vote of a majority of the
Disinterested Trustees acting on the matter (provided that a
majority of the Disinterested Trustees then in office act on the
matter) or (y) written opinion of independent legal counsel.
(c) The rights of indemnification herein provided may be insured against
by policies maintained by the Trust, shall be severable, shall not affect any
other rights to which any Trustee or officer may now or hereafter be entitled,
shall continue as to a person who has ceased to be such Trustee or officer and
shall inure to the benefit of the heirs, executors, administrators and assigns
of such a person. Nothing contained herein shall affect any rights to
indemnification to which personnel of the Trust other than Trustees and officers
may be entitled by contract or otherwise under law.
(d) Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in paragraph (a) of this
Section 4.3 may be advanced by the Trust prior to final disposition thereof upon
receipt of an undertaking by or on behalf of the recipient to repay such amount
if it is ultimately determined that he is not entitled to indemnification under
this Section 4.3, provided that either:
(i) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient, or the Trust shall be
insured against losses arising out of any such advances; or
(ii) a majority of the Disinterested Trustees acting on the matter
(provided that a majority of the Disinterested Trustees act on the matter)
or an independent legal counsel in a written opinion shall determine,
based upon a review of readily available facts (as opposed to a full
trial-type inquiry), that there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one who is
not (i) an "Interested Person" of the Trust (including anyone who has been
exempted from being an "Interested Person" by any rule, regulation or
order of the Commission), or (ii) involved in the claim, action, suit or
proceeding.
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Section 4.4. No Bond Required of Trustees. No Trustee shall be obligated
to give any bond or other security for the performance of any of his duties
hereunder. Any officer, agent or employee of the Trust may be required to give
bond for the faithful discharge of his duties, in such sum and of such character
as the Trustees may from time to time prescribe.
Section 4.5. No Duty of Investigation; Notice in Trust Instruments, Etc.
No purchaser, lender, transfer agent or other Person dealing with the Trustees
or any officer, employee or agent of the Trust shall be bound to make any
inquiry concerning the validity of any transaction purporting to be made by the
Trustees or by said officer, employee or agent or be liable for the application
of money or property paid, loaned, or delivered to or on the order of the
Trustees or of said officer, employee or agent. Every obligation, contract,
instrument, certificate, Share, other security of the Trust or undertaking, and
every other act or thing whatsoever executed in connection with the Trust shall
be conclusively presumed to have been executed or done by the executors thereof
only in their capacity as Trustees under this Declaration or in their capacity
as officers, employees or agents of the Trust. Every written obligation,
contract, instrument, certificate, Share, other security of the Trust or
undertaking made or issued by the Trustees may recite that the same is executed
or made by them not individually, but as Trustees under the Declaration, and
that the obligations of the Trust under any such instrument are not binding upon
any of the Trustees or Shareholders individually, but bind only the trust
estate, and may contain any further recital which they or he may deem
appropriate, but the omission of such recital shall not operate to bind the
Trustees individually. The Trustees shall at all times maintain insurance for
the protection of the Trust Property, its Shareholders, Trustees, officers,
employees and agents in such amount as the Trustees shall deem adequate to cover
possible tort liability, and such other insurance as the Trustees in their sole
judgment shall deem advisable.
Section 4.6. Reliance on Experts, Etc. Each Trustee and officer or
employee of the Trust shall, in the performance of his duties, be fully and
completely justified and protected with regard to any act or any failure to act
resulting from reliance in good faith upon the books of account or other records
of the Trust, upon an opinion of counsel, or upon reports made to the Trust by
any of its officers or employees or by the Investment Adviser, the Distributor,
Transfer Agent, selected dealers, accountants, appraisers or other experts or
consultants selected with reasonable care by the Trustees, officers or employees
of the Trust, regardless of whether such counsel or expert may also be a
Trustee.
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ARTICLE V
SHARES OF BENEFICIAL INTEREST
Section 5.1. Beneficial Interest. The interest of the beneficiaries
hereunder shall be divided into transferable shares of beneficial interest, all
of one class, except as provided in Section 5.11 hereof, with $.0l par value.
The number of shares of beneficial interest authorized hereunder is unlimited.
All Shares issued hereunder including, without limitation, Shares issued in
connection with a dividend in Shares or a split of Shares, shall be fully paid
and non-assessable.
Section 5.2. Rights of Shareholders. The ownership of the Trust Property
and the property of each series of the Trust of every description and the right
to conduct any business hereinbefore described are vested exclusively in the
Trustees, and the Shareholders shall have no interest therein other than the
beneficial interest conferred by their Shares, and they shall have no right to
call for any partition or division of any property, profits, rights or interests
of the Trust nor can they be called upon to share or assume any losses of the
Trust or suffer an assessment of any kind by virtue of their ownership of
Shares. The Shares shall be personal property giving only the rights in this
Declaration specifically set forth. The Shares shall not entitle the holder to
preference, preemptive, appraisal, conversion or exchange rights, except as the
Trustees may determine with respect to any series of Shares.
Section 5.3. Trust Only. It is the intention of the Trustees to create
only the relationship of Trustee and beneficiary between the Trustees and each
Shareholder from time to time. It is not the intention of the Trustees to create
a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in this Declaration of Trust shall be construed to make the
Shareholders, either by themselves or with the Trustees, partners or members of
a joint stock association.
Section 5.4. Issuance of Shares. The Trustees in their discretion may,
from time to time without vote of the Shareholders, issue Shares, in addition to
the then issued and outstanding Shares and Shares held in the treasury, to such
party or parties and for such amount and type of consideration, including cash
or property, at such time or times and on such terms as the Trustees may deem
best, and may in such manner acquire other assets (including the acquisition of
assets subject to, and in connection with the assumption of liabilities) and
businesses. In connection with any issuance of Shares, the Trustees may issue
fractional Shares and Shares held in the treasury. The Trustees may from time to
time divide or combine the Shares into a greater or lesser number
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without thereby changing the proportionate beneficial interests in the Trust.
Contributions to the Trust may be accepted for, and Shares shall be redeemed as,
whole Shares and/or 1/1,000ths of a Share or integral multiples thereof.
Section 5.5. Register of Shares. A register shall be kept at the principal
office of the Trust or an office of the Transfer Agent which shall contain the
names and addresses of the Shareholders and the number of Shares held by them
respectively and a record of all transfers thereof. Such register shall be
conclusive as to who are the holders of the Shares and who shall be entitled to
receive dividends or distributions or otherwise to exercise or enjoy the rights
of Shareholders. No Shareholder shall be entitled to receive payment of any
dividend or distribution, nor to have notice given to him as herein or in the
By-laws provided, until he has given his address to the Transfer Agent or such
other officer or agent of the Trustees as shall keep the said register for entry
thereon. It is not contemplated that certificates will be issued for the Shares;
however, the Trustees, in their discretion, may authorize the issuance of share
certificates and promulgate appropriate rules and regulations as to their use.
Section 5.6. Transfer of Shares. Shares shall be transferable on the
records of the Trust only by the record holder thereof or by his agent thereunto
duly authorized in writing, upon delivery to the Trustees or the Transfer Agent
of a duly executed instrument of transfer, together with such evidence of the
genuineness of each such execution and authorization and of other matters as may
reasonably be required. Upon such delivery the transfer shall be recorded on the
register of the Trust. Until such record is made, the Shareholder of record
shall be deemed to be the holder of such Shares for all purposes hereunder and
neither the Trustees nor any transfer agent or registrar nor any officer,
employee or agent of the Trust shall be affected by any notice of the proposed
transfer.
Any person becoming entitled to any Shares in consequence of the death,
bankruptcy, or incompetence of any Shareholder, or otherwise by operation of
law, shall be recorded on the register of Shares as the holder of such Shares
upon production of the proper evidence thereof to the Trustees or the Transfer
Agent, but until such record is made, the Shareholder of record shall be deemed
to be the holder of such Shares for all purposes hereunder and neither the
Trustees nor any Transfer Agent or registrar nor any officer or agent of the
Trust shall be affected by any notice of such death, bankruptcy or incompetence,
or other operation of law.
Section 5.7. Notices. Any and all notices to which any Shareholder may be
entitled and any and all communications shall be deemed duly served or given if
mailed, postage prepaid, addressed to any Shareholder of record at his last
known address as recorded on the register of the Trust.
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Section 5.8. Treasury Shares. Shares held in the treasury shall, until
reissued pursuant to Section 5.4, not confer any voting rights on the Trustees,
nor shall such Shares be entitled to any dividends or other distributions
declared with respect to the Shares.
Section 5.9. Voting Powers. The Shareholders shall have power to vote only
(i) for the election of Trustees as provided in Section 2.12; (ii) with respect
to any investment advisory or management contract entered into pursuant to
Section 3.2; (iii) with respect to termination of the Trust as provided in
Section 8.2; (iv) with respect to any amendment of this Declaration to the
extent and as provided in Section 8.3; (v) with respect to any merger,
consolidation or sale of assets as provided in Section 8.4; (vi) with respect to
incorporation of the Trust to the extent and as provided in Section 8.5; (vii)
to the same extent as the stockholders of Massachusetts business corporation as
to whether or not a court action, proceeding or claim should or should not be
brought or maintained derivatively or as a class action on behalf of the Trust
or the Shareholders; and (viii) with respect to such additional matters relating
to the Trust as may be required by this Declaration, the By-laws or any
registration of the Trust as an investment company under the 1940 Act with the
Commission (or any successor agency) or as the Trustees may consider necessary
or desirable. Each whole Share shall be entitled to one vote as to any matter on
which it is entitled to vote and each fractional Share shall be entitled to a
proportionate fractional vote, except that the Trustees may, in conjunction with
the establishment of any series of Shares, establish conditions under which the
several series shall have separate voting rights or no voting rights. There
shall be no cumulative voting in the election of Trustees. Until Shares are
issued, the Trustees may exercise all rights of Shareholders and may take any
action required by law, this Declaration or the Bylaws to be taken by
Shareholders. The By-laws may include further provisions for Shareholders' votes
and meetings and related matters.
Section 5.10. Meetings of Shareholders. An annual meeting of the
Shareholders shall be held beginning in 1988 and in each year thereafter on such
day and at such hour as the Trustees may from time to time determine, either at
the principal office of the Trust, or at such other place as may be designated
by the Trustees, for the purpose of electing new Trustees in place of and to
succeed those whose terms of office expire at that time and for such other
purposes as may be specified by the Trustees. If such annual meeting shall not
be held as above provided, a special meeting may be held in lieu thereof at any
time and any business which might have been transacted at such annual meeting
may be transacted at such special meeting and for all purposes hereof such
special meeting shall be deemed to be an annual meeting duly held as herein
provided.
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Section 5.11. Series Designation. The Trustees, in their discretion, may
authorize the division of Shares into two or more series, and the different
series shall be established and designated, and the variations in the relative
rights and preferences as between the different series shall be fixed and
determined, by the Trustees; provided, that all Shares shall be identical except
that there may be variations so fixed and determined between different series as
to investment objective, purchase price, right of redemption, special and
relative rights as to dividends and on liquidation, conversion rights, and
conditions under which the several series shall have separate voting rights. All
references to Shares in this Declaration shall be deemed to be shares of any or
all series as the context may require.
If the Trustees shall divide the Shares of the Trust into two or more
series, the following provisions shall be applicable:
(a) All provisions herein relating to the Trust shall apply equally to
each series of the Trust except as the context requires otherwise.
(b) The number of authorized Shares and the number of Shares of each
series that may be issued shall be unlimited. The Trustees may classify or
reclassify any unissued Shares or any Shares previously issued and reacquired of
any series into one or more series that may be established and designated from
time to time. The Trustees may hold as treasury shares (of the same or some
other series), reissue for such consideration and on such terms as they may
determine, or cancel any Shares of any series reacquired by the Trust at their
discretion from time to time.
(c) All consideration received by the Trust for the issue or sale of
Shares of a particular series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that series for all purposes, subject only to the rights
of creditors of such series and except as may otherwise be required by
applicable laws, and shall be so recorded upon the books of account of the
Trust. In the event that there are any assets, income, earnings, profits, and
proceeds thereof, funds, or payments which are not readily identifiable as
belonging to any particular series, the Trustees shall allocate them among any
one or more of the series established and designated from time to time in such
manner and on such basis as they, in their sole discretion, deem fair and
equitable. Each such allocation by the Trustees shall be conclusive and binding
upon the shareholders of all series for all purposes.
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(d) The assets belonging to each particular series shall be charged with
the liabilities of the Trust in respect of that series and all expenses, costs,
charges and reserves attributable to that series, and any general liabilities,
expenses, costs, charges or reserves of the Trust which are not readily
identifiable as belonging to any particular series shall be allocated and
charged by the Trustees to and among any one or more of the series established
and designated from time to time in such manner and on such basis as the
Trustees in their sole discretion deem fair and equitable. Each allocation of
liabilities, expenses. costs, charges and reserves by the Trustees shall be
conclusive and binding upon the holders of all series for all purposes. The
Trustees shall have full discretion, to the extent not inconsistent with the
1940 Act, to determine which items are capital: and each such determination and
allocation shall be conclusive and binding upon the Shareholders. The assets of
a particular series of the Trust shall, under no circumstances, be charged with
liabilities attributable to any other series of the Trust. All persons extending
credit to, or contracting with or having any claim against a particular series
of the Trust shall look only to the assets of that particular series for payment
of such credit, contract or claim.
(e) Each Share of a series of the Trust shall represent a beneficial
interest in the net assets of such series. Each holder of Shares of a series
shall be entitled to receive his pro rata share of distributions of income and
capital gains made with respect to such series. Upon redemption of his Shares or
indemnification for liabilities incurred by reason of his being or having been a
Shareholder of a series, such shareholder shall be paid solely out of the funds
and property of such series of the Trust. Upon liquidation or termination of a
series of the Trust, Shareholders of such series shall be entitled to receive a
pro rata share of the net assets of such series. A Shareholder of a particular
series of the Trust shall not be entitled to participate in a derivative or
class action on behalf of any other series or the Shareholders of any other
series of the Trust.
(f) Notwithstanding any other provision hereof, on any matter submitted to
vote of Shareholders of the Trust, all Shares then entitled to vote shall be
voted by individual series, except that (1) when required by the 1940 Act,
Shares shall be voted in the aggregate and not by individual series, and (2)
when the Trustees have determined that the matter affects only the interests of
Shareholders of a limited number of series, then only the Shareholders of such
series shall be entitled to vote thereon. The establishment and designation of
any series of Shares shall be effective upon the execution by a majority of the
then Trustees of an instrument setting forth such establishment and designation
and the relative rights and preferences of such series, or as otherwise provided
in such instrument. At any time that there are no Shares outstanding
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of any particular series previously established and designated, the Trustees may
by an instrument executed by a majority of their number abolish that series and
the establishment and designation thereof. Each instrument referred to in this
paragraph shall have the status of an amendment to this Declaration.
ARTICLE VI
REDEMPTION AND REPURCHASE OF SHARES
Section 6.1. Redemption of Shares, All Shares of the Trust shall be
redeemable, at the redemption price determined in the manner set out in this
Declaration. Redeemed or repurchased Shares may be resold by the Trust.
The Trust shall redeem the Shares at the price determined as hereinafter
set forth, upon the appropriately verified written application of the record
holder thereof (or upon such other form of request as the Trustees may
determine) at such office or agency as may be designated from time to time for
that purpose in the Trust's then effective prospectus under the Securities Act
of 1933. The Trustees may from time to time specify additional conditions, not
inconsistent with the 1940 Act, regarding the redemption of Shares in the
Trust's then effective prospectus under the Securities Act of 1933.
Section 6.2. Price. Shares shall be redeemed at their net asset value
determined as set forth in Section 7.1 hereof as of such time as the Trustees
shall have theretofore prescribed by resolution. In the absence of such
resolution, the redemption price of Shares deposited shall be the net asset
value of such Shares next determined as set forth in Section 7.1 hereof after
receipt of such application.
Section 6.3. Payment. Payment for such Shares shall be made in cash or in
property out of the assets of the relevant series of the Trust to the
Shareholder of record at such time and in the manner, not inconsistent with the
1940 Act or other applicable laws, as may be specified from time to time in the
Trust's then effective prospectus under the Securities Act of 1933, subject to
the provisions of Section 6.4 hereof.
Section 6.4. Effect of Suspension of Determination of Net Asset Value. If,
pursuant to Section 6.9 hereof, the Trustees shall declare a suspension of the
determination of net asset value, the rights of Shareholders (including those
who shall have applied for redemption pursuant to Section 6.1 hereof but who
shall not yet have received payment) to have Shares redeemed and paid for by the
Trust shall be suspended until the termination of such suspension is declared.
Any record holder who shall have his redemption right so suspended may, during
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the period of such suspension. by appropriate written notice of revocation at
the office or agency where application was made, revoke any application for
redemption not honored and withdraw any certificates on deposit. The redemption
price of Shares for which redemption applications have not been revoked shall be
the net asset value of such Shares next determined as set forth in Section 7.1
after the termination of such suspension, and payment shall be made within seven
(7) days after the date upon which the application was made plus the period
after such application during which the determination of net asset value was
suspended.
Section 6.5. Repurchase by Agreement. The Trust may repurchase Shares
directly, or through the Distributor or another agent designated for the
purpose. by agreement with the owner thereof at a price not exceeding the net
asset value per share determined as of the time when the purchase or contract of
purchase is made or the net asset value as of any time which may be later
determined pursuant to Section 7.1 hereof, provided payment is not made for the
Shares prior to the time as of which such net asset value is determined.
Section 6.6. Redemption of Shareholder's Interest. The Trust shall have
the right at any time without prior notice to the shareholder to redeem Shares
of any shareholder for their then current net asset value per Share if at such
time the shareholder owns Shares having an aggregate net asset value of less
than $1,000 subject to such terms and conditions as the Trustees may approve,
and subject to the Trust's giving general notice to all shareholders of its
intention to avail itself of such right, either by publication in the Trust's
prospectus, if any, or by such other means as the Trustees may determine.
Section 6.7. Redemption of Shares in Order to qualify as Regulated
Investment Company; Disclosure of Holding. If the Trustees shall, at any time
and in good faith, be of the opinion that direct or indirect ownership of Shares
or other securities of the Trust has or may become concentrated in any Person to
an extent which would disqualify any series of the Trust as a regulated
investment company under the Internal Revenue Code, then the Trustees shall have
the power by lot or other means deemed equitable by them (i) to call for
redemption by any such Person a number, or principal amount, of Shares or other
securities of the Trust sufficient to maintain or bring the direct or indirect
ownership of Shares or other securities of the Trust into conformity with the
requirements for such qualification and (ii) to refuse to transfer or issue
Shares or other securities of the Trust to any Person whose acquisition of the
Shares or other securities of the Trust in question would result in such
disqualification. The redemption shall be effected at the redemption price and
in the manner provided in Section 6.1.
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The holders of Shares or other securities of the Trust shall upon demand
disclose to the Trustees in writing such information with respect to direct and
indirect ownership of Shares or other securities of the Trust as the Trustees
deem necessary to comply with the provisions of the Internal Revenue Code, or to
comply with the requirements of any other taxing authority.
Section 6.8. Reductions in Number of Outstanding Shares Pursuant to Net
Asset Value Formula. The Trust may also reduce the number of outstanding Shares
pursuant to the provisions of Section 7.3.
Section 6.9. Suspension of Right of Redemption. The Trust may declare a
suspension of the right of redemption or postpone the date of payment or
redemption for the whole or any part of any period (i) during which the New York
Stock Exchange is closed other than customary week-end and holiday closings,
(ii) during which trading on the New York Stock Exchange is restricted, (iii)
during which an emergency exists as a result of which disposal by the Trust of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Trust fairly to determine the value of its net assets, or
(iv) during any other period when the Commission may for the protection of
security holders of the Trust by order permit suspension of the right of
redemption or postponement of the date of payment or redemption; provided that
applicable rules and regulations of the commission shall govern as to whether
the conditions prescribed in (ii), (iii), or (iv) exist. Such suspension shall
take effect at such time as the Trust shall specify but not later than the close
of business on the business day next following the declaration of suspension,
and thereafter there shall be no right of redemption or payment on redemption
until the Trust shall declare the suspension at an end, except that the
suspension shall terminate in any event on the first day on which said stock
exchange shall have reopened or the period specified in (ii) or (iii) shall have
expired (as to which in the absence of an official ruling by the Commission, the
determination of the Trust shall be conclusive). In the case of a suspension of
the right of redemption, a Shareholder may either withdraw his request for
redemption or receive payment based on the net asset value existing after the
termination of the suspension.
ARTICLE VII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
Section 7.1. Net Asset Value. The value of the assets of any series of the
Trust shall be determined by appraisal of the securities allocated to such
series, such appraisal to be on
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the basis of the amortized cost of such securities in the case of money market
securities, market value in the case of other securities, or by such other
method as shall be deemed to reflect the fair value thereof, determined in good
faith by or under the direction of the Trustees. From the total value of said
assets, there shall be deducted all indebtedness, interest, taxes, payable or
accrued, including estimated taxes on unrealized book profits, expenses and
management charges accrued to the appraisal date, net income determined and
declared as a distribution and all other items in the nature of liabilities
attributable to such series which shall be deemed appropriate. The resulting
amount which shall represent the total net assets of the series shall be divided
by the number of Shares of such series outstanding at the time and the quotient
so obtained shall be deemed to be the net asset value of the Shares. The net
asset value of the Shares shall be determined at least once on each business
day, as of the close of trading on the New York Stock Exchange or as of such
other time or times as the Trustees shall determine. The power and duty to make
the daily calculations may be delegated by the Trustees to the Investment
Adviser, the custodian, the Transfer Agent or such other Person as the Trustees
by resolution may determine. The Trustees may suspend the daily determination of
net asset value to the extent permitted by the 1940 Act.
Section 7.2. Distributions to Shareholders. The Trustees shall from time
to time distribute ratably among the Shareholders of a series such proportion of
the net profits, surplus (including paid-in surplus), capital, or assets of such
series held by the Trustees as they may deem proper. Such distributions may be
made in cash or property (including without limitation any type of obligations
of such series or any assets thereof), and the Trustees may distribute ratably
among the Shareholders additional Shares of such series issuable hereunder in
such manner, at such times, and on such terms as the Trustees may deem proper.
Such distributions may be among the Shareholders of record at the time of
declaring a distribution or among the Shareholders of record at such other date
or time or dates or times as the Trustees shall determine. The Trustees may in
their discretion determine that, solely for the purposes of such distributions,
Outstanding Shares shall exclude Shares for which orders have been placed
subsequent to a specified time on the date the distribution is declared or on
the next preceding day if the distribution is declared as of a day on which
Boston banks are not open for business, all as described in the then effective
prospectus under the Securities Act of 1933. The Trustees may always retain from
the net profits such amount as they may deem necessary to pay the debts or
expenses of the series or to meet obligations of the series, or as they may deem
desirable to use in the conduct of its affairs or to retain for future
requirements or extensions of the business. The Trustees may adopt and offer to
Shareholders such dividend reinvestment plans, cash dividend payout plans or
related plans as the Trustees shall deem appropriate.
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Inasmuch as the computation of net income and gains for Federal income tax
purposes may vary from the computation thereof on the books, the above
provisions shall be interpreted to give the Trustees the power in their
discretion to distribute for any fiscal year as ordinary dividends and as
capital gains distributions, respectively, additional amounts sufficient to
enable the Trust or the series to avoid or reduce liability for taxes.
Section 7.3. Determination of Net Income; Constant Net Asset Value;
Reduction of Outstanding Shares. With respect to a series the investment policy
of which is normally to invest at least 80% of its assets in debt securities
maturing in thirteen months or less, the net income of the series may consist of
(i) all interest and dividend income accrued on portfolio assets of the series,
less (ii) all actual and accrued liabilities determined in accordance with
generally accepted accounting principles and plus or minus (iii) net realized
gains and losses on the assets of the series. Interest income may include
discount earned (including both original issue and market discount) on discount
paper accrued ratably to the date of maturity or determined in such other manner
as the Trustees may determine. Expenses of the series, including the advisory or
management fee shall be accrued each day. Such net income may be determined by
or under the direction of the Trustees as of the close of trading on the New
York Stock Exchange on each day on which such market is open or as of such other
time or times as the Trustees shall determine, and, except as provided herein,
all the net income of the Trust, so determined, may be declared as a dividend on
the Outstanding Shares. If, for any reason, the net income of the series
determined at any time is a negative amount, the Trustees shall have the power
(i) to offset each Shareholder's pro rata share of such negative amount from the
accrued dividend account of such Shareholder, or (ii) to reduce the number of
Outstanding Shares of the series by reducing the number of Shares in the account
of such Shareholder by that number of full and fractional Shares which
represents the amount of such excess negative net income, or (iii) to cause to
be recorded on the books of the series an asset account in the amount of such
negative net income, which account may be reduced by the amount, provided that
the same shall thereupon become the property of the series and shall not be paid
to any Shareholder, of dividends declared thereafter upon the Outstanding Shares
on the day such negative net income is experienced, until such asset account is
reduced to zero; or (iv) to combine the methods described in clauses (i) and
(ii) and (iii) of this sentence, in order to cause the net asset value per Share
of the series to remain at a constant amount per Outstanding Share immediately
after each such determination and declaration. The Trustees shall also have the
power to fail to declare a dividend out of net income for the purpose of causing
the net asset value per Share of the series to be increased to a constant
amount. The Trustees shall not be
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required to adopt, but pay at any time adopt, discontinue or amend the practice
of maintaining the net asset value per Share of a series at a constant amount.
Section 7.4. Allocation Between Principal and Income. The Trustees shall
have full discretion to determine whether any cash or property received shall be
treated as income or as principal and whether any item of expense shall be
charged to the income or the principal account, and their determination made in
good faith shall be conclusive upon the Shareholders. In the case of stock
dividends received, the Trustees shall have full discretion to determine, in the
light of the particular circumstances, how much if any of the value thereof
shall be treated as income, the balance, if any, to be treated as principal.
Section 7.5. Power to Modify Foregoing Procedures. Notwithstanding any of
the foregoing provisions of this Article VII, the Trustees may prescribe, in
their absolute discretion, such other bases and times for determining the per
Share net asset value of the series' Shares or net income, or the declaration
and payment of dividends and distributions as they may deem necessary or
desirable. Without limiting the generality of the foregoing, the Trustees may
establish several series of Shares in accordance with Section 5.11, and declare
dividends thereon in such manner as they shall determine.
ARTICLE VIII
DURATION; TERMINATION OF TRUST;
AMENDMENT; MERGERS, ETC.
Section 8.1. Duration. The Trust shall continue without limitation of time
but subject to the provisions of this Article VIII.
Section 8.2. Termination of Trust. (a) The Trust or any series of the
Trust may be terminated by the affirmative vote of the holders of not less than
two-thirds of the Shares outstanding and entitled to vote, at any meeting of
Shareholders or by an instrument in writing, without a meeting, signed by a
majority of the Trustees and consented to by the holders of not less than
two-thirds of such Shares, or by such other vote as may be established by the
Trustees with respect to any series of Shares. Upon the termination of the Trust
or any series of the Trust,
(i) The Trust or any series of the Trust shall carry on no business
except for the purpose of winding up its affairs.
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(ii) The Trustees shall proceed to wind up the affairs of the Trust
or any series of the Trust and all of the powers of the Trustees under
this Declaration shall continue until the affairs of the Trust or any
series of the Trust shall have been wound up, including the power to
fulfill or discharge the contracts of the Trust or series, collect its
assets, sell, convey, assign, exchange, transfer or otherwise dispose of
all or any part of the remaining Trust Property or property of the series
of the Trust to one or more persons at public or private sale for
consideration which may consist in whole or in part of cash, securities or
other property of any kind, discharge or pay its liabilities, and do all
other acts appropriate to liquidate its business; provided that any sale,
conveyance, assignment, exchange, transfer or other disposition of all or
substantially all the Trust Property or property of the series of the
Trust shall require Shareholder approval in accordance with Section 8.4
hereof.
(iii) After paying or adequately providing for the payment of all
liabilities, and upon receipt of such releases, indemnities and refunding
agreements as they deem necessary for their protection, the Trustees may
distribute the remaining Trust Property or property of the series of the
Trust, in cash or in kind or partly each, among the Shareholders according
to their respective rights.
(b) After termination of the Trust or any series of the Trust and
distribution to the Shareholders as herein provided, a majority of the Trustees
shall execute and lodge among the records of the Trust or series an instrument
in writing setting forth the fact of such termination, and the Trustees shall
thereupon be discharged from all further liabilities and duties hereunder, and
the rights and interests of all Shareholders of the Trust or series of the Trust
shall thereupon cease.
Section 8.3. Amendment Procedure. (a) This Declaration may be amended by a
vote of the holders of a majority of the Shares outstanding and entitled to vote
or by any instrument in writing, without a meeting, signed by a majority of the
Trustees and consented to by the holders of a majority of the Shares outstanding
and entitled to vote. The Trustees may also amend this Declaration without the
vote or consent of Shareholders if they deem it necessary to conform this
Declaration to the requirements of applicable federal laws or regulations or the
requirements of the regulated investment company provisions of the Internal
Revenue Code (including those provisions of such Code relating to the retention
of the exemption from federal income tax with respect to dividends paid by the
Trust out of interest income received on Municipal Bonds), but the Trustees
shall not be liable for failing so to do.
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(b) No amendment may be made under this Section 8.3 which would change any
rights with respect to any Shares of the Trust by reducing the amount payable
thereon upon liquidation of the Trust or by diminishing or eliminating any
voting rights pertaining thereto, except with the vote or consent of the holders
of two-thirds of the Shares outstanding and entitled to vote, or by such other
vote as may be established by the Trustees with respect to any series of Shares.
Nothing contained in this Declaration shall permit the amendment of this
Declaration to impair the exemption from personal liability of the Shareholders,
Trustees, officers, employees and agents of the Trust or to permit assessments
upon Shareholders.
(c) A certificate signed by a majority of the Trustees setting forth an
amendment and reciting that it was duly adopted by the Shareholders or by the
Trustees as aforesaid or a copy of the Declaration, as amended, and executed by
a majority of the Trustees, shall be conclusive evidence of such amendment when
lodged among the records of the Trust.
Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended, covering
the first public offering of securities of the Trust shall have become
effective, this Declaration may be terminated or amended in any respect by the
affirmative vote of a majority of the Trustees or by an instrument signed by a
majority of the Trustees.
Section 8.4. Merger, Consolidation and Sale of Assets. The Trust may merge
or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of the
Trust Property, including its good will, upon such terms and conditions and for
such consideration when and as authorized at any meeting of Shareholders called
for the purpose by the affirmative vote of the holders of two-thirds of the
Shares outstanding and entitled to vote, or by an instrument or instruments in
writing without a meeting, consented to by the holders of two-thirds of the
Shares or by such other vote as may be established by the Trustees with respect
to any series of Shares; provided, however, that, if such merger, consolidation,
sale, lease or exchange is recommended by the Trustees, the vote or written
consent of the holders of a majority of the Shares outstanding and entitled to
vote, or such other vote or written consent as may be established by the
Trustees with respect to any series of Shares, shall be sufficient
authorization.
Section 8.5. Incorporation. With the approval of the holders of a majority
of the Shares outstanding and entitled to vote, or by such other vote as may be
established by the Trustees with respect to any series of Shares, the Trustees
may cause to be organized or assist in organizing a corporation or corporations
under the laws of any jurisdiction or any other
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trust, partnership, association or other organization to take over all of the
Trust Property or to carry on any business in which the Trust shall directly or
indirectly have any interest, and to sell, convey and transfer the Trust
Property to any such corporation, trust, association or organization in exchange
for the Shares or securities thereof or otherwise, and to lend money to,
subscribe for the Shares or securities of, and enter into any contracts with any
such corporation, trust, partnership, association or organization, or any
corporation, partnership, trust, association or organization in which the Trust
holds or is about to acquire shares or any other interest. The Trustees may also
cause a merger or consolidation between the Trust or any successor thereto and
any such corporations, trust, partnership, association or other organization if
and to the extent permitted by law, as provided under the law then in effect.
Nothing contained herein shall be construed as requiring approval of
Shareholders for the Trustees to organize or assist in organizing one or more
corporations, trusts, partnerships, associations or other organizations and
selling, conveying or transferring a portion of the Trust Property to such
organization or entities.
ARTICLE IX
REPORTS TO SHAREHOLDERS
The Trustees shall at least semi-annually submit to the Shareholders a
written financial report, which may be included in the Trust's prospectus, of
the transactions of the Trust, including financial statements which shall at
least annually be certified by independent public accountants.
ARTICLE X
MISCELLANEOUS
Section 10.1. Filing. This Declaration and any amendment hereto shall be
filed in the office of the Secretary of the Commonwealth of Massachusetts and in
such other places as may be required under the laws of Massachusetts and may
also be filed or recorded in such other places as the Trustees deem appropriate.
Each amendment so filed shall be accompanied by a certificate signed and
acknowledged by a Trustee stating that such action was duly taken in a manner
provided herein, and unless such amendment or such certificate sets forth some
later time for the effectiveness of such amendment, such amendment shall be
effective upon its filing. A restated Declaration, integrating into a single
instrument all of the provisions of the Declaration which are then in effect and
operative, may be executed from time to time by a majority of the Trustees and
shall, upon filing with the Secretary of the Commonwealth of
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Massachusetts, be conclusive evidence of all amendments contained therein and
may hereafter be referred to in lieu of the original Declaration and the various
amendments thereto.
Section 10.2. Governing Law. This Declaration is executed by the Trustees
and delivered in the Commonwealth of Massachusetts and with reference to the
laws thereof, and the rights of all parties and the validity and construction of
every provision hereof shall be subject to and construed according to the laws
of said State.
Section 10.3. Counterparts. This Declaration may be simultaneously
executed in several counterparts. each of which shall be deemed to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.
Section 10.4. Reliance by Third Parties. Any certificate executed by an
individual who, according to the records of the Trust appears to be a Trustee
hereunder, certifying to: (a) the number or identity of Trustees or
Shareholders, (b) the due authorization of the execution of any instrument or
writing, (c) the form of any vote passed at a meeting of Trustees or
Shareholders, (d) the fact that the number of Trustees or Shareholders present
at any meeting or executing any written instrument satisfies the requirements of
this Declaration, (e) the form of any By-laws adopted by or the identity of any
officers elected by the Trustees, or (f) the existence of any fact or facts
which in any manner relate to the affairs of the Trust, shall be conclusive
evidence as to the matters so certified in favor of any Person dealing with the
Trustees and their successors.
Section 10.5. Provisions in Conflict with Law or Regulations. (a) The
provisions of this Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the regulated investment company provisions of the
Internal Revenue Code or with other applicable laws and regulations, the
conflicting provision shall be deemed never to have constituted a part of this
Declaration; provided, however, that such determination shall not affect any of
the remaining provisions of this Declaration or render invalid or improper any
action taken or omitted prior to such determination.
(b) If any provision of this Declaration shall be held invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provisions in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
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<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this instrument this 12th
day of February, 1987.
/s/ David M. Elwood
------------------------
David M. Elwood
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<PAGE>
By-LAWS
OF
VALUE LINE NEW YORK TAX EXEMPT TRUST
February 12, 1987
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I - DEFINITIONS 1
ARTICLE II - OFFICES 1
Section 1. Principal Office 1
Section 2. Other Offices 1
ARTICLE III - SHAREHOLDERS 2
Section 1. Meetings 2
Section 2. Notice of Meetings 2
Section 3. Record Date for Meetings and Other Purposes 2
Section 4. Proxies 3
Section 5. Inspection of Records 4
Section 6. Action without Meeting 4
ARTICLE IV. - TRUSTEES 4
Section 1. Meetings of the Trustees 4
Section 2. Meeting, Quorum and Manner of Acting 6
ARTICLE V - COMMITTEES 6
Section 1. Executive and Other Committees 6
Section 2. Meeting, Quorum and Manner of Acting 7
ARTICLE VI - OFFICERS 8
Section 1. General Provisions 8
Section 2. Term of Office and Qualifications 8
Section 3. Removal 8
Section 4. Powers and Duties of the President 9
Section 5. Powers and Duties of Vice Presidents 9
Section 6. Powers and Duties of the Treasurer 10
Section 7. Powers and Duties of the Secretary 10
Section 8. Powers and Duties of Assistant Treasurers 11
Section 9. Powers and Duties of Assistant Secretaries 11
Section 10. Compensation of Officers and Trustees and
Members of Advisory Board 11
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TABLE OF CONTENTS--CONT.
Page
ARTICLE VII - FISCAL YEAR 12
ARTICLE VIII - SEAL 12
ARTICLE IX - WAIVERS OF NOTICE 12
ARTICLE X -CUSTODY OF SECURITIES 13
Section 1. Employment of A Custodian 13
Section 2. Action Upon Termination of Custodian Agreement 13
Section 3. Provisions of Custodian Contract 13
Section 4. Central Certificate System 14
Section 5. Acceptance of Receipts in Lieu of Certificate 15
ARTICLE XI - AMENDMENTS 15
ARTICLE XII - MISCELLANEOUS 16
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BY-LAWS
OF
VALUE LINE NEW YORK TAX EXEMPT TRUST
ARTICLE I
DEFINITIONS
The terms "Commission", "Custodian", "Declaration", "Distributor",
"Investment" Adviser", "1940 Act", "Shareholder", "Shares", "Transfer Agent",
"Trust", "Trust Property", "Trustees", and "vote of a majority of the Shares
outstanding and entitled to vote", have the respective meanings given them in
the Declaration of Trust of Value Line New York Tax Exempt Trust dated February
12, 1987, as amended from time to time.
ARTICLE II
OFFICES
Section 1. Principal Office. Until changed by the Trustees, the principal
office of the Trust shall be 711 Third Avenue, New York, New York 10017, and the
principal office of the Trust in the Commonwealth of Massachusetts shall be in
the City of Boston, County of Suffolk.
Section 2. Other Offices. The Trust may have offices in such other places
without as well as within the Commonwealth as the Trustees may from time to time
determine.
ARTICLE III
SHAREHOLDERS
Section 1. Meetings. Meetings of the Shareholders shall be held as
provided in the Declaration at such place within or without the Commonwealth of
Massachusetts as the Trustees shall designate. The holders of a one-third of
outstanding Shares present in person or by proxy shall constitute a quorum at
any meeting of the Shareholders, unless otherwise required by the Investment
Company Act of 1940.
Section 2. Notice of Meetings. Notice of all meetings of the Shareholders,
stating the time, place and purposes of the meeting, shall be given by the
Trustees by mail to each Shareholder at his address as recorded on the register
of the Trust mailed at least (10) days and not more than sixty (60) days before
the meeting shall be considered at such meeting. Any adjourned meeting may be
held as adjourned without further notice. No notice need be given to any
Shareholder who shall have failed to inform the Trust of his current address or
if a
<PAGE>
written waiver of notice, executed before or after the meeting by the
Shareholder or his attorney thereunto authorized, is filed with the records of
the meeting.
Section 3. Record Date for Meetings and Other Purposes. For the purpose of
determining the Shareholders who are entitled to notice of and to vote at any
meeting, or to participate in any distribution, or for the purpose of any other
action, the Trustees may from time to time close the transfer books for such
period, not exceeding thirty (30) days, as the Trustees may determine; or
without closing the transfer books the Trustees may fix a date not more than
sixty (60) days prior to the date of any meeting of Shareholders or distribution
or other action as a record date for the determinations of the persons to be
treated as Shareholders of record for such purposes, except for dividend
payments which shall be governed by the Declaration.
Section 4. Proxies. At any meeting of Shareholders, any holder of Shares
entitled to vote thereat may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote shall be taken.
Proxies may be solicited in the name of one or more Trustees or one or more of
the officers of the Trust. Only Shareholders of record shall be entitled to
vote. Each whole share shall be entitled to one vote as to any matter on which
it is entitled by the Declaration to vote, and each fractional Share shall be
entitled to a proportionate fractional vote. When any Share is held jointly by
several persons, any one of them may vote at any meeting in person or by proxy
in respect of such Share, but if more than one of them shall be present at such
meeting in person or by proxy, and such joint owners or their proxies so present
disagree as to any vote to be cast, such vote shall not be received in respect
of such Share. A proxy purporting to be executed by or on behalf of a
Shareholder shall be deemed valid unless challenged at or prior to its exercise,
and the burden of proving invalidity shall rest on the challenger. If the holder
of any such share is a minor or a person of unsound mind, and subject to
guardianship or the legal control of any other person as regards the charge or
management of such Share, he may vote by his guardian or such other person
appointed or having such control, and such vote may be given in person or by
proxy.
Section 5. Inspection of Records. The records of the Trust shall be open
to inspection by Shareholders to the same extent as is permitted shareholders of
a Massachusetts business corporation.
Section 6. Action without Meeting. Any action which may be taken by
Shareholders may be taken without a meeting if a
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majority of Shareholders entitled to vote on the matter (or such larger
proportion thereof as shall be required by law, the Declaration or these
By--Laws for approval of such matter) consent to the action in writing and the
written consents are filed with the records of the meetings of Shareholders.
Such consents shall be treated for all purposes as a vote taken at a meeting of
Shareholders.
ARTICLE IV
TRUSTEES
Section 1. Meetings of the Trustees. The Trustees may in their discretion
provide for regular or stated meetings of the Trustees. Notice of regular or
stated meetings need not be given. Meetings of the Trustees other than regular
or stated meetings shall be held whenever called by the President, or by any one
of the Trustees, at the time being in office. Notice of the time and place of
each meeting other than regular or stated meetings shall be given by the
Secretary or an Assistant Secretary or by the officer or Trustee calling the
meeting and shall be mailed to each Trustee at least two days before the
meeting, or shall be telegraphed, cabled, or wirelessed to each Trustee at his
business address, or personally delivered to him at least one day before the
meeting. Such notice may, however, be waived by any Trustee. Notice of a meeting
need not be given to any Trustee if a written waiver of notice, executed by him
before or after the meeting, is filed with the records of the meeting, or to any
Trustee who attends the meeting without protesting prior thereto or at its
commencement the lack of notice to him. A notice or waiver of notice need not
specify the purpose of any meeting. The Trustees may meet by means of a
telephone conference circuit or similar communications equipment by means of
which all persons participating in the meeting shall be deemed to have been held
at a place designated by the Trustees at the meeting. Participation in a
telephone conference meeting shall constitute presence in person at such
meeting. Any action required or permitted to be taken at any meeting of the
Trustees may be taken by the Trustees without a meeting if all the Trustees
consent to the action in writing and the written consents are filed with the
records of the Trustees meetings. Such consents shall be treated as a vote for
all purposes.
Section 2. Quorum and Manner of Acting. A majority of the Trustees shall
be present in person at any regular or special meeting of the Trustees in order
to constitute a quorum for the transaction of business at such meeting and
(except as otherwise required by law, the Declaration of these By--Laws) the act
of a majority of the Trustees present at any such meeting, at which a quorum is
present, shall be the act of the Trustees In the absence of a quorum, a majority
of the Trustees present may
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adjourn the meeting from time to time until a quorum shall be present. Notice of
an adjourned meeting need not be given.
ARTICLE V
COMMITTEES
Section 1. Executive and Other Committees. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than three (3) to hold office at the pleasure
of the Trustees, which shall have the power to conduct the current and ordinary
business of the Trust while the Trustees are not in session, including the
purchase and sale of securities and the designation of securities to be
delivered upon redemption of Shares of the Trust, and such other powers of the
Trustees as the Trustees may, from time to time, delegate to them except those
powers which by law, the Declaration or these By--Laws they are prohibited from
delegating. The Trustees may also elect from their own number other Committees
from time to time, the number composing such Committees, the powers conferred
upon the same (subject to the same limitations as with respect to the Executive
Committee) and the term of membership on such Committees to be determined by the
Trustees. The Trustees may designate a chairman of any such Committee. In the
absence of such designation the Committee may elect its own Chairman.
Section 2. Meetings, Quorum and Manner of Acting. The Trustees may (1)
provide for stated meetings of any Committee (2) specify the manner of calling
and notice required for special meetings of any Committee, (3) specify the
number of members of a Committee required to constitute a quorum and the number
of members of a Committee required to exercise specified powers delegated to
such Committee, (4) authorize the making of decisions to exercise specified
powers by written assent of the requisite number of members of a Committee
without a meeting, and (5) authorize the members of a Committee to meet by means
of a telephone conference circuit.
The Executive Committee shall keep regular minutes of its meetings and
records of decisions taken without a meeting and cause them to be recorded in a
book designated for that purpose and kept in the Office of the Trust.
ARTICLE VI
OFFICERS
Section 1. General Provisions. The officers of the Trust shall be a
President, a Treasurer and a Secretary, who shall be elected by the Trustees.
The Trustees may elect or appoint
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such other officers or. agents as the business of the Trust may require,
including one or more Vice Presidents, one or more Assistant Secretaries, and
one or more Assistant Treasurers. The Trustees may delegate to any officer or
committee the power to appoint any subordinate officers or agents.
Section 2. Term of Office and Qualifications. Except as otherwise provided
by law, the Declaration or these By--Laws, the President, the Treasurer and the
Secretary shall each hold office until his successor shall have been duly
elected and qualified and all other officers shall hold office at the pleasure
of the Trustees. The Secretary and Treasurer may be the same person. A Vice
President and the Treasurer or a Vice President and the Secretary may be the
same person, but the offices of Vice President, Secretary and Treasurer shall
not be held by the same person. The President shall hold no other office. Except
as above provided, any two offices may be held by the same person. Any officer
may be but none need be a Trustee or Shareholder.
Section 3. Removal. The Trustees, at any regular or special meeting of the
Trustees, may remove any officer without cause, by a vote of a majority of the
Trustees then in office. Any officer or agent appointed by an officer or
committee may be removed with or without cause by such appointing officer or
committee.
Section 4. Powers and Duties of the President. The President may call
meetings of the Trustees and of any Committee thereof when he deems it necessary
and shall preside at all meetings of the Shareholders. Subject to the control of
the Trustees and to the control of any Committees of the Trustees, within their
respective spheres, as provided by the Trustees, he shall at all times exercise
a general supervision and direction over the affairs of the Trust. He shall have
the power to employ attorneys and counsel for the Trust and to employ such
subordinate officers, agents, clerks and employees as he may find necessary to
transact the business of the Trust. He shall also have the power to grant,
issue, execute or sign such powers of attorney, proxies or other documents as
may be deemed advisable or necessary in furtherance of the interests of the
Trust. The President shall have such other powers and duties, as from time to
time may be conferred upon or assigned to him by the Trustees.
Section 5. Powers and Duties of Vice Presidents. In the absence or
disability of the President, the Vice President or, if there be more than one
Vice president, any Vice President designated by the Trustees shall perform all
the duties and may exercise any of the powers of the President, subject to the
control of the Trustees. Each Vice president shall perform such other duties as
may be assigned to him from time to time by the Trustees and the President.
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<PAGE>
Section 6. Powers and Duties of the Treasurer. The Treasurer shall be the
principal financial and accounting officer of the Trust. He shall deliver all
funds of the Trust which may come into his hands to such Custodian as the
Trustees may employ pursuant to Article X of these By--Laws. He shall render a
statement of condition of the finances of the Trust to the Trustees as often as
they shall require the same and he shall in general perform all the duties
incident to the office of Treasurer and such other duties as from time to time
may be assigned to him by the Trustees. The Treasurer shall give a bond for the
faithful discharge of his duties, if required so to do by the Trustees, in such
sum and with such surety or sureties as the Trustees shall require.
Section 7. Powers and Duties of the Secretary. The Secretary shall keep
the minutes of all meetings of the Trustees and of the Shareholders in proper
books provided for that purpose; he shall have custody of the seal of the Trust;
he shall have charge of the Share transfer books, lists and records unless the
same are in the charge of the Transfer Agent. He shall attend to the giving and
serving of all notices by the Trust in accordance with the provisions of these
By--Laws and as required by law; and subject to these By--Laws. he shall in
general perform all duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him by the Trustees.
Section 8. Powers and Duties of Assistant Treasurers. In the absence or
disability of the Treasurer, any Assistant Treasurer designated by the Trustees
shall perform all the duties, and may exercise any of the powers. of the
Treasurer. Each Assistant Treasurer shall perform such other duties as from time
to time may be assigned to him by the Trustees. Each Assistant Treasurer shall
give a bond for the faithful discharge of his duties, if required so to do by
the Trustees, in such sum and with such surety or sureties as the Trustees shall
require.
Section 9. Powers and Duties of Assistant Secretaries. In the absence or
disability of the Secretary, any Assistant Secretary designated by the Trustees
shall perform all the duties, and may exercise any of the powers, of the
Secretary. Each Assistant Secretary shall perform such other duties as from time
to time may be assigned to him by the Trustees.
Section 10. Compensation of Officers and Trustees and Members of the
Advisory Board. Subject to any applicable provisions of the Declaration, the
compensation of the officers and Trustees and members of the Advisory Board
shall be fixed from time to time by the Trustees or, in the case of officers, by
any Committee or officer upon whom such power may be conferred by the Trustees.
No officer shall be prevented from receiving such compensation as such officer
by reason of the fact that he is also a Trustee.
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ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust shall begin on the first day of March in each
year and shall end on the last day of February in each year, provided, however,
that the Trustees may from time to time change the fiscal year.
ARTICLE VIII
SEAL
The Trustees may adopt a seal which shall be in such form and shall have
such inscription thereon as the Trustees may from time to time prescribe.
ARTICLE IX
WAIVERS OF NOTICE
Whenever any notice whatever is required to be given by law, the
Declaration or these By-Laws, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto. A notice shall be deemed to have
been telegraphed, cabled or wirelessed for the purposes of these By-Laws when it
has been delivered to a representative of any telegraph, cable or wireless
company with instructions that it be telegraphed, cabled or wirelessed.
ARTICLE X
CUSTODY OF SECURITIES
Section 1. Employment of a Custodian. The Trust shall place and at all
times maintain in the custody of a Custodian (including any sub--custodian for
the Custodian) all funds, securities and similar investments included in the
Trust Property. The Custodian (and any sub--custodian) shall be a bank having
not less than $2,000,000 aggregate capital, surplus and undivided profits and
shall be appointed from time to time by the Trustees, who shall fix its
remuneration.
Section 2. Action Upon Termination of Custodian Agreement. Upon
termination of a Custodian Agreement or inability of the Custodian to continue
to serve, the trustees shall promptly appoint a successor custodian, but in the
event that no successor custodian can be found who has the required
qualifications and is willing to serve, the Trustees shall call
-7-
<PAGE>
as promptly as possible a special meeting of the Shareholders to determine
whether the Trust shall function without a custodian or shall be liquidated. If
so directed by vote of the holders of a majority of the outstanding voting
securities, the Custodian shall deliver and pay over all Trust Property held by
it as specified in such vote.
Section 3. Provisions of Custodian Contract. The following provisions
shall apply to the employment of a Custodian and to any contract entered into
with the Custodian so employed:
The Trustees shall cause to be delivered to the Custodian all securities
included in the Trust Property or to which the Trust may become entitled,
and shall order the same to be delivered by the Custodian only in
completion of a sale, exchange, transfer, pledge, loan of portfolio
securities to another person, or other disposition thereof, all as the
Trustees may generally or from time to time require or approve or to a
successor Custodian; and the Trustees shall cause all funds included in
the Trust Property or to which it may become entitled to be paid to the
Custodian, and shall order the same disbursed only for investment against
delivery of the securities acquired, or the return of cash held as
collateral for loans of portfolio securities, or in payment of expenses,
including management compensations and liabilities of the Trust, including
distributions to shareholders, or to a successor Custodian.
Section 4. Central Certificate System. Subject to such rules, regulations
and orders as the Commission may adopt, the Trustees may direct the Custodian to
deposit all or any part of the securities owned by the Trust in a system for the
central handling of securities established by a national securities exchange or
a national securities association registered with the Commission under the
Securities Exchange Act of 1934, or such other person as may be permitted by the
Commissioner or otherwise in accordance with the 1940 Act, pursuant to which
system all securities of any particular class or series of any issuer deposited
within the system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of such securities, provided that
all such deposits shall be subject to withdrawal only upon the order of the
Trust.
Section 5. Acceptance of Receipts in Lieu of Certificates. Subject to such
rules, regulations and orders as the Commission may adopt, the Trustees may
direct the Custodian to accept written receipts or other written evidences
indicating purchases of securities held in book--entry form in the Federal
Reserve System in accordance with regulations promulgated by the Board of
Governors of the Federal Reserve System and the local Federal Reserve Banks in
lieu of receipt of certificates representing such securities.
-8-
<PAGE>
ARTICLE XI
AMENDMENTS
These By--Laws, or any of them, may be altered, amended or repealed, or
new By--Laws may be adopted by (a) vote of a majority of the Shares outstanding
and entitled to vote or (b) by the Trustees, provided, however, that no By--Law
may be amended. adopted or repealed by the Trustees if such amendment, adoption
or repeal requires, pursuant to law, the Declaration or these By--Laws, a vote
of the Shareholders.
ARTICLE XII
MISCELLANEOUS
(A) Except as hereinafter provided, no officer or Trustees of the Trust
and no partner. officer, director or shareholder of the Investment Adviser of
the Trust (as that term is defined in the Investment Company Act of 1940) or of
the underwriter of the Trust, and no Investment Adviser or underwriter of the
Trust, shall take long or short positions in the securities issued by the Trust.
(1) The foregoing provisions shall not prevent the underwriter from
purchasing Shares from the Trust if such purchases are limited (except for
reasonable allowances for clerical errors, delays and errors of
transmission and cancellation of orders) to purchase for the purpose of
filling order for such Shares received by the underwriter, and provided
that orders to purchase from the Trust are entered with the Trust or the
Custodian promptly upon receipt by the underwriter of purchase orders for
such Shares, unless the underwriter is otherwise instructed by its
customer.
(2) The foregoing provision shall not prevent the underwriter from
purchasing Shares of the Trust as agent for the account of the Trust.
(3) The foregoing provisions shall not prevent the purchase from the
Trust or from the underwriter of Shares issued by the Trust, by any
officer, or Trustee of the Trust or by any partner, officer, director or
shareholder of the Investment Adviser of the Trust or of the underwriter
of the Trust at the price available to the public generally at the moment
of such purchase, or as described in the then currently effective
Prospectus of the Trust.
(4) The foregoing shall not prevent the Investment Adviser, or any
affiliate thereof, of the Trust from purchasing Shares prior to the
effectiveness of the first registration statement relating to the Shares
under the Securities Act of 1933.
-9-
<PAGE>
(B) The Trust shall not lend assets of the Trust to any officer or Trustee
of the Trust, or to any partner, officer, director or shareholder of, or person
financially interested in, the Investment Adviser of the Trust, or the
underwriter of the Trust, or to the Investment Adviser of the Trust or to the
underwriter of the Trust.
(C) The Trust shall not impose any restrictions upon the transfer of the
Shares of the Trust except as provided in the Declaration, but this requirement
shall not prevent the charging of customary transfer agent fees.
(D) The Trust shall not permit any officer or Trustee of the Trust, or any
partner, officer or director of the Investment Adviser or underwriter of the
Trust to deal for or on behalf of the Trust with himself as principal or agent,
or with any partnership, association or corporation in which he has a financial
interest; provided that the foregoing provisions shall not prevent (a) officers
and Trustees of the Trust or partners, officers or directors of the Investment
Adviser or underwriter of the Trust from buying, holding or selling shares in
the Trust, or from being partners, officers or directors or otherwise
financially interested in the Investment Adviser or underwriter of the Trust;
(b) purchases or sales of securities or other property by the Trust from or to
an affiliated person or to the Investment Advisers or underwriters of the Trust
if such transaction is exempt from the applicable provisions of the 1940 Act;
(c) purchases of investments for the portfolio of the Trust or sales of
investments owned by the Trust through a security dealer who is, or one or more
of whose partners, shareholders, officers or directors is, an officer or Trustee
of the Trust, or a partner, officer or director of the Investment Adviser or
underwriter of the Trust, if such transactions are handled in the capacity of
broker only and commissions charged do not exceed customary brokerage charges
for such services; (d) employment of legal counsel, registrar, Transfer Agent,
dividend disbursing agent or Custodian who is, or has a partner, shareholder,
officer, or director who is, an officer or Trustee of the Trust, or a partner,
officer or director of the Investment Adviser or underwriter of the Trust, if
only customary fees are charged for services to the Trust; (e) sharing
statistical research, legal and management expenses and office hire and expenses
with any other investment company in which an officer or Trustee of the Trust,
or a partner, officer or director of the Investment Adviser or underwriter of
the Trust, is an officer or director or otherwise financially interested.
END OF BY-LAWS
-10-
<PAGE>
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of the 10 day of Aug. 1988 between VALUE LINE NEW YORK
TAX EXEMPT TRUST, a Massachusetts trust (hereinafter called "the Fund"), and
VALUE LINE, INC., a New York corporation (hereinafter called "the Company");
WITNESSETH:
WHEREAS, the Fund desires to have the Company act as its investment
adviser and provide it with investment research, advice, supervision and
management; and
WHEREAS, the Company is willing to undertake the same upon the terms and
conditions set forth.
NOW, THEREFORE, it is hereby agreed by and between the parties hereto as
follows:
1. Duties. The Company shall provide the Fund with such investment
research, data, advice and supervision as the latter may from time to time
consider necessary for proper supervision of its funds. The company shall act as
manager and investment adviser of the Fund and, as such, shall furnish
continuously an investment program and shall determine from time to time what
securities shall be purchased or sold by the Fund, and what portion of the
assets of the Fund shall be held uninvested, subject always to the provisions of
the Fund's Declaration of Trust and By-Laws, to the Fund's fundamental
investment policies as in effect from time to time, and to the control and
review by the Fund's Board of Trustees. The Company shall take, on behalf of the
Fund, all actions which it deems necessary to carry into effect the investment
policies determined as provided above, and to that end the Company may designate
a person or persons who are to be authorized by the Fund as the representative
or representatives of the Fund, to give instructions to the Custodian of the
assets of the Fund as to deliveries of securities and payments of cash for the
account of the Fund.
2. Allocation of Charges and Expenses; Brokerage. The Company shall
furnish at its own expense all administrative services, office space, equipment
and administrative, bookkeeping and clerical personnel necessary for managing
the affairs of the Fund. The Company shall also provide persons satisfactory to
the Fund's Board of Trustees to act as officers and employees of the Fund and
shall pay the salaries and wages of all officers and employees of the Fund who
are also officers and employees of the Company or of an affiliated person (as
defined in the Investment Company Act of 1940) other than the Fund. All other
costs and expenses not expressly assumed by the Company under this Agreement, or
to be paid by the Distributor or Distributors of the shares of the Fund, shall
be paid by the Fund, including (i) interest and taxes; (ii) brokerage
commissions and other costs in connection with the purchase or sale of
securities; (iii) insurance premiums for fidelity and other coverage requisite
to its operations; (iv) compensation and expenses of its directors other than
those affiliated with the Company; (v) legal and audit expenses; (vi) custodian
and shareholder servicing agent fees and expenses; (vii) expenses incident to
the redemption of its shares; (viii) expenses incident to the issuance of its
shares against payment therefor by or on behalf of the subscribers thereto,
including printing of stock certificates; (ix) fees and expenses incident to the
registration under the Securities Act of 1933 or under any state securities laws
of shares of the Fund for public sale and fees imposed on the Fund under the
Investment Company Act of 1940; (x) expenses of printing and mailing
prospectuses, reports and notices and proxy
A-1
<PAGE>
material to shareholders of the Fund; (xi) all other expenses incidental to
holding meetings of the Fund's shareholders; (xii) a pro rata share, based on
relative net asset value of the fund and other investment companies for which
the Company also act as manager and investment adviser, of 50% of the fees or
dues of the Investment Company Institute; (xiii) fees and expenses in connection
with registration of the Fund or qualification of its shares under the
securities laws of states and foreign jurisdictions and (xiv) such non-recurring
expenses as may arise, including actions, suits or proceedings to which the Fund
is a party and the legal obligation which the Fund may have to indemnify its
officers and trustees with respect thereto.
The Company shall place purchase and sale orders for portfolio
transactions of the Fund with brokers and/or dealers including, where permitted
by law, the Fund's Distributor or affiliates thereof or of the Company, which,
in the judgment of the Company, are able to execute such orders as expeditiously
as possible and at the best obtainable price. Purchases and sales of securities
which are not listed or traded on a securities exchange shall ordinarily be
executed with primary market makers acting as principal except when it is
determined that better prices and executions may otherwise be obtained,
provided, that the Company may cause the Fund to pay a member of a securities
exchange, broker or dealer an amount of commission for effecting a purchase or
sale order for a portfolio transaction in excess of the amount of commission
another member of an exchange, broker or dealer would have charged for effecting
that transaction if the Company determines in good faith that such amount of
commission was reasonable in relation to the value of the brokerage and research
services provided by such member, broker, dealer, viewed in terms of that
particular transaction or the Company's overall responsibilities. As used
herein, "brokerage and research services" shall have the same meaning as in
Section 28(e)(3) of the Securities Exchange Act of 1934, as such Section may be
amended from time to time, and any rules or regulations promulgated by the
Securities and Exchange Commission. It is understood that, consistent with the
Company's fiduciary duty to the Fund, it is the intent of this Agreement to
allow the Company the widest discretion permitted by law in determining the
manner and means by which portfolio securities transactions can be effected in
the best interests of the Fund.
3. Compensation. (a) For its services and for the facilities to be
furnished as provided herein, the Fund shall pay to the Company an advisory fee
payable monthly, computed at the annual rate of 6/10 of 1% of the Fund's average
net assets during the year, pro rated for any portion of a year during which
this Agreement is in effect. For this purpose, the value of the Fund's net
assets shall be determined in the same manner as for the purchase and redemption
of Fund shares as described in the Fund's current Prospectus.
(b) If the Fund's Distributor receives fees in connection with the tender
of portfolio securities of the Fund, the gross amount of the advisory fee
computed in accordance with the preceding paragraph 3(a) shall be reduced by the
amount of tender fees received; if the amount of such tender fees exceeds the
amount of advisory fees computed in accordance with paragraph 3(a), the excess
shall be paid by the Company to the Fund.
(c) In the event that the total expenses of the Fund, excluding interest,
taxes, brokerage commissions and extraordinary expenses, exceeds in any fiscal
year the lowest applicable percentage limitation prescribed by any state in
which shares of the Fund are sold, the compensation of the Company, computed in
accordance with the preceding two paragraphs 3(a) and 3(b), shall be reduced by
the amount of such excess.
4. Duration and Termination of Agreement. This Agreement shall become
effective on the date set forth above and will continue in effect from year to
year thereafter only so long as such continuance is specifically approved at
least annually in accordance with the Investment Company Act of 1940. This
Agreement may be terminated on sixty days written notice by either party. This
Agreement shall terminate automatically in the event of its assignment as
defined in the Investment Company Act of 1940.
A-2
<PAGE>
5. Name of Fund. The Company consents to the use by the Fund of the name
"Value Line New York Tax Exempt Trust" so long, and only so long, as this
Agreement (or any agreement with any organization which has succeeded to the
business of the Company) or any extension, renewal or amendment thereof, remains
in effect. The Fund agrees that if and when no such agreement is in effect, (a)
it will cease to use said name or any name indicating or suggesting that the
Fund is advised by or otherwise connected with the Company and (b) it will not
thereafter refer to the former association between the Company and the Fund.
6. Company May Act for Others. Nothing herein contained shall limit the
freedom of the Company or any affiliated person of the Company to render
investment supervisory or corporate administrative services to other investment
companies, to act as investment adviser or investment counselor to other
persons, firms or corporations, and to engage in other business activities.
7. Amendment of Agreement. This Agreement may not be amended except
pursuant to a direction given by the vote of the holders of a majority (as
defined in the Investment Company Act of 1940) of the outstanding shares of the
Fund.
8. Liability. The Company shall not be liable for any error of judgment,
or mistake of law, or any loss suffered by the Fund, in connection with the
matters to which this Agreement relates, except for loss resulting in the
performance of its duties or from reckless disregard by the Company of its
obligations and duties hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date and year first above
written.
VALUE LINE NEW YORK TAX EXEMPT TRUST
By /s/ Thomas J. Sexton
......................................
VALUE LINE, INC.
By /s/ Jean [ILLEGIBLE]
......................................
A-3
<PAGE>
DISTRIBUTION AGREEMENT
Between
VALUE LINE NEW YORK TAX EXEMPT TRUST
and
VALUE LINE SECURITIES, INC.
July 1, 1987
VALUE LINE SECURITIES, INC.
711 Third Avenue
New York, New York 10017
Dear Sirs:
VALUE LINE NEW YORK TAX EXEMPT TRUST (the "Fund") established under the
laws of the Commonwealth of Massachusetts by Declaration of Trust dated February
12, 1987, is registered as an Investment Company under the Investment Company
Act of 1940 and an indefinite number of shares of beneficial interest have been
registered under the Securities Act of 1933 to be offered continuously for sale
to the public in accordance with terms and conditions set forth in the
Prospectus included in such Registration Statement as it may be amended from
time to time.
In this connection, the Fund desires that your firm act as principal
underwriter and distributor (herein "distributor") of the Fund for the sale and
distribution of shares which have been registered as described above and any
additional shares which may become registered during the term of this Agreement.
You have advised the Fund that you are willing to act as distributor, and it is,
accordingly, agreed between us as follows:
1. The Fund hereby appoints you distributor for the sale of its shares,
pursuant to the aforesaid continuous public offering in connection with any
sales made to Fund investors in any states and/or jurisdictions in which you are
or shall from time to time become qualified as a broker/dealer, or through
securities dealers with whom you have entered into sales agreements.
<PAGE>
2. You hereby accept such appointment and agree to use your best efforts
to sell such shares, provided, however, that when requested by the Fund at any
time because of market or other economic considerations or abnormal
circumstances of any kind, you will suspend such efforts. The Fund may also
withdraw the offering of the shares at any time when required by the provisions
of any statute, order, rule or regulation of any governmental body having
jurisdiction. It is understood that you do not undertake to sell all or any
specific portion of the shares of the Fund.
3. The shares shall be sold by you at net asset value as determined in the
Fund's Prospectus effective at the time of sale. Shares may be sold directly to
prospective purchasers or through securities dealers who have entered into sales
agreements with you. However, in no event will shares be issued prior to the
receipt by us of full payment for such shares.
4. You agree that the Fund shall have the right to accept or reject orders
for the purchase of shares of the Fund. Any consideration which you may receive
in connection with a rejected purchase order will be returned promptly. In the
event that any cancellation of a share purchase order, cancellation of a
redemption order or error in the timing of the acceptance of purchase or
redemption orders shall result in a gain or loss, you agree promptly to
reimburse the Fund for any amount by which losses shall exceed gains so arising;
to retain any net gains so arising for application against losses so arising in
future periods and, on the termination of this Agreement, to pay over to the
Fund the amount of any such net gains which may have accumulated. The Fund shall
register or cause to be registered all shares sold by you pursuant to the
provisions hereof in such name or names and amounts as you may request from time
to time, and the Fund shall issue or cause to be issued certificates evidencing
such shares for delivery to you or pursuant to your direction if, and to the
extent that, the shareholder requests issuance of such share certificates.
5. The Fund has delivered to you a copy of its initial Prospectus dated on
the effective date of its Registration Statement pursuant to the Securities Act
of 1933. It agrees that it will use its best efforts to continue the
effectiveness of the Registration Statement under the Securities Act of 1933.
The Fund further agrees to prepare and file any amendments to its Registration
Statement as may be necessary and any supplemental data in order to comply with
the Securities Act of 1933.
-2-
<PAGE>
6. The Fund is registered under the Investment Company Act of 1940 as an
investment company, and it will use its best efforts to maintain such
registration and to comply with the requirements of said Act.
7. You agree:
(a) That neither you nor any of your officers will take any short
position in the shares of the Fund.
(b) To furnish to the Fund any pertinent information required to be
included with respect to you as distributor within the meaning of the Securities
Act of 1933 in any reports or registration required to be filed with any
governmental authority.
(c) You will not give any information or make any representations
other than as contained in the Registration Statement or Prospectus filed under
the Securities Act of 1933, as in effect from time to time, or in any
supplemental sales literature authorized by the Fund for use in connection with
the sale of shares.
8. You shall pay all usual expenses of distribution, including advertising
and the costs of printing and mailing of the Prospectus, other than those
furnished to existing shareholders.
9. This Agreement will continue in effect for a period of two years and
shall continue in effect from year to year thereafter provided:
(a) Such continuation shall be specifically approved at least
annually by the Board of Trustees, including the vote of a majority of the
Trustees of the Fund who are not parties to this Agreement or "interested
persons" (as defined in the Investment Company Act of 1940) of any such persons
cast in person at a meeting called for the purpose of voting on such approval or
by vote of the holders of a majority of the outstanding voting securities of the
Fund and by such a vote of the Board of Trustees.
(b) You shall not have notified the Fund in writing at least sixty
days prior to the termination date that you shall not desire such continuation.
(c) We shall not have notified you in writing at least sixty days
prior to the termination date that we do not desire your continuation.
-3-
<PAGE>
10. This Agreement may not be amended or changed except in writing and
shall be binding upon and shall enure to the benefits of the parties hereto and
their respective successors, but this Agreement shall not be assigned by either
party and shall automatically terminate upon assignment.
If the foregoing is in accordance with your undertaking, kindly so
indicate by signing in the space provided below.
VALUE LINE NEW YORK TAX EXEMPT TRUST
By /s/ [ILLEGIBLE]
------------------------------------
Accepted:
VALUE LINE SECURITIES, INC.
By /s/ Thomas J. Sexton
- ------------------------------
-4-
<PAGE>
AMENDMENT TO CUSTODIAN CONTRACT
AMENDMENT made by and between STATE STREET BANK AND TRUST COMPANY (the
"Custodian") each Fund listed on Appendix A (the "Fund").
WHEREAS, the Custodian and each Fund are parties to a Custodian Contract,
as amended (each a "Custodian Contract") governing the terms and conditions
under which the Custodian maintains custody of the securities and other assets
of the Fund; and
WHEREAS, the Custodian and each Fund desires to amend the relevant
Custodian Contract;
NOW THEREFORE, the Custodian and each Fund hereby amend and revise in its
entirety the defined term "Authorized person" in Section 2(a) of the Custodian
Contract as follows:
"Authorized person" of a Fund shall mean any of the persons duly
authorized to give Proper Instructions or otherwise act with respect to
such Fund on behalf of the Board of Trustees/Directors of such Fund by
appropriate resolution of such Board of Trustees/Directors, it being
understood that the signatures of two Authorized persons of a Fund shall
be required for the release of the assets of the Fund.
1
<PAGE>
Except as specifically superseded or modified herein, the terms and provisions
of the Custodian Contract shall continue to apply with full force and effect.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative as of the
1st day of October, 1997.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Ronald E. Logue
-------------------------------
Ronald E. Logue
Executive Vice President
Attest: /s/ Thomas M. Lenz
---------------------------
Thomas M. Lenz
Vice President
EACH FUND LISTED ON APPENDIX A
By: /s/ Jean B. Buttner
-------------------------------
Name: Jean B. Buttner
Title: Chairman & President
Attest: /s/ David D. Henigson
---------------------------
Name: David D. Henigson
Title: Secretary
2
<PAGE>
APPENDIX A
LIST OF FUNDS
Value Line Aggressive Income Trust
Value Line Asset Allocation Fund, Inc.,
Value Line Cash Fund, Inc., (The)
Value Line Centurion Fund, Inc.
Value Line Convertible Fund, Inc.
Value Line Fund, Inc. (The)
Value Line Income Fund, Inc., (The)
Value Line Leveraged Growth Investors, Inc.
Value Line New York Tax Exempt Trust
Value Line Small-Cap Growth Fund, Inc.
Value Line Special Situations Fund, Inc.
Value Line Strategic Asset Management Trust
Value Line Tax-Exempt Fund, Inc. (The)
Value Line U.S. Government Securities Fund, Inc.
Value Line U.S. Multi-National Company Fund, Inc.
3
<PAGE>
CUSTODIAN AGREEMENT
Dated as of:
Between
VALUE LINE NEW YORK TAX EXEMPT TRUST
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
----
1. Bank Appointed Custodian ................................................1
2. Definitions .............................................................1
(a) Authorized Person ...................................................1
(b) Security ............................................................2
(c) Portfolio Security ..................................................2
(d) Officers' Certificate ...............................................2
(e) Book-Entry System and Depository ....................................2
3. A. Proper Instructions .................................................3
B. Bank's Communications with Fund .....................................4
4. Separate Accounts .......................................................5
5. Certification as to Authorized Persons ..................................5
6. Custody of Cash and Securities ..........................................6
A. Cash ................................................................6
(a) Purchase of Securities ..........................................6
(b) Redemptions .....................................................7
(c) Distributions and Expenses of Fund ..............................7
(d) Payment in Respect of Securities ................................7
(e) Repayment of Cash ...............................................7
(f) Other Authorized Payments .......................................8
(g) Termination .....................................................8
B. Securities ..........................................................8
(a) Book-Entry System ..............................................10
(b) Use of Direct Paper System for Commercial Paper ................12
C. Options and Futures Transactions ...................................14
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ
or Over-the-Counter ............................................14
(b) Puts, Calls and Futures Traded on Commodities Exchanges ........15
(c) Segregated Account .............................................16
D. Segregated Account for "when issued", "forward commitment"
and Reverse Repurchase Agreement Transactions ......................17
7. Transfer of Securities .................................................18
8. Redemptions ............................................................20
9. Merger, Dissolution, etc. of Fund ......................................20
10. Actions of Bank Without Prior Authorization ............................21
11. Maintenance of Records and Confidentiality .............................23
<PAGE>
12. Concerning the Bank ....................................................23
A. Performance of Duties ..............................................23
B. Responsibility of Custodian ........................................24
C. No Duty of Bank ....................................................24
D. Fees and Expenses of Bank ..........................................25
E. Advances by Bank ...................................................26
13. Termination ............................................................26
14. Notices ................................................................28
15. Amendments .............................................................29
16. Parties ................................................................29
17. Governing Law ..........................................................29
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT made as of this 21st day of June, 1990 between VALUE LINE NEW
YORK TAX EXEMPT TRUST, a business trust established under the laws of
Massachusetts (the "Fund"), and STATE STREET BANK AND TRUST COMPANY ("Bank").
The Fund, an open-end management investment company, desires to place and
maintain its portfolio securities and cash in the custody of the Bank. The Bank
has at least the minimum qualifications required by Section 17(f)(1) of the
Investment Company Act of 1940 to act as custodian of the portfolio securities
and cash of the Fund, and has indicated its willingness to so act, subject to
the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. Bank Appointed Custodian. The Fund hereby appoints the Bank as
custodian of its portfolio securities and cash delivered to the Bank as
described, and the Bank agrees to act as such upon the terms and conditions
hereinafter set forth.
2. Definitions. Whenever used herein, the terms listed below will have the
following meaning:
(a) Authorized Person. Authorized person will mean any of the
persons duly authorized to give Proper Instructions or otherwise act on
behalf of the Fund by appropriate resolution of the Board of Trustees.
<PAGE>
(b) Security. The term security as used herein will have the same
meaning as when such term is used in the Securities Act of 1933 as
amended, including, without limitation, any note, stock, treasury stock,
bond, debenture, evidence of indebtedness, certificate of interest or
participation in any profit sharing agreement, collateral-trust
certificate, preorganization certificate or subscription, transferable
share, investment contract, voting-trust certificate, certificate of
deposit for a security, fractional undivided interest in oil, gas, or
other mineral rights, any put, call, straddle, option, or privilege on any
security, certificate of deposit, or group or index of securities
(including any interest therein or based on the value thereof), or any
put, call, straddle, option, or privilege entered into on a national
securities exchange relating to a foreign currency, or, in general, any
interest or instrument commonly known as a "security", or any certificate
of interest or participation in, temporary or interim certificate for,
receipt for, guarantee of, or warrant or right to subscribe to, or option
contract to purchase or sell any of the foregoing and futures, forward
contracts and options thereon.
(c) Portfolio Security. Portfolio security will mean any security
owned by the Fund.
(d) Officers' Certificate. Officers' Certificate will mean unless
otherwise indicated, any request, direction, instruction, or certification
in writing signed by any two Authorized Persons of the Fund.
(e) Book-Entry System and Depository. Book-Entry System shall mean
the Federal Reserve-Treasury Department Book Entry System for United
States government, instrumentality and agency securities operated by the
Federal Reserve Banks, its successor or successors and its nominee or
nominees. Depository shall mean the Depository
-2-
<PAGE>
Trust Company ("DTC"), a clearing agency registered with the Securities and
Exchange Commission under Section l7A of the Securities Exchange Act of 1934, it
successor or successors and its nominee or nominees. The term "Depository" shall
further mean and include any other person authorized to act as a depository
under the Investment Company Act of 1940, its successor or successors and its
nominee or nominees, specifically identified in a certified copy of a resolution
of the Fund's Trustees.
3A. Proper Instructions. For purposes of this Agreement, "Proper
Instructions" shall mean (i) instructions regarding the purchase or sale of
securities for the portfolio of the Fund, and payments and deliveries in
connection therewith, given by an Authorized Person as designated in an
Officers' Certificate, such instructions to be given in such form and manner as
the Bank and the Fund shall agree upon from time to time, and (ii) instructions
(which may be continuing instructions) regarding other matters signed or
initialled by such one or more persons from time to time designated in an
Officers' Certificate as having been authorized by the Trustees of the Fund.
Oral instructions given by a person whom the Bank reasonably believes to be
authorized to give such instructions with respect to the transaction involved
will be considered Proper Instructions only if the Bank receives written
instructions (which may be sent by telecopier) confirming such oral
instructions, provided however that if the Bank is notified by an Authorized
Person of the Fund that the Fund is unable to promptly confirm such oral
instructions in writing, then the Bank may act upon receipt of a second oral
instruction confirming such prior oral instruction. The Bank shall compare the
original oral instruction with any confirmatory written or oral instruction, as
the case may be, and shall report any discrepancy to the Fund immediately, and
the Bank shall be responsible for any expense incurred in taking any action,
including any reprocessing, necessary to correct any
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such discrepancy or error in Proper Instructions given by the Fund, to the
extent such expense is caused by the unreasonable delay of the Bank in reporting
such discrepancy to the Fund. Except as provided in the preceeding sentence, the
Fund shall be responsible, at the Fund's expense, for taking any action,
including any reprocessing, necessary to correct any such discrepancy or error
in Proper Instructions given by the Fund, and to the extent such action requires
the Bank to act, the Fund shall give the Bank specific Proper Instructions as to
the action required. The Bank shall act upon and comply with any subsequent
Proper Instructions which modifies a prior Proper Instruction. Upon receipt of
an Officers' Certificate as to the authorization by the Trustees of the Fund
accompanied by a detailed description of procedures approved by the Fund, Proper
Instructions may include communication effected directly between
electro-mechanical or electronic devices provide that the Trustees and the Bank
are satisfied that such procedures afford adequate safeguards for the Fund's
assets.
3B. Bank's Communications with Fund. For purposes of this Agreement, all
communications from the Bank to the Fund shall be in writing (which may be sent
by means of a telecopier) and any such writing reasonably believed by the Fund
to be from a person authorized to make such communication on behalf of the Bank
may be relied upon the Fund. An oral communication from a person whom the Fund
reasonably believes to be authorized to make such communication on behalf of the
Bank with respect to the transaction may be relied upon by the Fund only if the
Fund receives a written communication (which may be sent by telecopier)
confirming such oral communication, provided however, that if the Fund is
notified by such authorized person that the Bank is unable to promptly confirm
such oral communication in writing, then the Fund may act in reliance upon
receipt of a second oral communication confirming such prior oral communication.
The Fund shall compare the original oral communication with any confirmatory
written or oral
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communication, as the case may be, and shall report any discrepancy to the Bank
immediately, and the Fund shall be responsible for any expense incurred in
taking any action, including any reprocessing, necessary to correct any such
discrepancy or error in communications given by the Bank, to the extent such
expense is caused by the unreasonable delay of the Fund in reporting such
discrepancy to the Bank. Except as provided in the preceding sentence, the Bank
shall be responsible, at the Bank's expense, for any action taken, including any
reprocessing, necessary to correct any such discrepancy or error in
communications given by the Bank, and to the extent such action requires the
Bank to act, the Fund shall give the Bank specific Proper Instructions as to the
action required. The Fund may act in reliance upon any subsequent communication
from the Bank which modifies a prior communication.
4. Separate Accounts. If the Fund has more than one series or portfolio,
the Bank will segregate the assets of the Fund into a Separate Account for each
such series or portfolio containing the assets of such series or portfolio (and
all investment earnings thereon), all as directed from time to time by Proper
Instructions.
5. Certification as to Authorized Persons. The Secretary or Assistant
Secretary of the Fund will at all times maintain on file with the Bank his
certification to the Bank, in such form as may be acceptable to the Bank, of the
names and signatures of the Authorized Persons, it being understood that upon
the occurrence of any change in the information set forth in the most recent
certification on file (including without limitation any person named in the most
recent certification who is no longer an Authorized Person as designated
therein), the Secretary or Assistant Secretary of the Fund will sign a new or
amended certification setting forth the change and the new, additional or
omitted names or signatures. The Bank will be entitled to rely and act upon any
Officers' Certificate given to
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it by the Fund which has been signed by Officers named in the most recent
certification.
6. Custody of Cash and Securities. As custodian for the Fund, the Bank
will keep safely all of the portfolio securities delivered to the Bank, and will
deposit to the account of the Fund all of the cash of the Fund delivered to the
Bank, as set forth below.
A. Cash. The Bank will open and maintain a separate account or
accounts in the name of the Fund or in the name of the Bank, as custodian of the
Fund, subject only to draft or order by the Bank acting pursuant to the terms of
this Agreement. The Bank will hold in such account or accounts as custodian,
subject to the provisions hereof (including sections 6(C) and 6(D), all cash
received by it, for the account of the Fund. Upon receipt by the Bank of Proper
Instructions (which may be continuing instructions) or in the case of payments
for redemptions and repurchases of outstanding shares of beneficial interest of
the Fund, notification from the Fund's transfer agent as provided in Section 8,
requesting such payment, designating the payee or the account or accounts to
which the Bank will release funds or deposit, and stating that is for a purpose
permitted under the terms of this Section 6(A), specifying the applicable
subsection, or describing such purpose with sufficient particularity to permit
the Bank to ascertain the applicable subsection, the Bank will make payments of
cash held for the accounts of the Fund, insofar as funds are available for that
purpose, only as permitted in (a)-(g) below.
(a) Purchase of Securities: upon the purchase of securities for the
Fund, against contemporaneous receipt of such securities by the Bank
registered in the name of the Fund or in the name of, or properly endorsed
and in form for transfer to, the Bank, or a nominee of the Bank, or
receipt for the account of the Bank through use of (1) the
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Book-Entry System pursuant to Section 6(B)(a)(3) below, (2) a Depository
pursuant to 6(B)(b) below, or (3) Book Entry Paper pursuant to Section
6(B)(c) below, each such payment to be made at the purchase price shown on
a broker's confirmation (or transaction report in the case of Book Entry
Paper) of purchase of the securities received by the Bank before such
payment is made, as confirmed in the Proper Instructions received by the
Bank before payment is made;
(b) Redemptions: in such amount as may be necessary for the
repurchase or redemption of shares of beneficial interest of the Fund
offered for repurchase or redemption in accordance with Section 8 of this
Agreement;
(c) Distributions and Expenses of Fund: for the payment on the
account of the Fund of dividends or other distributions to shareholders as
may from time to time be declared by the Trustees of the Fund, interest,
taxes, management or supervisory fees, distribution fees, fees of the Bank
for its services hereunder and reimbursement of the expenses and
liabilities of the Bank as provided hereunder, fees of any transfer agent,
fees for legal, accounting, and auditing services, or other operating
expenses of the Fund;
(d) Payment in Respect of Securities: for payments in connection
with the conversion, exchange or surrender of portfolio securities or
securities subscribed to by the Fund held by or to be delivered to the
Bank;
(e) Repayment of Cash: to repay the cash delivered to the Fund for
the purpose of collateralizing the obligation to return to the Fund
certificates borrowed from the Trust representing portfolio securities,
but only upon redelivery to the Bank of such borrowed certificates;
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(f) Other Authorized Payments: for other authorized transactions of
the Fund, or other obligations of the Fund incurred for proper Fund
purposes; provided that before making any such payment the Bank will also
receive a certified copy of a resolution of the Trustees signed by an
Authorized Person of the Fund (other than the Person certifying such
resolution) and certified by its Clerk or Assistant Clerk, naming the
person or persons to whom such payment is to be made, and either
describing the transaction for which payment is to be made and declaring
it to be an authorized transaction of the Fund, or specifying the amount
of the obligation for which payment is to be made, setting forth the
purpose for which such obligation was incurred and declaring such purpose
to be a proper corporate purpose; and
(g) Termination: upon the termination of this Agreement as
hereinafter set forth pursuant to Section 9 and Section 13 of this
Agreement.
The Bank is hereby authorized to endorse for collection and collect on
behalf of and in the name of the Fund all checks, drafts, or other negotiable or
transferrable instruments or other orders for the payment of money received by
it for the account of the Fund.
B. Securities. Except as provided in subsections (a), (b) and (c) of
this Section 6(B), and in Sections 6(C) and 6(D), the Bank as custodian, will
receive and hold pursuant to the provisions hereof, in a separate account or
accounts and physically segregated at all times from those of other persons, any
and all portfolio securities which may now or hereafter be delivered to it by or
for the account of the Fund. All such portfolio securities will be held or
disposed of by the Bank for, and subject at all times to, the instructions of
the Fund pursuant to the terms of this Agreement. Subject to the
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specific provisions in Subparagraphs (a), (b), and (c) relating to securities
that are not physically held by the Bank, the Bank will register all portfolio
securities (unless otherwise directed by Proper Instructions or an Officers'
Certificate), in the name of a registered nominee of the Bank as defined in the
Internal Revenue Code and any Regulations of the Treasury Department issued
thereunder, which nominee shall be exclusively assigned to the Fund, and will
execute and deliver all such certificates in connection therewith as may be
required by such laws or Regulations or under the laws of any State. The Bank
will ensure that the specific portfolio securities of the Fund held by it
hereunder will be at all times identifiable.
The Bank will use the same care with respect to the safekeeping of
portfolio securities and cash of the Fund held by it as it uses in respect of
its own similar property but it need not maintain any special insurance for the
benefit of the Fund.
The Fund will from time to time furnish to the Bank appropriate
instruments to enable it to hold or deliver in proper form for transfer, or to
register in the name of its registered nominee, any securities which it may hold
for the account of the Fund and which may from time to time be registered in
name of the Fund.
Neither the Bank nor any nominee of the Bank will vote any of the
portfolio securities held hereunder by or for the account of the Fund, except in
accordance with Proper Instructions of an Officers' Certificate.
The Bank will execute and deliver, or cause to be executed and delivered,
to the Fund all notices, proxies and proxy soliciting materials with respect to
such securities, such proxies to be executed by the registered holder of such
securities (if registered otherwise than in the name of Fund), but without
indicating the manner in which such proxies are to be voted.
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(a) Book-Entry System. Provided (i) the Bank has received a
certified copy of a resolution of the Trustees of the Fund specifically
approving deposits of the Fund assets in the Book-Entry System, indicating
that, and (ii) for each year following such approval, the Trustees of the
Fund has reviewed and approved the arrangement and has not delivered an
Officer's Certificate to the Bank indicating that it has withdrawn its
approval:
1. The Bank may keep Securities of the Fund in the Book-Entry
System provided that such securities are represented in an account
("Account") of the Bank (or its agent) in such System which shall
not include any assets of the Bank (or such agent) other than assets
held as a fiduciary, custodian, or otherwise for customers.
2. The records of the Bank (and any such agent) with respect
to the Fund's participation in the Book-Entry System through the
Bank (or any such agent) will identify by book entry securities
belonging to the Fund which are included with other securities
deposited in the Account and shall at all times during the regular
business hours of the Bank (or such agent) be open for inspection by
duly authorized officers, employees or agents of the Fund. Where
securities are transferred to the Fund's account, the Bank shall
also, by book entry or otherwise, identify as belonging to the Fund
a quantity of securities in fungible bulk of securities (i)
registered in the name of the Bank or its nominee, or (ii) shown on
the Bank's account on the books of the Federal Reserve Bank.
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3. The Bank (or its agent) shall pay for securities purchased
for the account of the Fund or shall pay cash collateral against the
return of securities loaned by the Fund upon (i) receipt of advice
from the Book-Entry System that such Securities have been
transferred to the Account, and (ii) the making of an entry on the
records of the Bank (or its agent) to reflect such payment and
transfer for the account of the Fund. The Bank (or its agent) shall
transfer securities sold or loaned for the account of the Fund upon
(a) receipt of advice from the Book-Entry System that
payment for Securities sold or payment of the initial cash
collateral against the delivery of securities loaned by the
Fund has been transferred to the Account, and
(b) the making of an entry on the records of the Bank
(or its agent) to reflect such transfer and payment for the
account of the Fund. Copies of all advices from the Book-Entry
System of transfers of Securities for the account of the Fund
shall identify the Fund, be maintained for the Fund by the
Bank and shall be provided to the Fund at its request. The
Bank shall send the Fund a confirmation, as defined by Rule
17f-4 under the Investment Company Act of 1940, of any
transfers to or from the account of the Fund.
4. The Bank will promptly provide the Fund with any report
obtained by the Bank or its agent on the Book-Entry System's
accounting system, internal accounting control and procedures for
safeguarding Securities deposited in the Book-Entry System. The
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Bank will provide the Fund and cause any such agent to provide, at
such times as the Fund may reasonably require, with reports by
independent public accountants on the accounting system, internal
accounting control and procedures for safeguarding securities,
including Securities deposited in the Book-Entry System, relating to
the services provided by the Bank or such agent under the Agreement.
5. Anything to the contrary in the Agreement notwithstanding,
the Bank shall be liable to the Fund for any loss or damage to the
Fund resulting from use of the Book-Entry System by reason of any
gross negligence, wilful misfeasance or bad faith of the Bank or any
of its agents or of any of its or their employees or from any
reckless disregard by the Bank or any such agent of its duty to
enforce effectively such rights as it may have against the
Book-Entry System; at the election of the Fund, it shall be entitled
to be subrogated for the Bank in any claim against the Book-Entry
System or any other person which the Bank or its agent may have as a
consequence of any such loss or damage if and to the extent that the
Fund has not been made whole for any loss or damage.
(b) Use of Direct Paper System for Commercial Paper. Provided (i)
the Bank has received a certified copy of a resolution of the Fund's
Trustees specifically approving participation in a system maintained by
the Bank for the holding of commercial paper in direct paper form ("Direct
Paper") and (ii) for each year following such approval the Trustees of the
Fund have received and approved the arrangements, upon receipt of Proper
Instructions and upon receipt of confirmation from an Issuer (as defined
below) that the Fund has purchased such Issuer's Direct Paper,
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the Bank shall issue and hold in direct paper form, on behalf of the Fund,
commercial paper issued by issuers with whom the Bank has entered into a
direct paper agreement (the "Issuers"). In maintaining its Direct Paper
System, the Bank agrees that:
1. the Bank will maintain all Direct Paper held by the Fund in
an account of the Bank that includes only assets held by it for
customers;
2. the records of the Bank with respect to the Fund's purchase
of Direct Paper through the Bank will identify, by book entry,
Commercial Paper belonging to the Fund which is included in the
Direct Paper System and shall at all times during the regular
business hours of the Bank be open for inspection by duly authorized
officers, employees or agents of the Fund.
3. (a) The Bank shall pay for Direct Paper purchased for the
account of the Fund upon contemporaneous (i) receipt of advice from
the Issuer that such sale of Direct Paper has been effected, and
(ii) the making of an entry on the records of the Bank to reflect
such payment and transfer for the account of the Fund.
(b) The Bank shall cancel such Direct Paper obligation
upon the maturity thereof upon contemporaneous (i) receipt of advice
that payment for such Direct Paper has been transferred to the Fund,
and (ii) the making of an entry on the records of the Bank to
reflect such payment for the account of the Fund.
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4. the Bank shall transmit to the Fund a transaction journal
confirming each transaction in Direct Paper for the account of the
Fund on the next business day following the transaction;
5. the Bank will send to the Fund such reports on its system
of internal accounting control as the Fund may reasonably request
from time to time;
C. Options and Futures Transactions.
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ or
Over-the-Counter.
1. The Bank shall take action as to put options ("puts") and
call options ("calls") purchased or sold (written) by the Fund
regarding escrow or other arrangements (i) in accordance with the
provisions of any agreement entered into upon receipt of Proper
Instructions between the Bank, any broker-dealer registered under
the Securities Exchange Act of 1934 and a member of the National
Association of Securities Dealers, Inc., and, if necessary, the Fund
relating to the compliance with the rules of the Options Clearing
Corporation and of any registered national securities exchange, or
of any similar organization or organizations.
2. Unless another agreement requires it to do so, the Bank
shall be under no duty or obligation to see that the Fund has
deposited or is maintaining adequate margin, if required, with any
broker in connection with any option, nor shall the Bank be under
any duty or obligation to present such option to the broker for
exercise unless it receives Proper Instructions from the Fund. The
Bank shall have no
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responsibility for the legality of any put or call purchased or sold
on behalf of the Fund, the propriety of any such purchase or sale,
or the adequacy of any collateral delivered to a broker in
connection with an option or deposited to or withdrawn from a
Segregated Account as described in sub-paragraph c of this Section
6(C). The Bank specifically, but not by way of limitation, shall not
be under any duty or obligation to: (i) periodically check or notify
the Fund that the amount of such collateral held by a broker or held
in a Segregated Account as described in sub-paragraph (c) of this
Section 6(C) is sufficient to protect such broker of the Fund
against any loss; (ii) effect the return of any collateral delivered
to a broker; or (iii) advise the Fund that any option it holds, has
or is about to expire. Such duties or obligations shall be the sole
responsibility of the Fund.
(b) Puts, Calls and Futures Traded on Commodities Exchanges.
1. The Bank shall take action as to puts, calls and futures
contracts ("Futures") purchased or sold by the Fund in accordance
with the provisions of any agreement among the Fund, the Bank and a
Futures Commission Merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the Commodity Futures
Trading Commission and/or any Contract Market, or any similar
organization or organizations, regarding account deposits in
connection with transactions by the Fund.
2. The responsibilities and liabilities of the Bank as to
Futures, puts and calls traded on commodities exchanges, any Futures
Commission Merchant
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account and the Segregated Account shall be limited as set forth in
sub-paragraph (a)(2) of this Section 6(C) as if such sub-paragraph
referred to Futures Commission Merchants rather than brokers, and
Futures and puts and calls thereon instead of options.
(c) Segregated Account.
The Bank shall upon receipt of Proper Instructions establish and
maintain a Segregated Account or Accounts for and on behalf of the Fund,
into which Account or Accounts may be transferred cash and/or securities
including securities maintained in an Account by the Bank pursuant to
Section 6(B) hereof, (i) in accordance with the provisions of any
agreement among the Fund, the Bank and a broker-dealer registered under
the Exchange Act and a member of the NASD or any Futures Commission
Merchant registered under the Commodity Exchange Act, relating to
compliance with the rules of the Options Clearing Corporation and of any
registered national securities exchange or the Commodity Futures Trading
Commission or any registered Contract Market, or of any similar
organization or organizations regarding escrow or other arrangements in
connection with transactions by the Fund, and (ii) for the purpose of
segregating cash or securities in connection with options purchased or
written by the Fund, or commodity futures purchased or written by the
Fund, and (iii) for the purposes of compliance by the Fund with the
procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange Commission
relating to the maintenance of Segregated Accounts by registered
investment companies and (iv) for other proper corporate purposes, but
only, in the case of clause (iv), upon receipt of, in addition to Proper
Instructions, a certified copy of a resolution of the Trustees of the Fund
signed by an officer of the Fund and
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certified by the Clerk of an Assistant Clerk, setting forth the purpose or
purposes of such Segregated Account and declaring such purposes to be
proper corporate purposes.
D. Segregated Account for "when-issued", "forward commitment" and
reverse repurchase agreement transactions. Notwithstanding the provisions of
Section 6(A), 6(B) and 6(C) hereof, the Bank will maintain a segregated account
(the "Segregated Account") in the name of the Fund (i) for the deposit of liquid
assets, such as cash, U.S. Government securities or other high grade debt
obligations, having a market value (marked to the market on a daily basis) at
all times equal to not less than the aggregate purchase price due on the
settlement dates of all the Fund's then outstanding forward commitment or
"when-issued" agreements relating to the purchase of portfolio securities and
all the Fund's then outstanding commitments under reverse repurchase agreements
entered into with broker-dealer firms, and (ii) for the deposit of any portfolio
securities which the Fund has agreed to sell on a forward commitment basis, all
in accordance with Securities and Exchange Commission Release No. IC-10666. No
assets shall be deposited in the Segregated Account except pursuant to Proper
Instructions. Assets may be withdrawn from the segregated account pursuant to
Proper Instructions only (a) for sale or delivery to meet the Fund's obligations
under outstanding firm commitment or when-issued agreements for the purchase of
portfolio securities and under reverse repurchase agreements, (b) for exchange
for other liquid assets of equal or greater value deposited in the Segregated
Account, (c) to the extent that the Fund's outstanding forward commitment or
when-issued agreements for the purchase of portfolio securities or reverse
repurchase agreements are sold to other parties or the Fund's obligations
thereunder are met from assets of the Fund other than those in the Segregated
Account, or (d) for delivery upon settlement of a forward commitment agreement
for the sale of portfolio securities.
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7. Transfer of Securities. The Bank will transfer, exchange, deliver or
release portfolio securities held by it hereunder, insofar as such securities
are available for such purpose, provided that before making any transfer,
exchange, delivery or release under this Section the Bank will receive Proper
Instructions requesting such transfer, exchange or delivery stating that it is
for a purpose permitted under the terms of this Section 7, specifying the
applicable subsection, or describing the purpose of the transaction with
sufficient particularity to permit the Bank to ascertain the applicable
subsection, only
(a) upon sales of portfolio securities for the account of the Fund,
against contemporaneous receipt by the Bank of payment therefor in full,
each such payment to be in the amount of the sale price shown in a
broker's confirmation of sale of the portfolio securities received by the
Bank before such payment is made, as confirmed in the Proper Instructions
received by the Bank before such payment is made, provided however, that
portfolio securities may be delivered to the broker selling the same for
examination in accordance with "street delivery" custom;
(b) in exchange for or upon conversion into other securities alone
or other securities and cash pursuant to any plan or merger,
consolidation, reorganization, share split-up, change in par value,
recapitalization or readjustment or otherwise;
(c) upon conversion of portfolio securities pursuant to their terms
into other securities;
(d) upon exercise of subscription, purchase or sale or other similar
rights represented by such portfolio securities;
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(e) for the purpose of redeeming in kind shares of beneficial
interest of the Fund upon authorization from the Fund;
(f) in the case of option contracts owned by the Fund, for
presentation to the endorsing broker;
(g) when such portfolio securities are called, redeemed or retired
or otherwise become payable;
(h) for the purpose of releasing certificates representing portfolio
securities of the Fund, against contemporaneous receipt by the Bank of the
fair market value of such security, as set forth in Proper Instructions
received by the Bank before such payment is made;
(i) for the purpose of tendering shares pursuant to a tender offer
therefor;
(j) for the purpose of delivering securities lent by the Fund to a
bank or broker-dealer, but only against receipt in accordance with street
delivery custom, except as otherwise provided in Subsections 6(B)(a) and
(b) hereof, of adequate collateral as agreed upon from time to time by the
Fund and the Bank, and upon receipt of payment in connection with any
repurchase agreement relating to such securities entered into by the Fund;
(k) for other authorized transactions of the Fund or for other
proper corporate purposes; provided that before making such transfer, the
Bank will also receive a certified copy of resolution of the Trustees of
the Fund, signed by an authorized officer of the Fund (other than the
officer certifying such resolution) and certified by its Secretary or
Assistant Secretary, specifying the portfolio securities to be delivered,
setting forth the transaction
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in or purpose for which such delivery is to be made, declaring such
transaction to be an authorized transaction of the Fund or such purpose to
be a proper corporate purpose, and naming the person or persons to whom
delivery of such securities shall be made; and
(l) upon termination of this Agreement as hereinafter set forth
pursuant to Section 9 and Section 13 of this Agreement.
As to any deliveries made by the Bank pursuant to subsections (a), (b),
(c), (d), (f), (g), (h), (i) and (j) securities or cash receivable in exchange
therefor shall be delivered to the Bank.
8. Redemptions. In the case of payment of assets of the Fund held by the
Bank in connection with redemptions and repurchases by the Fund of outstanding
shares of beneficial interest, the Bank will rely on notification by the Fund's
transfer agent if receipt of a request for redemption and certificates, if
issued, in proper form for redemption before such payment is made. Payment shall
be made in accordance with the Declaration of Trust of the Fund, from assets
available for said purposes.
9. Merger, Dissolution, etc. of Fund. In the case of the following
transactions not in the ordinary course of business, namely, the merger of the
Fund into or the consolidation of the Fund with another investment company, the
sale by the Fund of all, or substantially all of its assets to another
investment company, or the liquidation or dissolution of the Fund and
distribution of its assets, the Bank will deliver the portfolio securities held
by it under this Agreement and disburse cash only upon the order of the Fund set
forth in an Officers' Certificate, accompanied by a certified copy of a
resolution of the Fund's Trustees authorizing any of the foregoing
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transactions. Upon completion of such delivery and disbursement and the payment
of the fees, disbursements and expenses of the Bank due to the Bank pursuant to
Section 12E hereof, this Agreement will terminate.
10. Actions of Bank Without Prior Authorization. Notwithstanding anything
herein to the contrary, unless and until the Bank receives an Officers'
Certificate to the contrary, it will without prior authorization or instruction
of the Fund or the transfer agent:
(a) Receive and hold for the account of the Fund hereunder and
deposit in the account or accounts referred to in Section 6 hereof, all
income, dividends, interest and other payments or distribution of cash
with respect to the portfolio securities held thereunder;
(b) Present for payment all coupons and other income items held by
it for the account of the Fund which call for payment upon presentation
and hold the cash received by it upon such payment for the account of the
Fund in the account or accounts referred to in Section 6 hereof;
(c) Receive and hold for the account of the Fund hereunder and
deposit in the account or accounts referred to in Section 6 hereof all
securities received as a distribution on portfolio securities as a result
of a stock dividend, share split-up, reorganization, recapitalization,
merger, consolidation, readjustment, distribution of rights and similar
securities issued with respect to any portfolio securities held by it
hereunder.
(d) Execute as agent on behalf of the Fund all necessary ownership
and other certificates and affidavits required by the Internal Revenue
Code or the regulations of the Treasury Department issued thereunder, or
by the laws
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of any state, now or hereafter in effect, inserting the Fund's name on
such certificates as the owner of the securities covered thereby, to the
extent it may lawfully do so and as may be required to obtain payment in
respect thereof. The Bank will execute and deliver such certificates in
connection wit portfolio securities delivered to it or by it under this
Agreement as may be required under the provisions of the Internal Revenue
Code and any Regulations of the Treasury Department issued thereunder, or
under the laws of any State;
(e) Present for payment all portfolio securities which are called,
redeemed, retired or otherwise become payable, and hold cash received by
it upon payment for the account of the Fund in the account or accounts
referred to in Section 6 hereof; and
(f) Exchange interim receipts or temporary securities for definitive
securities.
The Bank will use all diligence to collect any funds which may to its
knowledge become collectible arising from such securities, including dividends,
interest and other income, and to transmit to the Fund notice actually received
by it of any call for redemption, offer of exchange, right of subscription,
reorganization or other proceedings affecting such securities.
If portfolio securities upon which such income is payable are in default
or payment is refused after due demand or presentation, the Bank will notify the
Fund by telecopier of any default or refusal to pay no later than one business
day from the day on which it receives knowledge of such default or refusal. In
addition, the Bank will send the Fund a written report once each month showing
any income on any portfolio security held by it which is more than ten days
overdue on the date of such report and which has not previously been reported.
-22-
<PAGE>
11. Maintenance of Records. The Bank will maintain records with respect to
transactions for which the Bank is responsible pursuant to the terms and
conditions of this Agreement and in compliance with the applicable rules and
regulations under the Investment Company Act of 1940 as amended, and will
furnish the Fund daily with a statement of condition of the Fund. The Bank will
furnish to the Fund at the end of every month, and at the close of each quarter
of the Fund's fiscal year, a list of the portfolio securities and the aggregate
amount of cash held by it for the Fund. The books and records of the Bank
pertaining to its actions under this Agreement and reports by the Bank or its
independent accountants concerning its accounting system, procedures for
safeguarding securities and internal accounting controls will be open to
inspection and audit at reasonable times by officers of or auditors employed by
the Fund and will be preserved by the Bank in the manner and in accordance with
the applicable rules and regulations under the Investment Company Act of 1940.
The Bank agrees to treat all records and other information relative to the
Fund and its shareholders as confidential, except it may disclose such
information after prior notification to and approval in writing by the Fund,
which approval shall not be unreasonably withheld. Nothing in this Section 11
shall prevent the Bank from divulging information to bank or securities
regulatory authorities or where the Bank may be exposed to civil or criminal
contempt proceedings for failure to comply.
12. Concerning the Bank.
A. Performance of Duties.
(1) The Bank and the Fund shall each exercise reasonable care
in the performance of their respective duties and functions under
this Agreement.
-23-
<PAGE>
(2) In its dealings with the Fund, the Bank shall be entitled
to rely upon any Officers' Certificate, Proper Instructions,
resolution of the Trustees, telegram, facsimile communication,
written notice, or certificate.
B. Responsibility of Custodian. So long as and to the extent that it
is in the exercise of reasonable care, the Custodian shall not be
responsible for the title, validity or genuineness of any property or
evidence of title thereto received by it or delivered by it pursuant to
this Contract and shall beheld harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by
it to be genuine and to be signed by the proper party or parties,
including any futures commission merchant acting pursuant to the terms of
a three-party futures or options agreement. The Custodian shall be held
harmless and be protected by the Fund and shall be held to the exercise of
reasonable care in carrying out the Proper Instructions of the Fund. It
shall be entitled to rely on and may act upon advice of counsel (who may
be counsel for the Fund) or mutually acceptable to both parties on all
matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice.
C. No Duty of Bank. The Bank will be under no duty or obligation to
inquire into and will not be liable for:
(a) the validity of the issue of any portfolio securities
purchased by or for the Fund, the legality of the purchases thereof
or the propriety of the price incurred therefor;
-24-
<PAGE>
(b) the legality of any sale of any portfolio securities by or
for the Fund or the propriety of the amount for which the same are
sold;
(c) the legality of an issue or sale of any shares of common
stock of the Fund or the sufficiency of the amount to be received
therefor provided that it reflects the net asset value as provided
by the Fund;
(d) the legality of the repurchase of any shares of common
stock of the Fund or the propriety of the amount to be paid therefor
provided that it reflects the net asset value as provided by the
Fund;
(e) the legality of the declaration of any dividend by the
Fund or the legality of the distribution of any portfolio securities
as payment in kind of such dividend; or
(f) any property or moneys of the Fund unless and until
received by it, except as otherwise provided in Section 10 hereof,
and any such properly or moneys delivered or paid by it pursuant to
the terms hereof.
Moreover, the Bank will not be under any duty or obligation to ascertain
whether any portfolio securities at any time delivered to or held by it for the
account of the Fund are such as may properly be held by the Fund under the
provisions of its Agreement and Declaration of Fund or By-Laws, any federal or
state statutes or any rule or regulation of any governmental agency.
D. Fees and Expenses of Bank. The Fund will pay or reimburse the
Bank from time to time for any transfer taxes payable upon transfer of
portfolio securities made hereunder, and for the Bank's normal
disbursements,
-25-
<PAGE>
expenses and charges made or incurred by the Bank in the performance of
this Agreement (including any duties listed on any Schedule hereto, if
any). For the services rendered by the Bank hereunder, the Fund will pay
to the Bank such compensation or fees at such rate and at such times as
shall be agreed upon in writing by the parties from time to time. The Bank
will also be entitled to reimbursement by the Fund for normal industry
costs for securities transfers and services incurred in conjunction with
termination of this Agreement by the Fund.
E. Advances by Bank. The Bank may, in its sole discretion, advance
funds on behalf of the Fund to make any payment permitted by this
Agreement upon receipt of Proper Instructions as required by this
Agreement for such payments by the Fund. Should such a payment or
payments, with advanced funds, result in an overdraft (due to
insufficiencies of the Fund's account with the Bank, or for any other
reason) any such related indebtedness shall be deemed a loan made by the
Bank to the Fund payable on demand and bearing interest at the current
rate charged by the Bank for such loans unless the Fund shall provide the
Bank with agreed-upon compensating balances. The Fund authorizes the Bank,
in its sole discretion, at any time to charge any overdraft or
indebtedness, together with interest due thereon, against any balance of
account standing to the credit of the Fund on the Bank's books.
13. Termination.
(a) This Agreement may be terminated at any time without penalty
upon ninety days written notice delivered by either party to the other by
means of registered mail, and upon the expiration of such ninety days this
Agreement will terminate; provided, however, that the effective date of
such termination may be postponed to a date of delivery
-26-
<PAGE>
of such notice (i) by the Bank in order to prepare for the transfer by the
Bank of all of the assets of the Fund held hereunder, and (ii) by the Fund in
order to give the Fund an opportunity to make suitable arrangements for a
successor custodian. At any time after the termination of this Agreement, the
Fund will, at its request, have access to the records of the Bank relating to
the performance of its duties as custodian.
(b) In the event of the termination of this Agreement, the Bank will
immediately upon receipt or transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to completion the transfer
of all cash and the delivery of all portfolio securities duly endorsed and
all records maintained under Section 11 to the successor custodian when
appointed by the Fund. The obligation of the Bank to deliver and transfer
over the assets of the Fund held by it directly to such successor
custodian will commence as soon as such successor is appointed and will
continue until completed as aforesaid. If the Fund does not select a
successor custodian within ninety days from the date of delivery of notice
of termination the Bank may, subject to the provisions of subsection (c)
of this Section 13, deliver the portfolio securities and cash of the Fund
held by the Bank to a bank or trust company of its own selection which
meets the requirements of Section 17(f)(1) of the Investment Company Act
of 1940 and has a reported capital, surplus and undivided profits
aggregating not less than $2,000,000, to be held as the property of the
Fund under terms similar to those on which they were held by the Bank,
whereupon such bank or trust company so selected by the Bank will become
the successor custodian of such assets of the Fund with the same effect as
though selected by the Trustees of the Fund.
-27-
<PAGE>
(c) Prior to the expiration of ninety days after notice of
termination has been given, the Fund may furnish the Bank with an order of
the Fund advising that a successor custodian cannot be found willing and
able to act upon reasonable and customary terms and that there has been
submitted to the shareholders of the Fund the question of whether the Fund
will be liquidated or will function without a custodian for the assets of
the Fund held by the Bank. In that event the Bank will deliver the
portfolio securities and cash of the Fund held by it, subject as
aforesaid, in accordance with one of such alternatives which may be
approved by the requisite vote of shareholders, upon receipt by the Bank
of a copy of the minutes of the meeting of shareholders at which action
was taken, certified by the Fund's Secretary.
14. Notices. Any notice or other instrument in writing authorized or
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and mailed or delivered to it at
its office at the address set forth below; namely:
(a) In the case of notices sent to the Fund to:
Value Line New York Tax Exempt Trust
c/o Value Line Inc.
711 3rd Avenue
New York, New York 10017
Attn: Treasurer
(b) In the case of notices sent to the Bank to:
State Street Bank and Trust Company
Mutual Fund Services
1776 Heritage Drive
North Quincy, MA 02171
-28-
<PAGE>
or at such other place as such party may from time to time designate
in writing.
15. Amendments. This Agreement may not be altered or amended, except by an
instrument in writing, executed by both parties, and in the case of the Fund,
such alteration or amendment will be authorized and approved by its Trustees.
16. Parties. This Agreement will be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Fund
without the written consent of the Bank or by the Bank without the written
consent of the Fund, authorized and approved by its Trustees; and provided
further that termination proceedings pursuant to Section 13 hereof will not be
deemed to be an assignment within the meaning of this provision.
17. Governing Law. This Agreement and all performance hereunder will be
governed by the laws of the Commonwealth of Massachusetts.
-29-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate and their respective corporate seals to be affixed hereto
as of the date first above written by their respective officers thereunto duly
authorized.
VALUE LINE NEW YORK TAX EXEMPT TRUST
By: /s/ Jean B. Buttner
--------------------------------
ATTEST:
/s/ [ILLEGIBLE]
- -------------------------------
STATE STREET BANK AND TRUST COMPANY
By: /s/ Joseph L. Hooley
--------------------------------
ATTEST:
/s/ [ILLEGIBLE]
- -------------------------------
-30-
<PAGE>
[LOGO] State Street
STATE STREET BANK AND TRUST COMPANY
Custodian Fee Schedule
VALUE LINE, INC.
Cash Fund
Special Situations Fund
Convertible Fund
Value Line Fund
Income Fund
Leveraged Growth Investors
New York Tax Exempt Trust
Aggressive Income Trust
U.S. Government Securities Fund
Centurion Fund
Tax Exempt Fund
o Tax Exempt Fund High Yield Portfolio
o Tax Exempt Fund Money Market Portfolio
U.S Government Securities Trust
Strategic Asset Management Trust
I. Administration
Custody Service -- Maintain custody of fund assets. Settle portfolio
purchases and sales. Report buy and sell fails. Determine and collect
portfolio income. Make cash disbursements and report cash transactions.
Monitor corporate actions.
The administration fee shown below is an annual charge, billed and payable
monthly, based on month end net assets.
ANNUAL FEES PER PORTFOLIO
Fund Net Assets Custody
--------------- -------
First $200 Million 1 Basis Point
Excess .75 Basis Point
Minimum Monthly
Charges For New Funds* $1,500
II. Global Custody -- Services provided include:
Cash Movements, Foreign Communication, Foreign Exchange (local currency
settlements).
Euroclear 5 Basis Points
on Existing Holdings
Fund Net Assets Annual Fees
--------------- -----------
First $50 Million 22 Basis Points
Over $50 Million 20 Basis Points
Minimum Per Client $5,000.00 Annually
* No minimums shall be applied to existing funds.
<PAGE>
[LOGO] State Street
III. Portfolio Trades - For each line item processed
State Street Bank Repos $ 7.00
DTC or Fed Book Entry $ 7.50
New York and Global Physical Settlements $25.00
Maturity Collections $ 8.00
PTC Purchase, Sale, Deposit or Withdrawal $20.00
All other trades $16.00
IV. Options
Option charge for each option written or
closing contract, per issue, per broker $25.00
Option expiration charge, per issue, per broker $15.00
Option exercised charge, per issue, per broker $15.00
V. Interest Rate Futures
Transactions -- no security movement $ 8.00
VI. Principal Reduction Payments
Per paydown $ 7.00
VII. Dividend and Interest Charges
(For items held at the Request
of Traders over record date in street form) $50.00
VIII. Special Services
Fees for activities of a non-recurring nature such as fund consolidations
or reorganizations, extraordinary security shipments and the preparation
of special reports will be subject to negotiation. Fees for automated
pricing, yield calculation and other special items will be negotiated
separately.
IX. HORIZON Gateway Access System
Monthly charge for access to all 14 funds $1,000.00
(installation waived)
<PAGE>
[LOGO] State Street
X. Balance Credit
A balance credit equal to the 90 day treasury bill rate on the last Monday
of the month, will be credited on 88% of the average collected balance in
the custodian accounts. This will be applied to the custodial and transfer
agent charges for that month and credits can be carried forward on a
monthly basis.
XI. Out-of-Pocket Expenses
A billing for the recovery of applicable out-of-pocket expenses will be
made as of the end of each month. Out-of-pocket expenses include, but are
not limited to the following:
Wire Charges ($5.25 per wire in and $5.00 out)
Postage and Insurance
Courier Service
Legal Fees
Supplies Related to Fund Records
Rush Transfer -- $8.00 Each
Transfer Fees
Sub-custodian Charges
Federal Reserve Fee for Return Check items over $2,500 - $4.25
GNMA Transfer - $15 each
PTC Deposit/Withdrawal for same day turnarounds - $50.00
VALUE LINE, INC. STATE STREET BANK AND TRUST CO.
By /s/ [ILLEGIBLE] By /s/ [ILLEGIBLE]
-------------------------------- ----------------------------
Title Title Vice President
----------------------------- -------------------------
Date 6/21/90 Date 6/12/90
------------------------------ --------------------------
<PAGE>
PETER D. LOWENSTEIN
ATTORNEY AT LAW
TWO GREENWICH PLAZA, SUITE 100
GREENWICH, CONNECTICUT 06830
203 622-3932
FAX 203 622-0321
April 29, 1999
Value Line New York Tax Exempt Trust
220 East 42nd Street
New York, NY 10017
Gentlemen:
I have acted as special counsel to Value Line New York Tax Exempt Trust, a
trust organized in compliance with the laws of the Commonwealth of Massachusetts
(the "Trust"), in connection with certain matters, including the issuance of
shares of beneficial interest, $.01 par value, of the Trust.
As special counsel for the Trust, I am familiar with its Declaration of
Trust and By-laws. I have examined the prospectus included in Post-Effective
Amendment No. 13 to its Registration Statement on Form N-1A, File No. 33-12400
(the "Registration Statement"), substantially in the form in which it is to
become effective (the "Prospectus"). I have further examined and relied upon a
certificate of the Secretary of State of the Commonwealth of Massachusetts to
the effect that the Trust is duly organized and existing under the laws of the
Commonwealth of Massachusetts and is in good standing and duly authorized to
transact business in the Commonwealth of Massachusetts.
I have also examined and relied upon such records of the Trust and other
documents and certificates with respect to factual matters as I have deemed
necessary to render the opinion expressed herein. I have assumed, without
independent verification, the genuineness of all signatures, the authenticity of
all documents submitted to me as originals and the conformity with originals of
all documents submitted to me as copies.
Based on such examination, I am of the opinion and so advise you that:
1. The Trust is a trust with transferable shares of beneficial
interest, organized in compliance with the laws of the
Commonwealth of Massachusetts.
2. The shares of beneficial interest of the Trust to be offered
for sale pursuant to the Prospectus, when sold, issued and
paid for as contemplated by the Prospectus, will have been
validly and legally issued and will be fully paid and
nonassessable.
<PAGE>
I am a member of the bars of the States of Connecticut and New York and I
do not purport to be an expert in, and express no opinion with respect to, the
laws of any jurisdiction other than the federal laws of the United States and
the laws of the States of Connecticut and New York.
I consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/ Peter D. Lowenstein
Peter D. Lowenstein
PDL:psp
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-START> MAR-01-1998
<PERIOD-END> FEB-28-1999
<INVESTMENTS-AT-COST> 31,582
<INVESTMENTS-AT-VALUE> 33,056
<RECEIVABLES> 1,486
<ASSETS-OTHER> 174
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 34,716
<PAYABLE-FOR-SECURITIES> 1,194
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 119
<TOTAL-LIABILITIES> 1,313
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 31,481
<SHARES-COMMON-STOCK> 3,234
<SHARES-COMMON-PRIOR> 3,291
<ACCUMULATED-NII-CURRENT> 8
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 440
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,474
<NET-ASSETS> 33,403
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,709
<OTHER-INCOME> 0
<EXPENSES-NET> 329
<NET-INVESTMENT-INCOME> 1,380
<REALIZED-GAINS-CURRENT> 442
<APPREC-INCREASE-CURRENT> 9
<NET-CHANGE-FROM-OPS> 1,831
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,372
<DISTRIBUTIONS-OF-GAINS> 1,042
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 300
<NUMBER-OF-SHARES-REDEEMED> 525
<SHARES-REINVESTED> 167
<NET-CHANGE-IN-ASSETS> (1,194)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,040
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 204
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 329
<AVERAGE-NET-ASSETS> 34,039
<PER-SHARE-NAV-BEGIN> 10.51
<PER-SHARE-NII> .43
<PER-SHARE-GAIN-APPREC> .14
<PER-SHARE-DIVIDEND> .42
<PER-SHARE-DISTRIBUTIONS> .33
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.33
<EXPENSE-RATIO> .98
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
