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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 28, 1999
FILE NO. 33-62240
FILE NO. 811-7702
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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. 7 /X/
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 7 /X/
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VALUE LINE ASSET ALLOCATION FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
220 East 42nd Street
New York, New York 10017-5891
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's Telephone number, including Area Code: (212) 907-1500
David T. Henigson
Value Line, Inc.
220 East 42nd Street
New York, New York 10017-5891
(NAME AND ADDRESS OF AGENT FOR SERVICE)
Copy to:
Peter D. Lowenstein
Two Greenwich Plaza, Suite 100
Greenwich, CT 06830
It is proposed that this filing will become effective (check
appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/ / on (date) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/X/ on August 1, 1999 pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(2) of Rule 485
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VALUE LINE
ASSET ALLOCATION FUND, INC.
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PROSPECTUS
AUGUST 1, 1999
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[LOGO]
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS, AND ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
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FUND SUMMARY
What is the Fund's goal? PAGE 2
What are the Fund's main investment strategies? PAGE
2
What are the main risks of investing in the Fund?
PAGE 2
How has the Fund performed? PAGE 3
What are the Fund's fees and expenses? PAGE 4
HOW WE MANAGE THE FUND
Our principal investment strategies PAGE 5
The principal risks of investing in the Fund PAGE 7
WHO MANAGES THE FUND
Investment Adviser PAGE 9
Management fees PAGE 9
Portfolio management PAGE 9
ABOUT YOUR ACCOUNT
How to buy shares PAGE 10
How to sell shares PAGE 13
Special services PAGE 15
Dividends, distributions and taxes PAGE 16
FINANCIAL HIGHLIGHTS
Financial Highlights PAGE 17
<PAGE>
FUND SUMMARY
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WHAT IS THE FUND'S GOAL?
The Fund's investment objective is to achieve a high total
investment return (current income and capital appreciation)
consistent with reasonable risk. Although the Fund will
strive to achieve this goal, there is no assurance that it
will.
WHAT ARE THE FUND'S MAIN INVESTMENT STRATEGIES?
To achieve the Fund's goal, we invest in a broad range of
common stocks, bonds and money market instruments in
accordance with our asset allocation strategy based primarily
on data derived from computer models for the stock and bond
markets which the Adviser has developed. In selecting
securities for purchase or sale, we rely on the Value Line
Timeliness-TM- Ranking System or the Value Line
Performance-TM- Ranking System. These Ranking Systems compare
the Adviser's estimate of the probable market performance of
each stock during the next six to twelve months relative to
all of the stocks under review and rank stocks on a scale of
1 (highest) to 5 (lowest). The common stocks in which the
Fund will usually invest are those U.S. Securities ranked 1
or 2 by either Ranking System but it may also invest in
common stocks ranked 3. There are no set limitations of
investments in any category or according to the company's
size, although the Fund generally invests in U.S. securities
issued by larger, more established companies.
WHAT ARE THE MAIN RISKS OF INVESTING IN THE FUND?
Investing in any mutual fund involves risk, including the
risk that you may receive little or no return on your
investment, and the risk that you may lose part or all of the
money you invest. The risks vary depending upon a fund's mix
of stocks, bonds and money market securities. Therefore,
before you invest in this Fund you should carefully evaluate
the risks.
The chief risk that you assume when investing in the Fund is
market risk, the possibility that the securities in a certain
market will decline in value because of factors such as
economic conditions. Market risk may affect a single issuer,
industry, sector of the economy or the market as a whole. You
also assume an interest rate risk, the possibility that as
interest rates rise the value of some fixed income
securities, especially those securities with longer
maturities, may decrease.
The price of Fund shares will increase and decrease according
to changes in the value of the Fund's investments. The Fund
will be affected by changes in stock prices which tend to
fluctuate more than bond prices.
An investment in the Fund is not a complete investment
program and you should consider it just one part of your
total investment program. For a more complete discussion of
risk, please turn to page 7.
2
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HOW HAS THE FUND PERFORMED?
This bar chart and table can help you evaluate the potential
risks of investing in the Fund. We show how returns for the
Fund's shares have varied over the life of the Fund, as well
as the average annual returns of these shares for one year,
five years, and since inception of the Fund, all compared to
the performance of the S&P 500-Registered Trademark- Index
and the Lehman Brothers Government/Corporate Bond Index,
which are broad based market indexes. You should remember
that unlike the Fund, these indexes are unmanaged and do not
include the costs of buying, selling, and holding the
securities. The Fund's past performance is not necessarily an
indication of how it will perform in the future.
TOTAL RETURNS AS OF 12/31 EACH YEAR (%)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
<S> <C>
1989
1990
1991
1992
1993* 5.96
1994 3.44
1995 36.11
1996 26.60
1997 20.99
1998 25.80
</TABLE>
<TABLE>
<S> <C> <C>
BEST QUARTER: Q4 1998 +24.59%
WORST QUARTER: Q3 1998 (12.83%)
</TABLE>
*FROM 8/24/93 (COMMENCEMENT OF OPERATIONS)
As of June 30, 1999, the Fund had a year-to-date total return
of %.
AVERAGE ANNUAL TOTAL RETURNS AS OF
12/31/98
<TABLE>
<CAPTION>
SINCE INCEPTION
1 YEAR 5 YEARS (8/24/93)
<S> <C> <C> <C>
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VALUE LINE ASSET ALLOCATION FUND 25.80% 22.09% 21.78%
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S&P 500-REGISTERED TRADEMARK- INDEX 28.58% 24.06% 22.90%
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LEHMAN BROTHERS GOVERNMENT/
CORPORATE BOND INDEX 9.47% 7.31% 6.83%
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</TABLE>
3
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WHAT ARE THE FUND'S FEES AND EXPENSES?
These tables describe the fees and expenses you pay in
connection with an investment in the Fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
<TABLE>
<CAPTION>
<S> <C>
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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 FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED
FROM FUND ASSETS)
<TABLE>
<CAPTION>
<S> <C>
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MANAGEMENT FEES 0.65%
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DISTRIBUTION AND SERVICE (12b-1) FEES .25%
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OTHER EXPENSES .18%
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TOTAL ANNUAL FUND OPERATING EXPENSES 1.08%
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</TABLE>
EXAMPLE
This example is intended to help you compare the cost of
investing in the Fund to the cost of investing in other
mutual funds. We show the cumulative amount of Fund expenses
on a hypothetical investment of $10,000 with an annual 5%
return over the time shown. This is an example only, and your
actual costs may be greater or less than those shown here.
Based on these assumptions, your costs would be:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
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VALUE LINE ASSET ALLOCATION
FUND $110 $343 $595 $1,317
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</TABLE>
4
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HOW WE MANAGE THE FUND
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OUR PRINCIPAL INVESTMENT STRATEGIES
We analyze economic and market conditions, seeking to
identify the market sector or securities that we think make
the best investments. Because of the nature of the Fund, you
should consider an investment in it to be a long-term
investment that will best meet its objectives when held for a
number of years. The following is a description of how the
Adviser pursues the Fund's objectives.
The Fund attempts to achieve its objective by following an
asset allocation strategy that enables the Adviser to
periodically shift the assets of the Fund among three types
of securities: (a) equity securities, (b) debt securities
with maturities of more than one year and (c) money market
instruments (debt securities with maturities of less than one
year). Allocation of the Fund's assets among these types of
securities will be determined by the Adviser and will be
based primarily on data derived from computer models for the
stock and bond markets which the Adviser has developed and
other factors which the Adviser deems appropriate. There are
no limits on the percentage of the Fund's assets that can be
invested in equity, debt or money market securities. When the
asset allocation model indicates a preference for equity
securities, the percentage of the Fund's total assets
invested in equity securities will be increased. Similarly,
if the expected total return from equity securities is poor,
then a greater percentage of the Fund's assets will be
invested in debt or money market securities. The central
tendency is for 55% of the Fund's assets to be invested in
equity securities, 35% in debt securities and 10% in money
market instruments.
INVESTMENT IN EQUITY SECURITIES. In selecting securities for
purchase or sale, the Adviser relies on the Value Line
Timeliness-TM- Ranking System or the Value Line
Performance-TM- Ranking System. The Value Line Timeliness
Ranking System has evolved after many years of research and
has been used in substantially its present form since 1965.
It is based upon historical prices and reported earnings,
recent earnings and price momentum and the degree to which
the last reported earnings deviated from estimated earnings,
among other factors. The Timeliness Rankings are published
weekly in the Standard Edition of The Value Line Investment
Survey for approximately 1,700 of the most actively traded
stocks in U.S. markets, including stocks with large, mid and
small market capitalizations. There are only a few stocks of
foreign issuers that are included and stocks that have traded
for less than two years
5
<PAGE>
are not ranked. On a scale of 1 (highest) to 5 (lowest), the
rankings compare an estimate of the probable market
performance of each stock during the coming six to twelve
months relative to all 1,700 stocks under review. The
Rankings are updated weekly to reflect the most recent
information.
The Value Line Performance Ranking System for common stocks
was introduced in 1995. It is a variation of the Value Line
Small-Capitalization Ranking System, which has been employed
in managing pension client assets since 1981, and in managing
the Value Line Small-Cap Growth Fund, Inc. since 1993. The
Performance Ranking System evaluates the approximately 1,800
stocks in the Expanded Edition of The Value Line Investment
Survey which consists of stocks with mostly smaller market
capitalizations (under $1 billion) and only a few stocks of
foreign issuers. This stock ranking system relies on factors
similar to those found in the Value Line Timeliness Ranking
System except that it does not utilize earnings estimates.
The Performance Ranks use a scale of 1 (highest) to 5
(lowest) to compare the Adviser's estimate of the probable
market performance of each Expanded Edition stock during the
coming six to twelve months relative to all 1,800 stocks
under review in the Expanded Edition.
Neither the Value Line Timeliness Ranking System nor the
Value Line Performance Ranking System eliminates market risk,
but the Adviser believes that they provide objective
standards for determining expected relative performance for
the next six to twelve months. The Fund will usually invest
in common stocks ranked 1 or 2 but it may also invest in
common stocks ranked 3. Although there are no set limitations
on investments in the portfolio, U.S. securities ranked 1, 2
or 3 of any size will usually constitute a substantial
portion of the Fund's portfolio. Reliance upon the rankings,
whenever feasible, is a fundamental policy of the Fund which
may not be changed without shareholder approval. The
utilization of these Rankings is no assurance that the Fund
will perform more favorably than the market in general over
any particular period.
INVESTMENT IN DEBT SECURITIES. The Fund invests primarily in
investment grade debt securities issued by U.S. corporations
rated within one of the four highest categories of a
nationally recognized rating organization and in debt
securities issued or guaranteed by the U.S. Government, its
agencies and instrumentalities. In selecting debt securities,
the Adviser evaluates the credit
6
<PAGE>
quality of the debt security and its value relative to
comparable securities as well as its historic trading level.
INVESTMENT IN MONEY MARKET SECURITIES. The short-term
instruments in which the Fund invests are primarily U.S.
Government obligations and repurchase agreements.
TEMPORARY DEFENSIVE POSITION
From time to time in response to adverse market, economic,
political or other conditions, the Fund may invest without
limitation in cash or cash equivalents, debt securities,
bonds, or preferred stocks for temporary defensive purposes.
This could help the Fund avoid losses, but it may result in
lost opportunities. If this becomes necessary, the Fund may
not achieve its investment objectives.
PORTFOLIO TURNOVER
The Fund 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 higher brokerage commissions and other
expenses. High portfolio turnover may negatively affect the
Fund's performance.
THE PRINCIPAL RISKS OF INVESTING IN THE FUND
/ / Because the Fund may invest substantially all of its assets
in common stocks, the value of the stocks in its portfolio
might decrease in response to the activities of an
individual company or in response to general market or
economic conditions. If this occurs, the Fund's share price
may decrease.
/ / Debt securities represent the contractual obligation of
an issuer to repay the principal upon maturity and are
subject to interest rate and credit risks. Interest rate
risk is the decline in debt securities that usually
accompanies a rise in interest rates. Credit risk refers
to the possibility that a debt security could have its
credit downgraded or that the issuer will fail to pay
the principal or interest when due.
7
<PAGE>
/ / The Fund may invest in BBB rated debt securities which
may have certain speculative characteristics. Changes in
economic conditions or other circumstances are more
likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade
securities. The Fund may continue to hold a debt
security if its rating drops.
/ / Certain securities may be difficult or impossible to
sell at the time and price that the Fund would like. The
Fund may have to lower the price, sell other securities
instead or forego an investment opportunity. This could
have a negative effect on the Fund's performance.
/ / The Fund's use of the Value Line Ranking Systems
involves the risk that over certain periods of time the
price of securities not covered by the Ranking Systems,
or lower ranked securities, may appreciate to a greater
extent than those securities in the Fund's portfolio.
/ / Please see the Statement of Additional Information for a
further discussion of risks. Information on the Fund's
recent holdings can be found in the Fund's current
annual or semi-annual report.
YEAR 2000 RISKS
Like other mutual funds, the Fund could be adversely affected
if the computer systems used by the Adviser and other service
providers do not properly process and calculate date-related
information and data from and after January 1, 2000. This is
commonly known as the "Year 2000 Problem." The Adviser is
taking steps that it believes are reasonably designed to
address the Year 2000 Problem with respect to the computer
systems that it uses and to obtain satisfactory assurances
that comparable steps are being taken by the Fund's other
major service providers. At this time, however, there can be
no assurance that these steps will be sufficient to avoid any
adverse impact to the Fund.
The Year 2000 Problem is expected to impact corporations,
which may include issuers of portfolio securities held by the
Fund, to varying degrees based upon various factors,
including, but not limited to, the corporation's industry
sector and degree of technological sophistication. The Fund
is unable to predict what impact, if any, the Year 2000
Problem will have on issuers of the portfolio securities held
by the Fund.
8
<PAGE>
WHO MANAGES THE FUND
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The business and affairs of the Fund are managed by the
Fund's officers under the direction of the Fund's Board of
Directors.
INVESTMENT ADVISER
Value Line, Inc., 220 East 42nd Street, New York, NY 10017,
serves as the Fund's investment adviser and manages the
Fund's business affairs. Value Line also acts as investment
adviser to the other Value Line mutual funds and furnishes
investment counseling services to private and institutional
clients resulting in combined assets under management of over
$5 billion.
The Adviser was organized in 1982 and is the successor to
substantially all of the operations of Arnold Bernhard & Co.,
Inc. which with its predecessor has been in business since
1931. Value Line Securities, Inc., the Fund's distributor, is
a subsidiary of the Adviser. Another subsidiary of the
Adviser publishes The Value Line Investment Survey and other
publications.
MANAGEMENT FEES
For managing the Fund and its investments, the Adviser is
paid a yearly fee of 0.65% of the Fund's average daily net
assets.
PORTFOLIO MANAGEMENT
A committee of employees of the Investment Adviser is jointly
and primarily responsible for the day-to-day management of
the Fund's portfolio.
9
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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 or an
appropriate retirement plan application if you are opening a
retirement account, with your check.
/ / MINIMUM/ADDITIONAL INVESTMENTS
Once you have completed an application, you can open an
account with an initial investment of $1,000, and make
additional investments at any time for as little as $100. The
price you pay for shares will depend on when we receive your
purchase order.
/ / TIME OF PURCHASE
Your price for Fund shares is the Fund's net asset value per
share (NAV), which is generally calculated as of the close of
trading on the New York Stock Exchange (currently 4:00 p.m.,
Eastern time) every day the Exchange is open
10
<PAGE>
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 Fund. We reserve the right to reject any purchase order
and to waive the initial and subsequent investment minimums
at any time.
Fund shares may be purchased through various third-party
intermediaries including banks, brokers, financial advisers
and financial supermarkets. When the intermediary is
authorized by the Fund, orders will be priced at the NAV next
computed after receipt by the intermediary.
/ / DISTRIBUTION CHARGES
The Fund has adopted a plan under rule 12b-1 of the
Investment Company Act of 1940 for the payment of certain
expenses incurred by Value Line Securities, Inc., the Fund's
distributor, in advertising, marketing and distributing the
Fund's shares and for servicing the Fund's shareholders at an
annual rate of 0.25% of the Fund's average daily net assets.
Under the plan, the distributor may make payments to
securities dealers, banks, financial institutions and other
organizations which render distribution and administrative
services with respect to the distribution of the Fund's
shares. Such services may include, among other things,
answering investor inquiries regarding the Fund; processing
new shareholder account applications and redemption
transactions; responding to shareholder inquiries; and such
other services as the Fund may request to the extent
permitted by applicable statute, rule or regulation. The plan
also provides that the Adviser may make such payments out of
its advisory fee, its past profits or any other source
available to it. The fees payable to the distributor under
the plan are payable without regard to actual expenses
incurred. Because these fees are paid out of the Fund's
assets on an on-going basis, over time these fees will
increase the cost of your investment and may cost you more
than paying other types of sales charges.
11
<PAGE>
/ / NET ASSET VALUE
We determine the Fund's net asset value (NAV) per share as of
the close of regular trading on the New York Stock Exchange
each day that exchange is open for business. We calculate NAV
by adding the market value of all the securities and assets
in the Fund's portfolio, deducting all liabilities, and
dividing the resulting number by the number of shares
outstanding. The result is the net asset value per share. 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 Directors. 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.
12
<PAGE>
HOW TO SELL SHARES
/ / BY MAIL
You can redeem your shares (sell them back to the Fund) by
mail by writing to: Value Line Funds, c/o National Financial
Data Services, Inc., P.O. Box 419729, Kansas City, MO
64141-6729. The request must be signed by all owners of the
account, and you must include a signature guarantee for each
owner. Signature guarantees are also required when redemption
proceeds are going to anyone other than the account holder(s)
of record. If you hold your shares in certificates, you must
submit the certificates properly endorsed with signature
guaranteed with your request to sell the shares. A signature
guarantee can be obtained from most banks or securities
dealers, but not from a notary public. A signature guarantee
helps protect against fraud.
/ / THROUGH A BROKER-DEALER
You may sell your shares through a broker-dealer, who may
charge a fee for this service.
The Fund has authorized certain brokers to accept purchase
and redemption orders on behalf of the Fund. The Fund has
also authorized these brokers to designate others to accept
purchase and redemption orders on behalf of the Fund.
We treat any order to buy or sell shares that you place with
one of these brokers, or anyone they have designated, as if
you had placed it directly with the Fund. The shares that you
buy or sell through brokers or anyone they have designated
are priced at the next net asset value that is computed after
they receive your order.
/ / BY EXCHANGE
You can exchange all or part of your investment in the Fund
for shares in other Value Line funds. You may have to pay
taxes on your exchange. When you exchange shares, you are
purchasing shares in another fund so you should be sure to
get a copy of that fund's prospectus and read it carefully
before buying shares through an exchange. To execute an
exchange, call 800-243-2729.
13
<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 Fund may ask you to increase your balance
within 30 days. If your account is not at the minimum by the
required time, the Fund may redeem your account, after first
notifying you in writing.
REDEMPTION IN KIND
The Fund reserves the right to make a redemption in
kind--payment in portfolio securities rather than cash--if
the amount being redeemed is large enough to affect Fund
operations.
14
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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.
/ / You may buy shares in the Fund for your individual or
group retirement plan, including your Regular or Roth
IRA. You may establish your IRA account even if you
already are a member of an employer-sponsored retirement
plan. Not all contributions to an IRA account are tax
deductible: consult your tax advisor about the tax
consequences of your contribution.
15
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to pay dividends from its net investment
income quarterly, and to distribute any capital gains that it
has realized annually. We automatically reinvest all
dividends and any capital gains, unless you instruct us
otherwise in your application to purchase shares.
You will generally be taxed on distributions you receive,
regardless of whether you them or receive them in cash.
Dividends from short-term capital gains and net investment
income will be taxable as ordinary income. Dividends
designated by the Fund as capital gains distributions will be
taxable at your long-term capital gains tax rate, no matter
how long you have owned your Fund shares. 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 received during the prior year.
If you hold your Fund shares in a tax-deferred retirment
account, such as an IRA, you generally will not have to pay
tax on distributions until they are distributed from the
account. These accounts are subject to complex tax rules, and
you should consult your tax adviser about investment through
a tax-deferred account.
You will generally have a capital gain or loss if you dispose
of your Fund shares by redemption, exchange or sale. Your
gain or loss will be long-term or short-term, generally
depending upon how long you owned your shares.
As with all mutual funds, the Fund may be required to
withhold U.S. federal income tax at the rate of 31% of all
taxable distributions payable to you if you fail to provide
the Fund with your correct taxpayer identification number or
to make required certifications, or if you have been notified
by the IRS that you are subject to backup withholding. Backup
withholding is not an additional tax; rather, it is a way in
which the IRS ensures it will collect taxes otherwise due.
Any amounts withheld may be credited against your U.S.
federal income tax liability.
The above discussion is meant only as a summary, and we urge
you to consult your tax adviser about your particular tax
situation and how it might be affected by current tax law.
16
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FINANCIAL HIGHLIGHTS
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The financial highlights table is intended to help you
understand the Fund's financial performance for the past five
years. Certain information reflects financial results for a
single Fund share. The total returns in the table represent
the rate that an investor would have earned or lost on an
investment in the Fund assuming reinvestment of all dividends
and distributions. This information has been audited by
PricewaterhouseCoopers LLP, whose report, along with the
Fund's financial statements, is included in the Fund's annual
report, which is available upon request by calling
800-223-0818.
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
YEARS ENDED MARCH 31,
- -------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $16.32 $13.64 $14.13 $11.58 $10.37
- -------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income .04 .22 .30 .10 .08
Net gains on securities (both
realized and unrealized) 1.91 4.54 2.15 3.86 1.30
- -------------------------------------------------------------------------------------------------------------
Total from investment
operations 1.95 4.76 2.45 3.96 1.38
- -------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment
income (.02) (.26) (.25) (.12) (.06)
Distributions from capital
gains (.26) (1.82) (2.69) (1.29) (.11)
- -------------------------------------------------------------------------------------------------------------
Total distributions (.28) (2.08) (2.94) (1.41) (.17)
- -------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $17.99 $16.32 $13.64 $14.13 $11.58
- -------------------------------------------------------------------------------------------------------------
TOTAL RETURN 12.16% 37.36% 17.49% 35.13% 13.47%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in
thousands) $ 182,532 $ 123,488 $ 74,981 $ 55,803 $ 26,172
Ratio of expenses to average net
assets 1.08%(1) 1.15%(1) 1.23%(1) 1.38%(1) 1.76%
Ratio of net income to average net
assets .30% 1.46% 1.95% .99% .85%
Portfolio turnover rate 129% 139% 192% 244% 211%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Before offset of custody credits. The ratio of expenses
to average net assets would not have changed net of
custody credits.
------------------------------------------------------------
17
<PAGE>
FOR MORE INFORMATION
Additional information about the Fund's investments is
available in the Fund's annual and semi-annual reports to
shareholders. In the Fund's annual report, you will find a
discussion of the market conditions and investment strategies
that significantly affected the Fund's performance during its
last fiscal year. You can find more detailed information
about the Fund in the current Statement of Additional
Information dated August 1, 1999, which we have filed
electronically with the Securities and Exchange Commission
(SEC) and which is legally a part of this prospectus. If you
want a free copy of the Statement of Additional Information,
the annual or semi-annual report, or if you have any
questions about investing in this Fund, you can write to us
at 220 East 42nd Street, New York, NY 10017-5891 or call
toll-free 800-223-0818. You may also obtain the prospectus
from our Internet site at
http:// www.valueline.com.
You can find reports and other information about the Fund on
the SEC Web site (http:// www.sec.gov), or you can get copies
of this information, after payment of a duplicating fee, by
writing to the Public Reference Section of the SEC,
Washington, D.C. 20549-6009. Information about the Fund,
including its Statement of Additional Information, can be
reviewed and copied at the Securities and Exchange
Commission's Public Reference Room in Washington, D.C. You
can get information on operation of the public reference room
by calling the SEC at 1-800-SEC-0330.
<TABLE>
<S> <C>
INVESTMENT ADVISER SERVICE AGENT
Value Line, Inc. State Street Bank and Trust Company
220 East 42nd Street c/o NFDS
New York, NY 10017-5891 P.O. Box 419729
Kansas City, MO 64141-6729
CUSTODIAN DISTRIBUTOR
State Street Bank and Trust Company Value Line Securities, Inc.
225 Franklin Street 220 East 42nd Street
Boston, MA 02110 New York, NY 10017-5891
</TABLE>
<TABLE>
<S> <C>
Value Line Securities, Inc.
220 East 42nd Street, New York, NY 10017-5891 File no. 811-7702
</TABLE>
<PAGE>
VALUE LINE ASSET ALLOCATION FUND, INC.
220 East 42nd Street, New York, New York 10017-5891
1-800-223-0818 or 1-800-243-2729
www.valueline.com
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 1, 1999
- -------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus of Value Line Asset Allocation Fund,
Inc. dated August 1, 1999, a copy of which may be obtained without charge by
writing or telephoning the Fund. The financial statements, accompanying notes
and report of independent accountants appearing in the Fund's 1999 Annual Report
to Shareholders are incorporated by reference in this Statement. A copy of the
Annual Report is available from the Fund upon request and without charge by
calling 800-223-0818.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Description of the Fund and Its Investments and Risks............................... B-2
Management of the Fund.............................................................. B-9
Investment Advisory and Other Services.............................................. B-11
Service and Distribution Plan....................................................... B-12
Brokerage Allocation and Other Practices............................................ B-12
Capital Stock....................................................................... B-13
Purchase, Redemption and Pricing of Shares.......................................... B-13
Taxes............................................................................... B-15
Performance Data.................................................................... B-18
Financial Statements................................................................ B-19
</TABLE>
B-1
<PAGE>
DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
HISTORY AND CLASSIFICATION. The Fund is an open-end, diversified management
investment company incorporated in Maryland in 1993. The Fund's investment
adviser is Value Line, Inc. (the "Adviser").
NON-PRINCIPAL INVESTMENT STRATEGIES AND ASSOCIATED RISKS.
- RESTRICTED SECURITIES. On occasion, the Fund may purchase securities
which would have to be registered under the Securities Act of 1933 if they were
to be publicly distributed. However, it will not do so if the value of such
securities (other than in a Rule 144A transaction) would exceed 5% of the market
value of its net assets or if the value of such securities and other securities
which are not readily marketable (including repurchase agreements maturing in
more than seven days) would exceed 15% of the market value of its net assets. It
is management's policy to permit the occasional acquisition of such restricted
securities only if (except in the case of short-term non-convertible debt
securities) there is an agreement by the issuer to register such securities,
ordinarily at the issuer's expense, when requested to do so by the Fund. The
acquisition in limited amounts of restricted securities is believed to be
helpful toward the attainment of the Fund's investment objective without unduly
restricting its liquidity or freedom in the management of its portfolio.
However, because restricted securities may only be sold privately or in an
offering registered under the Securities Act of 1933, or pursuant to an
exemption from such registration, substantial time may be required to sell such
securities, and there is greater than usual risk of price decline prior to sale.
In addition, the Fund may purchase certain restricted securities ("Rule 144A
securities") for which there is a secondary market of qualified institutional
buyers, as contemplated by Rule 144A under the Securities Act of 1933. Rule 144A
provides an exemption from the registration requirements of the Securities Act
for the resale of certain restricted securities to qualified institutional
buyers.
The Adviser, under the supervision of the Board of Directors, will consider
whether securities purchased under Rule 144A are liquid or illiquid for purposes
of the Fund's limitation on investment in securities which are not readily
marketable or are illiquid. Among the factors to be considered are the frequency
of trades and quotes, the number of dealers and potential purchasers, dealer
undertakings to make a market and the nature of the security and the time needed
to dispose of it.
To the extent that the liquid Rule 144A securities that the Fund holds
become illiquid, due to lack of sufficient qualified institutional buyers or
market or other conditions, the percentage of the Fund's assets invested in
illiquid assets would increase. The Adviser, under the supervision of the Board
of Directors, will monitor the Fund's investments in Rule 144A securities and
will consider appropriate measures to enable the Fund to maintain sufficient
liquidity for operating purposes and to meet redemption requests.
- STOCK INDEX FUTURES CONTRACTS AND OPTIONS THEREON. The Fund may trade in
stock index futures contracts and in options on such contracts. Such contracts
will be entered into on exchanges designated by the Commodity Futures Trading
Commission ("CFTC").
The Fund's futures and options on futures transactions must constitute bona
fide hedging or other risk management purposes pursuant to regulations
promulgated by the CFTC. In addition, the Fund may not engage in such activities
generally if the sum of the amount of initial margin deposits
B-2
<PAGE>
and premiums paid for unexpired commodity options would exceed 5% of the fair
market value of the Fund's net assets, after taking into account unrealized
profits and unrealized losses on such contracts it has entered into; provided,
however, that in the case of an option that is in-the-money at the time of
purchase, the in-the-money amount may be excluded in calculating the 5%. In
instances involving entering into long futures or options contracts by the Fund,
an amount equal to the market value of the futures contract will be deposited in
a segregated account with the Fund's custodian of cash and liquid securities to
collateralize the position and thereby insure that the use of such futures
contract is unleveraged. No more than 25% of the Fund's net assets may be
deposited in such segregated account.
There can be no assurance of the Fund's successful use of stock index
futures as a hedging device. Hedging transactions involve certain risks. One
risk arises because of the imperfect correlation between movements in the price
of the stock index future and movements in the price of the securities which are
the subject of the hedge. The risk of imperfect correlation increases as the
composition of the Fund's securities portfolio diverges from the securities
included in the applicable stock index. In addition to the possibility that
there may be an imperfect correlation, or no correlation at all, between
movements in the stock index future and the portion of the portfolio being
hedged, the price of stock index futures may not correlate perfectly with the
movement in the stock index due to certain market distortions. Increased
participation by speculators in the futures market also may cause temporary
price distortions. Due to the possibility of price distortions in the futures
market and because of the imperfect correlation between movements in the stock
index and movements in the price of stock index futures, a correct forecast of
general market trends by the Adviser still may not result in a successful
hedging transaction.
For example, should the Fund anticipate a decrease in the value of its
portfolio securities, it could enter into futures contracts to sell stock
indexes thereby partially hedging its portfolio against the anticipated losses.
Losses in the portfolio, if realized, should be partially offset by gains on the
futures contracts. Conversely, if the Fund anticipated purchasing additional
portfolio securities in a rising market, it could enter into futures contracts
to purchase stock indexes thereby locking in a price. The implementation of
these strategies by the Fund should be less expensive and more efficient than
buying and selling the individual securities at inopportune times.
A stock index future obligates the seller to deliver (and the purchaser to
take) an amount of cash equal to a specific dollar amount times the difference
between the value of a specific stock index at the close of the last trading day
of the contract and the price at which the contract is entered into. There can
be no assurance of the Fund's successful use of stock index futures as a hedging
device.
The contractual obligation is satisfied by either a cash settlement or by
entering into an opposite and offsetting transaction on the same exchange prior
to the delivery date. Entering into a futures contract to deliver the index
underlying the contract is referred to as entering into a short futures
contract. Entering into a futures contract to take delivery of the index is
referred to as entering into a long futures contract. An offsetting transaction
for a short futures contract is effected by the Fund entering into a long
futures contract for the same date, time and place. If the price of the short
contract exceeds the price in the offsetting long, the Fund is immediately paid
the difference and thus realizes a gain. If the price of the long transaction
exceeds the short price, the Fund pays the difference and realizes a loss.
Similarly, the closing out of a long futures contract is effected by the
B-3
<PAGE>
Fund entering into a short futures contract. If the offsetting short price
exceeds the long price, the Fund realizes a gain, and if the offsetting short
price is less than the long price, the Fund realizes a loss.
No consideration will be paid or received by the Fund upon entering into a
futures contract. Initially, the Fund will be required to deposit with the
broker an amount of cash or cash equivalents equal to approximately 1% to 10% of
the contract amount. This amount is subject to change by the board of trade on
which the contract is traded and members of such board of trade may charge a
higher amount. This amount is known as "initial margin" and is in the nature of
a performance bond or good faith deposit on the contract which is returned to
the Fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied. Subsequent payments, known as "variation
margin," to and from the broker will be made daily as the price of the index
underlying the futures contract fluctuates, making the long and short positions
in the futures contract more or less valuable, a process known as
"marking-to-market."
The Fund may also purchase put and call options on stock index futures
contracts on commodity exchanges or write covered options on such contracts. A
call option gives the purchaser the right to buy, and the writer the obligation
to sell, while a put option gives the purchaser the right to sell and the writer
the obligation to buy. Unlike a stock index futures contract, which requires the
parties to buy and sell the stock index on a set date, an option on a stock
index futures contract entitles its holder to decide on or before a future date
whether to enter into such a futures contract. If the holder decides not to
enter into the contract, the premium paid for the option is lost. Since the
value of the option is fixed at the point of sale, the purchase of an option
does not require daily payments of cash in the nature of "variation" or
"maintenance" margin payments to reflect the change in the value of the
underlying contract. The value of the option purchased by the Fund does change
and is reflected in the net asset value of the Fund. The writer of an option,
however, must make margin payments on the underlying futures contract. Exchanges
provide trading mechanisms so that an option once purchased can later be sold
and an option once written can later be liquidated by an offsetting purchase.
Successful use of stock index futures by the Fund also is subject to the
Adviser's ability to predict correctly movements in the direction of the market.
If the Adviser's judgment about the several directions of the market is wrong,
the Fund's overall performance may be worse than if no such contracts had been
entered into. For example, if the Fund has hedged against the possibility of a
decline in the market adversely affecting stocks held in its portfolio and stock
prices increase instead, the Fund will lose part or all of the benefit of the
increased value of its stock which it has hedged because it will have offsetting
losses in its futures positions. In addition, in such situations, if the Fund
has insufficient cash, it may have to sell securities to meet daily variation
margin requirements. Such sales of securities may be, but will not necessarily
be, at increased prices which reflect the rising market. The Fund may have to
sell securities at a time when it may be disadvantageous to do so. When stock
index futures are purchased to hedge against a possible increase in the price of
stocks before the Fund is able to invest its cash (or cash equivalents) in
stocks in an orderly fashion, it is possible that the market may decline
instead; if the Fund then concludes not to invest in stocks at that time because
of concern as to possible further market decline or for other reasons, the Fund
will realize a loss on the futures contract that is not offset by a reduction in
the price of securities purchased.
B-4
<PAGE>
Use of options on stock index futures entails the risk that trading in the
options may be interrupted if trading in certain securities included in the
index is interrupted. The Fund will not purchase these options unless its
investment adviser is satisfied with the development, depth and liquidity of the
market and the investment adviser believes the options can be closed out.
Options and futures contracts entered into by the Fund will be subject to
special tax rules. These rules may accelerate income to the Fund, defer Fund
losses, cause adjustments in the holding periods of Fund securities, convert
capital gain into ordinary income and convert short-term capital losses into
long-term capital losses. As a result, these rules could affect the amount,
timing and character of Fund distributions. However, the Fund anticipates that
these investment activities will not prevent the Fund from qualifying as a
regulated investment company.
- REPURCHASE AGREEMENTS. The Fund may invest temporary cash balances in
repurchase agreements. A repurchase agreement involves a sale of securities to
the Fund, with the concurrent agreement of the seller (a member bank of the
Federal Reserve System or a securities dealer which the Adviser believes to be
financially sound) to repurchase the securities at the same price plus an amount
equal to an agreed-upon interest rate, within a specified time, usually less
than one week, but, on occasion, at a later time. The Fund will make payment for
such securities only upon physical delivery or evidence of book-entry transfer
to the account of the custodian or a bank acting as agent for the Fund.
Repurchase agreements may also be viewed as loans made by the Fund which are
collateralized by the securities subject to repurchase. The value of the
underlying securities will be at least equal at all times to the total amount of
the repurchase obligation, including the interest factor. In the event of a
bankruptcy or other default of a seller of a repurchase agreement, the Fund
could experience both delays in liquidating the underlying securities and
losses, including: (a) possible decline in the value of the underlying security
during the period while the Fund seeks to enforce its rights thereto; (b)
possible subnormal levels of income and lack of access to income during this
period; and (c) expenses of enforcing its rights. The Board of Directors
monitors the creditworthiness of parties with which the Fund enters into
repurchase agreements.
- LENDING PORTFOLIO SECURITIES. The Fund may lend its portfolio securities
to broker-dealers or institutional investors if as a result thereof the
aggregate value of all securities loaned does not exceed 33 1/3% of the total
assets of the Fund (including the loan collateral). The loans will be made in
conformity with applicable regulatory policies and will be 100% collateralized
by cash or liquid securities on a daily basis in an amount equal to the market
value of the securities loaned and interest earned. The Fund will retain the
right to call, upon notice, the loaned securities and intends to call loaned
voting securities in anticipation of any important or material matter to be
voted on by shareholders. While there may be delays in recovery or even loss of
rights in the collateral should the borrower fail financially, the loans will be
made only to firms deemed by the Adviser to be of good standing and will not be
made unless, in the judgment of the Adviser, the consideration which can be
earned from such loan justifies the risk. The Fund may pay reasonable custodian
and administrative fees in connection with the loans.
- WHEN-ISSUED SECURITIES. The Fund may from time to time purchase
securities on a "when-issued" basis. The price of such securities, which may be
expressed in yield terms, is fixed at the time the commitment to purchase is
made, but delivery and payment for the when-issued securities take place at a
later date. Normally, the settlement date occurs within one month of the
purchase. During the period between purchase and settlement, no payment is made
by the Fund to the issuer and no interest accrues to the Fund. Forward
commitments involve a risk of loss if the value of the
B-5
<PAGE>
security to be purchased declines prior to the settlement date, which risk is in
addition to the risk of decline in value of the Fund's other assets. While
when-issued securities may be sold prior to the settlement date, the Fund
intends to purchase such securities with the purpose of actually acquiring them
unless a sale appears desirable for investment reasons. At the time the
commitment to purchase a security on a when-issued basis is confirmed, the Fund
will record the transaction and reflect the value of the security in determining
its net asset value. The Fund does not believe that its net asset value or
income will be adversely affected by its purchase of securities on a when-issued
basis. The Fund will maintain cash or liquid securities equal in value to
commitments for when-issued securities in a segregated account.
- SHORT SALES. The Fund may from time to time make short sales of
securities or maintain a short position, provided that at all times when a short
position is open the Fund owns an equal amount of such securities or securities
convertible into or exchangeable for an equivalent amount of such securities. No
more than 10% of the value of the Fund's net assets taken at market may at any
one time be held as collateral for such sales.
- OPTIONS ON SECURITIES. The Fund may purchase and write listed put and
call options on equity and debt securities when deemed appropriate and
consistent with the Fund's investment objective. The Fund will engage in option
transactions to realize profits through the receipt of premiums, to protect
unrealized gains or to avoid realizing losses and to hedge securities positions
held by the Fund.
The Fund will write call options only if they are secured. A call option is
"secured" if the Fund owns the securities underlying the call, if the Fund holds
a call at the same exercise price for the same exercise period and on the same
securities as the call written, or if the Fund establishes with its custodian at
the time it writes the call, and maintains for the term of the option, a
segregated account consisting of cash, U.S. Government Securities or other
high-grade debt securities equal to the fluctuating market value of the optioned
securities. The segregated account will be adjusted at least daily to reflect
changes in the market value of the optioned securities.
The Fund will write put options only if they are secured. A put option is
"secured" if the Fund holds a put at the same exercise price, for the same
exercise period and on the same underlying security as the put written, or if
the Fund places cash, U.S. Government Securities or other high-grade debt
securities with a value equal to the exercise price of the put in a segregated
account with the Fund's custodian. The segregated account will be adjusted daily
to reflect the current value of the put.
The Fund may enter into "closing purchase transactions" or "closing sale
transactions" to terminate its obligations with respect to an option prior to
the expiration of the option. As the writer of an option, the Fund may effect a
closing purchase transaction by buying an option of the same series and exercise
price as the option previously written. As the purchaser of an option, the Fund
may liquidate its position by selling the option previously purchased.
The Fund may realize a profit or loss upon entering into a closing purchase
or sale transaction. The Fund will realize a profit if the cost of a closing
purchase transaction is less than the premium received upon writing the original
option and will incur a loss if the cost of a closing purchase transaction
exceeds the premium received upon writing the original option. Whether the Fund
B-6
<PAGE>
realizes a profit or loss on a closing sale transaction will depend on whether
the amount received in the closing sale transaction is more or less than the
premium the Fund initially paid for the original option plus the related
transaction costs.
The Fund will not (1) sell listed put or call options to the extent that,
immediately after a sale, the aggregate value of the securities underlying the
calls or obligations securing the puts would exceed 25% of the Fund's net assets
or (2) purchase listed put or call options if, immediately after a purchase, the
premiums paid for all the options owned at that time would exceed 10% of the
Fund's net assets.
FUND POLICIES.
(i)
The Fund may not issue senior securities or borrow money in excess
of 10% of the value of its net assets and then only as a temporary
measure to meet unusually heavy redemption requests or for other
extraordinary or emergency purposes. Securities will not be purchased while
borrowings are outstanding. No assets of the Fund may be pledged, mortgaged
or otherwise encumbered, transferred or assigned to secure a debt.
(ii)
The Fund may not engage in the underwriting of securities except to
the extent that the Fund may be deemed an underwriter as to
restricted securities under the Securities Act of 1933 in selling portfolio
securities.
(iii)
The Fund may not invest 25% or more of its assets in securities of
issuers in any one industry.
(iv)
The Fund may not purchase securities of other investment companies
except in mergers or other business combinations or invest in real
estate, mortgages, illiquid securities of real estate investment trusts,
real estate limited partnerships or interests in oil, gas or mineral leases,
although the Fund may purchase securities of issuers which engage in real
estate operations.
(v)
The Fund may not lend money except in connection with the purchase
of debt obligations or by investment in repurchase agreements,
provided that repurchase agreements maturing in more than seven days,
over-the-counter options held by the Fund and the portion of the assets used
to cover such options when taken together with other securities that are
illiquid or restricted do not exceed 15% of the Fund's assets. The Fund may
lend its portfolio securities to broker-dealers and institutional investors
if as a result thereof the aggregate value of all securities loaned does not
exceed 33 1/3% of the total assets of the Fund.
(vi)
The Fund may not engage in arbitrage transactions, short sales
except as set forth herein, purchases on margin or participate on a
joint or joint and several basis in any trading account in securities except
in connection with the purchase or sale of futures transactions and to
deposit or pay initial or variation margin in connection with financial
futures contracts or related options transactions.
(vii)
The Fund may not invest more than 5% of its total assets in the
securities of any one issuer or purchase more than 10% of the
outstanding voting securities, or any other class of securities, of any one
issuer. For purposes of this restriction, all outstanding debt securities of
an
B-7
<PAGE>
issuer are considered as one class, and all preferred stock of an issuer is
considered as one class. This restriction does not apply to obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
(viii)
The Fund may not invest more than 5% of its total assets in
securities of issuers having a record, together with its
predecessors, of less than three years of continuous operation. This
restriction does not apply to any obligation issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
(ix)
The Fund may not purchase securities for the purpose of exercising
control over another company.
(x)
The Fund may not invest in commodities or commodity contracts except
that the Fund may invest in futures contracts and financial futures
contracts and options on futures contracts and financial futures contracts.
(xi)
The Fund may not purchase the securities of any issuer if, to the
knowledge of the Fund, those officers and directors of the Fund and
of the Adviser, who each owns more than 0.5% of the outstanding securities
of such issuer, together own more than 5% of such securities.
(xii)
The Fund may not invest more than 2% of the value of its total
assets in warrants (valued at the lower of cost or market), except
that warrants attached to other securities are not subject to these
limitations.
(xiii)
The primary investment objective of the Fund is to achieve a high
total investment return consistent with reasonable risk.
If a percentage restriction is adhered to at the time of investment, a later
change in percentage resulting from changes in values or assets will not be
considered a violation of the restriction. For purposes of industry
classifications, the Fund follows the industry classifications in The Value Line
Investment Survey.
The policies set forth above may not be changed without the affirmative vote
of the majority of the outstanding voting securities of the Fund which means the
lesser of (1) the holders of more than 50% of the outstanding shares of capital
stock of the Fund or (2) 67% of the shares present if more than 50% of the
shares are present at a meeting in person or by proxy.
B-8
<PAGE>
MANAGEMENT OF THE FUND
The business and affairs of the Fund are managed by the Fund's officers
under the direction of the Board of Directors. Set forth below is certain
information regarding the Directors and Officers of the Fund.
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH FUND PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ---------------------------------- --------------------- ---------------------------------------------
<S> <C> <C>
*Jean Bernhard Buttner Chairman of the Board Chairman, President and Chief Executive
Age 64 of Directors and Officer of the Adviser and Value Line Pub-
President lishing, Inc. Chairman and President of the
Value Line Funds and Value Line Securities,
Inc. (the "Distributor"); Chairman and
President of each of the 15 Value Line Funds.
Francis C. Oakley Director Professor of History, Williams College, 1961
54 Scott Hill Road to present and President Emeritus since 1994;
Williamstown, MA 01267 President of Williams College, 1985-1993;
Age 67 Director, Berkshire Life Insurance Company.
Marion N. Ruth Director Real Estate Executive; President, Ruth Realty
5 Outrider Road (real estate broker).
Rolling Hills, CA 90274
Age 64
Frances T. Newton Director Computer Programming Professional, Duke Power
4921 Buckingham Drive Company.
Charlotte, NC 28209
Age 58
Stephen Grant Vice President Portfolio Manager with the Adviser.
Age 45
Bruce Alston Vice President Portfolio Manager with the Adviser since
Age 53 1997; Portfolio Manager with Dreyfus
Management, Inc. 1994-1996, and Prudential
Capital Markets Group, 1981-1994.
Nancy Bendig Vice President Portfolio Manager with the Adviser.
Age 43
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").
B-9
<PAGE>
Unless otherwise indicated, the address for each of the above is 220 East 42nd
Street, New York, NY.
Directors of the Fund are also directors of two other Value Line Funds.
The following table sets forth information regarding compensation of
Directors by the Fund and by the Fund and the two other Value Line Funds of
which each of the Directors was a director for the fiscal year ended March 31,
1999. Directors who are officers or employees of the Adviser do not receive any
compensation from the Fund or any of the Value Line Funds.
COMPENSATION TABLE
FISCAL YEAR ENDED MARCH 31, 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 (3 FUNDS)
- ------------------------------------------- --------------- ------------------ ----------- --------------
<S> <C> <C> <C> <C>
Jean B. Buttner............................ $ -0- N/A N/A $ -0-
Francis C. Oakley.......................... 5,834 N/A N/A 20,000
Marion N. Ruth............................. 5,834 N/A N/A 20,000
Frances T. Newton.......................... 5,834 N/A N/A 20,000
</TABLE>
As of April 30, 1999, no person owned of record or, to the knowledge of the
Fund, owned beneficially, 5% or more of the outstanding stock of the Fund other
than the Adviser and affiliated companies which owned 3,552,437 shares of the
Fund's capital stock or 34.4% of the outstanding shares, National Financial
Services Co., 200 Liberty Street, New York, NY 10281, which owned 1,249,319
shares or 12.1%, Charles Schwab & Co. Inc., 101 Montgomery Street, San
Francisco, CA 94101, which owned 864,809 shares or 8.4% and Donaldson Lufkin &
Jenrette Securities Corp., PO Box 2052, Jersey City, NJ 07303, which owned
818,816 or 7.9%. In addition, First Union National Bank, as Trustee of the Value
Line, Inc. Profit Sharing and Savings Plan, owned 242,391 shares or 2.3% and
Jean B. Buttner, Chairman of the Board of Directors and President, owned 336,908
shares or 3.3%. Other officers and directors of the Fund owned 14,991 shares of
capital stock, representing less than 1% of the outstanding shares.
B-10
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
The Fund's investment adviser is Value Line, Inc. (the "Adviser"). Arnold
Bernhard & Co., Inc., 220 East 42nd Street, New York, NY 10017, a holding
company, owns approximately 81% of the outstanding shares of the Adviser's
common stock. Jean Bernhard Buttner, Chairman, President and Chief Executive
Officer of the Adviser and Chairman and President of the Fund, owns all of the
voting stock of Arnold Bernhard & Co., Inc.
The investment advisory agreement between the Fund and the Adviser, dated
July 8, 1993, provides for an advisory fee at an annual rate of 0.65% of the
Fund's average daily net assets during the year. During the fiscal years ended
March 31, 1997, 1998 and 1999, the Fund paid or accrued to the Adviser advisory
fees of $437,635, $630,175 and $984,445, respectively.
The investment advisory agreement provides that the Adviser shall render
investment advisory and other services to the Fund including, at its expense,
all administrative services, office space and the services of all officers and
employees of the Fund. The Fund pays all other expenses not assumed by the
Adviser including taxes, interest, brokerage commissions, insurance premiums,
fees and expenses of the custodian and shareholder servicing agents, legal,
audit and Fund accounting expenses and fees, fees and expenses in connection
with qualification under federal and state securities laws and costs of
shareholder reports and proxy materials. The Fund has agreed that it will use
the words "Value Line" in its name only so long as Value Line, Inc. serves as
investment adviser to the Fund. The agreement will terminate upon its
assignment.
The Adviser acts as investment adviser to 14 other investment companies
constituting The Value Line Family of Funds and furnishes investment counseling
services to private and institutional accounts resulting in combined assets
under management in excess of $5 billion.
Certain of the Adviser's clients may have investment objectives similar to
the Fund and certain investments may be appropriate for the Fund and for other
clients advised by the Adviser. From time to time, a particular security may be
bought or sold for only one client or in different amounts and at different
times for more than one but less than all such clients. In addition, a
particular security may be bought for one or more clients when one or more other
clients are selling such security, or purchases or sales of the same security
may be made for two or more clients at the same time. In such event, such
transactions, to the extent practicable, will be averaged as to price and
allocated as to amount in proportion to the amount of each order. In some cases,
this procedure could have a detrimental effect on the price or amount of the
securities purchased or sold by the Fund. In other cases, however, it is
believed that the ability of the Fund to participate, to the extent permitted by
law, in volume transactions will produce better results for the Fund.
The Adviser and/or its affiliates, officers, directors and employees may
from time to time own securities which are also held in the portfolio of the
Fund. The Adviser has imposed rules upon itself and such persons requiring
monthly reports of security transactions for their respective accounts and
restricting trading in various types of securities in order to avoid possible
conflicts of interest. The Adviser may from time to time, directly or through
affiliates, enter into agreements to furnish for compensation special research
or financial services to companies, including services in connection with
acquisitions, mergers or financings. In the event that such agreements are in
effect with respect to issuers of securities held in the portfolio of the Fund,
specific reference to such agreements will be made in the "Schedule of
Investments" in shareholder reports of the Fund. As of the date of this
Statement of Additional Information, no such agreements exist.
B-11
<PAGE>
The Fund has entered into a distribution agreement with Value Line
Securities, Inc. (the "Distributor") whose address is 220 East 42nd Street, New
York, NY 10017, pursuant to which the Distributor acts as principal underwriter
and distributor of the Fund for the sale and distribution of its shares. The
Distributor is a wholly-owned subsidiary of the Adviser. For its services under
the agreement, the Distributor is not entitled to receive any compensation. The
Distributor also serves as distributor to the other Value Line funds. Jean
Bernhard Buttner is Chairman and President of the Distributor.
The Adviser has retained State Street Bank and Trust Company ("State
Street") to provide certain bookkeeping and accounting services for the Fund.
The Adviser pays State Street $32,400 per annum for each Value Line fund for
which State Street provides these services. State Street, whose address is 225
Franklin Street, Boston, MA 02110, also acts as the Fund's custodian, transfer
agent and dividend-paying agent. As custodian, State Street is responsible for
safeguarding the Fund's cash and securities, handling the receipt and delivery
of securities and collecting interest and dividends on the Fund's investments.
As transfer agent and dividend-paying agent, State Street effects transfers of
Fund shares by the registered owners and transmits payments for dividends and
distributions declared by the Fund. National Financial Data Services, Inc., a
State Street affiliate, whose address is 330 W. 9th Street, Kansas City, MO
64105, provides certain transfer agency functions to the Fund as an agent for
State Street. PricewaterhouseCoopers LLP, whose address is 1177 Avenue of the
Americas, New York, NY 10036, acts as the Fund's independent accountants and
also performs certain tax preparation services.
SERVICE AND DISTRIBUTION PLAN
The Service and Distribution Plan (12b-1 Plan) provides for the payment of
certain expenses incurred by Value Line Securities, Inc. (the "Distributor") in
advertising, marketing and distributing Fund shares and for servicing Fund
shareholders at an annual rate of .25% of the Fund's average daily net assets.
During the fiscal year ended March 31, 1999, the Fund paid fees of $378,633 to
the Distributor under the Plan, the Distributor paid $105,535 to other
broker-dealers and incurred $208,221 in advertising and other marketing
expenses. The fees payable to the Distributor under the Plan are payable without
regard to actual expenses incurred.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Orders for the purchase and sale of portfolio securities are placed with
brokers and dealers who, in the judgment of the Adviser, are able to execute
them as expeditiously as possible and at the best obtainable price. Debt
securities are traded principally in the over-the-counter market on a net basis
through dealers acting for their own account and not as brokers. Purchases and
sales of securities which are not listed or traded on a securities exchange will
ordinarily be executed with primary market makers acting as principal, except
when it is determined that better prices and executions may otherwise be
obtained. The Adviser is also authorized to place purchase or sale orders with
brokers or dealers who may charge a commission in excess of that charged by
other brokers or dealers if the amount of the commission charged is reasonable
in relation to the value of the brokerage and research services provided. Such
allocation will be in such amounts and in such proportions as the Adviser may
determine. Orders may also be placed with brokers or dealers who sell shares of
the Fund or other funds for which the Adviser acts as investment adviser, but
this fact, or the volume of such sales, is not a consideration in their
selection. During the fiscal years ended March 31, 1997, 1998 and 1999, the Fund
paid brokerage commissions of $124,939, $179,410 and
B-12
<PAGE>
$222,413, respectively, of which $71,591 (57%), $97,238 (54%) and $131,914
(59%), respectively, was paid to Value Line Securities, Inc., the Fund's
distributor and a subsidiary of the Adviser. Value Line Securities, Inc. clears
transactions for the Fund through unaffiliated broker-dealers.
The Board of Directors has adopted procedures incorporating the standards of
Rule 17e-1 under the 1940 Act which requires that the commissions paid to Value
Line Securities or any other "affiliated person" be "reasonable and fair"
compared to the commissions paid to other brokers in connection with comparable
transactions. The procedures require that the Adviser furnish reports to the
Directors with respect to the payment of commissions to affiliated brokers and
maintain records with respect thereto. During the fiscal year ended March 31,
1999, 200,837 (90%) of the Fund's brokerage commissions were paid to brokers or
dealers solely for their services in obtaining the best prices and executions;
the balance, or $21,576 (10%), went to brokers or dealers who provided
information or services to the Adviser and, therefore, indirectly to the Fund
and to shareholders of the Value Line funds. The information and services
furnished to the Adviser include the furnishing of research reports and
statistical compilations and computations and the providing of current
quotations for securities. The services and information were furnished to the
Adviser at no cost to it; no such services or information were furnished
directly to the Fund, but certain of these services might have relieved the Fund
of expenses which it would otherwise have had to pay. Such information and
services are considered by the Adviser, and brokerage commissions are allocated
in accordance with its assessment of such information and services, but only in
a manner consistent with the placing of purchase and sale orders with brokers
and/or dealers, which, in the judgment of the Adviser, are able to execute such
orders as expeditiously as possible and at the best obtainable price. The Fund
is advised that the receipt of such information and services has not reduced in
any determinable amount the overall expenses of the Adviser.
PORTFOLIO TURNOVER. The Fund's annual portfolio turnover rate may exceed
100%. A rate of portfolio turnover of 100% would occur if all of the Fund's
portfolio were replaced in a period of one year. To the extent that the Fund
engages in short-term trading in attempting to achieve its objective, it may
increase portfolio turnover and incur higher brokerage commissions and other
expenses than might otherwise be the case. The Fund's portfolio turnover rate
for recent fiscal years is shown under "Financial Highlights" in the Fund's
Prospectus.
CAPITAL STOCK
Each share of the Fund's common stock, $.001 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 Directors and,
if the Fund were liquidated, would receive the net assets of the Fund.
PURCHASE, REDEMPTION AND PRICING OF SHARES
PURCHASES: Shares of the Fund are purchased at the net asset value next
calculated after receipt of a purchase order. Minimum orders are $1,000 for an
initial purchase and $100 for each subsequent purchase. The Fund reserves the
right to reduce or waive the minimum purchase requirements in certain cases such
as pursuant to payroll deduction plans, etc., where subsequent and continuing
purchases are contemplated.
B-13
<PAGE>
AUTOMATIC PURCHASES: The Fund offers a free service to its shareholders,
Valu-Matic, through which monthly investments of $25 or more may be made
automatically into the shareholder's Fund account. The required form to enroll
in this program is available upon request from the Distributor.
RETIREMENT PLANS: Shares of the Fund may be purchased as the investment medium
for various tax-sheltered retirement plans. Upon request, the Distributor will
provide information regarding eligibility and permissible contributions. Because
a retirement plan is designed to provide benefits in future years, it is
important that the investment objectives of the Fund be consistent with the
participant's retirement objectives. Premature withdrawals from a retirement
plan may result in adverse tax consequences. For more complete information,
contact Shareholder Services at 1-800-223-0818.
REDEMPTION: The right of redemption may be suspended, or the date of payment
postponed beyond the normal seven-day period, by the Fund under the following
conditions authorized by the 1940 Act: (1) For any period (a) during which the
New York Stock Exchange is closed, other than customary weekend and holiday
closing, or (b) during which trading on the New York Stock Exchange is
restricted; (2) For any period during which an emergency exists as a result of
which (a) disposal by the Fund of securities owned by it is not reasonably
practical, or (b) it is not reasonably practical for the Fund to determine the
fair value of its net assets; (3) For such other periods as the Securities and
Exchange Commission may by order permit for the protection of the Fund's
shareholders.
The value of shares of the Fund on redemption may be more or less than the
shareholder's cost, depending upon the market value of the Fund's assets at the
time. Shareholders should note that if a loss has been realized on the sale of
shares of the Fund, the loss may be disallowed for tax purposes if shares of the
same Fund are purchased within (before or after) 30 days of the sale.
It is possible that conditions may exist in the future which would, in the
opinion of the Board of Directors, make it undesirable for the Fund to pay for
redemptions in cash. In such cases the Board may authorize payment to be made in
portfolio securities or other property of the Fund. However, the Fund has
obligated itself under the 1940 Act to redeem for cash all shares presented for
redemption by any one shareholder up to $250,000 (or 1% of the Fund's net assets
if that is less) in any 90-day period. Securities delivered in payment of
redemptions are valued at the same value assigned to them in computing the net
asset value per share. Shareholders receiving such securities may incur
brokerage costs on their sales.
The net asset value of the Fund's shares for purposes of both purchases and
redemptions is determined once daily as of the close of regular trading on the
New York Stock Exchange (generally 4:00 p.m., New York time) on each day that
the New York Stock Exchange is open for trading except on days on which no
orders to purchase, sell or redeem Fund shares have been received. The New York
Stock Exchange is currently closed on New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day and on the preceding Friday or subsequent
Monday if one of those days falls on a Saturday or Sunday, respectively. The net
asset value per share is determined by dividing the total value of the
investments and other assets of the Fund, less any liabilities, by the total
outstanding shares. Securities listed on a securities exchange and
over-the-counter securities traded on the NASDAQ national market are valued at
the closing sales price on the date as of which the net asset value is being
determined. In the absence of closing sales prices for such securities and for
securities traded
B-14
<PAGE>
in the over-the-counter market, the security is valued at the midpoint between
the latest available and representative asked and bid prices. Securities for
which market quotations are not readily available or which are not readily
marketable and all other assets of the Fund are valued at fair value as the
Board of Directors or persons acting at their direction may determine in good
faith. Short-term instruments with maturities of 60 days or less at the date of
purchase are valued at amortized cost, which approximates market value.
TAXES
(SEE "DIVIDENDS, DISTRIBUTIONS AND TAXES" IN THE FUND'S PROSPECTUS)
Set forth below is a discussion of certain U.S. federal income tax issues
concerning the Fund and the purchase, ownership and disposition of Fund shares.
This discussion does not purport to be complete or to deal with all aspects of
federal income taxation that may be relevant to shareholders in light of their
particular circumstances, nor to certain types of shareholders subject to
special treatment under the federal income tax laws. This discussion is based
upon present provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), the regulations promulgated thereunder and judicial and administrative
ruling authorities, all of which are subject to change, which change may be
retroactive. Prospective investors should consult their own tax advisors with
regard to the federal tax consequences of the purchase, ownership, or
disposition of Fund shares, as well as the tax consequences arising under the
laws of any state, foreign country, or other taxing jurisdiction.
FUND STATUS. The Fund intends to qualify and elect to be treated each year
as a regulated investment company under Subchapter M of the Code. Accordingly,
the Fund generally must, among other things, (i) derive in each taxable year at
least 90% of its gross income from dividends, interest, payments from certain
securities loans, and gains from the sale of stock, securities or foreign
currencies or other income (such as gains from options, futures or forward
contracts) from investing in stock, securities or currencies; and (ii) hold as
of the close of each quarter, at least 50% of its assets in certain investment
assets, such as cash, U.S. Government securities, securities of other regulated
investment companies and other securities, with such other securities limited as
to any issuer to not more than 5% of the value of the Fund's total assets and
10% of the outstanding voting securities of such issuer, and hold not more than
25% of the value of the Fund's assets in the securities of any issuer (other
than U.S. Government securities or securities of other regulated investment
companies).
FUND DISTRIBUTIONS. As a regulated investment company, the Fund generally
will not be subject to U.S. federal income tax on income and gains that it
distributes to shareholders, if at least 90% of the Fund's investment company
income -- dividends, interest and net short-term capital gains in excess of net
long-term capital losses -- for the taxable year is distributed. The Fund
intends to distribute substantially all of its investment company income and net
capital gains to shareholders for federal income tax purposes although such
distributions will be automatically reinvested in additional shares of the Fund
unless the shareholder has requested otherwise.
Amounts not timely distributed by the Fund are subject to a nondeductible 4%
excise tax at the Fund level. To avoid the tax, the Fund must distribute during
a calendar year at least 98% of its ordinary income, 98% of its capital gains in
excess of capital losses for the one year period ended October 31 of such year,
and all ordinary income and capital gains for previous years that were not
distributed in earlier years. The Fund will satisfy the annual distribution
requirement if it distributes
B-15
<PAGE>
the required amount on or before December 31 of such year or if the distribution
is declared in October, November or December of such year with a record date
within such period and paid by the Fund during January of the following calendar
year. Such distributions will be taxable to shareholders in the calendar year in
which the distributions are declared, rather than the calendar year in which the
distributions are received. The Fund anticipates that it will make sufficient
timely distributions to avoid imposition of the excise tax.
Options, futures contracts and short sales entered into by the Fund will be
subject to special tax rules. These rules may accelerate income to the Fund,
defer Fund losses, cause adjustments in the holding periods of Fund securities,
convert capital gain into ordinary income and convert short-term capital losses
into long-term capital losses. As a result, these rules could affect the amount,
timing and character of Fund distributions.
Distributions of investment company taxable income are taxable to a U.S.
shareholder as ordinary income, whether paid in cash or reinvested. Dividends
paid to a corporate shareholder may qualify for the dividends-received
deduction, to the extent such dividends are attributable to dividends received
from a U.S. corporation. It is expected that dividends from U.S. corporations
will constitute most of the Fund's gross income and that a portion of the
dividends paid by the Fund will qualify for the dividends-received deduction for
corporate shareholders of the Fund. Upon request, the Fund will advise Fund
shareholders of the amount of dividends which qualify for the dividends-received
deduction.
Distributions of net capital gains (the excess of net long-term capital
gains over net short-term capital losses), if any, designated as capital gain
dividends will be taxable to shareholders as long-term capital gains, regardless
of how long a shareholder has held the Fund's shares. Distributions of capital
gain from the sale of assets held for one year or less will generally be taxed
as ordinary income.
Investors purchasing Fund shares prior to a distribution should be aware of
the tax consequences of purchasing such Fund shares. The purchase price paid for
such shares may reflect the amount of the forthcoming distribution. Although
distributions from the Fund shortly after the purchase of Fund shares may be
viewed in substance as a return of capital, nevertheless, such a distribution
will be attributed to the dividend or capital gain income of the Fund and,
therefore, be taxable to the shareholder.
REDEMPTION, SALE OR EXCHANGE OF FUND SHARES. Upon a redemption or sale of
shares of the Fund, a shareholder may realize a gain or loss for federal income
tax purposes depending upon his or her basis in the shares. A gain or loss will
be treated as capital gain or loss if the shares are capital assets in the
shareholder's hands, and will be long-term or short-term depending on the
shareholder's holding period for the shares. Any loss realized on a redemption
or sale of Fund shares will be disallowed to the extent the Fund shares disposed
of are replaced (including through reinvestment of dividends) within a period of
61 days beginning 30 days before and ending 30 days after the Fund shares are
disposed of. In such a case, the basis of the Fund shares acquired will be
adjusted to reflect the disallowed loss. If a shareholder held Fund shares for
six months or less and during that period received a distribution taxable to the
shareholder as long-term capital gain, any loss realized on the sale of such
Fund shares during such six-month period would be a long-term loss to the extent
of such distribution.
B-16
<PAGE>
An exchange of shares in the Fund for shares of another Value Line fund will
be treated as a taxable sale of the exchanged Fund shares. Accordingly, a
shareholder may recognize a gain or loss for federal income tax purposes
depending upon his or her basis in the Fund shares exchanged. A gain or loss
will be treated as capital gain or loss if the shares are capital assets in the
shareholder's hands, and will be long-term or short-term depending upon the
shareholder's holding period for the shares. The shareholder will have a tax
basis in the newly-acquired Fund shares equal to the amount invested and will
begin a new holding period for federal income tax purposes.
If a shareholder exchanges shares in the Fund for shares in another Value
Line fund pursuant to a reinvestment right, the sales charge incurred in the
purchase of the Fund shares exchanged may not be added to tax basis in
determining gain or loss for federal income tax purposes. Instead, the sales
charge for the exchanged Fund shares shall be added to basis for purposes of
determining gain or loss on the disposition of the newly-acquired Fund shares,
if such newly-acquired Fund shares are not disposed of in a similar exchange
transaction.
FUND INVESTMENTS. Any regulated futures contracts and certain options
(namely, nonequity options and dealer equity options) in which the Fund may
invest may be "section 1256 contracts." Gains (or losses) on these contracts
generally are considered to be 50% long-term and 40% short-term capital gains or
losses. Also, section 1256 contracts held by the Fund at the end of each taxable
year (and on certain other dates prescribed in the Code) are "marked to market"
with the result that unrealized gains or losses are treated as though they were
realized.
Transactions in options, futures and forward contracts undertaken by the
Fund may result in "straddles" for federal income tax purposes. The straddle
rules may affect the character of gains (or losses) realized by the Fund, and
losses realized by the Fund on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which the losses are
realized. In addition, certain carrying charges (including interest expense)
associated with positions in a straddle may be required to be capitalized rather
than deducted currently. Certain elections that the Fund may make with respect
to its straddle positions may also affect the amount, character and timing of
the recognition of gains or losses from the affected positions.
Because only a few regulations implementing the straddle rules have been
promulgated, the consequences of such transactions to the Fund are not entirely
clear. The straddle rules may increase the amount of short-term capital gain
realized by the Fund, which is taxed as ordinary income when distributed to
shareholders. Because application of the straddle rules may affect the character
of gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to shareholders as ordinary income or long-term capital gain may be
increased or decreased substantially as compared to a fund that did not engage
in such transactions.
CONSTRUCTIVE SALES. Under certain circumstances, the Fund may recognize
gain from a constructive sale of an "appreciated financial position" it holds if
it enters into a short sale, forward contract or other transaction that
substantially reduces the risk of loss with respect to the appreciated position.
In that event, the Fund would be treated as if it had sold and immediately
repurchased the property and would be taxed on any gain (but not loss) from the
constructive sale. The character of gain from a constructive sale would depend
upon the Fund's holding period in the property. Loss from a constructive sale
would be recognized when the property was subsequently disposed of, and
B-17
<PAGE>
its character would depend on the Fund's holding period and the application of
various loss deferral provisions of the Code. Constructive sale treatment does
not apply to transactions closed in the 90-day period ending with the 30th day
after the close of the taxable year, if certain conditions are met.
REPORTING AND BACKUP WITHHOLDING. The Fund will be required to report to
the Internal Revenue Service ("IRS") all distributions and gross proceeds from
the redemption of the Fund's shares, except in the case of certain exempt
shareholders. The Fund may be required to withhold U.S. federal income tax at
the rate of 31% of all taxable distributions and redemption proceeds payable to
shareholders who fail to provide the Fund with their correct taxpayer
identification number or to make certain certifications or who have been
notified by the IRS that they are subject to backup withholding. Corporate
shareholders and certain other shareholders specified in the Code generally are
exempt from such backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against the shareholder's U.S. federal
income tax. If the backup withholding provisions are applicable to a
shareholder, distributions and gross proceeds payable to such shareholder will
be reduced by the amounts required to be withheld, regardless of whether such
distributions are paid or reinvested.
PERFORMANCE DATA
From time to time, the Fund may state its total return in advertisements and
investor communications. Total return may be stated for any relevant period as
specified in the advertisement or communication. Any statements of total return
or other performance data on the Fund will be accompanied by information on the
Fund's average annual compounded rate of return for the periods of one year,
five years and ten years, all ended on the last day of a recent calendar
quarter. The Fund may also advertise aggregate total return information for
different periods of time.
The Fund's average annual compounded rate of return is determined by
reference to a hypothetical $1,000 investment that includes capital appreciation
and depreciation for the stated period, according to the following formula:
P(1+T) to the power of n = ERV
Where: P = a hypothetical initial purchase order of
$1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of the
hypothetical $1,000 purchase at the end
of the period.
The Fund's average annual total returns as of March 31, 1999, for the one
year, five years and the period since inception were 12.16%, 22.65% and 20.87%,
respectively.
The Fund's total return may be compared to relevant indices and data from
Lipper Analytical Services, Inc., Morningstar or Standard & Poor's Indices.
From time to time, evaluations of the Fund's performance by independent
sources may also be used in advertisements and in information furnished to
present or prospective investors in the Fund.
B-18
<PAGE>
FINANCIAL STATEMENTS
The Fund's financial statements for the year ended March 31, 1999, including
the financial highlights for each of the five fiscal years in the period ended
March 31, 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-19
<PAGE>
PART C: OTHER INFORMATION
ITEM 23. EXHIBITS.
(a) Articles of Incorporation.
(b) By-laws.
(c) Instruments Defining Rights of Security Holders. Reference is made to
Article Fifth of the Articles of Incorporation filed as Exhibit (a)
hereto.
(d) Investment Advisory Agreement.
(e) Distribution Agreement.
(f) Not applicable.
(g) Custodian Agreement and Amendment thereto.
(h) Not applicable.
(i) Legal Opinion.
(j) Not applicable.
(k) Not applicable.
(l) Not applicable.
(m) Service and Distribution (12b-1) Plan.
(n) Financial data schedule.
(o) Not applicable.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None.
ITEM 25. INDEMNIFICATION.
Incorporated by reference to Article VIII of the Articles of Incorporation
filed as Exhibit (a) hereto.
ITEM 26. BUSINESS OR OTHER CONNECTIONS OF INVESTMENT ADVISER.
Value Line, Inc., Registrant's investment adviser, acts as investment
adviser for a number of individuals, trusts, corporations and institutions, in
addition to the registered investment companies in the Value Line Family of
Funds listed in Item 27.
<TABLE>
<CAPTION>
POSITION WITH
NAME THE ADVISER OTHER EMPLOYMENT
- -------------------------- -------------------------------- ---------------------------------------------------
<S> <C> <C>
Jean Bernhard Buttner Chairman of the Board, President Chairman of the Board and Chief Executive Officer
and Chief Executive Officer of Arnold Bernhard & Co., Inc. and Chairman of the
Value Line Funds and the Distributor
Samuel Eisenstadt Senior Vice President and ---------------------------------------------
Director
David T. Henigson Vice President, Treasurer and Vice President and a Director of Arnold Bernhard &
Director Co., Inc. and the Distributor
Howard A. Brecher Vice President, Secretary and Vice President, Secretary, Treasurer and a Director
Director of Arnold Bernhard & Co., Inc.
</TABLE>
C-1
<PAGE>
<TABLE>
<CAPTION>
POSITION WITH
NAME THE ADVISER OTHER EMPLOYMENT
- -------------------------- -------------------------------- ---------------------------------------------------
<S> <C> <C>
Harold Bernard, Jr. Director Retired Administrative Law Judge
W. Scott Thomas Director Partner, Brobeck, Phleger & Harrison, attorneys,
One Market Plaza, San Francisco, CA 94105
Linda S. Wilson Director President, Radcliffe College, 10 Garden Street,
Cambridge, MA 02138
</TABLE>
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) Value Line Securities, Inc., acts as principal underwriter for the
following Value Line funds, including the Registrant: The Value Line
Fund, Inc.; Value Line Income and Growth Fund, Inc.; The Value Line
Special Situations Fund, Inc.; Value Line Leveraged Growth Investors,
Inc.; The Value Line Cash Fund, Inc.; Value Line U.S. Government
Securities Fund, Inc.; Value Line Centurion Fund, Inc.; The Value Line
Tax Exempt Fund, Inc.; Value Line Convertible Fund, Inc.; Value Line
Aggressive Income Trust; Value Line New York Tax Exempt Trust; Value Line
Strategic Asset Management Trust; Value Line Small-Cap Growth Fund, Inc.;
Value Line Asset Allocation Fund, Inc.; Value Line U.S. Multinational
Company Fund, Inc.
(b)
<TABLE>
<CAPTION>
(2)
POSITION AND (3)
(1) OFFICES POSITION AND
NAME AND PRINCIPAL WITH VALUE LINE OFFICES WITH
BUSINESS ADDRESS SECURITIES, INC. REGISTRANT
- ------------------------- ------------------ --------------------
<S> <C> <C>
Jean Bernhard Buttner Chairman of the Chairman of the
Board Board and President
David T. Henigson Vice President, Vice President,
Secretary, Secretary and
Treasurer and Treasurer
Director
Stephen LaRosa Asst. Vice Asst. Treasurer
President
</TABLE>
The business address of each of the officers and directors is 220 East
42nd Street, NY 10017-5891.
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
Value Line, Inc.
220 East 42nd Street
New York, NY 10017
For records pursuant to:
Rule 31a-1(b)(4),(5),(6),(7),(10),(11)
Rule 31a-1(f)
State Street Bank and Trust Company
c/o NFDS
P.O. Box 419729
Kansas City, MO 64141
For records pursuant to Rule 31a-1(b)(2)(iv)
C-2
<PAGE>
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
For all other records
ITEM 29. MANAGEMENT SERVICES.
None.
ITEM 30. UNDERTAKINGS.
None.
--------------
C-3
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 7 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated May 17, 1999, relating to the financial
statements and financial highlights appearing in the March 31, 1999 Annual
Report to Shareholders of Value Line Asset Allocation Fund, Inc., which are also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the heading "Financial Highlights" in the Prospectus
and under the headings "Investment Advisory and Other Services" and "Financial
Statements" in the Statement of Additional Information.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
May 24, 1999
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, and State of New York, on
the 24th day of May, 1999.
VALUE LINE ASSET ALLOCATION FUND, INC.
By: /s/ DAVID T. HENIGSON
.......................................
DAVID T. HENIGSON, VICE PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed below by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
------------------------------------------------ --------------------------------- ---------------------
<S> <C> <C> <C>
*JEAN B. BUTTNER Chairman and Director; President; May 24, 1999
(JEAN B. BUTTNER) Principal Executive Officer
*FRANCIS C. OAKLEY Director May 24, 1999
(FRANCIS C. OAKLEY)
*MARION N. RUTH Director May 24, 1999
(MARION N. RUTH)
*FRANCES T. NEWTON Director May 24, 1999
(FRANCES T. NEWTON)
/s/ DAVID T. HENIGSON Treasurer; Principal Financial May 24, 1999
................................................ and Accounting Officer
(DAVID T. HENIGSON)
</TABLE>
*By /s/ DAVID T. HENIGSON
...................................
(DAVID T. HENIGSON,
ATTORNEY-IN-FACT)
C-5
<PAGE>
Exhibit (a)
ARTICLES OF INCORPORATION
OF
VALUE LINE ASSET ALLOCATION FUND, INC.
ARTICLE I
INCORPORATION
The undersigned, Peter D. Lowenstein, whose address is 711 3rd Avenue, New
York, New York 10017, being at least 18 years of age, does hereby act as an
incorporator and forms a corporation, under and by virtue of the Maryland
General Corporation Law.
ARTICLE II
NAME
The name of the Corporation is Value Line Asset Allocation Fund, Inc.
ARTICLE III
PURPOSES AND POWERS
The Corporation is formed to conduct and carry on the business of an
investment company.
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
The post office address of the principal office of the Corporation in the
State of Maryland is c/o The Prentice-Hall Corporation System, Maryland, 1123
North Eutaw Street, Baltimore, Maryland 21201. The name and address of the
resident agent of the Corporation in the State of Maryland is The Prentice-Hall
Corporation System, Maryland, a Maryland Corporation, 1123 North Eutaw Street,
Baltimore, Maryland 21201.
ARTICLE V
CAPITAL STOCK
(1) The total number of shares of capital stock that the Corporation shall
have authority to issue is three hundred million (300,000,000) shares, of the
par value of one tenth of one cent ($.00l) per share and of the aggregate par
value of three hundred thousand dollars ($300,000), all of which three hundred
million (300,000,000) shares are designated Common Stock.
(2) The Corporation may issue fractional shares. Any fractional share
shall carry proportionately the rights of a whole share including, without
limitation, the right to vote and the right to receive dividends. A fractional
share shall not, however, have the right to receive a certificate evidencing it.
(3) All persons who shall acquire stock in the Corporation shall acquire
the same subject to the provisions of this Charter and the By-Laws of the
Corporation.
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(4) No holder of stock of the Corporation by virtue of being such a holder
shall have any right to purchase or subscribe for any shares of the
Corporation's capital stock or any other security that the Corporation may issue
or sell (whether out of the number of shares authorized by this Charter or out
of any shares of the Corporation's capital stock that the Corporation may
acquire) other than a right that the Board of Directors in its discretion may
determine to grant.
(5) The Board of Directors shall have authority by resolution to classify
and reclassify any authorized but unissued shares of capital stock from time to
time by setting or changing in any one or more respects the preferences,
conversion or other rights, voting powers, restrictions, limitation as to
dividends, qualifications of terms or conditions of redemption of the capital
stock.
(6) Notwithstanding any provision of law requiring any action to be taken
or authorized by the affirmative vote of a greater proportion of the votes of
all classes or of any class of stock of the Corporation, such actions shall be
effective and valid if taken or authorized by the affirmative vote of a majority
of the total number of votes entitled to be cast thereon, except as otherwise
provided in this Charter.
The presence in person or by proxy of the holders of shares entitled to
cast one-third of the votes entitled to be cast (without regard to class) shall
constitute a quorum at any meeting of the stockholders, except with respect to
any matter which, under applicable statutes or regulatory requirements or the
Corporation's Charter, requires approval by a separate vote of one or more
classes of stock, in which case the presence in person or by proxy of the
holders of shares entitled to cast one-third of the votes entitled to be cast on
the matter shall constitute a quorum.
ARTICLE VI
REDEMPTION
Each holder of shares of the Corporation's capital stock shall be entitled
to require the Corporation to redeem all or any part of the shares of capital
stock of the Corporation standing in the name of the holder on the books of the
Corporation, and all shares of capital stock issued by the Corporation, and all
shares of capital stock issued by the Corporation shall be subject to redemption
by the Corporation, at the net asset value of the shares as in effect from time
to time as may be determined by or pursuant to the direction of the Board of
Directors of the Corporation in accordance with the provisions of Article VII,
subject to the right of the Board of Directors of the Corporation to suspend the
right of redemption or postpone the date of payment of the redemption price in
accordance with the provisions of applicable law. Without limiting the
generality of the foregoing, the Corporation shall, to the extent permitted by
applicable law, have the right at any time to redeem the shares owned by any
holder of capital stock of the Corporation (i) if the redemption is, in the
opinion of the Board of Directors of the Corporation, desirable in order to
prevent the Corporation from being deemed a "personal holding company" within
the meaning of the Internal Revenue Code of 1986 or (ii) if the
2
<PAGE>
value of the shares in the account maintained by the Corporation or its transfer
agent for any class of stock for the stockholder is $10,000 (ten thousand
dollars) or less and the stockholder has been given at least 60 (sixty) days'
written notice of the redemption and has failed to make additional purchases of
shares in an amount sufficient to bring the value in his account to $10,000 (ten
thousand dollars) or more before the redemption is effected by the Corporation.
Payment of the redemption price shall be made in cash by the Corporation at the
time and in the manner as may be determined from time to time by the Board of
Directors of the Corporation unless, in the opinion of the Board of Directors,
which shall be conclusive, conditions exist that make payment wholly in cash
unwise or undesirable; in such event the Corporation may make payment wholly or
partly by securities or other property included in the assets belonging or
allocable to the class of the shares redemption of which is being sought, the
value of which shall be determined as provided herein. The Board of Directors
may establish procedures for redemption of shares.
ARTICLE VII
BOARD OF DIRECTORS
(1) The number of directors constituting the Board of Directors shall be
one (1) or such other number as may be set forth in the By-laws or determined by
the Board of Directors pursuant to the By-laws. Peter D. Lowenstein is the
initial director of the Corporation and shall hold office until the first annual
meeting of stockholders or until his successor is elected and qualifies.
(2) In furtherance, and not in limitation, of the powers conferred by the
laws of the State of Maryland, the Board of Directors is expressly authorized:
(i) To make, alter or repeal the By-laws of the Corporation, except
where such power is reserved by the By-laws to the stockholders, and except as
otherwise required by the Investment Company Act of 1940, as amended.
(ii) From time to time to determine whether and to what extent and
at what times and places and under what conditions and regulations the books and
accounts of the Corporation, or any of them other than the stock ledger, shall
be open to the inspection of the stockholders. No stockholder shall have any
right to inspect any account of book or documents of the Corporation, except as
conferred by law or authorized by resolution of the Board of Directors.
(iii) Without the assent or vote of the stockholders, to authorize
the issuance from time to time of shares of the stock of any class of the
Corporation, whether now or hereafter authorized, and securities convertible
into shares of stock of the Corporation of any class or classes, whether now or
hereafter authorized, for such consideration as the Board of Directors may deem
advisable.
(iv) Notwithstanding anything in this Charter to the contrary, to
establish in its absolute discretion the basis or method for determining the
value of the assets belonging to any class, the amount of the liabilities
belonging to any class and the
3
<PAGE>
net asset value of each share of any class of the Corporation's stock.
(v) To determine what constitutes net profits, earnings, surplus or
net assets in excess of capital, and to determine what accounting periods shall
be used by the Corporation for any purpose; to set apart out of any funds of the
Corporation reserves for such purposes as it shall determine and to abolish the
same; to declare and pay any dividends and distributions in cash, securities or
other property from surplus or any funds legally available therefor, at such
intervals as it shall determine; to declare dividends or distributions by means
of a formula or other method of determination, at meetings held less frequently
than the established payment dates for dividends or any other distributions on
any basis, including dates occurring less frequently than the effectiveness of
declaration thereof.
(3) Any determination made in good faith, and in accordance with accepted
accounting practices, if applicable, by or pursuant to the direction of the
Board of Directors, with respect to the amount of assets, obligation or
liabilities of the Corporation, as to the amount of net income of the
Corporation from dividends and interest for any period or amounts at any time
legally available for the payment of dividends, as to the amount of any reserves
or charges set up and the propriety thereof, as to the time or purpose for
creating reserves or as to the use, alteration or cancellation of any reserves
or charges (whether or not any obligation or liability for which the reserves or
charges have been created has been paid or discharged or is then or thereafter
required to be paid or discharged), as to the value of any security owned by the
Corporation, the determination of the net asset value of shares of any class of
the Corporation's capital stock, or as to any other matters relating to the
issuance, sale or the acquisition or disposition of securities or shares of
capital stock of the Corporation, and any reasonable determination made in good
faith by the Board of Directors whether any transaction constitutes a purchase
of securities on "margin," a sale of securities "short," or an underwriting of
the sale of, or a participation in any underwriting or selling group in
connection with the public distribution of, any securities, shall be final and
conclusive, and shall be binding upon the Corporation and all holders of its
capital stock, past, present and future, and shares of the capital stock of the
Corporation are issued and sold on the condition and understanding, evidenced by
the purchase of shares of capital stock or acceptance of share certificates,
that any and all such determinations shall be binding as aforesaid. No provision
of this Charter of the Corporation shall be effective to (i) require a waiver of
compliance with any provision of the Securities Act of 1933, as amended, or the
Investment Company Act of 1940, as amended, or of any valid rule, regulation or
order of the Securities and Exchange Commission under those Acts or (ii) protect
or purport to protect any director or officers of the Corporation against any
liability to the Corporation or its security holders to which he would otherwise
be subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
4
<PAGE>
ARTICLE VIII
LIABILITY
(1) To the full extent that limitations on the liability of directors and
officers are permitted by the Maryland General Corporation Law, no director or
officer of the Corporation shall have any liability to the Corporation or its
stockholders for damages. This limitation on liability applies to events
occurring at the time a person serves as a director or officer of the
Corporation whether or not that person is a director or officer at the time of
any proceeding in which liability is asserted.
(2) The Corporation shall indemnify and advance expenses to its currently
acting and its former directors to the full extent that indemnification of
directors is permitted by the Maryland General Corporation Law. The Corporation
shall indemnify and advance expenses to its officers to the same extent as its
directors and may do so to such further extent as is consistent with law. The
Board of Directors may by By-law, resolution or agreement make further provision
for indemnification of directors, officers, employees and agents to the full
extent permitted by the Maryland General Corporation Law.
(3) No provision of this Article EIGHTH shall be effective to protect or
purport to protect any director or officer of the Corporation against any
liability to the Corporation or its stockholders to which he would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
(4) Reference to the Maryland General Corporation law in this Article
EIGHTH are to that law as from time to time amended. No amendment to the Charter
of the Corporation shall affect any right of any person under this Article
EIGHTH based on any event, omission or proceeding prior to the amendment.
ARTICLE IX
AMENDMENTS
The Corporation reserves the right from time to time to make any amendment
to its Charter, now or hereafter authorized by law, including any amendment that
alters the contract rights, as expressly set forth in this Charter, of any
outstanding stock.
IN WITNESS WHEREOF, I have adopted and signed these Articles of
Incorporation and do hereby acknowledge that the adoption and signing are my
act.
By: /s/ Peter D. Lowenstein
---------------------------------
Peter D. Lowenstein
Incorporator
Dated the 12th day of January, 1993
5
<PAGE>
Exhibit (b)
BY-LAWS
OF
VALUE LINE ASSET ALLOCATION FUND, INC.
A Maryland Corporation
ARTICLE I
STOCKHOLDERS
SECTION 1. Annual Meetings. No annual meeting of the stockholders of the
Corporation shall be held in any year in which the election of directors is not
required to be acted upon under the Investment Company Act of 1940, as amended
unless otherwise determined by the Board of Directors. An annual meeting may be
held at any place within the United States as may be determined by the Board of
Directors and as shall be designated in the notice of the meeting, and at the
time specified by the Board of Directors. Any business of the Corporation may be
transacted at an annual meeting without being specifically designated in the
notice unless otherwise provided by statute, the Corporation's Articles of
Incorporation or these By-Laws.
SECTION 2. Special Meeting. Special meetings of the stockholders for any
purpose or purposes, unless otherwise prescribed by statute or by the
Corporation's Articles of Incorporation, may be held at any place within the
United States, and may be called at any time by the Board of Directors or by the
President, and shall be called by the President or Secretary at the request in
writing of a majority of the Board of Directors or at the request in writing of
stockholders entitled to cast at least 10 (ten) percent of the votes entitled to
be cast at the meeting upon payment by such stockholders to the Corporation of
the reasonably estimated cost of preparing and mailing a notice of the meeting
(which estimated cost shall be provided to such stockholders by the Secretary of
the Corporation). Notwithstanding the foregoing, unless requested by
stockholders entitled to cast a majority of the votes entitled to be cast at the
meeting, a special meeting of the stockholders need not be called at the request
of stockholders to consider any matter which is substantially the same as a
matter voted an at any special meeting of the stockholders held during the
preceding 12 (twelve) months. A written request shall state the purpose or
purposes of the proposed meeting.
SECTION 3. Notice of Meetings. Written or printed notice of the purpose or
purposes and of the time and place of every meeting of the stockholders shall be
given by the Secretary of the Corporation to each stockholder of record entitled
to vote at the meeting, by placing the notice in the mail at least 10 (ten)
days, but not more than 90 (ninety) days, prior to the date designated for the
meeting addressed to each stockholder at his address appearing on the books of
the Corporation or supplied by the stockholder to the Corporation for the
purpose of notice. The notice of any meeting of stockholders may be accompanied
by a form of proxy approved by the Board of Directors in favor of the actions or
persons as the Board of Directors may select. Notice of any meeting of
stockholders shall be deemed waived by any stockholder
1
<PAGE>
who attends the meeting in person or by proxy, or who before or after the
meeting submits a signed waiver of notice that is filed with the records of the
meeting.
SECTION 4. Quorum. Except as otherwise provided by statute or by the
Corporation's Articles of Incorporation, the presence in person or by proxy of
stockholders of the Corporation entitled to cast at least a majority of the
votes to be cast shall constitute a quorum at each meeting of the stockholders
and all questions shall be decided by a majority of the votes cast on the
question (except for the election of directors, which shall be by plurality
vote). In the absence of a quorum, the stockholders present in person or by
proxy, by majority vote and without notice other than by announcement, may
adjourn the meeting from time to time as provided in Section 5 of this Article I
until a quorum shall attend. The stockholders present at any duly organized
meeting may continue to do business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum. The absence from
any meeting in person or by proxy of holders of the number of shares of stock of
the Corporation in excess of a majority that may be required by the laws of the
State of Maryland, the Investment Company Act of 1940, as amended, or other
applicable statute, the Corporation's Articles of Incorporation or these
By-Laws, for action upon any given matter shall not prevent action at the
meeting on any other matter or matters that may properly come before the
meeting, so long as there are present, in person or by proxy, holders of the
number of shares of stock of the Corporation required for action upon the other
matter or matters.
SECTION 5. Adjournment. Any meeting of the stockholders may be adjourned
from time to time, without notice other than by announcement at the meeting at
which the adjournment is taken. At any adjourned meeting at which a quorum shall
be present any action may be taken that could have been taken at the meeting
originally called. A meeting of the stockholders may not be adjourned to a date
more than 120 (one hundred twenty) days after the original record date.
SECTION 6. Organization. At every meeting of the stockholders, the
Chairman of the Board, or in his absence or inability to act, the President, or
in his absence or inability to act, a Vice President, or in the absence or
inability to act of the Chairman of the Board, the President and all the Vice
Presidents, a chairman chosen by the stockholders, shall act as Chairman of the
meeting. The Secretary, or in his absence or inability to act, a person
appointed by the chairman of the meeting, shall act as secretary of the meeting
and keep the minutes of the meeting.
SECTION 7. Order of Business. The order of business at all meetings of the
stockholders shall be as determined by the chairman of the meeting.
SECTION 8. Voting. Except as otherwise provided by the corporation's
Articles of Incorporation, each holder of record of shares of stock of the
Corporation having voting power shall be entitled at each meeting of the
stockholders to one vote for every share of stock standing in his name on the
records of the
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<PAGE>
Corporation as of the record date determined pursuant to Section 9 of this
Article I. Each stockholder entitled to vote at any meeting of stockholders may
authorize another person or persons to act for him by a proxy signed by the
stockholder or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven months from the date thereof, unless otherwise provided in
the proxy. Every proxy shall be revocable at the pleasure of the stockholder
executing it, except in those cases in which the proxy states that it is
irrevocable and in which an irrevocable proxy is permitted by law. If a vote
shall be taken on any question other than the election of directors, which shall
be by written ballot, then unless required by statute or these By-Laws, or
determined by the chairman of the meeting to be advisable, any such vote need
not be by ballot. On a vote by ballot, each ballot shall be signed by the
stockholder voting, or by his proxy, and shall state the number of shares voted.
SECTION 9. Fixing of Record Date. The Board of Directors may set a record
date for the purpose of determining stockholders entitled to vote at any meeting
of the stockholders. The record date for a particular meeting shall be not more
than 90 (ninety) nor fewer than 10 (ten) days before the date of the meeting.
All persons who were holders of record of shares as of the record date of a
meeting, and no others, shall be entitled to vote at such meeting and any
adjournment thereof.
SECTION 10. Inspectors. The Board of Directors may, in advance of any
meeting of stockholders, appoint one or more inspectors to act at the meeting or
at any adjournment of the meeting. If the inspectors shall not be so appointed
or if any of them shall fail to appear or act, the chairman of the meeting may,
and on the request of any stockholder entitled to vote at the meeting shall,
appoint inspectors. Each inspector, before entering upon the discharge of his
duties, shall take and sign an oath to execute faithfully the duties of
inspector at the meeting with strict impartiality and according to the best of
his ability. The inspectors shall determine the number of shares outstanding and
the voting power of each share, the number of shares represented at the meeting,
the existence of a quorum and the validity and effect of proxies, and shall
receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do those acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the chairman of the meeting or any stockholder entitled to vote at
the meeting, the inspectors shall make a report in writing of any challenge,
request or matter determined by them and shall execute a certificate of any fact
found by them. No director or candidate for the office of director shall act as
inspector of an election of directors. Inspectors need not be stockholders of
the Corporation.
SECTION 11. Consent of Stockholders in Lieu of Meeting. Except as
otherwise provided by statute or the corporation's Articles of Incorporation,
any action required to be taken at any meeting of stockholders, or any action
that may be taken at any meeting of the stockholders, may be taken without a
meeting, without prior notice and without a vote, if the following are filed
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<PAGE>
with the records of stockholders' meetings: (i) a unanimous written consent that
sets forth the action and is signed by each stockholder entitled to vote on the
matter and (ii) a written waiver of any right to dissent signed by each
stockholder entitled to notice of the meeting but not entitled to vote at the
meeting.
SECTION 12. Notice of Stockholder Business.
(a) At any Annual or Special Meeting of the Stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an Annual or Special Meeting business
must be (A) (i) specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board of Directors, (ii) otherwise properly
brought before the meeting by or at the direction of the Board of Directors, or
(iii) subject to the provisions of Section 13 of this Article I, otherwise
properly brought before the meeting by a Stockholder and (B) a proper subject
under applicable law for Stockholder action.
(b) For business to be properly brought before an Annual or Special
Meeting by a Stockholder, the Stockholder must have given timely notice thereof
in writing to the Secretary of the Corporation. To be timely, any such notice
must be delivered to or mailed and received at the principal executive offices
of the Corporation not later than 60 days prior to the date of the meeting;
provided, however, that if less than 70 days' notice or prior public disclosure
of the date of the meeting is given or made to Stockholders, any such notice by
a Stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which notice of the date of the
Annual or Special Meeting was given or such public disclosure was made.
(c) Any such notice by a Stockholder shall set forth as to each matter the
Stockholder proposes to bring before the Annual or Special Meeting (i) a brief
description of the business desired to be brought before the Annual or Special
Meeting and the reasons for conducting such business at the Annual or Special
Meeting, (ii) the name and address, as they appear on the Corporation's books,
of the Stockholder proposing such business, (iii) the class and number of shares
of the capital stock of the Corporation which are beneficially owned by the
Stockholder, and (iv) any material interest of the Stockholder in such business.
(d) Notwithstanding anything in the By-Laws to the contrary, no business
shall be conducted at any Annual or Special Meeting except in accordance with
the procedures set forth in this Section 12. The Chairman of the Annual or
Special Meeting shall, if the facts warrant, determine and declare to the
meeting that business was not properly brought before the meeting in accordance
with the provisions of this Section 12, and if he should so determine, he shall
so declare to the meeting and any such business not properly brought before the
meeting shall not be considered or transacted.
SECTION 13. Stockholder Business not Eligible for Consideration.
(a) Notwithstanding anything in these By-Laws to the contrary,
4
<PAGE>
any proposal that is otherwise properly brought before an Annual or Special
Meeting by a Stockholder will not be eligible for consideration by the
Stockholders at such Annual or Special Meeting if such proposal is substantially
the same as a matter properly brought before such Annual or Special Meeting by
or at the direction of the Board of Directors of the Corporation. The Chairman
of such Annual or Special Meeting shall, if the facts warrant, determine and
declare that a Stockholder proposal is substantially the same as a matter
properly brought before the meeting by or at the direction of the Board of
Directors, and, if he should so determine, he shall so declare to the meeting
and any such Stockholder proposal shall not be considered at the meeting.
(b) This Section 13 shall not be construed or applied to make ineligible
for consideration by the Stockholders at any Annual or Special Meeting any
Stockholder proposal required to be included in the Corporation's proxy
statement relating to such meeting pursuant to Rule 14a-8 under the Securities
Exchange Act of 1934, or any successor rule thereto.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. General Powers. Except as otherwise provided in the
Corporation's Articles of Incorporation, the business and affairs of the
Corporation shall be managed under the direction of the Board of Directors. All
powers of the Corporation may be exercised by or under authority of the Board of
Directors except as conferred on or reserved to the stockholders by law, by the
Corporation's Articles of Incorporation or by these By-Laws.
SECTION 2. Number of Directors. The number of directors shall be fixed
from time to time by resolution of the Board of Directors adopted by a majority
of the Directors then in office; provided, however, that the number of directors
shall in no event be fewer than one nor more than fifteen. Any vacancy created
by an increase in Directors may be filled in accordance with Section 6 of this
Article II. No reduction in the number of directors shall have the effect of
removing any director from office prior to the expiration of his term unless the
director is specifically removed pursuant to Section 5 of this Article II at the
time of the decrease. A director need not be a stockholder of the Corporation, a
citizen of the United States or a resident of the State of Maryland.
SECTION 3. Election and Term of Directors. The term of office of each
director shall be from the time of his election and qualification until his
successor shall have been elected and shall have qualified, or until his death,
or until he shall have resigned or have been removed as provided in these
By-laws, or as otherwise provided by statute or the Corporation's Articles of
Incorporation.
SECTION 3.1 Director Nominitions.
(a) Only persons who are nominated in accordance with the procedures set
forth in this Section 3.1 shall be eligible for election or re-election as
Directors. Nominations of persons for election or re-election to the Board of
Directors of the Corporation may be made at a meeting of Stockholders by or at
the
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direction of the Board of Directors or by any Stockholder of the Corporation who
is entitled to vote for the election of such nominee at the meeting and who
complies with the notice procedures set forth in this Section 3.1.
(b) Such nominations, other than those made by or at the direction of the
Board of Directors, shall be made pursuant to timely notice delivered in writing
to the Secretary of the Corporation. To be timely, any such notice by a
Stockholder must be delivered to or mailed and received at the principal
executive offices of the Corporation not later than 60 days prior to the
meeting; provided, however, that if less than 70 days' notice or prior public
disclosure of the date of the meeting is given or made to Stockholders, any such
notice by a Stockholder to be timely must be so received not later than the
close of business on the 10th day following the day on which notice of the date
of the meeting was given or such public disclosure was made.
(c) Any such notice by a Stockholder shall set forth (i) as to each person
whom the Stockholder proposes to nominate for election or re-election as a
Director, (A) the name, age, business address and residence address of such
person, (B) the principal occupation or employment of such person, (C) the class
and number of shares of the capital stock of the Corporation which are
beneficially owned by such person and (D) any other information relating to such
person that is required to be disclosed in solicitations of proxies for the
election of Directors pursuant to Regulation 14A under the Securities Exchange
Act of 1934 or any successor regulation thereto (including without limitation
such persons' written consent to being named in the proxy statement as a nominee
and to serving as a Director if elected and whether any person intends to seek
reimbursement from the corporation of the expenses of any solicitation of
proxies should such person be elected a Director of the Corporation); and (ii)
as to the Stockholder giving the notice (A) the name and address, as they appear
on the Corporation's books, of such Stockholder and (B) the class and number of
shares of the capital stock of the Corporation which are beneficially owned by
such Stockholder. At the request of the Board of Directors any person nominated
by the Board of Directors for election as a Director shall furnish to the
Secretary of the Corporation that information required to be set forth in a
Stockholder's notice of nomination which pertains to the nominee.
(d) If a notice by a Stockholder is required to be given pursuant to this
Section 3.1, no person shall be entitled to receive reimbursement from the
corporation of the expenses of a solicitation of proxies for the election as a
Director of a person named in such notice unless such notice states that such
reimbursement will be sought from the Corporation. No person shall be eligible
for election as a Director of the Corporation unless nominated in accordance
with the procedures set forth in this Section 3.1. The Chairman of the meeting
shall, if the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the procedures prescribed by the
By-Laws, and if he should so determine, he shall so declare to the meeting and
the defective nomination shall be disregarded for all purposes.
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SECTION 4. Resignation. A director of the Corporation may resign at any
time by giving written notice of his resignation to the Board of Directors or
the Chairman of the Board or to the President or the Secretary of the
Corporation. Any resignation shall take effect at the time specified in it or,
should the time when it is to become effective not be specified in it,
immediately upon its receipt. Acceptance of a resignation shall not be necessary
to make it effective unless the resignation states otherwise.
SECTION 5. Removal of Directors. Any director of the Corporation may be
removed by the stockholders with or without cause at any time by a vote of a
majority of the votes entitled to be cast for the election of directors.
SECTION 6. Vacancies. Subject to the provisions of the Investment Company
Act of 1940, as amended, any vacancies in the Board of Directors, whether
arising from death, resignation, removal or any other cause except an increase
in the number of directors, shall be filled by a vote of the majority of the
Board of Directors then in office even though that majority is less than a
quorum, provided that no vacancy or vacancies shall be filled by action of the
remaining directors if, after the filling of the vacancy or vacancies, fewer
than two-thirds of the directors then holding office shall have been elected by
the stockholders of the Corporation. A majority of the entire Board then in
office may fill a vacancy which results from an increase in the number of
directors. In the event that at any time a vacancy exists in any office of a
director that may not be filled by the remaining directors, a special meeting of
the stockholders shall be held as promptly as possible and in any event within
60 (sixty) days, for the purpose of filling the vacancy or vacancies. Any
director elected or appointed to fill a vacancy shall hold office until a
successor has been chosen and qualifies or until his earlier resignation or
removal.
SECTION 7. Place of Meetings. Meetings of the Board may be held at any
place that the Board of Directors may from time to time determine or that is
specified in the notice of the meeting.
SECTION 8. Regular Meetings. Regular meetings of the Board of Directors
may be held without notice at the time and place determined by the Board of
Directors.
SECTION 9. Special Meetings. Special meetings of the Board of Directors
may be called by two or more directors of the Corporation or by the Chairman of
the Board or the President.
SECTION 10. Notice of Special Meetings. Notice of each special meeting of
the Board of Directors shall be given by the Secretary as hereinafter provided.
Each notice shall state the time and place of the meeting and shall be delivered
to each director, either personally or by telephone or other standard form of
telecommunication, at least 24 (twenty-four) hours before the time at which the
meeting is to be held, or by first-class mail, postage prepaid, addressed to the
director at his residence or usual place of business, and mailed at least 3
(three) days before the day on which the meeting is to be held.
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SECTION 11. Waiver of Notice of Meetings. Notice of any special meeting
need not be given to any director who shall, either before or after the meeting,
sign a written waiver of notice that is filed with the records of the meeting or
who shall attend the meeting.
SECTION 12. Quorum and Voting. One-third of the members of the entire
Board of Directors shall be present in person at any meeting of the Board in
order to constitute a quorum for the transaction of business at the meeting,
provided that a quorum shall be no less than two Directors, except where the
Board consists of only one Director, a quorum shall be one Director, and except
as otherwise expressly required by statute, the Corporation's Articles of
Incorporation, these By-Laws, the Investment Company Act of 1940, as amended, or
any other applicable statute, the act of a majority of the directors present at
any meeting at which a quorum is present shall be the act of the Board. In the
absence of a quorum at any meeting of the Board, a majority of the directors
present may adjourn the meeting to another time and place until a quorum shall
be present. Notice of the time and place of any adjourned meeting shall be given
to the directors who were not present at the time of the adjournment and, unless
the time and place were announced at the meeting at which the adjournment was
taken, to the other directors. At any adjourned meeting at which a quorum is
present, any business may be transacted that might have been transacted at the
meeting as originally called.
SECTION 13. Organization. The Board of Directors may, by resolution
adopted by a majority of the entire Board, designate a Chairman of the Board,
who shall preside at each meeting of the Board. In the absence or inability of
the Chairman of the Board to act, the President, or, in his absence or inability
to act, another director chosen by a majority of the directors present, shall
act as chairman of the meeting and preside at the meeting. The Secretary, or, in
his absence or inability to act, any person appointed by the chairman, shall act
as secretary of the meeting and keep the minutes thereof.
SECTION 14. Committees. The Board of Directors may designate one or more
committees of the Board of Directors, each consisting of 2 (two) or more
directors. To the extent provided in the resolution, and permitted by law, the
committee or committees shall have and may exercise the powers of the Board of
Directors in the management of the business and affairs of the Corporation and
may authorize the seal of the Corporation to be affixed to all papers that may
require it. Any committee or committees shall have the name or names determined
from time to time by resolution adopted by the Board of Directors. Each
committee shall keep regular minutes of its meetings and report the same to the
Board of Directors when required. The members of a committee present at any
meeting, whether or not they constitute a quorum, may appoint a director to act
in the place of an absent member.
SECTION 15. Written Consent of Directors in Lieu of a Meeting. Subject to
the provisions of the Investment Company Act of 1940, as amended, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee of the
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Board may be taken without a meeting if all members of the Board or committee,
as the case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of the proceedings of the Board or committee.
SECTION 16. Telephone Conference. Members of the Board of Directors or any
committee of the Board may participate in any Board or committee meeting (other
than a meeting at which the investment advisory agreement is approved) by means
of a conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other at the same time.
Participation by such means shall constitute presence in person at the meeting.
SECTION 17. Compensation. Each director shall be entitled to receive
compensation, if any, as may from time to time be fixed by the Board of
Directors, including a fee for each meeting of the Board or any committee
thereof, regular or special, he attends. Directors may also be reimbursed by the
corporation for all reasonable expenses incurred in traveling to and from the
place of a Board or committee meeting.
ARTICLE III
OFFICERS, AGENTS AND EMPLOYEES
SECTION 1. Number and Qualifications. The officers of the Corporation
shall be a President, a Secretary and a Treasurer, each of whom shall be elected
by the Board of Directors. The Board of Directors may elect or appoint one or
more Vice Presidents and may also appoint any other officers, agents and
employees it deems necessary or proper. Any two or more offices may be held by
the same person, except the offices of President and Vice President, but no
officer shall execute, acknowledge or verify any instrument in more than one
capacity. Officers shall be elected by the Board of Directors each year at its
first meeting held after the annual meeting of stockholders, each to hold office
until the meeting of the Board following the next annual meeting of the
stockholders and until his successor shall have been duly elected and shall have
qualified, or until his death, or until he shall have resigned or have been
removed, as provided in these By-Laws. The Board of Directors may from time to
time elect, or designate to the President the power to appoint, such officers
(including one or more Assistant Vice Presidents, one or more Assistant
Treasurers and one or more Assistant Secretaries) and such agents as may be
necessary or desirable for the business of the Corporation. Such other officers
and agents shall have such duties and shall hold their offices for such terms as
may be prescribed by the Board or by the appointing authority.
SECTION 2. Resignations. Any officer of the Corporation may resign at any
time by giving written notice of his resignation to the Board of Directors, the
Chairman of the Board, the President or the Secretary. Any resignation shall
take effect at the time specified therein or, if the time when it shall become
effective is not specified therein, immediately upon its receipt. Acceptance of
a resignation shall not be necessary to make it effective unless the resignation
states otherwise.
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SECTION 3. Removal of Officer, Agent or Employee. Any officer, agent or
employee of the Corporation may be removed by the Board of Directors with or
without cause at any time, and the Board may delegate the power of removal as to
agents and employees not elected or appointed by the Board of Directors. Removal
shall be without prejudice to the person's contract rights, if any, but the
appointment of any person as an officer, agent or employee of the Corporation
shall not of itself create contract rights.
SECTION 4. Vacancies. A vacancy in any office whether arising from death,
resignation, removal or any other cause, may be filled for the unexpired portion
of the term of the office that shall be vacant, in the manner prescribed in
these By-Laws for the regular election or appointment to the office.
SECTION 5. Compensation. The compensation of the officers of the
Corporation shall be fixed by the Board of Directors, but this power may be
delegated to any officer with respect to other officers under his control.
SECTION 6. Bonds or Other Security. If required by the Board, any officer,
agent or employee of the Corporation shall give a bond or other security for the
faithful performance of his duties, in an amount and with any surety or sureties
as the Board may require.
SECTION 7. President. The President shall be the chief executive officer
of the Corporation. In the absence or inability of the Chairman of the Board (or
if there is none) to act, the President shall preside at all meetings of the
stockholders and of the Board of Directors. The President shall have, subject to
the control of the Board of Directors, general charge of the business and
affairs of the Corporation, and may employ and discharge employees and agents of
the Corporation, except those elected or appointed by the Board, and he may
delegate these powers.
SECTION 8. Vice President. Each Vice President shall have the powers and
perform the duties that the Board of Directors or the President may from time to
time prescribe.
SECTION 9. Treasurer. Subject to the provisions of any contract that may
be entered into with any custodian pursuant to authority granted by the Board of
Directors, the Treasurer shall have charge of all receipts and disbursements of
the Corporation and shall have or provide for the custody of the Corporation's
funds and securities; he shall have full authority to receive and give receipts
for all money due and payable to the Corporation, and to endorse checks, drafts
and warrants, in its name and on its behalf and to give full discharge for the
same; he shall deposit all funds of the Corporation, except those that may be
required for current use, in such banks or other places of deposit as the Board
of Directors may from time to time designate; and, in general, he shall perform
all duties incident to the office of Treasurer and such other duties as may from
time to time be assigned to him by the Board of Directors or the President.
SECTION 10. Secretary. The Secretary shall
(a) keep or cause to be kept in one or more books provided for
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the purpose, the minutes of all meetings of the Board of Directors, the
committees of the Board and the stockholders;
(b) see that all notices are duly given in accordance with the provisions
of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and affix
and attest the seal to all stock certificates of the Corporation (unless the
seal of the Corporation on such certificates shall be a facsimile, as
hereinafter provided) and affix and attest the seal to all other documents to be
executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are properly kept and
filed; and
(e) in general, perform all the duties incident to the office of Secretary
and such other duties as from time to time may be assigned to him by the Board
of Directors or the President.
SECTION 11. Delegation of Duties. In case of the absence of any officer of
the Corporation, or for any other reason that the Board of Directors may deem
sufficient, the Board may confer for the time being the powers or duties, or any
of them, of such officer upon any other officer or upon any director.
ARTICLE IV
STOCK
SECTION 1. Stock Certificates. Each holder of stock of the Corporation
shall be entitled upon specific written request to such person as may be
designated by the Corporation to have a certificate or certificates, in a form
approved by the Board, representing the number of shares of stock of the
corporation owned by him; provided, however, that certificates for fractional
shares will not be delivered in any case. The certificates representing shares
of stock shall be signed by or in the name of the Corporation by the President
or a Vice President and by the Secretary or an Assistant Secretary or the
Treasurer or an Assistant Treasurer and sealed with the seal of the Corporation.
Any or all of the signatures or the seal on the certificate may be facsimiles.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate shall be
issued, it may be issued by the Corporation with the same effect as if such
officer, transfer agent or registrar were still in office at the date of issue.
SECTION 2. Books of Account and Record of Stockholders. There shall be
kept at the principal executive office of the Corporation correct and complete
books and records of account of all the business and transactions of the
Corporation. There shall be made available upon request of any stockholder, in
accordance with Maryland law, a record containing the number of shares of stock
issued during a specified period not to exceed 12 (twelve) months and the
consideration received by the Corporation for each such
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share.
SECTION 3. Transfers of Shares. Transfers of shares of stock of the
Corporation shall be made on the stock records of the Corporation only by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary or with a transfer agent or
transfer clerk, and on surrender of the certificate or certificates, if issued,
for the shares properly endorsed or accompanied by a duly executed stock
transfer power and the payment of all taxes thereon. Except as otherwise
provided by law, the Corporation shall be entitled to recognize the- exclusive
right of a person in whose name any share or shares stand on the record of
stockholders as the owner of the share or shares for all purposes, including,
without limitation, the rights to receive dividends or other distributions and
to vote as the owner, and the Corporation shall not be bound to recognize any
equitable or legal claim to or interest in any such share or shares on the part
of any other person.
SECTION 4. Regulations. The Board of Directors may make any additional
rules and regulations, not inconsistent with these By-Laws, as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of stock of the Corporation. It may appoint, or authorize any officer or
officers to appoint, one or more transfer agents or one or more transfer clerks
and one or more registrars and may require all certificates for shares of stock
to bear the signature or signatures of any of them.
SECTION 5. Stolen, Lost, Destroyed or Mutilated Certificates. The holder
of any certificate representing shares of stock of the corporation shall
immediately notify the Corporation of its theft, loss, destruction or mutilation
and the Corporation may issue a new certificate of stock in the place of any
certificate issued by it that has been alleged to have been stolen, lost or
destroyed or that shall have been mutilated. The Board may, in its discretion,
require the owner (or his legal representative) of a stolen, lost, destroyed or
mutilated certificate: to give to the Corporation a bond in a sum, limited or
unlimited, and in a form and with any surety or sureties, as the Board in its
absolute discretion shall determine, to indemnify the Corporation against any
claim that may be made against it on account of the alleged theft, loss or
destruction of any such certificate, or issuance of a new certificate. Anything
herein to the contrary notwithstanding, the Board of Directors, in its absolute
discretion, may refuse to issue any such new certificate, except pursuant to
legal proceedings under the laws of the State of Maryland.
SECTION 6. Fixing of Record Date for Dividends, Distributions, etc. The
Board may fix, in advance, a date not more than 90 (ninety) days preceding the
date fixed for the payment of any dividend or the making of any distribution or
the allotment of rights to subscribe for securities of the Corporation, or for
the delivery of evidences of rights or evidences of interests arising out of any
change, conversion or exchange of common stock or other securities, as the
record date for the determination of the stockholders entitled to receive any
such dividend, distribution, allotment, rights or interests, and in such case
only the
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stockholders of record at the time so fixed shall be entitled to receive such
dividend, distribution, allotment, rights or interests.
SECTION 7. Information to Stockholders and Others. Any stockholder of the
Corporation or his agent may inspect and copy during the Corporation's usual
business hours the Corporation's By-Laws, minutes of the proceedings of its
stockholders, annual statements of its affairs and voting trust agreements on
file at its principal office.
ARTICLE V
INDEMNIFICATION AND INSURANCE
SECTION 1. Indemnification of Directors and Officers. Any person who was
or is a party or is threatened to be made a party in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is a current or former
director or officer of the Corporation, or is or was serving while a director or
officer of the Corporation at the request of the Corporation as a director,
officer, partner, trustee, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust, enterprise or employee benefit plan, shall be
indemnified by the Corporation against judgments, penalties, fines, excise
taxes, settlements and reasonable expenses (including attorneys' fees) actually
incurred by such person in connection with such action, suit or proceeding to
the full extent permissible under the Maryland General Corporation Law, the
Securities Act of 1933 and the Investment Company Act of 1940, as such statutes
are now or hereafter in force, except that such indemnity shall not protect any
such person against any liability to the Corporation or any stockholder thereof
to which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office ("disabling conduct").
SECTION 2. Advances. Any current or former director or officer of the
corporation claiming indemnification within the scope of this Article V shall be
entitled to advances from the Corporation for payment of the reasonable expenses
incurred by him in connection with proceedings to which he is a party in the
manner and to the full extent permissible under the Maryland General Corporation
Law, the Securities Act of 1933 and the Investment Company Act of 1940, as such
statutes are now or hereafter in force; provided however, that the person
seeking indemnification shall provide to the Corporation a written affirmation
of his good faith belief that the standard of conduct necessary for
indemnification by the Corporation has been met and a written undertaking to
repay any such advance unless it is ultimately determined that he is entitled to
indemnification, and provided further that at least one of the following
additional conditions is met: (1) the person seeking indemnification shall
provide a security in form and amount acceptable to the Corporation for his
undertaking; (2) the Corporation is insured against losses arising by reason of
the advance; or (3) a majority of a quorum of directors of the Corporation who
are neither "interested persons" as defined in Section 2(a) (19) of the
Investment Company Act of
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1940, as amended, nor parties to the proceeding ("disinterested non-party
directors"), or independent legal counsel, in a written opinion, shall
determine, based on a review of facts readily available to the Corporation at
the time the advance is proposed to be made, that there is reason to believe
that the person seeking indemnification will ultimately be found to be entitled
to indemnification.
SECTION 3. Procedure. At the request of any current or former director or
officer, or any employee or agent whom the Corporation proposes to indemnify,
the Board of Directors shall determine, or cause to be determined, in a manner
consistent with the Maryland General Corporation Law, the Securities Act of 1933
and the Investment Company Act of 1940, as such statutes are now or hereafter in
force, whether the standards required by this Article V have been met; provided,
however, that indemnification shall be made only following: (1) a final decision
on the merits by a court or other body before whom the proceeding was brought
that the person to be indemnified was not liable by reason of disabling conduct
or (2) in the absence of such a decision, a reasonable determination, based upon
a review of the facts, that the person to be indemnified was not liable by
reason of disabling conduct, by (a) the vote of a majority of a quorum of
disinterested non-party directors or (b) an independent legal counsel in a
written opinion.
SECTION 4. Indemnification of Employees and Agents. Employees and agents
who are not officers or directors of the Corporation may be indemnified, and
reasonable expenses may be advanced to such employees or agents, in accordance
with the procedures set forth in this Article V to the extent permissible under
the Investment Company Act of 1940, the Securities Act of 1933 and the Maryland
General Corporation Law, as such statutes are now or hereafter in force, and to
such further extent, consistent with the foregoing, as may be provided by action
of the Board of Directors or by contract.
SECTION 5. Other Rights. The indemnification provided by this Article V
shall not be deemed exclusive of any other right, in respect of indemnification
or otherwise, to which those seeking such indemnification may be entitled under
any insurance or other agreement, vote of stockholders or disinterested
directors or otherwise, both as to action by a director or officer of the
Corporation in his official capacity and as to action by such person in another
capacity while holding such office or position, and shall continue as to a
person who has ceased to be a director or officer and shall inure to the benefit
of the heirs, executors and administrators of such a person.
SECTION 6. Insurance. The Corporation shall have the power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or who, while a director, officer,
employee or agent of the Corporation, is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust, enterprise
or employee benefit plan, against any liability asserted against and incurred by
him in any such capacity, or arising out of
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his status as such, provided that no insurance may be obtained by the
Corporation for liabilities against which it would not have the power to
indemnify him under this Article V or applicable law.
SECTION 7. Constituent, Resulting or Surviving Corporations. For the
purposes of this Article V, references to the "Corporation" shall include all
constituent corporations absorbed in a consolidation or merger as well the
resulting or surviving corporation so that any person who is or was a director,
officer, employees or agent of a constituent corporation or is or was serving at
the request of a constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise shall stand in the same position under this Article V with respect to
the resulting or surviving corporation as he would if he had served the
resulting or surviving corporation in the same capacity.
ARTICLE VI
SEAL
The seal of the corporation shall be circular in form and shall bear the
name of the Corporation, the year of its incorporation, the words "Corporate
Seal" and "Maryland" and any emblem or device approved by the Board of
Directors. The seal may be used by causing it or a facsimile to be impressed or
affixed or in any other manner reproduced, or by placing the word "(seal)"
adjacent to the signature of the authorized officer of the corporation.
ARTICLE VII
FISCAL YEAR
The Corporation's fiscal year shall be fixed by the Directors.
ARTICLE VIII
AMENDMENTS
These By-Laws may be amended or repealed by the affirmative vote of a
majority of the Board of Directors at any regular or special meeting of the
Board of Directors, subject to the requirements of the Investment Company Act of
1940, as amended.
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Exhibit (d)
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of the 8th day of July, 1993, between VALUE LINE ASSET
ALLOCATION FUND, INC. a Maryland corporation (hereinafter called "the Fund"),
and VALUE LINE, INC., a New York corporation (hereinafter called "the Company");
WITNESSETH:
WHEREAS, the Fund desires to have the Company act as its investment adviser and
provide it with investment research, advice, supervision and management; and
WHEREAS, the Company is willing to undertake the same upon the terms and
conditions set forth herein.
NOW THEREFORE, it is hereby agreed by and between the parties hereto as
follows:
1. Duties. The Company shall provide the Fund with such investment
research, data advice and supervision as the latter may from time to time
consider necessary for proper supervision of its funds. The Company shall act as
manager and investment adviser of the Fund and, as such, shall furnish
continuously an investment program and shall determine from time to time what
securities shall be purchased or sold by the Fund, and what portion of the
assets of the Fund shall be held uninvested, subject always to the provisions of
the Fund's Articles of Incorporation and By-Laws, to the Fund's fundamental
investment policies as in effect from time to time, and to the control and
review by the Fund's Board of Directors. The Company shall take, on behalf of
the Fund, all actions which it deems necessary to carry into effect the
investment policies determined as provided above, and to that end the Company
may designate a person or persons who are to be authorized by the Fund as the
representative or representatives of the Fund, to give instructions to the
Custodian of the assets of the Fund as to deliveries of securities and payments
of cash for the account of the Fund.
2. Allocation of Charges and Expenses; Brokerage. The Company shall
furnish at its own expense all administrative services, office space, equipment
and administrative and clerical personnel necessary for managing the affairs of
the Fund. The Company shall also provide persons satisfactory to the Fund's
Board of Directors to act as officers and employees of the Fund and shall pay
the salaries and wages of all officers and employees of the Fund who are also
officers and employees of the Company or of an affiliated person (as defined in
the Investment Company Act of 1940) other than the Fund. All other costs and
expenses not expressly assumed by the Company under this Agreement, or to be
paid by the Distributor or Distributors of the shares of the Fund, shall be paid
by the Fund, including (i) interest and taxes; (ii) brokerage commissions and
other costs in connection with the purchase or sale of securities; (iii)
insurance premiums for fidelity and other coverage requisite to its operations;
(iv) compensation and expenses of its directors other than those affiliated with
the Company; (v) legal, audit and
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fund accounting expenses; (vi) custodian and shareholder servicing agent fees
and expenses; (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 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 acts as manager and investment adviser, of
50% of the fees or dues of the Investment Company Institute; (xiii) fees and
expenses in connection with registration of the Fund or qualification of its
shares under the securities laws of states and foreign jurisdictions and (xiv)
such non-recurring expenses as may arise, including actions, suits or
proceedings to which the Fund is a party and the legal obligation which the Fund
may have to indemnify its officers and directors with respect thereto.
The Company shall place purchase and sale orders for portfolio
transactions of the Fund with brokers and/or dealers including, where permitted
by law, the Fund's Distributor or affiliates thereof or of the Company, which,
in the judgment of the Company, are able to execute such orders as expeditiously
as possible and at the best obtainable price. Purchases and sales of securities
which are not listed or traded on a securities exchange shall ordinarily be
executed with primary market makers acting as principal except when it is
determined that better prices and executions may otherwise be obtained,
provided, that the Company may cause the Fund to pay a member of a securities
exchange, broker or dealer an amount of commission 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 or 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 thereunder 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 affected 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 .65% of the Fund's average daily
net assets during the year, pro rated for any portion of a year during which the
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
<PAGE>
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 shall continue in effect for a period
of more than two years from the date of its execution 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.
5. Name of Fund. The Company consents to the use by the Fund of the name
"Value Line Asset Allocation Fund, Inc." so long, and only so long, as this
Agreement (or any agreement with any organization which has succeeded to the
business of the Company) or any extension, renewal or amendment thereof, remains
in effect. The Fund agrees that if and when no such agreement is in effect, (a)
it will cease to use said name or any name indicating or suggesting that the
Fund is advised by or otherwise connected with the Company and (b) it will not
thereafter refer to the former association between the Company and the Fund.
6. Company May Act for Others. Nothing herein contained shall limit the
freedom of the Company or any affiliated person of the Company to render
investment supervisory or corporate administrative services to other investment
companies, to act as investment adviser or investment counselor to other
persons, firms or corporations, and to engage in other business activities.
7. Amendment of Agreement. This Agreement may not be amended except
pursuant to a direction given by the vote of the holders of a majority (as
defined in the Investment Company Act of 1940) of the outstanding shares of the
Fund.
8. Liability. The Company shall not be liable for any error of judgment,
or mistake of law, or any loss suffered by the Fund, in connection with the
matters to which this Agreement relates, except for loss resulting from willful
misfeasance, bad faith or gross negligence of the Company in the performance of
its duties or from
<PAGE>
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 ASSET ALLOCATION FUND, INC
By: /s/ Jean S. Bullner
--------------------------------------
VALUE LINE, INC.
By: /s/ ILLEGIBLE
--------------------------------------
<PAGE>
Exhibit (e)
DISTRIBUTION AGREEMENT
Between
VALUE LINE ASSET ALLOCATION FUND, INC.
and
VALUE LINE SECURITIES, INC.
July 8, 1993
Value Line Securities, Inc.
711 3rd Avenue
New York, NY 10017-4064
Dear Sirs:
VALUE LINE ASSET ALLOCATION FUND, INC. (the "Fund"), a Maryland
corporation, is registered as an Investment Company under the Investment Company
Act of 1940 and has registered an indefinite number of shares of common stock
under the Securities Act of 1933, Registration Number 33-62240, 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.
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 <PAGE>
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 certificate.
5. The Fund has delivered to you a copy of its initial Prospectus dated as
of 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.
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 Prospectuses, other than those
furnished to existing shareholders.
9. This Agreement will continue in effect for a period of
2
<PAGE>
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 Directors, including the vote of majority of the
Directors of the Fund who are not parties to this Agreement or "interested
persons" (as defined in the Investment Company Act of 1940) of any such persons
cast in person at a meeting called for the purpose of voting on such approval or
by vote of the holders of a majority of the outstanding voting securities of the
Fund and by such vote of the Board of Directors.
(b) You shall 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.
10. This Agreement may not be amended or changed except in writing and
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors, but this Agreement shall not be assigned by either
party and shall automatically terminate upon its assignment.
If the foregoing is in accordance with your understanding, kindly so
indicate by signing in the space provided below.
VALUE LINE ASSET
ALLOCATION FUND, INC.
By: /s/ Jean B. Buttner
------------------------------------
Accepted:
Value Line Securities, Inc.
/s/ [ILLEGIBLE]
- -----------------------------
3
<PAGE>
Exhibit (g)
CUSTODIAN AGREEMENT
Dated as of:
Between
VALUE LINE ASSET ALLOCATION FUND, INC.
and
STATE STREET BANK AND TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
----
1. Bank Appointed Custodian ................................................1
2. Definitions .............................................................1
(a) Authorized Person .................................................1
(b) Security ..........................................................2
(c) Portfolio Security ................................................2
(d) Officers' Certificate .............................................2
(e) Book-Entry System and Depository...................................2
3. A. Proper Instructions ...............................................3
B. Bank's Communications with Fund ...................................4
4. Separate Accounts .......................................................5
5. Certification as to Authorized Persons ..................................5
6. Custody of Cash and Securities ..........................................6
A. Cash ..............................................................6
(a) Purchase of Securities ......................................6
(b) Redemptions .................................................7
(c) Distributions and Expenses of Fund ..........................7
(d) Payment in Respect of Securities ............................7
(e) Repayment of Cash ...........................................7
(f) Other Authorized Payments ...................................8
(g) Termination .................................................8
B. Securities ........................................................8
(a) Book-Entry System ..........................................10
(b) Use of Direct Paper System for Commercial Paper ............12
C. Options and Futures Transactions .................................14
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ or
Over-the-Counter ...........................................14
(b) Puts, Calls and Futures Traded on Commodities Exchanges ....15
(c) Segregated Account .........................................16
D. Segregated Account for "when issued", "forward commitment" and
Reverse Repurchase Agreement Transactions ........................17
7. Transfer of Securities .................................................18
8. Redemptions ............................................................20
9. Merger, Dissolution, etc. of Fund ......................................20
10. Actions of Bank Without Prior Authorization ............................21
11. Maintenance of Records and Confidentiality .............................23
<PAGE>
12. Concerning the Bank ....................................................23
A. Performance of Duties ............................................23
B. Responsibility of Custodian ......................................24
C. No Duty of Bank ..................................................24
D. Fees and Expenses of Bank ........................................25
E. Advances by Bank .................................................26
13. Termination ............................................................26
14. Notices ................................................................28
15. Amendments .............................................................29
16. Parties ................................................................29
17. Governing Law ..........................................................29
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT made as of this day of , 1993 between VALUE LINE ASSET
ALLOCATION FUND, INC., a corporation established under the laws of Maryland (the
"Fund"), and STATE STREET BANK AND TRUST COMPANY ("Bank").
The Fund, an open-end management investment company, desires to place and
maintain its portfolio securities and cash in the custody of the Bank. The Bank
has at least the minimum qualifications required by Section 17(f)(1) of the
Investment Company Act of 1940 to act as custodian of the portfolio securities
and cash of the Fund, and has indicated its willingness to so act, subject to
the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. Bank Appointed Custodian. The Fund hereby appoints the Bank as
custodian of its portfolio securities and cash delivered to the Bank as
hereinafter described, and the Bank agrees to act as such upon the terms and
conditions hereinafter set forth.
2. Definitions. Whenever used herein, the terms listed below will have the
following meaning:
(a) Authorized Person. Authorized person will mean any of the
persons duly authorized to give Proper Instructions or otherwise act on
behalf of the Fund by appropriate resolution of the Board of Directors.
<PAGE>
(b) Security. The term security as used herein will have the same
meaning as when such term is used in the Securities Act of 1933 as
amended, including, without limitation, any note, stock, treasury stock,
bond, debenture, evidence of indebtedness, certificate of interest or
participation in any profit sharing agreement, collateral-trust
certificate, preorganization certificate or subscription, transferable
share, investment contract, voting-trust certificate, certificate of
deposit for a security, fractional undivided interest in oil, gas, or
other mineral rights, any put, call, straddle, option, or privilege on any
security, certificate of deposit, or group or index of securities
(including any interest therein or based on the value thereof), or any
put, call, straddle, option, or privilege entered into on a national
securities exchange relating to a foreign currency, or, in general, any
interest or instrument commonly known as a "security", or any certificate
of interest or participation in, temporary or interim certificate for,
receipt for, guarantee of, or warrant or right to subscribe to, or option
contract to purchase or sell any of the foregoing and futures, forward
contracts and options thereon.
(c) Portfolio Security. Portfolio security will mean any security
owned by the Fund.
(d) Officers' Certificate. Officers' Certificate will mean unless
otherwise indicated, any request, direction, instruction, or certification
in writing signed by any two Authorized Persons of the Fund.
(e) Book-Entry System and Depository. Book-Entry System shall mean
the Federal Reserve-Treasury Department Book Entry System for United
States government, instrumentality and agency securities operated by the
Federal Reserve Banks, its successor or successors and its nominee or
nominees. Depository shall mean the Depository
-2-
<PAGE>
Trust Company ("DTC"), a clearing agency registered with the Securities
and Exchange Commission under Section 17A of the Securities Exchange Act
of 1934, it successor or successors and its nominee or nominees. The term
"Depository" shall further mean and include any other person authorized to
act as a depository under the Investment Company Act of 1940, its
successor or successors and its nominee or nominees, specifically
identified in a certified copy of a resolution of the Fund's Directors.
3A. Proper Instructions. For purposes of this Agreement, "Proper
Instructions" shall mean (i) instructions regarding the purchase or sale
of securities for the portfolio of the Fund, and payments and deliveries
in connection therewith, given by an Authorized Person as designated in an
Officers' Certificate, such instructions to be given in such form and
manner as the Bank and the Fund shall agree upon from time to time, and
(ii) instructions (which may be continuing instructions) regarding other
matters signed or initialled by such one or more persons from time to time
designated in an Officers' Certificate as having been authorized by the
Directors of the Fund. Oral instructions given by a person whom the Bank
reasonably believes to be authorized to give such instructions with
respect to the transaction involved will be considered Proper Instructions
only if the Bank receives written instructions on Value Line Stationery
(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 from the Chairman of the Board or Secretary confirming
such prior oral instruction. The Bank shall compare the original oral
instruction with any confirmatory written or oral instruction, as the case
may be, and shall report any discrepancy to the Fund immediately, and the
Bank shall be responsible for any expense incurred in taking any action,
including any reprocessing, necessary to correct any
-3-
<PAGE>
such discrepancy or error in Proper Instructions given by the Fund, to the
extent such expense is caused by the unreasonable delay of the Bank in
reporting such discrepancy to the Fund. Except as provided in the
preceeding sentence, the Fund shall be responsible, at the Fund's expense,
for taking any action, including any reprocessing, necessary to correct
any such discrepancy or error in Proper Instructions given by the Fund,
and to the extent such action requires the Bank to act, the Fund shall
give the Bank specific Proper Instructions as to the action required. The
Bank shall act upon and comply with any subsequent Proper Instructions
which modifies a prior Proper Instruction. Upon receipt of an Officers'
Certificate as to the authorization by the Directors of the Fund
accompanied by a detailed description of procedures approved by the Fund,
Proper Instructions may include communication effected directly between
electro-mechanical or electronic devices provide that the Directors and
the Bank are satisfied that such procedures afford adequate safeguards for
the Fund's assets.
3B. Bank's Communications with Fund. For purposes of this Agreement,
all communications from the Bank to the Fund shall be in writing (which
may be sent by means of a telecopier) and any such writing reasonably
believed by the Fund to be from a person authorized to make such
communication on behalf of the Bank may be relied upon by the Fund. An
oral communication from a person whom the Fund reasonably believes to be
authorized to make such communication on behalf of the Bank with respect
to the transaction may be relied upon by the Fund only if the Fund
receives a written communication (which may be sent by telecopier)
confirming such oral communication, provided however, that if the Fund is
notified by such authorized person that the Bank is unable to promptly
confirm such oral communication in writing, then the Fund may act in
reliance upon receipt of a second oral communication confirming such prior
oral communication. The Fund shall compare the original oral communication
with any confirmatory written or oral
-4-
<PAGE>
communication, as the case may be, and shall report any discrepancy to the
Bank immediately, and the Fund shall be responsible for any expense
incurred in taking any action, including any reprocessing, necessary to
correct any such discrepancy or error in communications given by the Bank,
to the extent such expense is caused by the unreasonable delay of the Fund
in reporting such discrepancy to the Bank. Except as provided in the
preceding sentence, the Bank shall be responsible, at the Bank's expense,
for any action taken, including any reprocessing, necessary to correct any
such discrepancy or error in communications given by the Bank, and to the
extent such action requires the Bank to act, the Fund shall give the Bank
specific Proper Instructions as to the action required. The Fund may act
in reliance upon any subsequent communication from the Bank which modifies
a prior communication.
4. Separate Accounts. If the Fund has more than one series or
portfolio, the Bank will segregate the assets of the Fund into a Separate
Account for each such series or portfolio containing the assets of such
series or portfolio (and all investment earnings thereon), all as directed
from time to time by Proper Instructions.
5. Certification as to Authorized Persons. The Secretary or
Assistant Secretary of the Fund will at all times maintain on file with
the Bank his certification to the Bank, in such form as may be acceptable
to the Bank, of the names and signatures of the Authorized Persons, it
being understood that upon the occurrence of any change in the information
set forth in the most recent certification on file (including without
limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or
Assistant Secretary of the Fund will sign a new or amended certification
setting forth the change and the new, additional or omitted names or
signatures. The Bank will be entitled to rely and act upon any Officers'
Certificate given to
-5-
<PAGE>
it by the Fund which has been signed by Officers named in the most recent
certification.
6. Custody of Cash and Securities. As custodian for the Fund, the
Bank will keep safely all of the portfolio securities delivered to the
Bank, and will deposit to the account of the Fund all of the cash of the
Fund delivered to the Bank, as set forth below.
A. Cash. The Bank will open and maintain a separate account or
accounts in the name of the Fund or in the name of the Bank, as custodian
of the Fund, subject only to draft or order by the Bank acting pursuant to
the terms of this Agreement. The Bank will hold in such account or
accounts as custodian, subject to the provisions hereof (including
sections 6(C) and 6(D), all cash received by it, for the account of the
Fund. Upon receipt by the Bank of Proper Instructions (which may be
continuing instructions) or in the case of payments for redemptions and
repurchases of outstanding shares of beneficial interest of the Fund,
notification from the Fund's transfer agent as provided in Section 8,
requesting such payment, designating the payee or the account or accounts
to which the Bank will release funds or deposit, and stating that is is
for a purpose permitted under the terms of this Section 6(A), specifying
the applicable subsection, or describing such purpose with sufficient
particularity to permit the Bank to ascertain the applicable subsection,
the Bank will make payments of cash held for the accounts of the Fund,
insofar as funds are available for that purpose, only as permitted in
(a)-(g) below.
(a) Purchase of Securities: upon the purchase of securities
for the Fund, against contemporaneous receipt of such securities by
the Bank registered in the name of the Fund or in the name of, or
properly endorsed and in form for transfer to, the Bank, or a
nominee of the Bank, or receipt for the account of the Bank through
use of (1) the
-6-
<PAGE>
Book-Entry System pursuant to Section 6(B)(a)(3) below, (2) a
Depository pursuant to 6(B)(b) below, or (3) Book Entry Paper
pursuant to Section 6(B)(c) below, each such payment to be made at
the purchase price shown on a broker's confirmation (or transaction
report in the case of Book Entry Paper) of purchase of the
securities received by the Bank before such payment is made, as
confirmed in the Proper Instructions received by the Bank before
payment is made;
(b) Redemptions: in such amount as may be necessary for the
repurchase or redemption of shares of beneficial interest of the
Fund offered for repurchase or redemption in accordance with Section
8 of this Agreement;
(c) Distributions and Expenses of Fund: for the payment on the
account of the Fund of dividends or other distributions to
shareholders as may from time to time be declared by the Directors
of the Fund, interest, taxes, management or supervisory fees,
distribution fees, fees of the Bank for its services hereunder and
reimbursement of the expenses and liabilities of the Bank as
provided hereunder, fees of any transfer agent, fees for legal,
accounting, and auditing services, or other operating expenses of
the Fund;
(d) Payment in Respect of Securities: for payments in
connection with the conversion, exchange or surrender of portfolio
securities or securities subscribed to by the Fund held by or to be
delivered to the Bank;
(e) Repayment of Cash: to repay the cash delivered to the Fund
for the purpose of collateralizing the obligation to return to the
Fund certificates borrowed from the Trust representing portfolio
securities, but only upon redelivery to the Bank of such borrowed
certificates;
-7-
<PAGE>
(f) Other Authorized Payments: for other authorized
transactions of the Fund, or other obligations of the Fund incurred
for proper Fund purposes; provided that before making any such
payment the Bank will also receive a certified copy of a resolution
of the Directors signed by an Authorized Person of the Fund (other
than the Person certifying such resolution) and certified by its
Clerk or Assistant Clerk, naming the person or persons to whom such
payment is to be made, and either describing the transaction for
which payment is to be made and declaring it to be an authorized
transaction of the Fund, or specifying the amount of the obligation
for which payment is to be made, setting forth the purpose for which
such obligation was incurred and declaring such purpose to be a
proper corporate purpose; and
(g) Termination: upon the termination of this Agreement as
hereinafter set forth pursuant to Section 9 and Section 13 of this
Agreement.
The Bank is hereby authorized to endorse for collection and collect
on behalf of and in the name of the Fund all checks, drafts, or other
negotiable or transferrable instruments or other orders for the payment of
money received by it for the account of the Fund.
B. Securities. Except as provided in subsections (a), (b) and
(c) of this Section 6(B), and in Sections 6(C) and 6(D), the Bank as
custodian, will receive and hold pursuant to the provisions hereof, in a
separate account or accounts and physically segregated at all times from
those of other persons, any and all portfolio securities which may now or
hereafter be delivered to it by or for the account of the Fund. All such
portfolio securities will be held or disposed of by the Bank for, and
subject at all times to, the instructions of the Fund pursuant to the
terms of this Agreement. Subject to the
-8-
<PAGE>
specific provisions in Subparagraphs (a), (b), and (c) relating to
securities that are not physically held by the Bank, the Bank will
register all portfolio securities (unless otherwise directed by Proper
Instructions or an Officers' Certificate), in the name of a registered
nominee of the Bank as defined in the Internal Revenue Code and any
Regulations of the Treasury Department issued thereunder, which nominee
shall be exclusively assigned to the Fund, and will execute and deliver
all such certificates in connection therewith as may be required by such
laws or Regulations or under the laws of any State. The Bank will ensure
that the specific portfolio securities of the Fund held by it hereunder
will be at all times identifiable.
The Bank will use the same care with respect to the safekeeping of
portfolio securities and cash of the Fund held by it as it uses in respect
of its own similar property but it need not maintain any special insurance
for the benefit of the Fund.
The Fund will from time to time furnish to the Bank appropriate
instruments to enable it to hold or deliver in proper form for transfer,
or to register in the name of its registered nominee, any securities which
it may hold for the account of the Fund and which may from time to time be
registered in the name of the Fund.
Neither the Bank nor any nominee of the Bank will vote any of the
portfolio securities held hereunder by or for the account of the Fund,
except in accordance with Proper Instructions of an Officers' Certificate.
The Bank will execute and deliver, or cause to be executed and
delivered, to the Fund all notices, proxies and proxy soliciting materials
with respect to such securities, such proxies to be executed by the
registered holder of such securities (if registered otherwise than in the
name of the Fund), but without indicating the manner in which such proxies
are to be voted.
-9-
<PAGE>
(a) Book-Entry System. Provided (i) the Bank has received a
certified copy of a resolution of the Directors of the Fund
specifically approving deposits of the Fund assets in the Book-Entry
System, indicating that, and (ii) for each year following such
approval, the Directors of the Fund has reviewed and approved the
arrangement and has not delivered an Officer's Certificate to the
Bank indicating that it has withdrawn its approval:
1. The Bank may keep Securities of the Fund in the
Book-Entry System provided that such securities are
represented in an account ("Account") of the Bank (or its
agent) in such System which shall not include any assets of
the Bank (or such agent) other than assets held as a
fiduciary, custodian, or otherwise for customers.
2. The records of the Bank (and any such agent) with
respect to the Fund's participation in the Book-Entry System
through the Bank (or any such agent) will identify by book
entry securities belonging to the Fund which are included with
other securities deposited in the Account and shall at all
times during the regular business hours of the Bank (or such
agent) be open for inspection by duly authorized officers,
employees or agents of the Fund. Where securities are
transferred to the Fund's account, the Bank shall also, by
book entry or otherwise, identify as belonging to the Fund a
quantity of securities in fungible bulk of securities (i)
registered in the name of the Bank or its nominee, or (ii)
shown on the Bank's account on the books of the Federal
Reserve Bank.
-10-
<PAGE>
3. The Bank (or its agent) shall pay for securities
purchased for the account of the Fund or shall pay cash
collateral against the return of securities loaned by the Fund
upon (i) receipt of advice from the Book-Entry System that
such Securities have been transferred to the Account, and (ii)
the making of an entry on the records of the Bank (or its
agent) to reflect such payment and transfer for the account of
the Fund. The Bank (or its agent) shall transfer securities
sold or loaned for the account of the Fund upon
(a) receipt of advice from the Book-Entry System
that payment for Securities sold or payment of the
initial cash collateral against the delivery of
securities loaned by the Fund has been transferred to
the Account, and
(b) the making of an entry on the records of the
Bank (or its agent) to reflect such transfer and payment
for the account of the Fund. Copies of all advices from
the Book-Entry System of transfers of Securities for the
account of the Fund shall identify the Fund, be
maintained for the Fund by the Bank and shall be
provided to the Fund at its request. The Bank shall send
the Fund a confirmation, as defined by Rule 17f-4 under
the Investment Company Act of 1940, of any transfers to
or from the account of the Fund.
4. The Bank will promptly provide the Fund with any
report obtained by the Bank or its agent on the Book-Entry
System's accounting system, internal accounting control and
procedures for safeguarding Securities deposited in the
Book-Entry System. The
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Bank will provide the Fund and cause any such agent to
provide, at such times as the Fund may reasonably require,
with reports by independent public accountants on the
accounting system, internal accounting control and procedures
for safeguarding securities, including Securities deposited in
the Book-Entry System, relating to the services provided by
the Bank or such agent under the Agreement.
5. Anything to the contrary in the Agreement
notwithstanding, the Bank shall be liable to the Fund for any
loss or damage to the Fund resulting from use of the
Book-Entry System by reason of any gross negligence, wilful
misfeasance or bad faith of the Bank or any of its agents or
of any of its or their employees or from any reckless
disregard by the Bank or any such agent of its duty to enforce
effectively such rights as it may have against the Book-Entry
System; at the election of the Fund, it shall be entitled to
be subrogated for the Bank in any claim against the Book-Entry
System or any other person which the Bank or its agent may
have as a consequence of any such loss or damage if and to the
extent that the Fund has not been made whole for any loss or
damage.
(b) Use of Direct Paper System for Commercial Paper. Provided
(i) the Bank has received a certified copy of a resolution of the
Fund's Directors specifically approving participation in a system
maintained by the Bank for the holding of commercial paper in direct
paper form ("Direct Paper") and (ii) for each year following such
approval the Directors of the Fund have received and approved the
arrangements, upon receipt of Proper Instructions and upon receipt
of confirmation from an Issuer (as defined below) that the Fund has
purchased such Issuer's Direct Paper,
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the Bank shall issue and hold in direct paper form, on behalf of the
Fund, commercial paper issued by issuers with whom the Bank has
entered into a direct paper agreement (the "Issuers"). In
maintaining its Direct Paper System, the Bank agrees that:
1. the Bank will maintain all Direct Paper held by the
Fund in an account of the Bank that includes only assets held
by it for customers;
2. the records of the Bank with respect to the Fund's
purchase of Direct Paper through the Bank will identify, by
book entry, Commercial Paper belonging to the Fund which is
included in the Direct Paper System and shall at all times
during the regular business hours of the Bank be open for
inspection by duly authorized officers, employees or agents of
the Fund.
3. (a) The Bank shall pay for Direct Paper purchased for
the account of the Fund upon contemporaneous (i) receipt of
advice from the Issuer that such sale of Direct Paper has been
effected, and (ii) the making of an entry on the records of
the Bank to reflect such payment and transfer for the account
of the Fund.
(b) The Bank shall cancel such Direct Paper
obligation upon the maturity thereof upon contemporaneous (i)
receipt of advice that payment for such Direct Paper has been
transferred to the Fund, and (ii) the making of an entry on
the records of the Bank to reflect such payment for the
account of the Fund.
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4. the Bank shall transmit to the Fund a transaction
journal confirming each transaction in Direct Paper for the
account of the Fund on the next business day following the
transaction;
5. the Bank will send to the Fund such reports on its
system of internal accounting control as the Fund may
reasonably request from time to time;
C. Options and Futures Transactions.
(a) Puts and Calls Traded on Securities Exchanges. NASDAQ or
Over-the-Counter.
1. The Bank shall take action as to put options ("puts")
and call options ("calls") purchased or sold (written) by the
Fund regarding escrow or other arrangements (i) in accordance
with the provisions of any agreement entered into upon receipt
of Proper Instructions between the Bank, any broker-dealer
registered under the Securities Exchange Act of 1934 and a
member of the National Association of Securities Dealers,
Inc., and, if necessary, the Fund relating to the compliance
with the rules of the Options Clearing Corporation and of any
registered national securities exchange, or of any similar
organization or organizations.
2. Unless another agreement requires it to do so, the
Bank shall be under no duty or obligation to see that the Fund
has deposited or is maintaining adequate margin, if required,
with any broker in connection with any option, nor shall the
Bank be under any duty or obligation to present such option to
the broker for exercise unless it receives Proper Instructions
from the Fund. The Bank shall have no
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responsibility for the legality of any put or call purchased
or sold on behalf of the Fund, the propriety of any such
purchase or sale, or the adequacy of any collateral delivered
to a broker in connection with an option or deposited to or
withdrawn from a Segregated Account as described in
sub-paragraph c of this Section 6(C). The Bank specifically,
but not by way of limitation, shall not be under any duty or
obligation to: (i) periodically check or notify the Fund that
the amount of such collateral held by a broker or held in a
Segregated Account as described in sub-paragraph (c) of this
Section 6(C) is sufficient to protect such broker of the Fund
against any loss; (ii) effect the return of any collateral
delivered to a broker; or (iii) advise the Fund that any
option it holds, has or is about to expire. Such duties or
obligations shall be the sole responsibility of the Fund.
(b) Puts, Calls and Futures Traded on Commodities Exchanges.
1. The Bank shall take action as to puts, calls and
futures contracts ("Futures") purchased or sold by the Fund in
accordance with the provisions of any agreement among the
Fund, the Bank and a Futures Commission Merchant registered
under the Commodity Exchange Act, relating to compliance with
the rules of the Commodity Futures Trading Commission and/or
any Contract Market, or any similar organization or
organizations, regarding account deposits in connection with
transactions by the Fund.
2. The responsibilities and liabilities of the Bank as
to Futures, puts and calls traded on commodities exchanges,
any Futures Commission Merchant
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account and the Segregated Account shall be limited as set
forth in sub-paragraph (a)(2) of this Section 6(C) as if such
sub-paragraph referred to Futures Commission Merchants rather
than brokers, and Futures and puts and calls thereon instead
of options.
(c) Segregated Account.
The Bank shall upon receipt of Proper Instructions establish
and maintain a Segregated Account or Accounts for and on behalf of
the Fund, into which Account or Accounts may be transferred cash
and/or securities including securities maintained in an Account by
the Bank pursuant to Section 6(B) hereof, (i) in accordance with the
provisions of any agreement among the Fund, the Bank and a
broker-dealer registered under the Exchange Act and a member of the
NASD or any Futures Commission Merchant registered under the
Commodity Exchange Act, relating to compliance with the rules of the
Options Clearing Corporation and of any registered national
securities exchange or the Commodity Futures Trading Commission or
any registered Contract Market, or of any similar organization or
organizations regarding escrow or other arrangements in connection
with transactions by the Fund, and (ii) for the purpose of
segregating cash or securities in connection with options purchased
or written by the Fund, or commodity futures purchased or written by
the Fund, and (iii) for the purposes of compliance by the Fund with
the procedures required by Investment Company Act Release No. 10666,
or any subsequent release or releases of the Securities and Exchange
Commission relating to the maintenance of Segregated Accounts by
registered investment companies and (iv) for other proper corporate
purposes, but only, in the case of clause (iv), upon receipt of, in
addition to Proper Instructions, a certified copy of a resolution of
the Directors of the Fund signed by an officer of the Fund and
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certified by the Clerk of an Assistant Clerk, setting forth the
purpose or purposes of such Segregated Account and declaring such
purposes to be proper corporate purposes.
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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<PAGE>
(e) for the purpose of redeeming in kind shares of beneficial
interest of the Fund upon authorization from the Fund;
(f) in the case of option contracts owned by the Fund, for
presentation to the endorsing broker;
(g) when such portfolio securities are called, redeemed or
retired or otherwise become payable;
(h) for the purpose of releasing certificates representing
portfolio securities of the Fund, against contemporaneous receipt by
the Bank of the fair market value of such security, as set forth in
Proper Instructions received by the Bank before such payment is
made;
(i) for the purpose of tendering shares pursuant to a tender
offer therefor;
(j) for the purpose of delivering securities lent by the Fund
to a bank or broker-dealer, but only against receipt in accordance
with street delivery custom, except as otherwise provided in
Subsections 6(B)(a) and (b) hereof, of adequate collateral as agreed
upon from time to time by the Fund and the Bank, and upon receipt of
payment in connection with any repurchase agreement relating to such
securities entered into by the Fund;
(k) for other authorized transactions of the Fund or for other
proper corporate purposes; provided that before making such
transfer, the Bank will also receive a certified copy of resolution
of the Directors of the Fund, signed by an authorized officer of the
Fund (other than the officer certifying such resolution) and
certified by its Secretary or Assistant Secretary, specifying the
portfolio securities to be delivered, setting forth the transaction
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<PAGE>
in or purpose for which such delivery is to be made, declaring such
transaction to be an authorized transaction of the Fund or such
purpose to be a proper corporate purpose, and naming the person or
persons to whom delivery of such securities shall be made; and
(1) upon termination of this Agreement as hereinafter set
forth pursuant to Section 9 and Section 13 of this Agreement.
As to any deliveries made by the Bank pursuant to subsections (a),
(b), (c), (d), (f), (g), (h), (i) and (j) securities or cash receivable in
exchange therefor shall be delivered to the Bank.
8. Redemptions. In the case of payment of assets of the Fund held by
the Bank in connection with redemptions and repurchases by the Fund of
outstanding shares of beneficial interest, the Bank will rely on
notification by the Fund's transfer agent if receipt of a request for
redemption and certificates, if issued, in proper form for redemption
before such payment is made. Payment shall be made in accordance with the
Articles of Incorporation of the Fund, from assets available for said
purposes.
9. Merger, Dissolution, etc. of Fund. In the case of the following
transactions not in the ordinary course of business, namely, the merger of
the Fund into or the consolidation of the Fund with another investment
company, the sale by the Fund of all, or substantially all of its assets
to another investment company, or the liquidation or dissolution of the
Fund and distribution of its assets, the Bank will deliver the portfolio
securities held by it under this Agreement and disburse cash only upon the
order of the Fund set forth in an Officers' Certificate, accompanied by a
certified copy of a resolution of the Fund's Directors authorizing any of
the foregoing
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<PAGE>
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 with 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 immediately notify the Fund by telecopier of any default or refusal
to pay no later than one business day from the day on which it receives
knowledge of such default or refusal. In addition, the Bank will send the
Fund a written report once each month showing any income on any portfolio
security held by it which is more than ten days overdue on the date of
such report and which has not previously been reported.
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<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.
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<PAGE>
(2) In its dealings with the Fund, the Bank shall be
entitled to rely upon any Officers' Certificate, Proper
Instructions, resolution of the Directors, telegram, facsimile
communication, written notice, or certificate.
B. Responsibility of Custodian. So long as and to the extent
that it is in the exercise of reasonable care, the Custodian shall
not be responsible for the title, validity or genuineness of any
property or evidence of title thereto received by it or delivered by
it pursuant to this Contract and shall beheld harmless in acting
upon any notice, request, consent, certificate or other instrument
reasonably believed by it to be genuine and to be signed by the
proper party or parties, including any futures commission merchant
acting pursuant to the terms of a three-party futures or options
agreement. The Custodian shall be held harmless and be protected by
the Fund and shall be held to the exercise of reasonable care in
carrying out the Proper Instructions of the Fund. It shall be
entitled to rely on and may act upon advice of counsel (who may be
counsel for the Fund) or mutually acceptable to both parties on all
matters, and shall be without liability for any action reasonably
taken or omitted pursuant to such advice.
C. No Duty of Bank. The Bank will be under no duty or
obligation to inquire into and will not be liable for:
(a) the validity of the issue of any portfolio
securities purchased by or for the Fund, the legality of the
purchases thereof or the propriety of the price incurred
therefor;
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<PAGE>
(b) the legality of any sale of any portfolio securities
by or for the Fund or the propriety of the amount for which
the same are sold;
(c) the legality of an issue or sale of any shares of
common stock of the Fund or the sufficiency of the amount to
be received therefor provided that it reflects the net asset
value as provided by the Fund;
(d) the legality of the repurchase of any shares of
common stock of the Fund or the propriety of the amount to be
paid therefor provided that it reflects the net asset value as
provided by the Fund;
(e) the legality of the declaration of any dividend by
the Fund or the legality of the distribution of any portfolio
securities as payment in kind of such dividend; or
(f) any property or moneys of the Fund unless and until
received by it, except as otherwise provided in Section 10
hereof, and any such property or moneys delivered or paid by
it pursuant to the terms hereof.
Moreover, the Bank will not be under any duty or obligation to
ascertain whether any portfolio securities at any time delivered to or
held by it for the account of the Fund are such as may properly be held by
the Fund under the provisions of its Agreement and Declaration of Fund or
By-Laws, any federal or state statutes or any rule or regulation of any
governmental agency.
D. Fees and Expenses of Bank. The Fund will pay or reimburse
the Bank from time to time for any transfer taxes payable upon
transfer of portfolio securities made hereunder, and for the Bank's
normal disbursements,
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expenses and charges made or incurred by the Bank in the performance
of this Agreement (including any duties listed on any Schedule
hereto, if any). For the services rendered by the Bank hereunder,
the Fund will pay to the Bank such compensation or fees at such rate
and at such times as shall be agreed upon in writing by the parties
from time to time. The Bank will also be entitled to reimbursement
by the Fund for normal industry costs for securities transfers and
services incurred in conjunction with termination of this Agreement
by the Fund.
E. Advances by Bank. The Bank may, in its sole discretion,
advance funds on behalf of the Fund to make any payment permitted by
this Agreement upon receipt of Proper Instructions as required by
this Agreement for such payments by the Fund. Should such a payment
or payments, with advanced funds, result in an overdraft (due to
insufficiencies of the Fund's account with the Bank, or for any
other reason) any such related indebtedness shall be deemed a loan
made by the Bank to the Fund payable on demand and bearing interest
at the current rate charged by the Bank for such loans unless the
Fund shall provide the Bank with agreed-upon compensating balances.
The Fund authorizes the Bank, in its sole discretion, at any time to
charge any overdraft or indebtedness, together with interest due
thereon, against any balance of account standing to the credit of
the Fund on the Bank's books.
13. Termination.
(a) This Agreement may be terminated at any time without
penalty upon ninety days written notice delivered by either party to
the other by means of registered mail, and upon the expiration of
such ninety days this Agreement will terminate; provided, however,
that the effective date of such termination may be postponed to a
date of delivery
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of such notice (i) by the Bank in order to prepare for the transfer
by the Bank of all of the assets of the Fund held hereunder, and
(ii) by the Fund in order to give the Fund an opportunity to make
suitable arrangements for a successor custodian. At any time after
the termination of this Agreement, the Fund will, at its request,
have access to the records of the Bank relating to the performance
of its duties as custodian.
(b) In the event of the termination of this Agreement, the
Bank will immediately upon receipt or transmittal, as the case may
be, of notice of termination, commence and prosecute diligently to
completion the transfer of all cash and the delivery of all
portfolio securities duly endorsed and all records maintained under
Section 11 to the successor custodian when appointed by the Fund.
The obligation of the Bank to deliver and transfer over the assets
of the Fund held by it directly to such successor custodian will
commence as soon as such successor is appointed and will continue
until completed as aforesaid. If the Fund does not select a
successor custodian within ninety days from the date of delivery of
notice of termination the Bank may, subject to the provisions of
subsection (c) of this Section 13, deliver the portfolio securities
and cash of the Fund held by the Bank to a bank or trust company of
its own selection which meets the requirements of Section 17(f)(1)
of the Investment Company Act of 1940 and has a reported capital,
surplus and undivided profits aggregating not less than $2,000,000,
to be held as the property of the Fund under terms similar to those
on which they were held by the Bank, whereupon such bank or trust
company so selected by the Bank will become the successor custodian
of such assets of the Fund with the same effect as though selected
by the Directors of the Fund.
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(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:
c/o Value Line Inc.
711 3rd Avenue
New York, New York 10017
Attn: Treasurer
(b) In the case of notices sent to the Bank to:
State Street Bank and Trust Company
Mutual Fund Services
1776 Heritage Drive
North Quincy, MA 02171
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or at such other place as such party may from time to time
designate in writing.
15. Amendments. This Agreement may not be altered or amended, except
by an instrument in writing, executed by both parties, and in the case of
the Fund, such alteration or amendment will be authorized and approved by
its Directors.
16. Parties. This Agreement will be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and
assigns; provided, however, that this Agreement will not be assignable by
the Fund without the written consent of the Bank or by the Bank without
the written consent of the Fund, authorized and approved by its Directors;
and provided further that termination proceedings pursuant to Section 13
hereof will not be deemed to be an an assignment within the meaning of
this provision.
17. Governing Law. This Agreement and all performance hereunder will
be governed by the laws of the Commonwealth of Massachusetts.
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<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 ASSET ALLOCATION FUND, INC.
By: /s/ Jean B. Buttner
-------------------------------------
ATTEST:
/s/ David T. Menigson
- -------------------------------
STATE STREET BANK AND TRUST COMPANY
By: /s/ Ronald E. Logue
-------------------------------------
ATTEST:
/s/ [Illegible]
- -------------------------------
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<PAGE>
AMENDMENT TO CUSTODIAN CONTRACT
AMENDMENT made by and between STATE STREET BANK AND TRUST COMPANY (the
"Custodian") each Fund listed on Appendix A (the "Fund").
WHEREAS, the Custodian and each Fund are parties to a Custodian Contract,
as amended (each a "Custodian Contract") governing the terms and conditions
under which the Custodian maintains custody of the securities and other assets
of the Fund; and
WHEREAS, the Custodian and each Fund desires to amend the relevant
Custodian Contract;
NOW THEREFORE, the Custodian and each Fund hereby amend and revise in its
entirety the defined term "Authorized person" in Section 2(a) of the Custodian
Contract as follows:
"Authorized person" of a Fund shall mean any of the persons duly
authorized to give Proper Instructions or otherwise act with respect to
such Fund on behalf of the Board of Trustees/Directors of such Fund by
appropriate resolution of such Board of Trustees/Directors, it being
understood that the signatures of two Authorized persons of a Fund shall
be required for the release of the assets of the Fund.
1
<PAGE>
Except as specifically superseded or modified herein, the terms and provisions
of the Custodian Contract shall continue to apply with full force and effect.
IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed in its name and behalf by its duly authorized representative as of the
1st day of October, 1997.
STATE STREET BANK AND TRUST COMPANY
By /s/ Ronald E. Logue
--------------------------------
Ronald E. Logue
Executive Vice President
Attest: /s/ Thomas M. Lenz
----------------------------
Thomas M. Lenz
Vice President
EACH FUND LISTED ON APPENDIX A
By: /s/ Jean B. Buttner
--------------------------------
Name: Jean B. Buttner
Title: Chairman/President
Attest: /s/ David T. Menigson
----------------------------
Name: David T. Menigson
Title: Secretary
2
<PAGE>
APPENDIX A
LIST OF FUNDS
Value Line Aggressive Income Trust
Value Line Asset Allocation Fund, Inc.,
Value Line Cash Fund, Inc., (The)
Value Line Centurion Fund, Inc.
Value Line Convertible Fund, Inc.
Value Line Fund, Inc. (The)
Value Line Income Fund, Inc., (The)
Value Line Leveraged Growth Investors, Inc.
Value Line New York Tax Exempt Trust
Value Line Small-Cap Growth Fund, Inc.
Value Line Special Situations Fund, Inc.
Value Line Strategic Asset Management Trust
Value Line Tax-Exempt Fund, Inc. (The)
Value Line U.S. Government Securities Fund, Inc.
Value Line U.S. Multi-National Company Fund, Inc.
3
<PAGE>
Exhibit (i)
PETER D. LOWENSTEIN
ATTORNEY AT LAW
TWO GREENWICH PLAZA, SUITE 100
GREENWICH, CONNECTICUT 06830
203 622-3932
FAX 203 622-0321
May 24, 1999
Value Line Asset Allocation Fund, Inc.
220 East 42nd Street
New York, NY 10017
Gentlemen:
I have acted as special counsel to Value Line Asset Allocation Fund, Inc.,
a Maryland corporation (the "Fund"), in connection with certain matters,
including the issuance of shares of its common stock, $.001 par value (the
"Common Stock")
As special counsel for the Fund, I am familiar with its Charter and
By-laws. I have examined the prospectus included in Post-Effective Amendment No.
7 to its Registration Statement on Form N-1A, File No. 33-62240 (the
"Registration Statement"), substantially in the form in which it is to become
effective (the "Prospectus") . I have further examined and relied upon a
certificate of the Maryland State Department of Assessments and Taxation to the
effect that the Fund is duly incorporated and existing under the laws of the
State of Maryland and is in good standing and duly authorized to transact
business in the State of Maryland.
I have also examined and relied upon such corporate records of the Fund
and other document and certificates with respect to factual matters as I have
deemed necessary to render the opinion expressed herein. I have assumed, without
independent verification, the genuineness of all signatures, the authenticity of
all documents submitted to me as originals and the conformity with originals of
all documents submitted to me as copies.
Based on such examination, I am of the opinion and so advise you that:
1. The Fund is duly organized and validly existing as a
corporation in good standing under the laws of the State of
Maryland.
2. The shares of Common Stock of the Fund to be offered for sale
pursuant to the Prospectus are to the extent of the number of
shares authorized to be issued, duly authorized and, when
sold, issued and paid for as contemplated by the Prospectus,
will have been validly and legally issued and will be fully
paid and nonassessable.
<PAGE>
I am a member of the bars of the States of Connecticut and New York and I
do not purport to be an expert in, and express no opinion with respect to, the
laws of any jurisdiction other than the federal laws of the United States and
the laws of the States of Connecticut and New York.
I consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/ Peter D. Lowenstein
Peter D. Lowenstein
PDL:psp
<PAGE>
Value Line Asset Allocation Fund, Inc.
Service and Distribution Plan (the "Plan")
The Plan is adopted as of this 15th day of April, 1993, by the Board of
Directors of Value Line Asset Allocation Fund, Inc., a Maryland corporation
(the "Fund").
1. The Plan is adopted pursuant to Rule 12b-1 under the Investment Company
Act of 1940 (the "Act") so as to allow the Fund to make payments as
contemplated herein, in conjunction with the distribution of shares of Common
Stock of the Fund ("Shares"). Payments also may be made by Value Line, Inc.,
the Fund's investment adviser, out of its fees, its past profits or any other
source available to it.
2. The Plan is designed to finance activities of Value Line Securities, Inc.
("VLS") principally intended to result in sale of the Shares and to include
the following: (a) to provide incentive to securities dealers to sell Shares
and to provide administrative support services to the Fund and its
shareholders; (b) to compensate other participating financial institutions
and organizations (including individuals) for providing administrative
support services to the Fund and its shareholders; (c) to pay for costs
incurred in conjunction with advertising and marketing of Shares including
expenses of preparing, printing and distributing prospectuses and sales
literature to prospective shareholders, securities dealers and others, and
for servicing the accounts of shareholders and (d) other costs incurred in
the implementation and operation of the Plan.
3. As compensation for the services to be provided under this
<PAGE>
Plan, VLS shall be paid a fee at the annual rate of 0.25% of the Fund's
average daily net assets.
4. All payments to securities dealers, participating financial institutions
and other organizations shall be made pursuant to the terms of a Distribution
Agreement between VLS and such dealer, institution or organization.
5. The Board of Directors shall be provided, at least quarterly, with a
written report of all amounts expended pursuant to the Plan and the purpose
for which the amounts were expended.
6. The Plan will become effective immediately upon approval by (a) a
majority of the outstanding shares of Common Stock of the Fund and (b) a
majority of the Board of Directors of the Fund, including a majority of the
Directors who are not "interested persons" (as defined in the Act) of the
Fund and have no direct or indirect financial interest in the operation of
the Plan or in any agreements entered into in connection with the Plan,
pursuant to a vote cast in person at a meeting called for the purpose of
voting on the approval of the Plan.
7. The Plan shall continue for a period of one year from its effective date,
unless earlier terminated in accordance with its terms, and thereafter shall
continue automatically for successive annual periods, provided such
continuance is approved at least annually in the manner provided by the Act.
8. The Plan may be amended at any time by the Board of Directors provided
that (a) any amendment to increase materially the costs which the Fund may
bear pursuant to the Plan shall be effective
2
<PAGE>
only upon approval by a vote of a majority of the outstanding voting
securities of the Fund and (b) any material amendments of the terms of the
Plan shall become effective only upon approval as provided in paragraph
6(b) hereof.
9. The Plan is terminable without penalty at any time by (a) vote of a
majority of the Board of Directors of the Fund, including a majority of the
Directors who are not "interested persons" (as defined in the Act) of the
Fund and have no direct or indirect financial interest in the operation of
the Plan or in any agreements entered into in connection with the Plan, or
(b) vote of a majority of the outstanding voting securities of the Fund.
10. While the Plan is in effect, the selection and nomination of Directors
who are not "interested persons" (as defined in the Act) of the Fund shall be
committed to the discretion of the Directors who are not "interested persons."
11. The Fund shall preserve copies of the Plan and any related agreements and
all reports made pursuant to paragraph 5 hereof, for a period of not less
than six years from the date thereof, the first two years in an easily
accessible place.
3
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000904170
<NAME> VALUE LINE FUND, INC.
<MULTIPLIER> 1,000
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 143,814
<INVESTMENTS-AT-VALUE> 182,600
<RECEIVABLES> 2,221
<ASSETS-OTHER> 321
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<TOTAL-ASSETS> 185,142
<PAYABLE-FOR-SECURITIES> 2,295
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<OTHER-ITEMS-LIABILITIES> 315
<TOTAL-LIABILITIES> 2,610
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<PAID-IN-CAPITAL-COMMON> 140,885
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<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,370
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<ACCUM-APPREC-OR-DEPREC> 38,818
<NET-ASSETS> 182,532
<DIVIDEND-INCOME> 385
<INTEREST-INCOME> 1,720
<OTHER-INCOME> 0
<EXPENSES-NET> 1,645
<NET-INVESTMENT-INCOME> 460
<REALIZED-GAINS-CURRENT> 2,393
<APPREC-INCREASE-CURRENT> 15,396
<NET-CHANGE-FROM-OPS> 18,249
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 230
<DISTRIBUTIONS-OF-GAINS> 2,461
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,501
<NUMBER-OF-SHARES-REDEEMED> 4,073
<SHARES-REINVESTED> 149
<NET-CHANGE-IN-ASSETS> 59,044
<ACCUMULATED-NII-PRIOR> 230
<ACCUMULATED-GAINS-PRIOR> 2,437
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 984
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,648
<AVERAGE-NET-ASSETS> 151,839
<PER-SHARE-NAV-BEGIN> 16.32
<PER-SHARE-NII> .03
<PER-SHARE-GAIN-APPREC> 1.92
<PER-SHARE-DIVIDEND> .02
<PER-SHARE-DISTRIBUTIONS> .26
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.99
<EXPENSE-RATIO> 1.09
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
