PROPOSALS
Proposal 1 : Revise the fundamental policy relating to borrowing. |
Proposed Policy: The Fund may not borrow money except as permitted by (i) the 1940 Act and the rules and regulations thereunder, or other successor law governing the regulation of registered investment companies, or interpretations or modifications thereof by the SEC, SEC staff or other authority of competent jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff or other authority of competent jurisdiction. |
| Funds Affected: | Current Policy: |
The Value Line Fund, Inc. Value Line Income and Growth Fund, Inc. Value Line Premier Growth Fund, Inc. | The Fund may not borrow money in excess of 10% of the value of its assets and then only as a temporary measure to meet unusually heavy redemption requests or for other extraordinary or emergency purposes. Securities will not be purchased while borrowings are outstanding. No assets of the Fund may be pledged, mortgaged or otherwise encumbered, transferred or assigned to secure a debt except in connection with the Fund’s entering into stock index futures. |
| Value Line Larger Companies Fund, Inc. | The Fund may issue evidences of indebtedness but only from banks and only if the value of the Fund’s assets, less its liabilities other than borrowings, is equal to at least 300% of all borrowings including the proposed borrowing. |
Value Line Centurion Fund, Inc. Value Line Strategic Asset Management Trust | The Fund may not borrow money, except that the Fund may (a) enter into commitments to purchase securities and instruments in accordance with its investment program, including when-issued and delayed-delivery transactions, and reverse repurchase agreements, provided that the total amount of any borrowing does not exceed 10% of the Fund’s total assets at the time of the transaction; and (b) borrow money in an amount not to exceed 10% of the value of its total assets at the time the loan is made. Borrowings representing more than 10% of a Fund’s total assets must be repaid before the Fund may make additional investments. |
| Value Line Core Bond Fund | The Fund may not borrow money in excess of 10% of the value of its assets and then only as a temporary measure to meet unusually heavy redemption requests or for other extraordinary or emergency purposes. Securities will not be purchased while borrowings are outstanding. No assets of the Fund may be pledged, mortgaged or otherwise encumbered, transferred or assigned to secure a debt except in connection with the Fund’s entering into interest rate futures contracts and then only to the extent of one-third of its assets. |
Value Line Small Cap Opportunities Fund, Inc. Value Line Asset Allocation Fund, Inc. | The Fund may not 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. |
OTHER INFORMATIONThe 1940 Act imposes certain limitations on borrowing activities of mutual funds and requires that a fund’s borrowing limitations be reflected in its fundamental policies. These limitations are designed to protect mutual fund shareholders and their investments by limiting a fund’s ability to subject its assets to the claims of creditors who, under certain circumstances, might have a claim to the fund’s assets that would take precedence over the claims of shareholders. The restrictions are also designed to limit a fund’s ability to leverage its assets.
Share Ownership of DirectorsUnder the 1940 Act, a mutual fund may borrow only from banks, and Management.
As of July 31, 2010, the percentage of shares of each Fund beneficially owned by all Directors and Nominees, each executive officer of the Funds, and by the Directors and officers of the Funds (as a group) was not more than 1% of the Funds.
Other Matters.
There have been no material legal proceeding, pending or otherwise, against any Director or Nominee during the past ten years.
There is no arrangement or understanding in connection with the New Investment Advisory Agreements with respect to the composition of the Board , the Adviser or the restructured Adviser with respect to the selection or appointment of any person to any office with either the Funds , the Adviser or the restructured Adviser.
There are no material pending legal proceedings to which any Director or Nominee or affiliated person of such Director or Nominee is a party adverse to the Funds or any of their affiliated persons or has a material interest adverse to the Fund or any of its affiliated persons. Legal proceedings are material only to the extent that theythe value of the fund’s assets less its liabilities (excluding other borrowings) is equal to at least 300% of all borrowings (including the proposed borrowing). One of the reasons that mutual funds typically borrow money is to meet redemptions or for other short-term cash needs in order to avoid forced, unplanned sales of portfolio securities. Such borrowings allow a fund greater flexibility by allowing its investment adviser to buy and sell portfolio securities primarily for investment or tax considerations, rather than for temporary cash flow considerations. In addition, a fund may borrow up to 5% of its total assets for temporary purposes from banks or other lenders.
The Funds are likelysubject to a number of different fundamental investment policies concerning borrowing that generally are more restrictive than required by the 1940 Act. The current policies typically do one or more of the following: restrict a Fund to borrowing only from banks and/or for temporary purposes; limit a Fund’s borrowing to 10% of its assets; prohibit a Fund from making an investment if aggregate margins and premiums on futures contracts exceed 5% of assets; limit or prohibit a Fund from pledging assets to secure debts; prohibit a Fund from borrowing for investment or leverage purposes; and/or specify that certain trading practices and investments will or will not be treated as borrowing.
The Proposed Policy would permit the Funds to borrow money, and to engage in trading practices that may be considered to be borrowing, to the fullest extent permitted by the 1940 Act or any rule, exemption or interpretation thereunder issued by an appropriate authority. By revising the existing policy, a Fund would not be unduly limited if the Adviser determines that borrowing is in the best interests of a Fund and its shareholders. To the extent that a Fund uses the borrowing flexibility, the Fund may be subject to some additional costs and risks inherent to borrowing, such as reduced total return and increased volatility. The additional costs and risks to which the Fund may be exposed are limited, however, by the borrowing limitations imposed by the 1940 Act and any other applicable law, rule, exemption or interpretation thereof.
The Adviser has advised the Board that the proposed revisions to the fundamental policy on borrowing are not expected to materially affect the manner in which any Fund’s investment program is being conducted at this time, as reflected in the Fund’s current prospectus and statement of additional information. Before a material change is made in a Fund’s investment strategies in response to this revised policy, the Board will be consulted and the Fund’s prospectus or statement of additional information will be revised to disclose the change, the purpose of the changed strategy and, as applicable, any additional risks.
The Board recommends that you vote “FOR” this Proposal.
Proposal 2A : Revise the fundamental policy relating to concentration of investments. |
Proposed Policy: Except as permitted by (i) the 1940 Act and the rules and regulations thereunder, or other successor law governing the regulation of registered investment companies, or interpretations or modifications thereof by the SEC, SEC staff or other authority of competent jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff, or other authority of competent jurisdiction, the Fund may not purchase the securities of any issuer if, as a result of such purchase, the Fund’s investments would be concentrated in any particular industry. |
| Funds Affected: | Current Policy: |
The Value Line Fund, Inc. Value Line Income and Growth Fund, Inc. Value Line Premier Growth Fund, Inc. Value Line Larger Companies Fund, Inc. Value Line Centurion Fund, Inc. Value Line Core Bond Fund Value Line Small Cap Opportunities Fund, Inc. Value Line Asset Allocation Fund, Inc. | The Fund may not invest 25% or more of its assets in securities of issuers in any one industry. |
| Value Line Strategic Asset Management Trust | The Trust may not invest 25% or more of its assets in securities of issuers in any one industry. For the purpose of this restriction, gas, electric, water and telephone utilities will each be treated as a separate industry. |
Proposal 2B : Reclassify the additional policy relating to concentration as non-fundamental. |
Funds Affected: | Current Policy: |
The Value Line Fund, Inc. Value Line Income and Growth Fund, Inc. Value Line Premier Growth Fund, Inc. Value Line Larger Companies Fund, Inc. Value Line Centurion Fund, Inc. Value Line Core Bond Fund Value Line Strategic Asset Management Trust Value Line Small Cap Opportunities Fund, Inc. Value Line Asset Allocation Fund, Inc. | For purposes of industry classifications, the Fund follows the industry classifications in The Value Line Investment Survey. |
The 1940 Act requires all mutual funds to have a material adverse effectfundamental policy regarding the concentration of their investments in a particular industry or group of industries. The SEC takes the positions that (i) investment of more than 25% of a fund’s total assets in one or more issuers conducting their principal activities in the same industry or group of industries constitutes concentration, and (ii) the 25% limit does not apply to U.S. Government securities. Accordingly, a fund may not invest more than 25% of its total assets in securities of issuers in any particular industry (except for U.S. Government securities) unless it makes appropriate disclosures in its registration statement. Although the policy of concentrating or not concentrating must be fundamental, there is no requirement that such policy specify the percentage threshold or industry definitions that a fund will use in applying its concentration policy. A fund may simply state that it will or will not concentrate.
Currently, each Fund has a fundamental policy that specifies it will not invest more than 25% of assets in any industry. Each Fund also has a fundamental policy that it will use the Value Line Investment Survey’s industry classifications in determining the industry of an issuer. Since there are two existing fundamental policies involved, two separate shareholder votes are required. Accordingly, shareholders of each Fund are being asked to change one policy to the new fundamental policy (Proposal 2A ), and to reclassify the other policy (Proposal 2B ).
If shareholders approve Proposal 2A , references to a stated 25% industry limit as part of a Fund’s concentration policy will be eliminated in favor of the Proposed Policy, which does not contain a stated percentage limitation but instead refers to concentration as it may be determined from time to time by the SEC or other appropriate authorities. If shareholders approve Proposal 2B , each Fund’s policy of relying on the FundsValue Line Investment Survey’s industry classifications will be reclassified as non-fundamental. This reflects a more modernized approach to industry concentration, and provides each Fund with investment flexibility that ultimately is expected to help the Fund respond to future legal, regulatory, market, or th e abilitytechnical changes.
The Adviser has advised the Board that the proposed revisions to the fundamental policy on concentration are not expected to materially affect the manner in which any Fund’s investment program is being conducted at this time, as reflected in the Fund’s current prospectus and statement of additional information. Before a material change is made in a Fund’s investment strategies in response to this revised policy, the Board will be consulted and the Fund’s prospectus or statement of additional information will be revised to disclose the change, the purpose of the restructuredchanged strategy and, as applicable, any additional risks.
The Board recommends that you vote “FOR” these Proposals.
Proposal 3 : Revise the fundamental policy relating to lending. |
Proposed Policy: The Fund may not make loans except as permitted by (i) the 1940 Act and the rules and regulations thereunder, or other successor law governing the regulation of registered investment companies, or interpretations or modifications thereof by the SEC, SEC staff or other authority of competent jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff, or other authority of competent jurisdiction. |
| Funds Affected: | Current Policy: |
The Value Line Fund, Inc. Value Line Income and Growth Fund, Inc. Value Line Premier Growth Fund, Inc. Value Line Larger Companies Fund, Inc. | The Fund may not lend money except in connection with the purchase of debt obligations or by investment in repurchase agreements, provided that repurchase agreements maturing in more than seven days when taken together with other illiquid investments do not exceed 10% of the Fund’s assets. |
| Value Line Centurion Fund, Inc. | The Fund may not lend money except in connection with the purchase of debt obligations or by investment in repurchase agreements. |
| Value Line Core Bond Fund | The Fund may not lend money except in connection with the purchase of debt obligations or by investment in repurchase agreements, provided that repurchase agreements maturing in more than seven days when taken together with other illiquid investments do not exceed 10% of the Fund’s assets. The Fund may lend its portfolio securities to broker-dealers and institutional investors if as a result thereof the aggregate value of all securities loaned does not exceed 331/3% of the total assets of the Fund. |
| Value Line Strategic Asset Management Trust | The Trust may not lend money except in connection with the purchase of debt obligations or by investment in repurchase agreements. The Trust may lend its portfolio securities to broker-dealers and institutional investors if as a result thereof the aggregate value of all securities loaned does not exceed 33 1/3% of the total assets of the Trust. |
Value Line Small Cap Opportunities Fund, Inc. Value Line Asset Allocation Fund, Inc. | 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 net 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. |
The 1940 Act requires mutual funds to have a fundamental policy about making loans. SEC staff interpretations prohibit mutual funds from lending more than one-third of their total assets, except through investments in debt obligations and repurchase agreements (which are often treated as loans by the SEC). In addition, under SEC staff interpretations, lending by a mutual fund, under certain circumstances, may also give rise to issues relating to the issuance of senior securities. In these circumstances, the fund would be subject to limitations imposed under the 1940 Act regarding the issuance of senior securities as well as lending. (See Proposal 5 below.)
The Funds’ current fundamental policies on lending vary greatly. The current policies generally prohibit the making of loans, but specify that certain investments and practices either are not subject to that prohibition (in full or in part) or do not constitute the making of loans. Such investments and practices include: purchasing debt obligations; entering into repurchase agreements; lending securities; using collateral arrangements with respect to options, forward currency and futures transactions, and other derivative instruments; and delays in the settlement of securities transactions.
If this Proposal is approved, the Funds will be permitted to lend money and other assets to the fullest extent permitted by the 1940 Act as interpreted from time to time. The Proposed Policy will be interpreted so as not to prevent or limit a Fund from engaging in the types of investments and practices indicated above that might be considered lending. The Proposed Policy also gives the Fund the greatest amount of flexibility to loan portfolio securities to generate income within the limits of the 1940 Act where desirable and appropriate in accordance with their investment objectives.
The Adviser has informed the Board that the proposed revision to perform itsthe fundamental policy on lending is not expected to materially affect the manner in which any Fund’s investment program is being conducted at this time, as reflected in the Fund’s current prospectus and statement of additional information. Before a material change is made in a Fund’s investment strategies in response to this revised policy, the Board will be consulted and the Fund’s prospectus or statement of additional information will be revised to disclose the change, the purpose of the changed strategy and, as applicable, any additional risks.
The Board recommends that you vote “FOR” this Proposal.
Proposal 4A : Revise the fundamental policy relating to real estate and commodities. |
Proposed Policy: The Fund may not purchase or sell commodities or real estate except as permitted by (i) the 1940 Act and the rules and regulations thereunder, or other successor law governing the regulation of registered investment companies, or interpretations or modifications thereof by the SEC, SEC staff or other authority of competent jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff, or other authority of competent jurisdiction. |
| Funds Affected: | Current Policy: |
The Value Line Fund, Inc. Value Line Income and Growth Fund, Inc. Value Line Premier Growth Fund, Inc. Value Line Larger Companies Fund, Inc. Value Line Core Bond Fund | The Fund may not purchase securities of other investment companies or invest in real estate, mortgages or illiquid securities of real estate investment trusts although the Fund may purchase securities of issuers which engage in real estate operations. |
Value Line Centurion Fund, Inc. Value Line Strategic Asset Management Trust | The Fund may not invest in real estate, mortgages or illiquid securities of real estate investment trusts although the Fund may purchase securities of issuers which engage in real estate operations. |
Value Line Small Cap Opportunities Fund, Inc. Value Line Asset Allocation Fund, Inc. | 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. |
Proposal 4B : Remove the additional fundamental policy relating to real estate and commodities. |
Funds Affected: | Current Policy: |
The Value Line Fund, Inc. Value Line Income and Growth Fund, Inc. Value Line Larger Companies Fund, Inc. Value Line Strategic Asset Management Trust | The Fund may not purchase or sell any put or call options or any combination thereof, except that the Fund may write and sell covered call option contracts on securities owned by the Fund. The Fund may also purchase call options for the purpose of terminating its outstanding obligations with respect to securities upon which covered call option contracts have been written (i.e., “closing purchase transactions”). The Fund may also purchase and sell put and call options on stock index futures contracts. |
| Value Line Premier Growth Fund, Inc. | The Fund may not purchase or sell any put or call options or any combination thereof, except that the Fund may write and sell covered call option contracts on securities owned by the Fund. The Fund may also purchase call options for the purpose of terminating its outstanding obligations with respect to securities upon which covered call option contracts have been written (i.e., “closing purchase transactions”). |
Value Line Premier Growth Fund, Inc. Value Line Centurion Fund, Inc. | The Fund may not invest in commodities or commodity contracts. |
The Value Line Fund, Inc. Value Line Income and Growth Fund, Inc. Value Line Premier Growth Fund, Inc. Value Line Larger Companies Fund, Inc. | In addition, management of the Fund has adopted a policy that it will not recommend that the Fund purchase interest in oil, gas or other mineral type development programs or leases, although the Fund may invest in the securities of companies which operate, invest in or sponsor such programs. |
The Value Line Fund, Inc. Value Line Income and Growth Fund, Inc. Value Line Larger Companies Fund, Inc. Value Line Strategic Asset Management Trust | The Fund may not invest in commodities or commodity contracts except that the Fund may invest in stock index futures contracts and options on stock index futures contracts. |
| Value Line Centurion Fund, Inc. | The Fund may not write, purchase or sell any put or call options or any combination thereof. |
| Value Line Core Bond Fund | The Fund may not invest in commodities or commodity contracts except that the Fund may enter into interest rate futures contracts. The Fund may not purchase oil, gas or other mineral type development programs or leases, except that the Fund may invest in the securities of companies which invest in or sponsor such programs. The Fund may not purchase or sell any put or call options or any combination thereof, except that the Fund may (a) purchase, hold and sell options on contracts for the future delivery of debt securities and warrants where the grantor of the warrants is the issuer of the underlying securities, and (b) write and sell covered call option contracts on securities owned by the Fund. The Fund may also purchase call options for the purpose of terminating its outstanding obligations with respect to securities upon which covered call option contracts have been written (i.e., “closing purchase transactions”). The Fund may not enter into an interest rate futures contract if, as a result thereof, (i) the then current aggregate futures market prices of financial instruments required to be delivered under open futures contract sales plus the then current aggregate purchase prices of financial instruments required to be purchased under open futures contract purchases would exceed 30% of the Fund’s total assets (taken at market value at the time of entering into the contract) or (ii) more than 5% of the Fund’s total assets (taken at market value at the time of entering into the contract) would be committed to margin on such futures contracts plus premiums on options on futures contracts. |
Value Line Small Cap Opportunities Fund, Inc. Value Line Asset Allocation Fund, Inc. | 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. |
The 1940 Act requires all mutual funds to have fundamental policies governing their investments in commodities and real estate. The 1940 Act permits investments in physical and financial commodities and real estate, as well as companies investing in such commodities and real estate (subject to the fund remaining an investment company). SEC staff interpretations limit a mutual fund’s ability to invest in illiquid securities, which typically include real estate and many physical commodities, to no more than 15% of a fund’s net assets. With respect to financial commodities, the SEC staff takes the position that a fund’s use of options, futures and forward contracts may constitute the issuance of senior securities if the fund does not segregate cash or liquid securities in an equivalent amount or hold an offsetting commitment from another party. In these circumstances, the fund would be subject to limitations imposed under the 1940 Act regarding the issuance of senior securities as well as commodities. (See Proposal 5 below.)
Currently, all the Funds have complex fundamental and non-fundamental policies that limit or prohibit their investment in different physical and financial commodities and real estate . Many of these policies include a prohibition on the Fund investing in securities issued by other investment companies . These fundamental policies provide greater detail and more restrictions than required by the 1940 Act for commodities or real estate. With respect to the Funds’ investments in financial commodities that may qualify as senior securities, the fundamental policies are also more detailed and restrictive than required for senior securities. Regarding the prohibition on investing in securities issued by other investment companies , a fund is not required to have a fundamental policy regarding such investments. Rather, the 1940 Act imposes limits on a fund’s ability to invest in other investment companies. Certain Funds have multiple policies with respect to these items because their policy with respect to real estate and mineral type development programs is separate from the policy relating to commodities. Since there are multiple existing fundamental policies involved, separate shareholder votes are required. Accordingly, shareholders of each Fund are being asked to change one policy to the new fundamental policy (Proposal 4A ), and to eliminate the additional policies (Proposal 4B ).
The Proposed Policy will permit the Funds to invest in real estate (directly or indirectly), as well as physical and financial commodities, to the fullest extent permitted by the 1940 Act and related interpretations, as in effect from time to time. The Proposed Policy will be interpreted to not limit a Fund’s ability to invest in commodities or in commodity-related instruments, including futures contracts on interest rates, stock indices and currencies, and options thereon, as well as forward currency transactions and options on currencies. The revised policy would also preserve a Fund’s flexibility to invest in real estate, as well as real estate-related companies and companies whose business consists in whole or in part of investing in real estate. The Proposed Policy will not limit investment in exchange-traded funds that invest in physical or financial commodities. The Adviser currently intends to invest, from time to time, a portion of a Fund’s assets in other investment companies if that Fund’s shareholders approve Proposal 4A. Any such investments would not be a principal investment strategy for the Fund and would comply with the Funds.1940 Act’s limits on such investments. For example, the Adviser may invest a portion of such Fund’s assets in ETFs to quickly gain exposure to a broad index of securities in lieu of investing directly in stocks, and Funds that lend portfolio securities may invest cash collateral received from those lending arrangements in other investment companies to seek to generate income in excess of that available on other investments. Currently, the Funds re-invest such collateral in more conservative repurchase agreements, and re-investing the collateral in other investment companies could increase the risk that collateral will lose value. Investing in other investment companies also poses certain inherent risks associated with “pyramiding,” such as layering of fees that reduce a Fund’s total return. Such risks are mitigated in part by the 1940 Act’s limitations on a fund’s ability to invest in securities issued by other investment companies, which will continue to apply. Also, such a change to the manner in which a Fund is operated will only be implemented when a Fund’s prospectus and statement of additional information, as appropriate, adequately disclose the strategy and any additional risks.
The restructured Adviser provideshas advised the Board that the proposed revisions to the fundamental policy on real estate and commodities are not expected to materially affect the manner in which any Fund’s investment advisory servicesprogram is being conducted at this time, as reflected in any Fund’s current prospectus and statement of additional information. Before a material change is made in a Fund’s investment strategies in response to this revised policy, the Board will be consulted and the Fund’s prospectus or statement of additional information will be revised to disclose the change, the purpose of the changed strategy and, as applicable, any additional risks.
The Board recommends that you vote “FOR” these Proposals.
Proposal 5 : Revise the fundamental policy relating to senior securities. |
Proposed Policy: The Fund may not issue senior securities except as permitted by (i) the 1940 Act and the rules and regulations thereunder, or other successor law governing the regulation of registered investment companies, or interpretations or modifications thereof by the SEC, SEC staff or other authority of competent jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff, or other authority of competent jurisdiction. |
| Funds Affected: | Current Policy: |
The Value Line Fund, Inc. Value Line Income and Growth Fund, Inc. Value Line Premier Growth Fund, Inc. Value Line Centurion Fund, Inc. Value Line Core Bond Fund Value Line Strategic Asset Management Trust | The Fund may not issue senior securities except evidences of indebtedness permitted under [the Fund’s fundamental policy regarding borrowing]. |
| Value Line Larger Companies Fund, Inc. | The Fund may not issue senior securities except evidences of indebtedness [as permitted under the Fund’s fundamental policy regarding borrowing]. |
Value Line Small Cap Opportunities Fund, Inc. Value Line Asset Allocation Fund, Inc. | The Fund may not issue senior securities. |
The 1940 Act requires mutual funds to have a fundamental policy concerning the issuance of senior securities. A senior security is an obligation of a fund that has priority over the fund’s shareholders with respect to the payment of earnings or assets. The 1940 Act prohibits an open-end fund from issuing senior securities (except for borrowings, as described in Proposal 1 ). However, SEC staff interpretations allow mutual funds under certain conditions to engage in a number of types of trading practices and investments that might otherwise be considered senior securities, including repurchase and reverse repurchase agreements, dollar rolls, when-issued and delayed-delivery transactions, short sales, options, futures and forward contracts. These staff interpretations generally provide that such transactions will not be considered senior securities under the 1940 Act if the fund segregates cash or liquid securities in an equivalent amount or holds an offsetting commitment from another party.
Currently, most of the Funds are not permitted to issue senior securities except to the extent that borrowings or certain delineated investment practices (such as purchasing securities on a delayed-delivery basis or investing in reverse repurchase agreements) may be considered an issuance of senior securities. Some Funds’ fundamental policy regarding senior securities also restricts the purposes for which, the parties from which, and the amounts that the Fund may borrow without being deemed to be issuing senior securities. The policies may also limit a Fund’s ability to invest while borrowings remain outstanding or require the Fund to segregate assets for investment in when-issued securities.
The Proposed Policy will permit the Funds to issue senior securities to the fullest extent permitted by the 1940 Act and related interpretations, as in effect from time to time, and will not refer to particular investment practices. The Proposed Policy will be interpreted not to prevent collateral arrangements with respect to swaps, options, forward or futures contracts or other clientsderivatives, or the posting of initial or variation margin.
The Adviser has advised the Board that the proposed revisions to the fundamental policy on senior securities are not expected to materially affect the manner in which any Fund’s investment program is being conducted at this time, as reflected in the Fund’s current prospectus and statement of additional information. Before a material change is made in any Fund’s investment strategies in response to this revised policy, the Board will be consulted and the Fund’s prospectus or statement of additional information will be revised to disclose the change, the purpose of the changed strategy and, as applicable, any additional risks.
The Board recommends that you vote “FOR” this Proposal.
Proposal 6 : Revise the fundamental policy relating to underwriting. |
Proposed Policy: The Fund may not underwrite the securities of other issuers except as permitted by (i) the 1940 Act and the rules and regulations thereunder, or other successor law governing the regulation of registered investment companies, or interpretations or modifications thereof by the SEC, SEC staff or other authority of competent jurisdiction, or (ii) exemptive or other relief or permission from the SEC, SEC staff, or other authority of competent jurisdiction. |
| Funds Affected: | Current Policy: |
The Value Line Fund, Inc. Value Line Income and Growth Fund, Inc. Value Line Premier Growth Fund, Inc. Value Line Centurion Fund, Inc. Value Line Core Bond Fund Value Line Strategic Asset Management Trust Value Line Small Cap Opportunities Fund, Inc. Value Line Asset Allocation Fund, Inc. | 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 in selling portfolio securities. |
| Value Line Larger Companies Fund, Inc. | The Fund may not engage in the underwriting of securities. |
The 1940 Act requires all mutual funds to have a fundamental policy about underwriting the securities of other issuers. Under the 1940 Act, a mutual fund is generally considered to be an underwriter if it participates in the public distribution of securities of other issuers by purchasing such securities with the intention of reselling them to others. The 1940 Act permits a mutual fund to have underwriting commitments of up to 25% of its assets under certain circumstances. Currently, those circumstances exist when the amount of the fund’s underwriting commitments, plus the value of the fund’s investments in issuers in which the fund owns more than 10% of the outstanding voting securities, does not exceed 25% of the fund’s assets.
All of the Funds have fundamental policies that prohibit them from underwriting securities entirely. In most cases, the fundamental policy states that the prohibition on underwriting does not apply to the Fund’s sale of restricted portfolio securities to the extent such activity may havebe deemed as underwriting. This is consistent with SEC staff interpretations that a mutual fund’s resale of privately placed securities does not necessarily make the fund an underwriter, notwithstanding the technical definition thereof in federal securities laws.
The Proposed Policy relating to underwriting will permit the Funds to engage in underwriting to the fullest extent permitted by the 1940 Act and related interpretations. This may give a Fund greater flexibility to respond to future investment opportunities, subject to its investment objectives and policies similarstrategies.
The Adviser has advised each Fund’s Board that the proposed revisions to thosethe fundamental policy on underwriting are not expected to materially affect the manner in which the Fund’s investment program is being conducted at this time, as reflected in the Fund’s current prospectus and statement of additional information. Before a material change is made in a Fund’s investment strategies in response to this revised policy, the Fund’s Board will be consulted and the Fund’s prospectus or statement of additional information will be revised to disclose the change, the purpose of the Funds. changed strategy and, as applicable, any additional risks.
The restructured AdviserBoard recommends that you vote “FOR” this Proposal.
Proposal 7 : Reclassify the Fund’s investment objective as non-fundamental. |
Funds Affected: | Current Policy: |
The Value Line Fund, Inc. | The primary investment objective of the Fund is long-term growth of capital. Current income is a secondary objective. |
Value Line Income and Growth Fund, Inc. | The primary investment objective of the Fund is income, as high and dependable as is consistent with reasonable risk. Capital growth to increase total return is a secondary objective. |
| Value Line Larger Companies Fund, Inc. | The sole investment objective of the Fund is to realize capital growth. |
| Value Line Centurion Fund, Inc. | The primary investment objective of the Fund is long-term growth of capital. |
| Value Line Core Bond Fund | The primary investment objective of the Fund is to maximize current income. Capital appreciation is a secondary objective but only when consistent with the Fund’s primary objective. |
| Value Line Strategic Asset Management Trust | The primary investment objective of the Trust is to achieve a high total investment return consistent with reasonable risk. |
| Value Line Small Cap Opportunities Fund, Inc. | The primary investment objective of the Value Line Small Cap Opportunities Fund is to achieve a high total investment return consistent with reasonable risk. |
| Value Line Asset Allocation Fund, Inc. | The investment objective of the Value Line Asset Allocation Fund is long-term growth of capital. |
The 1940 Act does not require a mutual fund’s investment objective to be fundamental. If a fund’s investment objective is non-fundamental, the fund’s prospectus must disclose that it may be changed by the Fund’s Board without obtaining shareholder approval. If a Fund is able to change its investment objective without shareholder approval, the Fund will have flexibility to respond to changing conditions in a manner that the Board deems to be in the best interests of Fund shareholders without the expense and delay of seeking further shareholder approval.
If shareholders of a Fund approve this Proposal, the Fund would continue to be managed subject to the same investment strategies and policies expressed in each Fund’s current prospectus as well as the limitations imposed by the 1940 Act and the rules and interpretive guidance provided thereunder. However, in the future, the Fund’s investment objective may be changed without shareholder approval if the Fund’s Board believes that doing so is in the best interests of shareholders.
The Adviser has informed the Board that reclassifying a Fund’s investment objective as non-fundamental will not affect the manner in which the Fund’s investment program is being conducted at this time, as reflected in the Fund’s current prospectus and statement of additional information. Before a material change is made in a Fund’s investment program in response to this Proposal, the Fund’s Board will be consulted and the Fund’s prospectus or statement of additional information will be revised to disclose the change in investment objective, the purpose of the change and, as applicable, any additional risks.
The Board recommends that you vote “FOR” this Proposal.
Proposals 8 – 15
In addition to the policies required by the 1940 Act to be fundamental, all of the Funds are subject to certain additional, fundamental policies (the “Additional Restrictions”) that are not required by the 1940 Act or other applicable law. For example, many of the Funds have fundamental policies that are merely restatements of limitations set forth in the 1940 Act, and thus are applicable to the Funds regardless of whether such policies are stated as fundamental investment policies. Other fundamental investment policies are more restrictive than SEC staff interpretations or are not required. As explained above, many of these additional policies were adopted to satisfy state regulatory requirements that were preempted in 1996 by NSMIA and are no longer applicable.
The Additional Restrictions consist of all of a Fund’s fundamental investment policies other than those addressed in Proposals 1 through 7 . The Adviser has recommended, and the Board has determined, that the Additional Restrictions covered in Proposals 8 through 15 should be eliminated and that their elimination is consistent with federal securities laws. By reducing the total number of investment policies that can be changed only by a shareholder vote, the Board believes that the Fund will be able to reduce the costs and delays associated with holding future shareholder meetings for the purpose of revising fundamental investment policies that become outdated or inappropriate. Elimination of the Additional Restrictions would also enable the Fund to be managed in accordance with the then-current requirements of the 1940 Act without being constrained by additional and unnecessary limitations. The Board believes that the elimination of the Additional Restrictions is in the best interest of each Fund’s shareholders, as it will provide the Fund with increased flexibility to pursue its investment advisory servicesobjectives and will enhance the Adviser’s ability to manage the Fund’s assets in a changing investment environment.
The Board recommends that you vote “FOR” each of Proposals 8 through 15 for the reasons described above and below ; however, if you want to vote to maintain one or more of the Additional Restrictions, you may vote “AGAINST” any of the Proposals 8 through 15 for your Fund. The Additional Restrictions include, among others, those relating to: (1) diversification; (2) investing in issuers that are “unseasoned” or owned by the Fund’s affiliates; (3) investing in a company for the purpose of exercising control; (4) selling securities short and purchasing securities on margin; (5) joint or joint-and-several trading; and ( 6 ) purchasing warrants. A brief description of the more common Additional Restrictions follows.
At present, all the Funds have Additional Restrictions concerning short sales and purchases on margin. The 1940 Act does not require a fund to have a fundamental policy concerning such investments. However, they are often covered by a fund’s other fundamental policies. For example, to the extent that short sales and purchases on margin are considered “issuing senior securities,” they are governed by a fund’s fundamental policy on senior securities. SEC staff interpretations provide that purchasing securities on margin constitutes the issuance of a senior security, whereas making margin payments in connection with the purchase and sale of futures contracts or options on futures contracts do not, provided the asset segregation requirements are satisfied. With respect to short selling, the staff has taken the position that short sales may constitute the issuance of a senior security if the Fund does not own the security or have an offsetting commitment to obtain it (such as an option or convertible security). If a Fund’s shareholders approve this Proposal, the Fund will be permitted to purchase securities on margin and engage in short sales subject to the Fund’s other investment policies and the limitations of the 1940 Act and applicable interpretations.
Currently, all of the Funds indicate that they are diversified, either by expressly stating they are diversified or having a fundamental policy that tracks the current statutory requirements. All of the Funds also have fundamental policies that either (1) define diversification or (2) impose more stringent restrictions on investment in any given issuer (e.g., 5% of the Fund’s assets or 10% of the issuer’s voting securities). The 1940 Act requires every mutual fund to state whether it is diversified or non-diversified, and requires any change from diversified to non-diversified status to be approved in advance by fund shareholders. However, the 1940 Act does not require a fund to label as “fundamental” its diversified status or the definition of diversification. If a fund labels its diversification policy or definition of diversification as fundamental, and the statutory requirements or interpretations are subsequently relaxed, the fund will be unable to participate in the liberalized rules without shareholder approval. Approving this Proposal would allow a Fund to so participate, but will not change its status from diversified to non-diversified. No vote is being sought to reclassify any Fund’s diversification classification.
Most of the Funds have Additional Restrictions that prohibit the Fund from purchasing securities of issuers that are “unseasoned,” or beneficially owned by officers or directors of the Fund or the Adviser (in excess of a specified threshold). Most of the Funds also have an Additional Restriction that prohibits the Fund from investing in companies for the purpose of exercising control. Such policies were originally adopted by mutual funds to address state requirements in connection with the registration of shares of the fund for sale in a particular state. These state restrictions can be difficult to administer and limit the operation of a fund’s portfolio. As a result of NSMIA, such restrictions are no longer applicable. Finally, most of the Funds have Additional Restrictions that limit their ability to invest in warrants, or that specify how to measure percentage restrictions on investments or apply the rankings from the Value Line rankings systems in the investment process. These Additional Restrictions are either unnecessary or a restatement of current requirements and interpretations under the 1940 Act.
The Adviser has informed the Board that eliminating the Additional Restrictions is not expected to materially affect the manner in which any Fund’s investment program is being conducted at this time, as reflected in the Fund’s current prospectus and statement of additional information. If any of Proposals 8 through 15 are approved, each Fund will continue to be subject to the limitations of the 1940 Act, and any rule, SEC staff interpretation, and exemptive orders granted under the 1940 Act. The Board will be consulted and the Fund’s prospectus or statement of additional information will be revised before any other material change is made in a Fund’s investment funds.strategies in response to the elimination of these Additional Restrictions.
The Board recommends that you vote “FOR” each of the Proposals 8 through 15.
Proposal 8: Remove the fundamental policy relating to margin and short sales. |
| Funds Affected: | Current Policy: |
The Value Line Fund, Inc. Value Line Income and Growth Fund, Inc. Value Line Larger Companies Fund, Inc. Value Line Strategic Asset Management Trust | The Fund may not engage in arbitrage transactions, short sales, purchases on margin or participate on a joint or joint-and-several basis in any trading account in securities except that these prohibitions will not apply to futures contracts or options on futures contracts entered into by the Fund for permissible purposes or to margin payments made in connection with such contracts. |
Value Line Asset Allocation Fund, Inc. Value Line Small Cap Opportunities Fund, Inc. | 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 variable margin in connection with financial futures contracts or related options transactions. |
Value Line Premier Growth Fund, Inc. Value Line Centurion Fund, Inc. | The Fund may not engage in arbitrage transactions, short sales, purchases on margin or participate on a joint or joint-and-several basis in any trading account in securities. |
| Value Line Core Bond Fund | The Fund may not engage in short sales, except to the extent that it owns other securities convertible into or exchangeable for an equivalent amount of such securities. Such transactions may only occur for the purpose of protecting a profit or in attempting to minimize a loss with respect to convertible securities. No more than 10% of the value of the Fund’s net assets taken at market may at any one time be held as collateral for such sales. |
| Value Line Core Bond Fund | The Fund may not purchase securities on margin except that it may make margin deposits in connection with interest rate futures contracts subject to [the interest rate futures restriction] or participate on a joint or a joint-and-several basis in any trading account in securities. |
Please see pages 22-24 for a description of the rationale for this Proposal.
The Adviser has advised each Fund’s Board that the elimination of the fundamental policy on margin and short sales is not expected to materially affect the manner in which the Fund’s investment program is being conducted at this time, as reflected in the Fund’s current prospectus and statement of additional information. If this Proposal 8 is approved, each Fund will continue to be subject to the limitations of the 1940 Act, and any rule, SEC staff interpretation, and exemptive orders granted under the 1940 Act. Before a material change is made in a Fund’s investment strategies in response to this revised policy, the Fund’s Board will be consulted and the Fund’s prospectus or statement of additional information will be revised to disclose the change, the purpose of the changed strategy and, as applicable, any additional risks.
The Board recommends that you vote “FOR” this Proposal.
Proposal 9: Remove the fundamental policy relating to diversification of investments. |
| Funds Affected: | Current Policy: |
The Value Line Fund, Inc. Value Line Income and Growth Fund, Inc. Value Line Larger Companies Fund, Inc. Value Line Premier Growth Fund, Inc. Value Line Core Bond Fund Value Line Asset Allocation Fund, Inc. Value Line Small Cap Opportunities Fund, Inc. | The Fund may not invest more than 5% of its total assets in the securities of any one issuer or purchase more than 10% of the outstanding voting securities, or any other class of securities, of any one issuer. For purposes of this restriction, all outstanding debt securities of an issuer are considered as one class, and all preferred stock of an issuer is considered as one class. This restriction does not apply to obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities. |
Value Line Strategic Asset Management Trust Value Line Centurion Fund, Inc. | With respect to securities comprising 75% of the value of its total assets, the Fund will not purchase securities of any one issuer (other than cash, cash items, securities issued or guaranteed by the government of the United States or its agencies or instrumentalities and repurchase agreements collateralized by such U.S. government securities, and securities of other investment companies) if, as a result, more than 5% of the value of its total assets would be invested in securities of that issuer, or the Fund would own more than 10% of the outstanding voting securities of that issuer. |
Please see pages 22-24 for a description of the rationale for this Proposal.
The Adviser has advised each Fund’s Board that the elimination of the fundamental policy on diversification of investments is not expected to materially affect the manner in which the Fund’s investment program is being conducted at this time, as reflected in the Fund’s current prospectus and statement of additional information. If this Proposal 9 is approved, each Fund will continue to be subject to the limitations of the 1940 Act, and any rule, SEC staff interpretation, and exemptive orders granted under the 1940 Act. Before a material change is made in a Fund’s investment strategies in response to this revised policy, the Fund’s Board will be consulted and the Fund’s prospectus or statement of additional information will be revised to disclose the change, the purpose of the changed strategy and, as applicable, any additional risks.
The Board recommends that you vote “FOR” this Proposal.
Proposal 10: Remove the fundamental policy relating to investments in unseasoned issuers. |
| Funds Affected: | Current Policy: |
The Value Line Fund, Inc. Value Line Income and Growth Fund, Inc. Value Line Larger Companies Fund, Inc. Value Line Premier Growth Fund, Inc. Value Line Core Bond Fund Value Line Asset Allocation Fund, Inc. Value Line Small Cap Opportunities Fund, Inc. | The Fund may not invest more than 5% of its total assets in securities of issuers having a record, together with their 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. |
Please see pages 22-24 for a description of the rationale for this Proposal.
The Adviser has advised each Fund’s Board that the elimination of the fundamental policy on investing in unseasoned issuers is not expected to materially affect the manner in which the Fund’s investment program is being conducted at this time, as reflected in the Fund’s current prospectus and statement of additional information. If this Proposal 10 is approved, each Fund will continue to be subject to the limitations of the 1940 Act, and any rule, SEC staff interpretation, and exemptive orders granted under the 1940 Act. Before a material change is made in a Fund’s investment strategies in response to this revised policy, the Fund’s Board will be consulted and the Fund’s prospectus or statement of additional information will be revised to disclose the change, the purpose of the changed strategy and, as applicable, any additional risks.
The Board recommends that you vote “FOR” this Proposal.
Proposal 11: Remove the fundamental policy on investments in issuers owned by the Fund’s trustees or officers. |
| Funds Affected: | Current Policy: |
The Value Line Fund, Inc. Value Line Income and Growth Fund, Inc. Value Line Larger Companies Fund, Inc. Value Line Premier Growth Fund, Inc. Value Line Core Bond Fund Value Line Asset Allocation Fund, Inc. Value Line Small Cap Opportunities Fund, Inc. | 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. |
Please see pages 22-24 for a description of the rationale for this Proposal.
The Adviser has advised each Fund’s Board that the elimination of the fundamental policy on investments in issuers whose shares are owned by the Fund’s trustees or officers is not expected to materially affect the manner in which the Fund’s investment program is being conducted at this time, as reflected in the Fund’s current prospectus and statement of additional information. If this Proposal 11 is approved, each Fund will continue to be subject to the limitations of the 1940 Act, and any rule, SEC staff interpretation, and exemptive orders granted under the 1940 Act. Before a material change is made in a Fund’s investment strategies in response to this revised policy, the Fund’s Board will be consulted and the Fund’s prospectus or statement of additional information will be revised to disclose the change, the purpose of the changed strategy and, as applicable, any additional risks.
The Board recommends that you vote “FOR” this Proposal.
Proposal 12: Remove the fundamental policy relating to purchasing securities for the purpose of exercising control. |
| Funds Affected: | Current Policy: |
The Value Line Fund, Inc. Value Line Income and Growth Fund, Inc. Value Line Larger Companies Fund, Inc. Value Line Premier Growth Fund, Inc. Value Line Core Bond Fund Value Line Asset Allocation Fund, Inc. Value Line Small Cap Opportunities Fund, Inc. | The Fund may not purchase securities for the purpose of exercising control over another company. |
Please see pages 22-24 for a description of the rationale for this Proposal.
The Adviser has advised each Fund’s Board that the elimination of the fundamental policy on not purchasing securities for the purpose of exercising control over another company is not expected to materially affect the manner in which the Fund’s investment program is being conducted at this time, as reflected in the Fund’s current prospectus and statement of additional information. If this Proposal 12 is approved, each Fund will continue to be subject to the limitations of the 1940 Act, and any rule, SEC staff interpretation, and exemptive orders granted under the 1940 Act. Before a material change is made in a Fund’s investment strategies in response to this revised policy, the Fund’s Board will be consulted and the Fund’s prospectus or statement of additional information will be revised to disclose the change, the purpose of the changed strategy and, as applicable, any additional risks.
The Board recommends that you vote “FOR” this Proposal.
| Proposal 13: Remove the fundamental policy relating to warrants. |
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| Funds Affected: | Current Policy: |
The Value Line Fund, Inc. Value Line Income and Growth Fund, Inc. Value Line Larger Companies Fund, Inc. Value Line Premier Growth Fund, Inc. Value Line Core Bond Fund Value Line Asset Allocation Fund, Inc. Value Line Small Cap Opportunities Fund, Inc. | 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. |
Please see pages 22-24 for a description of the rationale for this Proposal.
The Adviser has advised each Fund’s Board that the elimination of the fundamental policy on warrants is not expected to materially affect the manner in which the Fund’s investment program is being conducted at this time, as reflected in the Fund’s current prospectus and statement of additional information. If this Proposal 13 is approved, each Fund will continue to be subject to the limitations of the 1940 Act, and any rule, SEC staff interpretation, and exemptive orders granted under the 1940 Act. Before a material change is made in a Fund’s investment strategies in response to this revised policy, the Fund’s Board will be consulted and the Fund’s prospectus or statement of additional information will be revised to disclose the change, the purpose of the changed strategy and, as applicable, any additional risks.
The Board recommends that you vote “FOR” this Proposal.
Proposal 14: Remove the fundamental policy relating to measurement of percentage restrictions on investments. |
| Funds Affected: | Current Policy: |
The Value Line Fund, Inc. Value Line Income and Growth Fund, Inc. Value Line Premier Growth Fund, Inc. Value Line Strategic Asset Management Trust Value Line Centurion Fund, Inc. | If a percentage restriction used in this Statement of Additional Information or the Prospectus 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 except for [the borrowing restriction] and the restriction on illiquid securities. |
Value Line Larger Companies Fund, Inc. | If a percentage restriction used in this Statement of Additional Information or the Prospectus 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. |
| Value Line Core Bond Fund | If a percentage restriction used in this Statement of Additional Information or the Prospectus 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 (other than investment in illiquid securities and the limitation on borrowing). |
Value Line Asset Allocation Fund, Inc. Value Line Small Cap Opportunities Fund, Inc. | If a percentage restriction used in this Statement of Additional Information or the Prospectus 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 except for [the borrowing restriction] and the restriction on illiquid securities, in which case the Fund will take prompt action to reduce borrowings or dispose of illiquid securities. |
Please see pages 22-24 for a description of the rationale for this Proposal.
The Adviser has advised each Fund’s Board that the elimination of the fundamental policy on use of investment restrictions is not expected to materially affect the manner in which the Fund’s investment program is being conducted at this time, as reflected in the Fund’s current prospectus and statement of additional information. If this Proposal 14 is approved, each Fund will continue to be subject to the limitations of the 1940 Act, and any rule, SEC staff interpretation, and exemptive orders granted under the 1940 Act. Before a material change is made in a Fund’s investment strategies in response to this revised policy, the Fund’s Board will be consulted and the Fund’s prospectus or statement of additional information will be revised to disclose the change, the purpose of the changed strategy and, as applicable, any additional risks.
The Board recommends that you vote “FOR” this Proposal.
Proposal 15: Remove the fundamental policy relating to the use of Value Line ranking systems. |
| Funds Affected: | Current Policy: |
The Value Line Fund, Inc. Value Line Income and Growth Fund, Inc. Value Line Larger Companies Fund, Inc. Value Line Asset Allocation Fund, Inc. | Reliance upon the Ranking System, whenever feasible, is a fundamental policy of the Fund which may not be changed without shareholder approval. |
| Value Line Centurion Fund, Inc. | In addition, it is a fundamental policy of the Fund to rely, whenever feasible, on the Value Line Timeliness™ Ranking System. |
| Value Line Strategic Asset Management Trust | In addition, it is a fundamental policy of the Trust to rely, whenever feasible, on the Value Line Timeliness™ Ranking System and the Value Line Performance™ Ranking System. |
Please see pages 22-24 for a description of the rationale for this Proposal.
The Adviser has advised each Fund’s Board that the elimination of the fundamental policy on the use of ranking systems is not expected to materially affect the manner in which the Fund’s investment program is being conducted at this time, as reflected in the Fund’s current prospectus and statement of additional information. If this Proposal 15 is approved, each Fund will continue to be subject to the limitations of the 1940 Act, and any rule, SEC staff interpretation, and exemptive orders granted under the 1940 Act. Before a material change is made in a Fund’s investment strategies in response to this revised policy, the Fund’s Board will be consulted and the Fund’s prospectus or statement of additional information will be revised to disclose the change, the purpose of the changed strategy and, as applicable, any additional risks.
The Board recommends that you vote “FOR” this Proposal.
THE BOARD UNANIMOUSLY RECOMMENDS
THAT YOU APPROVE EACH PROPOSAL DESCRIBED ABOVE
OTHER INFORMATION
Trustees and Executive Officers
The Trustees of each Fund are Mitchell E. Appel, Joyce E. Heinzerling, Francis C. Oakley, David H. Porter, Paul Craig Roberts, Nancy-Beth Sheerr, and Daniel S. Vandivort. The executive officers are Mitchel E. Appel, Michael J. Wagner and Emily D. Washington.
Other Service Providers.
As of July 31, 2010, the shareholders identified in Appendix I were known by the Funds to own, beneficially or of record, more than 5% of any class of outstanding shares of a Fund
Investment Adviser.
The Adviser serves as the investment adviser to each Fund. The principal business address of the Adviser is 220 East 42nd Street, New York, NY 10017. The Adviser is currently a wholly-owned subsidiary of VLI, a New York company also located at 220 East 42nd Street, New York, NY 10017, which in turn is a subsidiary of Arnold Bernhard & Co., Inc., a New York corporation controlled by Jean Bernhard Buttner. VLI has stated that, after giving effect to the Restructuring, Mrs. Buttner will no longer directly or indirectly control the restructured Adviser or the Distributor or own any of their voting securities. As of July 31, 2010, the Adviser provided investment advisory services for approximately $2.1 billion of assets. The name and principal occupation of directors and principal executive officers of the Adviser are provided in Appendix J attached to this Proxy Statement.
Other Service Providers.
Principal Underwriter. EULAV Securities Inc.LLC is the principal underwriter of the Funds. EULAV Securities Inc.’sLLC’s principal business address is 220 East 427 Times Square, 21nd stStreet, Floor, New York, NY 10017.New York 10036-6524.
Administrator. State Street Bank and Trust Company (“State Street”) provides certain bookkeeping, accounting and administrative services for the Funds. State Street, whose address is 225 Franklin Street, Boston, MAMassachusetts 02110, also acts as the Funds’ custodian, transfer agent and dividend-paying agent. As custodian, State S treetStreet is responsible for safeguarding the Funds’ cash and securities, handling the receipt and delivery of securities and collecting interest and dividends on the Funds’ 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. Boston Financial Data Services, Inc., a State Street affiliate, whose address is 330 West 9thStreet, Kansas City, MOMissouri 64105 (the “Proxy Solicitation Firm”), provides certain transfer agency functions to the Funds as an agent for State Street.
Independent Registered Public Accountants. PricewaterhouseCoopers LLP (“PWC”), 300 Madison Avenue, New York, NY 10017, serves asShareholder Approval.
As required by the independent registered public accounting firm1940 Act, to become effective with respect to a particular Fund, each Proposal must be approved by (a) the vote of 67% of the Fund’s shares present at the Meeting if more than 50% of the outstanding shares of that Fund are present, or (b) the vote of more than 50% of the outstanding shares of that Fund, whichever is less.
A quorum of shareholders of your Fund is necessary to hold a valid Meeting. A quorum will exist at the Meeting if a majority of the shares of your Fund who are entitled to vote on the Record Date are present in person or by proxy. In the event that a quorum is not present, or if a quorum is present but sufficient votes to approve a Proposal are not received, the duly appointed proxies may propose one or more adjournments of the Meeting to permit further solicitation of proxies with respect to a Proposal. In case any such adjournment is proposed, the proxies will vote for each Fund. Representativesthose proxies which they are entitled to vote for a Proposal in favor of PWCadjournment, and will notvote those proxies required to be voted against a Proposal against adjournment. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at either Meeting.the meeting originally called. A shareholder vote may be taken on one or more Proposals prior to such adjournment if sufficient votes for a Proposal’s approval have been received and it is otherwise appropriate. Any such vote will be final regardless of whether such Meeting is adjourned with respect to any other Proposal. A Meeting may be held for any Fund for which a quorum is present irrespective of whether a quorum is achieved for other Funds.
The Funds’ Audit Committee has established certain pre-approval policies and procedures relating to the engagement of the Funds’ independent registered public accountants to provide non-audit services to the Funds or to the Funds’ investment adviser, or the Funds’ investment adviser’s affiliates, that provides ongoing services to the Funds if the engagement relat es directly to the operations and financial reporting of the Funds (the “Non-Audit Services Pre-Approval Policies”).
Independence of PWC . The Audit Committee has considered whether the provision of non-audit services rendered to the Funds’ investment adviser and any Adviser Affiliate that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, if any, are compatible with maintaining PWC ’s independence, and has determined that the provision of these services does not compromise PWC ’s independence.
Disclosure of Fees. Appendix K sets forth for each Fund’s two most recent fiscal years, the fees billed by PWC for all audit and non-audit services provided directly to the Fund and adviser affiliates. The fee information in Appendix K is presented under the following captions:| | |
| (a) Audit Fees—fees related to the audit and review of the financial statements included in annual reports and registration statements, and other services that are normally provided in connection with statutory and regulatory filings or engagements, including out-of-pocket expenses. |
| (b) Audit-Related Fees—fees related to assurance and related services that are reasonably related to the performance of the audit or review of financial statements, but not reported under “Audit Fees,” including accounting consultations, agreed-upon procedure reports, attestation reports, comfort letters, out-of-pocket expenses and internal control reviews not required by regulators. |
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| (c) Tax Fees—fees associated with tax compliance, tax advice and tax planning, including services relating to the filing or amendment of federal, state or local income tax returns, regulated investment company qualification reviews, tax distribution and analysis reviews and miscellaneous tax advice. |
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| (d) All Other Fees—fees for products and services provided to the Fund and adviser affiliates other than those reported under “Audit Fees,” “Audit-Related Fees” and “Tax Fees.” |
Other Business at the Meetings .
No other matter may come before either Meeting other than as stated in this Proxy Statement. In connection with any proposal to adjourn a Meeting to permit the continued solicitation of proxies in favor of the Election of Directors Proposal or the Investment Advisory Proposal (as applicable) , proxies that do not contain specific restrictions to the contrary will be voted on such matters in a ccordance with the judgment of the persons named as proxies in the enclosed Proxy Cards.
If you do not plan to attend the Meetings in person, please complete, sign, date,Abstentions and return the enclosed Proxy Cards or cast your vote by touchtone phone or via the Internet promptly. Even if you do plan to attend a Meeting, please so note where provided and return the Proxy Cards promptly.
Future Shareholder Proposals.
Pursuant to rules adopted by the SEC under the 1934 Act, shareholders may request for inclusion in the Board’s proxy statement for future shareholder meetings certain proposals for actions which they intend to introduce at such meeting. Any shareholder proposals must be presented a reasonable time before the proxy materials for the next meeting are sent to shareholders. The submission o f a proposal does not guarantee its inclusion in the Funds’ proxy statement and is subject to limitations under the 1934 Act. Because the Funds do not hold regular meetings of shareholders, no anticipated date of the next meeting can be provided.
Voting of Proxies.
Shares represented by properly given proxies and received by the Secretary of the Funds prior to a Meeting, unless revoked before or at such Meeting, will be voted according to the shareholder’s instructions. If you sign a proxy but do not fill in a vote, your shares will be voted in favor of each of the Nominees for Director and in favor of each of the other Proposals. If any other bus iness properly comes before such Meeting, your shares will be voted at the discretion of the persons named as proxies on the enclosed Proxy Cards .
A proxy with respect to shares held in the name of two or more persons will be valid if executed by one of them, unless at or prior to the exercise of such proxy, the Funds receive specific written notice to the contrary from one of such persons.
A proxy purporting to be exercised by or on behalf of a shareholder will be valid unless challenged at or prior to its exercise. The burden of proving the invalidity of the proxy will rest with the person seeking to challenge it.
Revocation of Proxies; Counting of Votes.
Any shareholder giving a proxy may revoke it at any time before it is exercised by: (i) submitting to the Funds a written notice of revocation; (ii) submitting to the Funds a subsequently dated and executed proxy; (iii) attending the Meeting to which the proxy relates and voting in person; or (iv) notifying the Funds of the revocation by calling the toll-free number on the Proxy Cards. Proxie s voted by telephone or through the Internet may be revoked at any time before they are voted in the same manner that proxies voted by mail may be revoked.
At Meeting #1, “broker non-votes” (i.e., proxies from brokers or nominees indicating that such persons have not received instructions from the beneficial owners or other persons entitled to vote shares as to a particular matter with respect to which the brokers or nominees do not have discretionary power to vote) will not b ebe counted for or against any proxy to which they relate, but will be counted as votes present at the Meeting for purposes of determining whether a quorum is present. AbstentionsAs a result, abstentions and broker non-votes will generally have the effect of a vote against the Investment Advisory Proposal and will not affect the vote on the Election of Directors Proposal.
Quorum Requirements.Voting of Proxies; Revocation of Proxies.
A quorumShares represented by properly given proxies and received by the Funds prior to the Meeting, unless revoked before or at such Meeting, will be voted according to the shareholder’s instructions. If you sign a proxy but do not fill in a vote, your shares will be voted in favor of shareholders of a Fund is necessary to hold a valid meeting for that Fund. The quorum requirement for each Fund is set forth in Appendix D.
A quorum will exist at a Fund’s Meeting #1 or Meeting #2 if the percentage of shareholders,Proposal. Except as listeddiscussed above who are entitled to vote on the Record Date with respect to each Fund are present in person or by proxy ata proposed adjournment, if any other business properly comes before such Meeting, . Inyour shares will be voted at the event that a quorum is not present, or if a quorum is present but sufficient votes to approve a Proposal are not received,discretion of the duly appointedpersons named as proxies m ay propose one or more adjournments of such Meeting to permit further solicitation of proxieson the enclosed proxy card.
A proxy with respect to shares held in the Proposal. In casename of two or more persons will be valid if executed by one of them, unless at or prior to the exercise of such proxy, the Funds receive specific written notice to the contrary from one of such persons. A proxy purporting to be exercised by or on behalf of a shareholder will be valid unless challenged at or prior to its exercise. The burden of proving the invalidity of the proxy will rest with the person seeking to challenge it.
Any shareholder giving a proxy may revoke it at any such adjournmenttime before it is proposed,exercised by: (i) submitting to the proxies will vote for those proxies whichFunds a written notice of revocation; (ii) submitting to the Funds a subsequently dated and executed proxy; (iii) attending the Meeting and voting in person; or (iv) notifying the Funds of the revocation by calling the toll-free number on the proxy card. Proxies voted by telephone or through the Internet may be revoked at any time before they are entitled to vote forvoted in the Proposal in favor of adjournment, and will vote thosesame manner that proxies required to be voted against the Proposal against adjournment. At any such adjourned meeting at which a quorum shall be present, any businessby mail may be transacted which might have been transacted at the meeting originally called. A shareholder vote may be taken on one or more of the Proposals prior to such adjournment if sufficient votes for its approval have been received and it is otherwise appropriate. Any such vote will be final regardless of whether such Meeting is adjourned with respect to any other Proposal. A Meeting may be held for any Fund for which a quorum is present irrespective that a quorum may not be achieved for such Meeting of any other Fund.
Solicitation of Proxies and Payment of Expenses.
This solicitation of proxies for the MeetingsMeeting is being made by the Funds. All costs associated with the Meetings ,Meeting, including delivering proxy materials to shareholders, soliciting proxies and conducting the MeetingsMeeting will be borne by VLI.the Funds and allocated amongst the Funds on the basis of relative asset size. The solicitation of proxies may include telephonic, Internet, mail or oral communication by officers and service providers of the Funds who will not be paid for these services, and/or by D. F. King & Co., Inc. (the “Proxythe Proxy Solicitation Firm”),Firm, which has been retained by VLIthe Funds for an estimated fee of $ 500,000.00$175,000, plus out-of-pocket expenses.
Shareholders may authorize the Proxy Solicitation Firm to execute proxies on their behalf by telephonic instruction. Proxies that are submitted telephonically will be recorded in accordance with the procedures set forth below. The Directors believeBoard believes that these procedures are reasonably designed to ensure that the identity of the shareholder casting the vote is accurately determined and that th ethe voting instructions of the shareholder are accurately determined. In all cases where a telephonic proxy is solicited, the D. F. King representative of the Proxy Solicitation Firm is required to ask for certain identifying information from each shareholder. Then the representative will ask the shareholder to vote their shares by telephone, , and ask for the shareholder’s instructions on the proposalProposal.
The representative of the Proxy Solicitation Firm, although he or she is permitted to answer questions about the process, is not permitted to recommend to any shareholder how to vote, other than to read any recommendation set forth in the Proxy Statement or in any additional soliciting materials. The Proxy Solicitation Firm will record the shareholder’s instructions. Within 72 hours, bu tbut in any event before the Meeting to which the vote relates, , the shareholder will be sent a letter to confirm his or her vote and asking the shareholder to call the Proxy Solicitation Firm immediately if his or her instructions are not correctly reflected in the confirmation. If a shareholder wishes to participate in athe Meeting, but does not wish to give a proxy by telephone, the shareholder may still submit the Proxy Cardsproxy card originally sent with the Proxy Statement or attend such Meeting in person. Should shareholders require additional information regarding the proxy or a replacement Proxy Cards,proxy card, they may contact the Proxy Solicitation Firm (toll-free) at 1-800-545-3393 (toll-free) .1-855-520-7715. Representatives are available Monday through Friday, 8:00 a.m.- 10:00 p.m. (Eastern Time) , and Saturday, 11:00 a.m. - –6:00 p.m. (Eastern Time) time), and Saturday, 10:00 a.m.–6:00 p.m. (Eastern time). Any proxy given by a shareholder, whether in writing or by telephone or the Internet, is revocable until voted at the Meeting to which such proxy relates .
Persons holding shares as nominees will be reimbursed by VLI,the Funds, upon request, for the reasonable expenses of mailing soliciting materials to the principals of the accounts.
| | |
| | By Order of the Boards of Directors, |
| | |
| | /s/ Howard A. Brecher |
| | |
| | Howard A. Brecher |
| | Secretary |
APPENDIX AOther Business at the Meetings.
VALUE LINE FAMILY OF FUNDSThe Board and Adviser are not aware of any other matters to be brought before the Meeting other than as stated in this Proxy Statement. If any other business properly comes before such Meeting, your shares will be voted on such matters in accordance with the judgment of the persons named as proxies in the enclosed proxy card.
NOMINATING/GOVERNANCE COMMITTEE CHARTERIf you do not plan to attend the Meeting in person, please complete, sign, date, and return the enclosed proxy card or cast your vote by touchtone phone or via the Internet promptly. Even if you do plan to attend the Meeting, please so note where provided and return the proxy card promptly.
| | |
I. | Purposes of the Nominating/Governance Committee. The Nominating/Governance Committees (the “Committee”) of the Boards of Directors (the “Boards,” and each member of a Board, a “Trustee”) of the Value Line family of funds (the “Funds”) have two primary roles: (a) nomination of the Independent Trustees (as defined in Section IV below); and (b) supervision of fund governance matters.
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| |
II. | Nomination Role. With regard to the nomination of Independent Trustees, the Committee is authorized to:
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| ● | Identify individuals qualified to serve as Independent Trustees on the Boards; |
| | |
| | Review the qualifications of any person properly identified or nominated to serve as an Independent Trustee on the Boards; |
| | |
| | Recommend to the Boards and the then-current Independent Trustees: (i) the nominee(s) for appointment as Independent Trustee(s) by the Boards and the then-current Independent Trustees, and (ii) the nominee(s) for election as Independent Trustee(s) by shareholders to fill any vacancy for a position of Independent Trustee on the Boards; |
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| | Recommend to the Boards and the then-current Independent Trustees, the size and composition of the Boards and Board committees and determine the composition of the Boards and Board committees is as prescribed by the Investment Company Act of 1940, as amended (the “1940 Act”), and other applicable laws and regulations and industry best practices as applicable to the Funds; and |
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| | Recommend to the Boards and the then-current Independent Trustees, an Independent Trustee to either serve as a “lead” Independent Trustee or as the Chairperson of the Boards, in accordance with the rules and regulations under the 1940 Act as in effect from time to time and industry best practices as applicable to the Funds. |
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| The Committee performs these functions to assist the Boards and the Independent Trustees in carrying out their fiduciary responsibilities and the requirements of the 1940 Act and the rules thereunder with respect to the selection and nomination of members of the Boards. Nomination of any person to serve on the Boards as an Independent Trustee shall initially be acted upon by the Independent Trustees and then by the entire Boards. Nomination of any persons to serve on the Boards other than as Independent Trustees shall be made by the Boards. |
Future Shareholder Proposals. & #160;
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| The Committee shall have the authority to retain and terminate any search firm or other consultant to be used to identify Independent Trustee candidates, including the authority to approve its fees and other retention terms. The Committee is empowered to cause the Funds to pay the compensation of any search firm or other consultant engaged by the Committee. |
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| The Committee shall make nominations for the appointment or election of Independent Trustees in accordance with this Charter and shall apply the criteria and principles set forth in the “General Guidelines for Selecting Independent Trustees” attached hereto as Annex A. |
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| The Boards believe that shareholders as a group are best served, considering the efficient allocation of Fund and Board resources, by maintaining a policy not to consider Trustee nominations recommended by individual shareholders. Thus, it is the Boards’ policy not to consider Trustee nominations recommended by shareholders (although such persons may be considered if recommended by other persons, such as an Independent Trustee, or if the Committee deems it appropriate after considering all circumstances its members deem relevant). |
| | |
| In addition to members of the Committee, the President and other officers of the Funds, even if not members of the Committee, may be solicited for their input on candidates and to recruit candidates for the relevant Board. The Committee shall give candidates recommended by the President and other officers of the Funds the same consideration given to any other candidate. |
| | |
III. | Fund Governance Role. With regard to fund governance, the Committee is authorized to:
|
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| | Monitor and evaluate industry and legal developments with respect to fund governance matters, and seek to comply with all applicable requirements, with a view to identifying and recommending to the Boards “best practices” that may be applicable to the Funds; |
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| | Consider and make appropriate recommendations to the Boards regarding the adoption of a retirement policy for the Trustees, and periodically review any such retirement policy and make any recommendations to the Boards with respect thereto; |
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| | Periodically review the role and responsibilities of any lead Independent Trustee (or, if required by Rule 0-1 under the 1940 Act, or otherwise implemented, review the role and responsibilities of the Independent Chairperson of the Boards); |
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| | Periodically consider and make appropriate recommendations to the Boards on the appropriate level of compensation to be paid to the Independent Trustees, members or chairpersons of committees of the Boards, any lead Independent Trustee or Chairperson of the Boards, and such other positions as the Committee considers appropriate; |
Pursuant to rules adopted by the SEC under the Securities Exchange Act of 1934 (“1934 Act”), shareholders may request for inclusion in the Board’s proxy statement for future shareholder meetings certain proposals for actions which they intend to introduce at such meeting. Any shareholder proposals must be presented a reasonable time before the proxy materials for the next meeting are sent to shareholders. The submission of a proposal does not guarantee its inclusion in the Funds’ proxy statement and is subject to limitations under the 1934 Act. Because the Funds do not hold regular meetings of shareholders, no anticipated date of the next meeting can be provided.
| | Recommend to the Boards any new or revised policies and guidelines or revisions to this Charter regarding fund governance matters, as the Committee deems necessary;- 33 - |
| | | |
| | Recommend to the Boards procedures for evaluating the performance of the Trustees and Board committees, including the chairpersons thereof, and, at least once annually, evaluate the performance of the Boards and the committees of the Boards, pursuant to the requirements of Rule 0-1 under the 1940 Act or other applicable requirements; |
| | |
| | Consider, with the assistance of counsel to the Funds and counsel to the Independent Trustees, any issues or controversies arising as to whether or not any Trustees designated as an Independent Trustee in fact satisfies all of the criteria for such status (whether imposed by law or any such more stringent policies as may be adopted by the Boards). This assessment may occur upon: (i) the consideration of a new Trustee, (ii) a Trustee’s joining the board of another entity, or (iii) at such other time as the Committee in its discretion may deem appropriate. The Committee shall make recommendations to the Boards regarding the same; |
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| | At least once annually, evaluate the independence (pursuant to the requirements of Rule 0-1 of the 1940 Act) of counsel to the Independent Trustees; and |
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| | Consider other fund governance related issues or conflicts that are brought before the Committee and make recommendations to the Board, as appropriate. |
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IV. | Committee Operations. The Committee shall be composed of all the members of the Boards that are not “interested persons,” as defined in Section 2(a)(19) of the 1940 Act, of the Funds (each, an “Independent Trustee”).
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| The Committee shall elect a Chairperson by majority vote. When a Chairperson is appointed, he or she shall preside at all Committee meetings at which he or she is present and have such other duties and powers as may be determined by the Committee members. The Chairperson shall serve until he or she resigns, is removed by the Committee, or is replaced by a duly appointed successor. |
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| The compensation, if any, of Committee members and its Chairperson shall be as determined from time to time by the Boards. |
- A-3 -Additional Information.
The Funds are subject to the information requirements of the 1934 Act and accordingly file reports and other information with the SEC. Proxy material, reports and other information filed by the Funds can be inspected and copied at the public reference facilities of the SEC at 100 F Street, NE, Washington, D.C. 20549-1520. Copies of such material can also be obtained by mail from the Public Reference Branch, Office of Consumer Affairs and Information Services, SEC, Washington, D.C. 20549-1520, at prescribed rates. In addition, copies of these documents may be viewed on-screen or downloaded from the SEC’s Internet site at http://www.sec.gov.
By order of the Board
Mitchell E. Appel, President
January 13, 2014
| The Committee shall meet with such frequency as the members of the Committee shall from time to time determine to be appropriate. Meetings of the Committee shall be open to all Board members; however, no member of any Board other than a member of the Committee shall have the right to vote on any matter brought before the Committee and the Committee may hold executive sessions during which only members of the Committee are present. An affirmative vote or consent of a majority of all the members of the Committee is required for the Committee to take action. Any action permitted to be taken by the Committee may be taken by written action signed by at least a majority of the members of the Committee. The Committee shall c ause to be kept such records of its meetings as it shall deem appropriate. |
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| As it deems necessary and at the Funds’ expense, the Committee is authorized to confer with, and to seek the help of, outside advisors, including without limitation, counsel to the Funds and counsel to the Independent Trustees, and officers or other employees of the Funds, as well as officers and employees of Value Line, Inc. and its affiliates. |
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| The Committee shall, from time to time as it deems appropriate, review and reassess the adequacy of this Charter, including Annex A, and recommend any proposed changes to the Board for consideration.
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IV. | Approval of Charter. This Charter and any amendments are subject to approval by the Boards.
- 34 - |
ANNEX A to APPENDIX A
General Guidelines for Selecting Independent Trustees
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I. | Application of Criteria to Prospective Independent Trustees. The Committee expects that all candidates should generally have the following characteristics:
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| 1. | The candidate may not be an “interested person” (within the meaning of the 1940 Act) of the Funds, any adviser to the Funds or the Funds’ principal underwriter. |
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| 2. | The candidate should have a reputation for integrity, honesty and adherence to high ethical standards. As fiduciaries, mutual fund trustees must affirmatively consider a candidate’s reputation prior to recommending the candidate to serve as a trustee. The Committee’s consideration of this criterion may be accomplished through personal knowledge of the candidate or through inquiries of other persons that know the candidate or by receipt of references. |
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| 3. | The candidate should have demonstrated business acumen, experience and ability to exercise sound judgment in matters that relate to the current and long-term objectives of the Funds and should be willing and able to contribute positively to the decision-making process of the Funds. |
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| 4. | The candidate should be committed to understanding the Funds and the responsibilities of an Independent Trustee of an investment company and to regularly attending and participating in meetings of the Boards and the committees on which the candidate would be a member. |
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| 5. | The candidate should have the ability to understand the sometimes conflicting interests of the various constituencies of the Funds and to act in the interests of all shareholders. |
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| 6. | The candidate should not have a conflict of interest that would impair the candidate’s ability to represent the interests of all the shareholders and to fulfill the responsibilities of an Independent Trustee. |
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| 7. | The candidate should have the ability to serve a sufficient number of years before reaching any mandatory retirement age for Trustees that may be adopted by the Boards. |
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| Nominees shall not be discriminated against on the basis of race, religion, national origin, sex, sexual orientation, disability or any other basis proscribed by law. |
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| For each candidate, the Committee shall evaluate specific experience in light of the makeup of the then-current Boards. |
| The Committee may determine that a candidate who does not have the type of previous experience or knowledge referred to above should nevertheless be considered as a nominee if the Committee finds that the candidate has additional qualifications such that his/her qualifications, taken as a whole, demonstrate the same level of fitness to serve as an Independent Trustee. |
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| In evaluating candidates, the Committee shall seek to have at least one Independent Trustee qualify as an “audit committee financial expert,” as such term is defined by rules under the 1940 Act, and the Committee shall give preference to candidates that the Committee believes would qualify as audit committee financial experts. |
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II. | Application of Criteria to Existing Independent Trustees. Each existing Independent Trustee shall continue to serve in such capacity in accordance with, and subject to, the Funds’ charter documents and any policies adopted by the Boards relating thereto, including, without limitation, the Funds’ retirement policy (if any) for Trustees. Any re-nomination of an existing Independent Trustee should not be viewed as automatic, but should be based on continuing qualification under the criteria set forth above. In addition, the Committee shall consider the existing Independent Trustee’s performance on the Boards and any committees thereof.
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APPENDIX B
This Appendix sets forth the dollar range of equity securities beneficially owned by each Director and Nominee, individually and in the aggregate, as of July 31, 2010.
| | | |  |
| | | | | | | Proxy Tabulator | | |
| PO Box 55046 | | Joyce E.Your Proxy Vote is Important!
Heinzerling
| | Daniel S.
Vandivort
| | Francis C.
Oakley
| | David H.
Porter
| |
| | | | | | | | | |
Value Line Aggressive | | | none | | | none | | | $1-$10,000 | | | $1-$10,000 | |
Income Trust | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Value Line Asset | | | none | | | none | | | $1-$10,000 | | | $1-$10,000 | |
Allocation Fund, Inc. | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Value Line U.S. | | | none | | | $1-$10,000 | | | $1-$10,000 | | | $1-$10,000 | |
Government Money | | | | | | | | | | | | | |
Market Fund, Inc. | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Value Line Centurion | | | none | | | none | | | none | | | none | |
Fund, Inc. | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Value Line Convertible | | | none | | | none | | | $1-$10,000 | | | $1-$10,000 | |
Fund, Inc. | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Value Line Emerging | | | none | | | $1-$10,000 | | | $10,001-$50,000 | | | $1-$10,000 | |
Opportunities Fund, Inc. | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The Value Line Fund, Inc. | | | none | | | none | | | $1-$10,000 | | | $1-$10,000 | |
| | | | | | | | | | | | | |
Value Line Income and | | | none | | | $1-$10,000 | | | $1-$10,000 | | | $1-$10,000 | |
Growth Fund, Inc. | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Value Line Larger | | | none | | | $1-$10,000 | | | $1-$10,000 | | | $1-$10,000 | |
Companies Fund, Inc. | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Value Line New York | | | none | | | none | | | none | | | $1-$10,000 | |
Tax Exempt Trust | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Value Line Premier | | | none | | | none | | | $1-$10,000 | | | $1-$10,000 | |
Growth Fund, Inc. | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Value Line Strategic | | | none | | | none | | | none | | | none | |
Asset Management Trust | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The Value Line Tax | | | none | | | $1-$10,000 | | | $1-$10,000 | | | $1-$10,000 | |
Exempt Fund, Inc. | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Value Line U.S. | | | none | | | none | | | $1-$10,000 | | | $1-$10,000 | |
Government | | | | | | | | | | | | | |
Securities Fund, Inc. | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Aggregate Dollar Range of | | | none | | | $10,001-$50,000 | | | $10,001-$50,000 | | | $10,001-$50,000 | |
Fund Shares in all Funds | | | | | | | | | | | | | |
Overseen or to be Overseen | | | | | | | | | | | | | |
by the Nominee in Family | | | | | | | | | | | | | |
of Investment Companies | | | | | | | | | | | | | |
| | Paul Craig
Roberts
| | Nancy-Beth
Sheerr
| | Mitchell E.
Appel
| |
| | | | | | | | | | |
Value Line Aggressive | | | none | | | $1-$10,000 | | | none | |
Income Trust | | | | | | | | | | |
| | | | | | | | | | |
Value Line Asset | | | $1-$10,000 | | | $1-$10,000 | | | none | |
Allocation Fund, Inc. | | | | | | | | | | |
| | | | | | | | | | |
Value Line U.S. | | | none | | | $1-$10,000 | | | none | |
Government Money | | | | | | | | | | |
Market Fund, Inc. | | | | | | | | | | |
| | | | | | | | | | |
Value Line Centurion | | | none | | | none | | | none | |
Fund, Inc. | | | | | | | | | | |
| | | | | | | | | | |
Value Line Convertible | | | none | | | $1-$10,000 | | | none | |
Fund, Inc. | | | | | | | | | | |
| | | | | | | | | | |
Value Line Emerging | | | $1-$10,000 | | | $1-$10,000 | | | $1-$10,000 | |
Opportunities Fund, Inc. | | | | | | | | | | |
| | | | | | | | | | |
The Value Line Fund, Inc. | | | none | | | $1-$10,000 | | | $1-$10,000 | |
| | | | | | | | | | |
Value Line Income and | | | $1-$10,000 | | | $1-$10,000 | | | $1-$10,000 | |
Growth Fund, Inc. | | | | | | | | | | |
| | | | | | | | | | |
Value Line Larger | | | $1-$10,000 | | | $1-$10,000 | | | $1-$10,000 | |
Companies Fund, Inc. | | | | | | | | | | |
| | | | | | | | | | |
Value Line New York | | | none | | | none | | | none | |
Tax Exempt Trust | | | | | | | | | | |
| | | | | | | | | | |
Value Line Premier | | | $1-$10,000 | | | $1-$10,000 | | | $1-$10,000 | |
Growth Fund, Inc. | | | | | | | | | | |
| | | | | | | | | | |
Value Line Strategic | | | none | | | none | | | none | |
Asset Management Trust | | | | | | | | | | |
| | | | | | | | | | |
The Value Line Tax | | | none | | | $1-$10,000 | | | none | |
Exempt Fund, Inc. | | | | | | | | | | |
| | | | | | | | | | |
Value Line U.S. | | | none | | | $1-$10,000 | | | none | |
Government | | | | | | | | | | |
Securities Fund, Inc. | | | | | | | | | | |
| | | | | | | | | | |
Aggregate Dollar Range of | | | $10,001-$50,000 | | | $10,001-$50,000 | | | $10,001-$50,000 | |
Fund Shares in all Funds | | | | | | | | | | |
Overseen or to be Overseen | | | | | | | | | | |
by the Nominee in Family | | | | | | | | | | |
of Investment Companies | | | | | | | | | | |
APPENDIX C
This Appendix sets forth the compensation received from the Funds by the Directors and total compensation each received from the Fund Complex during 2009.
| | | | | | | | | | | | | |
| | | Joyce E. Heinzerling | | | Daniel S. Vandivort | | | Francis C. Oakley | | | David H. Porter | |
| | | | | | | | | | | | | |
| Value Line Aggressive | | $ | 654.22 | | | $ | 712.38 | | | $ | 828.69 | | | $ | 654.22 | |
| Income Trust | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Value Line Asset | | $ | 1,247.84 | | | $ | 1,358.77 | | | $ | 1,580.60 | | | $ | 1,247.84 | |
| Allocation Fund, Inc. | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Value Line U.S. | | $ | 3,577.16 | | | $ | 3,895.13 | | | $ | 4,531.07 | | | $ | 3,577.16 | |
| Government Money | | | | | | | | | | | | | | | | |
| Market Fund, Inc. | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Value Line Centurion | | $ | 2,208.27 | | | $ | 2,404.55 | | | $ | 2,797.15 | | | $ | 2,208.27 | |
| Fund, Inc. | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Value Line Convertible | | $ | 439.39 | | | $ | 478.45 | | | $ | 556.53 | | | $ | 439.39 | |
| Fund, Inc. | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Value Line Emerging | | $ | 9,616.36 | | | $ | 10,471.14 | | | $ | 12,180.72 | | | $ | 9,616.36 | |
| Opportunities Fund, Inc. | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| The Value Line Fund, Inc. | | $ | 1,628.46 | | | $ | 1,773.22 | | | $ | 2,062.70 | | | $ | 1,628.46 | |
| | | | | | | | | | | | | | | | | |
| Value Line Income and | | $ | 6,023.10 | | | $ | 6,558.50 | | | $ | 7,629.26 | | | $ | 6,023.10 | |
| Growth Fund, Inc. | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Value Line Larger | | $ | 3,572.11 | | | $ | 3,889.64 | | | $ | 4,524.68 | | | $ | 3,572.11 | |
| Companies Fund, Inc. | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Value Line New York Tax | | $ | 339.63 | | | $ | 369.79 | | | $ | 430.18 | | | $ | 339.63 | |
| Exempt Trust | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Value Line Premier Growth | | $ | 5,840.32 | | | $ | 6,359.46 | | | $ | 7,397.75 | | | $ | 5,840.32 | |
| Fund, Inc. | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Value Line Strategic Asset | | $ | 6,498.89 | | | $ | 7,076.57 | | | $ | 8,231.93 | | | $ | 6,498.89 | |
| Management Trust | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| The Value Line Tax Exempt | | $ | 1,620.77 | | | $ | 1,764.84 | | | $ | 2,052.99 | | | $ | 1,620.77 | |
| Fund, Inc. | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Value Line U.S. | | $ | 1,733.48 | | | $ | 1,887.56 | | | $ | 2,195.75 | | | $ | 1,733.48 | |
| Government Securities | | | | | | | | | | | | | | | | |
| Fund, Inc. | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Total Compensation from | | $ | 45,000.00 | | | $ | 49,000.00 | | | $ | 57,000.00 | | | $ | 45,000.00 | |
| Fund Complex | | | | | | | | | | | | | | | | |
| | | Paul Craig Roberts | | | Nancy-Beth Sheerr | | Mitchell E. Appel |
| | | | | | | | |
| Value Line Aggressive | | $ | 654.22 | | | $ | 654.22 | | None |
| Income Trust | | | | | | | | | |
| | | | | | | | | | |
| Value Line Asset | | $ | 1,247.84 | | | $ | 1,247.84 | | None |
| Allocation Fund, Inc. | | | | | | | | | |
| | | | | | | | | | |
| Value Line U.S. | | $ | 3,577.16 | | | $ | 3,577.16 | | None |
| Government Money | | | | | | | | | |
| Market Fund, Inc. | | | | | | | | | |
| | | | | | | | | | |
| Value Line Centurion | | $ | 2,208.27 | | | $ | 2,208.27 | | None |
| Fund, Inc. | | | | | | | | | |
| | | | | | | | | | |
| Value Line Convertible | | $ | 439.39 | | | $ | 439.39 | | None |
| Fund, Inc. | | | | | | | | | |
| | | | | | | | | | |
| Value Line Emerging | | $ | 9,616.36 | | | $ | 9,616.36 | | None |
| Opportunities Fund, Inc. | | | | | | | | | |
| | | | | | | | | | |
| The Value Line Fund, Inc. | | $ | 1,628.46 | | | $ | 1,628.46 | | None |
| | | | | | | | | | |
| Value Line Income and | | $ | 6,023.10 | | | $ | 6,023.10 | | None |
| Growth Fund, Inc. | | | | | | | | | |
| | | | | | | | | | |
| Value Line Larger | | $ | 3,572.11 | | | $ | 3,572.11 | | None |
| Companies Fund, Inc. | | | | | | | | | |
| | | | | | | | | | |
| Value Line New York Tax | | $ | 339.63 | | | $ | 339.63 | | None |
| Exempt Trust | | | | | | | | | |
| | | | | | | | | | |
| Value Line Premier Growth | | $ | 5,840.32 | | | $ | 5,840.32 | | None |
| Fund, Inc. | | | | | | | | | |
| | | | | | | | | | |
| Value Line Strategic Asset | | $ | 6,498.89 | | | $ | 6,498.89 | | None |
| Management Trust | | | | | | | | | |
| | | | | | | | | | |
| The Value Line Tax Exempt | | $ | 1,620.77 | | | $ | 1,620.77 | | None |
| Fund, Inc. | | | | | | | | | |
| | | | | | | | | | |
| Value Line U.S. | | $ | 1,733.48 | | | $ | 1,733.48 | | None |
| Government Securities | | | | | | | | | |
| Fund, Inc. | | | | | | | | | |
| | | | | | | | | | |
| Total Compensation from | | $ | 45,000.00 | | | $ | 45,000.00 | | None |
| Fund Complex | | | | | | | | | |
APPENDIX D
Quorum Requirements
| | |
FUND | | QUORUM REQUIREMENT |
Value Line Aggressive Income Trust | | One-third |
| | |
Value Line Asset Allocation Fund, Inc. | | One-third |
| | |
Value Line U.S. Government Money Market Fund, Inc. | | Majority |
| | |
Value Line Centurion Fund, Inc. | | One-third |
| | |
Value Line Convertible Fund, Inc. | | One-third |
| | |
Value Line Emerging Opportunities Fund, Inc. | | One-third |
| | |
The Value Line Fund, Inc. | | Majority |
| | |
Value Line Income and Growth Fund, Inc. | | Majority |
| | |
Value Line Larger Companies Fund, Inc. | | Majority |
| | |
Value Line New York Tax Exempt Trust | | One-third |
| | |
Value Line Premier Growth Fund, Inc. | | Majority |
| | |
Value Line Strategic Asset Management Trust | | One-third |
| | |
The Value Line Tax Exempt Fund, Inc. | | One-third |
| | |
Value Line U.S. Government Securities Fund, Inc. | | Majority |
APPENDIX E
FORM OF INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of the [__] day of [_______] 2010, between [_______________________]1, a Massachusetts trust (hereinafter called “the Fund”), and EULAV ASSET MANAGEMENT, a Delaware statutory trust (hereinafter called “the Company”);
W I T N E S S E T H:
WHEREAS, the Fund desires to have the Company act as its investment adviser and provide it with investment research, advice, supervision and management; and
WHEREAS, the Company is willing to undertake the same upon the terms and conditions set forth.
NOW, THEREFORE, it is hereby agreed by and between the parties hereto as follows:
1. Duties. The Company shall provide the Fund with such investment research, data, advice and supervision as the latter may from time to time consider necessary for proper supervision of its funds. The company shall act as manager and investment adviser of the Fund and, as such, shall furnish continuously an investment program and shall determine from time to time what securities shall be purchased or sold by the Fund, and what portion of the assets of t he Fund shall be held uninvested, subject always to the provisions of the Fund’s Declaration of Trust and By-Laws, to the Fund’s fundamental investment policies as in effect from time to time, and to the control and review by the Fund’s Board of Trustees. The Company shall take, on behalf of the Fund, all actions which it deems necessary to carry into effect the investment policies determined as provided above, and to that end the Company may designate a person or persons who are to be authorized by the Fund as the representative or representatives of the Fund, to give instructions to the Custodian of the assets of the Fund as to deliveries of securities and payments of cash for the account of the Fund.
1 This Form of Agreement is applicable to the Value Line Aggressive Income Trust, Value Line U.S. Government Money Market Fund, Inc., Value Line Centurion Fund, Inc., Value Line Convertible Fund, Inc., The Value Line Fund, Inc., Value Line Income and Growth Fund, Inc., Value Line Larger Companies Fund, Inc., Value Line New York Tax Exempt Trust, Value Line Premier Growth Fund, Inc., Value Line Strategic Asset Management Trust, The Value Line Tax Exempt Fund, Inc. (National Bond Portfolio), and Value Line U.S. Government Securities Fund, Inc.
|
2. Allocation of Charges and Expenses; Brokerage. The Company shall furnish at its own expense all administrative services, office space, equipment and administrative, bookkeeping and clerical personnel necessary for managing the affairs of the Fund. The Company shall also provide persons satisfactory to the Fund’s Board of Trustees to act as officers and employees of the Fund and shall pay the salaries and wages of all officers and employees of th e 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 commission and other costs in connection with the purchase or sale of securities; (iii) insurance premiums for fidelity and other coverage requisite to its operations; (iv) compensation and expenses of its directors other than those affiliated with the Company; (v) legal and audit expenses; (vi) custodian and shareholder servicing agent fees and expenses; (vii) expenses incident to the redemption of its shares; (viii) expenses incident to the issuance of its shares against payment therefor by or on behalf of the subscribers thereto, including printing of stock certificates; (ix) fees and expenses incident to the regist ration 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 shared, based on relative net asset value of the fund and other investment companies for which the Company also act as manager and investment adviser, of 50% of the fees or dues of the Investment Company Institute; (xiii) fees and expenses in connection with registration of the Fund or qualification of its shares under the securities laws of states and foreign jurisdictions and (xiv) such non-recurring expenses as may arise, including actions, suits or proceedings to which the Fund is a party and the legal obligation which the Fund may have to indemnify its officers and trustees with respect thereto.
The Company shall place purchase and sale orders for portfolio transactions of the Fund with brokers and/or dealers including, where permitted by law, the Fund’s Distributor or affiliates thereof or of the Company, which, in the judgment of the Company, are able to execute such orders as expeditiously as possible and at the best obtainable price. Purchases and sales of securities which are not listed or traded on a securities exchange shall ordinarily be executed with primary market makers acting as principal except when it is determined that better prices and executions may oth erwise be obtained, provided, that the Company may cause the Fund to pay a member of a securities exchange, broker or dealer an amount of commission for effecting a purchase or sale order for a portfolio transaction in excess of the amount of commission another member of an exchange, broker or dealer would have charged for effecting that transaction if the Company determines in good faith that such amount of commission was reasonable in relation to the value of the brokerage and research services provided by such member, broker, dealer, viewed in terms of that particular transaction or the Company’s overall responsibilities. As used herein, “brokerage and research services” shall have the same meaning as in Section 28(e)(3) of the Securities Exchange Act of 1934, as such Section may be amended from time to time, and any rules or regulations promulgated by the Securities and Exchange Commission. It is understood that, consistent with the Company’s fiduciary duty to the Fund, it is the intent of this Agreement to allow the Company the widest discretion permitted by law in determining the manner and means by which portfolio securities transactions can be effected in the best interests of the Fund.
3. Compensation. a. For its services and for the facilities to be furnished as provided herein, the Fund shall pay to the Company an advisory fee payable monthly, computed at the annual rate of [______] %, of the Fund’s average daily net assets during the year, pro rated for any portion of a year during which this Agreement is in effect. For this purpose, the value of the Fund’s net assets shall be determined in the same manner as for the pur chase and redemption of Fund shares as described in the Fund’s current Prospectus.
| | | | |
| | | b. | If the Fund’s Distributor receives fees in connection with the tender of portfolio securities of the Fund, the gross amount of the advisory fee computed in accordance with the preceding paragraph 3(a) shall be reduced by the amount of tender fees received; if the amount of such tender fees exceeds the amount of advisory fees computed in accordance with paragraph 3(a), the excess shall be paid by the Company to the Fund. |
| | | | |
| | | c. | In the event that the total expenses of the Fund, excluding interest, taxes, brokerage commissions and extraordinary expenses, exceeds in any fiscal year the lowest applicable percentage limitation prescribed by any state in which shares of the Fund are sold, the compensation of the Company, computed in accordance with the preceding two paragraphs 3(a) and 3(b), shall be reduced by the amount of such excess. |
4. Duration and Termination of Agreement. This Agreement shall become effective on the date set forth above and will continue in effect for an initial period of two years from the date hereof. Thereafter this Agreement shall continue in effect for successive periods of one year each 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 d ays 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. Value Line, Inc. has granted to the Fund a fully-paid, worldwide right to use the “Value Line” name in the Fund’s name and in connection with the business of the Fund, including for marketing and promotional purposes, which right shall not be terminable so long as the Company continues to be the investment adviser to the Fund and the Fund does not alter its investment objectives or fundamental policies as they exist on the date hereof to use leverage for investment purposes, short selling or other complex or unusual investment strategies to create a risk profile similar to that of so-called hedge funds. The Fund agrees that if and when it no longer has the right to use the “Value Line” name , (a) it will cease to use said name or any name indicating or suggesting that the Fund is advised by or otherwise connected with the Company and (b) it will not thereafter refer to the former association between the Company and the Fund.
6. Company May Act for Others. Nothing herein contained shall limit the freedom of the Company or any affiliated person of the Company to render investment supervisory or corporate administrative services to other investment companies, to act as investment adviser or investment counselor to other persons, firms or corporations, and to engage in other business activities.
7. Amendment of Agreement. This Agreement may not be amended except pursuant to a direction given by the vote of the holders of a majority (as defined in the Investment Company Act of 1940) of the outstanding shares of the Fund.
8. Liability. The Company shall not be liable for any error of judgment, or mistake of law, or any loss suffered by the Fund, in connection with the matters to which this Agreement relates, except for loss resulting in the performance of its duties or from reckless disregard by the Company of its obligations and duties hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers as of the date and year first above written.
FORM OF INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of the [__] day of [_______] 2010, between [____________________________]2 a Maryland corporation (hereinafter called “the Fund”), and EULAV ASSET MANAGEMENT, a Delaware statutory trust (hereinafter called “the Company”);
W I T N E S S E T H:
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 th e 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 | This Form of Agreement is applicable to the Value Line Asset Allocation Fund, Inc. and the Value Line Emerging Opportunities Fund, Inc. |
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 a re 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 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 an y 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 dis cretion 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 [_____]% 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 purcha se and redemption of Fund shares as described in the Fund’s current Prospectus.
| | | a. | 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. |
| | | | |
| | | b. | In the event that the total expenses of the Fund, excluding interest, taxes, brokerage commissions and extraordinary expenses, exceeds in any fiscal year the lowest applicable percentage limitation prescribed by any state in which shares of the Fund are sold, the compensation of the Company, computed in accordance with the preceding two paragraphs 3(a) and 3(b), shall be reduced by the amount of such excess. |
4. Duration and Termination of Agreement. This Agreement shall become effective on the date set forth above and will continue in effect for an initial period of two years from the date hereof. Thereafter this Agreement shall continue in effect for successive periods of one year each 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 d ays 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. Value Line, Inc. has granted to the Fund a fully-paid, worldwide right to use the “Value Line ” name in the Fund’s name and in connection with the business of the Fund, including for marketing and promotional purposes, which right shall not be terminable so long as the Company continues to be the investment adviser to the Fund and the Fund does not alter its investment objectives or fundamental policies as they exist on the date hereof to use leverage for investment purposes, short selling or other complex or unusual investment strategies to create a risk profile similar to that of so-called hedge funds . The Fund agrees that if and when it no longer has the right to use the “Value Line” name , (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 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.
| By: | | |
| |
| EULAV ASSET MANAGEMENT |
| | | |
| By: | | |
APPENDIX F
FACTORS CONSIDERED BY THE BOARD IN APPROVING CURRENT
INVESTMENT ADVISORY AGREEMENTS
FACTORS CONSIDERED BY THE BOARD IN APPROVING
THE INVESTMENT ADVISORY AGREEMENT
FOR VALUE LINE AGGRESSIVE INCOME TRUST
The Investment Company Act of 1940 (the “1940 Act”) requires the Board of Trustees, including a majority of Trustees who are not “interested persons” of Value Line Aggressive Income Trust (the “Trust”), as that term is defined in the 1940 Act (the “Independent Trustees”), annually to consider the investment advisory agreement (the “Agreement”) between the Trust and its investment adviser, EULAV Asset Management, LLC (the “Adviser”). As required by the 1940 Act, the Board requested and the Adviser provided su ch information as the Board deemed to be reasonably necessary to evaluate the terms of the Agreement. At meetings held throughout the year, including the meeting specifically focused upon the review of the Agreement, the Independent Trustees met in executive sessions separately from the non-Independent Trustee of the Trust and any officers of the Adviser. In selecting the Adviser and approving the continuance of the Agreement, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees.
Both in the meetings which specifically addressed the approval of the Agreement and at other meetings held during the course of the year, the Board, including the Independent Trustees, received materials relating to the Adviser’s investment and management services under the Agreement. These materials included information on: (i) the investment performance of the Trust, compared to a peer group of funds consisting of the Trust and all retail and institutional high current yield funds regardless of asset size or primary channel of distribution (the “Performance UniverseR 21;), and its benchmark index, each as classified by Lipper Inc., an independent evaluation service (“Lipper”); (ii) the investment process, portfolio holdings, investment restrictions, valuation procedures, and financial statements for the Trust; (iii) sales and redemption data with respect to the Trust; (iv) the general investment outlook in the markets in which the Trust invests; (v) arrangements with respect to the distribution of the Trust’s shares; (vi) the allocation and cost of the Trust’s brokerage (none of which was effected through any affiliate of the Adviser); and (vii) the overall nature, quality and extent of services provided by the Adviser.
As part of the review of the continuance of the Agreement, the Board requested, and the Adviser provided, additional information in order to evaluate the quality of the Adviser’s services and the reasonableness of its fees under the Agreement. In a separate executive session, the Independent Trustees reviewed information, which included data comparing: (i) the Trust’s management fee rate, transfer agent and custodian fee rates, service fee (including 12b-1 fees) rates, and the rate of the Trust’s other non-management fees, to those incurred by a peer group of funds consisting of the Trust and 16 other retail no-load high current yield funds, as selected objectively by Lipper (“Expense Group”), and a peer group of funds consisting of the Trust, the Expense Group and all other retail no-load high current yield funds (excluding outliers), as selected objectively by Lipper (“Expense Universe”); (ii) the Trust’s expense ratio to those of its Expense Group and Expense Universe; and (iii) the Trust’s investment performance over various time periods to the average performance of the Performance Universe as well as the appropriate Lipper Index, as selected objectively by Lipper (the “Lipper Index”). In the separate executive session, the Independent Trustees also reviewed information regarding: (a) the financial results and condition of the Adviser’s parent company, the Adviser’s and certain of its affiliates’ profitability from the services that have been performed for the Trust as well as the Value Line family of funds; (b) the Trust’s current investment management staffing; and (c) the Trust’s potential for achieving economies of scale. In support of its review of the statistical information, the Board was provided with a detailed description of the methodology used by Lipper to determine the Expense Group, the Expense Universe and the Performance Universe to prepare its information. The Independent Directors also requested and reviewed information provided by the Adviser relating to the settlement of a matter brought by the Securities and Exchange Commission regarding Value Line Securities, Inc.1, the Trust’s principal underwriter and affiliate of the Adviser (the “Distributor”), Value Line, Inc., and two former directors and officers of Value Line, Inc. Value Line, Inc. informed the Board that it and the Adviser continue to have adequate liquid assets, and that the resolution of this matter did not have a materially adverse effect on the ability of the Adviser or the Distributor to perform their respective contracts with the Trust.
The following summarizes matters considered by the Board in connection with its renewal of the Agreement. However, the Board did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered.
Investment Performance. The Board reviewed the Trust’s overall investment performance and compared it to its Performance Universe and the Lipper Index. The Board noted that the Trust outperformed both the Performance Universe average and the Lipper Index for the three-year and five-year periods ended December 31, 2009. The Board also noted that the Trust’s performance for the one-year and ten-year periods ended December 31, 2009 was below the performance of the Performance Universe average and above the Lipper Index.
1 On May 6, 2009, Value Line Securities, Inc. changed its name to EULAV Securities, Inc. No other change was made to the Distributor’s organization, including its operations and personnel.
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The Adviser’s Personnel and Methods. The Board reviewed the background of the portfolio manager responsible for the daily management of the Trust’s portfolio, seeking to achieve the Trust’s investment objectives and adhering to the Trust’s investment strategies. The Independent Trustees also engaged in discussions with the Adviser ’s senior management responsible for the overall functioning of the Trust’s investment operations. The Board concluded that the Trust’s management team and the Adviser’s overall resources were adequate and that the Adviser had investment management capabilities and personnel essential to performing its duties under the Agreement.
Management Fee and Expenses. The Board considered the Adviser’s fee under the Agreement relative to the management fees charged by its Expense Group and Expense Universe averages. The Board noted that the Adviser and the Board previously agreed that the Adviser would contractually waive a portion of the Trust’s management fee, thereby reducin g the management fee rate from 0.75% to 0.45% of the Trust’s average daily net assets for the one-year period ended May 31, 2010. The Adviser and the Board have currently agreed to reduce this contractual fee waiver to 0.20%, thereby reducing the management fee rate from 0.75% to 0.55% of the Trust’s average daily net assets through May 31, 2011. Such waiver can not be changed without the Board’s approval during the contractual waiver period. The Board noted that, for the most recent fiscal year, the Trust’s management fee rate after giving effect to the contractual management fee waiver was less than that of both the Expense Group average and the Expense Universe average.
The Board also considered the Trust’s total expense ratio relative to its Expense Group and Expense Universe averages. The Board noted that the Distributor and the Board previously agreed that the Distributor would contractually waive a portion of the Trust’s Rule 12b-1 fee, effectively reducing the Trust’s Rule 12b-1 fee rate from 0.25% to 0.15% of the Trust’s average daily net assets for the one-year period ending May 31, 2010. The Distributor and the Board have currently agreed to extend this contractual 12b-1 fee waiver through May 31, 2011. The Board note d that the Trust’s total expense ratio after giving effect to these waivers was higher than that of the Expense Group average and the Expense Universe average. The Board concluded that the average expense ratio was satisfactory for the purpose of approving the continuance of the Agreement for the coming year.
Nature and Quality of Other Services. The Board considered the nature, quality, cost and extent of other services provided by the Adviser and the Distributor. At meetings held throughout the year, the Board reviewed the effectiveness of the Adviser’s overall compliance program, as well as the services provided by the Distributor. The Board viewed f avorably the increased emphasis being placed by the Adviser on its overall compliance program as well as steps being undertaken to enhance the shareholders’ experience with the Trust, such as a more robust website. The Board also reviewed the services provided by the Adviser and its affiliates in supervising third party service providers. Based on this review, the Board concluded that the nature, quality, cost and extent of such other services provided by the Adviser and its affiliates were satisfactory, reliable and beneficial to the Trust’s shareholders.
Profitability. The Board considered the level of profitability of the Adviser and its affiliates with respect to the Trust individually and in the aggregate for all the funds within the Value Line group of funds, including the impact of certain actions taken during prior years. These actions included the Adviser’s reduction (voluntary in some insta nces and contractual in other instances) of management and/or Rule 12b-1 fees for certain funds, the Adviser’s termination of the use of soft dollar research, and the cessation of trading through the Distributor. The Board concluded that the profitability of the Adviser and its affiliates with respect to the Trust, including the financial results derived from the Trust’s Agreement, were within a range the Board considered reasonable.
Other Benefits. The Board also considered the character and amount of other direct and incidental benefits received by the Adviser and its affiliates from their association with the Trust. The Board concluded that potential “fall-out” benefits that the Adviser and its affiliates may receive, such as greater name recognition, appear to be reas onable, and may in some cases benefit the Trust.
Economies of Scale. The Board noted that, given the current and anticipated size of the Trust, any perceived and potential economies of scale were not yet a significant consideration for the Trust and the addition of break points was determined not to be necessary at this time.
Fees and Services Provided for Other Comparable Funds/Accounts Managed by the Adviser and its Affiliates. In addition to comparing the Trust’s management fee rate to unaffiliated mutual funds included in the Trust’s Expense Group and Expense Universe, the Board was informed by the Adviser that the Adviser and its affiliates do not manage any investment companies or other institutional accounts comparable to the Trust.
Conclusion. The Board, in light of the Adviser’s overall performance, considered it appropriate to continue to retain the Adviser as the Trust’s investment adviser. Based on their evaluation of all material factors deemed relevant, and with the advice of independent counsel, the Board determined that the Trust’s management fee rate paya ble to the Adviser under the Agreement does not constitute fees that are so disproportionately large as to bear no reasonable relationship to the services rendered and that could not have been the product of arm’s-length bargaining, and concluded that the management fee rate under the Agreement is fair and reasonable. Further, the Board concluded that the Trust’s Agreement is fair and reasonable and approved the continuation of the Agreement for another year.
FACTORS CONSIDERED BY THE BOARD IN APPROVING
THE INVESTMENT ADVISORY AGREEMENT
FOR VALUE LINE ASSET ALLOCATION FUND
The Investment Company Act of 1940 (the “1940 Act”) requires the Board of Directors, including a majority of Directors who are not interested persons of Value Line Asset Allocation Fund (the “Fund”), as that term is defined in the 1940 Act (the “Independent Directors”), annually to consider the investment advisory agreement (the “Agreement”) between the Fund and its investment adviser, EULAV Asset Management, LLC (the “Adviser”). As required by the 1940 Act, the Board requested and the Adviser provided such information as th e Board deemed to be reasonably necessary to evaluate the terms of the Agreement. At meetings held throughout the year, including the meeting specifically focused upon the review of the Agreement, the Independent Directors met in executive sessions separately from the non-Independent Director of the Fund and any officers of the Adviser. In selecting the Adviser and approving the continuance of the Agreement, the Independent Directors relied upon the assistance of counsel to the Independent Directors.
Both in the meetings which specifically addressed the approval of the Agreement and at other meetings held during the course of the year, the Board, including the Independent Directors, received materials relating to the Adviser’s investment and management services under the Agreement. These materials included information on: (i) the investment performance of the Fund, compared to a peer group of funds consisting of the Fund and all retail and institutional mixed-asset target allocation growth funds regardless of asset size or primary channel of distribution (the “Perform ance Universe”), and its benchmark index, each as classified by Lipper Inc., an independent evaluation service (“Lipper”); (ii) the investment process, portfolio holdings, investment restrictions, valuation procedures, and financial statements for the Fund; (iii) sales and redemption data with respect to the Fund; (iv) the general investment outlook in the markets in which the Fund invests; (v) arrangements with respect to the distribution of the Fund’s shares; (vi) the allocation and cost of the Fund’s brokerage (none of which was effected through any affiliate of the Adviser); and (vii) the overall nature, quality and extent of services provided by the Adviser.
As part of the review of the continuance of the Agreement, the Board requested, and the Adviser provided, additional information in order to evaluate the quality of the Adviser’s services and the reasonableness of its fees under the Agreement. In a separate executive session, the Independent Directors reviewed information, which included data comparing: (i) the Fund’s management fee rate, transfer agent and custodian fee rates, service fee (including 12b-1 fees) rates, and the rate of the Fund’s other non-management fees, to those incurred by a peer group of funds c onsisting of the Fund and 17 other retail front-end load and no-load mixed-asset target allocation growth funds, as selected objectively by Lipper (“Expense Group”), and a peer group of funds consisting of the Fund, the Expense Group and all other retail front-end load and no-load mixed-asset target allocation growth funds (excluding outliers), as selected objectively by Lipper (“Expense Universe”); (ii) the Fund’s expense ratio to those of its Expense Group and Expense Universe; and (iii) the Fund’s investment performance over various time periods to the average performance of the Performance Universe as well as the appropriate Lipper Index, as selected objectively by Lipper (the “Lipper Index”). In the separate executive session, the Independent Directors also reviewed information regarding: (a) the financial results and condition of the Adviser’s parent company, the Adviser’s and certain of its affiliates’ profitability from the services th at have been performed for the Fund as well as the Value Line family of funds; (b) the Fund’s current investment management staffing; and (c) the Fund’s potential for achieving economies of scale. In support of its review of the statistical information, the Board was provided with a detailed description of the methodology used by Lipper to determine the Expense Group, the Expense Universe and the Performance Universe to prepare its information. The Independent Directors also requested and reviewed information provided by the Adviser relating to the settlement of a matter brought by the Securities and Exchange Commission regarding Value Line Securities, Inc.2, the Fund’s principal underwriter and affiliate of the Adviser (the “Distributor”), Value Line, Inc., and two former directors and officers of Value Line, Inc. Value Line, Inc. informed the Board that it and the Adviser continue to have adequate l iquid assets, and that the resolution of this matter did not have a materially adverse effect on the ability of the Adviser or the Distributor to perform their respective contracts with the Fund.
The following summarizes matters considered by the Board in connection with its renewal of the Agreement. However, the Board did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered.
Investment Performance. The Board reviewed the Fund’s overall investment performance and compared it to its Performance Universe and the Lipper Index. The Board noted that the Fund performed below the Lipper Index and had approximately the same performance as the Performance Universe average for the five-year and ten-year periods ended December 31 , 2009. The Board also noted that the Fund outperformed the Performance Universe average and had approximately the same performance as the Lipper Index for the three-year period ended December 31, 2009. Finally, the Board noted that the Fund’s performance for the one-year period ended December 31, 2009 was below that of both the Performance Universe Average and the Lipper Index.
2 On May 6, 2009, Value Line Securities, Inc. changed its name to EULAV Securities, Inc. No other change was made to the Distributor’s organization, including its operations and personnel.
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The Adviser’s Personnel and Methods. The Board reviewed the background of the portfolio managers responsible for the daily management of the Fund’s portfolio, seeking to achieve the Fund’s investment objective and adhering to the Fund’s investment strategies. The Independent Directors also engaged in discussions with the Adviser&# 8217;s senior management responsible for the overall functioning of the Fund’s investment operations. The Board concluded that the Fund’s management team and the Adviser’s overall resources were adequate and that the Adviser had investment management capabilities and personnel essential to performing its duties under the Agreement.
Management Fee and Expenses. The Board considered the Adviser’s fee under the Agreement relative to the management fees charged by its Expense Group and Expense Universe averages. The Board noted that, for the most recent fiscal year, the Fund’s management fee rate was less than that of the Expense Group average and more than that of the Expe nse Universe average. Based on these factors, the Board determined that the Fund’s management fee rate payable to the Adviser under the Agreement does not constitute fees that are so disproportionately large as to bear no reasonable relationship to the services rendered and that could not have been the product of arm’s-length bargaining, and concluded that the management fee rate under the Agreement is fair and reasonable.
The Board also considered the Fund’s total expense ratio relative to its Expense Group and Expense Universe averages. The Board noted that the Distributor and the Board previously agreed that the Distributor would contractually waive a portion of the Fund’s Rule 12b-1 fee, effectively reducing the Fund’s Rule 12b-1 fee rate from 0.25% to 0.15% of the Fund’s average daily net assets for the one-year period ending July 31, 2010. The Distributor and the Board have currently agreed to extend this contractual 12b-1 fee waiver through July 31, 2011. Such waiver can not be changed without the Board’s approval during the contractual waiver period. After giving effect to this waiver, the Fund’s total expense ratio was less than that of the Expense Group average and more than that of the Expense Universe average. The Board concluded that the average expense ratio was satisfactory for the purpose of approving the continuance of the Agreement for the coming year.
Nature and Quality of Other Services. The Board considered the nature, quality, cost and extent of other services provided by the Adviser and the Distributor. At meetings held throughout the year, the Board reviewed the effectiveness of the Adviser’s overall compliance program, as well as the services provided by the Distributor. The Board viewed f avorably the increased emphasis being placed by the Adviser on its overall compliance program as well as steps being undertaken to enhance the shareholders’ experience with the Fund, such as a more robust website. The Board also reviewed the services provided by the Adviser and its affiliates in supervising third party service providers. Based on this review, the Board concluded that the nature, quality, cost and extent of such other services provided by the Adviser and its affiliates were satisfactory, reliable and beneficial to the Fund’s shareholders.
Profitability. The Board considered the level of profitability of the Adviser and its affiliates with respect to the Fund individually and in the aggregate for all the funds within the Value Line group of funds, including the impact of certain actions taken during prior years. These actions included the Adviser’s reduction (voluntary in some instan ces and contractual in other instances) of management and/or Rule 12b-1 fees for certain funds, the Adviser’s termination of the use of soft dollar research, and the cessation of trading through the Distributor. The Board concluded that the profitability of the Adviser and its affiliates with respect to the Fund, including the financial results derived from the Fund’s Agreement, were within a range the Board considered reasonable.
Other Benefits. The Board also considered the character and amount of other direct and incidental benefits received by the Adviser and its affiliates from their association with the Fund. The Board concluded that potential “fall-out” benefits that the Adviser and its affiliates may receive, such as greater name recognition, appear to be reaso nable, and may in some cases benefit the Fund.
Economies of Scale. The Board noted that, given the current and anticipated size of the Fund, any perceived and potential economies of scale were not yet a significant consideration for the Fund and the addition of break points was determined not to be necessary at this time.
Fees and Services Provided for Other Comparable Funds/Accounts Managed by the Adviser and its Affiliates. In addition to comparing the Fund’s management fee rate to unaffiliated mutual funds included in the Fund’s Expense Group and Expense Universe, the Board was informed by the Adviser that the Adviser and its affiliates do not manage any in vestment companies or other institutional accounts comparable to the Fund.
Conclusion. The Board, in light of the Adviser’s overall performance, considered it appropriate to continue to retain the Adviser as the Fund’s investment adviser. Based on their evaluation of all material factors deemed relevant, and with the advice of independent counsel, the Board concluded that the Fund’s Agreement is fair and reaso nable and voted to approve the continuation of the Agreement for another year.
FACTORS CONSIDERED BY THE BOARD IN APPROVING
THE INVESTMENT ADVISORY AGREEMENT
FOR THE VALUE LINE U.S. GOVERNMENT MONEY MARKET FUND, INC.
The Investment Company Act of 1940 (the “1940 Act”) requires the Board of Directors, including a majority of Directors who are not “interested persons” of Value Line U.S. Government Money Market Fund, Inc.3 (the “Fund”), as that term is defined in the 1940 Act (the “Independent Directors”), annually to consider the investment advisory agreement (the “Agreement”) between the Fund and its investment adviser, EULAV Asset Management, LLC (the “A dviser”). As required by the 1940 Act, the Board requested and the Adviser provided such information as the Board deemed to be reasonably necessary to evaluate the terms of the Agreement. At meetings held throughout the year, including the meeting specifically focused upon the review of the Agreement, the Independent Directors met in executive sessions separately from the non-Independent Director of the Fund and any officers of the Adviser. In selecting the Adviser and approving the continuance of the Agreement, the Independent Directors relied upon the assistance of counsel to the Independent Directors.
Both in the meetings which specifically addressed the approval of the Agreement and at other meetings held during the course of the year, the Board, including the Independent Directors, received materials relating to the Adviser’s investment and management services under the Agreement. These materials included information on: (i) the investment performance of the Fund, compared to a peer group of funds consisting of the Fund and all retail money market funds regardless of asset size or primary channel of distribution (the “Performance Universe”), and its benchmark i ndex, each as classified by Lipper Inc., an independent evaluation service (“Lipper”); (ii) the investment process, portfolio holdings, investment restrictions, valuation procedures, and financial statements for the Fund; (iii) sales and redemption data with respect to the Fund; (iv) the general investment outlook in the markets in which the Fund invests; (v) arrangements with respect to the distribution of the Fund’s shares; (vi) the allocation and cost of the Fund’s brokerage (none of which was effected through any affiliate of the Adviser); and (vii) the overall nature, quality and extent of services provided by the Adviser.
3 Effective August 19, 2009, the Fund changed its name from “The Value Line Cash Fund, Inc.” to “Value Line U.S. Government Money Market Fund, Inc.” and revised its investment policies. As a result of these changes, under normal conditions, the Fund invests at least 80% of its assets in money market securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities (“U.S. Government securities”) and repurchase agreements that are fully collateralized by U.S. Government securities.
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As part of the review of the continuance of the Agreement, the Board requested, and the Adviser provided, additional information in order to evaluate the quality of the Adviser’s services and the reasonableness of its fees under the Agreement. In a separate executive session, the Independent Directors reviewed information, which included data comparing: (i) the Fund’s management fee rate, transfer agent and custodian fee rates, service fee (including 12b-1 fees) rates, and the rate of the Fund’s other non-management fees, to those incurred by a peer group of funds c onsisting of the Fund and 17 other retail no-load money market funds, as selected objectively by Lipper (“Expense Group”), and a peer group of funds consisting of the Fund, the Expense Group and all other retail no-load money market funds (excluding outliers), as selected objectively by Lipper (“Expense Universe”); (ii) the Fund’s expense ratio to those of its Expense Group and Expense Universe; and (iii) the Fund’s investment performance over various time periods to the average performance of the Performance Universe as well as the appropriate Lipper Index, as selected objectively by Lipper (the “Lipper Index”). In the separate executive session, the Independent Directors also reviewed information regarding: (a) the financial results and condition of the Adviser’s parent company, the Adviser’s and certain of its affiliates’ profitability from the services that have been performed for the Fund as well as the Value Line family of funds; (b) the Fund’s current investment management staffing; and (c) the Fund’s potential for achieving economies of scale. In support of its review of the statistical information, the Board was provided with a detailed description of the methodology used by Lipper to determine the Expense Group, the Expense Universe and the Performance Universe to prepare its information. The Independent Directors also requested and reviewed information provided by the Adviser relating to the settlement of a matter brought by the Securities and Exchange Commission regarding Value Line Securities, Inc.4, the Fund’s principal underwriter and affiliate of the Adviser (the “Distributor”), Value Line, Inc., and two former directors and officers of Value Line, Inc. Value Line, Inc. informed the Board that it and the Adviser continue to have adequate liquid assets, and that the resolution of this matter did not have a materially adverse effect on the ability of the Adviser or the Distributor to perform their respective contracts with the Fund.
The following summarizes matters considered by the Board in connection with its renewal of the Agreement. However, the Board did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered.
Investment Performance. The Board reviewed the Fund’s overall investment performance and compared it to its Performance Universe and the Lipper Index. The Board noted that the Fund’s performance for the one-year, three-year, five-year and ten-year periods ended December 31, 2009 was below the performance of both the Performance Universe aver age and the Lipper Index. The Board also noted that for various periods, the Fund was effectively managed as a U.S. Government securities money market fund while its Performance Universe includes prime money market funds that invest in other types of eligible money market instruments. The Lipper Index also is not limited to U.S. Government securities. The Board noted that the other types of eligible money market instruments generally have higher yields than U.S. Government securities but that they are also subject to greater risk of default than U.S. Government securities.
4 On May 6, 2009, Value Line Securities, Inc. changed its name to EULAV Securities, Inc. No other change was made to the Distributor’s organization, including its operations and personnel.
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The Adviser’s Personnel and Methods. The Board reviewed the background of the portfolio manager responsible for the daily management of the Fund’s portfolio, seeking to achieve the Fund’s investment objective and adhering to the Fund’s investment strategies. The Independent Directors also engaged in discussions with the Adviser 217;s senior management responsible for the overall functioning of the Fund’s investment operations. The Board concluded that the Fund’s management team and the Adviser’s overall resources were adequate and that the Adviser had investment management capabilities and personnel essential to performing its duties under the Agreement.
Management Fee and Expenses. The Board considered the Adviser’s fee under the Agreement relative to the management fees charged by its Expense Group and Expense Universe averages. The Board noted that, for the most recent fiscal year, the Fund’s management fee rate was below that of both the Expense Group average and the Expense Universe aver age. The Board further noted that, given the historically low current interest rate environment, the Adviser has been voluntarily waiving a portion of its fee which had the effect of increasing the Fund’s yield, which benefited the Fund’s shareholders.
The Board also considered the Fund’s total expense ratio relative to its Expense Group and Expense Universe averages. The Board noted that the Distributor and the Board previously agreed that the Distributor would contractually waive a portion of the Fund’s Rule 12b-1 fee, effectively reducing the Fund’s Rule 12b-1 fee rate from 0.25% to 0.00% of the Fund’s average daily net assets for the one-year period ended April 30, 2010. The Distributor and the Board have currently agreed to extend this contractual 12b-1 fee waiver through April 30, 2011. Such waiver can not b e changed without the Board’s approval during the contractual waiver period. As a result of this Rule 12b-1 fee waiver, the Board noted that the Fund’s total expense ratio after giving effect to the waiver was less than that of the Expense Group average and the Expense Universe average. The Board concluded that the average expense ratio was satisfactory for the purpose of approving the continuance of the Agreement for the coming year.
Nature and Quality of Other Services. The Board considered the nature, quality, cost and extent of other services provided by the Adviser and the Distributor. At meetings held throughout the year, the Board reviewed the effectiveness of the Adviser’s overall compliance program, as well as the services provided by the Distributor. The Board viewed f avorably the increased emphasis being placed by the Adviser on its overall compliance program as well as steps being undertaken to enhance the shareholders’ experience with the Fund, such as a more robust website. The Board also reviewed the services provided by the Adviser and its affiliates in supervising third party service providers. Based on this review, the Board concluded that the nature, quality, cost and extent of such other services provided by the Adviser and its affiliates were satisfactory, reliable and beneficial to the Fund’s shareholders.
Profitability. The Board considered the level of profitability of the Adviser and its affiliates with respect to the Fund individually and in the aggregate for all the funds within the Value Line group of funds, including the impact of certain actions taken during prior years. These actions included the Adviser’s reduction (voluntary in some instan ces and contractual in other instances) of management and/or Rule 12b-1 fees for certain funds, the Adviser’s termination of the use of soft dollar research, and the cessation of trading through the Distributor. The Board concluded that the profitability of the Adviser and its affiliates with respect to the Fund, including the financial results derived from the Fund’s Agreement, were within a range the Board considered reasonable.
Other Benefits. The Board also considered the character and amount of other direct and incidental benefits received by the Adviser and its affiliates from their association with the Fund. The Board concluded that potential “fall-out” benefits that the Adviser and its affiliates may receive, such as greater name recognition, appear to be reaso nable, and may in some cases benefit the Fund.
Economies of Scale. The Board noted that, given the current and anticipated size of the Fund, any perceived and potential economies of scale were not yet a significant consideration for the Fund and the addition of break points was determined not to be necessary at this time.
Fees and Services Provided for Other Comparable Funds/Accounts Managed by the Adviser and its Affiliates. In addition to comparing the Fund’s management fee rate to unaffiliated mutual funds included in the Fund’s Expense Group and Expense Universe, the Board was informed by the Adviser that the Adviser and its affiliates do not manage any in vestment companies or other institutional accounts comparable to the Fund.
Conclusion. The Board, in light of the Adviser’s overall performance, considered it appropriate to continue to retain the Adviser as the Fund’s investment adviser. Based on their evaluation of all material factors deemed relevant, and with the advice of independent counsel, the Board determined that the Fund’s management fee rate payabl e to the Adviser under the Agreement does not constitute fees that are so disproportionately large as to bear no reasonable relationship to the services rendered and that could not have been the product of arm’s-length bargaining, and concluded that the management fee rate under the Agreement is fair and reasonable. Further, the Board concluded that the Fund’s Agreement is fair and reasonable and approved the continuation of the Agreement for another year.
FACTORS CONSIDERED BY THE BOARD IN APPROVING
THE INVESTMENT ADVISORY AGREEMENT
FOR VALUE LINE CENTURION FUND, INC.
The Investment Company Act of 1940 (the “1940 Act”) requires the Board of Directors, including a majority of Directors who are not “interested persons” of Value Line Centurion Fund, Inc. (the “Fund”), as that term is defined in the 1940 Act (the “Independent Directors”), annually to consider the investment advisory agreement (the “Agreement”) between the Fund and its investment adviser, EULAV Asset Management, LLC (the “Adviser”). As required by the 1940 Act, the Board requested and the Adviser provided such information as the Board deemed to be reasonably necessary to evaluate the terms of the Agreement. At meetings held throughout the year, including the meeting specifically focused upon the review of the Agreement, the Independent Directors met in executive sessions separately from the non-Independent Director of the Fund and any officers of the Adviser. In selecting the Adviser and approving the continuance of the Agreement, the Independent Directors relied upon the assistance of counsel to the Independent Directors.
Both in the meetings which specifically addressed the approval of the Agreement and at other meetings held during the course of the year, the Board, including the Independent Directors, received materials relating to the Adviser’s investment and management services under the Agreement. These materials included information on: (i) the investment performance of the Fund, compared to a peer group of funds consisting of the Fund and all multi-cap growth funds underlying variable insurance products regardless of asset size or primary channel of distribution (the “Performance Universe”), and its benchmark index, each as classified by Lipper Inc., an independent evalua tion service (“Lipper”); (ii) the investment process, portfolio holdings, investment restrictions, valuation procedures, and financial statements for the Fund; (iii) sales and redemption data with respect to the Fund; (iv) the general investment outlook in the markets in which the Fund invests; (v) arrangements with respect to the distribution of the Fund’s shares; (vi) the allocation and cost of the Fund’s brokerage (none of which was effected through any affiliate of the Adviser); and (vii) the overall nature, quality and extent of services provided by the Adviser.
As part of the review of the continuance of the Agreement, the Board requested, and the Adviser provided, additional information in order to evaluate the quality of the Adviser’s services and the reasonableness of its fees under the Agreement. In a separate executive session, the Independent Directors reviewed information, which included data comparing: (i) the Fund’s management fee rate, transfer agent and custodian fee rates, service fee (including 12b-1 fees) rates, and the rate of the Fund’s other non-management fees, to those incurred by a peer group of funds consisting of the Fund and 15 other multi-cap growth funds underlying variable insurance products, as selected objectively by Lipper (“Expense Group”), and a peer group of funds consisting of the Fund, the Expense Group and all other multi-cap growth funds underlying variable insurance products (excluding outliers), as selected objectively by Lipper (“Expense Universe”); (ii) the Fund’s expense ratio to those of its Expense Group and Expense Universe; and (iii) the Fund’s investment performance over various time periods to the average performance of the Performance Universe as well as the appropriate Lipper Index, as selected objectively by Lipper (the “Lipper Index”). In the separate executive session, the Independent Directors also reviewed information regarding: (a) the financial results and condition of the Adviser’s parent company, the Adviser’s and certain of its affiliates’ profitability from the services that have been performed for the Fund as well as the Value Line family of funds; (b) the Fund’s current investment managemen t staffing; and (c) the Fund’s potential for achieving economies of scale. In support of its review of the statistical information, the Board was provided with a detailed description of the methodology used by Lipper to determine the Expense Group, the Expense Universe and the Performance Universe to prepare its information. The Independent Directors also requested and reviewed information provided by the Adviser relating to the settlement of a matter brought by the Securities and Exchange Commission regarding Value Line Securities, Inc.5, the Fund’s principal underwriter and affiliate of the Adviser (the “Distributor”), Value Line, Inc., and two former directors and officers of Value Line, Inc. Value Line, Inc. informed the Board that it and the Adviser continue to have adequate liquid assets, and that the resolution of this matter did not have a materially adverse effect on the ability of the Adviser or t he Distributor to perform their respective contracts with the Fund.
The following summarizes matters considered by the Board in connection with its renewal of the Agreement. However, the Board did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered.
Investment Performance. The Board reviewed the Fund’s overall investment performance and compared it to its Performance Universe and the Lipper Index. The Board noted that the Fund’s performance was below the performance of both the Performance Universe average and the Lipper Index for the one-year, three-year, five-year and ten-year periods ended December 31, 2009.
The Adviser’s Personnel and Methods. The Board reviewed the background of the portfolio manager responsible for the daily management of the Fund’s portfolio, seeking to achieve the Fund’s investment objective and adhering to the Fund’s investment strategies. The Independent Directors also engaged in discussions with the Adviser’s senior management responsible for the overall functioning of the Fund’s investment operations. The Board concluded that the Fund’s management team and the Adviser’s overall resources were adequate and tha t the Adviser had investment management capabilities and personnel essential to performing its duties under the Agreement.
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5 On May 6, 2009, Value Line Securities, Inc. changed its name to EULAV Securities, Inc. No other change was made to the Distributor’s organization, including its operations and personnel.
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Management Fee and Expenses. The Board considered the Adviser’s fee under the Agreement relative to the management fees charged by its Expense Group and Expense Universe averages. The Board noted that, for the most recent fiscal year, the Fund’s management fee rate was less than that of both the Expense Group average and the Expense Universe average.
The Board also considered the Fund’s total expense ratio relative to its Expense Group and Expense Universe averages. The Board noted that the Distributor and the Board previously agreed that the Distributor would contractually waive a portion of the Fund’s Rule 12b-1 fee, effectively reducing the Fund’s Rule 12b-1 fee rate from 0.40% to 0.25% of the Fund’s average daily net assets for the one year period ending April 30, 2010. he Distributor and the Board have currently agreed to extend this contractual 12b-1 fee waiver through April 30, 2011. Such waiver can not be changed without the Board’s approval during the contractual waiver period. The Board noted that the Fund’s total expense ratio before and after giving effect to the fee waiver was less than that of the Expense Group average and the Expense Universe average. The Board concluded that the average expense ratio was satisfactory for the purpose of approving the continuance of the Agreement for the coming year.
Nature and Quality of Other Services. The Board considered the nature, quality, cost and extent of other services provided by the Adviser and the Distributor. At meetings held throughout the year, the Board reviewed the effectiveness of the Adviser’s overall compliance program, as well as the services provided by the Distributor. The Board viewed favorably the increased emphasis being placed by the Adviser on its overall compliance program as well as steps being undertaken to enhance the shareholders’ experience with the Fund, such as a more robust website. The Boar d also reviewed the services provided by the Adviser and its affiliates in supervising third party service providers. Based on this review, the Board concluded that the nature, quality, cost and extent of such other services provided by the Adviser and its affiliates were satisfactory, reliable and beneficial to the Fund’s shareholders.
Profitability. The Board considered the level of profitability of the Adviser and its affiliates with respect to the Fund individually and in the aggregate for all the funds within the Value Line group of funds, including the impact of certain actions taken during prior years. These actions included the reduction (voluntary in some instances and contractual in other instances) of management and/or Rule 12b-1 fees for certain funds, the Adviser’s termination of the use of soft dollar research, and the cessation of trading through the Distributor. The Board concluded that t he profitability of the Adviser and its affiliates with respect to the Fund, including the financial results derived from the Fund’s Agreement, were within a range the Board considered reasonable.
Other Benefits. The Board also considered the character and amount of other direct and incidental benefits received by the Adviser and its affiliates from their association with the Fund. The Board concluded that potential “fall-out” benefits that the Adviser and its affiliates may receive, such as greater name recognition, appear to be reasonable, and may in some cases benefit the Fund.
Economies of Scale. The Board noted that, given the current and anticipated size of the Fund, any perceived and potential economies of scale were not yet a significant consideration for the Fund and the addition of break points was determined not to be necessary at this time.
Fees and Services Provided for Other Comparable Funds/Accounts Managed by the Adviser and its Affiliates. In addition to comparing the Fund’s management fee rate to unaffiliated mutual funds included in the Fund’s Expense Group and Expense Universe, the Board was informed by the Adviser that the Adviser and its affiliates do not manage any investment companies or other institutional accounts comparable to the Fund.
Conclusion. The Board, in light of the Adviser’s overall performance, considered it appropriate to continue to retain the Adviser as the Fund’s investment adviser. Based on their evaluation of all material factors deemed relevant, and with the advice of independent counsel, the Board determined that the Fund’s management fee rate payable to the Adviser under the Agreement does not constitute fees that are so disproportionately large as to bear no reasonable relationship to the services rendered and that could not have been the product of arm’s-length bar gaining, and concluded that the management fee rate under the Agreement is fair and reasonable. Further, the Board concluded that the Fund’s Agreement is fair and reasonable and approved the continuation of the Agreement for another year.
FACTORS CONSIDERED BY THE BOARD IN APPROVING
THE INVESTMENT ADVISORY AGREEMENT
FOR VALUE LINE CONVERTIBLE FUND
The Investment Company Act of 1940 (the “1940 Act”) requires the Board of Directors, including a majority of Directors who are not interested persons of Value Line Convertible Fund (the “Fund”), as that term is defined in the 1940 Act (the “Independent Directors”), annually to consider the investment advisory agreement (the “Agreement”) between the Fund and its investment adviser, EULAV Asset Management, LLC (the “Adviser”). As required by the 1940 Act, the Board requested and the Adviser provided such information as the Board deemed to be reasonably necessary to evaluate the terms of the Agreement. At meetings held throu ghout the year, including the meeting specifically focused upon the review of the Agreement, the Independent Directors met in executive sessions separately from the non-Independent Director of the Fund and any officers of the Adviser. In selecting the Adviser and approving the continuance of the Agreement, the Independent Directors relied upon the assistance of counsel to the Independent Directors.
Both in the meetings which specifically addressed the approval of the Agreement and at other meetings held during the course of the year, the Board, including the Independent Directors, received materials relating to the Adviser’s investment and management services under the Agreement. These materials included information on: (i) the investment performance of the Fund, compared to a peer group of funds consisting of the Fund and all retail and institutional convertible securities funds regardless of asset size or primary channel of distribution (the “Performance Universe”), and its benchmark index, each as classified by Lipper Inc., an independent evaluation serv ice (“Lipper”); (ii) the investment process, portfolio holdings, investment restrictions, valuation procedures, and financial statements for the Fund; (iii) sales and redemption data with respect to the Fund; (iv) the general investment outlook in the markets in which the Fund invests; (v) arrangements with respect to the distribution of the Fund’s shares; (vi) the allocation and cost of the Fund’s brokerage (none of which was effected through any affiliate of the Adviser); and (vii) the overall nature, quality and extent of services provided by the Adviser.
As part of the review of the continuance of the Agreement, the Board requested, and the Adviser provided, additional information in order to evaluate the quality of the Adviser’s services and the reasonableness of its fees under the Agreement. In a separate executive session, the Independent Directors reviewed information, which included data comparing: (i) the Fund’s management fee rate, transfer agent and custodian fee rates, service fee (including 12b-1 fees) rates, and the rate of the Fund’s other non-management fees, to those incurred by a peer group of funds consisting of the Fund and 11 other retail front-end load and no-load convertible securities funds, as selected objectively by Lipper (“Expense Group”), and a peer group of funds consisting of the Fund, the Expense Group and all other retail front-end load and no-load convertible securities funds (excluding outliers), as selected objectively by Lipper (“Expense Universe”); (ii) the Fund’s expense ratio to those of its Expense Group and Expense Universe; and (iii) the Fund’s investment performance over various time periods to the average performance of the Performance Universe as well as the appropriate Lipper Index, as selected objectively by Lipper (the “Lipper Index”). In the separate executive session, the Independent Directors also reviewed information regarding: (a) the financial results and condition of the Adviser’s parent company, the Adviser’s and certain of its affiliates’ profitability from the services that have been performed for the Fund as well as the Value Line family of funds; (b) the Fund’s current investment manageme nt staffing; and (c) the Fund’s potential for achieving economies of scale. In support of its review of the statistical information, the Board was provided with a detailed description of the methodology used by Lipper to determine the Expense Group, the Expense Universe and the Performance Universe to prepare its information. The Independent Directors also requested and reviewed information provided by the Adviser relating to the settlement of a matter brought by the Securities and Exchange Commission regarding Value Line Securities, Inc.6, the Fund’s principal underwriter and affiliate of the Adviser (the “Distributor”), Value Line, Inc., and two former directors and officers of Value Line, Inc. Value Line, Inc. informed the Board that it and the Adviser continue to have adequate liquid assets, and that the resolution of this matter did not have a materially adverse effect on the ability of the Adviser or the Distributor to perform their respective contracts with the Fund.
The following summarizes matters considered by the Board in connection with its renewal of the Agreement. However, the Board did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered.
Investment Performance. The Board reviewed the Fund’s overall investment performance and compared it to its Performance Universe and the Lipper Index. The Board noted that the Fund’s performance was below the performance of both the Performance Universe average and the Lipper Index for the one-year, three-year, five-year and ten-year periods ended December 31, 2009.
The Adviser’s Personnel and Methods. The Board reviewed the background of the portfolio manager responsible for the daily management of the Fund’s portfolio, seeking to achieve the Fund’s investment objective and adhering to the Fund’s investment strategies. The Independent Directors also engaged in discussions with the Adviser’s senior management responsible for the overall functioning of the Fund’s investment operations. The Board concluded that the Fund’s management team and the Adviser’s over all resources were adequate and that the Adviser had investment management capabilities and personnel essential to performing its duties under the Agreement.
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6 On May 6, 2009, Value Line Securities, Inc. changed its name to EULAV Securities, Inc. No other change was made to the Distributor’s organization, including its operations and personnel.
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Management Fee and Expenses. The Board considered the Adviser’s fee under the Agreement relative to the management fees charged by its Expense Group and Expense Universe averages. The Board noted that the Adviser and the Board previously agreed that the Adviser would contractually waive a portion of the Fund’s management fee, thereby reducing the management fee rate from 0.75% to 0.625% of the Fund’s average daily net assets for the one-year period ending August 31, 2010. The Adviser and the Board have currently agreed to extend this contractual fee waiver thro ugh August 31, 2011. Such waiver can not be changed without the Board’s approval during the contractual waiver period. The Board noted that, for the most recent fiscal year, the Fund’s management fee rate after giving effect to the contractual management fee waiver was higher than that of both the Expense Group average and the Expense Universe average. The Board viewed favorably the Adviser’s decision to invest its assets in a portfolio analytical system which would further support the Fund’s management team as well as the Adviser’s increased emphasis on seeking to improve the Fund’s performance while noting the Fund’s small asset size. The Board determined that the Fund’s management fee rate payable to the Adviser under the Agreement does not constitute fees that are so disproportionately large as to bear no reasonable relationship to the services rendered and that could not have been the product of arm’s-length bargaining, and concluded that the managem ent fee rate under the Agreement is fair and reasonable.
The Board also considered the Fund’s total expense ratio relative to its Expense Group and Expense Universe averages. The Board noted that the Distributor and the Board previously agreed that the Distributor would contractually waive a portion of the Fund’s Rule 12b-1 fee, effectively reducing the Fund’s Rule 12b-1 fee rate from 0.25% to 0.10% of the Fund’s average daily net assets for the one-year period ending August 31, 2010. The Distributor and the Board have currently agreed to extend this contractual 12b-1 fee waiver through August 31, 2011. Such waiver can not be changed without the Board’s approval during the contractual waiver period. While n oting that the Fund’s total expense ratio after giving effect to these waivers was higher than that of the Expense Group average and the Expense Universe average, the Board viewed favorably other steps recently undertaken by the Adviser to reduce the Fund’s expense ratio, including a renegotiation of the fees charged by the Fund’s transfer agent (which expense reductions were not reflected in the comparative materials). The Board concluded that the average expense ratio was satisfactory for the purpose of approving the continuance of the Agreement for the coming year.
Nature and Quality of Other Services. The Board considered the nature, quality, cost and extent of other services provided by the Adviser and the Distributor. At meetings held throughout the year, the Board reviewed the effectiveness of the Adviser’s overall compliance program, as well as the services provided by the Distributor. The Board viewed favorably the increased emphasis being placed by the Adviser on its overall compliance program as well as steps being undertaken to enhance the shareholders’ experience with the Fund, such as a more robust website. The Board also reviewed the services provided by the Adviser and its affiliates in supervising third party service providers. Based on this review, the Board concluded that the nature, quality, cost and extent of such other services provided by the Adviser and its affiliates were satisfactory, reliable and beneficial to the Fund’s shareholders.
Profitability. The Board considered the level of profitability of the Adviser and its affiliates with respect to the Fund individually and in the aggregate for all the funds within the Value Line group of funds, including the impact of certain actions taken during prior years. These actions included the Adviser’s reduction (voluntary in some instances and contractual in other instances) of management and/or Rule 12b-1 fees for certain funds, the Adviser’s termination of the use of soft dollar research, and the cessation of trading through the Distributor. The Board c oncluded that the profitability of the Adviser and its affiliates with respect to the Fund, including the financial results derived from the Fund’s Agreement, were within a range the Board considered reasonable.
Other Benefits. The Board also considered the character and amount of other direct and incidental benefits received by the Adviser and its affiliates from their association with the Fund. The Board concluded that potential “fall-out” benefits that the Adviser and its affiliates may receive, such as greater name recognition, appear to be reasonable, and may in some cases benefit the Fund.
Economies of Scale. The Board noted that, given the current and anticipated size of the Fund, any perceived and potential economies of scale were not yet a significant consideration for the Fund and the addition of break points was determined not to be necessary at this time.
Fees and Services Provided for Other Comparable Funds/Accounts Managed by the Adviser and its Affiliates. In addition to comparing the Fund’s management fee rate to unaffiliated mutual funds included in the Fund’s Expense Group and Expense Universe, the Board was informed by the Adviser that the Adviser and its affiliates do not manage any investment companies or other institutional accounts comparable to the Fund.
Conclusion. The Board, in light of the Adviser’s overall performance, considered it appropriate to continue to retain the Adviser as the Fund’s investment adviser. Based on their evaluation of all material factors deemed relevant, and with the advice of independent counsel, the Board concluded that the Fund’s Agreement is fair and reasonable and voted to approve the continuation of the Agreement for another year.
FACTORS CONSIDERED BY THE BOARD IN APPROVING
THE INVESTMENT ADVISORY AGREEMENT
FOR VALUE LINE EMERGING OPPORTUNITIES FUND
The Investment Company Act of 1940 (the “1940 Act”) requires the Board of Directors, including a majority of Directors who are not interested persons of Value Line Emerging Opportunities Fund (the “Fund”), as that term is defined in the 1940 Act (the “Independent Directors”), annually to consider the investment advisory agreement (the “Agreement”) between the Fund and its investment adviser, EULAV Asset Management, LLC (the “Adviser”). As required by the 1940 Act, the Board requested and the Adviser provided such information as the Board deemed to be reasonably necessary to evaluate the terms of the Agreement. At meeting s held throughout the year, including the meeting specifically focused upon the review of the Agreement, the Independent Directors met in executive sessions separately from the non-Independent Director of the Fund and any officers of the Adviser. In selecting the Adviser and approving the continuance of the Agreement, the Independent Directors relied upon the assistance of counsel to the Independent Directors.
Both in the meetings which specifically addressed the approval of the Agreement and at other meetings held during the course of the year, the Board, including the Independent Directors, received materials relating to the Adviser’s investment and management services under the Agreement. These materials included information on: (i) the investment performance of the Fund, compared to a peer group of funds consisting of the Fund and all retail and institutional small-cap growth funds regardless of asset size or primary channel of distribution (the “Performance Universe”), and its benchmark index, each as classified by Lipper Inc., an independent evaluation service ( “Lipper”); (ii) the investment process, portfolio holdings, investment restrictions, valuation procedures, and financial statements for the Fund; (iii) sales and redemption data with respect to the Fund; (iv) the general investment outlook in the markets in which the Fund invests; (v) arrangements with respect to the distribution of the Fund’s shares; (vi) the allocation and cost of the Fund’s brokerage (none of which was effected through any affiliate of the Adviser); and (vii) the overall nature, quality and extent of services provided by the Adviser.
As part of the review of the continuance of the Agreement, the Board requested, and the Adviser provided, additional information in order to evaluate the quality of the Adviser’s services and the reasonableness of its fees under the Agreement. In a separate executive session, the Independent Directors reviewed information, which included data comparing: (i) the Fund’s management fee rate, transfer agent and custodian fee rates, service fee (including 12b-1 fees) rates, and the rate of the Fund’s other non-management fees, to those incurred by a peer group of funds consisting of the Fund and 15 other retail no-load small-cap growth funds, as selected objectively by Lipper (“Expense Group”), and a peer group of funds consisting of the Fund, the Expense Group and all other retail no-load small-cap growth funds (excluding outliers), as selected objectively by Lipper (“Expense Universe”); (ii) the Fund’s expense ratio to those of its Expense Group and Expense Universe; and (iii) the Fund’s investment performance over various time periods to the average performance of the Performance Universe as well as the appropriate Lipper Index, as selected objectively by Lipper (the “Lipper Index”). In the separate executive session, the Independent Directors also reviewed information regarding: (a) the financial results and condition of the Adviser’s parent company, the Adviser’s and certain of its affiliates’ profitability from the services that have been performed for the Fund as well as the Value Line family of funds; (b) the Fund’s current investment management staffing; and (c) the Fund’s potential f or achieving economies of scale. In support of its review of the statistical information, the Board was provided with a detailed description of the methodology used by Lipper to determine the Expense Group, the Expense Universe and the Performance Universe to prepare its information. The Independent Directors also requested and reviewed information provided by the Adviser relating to the settlement of a matter brought by the Securities and Exchange Commission regarding Value Line Securities, Inc.7, the Fund’s principal underwriter and affiliate of the Adviser (the “Distributor”), Value Line, Inc., and two former directors and officers of Value Line, Inc. Value Line, Inc. informed the Board that it and the Adviser continue to have adequate liquid assets, and that the resolution of this matter did not have a materially adverse effect on the ability of the Adviser or the Distributor to perform their respective contr acts with the Fund.
The following summarizes matters considered by the Board in connection with its renewal of the Agreement. However, the Board did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered.
Investment Performance. The Board reviewed the Fund’s overall investment performance and compared it to its Performance Universe and the Lipper Index. The Board noted that the Fund performed below the performance of both the Performance Universe and the Lipper Index for the one-year period ended December 31, 2009 while it outperformed the Performance Universe average and had approximately the same performance as the Lipper Index for the three-year period ended December 31, 2009. The Board also noted that the Fund outperformed both the Performance Universe and the Lipper I ndex for the five-year and ten-year periods ended December 31, 2009.
The Adviser’s Personnel and Methods. The Board reviewed the background of the portfolio manager responsible for the daily management of the Fund’s portfolio, seeking to achieve the Fund’s investment objective and adhering to the Fund’s investment strategies. The Independent Directors also engaged in discussions with the Adviser’s senior management responsible for the overall functioning of the Fund’s investment operations. The Board concluded that the Fund’s management team and the Adviser’s overall resources were adequate and tha t the Adviser had investment management capabilities and personnel essential to performing its duties under the Agreement.
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7 On May 6, 2009, Value Line Securities, Inc. changed its name to EULAV Securities, Inc. No other change was made to the Distributor’s organization, including its operations and personnel.
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Management Fee and Expenses. The Board considered the Adviser’s fee under the Agreement relative to the management fees charged by its Expense Group and Expense Universe averages. The Board noted that, for the most recent fiscal year, the Fund’s management fee rate was less than that of both the Expense Group average and the Expense Universe average. Based on these factors, the Board determined that the Fund’s management fee rate payable to the Adviser under the Agreement does not constitute fees that are so disproportionately large as to bear no reasonable re lationship to the services rendered and that could not have been the product of arm’s-length bargaining, and concluded that the management fee rate under the Agreement is fair and reasonable.
The Board also considered the Fund’s total expense ratio relative to its Expense Group and Expense Universe averages. The Board noted that the Fund’s total expense ratio was less than that of the Expense Group average and the Expense Universe average. The Board concluded that the average expense ratio was satisfactory for the purpose of approving the continuance of the Agreement for the coming year.
Nature and Quality of Other Services. The Board considered the nature, quality, cost and extent of other services provided by the Adviser and the Distributor. At meetings held throughout the year, the Board reviewed the effectiveness of the Adviser’s overall compliance program, as well as the services provided by the Distributor. The Board viewed favorably the increased emphasis being placed by the Adviser on its overall compliance program as well as steps being undertaken to enhance the shareholders’ experience with the Fund, such as a more robust website. The Boar d also reviewed the services provided by the Adviser and its affiliates in supervising third party service providers. Based on this review, the Board concluded that the nature, quality, cost and extent of such other services provided by the Adviser and its affiliates were satisfactory, reliable and beneficial to the Fund’s shareholders.
Profitability. The Board considered the level of profitability of the Adviser and its affiliates with respect to the Fund individually and in the aggregate for all the funds within the Value Line group of funds, including the impact of certain actions taken during prior years. These actions included the Adviser’s reduction (voluntary in some instances and contractual in other instances) of management and/or Rule 12b-1 fees for certain funds, the Adviser’s termination of the use of soft dollar research, and the cessation of trading through the Distributor. The Board concluded that the profitability of the Adviser and its affiliates with respect to the Fund, including the financial results derived from the Fund’s Agreement, were within a range the Board considered reasonable.
Other Benefits. The Board also considered the character and amount of other direct and incidental benefits received by the Adviser and its affiliates from their association with the Fund. The Board concluded that potential “fall-out” benefits that the Adviser and its affiliates may receive, such as greater name recognition, appear to be reasonable, and may in some cases benefit the Fund.
Economies of Scale. The Board noted that, given the current and anticipated size of the Fund, any perceived and potential economies of scale were not yet a significant consideration for the Fund and the addition of break points was determined not to be necessary at this time.
Fees and Services Provided for Other Comparable Funds/Accounts Managed by the Adviser and its Affiliates. In addition to comparing the Fund’s management fee rate to unaffiliated mutual funds included in the Fund’s Expense Group and Expense Universe, the Board was informed by the Adviser that the Adviser and its affiliates do not manage any investment companies or other institutional accounts comparable to the Fund.
Conclusion. The Board, in light of the Adviser’s overall performance, considered it appropriate to continue to retain the Adviser as the Fund’s investment adviser. Based on their evaluation of all material factors deemed relevant, and with the advice of independent counsel, the Board concluded that the Fund’s Agreement is fair and reasonable and voted to approve the continuation of the Agreement for another year.
FACTORS CONSIDERED BY THE BOARD IN APPROVING
THE INVESTMENT ADVISORY AGREEMENT
FOR THE VALUE LINE FUND, INC.
The Investment Company Act of 1940 (the “1940 Act”) requires the Board of Directors, including a majority of Directors who are not “interested persons” of The Value Line Fund, Inc. (the “Fund”), as that term is defined in the 1940 Act (the “Independent Directors”), annually to consider the investment advisory agreement (the “Agreement”) between the Fund and its investment adviser, EULAV Asset Management, LLC (the “Adviser”). As required by the 1940 Act, the Board requested and the Adviser provided such information as the Board deemed to be reasonably necessary to evaluate the terms of the Agreement. At meetin gs held throughout the year, including the meeting specifically focused upon the review of the Agreement, the Independent Directors met in executive sessions separately from the non-Independent Director of the Fund and any officers of the Adviser. In selecting the Adviser and approving the continuance of the Agreement, the Independent Directors relied upon the assistance of counsel to the Independent Directors.
Both in the meetings which specifically addressed the approval of the Agreement and at other meetings held during the course of the year, the Board, including the Independent Directors, received materials relating to the Adviser’s investment and management services under the Agreement. These materials included information on: (i) the investment performance of the Fund, compared to a peer group of funds consisting of the Fund and all retail and institutional multi-cap growth funds regardless of asset size or primary channel of distribution (the “Performance Universe”), and its benchmark index, each as classified by Lipper Inc., an independent evaluation service ( “Lipper”); (ii) the investment process, portfolio holdings, investment restrictions, valuation procedures, and financial statements for the Fund; (iii) sales and redemption data with respect to the Fund; (iv) the general investment outlook in the markets in which the Fund invests; (v) arrangements with respect to the distribution of the Fund’s shares; (vi) the allocation and cost of the Fund’s brokerage (none of which was effected through any affiliate of the Adviser); and (vii) the overall nature, quality and extent of services provided by the Adviser.
As part of the review of the continuance of the Agreement, the Board requested, and the Adviser provided, additional information in order to evaluate the quality of the Adviser’s services and the reasonableness of its fees under the Agreement. In a separate executive session, the Independent Directors reviewed information, which included data comparing: (i) the Fund’s management fee rate, transfer agent and custodian fee rates, service fee (including 12b-1 fees) rates, and the rate of the Fund’s other non-management fees, to those incurred by a peer group of funds consisting of the Fund and 11 other retail no-load multi-cap growth funds, as selected objectively by Lipper (“Expense Group”), and a peer group of funds consisting of the Fund, the Expense Group and all other retail no-load multi-cap growth funds (excluding outliers), as selected objectively by Lipper (“Expense Universe”); (ii) the Fund’s expense ratio to those of its Expense Group and Expense Universe; and (iii) the Fund’s investment performance over various time periods to the average performance of the Performance Universe as well as the appropriate Lipper Index, as selected objectively by Lipper (the “Lipper Index”). In the separate executive session, the Independent Directors also reviewed information regarding: (a) the financial results and condition of the Adviser’s parent company, the Adviser’s and certain of its affiliates’ profitability from the services that have been performed for the Fund as well as the Value Line family of funds; (b) the Fund’s current investment management staffing; and (c) the Fund’s potential f or achieving economies of scale. In support of its review of the statistical information, the Board was provided with a detailed description of the methodology used by Lipper to determine the Expense Group, the Expense Universe and the Performance Universe to prepare its information. The Independent Directors also requested and reviewed information provided by the Adviser relating to the settlement of a matter brought by the Securities and Exchange Commission regarding Value Line Securities, Inc.8, the Fund’s principal underwriter and affiliate of the Adviser (the “Distributor”), Value Line, Inc., and two former directors and officers of Value Line, Inc. Value Line, Inc. informed the Board that it and the Adviser continue to have adequate liquid assets, and that the resolution of this matter did not have a materially adverse effect on the ability of the Adviser or the Distributor to perform their respective contr acts with the Fund.
The following summarizes matters considered by the Board in connection with its renewal of the Agreement. However, the Board did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered.
Investment Performance. The Board reviewed the Fund’s overall investment performance and compared it to its Performance Universe and the Lipper Index. The Board noted that the Fund’s performance for the one-year, three-year, five-year and ten-year periods ended December 31, 2009 was below the performance of both the Performance Universe average and the Lipper Index. The Board noted that it approved changes to the Fund’s investment policies in March 2009 that were recommended by the Adviser to address the Fund’s underperformance, and that it may take lon ger than the current period in order to for those changes to produce results.
The Adviser’s Personnel and Methods. The Board reviewed the background of the portfolio manager responsible for the daily management of the Fund’s portfolio, seeking to achieve the Fund’s investment objectives and adhering to the Fund’s investment strategies. The Independent Directors also engaged in discussions with the Adviser’s senior management responsible for the overall functioning of the Fund’s investment operations. The Board concluded that the Fund’s management team and the Adviser’s overall resources were adequate and t hat the Adviser had investment management capabilities and personnel essential to performing its duties under the Agreement.
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8 On May 6, 2009, Value Line Securities, Inc. changed its name to EULAV Securities, Inc. No other change was made to the Distributor’s organization, including its operations and personnel.
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Management Fee and Expenses. The Board considered the Adviser’s fee under the Agreement relative to the management fees charged by its Expense Group and Expense Universe averages. The Board noted that the Adviser and the Board previously agreed that the Adviser would contractually waive a portion of the Fund’s management fee equal to 0.10% on the first $100 million of the Fund’s average daily net assets and 0.15% on any additional assets, thereby reducing the management fee rate from 0.70% to 0.60% on the first $100 million of the Fund’s average daily ne t assets and from 0.65% to 0.50% on any additional assets for the one-year period ending April 30, 2010. The Adviser and the Board have currently agreed to extend this contractual fee waiver through April 30, 2011. Such waiver can not bechanged without the Board’s approval during the contractual waiver period. The Board noted that, for the most recent fiscal year, the Fund’s management fee rate without giving effect to the contractual management fee waiver was less than that of both the Expense Group average and the Expense Universe average.
The Board also considered the Fund’s total expense ratio relative to its Expense Group and Expense Universe averages. The Board noted that the Distributor and the Board previously agreed that the Distributor would contractually waive a portion of the Fund’s Rule 12b-1 fee, effectively reducing the Fund’s Rule 12b-1 fee rate from 0.25% to 0.00% for the one-year period ending April 30, 2010. The Distributor and the Board have currently agreed to extend this contractual 12b-1 fee waiver through April 30, 2011. As a result of this Rule 12b-1 fee waiver and the management fee waiver, the Board noted that the Fund’s total expense ratio after giving effect to the se waivers was less than that of the Expense Group average and the Expense Universe average. The Board concluded that the average expense ratio was satisfactory for the purpose of approving the continuance of the Agreement for the coming year.
Nature and Quality of Other Services. The Board considered the nature, quality, cost and extent of other services provided by the Adviser and the Distributor. At meetings held throughout the year, the Board reviewed the effectiveness of the Adviser’s overall compliance program, as well as the services provided by the Distributor. The Board viewed favorably the increased emphasis being placed by the Adviser on its overall compliance program as well as steps being undertaken to enhance the shareholders’ experience with the Fund, such as a more robust website. The Boar d also reviewed the services provided by the Adviser and its affiliates in supervising third party service providers. Based on this review, the Board concluded that the nature, quality, cost and extent of such other services provided by the Adviser and its affiliates were satisfactory, reliable and beneficial to the Fund’s shareholders.
Profitability. The Board considered the level of profitability of the Adviser and its affiliates with respect to the Fund individually and in the aggregate for all the funds within the Value Line group of funds, including the impact of certain actions taken during prior years. These actions included the Adviser’s reduction (voluntary in some instances and contractual in other instances) of management and/or Rule 12b-1 fees for certain funds, the Adviser’s termination of the use of soft dollar research, and the cessation of trading through the Distributor. The Board concluded that the profitability of the Adviser and its affiliates with respect to the Fund, including the financial results derived from the Fund’s Agreement, were within a range the Board considered reasonable.
Other Benefits. The Board also considered the character and amount of other direct and incidental benefits received by the Adviser and its affiliates from their association with the Fund. The Board concluded that potential “fall-out” benefits that the Adviser and its affiliates may receive, such as greater name recognition, appear to be reasonable, and may in some cases benefit the Fund.
Economies of Scale. The Agreement includes a breakpoint applicable to the Adviser’s fee under which the first $100 million of the Fund’s average daily net assets are subject to a fee of 0.70% (0.60% after giving effect to the waiver) and any additional assets are subject to a fee of 0.65% (0.50% after giving effect to the waiver). The Board noted that, given the current and anticipated size of the Fund, any additional perceived and potential economies of scale were not yet a significant consideration for the Fund and the addition of additional break points was deter mined not to be necessary at this time.
Fees and Services Provided for Other Comparable Funds/Accounts Managed by the Adviser and its Affiliates. In addition to comparing the Fund’s management fee rate to unaffiliated mutual funds included in the Fund’s Expense Group and Expense Universe, the Board was informed by the Adviser that the Adviser and its affiliates do not manage any investment companies comparable to the Fund. The Adviser informed the Board that it manages two general equity non-mutual fund institutional asset management accounts. The Board noted that the Fund’s management fee rate was below that charged to the non-mutual fund institutional asset management accounts, even though the Adviser stated that it is required to provide the Fund with more and different types of services under the Agreement than the Adviser is required to provide the non-mutual fund institutional asset management accounts.
Conclusion. The Board, in light of the Adviser’s overall performance, considered it appropriate to continue to retain the Adviser as the Fund’s investment adviser. Based on their evaluation of all material factors deemed relevant, and with the advice of independent counsel, the Board determined that the Fund’s management fee rate payable to the Adviser under the Agreement does not constitute fees that are so disproportionately large as to bear no reasonable relationship to the services rendered and that could not have been the product of arm’s-length bar gaining, and concluded that the management fee rate under the Agreement is fair and reasonable. Further, the Board concluded that the Fund’s Agreement is fair and reasonable and approved the continuation of the Agreement for another year.
FACTORS CONSIDERED BY THE BOARD IN APPROVING
THE INVESTMENT ADVISORY AGREEMENT
FOR VALUE LINE INCOME AND GROWTH FUND, INC.
The Investment Company Act of 1940 (the “1940 Act”) requires the Board of Directors, including a majority of Directors who are not “interested persons” of Value Line Income And Growth Fund, Inc. (the “Fund”), as that term is defined in the 1940 Act (the “Independent Directors”), annually to consider the investment advisory agreement (the “Agreement”) between the Fund and its investment adviser, EULAV Asset Management, LLC (the “Adviser”). As required by the 1940 Act, the Board requested and the Adviser provided such information as the Board deemed to be reasonably necessary to evaluate the terms of the Agreem ent. At meetings held throughout the year, including the meeting specifically focused upon the review of the Agreement, the Independent Directors met in executive sessions separately from the non-Independent Director of the Fund and any officers of the Adviser. In selecting the Adviser and approving the continuance of the Agreement, the Independent Directors relied upon the assistance of counsel to the Independent Directors.
Both in the meetings which specifically addressed the approval of the Agreement and at other meetings held during the course of the year, the Board, including the Independent Directors, received materials relating to the Adviser’s investment and management services under the Agreement. These materials included information on: (i) the investment performance of the Fund, compared to a peer group of funds consisting of the Fund and all retail and institutional mixed-asset target allocation moderate funds regardless of asset size or primary channel of distribution (the “Performance Universe”), and its benchmark index, each as classified by Lipper Inc., an independen t evaluation service (“Lipper”); (ii) the investment process, portfolio holdings, investment restrictions, valuation procedures, and financial statements for the Fund; (iii) sales and redemption data with respect to the Fund; (iv) the general investment outlook in the markets in which the Fund invests; (v) arrangements with respect to the distribution of the Fund’s shares; (vi) the allocation and cost of the Fund’s brokerage (none of which was effected through any affiliate of the Adviser); and (vii) the overall nature, quality and extent of services provided by the Adviser.
As part of the review of the continuance of the Agreement, the Board requested, and the Adviser provided, additional information in order to evaluate the quality of the Adviser’s services and the reasonableness of its fees under the Agreement. In a separate executive session, the Independent Directors reviewed information, which included data comparing: (i) the Fund’s management fee rate, transfer agent and custodian fee rates, service fee (including 12b-1 fees) rates, and the rate of the Fund’s other non-management fees, to those incurred by a peer group of funds consisting of the Fund and 10 other retail front-end load and no-load mixed-asset target allocation moder ate funds, as selected objectively by Lipper (“Expense Group”), and a peer group of funds consisting of the Fund, the Expense Group and all other retail front-end load and no-load mixed-asset target allocation moderate (excluding outliers), as selected objectively by Lipper (“Expense Universe”); (ii) the Fund’s expense ratio to those of its Expense Group and Expense Universe; and (iii) the Fund’s investment performance over various time periods to the average performance of the Performance Universe as well as the appropriate Lipper Index, as selected objectively by Lipper (the “Lipper Index”). In the separate executive session, the Independent Directors also reviewed information regarding: (a) the financial results and condition of the Adviser’s parent company, the Adviser’s and certain of its affiliates’ profitability from the services that have been performed for the Fund as well as the Value Line family of funds; (b) the Fund’s curren t investment management staffing; and (c) the Fund’s potential for achieving economies of scale. In support of its review of the statistical information, the Board was provided with a detailed description of the methodology used by Lipper to determine the Expense Group, the Expense Universe and the Performance Universe to prepare its information. The Independent Directors also requested and reviewed information provided by the Adviser relating to the settlement of a matter brought by the Securities and Exchange Commission regarding Value Line Securities, Inc.9, the Fund’s principal underwriter and affiliate of the Adviser (the “Distributor”), Value Line, Inc., and two former directors and officers of Value Line, Inc. Value Line, Inc. informed the Board that it and the Adviser continue to have adequate liquid assets, and that the resolution of this matter did not have a materially adverse effect on the abili ty of the Adviser or the Distributor to perform their respective contracts with the Fund.
The following summarizes matters considered by the Board in connection with its renewal of the Agreement. However, the Board did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered.
Investment Performance. The Board reviewed the Fund’s overall investment performance and compared it to its Performance Universe and the Lipper Index. The Board noted that the Fund outperformed both the Performance Universe average and the Lipper Index for the three-year, five-year and ten-year periods ended December 31, 2009. The Board also noted that the Fund outperformed the Performance Universe average and performed below the Lipper Index for the one-year period ended December 31, 2009.
The Adviser’s Personnel and Methods. The Board reviewed the background of the portfolio manager responsible for the daily management of the Fund’s portfolio, seeking to achieve the Fund’s investment objectives and adhering to the Fund’s investment strategies. The Independent Directors also engaged in discussions with the Adviser’s senior management responsible for the overall functioning of the Fund’s investment operations. The Board concluded that the Fund’s management team and the Adviser’s overall resources were adequate and th at the Adviser had investment management capabilities and personnel essential to performing its duties under the Agreement.
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9 On May 6, 2009, Value Line Securities, Inc. changed its name to EULAV Securities, Inc. No other change was made to the Distributor’s organization, including its operations and personnel.
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Management Fee and Expenses. The Board considered the Adviser’s fee under the Agreement relative to the management fees charged by its Expense Group and Expense Universe averages. The Board noted that, for the most recent fiscal year, the Fund’s management fee rate was slightly higher than that of the Expense Universe average and the Expense Group average.
The Board also considered the Fund’s total expense ratio relative to its Expense Group and Expense Universe averages. The Board noted that the Distributor and the Board previously agreed that the Distributor would contractually waive a portion of the Fund’s Rule 12b-1 fee, effectively reducing the Fund’s Rule 12b-1 fee rate from 0.25% to 0.20% of the Fund’s average daily net assets for the one-year period ending April 30, 2010. The Distributor and the Board have currently agreed to extend this contractual 12b-1 fee waiver through April 30, 2011. Such waiver can not be changed without the Board’s approval during the contractual waiver period. With or withou t giving effect to this waiver, the Fund’s total expense ratio was less than that of both the Expense Group average and the Expense Universe average. The Board concluded that the average expense ratio was satisfactory for the purpose of approving the continuance of the Agreement for the coming year.
Nature and Quality of Other Services. The Board considered the nature, quality, cost and extent of other services provided by the Adviser and the Distributor. At meetings held throughout the year, the Board reviewed the effectiveness of the Adviser’s overall compliance program, as well as the services provided by the Distributor. The Board viewed favorably the increased emphasis being placed by the Adviser on its overall compliance program as well as steps being undertaken to enhance the shareholders’ experience with the Fund, such as a more robust website. The Boar d also reviewed the services provided by the Adviser and its affiliates in supervising third party service providers. Based on this review, the Board concluded that the nature, quality, cost and extent of such other services provided by the Adviser and its affiliates were satisfactory, reliable and beneficial to the Fund’s shareholders.
Profitability. The Board considered the level of profitability of the Adviser and its affiliates with respect to the Fund individually and in the aggregate for all the funds within the Value Line group of funds, including the impact of certain actions taken during prior years. These actions included the Adviser’s reduction (voluntary in some instances and contractual in other instances) of management and/or Rule 12b-1 fees for certain funds, the Adviser’s termination of the use of soft dollar research, and the cessation of trading through the Distributor. The Board concluded that the profitability of the Adviser and its affiliates with respect to the Fund, including the financial results derived from the Fund’s Agreement, were within a range the Board considered reasonable.
Other Benefits. The Board also considered the character and amount of other direct and incidental benefits received by the Adviser and its affiliates from their association with the Fund. The Board concluded that potential “fall-out” benefits that the Adviser and its affiliates may receive, such as greater name recognition, appear to be reasonable, and may in some cases benefit the Fund.
Economies of Scale. The Agreement includes a breakpoint applicable to the Adviser’s fee under which the first $100 million of the Fund’s average daily net assets are subject to a fee of 0.70% and any additional assets are subject to a fee of 0.65%. The Board noted that, given the current and anticipated size of the Fund, any additional perceived and potential economies of scale were not yet a significant consideration for the Fund and the addition of additional break points was determined not to be necessary at this time.
Fees and Services Provided for Other Comparable Funds/Accounts Managed by the Adviser and its Affiliates. In addition to comparing the Fund’s management fee rate to unaffiliated mutual funds included in the Fund’s Expense Group and Expense Universe, the Board was informed by the Adviser that the Adviser and its affiliates do not manage any investment companies or other institutional accounts comparable to the Fund.
Conclusion. The Board, in light of the Adviser’s overall performance, considered it appropriate to continue to retain the Adviser as the Fund’s investment adviser. Based on their evaluation of all material factors deemed relevant, and with the advice of independent counsel, the Board determined that the Fund’s management fee rate payable to the Adviser under the Agreement does not constitute fees that are so disproportionately large as to bear no reasonable relationship to the services rendered and that could not have been the product of arm’s-length bar gaining, and concluded that the management fee rate under the Agreement is fair and reasonable. Further, the Board concluded that the Fund’s Agreement is fair and reasonable and approved the continuation of the Agreement for another year.
FACTORS CONSIDERED BY THE BOARD IN APPROVING
THE INVESTMENT ADVISORY AGREEMENT
FOR VALUE LINE LARGER COMPANIES FUND, INC.
The Investment Company Act of 1940 (the “1940 Act”) requires the Board of Directors, including a majority of Directors who are not “interested persons” of Value Line Larger Companies Fund, Inc. (the “Fund”), as that term is defined in the 1940 Act (the “Independent Directors”), annually to consider the investment advisory agreement (the “Agreement”) between the Fund and its investment adviser, EULAV Asset Management, LLC (the “Adviser”). As required by the 1940 Act, the Board requested and the Adviser provided such information as the Board deemed to be reasonably necessary to evaluate the terms of the Agreeme nt. At meetings held throughout the year, including the meeting specifically focused upon the review of the Agreement, the Independent Directors met in executive sessions separately from the non-Independent Director of the Fund and any officers of the Adviser. In selecting the Adviser and approving the continuance of the Agreement, the Independent Directors relied upon the assistance of counsel to the Independent Directors.
Both in the meetings which specifically addressed the approval of the Agreement and at other meetings held during the course of the year, the Board, including the Independent Directors, received materials relating to the Adviser’s investment and management services under the Agreement. These materials included information on: (i) the investment performance of the Fund, compared to a peer group of funds consisting of the Fund and all retail and institutional large-cap growth funds regardless of asset size or primary channel of distribution (the “Performance Universe”), and its benchmark index, each as classified by Lipper Inc., an independent evaluation service ( “Lipper”); (ii) the investment process, portfolio holdings, investment restrictions, valuation procedures, and financial statements for the Fund; (iii) sales and redemption data with respect to the Fund; (iv) the general investment outlook in the markets in which the Fund invests; (v) arrangements with respect to the distribution of the Fund’s shares; (vi) the allocation and cost of the Fund’s brokerage (none of which was effected through any affiliate of the Adviser); and (vii) the overall nature, quality and extent of services provided by the Adviser.
As part of the review of the continuance of the Agreement, the Board requested, and the Adviser provided, additional information in order to evaluate the quality of the Adviser’s services and the reasonableness of its fees under the Agreement. In a separate executive session, the Independent Directors reviewed information, which included data comparing: (i) the Fund’s management fee rate, transfer agent and custodian fee rates, service fee (including 12b-1 fees) rates, and the rate of the Fund’s other non-management fees, to those incurred by a peer group of funds consisting of the Fund and 14 other retail no-load large-cap growth funds, as selected objectively by Lip per (“Expense Group”), and a peer group of funds consisting of the Fund, the Expense Group and all other retail no-load large-cap growth funds (excluding outliers), as selected objectively by Lipper (“Expense Universe”); (ii) the Fund’s expense ratio to those of its Expense Group and Expense Universe; and (iii) the Fund’s investment performance over various time periods to the average performance of the Performance Universe as well as the appropriate Lipper Index, as selected objectively by Lipper (the “Lipper Index”). In the separate executive session, the Independent Directors also reviewed information regarding: (a) the financial results and condition of the Adviser’s parent company, the Adviser’s and certain of its affiliates’ profitability from the services that have been performed for the Fund as well as the Value Line family of funds; (b) the Fund’s current investment management staffing; and (c) the Fund’s potential for ach ieving economies of scale. In support of its review of the statistical information, the Board was provided with a detailed description of the methodology used by Lipper to determine the Expense Group, the Expense Universe and the Performance Universe to prepare its information. The Independent Directors also requested and reviewed information provided by the Adviser relating to the settlement of a matter brought by the Securities and Exchange Commission regarding Value Line Securities, Inc.10, the Fund’s principal underwriter and affiliate of the Adviser (the “Distributor”), Value Line, Inc., and two former directors and officers of Value Line, Inc. Value Line, Inc. informed the Board that it and the Adviser continue to have adequate liquid assets, and that the resolution of this matter did not have a materially adverse effect on the ability of the Adviser or the Distributor to perform their respective contracts with the Fund.
The following summarizes matters considered by the Board in connection with its renewal of the Agreement. However, the Board did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered.
Investment Performance. The Board reviewed the Fund’s overall investment performance and compared it to its Performance Universe and the Lipper Index. The Board noted that the Fund performed below both the Performance Universe average and the Lipper Index for the one-year, three-year and five-year periods ended December 31, 2009. The Board also noted that the Fund outperformed the Lipper Index and performed below the Performance Universe average for the ten-year period ended December 31, 2009.
The Adviser’s Personnel and Methods. The Board reviewed the background of the portfolio manager responsible for the daily management of the Fund’s portfolio, seeking to achieve the Fund’s investment objective and adhering to the Fund’s investment strategies. The Independent Directors also engaged in discussions with the Adviser’s senior management responsible for the overall functioning of the Fund’s investment operations. The Board concluded that the Fund’s management team and the Adviser’s overall resources were adequate and tha t the Adviser had investment management capabilities and personnel essential to performing its duties under the Agreement.
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10 On May 6, 2009, Value Line Securities, Inc. changed its name to EULAV Securities, Inc. No other change was made to the Distributor’s organization, including its operations and personnel.
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Management Fee and Expenses. The Board considered the Adviser’s fee under the Agreement relative to the management fees charged by its Expense Group and Expense Universe averages. Fund’s management fee rate for the most recent fiscal year was higher than that of both the Expense Universe average and the Expense Group average.
The Board also considered the Fund’s total expense ratio relative to its Expense Group and Expense Universe averages. The Board noted that the Distributor and the Board previously agreed that the Distributor would contractually waive a portion of the Fund’s Rule 12b-1 fee, effectively reducing the Fund’s Rule 12b-1 fee rate from 0.25% to 0.00% of the Fund’s average daily net assets for the one-year period ending April 30, 2010. The Distributor and the Board have currently agreed to extend this contractual 12b-1 fee waiver through April 30, 2011. Such waiver can not be changed without the Board’s approval during the contractual waiver period. As a result of the Rule 12b-1 fee waiver, the Board noted that the Fund’s total expense ratio after giving effect to this waiver was less than that of the Expense Group average and the Expense Universe average. The Board concluded that the average expense ratio was satisfactory for the purpose of approving the continuance of the Agreement for the coming year.
Nature and Quality of Other Services. The Board considered the nature, quality, cost and extent of other services provided by the Adviser and the Distributor. At meetings held throughout the year, the Board reviewed the effectiveness of the Adviser’s overall compliance program, as well as the services provided by the Distributor. The Board viewed favorably the increased emphasis being placed by the Adviser on its overall compliance program as well as steps being undertaken to enhance the shareholders’ experience with the Fund, such as a more robust website. The Boar d also reviewed the services provided by the Adviser and its affiliates in supervising third party service providers. Based on this review, the Board concluded that the nature, quality, cost and extent of such other services provided by the Adviser and its affiliates were satisfactory, reliable and beneficial to the Fund’s shareholders.
Profitability. The Board considered the level of profitability of the Adviser and its affiliates with respect to the Fund individually and in the aggregate for all the funds within the Value Line group of funds, including the impact of certain actions taken during prior years. These actions included the Adviser’s reduction (voluntary in some instances and contractual in other instances) of management and/or Rule 12b-1 fees for certain funds, the Adviser’s termination of the use of soft dollar research, and the cessation of trading through the Distributor. The Board concluded that the profitability of the Adviser and its affiliates with respect to the Fund, including the financial results derived from the Fund’s Agreement, were within a range the Board considered reasonable.
Other Benefits. The Board also considered the character and amount of other direct and incidental benefits received by the Adviser and its affiliates from their association with the Fund. The Board concluded that potential “fall-out” benefits that the Adviser and its affiliates may receive, such as greater name recognition, appear to be reasonable, and may in some cases benefit the Fund.
Economies of Scale. The Board noted that, given the current and anticipated size of the Fund, any perceived and potential economies of scale were not yet a significant consideration for the Fund and the addition of break points was determined not to be necessary at this time.
Fees and Services Provided for Other Comparable Funds/Accounts Managed by the Adviser and its Affiliates. In addition to comparing the Fund’s management fee rate to unaffiliated mutual funds included in the Fund’s Expense Group and Expense Universe, the Board was informed by the Adviser that the Adviser and its affiliates do not manage any investment companies or other institutional accounts comparable to the Fund.
Conclusion. The Board, in light of the Adviser’s overall performance, considered it appropriate to continue to retain the Adviser as the Fund’s investment adviser. Based on their evaluation of all material factors deemed relevant, and with the advice of independent counsel, the Board determined that the Fund’s management fee rate payable to the Adviser under the Agreement does not constitute fees that are so disproportionately large as to bear no reasonable relationship to the services rendered and that could not have been the product of arm’s-length bar gaining, and concluded that the management fee rate under the Agreement is fair and reasonable. Further, the Board concluded that the Fund’s Agreement is fair and reasonable and approved the continuation of the Agreement for another year.
FACTORS CONSIDERED BY THE BOARD IN APPROVING
THE INVESTMENT ADVISORY AGREEMENT
FOR VALUE LINE NEW YORK TAX EXEMPT TRUST
The Investment Company Act of 1940 (the “1940 Act”) requires the Board of Trustees, including a majority of Trustees who are not “interested persons” of Value Line New York Tax Exempt Trust (the “Trust”), as that term is defined in the 1940 Act (the “Independent Trustees”), annually to consider the investment advisory agreement (the “Agreement”) between the Trust and its investment adviser, EULAV Asset Management, LLC (the “Adviser”). As required by the 1940 Act, the Board requested and the Adviser provided such information as the Board deemed to be reasonably necessary to evaluate the terms of the Agreement. At meetings held throughout the year, including the meeting specifically focused upon the review of the Agreement, the Independent Trustees met in executive sessions separately from the non-Independent Trustee of the Trust and any officers of the Adviser. In selecting the Adviser and approving the continuance of the Agreement, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees.
Both in the meetings which specifically addressed the approval of the Agreement and at other meetings held during the course of the year, the Board, including the Independent Trustees, received materials relating to the Adviser’s investment and management services under the Agreement. These materials included information on: (i) the investment performance of the Trust, compared to a peer group of funds consisting of the Trust and all retail and institutional New York municipal debt funds regardless of asset size or primary channel of distribution (the “Performance Universe”), and its benchmark index, each as classified by Lipper Inc., an independent evaluation s ervice (“Lipper”); (ii) the investment process, portfolio holdings, investment restrictions, valuation procedures, and financial statements for the Trust; (iii) sales and redemption data with respect to the Trust; (iv) the general investment outlook in the markets in which the Trust invests; (v) arrangements with respect to the distribution of the Trust’s shares; (vi) the allocation and cost of the Trust’s brokerage (none of which was effected through any affiliate of the Adviser); and (vii) the overall nature, quality and extent of services provided by the Adviser.
As part of the review of the continuance of the Agreement, the Board requested, and the Adviser provided, additional information in order to evaluate the quality of the Adviser’s services and the reasonableness of its fees under the Agreement. In a separate executive session, the Independent Trustees reviewed information, which included data comparing: (i) the Trust’s management fee rate, transfer agent and custodian fee rates, service fee (including 12b-1 fees) rates, and the rate of the Trust’s other non-management fees, to those incurred by a peer group of funds consisting of the Trust and 14 other retail front-end load and no-load New York municipal debt funds, as selected objectively by Lipper (“Expense Group”), and a peer group of funds consisting of the Trust, the Expense Group and all other retail front-end load and no-load New York municipal debt funds (excluding outliers), as selected objectively by Lipper (“Expense Universe”); (ii) the Trust’s expense ratio to those of its Expense Group and Expense Universe; and (iii) the Trust’s investment performance over - F-37 -various time periods to the average performance of the Performance Universe as well as the appropriate Lipper Index, as selected objectively by Lipper (the “Lipper Index”). In the separate executive session, the Independent Trustees also reviewed information regarding: (a) the financial results and condition of the Adviser’s parent company, the Adviser’s and certain of its affiliates’ profitability from the services that have been performed for the Trust as well as the Value Line family of funds; (b) the Trust’s current investme nt management staffing; and (c) the Trust’s potential for achieving economies of scale. In support of its review of the statistical information, the Board was provided with a detailed description of the methodology used by Lipper to determine the Expense Group, the Expense Universe and the Performance Universe to prepare its information. The Independent Directors also requested and reviewed information provided by the Adviser relating to the settlement of a matter brought by the Securities and Exchange Commission regarding Value Line Securities, Inc.11, the Trust’s principal underwriter and affiliate of the Adviser (the “Distributor”), Value Line, Inc., and two former directors and officers of Value Line, Inc. Value Line, Inc. informed the Board that it and the Adviser continue to have adequate liquid assets, and that the resolution of this matter did not have a materially adverse effect on the ability of t he Adviser or the Distributor to perform their respective contracts with the Trust.
The following summarizes matters considered by the Board in connection with its renewal of the Agreement. However, the Board did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered.
Investment Performance. The Board reviewed the Trust’s overall investment performance and compared it to its Performance Universe and the Lipper Index. The Board noted that the Trust’s performance for the one-year, three-year, five-year and ten-year periods ended December 31, 2009 was below the performance of both the Performance Universe average and the Lipper Index.
The Adviser’s Personnel and Methods. The Board reviewed the background of the portfolio manager responsible for the daily management of the Trust’s portfolio, seeking to achieve the Trust’s investment objective and adhering to the Trust’s investment strategies. The Independent Trustees also engaged in discussions with the Adviser’s senior management responsible for the overall functioning of the Trust’s investment operations. The Board concluded that the Trust’s management team and the Adviser’s overall resources were adequate and that the Adviser had investment management capabilities and personnel essential to performing its duties under the Agreement.
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11 On May 6, 2009, Value Line Securities, Inc. changed its name to EULAV Securities, Inc. No other change was made to the Distributor’s organization, including its operations and personnel.
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Management Fee and Expenses. The Board considered the Adviser’s fee under the Agreement relative to the management fees charged by its Expense Group and Expense Universe averages. The Board noted that the Adviser and the Board previously agreed that the Adviser would contractually waive a portion of the Trust’s management fee, thereby reducing the management fee rate from 0.60% to 0.375% of the Trust’s average daily net assets for the one-year period ended May 31, 2010. The Adviser and the Board have currently agreed to extend this contractual fee waiver throu gh May 31, 2011. Such waiver can not be changed without the Board’s approval during the contractual waiver period. The Board noted that, for the most recent fiscal year, the Trust’s management fee rate after giving effect to the contractual management fee waiver was less than that of both the Expense Group average and the Expense Universe average.
The Board also considered the Trust’s total expense ratio relative to its Expense Group and Expense Universe averages. The Board noted that the Distributor and the Board previously agreed that the Distributor would contractually waive a portion of the Trust’s Rule 12b-1 fee, effectively reducing the Trust’s Rule 12b-1 fee rate from 0.25% to 0.00% of the Trust’s average daily net assets for the one-year period ending May 31, 2010. The Distributor and the Board have currently agreed to extend this contractual 12b-1 fee waiver through May 31, 2011. Such waiver can not be changed without the Board’s approval during the contractual waiver period. As a result of these Rule 12b-1 fee waivers and the management fee waivers, the Board noted that the Trust’s total expense ratio after giving effect to these waivers was less than that of the Expense Group average and the Expense Universe average. The Board concluded that the average expense ratio was satisfactory for the purpose of approving the continuance of the Agreement for the coming year.
Nature and Quality of Other Services. The Board considered the nature, quality, cost and extent of other services provided by the Adviser and the Distributor. At meetings held throughout the year, the Board reviewed the effectiveness of the Adviser’s overall compliance program, as well as the services provided by the Distributor. The Board viewed favorably the increased emphasis being placed by the Adviser on its overall compliance program as well as steps being undertaken to enhance the shareholders’ experience with the Trust, such as a more robust website. The Boa rd also reviewed the services provided by the Adviser and its affiliates in supervising third party service providers. Based on this review, the Board concluded that the nature, quality, cost and extent of such other services provided by the Adviser and its affiliates were satisfactory, reliable and beneficial to the Trust’s shareholders.
Profitability. The Board considered the level of profitability of the Adviser and its affiliates with respect to the Trust individually and in the aggregate for all the funds within the Value Line group of funds, including the impact of certain actions taken during prior years. These actions included the Adviser’s reduction (voluntary in some instances and contractual in other instances) of management and/or Rule 12b-1 fees for certain funds, the Adviser’s termination of the use of soft dollar research, and the cessation of trading through the Distributor. The Board concluded that the profitability of the Adviser and its affiliates with respect to the Trust, including the financial results derived from the Trust’s Agreement, were within a range the Board considered reasonable.
Other Benefits. The Board also considered the character and amount of other direct and incidental benefits received by the Adviser and its affiliates from their association with the Trust. The Board concluded that potential “fall-out” benefits that the Adviser and its affiliates may receive, such as greater name recognition, appear to be reasonable, and may in some cases benefit the Trust.
Economies of Scale. The Board noted that, given the current and anticipated size of the Trust, any perceived and potential economies of scale were not yet a significant consideration for the Trust and the addition of break points was determined not to be necessary at this time.
Fees and Services Provided for Other Comparable Funds/Accounts Managed by the Adviser and its Affiliates. In addition to comparing the Trust’s management fee rate to unaffiliated mutual funds included in the Trust’s Expense Group and Expense Universe, the Board was informed by the Adviser that the Adviser and its affiliates do not manage any investment companies or other institutional accounts comparable to the Trust.
Conclusion. The Board, in light of the Adviser’s overall performance, considered it appropriate to continue to retain the Adviser as the Trust’s investment adviser. Based on their evaluation of all material factors deemed relevant, and with the advice of independent counsel, the Board determined that the Trust’s management fee rate payable to the Adviser under the Agreement does not constitute fees that are so disproportionately large as to bear no reasonable relationship to the services rendered and that could not have been the product of arm’s-length b argaining, and concluded that the management fee rate under the Agreement is fair and reasonable. Further, the Board concluded that the Trust’s Agreement is fair and reasonable and approved the continuation of the Agreement for another year.
FACTORS CONSIDERED BY THE BOARD IN APPROVING
THE INVESTMENT ADVISORY AGREEMENT
FOR VALUE LINE PREMIER GROWTH FUND, INC.
The Investment Company Act of 1940 (the “1940 Act”) requires the Board of Directors, including a majority of Directors who are not “interested persons” of Value Line Premier Growth Fund, Inc. (the “Fund”), as that term is defined in the 1940 Act (the “Independent Directors”), annually to consider the investment advisory agreement (the “Agreement”) between the Fund and its investment adviser, EULAV Asset Management, LLC (the “Adviser”). As required by the 1940 Act, the Board requested and the Adviser provided such information as the Board deemed to be reasonably necessary to evaluate the terms of the Agreement . At meetings held throughout the year, including the meeting specifically focused upon the review of the Agreement, the Independent Directors met in executive sessions separately from the non-Independent Director of the Fund and any officers of the Adviser. In selecting the Adviser and approving the continuance of the Agreement, the Independent Directors relied upon the assistance of counsel to the Independent Directors.
Both in the meetings which specifically addressed the approval of the Agreement and at other meetings held during the course of the year, the Board, including the Independent Directors, received materials relating to the Adviser’s investment and management services under the Agreement. These materials included information on: (i) the investment performance of the Fund, compared to a peer group of funds consisting of the Fund and all retail and institutional mid-cap growth funds regardless of asset size or primary channel of distribution (the “Performance Universe”), and its benchmark index, each as classified by Lipper Inc., an independent evaluation service (&# 8220;Lipper”); (ii) the investment process, portfolio holdings, investment restrictions, valuation procedures, and financial statements for the Fund; (iii) sales and redemption data with respect to the Fund; (iv) the general investment outlook in the markets in which the Fund invests; (v) arrangements with respect to the distribution of the Fund’s shares; (vi) the allocation and cost of the Fund’s brokerage (none of which was effected through any affiliate of the Adviser); and (vii) the overall nature, quality and extent of services provided by the Adviser.
As part of the review of the continuance of the Agreement, the Board requested, and the Adviser provided, additional information in order to evaluate the quality of the Adviser’s services and the reasonableness of its fees under the Agreement. In a separate executive session, the Independent Directors reviewed information, which included data comparing: (i) the Fund’s management fee rate, transfer agent and custodian fee rates, service fee (including 12b-1 fees) rates, and the rate of the Fund’s other non-management fees, to those incurred by a peer group of funds consisting of the Fund and 17 other retail front-end load and no-load mid-cap growth funds, as sele cted objectively by Lipper (“Expense Group”), and a peer group of funds consisting of the Fund, the Expense Group and all other retail front-end load and no-load mid-cap growth funds (excluding outliers), as selected objectively by Lipper (“Expense Universe”); (ii) the Fund’s expense ratio to those of its Expense Group and Expense Universe; and (iii) the Fund’s investment performance over various time periods to the average performance of the Performance Universe as well as the appropriate Lipper Index, as selected objectively by Lipper (the “Lipper Index”). In the separate executive session, the Independent Directors also reviewed information regarding: (a) the financial results and condition of the Adviser’s parent company, the Adviser’s and certain of its affiliates’ profitability from the services that have been performed for the Fund as well as the Value Line family of funds; (b) the Fund’s current investment management staffing; an d (c) the Fund’s potential for achieving economies of scale. In support of its review of the statistical information, the Board was provided with a detailed description of the methodology used by Lipper to determine the Expense Group, the Expense Universe and the Performance Universe to prepare its information. The Independent Directors also requested and reviewed information provided by the Adviser relating to the settlement of a matter brought by the Securities and Exchange Commission regarding Value Line Securities, Inc.12, the Fund’s principal underwriter and affiliate of the Adviser (the “Distributor”), Value Line, Inc., and two former directors and officers of Value Line, Inc. Value Line, Inc. informed the Board that it and the Adviser continue to have adequate liquid assets, and that the resolution of this matter did not have a materially adverse effect on the ability of the Adviser or the Distributo r to perform their respective contracts with the Fund.
The following summarizes matters considered by the Board in connection with its renewal of the Agreement. However, the Board did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered.
Investment Performance. The Board reviewed the Fund’s overall investment performance and compared it to its Performance Universe and the Lipper Index. The Board noted that the Fund outperformed both the Performance Universe average and the Lipper Index for the three-year, five-year and ten-year periods ended December 31, 2009 and that the Fund’s performance for the one-year period ended December 31, 2009 was below that of the Performance Universe average and the Lipper Index.
The Adviser’s Personnel and Methods. The Board reviewed the background of the portfolio manager responsible for the daily management of the Fund’s portfolio, seeking to achieve the Fund’s investment objective and adhering to the Fund’s investment strategies. The Independent Directors also engaged in discussions with the Adviser’s senior management responsible for the overall functioning of the Fund’s investment operations. The Board concluded that the Fund’s management team and the Adviser’s overall resources were adequate and th at the Adviser had investment management capabilities and personnel essential to performing its duties under the Agreement.
12 On May 6, 2009, Value Line Securities, Inc. changed its name to EULAV Securities, Inc. No other change was made to the Distributor’s organization, including its operations and personnel.
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Management Fee and Expenses. The Board considered the Adviser’s fee under the Agreement relative to the management fees charged by its Expense Group and Expense Universe averages. Although the Fund’s management fee rate for the most recent fiscal year was higher than that of the Expense Universe average, it was the same as the Expense Group average.
The Board also considered the Fund’s total expense ratio relative to its Expense Group and Expense Universe averages. The Board noted that the Fund’s total expense ratio was less than that of both the Expense Group average and the Expense Universe average. The Board concluded that the average expense ratio was satisfactory for the purpose of approving the continuance of the Agreement for the coming year.
Nature and Quality of Other Services. The Board considered the nature, quality, cost and extent of other services provided by the Adviser and the Distributor. At meetings held throughout the year, the Board reviewed the effectiveness of the Adviser’s overall compliance program, as well as the services provided by the Distributor. The Board viewed favorably the increased emphasis being placed by the Adviser on its overall compliance program as well as steps being undertaken to enhance the shareholders’ experience with the Fund, such as a more robust website. The Boar d also reviewed the services provided by the Adviser and its affiliates in supervising third party service providers. Based on this review, the Board concluded that the nature, quality, cost and extent of such other services provided by the Adviser and its affiliates were satisfactory, reliable and beneficial to the Fund’s shareholders.
Profitability. The Board considered the level of profitability of the Adviser and its affiliates with respect to the Fund individually and in the aggregate for all the funds within the Value Line group of funds, including the impact of certain actions taken during prior years. These actions included the Adviser’s reduction (voluntary in some instances and contractual in other instances) of management and/or Rule 12b-1 fees for certain funds, the Adviser’s termination of the use of soft dollar research, and the cessation of trading through the Distributor. The Board concluded that the profitability of the Adviser and its affiliates with respect to the Fund, including the financial results derived from the Fund’s Agreement, were within a range the Board considered reasonable.
Other Benefits. The Board also considered the character and amount of other direct and incidental benefits received by the Adviser and its affiliates from their association with the Fund. The Board concluded that potential “fall-out” benefits that the Adviser and its affiliates may receive, such as greater name recognition, appear to be reasonable, and may in some cases benefit the Fund.
Economies of Scale. The Board noted that, given the current and anticipated size of the Fund, any perceived and potential economies of scale were not yet a significant consideration for the Fund and the addition of break points was determined not to be necessary at this time.
Fees and Services Provided for Other Comparable Funds/Accounts Managed by the Adviser and its Affiliates. In addition to comparing the Fund’s management fee rate to unaffiliated mutual funds included in the Fund’s Expense Group and Expense Universe, the Board was informed by the Adviser that the Adviser and its affiliates do not manage any investment companies comparable to the Fund. The Adviser informed the Board that it manages one small-cap growth equity non-mutual fund institutional asset management account. The Board noted that the Fund’s management fee r ate was higher than that charged to the non-mutual fund institutional asset management account, however, the Adviser stated that it is required to provide the Fund with more and different types of services under the Agreement than the Adviser is required to provide the non-mutual fund institutional asset management account.
Conclusion. The Board, in light of the Adviser’s overall performance, considered it appropriate to continue to retain the Adviser as the Fund’s investment adviser. Based on their evaluation of all material factors deemed relevant, and with the advice of independent counsel, the Board determined that the Fund’s management fee rate payable to the Adviser under the Agreement does not constitute fees that are so disproportionately large as to bear no reasonable relationship to the services rendered and that could not have been the product of arm’s-length bar gaining, and concluded that the management fee rate under the Agreement is fair and reasonable. Further, the Board concluded that the Fund’s Agreement is fair and reasonable and approved the continuation of the Agreement for another year.
FACTORS CONSIDERED BY THE BOARD IN APPROVING
THE INVESTMENT ADVISORY AGREEMENT
FOR VALUE LINE STRATEGIC ASSET MANAGEMENT TRUST
The Investment Company Act of 1940 (the “1940 Act”) requires the Board of Trustees, including a majority of Trustees who are not “interested persons” of Value Line Strategic Asset Management Trust (the “Trust”), as that term is defined in the 1940 Act (the “Independent Trustees”), annually to consider the investment advisory agreement (the “Agreement”) between the Trust and its investment adviser, EULAV Asset Management, LLC (the “Adviser”). As required by the 1940 Act, the Board requested and the Adviser provided such information as the Board deemed to be reasonably necessary to evaluate the terms of the Agr eement. At meetings held throughout the year, including the meeting specifically focused upon the review of the Agreement, the Independent Trustees met in executive sessions separately from the non-Independent Trustee of the Trust and any officers of the Adviser. In selecting the Adviser and approving the continuance of the Agreement, the Independent Trustees relied upon the assistance of counsel to the Independent Trustees.
Both in the meetings which specifically addressed the approval of the Agreement and at other meetings held during the course of the year, the Board, including the Independent Trustees, received materials relating to the Adviser’s investment and management services under the Agreement. These materials included information on: (i) the investment performance of the Trust, compared to a peer group of funds consisting of the Trust and all mixed-asset target allocation growth funds underlying variable insurance products regardless of asset size or primary channel of distribution (the “Performance Universe”), and its benchmark index, each as classified by Lipper Inc., an independent evaluation service (“Lipper”); (ii) the investment process, portfolio holdings, investment restrictions, valuation procedures, and financial statements for the Trust; (iii) sales and redemption data with respect to the Trust; (iv) the general investment outlook in the markets in which the Trust invests; (v) arrangements with respect to the distribution of the Trust’s shares; (vi) the allocation and cost of the Trust’s brokerage (none of which was effected through any affiliate of the Adviser); and (vii) the overall nature, quality and extent of services provided by the Adviser.
As part of the review of the continuance of the Agreement, the Board requested, and the Adviser provided, additional information in order to evaluate the quality of the Adviser’s services and the reasonableness of its fees under the Agreement. In a separate executive session, the Independent Trustees reviewed information, which included data comparing: (i) the Trust’s management fee rate, transfer agent and custodian fee rates, service fee (including 12b-1 fees) rates, and the rate of the Trust’s other non-management fees, to those incurred by a peer group of funds consisting of the Trust and 10 other mixed-asset target allocation growth funds underlying variabl e insurance products, as selected objectively by Lipper (“Expense Group”), and a peer group of funds consisting of the Trust, the Expense Group and all other mixed-asset target allocation growth funds underlying variable insurance products (excluding outliers), as selected objectively by Lipper (“Expense Universe”); (ii) the Trust’s expense ratio to those of its Expense Group and Expense Universe; and (iii) the Trust’s investment performance over various time periods to the average performance of the Performance Universe as well as the appropriate Lipper Index, as selected objectively by Lipper (the “Lipper Index”). In the separate executive session, the Independent Trustees also reviewed information regarding: (a) the financial results and condition of the Adviser’s parent company, the Adviser’s and certain of its affiliates’ profitability from the services that have been performed for the Trust as well as the Value Line family of funds; (b) the Trust’s current investment management staffing; and (c) the Trust’s potential for achieving economies of scale. In support of its review of the statistical information, the Board was provided with a detailed description of the methodology used by Lipper to determine the Expense Group, the Expense Universe and the Performance Universe to prepare its information. The Independent Directors also requested and reviewed information provided by the Adviser relating to the settlement of a matter brought by the Securities and Exchange Commission regarding Value Line Securities, Inc.13, the Trust’s principal underwriter and affiliate of the Adviser (the “Distributor”), Value Line, Inc., and two former directors and officers of Value Line, Inc. Value Line, Inc. informed the Board that it and the Adviser continue to have adequate liquid assets, and that the resolution of this matter did not have a materially adverse effect on the ability of the Adviser or the Distributor to perform their respective contracts with the Trust.
The following summarizes matters considered by the Board in connection with its renewal of the Agreement. However, the Board did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered.
Investment Performance. The Board reviewed the Trust’s overall investment performance and compared it to its Performance Universe and the Lipper Index. The Board noted that the Trust outperformed both the Performance Universe average and the Lipper Index for the three-year and five-year periods ended December 31, 2009. The Board also noted that the Trust’s performance for the one-year and ten-year periods ended December 31, 2009 was below the performance of the Performance Universe average and the Lipper Index.
The Adviser’s Personnel and Methods. The Board reviewed the background of the portfolio managers responsible for the daily management of the Trust’s portfolio, seeking to achieve the Trust’s investment objective and adhering to the Trust’s investment strategies. The Independent Trustees also engaged in discussions with the Adviser’s senior management responsible for the overall functioning of the Trust’s investment operations. The Board concluded that the Trust’s management team and the Adviser’s overall resources were adequate a nd that the Adviser had investment management capabilities and personnel essential to performing its duties under the Agreement.
13 On May 6, 2009, Value Line Securities, Inc. changed its name to EULAV Securities, Inc. No other change was made to the Distributor’s organization, including its operations and personnel.
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Management Fee and Expenses. The Board considered the Adviser’s fee under the Agreement relative to the management fees charged by its Expense Group and Expense Universe averages. The Board noted that, for the most recent fiscal year, the Trust’s management fee rate was less than that of both the Expense Group average and the Expense Universe average.
The Board also considered the Trust’s total expense ratio relative to its Expense Group and Expense Universe averages. The Board noted that the Distributor and the Board previously agreed that the Distributor would contractually waive a portion of the Trust’s Rule 12b-1 fee, effectively reducing the Trust’s Rule 12b-1 fee rate from 0.40% to 0.25% of the Trust’s average daily net assets for the one-year period ending April 30, 2010. The Distributor and the Board have currently agreed to extend this contractual 12b-1 fee waiver through April 30, 2011. Such waiver can not be changed without the Board’s approval during the contractual waiver period. As a result of this Rule 12b-1 fee waiver, the Board noted that the Trust’s total expense ratio after giving effect to this waiver was less than that of the Expense Group average and the Expense Universe average. The Board concluded that the average expense ratio was satisfactory for the purpose of approving the continuance of the Agreement for the coming year.
Nature and Quality of Other Services. The Board considered the nature, quality, cost and extent of other services provided by the Adviser and the Distributor. At meetings held throughout the year, the Board reviewed the effectiveness of the Adviser’s overall compliance program, as well as the services provided by the Distributor. The Board viewed favorably the increased emphasis being placed by the Adviser on its overall compliance program as well as steps being undertaken to enhance the shareholders’ experience with the Trust, such as a more robust website. The Boa rd also reviewed the services provided by the Adviser and its affiliates in supervising third party service providers. Based on this review, the Board concluded that the nature, quality, cost and extent of such other services provided by the Adviser and its affiliates were satisfactory, reliable and beneficial to the Trust’s shareholders.
Profitability. The Board considered the level of profitability of the Adviser and its affiliates with respect to the Trust individually and in the aggregate for all the funds within the Value Line group of funds, including the impact of certain actions taken during prior years. These actions included the reduction (voluntary in some instances and contractual in other instances) of management and/or Rule 12b-1 fees for certain funds, the Adviser’s termination of the use of soft dollar research, and the cessation of trading through the Distributor. The Board concluded that the profitability of the Adviser and its affiliates with respect to the Trust, including the financial results derived from the Trust’s Agreement, were within a range the Board considered reasonable.
Other Benefits. The Board also considered the character and amount of other direct and incidental benefits received by the Adviser and its affiliates from their association with the Trust. The Board concluded that potential “fall-out” benefits that the Adviser and its affiliates may receive, such as greater name recognition, appear to be reasonable, and may in some cases benefit the Trust.
Economies of Scale. The Board noted that, given the current and anticipated size of the Trust, any perceived and potential economies of scale were not yet a significant consideration for the Trust and the addition of break points was determined not to be necessary at this time.
Fees and Services Provided for Other Comparable Funds/Accounts Managed by the Adviser and its Affiliates. In addition to comparing the Trust’s management fee rate to unaffiliated mutual funds included in the Trust’s Expense Group and Expense Universe, the Board was informed by the Adviser that the Adviser and its affiliates do not manage any investment companies or other institutional accounts comparable to the Trust.
Conclusion. The Board, in light of the Adviser’s overall performance, considered it appropriate to continue to retain the Adviser as the Trust’s investment adviser. Based on their evaluation of all material factors deemed relevant, and with the advice of independent counsel, the Board determined that the Trust’s management fee rate payable to the Adviser under the Agreement does not constitute fees that are so disproportionately large as to bear no reasonable relationship to the services rendered and that could not have been the product of arm’s-length b argaining, and concluded that the management fee rate under the Agreement is fair and reasonable. Further, the Board concluded that the Trust’s Agreement is fair and reasonable and approved the continuation of the Agreement for another year.
FACTORS CONSIDERED BY THE BOARD IN APPROVING
THE INVESTMENT ADVISORY AGREEMENT FOR
VALUE LINE TAX EXEMPT FUND, INC. – THE NATIONAL BOND
PORTFOLIO
The Investment Company Act of 1940 (the “1940 Act”) requires the Board of Directors, including a majority of Directors who are not “interested persons” of Value Line Tax Exempt Fund, Inc. - The National Bond Portfolio (the “Fund”), as that term is defined in the 1940 Act (the “Independent Directors”), annually to consider the investment advisory agreement (the “Agreement”) between the Fund and its investment adviser, EULAV Asset Management, LLC (the “Adviser”). As required by the 1940 Act, the Board requested and the Adviser provided such information as the Board deemed to be reasonably necessary to evaluate the terms of the Agreement. At meetings held throughout the year, including the meeting specifically focused upon the review of the Agreement, the Independent Directors met in executive sessions separately from the non-Independent Director of the Fund and any officers of the Adviser. In selecting the Adviser and approving the continuance of the Agreement, the Independent Directors relied upon the assistance of counsel to the Independent Directors.
Both in the meetings which specifically addressed the approval of the Agreement and at other meetings held during the course of the year, the Board, including the Independent Directors, received materials relating to the Adviser’s investment and management services under the Agreement. These materials included information on: (i) the investment performance of the Fund, compared to a peer group of funds consisting of the Fund and all retail and institutional general municipal debt funds regardless of asset size or primary channel of distribution (the “Performance Universe”), and its benchmark index, each as classified by Lipper Inc., an independent evaluation ser vice (“Lipper”); (ii) the investment process, portfolio holdings, investment restrictions, valuation procedures, and financial statements for the Fund; (iii) sales and redemption data with respect to the Fund; (iv) the general investment outlook in the markets in which the Fund invests; (v) arrangements with respect to the distribution of the Fund’s shares; (vi) the allocation and cost of the Fund’s brokerage (none of which was effected through any affiliate of the Adviser); and (vii) the overall nature, quality and extent of services provided by the Adviser.
As part of the review of the continuance of the Agreement, the Board requested, and the Adviser provided, additional information in order to evaluate the quality of the Adviser’s services and the reasonableness of its fees under the Agreement. In a separate executive session, the Independent Directors reviewed information, which included data comparing: (i) the Fund’s management fee rate, transfer agent and custodian fee rates, service fee (including 12b-1 fees) rates, and the rate of the Fund’s other non-management fees, to those incurred by a peer group of funds consisting of the Fund and 15 other retail front-end load and no-load general municipal debt funds, as selected objectively by Lipper (“Expense Group”), and a peer group of funds consisting of the Fund, the Expense Group and all other retail front-end load and no-load general municipal debt funds (excluding outliers), as selected objectively by Lipper (“Expense Universe”); (ii) the Fund’s expense ratio to those of its Expense Group and Expense Universe; and (iii) the Fund’s investment performance over various time periods to the average performance of the Performance Universe as well as the appropriate Lipper Index, as selected objectively by Lipper (the “Lipper Index”). In the separate executive session, the Independent Directors also reviewed information regarding: (a) the financial results and condition of the Adviser’s parent company, the Adviser’s and certain of its affiliates’ profitability from the services that have been performed for the Fund as well as the Value Line family of funds; (b) the Fund’s current investment managem ent staffing; and (c) the Fund’s potential for achieving economies of scale. In support of its review of the statistical information, the Board was provided with a detailed description of the methodology used by Lipper to determine the Expense Group, the Expense Universe and the Performance Universe to prepare its information. The Independent Directors also requested and reviewed information provided by the Adviser relating to the settlement of a matter brought by the Securities and Exchange Commission regarding Value Line Securities, Inc.14, the Fund’s principal underwriter and affiliate of the Adviser (the “Distributor”), Value Line, Inc., and two former directors and officers of Value Line, Inc. Value Line, Inc. informed the Board that it and the Adviser continue to have adequate liquid assets, and that the resolution of this matter did not have a materially adverse effect on the ability of the Adviser o r the Distributor to perform their respective contracts with the Fund.
The following summarizes matters considered by the Board in connection with its renewal of the Agreement. However, the Board did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered.
Investment Performance. The Board reviewed the Fund’s overall investment performance and compared it to its Performance Universe and the Lipper Index. The Board noted that the Fund’s performance was below the performance of both the Performance Universe average and the Lipper Index for the one-year, three-year, five-year and ten-year periods ended December 31, 2009.
The Adviser’s Personnel and Methods. The Board reviewed the background of the portfolio manager responsible for the daily management of the Fund’s portfolio, seeking to achieve the Fund’s investment objectives and adhering to the Fund’s investment strategies. The Independent Directors also engaged in discussions with the Adviser’s senior management responsible for the overall functioning of the Fund’s investment operations. The Board concluded that the Fund’s management team and the Adviser’s overall resources were adequate and t hat the Adviser had investment management capabilities and personnel essential to performing its duties under the Agreement.
14 On May 6, 2009, Value Line Securities, Inc. changed its name to EULAV Securities, Inc. No other change was made to the Distributor’s organization, including its operations and personnel.
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Management Fee and Expenses. The Board considered the Adviser’s fee under the Agreement relative to the management fees charged by its Expense Group and Expense Universe averages. Although the Fund’s management fee rate for the most recent fiscal year was slightly higher than that of both the Expense Group average and the Expense Universe average, the Board determined that the Fund’s management fee rate payable to the Adviser under the Agreement does not constitute fees that are so disproportionately large as to bear no reasonable relationship to the services rendered and that could not have been the product of arm’s-length bargaining, and concluded that the management fee rate under the Agreement is fair and reasonable.
The Board also considered the Fund’s total expense ratio relative to its Expense Group and Expense Universe averages. The Board noted that the Distributor and the Board previously agreed that the Distributor would contractually waive a portion of the Fund’s Rule 12b-1 fee, effectively reducing the Fund’s Rule 12b-1 fee rate from 0.25% to 0.00% of the Fund’s average daily net assets for the one-year period ended June 30, 2010. The Distributor and the Board have currently agreed to extend this contractual 12b-1 fee waiver through June 30, 2011. Such waiver can not be changed without the Board’s approval during the contractual waiver period. As a result of th is Rule 12b-1 fee waivers the Board noted that the Fund’s total expense ratio after giving effect to this waiver was less than that of the Expense Group average and the Expense Universe average. The Board concluded that the average expense ratio was satisfactory for the purpose of approving the continuance of the Agreement for the coming year.
Nature and Quality of Other Services. The Board considered the nature, quality, cost and extent of other services provided by the Adviser and the Distributor. At meetings held throughout the year, the Board reviewed the effectiveness of the Adviser’s overall compliance program, as well as the services provided by the Distributor. The Board viewed favorably the increased emphasis being placed by the Adviser on its overall compliance program as well as steps being undertaken to enhance the shareholders’ experience with the Fund, such as a more robust website. The Boar d also reviewed the services provided by the Adviser and its affiliates in supervising third party service providers. Based on this review, the Board concluded that the nature, quality, cost and extent of such other services provided by the Adviser and its affiliates were satisfactory, reliable and beneficial to the Fund’s shareholders.
Profitability. The Board considered the level of profitability of the Adviser and its affiliates with respect to the Fund individually and in the aggregate for all the funds within the Value Line group of funds, including the impact of certain actions taken during prior years. These actions included the Adviser’s reduction (voluntary in some instances and contractual in other instances) of management and/or Rule 12b-1 fees for certain funds, the Adviser’s termination of the use of soft dollar research, and the cessation of trading through the Distributor. The Board concluded that the profitability of the Adviser and its affiliates with respect to the Fund, including the financial results derived from the Fund’s Agreement, were within a range the Board considered reasonable.
Other Benefits. The Board also considered the character and amount of other direct and incidental benefits received by the Adviser and its affiliates from their association with the Fund. The Board concluded that potential “fall-out” benefits that the Adviser and its affiliates may receive, such as greater name recognition, appear to be reasonable, and may in some cases benefit the Fund.
Economies of Scale. The Board noted that, given the current and anticipated size of the Fund, any perceived and potential economies of scale were not yet a significant consideration for the Fund and the addition of break points was determined not to be necessary at this time.
Fees and Services Provided for Other Comparable Funds/Accounts Managed by the Adviser and its Affiliates. In addition to comparing the Fund’s management fee rate to unaffiliated mutual funds included in the Fund’s Expense Group and Expense Universe, the Board was informed by the Adviser that the Adviser and its affiliates do not manage any investment companies or other institutional accounts comparable to the Fund.
Conclusion. The Board, in light of the Adviser’s overall performance, considered it appropriate to continue to retain the Adviser as the Fund’s investment adviser. Based on their evaluation of all material factors deemed relevant, and with the advice of independent counsel, the Board concluded that the Fund’s Agreement is fair and reasonable and approved the continuation of the Agreement for another year.
FACTORS CONSIDERED BY THE BOARD IN APPROVING
THE INVESTMENT ADVISORY AGREEMENT
FOR U.S. GOVERNMENT SECURITIES FUND, INC.
The Investment Company Act of 1940 (the “1940 Act”) requires the Board of Directors, including a majority of Directors who are not “interested persons” of U.S. Government Securities Fund, Inc. (the “Fund”), as that term is defined in the 1940 Act (the “Independent Directors”), annually to consider the investment advisory agreement (the “Agreement”) between the Fund and its investment adviser, EULAV Asset Management, LLC (the “Adviser”). As required by the 1940 Act, the Board requested and the Adviser provided such information as the Board deemed to be reasonably necessary to evaluate the terms of the Agreemen t. At meetings held throughout the year, including the meeting specifically focused upon the review of the Agreement, the Independent Directors met in executive sessions separately from the non-Independent Director of the Fund and any officers of the Adviser. In selecting the Adviser and approving the continuance of the Agreement, the Independent Directors relied upon the assistance of counsel to the Independent Directors.
Both in the meetings which specifically addressed the approval of the Agreement and at other meetings held during the course of the year, the Board, including the Independent Directors, received materials relating to the Adviser’s investment and management services under the Agreement. These materials included information on: (i) the investment performance of the Fund, compared to a peer group of funds consisting of the Fund and all retail and institutional intermediate U.S. government funds regardless of asset size or primary channel of distribution (the “Performance Universe”), and its benchmark index, each as classified by Lipper Inc., an independent evaluati on service (“Lipper”); (ii) the investment process, portfolio holdings, investment restrictions, valuation procedures, and financial statements for the Fund; (iii) sales and redemption data with respect to the Fund; (iv) the general investment outlook in the markets in which the Fund invests; (v) arrangements with respect to the distribution of the Fund’s shares; (vi) the allocation and cost of the Fund’s brokerage (none of which was effected through any affiliate of the Adviser); and (vii) the overall nature, quality and extent of services provided by the Adviser.
As part of the review of the continuance of the Agreement, the Board requested, and the Adviser provided, additional information in order to evaluate the quality of the Adviser’s services and the reasonableness of its fees under the Agreement. In a separate executive session, the Independent Directors reviewed information, which included data comparing: (i) the Fund’s management fee rate, transfer agent and custodian fee rates, service fee (including 12b-1 fees) rates, and the rate of the Fund’s other non-management fees, to those incurred by a peer group of funds consisting of the Fund, 11 other retail front-end load and no-load intermediate U.S. government funds as selected objectively by Lipper (“Expense Group”), and a peer group of funds consisting of the Fund, the Expense Group and all other retail front-end load and no-load intermediate U.S. government funds (excluding outliers), as selected objectively by Lipper (“Expense Universe”); (ii) the Fund’s expense ratio to those of its Expense Group and Expense Universe; and (iii) the Fund’s investment performance over various time periods to the average performance of the Performance Universe as well as the appropriate Lipper Index, as selected objectively by Lipper (the “Lipper Index”). In the separate executive session, the Independent Directors also reviewed information regarding: (a) the financial results and condition of the Adviser’s parent company, the Adviser’s and certain of its affiliates’ profitability from the services that have been performed for the Fund as well as the Value Line family of funds; (b) the Fund’s current investment manag ement staffing; and (c) the Fund’s potential for achieving economies of scale. In support of its review of the statistical information, the Board was provided with a detailed description of the methodology used by Lipper to determine the Expense Group, the Expense Universe and the Performance Universe to prepare its information. The Independent Directors also requested and reviewed information provided by the Adviser relating to the settlement of a matter brought by the Securities and Exchange Commission regarding Value Line Securities, Inc.15, the Fund’s principal underwriter and affiliate of the Adviser (the “Distributor”), Value Line, Inc., and two former directors and officers of Value Line, Inc. Value Line, Inc. informed the Board that it and the Adviser continue to have adequate liquid assets, and that the resolution of this matter did not have a materially adverse effect on the ability of the Adviser or the Distributor to perform their respective contracts with the Fund.
The following summarizes matters considered by the Board in connection with its renewal of the Agreement. However, the Board did not identify any single factor as all-important or controlling, and the summary does not detail all the matters that were considered.
Investment Performance. The Board reviewed the Fund’s overall investment performance and compared it to its Performance Universe and the Lipper Index. The Board noted that the Fund outperformed the Performance Universe average but performed below the Lipper Index for the three-year, five-year and ten-year periods ended December 31, 2009. The Board also noted that the Fund’s performance for the one-year period ended December 31, 2009 was below that of the Lipper Index and the Performance Universe average.
The Adviser’s Personnel and Methods. The Board reviewed the background of the portfolio manager responsible for the daily management of the Fund’s portfolio, seeking to achieve the Fund’s investment objectives and adhering to the Fund’s investment strategies. The Independent Directors also engaged in discussions with the Adviser’s senior management responsible for the overall functioning of the Fund’s investment operations. The Board concluded that the Fund’s management team and the Adviser’s overall resources were adequate and that the Adviser ha d investment management capabilities and personnel essential to performing its duties under the Agreement.
15 On May 6, 2009, Value Line Securities, Inc. changed its name to EULAV Securities, Inc. No other change was made to the Distributor’s organization, including its operations and personnel.
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Management Fee and Expenses. The Board considered the Adviser’s fee under the Agreement relative to the management fees charged by its Expense Group and Expense Universe averages. The Board noted that, for the most recent fiscal year, the Fund’s management fee rate was higher than that of both the Expense Group average and the Expense Universe average.
The Board also considered the Fund’s total expense ratio relative to its Expense Group and Expense Universe averages. The Board noted that the Distributor and the Board previously agreed that the Distributor would contractually waive a portion of the Fund’s Rule 12b-1 fee, effectively reducing the Fund’s Rule 12b-1 fee rate from 0.25% to 0.00% of the Fund’s average daily net assets for the period ending December 31, 2010. The Distributor and the Board have currently agreed to extend this contractual 12b-1 fee waiver through December 31, 2011. Such waiver can not be changed without the Board’s approval during the contractual waiver period. As a result of th e Rule 12b-1 fee waiver, the Board noted that the Fund’s total expense ratio after giving effect to the waiver was less than that of the Expense Group average and the Expense Universe average. The Board concluded that the average expense ratio was satisfactory for the purpose of approving the continuance of the Agreement for the coming year.
Nature and Quality of Other Services. The Board considered the nature, quality, cost and extent of other services provided by the Adviser and the Distributor. At meetings held throughout the year, the Board reviewed the effectiveness of the Adviser’s overall compliance program, as well as the services provided by the Distributor. The Board viewed favorably the increased emphasis being placed by the Adviser on its overall compliance program as well as steps being undertaken to enhance the shareholders’ experience with the Fund, such as a more robust website. The Boar d also reviewed the services provided by the Adviser and its affiliates in supervising third party service providers. Based on this review, the Board concluded that the nature, quality, cost and extent of such other services provided by the Adviser and its affiliates were satisfactory, reliable and beneficial to the Fund’s shareholders.
Profitability. The Board considered the level of profitability of the Adviser and its affiliates with respect to the Fund individually and in the aggregate for all the funds within the Value Line group of funds, including the impact of certain actions taken during prior years. These actions included the Adviser’s reduction (voluntary in some instances and contractual in other instances) of management and/or Rule 12b-1 fees for certain funds, the Adviser’s termination of the use of soft dollar research, and the cessation of trading through the Distributor. The Board concluded that the profitability of the Adviser and its affiliates with respect to the Fund, including the financial results derived from the Fund’s Agreement, were within a range the Board considered reasonable.
Other Benefits. The Board also considered the character and amount of other direct and incidental benefits received by the Adviser and its affiliates from their association with the Fund. The Board concluded that potential “fall-out” benefits that the Adviser and its affiliates may receive, such as greater name recognition, appear to be reasonable, and may in some cases benefit the Fund.
Economies of Scale. The Board noted that, given the current and anticipated size of the Fund, any perceived and potential economies of scale were not yet a significant consideration for the Fund and the addition of break points was determined not to be necessary at this time.
Fees and Services Provided for Other Comparable Funds/Accounts Managed by the Adviser and its Affiliates. In addition to comparing the Fund’s management fee rate to unaffiliated mutual funds included in the Fund’s Expense Group and Expense Universe, the Board was informed by the Adviser that the Adviser and its affiliates do not manage any investment companies or other institutional accounts comparable to the Fund.
Conclusion. The Board, in light of the Adviser’s overall performance, considered it appropriate to continue to retain the Adviser as the Fund’s investment adviser. Based on their evaluation of all material factors deemed relevant, and with the advice of independent counsel, the Board determined that the Fund’s management fee rate payable to the Adviser under the Agreement does not constitute fees that are so disproportionately large as to bear no reasonable relationship to the services rendered and that could not have been the product of arm’s-length bar gaining, and concluded that the management fee rate under the Agreement is fair and reasonable. Further, the Board concluded that the Fund’s Agreement is fair and reasonable and approved the continuation of the Agreement for another year.
