Legal Proceedings and Restructuring:

6 Months Ended

Oct. 31, 2011

Legal Proceedings and Restructuring [Abstract]

Legal Proceedings and Restructuring:

Note 11-Legal Proceedings and Restructuring:

As more fully disclosed under the caption Legal Proceedings and Restructuring under Part I, item 3 in the Company’s Form 10-K for the fiscal year ended April 30, 2011 filed with the SEC on July 29, 2011, the Company concluded a negotiated settlement with the SEC as a result of an investigation into former brokerage practices (the “Settlement”).

In connection with the Settlement, the Company, without admitting or denying the SEC charges, paid $43,706,000 to the SEC in November 2009. Subsequent to the Settlement and pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, the Company’s disgorgement, interest and penalty payments were placed into a Fair Fund created by the SEC.  The Fair Fund will be used to reimburse shareholders who owned shares in the affected Value Line Funds in the period covered by the Settlement.  The Company is required to bear all costs associated with the Fair Fund distribution, including compensating a third party consultant appointed by the SEC to administer the Fair Fund distribution.  During fiscal 2011, the SEC appointed A.B. Data, Ltd. as the Administrator of the Fair Fund.  A.B. Data, Ltd. has no affiliation with the Company.  In connection with its ongoing administration of the Fair Fund, A.B. Data, Ltd and the Company estimated that the costs of administration of the Fair Fund and other costs associated with the Settlement would be approximately $2,633,000, revised during fiscal 2011 from the original estimate of $4,400,000.  As of October 31, 2011 and April 30, 2011, the unpaid portion of those costs of $480,000 and $1,464,000, respectively, are reflected as a liability in the Consolidated Condensed Balance Sheets.

Under the terms of the Settlement, two individuals were barred from association with any broker, dealer, or investment adviser and were prohibited from serving or acting in various capacities, including as an “affiliated person” (as that term is defined in the 1940 Act) of the Funds, the Adviser or the Distributor. The required “disassociation” was accomplished upon the closing of the Restructuring Transaction whereby the investment advisory business (including both the adviser and the distributor) was transferred to EAM, a Delaware business trust (“Adviser”).  As part of the Restructuring Transaction, the Company transferred 100% of the voting control to five individual voting profits interest holders of EAM, none of whom is under the control of the Company or its direct or indirect majority shareholder. Each of the five individuals holding voting profits interests in EAM was granted 20% of the voting power.  As a result, the Company ceased to “control” (as that term is defined in the 1940 Act) the Adviser or the Distributor, even though the Company continues to have both a non-voting revenues interest and a non-voting profits interest in the Adviser.

In connection with the Restructuring Transaction, in accordance with the requirements of the 1940 Act, at the time of the Restructuring Transaction, each Fund’s prior investment advisory agreement terminated and EAM entered into a new investment advisory agreement with each Fund.  The services provided by EAM under each new agreement and the rates at which fees are paid by each Fund under its new agreement are the same as under that Fund’s prior investment advisory agreement.  In addition, the other terms of each Fund’s new investment advisory agreement are the same as that Fund’s prior investment advisory agreement, except for the date of execution, the two-year initial term, immaterial updating changes and immaterial changes in form.

Each Fund had a distribution agreement with ESI (the “Distributor”), a wholly-owned subsidiary of EAM LLC, pursuant to which the Distributor acted as principal underwriter and distributor of the Funds.  As part of the Restructuring Transaction ESI was restructured as a Delaware limited liability company and changed its name to EULAV Securities LLC (which we sometimes refer to as “ES”).  No other changes were made to the Distributor’s organization, including its operations and personnel.  For its services under the agreements, the Distributor is not entitled to receive any compensation, although it is entitled to receive fees under each Fund’s Service and Distribution Plan.

As part of the Restructuring Transaction, EAM’s capital structure was revised so that Value Line owns only a non-voting revenues interest and a non-voting profits interest in EAM and five individuals each own 20% of the voting profits interests of the Adviser (“EAM”).  The holders of EAM’s voting profits interests elect five individual trustees and a Delaware resident trustee of EAM.  The trustees of EAM other than the Delaware trustee manage the combined company consisting of the Adviser and the Distributor much like a board of directors.  EAM’s holders of the voting profits interests elected themselves as the five initial individual trustees of the Adviser and the Corporation Trust Company as the Delaware resident trustee. The Trustees initially delegated the authority to manage the day-to-day business of the Adviser and the Distributor to the Adviser’s senior executive, Mitchell E. Appel, who is one of the Trustees and is also a Director of the Funds, and continues to serve as principal executive of the Adviser.

Collectively, the holders of the voting profits interests are entitled to receive 50% of the residual profits of the business, in which the share of Mr. Appel is 45% and the others each 1.25%, subject to temporary adjustments in certain circumstances.  Value Line retains a non-voting profits interest representing 50% of residual profits, subject to temporary adjustments in certain circumstances and has no power to vote for the election, removal or replacement of the trustees of EAM. Value Line also has a non-voting revenues interest in EAM pursuant to which it is entitled to receive a portion of the non-distribution revenues of the business ranging from 41% at non-distribution fee revenue levels of $9 million or less to 55% at such revenue levels of $35 million or more.  In the event the business is sold or liquidated, the first $56.1 million of net proceeds (the value of the business at the time the Restructuring Transaction was approved as determined by the directors of Value Line after reviewing a valuation report by the directors’ financial advisors) plus any additional capital contributions (Value Line or any holder of a voting profits interest, at its discretion, may make future contributions to its capital account in EAM), which contributions would increase its capital account but not its percentage interest in operating profits, will be distributed in accordance with capital accounts; 20% of the next $56.1 million will be distributed to the holders of the voting profits interests and 80% to the holders of the non-voting profits interests (initially Value Line); and the excess will be distributed 45% to the holders of the voting profits interests and 55% to the holders of the non-voting profits interests.

In connection with the Restructuring Transaction, Value Line (1) granted the Adviser, the Distributor and each Fund use of the name “Value Line” so long as the Adviser remains the Fund’s adviser and on the condition that the Fund does not alter its investment objectives or fundamental policies as they exist on the date of the investment advisory agreement, provided also the Funds do not use leverage for investment purposes, short selling or other complex or unusual investment  strategies that create a risk profile similar to that of so-called hedge funds, (2) agreed to provide the Adviser its ranking information without charge on as favorable a basis as to its best institutional customers and (3) agreed to capitalize the business with $7 million of cash and cash equivalents.

The EAM trust entity has no fixed term, but in the event that control of the Company’s majority shareholder changes, or in the event that the majority shareholder no longer beneficially owns 5% or more of the voting securities of the Company, then the Company has the right, but not the obligation, to buy the voting profits interests in EAM at a fair market value to be determined by an independent valuation firm in accordance with the terms of the EAM Trust Agreement.

Value Line also has certain consent rights with respect to extraordinary events involving EAM, such as a proposed sale of all or a significant part of EAM, material acquisitions, entering into businesses other than asset management and fund distribution, paying compensation in excess of the mandated limit of 22.5%-30% of non-distribution fee revenues (depending on the level of such revenues), declaring voluntary bankruptcy, making material changes in tax or accounting policies or making substantial borrowings, and entering into related party transactions. These rights were established to protect Value Line’s non-voting revenues and non-voting profits interests in EAM.

On a short-term transitional basis, EAM and the Distributor occupied a portion of the premises that the Company leases from a third party.  The Company received rental payments from EAM and provided certain accounting and other administrative support services to EAM on a transitional basis. In accordance with the terms of the Restructuring Transaction, EAM vacated the Company’s premises before June 1, 2011.

On September 3, 2008, the Company was served with a derivative shareholder’s suit filed in New York County Supreme Court (the “Court”) naming certain current and former directors of the Company and alleging breach of fiduciary duty and related allegations, most of which arise from the SEC matter. The complaint sought return of remuneration by the directors and other remedies. A second derivative shareholder’s suit was filed in New York County Supreme Court on or about November 9, 2009, naming certain current and former Value Line Directors and the Parent as defendants. This suit primarily restates the same or similar allegations and seeks similar remedies as were sought in the earlier derivative shareholder’s suit served in September 2008. By order dated January 8, 2010, the Court granted plaintiffs’ motion to consolidate the two cases. The Company has advised its insurance carriers of these developments.

Following mediation, the defendants in the consolidated cases filed in 2008 and 2009 entered into a settlement agreement with the plaintiffs, which was approved by the Court on December 7, 2011. The settlement calls for payment of settlement funds, from sources other than by Value Line or any of its subsidiaries, in an aggregate sum of $2.9 million for the benefit of the Company’s minority shareholders (the Company’s shareholders other than: AB&Co., all other named defendants and members of their immediate families).  That sum is inclusive of any and all costs and expenses of the plaintiffs in relation to the case, including but not limited to legal fees and other charges and court costs.

Since the settlement calls for payment of the settlement funds by parties other than the Company, the settlement will have no material effect on the financial condition, results of operations or cash flows of the Company.