- --------------------------------------------------------------------------------
ANNUAL REPORT
- --------------------------------------------------------------------------------
December 31, 1997
- --------------------------------------------------------------------------------
The Value Line
Fund, Inc.
[LOGO]
----------
VALUE LINE
No-Load
Mutual
Funds
<PAGE>
The Value Line Fund, Inc.
To Our Value Line
- --------------------------------------------------------------------------------
To Our Shareholders:
In a continuation of the trend of the last several years, 1997 saw
large-capitalization stocks, like those in the S&P 500, significantly outperform
small- and mid-sized capitalization stocks. The Value Line Fund, with its
mid-cap focus, had a total return of 21.59% for the year, while the Standard &
Poor's 500 Index had a total return of 33.36% and the Russell 2000 small-cap
index had a total return of 22.36%.
In addition, the Fund's performance suffered in the fourth quarter, as concerns
about the ramifications of the currency crisis in Asia caused severe declines in
a number of growth stocks, particularly in the technology and energy sectors,
which had screened strongly in the Value Line Timeliness(TM) Ranking System.
After starting the year on a solid note, the stock market suffered a sharp
correction in the spring as a result of a rise in interest rates due to
surprisingly strong economic growth in the first quarter. The summer saw a
powerful rally in the market, fueled by strong corporate profit growth, a
decline in interest rates, benign inflation, and a perceived slowing of economic
growth from the first quarter's rapid pace. This rally continued into the fall,
as the environment for stocks appeared to approach investment "nirvana," i.e.
strong profit growth, low inflation, easing interest rates, and a solid, but not
overheating, economy.
In addition the European economies appeared to be emerging from long years of
slow growth, potentially adding to overseas profit growth. However, late October
saw a sharp downturn in the stock market, as concerns about the impact of the
Southeast Asian economic crisis were manifested in the U.S. market. This
pullback was highlighted by a one-day 554-point decline in the Dow Jones
Industrial Average in late October.
The last two months of the year saw continued severe weakness in growth stocks,
whose earnings were perceived to be at risk from the Asian crisis. Indeed,
earnings shortfalls from some high-profile companies late in the year sent
tremors throughout the market, as investors viewed these earnings difficulties
as signs of difficult things to come. In this environment investors gravitated
to large-capitalization stocks with more dependable earnings, and the S&P 500
significantly outperformed the broader indices.
The Value Line Fund's largest representation last year, compared with the
industry allocations for the benchmark S&P 500 Index, were in technology (mostly
networking and software-related stocks) and energy (primarily oil service and
drillers). These two areas performed poorly at the end of the year, due to
economic and currency problems in Asia and political instability in the Middle
East. In addition, the Fund had significant positions in bank and insurance
stocks, two industries with excess capacity, which are undergoing consolidation.
This area benefited at the end of the year from the sharp decline in interest
rates and their general lack of exposure to Asia.
The Value Line Fund's investment management style is derived from the output of
the Value Line Timeliness Ranking System, which has a long record of success as
the highest ranked stocks, the 1s and 2s, have significantly outperformed the
lower ranked stocks. The higher-ranked stocks have superior near-term earnings
and price momentum, as well as attractive valuations. Your Fund selects stocks
primarily from these top two ranks. As such, our style is "growth" oriented,
seeking companies that are increasing earnings faster than the market overall.
The stocks of such companies tend to have relatively higher stock price
volatility, and are more often found in fast-growth sectors, such as technology
and healthcare, as opposed to slow-growth sectors such as utilities. In order to
reduce the risks associated with such a style, the Fund's holdings are well
diversified, with representation in virtually all economic sectors. In addition,
the Fund may
- --------------------------------------------------------------------------------
2
<PAGE>
The Value Line Fund, Inc.
Fund Shareholders
- --------------------------------------------------------------------------------
also invest in Rank 3 stocks in order to improve diversification and reduce
risk.
As always, we appreciate the confidence you have demonstrated in Value Line and
The Value Line Fund, and we intend to work hard to continue to best serve your
investment needs.
Sincerely,
/s/ Jean Bernhard Buttner
Jean Bernhard Buttner
Chairman and President
February 2, 1998
- --------------------------------------------------------------------------------
Economic Observations
It has now been a number of months since the crisis in Asia first made the
headlines in this country, and about that long since the pessimists began to
predict that there would be serious repercussions over here. During that time,
however, there has been little in the economic reports to suggest that this
feared sharp falloff in business activity was taking place on a wide scale.
True, a number of companies are now noting some Asia-related weakness, with
cautionary statements accompanying certain profit reports. In fact, the Asian
problems do raise concerns regarding earnings prospects through the first half
of this year--at least. For the most part, however, economic activity is
sufficiently strong to suggest that corporate earnings will continue to rise,
albeit at a modest pace.
Encouragingly, this long-running business expansion looks as though it will
persist. Overall, the current tenor of the economic data would seem to be
consistent with a growth rate of 2.0%-2.5% for the next several quarters, versus
perhaps 3% had the difficulties in Asia not evolved. We add, however, that even
our reduced expectations assume that the problems in that region will begin to
ease selectively over the next several months, as efforts by the world's leading
banking authorities gradually produce the desired stability.
Meantime, there continues to be limited pressure on the inflation front, with
prices for industrial goods, energy products, and precious metals continuing in
a flat to lower trend. Our sense, for now, is that these favorable pricing
trends will stay intact for the balance of the year. Overall, with the economy
likely to remain on a modest, yet sustainable, growth track, and with inflation
expected to hold at low levels, interest rates should continue to be relatively
stable, thus lending some support to the financial markets during the months
ahead.
*Performance Data:
Growth of
Average an Assumed
Annual Investment of
Total Return $10,000
------------ -------------
1 year ended 12/31/97................. 21.59% $12,159
5 years ended 12/31/97................ 14.97% $20,084
10 years ended 12/31/97................ 16.17% $44,777
* The performance data quoted represent past performance and are no guarantee
of future performance. The average annual total returns and growth of an
assumed investment of $10,000 include dividends reinvested and capital
gains distributions accepted in shares. The investment return and principal
value of an investment will fluctuate so that an investment, when redeemed,
may be worth more or less than its original cost.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
IN THE VALUE LINE FUND
AND THE S&P 500 STOCK INDEX*
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL.]
Value Line Fund S&P 500
--------------- -------
1/1/88 10,000 10,000
3/31/88 10,591 10,571
6/30/88 11,111 11,273
9/30/88 10,759 11,308
12/31/88 10,968 11,655
3/31/89 11,681 12,479
6/30/89 12,568 13,579
9/30/89 14,453 15,031
12/31/89 14,415 15,339
3/31/90 14,072 14,879
6/30/90 15,380 15,813
9/30/90 13,110 13,642
12/31/90 14,306 14,871
3/31/91 17,006 17,031
6/30/91 18,857 16,992
9/30/91 18,236 17,901
12/31/91 21,296 19,402
3/31/92 20,027 18,912
6/30/92 18,783 19,271
9/30/92 20,201 19,879
12/31/92 22,294 20,880
3/31/93 22,742 21,791
6/30/93 23,542 21,897
9/30/93 24,540 22,463
12/31/93 23,814 22,984
3/31/94 22,788 22,112
6/30/94 21,610 22,205
9/30/94 22,908 23,291
12/31/94 22,749 23,288
3/31/95 24,777 25,555
6/30/95 26,524 27,995
9/30/95 29,180 30,219
12/31/95 30,055 32,039
3/31/96 32,646 33,758
6/30/96 34,420 35,273
9/30/96 38,982 36,363
12/31/96 38,826 39,395
3/31/97 39,802 40,446
6/30/97 41,174 47,507
9/30/97 45,866 51,069
12/31/97 44,776 52,535
(Period covered is 1/1/88 to 12/31/97)
* The Standard & Poor's 500 Index (S&P 500) is an unmanaged index that is
representative of the larger-capitalization stocks traded in the United States.
- --------------------------------------------------------------------------------
4
<PAGE>
The Value Line Fund, Inc.
Portfolio Highlights at December 31, 1997 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ten Largest Holdings
Value Percentage of
Issue Shares (in thousands) Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Transocean Offshore, Inc..................................... 250,000 $12,047 3.2%
Pfizer, Inc.................................................. 160,000 11,930 3.1
BMC Software, Inc............................................ 150,000 9,844 2.6
Travelers Group, Inc......................................... 165,000 8,889 2.3
Safeway, Inc................................................. 140,000 8,855 2.3
Omnicom Group, Inc........................................... 200,000 8,475 2.2
Cardinal Health, Inc......................................... 112,250 8,433 2.2
Cisco Systems, Inc........................................... 120,000 6,690 1.7
Compuware Corp............................................... 200,000 6,400 1.7
Allstate Corp. (The)......................................... 70,000 6,361 1.7
<CAPTION>
Five Largest Industry Categories
Value Percentage of
Industry (in thousands) Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Oilfield Services/Equipment.................................. $ 43,767 11.4%
Computer & Peripherals....................................... 26,693 7.0
Drug......................................................... 24,592 6.4
Computer Software & Services................................. 22,589 5.9
Bank......................................................... 19,735 5.2
<CAPTION>
Five Largest Net Security Purchases*
Cost
Issue (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Brightpoint, Inc............................................. $ 7,472
Compuware Corp............................................... 5,983
EMC Corp..................................................... 5,511
Compaq Computer Corp......................................... 5,270
Executive Risk Inc........................................... 5,204
<CAPTION>
Five Largest Net Security Sales*
Proceeds
Issue (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Louisiana Land & Exploration Co.............................. $ 9,110
Johnson & Johnson............................................ 7,491
Boeing Co.................................................... 6,843
Coca-Cola Co................................................. 6,011
Tidewater, Inc............................................... 5,907
</TABLE>
* For the six month period ended 12/31/97
- --------------------------------------------------------------------------------
5
<PAGE>
The Value Line Fund, Inc.
Schedule of Investments
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
COMMON STOCKS (87.8%)
ADVERTISING (2.2%)
200,000 Omnicom Group, Inc............................. $ 8,475
AEROSPACE/
DEFENSE (1.1%)
70,000 Precision Castparts Corp....................... 4,222
AIR TRANSPORT (2.1%)
77,200 Air Express International Corp................. 2,355
90,000 Airborne Freight Corp.......................... 5,591
--------
7,946
BANK (5.2%)
70,000 BankAmerica Corp............................... 5,110
40,000 Citicorp....................................... 5,058
100,000 Mellon Bank Corp............................... 6,062
60,000 State Street Corp.............................. 3,505
--------
19,735
BANK--MIDWEST (1.6%)
110,000 Norwest Corp................................... 4,249
30,000 Star Banc Corp................................. 1,721
--------
5,970
COAL/ALTERNATE
ENERGY (1.2%)
100,000 AES Corp.*..................................... 4,662
COMPUTER AND
PERIPHERALS (7.0%)
60,000 Adaptec, Inc.*................................. 2,228
125,000 Bay Networks, Inc.*............................ 3,195
120,000 Cisco Systems, Inc.*........................... 6,690
70,000 Compaq Computer Corp........................... 3,951
200,000 EMC Corp.*..................................... 5,487
80,000 Newbridge Networks Corp.*...................... 2,790
54,000 SCI Systems, Inc.*............................. 2,352
--------
26,693
COMPUTER SOFTWARE &
SERVICES (5.9%)
150,000 BMC Software, Inc.*............................ 9,844
120,000 Computer Associates
International, Inc......................... 6,345
200,000 Compuware Corp.*............................... 6,400
--------
22,589
DIVERSIFIED
COMPANIES (1.1%)
60,000 United Technologies Corp....................... 4,369
DRUG (6.4%)
60,000 Dura Pharmaceuticals, Inc.*.................... 2,752
80,000 Lilly (Eli) & Co............................... 5,570
160,000 Pfizer, Inc.................................... 11,930
35,000 Warner-Lambert Co.............................. 4,340
--------
24,592
ELECTRICAL
EQUIPMENT (1.0%)
50,000 General Electric Co............................ 3,669
ENTERTAINMENT (1.3%)
60,000 Clear Channel
Communications, Inc.*...................... 4,766
FINANCIAL SERVICES
(2.3%)
165,000 Travelers Group, Inc........................... 8,889
FOOD PROCESSING (1.9%)
60,000 Campbell Soup Co............................... 3,488
60,000 Hershey Foods Corp............................. 3,716
--------
7,204
FURNITURE/HOME
FURNISHINGS (0.9%)
60,000 HON INDUSTRIES, Inc............................ 3,540
- --------------------------------------------------------------------------------
6
<PAGE>
The Value Line Fund, Inc.
December 31, 1997
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
GROCERY (2.3%)
140,000 Safeway, Inc.*................................. $ 8,855
INSURANCE--LIFE (3.0%)
55,000 Conseco, Inc................................... 2,499
100,000 ReliaStar Financial Corp....................... 4,119
111,000 SunAmerica Inc................................. 4,745
--------
11,363
INSURANCE--PROPERTY &
CASUALTY (4.3%)
70,000 Allstate Corp. (The)........................... 6,361
85,000 Executive Risk Inc............................. 5,934
35,000 Progressive Corp............................... 4,196
--------
16,491
MEDICAL SERVICES (1.2%)
160,000 HEALTHSOUTH Corp.*............................. 4,440
MEDICAL SUPPLIES (3.3%)
112,250 Cardinal Health, Inc........................... 8,433
70,000 Guidant Corp................................... 4,357
--------
12,790
METAL FABRICATING (0.6%)
40,000 Illinois Tool Works, Inc....................... 2,405
OFFICE EQUIPMENT &
SUPPLIES (1.7%)
150,000 Staples, Inc.*................................. 4,163
125,000 U.S. Office Products Co.*...................... 2,453
--------
6,616
OILFIELD SERVICES/
EQUIPMENT (11.4%)
80,000 BJ Services Co.*............................... 5,755
95,000 Baker Hughes Inc............................... 4,144
100,000 ENSCO International Inc. ...................... 3,350
80,000 Global Marine, Inc.*........................... 1,960
90,000 Helmerich & Payne, Inc......................... 6,109
150,000 Parker Drilling Co.*........................... 1,828
100,000 Rowan Companies, Inc.*......................... 3,050
90,000 Smith International, Inc.*..................... 5,524
250,000 Transocean Offshore, Inc....................... 12,047
--------
43,767
PACKAGING &
CONTAINER (0.7%)
40,000 Sealed Air Corp.*.............................. 2,470
PETROLEUM--
INTEGRATED (2.2%)
46,000 British Petroleum Co.
PLC (ADR).................................. 3,666
50,000 Occidental Petroleum Corp...................... 1,465
100,000 USX-Marathon Group............................. 3,375
--------
8,506
PETROLEUM--
PRODUCING (1.1%)
120,000 R & B Falcon Corp.*............................ 4,208
RETAIL--SPECIAL LINES
(3.2%)
386,600 Brightpoint, Inc.*............................. 5,364
90,000 CompUSA, Inc.*................................. 2,790
120,000 TJX Companies, Inc............................. 4,125
--------
12,279
- --------------------------------------------------------------------------------
7
<PAGE>
The Value Line Fund, Inc.
Schedule of Investments December 31, 1997
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
RETAIL STORE (3.8%)
101,562 Consolidated Stores Corp.*..................... $ 4,462
80,000 Dayton Hudson Corp............................. 5,400
100,000 Federated Department
Stores, Inc.*.............................. 4,306
21,000 Shopko Stores, Inc.*........................... 457
--------
14,625
SEMICONDUCTOR (1.3%)
140,000 Maxim Integrated
Products, Inc.*............................ 4,830
TELECOMMUNICATIONS
EQUIPMENT (3.3%)
85,000 ADC Telecommunications,
Inc.*...................................... 3,549
200,000 PairGain Technologies, Inc.*................... 3,875
100,000 Tellabs, Inc.*................................. 5,287
--------
12,711
TELECOMMUNICATION
SERVICES (1.8%)
90,000 AirTouch Communications,
Inc.*...................................... 3,741
100,000 WorldCom, Inc.*................................ 3,025
--------
6,766
TOBACCO (1.4%)
120,000 Philip Morris Companies,
Inc........................................ 5,438
--------
TOTAL COMMON STOCKS
AND TOTAL INVESTMENT
SECURITIES (87.8%)
(Cost $220,867,000) ........................... 335,881
--------
Value
Principal (in thousands
Amounts except per
(in thousands) share amount
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS (14.6%)
U.S. GOVERNMENT
AGENCY
OBLIGATIONS (6.5%)
$25,000 Federal Home Loan Mortgage
Bank Discount Notes,
5.59%, 1/8/98.............................. $ 24,973
--------
REPURCHASE
AGREEMENT (8.1%)
(including accrued interest)
31,000 Collateralized by $31,480,000
U.S. Treasury Notes 6%,
due 6/30/99, with a value of
$31,637,000 (with First
Chicago Capital Markets, Inc.
5.85%, dated 12/31/97,
due 1/2/98, delivery value
of $31,010,000)............................ 31,005
--------
TOTAL SHORT-TERM
INVESTMENTS
(Cost $55,978,000) ............................ 55,978
--------
EXCESS OF LIABILITIES OVER
CASH AND RECEIVABLES (-2.4%) .................................. (9,428)
--------
NET ASSETS (100%) ........................................... $382,431
========
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
OUTSTANDING SHARE
($382,431,000 / 19,826,560 shares of
capital stock outstanding) .................................... $ 19.29
========
* Non-income producing
See Notes to Financial Statements
- --------------------------------------------------------------------------------
8
<PAGE>
The Value Line Fund, Inc.
Statement of Assets
and Liabilities at December 31, 1997
- --------------------------------------------------------------------------------
Dollars
(in thousands
except per share
amount)
----------------
Assets:
Investment securities, at value
(Cost--$220,867).......................................... $335,881
Short-term investments (Cost--$55,978)...................... 55,978
Cash........................................................ 18
Dividends & interest receivable............................. 195
Receivable for capital shares sold.......................... 20
--------
Total Assets ......................................... 392,092
--------
Liabilities:
Payable for securities purchased............................ 9,272
Payable for capital shares repurchased...................... 56
Accrued expenses:
Advisory fee.............................................. 215
Other..................................................... 118
--------
Total Liabilities .................................... 9,661
--------
Net Assets ................................................. $382,431
========
Net Assets consist of:
Capital stock, at $1.00 par value
(authorized 50,000,000,
outstanding 19,826,560 shares)............................ $ 19,827
Additional paid-in capital.................................. 244,168
Undistributed investment income--net........................ 34
Undistributed net realized gain on
investments............................................... 3,388
Unrealized net appreciation of
investments............................................... 115,014
--------
Net Assets ................................................. $382,431
========
Net Asset Value, Offering and
Redemption Price per
Outstanding Share
($382,431,000/19,826,560
shares outstanding) ...................................... $ 19.29
========
Statement of Operations
for the Year Ended December 31, 1997
- --------------------------------------------------------------------------------
Dollars
(in thousands)
------------
Investment Income:
Interest.................................................... $ 2,821
Dividends (Net of foreign withholding
taxes of $16)............................................. 2,452
-------
Total Income............................................ 5,273
-------
Expenses:
Advisory fee................................................ 2,463
Transfer agent fees......................................... 162
Custodian fees.............................................. 47
Postage..................................................... 43
Auditing and legal fees..................................... 39
Printing and stationery..................................... 34
Telephone and wire charges.................................. 32
Registration and filing fees................................ 24
Insurance and dues.......................................... 22
Directors' fees and expenses................................ 15
Taxes and other............................................. 5
-------
Total Expenses before
Custody Credits..................................... 2,886
Less: Custody Credits................................. (4)
-------
Net Expenses.......................................... 2,882
-------
Investment Income--Net ..................................... 2,391
-------
Realized and Unrealized Gain on
Investments--Net:
Realized Gain--Net...................................... 48,276
Change in Unrealized Appreciation....................... 19,978
-------
Net Realized Gain and Change in
Unrealized Appreciation
on Investments ........................................... 68,254
-------
Net Increase in Net Assets
from Operations .......................................... $70,645
=======
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
9
<PAGE>
The Value Line Fund, Inc.
Statement of Changes in Net Assets
for the Years Ended December 31, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
------------------------------
(Dollars in thousands)
<S> <C> <C>
Operations:
Investment income--net ................................................................. $ 2,391 $ 1,942
Realized gain on investments--net ...................................................... 48,276 53,096
Change in unrealized appreciation ...................................................... 19,978 16,822
------------------------------
Net increase in net assets from operations ............................................... 70,645 71,860
------------------------------
Distributions to Shareholders:
Investment income--net ................................................................. (2,392) (1,907)
Realized gain from investment transactions--net ........................................ (63,076) (36,107)
------------------------------
Total distributions .................................................................... (65,468) (38,014)
------------------------------
Capital Share Transactions:
Net proceeds from sale of shares ....................................................... 110,688 62,912
Net proceeds from reinvestment of distributions to shareholders ........................ 61,277 35,580
Cost of shares repurchased ............................................................. (143,582) (101,036)
------------------------------
Increase (Decrease) from capital share transactions .................................... 28,383 (2,544)
------------------------------
Total Increase ........................................................................... 33,560 31,302
Net Assets:
Beginning of year ...................................................................... 348,871 317,569
------------------------------
End of year ............................................................................ $ 382,431 $ 348,871
==============================
Undistributed investment income--net, at end of year ..................................... $ 34 $ 35
==============================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
10
<PAGE>
The Value Line Fund, Inc.
Notes to Financial Statements December 31, 1997
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
The Fund is registered under the Investment Company Act of 1940, as amended, as
a diversified, open-end management investment company whose primary investment
objective is long-term growth of capital.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of
significant accounting policies consistently followed by the Fund in the
preparation of its financial statements.
(A) Security Valuation. Securities listed on a securities exchange and
over-the-counter securities traded on the NASDAQ national market are valued at
the closing sales prices on the date as of which the net asset value is being
determined. In the absence of closing sales prices for such securities and for
securities traded in the over-the- counter market, the security is valued at the
midpoint between the latest available and representative asked and bid prices.
Securities for which market quotations are not readily available or that are not
readily marketable and all other assets of the Fund are valued at fair value as
the Board of Directors may determine in good faith. Short-term instruments with
maturities of 60 days or less at the date of purchase are valued at amortized
cost, which approximates market value. Short-term instruments with maturities
greater than 60 days at the date of purchase are valued at the midpoint between
the latest available and representative asked and bid prices, and commencing 60
days prior to maturity such securities are valued at amortized cost.
(B) Repurchase Agreements. In connection with transactions in repurchase
agreements, the Fund's custodian takes possession of the underlying collateral
securities, the value of which exceeds the principal amount of the repurchase
transaction, including accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to ensure the adequacy of the collateral. In
the event of default of the obligation to repurchase, the Fund has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or bankruptcy
by the other party to the agreement, realization and/or retention of the
collateral or proceeds may be subject to legal proceedings.
(C) Federal Income Taxes. It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies, including the distribution requirements of the Tax Reform Act of
1986, and to distribute all of its taxable income to its shareholders.
Therefore, no federal income tax or excise tax provision is required.
(D) Security Transactions and Distributions. Security transactions are accounted
for on the date the securities are purchased or sold. Interest income is accrued
as earned. Realized gains and losses on sales of securities are calculated for
financial accounting and federal income tax purposes on the identified cost
basis. Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
(E) Amortization. Discounts on debt securities are amortized to interest income
over the life of the security with a corresponding increase to the security's
cost basis; premiums on debt securities are not amortized.
- --------------------------------------------------------------------------------
11
<PAGE>
The Value Line Fund, Inc.
Notes to Financial Statements December 31, 1997
- --------------------------------------------------------------------------------
2. Capital Share Transactions, Dividends and Distributions to Shareholders
Transactions in capital stock were as follows (in thousands except per share
amounts):
1997 1996
-----------------------
Shares sold..................................... 5,344 3,181
Shares issued to shareholders
in reinvestment of dividends
and distributions............................. 3,348 1,826
-----------------------
8,692 5,007
Shares repurchased.............................. 6,949 4,941
-----------------------
Net increase.................................... 1,743 66
=======================
Dividends per share from net
investment income............................. $.1416 $ .112
=======================
Distributions per share from
net realized gains............................ $3.792 $2.218
=======================
3. Purchases and Sales of Securities
Purchases and sales of investment securities, excluding short-term securities,
were as follows:
1997
--------------
(in thousands)
PURCHASES:
Investment Securities....................................... $213,721
========
SALES:
Investment Securities....................................... $233,411
========
At December 31, 1997, the aggregate cost of investment securities and short-term
investments for federal income tax purposes was $276,845,000. The aggregate
appreciation and depreciation of investments at December 31, 1997, based on a
comparison of investment values and their costs for federal income tax purposes
was $121,369,000 and $6,355,000, respectively, resulting in a net appreciation
of $115,014,000.
4. Investment Advisory Contract, Management Fees and Transactions With
Affiliates
An advisory fee of $2,463,000 was paid or payable to Value Line, Inc. (the
Adviser), the Fund's investment adviser, for the year ended December 31, 1997.
This was computed at an annual rate of .70% of the first $100 million of the
Fund's average daily net assets plus .65% on the excess thereof, and paid
monthly. The Adviser provides research, investment programs, supervision of the
investment portfolio and pays costs of administrative services, office space,
equipment and compensation of administrative, bookkeeping and clerical personnel
necessary for managing the affairs of the Fund. The Adviser also provides
persons, satisfactory to the Fund's Board of Directors, to act as officers and
employees of the Fund and pays their salaries and wages. The Fund bears all
other costs and expenses.
Certain officers and directors of the Adviser and its wholly owned subsidiary,
Value Line Securities, Inc. (the Fund's distributor and a registered
broker/dealer), are also officers and a director of the Fund. During the year
ended December 31, 1997, the Fund paid brokerage commissions totalling $212,386
to the distributor, which clears its transactions through unaffiliated brokers.
The Adviser and/or affiliated companies and the Value Line, Inc. Profit Sharing
and Savings Plan owned 1,064,338 shares of the Fund's capital stock,
representing 5.4% of the outstanding shares at December 31, 1997. In addition,
certain officers and directors of the Fund owned 164,031 shares of the Fund,
representing 0.8% of the outstanding shares.
- --------------------------------------------------------------------------------
12
<PAGE>
The Value Line Fund, Inc.
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------
1997 1996 1995 1994 1993
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .................... $ 19.29 $ 17.63 $ 14.36 $ 17.90 $ 18.16
----------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income.............................. .14 .11 .12 .10 .08
Net gains or losses on securities
(both realized and unrealized)................... 3.79 3.88 4.47 (.93) 1.13
----------------------------------------------------------------------
Total from investment operations................... 3.93 3.99 4.59 (.83) 1.21
----------------------------------------------------------------------
Less distributions:
Dividends from net investment income............... (.14) (.11) (.12) (.10) (.08)
Distributions from capital gains................... (3.79) (2.22) (1.20) (2.61) (1.39)
----------------------------------------------------------------------
Total distributions................................ (3.93) (2.33) (1.32) (2.71) (1.47)
----------------------------------------------------------------------
Net asset value, end of year ......................... $ 19.29 $ 19.29 $ 17.63 $ 14.36 $ 17.90
======================================================================
Total return ......................................... 21.59% 22.52% 32.12% -4.47% 6.82%
======================================================================
Ratios/Supplemental Data:
Net assets, end of year (in thousands)................. $382,431 $348,871 $317,569 $272,763 $331,095
Ratio of operating expenses to average
net assets........................................... .78%(1) .80%(1) .83% .82% .80%
Ratio of net investment income to
average net assets................................... .63% .55% .73% .54% .41%
Portfolio turnover rate................................ 68% 54% 78% 150% 120%
Average commissions paid per share of
common stock investments purchased/sold.............. $ .0492 $ .0490(2)
</TABLE>
(1) Before offset for custody credits.
(2) Disclosure effective for fiscal years beginning on or after 9/1/95.
See Notes to Financial Statements
- --------------------------------------------------------------------------------
13
<PAGE>
The Value Line Fund, Inc.
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors
of The Value Line Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Value Line Fund, Inc. (the
"Fund") at December 31, 1997, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management, our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1997, by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, NY 10036
February 20, 1998
- --------------------------------------------------------------------------------
SHAREHOLDERS MEETING RESULTS -- unaudited
A special meeting of shareholders of The Value Line Fund, Inc. was held on
October 30, 1997. The matters voted upon by the shareholders and the resulting
votes for each matter are presented below.
1. The election of six Directors to serve until their successors are duly
elected and qualified.
Number of Votes:
Broker
Directors For Withheld Non-Votes*
--------- --------- -------- ----------
Jean Bernhard Buttner 8,442,833 247,050 0
John W. Chandler 8,419,380 270,553 0
Leo R. Futia 8,379,417 310,516 0
David H. Porter 8,396,834 293,099 0
Paul Craig Roberts 8,449,141 240,792 0
Nancy-Beth Sheerr 8,440,548 249,385 0
2. Ratification of the selection of Price Waterhouse LLP as independent
accountants for the fiscal year ending December 31, 1997.
Number of Votes:
Broker
For Against Abstain Non-Votes*
--------- ------- ------- ----------
8,412,139 69,200 208,593 0
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary
power to vote on a particular matter.
- --------------------------------------------------------------------------------
14
<PAGE>
The Value Line Fund, Inc.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
15
<PAGE>
The Value Line Fund, Inc.
The Value Line Family of Funds
- --------------------------------------------------------------------------------
1950--The Value Line Fund seeks long-term growth of capital along with modest
current income by investing substantially all of its assets in common stocks or
securities convertible into common stock.
1952--The Value Line Income Fund's primary investment objective is income, as
high and dependable as is consistent with reasonable growth. Capital growth to
increase total return is a secondary objective.
1956--The Value Line Special Situations Fund seeks to obtain long-term growth of
capital by investing not less than 80% of its assets in "special situations". No
consideration is given to achieving current income.
1972--Value Line Leveraged Growth Investors' sole investment objective is to
realize capital growth by investing substantially all of its assets in common
stocks. The Fund may borrow up to 50% of its net assets to increase its
purchasing power.
1979--The Value Line Cash Fund, a money market fund, seeks high current income
consistent with preservation of capital and liquidity.
1981--Value Line U.S. Government Securities Fund seeks maximum income without
undue risk to principal. Under normal conditions, at least 80% of the value to
its assets will be invested in issues of the U.S. Government and its agencies
and instrumentalities.
1983--Value Line Centurion Fund* seeks long-term growth of capital as its sole
objective by investing primarily in stocks ranked 1 or 2 by Value Line for
year-ahead relative performance.
1984--The Value Line Tax Exempt Fund seeks to provide investors with maximum
income exempt from federal income taxes while avoiding undue risk to principal.
The Fund offers investors a choice of two portfolios: a Money Market Portfolio
and a High-Yield Portfolio.
1985--Value Line Convertible Fund seeks high current income together with
capital appreciation primarily from convertible securities ranked 1 or 2 for
year-ahead performance by the Value Line Convertible Ranking System.
1986--Value Line Aggressive Income Trust seeks to maximize current income by
investing in high-yielding, lower-rated, fixed-income corporate securities.
1987--Value Line New York Tax Exempt Trust seeks to provide New York taxpayers
with maximum income exempt from New York State, New York City and federal
individual income taxes while avoiding undue risk to principal.
1987--Value Line Strategic Asset Management Trust* invests in stocks, bonds and
cash equivalents according to computer trend models developed by Value Line. The
objective is to professionally manage the optimal allocation of these
investments at all times.
1993--Value Line Small-Cap Growth Fund invests primarily in common stocks or
securities convertible into common stock, with its primary objective being
long-term growth of capital.
1993--Value Line Asset Allocation Fund seeks high total investment return,
consistent with reasonable risk. The Fund invests in stocks, bonds and money
market instruments utilizing quantitative modeling to determine the correct
asset mix.
1995--Value Line U.S. Multinational Company Fund's investment objective is
maximum total return. It invests primarily in securities of U.S. companies that
have significant sales from international operations.
* Only available through the purchase of Guardian Investor, a tax deferred
variable annuity, or ValuePlus, a variable life insurance policy.
For more complete information about any of the Value Line Funds, including
charges and expenses, send for a prospectus from Value Line Securities, Inc.,
220 East 42nd Street, New York, New York 10017-5891 or call 1-800-223-0818, 24
hours a day, 7 days a week. Read the prospectus carefully before you invest or
send money.
<PAGE>
================================================================================
INVESTMENT ADVISER Value Line, Inc.
220 East 42nd Street
New York, NY 10017-5891
DISTRIBUTOR Value Line Securities, Inc.
220 East 42nd Street
New York, NY 10017-5891
CUSTODIAN BANK State Street Bank and Trust Co.
225 Franklin Street
Boston, MA 02110
SHAREHOLDER State Street Bank and Trust Co.
SERVICING AGENT c/o NFDS
P.O. Box 419729
Kansas City, MO 64141-6729
INDEPENDENT Price Waterhouse LLP
ACCOUNTANTS 1177 Avenue of the Americas
New York, NY 10036
LEGAL COUNSEL Peter D. Lowenstein, Esq.
Two Greenwich Plaza, Suite 100
Greenwich, CT 06830
DIRECTORS Jean Bernhard Buttner
John W. Chandler
Leo R. Futia
David H. Porter
Paul Craig Roberts
Nancy-Beth Sheerr
OFFICERS Jean Bernhard Buttner
Chairman and President
Michael Romanowski
Vice President
Stephen E. Grant
Vice President
David T. Henigson
Vice President and
Secretary/Treasurer
Jack M. Houston
Assistant Secretary/Treasurer
Stephen La Rosa
Assistant Secretary/Treasurer
This report is issued for information of shareholders. It is not authorized for
distribution to prospective investors unless preceded or accompanied by a
currently effective prospectus of the Fund (obtainable from the Distributor).
VLF712444
