================================================================================
------------------
SEMI-ANNUAL REPORT
------------------
June 30, 1997
------------------
The Value Line
Income
Fund, Inc.
[LOGO]
<PAGE>
The Value Line Income Fund, Inc.
To Our Value Line
- --------------------------------------------------------------------------------
To Our Shareholders:
During the first half of 1997, we saw continued volatility in the U.S. capital
markets as investors speculated on the direction of interest rates. Nonetheless,
new money flowed into mutual funds at record rates, and particularly into index
funds, pushing the Dow Jones Industrial Average (DJIA) and the Standard and
Poor's (S&P) 500 indices to new highs.
The Federal Reserve Board's vigilance over signs of inflationary pressures
creeping into the economy contributed to the choppiness in the market. Although
the Fed raised the Federal funds rate a nominal 25 basis points to 5.5% at the
end of March, the May 20 and July 1-2 Federal Open Market Committee (FOMC)
meetings resulted in no further changes. And, given the current favorable
economic environment -- moderate growth, low inflation, declining interest rates
and growing corporate profits -- we do not expect a hike in short-term interest
rates at the next FOMC meeting on August 19.
REVIEW OF PERFORMANCE AND STRATEGY
For the six-month period ended June 30, 1997, the Value Line Income Fund, Inc.
achieved a total return of 10.23%. This was below the 13.45% return of a
comparable benchmark consisting of the combined performance of the Standard &
Poor 500 Index/Lehman Government Corporate Bond Index at a ratio of 60%/40%.
Separately, the Standard & Poor 500 Index posted a return of 20.59% and the
Lehman Government Corporate Bond Index an increase of 2.74%. Although the Fund
lagged the benchmark during the first quarter (-2.60% versus 1.26%), performance
improved strongly in the second quarter with the Fund returning 13.17% compared
with 11.93% for the benchmark.
In the first half of 1997, the surge in the DJIA and the broader indices was
primarily attributable to the performance of the large, multinational companies.
The industry sectors in the S&P 500 that exhibited the best performance were
healthcare (up 32%), finance (up 24%), consumer staples (up 23%), and technology
(up 23%). However, given the Fund's growth orientation in the equity portion of
the portfolio, many of the smaller capitalization companies did not participate
in the rally. The upward move in the market has since begun to broaden beyond
the large-capitalization names. In addition, the technology sector, which
represents a significant weighting, only began to outperform toward the end of
April. Nonetheless, individual stock holdings in the portfolio that handily
exceeded the benchmark performance included Microsoft, Pfizer, Schering-Plough,
Travelers, BankAmerica, and Gillette.
The performance of the fixed income portion of the portfolio was mixed as well.
The bond market exhibited negative returns in the first quarter, with the Lehman
Government Corporate Bond Index down .86%. However, the yield on 30-year
Treasuries peaked at 7.17% in mid-April, and the bond market subsequently
rallied. The Lehman Government Corporate Bond Index gained 3.64% in the second
quarter, producing a positive six-month return of 2.74%.
STRATEGY FOR 1997
As the DJIA and the broader indices continue to climb, we maintain our
cautiously optimistic stance. The combination of moderate growth in real Gross
Domestic Product, low inflation, declining interest rates, and increasing
corporate profitability should provide a positive environment for equities. We
believe that there will be somewhat of a broadening in performance from the
large-cap, multinational names to the small- and mid-cap issues that have lagged
the market. However, given the phenomenal rise in the market that we have
witnessed so far this year, we would expect market corrections from time to time
as we have seen recently. Concerns about inflationary pressures and the Fed's
interest rate posture, will likely fuel further volatility in the market.
Nonetheless, the Fund's focus on stock selection and a broad diversification of
companies and industries that continue to show dramatic earnings growth should
mute the market gyrations. Our largest sector weightings are in finance,
technology, energy and healthcare.
In terms of fixed income securities, the Income Fund includes selected corporate
issues, mortgage-backed
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2
<PAGE>
The Value Line Income Fund, Inc.
Income Fund Shareholders
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securities, convertibles, and issues of the U.S. Treasury and Agencies. There
are no derivatives in the portfolio.
Your Fund's management believes that careful selection of bonds and equities
will provide an attractive yield while lending stability to the portfolio during
times of market volatility. The portfolio is well structured to meet its
objective of high current return without undue risk to principal. We thank you
for your continued confidence, and look forward to serving your investment needs
in the future.
Sincerely,
/s/ Jean Bernhard Buttner
Jean Bernhard Buttner
Chairman and President
August 26, 1997
Economic Observations
The economy continues to push ahead, with such important indicators as the level
of manufacturing activity and the rate of employment growth exhibiting a
reasonably good degree of strength. Such trends, and a continuing healthy level
of consumer confidence, suggest that growth will average 2.5%-3.0% during the
closing half of the year. Thereafter, we would expect the expansion pace to
moderate somewhat, with real, inflation-adjusted GDP growth holding in the range
of 2.0%-2.5% in 1998.
Inflation, meanwhile, continues to be remarkably subdued. This healthy pricing
trend, which is all the more impressive given the longevity of the business
upcycle, is, moreover, unlikely to change dramatically in the months ahead.
Underscoring our optimism in this area is the recent hammering out of a budget
package (which should reduce the government's need to borrow to finance the
deficit) and the fact that there is still a lack of serious shortages on either
the labor or the raw-materials fronts.
Interest rates, meantime, reflecting the current, relatively moderate pace of
economic growth and the subdued pricing structure, are unlikely to increase much
over the next few months. Nevertheless, we caution that given the seeming
resiliency of the business expansion, an inflation-wary Federal Reserve will
probably not shy away from tightening the monetary reins if the present pricing
stability gives way. And an upward move in rates, if sufficiently pronounced,
would be poorly received, in our opinion, by both the stock and the bond markets
and, as well, by the U.S. economy down the road. The recent increase in
volatility in the financial markets suggests that many are now questioning
whether the current, benign environment can last much longer. We think a
cautious investment strategy is now in order.
*Performance Data:
Growth
Average an Assumed
Annual Investment of
Total Return $10,000
------------ -------------
1 year ended 6/30/97 ....................... 20.06% $12,006
5 years ended 6/30/97 ...................... 12.36% $17,911
10 years ended 6/30/97 ...................... 10.49% $27,123
* 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 wirth more or less than its original cost.
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3
<PAGE>
The Value Line Income Fund, Inc.
Portfolio Highlights at June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ten Largest Holdings
Principal
Amount Value Percentage of
Issue or Shares (in thousands) Net Assets
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. Treasury Notes 6 1/2% 4/30/99 ........................... $10,000,000 $10,072 6.4%
U.S. Treasury Notes 5 7/8% 6/30/00 ........................... 5,000,000 4,951 3.2
Federal National Mortgage Association Note, 6.32%, 7/28/03 ... 5,000,000 4,856 3.1
Pfizer, Inc. ................................................. 30,000 3,585 2.3
WorldCom Inc. 8% (Depositary Shares) Conv. Pfd. .............. 31,500 3,552 2.3
Newbridge Networks Corp. ..................................... 78,500 3,415 2.2
Federal National Mortgage Association
REMIC Trust 1989-90 E, 8.70%, 12/25/19 ..................... 3,115,500 3,241 2.1
Intel Corp. .................................................. 21,000 2,978 1.9
Cisco Systems, Inc. .......................................... 44,000 2,954 1.9
Gillette Co. ................................................. 25,500 2,416 1.6
<CAPTION>
Five Largest Industry Categories
Value Percentage of
Industry (in thousands) Net Assets
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Oilfield Services/Equipment .................................. $ 17,070 11.0%
Telecommunications Equipment ................................. 7,207 4.6
Telecommunication Services ................................... 6,408 4.1
Financial Services ........................................... 6,252 4.0
Computer & Peripherals ....................................... 5,068 3.2
<CAPTION>
Five Largest Net Security Purchases*
Cost
Issue (in thousands)
- -----------------------------------------------------------------------------------------------------------
<S> <C>
Ascend Communications, Inc. .................................. $ 1,593
Texas Instruments, Inc. ...................................... 1,034
Royal Bank of Canada, Montreal Quebec ........................ 1,032
Bank of Nova Scotia, Halifax Inc. ............................ 1,015
PacifiCare Health Systems, Inc. Class "B"..................... 1,002
<CAPTION>
Five Largest Net Security Sales*
Proceeds
Issue (in thousands)
- -----------------------------------------------------------------------------------------------------------
<S> <C>
Duke Energy Corp. ............................................ $ 3,109
Philip Morris Companies, Inc. ................................ 2,189
TCF Financial Corp. .......................................... 1,740
HBO & Co. .................................................... 1,323
Stone Container Corp. 10 3/4%, Sr. Sub. Note, 6/15/97......... 1,000
</TABLE>
* For the six month period ended 06/30/97
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4
<PAGE>
The Value Line Income Fund, Inc.
Schedule of Investments June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
Value
Shares ` (in thousands)
- --------------------------------------------------------------------------------
COMMON STOCKS (63.5%)
ADVERTISING (1.2%)
31,500 Omnicom Group, Inc. ........................... $ 1,941
AEROSPACE/DEFENSE
(1.6%)
27,000 Boeing Co. .................................... 1,433
24,000 Bombardier Inc. Class "B" (1) ................. 544
9,000 Precision Castparts Corp. ..................... 536
--------
2,513
BANK (3.2%)
6,500 Bank of Boston Corp. .......................... 468
18,000 BankAmerica Corp. ............................. 1,162
7,000 Citicorp ...................................... 844
12,000 Mellon Bank Corp. ............................. 541
52,000 Zions Bancorporation .......................... 1,957
--------
4,972
BANK-CANADIAN (1.8%)
25,000 Bank of Nova Scotia,
Halifax, Inc. (1) ......................... 1,095
25,000 Canadian Imperial Bank
of Commerce (1) ........................... 630
25,000 Royal Bank of Canada,
Montreal Quebec ........................... 1,134
--------
2,859
BANK-MIDWEST (0.4%)
15,000 Star Banc Corp. ............................... 634
CANADIAN ENERGY (0.6%)
17,500 Imperial Oil, Ltd. ............................ 899
CHEMICAL-DIVERSIFIED
(0.5%)
19,000 Goodrich (B.F.) Co. ........................... 823
CHEMICAL-SPECIALTY
(1.7%)
9,000 Avery Dennison Corp. .......................... $ 361
39,500 Praxair, Inc. ................................. 2,212
--------
2,573
COAL/ALTERNATE
ENERGY (0.6%)
14,000 AES Corp. (The)* .............................. 991
COMPUTER &
PERIPHERALS (3.2%)
21,000 Cascade Communications Corp.* ................. 580
44,000 Cisco Systems, Inc.* .......................... 2,954
11,000 Seagate Technology, Inc.* ..................... 387
14,500 Sun Microsystems, Inc.* ....................... 540
13,500 3Com Corp.* ................................... 607
--------
5,068
COMPUTER SOFTWARE &
SERVICES (3.0%)
19,000 BMC Software Inc.* ............................ 1,052
17,700 Computer Associates
International, Inc. ....................... 986
11,000 Microsoft Corp.* .............................. 1,390
13,500 National Data Corp. ........................... 585
16,000 Parametric Technology Corp.* .................. 681
--------
4,694
DIVERSIFIED
COMPANIES (2.0%)
11,500 AlliedSignal, Inc. ............................ 966
11,000 Crane Co. ..................................... 460
8,500 Tyco International, Ltd. ...................... 591
13,000 United Technologies Corp. ..................... 1,079
--------
3,096
DRUG (2.7%)
30,000 Pfizer, Inc. .................................. 3,585
14,000 Schering-Plough Corp. ......................... 670
--------
4,255
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5
<PAGE>
The Value Line Income Fund, Inc.
Schedule of Investments June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
Value
Shares ` (in thousands)
- --------------------------------------------------------------------------------
ELECTRICAL
EQUIPMENT (1.4%)
34,000 General Electric Co. .......................... $ 2,223
FINANCIAL SERVICES
(4.0%)
13,000 FINOVA Group, Inc. (The) ...................... 995
20,500 Green Tree Financial Corp. .................... 730
25,500 Money Store, Inc. (The) ....................... 732
13,000 Student Loan Marketing
Association ................................. 1,651
34,000 Travelers Group, Inc. ......................... 2,144
--------
6,252
GROCERY (0.5%)
18,000 Safeway, Inc.* ................................ 830
HEALTHCARE
INFORMATION
SYSTEMS (0.8%)
17,500 HBO & Co. ..................................... 1,205
HOUSEHOLD PRODUCTS
(0.2%)
2,000 Procter & Gamble Co. .......................... 283
INSURANCE-DIVERSIFIED
(1.2%)
8,000 CIGNA Corp. ................................... 1,420
9,000 MGIC Investment Corp. ......................... 431
--------
1,851
INSURANCE-LIFE (1.7%)
13,000 Conseco, Inc. ................................. 481
14,500 ReliaStar Financial Corp. ..................... 1,060
18,000 SunAmerica Inc. ............................... 878
8,500 Western National Corp. ........................ 228
--------
2,647
INSURANCE-PROPERTY/
CASUALTY (0.8%)
10,000 Allstate Corp. (The) .......................... 730
5,500 Progressive Corp. ............................. 479
--------
1,209
MEDICAL SERVICES (1.1%)
9,500 Aetna Inc. .................................... $ 973
12,500 PacifiCare Health Systems, Inc.
Class "B"* ................................ 798
--------
1,771
MEDICAL SUPPLIES (1.5%)
8,250 Cardinal Health, Inc. ......................... 472
15,500 Johnson & Johnson ............................. 998
11,000 Medtronic, Inc. ............................... 891
--------
2,361
NATURAL GAS-
DIVERSIFIED (2.3%)
9,500 Burlington Resources, Inc. .................... 419
7,500 Consolidated Natural Gas Co. .................. 404
9,000 Sonat, Inc. ................................... 461
51,000 Williams Companies, Inc. ...................... 2,231
--------
3,515
OILFIELD SERVICES/
EQUIPMENT (10.3%)
21,000 BJ Services Co.* .............................. 1,126
34,000 Baker Hughes, Inc. ............................ 1,315
7,500 Camco International, Inc. ..................... 411
19,000 ENSCO International Inc.* ..................... 1,002
51,000 Global Marine, Inc.* .......................... 1,186
12,000 Halliburton Co. ............................... 951
11,000 Helmerich & Payne, Inc. ....................... 634
11,000 Petroleum Geo
Services A/S (ADR)* ......................... 538
49,500 Rowan Companies, Inc.* ........................ 1,395
8,000 Schlumberger, Ltd. ............................ 1,000
21,000 Smith International, Inc.* .................... 1,276
52,500 Tidewater, Inc. ............................... 2,310
26,500 Transocean Offshore, Inc. ..................... 1,925
13,000 Western Atlas, Inc.* .......................... 952
--------
16,021
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6
<PAGE>
The Value Line Income Fund, Inc.
- --------------------------------------------------------------------------------
Value
Shares ` (in thousands)
- --------------------------------------------------------------------------------
PETROLEUM-
INTEGRATED (0.4%)
19,000 USX-Marathon Group ............................ $ 549
PETROLEUM-
PRODUCING (1.6%)
18,000 Chesapeake Energy Corp. ....................... 177
18,500 Louisiana Land &
Exploration Co. ............................. 1,057
9,000 Noble Affiliates, Inc. ........................ 348
22,000 Oryx Energy Co.* .............................. 465
9,000 Triton Energy Ltd. Class "A"* ................. 412
--------
2,459
SEMICONDUCTOR (2.5%)
21,000 Intel Corp. ................................... 2,978
11,500 Texas Instruments, Inc. ....................... 967
--------
3,945
TELECOMMUNICATIONS
EQUIPMENT (4.6%)
29,500 ADC Telecommunications, Inc.* ................. 985
20,250 Andrew Corp.* ................................. 569
23,500 Ascend Communications, Inc* ................... 925
78,500 Newbridge Networks Corp.* ..................... 3,415
23,500 Tellabs, Inc.* ................................ 1,313
--------
7,207
TELECOMMUNICATION
SERVICES (1.2%)
23,000 Cincinnati Bell, Inc. ......................... 724
36,456 WorldCom, Inc.* ............................... 1,167
--------
1,891
THRIFT (2.0%)
11,000 Ahmanson (H.F.) & Co. ......................... 473
32,000 Federal Home Loan
Mortgage Corp. .............................. 1,100
22,000 Federal National Mortgage
Association ................................. 960
10,500 Washington Mutual, Inc. ....................... 627
--------
3,160
TOBACCO (1.3%)
46,500 Philip Morris Companies, Inc. ................. 2,063
TOILETRIES/
COSMETICS (1.6%)
25,500 Gillette Co. .................................. 2,416
--------
TOTAL COMMON STOCKS
(Cost $74,838) ................................ 99,176
--------
PREFERRED STOCKS (6.6%)
COPPER (0.6%)
35,000 Freeport-McMoran Copper &
Gold, Inc. $1.75 Conv. Pfd. ................ 958
ELECTRICAL
EQUIPMENT (0.7%)
50,000 Cooper Industries, Inc.
6% Exchangeable 1/1/98 ...................... 1,150
ENVIRONMENTAL (1.2%)
50,000 Laidlaw One, Inc. 5 3/4%,
Exchangeable 12/31/2000 ..................... 1,800
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7
<PAGE>
The Value Line Income Fund, Inc.
- --------------------------------------------------------------------------------
Value
Shares ` (in thousands)
- --------------------------------------------------------------------------------
FOREIGN
TELECOMMUNICATIONS
(0.8%)
20,000 Philippine Long Distance
Telephone Co. $3.50
(Sponsored Depositary
Shares) Conv. Pfd. ......................... $ 1,160
TELECOMMUNICATION
SERVICES (2.3%)
31,500 WorldCom Inc.
8% (Depositary Shares)
Conv. Pfd. .................................. 3,552
THRIFT (1.0%)
25,000 Glendale Federal Bank, F.S.B.
8 3/4%, Series "E" Conv. Pfd. ............... 1,625
--------
TOTAL PREFERRED
STOCKS
(Cost $6,766) ............................... 10,245
--------
Principal
Amount Value
(in thousands) ` (in thousands)
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS (9.6%)
$10,000 U.S. Treasury Notes 6 1/2%,
4/30/99 .................................... $ 10,072
5,000 U.S. Treasury Notes 5 7/8%,
6/30/00 .................................... 4,951
--------
TOTAL U.S. TREASURY
OBLIGATIONS
(Cost $14,926) .............................. 15,023
--------
U.S. GOVERNMENT AGENCY OBLIGATIONS
(5.2%)
5,000 Federal National Mortgage
Association Note 6.32%,
7/28/03 ..................................... 4,856
3,115 Federal National
Mortgage Association
REMIC Trust 1989-90 E,
8.70%, 12/25/19 ............................. 3,241
--------
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS
(Cost $8,119) ............................... 8,097
--------
CORPORATE BONDS AND NOTES (2.6%)
NATURAL GAS-
DISTRIBUTION (0.7%)
1,000 Trident NGL, Inc. 10 1/4%,
Sub. Note, 4/15/03 .......................... 1,080
OILFIELD SERVICES/
EQUIPMENT (0.7%)
1,000 Global Marine, Inc. 12 3/4%,
Sr. Note, 12/15/99 .......................... 1,049
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8
<PAGE>
The Value Line Income Fund, Inc.
- --------------------------------------------------------------------------------
Principal
Amount Value
(in thousands) ` (in thousands)
- --------------------------------------------------------------------------------
PETROLEUM-
INTEGRATED (0.6%)
$ 1,000 Texaco Capital, Inc. 6 7/8%,
Gtd Deb. 8/15/23 ............................ $ 927
TELECOMMUNICATION
SERVICES/TV (0.6%)
1,000 PanAmSat Capital
Corporation 0%
(until 8/1/98, 11 3/8%
thereafter) Sr. Sub. Note,
8/1/03 ...................................... 965
--------
TOTAL CORPORATE
BONDS & NOTES
(Cost $4,066) ............................... 4,021
--------
TOTAL INVESTMENT
SECURITIES (87.5%)
(Cost $108,715) ............................. 136,562
--------
Value
Principal (in thousands
Amount except per
(in thousands) share amount)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT (12.4%)
(includes accrued interest)
$19,400 Collateralized by
$15,515,000 U.S.
Treasury Notes 11 1/8%,
due 8/15/03, with a value
of $19,814,412 (with
Morgan Stanley & Co., Inc.,
5.70%, dated 6/30/97,
due 7/1/97, delivery value
of $19,403,000) ............................. $ 19,403
CASH AND RECEIVABLES OVER
LIABILITIES (0.1%) ............................................ 133
--------
NET ASSETS (100.0%) ........................................... $156,098
--------
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
OUTSTANDING SHARE
($156,098,000/19,405,354
shares outstanding) ........................................... $8.04
--------
* Non-income producing.
(1) Trades on Canadian Stock Exchange, Value in U.S.Dollars.
See Notes to Financial Statements.
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9
<PAGE>
The Value Line Income Fund, Inc.
Statement of Assets and Liabilities
at June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
Dollars
(in thousands
except per
share amount)
-------------
Assets:
Investment securities, at value
(Cost--$108,715) .......................................... $136,562
Repurchase agreement (Cost--$19,403) ........................ 19,403
Cash ....................................................... 66
Dividends and interest receivable .......................... 438
Receivable for capital shares sold ......................... 1
--------
Total Assets ........................................... 156,470
========
Liabilities:
Payable for capital shares repurchased ..................... 205
Accrued expenses:
Advisory fee ............................................. 87
Other .................................................... 80
--------
Total Liabilities ...................................... 372
--------
Net Assets ................................................. $ 156,098
========
Net Assets consist of:
Capital stock, at $1.00 par value
(authorized 50,000,000, outstanding
19,405,354 shares) ....................................... $ 19,405
Additional paid-in capital ................................. 102,269
Undistributed investment income-net ........................ 39
Undistributed net realized gain on
investments .............................................. 6,538
Accumulated net appreciation of
investments .............................................. 27,847
--------
Net Assets ................................................. $ 156,098
========
Net Asset Value, Offering and
Redemption Price per
Outstanding Share
($156,098,000/19,405,354 shares
outstanding) ............................................. $ 8.04
========
Statement of Operations
for the Six Months Ended June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
Dollars
(in thousands)
------------
Investment Income:
Interest ................................................... $ 1,527
Dividends (Net of foreign withholding
taxes of $13) ............................................ 665
--------
Total Income ........................................... 2,192
--------
Expenses:
Advisory fee ............................................... 505
Transfer agent fees ........................................ 52
Auditing and legal fees .................................... 21
Printing and stationery .................................... 18
Custodian fees ............................................. 16
Postage .................................................... 14
Registration and filing fees ............................... 11
Telephone and wire charges ................................. 11
Directors' fees and expenses ............................... 8
Insurance, dues and other .................................. 5
-------
Total Expenses Before
Custody Credits ........................................ 661
Less: Custody Credits .................................... (2)
-------
Net Expenses ............................................. 659
-------
Investment Income-Net ...................................... 1,533
-------
Realized and Unrealized Gain on
Investments--Net:
Realized Gain--Net .......................................... 3,877
Change in Unrealized Appreciation .......................... 9,200
-------
Net Realized Gain and Change in
Unrealized Appreciation on
Investments ............................................. 13,077
-------
Net Increase in Net Assets
from Operations .......................................... $ 14,610
========
See Notes to Financial Statements.
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10
<PAGE>
The Value Line Income Fund, Inc.
Statement of Changes in Net Assets
for the Six Months Ended June 30, 1997 (unaudited)
and for the Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1997 December 31,
(unaudited) 1996
-------------------------------
(Dollars in thousands)
<S> <C> <C>
Operations:
Investment income-net ............................................... $ 1,533 $ 4,572
Realized gain on investments-net .................................... 3,877 20,267
Change in unrealized appreciation ................................... 9,200 (720)
------------------------
Net increase in net assets from operations .......................... 14,610 24,119
------------------------
Distributions to Shareholders:
Investment income-net ............................................... (1,560) (4,513)
Realized gain from investment transactions-net ...................... -- (18,405)
------------------------
Total distributions ................................................. (1,560) (22,918)
------------------------
Capital Share Transactions:
Net proceeds from sale of shares .................................... 3,961 5,076
Net proceeds from reinvestment of distributions to shareholders ..... 1,224 18,660
Cost of shares repurchased .......................................... (9,330) (22,050)
------------------------
(Decrease) Increase from capital share transactions ................. (4,145) 1,686
------------------------
Total Increase ........................................................ 8,905 2,887
Net Assets:
Beginning of period ................................................. 147,193 144,306
------------------------
End of period ....................................................... $ 156,098 $ 147,193
========================
Undistributed Investment Income--net, at end of period ................. $ 39 $ 66
========================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
11
<PAGE>
The Value Line Income Fund, Inc.
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
The Value Line Income Fund, Inc. (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 income, as high and
dependable as is consistent with reasonable risk. Capital growth to increase
total return is a secondary objective.
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 revenues 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 which 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.
The Board of Directors has determined that the value of bonds and other
fixed-income securities be calculated on the valuation date by reference to
valuations obtained from an independent pricing service which determines
valuations for normal institutional-size trading units of debt securities,
without exclusive reliance upon quoted prices. This service takes into account
appropriate factors such as institutional-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data in determining valuations.
(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.
- --------------------------------------------------------------------------------
12
<PAGE>
The Value Line Income Fund, Inc.
- --------------------------------------------------------------------------------
(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.
2. Capital Share Transactions, Dividends and Distributions to Shareholders
Transactions in capital stock were as follows (in thousands except per-share
amounts):
Six Months
Ended Year
6/30/97 Ended
(unaudited) 12/31/96
----------------------
Shares sold ..................................... 520 656
Shares issued to shareholders in
reinvestment of dividends and
distributions ................................. 159 2,497
----------------------
679 3,153
Shares repurchased .............................. 1,238 2,767
----------------------
Net (decrease) increase ......................... (559) 386
======================
Dividends per share ............................. $ .08 $ .24
======================
Distributions per share
from net realized gains ....................... $ -- $ 1.03
======================
3. Purchases and Sales of Securities
Purchases and sales of investment securities, excluding short-term securities,
were as follows:
Six Months Ended
June 30, 1997
(unaudited)
--------------
(in thousands)
PURCHASES:
Investment Securities ...................................... $25,430
=======
SALES & REDEMPTIONS:
U.S. Treasury and Government
Agency Obligations ....................................... $ 250
Other Investment Securities ................................ 23,867
-------
$24,117
=======
At June 30, 1997 the aggregate cost of investment securities and repurchase
agreements for federal income tax purposes was $128,118,000. The aggregate
appreciation and depreciation of investments at June 30, 1997, based on a
comparison of investment values and their costs for federal income tax purposes,
was $30,541,000 and $2,694,000, respectively, resulting in a net appreciation of
$27,847,000.
4. Investment Advisory Contract, Management Fees and Transactions With
Affiliates
An advisory fee of $505,000 was paid or payable to Value Line, Inc., the Fund's
investment adviser ("Adviser), for the six months ended June 30, 1997. This was
computed at the 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 and 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 six
months ended June 30, 1997, the Fund paid brokerage commissions totalling
$27,029 to the distributor, which clears its transactions through unaffiliated
brokers.
The Adviser and/or affiliated companies owned 189,617 shares of the Fund's
capital stock, representing 1.0% of the outstanding shares at June 30, 1997.
- --------------------------------------------------------------------------------
13
<PAGE>
The Value Line Income Fund, Inc.
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Six Months
Ended Years Ended December 31,
June 30, 1997 --------------------------------------------------------------
(unaudited) 1996 1995 1994 1993 1992
----------- --------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period ....................................... $ 7.37 $ 7.37 $ 6.21 $ 6.77 $ 7.29 $ 7.86
-----------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income ......................... .08 .24 .25 .21 .21 .28
Net gains or losses on securities
(both realized and unrealized) .............. .67 1.03 1.36 (.51) .38 (.15)
-----------------------------------------------------------------------------
Total from investment operations .............. .75 1.27 1.61 (.30) .59 .13
-----------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income ...................................... (.08) .24) (.25) (.21) (.22) (.28)
Distributions from capital gains .............. -- (1.03) (.20) (.05) (.89) (.42)
-----------------------------------------------------------------------------
Total distributions ........................... (.08) (1.27) (.45) (.26) (1.11) (.70)
-----------------------------------------------------------------------------
Net asset value, end of period .................... $ 8.04 $ 7.37 $ 7.37 $ 6.21 $ 6.77 $ 7.29
=============================================================================
Total return ...................................... 10.23%+ 17.38% 26.24% -4.36% 8.26% 1.75%
=============================================================================
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) .................................. $156,098 $147,193 $144,306 $131,644 $162,335 $163,251
Ratio of operating expenses to
average net assets .............................. .89%*(1) .93%(1) .93% .90% .88% .89%
Ratio of net investment income to
average net assets .............................. 2.08%+ 3.08% 3.48% 3.29% 2.82% 3.69%
Portfolio turnover rate ........................... 19%+ 83% 76% 56% 165% 85%
Average commissions paid per
share of common stock investments
purchased/sold .................................. $.0493 $.0490(2)
</TABLE>
(1) Before offset of custody credits.
(2) Disclosure effective for fiscal years beginning on or after 9/1/95.
* Annualized
+ Not annualized
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
14
<PAGE>
The Value Line Income Fund, Inc.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
15
<PAGE>
The Value Line Income 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 Convetible 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 detemine 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, 7days 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
Charles E. Reed
Leo R. Futia
John W. Chandler
Paul Craig Roberts
Nancy-Beth Sheerr
OFFICERS Jean Bernhard Buttner
Chairman and President
Nancy Bendig
Vice President
Michael Romanowski
Vice President
David T. Henigson
Vice President and
Secretary/Treasurer
Jack M. Houston
Assistant Secretary/Treasurer
Stephen La Rosa
Assistant Secretary/Treasurer
The financial statements included herein have been taken from the records of the
Fund without examination by the independent accountants and, accordingly, they
do not express an opinion thereon.
This unaudited 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).
VLF706137
