<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
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
Harvey S. Katz
VICE PRESIDENT
David T. Henigson
VICE PRESIDENT and
SECRETARY/TREASURER
Jack M. Houston
ASSISTANT SECRETARY/TREASURER
Stephen La Rosa
ASSISTANT SECRETARY/TREASURER
</TABLE>
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).
VLF612152
------------------------------------
ANNUAL REPORT
------------------------------------
DECEMBER 31, 1996
----------------------------------------
THE VALUE LINE
INCOME
FUND, INC.
[LOGO]
<PAGE>
THE VALUE LINE INCOME FUND, INC.
To Our Value Line
- -------------------------------------------
To Our Shareholders:
REVIEW OF PERFORMANCE AND STRATEGY
For the 12-month period ended December 31, 1996, the Value Line Income Fund,
Inc. achieved a total return of 17.38%. This was almost 250 basis points better
than the 14.94% return of a comparable benchmark consisting of the combined
performance of the Standard & Poor's 500 Index/ Lehman Government Corporate Bond
Index at a ratio of 60%/40%. Separately, the Standard & Poor's 500 Index posted
a return of 22.96% and the Lehman Government Corporate Bond Index an increase of
2.90%.
The best-performing industry sectors in the S&P 500 were technology (up over
40%) and finance (up over 35%), where such holdings as Intel, Cisco Systems,
Bank America, and Federal Home Loan Mortgage boosted equity returns. Other
sectors that exceeded the benchmark performance were capital goods (Tyco
International), consumer staples (Gillette and Philip Morris) and energy (Global
Marine, Rowan Companies and Smith International).
The performance of the fixed-income portion of the portfolio was a bit of a
roller coaster ride. The bond market showed negative returns in the first half
of the year, then rebounded through most of the second half, but stumbled again
in December. The yield on the 30-year U.S. Treasury bond, which increased from
just under 6% to a tad less than 7% during the first half of the year, ended the
year at just over 6.5%.
STRATEGY FOR 1997
On the heels of two consecutive years of stellar market performance, we remain
cautiously optimistic as we enter 1997. Although the economy appears to be
moving along at a moderate pace, the ever-present threat of overheating
inflationary pressures and interest-rate uncertainty will likely continue to
promote a choppy market. (Please see the accompanying Economic Observations for
a fuller discussion of the economy.) Nonetheless, the Fund's sizable cash
position, combined with continued efforts to provide diversification across a
broad range of industry sectors, should provide a buffer against any undue
market volatility. Our largest sector weightings continue to be in those
industries that exhibit exceptional growth prospects, particularly, technology,
finance, energy and healthcare. And, within each of these industry groups, great
consideration is given to selectivity. We no longer believe that the retail
sector offers as much upside as it did last year and intend to reduce our
exposure accordingly.
In terms of fixed-income securities, the Income Fund includes selected corporate
issues, mortgage-backed 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 we look forward to serving your
investment needs in the future.
Sincerely,
/s/ Jean Bernhard Buttner
Jean Bernhard Buttner
CHAIRMAN and PRESIDENT
February 26, 1997
- --------------------------------------------------------------------------------
2
<PAGE>
THE VALUE LINE INCOME FUND, INC.
Income Fund Shareholders
- -------------------------------------------
Economic Observations
The signs continue to point toward a moderation in the rate of economic growth.
For example, not only are the nation's factories a little less busy these days,
but improvements in the auto, housing, and retail markets all appear to be
leveling off. To be sure, there are still isolated instances in which selected
sectors are gaining in strength. On the whole, though, the next few quarters
should see a somewhat slower rate of economic expansion, with real,
inflation-adjusted gross domestic product increasing on an average of 2.0%-2.5%.
Inflation, meanwhile, continues to be practically nonexistent, with prices at
both the producer (or wholesale) and consumer levels either falling or going up
marginally. This healthy inflation trend, moreover, is unlikely to be reversed
anytime soon given the lack of serious shortages on either the labor or the raw
materials fronts.
Interest rates, meanwhile, reflecting the very modest rate of economic growth
and the benign nature of inflation, are unlikely to change all that much over
the next year. Nevertheless, we caution that recent remarks by Federal Reserve
Chairman Alan Greenspan, in which he noted that the Fed has, in the past,
occasionally raised rates before higher inflation actually took hold would seem
to suggest that whatever changes in borrowing costs may evolve over the next few
quarters will probably involve a move toward higher rather than lower rates.
Finally, we believe that these basic themes, in which moderation prevails on the
economic growth, inflation, and interest-rate fronts, will remain in place over
the course of the current year. In fact, barring an unsettling series of
currency, political, or military shocks in the international markets, overall
stability should persist into 1998.
*Performance Data:
<TABLE>
<CAPTION>
Growth of
an Assumed
Average Annual Investment of
Total Return $10,000
--------------- -------------
<S> <C> <C>
1 year ended 12/31/96..... 17.38% $ 11,738
5 years ended 12/31/96.... 9.32% $ 15,612
10 years ended 12/31/96.... 10.63% $ 27,462
</TABLE>
* 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>
THE VALUE LINE INCOME FUND, INC.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C> <C> <C>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE
VALUE LINE INCOME FUND, THE S&P 500 INDEX AND THE
LEHMAN GOVERNMENT/CORPORATE BOND INDEX*
The Value Line Income Fund S&P 500 Lehman Govt/Corp
01/01/1987 10000 10000 10000
12/31/1987 9763 10527 10229
12/31/1988 10953 12269 11004
12/31/1989 13421 16148 12571
12/31/1990 13689 15655 13612
12/31/1991 17591 20425 15808
12/31/1992 17899 21981 17006
12/31/1993 19378 24197 18882
12/31/1994 18533 24517 18219
12/31/1995 23396 33730 21725
12/31/1996 27462 41474 22355
</TABLE>
(Period covered is 1/1/87 to 12/31/96)
- --------------------------------------------------------------------------------
*THE STANDARD & POOR'S 500 INDEX IS AN UNMANAGED INDEX THAT IS REPRESENTATIVE OF
THE LARGER-CAPITALIZATION STOCKS TRADED IN THE UNITED STATES.
THE LEHMAN GOVERNMENT/CORPORATE BOND INDEX IS AN UNMANAGED INDEX THAT IS
REPRESENTATIVE OF INVESTMENT-GRADE DOMESTIC CORPORATE AND GOVERNMENT BONDS.
- --------------------------------------------------------------------------------
4
<PAGE>
THE VALUE LINE INCOME FUND, INC.
Portfolio Highlights at December 31, 1996 (unaudited)
- -------------------------------------------
<TABLE>
<CAPTION>
TEN LARGEST HOLDINGS
<S> <C> <C> <C>
Principal
Amount Value Percentage of
Issue or Shares (in thousands) Net Assets
- -----------------------------------------------------------------------------------------------------
U.S. Treasury Notes 6 1/2% 4/30/99.............. $ 10,000,000 $ 10,119 6.9%
U.S. Treasury Notes 5 7/8% 6/30/00.............. $ 5,000,000 4,967 3.3
Federal National Mortgage Association Note
6.32%, 7/28/03................................. $ 5,000,000 4,865 3.3
Philip Morris Companies, Inc.................... 34,000 3,829 2.6
Federal National Mortgage Association 8.70%,
REMIC Trust 1989-90 E, 12/25/19................ $ 3,365,300 3,490 2.4
MFS Communications Company, Inc. 8%(Depositary
Shares) Conv. Pfd.............................. 31,500 2,874 2.0
PanEnergy Corp.................................. 63,500 2,857 1.9
Cisco Systems, Inc.............................. 40,000 2,545 1.7
Pfizer, Inc..................................... 30,000 2,486 1.7
HBO & Co........................................ 40,500 2,405 1.6
<CAPTION>
FIVE LARGEST INDUSTRY CATEGORIES
Value Percentage of
Industry (in thousands) Net Assets
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Oilfield Services/Equipment..................... $ 11,233 7.6%
Telecommunication Services...................... 5,974 4.1
Natural Gas--Diversified........................ 5,416 3.7
Computer Software & Services.................... 4,829 3.3
Thrift.......................................... 4,654 3.2
<CAPTION>
FIVE LARGEST NET SECURITY PURCHASES*
Cost
Issue (in thousands)
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Philip Morris Companies, Inc.................... $ 2,766
Cisco Systems, Inc.............................. 1,955
HBO & Co........................................ 1,810
Intel Corp...................................... 1,563
Tidewater, Inc.................................. 1,249
<CAPTION>
FIVE LARGEST NET SECURITY SALES*
Proceeds
Issue (in thousands)
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
McDonnell Douglas Finance Corp. 7 3/8%, Series A
Note, 11/15/05................................. $ 4,988
Texaco Capital LLC Series "A" $1.71875 MIPS
Pfd............................................ 2,902
State Street Boston Corp........................ 2,318
Black & Decker Corp............................. 2,056
PepsiCo Inc..................................... 2,003
</TABLE>
* FOR THE SIX MONTH PERIOD ENDED 12/31/96
- --------------------------------------------------------------------------------
5
<PAGE>
THE VALUE LINE INCOME FUND, INC.
Schedule of Investments
- -------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (in thousands)
<C> <S> <C>
- -----------------------------------------------------------------------------------------------
COMMON STOCKS (57.3%)
ADVERTISING (0.8%)
25,000 Omnicom Group, Inc. ........................................ $ 1,144
AEROSPACE/DEFENSE (0.3%)
4,000 Boeing Co. ................................................. 425
AUTO & TRUCK (0.5%)
23,500 Chrysler Corp. ............................................. 775
BANK (2.0%)
6,500 Bank of Boston Corp. ....................................... 417
4,500 BankAmerica Corp. .......................................... 449
7,000 Citicorp.................................................... 721
6,000 Mellon Bank Corp. .......................................... 426
9,000 Zions Bancorporation........................................ 936
---------------
2,949
BANK-CANADIAN (0.6%)
12,500 Canadian Imperial Bank of Commerce (1)...................... 551
28,000 National Bank of Canada (1)................................. 283
---------------
834
BANK-MIDWEST (0.3%)
5,000 Star Banc Corp. ............................................ 459
CANADIAN ENERGY (0.6%)
17,500 Imperial Oil, Ltd. ......................................... 822
CHEMICAL-BASIC (0.3%)
9,500 Monsanto Co. ............................................... 369
CHEMICAL-
DIVERSIFIED (0.5%)
19,000 Goodrich (B.F.) Co. ........................................ 769
CHEMICAL-
SPECIALTY (1.3%)
9,000 Avery Dennison Corp. ....................................... 318
33,000 Praxair, Inc. .............................................. 1,522
---------------
1,840
<CAPTION>
Value
Shares (in thousands)
<C> <S> <C>
- -----------------------------------------------------------------------------------------------
COMPUTER &
PERIPHERALS (3.0%)
10,500 *Cascade Communications Corp. .............................. $ 579
40,000 *Cisco Systems, Inc. ....................................... 2,545
14,500 *Sun Microsystems, Inc. .................................... 372
13,500 *3Com Corp. ................................................ 991
---------------
4,487
COMPUTER SOFTWARE &
SERVICES (3.3%)
19,000 *BMC Software, Inc. ........................................ 786
17,700 Computer Associates International, Inc. .................... 881
28,500 First Data Corp. ........................................... 1,040
11,000 *Microsoft Corp. ........................................... 909
9,000 National Data Corp. ........................................ 391
16,000 *Parametric Technology Corp. ............................... 822
---------------
4,829
DIVERSIFIED
COMPANIES (1.8%)
11,500 AlliedSignal, Inc. ......................................... 771
14,500 *Thermo Electron Corp. ..................................... 598
8,500 Tyco International, Ltd. ................................... 449
13,000 United Technologies Corp. .................................. 858
---------------
2,676
DRUG (2.5%)
13,000 *Amgen, Inc. ............................................... 707
30,000 Pfizer, Inc. ............................................... 2,486
7,000 Schering-Plough Corp. ...................................... 453
---------------
3,646
ELECTRIC UTILITY-
CENTRAL (0.4%)
21,000 Illinova Corp. ............................................. 578
ELECTRICAL
EQUIPMENT (1.1%)
17,000 General Electric Co. ....................................... 1,681
</TABLE>
- --------------------------------------------------------------------------------
6
<PAGE>
THE VALUE LINE INCOME FUND, INC.
December 31, 1996
- -------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (in thousands)
- -----------------------------------------------------------------------------------------------
<C> <S> <C>
FINANCIAL SERVICES (3.0%)
13,000 Finova Group, Inc. ......................................... $ 835
20,500 Green Tree Financial Corp. ................................. 792
8,500 Student Loan Marketing Association.......................... 792
42,500 Travelers Group, Inc. ...................................... 1,928
---------------
4,347
FURNITURE/
HOME FURNISHINGS (0.1%)
5,000 HON Industries, Inc. ....................................... 165
GROCERY (0.3%)
9,000 *Safeway, Inc. ............................................. 385
HEALTHCARE INFORMATION
SYSTEMS (1.6%)
40,500 HBO & Co. .................................................. 2,405
HOTEL/GAMING (0.3%)
15,000 Hilton Hotels Corp. ........................................ 392
INSURANCE-
DIVERSIFIED (1.5%)
7,500 American International Group, Inc. ......................... 812
8,000 CIGNA Corp. ................................................ 1,093
4,500 MGIC Investment Corp. ...................................... 342
---------------
2,247
INSURANCE-LIFE (0.5%)
18,000 SunAmerica Inc. ............................................ 799
INSURANCE-PROPERTY/
CASUALTY (0.4%)
10,000 Allstate Corp. (The)........................................ 579
MEDICAL SERVICES (0.6%)
14,556 Omnicare, Inc. ............................................. 467
5,500 *PacifiCare Health Systems, Inc. Class "A".................. 447
---------------
914
<CAPTION>
Value
Shares (in thousands)
<C> <S> <C>
- -----------------------------------------------------------------------------------------------
MEDICAL SUPPLIES (1.4%)
8,250 Cardinal Health, Inc. ...................................... $ 481
15,500 Johnson & Johnson........................................... 771
11,000 Medtronic, Inc. ............................................ 748
---------------
2,000
NATURAL GAS-
DIVERSIFIED (3.7%)
7,500 Consolidated Natural Gas Co. ............................... 414
63,500 PanEnergy Corp. ............................................ 2,857
4,500 Sonat, Inc. ................................................ 232
51,000 Williams Companies, Inc. ................................... 1,913
---------------
5,416
OFFICE EQUIPMENT &
SUPPLIES (0.6%)
14,500 Diebold, Inc. .............................................. 912
OILFIELD SERVICES/
EQUIPMENT (6.9%)
10,500 *BJ Services Co. ........................................... 535
34,000 Baker Hughes, Inc. ......................................... 1,173
5,000 Camco International, Inc. .................................. 231
51,000 *Global Marine, Inc. ....................................... 1,052
12,000 Halliburton Co. ............................................ 723
11,000 Helmerich & Payne, Inc. .................................... 573
11,000 *Petroleum Geo Services A/S (ADR)........................... 429
42,500 *Rowan Companies, Inc. ..................................... 962
21,000 *Smith International, Inc. ................................. 942
52,500 Tidewater, Inc. ............................................ 2,376
18,500 Transocean Offshore, Inc. .................................. 1,159
---------------
10,155
PETROLEUM-
INTEGRATED (0.3%)
19,000 USX-Marathon Group.......................................... 454
</TABLE>
- --------------------------------------------------------------------------------
7
<PAGE>
THE VALUE LINE INCOME FUND, INC.
Schedule of Investments
- -------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (in thousands)
- -----------------------------------------------------------------------------------------------
<C> <S> <C>
PETROLEUM-
PRODUCING (2.5%)
9,000 *Chesapeake Energy Corp. ................................... $ 502
36,000 Louisiana Land & Exploration Co. ........................... 1,930
9,000 Noble Affiliates, Inc. ..................................... 431
9,000 *Triton Energy Ltd. Class "A"............................... 436
19,000 Union Texas Petroleum Holdings, Inc. ....................... 425
---------------
3,724
R.E.I.T. (0.3%)
18,500 BRE Properties, Inc. ....................................... 458
RECREATION (0.3%)
8,500 Harley-Davidson, Inc. ...................................... 399
RETAIL-
SPECIAL LINES (1.1%)
10,000 *Bed, Bath & Beyond, Inc. .................................. 242
12,500 Gap, Inc. .................................................. 377
11,500 TJX Companies, Inc. ........................................ 545
12,500 Tiffany & Co. .............................................. 458
---------------
1,622
RETAIL BUILDING
SUPPLY (0.3%)
14,000 Lowe's Companies, Inc. ..................................... 497
SEMICONDUCTOR (1.3%)
15,000 Intel Corp. ................................................ 1,964
SHOE (0.8%)
11,500 NIKE, Inc. Class "B"........................................ 687
15,750 Wolverine World Wide, Inc. ................................. 457
---------------
1,144
TELECOMMUNICATIONS
EQUIPMENT (2.6%)
23,500 *ADC Telecommunications, Inc. .............................. 731
78,500 *Newbridge Networks Corp. .................................. 2,218
23,500 *Tellabs, Inc. ............................................. 884
---------------
3,833
<CAPTION>
Value
Shares (in thousands)
<C> <S> <C>
- -----------------------------------------------------------------------------------------------
TELECOMMUNICATION
SERVICES (1.5%)
11,500 Cincinnati Bell, Inc. ...................................... $ 709
24,000 *LCI International, Inc. ................................... 516
1,169 MFS Communications Company, Inc. ........................... 64
34,002 *WorldCom, Inc. ............................................ 886
---------------
2,175
THRIFT (2.2%)
8,000 Federal Home Loan Mortgage Corp. ........................... 881
42,500 TCF Financial Corp. ........................................ 1,849
10,500 Washington Mutual, Inc. .................................... 455
---------------
3,185
TOBACCO (2.6%)
34,000 Philip Morris Companies, Inc. .............................. 3,829
TOILETRIES/COSMETICS (1.3%)
25,500 Gillette Co. ............................................... 1,983
---------------
TOTAL COMMON STOCKS (COST $68,372).......................... 84,266
---------------
PREFERRED STOCKS (6.4%)
COPPER (0.7%)
35,000 Freeport-McMoran Copper & Gold, Inc. $1.75 Conv. Pfd........ 971
ELECTRICAL
EQUIPMENT (0.6%)
50,000 Cooper Industries, Inc. 6% Exchangeable 1/1/98.............. 969
ENVIRONMENTAL (1.4%)
50,000 Laidlaw One, Inc. 5 3/4%, Exchangeable 12/31/2000........... 2,044
</TABLE>
- --------------------------------------------------------------------------------
8
<PAGE>
THE VALUE LINE INCOME FUND, INC.
December 31, 1996
- -------------------------------------------
<TABLE>
<CAPTION>
Value
Shares (in thousands)
- -----------------------------------------------------------------------------------------------
<C> <S> <C>
FOREIGN TELE-
COMMUNICATIONS (0.7%)
20,000 Philippine Long Distance Telephone Co. $3.50 (Sponsored
Depositary Shares) Conv. Pfd. ............................ $ 1,020
TELECOMMUNICATION
SERVICES (2.0%)
31,500 MFS Communications Company, Inc. 8% (Depositary Shares)
Conv. Pfd. ............................................... 2,874
THRIFT (1.0%)
25,000 Glendale Federal Bank, F.S.B. 8 3/4%, Series E Conv.
Pfd. ..................................................... 1,469
---------------
TOTAL PREFERRED STOCKS (COST $6,765)........................ 9,347
---------------
<CAPTION>
Principal
Amounts Value
(in thousands) (in thousands)
<C> <S> <C>
- -----------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS (10.2%)
$ 10,000 U.S. Treasury Notes 6 1/2%, 4/30/99......................... $ 10,119
5,000 U.S. Treasury Notes 5 7/8%, 6/30/00......................... 4,967
---------------
TOTAL U.S. TREASURY OBLIGATIONS (COST $14,911).............. 15,086
---------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (5.7%)
5,000 Federal National Mortgage Association Note 6.32%, 7/28/03... 4,865
3,365 Federal National Mortgage Association 8.70%, REMIC Trust
1989-90 E, 12/25/19....................................... 3,490
---------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (COST $8,368)...... 8,355
---------------
CORPORATE BONDS AND NOTES (3.4%)
NATURAL GAS-
DISTRIBUTION (0.8%)
1,000 Trident NGL, Inc. 10 1/4%, Sub. Note, 4/15/03............... 1,096
</TABLE>
- --------------------------------------------------------------------------------
9
<PAGE>
THE VALUE LINE INCOME FUND, INC.
Schedule of Investments
- -------------------------------------------
<TABLE>
<CAPTION>
Principal
Amounts Value
(in thousands) (in thousands)
- -----------------------------------------------------------------------------------------------
<C> <S> <C>
OILFIELD SERVICES/
EQUIPMENT (0.7%)
$ 1,000 Global Marine, Inc. 12 3/4%, Sr. Note, 12/15/99............. $ 1,078
PAPER & FOREST
PRODUCTS (0.7%)
1,000 Stone Container Corp. 10 3/4%, Sr. Sub. Note, 6/15/97....... 1,015
PETROLEUM-
INTEGRATED (0.6%)
1,000 Texaco Capital, Inc. 6 7/8% Gtd Deb. 8/15/23................ 943
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......................... 925
---------------
TOTAL CORPORATE BONDS & NOTES (COST $5,048)................. 5,057
---------------
TOTAL INVESTMENT SECURITIES (83.0%) (COST $103,464)......... 122,111
---------------
<CAPTION>
Value
Principal (in thousands
Amount except per
(in thousands) share amount)
<C> <S> <C>
- -----------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT (17.2)%
(INCLUDES ACCRUED INTEREST)
$ 25,300 Collateralized by $25,360,000 U.S. Treasury Notes 6%, due
9/30/98, with a value of $25,848,000 (with First Chicago
Capital Markets, Inc., 6%, dated 12/31/96, due 1/2/97,
delivery value of $25,308,000)............................ $ 25,304
EXCESS OF LIABILITIES OVER CASH AND RECEIVABLES (-0.2%).......................
(222)
---------------
NET ASSETS (100.0%)........................................................... $ 147,193
---------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER OUTSTANDING SHARE
($147,193,000 DIVIDED BY 19,963,590 SHARES OUTSTANDING)......................
$ 7.37
---------------
</TABLE>
ADR AMERICAN DEPOSITARY RECEIPTS.
* NON-INCOME PRODUCING.
(1)TRADES ON THE CANADIAN STOCK EXCHANGE; VALUE IN U.S.
DOLLARS.
SEE NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
10
<PAGE>
THE VALUE LINE INCOME FUND, INC.
Statement of Assets and Liabilities
at December 31, 1996
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
Dollars
(IN THOUSANDS
EXCEPT PER
SHARE AMOUNT)
---------------
<S> <C>
Assets:
Investment securities, at value
(Cost--$103,464).................................................... $ 122,111
Repurchase agreement (Cost--$25,304).................................. 25,304
Cash.................................................................. 52
Dividends and interest receivable..................................... 477
Receivable for capital shares sold.................................... 36
---------------
Total Assets...................................................... 147,980
---------------
Liabilities:
Payable for securities purchased...................................... 442
Payable for capital shares repurchased................................ 163
Accrued expenses:
Advisory fee........................................................ 87
Other............................................................... 95
---------------
Total Liabilities................................................. 787
---------------
Net Assets............................................................ $ 147,193
---------------
Net Assets consist of:
Capital stock, at $1.00 par value (authorized 50,000,000, outstanding
19,963,590 shares).................................................. $ 19,964
Additional paid-in capital............................................ 105,855
Undistributed investment income--net.................................. 66
Undistributed net realized gain on investments........................ 2,661
Unrealized net appreciation of investments............................ 18,647
---------------
Net Assets............................................................ $ 147,193
---------------
Net Asset Value, Offering and Redemption Price per Outstanding Share
($147,193,000 DIVIDED BY 19,963,590 shares outstanding)............ $ 7.37
---------------
</TABLE>
Statement of Operations
for the year ended December 31, 1996
<TABLE>
<CAPTION>
Dollars
(IN THOUSANDS)
-------
<S> <C>
Investment Income:
Interest.............................................................. $ 4,141
Dividends (Net of foreign withholding taxes of $24)................... 1,763
-------
Total Income...................................................... 5,904
-------
Expenses:
Advisory fee.......................................................... 1,018
Transfer agent fees................................................... 105
Auditing and legal fees............................................... 47
Printing and stationery............................................... 34
Postage............................................................... 33
Custodian fees........................................................ 30
Registration and filing fees.......................................... 23
Telephone and wire charges............................................ 22
Directors' fees and expenses.......................................... 13
Insurance, dues and other............................................. 11
-------
Total Expenses before Custody Credits............................. 1,336
Less: Custody Credits............................................. (4)
-------
Net Expenses...................................................... 1,332
-------
Investment Income--Net................................................ 4,572
-------
Realized and Unrealized Gain (Loss) on Investments--Net:
Realized Gain--Net.................................................. 20,267
Change in Unrealized Appreciation................................... (720)
-------
Net Realized Gain and Change in Unrealized Appreciation on
Investments......................................................... 19,547
-------
Net Increase in Net Assets from Operations............................ $ 24,119
-------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
11
<PAGE>
THE VALUE LINE INCOME FUND, INC.
Statement of Changes in Net Assets
for the years ended December 31, 1996 and 1995
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
--------------------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Operations:
Investment income--net............................................................. $ 4,572 $ 4,735
Realized gain on investments--net.................................................. 20,267 5,686
Change in unrealized appreciation.................................................. (720) 21,325
--------------------
Net increase in net assets from operations......................................... 24,119 31,746
--------------------
Distributions to Shareholders:
Investment income--net............................................................. (4,513) (4,829)
Realized gain from investment transactions--net.................................... (18,405) (3,793)
--------------------
Total distributions................................................................ (22,918) (8,622)
--------------------
Capital Share Transactions:
Net proceeds from sale of shares................................................... 5,076 3,952
Net proceeds from reinvestment of distributions to shareholders.................... 18,660 6,841
Cost of shares repurchased......................................................... (22,050) (21,255)
--------------------
Increase (Decrease) from capital share transactions................................ 1,686 (10,462)
--------------------
Total Increase....................................................................... 2,887 12,662
Net Assets:
Beginning of year.................................................................. 144,306 131,644
--------------------
End of year........................................................................ $ 147,193 $ 144,306
--------------------
Undistributed Investment Income--net,
at end of year..................................................................... $ 66 $ 7
--------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
12
<PAGE>
THE VALUE LINE INCOME FUND, INC.
Notes to Financial Statements
- -------------------------------------------
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 of certain reported
amounts in the financial statements. Actual results may 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 system 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.
- --------------------------------------------------------------------------------
13
<PAGE>
THE VALUE LINE INCOME FUND, INC.
Notes to Financial Statements
- -------------------------------------------
(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):
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
--------------------
Shares sold....................................... 656 572
Shares issued to shareholders in reinvestment of
dividends and distributions..................... 2,497 952
--------------------
3,153 1,524
Shares repurchased................................ 2,767 3,158
--------------------
Net increase (decrease)........................... 386 (1,634)
--------------------
Dividends per share............................... $ .24 $ .25
--------------------
Distributions per share from net realized gains... $ 1.03 $ .20
--------------------
</TABLE>
3.Purchases and Sales of Securities
Purchases and sales of investment securities, excluding short-term securities,
were as follows:
<TABLE>
<CAPTION>
1996
--------------
(IN THOUSANDS)
<S> <C>
PURCHASES:
U.S. Treasury and Government Agency Obligations... $ 7,891
Other Investment Securities....................... 106,077
--------------
$ 113,968
--------------
SALES:
U.S. Treasury and Government Agency Obligations... $ 8,493
Other Investment Securities....................... 134,801
--------------
$ 143,294
--------------
</TABLE>
At December 31, 1996, the aggregate cost of investment securities and short-term
investments for federal income tax purposes was $128,800,000. The aggregate
appreciation and depreciation of investments at December 31, 1996, based on a
comparison of investment values and their costs for federal income tax purposes,
was $19,825,000 and $1,210,000, respectively, resulting in a net appreciation of
$18,615,000.
4.Investment Advisory Contract, Management Fees and
Transactions With Affiliates
An advisory fee of $1,018,000 was paid or payable to Value Line, Inc., the
Fund's investment adviser ("Adviser"), for the year ended December 31, 1996.
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 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.
A fee of $2,880 for printing services was paid to the Adviser for the year ended
December 31, 1996.
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, 1996, the Fund paid brokerage commissions totalling $109,000
to the distributor, which clears its transactions through unaffiliated brokers.
The Adviser and/or affiliated companies owned 187,661 shares of the Fund's
capital stock, representing 0.9% of the outstanding shares at December 31, 1996.
- --------------------------------------------------------------------------------
14
<PAGE>
THE VALUE LINE INCOME FUND, INC.
Financial Highlights
- -------------------------------------------
Selected data for a share of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------------
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------
Net asset value, beginning of period........ $ 7.37 $ 6.21 $ 6.77 $ 7.29 $ 7.86
----------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income................. .24 .25 .21 .21 .28
Net gains or losses on securities
(both realized and unrealized)...... 1.03 1.36 (.51) .38 (.15)
----------------------------------------------------------------------
Total from investment operations...... 1.27 1.61 (.30) .59 .13
----------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment
income............................. (.24) (.25) (.21) (.22) (.28)
Distributions from capital gains...... (1.03) (.20) (.05) (.89) (.42)
----------------------------------------------------------------------
Total distributions................... (1.27) (.45) (.26) (1.11) (.70)
----------------------------------------------------------------------
Net asset value, end of year................ $ 7.37 $ 7.37 $ 6.21 $ 6.77 $ 7.29
----------------------------------------------------------------------
Total return................................ +17.38% +26.24% -4.36% +8.26% +1.75%
----------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in thousands)...... $ 147,193 $ 144,306 $131,644 $162,335 $163,251
Ratio of operating expenses to average net
assets.................................... .93%(1) .93% .90% .88% .89%
Ratio of net investment income
to average net assets..................... 3.08% 3.48% 3.29% 2.82% 3.69%
Portfolio turnover rate..................... 83% 76% 56% 165% 85%
Average commissions paid per share of common
stock investments purchased/sold.......... $ .049(2)
</TABLE>
(1)BEFORE OFFSET OF CUSTODY CREDITS.
(2)DISCLOSURE EFFECTIVE FOR FISCAL YEARS BEGINNING ON OR AFTER 9/1/95.
SEE NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
15
<PAGE>
THE VALUE LINE INCOME FUND, INC.
Report of Independent Accountants
- -------------------------------------------
To the Shareholders and Board of Directors
of The Value Line Income 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 Income Fund, Inc.
(the "Fund") at December 31, 1996, 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, 1996 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NY 10036
February 18, 1997
- --------------------------------------------------------------------------------
16
