- --------------------------------------------------------------------------------
ANNUAL REPORT
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December 31, 1997
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The Value Line
Income
Fund, Inc.
[LOGO]
----------
VALUE LINE
No-Load
Mutual
Funds
<PAGE>
The Value Line Income Fund, Inc.
To Our Value Line
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To Our Shareholders:
Despite a great deal of volatility in the capital markets in 1997, the equity
markets turned in double-digit returns with the Standard & Poor's 500 Index and
the Dow Jones Industrial Average up 33.36% and 22.6%, respectively. For much of
the year, large-cap stocks outperformed smaller-cap issues. The best-performing
sector was financial services, followed by healthcare, communication services,
consumer cyclicals, and consumer staples. Energy, utilities, and basic materials
were the worst-performing sectors.
The turbulence in the market was primarily attributable to two factors: interest
rates and the crisis in Southeast Asia. Investors were concerned that signs of
inflationary pressures would cause the Federal Reserve Board to tighten monetary
policy which, in turn, would curtail corporate growth prospects. Although the
Federal Open Market Committee did raise the Federal Funds rate by 25 basis
points, to 5.5%, at the end of March, it was a nominal hike. Later in the year,
some indications of inflation in the labor statistics were overshadowed by the
currency crisis in Southeast Asia and its deflationary ramifications. (Please
see our accompanying Economic Observations insert for our latest news on the
economy.)
During the second half of 1997, investor focus turned from the domestic economy
to Taiwan, Thailand, Malaysia, Singapore, the Philippines, South Korea and
Indonesia. The central banks in these countries had been using higher interest
rates to stabilize their currencies. Up until the end of October, Hong Kong,
with its currency link to the U.S. dollar, had been immune from these regional
concerns. Speculation over whether the rate peg would be eliminated, resulted in
a huge decline in the Hong Kong stock market, which sparked concerns around the
world, causing stock prices to drop precipitously.
The turmoil in the Asian markets resulted in dramatic fluctuations in the U.S.
markets in the fourth quarter as investors sought to protect profits. Sector
rotation was prevalent, as funds moved from companies with strong international
exposure to those with more of a domestic orientation. Some of the industries
that suffered included technology, particularly semiconductor equipment, and
energy.
REVIEW OF PERFORMANCE AND STRATEGY
For the 12-month period ended December 31, 1997, The Value Line Income Fund,
Inc. achieved a total return of 18.55%. This was below the 23.92% 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 33.36% and the
Lehman Government Corporate Bond Index, an increase of 9.76%. Although the Fund
lagged the benchmark during the first quarter (-2.60% versus 1.26%), performance
improved strongly in the second half with the Fund returning 13.17% compared
with its benchmark of 11.93% in the second quarter and 10.01% compared with its
benchmark of 5.90% in the third quarter. And finally, in the fourth quarter,
with the market in turmoil, the Fund was down 2.24% versus a positive return of
3.01% for the benchmark.
The uneven quarterly performance reflected the vagaries of the market in 1997.
The early part of the year was clearly a large capitalization market, with the
multinational companies (that are well represented in the DJIA and S&P 500)
soaring to new highs as investors poured money into index funds. The Fund, with
its more diversified market capitalization holdings, did not participate fully.
However, as the market rally broadened in the second and third quarters, many of
the smaller-cap names in the Fund benefited from the upward momentum in the
market. In the fourth quarter, the crisis in Southeast Asia took its toll on
small- and large-cap stocks alike.
Although the bond market was fairly volatile, the performance of the
fixed-income portion of the portfolio stabilized after the first quarter. The
bond market exhibited negative returns in the March 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. For the remainder of the year, the Lehman Government Corporate Bond
Index quarterly returns were fairly steady at 3.64%, 3.50% and 3.21% for the
second, third and fourth quarters, respectively.
STRATEGY FOR 1998
We enter 1998 on somewhat of a cautious note. The uncertainity surrounding the
domestic interest-rate outlook has fueled much of the market choppiness. The
crisis in Southeast Asia has added yet another element of doubt. Having said
this, we believe that the deflationary implications of the situation in
Southeast Asia will lessen the possibility that the Federal Reserve Board will
tighten monetary policy. And, despite the strong gains in the market in the past
three years, the economic environment remains relatively positive. Overall, we
favor broad diversification across many sectors, with an emphasis on those
industries offering attractive growth opportunities. The latter would include
technology, finance, oil field services and healthcare.
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2
<PAGE>
The Value Line Income Fund, Inc.
Income Fund Shareholders
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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 look forward to serving your
investment needs in the future.
Sincerely,
/s/ Jean Bernhard Buttner
Jean Bernhard Buttner
Chairman and President
February 2, 1998
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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 ...................... 18.55% $11,855
5 years ended 12/31/97 ..................... 12.71% $18,188
10 years ended 12/31/97 ..................... 12.80% $33,344
* 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.
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3
<PAGE>
The Value Line Income Fund, Inc.
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COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
VALUE LINE INCOME FUND, THE S&P 500 STOCK INDEX AND THE
LEHMAN GOVERNMENT/CORPORATE BOND INDEX*
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
Value Line S & P Lehman
Income Fund 500 Gov't/Corp.
1/1/88 $10,000 $10,000 $10,000
3/31/88 $10,520 $10,571 $10,358
6/30/88 $10,887 $11,273 $10,460
9/30/88 $11,093 $11,308 $10,655
12/31/88 $11,219 $11,655 $10,758
3/31/89 $11,721 $12,479 $10,877
6/30/89 $12,502 $13,579 $11,751
9/30/89 $13,417 $15,031 $11,861
12/31/89 $13,746 $15,339 $12,290
3/31/90 $13,273 $14,879 $12,149
6/30/90 $13,838 $15,813 $12,586
9/30/90 $12,984 $13,642 $12,662
12/31/90 $14,021 $14,871 $13,307
3/31/91 $15,538 $17,031 $13,666
6/30/91 $15,403 $16,992 $13,873
9/30/91 $16,507 $17,901 $14,670
12/31/91 $18,017 $19,402 $15,453
3/31/92 $17,064 $18,912 $15,221
6/30/92 $17,310 $19,271 $15,838
9/30/92 $17,835 $19,879 $16,612
12/31/92 $18,332 $20,880 $16,625
3/31/93 $19,012 $21,791 $17,398
6/30/93 $19,647 $21,897 $17,920
9/30/93 $19,852 $22,463 $18,513
12/31/93 $19,847 $22,984 $18,459
3/31/94 $18,747 $22,112 $17,881
6/30/94 $18,650 $22,205 $17,658
9/30/94 $19,288 $23,291 $17,746
12/31/94 $18,982 $23,288 $17,811
3/31/95 $20,205 $25,555 $18,699
6/30/95 $21,583 $27,995 $19,912
9/30/95 $22,773 $30,219 $20,293
12/31/95 $23,963 $32,039 $21,238
3/31/96 $25,166 $33,758 $20,742
6/30/96 $25,825 $35,273 $20,839
9/30/96 $26,768 $36,363 $21,207
12/31/96 $28,127 $39,395 $21,855
3/31/97 $27,397 $40,446 $21,666
6/30/97 $31,004 $47,507 $22,455
9/30/97 $34,109 $51,069 $23,242
12/31/97 $33,344 $52,535 $23,988
(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.
The Lehman Government/Corporate Bond Index is an unmanaged index that is
representative of investment-grade domestic corporate and government bonds.
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4
<PAGE>
The Value Line Income Fund, Inc.
Portfolio Highlights at December 31, 1997 (unaudited)
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Ten Largest Holdings
<TABLE>
<CAPTION>
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 $10,109 6.3%
U.S. Treasury Notes 5 7/8% 6/30/00 ........................... $ 5,000,000 5,021 3.1
Federal National Mortgage Association Note, 6.32%, 7/28/03 ... $ 5,000,000 4,986 3.1
Pfizer, Inc. ................................................ 60,000 4,474 2.8
Diamond Offshore Drilling, Inc.
3.75% Sub. Note Conv., 2/15/07.............................. $ 3,000,000 4,020 2.5
Cisco Systems, Inc............................................ 65,250 3,638 2.3
SLM Holding Corp.............................................. 25,000 3,478 2.2
Imperial Oil, Ltd. ........................................... 54,000 3,453 2.2
WorldCom, Inc. 8% (Depositary Shares) Conv. Pfd. 5/31/99...... 31,500 3,307 2.1
AES Trust II 5.50%, Conv. Pfd., 9/30/12 (144A)................ 60,000 3,083 1.9
</TABLE>
Five Largest Industry Categories
<TABLE>
<CAPTION>
Value Percentage of
Industry (in thousands) Net Assets
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Oilfield Services/Equipment .................................. $ 26,957 16.8%
Drug ......................................................... 9,380 5.8
Financial Services ........................................... 9,127 5.7
Thrift ....................................................... 8,938 5.6
Bank ......................................................... 7,518 4.7
</TABLE>
Five Largest Net Security Purchases*
<TABLE>
<CAPTION>
Cost
Issue (in thousands)
- -----------------------------------------------------------------------------------------------------------
<S> <C>
Diamond Offshore Drilling, Inc. 3.75% Sub. Note Conv., 2/15/07 $5,055
AES Trust II 5.50%, Conv. Pfd., 9/30/12 (144A)................ 3,000
Imperial Oil, Ltd. ........................................... 2,137
USX-Marathon Group ........................................... 2,032
EVI, Inc. 5%, Conv. Pfd., 11/1/27 (144A)...................... 2,000
</TABLE>
Five Largest Net Security Sales*
<TABLE>
<CAPTION>
Proceeds
Issue (in thousands)
- -----------------------------------------------------------------------------------------------------------
<S> <C>
Williams Companies, Inc. ..................................... $2,417
Gillette Co. ................................................. 2,336
Praxair, Inc. ................................................ 1,863
Global Marine, Inc. .......................................... 1,826
Ascend Communications, Inc. .................................. 1,571
</TABLE>
* For the six month period ended 12/31/97
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5
<PAGE>
The Value Line Income Fund, Inc.
Schedule of Investments
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Value
Shares (in thousands)
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COMMON STOCKS (70.0%)
ADVERTISING (1.7%)
63,000 Omnicom Group, Inc............................. $ 2,670
AEROSPACE/
DEFENSE (0.3%)
9,000 Precision Castparts Corp....................... 543
AUTO PARTS--ORIGINAL
EQUIPMENT (0.6%)
10,000 Eaton Corp..................................... 892
BANK (4.7%)
18,000 BankAmerica Corp............................... 1,314
14,000 BankBoston Corp................................ 1,315
8,500 Citicorp....................................... 1,075
24,000 Mellon Bank Corp............................... 1,455
52,000 Zions Bancorporation........................... 2,359
--------
7,518
BANK--CANADIAN (3.0%)
35,500 Bank of Nova Scotia,
Halifax, Inc. (1) ......................... 1,673
25,000 Canadian Imperial Bank
of Commerce (1)............................ 778
25,000 Royal Bank of Canada,
Montreal Quebec ........................... 1,325
28,000 Toronto-Dominion Bank.......................... 1,055
--------
4,831
BANK--MIDWEST (1.6%)
18,000 Marshall & Isley Corp.......................... 1,118
15,500 Norwest Corp................................... 599
15,000 Star Banc Corp................................. 861
--------
2,578
BEVERAGE--
SOFT DRINK (0.3%)
13,000 Coca-Cola Enterprises Inc...................... 465
CANADIAN ENERGY (2.2%)
54,000 Imperial Oil, Ltd.............................. 3,453
CHEMICAL--
SPECIALTY (0.3%)
25,000 Furon Co....................................... 522
COAL/ALTERNATE
ENERGY (0.8%)
28,000 AES Corp.*..................................... 1,305
COMPUTER &
PERIPHERALS (4.4%)
65,250 Cisco Systems, Inc.*........................... 3,638
10,000 International Business
Machines Corp.............................. 1,045
67,500 Newbridge Networks Corp.*...................... 2,354
--------
7,037
COMPUTER SOFTWARE
& SERVICES (2.7%)
19,000 BMC Software Inc.*............................. 1,247
26,550 Computer Associates
International, Inc......................... 1,404
13,500 Microsoft Corp.*............................... 1,745
--------
4,396
DIVERSIFIED
COMPANIES (1.6%)
11,000 Crane Co....................................... 477
17,000 Tyco International, Ltd........................ 766
13,000 United Technologies Corp....................... 946
18,500 Varlen Corp.................................... 454
--------
2,643
DRUG (5.8%)
20,000 ICN Pharmaceuticals, Inc....................... 976
19,000 Lilly (Eli) & Co............................... 1,323
60,000 Pfizer, Inc.................................... 4,474
26,000 Schering-Plough Corp........................... 1,615
8,000 Warner-Lambert Co.............................. 992
--------
9,380
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6
<PAGE>
The Value Line Income Fund, Inc.
December 31, 1997
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
ELECTRIC UTILITY--
EAST (0.7%)
26,000 Consolidated Edison, Inc....................... $ 1,066
ELECTRICAL
EQUIPMENT (1.6%)
34,000 General Electric Co............................ 2,495
FINANCIAL SERVICES (5.7%)
26,000 FINOVA Group, Inc. (The)....................... 1,292
41,000 Green Tree Financial Corp...................... 1,074
25,500 Money Store, Inc. (The)........................ 535
25,000 SLM Holding Corp............................... 3,478
51,000 Travelers Group, Inc........................... 2,748
--------
9,127
FOOD PROCESSING (0.3%)
22,000 Michael Foods, Inc............................. 536
HEALTHCARE
INFORMATION
SYSTEMS (0.7%)
23,500 HBO & Co....................................... 1,128
INSURANCE--
DIVERSIFIED (0.7%)
5,000 American International
Group, Inc................................. 544
9,000 MGIC Investment Corp........................... 598
--------
1,142
INSURANCE--LIFE (1.1%)
13,000 Conseco, Inc................................... 591
27,000 SunAmerica Inc................................. 1,154
--------
1,745
INSURANCE--PROPERTY/
CASUALTY (0.8%)
15,000 Allstate Corp. (The)........................... 1,363
MACHINERY (0.3%)
14,000 Dover Corp..................................... 506
MEDICAL SUPPLIES (2.1%)
19,000 Guidant Corp................................... 1,183
5,500 McKesson Corp.................................. 595
29,000 Medtronic, Inc................................. 1,517
--------
3,295
OILFIELD SERVICES/
EQUIPMENT (13.2%)
21,000 BJ Services Co.*............................... 1,511
53,000 Baker Hughes, Inc.............................. 2,312
7,500 Camco International, Inc....................... 478
24,000 Dresser Industries, Inc........................ 1,006
49,000 ENSCO International Inc........................ 1,641
34,000 Halliburton Co................................. 1,766
11,000 Helmerich & Payne, Inc......................... 747
11,000 Petroleum Geo Services
A/S (ADR)*................................. 712
49,500 Rowan Companies, Inc.*......................... 1,510
33,500 Schlumberger, Ltd.............................. 2,697
21,000 Smith International, Inc.*..................... 1,289
52,500 Tidewater, Inc................................. 2,894
53,000 Transocean Offshore, Inc....................... 2,554
--------
21,117
PACKAGING
& CONTAINER (0.3%)
9,000 AptarGroup, Inc................................ 500
PETROLEUM--
INTEGRATED (1.6%)
76,500 USX-Marathon Group............................. 2,582
R.E.I.T. (2.1%)
37,000 Equity Residential Properties
Trust SBI (3).............................. 1,871
22,000 Security Capital Pacific
Trust SBI (3).............................. 533
30,000 Simon DeBartolo Group, Inc..................... 981
--------
3,385
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7
<PAGE>
The Value Line Income Fund, Inc.
Schedule of Investments
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
SEMICONDUCTOR (1.8%)
42,000 Intel Corp..................................... $ 2,950
TELECOMMUNICATIONS
EQUIPMENT (0.8%)
23,500 Tellabs, Inc.*................................. 1,243
TELECOMMUNICATION
SERVICES (0.7%)
36,456 WorldCom Inc.*................................. 1,103
THRIFT (4.2%)
22,000 Ahmanson (H.F.) & Co........................... 1,473
32,000 Federal Home Loan
Mortgage Corp.............................. 1,342
49,500 Federal National Mortgage
Association................................ 2,824
16,000 Washington Mutual, Inc......................... 1,021
--------
6,660
TOBACCO (1.3%)
46,500 Philip Morris Companies, Inc................... 2,107
--------
TOTAL COMMON STOCKS
(Cost $80,808) ................................ 112,283
--------
PREFERRED STOCKS (9.0%)
COAL/ALTERNATE
ENERGY (1.9%)
60,000 AES Trust II 5.50%, Conv. Pfd.,
9/30/12 (144A) (2)......................... 3,083
ELECTRICAL
EQUIPMENT (0.6%)
50,000 Cooper Industries, Inc.
6% Exchangeable
Notes, 1/1/99.............................. 912
ENVIRONMENTAL (1.2%)
50,000 Laidlaw One, Inc. 5 3/4%,
Exchangeable Notes,
12/31/00................................... 1,928
OILFIELD SERVICES/
EQUIPMENT (1.1%)
40,000 EVI, Inc. 5%, Conv. Pfd.,
11/1/27 (144A) (2)......................... 1,820
TELECOMMUNICATION
SERVICES (2.8%)
18,000 AirTouch Communications, Inc.
4.25% Conv. "C" Pfd.
8/16/16.................................... 1,122
31,500 WorldCom, Inc. 8%
(Depositary Shares)
Conv. Pfd. 5/31/99......................... 3,307
--------
4,429
THRIFT (1.4%)
25,000 Golden State Bancorp Inc.,
8.75% Conv. "A" Pfd.
12/31/49................................... 2,278
--------
TOTAL PREFERRED
STOCKS
(Cost $10,744) .............................. 14,450
--------
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8
<PAGE>
The Value Line Income Fund, Inc.
December 31, 1997
- --------------------------------------------------------------------------------
Principal
Amount Value
(in thousands) (in thousands)
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS (9.4%)
$10,000 U.S. Treasury Notes 6 1/2%,
4/30/99.................................... $ 10,109
5,000 U.S. Treasury Notes 5 7/8%,
6/30/00.................................... 5,021
--------
TOTAL U.S. TREASURY
OBLIGATIONS
(Cost $14,942) ............................ 15,130
--------
U.S. GOVERNMENT AGENCY OBLIGATIONS (5.0%)
5,000 Federal National Mortgage
Association Note, 6.32%,
7/28/03.................................... 4,986
2,823 Federal National Mortgage
Association REMIC Trust
1989-90 E, 8.70%, 12/25/19................. 2,966
--------
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS
(Cost $7,826) ............................. 7,952
--------
CORPORATE BONDS AND NOTES (4.9%)
NATURAL GAS--
DISTRIBUTION (0.7%)
1,000 Trident NGL, Inc. 10 1/4%,
Sub. Note, 4/15/03......................... 1,078
OILFIELD SERVICES/
EQUIPMENT (2.5%)
3,000 Diamond Offshore Drilling, Inc.
3.750% Sub. Note Conv.
2/15/07.................................... 4,020
PETROLEUM--
INTEGRATED (0.6%)
1,000 Texaco Capital, Inc. 6 7/8%,
Gtd Deb., 8/15/23.......................... 1,014
Value
Principal (in thousands)
Amount except per
(in thousands) share amount)
- --------------------------------------------------------------------------------
RETAIL--SPECIAL
LINES (1.1%)
$ 750 Inacom Corp. 4.50%,
Sub. Deb. Conv., 11/1/04................... $ 704
1,000 Michaels Stores, Inc. 6.75%,
Sub. Note Conv., 1/15/03................... 1,020
--------
1,724
--------
TOTAL CORPORATE
BONDS & NOTES
(Cost $8,831) ............................. 7,836
--------
TOTAL INVESTMENT
SECURITIES (98.3%)
(Cost $123,151) ........................... 157,651
--------
REPURCHASE AGREEMENT (2.1%)
(includes accrued interest)
3,400 Collateralized by $3,455,000
U.S. Treasury Notes 6%,
due 6/30/99, with a value of
$3,472,000 (with First
Chicago Capital Markets
Corp., 5.85%, dated 12/31/97,
due 1/2/98, delivery value
of $3,401,000)............................. 3,401
EXCESS OF LIABILITIES OVER
CASH AND RECEIVABLES (-0.4%) .................................. (592)
--------
NET ASSETS (100.0%) ........................................... $160,460
========
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
OUTSTANDING SHARE
($160,460,000/20,102,720
shares outstanding) ........................................... $ 7.98
========
* Non-income producing.
(ADR) American Depositary Receipts
(1) Trades on Canadian Stock Exchange, Value in U.S. Dollars.
(2) (144A) -- Security where certain conditions for public sale may exist.
(3) SBI -- Shares of Beneficial Interest.
See Notes to Financial Statements
- --------------------------------------------------------------------------------
9
<PAGE>
The Value Line Income Fund, Inc.
Statement of Assets
and Liabilities at December 31, 1997
Dollars
(in thousands
except per share
amount)
----------------
Assets:
Investment securities, at value
(Cost--$123,151) ......................................... $ 157,651
Repurchase agreement (Cost--$3,401) ........................ 3,401
Cash ....................................................... 5
Dividends and interest receivable .......................... 518
Receivable for capital shares sold ......................... 13
---------
Total Assets ......................................... 161,588
---------
Liabilities:
Payable for securities purchased ........................... 948
Accrued expenses:
Advisory fee ............................................. 93
Other .................................................... 87
---------
Total Liabilities .................................... 1,128
---------
Net Assets ................................................. $ 160,460
=========
Net Assets consist of:
Capital stock, at $1.00 par value
(authorized 50,000,000,
outstanding 20,102,720 shares) ........................... $ 20,103
Additional paid-in capital ................................. 105,892
Undistributed investment income--net ....................... 12
Accumulated net realized loss on
investments .............................................. (47)
Accumulated net appreciation
of investments ........................................... 34,500
---------
Net Assets ................................................. $ 160,460
=========
Net Asset Value, Offering and
Redemption Price per
Outstanding Share
($160,460,000/20,102,720
shares outstanding) ...................................... $ 7.98
=========
Statement of Operations
for the Year Ended December 31, 1997
Dollars
(in thousands)
--------------
Investment Income:
Interest .................................................... $ 2,759
Dividends (Net of foreign withholding
taxes of $26) ............................................. 1,434
--------
Total Income .......................................... 4,193
--------
Expenses:
Advisory fee ................................................ 1,070
Transfer agent fees ......................................... 97
Auditing and legal fees ..................................... 38
Custodian fees .............................................. 34
Postage ..................................................... 32
Printing and stationery ..................................... 31
Registration and filing fees ................................ 21
Telephone and wire charges .................................. 20
Directors' fees and expenses ................................ 15
Insurance, dues and other ................................... 5
--------
Total Expenses Before
Custody Credits ..................................... 1,363
Less: Custody Credits ................................. (6)
--------
Net Expenses .......................................... 1,357
--------
Investment Income--Net ...................................... 2,836
--------
Realized and Unrealized Gain
on Investments--Net:
Realized Gain--Net ...................................... 7,580
Change in Unrealized
Appreciation .......................................... 15,853
--------
Net Realized Gain and Change in
Unrealized Appreciation
on Investments ............................................ 23,433
--------
Net Increase in Net Assets
from Operations ........................................... $ 26,269
========
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
10
<PAGE>
The Value Line Income 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............................................... $ 2,836 $ 4,572
Realized gain on investments--net.................................... 7,580 20,267
Change in unrealized appreciation.................................... 15,853 (720)
-------------------------
Net increase in net assets from operations........................... 26,269 24,119
-------------------------
Distributions to Shareholders:
Investment income--net............................................... (2,890) (4,513)
Realized gain from investment transactions--net...................... (10,288) (18,405)
In excess of realized gain from investment transactions.............. (489) --
-------------------------
Total distributions.................................................. (13,667) (22,918)
-------------------------
Capital Share Transactions:
Net proceeds from sale of shares..................................... 6,835 5,076
Net proceeds from reinvestment of distributions to shareholders...... 11,110 18,660
Cost of shares repurchased........................................... (17,280) (22,050)
-------------------------
Increase from capital share transactions............................. 665 1,686
-------------------------
Total Increase ........................................................ 13,267 2,887
Net Assets:
Beginning of year.................................................... 147,193 144,306
-------------------------
End of year.......................................................... $160,460 $147,193
=========================
Undistributed Investment Income--net,
at end of year ...................................................... $ 12 $ 66
=========================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
11
<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 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.
(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.
- --------------------------------------------------------------------------------
12
<PAGE>
The Value Line Income Fund, Inc.
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 ...................................... 853 656
Shares issued to shareholders
in reinvestment of dividends
and distributions .............................. 1,444 2,497
---------------------
2,297 3,153
Shares repurchased ............................... 2,158 2,767
---------------------
Net increase ..................................... 139 386
=====================
Dividends per share from
net investment income .......................... $ .15 $ .24
=====================
Distributions per share from
net realized gains ............................. $.5705 $ 1.03
=====================
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 ...................................... $88,949
=======
SALES & REDEMPTIONS:
U.S. Treasury and Government
Agency Obligations ....................................... $ 542
Other Investment Securities ................................ 76,379
-------
$76,921
=======
At December 31, 1997 the aggregate cost of investment securities and repurchase
agreements for federal income tax purposes was $126,553,000. 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 $36,395,000 and $1,896,000, respectively, resulting in a net appreciation of
$34,499,000.
Permanent book-tax differences relating to shareholder distributions are
reclassified within the composition of net asset accounts. In the current year
distributions in excess of realized gain from investment transactions of
$489,000 were reclassified to paid-in capital. Net investment income, net
realized gain, and net assets were not affected by this reclassification.
Realized losses incurred after October 31, if so elected by the Fund, are deemed
to arise on the first day of the following fiscal year. The Fund incurred and
elected to defer losses of approximately $41,000. To the extent future capital
gains are offset by such capital losses, the Fund does not anticipate
distributing any such gains to the shareholders.
4. Investment Advisory Contract, Management Fees and Transactions With
Affiliates
An advisory fee of $1,070,000 was paid or payable to Value Line, Inc., the
Fund's investment adviser ("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 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 year
ended December 31, 1997, the Fund paid brokerage commissions totalling $75,226
to the distributor, which clears its transactions through unaffiliated brokers.
The Adviser and/or affiliated companies owned 209,288 shares of the Fund's
capital stock, representing 1.0% of the outstanding shares at December 31, 1997.
- --------------------------------------------------------------------------------
13
<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,
--------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .......... $ 7.37 $ 7.37 $ 6.21 $ 6.77 $ 7.29
--------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income ................... .15 .24 .25 .21 .21
Net gains or losses on securities
(both realized and unrealized) ........ 1.18 1.03 1.36 (.51) .38
--------------------------------------------------------------------------
Total from investment operations ........ 1.33 1.27 1.61 (.30) .59
--------------------------------------------------------------------------
Less distributions:
Dividends from net investment income .... (.15) (.24) (.25) (.21) (.22)
Distributions from capital gains ........ (.54) (1.03) (.20) (.05) (.89)
Distributions in excess of realized gains (.03) -- -- -- --
--------------------------------------------------------------------------
Total distributions ..................... (.72) (1.27) (.45) (.26) (1.11)
--------------------------------------------------------------------------
Net asset value, end of year ................ $ 7.98 $ 7.37 $ 7.37 $ 6.21 $ 6.77
==========================================================================
Total return ................................ 18.55% 17.38% 26.24% -4.36% 8.26%
==========================================================================
Ratios/Supplemental Data:
Net assets, end of year (in thousands) ...... $160,460 $147,193 $144,306 $131,644 $162,335
Ratio of operating expenses to
average net assets ........................ .87%(1) .93%(1) .93% .90% .88%
Ratio of net investment income to
average net assets ........................ 1.82% 3.08% 3.48% 3.29% 2.82%
Portfolio turnover rate ..................... 54% 83% 76% 56% 165%
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.
See Notes to Financial Statements
- --------------------------------------------------------------------------------
14
<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, 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 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 20, 1998
- --------------------------------------------------------------------------------
SHAREHOLDERS MEETING RESULTS (unaudited)
A special meeting of shareholders of The Value Line Income 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 12,393,962 256,127 0
John W. Chandler 12,388,725 261,363 0
Leo R. Futia 12,350,533 299,555 0
David H. Porter 12,305,723 344,366 0
Paul Craig Roberts 12,395,292 254,797 0
Nancy-Beth Sheerr 12,391,027 259,061 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*
---------- ------- ------- ----------
12,380,323 79,634 190,131 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.
- --------------------------------------------------------------------------------
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 of
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
Nancy Bendig
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).
VLF712441
