================================================================================
-----------------
ANNUAL REPORT
-----------------
December 31, 1998
-----------------
The Value Line
Income
Fund, Inc.
[LOGO]
VALUE LINE
No Load
Mutual
Funds
<PAGE>
The Value Line Income Fund, Inc.
To Our Value Line
- --------------------------------------------------------------------------------
To Our Shareholders:
The Value Line Income Fund enjoyed a banner year in 1998. For the 12 months
ended December 31, 1998, the Fund returned 27.83%, dramatically outperforming
the 20.90% return of the unmanaged composite benchmark--a blend of the Standard
& Poor's 500 Index (60%) and the Lehman Government/Corporate Bond Index (40%).
This stellar record was all the more significant because the Fund lagged the
benchmark through the first nine months of the year, attaining all of the
outperformance during the fourth quarter.
The Fund benefited from a strong orientation toward the large capitalization
sector of the market and a distinctly narrower focus on selected market leaders
in the various industry sectors. The Dow Jones Industrial Average was up 18.03%.
The broader S&P 500 rose an even greater 28.58%, although much of its
performance was due to a fairly small number of stocks, including such names as
Microsoft, Intel and Dell Computer--all prominent holdings in the Fund. In stark
contrast to the S&P 500 and the DJIA, the Russell 2000--the benchmark for the
small capitalization market--posted a negative return of -2.77%. Some of the
other technology outperformers in the Fund were America Online in the Internet
area, EMC, a data storage company, and IBM.
In addition to technology, which was the best-performing S&P industry during the
quarter as well as year-to-date, the healthcare sector performed well. The Fund
holds such standouts as Pfizer and Schering-Plough, two large pharmaceutical
companies, and Guidant, a medical supply firm specializing in cardiovascular
products.
A third sector that boosted performance was consumer cyclicals, with holdings in
several retail giants, like The Gap, Home Depot and Staples. Your Fund also had
significant weighting in financials, a sector in which the Fund holds such
superior performers as Firstar, a Midwest regional bank formed by the merger of
Star Banc and Firstar; SunAmerica, an annuity company now merged with the
insurance concern, American International Group; and Freddie Mac (previously
Federal Home Loan Mortgage Corp.), a government sponsored enterprise that holds
residential mortgages for its own account and maintains a secondary market in
residential mortgages by securitizing and guaranteeing such loans.
The extreme market volatility caused by myriad global economic events, not the
least of which were growing worries about Asia, Russia's devaluation of its
currency and default on government loans, and concern that the Asian downturn
would spread to Latin America, provided opportunities for us to add to selected
stock holdings at depressed prices particularly during the late summer/early
fall period. Domestically, the near collapse and subsequent bailout of the hedge
fund, Long Term Capital Management, and the threat of presidential impeachment
hearings created havoc. The DJIA rose 18% from 7,908 to 9,338 between December
31, 1997 and July 17, 1998, only to fall precipitously, reaching a low of 7539
on August 31, 1998, almost 20% off its highs. The subsequent rebound brought the
DJIA to a new high of 9374 late in November. On the fixed income side, the Fund
benefited from a strong rally in the bond market beginning in May and picking up
momentum at the end of July as the economic problems in Russia unfolded. This
was further fueled by an accommodative stance on the part of the Federal Reserve
Board as it began to lower short-term interest rates at the end of September.
Two subsequent cuts brought the fed funds rate to 4.75%. In a flight to quality,
investors drove the yield down on the 30-year Treasury from a high of over 6% in
April to a low of 4.7% in October, the first time that bond yields fell below 5%
since 1967.
The Fund includes selected corporate issues and issues of the U.S. Treasury and
Agencies. There are no derivatives in the portfolio. During the year, we also
added a number of high yield corporate bond issues in order to improve the yield
on the portfolio. As an asset class, they performed poorly in the late
summer/early fall, but rebounded in the final months of the year. They represent
approximately 5% of the portfolio.
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2
<PAGE>
The Value Line Income Fund, Inc.
Income Fund Shareholders
- --------------------------------------------------------------------------------
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 relative 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 1, 1999
- --------------------------------------------------------------------------------
Economic Observations
Steady growth and low inflation continue to be two of the dominant themes in the
domestic economy at this time. This enviable performance is underscored by
reports that show persisting strength in consumer spending, housing
construction, personal income, and employment. Such trends suggest that the
economy will expand by more than 3% during the opening quarter of 1999. At the
same time, inflation remains quiescent, with producer and consumer price
increases still modest, overall, and with selective industrial sectors finding
it difficult to implement price increases. In some instances, prices are
actually falling.
We believe this modest pace of economic activity will continue over the next
several months, with growth averaging 2.5%-3.0% for the year as a whole. Our
sense, as well, is that the economic crisis that is still afflicting much of
Asia and parts of Latin America (especially Brazil) will gradually recede over
the next 12 to 18 months. At the same time, we expect inflation to remain
subdued. The Federal Reserve, encouraged by this benign state of economic
affairs, will probably maintain its current monetary stance over the next
several months, at least. Any subsequent adjustment in rates will probably be
modest given the likely absence of excesses in growth or inflation in the
domestic economy.
*Performance Data:
Growth of
Average an Assumed
Annual Investment of
Total Return $10,000
------------ -------------
1 year ended 12/31/98................ 27.83% $12,783
5 years ended 12/31/98............... 16.52% $21,476
10 years ended 12/31/98............... 14.28% $37,993
* 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 Income Fund S & P 500 Lehman Gov't/Corp.
---------------------- --------- ------------------
1/89 $10,000 $10,000 $10,000
3/89 $10,447 $10,707 $10,110
6/89 $11,144 $11,651 $10,923
9/89 $11,959 $12,897 $11,026
12/89 $12,252 $13,161 $11,424
3/90 $11,830 $12,767 $11,293
6/90 $12,334 $13,568 $11,699
9/90 $11,573 $11,706 $11,770
12/90 $12,497 $12,760 $12,370
3/91 $13,850 $14,613 $12,703
6/91 $13,729 $14,580 $12,895
9/91 $14,714 $15,360 $13,637
12/91 $16,059 $16,647 $14,364
3/92 $15,210 $16,227 $14,149
6/92 $15,429 $16,535 $14,722
9/92 $15,897 $17,056 $15,441
12/92 $16,340 $17,915 $15,453
3/93 $16,946 $18,697 $16,172
6/93 $17,512 $18,788 $16,658
9/93 $17,695 $19,274 $17,209
12/93 $17,690 $19,721 $17,158
3/94 $16,719 $18,973 $16,621
6/94 $16,624 $19,053 $16,414
9/94 $17,192 $19,985 $16,496
12/94 $16,919 $19,982 $16,556
3/95 $18,009 $21,927 $17,381
6/95 $19,219 $24,020 $18,509
9/95 $20,298 $25,929 $18,863
12/95 $21,359 $27,490 $19,742
3/96 $22,431 $28,965 $19,280
6/96 $23,018 $30,265 $19,371
9/96 $23,859 $31,201 $19,713
12/96 $25,071 $33,802 $20,315
3/97 $24,420 $34,704 $20,140
6/97 $27,635 $40,762 $20,873
9/97 $30,402 $43,819 $21,604
12/97 $29,721 $45,077 $22,297
3/98 $31,993 $51,364 $22,635
6/98 $32,695 $53,060 $23,227
9/98 $30,863 $47,782 $24,378
12/98 $37,993 $57,958 $24,410
* 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, 1998 (unaudited)
- --------------------------------------------------------------------------------
Ten Largest Holdings
<TABLE>
<CAPTION>
Principal
Amount Value Percentage of
Issue or Shares (in thousands) Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pfizer, Inc............................................................ 51,000 $6,397 3.4%
Cisco Systems, Inc. ................................................... 58,375 5,418 2.9
EMC Corp. ............................................................. 63,000 5,355 2.8
Microsoft Corp......................................................... 37,000 5,132 2.7
Schering-Plough Corp................................................... 92,000 5,083 2.7
Federal Home Loan Bank Bond 5.500%, 8/13/01............................ $5,000,000 5,076 2.7
America Online, Inc. .................................................. 31,000 4,960 2.6
Omnicom Group, Inc..................................................... 80,500 4,669 2.5
Tellabs, Inc........................................................... 64,500 4,422 2.3
Dell Computer Corp..................................................... 58,500 4,281 2.3
Five Largest Industry Categories
<CAPTION>
Value Percentage of
Industry (in thousands) Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Computer & Peripherals................................................. $ 21,487 11.4%
Drug................................................................... 19,390 10.3
Computer Software & Services........................................... 12,524 6.7
Medical Supplies....................................................... 10,010 5.3
Bank................................................................... 9,512 5.1
Five Largest Net Security Purchases*
Cost
Issue (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Federal Home Loan Bank Bond 5.500%, 8/13/01............................ $ 4,986
Warner-Lambert Co...................................................... 3,697
Tennessee Valley Authority Global Power Bond
1995 Series "E", 6.750%, 11/1/25..................................... 3,304
Sun Microsystems, Inc.................................................. 3,064
Federal National Mortgage Association Note, 5.750%, 6/15/05............ 3,006
Five Largest Net Security Sales*
<CAPTION>
Proceeds
Issue (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
U.S. Treasury Notes 6.500%, 4/30/99.................................... $ 10,080
Federal National Mortgage Association Note, 6.32%, 7/28/03............. 5,000
MCI Worldcom, Inc...................................................... 4,663
Diamond Offshore Drilling, Inc. 3.750%,
Sub. Note Conv., 2/15/07............................................. 3,146
U.S. Treasury Notes 5.875%, 6/30/00.................................... 3,048
</TABLE>
* For the six month period ended 12/31/98
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5
<PAGE>
The Value Line Income Fund, Inc.
Schedule of Investments
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
COMMON STOCKS (81.9%)
ADVERTISING (2.5%)
80,500 Omnicom Group, Inc..................................... $ 4,669
BANK (5.1%)
25,500 Chase Manhattan Corp. (The)............................ 1,736
34,000 First Union Corp....................................... 2,068
9,000 Mellon Bank Corp....................................... 619
21,000 SunTrust Banks, Inc.................................... 1,606
31,000 Wells Fargo Company.................................... 1,238
36,000 Zions Bancorporation................................... 2,245
--------
9,512
BANK--MIDWEST (3.0%)
39,250 Fifth Third Bancorp.................................... 2,799
31,500 Firstar Corp........................................... 2,937
--------
5,736
COMPUTER &
PERIPHERALS (11.4%)
58,375 Cisco Systems, Inc.* .................................. 5,418
19,000 Compaq Computer Corp................................... 797
58,500 Dell Computer Corp.*................................... 4,281
63,000 EMC Corp.*............................................. 5,355
11,500 International Business
Machines Corp...................................... 2,125
41,000 Sun Microsystems, Inc.*................................ 3,511
--------
21,487
COMPUTER SOFTWARE
& SERVICES (6.7%)
65,000 BMC Software Inc.*..................................... 2,897
27,050 Computer Associates
International, Inc................................. 1,153
25,500 Compuware Corp.*....................................... 1,992
37,000 Microsoft Corp.*....................................... 5,132
26,250 Paychex, Inc........................................... 1,350
--------
12,524
DIVERSIFIED
COMPANIES (1.3%)
31,500 Tyco International, Ltd................................ 2,376
DRUG (10.3%)
17,500 Merck & Co., Inc....................................... 2,585
51,000 Pfizer, Inc............................................ 6,397
92,000 Schering-Plough Corp................................... 5,083
49,500 Warner-Lambert Co...................................... 3,722
25,500 Watson Pharmaceuticals, Inc.*.......................... 1,603
--------
19,390
DRUGSTORE (1.6%)
25,510 CVS Corp............................................... 1,403
26,000 Walgreen Co............................................ 1,523
--------
2,926
ELECTRICAL
EQUIPMENT (1.8%)
34,000 General Electric Co.................................... 3,470
ENTERTAINMENT (2.5%)
44,000 Clear Channel
Communications, Inc.*.............................. 2,398
38,000 Time Warner, Inc....................................... 2,358
--------
4,756
FINANCIAL SERVICES (2.9%)
7,500 American Express Co.................................... 767
68,250 Citigroup Inc.......................................... 3,378
25,500 FINOVA Group, Inc. (The)............................... 1,376
--------
5,521
GROCERY (2.0%)
61,500 Safeway, Inc.*......................................... 3,748
HEALTHCARE
INFORMATION
SYSTEMS (2.1%)
139,700 HBO & Co............................................... 4,008
- --------------------------------------------------------------------------------
6
<PAGE>
The Value Line Income Fund, Inc.
December 31, 1998
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
INSURANCE--
DIVERSIFIED (0.9%)
16,500 American International
Group, Inc......................................... $ 1,594
INSURANCE--LIFE (1.5%)
35,000 SunAmerica Inc......................................... 2,839
INTERNET (2.6%)
31,000 America Online, Inc.*.................................. 4,960
MEDICAL SERVICES (0.8%)
69,500 Health Management
Associates, Inc. Class "A"*........................ 1,503
MEDICAL SUPPLIES (5.3%)
35,000 Cardinal Health, Inc................................... 2,656
26,000 Guidant Corp........................................... 2,866
30,000 McKesson Corp.......................................... 2,372
28,500 Medtronic, Inc......................................... 2,116
--------
10,010
OFFICE EQUIPMENT &
SUPPLIES (0.8%)
33,000 Staples, Inc.*......................................... 1,442
RETAIL-SPECIAL
LINES (2.0%)
41,250 Gap, Inc............................................... 2,320
53,000 TJX Companies, Inc..................................... 1,537
--------
3,857
RETAIL BUILDING
SUPPLY (1.1%)
34,000 Home Depot, Inc. (The)................................. 2,080
RETAIL STORE (3.4%)
25,500 Dayton Hudson Corp..................................... 1,384
55,000 Dollar General Corp.................................... 1,299
46,500 Wal-Mart Stores, Inc................................... 3,787
--------
6,470
SEMICONDUCTOR (1.8%)
29,000 Intel Corp............................................. 3,438
TELECOMMUNICATIONS
EQUIPMENT (3.6%)
22,000 Lucent Technologies Inc................................ 2,420
64,500 Tellabs, Inc.*......................................... 4,422
--------
6,842
TELECOMMUNICATION
SERVICES (2.1%)
54,402 MCI WorldCom, Inc.*.................................... 3,903
THRIFT (2.8%)
32,000 Federal Home Loan
Mortgage Corp...................................... 2,062
43,500 Federal National Mortgage
Association........................................ 3,219
--------
5,281
--------
TOTAL COMMON STOCKS
(Cost $98,124) ........................................ 154,342
--------
U.S. TREASURY OBLIGATIONS (1.7%)
$2,000 U.S. Treasury Notes 5 7/8%,
6/30/00............................................ 2,036
1,000 U.S. Treasury Bonds 6%,
2/15/26............................................ 1,093
--------
TOTAL U.S. TREASURY
OBLIGATIONS
(Cost $3,050) .................................... 3,129
--------
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7
<PAGE>
The Value Line Income Fund, Inc.
Schedule of Investments
- --------------------------------------------------------------------------------
Prinincpal
Amount Value
(in thousands) (in thousands)
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (8.4%)
$5,000 Federal Home Loan Bank
Bond, 5.500%, 8/13/01............................. $ 5,076
2,000 Federal Home Loan
Mortgage Corp. Debenture,
5.750%, 7/15/03 .................................. 2,055
3,000 Federal National Mortgage
Association Note,
5.750%, 6/15/05 .................................. 3,111
2,000 Federal National Mortgage
Association Note,
6.00%, 5/15/08 ................................... 2,116
3,000 Tennessee Valley Authority
Global Power Bond
1995 Series "E", 6.750%,
11/1/25........................................... 3,386
--------
TOTAL U.S. GOVERNMENT
AGENCY OBLIGATIONS
(Cost $15,358) .................................. 15,744
--------
CORPORATE BONDS AND NOTES (4.3%)
ADVERTISING (0.5%)
1,000 Outdoor Systems, Inc. 8.875%,
Senior Sub. Note, 6/15/07 ........................ 1,064
CABLE TV (0.6%)
1,000 Adelphia Communications
Corp. 9.875%, Senior
Note Series "B", 3/1/07 .......................... 1,103
ENTERTAINMENT (1.1%)
1,000 Chancellor Media Corp.
8.125%, Senior Sub. Note
Series "B", 12/15/07 ............................. 993
1,000 Loews Cineplex Entertainment
Corp., 8.875%, Senior Sub.
Note, 8/1/08 ..................................... 1,025
--------
2,018
--------
GROCERY (0.6%)
1,000 Meyer (Fred), Inc. 7.450%,
Note, 3/1/08...................................... 1,080
MACHINERY (0.5%)
1,000 Columbus McKinnon Corp.
8.500%, Senior Sub. Note,
4/1/08 ........................................... 942
RECREATION (0.5%)
1,000 Six Flags Entertainment Corp.
8.875%, Senior Note, 4/1/06 ...................... 1,038
TELECOMMUNICATION
SERVICES (0.5%)
1,000 Orion Network Systems, Inc.
11.250%, Senior Note,
1/15/07 .......................................... 962
--------
TOTAL CORPORATE
BONDS & NOTES
(Cost $8,261) .................................... 8,207
--------
TOTAL INVESTMENT
SECURITIES (96.3%)
(Cost $124,793) .................................. 181,422
--------
REPURCHASE AGREEMENT (4.5%)
(includes accrued interest)
8,500 Collateralized by $7,820,000
U.S. Treasury Bonds 7.625%,
due 2/15/07, with a value of
$8,691,000 (with Morgan
Stanley & Co., Inc., 4.62%,
dated 12/31/98, due 1/4/99,
delivery value of $8,504,000) ..................... 8,501
EXCESS OF LIABILITIES OVER
CASH AND RECEIVABLES (-0.8%) ..................................... (1,506)
--------
NET ASSETS (100.0%) .......................................... $188,417
========
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
OUTSTANDING SHARE
($188,417,408/19,764,591
shares outstanding) .............................................. $ 9.53
========
* Non-income producing.
See Notes to Financial Statements
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8
<PAGE>
The Value Line Income Fund, Inc.
Statement of Assets
and Liabilities at December 31, 1998
- --------------------------------------------------------------------------------
Dollars
(in thousands
except per share
amount)
----------------
Assets:
Investment securities, at value
(Cost--$124,793) ........................................... $181,422
Repurchase agreement (Cost--$8,501) .......................... 8,501
Cash ......................................................... 47
Receivable for securities sold ............................... 1,754
Dividends and interest receivable ............................ 513
Receivable for capital shares sold ........................... 157
--------
Total Assets ........................................... 192,394
--------
Liabilities:
Payable for securities purchased ............................. 3,714
Payable for capital shares repurchased ....................... 88
Accrued expenses:
Advisory fee ............................................... 103
Other ...................................................... 72
--------
Total Liabilities ...................................... 3,977
--------
Net Assets ................................................... $188,417
========
Net Assets consist of:
Capital stock, at $1.00 par value
(authorized 50,000,000,
outstanding 19,764,591 shares) ............................. $ 19,765
Additional paid-in capital ................................... 104,222
Undistributed net investment income .......................... 29
Undistributed net realized gain on
investments ................................................ 7,772
Net unrealized appreciation
of investments ............................................. 56,629
--------
Net Assets ................................................... $188,417
========
Net Asset Value, Offering and
Redemption Price per
Outstanding Share
($188,417,408/19,764,591
shares outstanding) ........................................ $ 9.53
========
Statement of Operations
for the Year Ended December 31, 1998
Dollars
(in thousands)
-------------
Investment Income:
Interest .................................................... $ 2,284
Dividends (Net of foreign withholding
taxes of $5) .............................................. 1,171
--------
Total Income .......................................... 3,455
--------
Expenses:
Advisory fee ................................................ 1,115
Transfer agent fees ......................................... 99
Postage ..................................................... 44
Auditing and legal fees ..................................... 40
Printing and stationery ..................................... 31
Custodian fees .............................................. 30
Registration and filing fees ................................ 23
Telephone and wire charges .................................. 20
Directors' fees and expenses ................................ 15
Insurance, dues and other ................................... 9
--------
Total Expenses Before
Custody Credits ..................................... 1,426
Less: Custody Credits ................................. (4)
--------
Net Expenses .......................................... 1,422
--------
Net Investment Income ....................................... 2,033
--------
Net Realized and Unrealized Gain
on Investments:
Net Realized Gain ....................................... 17,759
Change in Net Unrealized
Appreciation .......................................... 22,129
--------
Net Realized Gain and Change in Net
Unrealized Appreciation ................................... 39,888
--------
Net Increase in Net Assets
from Operations ........................................... $ 41,921
========
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
9
<PAGE>
The Value Line Income Fund, Inc.
Statement of Changes in Net Assets
for the Years Ended December 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
----------------------
(Dollars in thousands)
<S> <C> <C>
Operations:
Net investment income ......................................... $ 2,033 $ 2,836
Net realized gain on investments .............................. 17,759 7,580
Change in net unrealized appreciation ......................... 22,129 15,853
----------------------
Net increase in net assets from operations .................... 41,921 26,269
----------------------
Distributions to Shareholders:
Net investment income ......................................... (2,011) (2,890)
Net realized gain from investment transactions ................ (9,945) (10,288)
In excess of realized gain from investment transactions ....... -- (489)
----------------------
Total distributions ........................................... (11,956) (13,667)
----------------------
Capital Share Transactions:
Net proceeds from sale of shares .............................. 10,481 6,835
Net proceeds from reinvestment of distributions to shareholders 9,742 11,110
Cost of shares repurchased .................................... (22,231) (17,280)
----------------------
(Decrease) Increase from capital share transactions ........... (2,008) 665
----------------------
Total Increase .................................................. 27,957 13,267
Net Assets:
Beginning of year ............................................. 160,460 147,193
----------------------
End of year ................................................... $ 188,417 $ 160,460
======================
Undistributed Net Investment Income, at end of year ........... $ 29 $ 12
======================
</TABLE>
See Notes to Financial Statements.
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10
<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.
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11
<PAGE>
The Value Line Income Fund, Inc.
December 31, 1998
- --------------------------------------------------------------------------------
2. Capital Share Transactions, Dividends and Distributions to Shareholders
Transactions in capital stock were as follows (in thousands except per share
amounts):
Year Ended Year Ended
December 31, December 31,
1998 1997
------------------------------------
Shares sold.............................. 1,198 853
Shares issued to shareholders
in reinvestment of dividends
and distributions...................... 1,073 1,444
------------------------------------
2,271 2,297
Shares repurchased....................... 2,609 2,158
------------------------------------
Net (decrease) increase.................. (338) 139
====================================
Dividends per share from net
investment income...................... $.1050 $ .15
====================================
Distributions per share from
net realized gains..................... $.5281 $.5705
====================================
3. Purchases and Sales of Securities
Purchases and sales of investment securities, excluding short-term securities,
were as follows:
Year Ended
December 31,
1998
--------------
(in thousands)
Purchases:
U.S. Treasury & Government
Agency Obligations .................................... $ 18,422
Other Investment Securities ............................. 136,165
--------
154,587
========
Sales & Redemptions:
U.S. Treasury and Government
Agency Obligations .................................... $ 23,076
Other Investment Securities ............................. 147,657
--------
$170,733
========
At December 31, 1998 the aggregate cost of investment securities and repurchase
agreements for federal income tax purposes was $133,445,000. The aggregate
appreciation and depreciation of investments at December 31, 1998, based on a
comparison of investment values and their costs for federal income tax purposes,
was $56,999,000 and $521,000, respectively, resulting in a net appreciation of
$56,478,000.
4. Investment Advisory Contract, Management Fees and Transactions With
Affiliates
An advisory fee of $1,115,000 was paid or payable to Value Line, Inc., the
Fund's investment adviser ("Adviser"), for the year ended December 31, 1998.
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, 1998, the Fund paid brokerage commissions totalling $119,217
to the distributor, which clears its transactions through unaffiliated brokers.
The Adviser and/or affiliated companies owned 428,514 shares of the Fund's
capital stock, representing 2.2% of the outstanding shares at December 31, 1998.
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12
<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,
---------------------------------------------------------------------
1998 1997 1996 1995 1994
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year .......... $ 7.98 $ 7.37 $ 7.37 $ 6.21 $ 6.77
---------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income ................... .10 .15 .24 .25 .21
Net gains or losses on securities
(both realized and unrealized) ........ 2.08 1.18 1.03 1.36 (.51)
---------------------------------------------------------------------
Total from investment operations ........ 2.18 1.33 1.27 1.61 (.30)
---------------------------------------------------------------------
Less distributions:
Dividends from net investment income .... (.10) (.15) (.24) (.25) (.21)
Distributions from capital gains ........ (.53) (.54) (1.03) (.20) (.05)
Distributions in excess of realized gains -- (.03) -- -- --
---------------------------------------------------------------------
Total distributions ..................... (.63) (.72) (1.27) (.45) (.26)
---------------------------------------------------------------------
Net asset value, end of year ................ $ 9.53 $ 7.98 $ 7.37 $ 7.37 $ 6.21
=====================================================================
Total return ................................ 27.83% 18.55% 17.38% 26.24% -4.36%
=====================================================================
Ratios/Supplemental Data:
Net assets, end of year (in thousands) ...... $188,417 $160,460 $147,193 $144,306 $131,644
Ratio of operating expenses to
average net assets ........................ .87%(1) .87%(1) .93%(1) .93% .90%
Ratio of net investment income to
average net assets ........................ 1.24% 1.82% 3.08% 3.48% 3.29%
Portfolio turnover rate ..................... 99% 54% 83% 76% 56%
</TABLE>
(1) After offset of custody credits. Excluding the custody credits would not
have changed the expense ratio.
See Notes to Financial Statements
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13
<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, 1998, 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, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
February 12, 1999
- --------------------------------------------------------------------------------
Other Information (unaudited)
Year 2000. Like other mutual funds, the Fund could be adversely affected if the
computer systems used by the Adviser and other service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as the "Year 2000 Problem." The Adviser is
taking steps that it believes are reasonably designed to address the Year 2000
Problem with respect to the computer systems that it uses and to obtain
satisfactory assurances that comparable steps are being taken by the Fund's
other major service providers. At this time, however, there can be no assurance
that these steps will be sufficient to avoid any adverse impact to the Fund.
The Year 2000 Problem is expected to impact corporations, which may include
issuers of portfolio securities held by the Fund, to varying degrees based upon
various factors, including, but not limited to, the corporation's industry
sector and degree of technological sophistication. The Fund is unable to predict
what impact, if any, the Year 2000 Problem will have on issuers of the portfolio
securities held by the Fund.
- --------------------------------------------------------------------------------
Federal Tax Status of Distributions (unaudited)
For corporate taxpayers 55.83% of the ordinary income distributions paid during
the calendar year 1998 qualify for the corporate dividends received deductions.
- --------------------------------------------------------------------------------
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14
<PAGE>
The Value Line Income Fund, Inc.
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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 or visit us at www.valueline.com. 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 PricewaterhouseCoopers 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
Stephen E. Grant
Vice President
David T. Henigson
Vice President and
Secretary/Treasurer
Jack M. Houston
Assistant Secretary/Treasurer
Stephen La Rosa
Assistant Secretary/Treasurer
This report is issued for information of shareholders. It is not authorized for
distribution to prospective investors unless preceded or accompanied by a
currently effective prospectus of the Fund (obtainable from the Distributor).
504797
