================================================================================
-----------------
ANNUAL REPORT
-----------------
December 31, 1998
-----------------
Value Line
Leveraged Growth
Investors, Inc.
[LOGO]
VALUE LINE
No-Load
Mutual
Funds
<PAGE>
Value Line Leveraged Growth Investors, Inc.
To Our Value Line Leveraged
- --------------------------------------------------------------------------------
To Our Shareholders:
When describing the U.S. stock market in 1998, it's tempting to quote Charles
Dickens: "It was the best of times, it was the worst of times" (A Tale of Two
Cities). For most of the year stocks posted excellent gains, spurred by a benign
domestic economy (with moderate economic growth, low inflation, and declining
interest rates) and reasonable corporate profit growth. But during the third
quarter, investors were confronted with a wrenching market contraction, with
stocks reacting to economic woes in Asia and Latin America, the devaluation of
the Russian ruble, and financial difficulties surrounding some high-profile
hedge funds.
For shareholders in Leveraged Growth Investors, the year cut on the positive
side of the equation. Total returns from your Fund (including reinvested
dividends) beat the unmanaged Standard & Poor's 500 Index by more than four
percentage points since July 1st and more than eleven percentage points over the
full year. The actual performance of the Fund and the benchmark are as follows:
Leveraged
Growth Investors S&P 500
---------------- -------
Second half...................... 13.58% 9.23%
Full year ....................... 39.63 28.58
These upbeat results were partially a function of the careful use of the
facility for which the Fund is named: leverage, or the borrowing of money to
purchase stocks over and above the actual asset value of the Fund, thus
capturing excess returns during periods of rising stock prices. There were
several points during 1998 when the Fund was between 100% and 106% invested, and
this degree of investment was an important factor in producing our strong 1998
performance.
Another contributor in the past year was the Fund's sector allocation, with
significant concentrations in technology, financial services, and the health
care and drug sectors. Stocks in all of these areas were excellent relative
performers during 1998, and in the current economic environment (see our
"Economic Observations" nearby) we expect relative outperformance in 1999 as
well. We have also increased our exposure to quality retailing stocks over the
past six months, since these companies generally operate only within the U.S.
and thus are insulated from the recent turmoil overseas.
While 1999 may not produce the excellent results we experienced last year, we
still believe that, despite the volatility that defines the stock market in
recent years, the year will be rewarding for growth-equity investors. We
appreciate your continued confidence in Value Line, and we wish you the best for
a healthy and prosperous year.
Sincerely,
/s/ Jean Bernhard Buttner
Jean Bernhard Buttner
Chairman and President
February 1, 1999
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2
<PAGE>
Value Line Leveraged Growth Investors, Inc.
Growth Investors Shareholders
- --------------------------------------------------------------------------------
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................... 39.63% $13,963
5 years ended 12/31/98.................. 22.78% $27,902
10 years ended 12/31/98.................. 19.67% $60,225
* 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>
Value Line Leveraged Growth Investors, Inc.
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COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
IN VALUE LINE LEVERAGED GROWTH INVESTORS
AND THE S&P 500 STOCK INDEX*
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
Value Line
Leveraged Growth Fund S & P 500
--------------------- ---------
1/89 $10,000 $10,000
3/89 $10,763 $10,707
6/89 $11,547 $11,651
9/89 $13,153 $12,897
12/89 $13,225 $13,161
3/90 $12,726 $12,767
6/90 $14,027 $13,568
9/90 $11,827 $11,706
12/90 $13,012 $12,760
3/91 $15,915 $14,613
6/91 $15,577 $14,580
9/91 $16,825 $15,360
12/91 $19,044 $16,647
3/92 $17,714 $16,227
6/92 $16,058 $16,535
9/92 $16,741 $17,056
12/92 $18,575 $17,915
3/93 $19,313 $18,697
6/93 $20,051 $18,788
9/93 $22,257 $19,274
12/93 $21,584 $19,721
3/94 $20,447 $18,973
6/94 $19,309 $19,053
9/94 $20,735 $19,985
12/94 $20,784 $19,982
3/95 $22,541 $21,927
6/95 $25,384 $24,020
9/95 $28,540 $25,929
12/95 $28,487 $27,490
3/96 $30,616 $28,965
6/96 $31,635 $30,265
9/96 $34,324 $31,201
12/96 $34,841 $33,802
3/97 $32,597 $34,704
6/97 $38,734 $40,762
9/97 $44,295 $43,819
12/97 $43,132 $45,077
3/98 $49,545 $51,364
6/98 $53,024 $53,060
9/98 $45,981 $47,782
12/98 $60,224 $57,958
(Period covered is 1/1/89 to 12/31/98)
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* 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.
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4
<PAGE>
Value Line Leveraged Growth Investors, Inc.
Portfolio Highlights at December 31, 1998 (unaudited)
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Ten Largest Holdings
<TABLE>
<CAPTION>
Value Percentage
Issue Shares (in thousands) of Net Assets
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EMC Corp. .................................................... 300,000 $25,500 4.2%
SunAmerica Inc. .............................................. 300,000 24,338 4.0
Cisco Systems, Inc. .......................................... 247,500 22,971 3.8
Dell Computer Corp. .......................................... 300,000 21,956 3.6
Microsoft Corp. .............................................. 120,000 16,642 2.7
Intel Corp. .................................................. 140,000 16,599 2.7
Fifth Third Bancorp .......................................... 225,000 16,045 2.6
America Online, Inc. ......................................... 100,000 16,000 2.6
Gap, Inc. .................................................... 270,000 15,187 2.5
Harley-Davidson, Inc. ........................................ 320,000 15,160 2.5
Five Largest Industry Categories
<CAPTION>
Value Percentage
Industry (in thousands) of Net Assets
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Computer & Peripherals ....................................... $86,367 14.2%
Drug ......................................................... 55,733 9.2
Computer Software & Services ................................. 47,031 7.7
Retail Store ................................................. 31,308 5.2
Medical Supplies ............................................. 30,333 5.0
Five Largest Net Security Purchases*
<CAPTION>
Cost
Issue (in thousands)
- -----------------------------------------------------------------------------------------------------------
<S> <C>
General Electric Co. ......................................... $ 8,000
Centex Corp. ................................................. 6,478
Electronic Arts Inc. ......................................... 6,394
Ceridian Corp. ............................................... 5,754
Eastman Kodak Co. ............................................ 5,498
Five Largest Net Security Sales*
<CAPTION>
Proceeds
Issue (in thousands)
- -----------------------------------------------------------------------------------------------------------
<S> <C>
EMC Corp. .................................................... $12,686
Dell Computer Corp. .......................................... 11,684
Gillette Co. ................................................. 7,677
BankBoston Corp. ............................................. 6,756
Wells Fargo Company .......................................... 6,450
</TABLE>
* For the six month period ended 12/31/98
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5
<PAGE>
Value Line Leveraged Growth Investors, Inc.
Schedule of Investments
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Value
Shares (in thousands)
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COMMON STOCKS (98.6%)
ADVERTISING (1.9%)
200,000 Omnicom Group, Inc. ........................... $ 11,600
BANK (1.9%)
80,000 State Street Corp. ............................ 5,565
100,000 Zions Bancorporation........................... 6,238
--------
11,803
BANK--MIDWEST (2.6%)
225,000 Fifth Third Bancorp............................ 16,045
COAL/ALTERNATE
ENERGY (0.8%)
100,000 AES Corp.*..................................... 4,738
COMPUTER &
PERIPHERALS (14.2%)
247,500 Cisco Systems, Inc.*........................... 22,971
75,000 Compaq Computer Corp. ......................... 3,145
300,000 Dell Computer Corp.*........................... 21,956
300,000 EMC Corp.*..................................... 25,500
45,000 International Business
Machines Corp.............................. 8,314
100,000 3Com Corp.*.................................... 4,481
--------
86,367
COMPUTER SOFTWARE
& SERVICES (7.7%)
100,000 Ceridian Corp.*................................ 6,981
189,000 Computer Associates
International, Inc......................... 8,056
112,500 Fiserv Inc.*................................... 5,787
120,000 Microsoft Corp.*............................... 16,642
63,000 Networks Associates, Inc.*..................... 4,174
125,000 Oracle Corp.*.................................. 5,391
--------
47,031
DIVERSIFIED
COMPANIES (1.2%)
100,000 Tyco International, Ltd. ...................... 7,544
DRUG (9.2%)
30,000 Amgen Inc.*.................................... 3,137
35,000 Biogen, Inc.*.................................. 2,905
60,000 Genzyme Corp.*................................. 2,985
45,000 Lilly (Eli) & Co............................... 3,999
50,000 Merck & Co., Inc............................... 7,384
72,000 Pfizer, Inc.................................... 9,032
75,000 Quintiles Transnational Corp.*................. 4,003
250,000 Schering-Plough Corp........................... 13,813
50,000 Warner-Lambert Co.............................. 3,759
75,000 Watson Pharmaceuticals, Inc.*.................. 4,716
--------
55,733
ELECTRICAL
EQUIPMENT (1.7%)
100,000 General Electric Co............................ 10,206
ENTERTAINMENT (1.3%)
150,000 Clear Channel
Communications, Inc.*...................... 8,175
FINANCIAL
SERVICES (2.6%)
30,000 American Express Co............................ 3,068
175,000 Citigroup Inc.................................. 8,662
80,000 FINOVA Group, Inc. (The)....................... 4,315
--------
16,045
FOOD WHOLESALERS
(0.4%)
55,000 US Foodservice, Inc.*.......................... 2,695
HEALTHCARE
INFORMATION
SYSTEMS (1.4%)
300,000 HBO & Co....................................... 8,606
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6
<PAGE>
Value Line Leveraged Growth Investors, Inc.
December 31, 1998
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Value
Shares (in thousands)
- --------------------------------------------------------------------------------
HOMEBUILDING (1.3%)
175,000 Centex Corp.................................... $ 7,886
HOUSEHOLD
PRODUCTS (2.2%)
45,000 Clorox Co. (The)............................... 5,256
90,000 Dial Corp. (The)............................... 2,599
60,000 Procter & Gamble Co............................ 5,479
--------
13,334
INDUSTRIAL
SERVICES (0.7%)
97,500 Robert Half
International, Inc.*....................... 4,357
INSURANCE--
DIVERSIFIED (2.4%)
100,000 American International
Group, Inc................................. 9,663
120,000 MGIC Investment Corp........................... 4,777
--------
14,440
INSURANCE--LIFE (4.0%)
300,000 SunAmerica Inc................................. 24,338
INTERNET (2.6%)
100,000 America Online, Inc.*.......................... 16,000
MACHINERY (0.6%)
75,000 Ingersoll-Rand Co.............................. 3,520
MEDICAL SERVICES (0.9%)
160,000 Omnicare, Inc.................................. 5,560
MEDICAL SUPPLIES (5.0%)
60,000 Cardinal Health, Inc........................... 4,553
50,000 Guidant Corp................................... 5,512
100,000 Johnson & Johnson.............................. 8,388
160,000 Medtronic, Inc................................. 11,880
--------
30,333
OFFICE EQUIPMENT
& SUPPLIES (2.0%)
278,437 Staples, Inc.*................................. 12,164
OILFIELD SERVICES/
EQUIPMENT (0.5%)
120,000 Transocean Offshore, Inc....................... 3,217
PRECISION
INSTRUMENT (0.9%)
75,000 Eastman Kodak Co............................... 5,400
RECREATION (3.9%)
150,000 Electronic Arts Inc.*.......................... 8,419
320,000 Harley-Davidson, Inc........................... 15,160
--------
23,579
RETAIL BUILDING
SUPPLY (3.7%)
240,000 Home Depot, Inc................................ 14,685
150,000 Lowe's Companies, Inc.......................... 7,678
--------
22,363
RETAIL--SPECIAL
LINES (4.4%)
150,000 Bed Bath & Beyond Inc.*........................ 5,119
270,000 Gap, Inc....................................... 15,187
70,000 Tandy Corp..................................... 2,883
85,000 Williams-Sonoma, Inc.*......................... 3,427
--------
26,616
RETAIL STORE (5.2%)
65,000 Costco Companies, Inc.*........................ 4,692
100,000 Dayton Hudson Corp............................. 5,425
343,321 Dollar General Corp............................ 8,111
140,000 Kohl's Corp.*.................................. 8,601
55,000 Wal-Mart Stores, Inc........................... 4,479
--------
31,308
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7
<PAGE>
Value Line Leveraged Growth Investors, Inc.
Schedule of Investments December 31, 1998
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
SECURITIES
BROKERAGE (1.1%)
120,000 Schwab (Charles) Corp.......................... $ 6,743
SEMICONDUCTOR (2.7%)
140,000 Intel Corp..................................... 16,599
TELECOMMUNICATIONS
EQUIPMENT (3.5%)
200,000 ADC Telecommunications,
Inc.*...................................... 6,950
200,000 Loral Space &
Communications Ltd*........................ 3,563
35,000 Lucent Technologies Inc........................ 3,850
100,000 Tellabs, Inc.*................................. 6,856
--------
21,219
TELECOMMUNICATION
SERVICES (2.0%)
100,000 AirTouch
Communications, Inc.*...................... 7,212
65,000 MCI WorldCom, Inc.*............................ 4,664
--------
11,876
THRIFT (1.6%)
80,000 Federal Home Loan
Mortgage Corp.............................. 5,155
60,000 Federal National Mortgage
Association................................ 4,440
--------
9,595
TRUCKING/
TRANSPORTATION
LEASING (0.5%)
80,000 CNF Transportation Inc......................... 3,005
--------
TOTAL COMMON STOCKS
AND TOTAL INVESTMENT
SECURITIES (98.6%)
(Cost $258,167,000) ....................... 600,040
--------
Value
Principal (in thousands
Amounts except per
(in thousands) share amount)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT (1.4%)
(including accrued interest)
$ 8,300 Collateralized by $8,070,000
U.S. Treasury Notes 5 3/4%,
due 4/30/03 with a value of
$8,474,000 (with First
Chicago Capital Markets, Inc.
4.35%, dated 12/31/98,
due 1/4/99, delivery value
$8,304,000) ............................... $ 8,301
--------
CASH AND RECEIVABLES
LESS LIABILITIES (100.0%) ................................... 157
--------
NET ASSETS (100%) ........................................... $608,498
========
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
OUTSTANDING SHARE
($608,497,658 / 12,568,018 shares of
capital stock outstanding) .................................... $ 48.42
========
* Non-income producing
See Notes to Financial Statements.
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8
<PAGE>
Value Line Leveraged Growth Investors, Inc.
Statement of Assets and Liabilities
at December 31, 1998
- --------------------------------------------------------------------------------
Dollars
(in thousands
except per
share amount)
-------------
Assets:
Investment securities, at value
(Cost-$258,167) .......................................... $600,040
Repurchase agreement (Cost-$8,301) ......................... 8,301
Cash ....................................................... 132
Receivable for capital shares sold ......................... 1,407
Dividends receivable ....................................... 225
--------
Total Assets ......................................... 610,105
--------
Liabilities:
Payable for capital shares repurchased...................... 1,108
Accrued expenses:
Advisory fee ............................................. 357
Other .................................................... 142
--------
Total Liabilities .................................. 1,607
--------
Net Assets ................................................. $608,498
========
Net Assets consist of:
Capital stock, at $1.00 par value
(authorized 50,000,000,
outstanding 12,568,018 shares)............................ $ 12,568
Additional paid-in capital ................................. 228,278
Undistributed net realized gain on
investments .............................................. 25,779
Net unrealized appreciation
of investments ........................................... 341,873
--------
Net Assets ................................................. $608,498
========
Net Asset Value, Offering and
Redemption Price per
Outstanding Share
($608,497,658 / 12,568,018
shares outstanding) ...................................... $ 48.42
========
Statement of Operations
for the Year Ended December 31, 1998
- --------------------------------------------------------------------------------
Dollars
(in thousands)
------------
Investment Income:
Dividends .................................................. $ 2,347
Interest ................................................... 887
--------
Total Income ......................................... 3,234
--------
Expenses:
Advisory fee ............................................... 3,686
Transfer agent fees ........................................ 155
Interest expense ........................................... 155
Custodian fees ............................................. 56
Postage .................................................... 52
Auditing and legal fees .................................... 40
Printing ................................................... 36
Telephone .................................................. 33
Registration and filing fees ............................... 31
Commitment fee ............................................. 27
Insurance, dues and other .................................. 16
Directors' fees and expenses ............................... 15
--------
Total Expenses Before
Custody Credits .................................... 4,302
Less: Custody Credits ................................ (7)
--------
Net Expenses ......................................... 4,295
--------
Net Investment Loss ........................................ (1,061)
--------
Net Realized and Unrealized Gain
on Investments:
Net Realized Gain......................................... 38,523
Change in Net
Unrealized Appreciation ................................ 133,597
--------
Net Realized Gain and Change in
Net Unrealized Appreciation
on Investments ........................................... 172,120
--------
Net Increase in Net Assets
from Operations .......................................... $171,059
========
See Notes to Financial Statements.
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9
<PAGE>
Value Line Leveraged Growth Investors, 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 loss ................................................. $ (1,061) $ (683)
Net realized gain on investments .................................... 38,523 37,875
Change in net unrealized appreciation ............................... 133,597 46,969
-------------------------------
Net increase in net assets from operations........................... 171,059 84,161
------------------------------
Distributions to Shareholders:
Net realized gain from investment transactions ...................... (14,660) (35,549)
------------------------------
Capital Share Transactions:
Proceeds from sale of shares ........................................ 411,246 163,122
Proceeds from reinvestment of distributions to shareholders ......... 13,826 33,787
Cost of shares repurchased .......................................... (405,788) (183,766)
------------------------------
Increase from capital share transactions............................. 19,284 13,143
------------------------------
Total Increase ........................................................ 175,683 61,755
Net Assets:
Beginning of year ................................................... 432,815 371,060
------------------------------
End of year ......................................................... $ 608,498 $ 432,815
==============================
</TABLE>
See Notes to Financial Statements.
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10
<PAGE>
Value Line Leveraged Growth Investors, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
Value Line Leveraged Growth Investors, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company whose sole investment objective is to realize
capital growth. The Fund may employ "leverage" by borrowing money and using it
for the purchase of additional securities. Borrowing for investment increases
both investment opportunity and investment risk.
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 price 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.
(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.
(F) Financial Futures Contracts. A financial futures contract is an agreement
between two parties to buy or sell financial instruments at a set price on a
future date. Upon entering into such a contract the Fund is required to pledge
to the broker cash, or U.S. Government securities, equal to the minimum "initial
margin" requirements of the
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11
<PAGE>
Value Line Leveraged Growth Investors, Inc.
December 31, 1998
- --------------------------------------------------------------------------------
applicable futur es exchange. Pursuant to the contract, the Fund agrees to
receive from or to pay the broker an amount of cash equal to the daily
fluctuation in the value of the contract. Such receipts or payments are known as
"variation margin" and are recorded by the Fund as unrealized gains or losses.
When the contract is closed, the Fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time it was closed.
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 .................................... 10,027 4,587
Shares issued to shareholders in
reinvestment of dividends and
distributions................................. 298 1,006
---------------------
10,325 5,593
Shares repurchased ............................. 9,921 5,206
---------------------
Net increase.................................... 404 387
=====================
Distributions per share from
net realized gains............................ $1.206 $3.235
=====================
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:
Investment Securities ................................ $284,464
========
Sales:
Investment Securities ................................ $257,084
========
At December 31, 1998, the aggregate cost of investment securities and repurchase
agreements for federal income tax purposes, was $267,614,000. 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 $341,815,000 and $1,088,000, respectively, resulting in a net appreciation
of $340,727,000.
Permanent book-tax differences have been reclassified within the composition of
net asset accounts. In the current year accumulated net investment loss of
$1,061,000 and net realized loss of $683,000 were reclassified to
paid-in-capital. Net investment loss, net realized gain (loss), and net assets
were not affected by this reclassification.
4. Investment Advisory Contract, Management Fees, and Transactions With
Affiliates
An advisory fee of $3,686,000 was paid or payable to Value Line, Inc. (the
Adviser), the Fund's investment adviser, for the year ended December 31, 1998.
This was computed at an annual rate of 3/4 of 1% of average daily net assets for
the year 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 $274,397
to the distributor, which clears its transactions through unaffiliated brokers.
- --------------------------------------------------------------------------------
12
<PAGE>
Value Line Leveraged Growth Investors, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
The Adviser and/or affiliated companies and the Value Line, Inc. Profit Sharing
and Savings Plan, owned 979,155 shares of the Fund's capital stock, representing
7.8% of the outstanding shares at December 31, 1998.
5. Borrowing Arrangement
The Fund has a line of credit agreement with State Street Bank and Trust (SSBT),
in the amount of $37,500,000. The terms of the agreement are as follows: The
first $12.5 million is available on a committed basis which at the Fund's option
may be either at the Bank's prime rate or at the Federal Funds Rate plus 1%,
whichever is less, and will be subject to a commitment fee of 1/4 of 1% on the
unused portion thereof; amounts in excess of $12.5 million are made available on
an unsecured basis at the same interest rate options stated above.
The Fund had no borrowings outstanding at December 31, 1998. The weighted
average amount of bank loans outstanding for the year ended December 31, 1998
was approximately $2,438,000 at a weighted average interest rate of 6.3%. For
the year ended December 31, 1998, interest expense of approximately $155,000 and
commitment fees of approximately $27,000 relating to borrowings under the
agreement were paid or payable to SSBT.
- --------------------------------------------------------------------------------
13
<PAGE>
Value Line Leveraged Growth Investors, 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 $35.58 $31.51 $28.50 $23.18 $24.67
--------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment (loss) income (.08) (.06) (.01) .09 .12
Net gains or losses on securities
(both realized and unrealized) 14.13 7.37 6.40 8.48 (1.05)
--------------------------------------------------------------------------------
Total from investment operations 14.05 7.31 6.39 8.57 (.93)
--------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- # (.09) (.12)
Distributions from capital gains (1.21) (3.24) (3.38) (3.16) (.31)
Distributions in excess of capital gains -- -- -- -- (.13)
--------------------------------------------------------------------------------
Total distributions (1.21) (3.24) (3.38) (3.25) (.56)
--------------------------------------------------------------------------------
Net asset value, end of year $48.42 $35.58 $31.51 $28.50 $23.18
================================================================================
Total return 39.63% 23.79% 22.31% 37.06% -3.71%
================================================================================
Ratios/Supplemental Data:
Net assets, end of year (in thousands) $608,498 $432,815 $371,060 $337,280 $264,803
Ratio of expenses to average net assets
(including interest expense) .87%(1) .86%(1) .88%(1) .88% .89%
Ratio of expenses to average
net assets (excluding interest expense) .84%(1) .86%(1) .87%(1) -- --
Ratio of net investment (loss) income
to average net assets (.22)% (0.17)% (.02)% .31% .49%
Portfolio turnover rate 54% 37% 34% 54% 49%
Average amount of debt outstanding
during the year (in thousands) $2,438 $97 $398 $44 $--
</TABLE>
# Dividend paid was less than one cent.
(1) After offset of custody credits. Excluding the custody credits would not
have changed the expense ratio.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
14
<PAGE>
Value Line Leveraged Growth Investors, Inc.
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors
of Value Line Leveraged Growth Investors, 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 Value Line Leveraged Growth
Investors, 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, 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.
- --------------------------------------------------------------------------------
15
<PAGE>
Value Line Leveraged Growth Investors, 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.
- --------------------------------------------------------------------------------
16
<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
Alan N. Hoffman
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
