<PAGE>
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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 Company
225 Franklin Street, Boston, MA 02110
SHAREHOLDER SERVICING AGENT
State Street Bank and Trust Company c/o NFDS
P.O. Box 419729, Kansas City, MO 64141-6729
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas, New York, NY 10036
LEGAL COUNSEL
Peter D. Lowenstein, Esq.
Two Greenwich Plaza, Suite 100
Greenwich, CT 06830
BOARD OF DIRECTORS
Jean Bernhard Buttner
John W. Chandler Charles E. Reed
Leo R. Futia Paul Craig Roberts
OFFICERS
Jean Bernhard Buttner
CHAIRMAN AND PRESIDENT
Raymond S. Cowen Charles Heebner
VICE PRESIDENT VICE PRESIDENT
David T. Henigson
VICE PRESIDENT AND SECRETARY/TREASURER
Jack M. Houston Stephen La Rosa
ASSISTANT ASSISTANT
SECRETARY/TREASURER SECRETARY/TREASURER
An investment in the Value Line Tax Exempt Fund, Inc., Money Market Portfolio,
is not guaranteed or insured by the U.S. government, and there is no assurance
that this portfolio will maintain its $1.00 per share net asset value.
This report is issued for the 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).
VLF 511221
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--------------------------------
ANNUAL REPORT
FEBRUARY 29, 1996
--------------------------
THE
VALUE LINE
TAX EXEMPT
FUND, INC.
VALUE LINE
MUTUAL FUNDS
<PAGE>
TO OUR VALUE LINE
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DEAR SHAREHOLDER:
The fixed-income markets made an impressive recovery during 1995 as interest
rates declined significantly. After long-term, tax-exempt rates reached a peak
of 7.37% on November 22, 1994, as measured by the Bond Buyer's 40-Bond Index,
they fell to a low of 5.47% on February 13, 1996. Since then, interest rates
have again climbed, although they remain significantly below the peaks reached
in 1994.
During 1995, new investments in long-term, tax-exempt bond funds exceeded
withdrawals by $0.5 billion. In 1994, the net outflow from such funds reached
$7.8 billion, as reported by the Investment Company Institute, resulting in
significant downward pressure on prices and rising yields. Meanwhile, the
volume of new tax-exempt issues dropped during 1995--from $164.5 billion in
1994 to $156.2 billion last year, a decline of 5%--as a result of fewer
refundings of older bonds. The dollar amount of outstanding tax-exempt bonds
is likely to fall further in 1996.
HIGH YIELD PORTFOLIO
The primary objective of the Value Line Tax Exempt High Yield Portfolio remains
to provide investors with maximum income exempt from federal income taxes,
without undue risk to principal. During the year ended February 29, 1996, the
Portfolio's total return was 9.55%. Since its inception in March 1984, the
total return for the high-yield portfolio, assuming reinvestment of all
dividends over that period, has been 173.3%. This is equivalent to an average
annual total return of 8.79%. The Portfolio's SEC yield as of February 29,
1996, was 4.89%, which placed it in the top quartile of all general municipal
bond funds ranked by Lipper Analytical Services.
Your Portfolio's total return for the year ended December 31, 1995, was 16.68%,
compared with 17.45% for the Lehman Brothers Municipal Bond Index during the
same time period. Two factors contributed to this below-index performance:
management's emphasis on high-grade securities (which have lower yields than
low-grade bonds) and the portfolio's shorter duration* than that of the Lehman
Brothers Index. Your Fund's management has concentrated on maintaining call
protection and emphasizing bonds with high credit ratings, in order to maintain
and maximize shareholder income without sacrificing safety of principal. Over
98% of your Portfolio's bonds are rated A or better by major credit-rating
agencies, such as Moody's Investors Service and Standard and Poor's Corporation.
In addition, 24% of the portfolio is invested in high-coupon, non-callable
bonds (a class of securities rarely issued with maturities beyond 10 years).
The Portfolio's highest concentrations are in the insured, housing-revenue,
hospital-revenue, general obligation, and pre-refunded sectors.
MONEY MARKET PORTFOLIO
The objective of the Tax Exempt Money Market Portfolio is to preserve principal
by investing in high-quality, tax-exempt, short-term securities that have a high
degree of liquidity, to ensure a constant net asset value of $1.00 per share.
The portfolio consists only of securities carrying the highest two ratings of
the major credit-rating agencies. The annualized yield was 2.92% as of
February 29, 1996, equivalent to a 4.83% taxable yield for those in the 39.6%
income-tax bracket.
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* DURATION (HERE REFERRING TO MODIFIED DURATION) IS A STATISTICAL TERM USED TO
MEASURE THE PRICE SENSITIVITY OF A BOND, INDEX, OR PORTFOLIO TO CHANGES IN
INTEREST RATES. THE HIGHER THE DURATION, THE GREATER THE PRICE CHANGE
ACCOMPANYING ANY CHANGE IN INTEREST RATES. FOR EXAMPLE, IF A FUND HAS A
MODIFIED DURATION OF SEVEN (YEARS), THE PRICE OF THE FUND WOULD BE EXPECTED
TO RISE OR FALL 7% FOR EVERY 1.0 PERCENTAGE POINT DROP OR RISE, RESPECTIVELY,
IN INTEREST RATES. PRICES MOVE IN THE OPPOSITE DIRECTION FROM INTEREST RATES.
THE LEHMAN BROTHERS MUNICIPAL BOND INDEX IS A TOTAL-RETURN PERFORMANCE
BENCHMARK FOR THE LONG-TERM, INVESTMENT-GRADE, TAX-EXEMPT BOND MARKET.
INVESTMENT-GRADE BONDS ARE RATED BAA OR HIGHER BY MOODY'S OR BBB OR HIGHER BY
STANDARD & POOR'S. RETURNS AND ATTRIBUTES FOR THE INDEX ARE CALCULATED SEMI-
MONTHLY USING APPROXIMATELY 25,000 MUNICIPAL BONDS, WHICH ARE PRICED BY MULLER
DATA CORPORATION. THE RETURNS FOR THE INDEX DO NOT REFLECT EXPENSES, WHICH ARE
DEDUCTED FROM THE TRUST'S RETURNS. THE MODIFIED DURATIONS OF THE LEHMAN
BROTHERS MUNICIPAL BOND INDEX, AS OF 2/29/96, WAS 7.98.
2
<PAGE>
TAX EXEMPT FUND SHAREHOLDERS
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All short-term rates have declined since February 1995, as the Federal
Reserve has reduced the Federal Funds rate by 0.75 percentage points in three
steps, from 6.00% to 5.25% currently. Short-term, tax-exempt rates, as
measured by the Bond Buyer's One-Year Note Index, decreased 1.66 percentage
points from a high of 5.10% on January 12, 1995, to 3.44% as of March 14,
1996. The demand for short-term paper, coupled with limited supply, has kept
these rates low.
The municipal bond market is one of the most fragmented and complex sectors
of the American capital markets. We believe that most investors seeking
tax-free income are best served by a mutual fund, whose advantages include
professional management, diversification, liquidity, low transaction costs,
accurate record-keeping, automatic reinvestment of dividends, and
availability in small-dollar amounts. In addition to these features, the
Value Line Tax Exempt Fund has the advantage of carrying no sales or
redemption fees; it is a true no-load fund.
We thank you for your continued confidence in Value Line, and we look forward
to serving your investment needs in the future.
Sincerely,
/s/ Jean Bernhard Buttner
Jean Bernhard Buttner
Chairman and President
March 27, 1996
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ECONOMIC OBSERVATIONS
The pace of economic growth is quickening once again, in a clear reversal in
form from the very early part of the year. Back then, declining retail
activity, a faltering industrial sector, and an assortment of weather-related
dislocations had combined to almost bring the long-lived business expansion
to a halt. Now, by comparison, the construction markets are firming,
employment is improving, the nation's factories are somewhat busier, and the
American public is a touch more upbeat. To be sure, pockets of weakness
still exist, with chain-store sales, for example, still rather sluggish. On
the whole, though, the positives would seem to outweigh the negatives,
suggesting that GDP growth in the opening half of this year will comfortably
exceed the tepid 0.9% rate of increase recorded during the final three months
of 1995.
Moreover, we think the business uptrend will remain on track during the
second half and into 1997. The current improvement and the prospective growth
over the next several quarters, meanwhile, suggest that fears expressed
earlier this year about a widespread reversal in corporate profits were
exaggerated, although some selective weakness is likely over the next couple
of months.
Thus far, the modest increases in business activity has not generated havoc
on the pricing front. There had been some concern earlier that a pickup in
the economy--even a limited one--would lead to the labor and raw-materials
shortages that often precede a rise in inflation. To date, this has not been
the case. In fact, neither wholesale nor consumer inflation shows any major
signs of heating up. We caution, though, that commodity prices have worked
their way higher recently and that this uptrend will need to be watched
closely to determine whether a more worrisome pricing scenario will
eventually evolve.
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3
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THE VALUE LINE TAX EXEMPT FUND, INC.
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[GRAPH]
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(Period covered is 3/1/86 to 2/29/96)
PERFORMANCE DATA
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
High-Yield Portfolio Money Market Portfolio
12/31/95 2/29/96 12/31/95 2/29/96
-------- ------- ------------- -------
<S> <C> <C> <S> <C> <C>
1 year ended......... 16.68% 9.55% 1 year ended......... 2.91% 2.92%
5 years ended........ 7.95% 7.57% 5 years ended........ 2.62% 2.57%
10 years ended....... 7.94% 7.35% 10 years ended....... 3.74% 3.70%
</TABLE>
THE PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE AND ARE NO GUARANTEE
OF FUTURE PERFORMANCE. THE AVERAGE ANNUAL TOTAL RETURN INCLUDES 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.
4
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THE VALUE LINE TAX EXEMPT FUND, INC.
SCHEDULE OF INVESTMENTS
FEBRUARY 29, 1996
<TABLE>
<CAPTION>
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PRINCIPAL
AMOUNT HIGH-YIELD PORTFOLIO RATING VALUE
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<C> <S> <C> <C>
LONG-TERM MUNICIPAL SECURITIES (92.9%)
ALABAMA (.6%)
$1,250,000 Colbert County-Northwest, Health Care Authority, Hospital Revenue Refunding,
Helen Keller Hospital, 8.75%, 6/1/09 . . . . . . . . . . . . . . . . Baa $ 1,402,112
------------
ALASKA (3.7%)
Housing Finance Corp., Collateral Mortgage Obligation,
Veteran's, 1st Ser., Veteran's Mortgage Program:
8,410,000 5.40%, 12/1/23 . . . . . . . . . . . . . . . . . . . . . . . . . . . Aaa 7,947,870
310,000 7.45%, 12/1/29 . . . . . . . . . . . . . . . . . . . . . . . . . . . Aaa 324,524
------------
8,272,394
------------
ARKANSAS (1.5%)
Development Finance Authority, Single Family Mortgage, Revenue:
780,000 Ser. C, 8.125%, 8/1/14 . . . . . . . . . . . . . . . . . . . . . . . . A+* 825,583
2,500,000 Ser. B., 5.30%, 7/1/23 . . . . . . . . . . . . . . . . . . . . . . . . AAA* 2,468,525
------------
3,294,108
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CALIFORNIA (1.8%)
4,165,000 Pleasant Hill, Redevelopment Agency, Residential Mortgage Revenue,
Refunding, 5.75%, 8/1/11 . . . . . . . . . . . . . . . . . . . . . . . AA* 4,069,122
------------
COLORADO (2.3%)
4,055,000 Denver, City & County Single Family Mortgage, Revenue, 7.00%, 8/1/10 . . Aaa 4,642,286
505,000 Housing Finance Authority, Single Family, Revenue, Residential,
Ser. C, 8.75%, 9/1/17. . . . . . . . . . . . . . . . . . . . . . . . . Aa 537,477
------------
5,179,763
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FLORIDA (.1%)
30,000 Housing Finance Agency, Home Ownership Mortgage, 8.595%, 11/1/17 . . . AAA* 30,659
------------
GEORGIA (.5%)
1,000,000 Residential Finance Authority, Single Family Insured Mortgage, Revenue,
Subser. C, 8.00%, 12/1/16. . . . . . . . . . . . . . . . . . . . . . . Aa 1,064,430
------------
HAWAII (1.9%)
4,000,000 Department of Budget and Finance, Special Purpose Mortgage Revenue,
Kapiolani Health Care System, 6.40%, 7/1/13 . . . . . . . . . . . . . A 4,305,440
------------
</TABLE>
5
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THE VALUE LINE TAX EXEMPT FUND, INC.
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
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PRINCIPAL
AMOUNT HIGH-YIELD PORTFOLIO RATING VALUE
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<C> <S> <C> <C>
ILLINOIS (11.8%)
Chicago:
O'Hare International Airport, Revenue Refunding, 2nd Lien:
$ 2,000,000 Ser. B, 5.125%, 1/1/10 . . . . . . . . . . . . . . . . . . . . . . Aaa $ 1,957,960
2,000,000 Ser. A, 6.375%, 1/1/15 . . . . . . . . . . . . . . . . . . . . . . . Aaa 2,159,940
2,000,000 Ser. C-1, 5.00%, 1/1/18. . . . . . . . . . . . . . . . . . . . . . . Aaa 1,833,220
2,000,000 Metropolitan Water Reclamation District, Greater Chicago, 7.00%, 1/1/11 Aa 2,355,200
4,700,000 Water Revenue, Ser. 1995, 5.20%, 11/1/10 . . . . . . . . . . . . . . . Aaa 4,624,847
4,500,000 Housing Development Authority, Multi-Family,
Ser. 91-A, 8.25%, 7/1/16 . . . . . . . . . . . . . . . . . . . . . . . A1 4,909,545
3,000,000 Metropolitan Pier and Exposition Authority, McCormick Place Expansion
Project, Ser. 1992A, 6.75%, 6/1/10 . . . . . . . . . . . . . . . . . . A 3,414,870
Sales Tax Revenue:
2,000,000 Ser. S, 5.10%, 6/15/10 . . . . . . . . . . . . . . . . . . . . . . . . A1 1,983,820
2,650,000 Ser. P, 6.50%, 6/15/22 . . . . . . . . . . . . . . . . . . . . . . . . A1 3,036,105
------------
26,275,507
------------
INDIANA (3.2%)
3,000,000 Indianapolis, Local Public Improvement Bond Bank, Ser. A, Refunding,
6.50%, 1/1/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . Aaa 3,386,280
3,000,000 Office Building Commission, Capital Complex, Revenue, Ser. B,
7.40%, 7/1/15. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Aaa 3,697,740
------------
7,084,020
------------
IOWA (1.3%)
Finance Authority:
1,500,000 Private College, Refunding Revenue, Drake University Project,
6.50%, 12/1/11 . . . . . . . . . . . . . . . . . . . . . . . . . . . Aaa 1,683,645
1,255,000 Single Family, Revenue Mortgage, Ser. B, 7.45%, 7/1/23 . . . . . . . . . Aaa 1,330,087
------------
3,013,732
------------
LOUISIANA (.5%)
1,000,000 Saint Tammany, Public Trust Finance Authority, Single Family Mortgage,
Revenue, Ser. A, 7.20%, 7/1/10 . . . . . . . . . . . . . . . . . . . . AAA* 1,162,670
------------
MAINE (2.5%)
Housing Authority, Mortgage Purchase Program:
2,800,000 Ser. D-4, 7.55%, 11/15/19 . . . . . . . . . . . . . . . . . . . . . . A1 2,967,552
2,500,000 Ser. B-2, 5.70%, 11/15/25. . . . . . . . . . . . . . . . . . . . . . . Aaa 2,492,300
------------
5,459,852
------------
</TABLE>
6
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THE VALUE LINE TAX EXEMPT FUND, INC.
<TABLE>
<CAPTION>
FEBRUARY 29,1996
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PRINCIPAL
AMOUNT HIGH-YIELD PORTFOLIO RATING VALUE
- ------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
MARYLAND (4.0%)
$ 1,215,000 Community Development Administration, Department of Housing and
Community Development, Revenue, 5.70%, 4/1/17 . . . . . . . . . . . . Aa $ 1,223,080
Northeast, Waste Disposal Authority, Solid Waste Removal,
Montgomery County, Revenue:. . . . . . . . . . . . . . . . . . . . .
7,000,000 6.20%, 7/1/10 . . . . . . . . . . . . . . . . . . . . . . . . . . . A 7,296,380
400,000 6.30%, 7/1/16 . . . . . . . . . . . . . . . . . . . . . . . . . . . A 416,860
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8,936,320
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MASSACHUSETTS (6.0%)
5,000,000 General Obligations, Consolidated Loan, Ser. C, 5.625%, 8/1/12 . . . . . Aaa 5,114,000
2,875,000 Health & Educational Facilities Authority, Revenue,
New England Memorial Hospital, Ser. B, 6.00%, 7/1/08 . . . . . . . . . B 2,398,239
2,710,000 Housing Finance Agency, Residential Development, Ser H, 6.75%, 5/15/15 . Aaa 2,853,549
3,000,000 Water Resources Authority, General Revenue, Ser. B, 5.00%, 12/1/10 . . . Aaa 2,914,410
------------
13,280,198
------------
MICHIGAN (.9%)
2,000,000 Housing Development Authority, Single Family Mortgage, Revenue,
Ser. C, 5.95%, 12/1/14 . . . . . . . . . . . . . . . . . . . . . . . . AA+* 2,016,620
------------
MINNESOTA (1.4%)
3,000,000 Housing Finance Agency, Rental Housing, Ser. D,
5.80%, 8/1/11. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Aaa 3,033,720
------------
MISSOURI (1.0%)
2,000,000 Sikeston, Electric Revenue, Refunding, 6.20%, 6/1/10 . . . . . . . . . . Aaa 2,225,080
------------
NEBRASKA (2.3%)
4,960,000 Investment Finance Authority, Single Family Mortgage, Revenue,
Ser. A, 5.977%, 9/30/16. . . . . . . . . . . . . . . . . . . . . . . . Aaa 5,094,912
------------
NEVADA (1.4%)
3,000,000 Clark County, Passenger Facilities Charge, Revenue, Las Vegas/Macarran
International Airport, Ser. A, 6.00%, 7/1/17 . . . . . . . . . . . . . Aaa 3,091,830
------------
NEW HAMPSHIRE (.1%)
205,000 Housing Finance Authority, Single Family Residential Mortgage, Ser. B,
7.75%, 7/1/23. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Aa 217,954
------------
</TABLE>
7
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THE VALUE LINE TAX EXEMPT FUND, INC.
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
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PRINCIPAL
AMOUNT HIGH-YIELD PORTFOLIO RATING VALUE
- ------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
NEW JERSEY (3.7%)
Housing and Mortgage Finance Agency, Home Buyer, Revenue:
$ 5,645,000 Ser. G, 4.625%, 4/1/15 . . . . . . . . . . . . . . . . . . . . . . . . Aaa $ 5,396,338
1,900,000 Ser. I, 5.60%, 10/1/16 . . . . . . . . . . . . . . . . . . . . . . . . Aaa 1,902,945
980,000 Ser. H, 4.625%, 10/1/18. . . . . . . . . . . . . . . . . . . . . . . . Aaa 956,068
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8,255,351
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NEW YORK (10.7%)
New York City:
3,900,000 General Obligations, Ser. F, 8.20%, 11/15/04 . . . . . . . . . . . . . Baa 4,466,982
750,000 Housing Development Corp., Mortgage Revenue, Multi-Family, F.H.A.
Insured, Ser.1985A, 9.625%, 1/1/19 . . . . . . . . . . . . . . . . A+* 800,430
New York State:
Medical Care Facilities Finance Agency:
Hospital and Nursing Home, Mortgage Revenue:
6,450,000 Ser. D, 6.35%, 2/15/12 . . . . . . . . . . . . . . . . . . . . . . Aa 6,964,710
2,255,000 Ser. A, 6.125%, 2/15/14. . . . . . . . . . . . . . . . . . . . . . AAA* 2,367,209
6,380,000 Ser. B, 5.50%, 2/15/22 . . . . . . . . . . . . . . . . . . . . . . . AAA* 6,241,809
2,975,000 St. Luke's-Roosevelt Hospital, Ser. A, Refunding, 5.60%, 8/15/13. . Aa 2,983,568
---------------
23,824,708
---------------
NORTH CAROLINA (2.9%)
Housing Finance Agency:
2,600,000 Single Family, Revenue, Ser. BB, 6.05%, 3/1/21 . . . . . . . . . . . . Aa 2,633,332
3,830,000 Ser. U, 6.375%, 9/1/22 . . . . . . . . . . . . . . . . . . . . . . . . Aa 3,914,337
---------------
6,547,669
---------------
OKLAHOMA (2.1%)
1,195,000 Housing Finance Agency, Single Family Mortgage, Revenue,
Class A, Ser. 87A, 7.99675%, 8/1/18 . . . . . . . . . . . . . . . . . AAA* 1,247,998
3,245,000 McGee Creek Authority, Water Revenue, 6.00%, 1/1/23 . . . . . . . . . . Aaa 3,509,305
---------------
4,757,303
---------------
OREGON (3.3%)
7,370,000 Eugene, Trojan Nuclear Project, Revenue, 5.90%, 9/1/09 . . . . . . . . . Aa 7,370,884
---------------
SOUTH DAKOTA (2.0%)
4,145,000 Heartland Consumers Power District, Electric Revenue 6.375%, 1/1/16 . . Aaa 4,516,019
---------------
</TABLE>
8
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THE VALUE LINE TAX EXEMPT FUND, INC.
<TABLE>
<CAPTION>
FEBRUARY 29,1996
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PRINCIPAL
AMOUNT HIGH-YIELD PORTFOLIO RATING VALUE
- ------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
TEXAS (8.9%)
$ 3,000,000 Harris County, Hospital District, Mortgage Revenue, 7.40%, 2/15/10 . . . Aaa $ 3,683,070
9,455,000 Houston, Houusing Finance Corp., Single Family
Mortgage Revenue, Refunding, Ser. A, 5.95%, 12/1/10. . . . . . . . . . Aaa 9,697,426
3,000,000 Lubbock, Housing Finance Corp., Single Family Mortgage Revenue,
Refunding, Ser. 1989A, 8.00%, 10/1/21 . . . . . . . . . . . . . . . . AAA* 4,070,130
1,000,000 Public Building Authority, Building Revenue, 7.125%, 8/1/11 . . . . . . Aaa 1,185,910
1,100,000 Travis County, Health Facilities Development Corp., Hospital Revenue,
Daughters of Charity, 5.90%, 11/15/07 . . . . . . . . . . . . . . . Aa 1,163,855
---------------
19,800,391
---------------
UTAH (1.0%)
Housing Finance Agency, Single Family Mortgage:
585,000 Ser. C-3, 7.55%, 7/1/23. . . . . . . . . . . . . . . . . . . . . . . . AA* 621,059
1,410,000 Ser. D-3, 7.55%, 7/1/23. . . . . . . . . . . . . . . . . . . . . . . . AA* 1,496,912
---------------
2,117,971
---------------
VIRGINIA (1.4%)
3,000,000 Housing Development Authority, Commonwealth Mortgage, Ser. H,
6.85%, 7/1/14 . . . . . . . . . . . . . . . . . . . . . . . . . . Aa1 3,171,330
---------------
WASHINGTON (2.2%)
4,500,000 General Obligations, Ser. B & AT-7, 6.00%, 6/1/13 . . . . . . . . . . Aa 4,837,005
---------------
WISCONSIN (5.9%)
3,000,000 Clean Water Revenue, Ser. 1, 6.875%, 6/1/11. . . . . . . . . . . . . . Aa 3,507,060
9,595,000 Housing and Economic Development Authority, Housing Revenue,
Refunding, Ser. C, 5.80%, 11/1/13 . . . . . . . . . . . . . . . . . . Aaa 9,622,346
---------------
13,129,406
---------------
TOTAL LONG-TERM MUNICIPAL SECURITIES . . . . . . . . . . . . . . . . . . 206,838,480
---------------
SHORT-TERM MUNICIPAL SECURITIES (6.1%)
700,000 Gulf Coast Waste Disposal Authority, Texas, Pollution Control Revenue,
Refunding, Exxon Project, 3.35%, 6/1/20 . . . . . . . . . . . . . . . VMIG1(1) 700,000
2,500,000 Jackson County, Mississippi, Port Facilities Revenue,
Refunding, Chevron USA Inc. Project, 3.35%, 6/1/23 . . . . . . . . . . P1(2) 2,500,000
1,000,000 Missouri, Health and Educational Facilities, Revenue, Washington
University, Ser. C, 3.35%, 9/1/30. . . . . . . . . . . . . . . . . . . VMIG1(1) 1,000,000
</TABLE>
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THE VALUE LINE TAX EXEMPT FUND, INC.
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
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PRINCIPAL
AMOUNT HIGH-YIELD PORTFOLIO RATING VALUE
- ------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
New York City:
General Obligations:
$ 2,500,000 Subser. A-5, 3.35%, 8/1/15 . . . . . . . . . . . . . . . . . . . . . . VMIG1(1) $ 2,500,000
2,700,000 Subser. B-4, 3.35%, 8/15/23 . . . . . . . . . . . . . . . . . . . . . VMIG1(1) 2,700,000
New York State:
1,375,000 Dormitory Authority, Mortgage Revenue, St. Vincent's
Hospital and Medical Center, 4.00%, 8/1/96 . . . . . . . . . . . . . . Aaa 1,378,781
1,000,000 Peninsula Ports Authority, Virginia, Coal Terminal, Revenue,
Dominion Terminal Project, Refunding, 3.45%, 7/1/16 . . . . . . . . . P1(1) 1,000,000
1,000,000 Port Saint Helens, Oregon, Pollution Control Revenue, Portland General
Electric Co., Ser. A, 3.45%, 4/1/10 . . . . . . . . . . . . . . . . . VMIG1(1) 1,000,000
900,000 Valdez, Alaska, Marine Terminal, Exxon Pipeline Project,
3.35%, 10/1/25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . VMIG1(1) 900,000
---------------
TOTAL SHORT-TERM MUNICIPAL SECURITIES. . . . . . . . . . . . . . . . . . 13,678,781
---------------
TOTAL MUNICIPAL SECURITIES (99.0%)
(Cost $214,629,221) . . . . . . . . . . . . . . . . . . . . . . . . . . 220,517,261
EXCESS OF CASH AND OTHER ASSETS OVER LIABILITIES (1.0%) . . . . . . . . 2,242,592
---------------
NET ASSETS (100.0%) . . . . . . . . . . . . . . . . . . . . . . . . . . $ 222,759,853
---------------
---------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE,
PER SHARE OUTSTANDING . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.82
---------------
---------------
</TABLE>
Rated by Moody's Investor Services except for those marked by an asterisk (*),
which are rated by Standard & Poor's.
Variable-rate notes are considered short-term obligations. Interest rates change
periodically every (1) 1 day or (2) 7 days. These securities are payable on
demand on interest-rate refix dates and are secured by either letters of credit
or other credit-support agreements from banks. The rates listed are as of
February 29, 1996.
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
<TABLE>
<CAPTION>
FEBRUARY 29,1996
- ------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT MONEY MARKET PORTFOLIO RATING VALUE
- ------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES (100.2%)
ARIZONA (4.6%)
$ 1,000,000 Maricopa County, Pollution Control Revenue, Refunding,
Arizona Public Service Co., Ser. B, 3.35%, 5/1/29 . . . . . . . . . . P1(1) $ 1,000,000
---------------
ILLINOIS (2.3%)
500,000 Chicago, Water Revenue, Ser. 1995, 3.60%, 11/1/96 . . . . . . . . . . . Aaa 500,000
---------------
INDIANA (4.3%)
205,000 Indianapolis, Local Public Improvement Bond Bank, Ser. A,
4.00%, 1/1/97. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Aaa 205,000
400,000 Indianapolis, Industrial Resource Recovery, Revenue, Ogden Martin
Systems, 3.55%, 12/1/16 . . . . . . . . . . . . . . . . . . . . . . . A1+*(1) 400,000
325,000 Muncie, School Building Corp., First Mortgage Refunding,
4.80%, 7/15/96 . . . . . . . . . . . . . . . . . . . . . . . . . . . . Aaa 326,172
---------------
931,172
---------------
IOWA (7.3%)
390,000 Finance Authority, Private College, Refunding, Drake University
Project, 3.50%, 12/1/96 . . . . . . . . . . . . . . . . . . . . . . . Aaa 390,000
1,200,000 School Corporations, Warrant Certificates, Cash Anticipation Program,
Ser. A, dated 6/28/95, 4.75%, 6/28/96. . . . . . . . . . . . . . . . . MIG1 1,203,379
---------------
1,593,379
---------------
KANSAS (6.2%)
Kansas City:
750,000 General Obligations, Refunding, Ser. A, 5.00%, 9/1/96. . . . . . . . . Aaa 754,384
600,000 Industrial Revenue, PQ Corp. Project, 3.45%, 8/1/15. . . . . . . . . . VMIG1(1) 600,000
---------------
1,354,384
---------------
LOUISIANA (4.6%)
1,000,000 Lake Charles Parish, Harbor and Terminal District, Port
Facilities Revenue, Refunding, 3.45%, 11/1/11 . . . . . . . . . . . . Aa1(1) 1,000,000
---------------
MICHIGAN (4.6%)
1,000,000 Strategic Fund, Pollution Control Revenue, Refunding, Consumers
Power Project, Ser. A, 3.35%, 4/15/18 . . . . . . . . . . . . . . . . P1(1) 1,000,000
---------------
MINNESOTA (9.6%)
300,000 Beltrami County, Enviormental Control Revenue, Refunding, Northwood
Panelboard Project, 3.35%, 12/1/21 . . . . . . . . . . . . . . . . . . A1+*(2) 300,000
</TABLE>
11
<PAGE>
THE VALUE LINE TAX EXEMPT FUND, INC.
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT MONEY MARKET PORTFOLIO RATING VALUE
- ------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Housing Finance Agency, Rental Housing:
$ 385,000 Ser. C-2, 3.80%, 8/1/96 . . . . . . . . . . . . . . . . . . . . . . . Aaa $ 385,000
400,000 Ser. D, 3.80%, 8/1/96 . . . . . . . . . . . . . . . . . . . . . . . . Aaa 400,000
1,000,000 Rochester, Health Care Facilities, Revenue, for Mayo Medical Center,
Ser. A, 3.10%, 11/15/18 (Putable 4/9/96) . . . . . . . . . . . . . . . A1+* 1,000,000
---------------
2,085,000
---------------
MISSISSIPI (3.7%)
800,000 Jackson County, Port Facility Revenue, Refunding, Chevron USA, Inc.
Project, 3.35%, 6/1/23 . . . . . . . . . . . . . . . . . . . . . . . P1(2) 800,000
---------------
MISSOURI (6.2%)
1,000,000 Health and Educational Facitities Authority, School District Advance
Funding Program Notes, Saint Louis Board of Education, Ser. H,
4.50%, 8/19/96 . . . . . . . . . . . . . . . . . . . . . . . . . . . . SP1+* 1,002,462
350,000 Sikeston, Electric Revenue, Refunding, 3.60%, 6/1/96 . . . . . . . . . . Aaa 350,000
---------------
1,352,462
---------------
NEBRASKA (4.6%)
1,000,000 Omaha, General Obligations, Refunding, Ser. 1995, 4.70%, 12/1/96 . . . . Aaa 1,007,285
---------------
NEW JERSEY (5.0%)
900,000 Economic Development Authority, Economic Development Revenue,
Dow Chemical, Ser. B, 3.10%, 5/1/03 . . . . . . . . . . . . . . . . P1(1) 900,000
200,000 Middlesex County, Utilities Authority, Sewer Revenue, Refunding,
Ser. A, 3.70%, 3/15/96 . . . . . . . . . . . . . . . . . . . . . . . . Aaa 200,000
---------------
1,100,000
---------------
NEW MEXICO (4.1%)
900,000 Farmington, Pollution Control Revenue, Arizona Public Service Company,
Ser. C, 3.55%, 9/1/24 . . . . . . . . . . . . . . . . . . . . . . . . P1(1) 900,000
---------------
NEW YORK (4.6%)
1,000,000 New York City, General Obligations, Subser. A-5, 3.35%, 8/1/16 . . . VMIG1(1) 1,000,000
---------------
NORTH CAROLINA (3.2%)
700,000 Raleigh-Durham, Airport Authority, Special Facility Refunding, Revenue,
American Airlines Project, Ser. B, 3.45%, 11/1/15 . . . . . . . . . . A1+*(1) 700,000
---------------
OREGON (3.2%)
700,000 Port Saint Helens, Pollution Control Revenue, General Electric Co.,
Ser. A, 3.45%, 4/1/10. . . . . . . . . . . . . . . . . . . . . . . . . VMIG1(1) 700,000
---------------
</TABLE>
12
<PAGE>
THE VALUE LINE TAX EXEMPT FUND, INC.
<TABLE>
<CAPTION>
FEBRUARY 29,1996
- ------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT MONEY MARKET PORTFOLIO RATING VALUE
- ------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
RHODE ISLAND (1.4%)
$ 305,000 Northwest, Educational Facilities Authority, Leasehold Revenue,
3.80%, 3/1/96 . . . . . . . . . . . . . . . . . . . . . . . . . . . . Aaa $ 305,000
---------------
TEXAS (8.4%)
500,000 Houston, General Obligations, Public Improvements, Refunding,
Ser. C, 5.50%, 4/1/96. . . . . . . . . . . . . . . . . . . . . . . . . Aa 500,652
1,100,000 San Antonio, Water Revenue, Refunding, 5.20%, 5/15/96. . . . . . . . . . Aaa 1,103,287
215,000 Spring Branch, Independent School District, Refunding, 3.50%,
2/1/97 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Aaa 215,000
---------------
1,818,939
---------------
UTAH (4.6%)
1,000,000 Emery County, Pollution Control Revenue, Refunding, Pacicorp Project,
3.40%, 11/1/24 . . . . . . . . . . . . . . . . . . . . . . . . . . . VMIG1(1) 1,000,000
---------------
WEST VIRGINIA (1.7%)
365,000 Water Development Authority, Water Development Revenue, Refunding,
Ser. A, 3.70%, 11/1/96 . . . . . . . . . . . . . . . . . . . . . . . Aaa 365,000
---------------
WYOMING (6.0%)
1,000,000 Lincoln County, Pollution Control Revenue, Exxon Project,
Ser. D, 3.35%, 11/1/14 . . . . . . . . . . . . . . . . . . . . . . . . P1(1) 1,000,000
300,000 Sublette County, Pollution Control Revenue, Exxon Project,
3.35%, 11/1/14 . . . . . . . . . . . . . . . . . . . . . . . . . . . P1(1) 300,000
---------------
1,300,000
---------------
TOTAL SHORT-TERM MUNICIPAL SECURITIES (100.2%)
(Cost $21,812,621) . . . . . . . . . . . . . . . . . . . . . . . . . . 21,812,621
EXCESS OF LIABILITIES OVER CASH AND OTHER ASSETS (-.2%). . . . . . . . (35,793)
---------------
NET ASSETS (100.0%) . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,776,828
---------------
---------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE, PER
OUTSTANDING SHARE. . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.00
---------------
---------------
</TABLE>
Rated by Moody's Investors Service except for those marked by an asterisk (*),
which are rated by Standard & Poor' s.
Variable-rate notes are considered short-term obligations. Interest rates change
periodically every (1) 1 day or (2) 7 days. These securities are payable on
demand on interest-rate refix dates and are secured by either letters of credit
or other credit-support agreements from banks. The rates listed are as of
February 29, 1996.
SEE NOTES TO FINANCIAL STATEMENTS
13
<PAGE>
THE VALUE LINE TAX EXEMPT FUND, INC.
STATEMENT OF ASSET AND LIABILITIES
AT FEBRUARY 29,1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
PORTFOLIO
--------------------------
HIGH-YIELD MONEY MARKET
--------------------------
DOLLARS IN THOUSANDS
EXCEPT PER-SHARE AMOUNTS)
<S> <C> <C>
ASSETS:
Investment securities, at value
(Cost $214,629 and amortized cost $21,813). . . . . . . . . . . . . . . . . . $ 220,517 $ 21,813
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 416 123
Receivable for securities sold . . . . . . . . . . . . . . . . . . . . . . . . . 2,979 --
Interest receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,646 185
Receivable for capital shares sold . . . . . . . . . . . . . . . . . . . . . . . 11 1
---------- ----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226,569 22,122
---------- ----------
LIABILITIES:
Payable for securities purchased . . . . . . . . . . . . . . . . . . . . . . . . 3,100 216
Dividends payable to shareholders . . . . . . . . . . . . . . . . . . . . . . . 316 --
Payable for capital shares repurchased . . . . . . . . . . . . . . . . . . . . . 173 67
Accrued expenses:
Advisory fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 9
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130 53
---------- ----------
TOTAL LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,809 345
---------- ----------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 222,760 $ 21,777
---------- ----------
---------- ----------
NET ASSETS:
Capital Stock, at $.01 par value (authorized 65,000,000 shares
and 125,000,000 shares, respectively; outstanding 20,585,586 shares
and 21,806,479 shares, respectively). . . . . . . . . . . . . . . . . . . . . $ 206 $ 218
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 216,719 21,589
Distribution in excess of net investment income. . . . . . . . . . . . . . . . . (28) --
Accumulated net realized loss on investments . . . . . . . . . . . . . . . . . . (25) (30)
Unrealized net appreciation of investments . . . . . . . . . . . . . . . . . . . 5,888 --
---------- ----------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 222,760 $ 21,777
---------- ----------
---------- ----------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER OUTSTANDING SHARE . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.82 $ 1.00
---------- ----------
---------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
14
<PAGE>
THE VALUE LINE TAX EXEMPT FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 29,1996
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
PORTFOLIO
-------------------------
HIGH-YIELD MONEY MARKET
---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
INVESTMENT INCOME:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,302 $ 880
---------- ----------
Expenses:
Advisory fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,148 113
Transfer agent fees. . . . . . . . . . . . . . . . . . . . . . . . . . 68 26
Auditing and legal fees. . . . . . . . . . . . . . . . . . . . . . . . 47 37
Custodian fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 4
Postage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 4
Printing and stationery. . . . . . . . . . . . . . . . . . . . . . . . 24 9
Registration and filing fees . . . . . . . . . . . . . . . . . . . . . 22 23
Directors' fees and expenses . . . . . . . . . . . . . . . . . . . . . 6 6
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 6
---------- ----------
TOTAL EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . 1,415 228
---------- ----------
NET INVESTMENT INCOME. . . . . . . . . . . . . . . . . . . . . . . . . 11,887 652
---------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net Realized Gain (Loss). . . . . . . . . . . . . . . . . . . . . . 5,658 (2)
Change in Unrealized Appreciation . . . . . . . . . . . . . . . . . 4,069 --
---------- ----------
NET REALIZED GAIN (LOSS) AND CHANGE IN UNREALIZED APPRECIATION
ON INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 9,727 (2)
---------- ----------
Net Increase in Net Assets from Operations . . . . . . . . . . . . . . $ 21,614 $ 650
---------- ----------
---------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
15
<PAGE>
THE VALUE LINE TAX EXEMPT FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS FOR THE
YEARS ENDED FEBRUARY 29, 1996, AND FEBRUARY 28, 1995
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
PORTFOLIO
-------------------------
HIGH-YIELD PORTFOLIO MONEY MARKET PORTFOLIO
----------------------- -----------------------
(DOLLARS IN THOUSANDS)
1996 1995 1996 1995
---------- --------- ----------- --------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income . . . . . . . . . . . . . . . . $ 11,887 $ 13,517 $ 652 $ 656
Net realized gain (loss) on investments . . . . . . . 5,658 (5,710) (2) --
Change in net unrealized appreciation . . . . . . . . 4,069 ( 7,800) -- --
---------- ---------- ---------- ----------
Net increase in net assets from operations. . . . . . 21,614 7 650 656
---------- ---------- ---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income . . . . . . . . . . . . . . . . (11,887) (13,517) (652) (656)
Net realized gains. . . . . . . . . . . . . . . . . . -- (987) -- --
---------- ---------- ---------- ----------
Net decrease in net assets from distributions . . . . (11,887) (14,504) (652) (656)
---------- ---------- ---------- ----------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares. . . . . . . . . . . 104,935 83,010 12,117 21,421
Net proceeds from reinvestment of distributions
to shareholders . . . . . . . . . . . . . . . . . . 7,845 9,884 652 656
Cost of shares repurchased. . . . . . . . . . . . . . (141,214) (110,818) (16,671) (28,103)
---------- ---------- ---------- ----------
Net decrease in net assets from capital
share transactions. . . . . . . . . . . . . . . . . (28,434) (17,924) (3,902) (6,026)
---------- ---------- ---------- ----------
TOTAL DECREASE IN NET ASSETS . . . . . . . . . . . . . . (18,707) (32,421) (3,904) (6,026)
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . 241,467 273,888 25,681 31,707
---------- ---------- ---------- ----------
End of year . . . . . . . . . . . . . . . . . . . . . $ 222,760 $ 241,467 $ 21,777 $ 25,681
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
16
<PAGE>
THE VALUE LINE TAX EXEMPT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Value Line Tax Exempt Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company, comprised of the High Yield and Money Market
Portfolios. The primary investment objective of the High Yield Portfolio is to
provide investors with the maximum income exempt from federal income taxes while
avoiding undue risk to principal by investing primarily in investment-grade
municipal securities. The primary objective of the Money Market Portfolio is to
preserve principal and provide income by investing in high-quality, tax-exempt
money market instruments. The ability of the issuers of the securities held by
the Fund to meet their obligations may be affected by economic or political
developments in a specific state or region. The following significant accounting
policies are in conformity with generally accepted accounting principles for
investment companies. Such policies are consistently followed by the Fund in the
preparation of its financial statements. Generally accepted accounting
principles may require management to make estimates and assumptions that affect
the reported amounts and disclosures in the financial statements. Actual results
may differ from those estimates.
(A) SECURITY VALUATIONS: High-Yield Portfolio--The investments are valued each
business day by an independent pricing service ("Service") approved by the Board
of Directors. Investments for which quoted bid prices in the judgment of the
Service are readily available and are representative of the bid side of the
market are valued at quotations obtained by the Service from dealers in such
securities. Other investments (which constitute a majority of the portfolio
securities) are carried at fair value by the Service, based on methods that
include consideration of yields or prices of municipal securities of comparable
quality, coupon, maturity, and type; indications as to value from dealers; and
general market conditions. Short-term instruments maturing within 60 days are
valued at amortized cost, which approximates value. Other assets and securities
for which no quotations are readily available will be valued in good faith at
their fair value using methods determined by the Board of Directors.
Money Market Portfolio--Securities are valued on the basis of amortized cost,
which approximates market value and does not take into account unrealized
capital gains or losses. This involves valuing an instrument at cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. The valuation of securities based upon their amortized
cost is permitted by Rule 2a-7 under the Investment Company Act of 1940. The
rule requires that the Fund maintain a dollar-weighted average portfolio
maturity of 90 days or less, purchase instruments that have remaining maturities
of 13 months or less only, and invest only in securities determined by the Board
of Directors to be of good quality, with minimal credit risks. The Directors
have established procedures designed to achieve these objectives.
(B) DISTRIBUTIONS: It is the policy of the Fund to declare dividends daily from
net investment income. In the Money Market Portfolio, dividends are
automatically reinvested each day in additional shares. Dividends credited to a
shareholder's account in the High-Yield Portfolio are distributed monthly.
Income earned by the Fund on weekends, holidays, and other days on which the
Fund is closed for business is declared as a dividend on the next day on which
the Fund is open for business. The Fund expects to distribute any net realized
capital gains in either Portfolio at least annually.
The amount of dividends and distributions from net investment income and net
realized capital gains are determined in accordance with federal income-tax
regulations, which may differ from generally accepted accounting principles.
These "book/tax" differences are either considered temporary or permanent in
nature. To the extent these differences are permanent in nature, such amounts
are reclassified within the capital accounts based on their federal tax-
17
<PAGE>
THE VALUE LINE TAX EXEMPT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
basis treatment. Temporary differences do not require reclassification.
(C) FEDERAL INCOME TAXES: It is the policy of the Fund to qualify as a
regulated investment company, which can distribute tax-exempt dividends, by
complying with the provisions available to certain investment companies, as
defined in applicable sections of the Internal Revenue Code, and to distribute
all of its investment income and capital gains to its shareholders. Therefore,
no provision for federal income tax or excise tax is required in the
accompanying financial statements.
(D) INVESTMENTS: Securities transactions are recorded on a trade-date basis.
Realized gains and losses from securities transactions are recorded on the
identified-cost basis. Interest income, adjusted for amortization of premium and
accretion of original-issue discount, when appropriate, in accordance with
federal income-tax regulations, is earned from settlement date and recognized on
the accrual basis. Additionally, when appropriate, the Fund recognizes market
discount when securities are disposed of. Securities purchased or sold on a
when-issued or delayed-delivery basis may be settled a month or more after the
trade date.
(E) EXPENSES: Expenses directly attributable to each portfolio are charged to
that Portfolio' s operations; expenses that are applicable to both Portfolios
are allocated between them.
2. CAPITAL SHARE TRANSACTIONS
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
HIGH-YIELD PORTFOLIO
--------------------
1996 1995
(IN THOUSANDS)
--------------------
<S> <C> <C>
Shares sold. . . . . . . . . . . . . . . 9,853 8,140
Shares issued to share-
holders in reinvestment
of dividends. . . . . . . . . . . . . 736 972
------- -------
10,589 9,112
Shares repurchased . . . . . . . . . . . (13,230) (10,861)
------- -------
Net decrease . . . . . . . . . . . . . . (2,641) (1,749)
------- -------
------- -------
<CAPTION>
MONEY MARKET PORTFOLIO
----------------------
1996 1995
(IN THOUSANDS)
----------------------
<C> <C>
Shares sold. . . . . . . . . . . . . . . 12,117 21,421
Shares issued to share-
holders in reinvestment
of dividends. . . . . . . . . . . . . 652 656
------- -------
12,769 22,077
Shares repurchased . . . . . . . . . . . (16,671) (28,103)
------- -------
Net decrease . . . . . . . . . . . . . . (3,902) (6,026)
------- -------
------- -------
</TABLE>
3. PURCHASES AND SALES OF SECURITIES
Purchases and sales of municipal securities were as follows:
<TABLE>
<CAPTION>
HIGH-YIELD
PORTFOLIO
--------------
1996
(IN THOUSANDS)
--------------
<S> <C>
PURCHASES:
Long-term obligations . . . . . . . . $ 194,313
Short-term obligations. . . . . . . . 175,827
----------
$ 370,140
----------
----------
MATURITIES OR SALES:
Long-term obligations . . . . . . . . $ 203,833
Short-term obligations. . . . . . . . 196,229
----------
. . . . . . . . . . . . . . . . . . . $ 400,062
----------
----------
</TABLE>
18
<PAGE>
THE VALUE LINE TAX EXEMPT FUND, INC.
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MONEY MARKET
PORTFOLIO
--------------
1996
(IN THOUSANDS)
--------------
<S> <C>
PURCHASES:
Municipal short-term obligations. . . $ 45,231
----------
----------
MATURITIES OR SALES:
Municipal short-term obligations. . . $ 48,669
----------
----------
</TABLE>
At February 29, 1996, the aggregate cost of investments for federal income-tax
purposes was $214,631,121 for the High-Yield Portfolio and $21,812,621 for the
Money Market Portfolio.
The aggregate appreciation and depreciation of investments in the High-Yield
Portfolio at February 29, 1996, based on a comparison of investment values and
their cost for federal income-tax purposes, is $7,080,286 and $1,194,146,
respectively, resulting in a net unrealized appreciation of $5,886,140. There
was no unrealized appreciation or depreciation in the Money Market Portfolio.
For federal income-tax purposes the High-Yield Portfolio had a capital loss
carryover at February 29, 1996, of $23,412, which will expire in 2003, and the
Money Market Portfolio had a capital-loss carryover at February 29, 1996, of
$28,647, of which $27,649 will expire in 2000 and $998 in 2004. During its
fiscal year ended February 29, 1996, the High-Yield Portfolio utilized prior
fiscal-year carryover losses of $4,621,481 to offset net realized gains during
the year. Any net capital losses incurred after October 31, within the
Portfolio's tax year, if so elected by either Portfolio, are deemed to arise on
the first day of that Portfolio' s next taxable year. Accordingly, the Money
Market Portfolio has elected to defer $1,000 of net capital losses incurred
after October 31, 1995. To the extent future capital gains are offset by such
capital losses, the Portfolio does not anticipate distributing any such gains to
its shareholders.
4. INVESTMENT ADVISORY CONTRACT AND TRANSACTIONS WITH AFFILIATES
An advisory fee of $1,147,997 and $112,901 was paid or payable on the High-Yield
Portfolio and the Money Market Portfolio, respectively, to Value Line, Inc. (the
Adviser) for the year ended February 29, 1996. This was computed at the annual
rate of 1/2 of 1% of the average daily net asset values of the portfolios of the
Fund for the year. 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 of the Fund and pays their salaries and wages. The
Fund bears all other costs and expenses of its organization and operation. If
the aggregate expenses of the Fund, other than taxes, interest, brokerage
commissions, and extraordinary expenses, exceed the expense limitation imposed
by any state in which the Fund sells its shares, the advisory fee will be
reduced by the amount of such excess, or the amount of such excess will be
refunded. No such reimbursement was required for the year ended February 29,
1996. During the year ended February 29, 1996, $5,760 was paid or payable to the
Adviser for printing services.
Certain officers and directors of the Adviser and its subsidiary, Value Line
Securities, Inc. (the Fund's distributor and a registered broker/dealer), are
also officers and a Director of the Fund.
At February 29, 1996, the Adviser and/or affiliated companies owned
1,456,328 shares of the High-Yield Portfolio common shares, representing
7.07% of the outstanding shares. In addition, certain officers and directors
of the Fund owned 223,484 shares of the High-Yield Portfolio, representing
1.09% of the outstanding shares and 2,389 shares of the Money Market
Portfolio, representing .01% of the outstanding shares.
19
<PAGE>
THE VALUE LINE TAX EXEMPT FUND, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
HIGH-YIELD PORTFOLIO
YEAR ENDED ON LAST DAY OF FEBRUARY,
----------------------------------------------
1996 1995 1994 1993 1992
----------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year . . . . . . . . $10.40 $ 10.97 $ 11.29 $ 10.59 $ 10.20
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income . . . . . . . . . . . .552 .568 .598 .635 .676
Net gains or losses on securities
(both realized and unrealized). . . . . . .420 (.528) (.112) .698 .388
-------- -------- -------- -------- --------
Total from investment operations. . . . . .972 .040 .486 1.333 1.064
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income . . . . (.552) (.568) (.602) (.633) (.674)
Distributions from capital gains . . . . . . -- (.042) (.204) -- --
-------- -------- -------- -------- --------
Total distributions . . . . . . . . . . . (.552) (.610) (.806) (.633) (.674)
-------- -------- -------- -------- --------
Net asset value, end of year . . . . . . . . . . . $10.82 $10.40 $10.97 $ 11.29 $ 10.59
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total return . . . . . . . . . . . . . . . . . . . 9.55% .64% 4.37% 13.03% 10.75%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in thousands) . . . . . . $222,760 $241,467 $273,888 $301,514 $299,781
Ratio of expenses to average net assets. . . . . . .62% .61% .58% .60% .58%
Ratio of net investment income to average net assets 5.22% 5.54% 5.30% 5.89% 6.50%
Portfolio turnover rate. . . . . . . . . . . . . . 95% 60% 55% 101% 122%
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
20
<PAGE>
THE VALUE LINE TAX EXEMPT FUND, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
YEAR ENDED ON LAST DAY OF FEBRUARY,
----------------------------------------------
1996 1995 1994 1993 1992
----------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year . . . . . . . . . . . $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income . . . . . . . . . . . . . . .029 .022 .016 .023 .037
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net investment income . . . . . . . (.029) (.022) (.016) (.023) (.037)
-------- -------- -------- -------- --------
Net asset value, end of year . . . . . . . . . . . . . . $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total return . . . . . . . . . . . . . . . . . . . . . . 2.92% 2.22% 1.58% 2.34% 3.79%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in thousands) . . . . . . . . . $21,777 $25,681 $31,707 $36,309 $58,090
Ratio of expenses to average net assets. . . . . . . . . 1.01% .89% .86% .80% .74%
Ratio of net investment income to average net assets . . 2.89% 2.17% 1.56% 2.38% 3.74%
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
21
<PAGE>
THE VALUE LINE TAX EXEMPT FUND, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF THE VALUE LINE TAX EXEMPT FUND,
INC.
In our opinion, the accompanying statement of assets and liabilities, including
the schedules 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 High-Yield Portfolio and the
Money Market Portfolio (constituting The Value Line Tax Exempt Fund, Inc.
hereafter referred to as the "Fund") at February 29, 1996, the results of each
of their operations for the year then ended, the changes in each of their 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 February 29, 1996 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
April 19, 1996
- --------------------------------------------------------------------------------
FEDERAL TAX NOTICE (unaudited)
During the year ended February 29, 1996, the fund paid to shareholders of the
High-Yield Portfolio $0.552 and the Money Market Portfolio $0.029 per share,
respectively, from net investment income. All of the Fund's dividends from net
investment income were exempt-interest dividends, excludable from gross income
for regular Federal income-tax purposes.
- --------------------------------------------------------------------------------
22
<PAGE>
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23
<PAGE>
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. The Fund is available to investors only
through the purchase of the Guardian Investor, a tax deferred variable
annuity, or Value Plus, a variable life insurance policy.
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 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 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. The Fund is available to investors only
through the purchase of the Guardian Investor, a tax deferred variable
annuity, or Value Plus, a variable life insurance policy.
1992 -- VALUE LINE INTERMEDIATE BOND FUND seeks high current income
consistent with low volatility of principal by investing primarily in
adjustable rate U.S. Government securities.
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.
*AVAILABLE ONLY THROUGH THE PURCHASE OF THE GUARDIAN INVESTOR, A TAX-DEFERRED
VARIABLE ANNUITY, OR VALUE PLUS, 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.
24
